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Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 1 Introduction to Stakeholder Strategy By DJC1970 (Own work) [Public domain], via Wikimedia Commons By ChadPerez49 (Own work) [CC BY -SA 4.0 (http://creativecommons.org /licenses/by -sa/4.0)], via Wikimedia Commons Whole Foods Market, Inc . Awards and Honors •FORTUNE –World’s Most Admired Companies •FORTUNE –100 Best Companies to Work For •Ethisphere Institute –World’s Most Ethical Companies •National Retail Federation –Retailer of the Year•International Association of Culinary Professionals –Culinary Youth Advocate of the Year•Scientific American magazine –Top 25 Green Energy Leaders Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 2 Whole Foods Market, Inc. Values Opportunities Capabilities Valuable Competitive Position Creating Value… Creating Value for Stakeholders Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 3 Values Opportunities Capabilities Valuable Competitive Position Creating Value… Creating Value… for Whom? GOVERNMENT COMMUNITIES CUSTOMERS FINANCIERS EMPLOYEES SUPPLIERS THE FIRM Secondar yStakeholders Primar yStakeholders Stakeholders •Key StakeholdersInvestorsEmployeesCustomersSuppliersCommunity •Secondary StakeholdersSpecial interest groupsNGOsGovernmentsEtc. Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 4 Aligning Key Stakeholders Stakeholders •Key StakeholdersInvestorsEmployeesCustomersSuppliersCommunity •Secondary StakeholdersSpecial interest groupsNGOsGovernmentsEtc. Stakeholder Analysis Issue Employees Customers Government Community Shareholders ProductSafety 3 1 1 1 3 JobFulfillment 1 5 5 3 5 FinancialReturns 3 5 5 5 1 Impact on Environment 3 3 1 1 5 1 –Critical importance to stakeholder 3 = Somewhat important to stakeholder5 = Not very important to stakeholder Stakeholder Issues Matrix Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 5 Stakeholder Analysis PotentialAction Employees Customers Government Community Shareholders Alternative #1 ? ? ? ? ? Alternative #2 ? ? ? ? ? Alternative #3 ? ? ? ? ? Alternative #4 ? ? ? ? ? Stakeholder Impact Matrix Aligning Secondary Stakeholders Stakeholders •Key StakeholdersInvestorsEmployeesCustomersSuppliersCommunity •Secondary StakeholdersSpecial interest groupsNGOsGovernmentsEtc. Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 6 Institutional Pressures •Various stakeholders (often secondary ones) can bring institutional pressure to bear on a firm, influencing its strategy and performance.

•Key questions:When will stakeholders take action against firms?When will these actions be effective?How can and should a firm adapt to these opportunities and threats? Institutional Pressures •Institutional pressure emanates from active (typically organized) groups of stakeholders –e.g., advocacy groups, unions, governments, NGOs, etc.

•Why effective stakeholder management is important:Secondary stakeholders can influence the competitive environmentPressures pose significant threats and opportunities for firms Institutional Pressures •Can come from:Media (negative press coverage)Governments (regulations, laws, policy)NGOs (activist social organizations) •Sometimes unfair/unreasonable targeting •Oftentimes a signal of a larger stakeholder management issue Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 7 Sources of Institutional Pressure •Political actors may have self -interested motives to act against firms. •Stakeholders may act (or call for action) against firms in response to:Normative conflict (conflicts with norms and beliefs)Distributional conflict (often market failure) −Abuse of market power −Existence of negative externalities −Markets for common goods and public goods −Capitalizing on information asymmetries Sources of Institutional Pressure Sources of Institutional Pressure •Political actors may have self -interested motives to act against firms. •Stakeholders may act (or call for action) against firms in response to:Normative conflict (conflicts with norms and beliefs)Distributional conflict (often market failure ) Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 8 Normative Conflict •DefinitionNorms are a society’s accepted, established beliefs about how things should be done •IssueFirm actions and government policies that conflict with norms may create negative public sentiment and adverse political pressure •ExamplesChild labor, privatization, unionization •SolutionsPublic education campaigns, enfranchisement , business model adaptation Distributional Conflict : Market Power •DefinitionMarket power is the ability to price above competitive levels •IssueFirms may capture consumer surplus at the expense of general welfare •ExamplesCollusion , cartels, predatory pricing •SolutionsRegulation , M&A approval, antitrust lawsuits Distributional Conflict : Negative Externalities •DefinitionNegative externalities are costs imposed on one stakeholder by the actions of a second without compensation •IssueFirms lack market incentives to reduce these costs •ExamplesNoise , air and water pollution •SolutionsRegulations (taxes and fees), lawsuits, assigning property rights, stakeholders force internalization Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 9 Distributional Conflict : Common Goods •DefinitionCommon goods are those resources to which everyone has free access, and more for one consumer means less for others •IssueThe tragedy of the commons: firms/individuals may over-consume common goods •ExamplesFisheries , oil fields, water tables, spectrum •SolutionsGrant monopoly over resource, government regulation , self-regulation Distributional Conflict : Information Asymmetries •DefinitionInformation asymmetries (when one party knows more than another) may create a “market for lemons ” or principal -agent problems •IssueIncreases transaction costs to the point where economic exchange may not take place •ExamplesUsed cars, organic foods, share value, labor practices •SolutionsReporting , standards and labels (both public and private ) Institutional (Non -Market ) Strategies •Lobby government against and forregulation Trade associations •Pursue recourse through the courts Patent infringement, contract disputes •Try case in the court of public opinion Public relations, both information dissemination and rhetorical strategies •Negotiate with stakeholders •Address stakeholders’ concerns or “ self-regulate” Proactive environmental actions, business model adaptation Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 10 Value Creation and Your Values Strategy and Ethics •Institutional/non -market strategies can seem overly instrumental •Also important to think beyond the immediate financial impact of effective stakeholder management•Seeing stakeholders as ends, and not just means to profits•Value creation involves values •How do you want to lead or manage? Values Opportunities Capabilities Valuable Competitive Position Creating Value for Stakeholders Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 11 Module Lessons Module Lessons •The purpose of a business organization involves creating value for the key stakeholders of that business.•Different types of stakeholders seek different types of value.•Effective organizations align the interests, as best they can, of the firm’s key stakeholders.

Module Lessons •Effective business strategy should carefully consider the impact of a firm’s decisions or actions on various stakeholders.

•This analysis can point the way to effective strategic actions.

•Secondary stakeholders cannot (and should not) be ignored. Advanced Business Strategy Module 4 Slides These materials are for your personal use while participating in this course.

Please do not share or distribute them. 9/24/2015 Developed by Michael Lenox and Jared Harris for the University of Virginia’s Darden School of Business Coursera Course: Advanced Business Strategy . 12 Module Lessons •Although stakeholder pressure may result from political motivations, it often reflects an underlying normative or distributional problem.

•Stakeholder management is a way of thinking about ethical considerations in an organization’s strategy.