Journal of Market FocusedManagement,1.209-229 (1996) @ 1996Kluwer Academic Publishers,Boston. Manufacturedin The Netherlands.
Stakeholder Management and the Stakeholder Matrix: Potential Strategic Marketing Tools MICHAEL
JAY POLONSKY
[email protected]
The Marketing Group, Department of Management, University of Newcastle. Newcastle NSW 2308, Australia
Abstract
This article examines how marketers may be able to apply the stakeholder management process and the stakeholder matrix to marketing strategy formation. Existing marketing theory does not utilize the stakeholder management process when undertaking strategic marketing planing, although most marketing theory implicitly identifies the need to develop strategies that address the needs of multiple groups or stakeholders. By understanding and applying stakeholder theory, marketers should be able to develop more effective marketing strategies. While there is extensive management literature examining stakeholder theory, there is little marketing literature in this area, and this article attempts to partially fill this gap. Keywords: marketing, stakeholdertheory,corporatestrategy
Introduction Marketers have long realized that the success of their activities is dependent on how well they satisfy or address the needs of various groups. The basic marketing philosophy is built on the premise that the firm’s strategies are designed to “accomplish an organization’s objectives by anticipating customer or client needs and directing a flow of need-satisfying goods and services from producer to consumer” (McCarthy and Pen-eat&, 1993, p. 8). As such, the traditional marketing perspective focuses on addressing the objectives and needs of the firm and its consumers. The consumer orientation has gone so far that many firms focus solely on the consumer when designing strategies, often giving the consumer’s needs priority over other stakeholders, possible even the owners (Greenley and Foxall, 1996). More recently marketers have come to the realization that marketing needs to be concerned not only with making the sale but with keeping the consumer satisfied through the development of long-term relationships. It has been suggested that a relationship marketing approach is significantly different to the traditional marketing approach and has implications for all facets of marketing strategy formation (Gronroos, 1991). Relationship marketing assumes that relationships are long-term, shared responsibilities and benefits exist, mutual
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trust exists, and there is some coordinated planning between the parties (Dwyer, Schurr, and Oh, 1987). Adopting a relationship approachimplies that eachpartner sharesa stake in the other’s activities and should therefore participate in the others strategy formulation. Morgan andHunt (1994, p. 22) havesaid that “relationship marketing refersto all marketing activities directed toward establishing,developing and maintaining successfulrelationship exchanges.”As such,relationship marketing is concernedwith building relationships betweena much broadergroup thanjust the firm and its consumers.Koiranen (1995, p. 84) hasseizedon this point, defining relationship marketing as“a marketing approachto establish, maintain and enhancelong-term relationships with customersand other internal and external stakeholdersso that the objectivesof the parties involved are met.” Other marketing literature also appearsto have widen its examination from a narrow consumerbaseto include a broader set of stakeholders. Kotler (1987) and Zeithaml and Zeithaml(l984) both suggestthat marketersneednot considerthe macro-environment(that is, external stakeholders)as a fixed constraint but rather that marketerscan interact and to some extent managethe external environment. The recent work of Greenley and Foxall (1996) is also concernedwith firms’ orientation toward a broaderrangeof stakeholdersthat included but are not limited to consumers.The other groupsthey consider are competitors, employees,shareholders,andunions (GreenleyandFoxall, 1996). In taking this perspective Greenley and Foxall expandedon the work of Miller and Lewis (199l), who suggestthat the value of the firm is only maximized when the value of transactionswith all constituents or stakeholdersis maximized, not only those of consumers.If Miller and Lewis are indeed correct, adopting a customerfocus to the determentof other stakeholdersmay not maximize the value of the firm and may not result in achieving the firm’s objectives. Any theory that assistsmarketersin considering all its various stakeholdersand incorporating their interestsinto marketing strategyformulation would, therefore,be beneficial. One areathat takesthis type of constituent analysis approachtoward strategydevelopment is stakeholdertheory, which can assistmarketersin developing strategy that considers a broaderset of groupsthanjust consumers.Suchstrategywould be consistentwith the relationship marketing perspective-that is, building relationshipswith all groupsthat facilitate exchangeswith the firm and not simply focusing on consumers. To date,it seemsthat few marketershavereadily consideredstakeholdertheory or explicitly applied it to marketing theory (Miller and Lewis, 1991;Nasi, 1995;Polonsky, 1995b). This is not to suggestthat all of the marketing literature fails to consider stakeholdertheory (Greenley and Foxall, 1996; Polonsky, 1995b; Petkus and Woodruff, 1992). Most of the literature that does link these two areasis not fully developed. Thus, stakeholdertheory has not beenapplied to its fullest potential within the marketing area. The objective of this article is to discusshow stakeholdertheory can be applied to marketing strategyformation. In particular, it will provide a model describing how stakeholder theory can assistmarketersin incorporating the interestsof all their stakeholdersinto strategy formulation. It canbe assumedthat if the objectivesof stakeholdersare incorporatedin strategy,thefirm will bemoreeffective-that is, moreableto establishobtainableobjectives. While such a view has been suggestedin the literature (Lerner and Fryxell, 1994; Preston and Sapienza, 1990), the relationship between stakeholderinvolvement and performance
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will not be examined in this article. An overview of stakeholder management
Stakeholder theory is basedon the principle that the firm takes into account “any group or individual who can affect, or is affected by, the achievementof an organization’s purpose” (Freeman,1984). While alternatedefinitions havebeensuggested(Clarkson, 1994a, 1994b), a Freeman-baseddefinition is generally usedin most of the literature (Donaldson and Preston, 1995;Toronto Conference,1994)and will be usedin this article. Stakeholdertheory requiresthat the firm “takes into accountits relationship with specific stakeholdergroupsas it setscorporatedirection and formulatesits strategies”(Robertsand King, 1989,p. 66). By correctly applying stakeholdertheory,marketerswill follow a process that allows them to developmarketing strategythat integratesthe concernsof all stakeholders by forcing the marketer to consider who its various stakeholdersare and how these stakeholdersinteract with the firm. This understandingshould enablemarketing strategyto addressboth the objectivesof the firm andits stakeholdersandthusshould bemore effective. The generalstakeholdermanagementprocesscomprisesfour steps: (1) identify relevant stakeholdersin relation to the issuebeing addressed,(2) determinethe stakeand importance of each stakeholdergroup, (3) determine how effectively the expectationsof each group are being met, and (4) modify corporateobjectives and priorities considering stakeholder interests(Freeman,1984;Carroll, 1989;Robertsand King, 1989;Savage,Nix, Whitehead, and Blair, 1991). Before examining how stakeholderscan be integrated into the strategic marketing process,it is necessaryto briefly examine this four-step process. Step one: stakeholder identi$cation
The first stepin the processis to identify which organizationsor individuals are stakeholders. Stakeholdersdiffer for eachspecific issueexamined,and stakeholdersmay even vary acrossfirms for the sameissue (Freeman, 1984). In the green marketing area, for example, it has been suggestedthat product development,promotional mix, support services, manufacturing andproduction processes,R&D, material purchasing,andwastedisposalactivities all needto be consideredwhen formulating strategy(McDaniel and Rylander, 1993; Vandetmerweand Oliff, 1990). Each of theseactivities influences severalstakeholders,all of whom must be consideredwhen formulating strategy. Adopting less environmentally harmful production techniquesmay benefit the environmentbut may force the firm to raise prices, therefore adversely affecting consumers,or to lower profits, thus harming shareholders. What may seemto be a socially responsible and reasonablemarketing activity involves many stakeholderswho needto be consideredin the strategyprocess. Only after the interestsof all thesegroups are consideredcan any decision proceed. Firms should attempt to include “any personor organisationwith a vestedinterest in the outcome of a companies.. . effort” (Thomlison, 1992,p. 12). Thus the firm must concern itself with a variety of groups, interna and external, which are either affected by or can affect the firm’s marketing activities. Such a perspectiveis broaderthan other approaches
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to strategy formulation. Porter's five forces model, for example, assumes that all firms should consider the same set of stakeholders (forces) when determining strategy (Porter, 1980). While such an approach is easy to carry out, it does not consider the impact of all stakeholders (that is, forces) on specific situations or strategy outcomes. Omitting an important stakeholder in strategy development may ultimately result in an ineffective strategy and possibly even firm failure (Clarkson and Deck, 19'94). It is suggested that Eastern Airlines failed not simply due to a strike with one set of employees but because it lost the support of travel agents, another key stakeholder (Savage et al., 1991). Travel agents suggested that business clients should not travel on Eastern because of its problems, thus further cutting Eastern's revenue. Once the firm identifies all stakeholders, it can then develop a stakeholder map that visually depicts finn-stakeholder and stakeholder-stakeholder relationships. Figure 1 provides a very basic stakeholder map, in which the firm has identified four marketing stakeholders and could be expanded if necessary. (Interactions between stakeholders are omitted from Figure 1.) While specific stakeholders that need to be considered vary by firm and the issue under examination, the literature often identifies six broad groups-----company, employees, shareholders, customers, suppliers, general public (Clarkson, 1995).
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Step two: determining the stakes The firm must determine each stakeholder’s stake in the specific issue being examined. An individual’s stake is the potential or ability to influence the firm’s behavior. Stakeholders simultaneously have the potential to positively and negatively influence organizational outcomes (Freeman, 1984). While they may not exert either of these influences in a given situation, it is their ability to influence organizational outcomes that is important. Traditionally, marketers have been more concerned about stakeholders’ potential for harm rather than their potential for cooperation. Marketers should be concerned with both, as cooperation between the firm and its stakeholders will assist the organization in achieving objectives and could possibly reduce the occurrence of threatening behavior on the part of stakeholders. If management at Eastern Airlines had strengthened the relationship with the travel industry, it may have been able to ensure a supply of customers and continue operation. Instead management focused all its energies on groups that were threatening the firm and in the longer term lost the travel agents’ support. Cooperation between the firm and its stakeholders can therefore be an important strategy tool, There are a growing number of cases where traditional marketing adversaries are cooperating in marketing activities. For example, many firms and environmental groups are collaborating in marketing activities that assist both groups in achieving their objectives (Mendleson and Polonsky, 1995; Stafford and Hartman, 1996). Stakeholders not only can directly influence a firm’s activities but may also be able to indirectly influence a firm’s activities. Stakeholders’ indirect influence on organizational behavior occurs where there is a chain of events affecting the firm’s behavior. For example, local residents concerned about the environmental impact of a new manufacturing plant may lobby their local government not to grant the firm a building permit. If the government bows to community pressure, the firm will be forced to find an alternate location. In this situation, the consumers have an indirect influence on the firm, and the government has a direct influence. While communication between the firm and its various stakeholders is essential for the completion of step two, furns are often on adversarial terms with important stakeholders. For example, Shell may be very concerned about Greenpeace’s intentions and views regarding a specific environmental issue, yet the two do not have a close working relationship (Dickson and McCulloch, 1996). Even when communication channels exist, it may be difficult to determine exactly what are the group’s objectives and goals. Groups may not have clearly established policies or they may be made up of heterogeneous individuals and factions (Polonsky, 1995a).
Step three: determine how well expectations are met Determining whether there is a gap between stakeholder expectations and organizational performance is an important step in the stakeholder management process. Figure 2 expands on Figure 1 by incorporating stakeholders’ expectations of the firm’s activities and the firm’s existing marketing behavior. Where the firm’s existing marketing behavior does not
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meet stakeholders' expectations, a gap exists. When stakeholders' expectations are met or exceeded by the firm, there would be no gap. The importance of a gap between expectations and performance has been identified in the marketing literature (Doyle, 1992; Zeithaml, Berry, and Parasuraman, 1988). Much of the service marketing literature focuses on the identification of several gaps and, to some extent, discusses strategies designed to reduce these gaps or ensure that they do not eventuate in the first place. While the services literature focuses on the service providers and consumers, some work expands the number of stakeholders examined in the service experience (Zeithaml, Berry, and Parasuraman, 1988).
Step four: adjusting strategy "The last step of the stakeholder management process is the readjustment of corporate priorities to bring the firm in line with stakeholders interests" (Roberts and King, 1989). If the preceding three steps have not been appropriately undertaken, the firm's new strategy will not reduce the gap between stakeholders' expectations and marketing behaviour. A change in marketing strategy may have different implications for each stakeholder group. Addressing the needs of one unsatisfied stakeholder (whose expectations are greater than behavior) may result in the alienation of previously satisfied stakeholders (where behavior is equal to or greater than expectations). For example, incorporating technologically
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advanced production processes that improve environmental quality may satisfy consumers and environmental groups, but the process may result in the need of fewer employees, thus causing tension between the firm and its workers. The gap between stakeholders expectations and the firm's behavior may occur because (1) firms' behavior changes such that it is closer to stakeholders' expectations, (2) stakeholders' expectations change and become more accepting of existing marketing behavior, or (3) both stakeholders' expectations and marketing behavior change and move closer together. A shift in organizational strategy may not remove all the gaps, although gaps should be reduced. Firms can develop contingency programs to address any potential negative behavior that may arise from dissatisfied stakeholders. In Figure 3 the firm has modified its marketing behavior, and all stakeholders have modified their expectations. The changes are such that stakeholder groups 1 and 3 are now satisfied (no gap exists between expectations and marketing behavior). Stakeholders 2 and 4 are still dissatisfied (expectations are greater than marketing behaviour), but to a lesser degree than originally.
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stakeholders into marketing strategy development
The stakeholder management process alone does not give marketing managers sufficient guidance as to how stakeholders should be integrated into strategy formulation. Furtbermore, it is unclear from the process which stakeholders should be included in marketing strategy development. Is it simply appropriate to target stakeholders who are most affected by a firm’s activities, or would it be better to focus on stakeholders who can affect a firm’s ultimate performance? Or alternatively would it be more appropriate to integrate stakeholders who have the greatest influence on other stakeholder groups? The stakeholder management process, however, does have the advantage over alternate approaches, such as Porter’s five forces model, in that it treats each marketing situation as unique. Therefore, there is no one generic set of forces or stakeholders to consider. Thus, the stakeholder management process considers a broader set of factors and how they can influence organizational outcomes. This section of the article examines a process by which stakeholders can be included in strategy formulation. Since it is unlikely that all stakeholders’ expectations will be met by a firm, marketing strategies must somehow determine which stakeholders should be incorporated into strategy development. As suggested earlier, stakeholders have the ability to both positively and negatively influence the firm (Freeman, 1984; Savage et al., 1991), and any strategy needs to consider that stakeholders have these two abilities simultaneously. Strategy must also consider that stakeholders may choose to cooperate or threaten depending on the actions and reactions of the individual firm. There is little literature, in any discipline, examining a broad process that can be used to include stakeholders and their needs in strategy formulation. The stakeholder literature has suggested that firms can use a two-dimensional stakeholder strategy matrix approach to determine the appropriate strategy for addressing different types of stakeholders (Freeman, 1984; Savage et al., 1991). The dimensions of the matrix are stakeholders’ potential to cooperate and their potential to threaten. As can be seen in Figure 4, the authors labeled the four quadrants somewhat differently, with Freeman taking a more negative approach toward stakeholders and their involvement with the firm. An approach such as the stakeholder strategy matrix may be easily extended to marketing strategy formulation. For example, marketers already use similar types of matrices, such as the Boston Consulting Matrix (BCM), which categorizes products. The BCM matrix is based on two criteria (market growth rate and relative market share) using a high-low distinction. Marketers suggest that there are a broad set of strategies that can be applied to products, based on their position within the BCM’s four quadrants. A similar assertion is made by Freeman (1984) and Savage et al. (1991) in regard to the stakeholder strategy matrix. The matrix proposed by Freeman (1984) and Savage et al. (1991) evaluates each stakeholder on two dimensions-their potential to (1) cooperate with the firm and (2) threaten the firm. It is important to emphasize that each stakeholder has the ability both to cooperate and to threaten organizational activities. The objective of the strategy matrix is to adopt strategies that ensure that stakeholders don’t reduce an organization’s ability to achieve its outcomes (that is, threaten) and/or maximize stakeholders’ assistance in terms of achieving
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gic bridging points to stakeholders’multifaceted influencing ability (direct and indirect) (Polonsky, 1995a, 1996; Sharma,Vredenburg, and Westley, 1994; Westley and Vredenburg, 1991). Westleyand Vredenburgdefine bridging groupsasthose“who forward their own endsas well asto serveaslinks” betweenthe firm andother stakeholders(WestleyandVredenburg, 1991). In terms of the strategy matrix, forwarding their own ends would be their direct ability and serving as a link would be their indirect ability, which at presentis not included in the matrix. While these authors put forward that bridging groups may be unique, all stakeholderswould have a bridging ability to varying degrees.The model therefore needs modification to addressstakeholders’indirect influence. The considerationof this indirect ability to influence organizational outcomesis essentialin terms of strategy formulation, for often stakeholders’indirect influence may be more important than their direct influence (Polonsky, 1995a,1996). One way to addressthis is through the inclusion of stakeholders’ direct and indirect influence in the strategymatrix. Marketers have long recognized the importance of various groups’ indirect influence in achieve strategy objectives. They have often designedstrategiesspecifically to utilize groups’ indirect influencing abilities, with the final consumerfrequently being the ultimate target. For example, the diffusion of innovation literature has suggestedthat one method to stimulate (or retard) the diffusion of a new technology is to obtain support (or rejection) of opinion leaderstowards a given new technology (Leonard-Barton, 1985). Thus, firms are concernedwith opinion leaders,not primarily becauseof the direct economic impact of their purchasebehavior, but rather becauseof this group’s ability to influence others to act. In the buying center literature, the role of influencershas also beenexamined. Theseare individuals who often do not have any direct involvement with the purchaseor even with the firm, yet they may still have a significant influence on the firm’s purchases.Marketers often adopt a strategywhere they target a key influencer in an attemptto indirectly modify other organization’spurchases.For example,getting an industry leaderto adoptthe product will most likely influence other firms to more strongly consider that product. The importanceof indirect communicationis also addressedin the promotional literature. Marketers often spendlarge sums on various public relations activities that are designed to generatepositive publicity. Editorial commentsmade in the media (that is, indirect communication) are often seenby consumersto be more credible than paid advertisements. The media can play an important influencing role in consumers’attitudesand behavior. As such, the media need to be carefully considered when formulating promotional strategy, although their direct influence is often minimal. Figure 5 expandsthe strategy matrix by incorporating both the stakeholders’ ability to directly and indirectly influence organizational outcomes.The X and Y axis are modifications of the original axis and depicts Freeman’soriginal stakeholderstrategy matrix (see Figure 4). In Figure 5 thesenow representstakeholders’direct potential influence, cooperative and threatening,on the firm. The Z axis hasbeenaddedto incorporate stakeholders’ indirect influence, for as was discussedearlier, stakeholders’ indirect influence (such as bridging groups, opinion leaders, influencers, and so on) needsto be considered as well as stakeholders’direct influence on organizational outcomes.The greatera group’s ability to influence other stakeholders,the higher it would be on the Z axis. While Figure 5 de-
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picts the bridging stakeholders over the centre of the X - Y plane, they can occur anywhere within the three-dimensional space depending on their ability to cooperate, threaten, and influence other stakeholders. Therefore, any of the four original categories of stakeholders (as depicted in Figure 4) could also have bridging characteristics to varying degrees. (See Polonsky, 1996, for a more detailed discussion of the theoretical rational behind the expansion of the strategy matrix). The extension of the matrix is important, as it enables marketers to address stakeholders' needs in strategy formulation. The revised matrix is a truer reflection of stakeholders' overall ability to influence organizational outcomes. As such, it will enable marketers to fully consider all the potential ways in which a given group can influence outcomes and design strategies accordingly.
Strategies to address stakeholders In the literature developing the stakeholder matrix, Freeman (1984) and Savage et al. (1991) put forward a set of generic strategies that could be used by finns to address each type of stakeholder. These could be classified into thirteen different strategies (see asterisked items in Table 1). The objective of these strategies is to reduce the gap between stakeholders' expectations and the firm's marketing behavior. As was mentioned earlier, this can occur because stakeholders change their expectations, the firm modifies its behavior, or a combination of the two. In all cases, the strategies rely on some type of action by the firm
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to facilitate a reduction of the gap between expectations and behavior, as it is assumed stakeholders will not spontaneously change their expectations, In examining management of the wider business environment, Galbraith (1977) and Zeithaml and Zeithaml(l984) suggest a similar approach can be used to deal with the various environmental forces (that is, stakeholders). They suggested that the firm can apply (1) independent strategies where the firm deals directly with the environment changing the way the environment relates to the firm, (2) cooperative strategies where the firm works (implicitly or explicitly) with others to change the environment, and (3) strategic maneuvering where the firm changes or alters the way in which it deals with the environment in an attempt to overcome environmental constraints (Galbraith, 1977; Zeithaml and Zeithaml, 1984). While the Freeman (1984) and Savage el al.? (1991) strategies fall within the domain of those suggested by Galbraith (1977) and Zeithaml and Zeithaml (1984), there are others
that can be incorporated into the stakeholder strategy matrix to consider stakeholders’ influencing abilities. The thirteen strategies suggestedby Freeman and Savage et al. do not attempt to incorporate stakeholders influencing abilities and therefore do not address all marketing strategy options. Freeman noted in his original work that it was unclear where or whether joint ventures and strategic alliances fit within the two-dimensional strategy matrix. One possible reason for this uncertainty may have been that his original matrix (Figure 4) did not include a dimension to measure stakeholders’ indirect influencing abilities. Once the matrix has been expanded to include stakeholders’ indirect infhtencing ability, joint ventures and strategic alliances more easily fit into the strategy matrix structure. Other generic strategies have also been added to Table 1 to more specifically address stakeholders’ influencing ability. As suggested by the bridging literature and by the work of Galbraith (1977) and Zeithaml and Zeithaml (1984), stakeholders may collaborate to change the environment-that is, one group of stakeholders may be used in change the expectations and perceptions of another stakeholder group. Thus, not only might a given
group be usedasa bridging stakeholder,but the firm might attemptusebridging stakeholders to change a group’s expectations. The strategies not asterisked in Table 1 address these additional alternatives. In considering appropriate strategies, marketers must realize that stakeholders’ potential to act in a given way and their willingness to act are not necessarily related. For example, an environmental group may be able to cooperate with an organization, but it may be unwilling to do so, because of philosophical differences between the two (Mendleson and Polonsky, 1995; Stafford and Hartman, 1996). Therefore, it is essential that marketers examine strategies that can address stakeholders who are both likely and unlikely to act in a given way. Just because a stakeholder has a low threatening potential does not mean that this potential will not be acted on: these unlikely actions may be extremely detrimental to the firm. The classification of a stakeholder group within the three-dimensional diagrammay appear simple, yet it is extremely complex. When placing a group in Figure 5, marketers must not only consider existing relationships and strategies but also must consider all potential interactions between the organization and their stakeholders. For example, how would most marketers classify regulators? Many marketers may consider them to inhibit marketing activities by placing constraints on their activities. Yet in determining regulation, regulators
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Table 1. Generic strategiesappropriate to various types of stakeholders.
Strategy
Modify the decision forum in which stakeholdersand the firm interact.a Change formal or informal rules by which stakeholdersoperate.a Attempt to refocus the stakeholders’ objectives.a Collaborate with stakeholderswhen establishing policy.a Attempt to reenforce stakeholders’beliefs in regardto the fbma Integrate stakeholdersinto the strategy process.a
StakeholderPositionin the Strategy Matrix (Freeman/Savageet al.) Swing/Mixed Offensive/ Defensive/ Hold/ Blessinga Supportivea Nonsupportivea Marginala
Bridgingb
Yes Yes Yes
Yes
Yes
Yes
Yes Yes Yes
Modify stakeholders’ beliefs about the fhm.a
Yes
Change organizational behavior to addressstakeholders’concernsa Continue with existing activities.” Reducereliance on a given stakeholder group.” Monitor stakeholders for change in beliefs/behavior/attitudes.a Minimize possibility of change in stakeholder-firmrelationship.a Attempt to link stakeholdersto the firm’s wider objectives.a Form strategicalliance or joint ventures with stakeholders. Use other groups to modify stakeholders’ beliefs. Use this group to modify other groups’
Yes
Yes
Yes
Yes
Yes
Yes
Yes Yes
Yes
Yes
Yes Yes
Yes
Yes
Yes
Yes
Yes Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
beliefs.
a. This grouping or strategywas suggestedby Freeman(1984) or Savageet al. (1991). b. Strategiesfor the bridging group are dependenton their position in terms of the other two axis. All strategies could be applied to groupswith a high ability to influence others.
often rely on marketers or others for expert guidance. Those individuals who provide guidance may capture the regulation (Stigler, 1971) by advising regulators in a way that is beneficial to the marketers’ interests. Using innovative strategies, firms therefore could turn regulators from a traditionally nonsupportive stakeholder that would requiring adopting a defensive strategy for dealing with them to a mixed-blessing type of stakeholder by forming collaborative relationships. One marketing example of this occurred in the determination of environmental marketing guidelines developed by the Federal Trade Commission in the United States and the Trade Practices Commission in Australia. In both cases, individual firms, marketers, and industry bodies were actively involved in the establishment of the
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guidelines established(Kangun andPolonsky, 1995). Did marketerscapturethis regulatory process?It is impossibleto determinewhat the regulation would havelooked like had these groupsnot beeninvolved. But by becominginvolved andassistingregulatorswith achieving their objectives,marketersmay haveinfluencedregulatory outcomesin a beneficial fashion. By classifying stakeholdersin a given way, the marketercanusea setof genericstrategies (seeTable 1) to incorporatethe stakeholder’sneedsin strategyformulation. The following subsectionsexaminethe various stakeholdergroupsand somegeneric strategiesthat appear to be appropriatefor eachgroup. Swing or mixed blessing These stakeholdershave a high ability to cooperatewith the organization or threaten the achievementof its objectives. Employees might be classified in this way. Employees’ performanceultimately determinesthe quality of a firm’s product, and any individual employee errors are ultimately the responsibility of the firm and will negatively impact on its image. For example,the quality of serviceon an airline is dependenton the in-flight service personnel, ground staff, flight crew, and so on. If thesepeople do not perform their roles in the service process,customerdissatisfactionwill most likely arise, as expectationswill not match servicedelivery. The firm, however,haslittle direct control over eachindividual employee’sperformancein flight. To addressmixed-blessing stakeholders,firms can adopt severaldifferent strategies(see Table 1). For example, they may integrate these stakeholdersdirectly into the marketing strategy developmentprocess. This would ensurethat stakeholders’objectives are incorporatedin strategy. It also will result in stakeholders’understandingtheir role in achieving organizational objectives. There are severalcasesof collaborative strategydevelopmentin the environmental marketing area. For example,McDonald’s involved the Environmental DefenseLeaguein their processof reevaluatingthe useof polystyrene and developing and appropriate alternatives(Hume, 1991; Stafford and Hartman, 1996). In this casethe firms turned a potentially hostile stakeholderinto an ally by involving it in strategy(new product) development. OfSensiveor supportive Supportive stakeholdershave a high cooperativepotential but have little ability to threaten organizational activities. In the environmental marketing area, a firm’s supplier might be one such stakeholder. (Although if the supplier controls a key input, this will not be the case.) For example,McDonald’s extensively involves its suppliers in its environmental marketing activities. When they decidedto becomeinvolved in the recycling of polystyrene products, not only as a supplier of raw materialsbut as a consumerof recycled goods,they actively involved polystyrene and recycling industry membersin this processand assisted in developing the industry (Hume, 1991;Gifford, 1991). McDonald’s commitmentresulted in some suppliers’ making additional capital expendituresto ensurethat both the supply and demandside could be dealt with effectively.
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With this type of stakeholder, it is important to reenforce the stakeholder’s position. A supportive stakeholder who becomes dissatisfied may still be able to be less supportive or even choose to withdraw support. Loss of a key supportive stakeholder can even result in organizational failure (Clarkson and Deck, 1994; Savage et al., 1991). Marketers must ensure that stakeholders are willing to support the firms activities and therefore need to reinforcing stakeholders’ supportive behavior and attitudes.
Defensive or nonsupportive These stakeholders have a high potential to threaten organizational activities but have little cooperative ability. For example, right-wing environmental groups are often considered nonsupportive stakeholders as they support ideals such as a return to nature or the concept that each individual should be completely self-sufficient. There are some cases where even the most radical groups can be made supportive. For example, Greenpeace assisted in the design of the Olympic Village for the Sydney Olympics. Their involvement has been credited as making it the most environmentally friendly bid and may have assisted Sydney in winning the Olympics in the year 2000 (Polonsky, 1994). By directly involving Greenpeace in the strategy development process, any negative backlash was minimized. This nonsupportive stakeholder may even have been changed to another type (that is, moved within the diagram). This approach requires marketers to adopt innovative strategies when dealing with stakeholders.
Hold or marginal These stakeholders have little potential to threaten or cooperate with the organization. One reason for this may be that at a given point in time, these stakeholders may have little interest in the firm’s marketing activities in a given area. Stakeholder attitudes often change over time and thus so would their ability to cooperate or threaten the firm. Shareholders represent a good example of how relationships between firms and their stakeholders change over time. In the early 1970s most shareholders were concerned only with their return on their investment. Few had any concern for the organization’s environmental or social activities. This relationship changed in the 198Os,with many shareholders becoming concerned that firms were investing in countries that abused human rights or were involved in activities that harmed the environment (Entine and Nichols, 1996). Thus, shareholders’ began to demand a shift in corporate strategy, which had substantial implications for marketers. Organizations that monitor shareholders and the business environment would have observed the movement of these marginal stakeholders towards the nonsupportive categorization. These firms would have had the opportunity to anticipate changes in stakeholder concern in advance and adjusted their strategy accordingly. They therefore would have had a competitive advantage over those firms that did not anticipate the change in stakeholder interest and thus did not modify corporate marketing strategy.
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Bridging or influencing
The four proceedingcategoriesof stakeholdersand strategiesare basedon Freeman’soriginal two-dimensional strategymatrix (seeFigure 4 and the asterisk strategiesin Table 1). As has been previously discussed,the literature suggeststhat a fifth type of stakeholder group exists, although most of the stakeholderliterature hasnot specifically discussedthis group as an important stakeholder(seePolonsky, 1995a, 1996). In terms of the strategy matrix, this additional classification requires not only another dimension to be added to the stakeholderstrategymatrix but also requiresthe developmentof additional strategiesto addressstakeholders’influencing abilities-that is, any of the four previous categoriesof stakeholderscan also have bridging characteristics. Occasionally the bridging stakeholders’ influencing role may be more important than their direct effect on the firm (that is, high influencing ability, low direct cooperativeability, low direct threatening ability). One example of such a bridging stakeholderis the media, whose primarily influence on organizational behaviour occurs through the publicizing of others’ activities, resulting in stakeholderswho directly affect the firm (such as consumers) modifying their behavior. Television news items showing environmental protestersbeing forcibly removedfrom an organization’sfacilities or storiespublicizing a product recall due to safety problemsoften havea significant impact on the perceptionsof other stakeholders, although the media have minimal direct influence on organizational outcomes. The strategiesdesignedto addressbridging stakeholdersmight be more complex than those used on the other stakeholdergroups, although they also include many of the same strategiessuggestedfor other groups (see Table 1). Most important, the firm is to some extent forecastinghow a changein the behavior of one group can be basedon the influence of another. A strategy that successfully changesa bridging group’s behavior will not in itself cause a change in the final target audience’sbehavior. For a bridging group to be successful,it must havesomeinfluence with the stakeholderthe marketerultimately wishes to target (Mendleson and Polonsky, 1995;Westleyand Vredenburg, 1991). A classic marketing example of this problem is where the firm chooses the wrong spokesperson.While that individual may endorsethe product, if the target group (usually consumers)do not find the spokespersonto be credible, the marketing campaign will fail. From a stakeholderperspectivethe spokespersonis not a necessarilyjust a paid individual but is a bridging stakeholderas well. The firm must addressbridging stakeholders’ indirect influence on organizational outcomes. One strategy would be to have open communication channels with the bridging stakeholders,thus socializing them into the decision-making processes,either directly or through some type of strategic alliance. This would allow organizations to influence the bridging group’s actions and it would therefore indirectly affect the influenced groups’ expectationsor behavior toward the firm. For example, the publicity given to a firm that experiencesan environmental accidentmay partially dependon the relationship it haswith the media. If the firm hasa good working relationship with the media, it may receive more balancedreporting of the eventthan if it hasan adversarialrelationship with the media. Thus a good relationship with the media reducesthe negativeinfluence on other stakeholders,as stories might be presentedin a less sensationalisedfashion.
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An alternative, more aggressivestrategy might be to attempt to modify stakeholders’ perceptions of the bridging group itself. Thus, reducing the bridging groups’ credibility might minimize their influence on other stakeholders.Onemethodof doing this might be to attempt to increasethe perceivedvalidity of firm-basedinformation (changestakeholders’ expectationsabout the firm). A strategywhere the firm directly attemptsto minimize the credibility of thebridging stakeholder(changestakeholders’expectationsaboutthe bridging group) may backfire. Targetedstakeholdersmay perceive the bridging group to be even more believable: why else would a large organization bother with it? In extreme casesa David and Goliath situation may arise wherea small bridging group hasa disproportionally negativeinfluence becauseof the addedpublicity generatedfrom the firm’s attacks. In terms of decreasingthe bridging stakeholders’influence, the firm would most likely be better off increasing its own credibility than directly attacking the bridging group.
Implications Marketing strategy needsto addressthe interests of the firms’ various stakeholders. In doing so, it needsto considerthe full rangeof waysin which the stakeholdersmay influence organizational outcomes.Traditionally, marketershave focusedon stakeholders’ability to directly cooperateand threaten,which fails to consider their ability to indirectly influence the firm. The expandedstakeholderstrategymatrix is one mechanismthat marketerscan to use examine all stakeholders’potential influencing abilities. It also provides a set of strategiesthat can be usedto reduceany gap that exists betweenstakeholders’expectations and corporatebehavior. As Table 1 suggests,there area numberof strategiesavailableto reducethe gapsbetween stakeholderexpectationsand firm performance. It could be suggestedthat these fall into four broad approaches-isolationist, where the firm attemptsto minimize the impact of the environment; aggressive,where the firm attemptsto changethe environment; adapting, where the firm modifies its behavior in accordancewith the environment; and cooperative, where the firm attempts to work with the environment. The idea that firms attempt to minimize the impact of the environment (that is, isolate itself) is not new. Authors such as Johnson (1995) and Meznar and Neigh (1995) have suggestedthat firms adopt buffering strategiesthat protect the firm from various external forces. These same authors have also suggestedthat adapting strategiescan be applied-that is, firms “will adapt to their environment by trying to quickly and fully comply with changing expectationsconcerning corporate behaviour” (Johnson, 1995p. 2481). They did not, however, suggestthat firms would work with the environment to determine appropriate corporate behavior or adopt aggressivestrategiesto changethe environment. Basedon the strategiespresentedin Table 1, when adopting an isolationist strategymarketersattemptto becomelessdependanton potentially threateningstakeholders,attemptto changethe way stakeholdersdeal with the firm, or simply ignore stakeholdersand continue with their existing activities. When adopting an aggressivestrategy approach marketers would attackstakeholders,attemptto changethe rules by which stakeholdersoperate,modify stakeholders’ beliefs about the firm, or refocus stakeholders’ objectives. Both these
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approaches,aggressiveand isolationist, suggestthat marketerstreat stakeholdersas if they are something to be managedrather than a force that is to be interactedwith. There are more proactive strategiesavailable to marketersthat recognize the interdependent nature of the firm and its stakeholders. An adaptive approachresults in the firm modifying its behavior to take on all or part of its stakeholders’objectives. The cooperative approachresults in stakeholders’being integrated into the firm’s decision processes,and thus outcomesarejointly determined. Both the adaptiveand cooperativestrategiesensure organizational objectives fully consider stakeholders’interests. Such strategiesare consistent with a relationship marketing approachwhere the parties work together,to varying degrees,to achieve a set of common objectives. The strategyof forming joint ventures or strategic alliances is an exampleof the interdependentnature of the firm and its stakeholders. Successfuljoint venturesand strategicalliancesrequire a desire to achievea common setof objectivesand thus is an important addition to thoseoriginally suggestedby Freeman (1984) and Savageet al. (1991). Expanding the stakeholderstrategymatrix to addressstakeholders’indirect influencing potential provides marketerswith the opportunity to undertake innovative new types of strategy. Unfortunately, bridging groups may be used,both by firms treating stakeholders as something to be managed(aggressiveor isolationist strategies)and by firms who are interacting with their stakeholders(adaptive or cooperative strategies). Firms can use bridging groups to open channelsof dialogue with stakeholderswho would otherwise not communicatedirectly with the firm. Communicationis essentialif the strategyis to address stakeholders’ interests. Bridging groups may give firm-based information credibility it would not have had if it came directly from the firm (Mendleson and Polonsky, 1995). Thus, the firm will be able to work with stakeholdersto develop strategy and corporate directions rather than react to changesin stakeholders’behavior and expectations. On the other hand, firms could also use bridging groups in an aggressiveor isolationist fashion, reducing the impact of stakeholders’interestson firm activities. Lobby groups are one good example of a situation where organizationsuse bridging stakeholdersto change the rules of the gamein the favor of the firm. While such actions are legal and acceptable behavior in mostcountries,the firm is attemptingto potentially overridethe interestsof other important stakeholders.In reaction to such firm-basedbridging activities, the firm’s other stakeholdersmay also attemptto apply a bridging strategyby hiring their own lobbyists to put forward their point of view. In this situation, bridging groupsstimulatefirm-stakeholder conflict and stakeholder-stakeholderconflict rather than facilitate communication. The target group, which the firm and stakeholderare trying to influence, is bombardedby direct and indirect communication from severalbridging groups. The outcomeof such activities may result in no action or movementby the targetedstakeholder.In the longer term, firms could possibly be better off directly interacting with its stakeholdersrather than attempting to use bridging strategiesaggressivelyto circumvent stakeholders’interests. Bridging groups may enable the firm to use innovative strategiesto deal with its environment. Although usedincorrectly, thesestrategiesmay not reducegapsin stakeholders’ expectationsand firms’ performancebut may increasethe gapsthat exist through creating additional conflict. Firms should adopt strategies,bridging and otherwise, that take into consideration stakeholders’interestsrather than treating stakeholdersas if they are forces
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that are to be managed. Marketing strategy will be effective as long as it recognizes that the environment and stakeholders are something to be worked with and not a constraint that has to be worked around. Conclusions In developing marketing strategy, it is important that marketers consider all relevant stakeholders and how these stakeholders can affect organizational outcomes, both positively and negatively. While marketers realize the need to address the interest of consumers, they appear to often overlook other important stakeholders. The realization that more groups are important to marketing strategy is beginning to occur with the shift from a traditional transactional approach of marketing to a relationship approach. While this extension is an improvement, it is still deficient, for the relationship approach does not provide a framework for marketers to evaluate all of their relevant stakeholders. The incorporation of stakeholder theory and the stakeholder strategy matrix may assist marketers in designing more comprehensive strategy by considering the interests of all the organization’s stakeholders. Marketers need to identify each stakeholder’s ability to directly cooperate with the firm, directly threaten the firm, and indirectly affect the Iirm by influencing others. In examining stakeholders in this way, the marketer can then develop strategies to include stakeholders and their interests in strategy formulation. One of the more innovative strategies is to use one set of stakeholders to influence others or serve as a bridge between the firm and others. Marketers have been long aware of such a strategy when targeting customers. The increased use of joint ventures and strategic alliances appears to suggest that marketers may already realize that such strategies are appropriate for a given set of circumstances, but it is suggested that their use may be widened to address a broader set of stakeholders. Stakeholder theory may be one method by which marketers can identify the important bridging groups. While the broad stakeholder management process may be useful for firms to develop marketing strategy, more work needs to be undertaken to consider the implementation of this process. Although the stakeholder strategy matrix has existed since the 198Os, there have not been any attempts to validate the strategies it suggests or to determine whether these are indeed effective. Additional academic examination needs to be undertaken to address these deficiencies. The basic premise that integrating stakeholders into the strategy formulation process will result in more effective marketing activities has intuitive appeal. Marketers have long realized the importance of monitoring the business environment in an attempt to identify shifts or gaps in the market. Stakeholder theory extends this proactive approach, suggesting that a broader set of influences should not only be monitored but also be included in strategy formulation. Thus, all firms facing a dynamic environment and changing environment will benefit from adopting a broader stakeholder perspective to marketing strategy formulation. Acknowledgments I would like to thank the anonymous reviewers, Professor Rajiv Grover, and David Waller for their useful feedback and comments in the revising of this manuscript.
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