Great Strategy Considers More Than Customers and Investors

Employees, business partners, and local communities are often overlooked but are essential stakeholders in business strategy.

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The Strategy of Change

To develop effective strategy amid constant change, leaders must hone their ability to determine which changes will boost their organization’s competitiveness. This series examines data from companies worldwide to provide practical insights for business leaders seeking advantage as they navigate complexity and change.
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Every business today is under pressure to meet the needs of stakeholders beyond its customers and investors. Some organizations may view this as a burden, but others have successfully enhanced their value by meaningfully integrating employees, business partners, and communities into their strategies.

Reviewing these broader-based strategies using the framework outlined in our article “Changing How We Think About Change,” we found that strategies that consider the needs of nontraditional stakeholders often result in creative solutions that also benefit customers and investors. Some strategies effectively expand the addressable market, a key indicator of fit to purpose, which we define as the relevance and sustainability of the company’s value proposition. Other strategies primarily affect the company’s competitive position — its relative advantage, defined as its perceived distinctiveness and vulnerability to substitution — by either enhancing its ability to command a premium price or reducing its cost base.

Changing How We Think About Strategy

Traditionally, strategy has been approached as an exercise in where to play (identifying industries with favorable economic structures) and how to win (identifying how to capture value by focusing on product leadership, operational excellence, or customer intimacy). The only stakeholders that have mattered are shareholding investors, as the providers of scarce financial capital, and customers, as the source of revenue.

But over the past 20 years, three developments have challenged the validity of this traditional approach to strategy:

  1. Technology has blurred the boundaries between industries, eroding the stable economic structure on which a “five forces” analysis is based.
  2. Financial capital is no longer the scarcest asset. Increasingly, companies compete and succeed on the basis of customer attention, employee talent, and intellectual property.
  3. The primacy of shareholders (predicated on the importance of financial capital) has been challenged. Multiple stakeholders are now recognized as meaningful contributors to a company’s value creation activities.

The initial response to these changes was to rediscover the importance of customers. (We specify rediscover because Peter Drucker had already observed — in 1954, no less — that the purpose of a business is to create a customer.) In quick succession, ideas introduced by Clayton Christensen in Jobs to Be Done (2007), Tim Brown in Design Thinking (2008), and Peter Fader in Customer Centricity (2011) became the new orthodoxy.

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Topics

The Strategy of Change

To develop effective strategy amid constant change, leaders must hone their ability to determine which changes will boost their organization’s competitiveness. This series examines data from companies worldwide to provide practical insights for business leaders seeking advantage as they navigate complexity and change.
More in this series

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Comment (1)
Paul ONeill
This is very much aligned with our thinking at NolijWork. We would go one step further, that "Outcomes" are the connective tissues between the various stake-holders that an organization engages with.  

Outcomes are tangible, stable over time and are valuable to one or more of the participants involved.

It is great to see the associations in respect of stake-holders together with Drucker's work, Clay Christensen (JTBD), Design Thinking etc.