Why interact with stakeholders?

Last week I posted an extract from Chapter 7, Stakeholders,  from the forthcoming third edition of my book “Guide to Organisation Design,”.  The group I am working with discussed the chapter in a Zoom meeting and then by email, with some differing and interesting views on the question,  ‘Why interact with stakeholders?’   Our more or less agreed answer to this is ‘to achieve, at best, mutual benefit.’  The premise being that stakeholders can create value working with organisations.   Giles Slinger (one of the group) mentioned a paper he’d written Spanning the Gap: The Theoretical Principles that Connect Stakeholder Policies to Business Performance, identifyingcreativity, authenticity and rich information’ as being the economic concepts driving the value that stakeholders could create with organisations.

However, the discussion also raised the question of ‘value to whom?’   In my view, some stakeholders are winners and others losers in value creation and the task of organisational leaders and designers is to make the trade-offs, deciding – on some agreed criteria – that they would rather create value with/for stakeholder x  than with/for stakeholder y. 

A rich email discussion followed our real-time Zoom discussion on this ‘value to whom’ question, initiated by a link I sent to an article on Amazon and their Bessemer warehouse where staff are seeking to unionise and Amazon is trying to stop this.  

I said, assuming that employees are stakeholders in Amazon where can we see value being added (and to which groups of stakeholders) if Amazon is successful in thwarting unionisation.  And where can we see value being added (and to which groups of stakeholders) if the warehouse is unionised?  

Jim Shillady (another of the group) replied:  I guess that, if Amazon is successful, its customers might benefit from lower prices because of Amazon’s lower costs and/or (more likely) the shareholders might secure higher profits from both lower costs and higher sales.  If the warehouse were to be unionised, the employees should benefit from higher pay and Amazon and its shareholders should benefit from employees’ improved engagement, with knock-on benefits to customer service, retention and sale.

But, in the event of unionisation, Amazon would likely cut staff numbers – and perhaps increase automation – to compensate for a higher wage bill.  Overall, I find it hard to see how Amazon would not ensure that it emerged as the ‘winner’ in any fight with the union that’s conducted essentially at local level.  The only way would be for the union to engineer strike action at a scale to match that of Amazon itself, i.e, global.  

To Jim’s email I replied:  Thanks for your comments.  Amazon is fighting extremely hard against unionisation. 

The ballot closes tomorrow so I guess there’ll be an outcome sometime next week. (I’ve left a blank in the relevant chapter paragraph to fill in the result!)  I’m writing about informal internal leaders and have used this as an example.  [NOTE: On 9 April it was announced that Amazon successfully resisted unionisation and a legal challenge will be mounted by the Retail, Wholesale and Department Store Union (RWDSU)]

I think there are winners and losers amongst stakeholders the value creation (if any) is not equally beneficial.

Giles then put his perspective:  The long-term question to have in mind here is: how is more value being added?

Big retailers vs employees: Which stakeholder wins in this battle? In the short term, the battle is between employees vs the shareholders and customers. It depends, as Jim says, on how the benefit is split. But in the long-term, setting pay low or high is not the answer. That is a zero-sum game.

An economy wins by adding more value. That changes things into a positive-sum game.  So, the question for any business is – in what parts of our business can we generate positive gains, or new value?

How do you make retail into a positive-sum game? Retail is tough but there is space for innovation. Long-term solutions are going to combine – in some ways – online shopping, home delivery, visiting stores in person

These solutions will give you: (1) better products (2) high stock availability (3) fast delivery (4) lower prices (5) a better service experience, and perhaps (6) helping you get rid of the waste you do not want… who knows? These are some of the parameters of the offering in which Amazon has already innovated and could explore further. If it chooses to make its relations with the warehouse employee group very transactional, that may be because it doesn’t see warehouse employees as a source of much new value. Is that a good choice or not? It depends on whether other sources of value in the business are better able to generate improvements. I don’t know, and Amazon doesn’t know, but it is very good at sensing and responding, and we will find out how good in the next 10 years.

A similar battle is going on between a retailer and its in-store staff here:  Kroger supermarket, by some measures the biggest supermarket chain in the US, has seen some cities mandate extra ‘hazard pay’ for in-store staff. Its response has been to close stores.

Kroger’s business has grown 10% in the last year during Covid, and in 2020 it returned ‘nearly $1.9bn to shareholders, [nearly double its] return to shareholders in 2019 of $951m.’ However, it appears to have a pattern of closing down stores in cities which enact a ‘hazard pay’ rule. If the report is accurate, it seems like a brutal approach, warning other cities not to change local by-laws – but looking at the fundamentals again, this can only make sense to the business if the sources of new value are elsewhere.

Another interesting example – making car manufacturing into a positive-sum game:  In 2010-11, the Jaguar Land Rover management in Liverpool’s Halewood plant under Operations Director Michael Straughan worked closely with local unions to bring 2 new LandRover lines to be built there.

Halewood had been known as one of the lowest productivity, lowest quality plants in the country but in 2010-11 close co-operation with unions convinced senior management to invest in the factory and what the team there could achieve together. The change in working atmosphere can still be seen in very open articles on co-creating value on the Halewood website today (2021), even though the team is now having to deal with the double shocks of Covid and Brexit:

To Giles’s email I responded:  Thanks very much for your reply.  I guess one of the implicit questions is value or values.  Is there any moral imperative that aims for a more win-win (ref Krogers)?    Have you seen Mark Carney’s new book Values: Building a Better World for All

Giles’s follow up: The simple moral case would be something like ‘to treat people as ends-in-themselves’, which comes from plenty of moral and religious sources, including Kant.
This means hoping people have the satisfaction of actualizing their selves, being the best they can be. This could be built step by step as:

  • to help people actualize themselves by discovering their own capabilities and peculiarities
  • to help people experience the joy of novelty and creation: discovering new things, discovering new ways of doing things
  • to help people create more with others, so they find they can make more together than they could have done alone
  • to give people through co-operation the joy of shared human life.

So, aiming for win-wins could be seen as a moral injunction as it is a good rule of thumb supporting all four of the steps above:  learning what you are capable of, discovering new value, adding even more new value with others, enjoying the process… and it is what the Dutch do after all.


What’s your view on the value stakeholders can add?