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Brain Circuits
Are stakeholders making or breaking your strategy?Â
Leaders are often unaware of their value-critical stakeholders, inhibiting progress on strategic issues. The solution is to get rid of free riders and predators and build more involvement in the value-creation cycle by the stakeholders that matter. Here’s how it’s done.
Three steps to lose the leeches
1. Cut ties with free riders
Cut ties with those inside and outside the company who extract value for themselves despite its long-term impact on the organization, society, and the environment. This includes free riders such as overpaid executives who, in their self-interest, campaign to maintain unsustainable activities.
2. Part ways with predators
Sever links with parties such as those shareholder activists and external advisors who are in for short-term payouts.
3. Avoid blind spots that derail stakeholder strategy
Executives repeatedly exhibit four major blind spots when making strategic decisions:
- Failing to support value-critical stakeholders
Failing to realize the importance of societal and environmental stakeholders.
- Becoming hostage to the wrong stakeholders
Letting yourself become hostage to monopolistic stakeholders who extract value is potentially worse than not supporting your value-critical stakeholders.
- Underestimating the value of soft assets
Failing to see the value of soft assets obscures the role of related stakeholders.
- Ignoring broken stakeholder engagement processes
When the processes that integrate stakeholders into value creation are ineffective, it is tough to create value with them.
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Three steps to optimize stakeholder value-creation
1. Integrate effectively
The relevant stakeholders must be explicitly integrated into the creation of soft assets.
2. Share value
The value created must be shared to ensure ongoing stakeholder commitment to developing and maintaining assets. Quality assets require the long-term commitment of those stakeholders relevant to value creation. Soft assets in particular take time to develop and are very vulnerable to neglect.
3. Keep score
Given the importance of quantitative financial data for investors and financial markets, a special effort is needed to monitor the quality of soft assets and related stakeholder engagement. A stakeholder ecosystem can play a major role in keeping engagement in the creation of soft assets front of mind.
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Key learning
Free riders can seriously inhibit progress on strategic issues. To optimize long-term value, get rid of the blockers and fully integrate the relevant stakeholders into the value-creation process.
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