Stakeholder Interests in Business Strategies

1. Discuss the strengths and weaknesses of the following models of the Business Environment; Porter’s five forces and the Blue Ocean strategy. Also, explain how they could both be improved to improve strategic decision-making. (including company examples where relevant)

Porter’s five forces is an evaluation tool that is used in evaluating the shape of competition in the business environment (Fleisher and Bensoussan, 2003). This evaluation tool uses industrial organization economics to determine unattractiveness and attractiveness of the industry. The strengths of the model of the business environment are the fact that it can portray a clear picture of the industry. The picture is important for the company before it decides to enter the market (Porter and Heppelmann, 2014, p.88). The forces that Michael Porter takes about, in this case, are; threats of new entrants, the threat of products/services’ substitution, bargaining power for the supplier, buyers’ bargaining ability, and the intensity of competition (Renko, Sustic and Butigan, 2011, p.350). The five forces cover the most important components in any industry. Therefore, having enough information on these forces will help any organization to plan for what they expect in the market. The five forces that are covered with this model of business environment provide adequate information that can be used in the competitive analysis of the industry (Porter, 2008). The ‘Sony shock’ in 2003 where Sony lost its influence in the electronic industry to Apple and Samsung companies shows the failure of Sony to consider Porter’s five force model. The intensity of competitive rivalry is one of the forces that Michael Porter attaches to the competition shape (Stonehouse and Snowdon, 2007, p.270). Sony was dominating the market but the brand seemed to have overlooked the fact that other brands were also boosting their competitive advantage. As much as Porter’s five force model gives information that can be used to evaluate the competitive nature Sony was not keen to use this information to stop its rivals from getting access to the market. Therefore, it was toppled by Samsung and Apple Inc. Different from Porter’s five forces that work in existing market space, the blue ocean strategy creates a new market space that is uncontested. The creation of the unknown market space makes competition to be irrelevant in this case because they are no rivals in this case (Wubben, Düsseldorf and Batterink, 2012, p.250). The absence of the rivals means that the company can create their boundaries and work according to their demands. For instance, Apple’s introduction of iTunes was unlocking of the new market (Lindič, Bavdaž and Kovačič, 2012, p.935). Apple has gone on to dominate the market for long. The company realized that there was illegal music distribution at the same time individuals were to buy the CDs to have music. Therefore, to avoid customer annoyance and distribution of illegal music files Apple struck a deal with Sony, BMG, Universal Music Group, EMI Group, and Warner Brothers to certify the use of iTunes (TN, S.K., 2008). This was a new market that Apple was adopting once the brand was clear with the certification process it had all the privileges to conduct these activities based on the interests (Borgianni, Cascini and Rotini, 2012, p. 131). All these privileges are not obtained in Porter’s five forces were an organization focuses on the boundary created by players in the competitive market (Cheng, 2013). These players include; the suppliers, buyers, entrants, or competitors. They are important in determining the levels and the nature of the competition which is the primary aspect of this business environment model (Porter, 2008, p.90). Blue ocean strategy is free from all these competition determinants since the new market marks competition irrelevant (Kim, Yang and Kim, 2008, p.520). Therefore, these players cannot thrive. As much as these business environment models have different strengths as revealed in this case the models are important in marketing.

Another strength that Porter’s five forces and blue ocean strategy differ is the elimination of the conditions in the market that will lead to the cost reduction in creating a new market (Argyres and McGahan, 2002, p.50). The blue ocean strategy gives the brand an opportunity to regulate its market. The opportunity that companies get because of using this business environment model enables them to capture new demand which works for their advantage. It is usually expensive to improve competitive advantage. Therefore, the blue ocean strategy enables the organization to remove conditions that will facilitate competition (Kim, 2005, p.115). Successful removal of the competitive environment will lead to the cost reduction which will also extend to increase the dominance of the business (Chang, 2010, p.220). Porter five forces do not have the audacity of removing any condition in the market. The businesses are forced to work on increasing the competitive advantage. Those brands that have stable financial performance will invest heavily in improving their strengths which left others at the risk of being eliminated out of the market.

Even though the two models of the business environment have strengths they also have weaknesses. With no competition in the blue ocean strategy, brands may take that opportunity to monopolize the market (Chan Kim and Mauborgne, 2005, p.25). Since they are the only one in the market they may decide to work on their interests without considering the customers because alternatives are restricted. The continuity of this condition may also be risky to the organizations that use this model because other firms from the red ocean market may find their way in these new markets (Kim and Mauborgne, 2014). The introduction of other brands will gradually create a competitive environment (Clark, 2017). On the other hand, Porter’s five forces model is restricted to competition in the industry (Asad, 2012). Apart from competition, there are other factors that are important for the business during marketing. However, these models overlook these factors.

The improvement for blue ocean strategy and Porter’s five forces will improve strategic decision-making since the individual weaknesses will be reduced (Burke, van Stel, and Thurik, 2010). However, improvement of these models should be appropriate because any improvement may not be suitable meaning that there are factors that they should be considered before these improvements are conducted (Grundy, 2006, p.225). For the blue ocean strategy, the regulators should be actively involved in the new markets. The involvement of the regulators will minimize the exploitation that the customers are disposed to due to lack of competition (Butler, 2008, p.175). For Porter’s five forces, expanding the scope of the model will be crucial. The expansion should also consider other performances that are also important for the business apart from the competition. Position and market segmentation are crucial in marketing.

Unfortunately, Porter’s five forces model of the business environment is restricted it does not cover on these aspects. Incomplete coverage of the marketing environment affects the decisions made since the decisions will not consider other factors that are crucial. As a result of having scarce information, the decision will also be restricted. The restriction will base on the information acquired which is a threat to strategic decision-making.

References

Argyres, N. and McGahan, A.M., 2002. An interview with Michael Porter. Academy of Management Perspectives, 16(2), pp.43-52.

Asad, M., 2012. Porter Five Forces vs Resource Based View-A Comparison.

Borgianni, Y., Cascini, G. and Rotini, F., 2012. Investigating the patterns of value-oriented innovations in blue ocean strategy. International Journal of Innovation Science, 4(3), pp.123-142.

Burke, A., van Stel, A. and Thurik, R., 2010. Blue ocean vs. five forces. Harvard Business Review, 88(5), pp.28-29.

Butler, C., 2008. Planning with blue ocean strategy in the United Arab Emirates. Strategic Change, 17(5‐6), pp.169-178.

Chan Kim, W. and Mauborgne, R., 2005. Value innovation: a leap into the blue ocean. Journal of business strategy, 26(4), pp.22-28.

Chang, S.C., 2010. Bandit cellphones: A blue ocean strategy. Technology in society, 32(3), pp.219-223.

Cheng, D.S., 2013. Analyze the hotel industry in porter five competitive forces. Journal of Global Business Management, 9(3), p.52.

Clark, J.M., 2017. Competition as a dynamic process (No. HB771 C65). Washington, DC: Brookings Institution.

Fleisher, C.S. and Bensoussan, B.E., 2003. Strategic and competitive analysis: methods and techniques for analyzing business competition (p. 457). Upper Saddle River, NJ: Prentice Hall.

Grundy, T., 2006. Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), pp.213-229.

Kim, C., Yang, K.H. and Kim, J., 2008. A strategy for third-party logistics systems: A case analysis using the blue ocean strategy. Omega, 36(4), pp.522-534.

Kim, W.C. and Mauborgne, R.A., 2014. Blue ocean strategy, expanded edition: How to create uncontested market space and make the competition irrelevant. Harvard business review Press.

Kim, W.C., 2005. Blue ocean strategy: from theory to practice. California management review, 47(3), pp.105-121.

Lindič, J., Bavdaž, M. and Kovačič, H., 2012. Higher growth through the Blue Ocean Strategy: Implications for economic policy. Research policy, 41(5), pp.928-938.

Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming competition. Harvard business review, 92(11), pp.64-88.

Porter, M.E., 2008. The five competitive forces that shape strategy. Harvard business review, 86(1), pp.78-93.

RENKO, N., SUSTIC, I. and BUTIGAN, R., 2011. Designing marketing strategy using the five competitive forces model by michael e. Porter-Case of Small Bakery in Croatia. International journal of management cases, 13(3), pp.376-385.

Stonehouse, G. and Snowdon, B., 2007. Competitive advantage revisited: Michael Porter on strategy and competitiveness. Journal of Management Inquiry, 16(3), pp.256-273.

TN, S.K., 2008. Blue ocean strategy: how to create uncontested market space and make the competition irrelevant. South Asian Journal of Management, 15(2), p.121.

Wubben, E.F., Düsseldorf, S. and Batterink, M.H., 2012. Finding uncontested markets for European fruit and vegetables through applying the Blue Ocean Strategy. British Food Journal, 114(2), pp.248-271.

2. Critically discuss the view that businesses should consider the interests of all of their stakeholders in developing their business strategies.

Stakeholders are usually affected by the organization’s actions and decisions. The direct impact that these groups suffer is because of their interests in the business. Consideration of the stakeholders’ interests when developing business strategies will be important not only to them but also to the business. In addition to that, consideration of the stakeholders will mean that most of them will be informed about the organization’s actions and decisions. Different stakeholders have different roles in the business. In case one of the groups suffers from omission or not participating from business’ activities the entire process may be jeopardized. In other words, these stakeholders’ success depends on each other. Hence, the inclusion of various stakeholders that the business has in developing their business strategy is important.

Internal organizational stakeholders interact with the business most frequently (Hein et al., 2006, p. 225). Due to their frequency, they may consider their interests at the expense of other groups. The internal organizational stakeholder includes; owners, managers, employees, and unions. The managers are direct people who are involved in the development of the business strategies (Tompkins, Few and Brown, 2008, p.1585). The fact that managers are people responsible for deciding and developing business strategies makes them be susceptible to putting their interests first (Concannon et al., 2014, p.1700). The scenario will create interests imbalances among the stakeholders which may result in the conflict of interests. Apart from that, interest imbalance may disrupt the harmony that is required for the peaceful coexistence and working of the various stakeholders (Mikalsen and Jentoft, 2001, p.290). Most of the managers perceive that the owners’ interests are the most important in developing business strategies. This managers’ mentality has caused other stakeholders to be partially involved in developing these strategies. The partial involvement of other stakeholders is most cases have resulted in disagreements and wrangles of these groups (Unerman, 2010, p.120). The instability that is created by the partial participation of other stakeholders shows that the participation of all the stakeholders and consideration of their interests is crucial.

These stakeholders are positioned geographically. For example, the internal organizational stakeholders deal with the internal affairs of the business. Marketplace stakeholders are involved in marketing activities such as determining customers and suppliers’ relations and competitors (Concannon et al., 2012, p.990). The third group, the external organizational stakeholders are involved in determining the external environment of the business. The government is one of the stakeholders in this case. The government plays regulatory roles. The positioning that these stakeholders take makes consideration of their interests is a prerequisite for a successful business which is the ultimate goal of many businessmen and women (Céspedes-Lorente et al., 2003, p.333). In case any of the stakeholders is exempted then the business strategies developed will be incomplete due to the lack of inclusion of all the components required in the development of these strategies (Greenwood, 2007, p.320). Business strategies cover most of the areas that directly or indirectly affect the operations of the business. The interests of the stakeholders represent different areas of the business that should be considered due to their value to the business strategies.

The consideration of the stakeholders’ interests will facilitate engagement in business strategies. For instance, employees are important in planning and taking certain obligations which are important for the development of business strategies (Pérez Carrillo, 2007). In this case, their omission will mean that there will be a gap. The existence of this gap will mean that other stakeholders will be forced to execute other these responsibilities. However, they may have inadequate skills to carry out these duties. As a result of the incompetency, other processes that depend on the employees’ performance may also be negatively affected (Henisz, Dorobantu and Nartey, 2014, p.1740). The aftermath of the absence of any of the stakeholders will be felt by both the stakeholders and the business although the levels of magnitude will vary. In most cases, a business may lose more as compared to the stakeholder. For instance, the seizing 40 barrels of Coca-Cola syrup because of the allegations of adding caffeine by the Pure Food and Drug Act in 1909 showed that Coca-Cola Company had not involved the authority (Lawrence, 2002, p.80). Due to non-consideration of the interests of the Pure Food and Drug Act the authority was forced to react. Apparently, the reaction was not good for the company because it lost their products. The seizure of the Coca Cola’s products by the US authority had more impacts to the company than the barrels that were confiscated. According to the authorities, additional caffeine was harmful to human consumption (Prado‐Lorenzo et al., 2009, p.98). The remarks led to the reduction in the sales of the company’s products.

Most scholars have agreed that good stakeholders’ management leads to good business strategies development (Houghton and Stevens, 2011, p.50). Although individual stakeholders may not reciprocate expected strengths, the collection of their individual strengths may result in the intended results. Some of the stakeholders may look irrelevant to the firms but their presence means a lot to the organization (Berardi, 2013, p.525). Therefore, it is important that they are kept at all cost. All the stakeholders should feel that their presence is valued and their interests are considered. Through having self-assurance every stakeholder is carried out their operations effectively since they feel that their contributions are valued (Noland and Phillips, 2010, p.45). As dynamics continue to occur the positions of some stakeholders continue to change. These changes should be embraced and communication should be conducted to enable the stakeholders to know their new positions. Activists are external stakeholders that for a long time have determined the conditions in the market. Some of the activists have been individual or associations. The changes have made other organizations to admit these associations or activists as the internal stakeholders (Payne and Calton, 2017, p.135). The transformation has enabled them to take different obligations and positions in the organizations. In such a case, companies are forced to check on their relationship with such a stakeholder (Bepari and Mollik, 2016, p.680). The emphasis is put on the fact that the companies may be hesitant to the change. The resistance may be because of the previous positions that these stakeholders held.

In conclusion, business should understand that regardless of the magnitude of the impact that each stakeholder has all of them are important. The absence of one of the stakeholders may paralyze the working of the entire group. In order to avoid taking chances considering the interests of all the stakeholders in the development of business strategies is vital.

References

Bepari, M.K. and Mollik, A.T., 2016. Stakeholders’ interest in sustainability assurance process: An examination of assurance statements reported by Australian companies. Managerial Auditing Journal, 31(6/7), pp.655-687.

Berardi, U., 2013. Stakeholders’ influence on the adoption of energy-saving technologies in Italian homes. Energy policy, 60, pp.520-530.

Céspedes-Lorente, J., de Burgos-Jiménez, J. and Álvarez-Gil, M.J., 2003. Stakeholders’ environmental influence. An empirical analysis in the Spanish hotel industry. Scandinavian Journal of Management, 19(3), pp.333-358.

Concannon, T.W., Fuster, M., Saunders, T., Patel, K., Wong, J.B., Leslie, L.K. and Lau, J., 2014. A systematic review of stakeholder engagement in comparative effectiveness and patient-centered outcomes research. Journal of general internal medicine, 29(12), pp.1692-1701.

Concannon, T.W., Meissner, P., Grunbaum, J.A., McElwee, N., Guise, J.M., Santa, J., Conway, P.H., Daudelin, D., Morrato, E.H. and Leslie, L.K., 2012. A new taxonomy for stakeholder engagement in patient-centered outcomes research. Journal of general internal medicine, 27(8), pp.985-991.

Greenwood, M., 2007. Stakeholder engagement: Beyond the myth of corporate responsibility. Journal of Business ethics, 74(4), pp.315-327.

Hein, L., Van Koppen, K., De Groot, R.S. and Van Ierland, E.C., 2006. Spatial scales, stakeholders and the valuation of ecosystem services. Ecological economics, 57(2), pp.209-228.

Henisz, W.J., Dorobantu, S. and Nartey, L.J., 2014. Spinning gold: The financial returns to stakeholder engagement. Strategic Management Journal, 35(12), pp.1727-1748.

Houghton, J.P. and Stevens, A., 2011. City branding and stakeholder engagement. In City branding (pp. 45-53). Palgrave Macmillan, London.

Lawrence, A.T., 2002. The drivers of stakeholder engagement: Reflections on the case of Royal Dutch/Shell. The Journal of Corporate Citizenship, pp.71-86.

Mikalsen, K.H. and Jentoft, S., 2001. From user-groups to stakeholders? The public interest in fisheries management. Marine policy, 25(4), pp.281-292.

Noland, J. and Phillips, R., 2010. Stakeholder engagement, discourse ethics and strategic management. International Journal of Management Reviews, 12(1), pp.39-49.

Payne, S.L. and Calton, J.M., 2017. Towards a managerial practice of stakeholder engagement: Developing multi-stakeholder learning dialogues. In Unfolding stakeholder thinking (pp. 121-135). Routledge.

Pérez Carrillo, E., 2007. Corporate Governance: Shareholders' Interests and Other Stakeholders' Interests.

Prado‐Lorenzo, J.M., Gallego‐Alvarez, I. and Garcia‐Sanchez, I.M., 2009. Stakeholder engagement and corporate social responsibility reporting: the ownership structure effect. Corporate Social Responsibility and Environmental Management, 16(2), pp.94-107.

Tompkins, E.L., Few, R. and Brown, K., 2008. Scenario-based stakeholder engagement: incorporating stakeholders preferences into coastal planning for climate change. Journal of environmental management, 88(4), pp.1580-1592.

Unerman, J., 2010. Stakeholder engagement and dialogue. In Sustainability accounting and accountability (pp. 105-122). Routledge.