Stakeholder Thinking In Marketing 9781845445935, 9781845445928

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22/09/2005

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ISSN 0309-0566

Volume 39 Number 9/10 2005

European Journal of Marketing Stakeholder thinking in marketing Guest Editor: Michael Jay Polonsky

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European Journal of Marketing

ISSN 0309-0566 Volume 39 Number 9/10 2005

Stakeholder thinking in marketing Guest Editor Michael Jay Polonsky

Access this journal online _________________________

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Editorial review board ____________________________

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Guest editorial ___________________________________________

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A stakeholder model for implementing social responsibility in marketing Isabelle Maignan, O.C. Ferrell and Linda Ferrell _____________________

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Futures dilemmas for marketers: can stakeholder analysis add value? Val Clulow ____________________________________________________

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Enabling sustainable management through a new multi-disciplinary concept of customer satisfaction Claus-Heinrich Daub and Rudolf Ergenzinger________________________

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Exploring ‘‘deep’’ and ‘‘wide’’ stakeholder relations in service activity Fre´de´ric Jallat and Elliot Wood ___________________________________ 1013

New service development: a stakeholder perspective Anne M. Smith and Moira Fischbacher ____________________________ 1025

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CONTENTS

CONTENTS continued

Stakeholder perceptions presage holistic stakeholder relationship marketing performance Brian Murphy, Paul Maguiness, Chris Pescott, Soren Wislang, Jingwu Ma and Rongmei Wang ____________________________________________ 1049

Marketing stakeholder analysis: branding the Brisbane Goodwill Games Bill Merrilees, Don Getz and Danny O’Brien ________________________ 1060

Exchange and combination of knowledge-based resources in network relationships: a study of software firms in Finland Anu Marianne Vainio __________________________________________ 1078

Stakeholder relationships in an international retailing context: an investment bank perspective Mark Palmer and Barry Quinn ___________________________________ 1096

Retailers’ press release activity: market signals for stakeholder engagement? Paul Whysall __________________________________________________ 1118

An empirical examination of the complex relationships between entrepreneurial orientation and stakeholder support Zannie Giraud Voss, Glenn B. Voss and Christine Moorman ___________ 1132

A model for addressing stakeholders’ concerns about direct-to-consumer advertising of prescription medicines Janet Hoek and Ninya Maubach __________________________________ 1151

Balanced versus focused responsiveness to core constituencies and organizational effectiveness Oliver Koll, Arch G. Woodside and Hans Mu¨hlbacher _________________ 1166

Corporate reputation, stakeholders and the social performance-financial performance relationship Benjamin A. Neville, Simon J. Bell and Bu¨lent Mengu¨c¸ ________________ 1184

An empirical examination of the stakeholder strategy matrix Michael Jay Polonsky and Don Scott _______________________________ 1199

About the authors ________________________________ 1216

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EJM 39,9/10

EDITORIAL REVIEW BOARD

Professor Nicholas Alexander University of Ulster, Northern Ireland Dr Ali Bin Al-Khalifa University of Bahrain, State of Bahrain Professor George Avlonitis Athens University of Economics & Business, Greece Professor Michael Baker Westburn Publishers Ltd, UK Dr Susan Baker Cranfield University, UK Professor John Balmer Bradford Management Centre, UK Professor Jim Bell University of Ulster, Magee College, Northern Ireland Professor Bjo¨rn Bjerke Malmo¨ University, Sweden Professor Stephen Brown University of Ulster at Jordanstown, Northern Ireland Professor Francis Buttle Macquarie University, Australia Professor Tamar Cavusgil Michigan State University, USA Professor Bill Clarke University of Ulster, Northern Ireland Professor Brett Collins Auckland University of Technology, New Zealand Professor Nicole Coviello University of Auckland, New Zealand Professor David Cravens Texas Christian University, USA Professor Anthony Cunningham Co. Dublin, Ireland Professor Tevfik Dalgic University of Texas at Dallas, USA Dr Ken Deans University of Otago, New Zealand Professor Adamantios Diamantopoulos Loughborough University, UK Dr John Egan Middlesex University Business School, UK Professor John Fahy University of Limerick, Ireland Dr Kim Fam University of Otago, New Zealand Professor Gordon R. Foxall Cardiff University, UK Professor Pervez Ghauri Manchester School of Management, UMIST, UK Professor Christina Goulding University of Wolverhampton, UK Ken Grant Monash University, Australia Professor Gordon Greenley Aston Business School, UK Professor Kjell Grønhaug Norges Handelshoyskole, Norway Professor Lloyd Harris Cardiff Business School, UK Dr Phil Harris Manchester Metropolitan University, UK Professor Roy Hayhurst University of Limerick, Ireland Professor Graham J. Hooley Aston Business School, UK European Journal of Marketing, Dr Gillian Hopkinson Vol. 39 No. 9/10, 2005 Lancaster University Management School, UK p. 952 Professor Ga´bor Hova´nyi # Emerald Group Publishing Limited Panno´nia UTCA, Hungary

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Professor Claes Hultman ¨ rebro University, Sweden O Professor Mark Jenkins Nottingham University Business School, UK Professor David Jobber University of Bradford, UK Dr La´szlo´ Ka´rpa´ti University of Debrecen, Hungary Professor Hans Kasper University of Maastricht, The Netherlands Professor Erdener Kaynak Pennstate Harrisburg, Pennsylvania, USA Professor David Kirby University of Surrey, UK Professor Philip Kitchen The University of Hull, UK Professor Simon Knox Cranfield University, UK Professor Raymond LaForge University of Louisville, USA Professor Uolevi Lehtinen University of Tampere, Finland Professor Barbara Lewis Manchester School of Management, UMIST, UK Professor Veronica Liljander Swedish School of Economics and Business Administration, Finland Professor Andrew McAuley University of Stirling, UK Professor Jan Mattsson Roskilde University, Denmark Professor Bill Merrilees Griffith University, Australia Professor Morgan Miles Georgia Southern University, USA Professor dr Carla Millar TSM Business School, The Netherlands Professor Luiz Moutinho University of Glasgow Business School, UK Professor Patrick Murphy University of Notre Dame, USA Professor Aron O’Cass The University of Newcastle, Australia Professor Adrian Palmer University of Gloucestershire, UK Professor Paul Patterson University of New South Wales, Australia Professor Chad Perry The Gap, Queensland, Australia Professor Nigel Piercy University of Warwick, UK Professor David Shipley University of Dublin, Ireland Dr Wai-sum Siu Hong Kong Baptist University, Hong Kong Professor Richard Speed Melbourne Business School, Australia Professor Peter Turnbull University of Birmingham, UK Professor Caroline Tynan Nottingham University Business School, UK Professor Eduard Urban University of Economics, Czechoslovakia Dr Cleopatra Veloutsou University of Glasgow, Scotland, UK Professor Salvatore Vicari Bocconi University, Milan, Italy Professor Martin Wetzels Eindhoven University of Technology, The Netherlands Professor Len Tiu Wright De Montfort University, UK

Guest editorial About the Guest Editor Professor Michael Jay Polonsky is the Melbourne Airport Chair in Marketing at Victoria University in Melbourne Australia. He has previously taught at a range of institutions in Australia, New Zealand, South Africa and the USA. His areas of research include stakeholder theory, environmental marketing/management, ethical and social issue in marketing, cross-cultural studies and marketing education. He has published over 80 journal articles in a wide range of journals including Journal of Business Research, Marketing Theory, Journal of Market Focused Management, Journal of Marketing Communications, European Journal of Marketing, Business Horizons, Journal of Marketing Theory and Practice, Journal of Business Ethics, Journal of Macromarketing, Journal of Marketing Management, International Journal of Nonprofit and Voluntary Sector Marketing, Business Strategy and the Environment, International Journal of Retailing & Distribution Management, Journal of Organizational Change Management, Journal of Business and Industrial Marketing, International Marketing Review, International Journal of Advertising, and Journal of Advertising Research. He has also consulted for a range of businesses and governmental organisations.

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Stakeholder thinking in marketing Stakeholder thinking is becoming a “core” part of marketing as well as other business related disciplines. A search of the business source primmer database found that prior to 1995 there are 58 articles using the term stakeholder in their title and 27 academic marketing related articles with stakeholder as a key term. The interest in stakeholder theory has however grown rapidly, between January 2000 and November 2004 there were 228 articles using stakeholder theory in the title and 140 academic marketing related journal articles that examined stakeholder issues. In fact the American Marketing Association’s (AMA, 2004) new definition of marketing expressly incorporates our responsibility to consider how marketing activities impact stakeholders: Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.

Thus the AMA has recognised the core role of stakeholder thinking. While there is an increased interest in stakeholder thinking in marking, an examination of the literature would seem to suggest that there is no unified view of how stakeholder thinking can be or should be integrated into theory or practice. Many of the stakeholder works, marketing and in other disciplines, still focus on the social and ethical impacts of stakeholders. This may have been where much off stakeholder thinking initially gained its prominence, but it is a broader strategic tool that can benefit a range of areas and was in fact the focus of Freeman’s (1984) original work in the area. This is not to suggest that the general strategic implications of stakeholder thinking are not being consider, as an increasingly number of works are looking at stakeholder implications in regards to exchange networks, relationship marketing, and other issues related to strategy development.

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The papers in this special issue have considered a range of varying perspectives including: corporate social responsibility, the impact of interacting with stakeholders, relationship issues, and broader discussions of stakeholder theory as a strategic tool. These papers have taken a diverse range of perspectives including conceptual works, case studies, qualitative approaches, and various empirical approaches to examining the issues of interest within various pieces. The scope of papers included in the special, as well as those not included, identifies the breadth of relevance stakeholder thinking has for the application of all aspects of marketing theory and practice. The question of how stakeholders and stakeholder theory can be considered in organisational activities and marketing theory is an issue that most certainly seems to warrant further consideration. The works in this special issue have advanced this debate and identified some directions that could be considered. Stakeholder thinking is however not necessarily a paradigm shift in marketing thinking, although some might believe it is, but rather it broadens existing concepts such as relationship marketing, network theory, organisational social responsibility and other areas. Hopefully the papers presented in this special issue will encourage others to consider the inclusion of stakeholders into broader areas of marketing. Any special issue editor has to thank a range of people for assistance with developing the special issue. I would like to thank Audrey Gilmore and David Carson, editors of EJM, for allowing the special issue to be developed. Their input through the process has been invaluable. I would also like to thank the many authors of unsuccessful papers for submitting their work. It was of course impossible to include all papers in the special issue, but the breadth of coverage, in regards to topics and geographic areas would seem to demonstrate the growing interest in stakeholder thinking within marketing. Lastly, it is imperative that I thank the reviewers, without their assistance the special issue would not have been possible. The following people reviewed papers for the special issue: . Anupam Jaju – Gorge Mason University; . Bill Kilbourn – Clemson University; . Bob Heiser – New Mexico State University; . Catherine Elder , [email protected] . ; . Cathy L. Hartman – Utah State University; . David Waller – University of Technology Sydney; . David Stewart – Monash University; . Devashish Pujari – McMaster University; . Dr Russell Casey – Clayton State University; . Duane Windsor – Rice University; . Edwin R. Stafford – Utah State University; . Felix Mavondo – Monsah University; . Frank de Bakker – University of Amsterdam; . Hamish Ratten – University of Queensland; . J. Tomas Gomez Arias – St Mary’s College of California; . Jeanne M. Logsdon – University of New Mexico;

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

John F. Mahon – University of Main; John Stanton – University of Western Sydney; Kamal Ghose – University of South Australia; Kelly Strong – Iowa State University; Kirk Davidson – Mount St Mary’s University; Kim E. Schatzel – University of Michigan-Dearborn; Les Carlson – Clemson University; Linda McGilvray – Massey University; Marie-Louise Fry – University of Newcastle, Australia; Mary McKinley – ESCEM School of Business and Management; Michael Beverland – Monsah University; Michael Hyman – New Mexico State University; Mike McCardle – Western Michigan University; Mike Reid – Monash University; Nick Grigoriou – Royal Melbourne Institute of Technology; Peter Scholem – Monash University; Rita Ferreira – University of Navarra; Romana Garma – Victoria University, Australia; Ruhi Yahan – Victoria University, Australia; Rujirutana Mandhachitara – Long Island University; Sabrina Helm – Heinrich-Heine University, Duesseldorf; Scott Vitell – The University of Mississippi; Sema Sakarya – Bogazici University; Srikanth Beldona – University of Delaware; Stacey Hills – Utah State University; Taras Danko – National Technical University; Ulrich Orth – Oregon State University; and William E. Martello – St Edwards University. Michael Jay Polonsky Guest Editor

References AMA (2004), “Definition of marketing”, available at: www.marketingpower.com/content4620. php (accessed November 2004). Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman Publishing Company, Boston, MA.

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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0309-0566.htm

A stakeholder model for implementing social responsibility in marketing

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Isabelle Maignan ING Bank, Amsterdam, The Netherlands

O.C. Ferrell Department of Marketing, Colorado State University, Fort Collins, Colorado, USA, and

Linda Ferrell Department of Management and Marketing, College of Business, University of Wyoming, Laramie, Wyoming, USA Abstract Purpose – To provide a comprehensive managerial framework to understand and provide a well balanced and integrated stakeholder orientation for implementing corporate social responsibility in marketing. Design/methodology/approach – Many published articles provide significant findings related to narrow dimensions of stakeholder orientation in marketing. This article utilizes existing knowledge on this topic to support a methodology to implement a well-integrated corporate social responsibility program that encompasses marketing. Findings – The findings provide a grounded framework based on previous research that provides a step-by-step approach for implementing corporate social responsibility from a marketing perspective. Research limitations/implications – The framework developed in this paper provides an opportunity to examine to what extent the step-by-step methodology has been implemented in organizations as well as alternative approaches for implementation. Practical implications – This is a managerial guide for using a stakeholder model for implementing social responsibility in marketing. Originality/value – This paper fulfils a need for advancing knowledge on implementing social responsibility in marketing and provides a practical framework for managers who desire to implement social responsibility. Keywords Social responsibility, Stakeholder analysis, Corporate identity Paper type Conceptual paper

European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 956-977 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610662

While marketing has traditionally emphasized customer orientation, the unintended consequences of marketing activities require consideration of key stakeholders and their relevant interests (Fry and Polonsky, 2004). The marketing literature supports a focus on customers and the development of superior solutions to their needs (Slater and Narver, 1999). Market orientation has been found to be a key variable in the successful implementation of marketing strategies (Homburg et al., 2004). But, a successful marketing strategy has not always been associated with meeting the needs and demands of all stakeholders (Miller and Lewis, 1991). Unfortunately, most approaches to market orientation select to elevate the interests of one stakeholder – the customer –

over those of others (Ferrell, 2004). There is evolving concern that organizations must focus not just on their customers, but also the important stakeholder groups that hold the firm accountable for its actions. A new emerging logic of marketing is that it exists to provide both social and economic processes, including a network of relationships to provide skills and knowledge to all stakeholders (Vargo and Lusch, 2004). This logic is captured in the new definition of marketing developed by the American Marketing Association (2004) which states that: Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.

This definition emphasizes the importance of delivering value and the responsibility of marketers to be able to create meaningful relationships that provide benefits to all relevant stakeholders. This new definition of marketing is the first definition to include “concern for stakeholders”. The complexity surrounding a determination of the effects of marketing transactions on all relevant stakeholders requires the identification of stakeholders in the exchange process (Fry and Polonsky, 2004). The reconceptualization of the marketing concept based on a long-term, multiple stakeholder approach has also been suggested as a prescriptive model for organizational responsibility in marketing (Kimery and Rinehart, 1998). For example, research indicates that strategic planning varies considerably based on the stakeholder profiles of organizations. It has been found that some companies focus on a specific stakeholder group, such as customers, shareholders, employees, or competitors (Greenley et al., 2004). Based on these developments, there is a need for marketing to develop more of a stakeholder orientation rather than a narrow customer orientation. Stakeholder orientation in marketing goes beyond markets, competitors, and channel members to understanding and addressing all stakeholder demands. As a result, organizations are now under pressure to demonstrate initiatives that take a balanced perspective on stakeholder interests. Even though some leading businesses – including Shell, Beyond Petroleum, and Starbucks – have introduced innovative corporate social responsibility (CSR) initiatives, many organizations have failed to implement a solid CSR program that truly integrates and balances their responsibilities to various stakeholder groups. Instead, most companies have a tendency to adopt uncoordinated initiatives that address only specific stakeholder issues (e.g. policies against child labor, green marketing, equal opportunity programs). Corporate identity and reputation, both important to marketing, are created by business actions and communications with stakeholders (Christen and Askegaard, 2001; Bromley, 2001; Dowling, 2003). Over time the relevance of corporate identity will diminish without implementation of meaningful communications with stakeholders (Topalian, 2003). Interestingly, the academic and managerial literature has provided little guidance to help marketers integrate various initiatives into a sound program that can cover a wide range of corporate responsibilities. For example, it has been suggested that meeting the needs of customers and motivating employees to serve customers will provide growth in shareholder value and help meet stakeholder interests (George, 2003). It has been suggested that one way to enhance socially responsible marketing is to enhance customer well-being without any harm to other stakeholders (Sirgy and Lee, 1996);

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much of the research on CSR has focused on its conceptualization (Carroll, 1979; Clarkson, 1995; Wood, 1991). Contemporary studies usually focus on the implementation of very limited aspects of CSR (Porter and Kramer, 2002). Little has been written about the concrete and systematic implementation of CSR in the organization (Smith, 2003) and the likely benefits to be expected from its implementation (Maignan et al., 1999). This paper adopts an encompassing view of stakeholder orientation and describes a step-by-step methodology that can be used to implement a well-integrated CSR program in marketing to consolidate, coordinate, and integrate with existing initiatives at the organizational level of analysis. CSR from a marketing perspective From the 1950s onward, business scholars have provided various definitions of CSR and of related notions such as corporate citizenship, corporate social responsiveness, or corporate social performance (Bowen, 1953; Wood and Jones, 1995). The differentiated terminology employed, along with the multiplicity of the conceptualizations proposed, underpins the complexity of the CSR concept. The discussion below draws from the extant literature to outline a definition of CSR that accommodates the intricacies of this concept while providing solid grounding for organizational and marketing implementation. Senior management and many marketers still struggle with the notion of corporate social responsibilities (Greenfield, 2004). In particular, they are unsure about the meaning of the word “social,” and do not necessarily see its link to daily business activities. Quite often, they have problems evaluating how their own organization can have an impact on, or contribute to, the well-being of society as a whole. This difficulty is understandable because, as explained by Max Clarkson, society is “a level of analysis that is both more inclusive, more ambiguous, and further up the ladder of abstraction than a corporation itself” (Clarkson, 1995). Therefore, we propose as a starting point that even though businesses in general are accountable toward society at large, an individual business can be deemed responsible only toward the definable agents with whom it interacts. These agents can be regrouped under the label of “stakeholders” (Freeman, 1984). Even within a business, functional areas such as marketing may only have a limited view of important stakeholders. Marketing scholars have usually focused on two main primary stakeholders: customers and channel members (Maignan and Ferrell, 2004). Stakeholder research indicates the treatment of customers and employees has the most influence on firm performance (Berman et al., 1999). The discussion above suggests that businesses committed to CSR, at a minimum, adopt values and norms along with organizational processes to minimize their negative impacts and maximize their positive impacts on important stakeholder issues. Therefore, the CSR of an organization is issue-specific: while the organization might display exemplary behavior with respect to one stakeholder issue, it may fail to properly address another stakeholder concern. The degree of commitment to CSR is best evaluated at the level of an individual business unit: within large companies, various business units may face different stakeholders and stakeholder issues. In addition at any given life cycle stage of on organization certain stakeholders, because of their potential to satisfy organizational needs, will be more important than other stakeholders (Jawahar and McLaughlin, 2001). Within the marketing function, the

degree of customer orientation will affect relationships with other stakeholders. It has been hypothesized that “company orientation to non-consumer stakeholder groups will be dependent on their consumer orientation” (Greenley and Foxall, 1996). Marketing stakeholders and CSR Stakeholders designate the individuals or groups that can directly or indirectly affect, or be affected by, a firm’s activities (Freeman, 1984). Marketing stakeholders can be viewed as both internal and external. Internal stakeholders include functional departments, employees, and interested internal parties. External stakeholders include competitors, advertising agencies, and regulators (Miller and Lewis, 1991). The various relationships should be identified and interests understood. Another view of stakeholders characterizes them as primary or secondary. Primary stakeholders as those whose continued participation is absolutely necessary for business survival; they consist of employees, customers, investors, suppliers, and shareholders that provide necessary infrastructure. Secondary stakeholders are not usually engaged in transactions with the focal organization and are not essential for its survival; they include the media, trade associations, non-governmental organizations, along with other interest groups. Different pressures and priorities exist from primary and secondary stakeholders (Waddock et al., 2002). Unhappy customers may be viewed with less urgency than negative press stories that can damage a business (Thomas et al., 2004). Highly visible secondary stakeholders such as an interest group or the media may at times be viewed with greater concern than employees or customers. Remote stakeholders at the fringe of operations can exert pressure calling into question the firms’ legitimacy and right to exist (Hart and Sharma, 2004). The three critical elements in assessing stakeholder influence is their power, legitimacy and urgency of issues (Mitchell et al., 1997). Power has been defined as “the ability to exercise one’s will over others” (Schaefer, 2002). Legitimacy relates to socially accepted and expected structures that help define whose concerns or claims really count and urgency captures the dynamics of the time-sensitive nature of stakeholder interactions (Mitchell et al., 1997). Power and legitimacy may be independent but the urgency component sets the stage for dynamic interaction that focuses on addressing and resolving issues. Shared stakeholder norms and values. Major stakeholders may have different needs and a fine-grained approach may be needed to ascertain even differences within major stakeholder groups, such as customers, employees, suppliers, and investors (Harrison and Freeman, 1999). On the other hand, usually, a certain number of individual stakeholders share similar expectations about desirable corporate practices and impacts (Maignan and Ferrell, 2004). Some of them choose to join formal communities dedicated to better defining, and to advocating, these values and norms. For example, some investors choose to play a role in SocialFunds.com, an organization that provides information about socially responsible investing and stimulates shareholder activism in favor of CSR. Similar communities can also be found among employees (Employee’s Advocacy Group), consumers (Consumer Federation of America), suppliers (Covisint in the automobile industry), competitors (Better Business Bureau), the geographical areas where the firm operates (Alaska Wilderness League), and the media (National Association of Broadcasters). Individual stakeholders may embrace and discuss issues on a collective basis even when they do not join a formal organization. For instance,

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customers do not need to be members of Greenpeace, a group concerned about the environmental impact of business operations, to discuss this issue with others, and to incorporate this concern in their voting and purchasing decisions. Accordingly, stakeholders can be regrouped into formal or informal communities that share a certain number of values and norms about desirable business behaviors. Often different stakeholders include customers, suppliers, employees, as well as others who agree upon shared needs and interests: Cultivating a “stakeholder friendly culture” that is responsive to those common needs can be a source of competitive advantage for a firm (Leap and Loughry, 2004).

Stakeholder issues in marketing. Stakeholder values and norms apply to a variety of marketing issues such as sales practices, consumer rights, environmental protection, product safety, and proper information disclosure (Maignan and Ferrell, 2004). Noticeably, stakeholder values and norms concern both issues that do and do not affect stakeholders’ own welfare. For example, consumers may worry not only about product safety, but also about child labor, an issue that does not impact them directly. We define stakeholder issues as the concerns that stakeholders embrace about organizational activities and the residual impact. Within the context of marketing, Social Responsibility (SA) 8000 registration/certification addresses customer concerns about child labor, worker rights, discrimination, compensation, and other issues that could impact marketing activities (Miles and Munilla, 2004). Accordingly, the level of social responsibility of an organization can be assessed by scrutinizing its impacts on the issues of concern to all defined stakeholders. Table I provides examples of common stakeholder issues that impact marketers and may need to be considered in CSR decision-making. Stakeholder pressures. As illustrated in Figure 1, various stakeholder communities are likely to exercise pressures on the focal firm and on each other in order to push forward their own values and norms. Figure 1 further illustrates that, in spite of disparities across communities, stakeholders conform to broad and abstract norms that define acceptable behavior in society. Home Depot requires that an independent firm check the promoted environmental practices of the products and materials provided by its suppliers. In particular, the retailer requires wood products be certified through the independent Forest Stewardship Council. Hence, Home Depot imposes its norms and concerns regarding the natural environment on its suppliers. Noticeably, each business has its own values and norms depicting desirable behaviors based on its corporate culture and operations. These organizational values and norms overlap with those of some stakeholder groups, and especially with those of primary stakeholders since they are in the best position to exercise an influence on the organization. Importance of stakeholder norms. Stakeholders provide resources that are more or less critical to the firm’s long-term success (Freeman, 1984). Stakeholder resources may be both tangible and intangible. For example, stockholders can bring in capital; suppliers can provide material resources or intangible knowledge; local communities can offer infrastructure and a location; employees and managers can grant expertise, leadership, and commitment; customers can provide loyalty and positive word-of-mouth; and the media help spread positive corporate images. The ability of stakeholders to withdraw, or threaten to withdraw needed resources gives them power

Some stakeholder groups and issues Employees 1. Compensation and benefits 2. Training and development 3. Employee diversity 4. Occupational health and safety 5. Communications with management Customers 1. Product safety and quality 2. Management of customer complaints 3. Services to disabled customers Investors 1. Transparency of shareholder communications 2. Shareholder rights

Potential indicators of corporate impact on these issues 1. Ratio of lowest wage to national legal minimum or to local cost of living 2. Changes in average years of training of employees 3. Percentages of employees from different gender and race 4. Standard injury rates and absentee rates 5. Availability of open-door policies or ombudsmen

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1. Number of product recalls over time 2. Number of customer complaints and availability of procedures to answer them 3. Availability and nature of the measures taken to insure service to disabled customers 1. Availability of the procedures to keep shareholders informed about corporate activities 2. Litigation involving the violation of shareholder rights (frequency and type)

Suppliers 1. Encouraging suppliers in developing countries 1. Fair trade prices offered to suppliers in developed countries 2. Encouraging minority suppliers 2. Percentage of minority suppliers Community 1. Public health and safety protection 2. Conservation of energy and materials 3. Donations and support of local organizations

1. Availability of an emergency response plan 2. Data on reduction of waste produced and comparison to industry 3. Annual employee time spent in community service

Environmental groups 1. Minimizing the use of energy

1. Amount of electricity purchased; percentage of green electricity 2. Minimizing emissions and waste 2. Type, amount, and destination of the waste generated 3. Minimizing the adverse environmental impacts 3. Percentage of product weight reclaimed after of products and services use

over the organization. The idea of stakeholder power is exemplified in Ford’s on-line Corporate Citizenship Report: We exist in a complex system of relationships with our stakeholders. When the connections between us are strong, communications are clear and high levels of trust and respect are

Table I. Examples of stakeholder issues and associated measures of corporate impacts

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Figure 1. Interactions between organizational and stakeholder values and norms

present in our relationships, we are more likely to achieve sustained business success. And when any part of the system breaks down, we are more likely to fail.

On the other hand, citizenship can enhance social capital contributing to the creation of structural, relational, and cognitive sustainable organizational advantage (Bolina et al., 2002).

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Stakeholder values and norms The discussion above could imply that marketers will engage in socially responsible behaviors only in the presence of stakeholder power. Marketers would then limit their responsibility initiatives to those issues of concern to the most powerful and visible stakeholder communities. This view has some merit especially since managers and employees form stakeholder communities that actively defend specific norms and values within the firm. However, organizations may be driven to commit to a specific cause independently of any stakeholder pressure. Businesses may also want to exceed stakeholder expectations. Thus, organizational values and norms can dictate modes of behavior that are more stringent than those demanded by more various stakeholder communities. For example, Starbucks engages in recycling, employee-friendly policies, and fair trade initiatives that go beyond what stakeholders might require. Organizations such as the Home Depot engage in strategic philanthropy tying their business goals to their social mission. When employees volunteer to erect Habitat for Humanity homes, they are applying their skills and improving their expertise as sales associates for the company. Clear organizational values and norms are also needed to select among conflicting stakeholder demands. A given organization could indeed be faced with equally powerful stakeholders whose views of CSR imply differentiated business practices. For example, while customers may demand environmentally friendly products, shareholders may question green investments because of their high costs and uncertain returns. Accordingly, organizational values and norms are especially useful to guide CSR practices when they specify the nature of either relevant stakeholder communities or important stakeholder issues. For example, the pharmaceutical company Bristol-Myers Squibb states on its website: Our company’s core values [. . .] center on sustaining and improving the lives of people throughout the world. This specifically includes our employees and shareholders, customers and consumers, suppliers and contractors, and members of the communities in which we operate.

Organizational values and norms are most likely to actually pervade decisions and practices when they are clearly formalized and well-communicated to employees and business partners. The formalization of CSR norms can be accomplished in many ways such as: . Presenting the stakeholder issues viewed as most important in official organizational communications (mission statement, values statement, annual reports). . Clarifying the nature of desirable and undesirable behaviors in a code of ethics and associated training programs.

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Openly endorsing environmental, ethical, or social charters (e.g. Caux principles, Keidanren Charter for Good Corporate Behavior, CERES principles – Coalition for Environmentally Responsible Economies, Responsible Care Principles – from the American Chemistry Council). Actively benchmarking achievement of CSR goals and establishing revised expectations annually.

Noticeably, even though strong organizational values and norms are important, they are not sufficient to ensure responsible corporate behaviors: they may fail to account for the evolving norms and issues valued by powerful stakeholder communities. Wal-Mart customers appear to have more power than employees, while suppliers do not feel preferred and some communities boycott Wal-Mart stores. Employees may be gaining power as their treatment is under scrutiny (Ferrell, 2004). Therefore, businesses must be capable of defining their values and norms while concurrently keeping abreast of those of their stakeholders. Stakeholder issues and processes Important stakeholder issues. Given limited organizational resources, businesses cannot possibly address all stakeholder issues. The nature of the most important stakeholder issues is determined by considering simultaneously: . the priorities dictated by organizational values and norms (urgency); . the relative power of different stakeholder groups; and . the legitimacy of the issues presented (Mitchell et al., 1997). The magnitude and presences of these three elements increases organizational attentiveness to stakeholder concerns (Mitchell et al., 1997). As earlier mentioned, organizational values and norms can be more stringent than those of stakeholders; therefore, addressing relevant stakeholder issues is seen as a strict minimum to show commitment to CSR. The evaluation of the organization’s impacts on various stakeholder issues can be based on objective indicators such as those outlined in Table I. This assessment can also be performed by surveying the satisfaction of different stakeholders with the organization along with their image of the organization. CSR processes. Two main types of CSR processes can be recommended to bring organizational norms into practice and to properly address relevant stakeholder issues. First, stakeholder intelligence generation processes help the firm keep abreast of the nature of powerful stakeholder communities along with their main norms and concerns. A second type of CSR processes consists of implementing concrete initiatives aimed at tackling relevant stakeholder issues. These initiatives can take many different forms. For example, processes aimed at addressing some employee issues could include a health and safety program, the development of a career management program, or work schedules that facilitate the coordination of personal and professional lives. With respect to customers, concrete CSR implementation processes could consist of product quality and safety programs, or of procedures aimed at responding to individual customer complaints. Initiatives aimed at the community include philanthropic and volunteerism programs along with environmental protection efforts.

Overall, the view of CSR depicted thus far helps render this concept manageable by limiting its scope and tying it to concrete business activities. Clarkson (1999, p. 4) defined nine principles of stakeholder management in building stakeholder relationships: (1) Acknowledge. (2) Monitor. (3) Listen. (4) Communicate. (5) Adopt. (6) Recognize. (7) Work. (8) Avoid. (9) Acknowledge conflicts. In addition, Carroll and Buchholtz (2003, p. 78) provide key questions in stakeholder management: . Who are our stakeholders? . What are our stakeholders’ stakes? . What opportunities and challenges do our stakeholders present to the firm? . What responsibilities (economic, legal, ethical, and philanthropic) does the firm have to its stakeholders? . What strategies or actions should the firm take to best handle stakeholder challenges and opportunities? It has been suggested that a stakeholder management approach systematically integrates managers’ concerns about organizational strategy with the interests of marketing and other functional areas of business (Savage et al., 1991). By assessing each stakeholder’s potential to threaten or to cooperate with the organization it is possible to identify supportive, non-supportive, and marginal stakeholders (Savage et al., 1991). The next section uses this conceptual framework as a basis to develop a solid plan to manage CSR. How to implement CSR in marketing This methodology outlines the steps to be adopted to properly implement CSR from a marketing perspective. In particular, the methodology advanced is aimed at introducing a coherent CSR program where marketing decisions are driven by a fit with organizational values and norms. An overview of the proposed methodology is provided in Figure 2. Step 1: discovering organizational values and norms In order to enhance organizational fit, a CSR program must align with the values, norms, and mission of the organization. The purpose of this first step is to identify the organizational values and norms that are likely to have implications for CSR. In particular, relevant existing values and norms are those that specify the stakeholder

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Figure 2. A step-by-step approach for implementing CSR

groups and stakeholder issues that are deemed as most important by the organization. Very often, relevant organizational values and norms can be found in corporate documents such as the mission statement, annual reports, sales brochures, or web sites. Table II illustrates how concrete corporate values and norms can be translated in terms of CSR objectives. Formal documents may not be sufficient to elicit how the organization envisions its relationships and contributions to stakeholders. Interviews of leading and senior organizational members may yield fruitful insights to begin the management process. While they clarify the stakeholders and issues they stand for, businesses must also understand which corporate practices and impacts are of greatest concern to their stakeholders. While limited attention has been given to processes for identifying alternatives based on stakeholder values, Gregory and Keeney (1994) do suggest approaches for creating policy alternatives. They suggest an approach to guide stakeholder tradeoff decisions that uses a logical methodological framework. First,

Company

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Statement of organizational values and normsa Implications for CSR

3M

3M has four fundamental corporate values: “(1) satisfying customers with superior quality and value, (2) providing investors an attractive return [. . .], (3) respecting the social and physical environment, (4) being a company that employees are proud to be a part of”

Identification of most valued stakeholders: customers, investors, social and physical environment, employees Identification of valued stakeholder issues: satisfaction, quality, and value for customers; return for investors; no damage for the natural environment; and a sense of belonging for employees

McGraw-Hill

“The McGraw-Hill Companies services its customers, employees and shareholders alike, reaching across the globe. But our mission remains simple: [. . .] to help people around the world learn, grow, acquire new skills, better their lives and, in doing so, better their community”

Identification of valued stakeholders: customers, employees, shareholders Identification of important stakeholder issues: education and personal development

Beyond Petroleum

BP’s business policy includes: “Each individual in the teams that form the new company comes from a background in which values matter. These values may have been manifested in different ways, but they have much in common: a respect for the individual and the diversity of mankind, a responsibility to protect the natural environment, a belief in honest exchange and an awareness that a strong reputation is essential for business success”

Identification of relevant stakeholder issues: diversity, respect of human rights, protection of the natural environment, ethical business transactions

a

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Note: As found in the web sites of the corresponding companies

Table II. Implications of values and norms for CSR

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with mutual understanding of the decision context, each stakeholder articulates objectives. Stakeholders then, based on a list of objectives, identify alternatives with the understanding that objectives should be linked to values. Then a balanced compromise is developed from the objectives of competing stakeholders through negotiations (Gregory and Keeney, 1994). For example, marketing traditionally targets customer stakeholders, but a new logic is evolving with the appropriate unit of exchange being the application of competencies, knowledge, and skills for and to the benefit of all stakeholders (Vargo and Lusch, 2004). Organizations that embrace a stakeholder orientation need to generate intelligence identifying stakeholders and understanding their needs. Identifying CSR issues and problems is the first step in determining the stakeholder groups that have an interest in organizational participation and solutions. When addressing marketing issues, consumer surveys have been used as a key input for decision making, especially in shaping public policy through agencies such as the Federal Trade Commission and Food and Drug Administration (Hastak et al., 2001). Step 2: identifying stakeholders In managing this stage, it is important to recognize stakeholder needs, wants, and desires. There are many important issues that gain visibility because key constituencies such as consumer groups, regulators, or the media express an interest (Hastak et al., 2001). When agreement, collaboration, or even confrontations exist on an issue, there is a need for a decision making process. Lober (1997) suggests a model of collaboration to overcome the adversarial approaches to problem solving. Managers can identify relevant stakeholders that may be affected by or may influence the development of organizational policy. Altman and Petkus (1994) suggest that there will be conflicting needs that require: . consulting, accommodation, and involvement; . formulation of alternatives; . communication and leadership; and . policy implementation that is monitored and adjusted. As discussed earlier, stakeholder identification and salience is based on stakeholders possessing one of the following attributes: power, legitimacy, and urgency (Mitchell et al., 1997). Stakeholders have some level of power over a business because they are in the position to withhold, or at least threaten to withhold, organizational resources (Carroll and Buchholtz, 2003). To assess the power of a given stakeholder community, it is useful to rate the extent to which: . the firm depends on the resources of this stakeholder community for its continued survival; and . the welfare of the stakeholder community depends on organizational success (Frooman, 1999). Stakeholders have most power when their own survival is not really affected by the success of the organization, and when they have access to vital organizational resources. For example, most consumers of shoes do not need per se to buy Nike shoes. Therefore, if they decide to boycott Nike, they have to endure only minor

inconveniences. Nevertheless, their loyalty to Nike is vital to the continued success of the sport apparel giant. The proper assessment of the power held by a given stakeholder community also requires an evaluation of the extent to which that community can collaborate with others to pressure the firm. The more ties exist or can easily be developed between stakeholder communities with similar norms, the more vulnerable the organization. This idea can be illustrated with Shell’s Brent Spar crisis in the early 1990s (Zyglidopoulos, 2002). Greenpeace had secured the support of several television and newspapers outlets before it launched its offshore demonstrations against Shell’s planned destruction of an oil platform. The NGO had also gathered support beforehand among other environmental groups, church representatives, and political leaders in several European countries. This created legitimacy of the cause. As a result, Greenpeace’s actions were highly visible and led to broad-based and unified condemnations of Shell. This resulted in the urgency for Shell. The oil giant then had little choice but to give in to activists’ demands. Such contagion effects and collaboration help stakeholders build power relative to the firm. At the end of step 2, businesses should have a list of stakeholder communities in hand, with a rough assessment of their perspective and common power. Step 3: identifying stakeholder issues Together, steps 1 and 2 lead to the identification of the stakeholders who are both the most powerful and legitimate. The level of power and legitimacy determines the degree of urgency in addressing their needs. Step 3 consists then in understanding the nature of the main issues of concern to these stakeholders. Conditions for collaboration exist when problems are so complex that multiple stakeholders are required to resolve the issue and the weaknesses of adversarial approaches are understood (Lober, 1997). Some of this knowledge is often partially in-house, but has not been systematically integrated and analyzed. Boundary spanners (e.g. sales representatives, customer-service representatives, purchasing managers, public relations and advertising specialists) may be especially knowledgeable about the main norms and concerns shared by customers, suppliers, and the public opinion. Relevant information can also be found in secondary documents published by stakeholder organizations such as professional associations, governmental agencies, NGOs, or competitors. In spite of this existing knowledge, it may still be useful to conduct panel discussions or interviews with stakeholders to better understand their specific expectations. Topics to be tackled in these forums could include: . Stakeholders’ views of CSR in general: what is CSR? What are examples of socially responsible firms? What are examples of socially irresponsible firms? To whom are businesses most responsible? . Stakeholders’ views of the social responsibilities faced by the focal organization: to whom is this firm responsible? What are negative impacts of the firm on society and on its business associates? How can the organization actively contribute to the well-being of different stakeholders? Such a process of stakeholder intelligence generation is in place at General Motors with “community impact strategic teams,” in charge of identifying internal and external issues that may impact the company and its stakeholders. An accurate assessment of

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relative power levels can enable stakeholders to accept their roles and responsibilities and assist top management in implementing stakeholder orientation (Daake and Anthony, 2000). Overall, step 3 should result in a clear list of stakeholders and their concerns as well as providing the framework for strategic planning. Step 4: assessing the meaning of CSR Steps 1 through 3 consist of generating information about CSR among a variety of influencers in and around the organization. Step 4 brings these three first stages together to arrive at a concrete definition of CSR that specifically fits the organization of interest. This general definition will then be used to evaluate current practices and to select concrete CSR initiatives. Functional areas such as marketing, should be able to use this definition for CSR activities that address stakeholder concerns. Ideally, this chosen definition is then formalized in official documents such as annual reports, web pages, or company brochures. The definition should at least clarify two main points: (1) The motivation underpinning the commitment to CSR. (2) The stakeholders and issues that are perceived as priority by the organization. The first element of the definition clarifies why CSR is of interest to the company, and therefore places CSR in the context of the broader organizational objectives and mission. When a CSR issue and mandate for a solution exists, there is a shift to exploring alternatives with constituencies such as consumer groups, trade associations, regulatory agencies, as well as others to develop a CSR definition and policy (Hastak et al., 2001). From the analyses conducted in steps 1 and 2, it may become obvious that CSR is an integral part of the organization’s values and norms. For example, the financial services provider PNC states: Giving back is a bedrock value at PNC. For us, that is business-as-usual (PNC, 2004).

In contrast, the pharmaceutical company AstraZeneca presents CSR mainly as the result of stakeholder pressures: “we aim to be in tune with the changing expectations of society and to conduct business in a way that meets widespread approval” (AstraZeneca International, 2004); and Carrefour introduces CSR as an excellent instrument to achieve performance objectives: “we firmly believe that our responsible approach is the source of our financial success” (Carrefour, 2004). The second element of a CSR definition pinpoints the stakeholders and issues that are the main targets of CSR initiatives. The formation of voluntary collaborations is related to organizational commitments in their values and objectives to participate in solutions that result in improved CSR (Lober, 1997). For instance, the global bank ABN AMRO defines its social responsibilities as follows: Being an active and responsible member of the societies and communities in which we operate is very important to us, morally as well as financially. Whether creating new products designed to promote sustainable development, spelling out the principles on which we conduct our business or supporting sports and the arts, we believe that being a good corporate citizen creates value for all stakeholders – employees, clients, investors, communities and others (ABN AMRO, 2004).

In this definition, ABN AMRO identifies key stakeholders along with stakeholder issues that are considered as most important including sustainable development,

integrity, and sponsorships of sports and arts. Ginsberg and Bloom (2004) noted that consumers will not compromise on key product attributes for environmental issues such as green marketing. Environmental approaches must be customized to the company, strategy, and competitive environment. While most organizations will identify customers as key stakeholders, specific issues the marketing function addresses should be derived from organizational issues.

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Step 5: auditing current practices The use of social auditing to identify stakeholder issues is important to demonstrating a firm’s commitment to social responsibility. Social auditing is a process of assessing and reporting business performance and fulfilling social responsibilities expected by its stakeholders (McAlister et al., 2005). Without reliable measurements of the achievement of social objectives, a company has no concrete way to verify their importance, link to organizational performance, or justify expenditures to stakeholders (Zadek et al., 1997). The social audit should provide regular, comprehensive, and comparative verification of stakeholder feedback, especially key issues and concerns. Two main questions can guide an audit of current CSR practices: (1) What does the organization already have in place to address important stakeholder issues? (2) Which practices need improvement? The first part of this inventory is necessary because most organizations do not have a good overview of the various processes already in place to tackle each specific stakeholder issue. For example, when considering the issue of customer relationships, managers may consider a broad range of initiatives such as customer expectations, contract employee performance, as well as the customers’ feelings about environmental and social issues related to the purchase of the product. This creates the need for marketing to consider long-term relationships rather than using technology to control immediate customer behavior (Vargo and Lusch, 2004). The second part of the audit consists essentially in identifying which organizational practices need to be modified in order to better address stakeholder issues. A systematic review of all organizational processes along with surveys of different stakeholders could be conducted to perform the second part of this audit. Objective indicators of the organizational impacts on specific stakeholder issues (see those presented in Table I) can also be used. Businesses can rely on standardized audits such as those offered by the Global Reporting Initiative and the Social Accountability Institute. These standards provide a listing of issues to be surveyed, along with recommended indicators of impacts. These standardized audits implicitly assume that all companies share similar values and face about the same stakeholder communities and issues. As a result, they are most adequate for large companies that confront a wide range of issues and can afford to tackle this variety. Regardless of size, businesses should make sure that their audit centers on the stakeholders and issues favored in their own definition of CSR. Such a focus best enables businesses to concentrate their efforts and to establish a clear profile in the eyes of stakeholders. At the end of step 5, businesses should have a detailed inventory of organizational activities that need to be added or improved.

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Step 6: implementing CSR initiatives The CSR implementation process starts with the prioritization of the challenging areas outlined in step 5. Two main criteria can be considered. First, the levels of financial and organizational investments required by different actions should be considered. In particular, one could distinguish between the challenges that require: . Only small adaptations of current processes. For instance, philanthropic donations could be re-organized to systematically target one specific strategic issue. Similarly, communications to employees could be consolidated in order to yield greater accessibility and clarity. Service quality could be improved by reducing cycle time. . The creation of new external marketing processes. Examples would include the development of a supplier selection program based on environmental criteria, and the adoption of a process to give a personal answer to every customer complaint. . The development of new products to enhance green marketing. For instance, businesses could attempt to lower the non-recyclable content of products, design ways to re-use old packaging or improve pollution emission well in advance of government regulations. A second criterion to consider when prioritizing CSR challenges is urgency. When the challenge under consideration corresponds to a point listed in the definition of CSR, and when stakeholder pressures on the issue could be expected, then the challenge can be considered as urgent. It should therefore be tackled without delay. Once a depiction and schedule of CSR challenges has been established, it is essential to allocate responsibility both to individual initiatives, and to the CSR implementation process as a whole. Even though it is often neglected, the designation of an individual or committee in charge of overseeing all CSR efforts is the only way to ensure the coherence of diverse initiatives, along with their fit with the stated definition of CSR. Step 7: promoting CSR Creating awareness. Given that one aspect of CSR consists in addressing stakeholder issues, it is essential that businesses keep internal and external stakeholders aware of the initiatives undertaken to address these issues. Public relations including environmental and social reports constitute an increasingly popular means of keeping some stakeholders informed (mainly shareholders, investment funds, business partners, and employees). An increasing number of companies also seem to also use web sites to communicate their achievements (Maignan and Ralston, 2002). Traditional advertising can also be used to enhance awareness of CSR initiatives. For instance, Shell has been conducting for several years a campaign on the theme: “profits and principles: is there a choice?” This campaign emphasizes Shell’s commitment to social responsibility and environmental sustainability. Given that the successful management of CSR requires the continuous generation of intelligence about stakeholders, communications on CSR should not flow solely from businesses to stakeholders. Instead, businesses should strive not only to create awareness of CSR, but also to establish bonds to stakeholders and invite them to participate in their CSR initiatives.

Getting stakeholders involved. One approach to stimulating a sense of bonding to the firm consists in emphasizing the fact that the business and its stakeholders share similar concerns. For example, Wal-Mart advertises on store displays and on its web site the thank-you letters and special acknowledgements received by its employees during the working hours they spent as volunteers in the community. These messages make public the common concern for the community displayed by both the company and its employees. The publicized affiliation and commitment might be appealing to potential recruits, consumers, and community members. Stakeholder expectations should be known to provide for the best match with corporate action and a mismatch between words and actions jeopardizes firm credibility (Dawkins and Lewis, 2003). Awards, prizes, and events similar to sales promotion activities in marketing are also popular methods to encourage stakeholders to partner with the firm in order to address a specific issue. For example, AstraZeneca has adopted an awards program that recognizes the country managers that have introduced successful initiatives with respect to safety, health, and the environment. In a similar vein, AstraZeneca organized community initiatives in more than 20 countries to celebrate its first birthday. Not only were employees invited, but business partners, NGOs, and community leaders were also invited to take part in these special events. Overall, step 7 is intended first and foremost to encourage the exchange and interaction of ideas to gain stakeholder engagement. Meanwhile, promotion adopted during this phase may provide important information to stakeholders to secure increased support for their activities. When stakeholders get a chance to understand that a business acts upon issues that they value, they may be appreciative of the firm’s efforts, and may be willing to support organizational CSR initiatives. There is some preliminary research evidence that supports the likelihood of increased stakeholder resources as a result of CSR initiatives. In particular, scholars have established positive relationships between perceptions of CSR and a variety of desirable outcomes such as positive product and brand evaluations, customer loyalty, employee commitment, and attractiveness as an employer (Brown and Dacin, 1997; Handelman and Arnold, 1999). Even though these findings need confirmation, they suggest that businesses may be able to enjoy concrete rewards from their investments in CSR. Even though such benefits may be real, businesses should not be tempted to use step 7 only for promotional spin rather than focusing on stakeholder expectations. It is indeed also essential that businesses use communications to obtain stakeholders’ feedback on their CSR efforts. Step 8: gaining stakeholder feedback The different activities mentioned in step 7 help stimulate a dialogue with stakeholders. Other instruments can be employed to keep abreast of stakeholders’ views of the firm and of their evolving issues (Sen and Bhattacharya, 2001). Additional stakeholder feedback can be generated through a variety of means. First, stakeholders’ general assessment of the firm and its practices can be obtained through satisfaction or reputation surveys. For instance, AstraZeneca has conducted a global survey of its employees to evaluate not only their own satisfaction, but also their perceptions of the firm’s socially responsibility efforts. Beyond Petroleum (BP) has conducted several surveys of stakeholders in order to evaluate their perceptions of the firm, and get

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insights into welcome improvements. One quantitative survey focused on the reputation of BP among several audiences in the US and UK. Second, in order to gauge stakeholders’ perceptions of the firm’s contributions to specific issues, more qualitative methods may be desirable. For example, BP conducted a qualitative evaluation of its social responsibility efforts and reporting through in-depth interviews of institutional investors, private shareholders, community leaders, and NGOs. Different approaches enable assessment of the firm’s progress in addressing specific stakeholder issues. They also highlight areas that require further improvements. Therefore, as depicted in Figure 2, we suggest that stakeholders’ feedback be used as input for the next audit. Consequently, the sequence linking steps 5 to 8 (from the CSR audit to stakeholder feedback) should be performed on a regular basis. In fact, we recommend conducting an audit of current practices bi-annually. Figure 2 further illustrates that stakeholders’ feedback can be used as an input to reassess the first three steps of the CSR management process in the long-run (approximately every four years). Stakeholder surveys and interviews could indeed highlight a new and important stakeholder group, or could reveal emerging stakeholder issues. As a result, organizational norms and values along with the definition of CSR might need to be revised. Since social responsibility practices are aimed in large part at addressing stakeholder issues, it is essential that businesses continuously gauge the evolution of these concerns, and integrate the changes into organizational values, norms, and practices. Finally, functional areas such as marketing, can assist in implementing shared values and norms relating to CSR. Conclusions A stakeholder model can be used for implementing CSR in marketing. Marketing is moving from a narrow customer orientation to managing relationships and benefits for all stakeholders. The new American Marketing Association definition of marketing reflects this change and Vargo and Lusch (2004) provide a theoretical foundation for this new perspective. The stakeholder methodology for marketing presented in this paper outlined only the main logic underpinning the sound implementation of CSR. CSR in marketing, like all marketing activities, is driven by overall values and norms at the organizational level. This analysis did not did not specify the process for specific marketing initiatives, especially in the presence of conflicting stakeholder demands. The focus was to prove a methodology, specifically the steps, for using a stakeholder model for the organizational level that encompasses functional level marketing CSR decisions. The dynamic nature of CSR along with the complexity of the challenges raised call for a significant amount of organizational planning, resources, and commitment. Support for investing in CSR is likely to yield tangible benefits in terms of customer loyalty, employee commitment, supplier support/partnership, and corporate reputation. Furthermore, avoiding the costs of managing CSR may lead to misconduct that, as demonstrated by recent business events, can not only tarnish the image of the firm, but also endanger its mere existence. Many organizations desire to go beyond the basic regulatory requirements and make a difference by contributing to stakeholder needs. Far from being a luxury, CSR has become an imperative to secure stakeholders’ continued support, and ensure a desired identification and reputation among customers, employees, shareholders, NGOs, and governments.

This stakeholder model of CSR provides a foundation for building an organizational identity and reputation based on stakeholders’ norms and values. Research is suggested to examine to what extent this methodology has been implemented in corporations as well as alternative approaches for implementation. In addition, linking the degree of implementation with desired corporate identity and reputation would provide evidence of benefits of the methodology. This methodology has important implications for the way the marketing function is conceptualized and implemented in an organization. Preliminary findings indicate a stakeholder orientation assists with not only CSR, but also marketing performance. References ABN AMRO (2004), available at: www.abnamro.com (accessed September 29, 2004). Altman, J.A. and Petkus, E. (1994), “Toward a stakeholder-based policy process: an application of the social marketing perspective to environmental policy development”, Policy Sciences, Vol. 27, pp. 37-51. American Marketing Association (2004), “What are the definitions of marketing and marketing research?”, available at: www.marketingpower.com/content4620.php (accessed December 8, 2004). AstraZeneca International (2004), available at: www.astrazeneca.com (accessed September 29, 2004). Berman, S.L., Wicks, A.C., Kotha, S. and Jones, T.M. (1999), “Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance”, Academy of Management Journal, Vol. 42 No. 5, pp. 488-506. Bolina, M.C., Turnley, W.H. and Bloodgood, J.M. (2002), “Citizenship behavior and the creation of social capital in organizations”, Academy of Management Review, Vol. 27 No. 4, pp. 505-22. Bowen, H.R. (1953), Social Responsibilities of the Businessman, Harper & Row, New York, NY. Bromley, D.B. (2001), “Relationships between personal and corporate reputation”, European Journal of Marketing, Vol. 35 Nos 3/4, pp. 316-34. Brown, T.J. and Dacin, P.A. (1997), “The company and the product: corporate associations and consumer product responses”, Journal of Marketing, Vol. 61, pp. 68-84. Carrefour (2004), available at: www.carrefour.com (accessed September 29, 2004). Carroll, A.B. (1979), “A three-dimensional conceptual model of corporate performance”, Academy of Management Review, Vol. 4 No. 4, pp. 497-505. Carroll, A.B. and Buchholtz, A.K. (2003), Business and Society: Ethics and Stakeholder Management, 5th ed., Thomson South-Western, Mason, OH. Christen, L.T. and Askegaard, S. (2001), “Corporate identity and corporate image revisited: a semiotic perspective”, European Journal of Marketing, Vol. 35 Nos 3/4, pp. 292-315. Clarkson, M.B.E. (1995), “A stakeholder framework for analyzing and evaluating corporate social performance”, Academy of Management Review, Vol. 20 No. 1, pp. 92-117. Clarkson, M. (1999), Principles of Stakeholder Management, The Clarkson Centre for Business Ethics, Joseph L. Rotman School of Management, University of Toronto, Toronto. Daake, D. and Anthony, W.P. (2000), “Understanding stakeholder power and influence gaps in a health-care organization: an empirical study”, Health-Care Management Review, Vol. 25 No. 3, pp. 94-107. Dawkins, J. and Lewis, S. (2003), “CSR in stakeholder expectations: and their implication for company strategy”, Journal of Business Ethics, Vol. 44, pp. 185-93.

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Val Clulow Faculty of Business and Economics, School of Business and Economics, Monash University, Churchill, Australia Abstract Purpose – This paper aims to offer marketers an example of the application of stakeholder theory and analysis, using a current discourse between a number of stakeholders about their views on issues raised in a report on a model for the sustainability of life in Australia in the future. Design/methodology/approach – Through a systematic discourse analysis of the text of the speakers on the documentary program, the relationship of each stakeholder group to the issues at the centre of the discourse is unpacked. Findings – Four themes emerged from the analysis indicating that the thinking of the stakeholders on the concept of an “economy” was based on different theoretical schemata; their level of concern for “sustainability” of a viable economic model varied; they did not agree on the question of who is responsible for a “sustainable future”; and the philosophical positions of the stakeholders on the issue varied considerably. Practical implications – The implications for marketing communicators or stakeholder groups, needing to lobby, negotiate or influence others who operate in a different paradigm, are discussed. Originality/value – An integrated marketing communications model is proposed that accounts for important relationships between the organization and its key stakeholders. The contribution to marketing lies in the demonstration that consideration of each step in the plan as it relates to each stakeholder, rather than a single-minded approach, provides an opportunity for competitive advantage. Keywords Stakeholder analysis, Marketing communications Paper type Research paper

European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 978-997 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610671

Introduction Marketing academics are increasingly drawing on multi-disciplinary approaches to dealing with the complex economic environment. For example, in the past decade the resource-based-view of the firm (RBV) has provided marketers with an alternative framework for the discussion of competitive advantages and their impact on superior performance. Mahoney and Pandian (1992) suggested that a valuable contribution of the RBV is that it creates “conversation” between scholars from a number of research perspectives. The framework provided by the RBV has generated dialogue, debate and research over the past decade in which marketing scholars such as Day and Wensley (1988), Bharadwaj et al. (1993), Day and Nedungadi (1994), Hunt and Morgan (1995), Fahy (2000), Hunt (2001), Clulow et al. (2003), have all been active. The RBV turned attention inward, on the key resources of the firm, the components of which, tangible and intangible assets and capabilities, combine to make a firm unique. For business leaders, the concern for sustainability of performance has now broadened to encompass a concept of sustainability that reaches far beyond the return to shareholders. Resources, especially physical resources, are not now regarded as

boundless in supply. This shift in focus is forcing a realignment in the way that marketers must approach their work. Getting the sales at any cost is not acceptable now, where the cost involves compromising integrity and unethical practice. Stakeholder theory offers a way of understanding this recent challenge to traditional market economics, which holds that endless growth may not be the wisest model to underpin long-term national policy. Marketers need to embrace alternative conceptual frameworks too, so that their role can adapt to new demands. The purpose of this paper is to explore how an analysis of stakeholder perspectives on a particular issue that is being marketed, informs the (marketing) communications of any one/or all of the stakeholders. Underlying the approach is a conceptual framework which has applied more traditional marketing with stakeholder theory and an extension of this to the “marketing” of ideas related to public policy. The basis of this paper is an Australian government-commissioned research report (Foran and Poldy, 2004) that was so provocative that a government committee was commissioned after its release to review its credibility. The research conducted by the government-funded body, the Commonwealth Scientific and Industrial Research Organisation (CSIRO), was the topic of an ABC TV documentary, where the views of a number of key stakeholder representatives were aired. Their responses to the research are indicative of the fundamental element of stakeholder theory that holds that different stakeholders in a venture are in relationship with the venture to the extent that the particular strategy pursued, affects the stakeholder. Whilst this view is not surprising and intuitively reasonable, the ramifications of the divergence of stakeholder opinion in relation to this CSIRO research report are serious, more so because the objective of the study was to build a unique working model of “life in the future”. The management and marketing of public policy ideas, such as economic policy, and the foundations that underpin them, are elements of our society under challenge by diverse groups. The purpose of this paper is to explore an example of one such public policy issue and to analyse the discussion of the CSIRO report using stakeholder theory as a basis. From the analysis a number of inferences for marketing strategists are proposed. Literature review The philosophy underpinning ethical marketing practice has become a far greater concern to businesses seeking customer retention, value chain relationships and corporate reputation in recent years. A range of drivers motivate firms, from the key tenets of the Kotlerian marketing concept, centred on customer satisfaction and profitability, to an approach more attuned to the societal marketing concept and consumer welfare in the long-run (Kotler, 1972). What they have in common now, is the visibility of vocal and more demanding stakeholders from wide-ranging perspectives. Business ethics studies to date have tended to focus on the consumer side of the equation (Vitell et al., 1991, 2001) but more recently the concept of stakeholdings has broadened and firms are more widely regarded as having responsibilities that extend much further into the community and the environment. Likewise the application of this thinking to the public sector is apparent, as it adopts a “new public management” style of administration (Barlow and Rober, 1996) and begins to adopt business approaches which are more “strategic” (Llewellyn and Tappin, 2003). Conceptually, the need for businesses to develop greater stakeholder awareness is relevant and intuitively realistic. However in terms of marketing strategy, as Bunn et al. (2002) have noted, with the development of greater numbers of multi-sector

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innovations, the identification and management of a wide range of stakeholders can be very complex. Opportunities to gain competitive advantages have been identified by Morash and Lynch (2002) as having great potential for those who can address the needs of various stakeholders with policies capable of traversing the globe. This idea resonates with the earlier work by Porter (1985) on the “value chain” yet is particularly compounded by the diversity of stakeholders apparent in international business to business transactions across multiple sectors. For multi-nationals, the challenge is made even more difficult by acknowledged differences in ethical views and practices between marketing professionals operating in international markets (Singhapakdi et al., 1994; Singhapakdi and Karande, 2001; Karande and Rao, 2002). Further, the positive link identified between explicit corporate ethical values and organisational commitment by marketers, suggests that the role of leaders in businesses is significant in this regard. Weighing the influence of various stakeholders is one approach to managing marketing strategy and related performance. It is the fluidity of the dynamics and relative levels of influence between stakeholder groups that has become a key strategic challenge for larger firms and institutions, and which offers an opportunity for contribution by the marketing function. Crane and Desmond, 2002, p. 565) have suggested that stakeholder theory offers an important avenue for research in response to the need for new models of governance and accountability for marketers. They are quick to direct our attention towards a need for a better understanding of the intricate web of interactions in the environment, which they describe as the “. . . processes and discourses which frame decision making in marketing and consumption, particularly with respect to their moral dimension.” They urge further research to focus on a greater illumination of the nature of marketing decision making from which a better “understanding of the morality embedded in (societal) marketing practices” can be sought, rather than persistence with further descriptive marketing theory or indeed attempts at prescriptive “ethical” marketing models (p. 565). Recent marketing approaches such as “ethical consumerism” (Strong, 1996) and “fairtrading” (Nicholls, 2002) where it has been proposed that there is strategic advantage to be gained through targeting the ethical consumer market segment, have begun to gain more attention. For example, fair-traders are identified on the stock exchange listings in the UK. Halal (2000) proposed “a theory of the firm uniting profitability and responsibility” where the idea of the “corporate community model” promotes knowledge sharing and is depicted as a collaborative community activity, where economic wealth and value is created and redistributed to all constituencies, based on the management of relative contributions and rewards. Whether or not the idea that stakeholders from different perspectives can collaborate communally is naı¨ve may depend perhaps on what is at stake. In the two decades since Freeman’s (1984) seminal work on stakeholder theory, the concept has been integrated into academic business research, reviewed in terms of its influence (Donaldson and Preston, 1995) and applied to disciplines such as marketing (Miller and Lewis, 1991), business to business systems (Gupta, 1995), and multi-sector innovations (Bunn et al., 2002), amongst others. Whilst none of these various studies has claimed to have applied the theory in a way that makes business interactions easier to understand or manage, the concept has an intuitive reality which demands our attention and has prompted further exploration.

There have been several developmental landmarks in stakeholder theory over the past two decades, generally dating from Freeman (1984), who provided a definition of a stakeholder as follows: A stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization’s objectives.

Freeman and Evan (1990) proposed that the stakeholder dynamic comprised of “. . . a series of multi-lateral contracts among stakeholders” (p. 354). The need to apply strategic planning systems and analysis systems to manage volatile business environments, in a way that is sensitive to various stakeholders was explored over a decade ago by Camillus and Deepak (1991), who acknowledged the shortcomings of the “conventional” strategic planning systems of the day to cope with the changing environments. A later study by Moussavi and Evans (1993) provided further discussion and their conceptual model acknowledged the difficulty of managing stakeholder biases using organizational attribution schemata. The “Reflections on stakeholder theory” from the Toronto conference (Clarkson et al., 1994) provide further insight into developments of the concept through the past decade, affirming the difficulty of theorising on a construct which is centred in unpredictable human behaviour (p. 101). Carroll’s (1994) study into social issues in management (SIM) research, surveyed 37 “experts” from the SIM Division of the Academy of Management (USA) and indicated that at that time the topic “stakeholder issues” was ranked seventh in importance by respondents. It was noted by Rowley (1997) in the late 1990s, that the identification and management of stakeholders had become “. . . one of the most popular trends in business and society literature . . . which many scholars have used as a framework for integrating and organizing research in the field” (p. 887). His contribution was to indicate that there are stakeholders with “structural influence” that do not necessarily have direct relationships with the firm, through their social networks. Mitchell et al. (1997) presented their view on the salience of stakeholders on the basis of the priority given to each by managers, and by defining the relationship attributes “power, legitimacy and urgency” (p. 853). A different view was developed by Frooman (1999) who proposed that the “resource relationship” or who is dependent on whom and for what, determines the influence strategies adopted by stakeholders. The focus here is more about “. . . knowing how stakeholders may try to influence a firm” (p. 203) rather than the managerial position proposed earlier by Donaldson and Preston (1995), that presents the view that the firm needs to respond to actors in the environment. However McLarney (2002) reminds us that company-stakeholder “clusters are interlinked in a complex manner” and that these various linkages will develop and change over time. She proposes the application of strategic group theory, which views the firm and its stakeholders as exercising “. . . joint control over areas of shared concern” (p. 261). The idea of stakeholders is now adopted beyond the firm, and is commonly applied to regional, national and global issues. Gupta (1995) discussed Mallott’s (1990) three-step plan for using stakeholder theory in strategic planning as follows: (1) Identify and specify the stakeholders and their interests, domain and specificity. (2) Identify and describe the relationships between the stakeholders and the firm, and among the stakeholders. Include power relationships.

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(3) Incorporate the concepts of action and time. Construct stakeholder and successive stakeholder maps. Gupta (1995) applied the framework to construct a conceptual stakeholder map (Figure 1) that illustrates the complexity of the networks, if used as a basis for action or decision-making. Indicators of power relationships were not provided by Gupta, whereas the schema developed by Wheeler and Sillanpa¨a¨ (1997) categorises stakeholders by their level of influence on the firm (primary or secondary) and the nature of their influence (social/non-social). The fluidity of such a categorisation is evident, depending on the issue at stake (Table I). For example, a member of the non-social/secondary stakeholder group (e.g. animal welfare organisation) may gain in influence by joining

Figure 1. Example of an IOS stakeholder map

Stakeholder category

Stakeholder category representatives

Primary social stakeholders

Shareholders, investors, employees, customers, local communities, suppliers, other business partners Government, regulators, civic institutions, social pressure groups, media and academic commentators, trade bodies, competitors The natural environment, future generations non-human species Environmental pressure groups, animal welfare organizations

Secondary social stakeholders

Table I. Stakeholders’ level of influence on the firm and the nature of their influence

Primary non-social stakeholders Secondary non-social stakeholders

Source: Adapted from Wheeler and Sillanpa¨a¨ (1997)

forces with employees, to raise objection to a decision or proposal which they strongly oppose. The need to consider the level of influence of stakeholders was also encapsulated by Ittner and Larcker (2002), who built in a proposed weighting of the strength of importance of a number of stakeholder relationships, noting that these will vary between industries. Their approach (Figure 2) was discussed as primarily a management tool, without any discussion of appropriate metrics to apply to evaluating performance. The recent challenges facing the management of modern, western businesses, are considered from a stakeholder perspective in a recent text by Carroll and Buchholtz (2003) who provided a “stakeholder view of the firm” (Figure 3) originally devised by business strategists in the 1980s but adapted to the modern business context, which designates the four major contributing “environments”, social, technological, economic and political (STEP). The broad applications of the STEP analysis that have survived

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Figure 2. The stakeholder relationship web

Figure 3. The stakeholder view of the firm

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beyond two decades, seem further enhanced by incorporating stakeholder influence. This view identifies in broad terms, a way of descriptively conceptualising stakeholder groups that bear on the firm in the current business environment. Each of the models discussed here and others, have contributed to our understanding of the diversity of the stakeholder view and its value as an analytical tool by which “. . . to identify systematically and take into account the interests of, and impacts on, the various affected parties” (Gupta, 1995, p. 5). Balancing the perspectives of a number of stakeholders, including shareholders, can be construed as problematic, where the views of different groups are at odds. Goodpaster (1991) proposed that businesses should pursue a “stakeholder synthesis approach” by which they acknowledge moral responsibilities to all stakeholders, but regard these as separate from fiduciary obligations to shareholders. In this view, the company’s fiduciary responsibility to shareholders is implemented in the context of an ethical business ethos. The models represent three distinctive approaches to a stakeholder view, as articulated by Donaldson and Preston (1995). These are descriptive, showing the constellation of interests in which the firm is embedded; instrumental, by which the firm takes account of stakeholder influence and links its responses to achieving performance goals; and normative, where all stakeholders interests are regarded as intrinsically significant and worthy. The call by Freeman (1999) for “. . . more studies of the kinds of linkages postulated in the instrumental thesis . . . ” (p. 235) and the imperative prompted by Crane and Desmond (2002) for further research using stakeholder theory, into decision making in marketing and consumption in particular, with special regard for the moral dimension has prompted this study. The research question that guides the study is how can an analysis of stakeholder perspectives inform the (marketing) communications of one or more of the stakeholders or the focal organisation. Methodology This exploratory research was designed to take advantage of a stakeholder discussion of a unique scientific study commissioned by the Australian government, about life in the future for the Australian continent. A grounded theory methodological approach was applied because grounded theory, in its essential form, consists of systematic inductive guidelines for gathering and analysing empirical materials to enable the explanation of collected materials (Denzin and Lincoln, 2000), such as content of conversations or dialogue. As the study was not based on a set framework or a replication of a previous study, an approach allowing the emergence of theory throughout the research process was most suitable. According to Saunders et al. (2000) in grounded theory, data collection starts without the formation of an initial theoretical framework. As the impact of stakeholders on marketing communications approaches has not been widely discussed in current literature, the theoretical propositions devised by this study were grounded in the results that emerged throughout the research process. The methodological approach taken here is known broadly as discourse analysis (Silverman, 2002, p. 826) or more generally as the analysis of “talk” or conversation (Arminen, 1999; Friedland and Penn, 2003), where the interest is on discerning the participants’ intersubjective understanding of the topic of the social interaction. The objective is to analyse “. . . the conversational ‘machinery’ through which meaning emerges” (Gubrium and Holstein, 2000, p. 492). This is a qualitative methodology

suited to reflexive process, using the systematic analysis of the text of reports and events over time, to enable reflection on events that incrementally mount to a paradigm shift. The approach to discourse analysis is inductive, in that questions are not tightly specified at the outset, but rather insights emerge during the analysis (Riessman, 2002). Interpreting meaning from the text data was characterised by action at different levels of detail, beginning with broad groupings then identifying finer aspects of the data and sorting that into more specific categories. The first level of data processing by the researchers involved clustering or coding the participant’s comments into broad themes. This paper is designed to focus attention on a particular issue facing society at large, which was recently presented from several perspectives, on Australian television, representing the views of a number of key stakeholders. The systematic analysis of the text of the talk from this program will provide an opportunity not often taken in marketing studies to date, to reflect on the impact of different stakeholders on societal issues and to contemplate the implications of their differences for marketing strategists. The qualitative approach adopted offers an example of how fundamental issues can be regarded differently by stakeholders holding divergent perspectives. Depending on the extent to which such fundamental questions that are regarded very differently by leaders of our society, there are considerable implications for institutional and business marketing strategists and the concept of performance. Increasing numbers of researchers in the business disciplines are adopting methodologies traditionally applied in the social sciences, to gain more intimate insight into issues that influence business transactions, such as using key individual informants (Day and Nedungadi, 1994) or single entities with unique attributes (Rouse and Daellenbach, 1999). In this study, the approach broadly reflects a Foucault (1972) tenet, that discourses are not merely representations of ideology, but are also “. . . working attitudes, modes of address, terms of reference, and courses of action suffused into social practices” (Gubrium and Holstein, 2000). With regard to this study, an interpretive analysis of the views expressed in the discourse, by each stakeholder group, has been selected as an appropriate means by which to examine and to understand the issue at hand. The application of this approach is regarded as more appropriate for this study than subsequent developments in ethnomethodology such as the constitutive power of language use (Potter, 1996, 1997; Prior, 1997) more appropriately applied to “discursive practice” in social interaction. In this respect it was necessary to identify the stakeholders and to define which stakeholder perspective would be applied in the study, descriptive, instrumentalist or normative (Donaldson and Preston, 1995). A descriptive analysis was undertaken as the aim of the study was to illustrate the differences in the nature of the views presented in the discourse of the various stakeholders. Participants The key stakeholders represented in the program are shown in Figure 4 and a full list is provided in the appendix. The interview interaction in this program is somewhat controlled rather than spontaneous. That is, the interviewer and programmers have asked a range of stakeholders for their views on the same issues without the opportunity for open debate or interaction. The term “discourse” in the broader sense of a range of views on

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the same social issue appears to be the most appropriate term to use to describe the collective matter from this program. Transcription The first stage of the methodological approach was to undertake a verbatim transcription of the full text of the program. All text was attributed to the individual speakers who represented a number of stakeholder views. The researcher then systematically analysed the text and sorted the material into themes, retaining reference to the stakeholder categories so that comparisons within and between the stakeholders readily facilitated. These themes have been used as the key headings in the presentation of the data. There is a wide recognition of the complexity of qualitative data analysis (Patton, 1990; Stake, 2000; Yin, 1994) and the need for inter-rater reliability to increase the stability of findings. As this analytical work was somewhat interpretive by nature, two academic colleagues undertook independent ratings and agreed with all categorisations presented here. Such inter-rater reliability checking provides a more robust analysis of such qualitative data. Using an inductive approach, the research design involved sourcing the meaning attributed to each comment and then to induce the role of this element within the stakeholder framework (Ray, 1993). Validity is concerned with whether the findings are really about what they appear to be about (Saunders et al., 2000). The comments made by participants in the program analysed in this study were generally explicit, pertaining to particular issues. By implementing a research process based on grounded research theory, the researcher was able to analyse and present the findings about the stakeholders view of a sustainable future, and to draw out a number of implications. Data presentation and discussion The data has been systematically analysed within a number of themes. The program was similar in style to a semi-structured interview, in that each of the stakeholder groups commented on their view of each of the issues posed. The presentation of the data will provide a profile of each theme as seen by the various stakeholders. The program host introduced the session as follows: What makes the work so controversial is the methodology. Most models of the economy use financial transactions that drive world markets. Foran’s group measures the physical

Figure 4. Stakeholders represented in the study

economy, the resources we use and the waste and pollution we create. Instead of dollars, the models use litres of water, joules of energy and tonnes of material (Fullerton).

This statement encapsulates a fundamental difference in the underlying paradigm from which stakeholders view the issue of a model of sustainability for the future. As with such extremes of view, there is a range of degrees of acceptance of one view or the other, by various stakeholders. Theme 1: the basis on which a model of the economy for the future should be founded The CSIRO report (Foran and Poldy, 2004) provides a rationale for the future of Australia based on the premise that the physical resources of the country are not unlimited, and that the physical economy (rather than the market economy) needs to be managed. Foran used the analogy of the Rubix cube, in relation to the challenge of modelling the physical economy and making decisions to maximise sustainability: If you are trying to get a different pattern out and you turn it, you also have to make a whole range of accommodating turns and changes in the other part of the cube to get the pattern to come out. Buildings, factories, cars and all our capital equipment, the age discrimination of our stock . . . And that in turn determines at what rate environment saving technologies, be they pollution flows, or energy use flows, or water flows, can penetrate existing infrastructure . . . and start to come down to the huge challenge of sustainability (Foran).

The economists view asserts to weigh costs and benefits and that a market economy finds a balance through the interaction of the elements of supply and demand: Economics has traditionally been known as the dismal science because we don’t just look at the benefits of things, we look at the cost as well. But the CSIRO modeling only wants us to look at the costs (Murphy). The basic flaw when you take a physical view of the world, (is that) you extract the behaviour of people . . . we know that individuals and societies adjust when they get new information, when they see the price of something, change. They change their behaviour . . . We want to give people lots of long term incentives to modify their behaviour (McKibbin). If you go on a holiday he is only interested in the emissions from the plane, he doesn’t put value on you enjoying the holiday. It is a very one-sided view of the economy (Maddock).

The politicians generally reflect the economists’ view that growth underlies a healthy economy and prosperous future: It is so good for Australia (contract for 25 year supply of gas to China). This is the kind of outcome that will underpin the economic strength of this country (Howard). There is no alternative to us exporting the things we are good at producing (Carr). . . . you want to be able to deal with environmental problems you need a successful economy generating surpluses that enable government to spend money on solving the problems. It is the poor countries of the world that are incapable of dealing with their environmental issues (Minchin).

The environmentalists see the economy as based on limited physical resources, undermined by growth based on increases in imports and exports:

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. . . the dollar component of GDP is a very meaningless indication of the real significance. Take for example the pollination of plants by bees for which we pay nothing. If you wreck the ecosystem how much food are you going to get if that process doesn’t take place? (Trainer).

Summary The fundamental difference of views between stakeholders who think within with a traditional economics paradigm and those who regard exponential growth and limitless resources as a flawed assumption, was exemplified by comments from the four groups. The challenge for any one group, such as the scientists, to manage to promote their “idea” amongst such a diverse group is an essential feature of modern-day “marketing”. Theme 2: sustainability The question of the sustainability of our current lifestyle and economic approach provides a stark contrast between stakeholders who are urgent about the need for a paradigm shift and those who are not anxious about the impact of current practices on the viability of the longer term future. Foran sees the issue as a microeconomic concern, that demands the attention of the whole population in Australia: We are always throwing eggs at big industry. Our work comes back to say it is us, you and me, but the degree to which our energy and greenhouse, water and land disturbance is totally embodied in our personal consumption patterns is frightening really-as our personal expenditure goes, so does energy, land and water disturbance (Foran).

And Suter claims that governments are too short-sighted in their planning horizons and that this affects their ability to develop longer term scenarios: Governments are appalling on scenario planning, they don’t like it. A politician has a mind set that simply goes to the next election (Suter).

Economists do not contemplate a vision of limited resources, and they are motivated by further growth, exploitation of resources: We have tens of years of potential consumption and there is much more gas, I believe, to be discovered. People are not exploring for gas, certainly not in North West Australia, because there are such abundant resources still to be commercialised (Warren). It seems strange that people today should make sacrifices for the people of the future who almost certainly will be better off than the people of today (Maddock).

The politicians appear to acknowledge concern about sustainability, on particular issues, yet are not urgent about leading change in the community: I don’t reject that proposition at all (that 20 per cent of greenhouse gasses come from tourism), but to say that tourism’s bad . . . . But we need to weigh up the costs. I agree with the CSIRO that we need to be conscious when planning our greenhouse policy, that tourism contributes to green house gas emissions and impacts on the environment and weigh that against the benefits (Minchin).

Carr, whilst acknowledging that the policy drive for increasing the country’s population over twofold is problematic, offers a “solution” rather than admonishing the concept:

We could not hold a population of 50 million without the wholesale urbanisation of what lies between the mountain range and the waters edge right along the east coast of Australia, to north Queensland and Southern Victoria (Carr).

On the same issue, the environmentalists try to explain their position by way of example and re-emphasising a need for change: If you have twice the population sucking in twice the imports means you have to cut the coal out of the ground faster and sell it off faster than you otherwise would (O’Connor). The report makes it quite clear that even on a low population growth scenario, because of increasing car use . . . and the increasing reliance of Australian cities on car based travel, we are going to see an increase in exhaust gasses as air pollutants (McMichael). If sustainability depends on people changing their lifestyle then I think you’re going to fail (Mobbs).

Summary The scientists present a view that the issue of sustainability should be a concern to every individual and requires action by every individual. The economists on the other hand, regard the question of sustainability as one that is regulated by supply and demand and that growth builds economic prosperity. The government view acknowledges concerns about sustainability, but indicates a reticence to lead regulatory or behavioural change. The environmentalists provide examples of relationships between behaviour and environmental impact, but not leadership on solutions. Theme 3: whose responsibility? In terms of views on action for a sustainable future, again views of stakeholders were diverse. Again, Foran alludes to the individual (voter): But then it comes down to us; the aspirational voter and a person who is prepared to take a long term view, a view that takes us up to and beyond our children’s children (Foran).

The economists maintain their position that market forces will come into play to moderate the interplay of supply and demand, combined with appropriate government policy: You don’t need a regulator like Barney Foran deciding when resources should be used, when there is an efficient, market mechanism available that is much better informed than Barney Foran would be to make those assessments (Murphy). What determines if a country has a good environmental outcome is environmental policy more than whether it’s population happens to be stagnant or ticking over at 1 per cent per year (Murphy).

The politicians are reluctant to consider policy based on changing the habits of their electorates: I just don’t think it is the role of government to start lecturing people about their lifestyles. I don’t think we are going to run over the cliff because of our material aspirations (Minchin). Our long-term national interests are in not ratifying the (Kyoto) protocol (Kemp).

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The environmentalists propose a need for leadership and action, both by individuals and through policy directives: I think that our situation is very grim and we have to make the transition that is required (Trainer).

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There are more deaths being caused by urban air pollution than there are by car accidents. We wouldn’t have thought that ten years ago. The greatest hazard to human health today to the lungs and heart come from the particles we refer to as the sub 2.5 micron particles, very fine particles, the kind produced by diesel engines (McMichael).

Summary Foran proposes that all Australians need to take responsibility for a sustainable future. He attempts to personalise his comments, reaching out to the average person. The economists’ position is more remote from individuals, more abstract, in that it refers to “efficient market mechanisms” combined with positive “environmental policy”. The politicians appear reluctant to regulate on lifestyle issues and the environmentalists paint a view with a very broad brush, that “leadership and action” are needed. Theme 4: general philosophy on the issue The scientists perceive that their rigorous approach to their modelling of future scenarios is threatening to the economists: . . . in the last 50 years they (economists) got there and they have become the gurus – the people that policy makers turn to when they want a rational answer to what the future is going to be. Now here is a bunch of people in terms of CSIRO scientists who want a place at the table too. We’ve got a rigorous scientific view – you can sense that economists don’t want them there, they don’t want to move over (Bradbury).

In particular, Barney Foran maintains that their pioneering scientific work is flagging a need for change, but that the issue is highly political: In some ways I think people are so busy watching their arse in Australia that they are prone to walk straight over a cliff and that is what our work is trying to avoid (Foran).

The economist Maddock regards the market economy based on growth as the “softer” more constructive option for society: In a stagnant economy, people fight over what there is and that is destructive to the social infrastructure; makes for very hard politics and very hard society. Growth is a very good lubricant socially (Maddock).

He regards Foran’s view as counter-intuitive to his own: He (Foran) is projecting what the future might be like, assuming people won’t adapt or something like that and it is a very religious statement. There’s not much I can say about it (Maddock).

Murphy agrees, and maintains that modelling without economics does not provide a sound argument: The sort of scientific modelling that Barney does is important but I think it’s unfortunate that he has let himself down by having such a weak economic side to his argument (Murphy).

The politicians have mixed views. Carr is satisfied with small incremental steps towards change: Homebush Bay for example – the Olympic suburb – was a solar powered suburb, a stimulus for councils to set this up. Across Sydney we now have councils allowing people to install water tanks. That is a breakthrough (Carr).

But Carr is loath to amplify the issue and to work more proactively through policy change: There has been a big change here. We can’t make it look like everything is hopeless, otherwise people will despair (Carr).

He acknowledges the reticence of the economists to confront environmental issues: I have often thought that economists have a lot of difficulty processing arguments about the environment. They get annoyed, almost angry if you talk about something like the melting of the polar-ice caps, or the loss of Amazonia or the disappearance of frog species around the planet (Carr).

Summary The scientists have pinned their position on scientific method, but have disenfranchised the economists by excluding economics from the model. The underlying philosophy for the economists is that “growth” is a sound goal for a healthy economy and happy society. The politicians are mixed in view, generally supporting the economists, yet some such as Carr, acknowledge the philosophical differences between the economists and the environmentalists. Implications for marketing communication The analysis of this exchange provides a number of valuable messages to marketers and stakeholder groups alike. Its key contribution is to make explicit that marketers’ messages reach a range of stakeholders and that prevention of alienation of these groups needs to be managed as well as the positive, targeted marketing messages. In this example, the scientists’ model was positioned as the “issue” and their report was their “marketing” message. Whilst scientists have not generally regarded themselves as “marketers” they increasingly rely on venture capital and the flow of investment dollars to fund their research and development work. The responses from participants who have a significant stakeholding in this issue, clearly indicates that the logic of science is not enough as a basis on which to argue a case. Each context and issue will of course, have a different range of stakeholder influences and the “businesses”, including public sector organizations, that are marketing their products, services or ideas have the potential to gain from a stakeholder analysis, as a further input to guiding a sound integrated marketing communication (IMC) program. This is a fundamental shift from a marketing communications direction that only targets the main customer. It extends on more traditional approaches by taking account of the impact that other players, peripheral to the target market, can have on business success and is relevant to a broader range of situations, including the public policy arena. The contribution that this argument makes to an integrated marketing communications approach that takes account of identified stakeholders beyond the target market, is that the benefits and pitfalls of managing stakeholder responses (positive and negative) can be anticipated and used to advantage. The criteria by which

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a business defines the stakeholders with whom it needs to communicate, is a further dimension for deliberation. As cited earlier, Donaldson and Preston (1995) discussed three positions to take on this issue, descriptive, instrumental, and normative. Any one or all of these positions can serve to inform a business about its key stakeholders. The communications elements shown in Figure 5 can be conceived of as channels of distribution for marketing communications, and individual releases or events are selected in each case, from a range of media options, to best meet the objectives set. The foregoing analysis illuminates the need for far greater sophistication in modelling marketing communications approaches. Extending the standard framework to accommodate serious consideration of the position of selected stakeholders and to target their positions separately, relative to the marketing message, has the potential to build the relational advantages that can come from such links between a business and a number of stakeholder groups. This conceptual development to the IMC approach is more sophisticated and inherently more complex, but better reflects the reality of the environment in which businesses now operate. The criteria by which a business evaluates the extent to which a stakeholder group is included in marketing communications strategy is an area for further research that offers a translation of this concept into practice. Conclusion The descriptive analysis provided in this study goes beyond identifying key stakeholders (Gupta, 1995). It has not apportioned levels of influence (Wheeler and Sillanpa¨a¨, 1997), as that would require appropriating levels of power and the analysis comes from a neutral perspective. The text of the stakeholders’ views has been analysed and presented in a way that demonstrates the array of perspectives from which the issues are considered (Gupta, 1995). In terms of policy (marketing) communications, the politicians align their position more obviously with that of the economists. However their committee of review had representatives from science (Bradbury) and economists (Murphy). The scientists’ views are generally at odds with the politicians (and the economists) although Carr does empathise with their concern for sustainability. The environmentalists are not mentioned by either the politicians or the economists, in terms of the how they perceive their views. Whilst the number of stakeholders in this study was not exhaustive, those represented in the program are key players and their views serve to demonstrate the value of stakeholder analysis to marketing strategists. In addition, the study extends the application of this conceptual framework into non-traditional marketing fields, such as public policy. The analysis supports Crane and Desmond’s (2002) view that stakeholder theory offers an important avenue for new models of governance and

Figure 5. Elements of the promotional mix

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Figure 6. IMC planning model inclusive of stakeholders, adapted from an integrated marketing communications planning model

accountability for marketers with regard to decision making in marketing and consumption, especially their moral dimension. Any of the stakeholders in this study could also derive a benefit from such an analysis, as a means by which to inform their marketing of their position to decision makers, as proposed by Frooman (1999). The model proposed (Figure 6) to include consideration of nominated stakeholders, can serve the interests of any stakeholder group involved in a business network or the focal firm. For the scientists such a framework would. For businesses that are seeking competitive advantages that will build superior performance, an integrated marketing communications strategy that is inclusive of key stakeholders has the potential to impact on sustainability in the long run.

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Barney Foran, chief investigator, CSIRO report, “Future dilemmas: options to 2050 for Australia’s population, technology resources and environment”, 2002. Dr Keith Suter, Club of Rome member-a think tank/government lobby group on sustainability, from 1968 whose book The Limits to Growth sold over 12 million copies. Dr Roger Bradbury, Chairperson of the government committee commissioned to review the credibility of the CSIRO report.

Market economists .

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Chris Murphy, Director Econtech, who was a member of the government committee commissioned to review the credibility of the CSIRO report. Rod Maddock, Head, Equities Research CommSec.

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Professor Warwick J. McKibbin, convenor Economic, Australian National University. Tim Warren, Chairperson, Shell Australia.

Environmentalists . . .

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Ted Trainer, Lecturer, University of New South Wales. Mark O’Connor, from Sustainable population Australia. Professor Tony McMichael, National Centre of Epidemiology, Australian National University. Mike Mobbs, design consultant.

Politicians . . . .

John Howard, Prime Minister of Australia. Nick Minchin, Federal Senator, Minister for Finance. Bob Carr, Premier for New South Wales. Dr David Kemp.

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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0309-0566.htm

Enabling sustainable management through a new multi-disciplinary concept of customer satisfaction Claus-Heinrich Daub and Rudolf Ergenzinger Institute for Sustainable Management, University oAS Aargau, Windisch, Switzerland Abstract Purpose – Aims to illustrate the extent to which the concept of sustainable management can be grounded in a new appreciation of customer satisfaction, to set out the concept of sustainable management based on business ethical considerations on corporate social responsibility, and to distinguish it from similar concepts. Its rationale lies in the figure of the generalised customer. Design/methodology/approach – The generalised customer stems from a combination of stakeholder theory and sociological role theory. The stakeholder theory discusses the different stakeholder roles from an organisational perspective, whereas the sociological role theory views essentially the same roles and relationships from the individual’s perspective. Focus lies in the personal preferences and attitudes accompanying the different roles one person plays in society – as a consumer, father, or member of Amnesty International. Findings – A first attempt to put these roles and relationships in a sustainability context – providing an impression of all possible needs, wants, and expectations a company can expect from its customers. This notion alters marketing’s view of the customer and brings about a new understanding of customer satisfaction. Practical implications – Customer satisfaction must be seen in a more holistic, multidimensional perspective in future. Companies succeeding in taking this step towards sustainable management will raise their profile among customers, differentiate themselves from the competition, and achieve legitimacy vis-a`-vis society. Originality/value – The combination of two, often opposing, theoretical genres related to consumer behaviour and the examination of the phenomenon “the customer” from both perspectives, offering a new species of customers in addition to homo economicus. Keywords Sustainable development, Social responsibility, Customer satisfaction Paper type Conceptual paper

European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 998-1012 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610680

Introduction Today, most of the dominant management and marketing theories are based upon the premise that companies must rigorously pursue market-driven business objectives if they are to achieve an increase in shareholder value. Friedman (1970), godfather of the traditional management model, claimed that a corporation has no social role because only human beings have moral responsibilities, the sole interest of a company is to satisfy shareholders interest, and social issues are of state interest and should be dealt with in the state legal framework. In recent years, however, we have observed a gradual paradigm shift that in academic discourse, and also in the public sphere, is characterised by terms such as “corporate citizenship”, “corporate social responsibility” and “corporate responsiveness” (McGuire, 1963; Sethi, 1975;

Ackerman and Bauer, 1976; WBCSD, 1999). In their various connotations these terms describe the wide-ranging responsibility of a business towards its stakeholders and society as a whole. The latter of the three aforementioned perceptions goes the furthest, in that it resolutely calls upon companies to consider “what should be their long-run role in a dynamic social system” (Sethi, 1975, p. 63). This aspiration is derived from business ethical considerations. These hold that a firm does not create economic value simply as an end in itself, but rather gives the value added back to society (by paying wages and taxes, for example). Through its operations it also generates negative external effects. The bigger a company becomes, i.e. the more positive and negative effects it generates, the more it manifests itself in the public eye and the more it becomes obliged to justify its presence in society. In an attempt to describe this interrelationship Peter Ulrich, professor of business ethics in St Gallen, contributed the term “quasi-public institution” to the academic discourse in 1977. According to Ulrich a business should be seen “as a multifunctional and thus pluralistically legitimised value-adding entity that fulfils socio-economic functions on behalf of various stakeholder groups [. . .]” (Ulrich and Fluri, 1995, p. 60). These ideas have found their way into management and marketing theories in various guises. In marketing the gradual paradigm shift is addressed under the terms “social responsibility of marketing” and “societal marketing” (Kotler, 1979; El-Ansary, 1974; Drumwright and Murphy, 2000). Kotler und Levy floated the idea of societal marketing as early as the late 1960s when they called marketing a pervasive societal activity in a controversial article (Kotler and Levy, 1969). In the German-speaking world Kotler’s ideas were expanded upon by Krulis-Randa. Accordingly, societal marketing holds that the task of the organisation is to determine the wants, needs and interests of the target markets, to deliver the desired satisfaction more effectively and more efficiently than its competitors, and to do so by means that sustain or improve the welfare of consumers and society (Krulis-Randa, 1986, p. 13). A further line of argument was provided by the concept of relationship marketing, which until the end of the 1980s concentrated solely upon relationships between businesses and their customers. In the 1990s, however, it took a new direction on development of the concept of businesses as coalitions of stakeholders (Polonsky, 1995; Murphy et al., 1997). A major contribution to this change in direction from a business ethical perspective was the development of the network model of stakeholders (Rowley, 1997), which expands the corporation’s various stakeholders considerably, and assigns different roles to their stakeholders. Consequently, a stakeholder has several stakes, and therefore different roles with changing duties and obligations, even to his very own stakeholders. This in combination with the four-part model of corporate social responsibility (Carroll, 1991), which distinguishes between economic, legal, ethical, and philanthropic responsibility, made a corporation increasingly aware of it’s complex role in society. The ultimate level attainable, the philanthropic responsibility, corresponds to corporate citizenship defined by Maignan et al. (1999) as “the extent to which businesses meet the economic, legal, ethical and discretionary responsibilities imposed on them by their stakeholders”. More recently, Wood and Logsdon (2001) claim, that a corporation is not supposed to be in the limelight of corporate citizenship, but is obliged to respect the social, civil and political rights (Marshall, 1965) of the citizens, by showing responsibility in protecting certain rights a government cannot longer ensure.

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Most existing concepts, however, lack an integrative idea, an unequivocal definition of what is meant by the “responsibility” of organisations, or a clear statement setting out the superordinate goal of business. The aforementioned St Gallen management model holds that the consideration of stakeholder groups in business activity is an ancillary management task, rather than a superordinate one. Besides this perception of stakeholder groups in business activity, the St Gallen management model (Ulrich and Krieg, 1974) divides the external environment in which an enterprise is embedded into four facets: (1) Ecological environment. (2) Economic interest. (3) Societal interest. (4) Technological interest. Despite this early distinction, the growing interest in the environment in recent years, and accordingly the establishment of environmental management as an independent field in business administration, the environment is still to be viewed as an ancillary management task. Simplified, environmental management sets out to answer the question of how companies can increase their environmental effectiveness and efficiency. It focuses primarily on how the environmental problems caused by business can be overcome, taking into consideration various environmental management systems (ISO 14000, EMAS etc.). Still, recent environmental management concepts have attempted to broaden the term “environment” in the context of “human living conditions” (Schaltegger et al., 2003, p. 18), thus placing society in the realm of the environment, at least indirectly. In corporate environmental management, however, the impact of business on stakeholders and society is largely perceived, and discussed, as the indirect impact of organisations on humans through their influence on the ecological environment. The frequently cited “natural step framework” (Nattrass and Altomare, 1999) exhibits the same weakness. Though societal marketing may address the welfare of society, it lacks a precise definition and fails to consider the welfare of future generations (cf. Peattie, 1999) and the environmental dimension. Moreover, consumers are the only stakeholder group explicitly mentioned and focused upon, unlike in the further reaching concepts outlined by Polonsky (1995) and Murphy et al. (1997). The same applies to eco-marketing, which discusses current and potential customer aspirations with respect to the environmental impact of a business and its products primarily in terms of opportunities and threats (e.g. Ackerstein and Lemon, 1999; Belz, 2001; Holliday et al., 2002). Even the named exponents of the concept of organisations as coalitions of stakeholders do not transcend the “boundaries of profitability” in their arguments. Ultimately, profitability remains the prime business objective, even if the organisation is now considered the joint responsibility of all stakeholders, and the stakeholders themselves are considered equally important. Thus even Murphy, who establishes an explicit link between the stakeholder orientation of marketing and the triple-bottom-line business philosophy outlined in more detail below, asks “whether a stakeholder and TBL argumentation of relationship marketing enhances profitability” (Murphy et al., 2003).

Sustainable management – a new concept In order to allow corporations to remain competitive in the business field by letting them continuously re-allocate their resources whilst obliging them to take their responsibility towards society and environment by upholding their corporate social responsibility and maintaining their licence-to-operate (Stratos Inc., 2001) the traditional perception of business ethics in means of addressing situations by doing right or wrong and the earlier mentioned definition of corporate social responsibility, cannot provide the corporation with a sufficient framework to systematically weigh and address all its responsibilities and how to integrate these into business decision making structures and management theory. In order to overcome this problem there will be an introduction of a relatively new concept first introduced by the World Commission on Environment and Development (1987) when the Brundtland Commission published the “Our common future” report. The aforementioned weaknesses in existing theoretical concepts are eradicated in this sustainable management concept (Daub, 2004). Sustainable management defines a form of management, which clearly states that enhancing the value of a business is not simply about continuously increasing revenues and profits, but also about reconciling the economic goals of a business with environmental and social issues (cf. Elkington, 1997) in an ethically correct way. Value driven organisations can achieve this by systematically reviewing all their structures and processes to determine the impact they have on the good of the business and its environmental and social environment, and then adapting them to ensure they have the broadest possible positive impact in all three dimensions while exploiting all the available synergies. In order to reach this ideal situation, stakeholder groups (employees, customers, investors, shareholders, etc.) play a decisive role in this process. Under the sustainable management philosophy they are able to influence the development of a business in a process of permanent dialogue. “Shareholder value’ thus becomes “stakeholder value”. However, critical thoughts stemming from the business ethical camp argue that the sustainability concept and hence sustainability management is more about handling the practical implications that appear whilst decreasing the impacts we create upon systems like our earth. To avoid confusing and misleading argumentation, it might be useful to stress the fact that sustainability management is a way of dealing with occurring issues on a strategic and operational level in a sustainable way, such as an EMAS or ISO 9000/14001 management system, whereas sustainable management as it is being discussed in this paper, is based upon an ethical framework and considers ethically correct behaviour as the cornerstones of all its actions and considerations. This is not necessarily a new conceptual thinking and includes theoretical ethical thinking as seen by Carroll and Woods in 2001 and beyond. What is significant and new about this management definition is its explicit emphasis on the equal weighting and thus equal importance of a company’s economic, environmental and societal goals. Profitability thus becomes one goal amongst others. This represents a conscious move away from the view that environmental and societal goals can be fulfilled only if a business makes sufficient profits or sees it as an opportunity to better control its economic problems. The sustainable management concept thus differentiates itself from the more recent marketing concepts under description and from management concepts such as “sustainable entrepreneurship”, which is defined as “entrepreneurship realising market success with sustainability innovations”

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(Schaltegger et al., 2003, p. 34; Willums, 1998). In order to understand the stance of this paper about how sustainable management is supposed to be understood, it has to be crystal clear that managing sustainably (ethically) is not about managing sustainability under a “new challenge” and drawing profit (via innovations) from it (Dunphy, 2000). This automatically results in the following claim: sustainable management is not sustainability management. In fact, sustainable management combines management theory and the “sustainable development” concept in such a way that it sees business activity as a contribution to the sustainable development demanded with justification by society. Sustainable development is development “which meets the needs of the present without compromising the ability of future generations to meet their own needs.” This definition has been published in the before mentioned report by the World Commission on Environment and Development (1987), which outlines the vision of “our common future”. This vision was developed and elaborated upon at the 1992 United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro and the follow-up summit in Johannesburg in 2002. In the form of the Agenda 21, which is a so called United Nations Action Programme, it found its way into national and regional political institutions, which are now focusing on how it can be implemented (UNCED, 1992). The combination of management theory and the concept of sustainable development has two major advantages. The first arises from linking the goals of business with those of Agenda 21, which explicitly assigns a significant role to companies and other organisations: Critical to the effective implementation of the objectives, policies and mechanisms agreed to by Governments in all programme areas of Agenda 21 will be the commitment and genuine involvement of all social groups (UNCED, 1992, p. 219).

Among the groups named are non-governmental organisations (chapter 27), local authorities (chapter 28), workers and their trade unions (chapter 29) and business and industry (chapter 30). Those governments charged with implementing Agenda 21 are called upon to formulate economic incentives, laws, and standards to promote sustainably managed enterprises with cleaner production. For their part business and industry are asked to do their utmost to support the efforts of governments. Incidentally, the special role of business was highlighted at an early stage by a number of managers who attended the Rio de Janeiro conference. The results of their work were published in Stephan Schmidheiny’s book Changing Course in 1992, which caused quite a stir in business circles (Schmidheiny, 1992). A further advantage of sustainable management lies in the balance called for by the sustainability concept (Triple Bottom Line). Accordingly, in the sustainable development process economic, environmental and social optimisation efforts should wherever possible lead to synergies, thus ensuring that individual measures in one dimension do not have a harmful impact in one of the others. This, by the way, is not a voluntary service that businesses can provide when their economic situation permits. On the contrary, their involvement in a common future is a legitimate demand of global society. An expected question that might rise would be about what if these three dimensions cannot be balanced? Plausible reasons might be derived from both internal and external factors that affect the corporations business. Consequently, these arguments

which disfavour the sustainability concept will lead to a sceptical or even cynical attitude from decision makers in the business field. Despite the legitimacy of these various points of view, they are not part of this particular discussion. To manage corporations in a sustainable way, which means striving towards a balance in all three dimensions, automatically obliges the corporation to consider ethically correct behaviour in all their actions and decisions. It is not about how to reach this final state of harmonisation and if it is possible whether or not, it is about the ethical obligation put upon a corporation to continuously strive towards this equilibrium. There are several reasons why businesses are important for the process of sustainable development. In the environmental dimension the negative consequences of purely quantitative growth for the natural environment show that a new, more socially and environmentally compatible approach to consumption has to be developed, in particular in the industrial nations. Because of the currently lacking necessary minimum amount of sensitivity and customers for sustainable produced products or services, a corporation that wants to be sustainable (ethically correct) has to accept the obligation of educating it’s environment at large for creating this minimum amount of sensitivity in order to remain competitive (Fuller, 1999). Wood and Logsdon’s (2001) claim that not all responsibilities are supposed to be directed towards the state, whereas certain responsibilities have to be carried out and guarded by eminent public actors like corporations, indirectly strengthens this argumentation. A number of important tools for implementing the guiding principle of “sustainable consumption” are available for companies. In particular, by using selective communications and marketing activities, the companies can direct the public’s attention to forthcoming problems and challenges. Corresponding to the argumentation above, Fuller (1999) further states that sustainable marketing, in addition to traditional marketing, has the objective to educate the stakeholders about the necessity of sustainability and to try to influence their future behaviour towards a more responsible manner. A practical implication that will occur whilst trying to educate stakeholders and customers in particular is the lack of information. Having accepted the educational obligation does not necessarily imply the information spread. However, if the ethical corporation wants to strengthen the sustainable interest of its stakeholders, with increasing the transparency of the corporations business by communicating openly, offering the needed information becomes essential. With other words, sustainable communication implies that companies need to thoroughly consider the long-term socio-economic effects of its communication. A long-term perspective allows companies to communicate future visions without having to hide or to diminish a les environmental friendly current performance. Attempting to hide or ridicule such failure creates more “bad will” when unexpectedly discovered and exposed in media, than does a deliberate statement acknowledging a mistake and presenting appropriate measures (Peattie, 1998, pp. 382-7). So as to practice their ethical responsibilities following the sustainable development idea, corporations are able to employ technologies to reduce the environmental impact of production, increase efficiency in terms of raw material and energy consumption, and optimise logistics systems to avoid any unnecessary impact on the environment during the transportation process. Furthermore, by systematically broadening their understanding of the potential impact of products, manufacturing processes and wastes on the natural environment, they can contribute to the formulation of practical

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Figure 1. Dimensions of corporate responsibility

and effective standards, laws and ordinances that afford better protection to humankind and the environment. In the social dimension companies have the opportunity to satisfy the legitimate aspirations of their stakeholders by the formulation of clear standpoints (e.g. codes of conduct) on the one hand and corresponding organisational measures on the other. They can also help to raise awareness of social problems in society. Following the argumentation so far, corporate responsibility is ethical responsibility applied to all three dimensions of sustainable development, as shown in Figure 1. Many organisations have already taken this tripartite responsibility on board. Evidence of this is provided by the numerous case studies collated by Holliday et al. (2002) in Walking the Talk (Holliday et al., 2002), as well as the results of the first two national surveys of sustainability reporting by Swiss companies (Daub et al., 2003, 2004). The surveys showed that the term “sustainability” is increasingly gaining acceptance as a key concept among medium-sized enterprises, and is not simply considered a short-term buzzword. Yet talks held with managers at 25 Swiss companies on completion of the first study also left no doubt that plans to introduce sustainable management are being entertained at executive level only if they bring economic benefits (Daub, 2003). This clearly shows that instead of allowing themselves to be guided by the ethical demand for equal treatment of economic, environmental and social aspects in their daily work, managers are primarily, and perhaps even exclusively, influenced by economic considerations. This is grounded in the intrinsic logic of the economic system, which is in principle “blind” to ethical considerations, only taking heed of them when they are translated into the “language of money”. The social scientist Niklas Luhmann (Luhmann, 1996, pp. 43 ff.) has provided impressive evidence of this.

In attempting to implement the concept of sustainable management, then, it is expedient to cite economic reasons demonstrating its superiority over other concepts. The justification for this claim, in turn, can be given from within the marketing sphere if we sit down and think the idea of customer orientation through to the end. Satisfying the needs of a generalised customer What does this mean in specific terms? Existing marketing theories, according to our hypothesis, fail to make sufficiently clear when addressing the needs of customers that the idea of the “customer” is only ever one part of a person’s identity. In sociological role theory being a customer is about playing one role among others (cf. Linton, 1936; Goffman, 1956, 1961; Merton, 1957; Gross et al., 1958). In other words, we are customers only for as long as we are buying something. As soon as the act of purchase is over, we vacate this position and begin to play other roles. We then become a parent or a trade unionist, for example, a manager or the president of an environmental protection group. This notion alters marketing’s view of the customer, who in conventional business thinking is nothing more than homo economicus. The customer becomes more easily recognisable as a person or, to quote Ralf Dahrendorf, as “homo sociologicus” (Dahrendorf, 1986, p. 130). This change in perception also leads to a different understanding of customer satisfaction. Is a customer who buys what appears to be a good-quality product at a reasonable price and at a convenient location satisfied? In principle, this question can be answered with a “yes” only if we assume that the customer has all the relevant information at its disposal when making the purchase decision. Even though the ethical obligation of a sustainable corporation forces it to communicate openly, not all information might be at its very own disposal and cannot be communicated during the actual (pre-) selling stage of the product. Would that person consequently have been satisfied with its purchase, for example, if he/she later discovered that the product had been manufactured by underage workers in India or that a disproportionate amount of greenhouse gas emissions had been generated during its production? The aforementioned question can no longer be answered with a simple “yes” or “no”. If we were to consider the person making the purchase solely – and thus one-dimensionally – as a consumer, the answer could conceivably be “yes”. But it would certainly be “no” if we knew that beyond the economic context this person was a father of three children and someone who applies high ethical standards in life. In making this theoretical case we wish to express the view that customer satisfaction needs to be considered in a more holistic and multidimensional way in future. This can be done by highlighting the basic premises of stakeholder theory, which presupposes that businesses constantly have to deal with societal problems that are or could be brought to their attention by stakeholder groups. According to Carroll these issues, or societal issues (Freeman, 1984, p. 92) include “any trend, event, controversy, or public policy development” (Carroll, 1989, p. 476) that could affect a business. A stakeholder group is defined as “a group of persons linked to a company on the basis of some common interests” (Sohn, 1982, p. 140). A holistic and multidimensional view of customer satisfaction is provided by the notion that people who join together in stakeholder groups are also customers and vice-versa (notwithstanding that customers themselves are considered one of several stakeholder groups). We propose that these “customers” be called generalised

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customers. Our reference point is the figure of the “generalised other” introduced by George Herbert Mead (1932): The organised community or social group which gives to the individual his unity of self may be called “the generalised other”. The attitude of the generalised other is the attitude of the whole community (Mead, 1932, p. 154).

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The term “generalised customer”, then, describes those customers who from the point of view of a business are not only customers, but also actual or potential members of groups in society operating as stakeholder groups vis-a`-vis companies. The totality of these groups in turn represents society. Against this background the classical term “customer satisfaction” is bound to fall short. Generalised customers can be satisfied only by products and services that have no harmful impact on any of the areas in which they live or operate. If marketing is the process that aims to satisfy the needs of customers, it follows that this process must now be designed to ensure whenever possible that products or services are not associated with any consequences that can lead to the dissatisfaction of the generalised customer in the short-, medium- and long-term. If we transfer this notion to the concept of sustainable management, it is possible to state that only those businesses that attempt to achieve their economic goals whilst strictly avoiding any environmental or societal impact will be capable of surviving in the future. Only they actually meet the needs of their customers, since they ascribe more needs to the generalised customer than exhibited by the singular customer in his or her purchasing behaviour. In espousing the concept of the generalised customer we consciously and expressly distinguish ourselves from those in the business world who, though they may advocate a stronger orientation of marketing towards the idea of sustainability, focus solely on those (individual) customers who explicitly call upon business to exhibit more social and/or environmental responsibility. This “new consumer” (Holliday et al., 2002, p. 176) is not the same as the “generalised customer”. The former represents a new, profitable market segment that wishes to be served; the latter represents a holistic viewpoint in which economic considerations play only an auxiliary role. Our previous statement with respect to management also applies here: sustainability marketing (Eberle, 2003; Leitner, 2003) is not the same as sustainable marketing. Consequences of this new perception This new perception of management and marketing yields numerous consequences. Whether they become established or not will largely depend on the extent to which they are considered risks or opportunities by business. Changing management and marketing processes in such a fundamental way that they lead to the genuine and broad satisfaction of customer needs in the manner under description demands courage and a willingness to defy economic conventions. To reinforce such courage, it appears important to spell out the opportunities open to businesses making the transition to sustainable management systems. This throws up a further connection between stakeholder theory and marketing. Changing the structures and processes of a business according to the principles of sustainable management and the notion of the generalised customer yields

consequences in two dimensions; firstly, with regard to products and services, secondly with regard to the organisation itself (see Figure 2). In the dimension of products and services it leads to the systematic consideration of economic, environmental and social aspects in the production process with a view to the possible impact of a product or service in the social domain, taking into account the entire life cycle of the product or service. The aim is to develop sustainable products that satisfy the needs of the generalised customer in the best possible way. In the dimension of the business a transition to sustainable management leads to a reorganisation in the sense that all structures and processes are tested for sustainability and then modified accordingly (Ranganathan, 1999, 475 ff). This has sparked a lively academic debate on the question of the indicators to be used (Bennett and James, 1999). The economic effects in the dimension of products and services arise from the opportunities sustainable products offer businesses to raise their profile among customers (in the “traditional” sense of the word) and differentiate themselves from their competitors. If effective use of these opportunities is to be made, satisfying the growing demand for sustainable products will not be enough on its own. Instead it will be necessary “to change the conditioning of customers” (Schaltegger et al., 2003, p. 208). This statement is diametrically opposed to Drucker’s definition of the purpose of a business, i.e. “to create a customer for goods and services produced” (Drucker, 1973, p. 61). Creating a customer for existing products and services is not what it is about. Quite the reverse, it is about creating products and services for the generalised customer that bring the greatest possible benefit. Only in this way will companies be able to stand out from their competitors. Because only those companies that are able to correctly identify the needs of the generalised customer and offer the “right” products and services will survive. This differentiation opportunity also arises in the dimension of the business itself. In case a company commits itself to a gradual transition to sustainable products and services, it

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Figure 2. Economic effects of a sustainable management

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will virtually transform itself automatically into a sustainably profitable business and also enhance its reputation. Cramer correctly stated: To an increasing degree, a firm’s reputation is determined by the values of the products and services it sells (Cramer, 2001, p. 24).

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The differentiation also arises from the knowledge such companies acquire by addressing the issue of sustainability and committing to sustainable management, knowledge that enables them to gain the edge over their competitors. Specifically, they find it easier to increase their eco-efficiency and social-efficiency. These two terms describe the relationship between an economic (monetary) variable (value added) and an environmental or social variable (environmental or social impact added) (Schaltegger et al., 2002, p. 9). The two remaining consequences of a transition to sustainable management – legitimating the organisation vis-a`-vis society and enhanced employee motivation – arise from the fact that sustainable management is derived directly from the concept of sustainable development. The Agenda 21, addressing this concept in form of an action programme, is a political commitment representing a consensus in global society on common future development. A business that follows this guiding principle, and systematically implements it in its day-to-day activities, will effectively always find itself on the “safe side”, since with implementing this action plan, the company ensures itself that it will be able to adapt quickly to any legislative changes the government may introduce in attempting to implement international treaties, in particular in the area of environment and climate protection. Governments are pushed and supported in implementing these programmes by non-governmental organisations, which in the last 30 years have become a serious political force (cf. Bendell, 2000). Their high-profile campaigns are often capable of inflicting huge damage on companies, whereas the negative effects of these campaigns will ultimately make themselves felt in the marketplace. Businesses that adopt the concept of sustainable management have nothing to fear in this respect, since stakeholder dialogues are organised and conducted in a manner to increase transparency (see discussion sustainable communication, Peattie, 1998; Fuller, 1999). Banks and investment companies, whose recommendations influence capital flows, play a very special role. They can either promote the transition under description, or they can prevent it. Rating systems, by which banks and investment companies assess companies according to social and environmental criteria and use the results to develop investment instruments, can have a particularly helpful effect. They also enable them to raise their own business profile and differentiate themselves from their competitors. Shareholders interest in the corporation still holds an important position. With increasing their mandate from a purely economic stance defining their traditional funding role, they increasingly invest in sustainable investment funds or ethical investments provided by banks, such as the Sarasin Bank in Basle (Butz and Plattner, 1999). Putting this argumentation to its limit, in very much the same way as the generalised customer can play different roles; every stakeholder can be a potential shareholder. In the four areas mentioned – profile raising, differentiation, legitimacy and motivation – businesses are, in principle, able to profit from making the transition to

sustainable management. In the main, however, with the exception of Murphy, academics have yet to provide any empirical evidence of this. Murphy demonstrated: That a stakeholder relationship marketing orientation significantly enhances business profitability beyond that achieved by a customer only relationship marketing orientation. A further augmentation with TBL philosophy provides a very significant additional enhancement to business profitability (Murphy et al., 2003, p. 4).

There are a number of works in progress, however, works that should be supported. Yet in this context it has to be stressed once again that it can only ever be about convincing businesses of the advantages of sustainable management. Should it turn out, in other words, that a transition to sustainable management does not in fact lead to the desired increase in the return on investment (ROI), (or does, but not at the required pace), there is still no getting away from the new business philosophy. Conclusion When Philip Kotler and Sidney J. Levy published their article “Broadening the concept of marketing” in 1969, the response was not long in coming. David J. Luck, for whom the broadening of the marketing concept went way too far (Luck, 1969), responded just five months later. The ideas presented in this paper may also go too far at first glance. Is it not illusory to believe that businesses are ready, in an era of increasing international competition and largely saturated markets, to transform themselves into “sustainable corporations” (Dunphy, 2000)? Are we not going too far when we demand that marketing has to orient itself towards a generalised customer, subordinating its quest for economic success to these requirements in the process? Are we not exaggerating when we demand that a transition to sustainable management has to take place even if it does not lead to a short-term increase in ROI? We believe that this is the only way to make comprehensive use of the important functions business (can) fulfil in the process of sustainable development. It is society’s right. Society, the pluralist community, has the right to decide which types of activity it will tolerate and support and which it will not. It can and may legitimise or withdraw its support from institutions and organisations that have developed from within it and continue to develop with its help. The generalised customer, not the customer, will decide on the future of business. There are already increasing signs that companies will be able to secure their future by reorganising their structures and processes in the interest of sustainable management. It is likely to take quite some time, however, before the sustainable business becomes a reality. References Ackerman, R.W. and Bauer, R.A. (1976), Corporate Social Responsiveness: The Modern Dilemma, Harvard University Press, Cambridge, MA. Ackerstein, D.S. and Lemon, K.A. (1999), “Greening the brand: environmental marketing strategies and the American consumer”, in Charter, M. and Polonsky, M.J. (Eds), Greener Marketing: A Global Perspective on Greening Marketing Practice, Greenleaf Publishing, Sheffield, pp. 233-54. ¨ ko-Marketing: Erfolgreiche Vermarktung o¨kologischer Produkte Belz, F.-M. (2001), Integratives O und Leistungen (Integrative Eco-marketing: Successful Marketing of Ecological Products and Services), Gabler, Wiesbaden.

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Rowley, T.J. (1997), “Moving beyond dyadic ties: a network theory of stakeholder influences”, Academy of Management Review, Vol. 22, April, pp. 887-910. Schaltegger, S., Burritt, R. and Petersen, H. (2003), An Introduction to Corporate Environmental Management: Striving for Sustainability, Greenleaf Publishing, Sheffield. Schaltegger, S., Herzig, C., Kleiber, D. and Mu¨ller, J. (2002), Sustainability Management in Business Enterprises – Concepts and Instruments for Sustainable Organisation Development, The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, Bonn. Schmidheiny, S. (1992), Changing Course: Global Business Perspective on Development and the Environment, MIT Press, Cambridge, MA. Sethi, S.P. (1975), “Dimensions of corporate social performance: an analytical framework”, California Management Review, Vol. 17 No. 3, pp. 58-64. Sohn, H.F. (1982), “Prevailing rationales in the corporate social responsibility debate”, Journal of Business Ethics, Vol. 6, pp. 139-44. Stratos Inc. (2001), Stepping Forward: Corporate Sustainability Reporting in Canada, Stratos Inc., Ottawa. Ulrich, P. and Fluri, E. (1995), Management: Eine konzentrierte Einfu¨hrung (Management: A Concentrated Introduction), 7th ed., Campus, Berne, Stuttgart, Vienna. Ulrich, H. and Krieg, W. (1974), Das St Gallen Managementmodell (The St Gallen Management Model), 3rd ed., HSG, St Gallen. United Nations Conference on Environment and Development (UNCED) (1992), “Agenda 21: programme of action for sustainable development”, Rio de Janeiro, 3-14 June. WBCSD (1999), Meeting Changing Expectations: Corporate Social Responsibility, WBCSD, Geneva. Willums, J.-O. (1998), The Sustainable Business Challenge: A Briefing for Tomorrow’s Business Leaders, Greenleaf Publishing, Sheffield. Wood, D.J. and Logsdon, J.M. (2001), “Theorising business citizenship”, Perspectives on Corporate Citizenship, Greenleaf, Sheffield, pp. 83-103. (The) World Commission on Environment and Development (WCED) (1987), Our Common Future, Oxford University Press, Oxford.

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Exploring “deep” and “wide” stakeholder relations in service activity Fre´de´ric Jallat

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European School of Management, Paris, France, and

Elliot Wood Graduate School of Business, Curtin University of Technology, Perth, Australia Abstract Purpose – The aim of this article is to offer readers several useful paths of thought on a “deepened” and “widened” approach to the notion of interface, taking into account several types of stakeholder in the exchange. Design/methodology/approach – Three case studies are developed and organised around those two dimensions which seem essential in interface management. Findings – Since the very essence of service is linked to relations and exchanges, it seems important that the range of stakeholders directly or indirectly influencing service processes should be taken into consideration. Originality/value – Owing to the multiplicity and complexity of the ties that connect them to the service provider or to clients, the management of these groups is often difficult, involving internal and external cultural considerations. However, a well carried out analysis of these involved parties and ties constitutes a major source of innovation and differentiation on the market of intangibles. Keywords Stakeholder analysis, Cross-cultural management, User interfaces Paper type Case study

Introduction Definitions of service are numerous, fragmented and inevitably imperfect. Service is simultaneously a process, a social interaction, a relationship and an intangible result. In the framework of service activities, there is no clear division between production and exchange, no clear distinction between process and result (Berry and Parasuraman, 1991). However, common to an understanding of service is the notion of a complex system of interfaces and exchanges. Many authors have stressed the nature and characteristics of the relations that link companies with their clients (e.g. Normann, 1991; Irons, 1993; Gro¨nroos, 1994). Nevertheless, research in this field has, until now, mostly favoured a binary analysis of the exchange; examining helpfully and in-depth the processes of interaction between the service provider company, through its contact personnel, and the clients of the firm. The aim of this exploratory article is to offer readers several useful paths of thought on a “deepened” and “widened” approach to the notion of interface, taking into account several types of agent in the exchange. Akin to a widened perspective is the stakeholder perspective of organisation developed by Freeman (1984, 1994). This article utilises the stakeholder concept to expand the binary analysis of exchange and argues further for the understanding of service interaction to recognise not just new stakeholders (a major advantage of Freeman’s work), but also to assert the value of deeper relationships with established stakeholders. In providing case examples to

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illustrate these points, this paper further shows that understanding the differing types of stakeholder in the provision and fulfilment of service activities requires an understanding of external and internal cultural considerations. A more extensive (rather than binary) analysis of service relations will allow us to appreciate the complexities involved in the relational approach to service interaction and to develop models that capture the complex interaction between service provider and stakeholder. In order to do this, we shall organise our thoughts around two perspectives of interface management – both focus on relationships – one on enhancing existing traditional client relationships and the other on developing relationships with a broader definition of client. However it is difficult to ignore either the cultural dimension of a company or the perceptual and social nature of exchange in a relational perspective (Hofstede, 1991; Trompenaars and Hampden-Turner, 1998) just as it seems normal to consider the relational element as one of the principal carriers of signs and image of the service. Thus we shall also take into account the symbolic and cultural dimension that may influence the interplay of these perspectives. A relational model: towards a more “extensive” definition of interface systems between agents It is not surprising that relational approaches, based on the development of long-term reciprocal ties, initially developed within tertiary activities (Berry, 1983; Gummesson, 1987; Gro¨nroos, 1989). Interaction, exchange and negotiation have, consequently, been seen as the necessary and privileged vehicles of adjustments between parties to better understand customers’ needs and the characteristics of the overall service. In this exploratory article, we theorise on the links between two main approaches that would seem to characterise relational marketing. These are: A. A “deep” perspective which favours longer-term relations between the agents and privileges relations with the company’s current clients Although cultural considerations may push towards a transactional approach in some instances, in the context of exaggerated competition, it is suggested that it becomes essential that the company favours the “zero defection” of its clients to the detriment of the winning of new clients (Reichheld, 1996; Reichheld, 2001). For service companies, the effects of keeping clients are more significant to profits than economies of scale, the market share or even the cost per unit sold and are often associated with major competitive advantages: the longer the duration of the relationship with the company, in general, the more profits increase. B. A “wide” perspective considering the multiplicity of agents and the strategic importance of the company’s networks Relational marketing is based on the principle that the company is in contact not with one unique group, composed of potential clients, but in fact with a variety of networks covering different sub-groups made up of clients, benchmark interlocutors, suppliers, outside collaborators, influence networks and the company’s employees (Payne et al., 1993). Such a perspective mimics recent “new science” conceptualisations of organisation (e.g. Wheatley, 1992; Dennard, 1996; Handy, 1996) and the emerging stakeholder approach to understanding organisations and their environments (Freeman, 1984, 1994).

In breaking with an orthodox understanding of the purpose and context of organisation (e.g. Friedman, 1970), the reinstatement of interaction and negotiation naturally lead researchers to consider psycho-sociological, ethnological or even philosophical approaches which are more complex or “extensive” (Flipo and Magnin, 1994). Such approaches, for example, recognise the extension of value chains not only within but beyond the organisation, highlighting the impact of organisational activities on the broader community (Carroll, 1999; Windsor, 2001). With a range of stakeholders with interests in the organisation, participation in decision-making and negotiation processes become paramount (Whiteley, 1995). Such a perspective of organisation therefore favours a broad approach and substitutes the simple analysis of a consumer market, with different methods of consensus seeking and partnerships (inspired moreover by classical marketing processes) within the whole of the network of agents having direct or indirect influence on demand. Equally as much attention is paid to external networks, which make up the economic and social environment of the company, as to internal networks. Relational marketing thus covers modes of action as diverse as upstream marketing, internal marketing and even trade marketing. Furthering the analysis of Ochs (1998), we could state that in order to achieve a satisfactory level of relational added value, the company must call upon all its human resources that are not only directly but also indirectly concerned with the relationship. This collective achievement is determinant: relational added value is effectively a “collective result”, as processes of adaptive agency are enacted (Holland, 1995), and a real investment is repeated and developed by a variety of individuals who are not necessarily part of the organisation in a contractual sense. How the company determines and perceives its stakeholders/agents however, may be bound up in deeper cultural and social norms. In addition, the degree to which the company is able to achieve both a deep level of relationship and a wide span of stakeholder relationships can differ. Contrary to a simple binary approach, added value is like a form of network between the client, the company and a variety of other possible economic agents. As such, specialists of service activity management must acquire the shrewder skills which allow them to go beyond the limited scope of the company to envisage the multiple and complex relations of the organisation within a complex environment. In the three case studies discussed below, we trace the development of a more extensive view of service relations. Figure 1 illustrates the progression – from one aimed primarily at deepening relations with a single external stakeholder, to meeting

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Figure 1. Continuum of stakeholder consideration

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the needs of an external stakeholder group in order to further relations with internal stakeholders, and finally towards a more differentiated view of the external client stakeholder as consumer, institution and external support. The case studies which follow also illustrate how interfaces must fit within the cultural milieu in which other agents exist (as the “motors” of the process of fulfilment of the service and its outcome).

1016 Case studies We believe the case method to be an appropriate technique for the analysis and explication of stakeholder in a relational approach, particularly since stakeholders may vary depending on the type of business, and, as observed below, the cultural context. Certainly, one criticism of stakeholder theory is the degree to which individual stakeholders can be isolatable, individual entities themselves (Buchholz and Rosenthal, 1997; Wicks et al., 1994) and according to Yin (2003), the case method is adequate for studying current phenomena in real contexts, where the borders between the object and the environment are not clearly defined and where multiple sources of evidence are available. To achieve our objective then, we have used case examples below in an effort to show the differing meaning of stakeholder in the context of a relational approach. We are aware that qualitative methodologies are often undervalued when compared with quantitative techniques (Anfara et al., 2002). Nevertheless, the case study technique is one that best suits the objective of this current paper, to provide an understanding of the different ways in which stakeholders may be viewed and utilised in a relational approach to service interaction. In order to triangulate information, data has been gathered from both quantitative and qualitative works. A limitation to this study is the impossibility of obtaining primary information due to the extent of the geographical area covered in the cases below. Rather, we have used secondary information, fundamentally from a number of previously published scientific and academic magazines, which form the bulk of bibliographical sources. The first two of the cases reported below, for example, are drawn from an article written by one of the authors to discuss the competitive advantage of cultural values (Jallat and Johri, 1997). As a collective, however, we hope the group of cases below will enable a greater understanding of the stakeholder concept and its impact on a relational approach. Following the classification of Yin (2003) we have chosen the explanatory version of case as it is the most adequate when faced with uncertainties regarding relevant aspects of a single “principal” study. In the instance of this paper we have forged links between cases, and this initial empirical base will allow us to go on to form more precise questions and testable hypotheses in subsequent studies. A major strength of case study data collection is the opportunity to use many different sources of evidence. Furthermore, the need to use multiple sources of evidence far exceeds that in other research strategies, such as experiments, surveys, or histories. The use of multiple sources of evidence in case studies allows an investigator to address a broader range of historical, attitudinal, and behavioural issues. However, the most important advantage presented by using multiple sources of evidence is the development of converging lines of inquiry, through a process of triangulation (Miles and Huberman, 1994). With data triangulation, potential problems of construct validity

are addressed because the multiple sources of evidence essentially provide multiple measures of the same phenomenon (Yin, 2003, pp. 97-101). In the cases presented below then, our research data was drawn from internal documents on some of the companies under study, corporate website analysis, articles in the press and/or academic journals or first hand data collection (made by students in the home country of the company).

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1017 Case 1. USAA: the importance of the niche market In the insurance industry, infamous for its indifference to the customer, Robert F. McDermott developed a company whose mission and corporate culture promoted service above both profits and growth (Teal, 1991), confident that growth and profit themselves would stem from such a service ethic. In discussing his 22 years as CEO of the company, McDermott noted that as the nation’s fifth largest insurer of privately owned automobiles and homes, the company was among the most profitable insurance companies within the US managing over $30 billion in assets (Teal, 1991). Most of USAA’s policy holders were military and ex-military member-owners and McDermott expanded USAA’s market by taking in his members’ children and grandchildren as associate members and the distinctive needs of USAA’s military niche were an important stimulus for the company’s service focus. USAA’s origins (formed in 1922 by 25 army officers at a time when most local insurance companies saw military personnel as too risky to insure shaped the company’s approach to its work force, emphasising a quasi-military esprit de corps and the continuous development of human resources (Teal, 1991; Jallat and Johri, 1997). However, what is particularly interesting about USAA is its unique service approach to its customers. While most companies seek to expand their target market, USAA stuck to its primary customer base comprising no more than 2 or 3 per cent of the US population, did little or no national advertising and refused to sell through the thousands of independent insurance agents in the country. The success of the company rather, lay in its abilities to service the very specific needs of its members through a strong culture of service, provided to a very particular community of customers, linked by the same professional “military culture” (Teal, 1991; Jallat and Johri, 1997; Bower et al., 1993). To paraphrase Mudie and Cottam (1993), the specific cultural orientation of a service company has repercussions on its own organisational methods and on its internal and external relations. The company therefore exhibits a distinctive style and specific principles of interface and exchange. In this case, the company has adopted a somewhat narrow view of its agents, focusing on a niche market, with a corresponding depth in its relations with this military niche. The company’s internal culture, with an emphasis on uniformity and providing strong social support for its staff (through, for example, extensive training and job rotation, a four-day work week and investment in employee facilities such as tennis courts, artificial lakes and softball diamonds (Teal, 1991)) aligns with the norms of the military group it primarily services, strengthening the belonging of this group and affirming aspects of their collective identity. The network of relationships in this case is conceptualised in Figure 2, and can be contrasted with the evolving networks evident in the following cases.

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1018 Figure 2. USAA

Case 2. Saravana Bhavan Chain of Eateries: management of the company-contact personnel interface The owner-CEO of India’s Saravana Bhavan Chain of Eateries chose to lay the foundations of his business on the basis of a basic cultural tradition in Indian society – taking care of one’s elderly parents, a traditional practice undiminished despite the rapid social change taking place in Indian society (Jallat and Johri, 1997). Although increased living standards have resulted in qualitative improvements in the facilities and quality of life afforded to older generations, in India, as well as other countries around the world, state-sponsored welfare measures for the elderly are limited and the penetration rate of the insurance industry and pension funds does not cover the majority of the population. Amongst rural families and urban poor in particular, parents look forward to and depend on economic and emotional support from their children as they age (Jallat and Johri, 1997). The owner CEO of Saravana Bhavan Chain of Eateries thus understood that cementing such an emotionally and culturally significant bond between employers and their older parents would contribute to the commitment and loyalty of his workers, an important consideration in the success of a restaurant business and a potential source of competitive advantage for his business (Jallat and Johri, 1997). The CEO thus offered as an employee benefit a monthly monetary support directly to the parents of those workers who had no source of income meaning that the elderly parents could now spend this “allowance for parents” freely to meet some of their daily needs without having to ask their wage-earning children for the money. This allowance, which they received directly from the employer of their children (Saravana Bhavan Group) and provided in such a socially acceptable way gave them a sense of self-pride and respect (Jallat and Johri, 1997). The workers also felt the impact of this gesture since most viewed the allowance as an additional monetary incentive and responded by showing their commitment and loyalty to the company. In 1996, the founder was awarded the Best Employer-Employee Relationship Award by the Rotary Club of Chenna Patna for his human resource policies, policies which have resulted in low turnover in a notoriously high turnover industry (Indias-Best.com, 2001), to the point where employment with the chain is considered close to a “government job” (Kanishwarya, 2004). In moving to a broader perspective of the employee, Saravana Bhavan has developed a stronger relationship with an important, although indirect stakeholder group, in a culturally acceptable way. In this case, the workers of Saravana Bhavan Chain of Eateries are personally indebted to the CEO and since the employee turnover

rate in the company is close to zero, the company is able to utilise such loyalty to consolidate its learning and build the skill base of its employees through more confident investments in employee training and development. The employer in this case recognised the importance of an indirect stakeholder in the business. Although in doing so, the employer adopted a role expected of the state or government in a western country – that of providing a safety net to older citizens, in fact, such expectations of business are becoming increasingly evident in western countries, where governments are becoming less willing or able to provide comprehensive social support, and as a result the expectations on business to “take up the slack” are increased (Windsor, 2001). In this case, the simple addition of a parental allowance came about through a recognition of the importance of the parents as indirect influences on direct stakeholders in the enterprise – the direct employees. Through taking a long-term approach and a wider perspective of the organisation and its stakeholders in which the indirect needs of the employee were met and the relationship with a wider network of stakeholders was thus strengthened, the company was able to develop not only a strong support base amongst its own internal customers – its employees, but also a stronger external customer base. With the relational focus of the interface less toward the “unknown”, highly mobile, and independent consumer, and instead, applied to the whole of the family group, the company was able to find the means to efficiently manage the involvement of its employees and in return benefit from improved quality of service and loyalty of staff (Jallat and Johri, 1997). As shown in Figure 3, this indirect relational component adopted with consideration to cultural values has consequences for the quality of the service provider – client interface both inside and outside the organisation.

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Case 3. Orly Catering: the extensive management of the company-client interface A further example of the move beyond the traditional binary approach to client interaction is found in the case of Orly Catering. Orly focuses on provision of catering to a variety of highly specialised establishments. For the director of a specialised establishment such as a nursing home or aged care hostel, the choice of catering service

Figure 3. Sarvana Chain of Eateries

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Figure 4. Orly Catering

provider is significant. It includes objective and tangible elements such as cost, price, service organisational systems and staff training, as well as taking into account the importance of the service provision at both a psychological and sociocultural level (Notarianni, 1997). Here, again, it has proved possible to extend the relationship between company and client through attention to the wider stakeholder perspective and the integration of cultural expectations. Orly Catering, the service company in this instance, took to building a successful relationship with three groups of people, all very different and involving relatively complex relations (see Figure 4): (1) The deciders: the hiring of an outside catering service is usually decided by the director of the establishment. For this stakeholder, the traditional “client”, the quality of service plays a dominating role and the motives of purchase are often related to security (hygiene control in the kitchen, nutritional balance and diets) and the comfort of guests. (2) The prescribers: medical teams and families often direct the purchasing decision, taking into consideration the hygienic and nutritional aspects of the food. Before any other considerations, it is important to meet the physiological needs of the elderly and to correct unbalanced dietary behaviour. If badly managed, the behaviour of guests can sometimes make the family circle feel extremely guilty about the provision of care outside of the family home. Thus medical teams and families demand security (food preparation in a way which limits bacterial risks, control of the cold chain) and the respect of generally-accepted healthy-eating norms and regulations (well balanced meals, diets). (3) The guests: as an important stakeholder in this service, the elderly ask for pleasure above all in dining. Dining is a cultural game that combines food and communication, exchange and sharing. Coupled with the function of integration and interaction with the sociocultural group, the dining event itself is never insignificant. It is usually a major moment of pleasure in the day.

As such, the needs of the guests as clients can at the same time be physiological (in delighting the taste buds), psychological (forming a special relationship with the service provider through a warm welcome and service) and symbolic (experiencing positive emotions at mealtimes) (Balazs, 2002). Moreover, this symbolic dimension must pay attention to a range of cultural norms – from the way in which service is provided to the guests, through to the way in which families are expected to treat their elderly relatives. In turn, the deciders are also able to place more importance on the relationship with the service provider as the provider enables an important means of competitive differentiation for the institution, and demonstrates quality to the families. These three elements of demand (the institutional representative, family members who no longer fulfil their family function and the elderly person who attempts to carry out his or her social role within the institution) are distinct and sometimes contradictory, and often make the catering company’s task difficult: . the institution may identify with the family and thus develop a fostering relationship, trying to compensate for the emotional relationship of the absent family; . the family identifies with the guest and hinders the institution’s decisions (“what do you give them to eat? Is it well balanced?”); and . the institution may also identify with the elderly person and there is a great risk that it infantilises and over-protects the guest. Generally then, services and products adapted for the elderly in this case take into account the specificity of their wishes and the needs of a variety of stakeholders. Above all, it is important to take a wider perspective – recognition of the various indirect stakeholders in the service and their particular needs can prove important in establishing longer-term relationships with the client institution. Orly Catering in this example, extends the use of networks associated with the company. Whereas in the previous examples, evidence of a deep relationship was limited to one group (the military niche, or the employees), in the case of Orly, the company has successfully recognised the perspectives of the consumer, the consumer’s institution (which provides much of the social and cultural context), and the wider network of family (as in case 2 above). As such, there is complexity in the jostling multiple expectations. Orly Catering, moving away from its traditional function, is now training the staff of client institutions to handle the emotions of guests, to understand conflicts and to adapt behaviour without ever falling into the traps of infantilisation, over-familiarity, authoritarianism or aggressiveness. As such, they are now moving towards deepening the relationships developed as a result of their “wider” approach to service marketing. Conclusion In this paper we have tried to further thought and approaches related to interface management, stakeholder conceptualisation and relationship marketing in the service industry. Since the very essence of service is linked to relations and exchanges, it seems important that the range of agents directly or indirectly influencing service processes should be taken into consideration. Due to the multiplicity and complexity of the ties that connect them to the service provider or to clients, management or exploitation of these other agents is often

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difficult. However, a well carried out analysis of these involved stakeholders constitutes a source of innovation and differentiation in a market of intangibility and increasingly recognised complexity. Intangibility also aids and encourages the “symbolic and cultural anchorage” of the provision of service. As such, we hope that the above examples demonstrate that recognition of a variety of types of stakeholder can be a strong means of competitiveness for the tertiary company as an essential element of differentiation and strategic positioning. It is important to note though that an understanding of culture influences the analysis of important stakeholders in service interactions. Trompenaars and Hampden-Turner (1998), for example, discuss how an important cultural distinction can affect orientation to service activity. They note that in specific-oriented cultures, agents tend to see relationships in terms of segregated encounters – for example, manager-employee relationships that exist only at work. In this task-oriented perspective of agent interaction, interactions are short-term, shallow affairs, existing for specific purposes and relationships are easily broken when the task is completed. These authors cite the example of airlines in specific cultures interpreting customer service as “providing a service for the individual of getting from A to B in a safe, reliable, and inexpensive way. Period” (Trompenaars and Hampden-Turner, 1998, p. 98). As such, there is little long-term or wider involvement outside of the essential service of carrying a person from one point to another. Trompenaars and Hampden-Turner (1998) contrast this with diffuse cultures in which service is less transactional, and somewhat all-encompassing – food, courtesy, making the customer feel valued. In diffuse cultures, common interaction dynamics and reputations may permeate a wider variety of situations and thus culturally appropriate relationships in service activity may be wider and more long term (Trompenaars and Hampden-Turner, 1998). Furthering the relational approach of marketing, the “Latin school of thought” (Maffesoli, 1988; Gobbi et al., 1993; Cova and Cova, 2002) supports the idea that marketing, beyond a privileged individualist relation, should create and develop social ties between members of the same group who share common interests. The Latin approaches are based on the prospective view of a person . . . who does not seek products or services in order to be more free, but especially objects and sites of service . . . to connect with others, with a community, a tribe (Badot and Cova, 1995, p. 11).

Consequently, the relational perspective must not only, following the example of the Scandinavian school, maintain a personalised and interactive relation with a group of loyal clients, but must also create friendships between the clients themselves. This is the “club effect”, a system of interfaces which currently constitutes a possible condition of the commercial success of the firm (Normann, 1991; Jallat et al., 1997). It should of course be noted that apart from cultural considerations that we have attempted to underscore, other elements of interface (aesthetics, design, technological mediums etc.) take on importance in a competitive perspective of service activities (Jallat, 1996) and as noted above the match between internal and external culture is certainly worth exploring. Such a match may be one way in which companies are able to develop and sustain the deep and wide stakeholder relations discussed in this paper.

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New service development: a stakeholder perspective

New service development

Anne M. Smith Centre for Strategy and Marketing, The Open University Business School, Milton Keynes, UK, and

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Moira Fischbacher School of Business and Management, University of Glasgow, Glasgow, UK Abstract Purpose – To increase understanding of both the process of new service development (NSD) and the nature of services as delivered to customers. Design/methodology/approach – Four qualitative, exploratory case studies encompassing public (health) and private (financial) sector service organisations. Findings – Managers select stakeholder groups for involvement in NSD attributing stakeholder salience, centrality to the process and power to influence the final service design. Customers are “dormant” stakeholders, thought to lack the knowledge/experience to contribute meaningfully to NSD. Their interests and needs are channelled through other stakeholders. Research limitations/implications – The research is confined to two service industries based on a key informant approach; thus generalisability to other industries may be limited. Practical implications – Multiple stakeholder involvement places a growing emphasis on the need for NSD managers to be skilled in managing complex, multi-layered and multi-faceted processes, often without legitimate power. This is likely to be a particular challenge for the public sector. Originality/value – This paper examines the relatively underdeveloped area of NSD and from an unusual perspective, i.e. that of services as outcomes of an amalgam of stakeholder interactions and relationships. Furthermore, it represents one of only a few in-depth studies of NSD within a health service context. Keywords Stakeholder analysis, Health services sector, Financial services Paper type Research paper

Introduction New service development (NSD) is recognised by both marketing academics and practitioners as being of increasing strategic significance (Day and Wensley, 1988; Storey and Easingwood, 1999). Yet NSD remains an underdeveloped area (Martin and Horne, 1995) lacking in empirical research (Song et al., 2000). The need to involve customers in new product development (NPD)/NSD is emphasised in the marketing literature (Coopers and Edgett, 1996; Davison et al., 1989) where understanding customer needs is central (Edvardsson and Olsson, 1996). Martin and Horne (1995), however, argue that direct customer participation in NSD does not happen very often. Both NPD and NSD studies indicate the potential for involvement of a wide range of stakeholders (i.e. “any group or individual who can affect or is affected by the achievement of the organisation’s objectives” (Freeman, 1984, p. 46)). Consequently, questions arise as to which stakeholder groups influence the NSD process (and ultimately the final service outcome) and whether their interests reflect those of the final consumer.

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Greenley and Foxall (1998) highlight that the marketing literature typically focuses on only two stakeholder groups (consumers and competitors) arguing that this attention should be extended to include other key stakeholders. Yet, while stakeholder theory offers relevant frameworks for understanding both the nature of services and the NSD process itself, few empirical studies have examined how organisations interact with their stakeholders (Berman et al., 1999; Donaldson and Preston, 1995; Greenley and Foxall, 1996, 1998) and none have investigated NSD from this perspective. This study adopts two interconnected stakeholder frameworks and, through exploratory case study analysis, aims to examine how NSD teams both exist within, and create, stakeholder environments thus determining both the nature of the NSD process and the final service outcome. First, Rowley’s (1997) two-dimensional (network centrality and density) theory of stakeholder influences is adapted to focus on NSD project team management, their position within both internal and external networks and the nature of their stakeholder relationships (networks here are taken to mean the full set of formal and informal ties between stakeholders in the NSD process. For fuller discussion of the concept of networks see, for example, Jones et al. (1997) and Kickert et al. (1997)). Second, Mitchell et al.’s (1997) typology of power, legitimacy and urgency provides a framework to examine the impact of various stakeholders on management decision-making. In particular the role of the final customer (or consumer) in NSD is examined. The inseparability of service production from consumption highlights the problems involved in defining the parameters of NSD and a number of classifications have been suggested (Avlonitis et al., 2001; Gadrey et al., 1995). NSD encompasses the development of tangible and intangible elements of a service, not previously offered by the supplier, including “offer development”, i.e. the development of “processes by which the product (or service) is evaluated, purchased and consumed” (Johne and Storey, 1998, p. 185). A wide range of organisational features may be involved (Edvardsson and Olsson, 1996) including systems, staff, the physical environment, and organisation structure and control. Consequently the potential for NSD projects to differ in nature and scope is substantial and empirical studies increasingly focus on the wider organisational context of the process (Johne and Harbone, 2003; Smith and Fischbacher, 2002; Stuart, 1998; Tax and Stuart, 1997) again suggesting the relevance of a stakeholder approach. A final issue concerns the application of generic organisation and management theories to public sector organisations that is often criticised for ignoring significant public/private differences (Hooijberg and Choi, 2001; Noordegraaf and Stewart, 2000). A fundamental difference distinguishing the two is their stakeholder relationships (Perry and Rainey, 1988). Consequently, both public and private sector NSD processes are explored highlighting the potential generalisability of this approach. The discussion below examines the potential relevance of stakeholder theory, and the proposed theoretical frameworks in particular, by outlining some of the main issues and findings of NPD/NSD research to date. In particular the roles of stakeholder centrality, stakeholder relationships and stakeholder salience in NSD are examined. The case study methodology is then described together with details of the four cases. Case analysis including the nature of stakeholder groups, their interests and influence on NSD process and outcome follows and is described within the framework of

centrality, relationships and salience. Finally, conclusions are drawn, together with suggestions for further research. Stakeholders in new service development Early NSD studies built on approaches from a goods environment attempting, for example, to identify process “stages” (Edgett, 1996; Scheuing and Johnson, 1989) and factors affecting success and failure (Cooper and Edgett, 1996; de Brentani, 1991; Easingwood and Storey, 1991) (for a review see Johne and Storey, 1998). The traditional emphasis in the marketing literature, i.e. the need to involve the final customer/consumer (Davison et al., 1989; Edvardsson and Olsson, 1996) has been augmented to reflect the crucial role of service staff (internal customers) (Zeithaml and Bitner, 1996). Additionally, the need to examine how marketing activities create shareholder value (Day and Fahey, 1988; Doyle, 2000) and to appreciate the wider organisational context and multi-disciplinary/multi-functional nature of business processes (Day, 1994; Srivastava et al., 1999; Webster, 1992, 1997) suggests that stakeholder theory can provide relevant frameworks within which to analyse NSD. Consequently, Rowley’s (1997) framework of network centrality and density is adapted and combined with Mitchell et al.’s (1997) typology in order to explore both the nature of NSD and the final service outcome as outlined below. Stakeholder centrality Innovation processes are essentially communication and information processing activities (Lievens et al., 1999) and the importance of coordination in NPD, both within the organisation and with external stakeholders, has been emphasised. Centrality refers to an individual actor’s position in the network relative to others (Gnyawali and Madhavan, 2001; Rowley, 1997) and thus power obtained through organisation and network structure. Consequently, successful NPD requires the creation of organisational features, such as cross-functional project teams, which position key decision makers (project leaders, champions and others) with the relevant authority to facilitate communication, coordination, control and ultimately success (Ayers et al., 1997; Cooper and Kleinschmidt, 1995; Lievens and Moenaert, 2000; Moenaert et al., 1994). Additionally, NPD can involve suppliers (Takeishi, 2001) and other alliance partners (Sivadas and Dwyer, 2000) where key individuals require the power to influence personnel and systems across organisations. Including other stakeholders, for example employees, on committees, teams etc., will potentially increase their power to influence NSD. The concept of “network centrality” is adapted in this study to identify how managers, at several organisational levels, create “coordinating structures” to include, directly or through representation, stakeholders who they consider to be salient, and whose power, as stakeholders, is then enhanced through that centrality. Stakeholder relationships The role of collaboration, cooperation, and particularly trust, in relationships is increasingly emphasised in many areas of the marketing literature (Chenet et al., 1999; Morgan and Hunt, 1994). Collaboration and cooperative competency have a profound association with NPD/NSD success regardless of whether this is an intra- or inter-firm endeavour (Gupta et al., 1985, 1986; Moenaert et al., 1994; Rochford and Rudelius, 1992;

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Sivadas and Dwyer, 2000; Takeishi, 2001; von Raesfeld Meijer et al., 1996; Wilson, 2001). At the network level, Rowley’s (1997) framework includes density, i.e. the number of relational ties between stakeholders. These ties improve communication and lead to the establishment of shared behavioural expectations. Studies, however, also highlight the benefits to be gained from “weak ties” in organisational networks (Kraatz, 1998; Rowley et al., 2000). Within an NPD context too much cooperation or strong relational norms between departments can reduce success (Ayers et al., 1997) as issues are excluded from consideration (Wilson, 2001). Consequently the nature of stakeholder relationships based on similarities, or differences, in expectations and interests is likely to impact on NSD. The implications of network density are assessed in this study by examining the nature of individual stakeholder relationships and how these influence NSD. Stakeholder salience The literature, discussed above, highlights a number of internal (senior management, project team members, functional managers and staff, customer-contact staff) and external (customers, shareholders, distributors, suppliers and other network partners) stakeholder groups who have an interest in both the process and outcome of NPD/NSD. Stakeholder theory “attempts to articulate a fundamental question in a systematic way: which groups are stakeholders deserving or requiring management attention, and which are not” (Mitchell et al., 1997, p. 855). These authors argue that it is managers who determine which stakeholders are salient and how they prioritise will then predict managerial behaviour. They (also see Agle et al., 1999) provide a dynamic theory of stakeholder identification and salience, an eight-dimensioned typology (i.e. dormant, dominant, dangerous, definitive, dependent, discretionary, demanding, non-stakeholder) classified according to their power, legitimacy and urgency (see Table I). The relative salience of primary stakeholders will change over time, impacting on the way managers behave in response (Friedman and Miles, 2002; Jawahar and

Stakeholder classes Dormant Discretionary Demanding Dominant Dangerous Dependent Definitive Non-stakeholder

Table I. Eight-dimensioned stakeholder typology

Powera

Stakeholder attributes Urgencyb

Legitimacyc

£ £ £ £ £ £

£ £ £ £

£ £

Notes: £ denotes that the stakeholder group possesses the attribute; a Power – “stakeholder power exists where one social actor, A, can get another social actor B, to do something that B would not otherwise have done” (Agle et al., 1999, p. 508); b Urgency – “a multidimensional notion that includes both criticality and temporality” (Agle et al., 1999, p. 508); c Legitimacy – “a generalised perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Agle et al., 1999, p. 508) Source: Adapted from Mitchell et al. (1997)

McLaughlin, 2001). Consequently, meaningful analysis should be context specific and may vary over the service lifecycle. The case studies described below focus on the development stage where stakeholder involvement will potentially impact on the nature of the final service.

New service development

Methodology The four NSD case studies comprise two private sector financial service projects (bank mortgage product and bank retail outlet/distribution network) and two public sector health service projects (hospital and health centre). Financial services have provided the context for much NSD research to date (see, for example, Avlonitis et al., 2001; Cooper and Edgett, 1996; Davison et al., 1989; Easingwood and Storey, 1991; Edgett, 1996; Lievens et al., 1999; Lievens and Moenaert, 2000; Meyer and Detore, 2000; Oldenboom and Abratt, 2000; Scheuing and Johnson, 1989; Storey and Easingwood, 1993, 1999). Fewer studies focus on health service innovations (for exceptions see Pinto and Pinto, 1990; Sivadas and Dwyer, 2000; Smith and Fischbacher, 2002). Both are major sectors of consumer societies, are highly visible and heavily regulated. Potentially, therefore, their NSD activities will be the focus of substantial stakeholder interest. A qualitative, case study approach, (adopted by previous NSD researchers, e.g. Johne and Harbone, 2003; Lievens et al., 1999; Stuart, 1998), enables the study of complex and dynamic processes (Cassell and Symon, 1994) and the exploration of emerging insights (Adams and Schvaneveldt, 1985; Yin, 1994). As a research area lacking in substantial previous empirical study, it is neither desirable nor possible to impose restrictive a priori classifications on data collection. Concentration on emergent themes (Cassell and Symon, 1994) then provides a platform for theory development (Eisenhardt, 1989). An expert judgment technique (Churchill, 1991) was adopted to purposively select interviewees deemed able to provide insight into the particular behaviours and processes being studied (Cassell and Symon, 1994). Expert judgment was combined with “snowballing” (respondents were used as informants to identify others with the desired characteristics), a practical and useful approach for accurately defining network boundaries and collecting relational data (Rowley, 1997). The fieldwork, conducted over 18 months, involved 60 stakeholder interviews (80 hours of interviews in total – tape recorded and transcribed in full – see Table II), plus site visits and informal communications. Transcriptions were coded deductively according to analytic categories derived from the literature, and then inductively, in line with themes generated by the interviewees. Interview data were deconstructed and organised thematically to allow comparison across case study sites and occupational disciplines, then reconstructed so as not to lose the original context and meaning (Coffey and Atkinson, 1996; Miles and Huberman, 1994). This analytical process involved description of organisational processes, interpretation of events, and the search for patterns and relationships among the data (Carney, 1990). Data and interpretations were continually reported to, and verified (Kvale, 1983) with, the interviewees throughout the period of the research. Particular attention was given to organisational features created for NSD (for example, project teams) and the processes by which stakeholder inclusion in, and

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Table II. Interview participants

Case 1: bank 1

Case 2: bank 2

Case 3: health service 1 Case 4: health service 2

Director of product development; marketing analysis managers (3); product development managers (2); information services manager

Executive directors (2); general manager; senior managers (2); distribution managers (2); designers (4)

Directors of community care; public health; estates and facilities; finance; finance manager; trust vice chairman; architect; engineers (3); GPs (2)

Health authority commissioner; trust chief executive; consultant psychiatrists (7); managers (4); community psychiatric nurse; nurses (3); occupational therapists (2); psychologists (3); GPs (4); social workers (2); other therapists (2)

representation on, these influenced the service outcome. A brief summary of the four cases is presented below. Case 1: developing a mortgage product (bank 1) The focus of NSD is a specific financial product (a mortgage) to be distributed through existing channels, i.e. bank branches and intermediaries. For the bank, key service criteria are: sufficient customer demand, fit with bank image and reputation, and capabilities of systems. Key customer criteria are considered to be price and flexibility. This case represents the more traditional approach to NSD but within the context of organisational change and a new strategic emphasis on NSD, expressed primarily through the creation of the product development department (PDD) by the incoming CEO. Case 2: developing a distribution network (bank 2) The bank 2 case involves redevelopment of its distribution strategy, changing the function, identity and philosophy of the branches within an extensive repositioning exercise and organisational transformation. The network development team (NDT) were charged with devising a range of service outlets congruent with strategic objectives and reflecting the bank’s philosophy and image. Their strategy represented significant financial investment, including branch redesign and the development of a self-service range of “kiosks”, founded on design principles of innovation, optimum location, flexibility (location and opening hours) and efficiency. Case 3: developing a community hospital (health service 1) This case focuses on how, in response to government policy and legislation embodied in the NHS and Community Care Act (1990), the design of a new community hospital service by an NHS Trust evolved and subsequently won a competitive tendering process. Designers had to meet financial and public health specifications such as effectiveness, access, appropriateness, and illustration of flexibility in anticipation of future changes in funding and target populations. Failure to meet these would result in veto by the health authority and government, and the loss of a service which would play a strategic role in the trust’s future, potentially laying them open to a flanking

attack via new services from competing trusts. Additionally the hospital design would be symbolic of the success of future community care. Case 4: developing a community mental health centre (health service 2) Prompted by the same legislation as case 3, this case relates to the design of one of a number of mental health centres, created to meet the needs of the severely and chronically mentally ill. This secondary care provision would be accessed via referrals from GPs, social workers, other primary care professionals and those working with supported accommodation programmes. With responsibility, in conjunction with local hospitals and community services, for the implementation of the government’s community care legislation, the health authority’s decision to develop centres as the lynchpin of their mental health strategy required a programme of communication, consultation and decision making at many organisational levels over a period of six years. Key criteria were accessibility, responsiveness, and flexibility. Additionally, centres were, within certain constraints, to be customised to local conditions and designed by local teams. Thus, a range of configurations emerged. Stakeholder centrality (coordinating structures) Figures 1-4 illustrate the structures by which management provided a forum for communication and channelled stakeholder interests into the NSD process. Uniquely within this study, and reflecting the continuous nature of NSD within this context, the bank mortgage product (case 1) evolved within an existing structure, i.e. the product development department (PDD) (although there is a degree of adhocracy as members of the major coordinating structure, i.e. the project team, may vary for different services) (see Figure 1). The team leader and one other represent product development. Two representatives from marketing act as a conduit for market/customer information and, at the time of the research, played a supplier role. They were, however, hoping to develop both in terms of driving NSD and in establishing further coordinating structures to involve branch staff and even senior executives who potentially have power of veto over new services. The second case (bank 2) involved a team specifically created for this NSD project, comprising five representatives of various areas of the bank. The team was responsible for coordinating the design activities of three external design companies. This bank’s policy of outsourcing is evident (see Figure 2) and, in contrast to bank 1, after recognising the potential constraints of IT had added this to their outsourced activities. The absence of a property department was noted by design partners. They welcomed the consequent flexibility and in particular valued the small number of people with whom they had to deal and the lack of hierarchy that contributed to the success of the relationship. Both health service cases involved temporary structures at a number of organisational levels (see Figures 3 and 4) focusing on the design of integrated care projects that Raak et al. (2002) argue: Describes the organising processes needed to develop and deliver coherent, coordinated and continuous sets of services, delivered by cooperating actors (cited in Kumpers et al., 2002, p. 339).

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Figure 1. Stakeholder involvement in new service development (bank 1)

Figure 2. Stakeholder involvement in new service development (bank 2)

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Figure 3. Stakeholder involvement in new service development (heath service 1)

For the hospital (case 3), a health authority project board (PB) comprising senior representatives, and at the trust level, a design project team (DPT), were created. Their composition reflected the variety of stakeholder interests in the NSD process, including members whose specific role was to communicate directly with internal and external groups such as nurses and GPs, and others with specialist skills such as accountancy, reflecting the need to concur with the health authority’s financial criteria. Indeed representation was so comprehensive that at one point “we had to draw a line because we were involving so many people, and as a core group we just had to take decisions” (DPT member). The health centre project also created a coordinating group to represent the various stakeholder interests (see Figure 4) including subgroups, one responding to the need for patient advocacy, involvement of relatives and the concerns of local residents, and one other to issues raised by staff redeployment. Additionally, stakeholder conferences were instigated at two levels. First, search conferences that aim to identify preferred service outcomes and include wide representation. Subsequently, conferences were

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Figure 4. Stakeholder involvement in new service development (health service 2)

held for those with a “major stake”, particularly the community psychiatric nurses (CPNs) and consultants who would then form the core of the design team at local level. Their involvement was emphasised by the trust chief executive so as to establish ownership and credibility. The design process illustrated in Figure 4 and Table III relates to one where four CPNs and two consultants initiated a health centre project, identified key players, formed a team (numbering 10 to 14 people) selected and debated criteria and, after a process of negotiation, designed a centre which was subsequently staffed and managed by a locality manager. Inclusion of stakeholders within such structures increases their centrality conferring power to influence service design by expressing their various interests (see Table III for a description of stakeholder interests in the design projects). The

Interest

No direct involvement. Perceptions/expectations/previous behaviour through various channels

Price/flexibility. General fit with bank image

Integration of all aspects of design to reflect bank’s repositioning and image. Return on investment chief executive product champion for kiosk design Network development Achieving strategy and project team objectives

Chief executive directly involved. Personally visited and employed design company, three other senior execs involved directly in planning authority discussions and employment of design company 1 Members of main coordinating group. Responsibility for employing design companies 1 and 2

Regular communication with local branch and PDD

As above/market potential/product simplicity and longevity

Intermediaries, e.g. mortgage brokers/estate agencies/solicitors Customers

Bank 2 Senior management

Branch manager discussions with product teams/staff training re launch

Customer interest “realism” re potential and sales issues

Compliance with relevant legislation Negotiation with product team

Legal services

Branch staff

Resource allocation. Fit with existing Negotiation with product team systems

Sufficient market demand. Aim to increase influence in NPD process

New CEO set up product development department Key participants in product team. Reliant on senior support. Negotiate with other departments/no hierarchical control Representation on product team. Central to liaison with research/advertising agencies

Centrality/coordinating mechanism

Marketing/strategic analysis/subunit of PDD Information systems department

Bank 1 CEO/board of Bank image/profitability directors Product development Product profitability. Fit with department organisation’s strategy and plans

Stakeholder group

Overall responsibility for design brief as it evolved from negotiations with design companies (continued)

Resource allocation. Composition of NDT. Approved kiosk design. Location decisions

Indirect but focus on customer criteria throughout

Constraint on development/negative impact on functionality/competitiveness, e.g. re processing of application Increase product complexity, e.g. “non-consumer friendly small-print” None specific re this product. Indirectly through previous product launches and customer contact “Important role in design” intermediary criteria fit, e.g potential for longevity in marketplace

Currently provide supporting market information for further development

Main drivers of product ideas and process

Approve or refuse initiatives/costs

Influence on service design

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Table III. Stakeholders in new service design: interest, centrality and influence

Design was an “interpretation of user needs and preferences”

Customers

Health service 1 Health authority

Branch staff

Strategic level/income generation compatibility with government directives/legislation. Cost. Environmental policy

At the time –considerable concern about the deteriorating appearance of city streets through “street furniture clutter” Changes to employment patterns and working conditions. Ability to achieve sales targets

Town planners

Design company 3

Design company 2

Entry to UK market. Exploit additional applications of existing design concept. Additional work from this institution and other financial institutions. Customer contact – good communications Client relationships. In particular that the client has ownership of the design and clear problem definition, and is interested, which moves the process forward more quickly but allows creative flexibility Entry to UK market. Additional work from this institution and other financial institutions. Good designer-client communications

Design company 1

Table III.

Interest

Timing of establishing kiosks in some locations

Major responsibility for design, building and subsequent (outsourced) maintenance of “innovative” kiosks

Composition of project board/working group. Pivotal role in communication network. Responsible to, and direct communication with NHS management executive. Involvement throughout

(continued)

Power of veto/approval over internal provider and design features and particularly location. Intervened re specific physical design, i.e. single bedrooms

Regular meetings with implementation team None (co-membership with NDT) responsible for human resource and processing issues. “Roadshow’ for communication with branches None Based on “interpretation” of customer needs

Chief executive instigator of relationship and thereafter, direct contact and involvement. Negotiation with design team (NDT) and design company 2 to develop specifications. Involved in negotiations with planning authorities Negotiations with NDT, design company 2 and directly with chief executives

Major responsibility for branch design developed from previous work in the clothing retail sector

Previous relationship with project team manager. Negotiation with design team (NDT) through their own dedicated team of three people. Worked with design company 2 and the bank to develop formalised design brief Negotiation with design team (NDT). Worked with design company 1 and the bank to develop formalised design brief

Major responsibility for the overall concept design and bank image. Integration of branch and kiosk design

Influence on service design

Centrality/coordinating mechanism

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Strategic (unit) level. Winning tender vital for competitiveness. income generation Location/accessibility. Nature of services and facilities

Trust

Health service 2 Health authority

Linchpin of the whole mental health strategy. Creating a revolutionary approach to service delivery driven by government guidelines. Reducing potential negative impact of change on a variety of stakeholders

Responsible for “innovative design” – physical layout, heating, ventilation. Interrelates with staffing and operational issues as coordinated with DPT Location of specific services and increased flexibility

Indirect but focus on patient-centred care throughout

Successful in pressure for number of beds. Little generally. Described as “very vague . . . happy to be guided by us”(DPT)

Little eventually due to divergence of opinion

Decisions re service design – service mix, retail outlet/building, staffing etc.

Influence on service design

(continued)

Set up coordinating group and subgroups – a Control over funding and ultimately advocacy project. Direct communication pattern of services, skills profile and with trust and with NHS management physical facilities executive

Working conditions. Patient-centred Consultation exercise. Project team design representative

Other service professionals – Paramedics

Technical design team (private sector specialists)

Patients

Described as a GP-run facility. Nature of services and working relationships. Particular concerns hospital location and number of beds Location/accessibility. Nature of Indirectly through above and through services and facilities (different service professionals and designers sectors) knowledge and perceptions of “patient-centred care” Winning design. Future NHS work Direct communication and consultation with DPT manager throughout

Representation on health authority PB/WG. Composition of trust level project team and direct communication with this Involvement in public consultation exercise and survey and via local councillors at health authority level. PR company at trust level Direct representation in DPT and OPT. Consultation exercises

Centrality/coordinating mechanism

General practitioners

General public

Interest

Stakeholder group

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Table III.

*Policies of local configurations, seven day opening and multidisciplinary teams. Philosophy, i.e. wide patient focus (revenue) and service mix. Staffing profile – pressure for less trained higher numbers. Location and nature of building – funding restrictions Provision of drop in centre and duty officer to provide telephone advice for GPs

Involved in health authority coordinating group. Employed external consultant which organised stakeholder conferences. No direct involvement in, but authority over local health centre project design group and design features

Involved by Trust at early stage to work with external consultancy Main invited participants to stakeholder conferences. Major role (core) in design team identifying other stakeholders for inclusion

Development of comprehensive service mix within the health centre philosophy developed at trust level. Veto over some services, e.g. alcohol and drug services not included. Worked with architects redesign of physical facilities Accessibility, availability, range of “Invited to stakeholder days” “Awareness” of user and carer needs services throughout. No direct influence recorded Appointed by trust. Organised stakeholder Developed generic policy – skills mix, Help authorities with days recruitment policy and level of integration implementation of comprehensive, with other services/agencies locally based mental health services and to contribute to the development of national policy from experience

Involved in stakeholder days. Represented on the design team

Influence on service design

Centrality/coordinating mechanism

Note: a Some difference of opinion between interviewees as to whether the initial ideas for the health centre design emerged at health authority or trust level

External agency (academic)

Users/patients/carers

Community psychiatric nurses (CPNs)/consultants

General practitioners

Specific criteria/health outcomes. Achieve inter-agency agreements – rapid communication and effective coordination across agencies and between key players. Securing funding through effective design. Cost control Proximity and availability. A more comprehensive service with respect to both service mix and clientele, e.g drug/alcohol and drop in services. Specialist staff ease of referral systems. Regular contact with CPN staff Ability to provide sufficient medical cover. Service mix – good psychotherapy services and range of other services, e.g. dietitians

Trust

Table III. Interest

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impact on the nature of the final service, however, is dependent on the diversity of interests and managers’ responses to them. Stakeholder relationships Cooperation, trust and positive relationships generally were a recurring theme in all cases. Bank 2 emphasised the role of intermediaries: “they are perceived as customers . . . their needs are central” and “we talk regularly with them . . . they play an important role in design” (project team member). The impact of intermediaries, however, appeared to be an indirect one, created through shared relationship expectations rather than an identifiable involvement. The team leader’s role was crucial, involving – awareness of the customer concept, appreciation of the wider organisational perspective and the implications of decisions upon IT systems and branches, reflecting the potential impact of various stakeholder groups. One particularly important element of the hospital design project was the relationship of the project manager with the technical design team (TDT) (see Figure 3). These private sector professionals were, unusually for the public sector, employed directly due to reputation and previous work with the project manager. The perceived mutual benefits were apparent. One TDT member described how the trust’s project team manager “received 125 per cent” effort in terms of their commitment to the design. The frequent communication between the two parties was often cited as a reason for the successful design process and outcome. Such relationships were also a key feature for bank 2, where design companies were employed due to previous relationships and reputation. Major contributory factors to the success of the relationship included “regular meetings and communication”, informality and trust based on “personality and friendship” which is “quite unusual” (design company respondents). There were, however, also many examples of conflicting perspectives and communication problems. For the hospital, at trust level, differences between some members were – “essentially irreconcilable” (HBPB member), and some local community meetings were considered “deplorable”. The planned location in particular, created a divergence of opinion amongst the public, local politicians, GPs, consultants, hospital management, staff etc. The winning tender would result, as with the health centre project, in the decommissioning of existing facilities in addition to creating new, and issues such as job security and local community health care presence created intense feelings. Both case 3 and 4 were undertaken within an environment of adverse media and public attention focussing on the government’s care in the community policy, hospital closure and rumours of privatisation. Internal stakeholder groups did not always agree and “did not always like what was fed back through the system” and “the day hospital was moved about more than I care to remember” (health centre manager). Although only positive relationships had been highlighted, for bank 2 a potential area for concern was with respect to copyright. Given the collaborative and evolutionary nature of the NSD process, ownership is difficult to establish and should, according to one interviewee, be addressed early in the designer-client relationship in case any issues arise later. For bank 1, however, NSD created a forum for diversity of interests, often along functional lines (see Figure 1). A number of internal bank departments are key stakeholders in the NSD process, potentially influencing both

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process and outcome. Information systems were regarded as a major constraint, directly impacting on the work involved at branch level and the customer’s time. Legal information adds to product complexity, again perceived negatively by customers. With no line authority, project managers must negotiate with both these departments: with management services with respect to cost bases and externally with treasury for funding. Differences in service design arise through negotiation, a feature of all cases. Although, the health centre design described here was one of the few local projects to achieve cooperation from GPs, substantial service mix changes were required as a result. Interviewees reported that GPs’ perceptions of the core purpose of the health centre differed from those originally envisaged involving a more comprehensive range of services. Conflict between locality managers and clinical staff would subsequently create more change. Stakeholder salience Senior managers derive stakeholder power from formal position, network centrality, control of resources, decision premises and information (Daft, 2001). The four cases illustrated how senior managers generally exercised power through creating innovation strategies, coordinating structures (see Figures 1 – 4) and resource allocation. There were also several examples of direct involvement in the NSD process. One CEO (bank 2) was described as a “product champion”, active in supplier selection and design approval. The interrelationship of physical design with staffing and other costs was a major issue for the hospital case and the insistence of the health authority on single occupancy rooms (rather than four bedded bays) impacted on projected cost bases and ultimate design. Respondents from bank one highlighted how in the past, senior management had directed that new services be dropped. For the health centre, the decision of the trust to allow local autonomy directly impacted on the resulting configuration. From the perspective of NSD teams, senior management is at least a dominant stakeholder group (their influence is assured) exercising legitimate power (for definitions see Table I). A high level of involvement also suggests urgency arising from the strategic significance of the innovation, personal interest, or consideration of other stakeholders. The hospital intervention, for example, was due to the health authority’s concern for patient privacy and both public sector cases reflected the underlying government policy. Within the private sector, senior managers’ responsibilities to shareholders are implicit throughout. Senior managers are then “definitive stakeholders” to which project managers must “give immediate priority” (Mitchell et al., 1997). Those included in coordinating structures specifically created for NSD potentially increase power through network centrality and consequently for the constituencies which they represent. Such increases are, however, constrained by the power bases and negotiating skills of group members. Here team leaders (or other key personnel) again establish which stakeholders will be “dominant”, for example distributors (bank 1), or “definitive”, such as design companies and other professionals (bank 2 and health service 1 respectively) based on mutual dependencies and recognition of legitimate power. Friedman and Miles (2002) suggest that where the relationship is necessary and compatible, stakeholders are likely to be more influential, but where necessary and

incompatible, their claims and criticisms must be answered. Here, “goals and decisions emerge from bargaining, negotiation and jockeying for position among different stakeholders” (Bolman and Deal, 1970). Changes to service design may be at variance with those preferred by the main NSD team (as illustrated in the functional divide for bank 2 and differences between GPs and other medical professionals in the health centre project). There were instances where project teams deliberately omitted, or intended to omit, some stakeholders from further involvement as a response. In this study the spectre of the customer was ever present as many involved in NSD talked about “patient-centred care”, “an interpretation of consumer needs” etc. Yet the customer never actually appeared. The reasons provided included, senior management’s view that marketing research was too costly; that consumers are constraints on innovation; not possible within time constraints; patients lack relevant expertise and that patients needs are fully understood by staff. There were no instances where the final customer directly influenced outcomes (see Table III) and these comments suggest that managers do not perceive customers as having a legitimate role in the NSD process. Customers are “dormant stakeholders,” i.e. they possess considerable latent power, as they can choose to use or not use the services, thus having a direct impact on the success of NSD, but no legitimacy or urgency and therefore little interaction with the organisation. Representation within coordinating structures was rare and usually communication was part of a wider public consultation for the health services (where divergence of interests resulted in little influence), or indirectly through front line staff for the banks. Bank staff were, however, also unlikely to be involved in development although their role in successful implementation was recognised and in particular, the need to communicate the new service features to them. Agle et al. (1999) argue that for large public firms, urgency is the best predictor of stakeholder salience. Evidence in this study was the direct involvement of senior management, in addition to design company and project team, in dealing with local authorities as problems with planning permission could potentially disrupt implementation (bank 2). Additionally, trust management responded to negative media and public attention by employing a PR consultant. Conclusion and implications Marketing scholars (Srivastava et al., 1999; Webster, 1992, 1997) describe product development management as a core business process, generating customer, and ultimately shareholder, value. Others emphasise that marketing’s research domain should be expanded to incorporate key stakeholders, other than consumers (Greenley and Foxall, 1996, 1998; Slater and Narver, 1995). This cross-sector study, involving diverse NSD contexts, illustrates that services, as provided to customers, are an amalgam of stakeholder interests, expressed within a series of relationships and bargaining processes and filtered through permanent or temporary coordinating structures. Srivastava et al. (1999) argue that research questions dealing with the wider organisational context will become increasingly central to marketing’s emerging empirical research agenda with the recognition, by both theorists and practitioners, that the relevance and success of marketing activity lies within the context of wider business processes. This perspective is particularly apposite for services where organisational boundaries are permeated by consumers who are involved simultaneously in both production and consumption.

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The adaptation of Rowley’s (1997) stakeholder network approach offers a useful framework for understanding both the nature of services and the NSD process itself. Mapping organisational features/coordinating mechanisms (as illustrated in Figures 1-4), combined with an examination of the nature of stakeholder relationships, can unravel the complexities of an evolutionary process that is far from linear. It is, for example, often difficult to establish from where ideas emanate, and decisions are likely to result from political, rather than rational, processes. Of particular importance is the way in which managers, at various levels, establish stakeholder salience potentially increasing their power and influence through, either inclusion in coordinating structures or through direct communication with key decision-makers. Increasing network centrality, structural, and potentially relational, embeddedness can be linked to firm performance (Rowley et al., 2000) and positive relationships were cited as contributing to both NSD process and outcome success. Strong ties however may also create concurrence – seeking tendencies that negatively impact on innovation capability (Ayers et al., 1997). There were instances where respondents highlighted intentions to increase project team representation in the future, however it was also indicated that, if possible, stakeholders who potentially offered divergent views/constraints would be omitted. For NSD managers other actors, such as senior managers or external regulators, also determine participation and influence. The cases highlight how stakeholder salience in NSD is established by managers at various organisational levels, who themselves then form part of the wider network. It is therefore necessary to conduct stakeholder analysis at the appropriate level (Clarkson, 1995). Senior management commitment and involvement is vital for NPD/NSD success (Gupta et al., 1985; Hegarty and Hoffman, 1990) and was described in all four cases re-emphasising the strategic role of these processes. Consumers were found to be dormant stakeholders, in that managers perceived them to be of little salience in the NSD process having little expert opinion and often preferring the status quo. The traditional role of marketing research found in the NPD literature did not feature in any of the four cases and “marketing” as a functional activity was represented only once (bank 1), even here playing a supplier rather than a key decision making role. Service satisfaction will be a function of the inclusion, in relevant coordinating structures, of those who, not only accurately represent consumers needs, wants and preferences, but also possess the power, legitimacy and skills to influence NSD. As Webster (1997) argues, “successful marketing organisations will have the skills necessary to manage multiple strategic marketing processes” and link “the voice of the customer to all . . . value delivery processes” (p. 64). A particular challenge is to make the voice of the customer heard amongst those of the many other stakeholders involved in the NSD process. For the public sector, the increasing pressure for collaboration and consumer involvement presents additional challenges. Conversely, marketing authors (Zeithaml and Bitner, 1996) emphasise the need to involve customer contact staff if services are to be delivered to a high standard. Staff involvement was more evident in the public sector where features of a professional bureaucracy (Mintzberg, 1987) suggest that employees have more power to influence organisational processes. A key question for future research will be to examine whether, and in what circumstances, conflict produces a superior service. Implicit is a core problem, since adoption of a stakeholder approach significantly complicates assessment of success.

The wide range of stakeholders with an interest in public services, in particular, means that results and outcomes may be evaluated in different ways, and from a variety of perspectives (Emanuel, 1999; Ring and Perry, 1985). Consequently, the challenge of NSD may be greater in the public sector. The health service studies highlighted more complex structures and a wider variety of stakeholder groups represented in key decision-making units, although some differences can be attributed to the nature of the network of interdependent organisations that characterise the public sector (Boyne, 2002), rather than differences in ownership. Such findings have major implications for the management of NSD and therefore for marketing practitioners involved in this process. Project leadership and management qualities, including effective co-leadership between different levels of organisation (Johne and Harbone, 2003), are associated with project and firm level performance (Howell and Shea, 2001; Markham and Griffin, 1998). The complex, multi-layered and multifaceted processes illustrated in Figures 1 –4 highlight the need to manage multiple, potentially conflicting, interdependencies and stakeholder interests and often without legitimate power. Practitioners will increasingly require cognitive, social and behavioural skills to deal with such complexities and to be effective leaders. This perspective is again, particularly apposite for public services where people’s ability to “apply collaborative skills and mind sets to the resolution or amelioration of complex problems” is crucial to success (Williams, 2002, p. 106). Increasing emphasis on NSD within radix structures and potentially involving public/private sector collaboration (such as that directed by the UK government’s private finance initiative (PFI)) further increases the diversity of stakeholder interests and management complexities involved. The frameworks adopted here provide useful analytical tools with which managers can assess such interests and their potential impact on NSD. A limitation of this study, however, is that the findings are confined to two service industries which, although major sectors of developed economies, may reflect peculiar characteristics, for example, with respect to the role of customers in NSD. Further studies will examine other sectors within this framework to determine how stakeholder influence differs across services and how this impacts on NSD processes and outcomes. A further limitation relates to the key informant approach that, although most appropriate here, has been criticised (Phillips, 1981). Potential problems were reduced, however, by including multiple informants to explore diverse perspectives, and by adapting an open style of questioning. One final area for further research lies in the application of stakeholder frameworks to the development of international services. Innovation and internationalisation are two of the most important factors determining business success today (Golder, 2000), yet there is a lack of research concerning international services (Knight, 1999) and this is particularly true of international NSD. Research is needed to understand the ways in which stakeholders from diverse cultures voice their interests and how this influences NSD.

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Stakeholder perceptions presage holistic stakeholder relationship marketing performance Brian Murphy, Paul Maguiness, Chris Pescott, Soren Wislang, Jingwu Ma and Rongmei Wang

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Department of Commerce, Massey University at Albany, Albany, New Zealand Abstract Purpose – To measure marketing performance in a holistic sense. Design/methodology/approach – To augment the prevailing customer relationship marketing paradigm, a holistic stakeholder relationship marketing paradigm is proposed in which holistic marketing performance is reflected in the delivery of long-term economic, social, and environmental value to customer, employee, supplier, community, and shareholder stakeholders of a business in order to enhance sustainable financial performance. Present stakeholder attitudes are measured in a stakeholder performance appraisal within a stakeholder relationship marketing model, as timely, early warning signals of future stakeholder behaviour and concomitant future business performance. Findings – Stakeholder performance appraisal results to date indicate that a holistic stakeholder relationship marketing orientation that incorporates triple bottom line philosophy significantly enhances business financial performance beyond that achieved by a customer relationship marketing orientation. Research limitations/implications – The stakeholder performance appraisal has been applied to only 33 businesses to date providing scope for wider application of this measurement system to demonstrate its practical usefulness in measuring holistic marketing performance and future financial performance. Practical implications – The stakeholder performance appraisal provides a perceptual overview of holistic marketing performance and concomitant business financial performance from stakeholders in terms of quantitative ratings of economic, social and environmental performance, and qualitative strengths, weaknesses, opportunities and threats. These data enable a business to plan stakeholder relationship marketing strategies to enhance performance and to predict future financial performance. Originality/value – The stakeholder relationship marketing model and the stakeholder performance appraisal are new, unique, managerially useful additions to existing stakeholder models and metrics. Keywords Stakeholder analysis, Perception, Relationship marketing Paper type Research paper

Introduction Relationship marketing evolved in the 1980s from the transactional marketing of the 1960s and 1970s. As practised in the 1980s and 1990s relationship marketing had a strong emphasis on business to customer relationships (Berry, 1983; Gro¨nroos, 1997; Gummesson, 1999; Kotler and Armstrong, 1999). However, many commentators (Freeman, 1984; Arrow, 1988; Murphy, 1988; Verbeke, 1992; Polonsky, 1995; Murphy et al., 1997, 1999; Payne et al., 2001; Polonsky et al., 2002; Christopher et al., 2003) have expressed the view that a business is a coalition of stakeholders including employees, suppliers, shareholders, the community, as well as customers, and thus the scope of relationship marketing should be expanded to embrace business to stakeholder

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relationships. Other commentators have recognised that business financial performance is influenced by more stakeholders that just customers, e.g. Porter (1985) in his five environmental forces model, and Kaplan and Norton (1996) in their balanced scorecard model. Parallel to the movement to augment relationship marketing with a stakeholder orientation, the triple bottom line (TBL) business philosophy was developing, emphasising that the traditional single business objective of achieving a single bottom line of maximum economic returns to shareholder stakeholders requires augmentation to a tripartite sustainable business objective of achieving optimal economic, social, and environmental returns to all stakeholders, as promulgated by Elkington (1997). A further movement in the late 1990s was the increasing requirement that marketing performance be linked to business financial performance (Coviello et al., 2002). Kotler and Armstrong’s (1999, p. 550) definition of Relationship Marketing is noteworthy: THE KEY: CUSTOMER RELATIONSHIP MARKETING Relationship marketing involves creating, maintaining, and enhancing strong relationships with customers and other stakeholders. Relationship marketing is orientated to the long term. The goal is to deliver long-term value to customers, and the measure of success is long-term customer satisfaction.

Kotler and Armstrong acknowledge the existence of stakeholders other than customers in their definition of relationship marketing but revert to the older, myopic concept of customer relationship marketing when stating relationship marketing outcomes as customer only orientated. The marketing performance measure in the Kotler and Armstrong definition is long-term customer satisfaction. This could be considered as an intermediate outcome measure along the way to achieving sustainable business financial performance in terms of return on investment, a crucial end point marketing performance measure (Matear et al., 2003). Moving from the Kotler and Armstrong customer orientation to a stakeholder orientation has been demonstrated to improve business return on investment (Berman et al., 1999; Caulkin, 2002). A stakeholder orientation implies that the ultimate objective of a business is to create value for all of its stakeholders beyond Kotler and Armstrong’s long-term value for just customers. Elkington’s (1997) TBL business philosophy implies that the holistic objective of a business is to create sustainable economic, social and environmental value for all stakeholders with each value component being given equal emphasis in the business. In order to encapsulate the modern consideration of an holistic business as a coalition of stakeholders with a TBL objective of achieving sustainable economic, social, and environmental value for all stakeholders, we propose an augmentation of the prevailing customer relationship marketing paradigm to an holistic stakeholder relationship marketing paradigm. We postulate the Stakeholder Relationship Marketing Model as a framework for measuring marketing performance in an holistic sense. The Stakeholder Relationship Marketing Model We have augmented Kotler and Armstrong’s (1999) definition of customer relationship marketing to provide the following definition of stakeholder relationship marketing as the foundation for the Stakeholder Relationship Marketing Model: Stakeholder relationship marketing involves creating, maintaining, and enhancing strong relationships with customer, employee, supplier, community, and shareholder stakeholders of

a business with the goal of delivering long-term economic, social, and environmental value to all stakeholders in order to enhance sustainable business financial performance.

Stakeholder perceptions

The five broad stakeholder groups above are derived from the pioneering stakeholder relationship work in the 1980s by Charles Exley Jr chairman and chief executive officer of the NCR Corporation, assisted by Professor Rosabeth Moss Kanter of Harvard University and Professor James O’Toole of the University of Southern California, who jointly developed the NCR Mission Statement which promulgates NCR’s intention to create value for all of its customer, employee, supplier, community, and shareholder stakeholders through mutually beneficial relationships based on integrity and respect (Exley, 1988, p. 10):

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Our primary mission is to create value for our stakeholders. We believe in conducting our business activities with integrity and respect by building mutually beneficial and enduring relationships with all of our stakeholders. We take customer satisfaction personally: we are committed to providing superior value in our products and services on a continuing basis. We respect the individuality of each employee and foster an environment in which employees’ creativity and productivity are encouraged, recognised, valued and rewarded. We think of our suppliers as partners who share our goal of achieving the highest quality standards and the most consistent level of service. We are committed to being caring and supportive corporate citizens within the worldwide communities in which we operate. We are dedicated to creating value for our shareholders and financial communities by performing in a manner that will enhance returns on investments.

The five stakeholder groups have a vital stake in the operation of a business without whose sanction and support the business would cease to exist (Murphy et al., 1997): (1) Customers – provide patronage and revenue support. (2) Employees – provide human talent resources support. (3) Suppliers – provide materials and services resources support. (4) Community. (5) Human – provide legal sanction. (6) Natural – provide ecological sanction. (7) Shareholders – provide financial sanction. It is commonsense to consider the five stakeholder groups as being indispensable in the functioning of a sustainable business. The business is financed by shareholders, is allowed to exist by the community, has suppliers providing materials and services, for employees to create goods and services, which customers purchase in preference to competitors’ goods and services. Reciprocally, stakeholders can rightfully expect a sustainable business to create economic, social, and environmental value for them by exhibiting excellence in customer service, employee relationships, supplier partnerships, community corporate citizenship, and shareholder investment returns, based on ethical values of affirmation (respect), integrity (morality), efficiency (stewardship), equity (fairness) (Murphy et al., 1999). Achieving these stakeholder expectations is the function of stakeholder relationship marketing strategies with the ultimate outcome being holistic marketing performance reflected in the following collective stakeholder

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behaviour which is inherent in sustainable business financial performance: optimal revenue (from customer purchases and community reputation) minus optimal costs (from employee and supplier productivity) equals optimal profit divided by shareholders’ investment equals optimal return on investment (ROI) incorporating optimal economic, social, and environmental returns to all stakeholders. The holistic contribution of stakeholders to sustainable business financial performance as measured by an optimal ROI reflects the TBL philosophy of holistic business performance incorporating equally emphasised economic profitability, social responsibility, and environmental preservation (Elkington, 1997). To help manage a business towards the goal of an optimal ROI a stakeholder relationship marketer needs to understand the determinants of stakeholder behaviour through an appropriate measurement system. In 2002 the Future Research Group (FRG) in the Department of Commerce at Massey University Albany in Auckland New Zealand in conjunction with Research Consultants Ltd an Auckland based stakeholder research consultancy developed the Stakeholder Performance Appraisal as a measurement system to operationalise the Stakeholder Relationship Marketing Model. The Stakeholder Performance Appraisal is a refinement of the Stakeholder Relationship Audit (Murphy et al., 1999), an earlier stakeholder measurement system developed by Research Consultants Ltd in 1991 and administered by them until 2001. The Stakeholder Performance Appraisal The Stakeholder Performance Appraisal is a variant of the Foresight Model where foresight has been defined by Slaughter (1995) as a process of future sensemaking, “a human capacity that can be harnessed to facilitate desirable individual and social change”. The foundational Foresight Model for the Stakeholder Performance Appraisal shown in Figure 1 has been derived from earlier work on Attitudinal Management Planning Models by Murphy (1980). This model embodies attitudes as an intermediate state between successive behaviour states in a behaviour ! attitude ! behaviour continuum over time (Ajzen, 2001) implying that past behaviour influences present attitudes which then influence future behaviour. The model also implies that macro societal behaviour and attitudes influence micro business behaviour and attitudes and vice versa. In this model attitudes is a multi-component construct (Ajzen, 2001) comprising cognitive elements (awareness, knowledge, beliefs), Affective elements (feelings), and conative elements (behavioural intentions). Attitudes are analogous to the concept of early warning signals promulgated by Ansoff (1979). Within the micro business context managers do not know what the future will be, but they can attempt to make some sense of it by measuring present attitudes through a Foresight Model and interpreting these early warning signals to assist their foreseeing of future business behaviour/performance as manifested in stakeholder behaviour. The Stakeholder Performance Appraisal incorporates the behaviour ! attitude ! behaviour continuum over time of the Micro Business Context Foresight Model implying that future stakeholder behaviour and business performance is

Figure 1.

influenced by present stakeholder attitudes which are influenced by previous stakeholder behaviour:

Stakeholder perceptions

Stakeholder Behaviourt21 ! Stakeholder Attitudest ! Stakeholder Behaviourtþ1 ¼ Business Performancetþ1 : The Stakeholder Performance Appraisal focuses on the measurement of present stakeholder attitudes (influenced by past and present marketing activity) as timely, early warning signals of future stakeholder behaviour and concomitant future business performance. The FRG has established the FRG Stakeholder Performance Appraisal (SPA) Benchmark Project to enable businesses to benchmark their stakeholder perceptions of business performance against other businesses. Business CEOs have been invited to participate in the FRG SPA Benchmark Project. The CEO of each Project participant business is asked to classify the business as mainly a provider of goods or mainly a provider of services, then to classify the business as small, medium, or large (the size and type classification is not defined to avoid inter-country differences in size/type classifications), and then to rate their perception of the business’s future ROI (next 12 months) in relation to the average percentage return in the financial market on a 0-10 numerical rating scale (to provide a standardised measure of perceptual future business financial performance). In each project participant business questionnaires are sent to a representative sample of their customer, employee, supplier, community, and shareholder stakeholders which reflects the constituent subgroups of the five stakeholder groups (e.g. type of customer, employee etc). The questionnaires are accompanied by a supporting letter from the CEO. The stakeholder questionnaire asks stakeholders to rate their perception of the present performance of the business on a 0-10 numerical rating scale based on their impressions, feelings, experiences, or what they have heard about the business, in terms of the following single item economic, social and environmental performance indicators: . Economic: provision of value for money products; profitability; ROI. . Social: customer, employee, supplier, community, shareholder relationships; ethical standards. . Environmental: environment preservation; sustainable resource use. These indicators have been chosen to reflect core business performance issues underpinning an holistic, TBL business orientation and are a refinement of indicators measured in the precursor Stakeholder Relationship Audits (Murphy et al., 1999). Stakeholders are also asked to rate their perception of the overall performance of the business on a 0-10 numerical rating scale, and qualitative perceptual strengths, weaknesses, opportunities and threats (SWOT) of the business are also asked for. The perceptual performance data are analysed as follows: (1) The means of the rating distributions for each performance indicator for each stakeholder group are calculated. (2) Within each stakeholder group the means for customer, employee, supplier, community, shareholder relationships, and ethical standards are averaged to obtain Social Performance; the means for preservation of the environment and

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sustainable use of natural resources are averaged to obtain environmental performance; the means for provision of value for money products, profitability, and return on investment are averaged to obtain economic performance. (3) Within each stakeholder group social performance, environmental performance and economic performance are averaged to obtain the stakeholder performance index (SPI). (4) The five stakeholder group results are averaged to obtain total results. The SPI incorporates TBL philosophy by equally weighting Social, Environmental, and Economic Performance, and incorporates the commonsense indispensability of each stakeholder group in the functioning of a sustainable business by equally weighting each stakeholder group. The SPI can be considered to be a perceptual measure of holistic stakeholder relationship marketing performance in terms of perceived business performance outcomes. The SPI is implicitly a relative measure of perceived business performance reflecting a host of perceptual influences, including the perceived past and present performance of the business and its performance relative to other businesses. The SPI is benchmarkable over time and against other businesses. The SPI and associated SPA analysis is complementary to other relative measures of business performance such as the Baldrige Performance Excellence Assessment based on the Baldrige Quality Awards discussed in Gale (1994), and the Balanced Scorecard (Kaplan and Norton, 1996). Example quantitative SPA data for a business from the FRG SPA Benchmark Project database are shown in Table I. The total SPI of 6.2 indicates that stakeholders perceive the performance of the business to be fairly good. The Community, Suppliers, Shareholders and Employees rate the business performance as fairly good, while Customers rate the business performance as only adequate. The CEO’s future ROI rating is 6.0 indicating that ROI is predicted to be slightly above the average percentage return in the financial market in the next twelve months. Social and economic performance are rated as fairly good but environmental performance is given an adequate rating. Among the stakeholder groups, the highest performance rating is 7.0 from the Community for social performance and the lowest rating is 5.0 from Shareholders for environmental performance. Stakeholder perceived greatest performance strengths and weaknesses are: . Customers: strength provision of value for money products; weakness sustainable use of natural resources. . Employees: strength provision of value for money products; weakness supplier relationships, profitability. . Suppliers: strength provision of value for money products; weakness sustainable use of natural resources. . Community: strength employee relationships, provision of value for money products; weakness preservation of the environment. . Shareholders: strength customer relationships, provision of value for money products; weakness preservation of the environment, sustainable use of natural resources. . Total: strength provision of value for money products; weakness sustainable use of natural resources.

Small service provider Customers Employees Suppliers Community Shareholders Total Customer relationships Employee relationships Supplier relationships Community relationships Shareholder relationships Ethical standards Preservation of the environment Sustainable use of natural resources Provision of value for money products Profitability Return on investment Overall performance Social performance Environmental performance Economic performance Stakeholder performance index Future ROI rating

6.6 5.6 5.8 5.3 6.3 6.1

6.6 5.6 5.3 5.6 5.6 6.6

6.5 6.5 7.0 6.5 6.0 7.0

7.0 8.0 6.0 7.0 7.0 7.0

8.0 7.0 6.0 6.0 7.0 7.0

6.9 6.5 6.0 6.1 6.4 6.7

5.5

6.0

6.0

5.0

5.0

5.5

5.1

5.6

5.5

6.0

5.0

5.4

6.8 5.6 5.6 5.6 6.0 5.3 6.0 5.8

7.6 5.3 5.6 6.0 5.9 5.8 6.2 6.0

8.0 6.0 6.0 5.5 6.6 5.8 6.7 6.4

8.0 6.0 6.0 6.0 7.0 5.5 6.7 6.4

8.0 6.0 6.0 7.0 6.8 5.0 6.7 6.2

7.7 5.8 5.8 6.0 6.5 5.5 6.5 6.2 6.0

Notes: Performance Rating classification: 0.0-1.9 extremely poor performance; 2.0-2.9 very poor performance; 3.0-3.9 poor performance; 4.0-4.9 fairly poor performance; 5.0-5.9 adequate performance; 6.0-6.9 fairly good performance; 7.0-7.9 good performance; 8.0-8.9 very good performance; 9.0-10 extremely good performance

Following on from a pilot study reported in Murphy et al. (2003), there are 33 businesses in the FRG SPA Benchmark Project database to date comprising 32 New Zealand businesses and one Australian business. Benchmark norms for the 33 businesses are shown in Table II. The business in Table I is slightly below the norms for its category in both SPI and future ROI rating in Table II. This comparative information, plus the quantitative strengths and weaknesses rating data supplemented with the qualitative SWOT comments from the Stakeholder Performance Appraisal, provide useful planning information for the business to develop stakeholder relationship marketing strategies to enhance strengths, correct weaknesses, exploit opportunities, and counter threats in order to enhance sustainable business financial performance. In so doing, the business will be actively managing environmental forces in order to improve business performance as advocated by Polonsky (1995), rather than passively buffering the business against environmental forces as advocated by Mezner and Nigh (1995). Using the FRG SPA Benchmark Project database we have tested the efficacy of “old world” customer relationship marketing outcome measures against “new world” stakeholder relationship marketing outcome measures. The customer relationship marketing measures are customers’ perceptions of customer relationships (CCR) and customers’ perceptions of the overall performance of the business (COP). Both these measures would be found in “old world” customer satisfaction surveys with COP reflecting the standard overall customer satisfaction measure. The stakeholder

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Table I. Stakeholder Performance Appraisal data

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Business size/type Small

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Medium Large

Table II. Benchmark norms in the FRG SPA project database to date

Total

No. SPI ROI No. SPI ROI No. SPI ROI No. SPI ROI

Goods provider n Range 4 7.0 7.3 4 6.8 8.3 – – – 8 6.9 7.8

6.1-7.7 6.0-8.0 5.6-7.7 5.0-10.0

5.6-7.7 5.0-10.0

Services provider n Range 12 6.3 6.1 9 7.2 6.9 4 6.8 6.3 25 6.7 6.4

5.3-7.1 4.0-10.0 6.3-7.8 2.5-10.0 6.5-7.0 5.0-8.0 5.3-7.8 2.5-10.0

Total n 16 6.5 6.4 13 7.1 7.3 4 6.8 6.3 33 6.8 6.7

Range 5.3-7.7 4.0-10.0 5.6-7.8 2.5-10.0 6.5-7.0 5.0-8.0 5.3-7.8 2.5-10.0

Note: No. is the number of businesses in the category

relationship marketing measures are stakeholders’ perceptions of stakeholder relationships (SSR) which is the average of each stakeholder group’s perception of the business’s relationships with them, total stakeholder perceptions of the overall performance of the business (SOP), and the aggregate stakeholder perception of business performance (SPI). These variables were correlated with perceptual ROI to test the relative efficacy of the relationship marketing outcome measures. The results are shown in Table III. These results indicate that a stakeholder relationship marketing orientation significantly enhances business financial performance beyond that achieved by a customer relationship marketing orientation. An holistic stakeholder relationship marketing orientation that incorporates TBL philosophy provides a significant additional enhancement to business financial performance. In order to provide additional managerial insights from the FRG SPA Benchmark Project database, we have regressed ROI against SPI with the following result:
ROI ¼ 24:65 þ 1:68 SPI r 2 ¼ 0:34; significant at the 0:001 level : The equation indicates that present SPI (reflecting stakeholder perception of stakeholder relationship marketing outcomes) is a significant explainer of future ROI (reflecting future business financial performance). The 34 per cent of variance in ROI explained by SPI indicates that there is a worthwhile financial payoff to a business in improving stakeholder relationship marketing performance by addressing internal strengths and weaknesses perceived by stakeholders. At the same time the 66 per cent unexplained variance reflects the very significant impact external opportunities and threats will have on a business, pointers to which will be evident in the qualitative perceptual opportunities and threats comments collected in the Stakeholder Performance Appraisal. By factoring stakeholders’ perceived opportunities and threats into stakeholder relationship marketing strategies along with perceived strengths and weaknesses the business will be well positioned to enhance sustainable business financial performance. The equation shows that ROI ¼ 0 when SPI ¼ 2:8, and ROI ¼ 10 when SPI ¼ 8:7, indicating floor and ceiling boundaries for stakeholder perceptual business

performance. Thus, in aggregate terms, a minimum SPI of 2.8 is required for a business to register on the future ROI rating scale, and a target SPI of 8.7 is required to achieve a maximum future ROI rating. The equation also provides a comparison between stakeholder and CEO perceptions of future financial performance. Applying the equation to the business in Table I results in a predicted future ROI rating of 5.8 which is slightly below the CEO’s perceptual prediction of 6.0. This calculation reveals a gap between stakeholders’ derived assessment of future ROI and the CEO’s direct assessment of future ROI. It could be expected that the CEO, as the overall steward of the business, would have an acute sense of the future financial performance of the business. In effect the gap analysis is a reality check on the CEO’s business foresight (their future sensemaking ability), and also a measure of the effectiveness of the CEO’s dialogue with the business’s stakeholders in communicating the vision and performance of the business. In this case, the CEO expects the business to financially perform better than the financial performance outcome derived from present stakeholder relationship marketing strategies (reflected in SPI). This business needs to work on stakeholder relationship marketing strategies including improving stakeholder dialogue to lift their SPI closer to the top end of the range in order to improve their future financial performance beyond that predicted by the CEO. As the FRG SPA Benchmark Project database expands over time, it will be possible to undertake correlation and regression analysis within each segment of the matrix to see if different size/type SPI/ROI relationships exist. Also, it may be possible to compare actual ROI with perceptual derived and direct assessment of ROI and perceptual SPI to broaden understanding of the financial performance prediction capabilities of both CEOs and stakeholders.

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Conclusions There is an indication that higher stakeholder performance perceptions presage higher holistic stakeholder relationship marketing performance reflected in higher ROI for sustainable businesses, those which have a stakeholder relationship marketing philosophy of being stakeholder and TBL-oriented towards providing optimal returns to stakeholders by delivering long-term economic, social, and environmental value to customers, employees, suppliers, the community, and shareholders. We offer the Stakeholder Relationship Marketing Model and the Stakeholder Performance Appraisal as managerially useful additions to the existing stakeholder models and metrics as discussed by Polonsky et al. (2002). We contend that the Stakeholder Performance Appraisal measurement system within a Stakeholder Relationship Marketing Model is an appropriate modus operandi for modern,

Customer relationship marketing Measures CCR COP

r 0.167 0.294

Stakeholder relationship marketing Measures SSR SOP SPI

Notes: Indicative significance at the * 0.01 level, * * 0.001 level

r 0.204 0.427 * 0.579 * *

Table III. Perceptual performance measures correlation with perceptual ROI

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sustainable businesses which have an holistic stakeholder relationship marketing orientation which includes a synchronicity with TBL philosophy. Based on the significant correlation between SPI and ROI, stakeholders are likely to support and reward such businesses over the long term.

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References Ajzen, I. (2001), “Nature and operation of attitudes”, Annual Review of Psychology, Vol. 52, pp. 27-8. Ansoff, I.H. (1979), Strategic Management, Macmillan, London. Arrow, K. (1988), “A perspective on the stakeholder concept”, Perspective, Vol. 2 No. 4, 4th Quarter, pp. 1-3. Berman, S.L., Wicks, A.C., Kotha, S. and Jones, T.M. (1999), “Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance”, Academy of Management Journal, Vol. 42 No. 5, pp. 488-506. Berry, L.L. (1983), in Berry, L.L., Shostack, G.L. and Upah, G.D. (Eds), Emerging Perspectives on Service Marketing, AMA, Chicago, IL, pp. 25-8. Caulkin, S. (2002), “Four moves to live long and prosper”, Business Herald, 25 September, p. D1. Christopher, M., Payne, A. and Ballantyne, D. (2003), Relationship Marketing: Creating Stakeholder Value, Butterworth-Heinemann, Woburn, MA. Coviello, N.E., Brodie, R.J., Danaher, P.J. and Johnston, W.J. (2002), “How firms relate to their markets: an empirical examination of contemporary marketing practices”, Journal of Marketing, Vol. 66 No. 3, pp. 33-46. Elkington, J. (1997), Cannibals with Forks: The Triple Bottom Line of 21st Century Business, Capstone, Oxford. Exley, C.E. (1988), “A practical application of the stakeholder concept”, Perspective, Vol. 2 No. 4, 4th Quarter, pp. 10-12. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Lanham, MD. Gale, B.T. (1994), Managing Customer Value: Creating Quality and Service that Customers Can See, The Free Press, New York, NY. Gro¨nroos, C. (1997), “From marketing mix to relationship marketing – towards a paradigm shift in marketing”, Management Decision, Vol. 35 Nos 3/4, pp. 148-52. Gummesson, E. (1999), Total Relationship Marketing: Moving from the 4Ps to the 30 Rs, Butterworth-Heinemann, Oxford. Kaplan, R.S. and Norton, D.P. (1996), The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press, Boston, MA. Kotler, P. and Armstrong, G. (1999), Principles of Marketing, 8th ed., Prentice-Hall, Upper Saddle River, NJ. Matear, S., Cadogan, J.W. and Hooley, G. (2003), “First steps towards an internationally invariant measure of firm performance”, in Kennedy, R. (Ed.), Proceedings of the Australian and New Zealand Marketing Academy Conference, School of Marketing, University of South Australia, Adelaide, pp. 1424-30. Mezner, M.B. and Nigh, D. (1995), “Buffer or bridge? Environmental and organizational determinants of public affairs activities in American firms”, Academy of Management Journal, Vol. 38 No. 3, pp. 975-96.

Murphy, B. (1980), “An evaluation of attitudinal management-planning models for socio-economic resource management in New Zealand”, PhD thesis, The University of Auckland, Auckland. Murphy, B. (1988), “Stakeholder concept is part of an evolution of business interests”, Perspective, Vol. 2 Nos 4, 4th Quarter, pp. 4-6. Murphy, B., Stevens, K. and McLeod, R. (1997), “A stakeholderism framework for measuring relationship marketing”, Journal of Marketing Theory and Practice, Vol. 5, Spring, pp. 43-57. Murphy, B., Maguiness, P., Pescott, P. and Wislang, S. (2003), “Augmenting relationship marketing with a stakeholder and triple bottom line orientation to enhance business profitability”, in Kennedy, R. (Ed.), Proceedings of the Australian and New Zealand Marketing Academy Conference, School of Marketing University of South Australia, Adelaide, pp. 979-84. Murphy, B., Murphy, A., Woodall, S. and O’Hare, R. (1999), “The stakeholder relationship audit: measuring the effectiveness of integrated marketing communications”, Integrated Marketing Communications Research Journal, Vol. 5 No. 1, pp. 9-12. Payne, A., Holt, S. and Frow, P. (2001), “Relationship value management: exploring the integration of employee, customer and shareholder value and enterprise performance models”, Journal of Marketing Management, Vol. 17 Nos 7/8, pp. 785-818. Polonsky, M.J. (1995), “A stakeholder theory approach to designing environmental marketing strategy”, The Journal of Business & Industrial Marketing, Vol. 10 No. 3, pp. 29-42. Polonsky, M.J., Schuppisser, D.S.W. and Beldona, S. (2002), “A stakeholder perspective for analysing marketing relationships”, Journal of Market-focused Management, Vol. 5 No. 2, pp. 109-26. Porter, M.J. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, The Free Press, New York, NY. Slaughter, R. (1995), The Foresight Principle: Cultural Recovery in the 21st Century, Adamantine, London. Verbeke, W. (1992), “Advertising, product quality, and complex evolving marketing systems”, Journal of Consumer Policy, Vol. 15, pp. 143-58.

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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0309-0566.htm

Marketing stakeholder analysis Branding the Brisbane Goodwill Games Bill Merrilees Griffith Business School, Gold Coast, Australia

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Don Getz University of Calgary, Calgary, Canada, and

Danny O’Brien Griffith Business School, Gold Coast, Australia Abstract Purpose – The paper aims to explore a major issue in international marketing: how to build a global brand in a way that makes a strong local connection. Design/methodology/approach – Using qualitative research methods on a single case, the Brisbane Goodwill Games, the processes used in the staging of this major sport event are analyzed. In particular, the stakeholder relations employed by the marketing department of the Goodwill Games Organization are investigated and a process model is developed that explains how a global brand can be built locally. Findings – A major outcome of the paper is a revision to the four-step Freeman process to make it more proactive; and three major principles for effective stakeholder management are articulated. The findings demonstrate that stakeholder analysis and management can be used to build more effective event brands. Stakeholder theory is also proposed as an appropriate and possibly stronger method of building inter-organizational linkages than alternatives such as network theory. Originality/value – Previous literature has generally dealt with the global brand issue in terms of the standardization versus adaptation debate, and the extent to which the marketing mix should be adapted to meet local needs in foreign countries. This research provides a unique extension to this literature by demonstrating how the brand itself needs to be modified to meet local needs. Keywords Brands, International marketing, Stakeholder analysis, Research Paper type Case study

Introduction The call for papers emphasizes marketing stakeholder relationships. We pursue this topic in the context of a case study of the marketing and branding activities of the Brisbane 2001 Goodwill Games. One of the implications of this marketing approach is that it enables more attention to be given to primary rather than secondary stakeholders (as defined by Clarkson (1995)). The context of building a global brand, locally for a major sporting event, is an important topic in itself, as the relevant theory for such a situation has not previously been well articulated. However the particular marketing and branding of the Brisbane Goodwill Games is also a context enabling us to better understand inter-organizational linkages. It will be argued that stakeholder theory is a powerful way of building inter-organizational linkages, beyond the more European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 1060-1077 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610725

Within the Goodwill Games organization we are indebted to the co-operation of the Marketing Manager (Mr Philip Whittaker) and the Assistant Marketing Manager (Ms Merrilee Barnes) and other Games staff and other stakeholders.

traditional network approach (an excellent overview of which is given in Wilkinson (2001)). Thus the paper has two broad aims. First, to demonstrate that stakeholder analysis and management can be used to build more effective event brands. Second, to demonstrate that stakeholder theory provides an alternative and possibly stronger method of building inter-organizational linkages than alternatives such as network theory. We begin by briefly outlining the scope of the brand concept for the Goodwill Games. Next, we elaborate on the notion that the global brand needs to be built at a local level. The event management literature is briefly reviewed. The rationale for the stakeholder approach is explained, followed by a definition of what is a stakeholder. Next, the Freeman stakeholder model is discussed and is followed by a review of other perspectives on stakeholder analysis. The research design is presented, followed by the case research results, first, regarding the brand development process and, second, regarding the nature and role of stakeholder relations. Implications of the results for stakeholder theory are presented. The global brand concept of the Goodwill Games We begin by articulating the global brand concept in the case at hand. The Goodwill Games is a global concept developed by Ted Turner, Vice Chairman of Time Warner Inc. It was born out of the Olympic boycotts of 1980 and 1984 and was designed to promote goodwill among the nations of the world. This is the philosophical underpinning of the Games. The brand concept also has additional defining features. The Games are presented as an e´lite, international, multi-sport event. It is run as a finals-only format and brings together the world’s top eight athletes in each event run. Note that the research was conducted in 2001. In 2002 the Goodwill Games were suspended, but the case study remains intact as a true and accurate account of what, at the time, was a periodic major sports event. The lessons from the case study are readily applicable to other major sporting events and to other marketing alliances that could benefit from a sounder stakeholder framework. Building the global brand, locally Like most brands, the Goodwill Games represent a unique configuration of ideas and propositions. For those who have attended previous games or helped build the brand, the brand meaning is fairly clear. However, for the community, the particular brand may not be clear. Certainly there are some global brands, like the Olympic Games, which have a high level of awareness and understanding in a large number of countries. Lesser events, like the Goodwill Games, are not in this category. The challenge for the event organizers then was to build the brand image in the minds of the local community; that is, the communities of Brisbane, Queensland, and the rest of Australia. The Brisbane base was always expected to be the main source of spectators for the events, followed in descending order by the rest of Queensland, other parts of Australia and the rest of the world. To achieve this ultimate brand image in the minds of the audience, the Goodwill Games organizers, like any brand owner, had to develop the brand identity internally (see Kapferer, 1997, pp. 94-95). Thus, the context of this paper was to analyze how the local organizers went about building a global brand, locally. The case is particularly interesting because the Goodwill Games is essentially a virtual company, which

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recreated itself every four years to run the Games. There is a strong emphasis on the local team to take the running with respect to most organizational matters, both marketing and operational. Thus we have a situation where the local elements in building the brand are inherently strong. It is not a case of a global company forcing a standardized solution on its foreign branches, but rather a polar situation where the local implementation offers an exemplary best practice model. For these reasons, we hope and believe that the case research in this paper will provide insight in a more generalizable way to the implementation of a global brand program. This is an appropriate point to make explicit a key assumption of our work. We do not see the task of building a global brand locally as simply taking a global brand and making a small number of minor, “culturally-correct”, fine-tuning adjustments to that brand. It is not simply a matter of changing the color scheme or the tone of the advertisements. Rather, a known global brand was inherited, but to a large extent the local organizing team needed to rebuild or reposition the brand so as to make a strong connection with the local communities. The rebuilding process needed to preserve the core identity and philosophy of the global brand, but build in additional elements that the local community could relate to. Event management and sponsorship The case research in this paper drew on established event management principles (Getz, 1997). It is clear from the literature that a key feature of event management is how to bring together the disparate parties needed to organize an event. This point is expanded in the next section, where we articulate the rationale for a stakeholder approach to event branding and marketing. A major part of event management is the funding question, which introduces the key role of sponsorship. Skinner and Rukavina (2003) speak from experience in saying that sponsors are no longer content with signage and on-site hospitality. Now sponsors want business-to-business marketing opportunities and measured results of their return on investment. More recently, web site sponsorship partners are becoming common and technology will continue to have impacts on event marketing. Meenaghan (2001) summarized key theoretical considerations for sponsors who want to maximize their effectiveness. The first major consideration is that consumer goodwill can be earned (and lost) through sponsorship, and it is goodwill that separates sponsorship from mere advertising. The level of involvement that consumers have in an activity or event in large part determines their response to the sponsors, so the ideal sponsorship reaches those who are emotionally involved with the event. Sponsorship of events can result in a transfer of image (through co-branding), and in part, this is determined by the consumer’s perception of the fit between sponsor and event. Notwithstanding the benefits, D’Alesssandro (2001) gives telling examples of why these co-branding benefits do not always materialize. Rationale for a stakeholder approach to event branding and marketing Institutional and resource-dependence theorists would suggest that effective strategic management of inter-organizational linkages is integral to the survival of any organization (Stern, 1979; Baum and Oliver, 1991; Scott et al., 1996). Several researchers, for example, Stern (1979), Baum and Oliver (1991), and Kraatz (1998), have discussed the enhanced stability and significant advantages that the successful

maintenance of inter-organizational linkages confers on organizations, particularly during periods of increased competition. In fact, Stern (1979) suggested that, by analyzing and describing the structures and processes that sustain these linkages, “power relationships, resource mobilization, and coalition formation may be examined” (Stern, 1979, p. 242). Moreover, Baum and Oliver (1991), and O’Neill et al. (1998) highlighted the role of institutional linkages in conferring social support on an organization during periods of organizational change. This crucial source of social capital enhances the ability of organizations to achieve strategic goals (Baum and Oliver, 1991; O’Neill et al., 1998). Kraatz (1998) made the point that consortia facilitate communication by establishing personal relationships between organizational leaders that offer opportunities for regular, informal interaction. Therefore, the strategic management of inter-organizational ties is particularly valuable. Through such ties, the creation of high-capacity information links engenders a motivation for information sharing and organizational learning (Kraatz, 1998). Strategically, due to the ephemeral nature of a hallmark sport event, such as the Brisbane 2001 Goodwill Games, organizers’ rational boundaries are tightly restricted, and the margin for error drastically reduced. This study extends the extant literature by focusing on the unique problems and issues associated with creating, maintaining and strategically managing inter-organizational linkages in this high-pressure environment. A stakeholder model is seen as particularly useful in articulating inter-organizational linkages and has the potential to go beyond traditional network theory. As we have shown, the case provides a clear link to the resource-based approach to the firm and to resource dependency. Most of the primary stakeholders for any event are those that provide tangible and intangible resources or assist in marketing as partners. There is also an issue of mutual dependency since the tourism agencies in particular require events to fulfill their mandate, especially in Queensland with the Queensland Events Corporation (QEC). Some of the stakeholders with the Goodwill Games had pre-existing linkages that made the job easier for the Games to get started with building relationships. In other words, they were able to tap into the events-oriented network. The special issue call for papers emphasizes marketing stakeholder relationships and has the potential to extend our understanding of important (primary) inter-organizational linkages. We can therefore extend the literature in two respects. First, we can extend the theory of inter-organizational linkages from network theory to stakeholder theory. Second, we can extend stakeholder theory from an emphasis on secondary stakeholders to primary stakeholders (discussed below). Although the Goodwill Games is an ideal case study to study these new theories, the findings potentially extend to all special events, arts and sport, and indeed to most marketing ventures, activities or alliances. Stakeholder definition There is no universal definition of stakeholders. Carroll’s (1993) definition highlights the aspects of interdependency and affecting/being affected by the organization. Thus stakeholders are “groups or individuals with whom the organization interacts or has interdependencies” and “any individual or group who can affect or is affected by the actions, decisions, policies, practices or goals of the organization”. Other scholars have

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highlighted the rights/interests of the stakeholder in the organization (Clarkson and Deck, 1993; Donaldson and Preston, 1995; Savage et al., 1991). We favor combining these three salient features, namely: (1) interdependency; (2) affecting/being affected by the organization; and (3) the sense of an interest or right in the organization. At a more detailed level, Clarkson (1995) classifies stakeholders into primary and secondary. Primary stakeholders have high levels of interactivity and are vital for the survival of the organization. Secondary stakeholders affect or are affected by the organization, but are generally not engaged in transactions with the organization and are not essential for its survival. The Clarkson classification seems especially suited to understanding marketing stakeholders relations, with most key commercial partners/networks satisfying the primary stakeholder definition. Thus in the Goodwill Games context, the primary stakeholders include international and national TV networks, major commercial private sponsors, government sponsors, merchandisers and Ticketek, the ticketing agency. These are all commercial entities. Secondary stakeholders are much less visible, though the fraternities of tourism, local development and sporting bodies are represented indirectly through the State government arm. The Freeman stakeholder model Freeman (1984) is recognized as the classic reference on stakeholder theory. His approach interprets stakeholder management as the mechanism by which the voices of stakeholders and their links with the core or lead organization are firstly recognized and then incorporated into the strategic planning process. A four-step stakeholder management process was proposed. The initial step is to identify relevant stakeholders. Second, the nature, scope and importance of the stakeholder connection are determined. Thirdly, an analysis is made to ascertain how effectively the needs or expectations of each group are currently being met by the lead organization. Fourth, there is a presumption that the unmet needs of stakeholder groups will be addressed through modification of the lead organization’s plans, policies and activities. Of course, this final step may not be completely successful and the company can be judged accordingly (Nasi et al., 1997). Much of the existing literature seems to have been mainly concerned with secondary stakeholder groups. We argue below that the Freeman model needs to be modified to be able to deal with primary stakeholders. This will entail a re-orientation of stakeholder analysis from one of judging the social responsibility of organizations, with an expectation that many organizations fall short of a social standard, to that of a more proactive tool in which organizations have a potentially strong inclination to enhance stakeholder relations in order to optimize organizational performance. We should also acknowledge the distinction between external and internal (such as staff) stakeholders (Freeman, 1984). Other departments or units, other than the marketing unit, in the Goodwill Games Organization, were treated as close, but external stakeholders. Internal issues such as staffing and culture were explicitly considered in a number of the interviews and were found to be an important part of the total approach to stakeholder relationship marketing and management.

Further perspectives on stakeholder analysis Wolfe and Putler (2002) contend that the stakeholder approach facilitates our understanding of increasingly unpredictable environments, thereby enhancing our ability to actually manage within these environments. Since Freeman’s (1984) seminal work, the stakeholder approach has indeed become a popular heuristic that has facilitated our understanding of strategic management development. However, despite promising leads, a degree of ambiguity continues to be debated in stakeholder theory discussions. For example, Mitchell et al. (1997, p. 853), argued that stakeholder theory offers: . . . a maddening variety of signals on how questions of stakeholder identification might be answered.

These authors explored the notion of who and what really counts in stakeholder identification and salience. Their resultant eight-part typology of stakeholders was based on the power, legitimacy, and urgency of stakeholders’ respective claims on the firm. Building on this typology, Mitchell et al. (1997) proposed a theory of stakeholder salience to explain how managers prioritize stakeholder relationships. Another useful study that highlights the political and conflict aspects of stakeholder relations is Larson and Wikstrom (2001). Polonsky (1995) was also concerned with the issue of stakeholder salience and the prioritization of stakeholder relationships. He also suggested that stakeholder theory, as discussed in the management literature, has important implications for marketers. Polonsky (1995) pointed out that, since the development of modern marketing philosophy, stakeholder theory has been an implicit core component of marketing theory, and he implored marketers to further develop the use of the stakeholder approach in marketing strategy. In his work on environmental alliances and strategic bridging, Polonsky (2001, p. 45) attempted to do just that. He pointed out that: . . . the existing literature has failed to consider the ways in which firms form relationships with stakeholders or integrate them into strategy development.

He contended that, rather than letting alliances simply “emerge,” the strategic selection of stakeholders with whom to initiate and foster alliances can facilitate leveraging opportunities that can result in mutual benefits to both alliance partners. The alliance acts as a “bridge” that facilitates interaction with further otherwise “unconnected” stakeholder firms (Polonsky, 2001). For example, Mendleson and Polonsky (1995) demonstrated how strategic alliance building between a corporate firm and an environmental group helped facilitate the achievement of strategic objectives for both partners. By incorporating stakeholder analysis into their respective strategic development processes, the firm achieved increased community credibility and access to different market segments, while the environmental group was provided with opportunities to interact with other businesses that broadened its capability to achieve wider environmental change. Another way of interpreting the Polonsky strategic approach is a greater emphasis on the lead organization being more proactive in terms of tapping into stakeholder input. The level of proactivity was tested as one component of our interviews. Notwithstanding, there is evidence that even award-winning organizations fail to

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actively include stakeholders with vital expertise in new product development processes (Polonsky and Ottman, 1998). Research design The basic research design for this study is a qualitative, case-research method. A single case design has been adopted, though there are multiple strata of decision-makers interviewed. The single case chosen is that of the Brisbane Goodwill Games marketing and branding activities, with the marketing department as the focal group. The interviews took place in the second half of 2001 and covered the pre-opening, duration and post-duration of the Games. A central part of the case study was the need to conduct interviews of the core organization, the Goodwill Games Organization. Given the emphasis on marketing stakeholder relationships the main internal unit was the marketing department and so it, rather than operations or the CEO unit, was considered to be the core for the purpose of the research. Additional groups/units interviewed were the public relations department of the Goodwill Games (manager), Ticketek, sponsors and a State tourism agency. A process-based qualitative research design was used. This required the authors to frame the questions around the processes used, including the events, decisions and sequences made by the relevant decision-maker. In this sense the research is grounded in the behaviors and motives of the Goodwill Games. A priori theory was used to some extent, making our approach a modified grounded theory framework. However the pre-existing theory was limited, confined to general branding theory, general event management theory and general stakeholder theory. To further assist the interviews, a protocol was used, outlining the key questions and topics. In three interviews there was an intention of getting the interviewee to draw a stakeholder map, so the interviewer provided A3 paper and colored pens. Case research results: brand development Interviewing the manager and the assistant manager of the marketing department as well as observing copies of the advertisements and public documents provided insight into how professional and thorough the marketing and branding process was designed and implemented. This approach can be illustrated by working through the actual brand development process used by the Goodwill Games marketing group. The critical steps in this brand building process included: (1) A strong planning approach to brand development, with three clear phases; brand building/awareness; call to action; excitement/countdown. (2) A strong initial global brand concept. (3) A broad appeal to a sports-loving nation (market relevance). (4) The ability to translate the brand concept with a clear, consistent message (one sight, one sound, one sell approach); this might be seen as the brand sub-text. (5) Such a translation was done in a such a way as to appeal to the local communities. (6) Maintaining consistency in the lead up, but with different nuances in each of the three phases (brand building/awareness; call to action; excitement/countdown).

(7) Managing the consistency in various ways, including teamwork, scripts, briefings and control of copy. (8) An underlying stakeholder framework. First, a strong planning approach was formed from the outset. Although a lot of the public activity started in April 2001, the previous 12 months had been quite active, with a systematic approach to getting sponsors signed on. Three levels of sponsorship were offered (namely partner, supporter or provider), with considerable research and planning going into each of these deal-making meetings, to ensure that the Goodwill Games were well informed about the background and needs of potential sponsors. Three clear phases were identified, starting with brand building and awareness, followed by a call to action (that is, getting consumers to buy a ticket in an orderly way), culminating in the final countdown, an adrenalin rush designed to capture last minute sales. Second, to a large extent the global brand was a given, namely to present an e´lite, international multi-sport event, run in a finals-only format. Even the logo was inherited, in place when the marketing manager came on board. Third, having a strong brand concept is one thing, but translating that concept into effective media messages is another. A useful marketing communication strategy in the case of the Goodwill Games was the “one sight, one sound, one sell approach”. This greatly assisted in the unification and consistency of the messaging: The idea for this integrated marketing approach came from a previous contact/employer that I was involved in. The whole idea is that you only have a limited budget, so you have to reinforce the messages (Marketing Manager).

Similarly the public relations unit was also integrated into the campaign: They had access to all the graphics and manuals, so a lot of their promotions used the same imagery, like the star burst (a design element) and the fonts and everything, through their promotions (Assistant Marketing Manager).

Although it is important to have a strong global concept, we have explained earlier that it was necessary to provide a local adaptation of the brand. The logo was the starting point for the design. Additional elements were added to reflect a local, Australian content, through the: . . . star burst design element, that had an Aboriginal influence, as well as the running man identifying sport, where the colours had an earthy look. There was also a water connection, making it very Australian (Assistant Marketing Manager).

An additional measure of adding local content was to push the slogan: “Gods of Sport in our own backyard”. In other words, there was the presence of champions in our own small part of the world. “Own backyard” is part of the Australian vernacular, though there was some debate about whether this was meant to apply to just South East Queensland or the whole of Australia. Careful attention was given to maintaining consistency in the messages and image of the brand throughout the Games build-up and duration. Notwithstanding, it was necessary to change some of the nuances in different phases of the project. For example, in the brand awareness phase, additional effort was placed on public relations:

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Advertising worked very closely with media and PR to build the brand. You can only build the brand so much with advertising. Ultimately you need PR to get real comprehension; that was the thing we really lacked, people did not really understand what the product was (Marketing Manager).

Consistency had to be managed in various ways, including control methods such as scripts, briefings and copy, as well as a supportive culture. Attention to detail was the norm. Teamwork was important. It was necessary to work hard over a relatively short to medium time period: I guess you lead from the top. I didn’t ask anything of them that I wouldn’t do myself.. We were putting in hours; we were there. I think the culture really breeds within itself, showing the direction, showing the leadership. You don’t have to say to them to stay until 12 o’clock. They are going to anyway because they can see the commitment from the top” (Marketing Manager).

Rituals were also important: It was good as we all had a sense of humor. There was a lot going on, so it was helpful to be light-hearted. We would often make jokes about our predicament because we were so under-resourced. Other divisions did not understand why we were working so late. The need to give constant attention to sponsors was a big factor in this difference across departments (Assistant Marketing Manager).

A stakeholder relationship framework underpinned the brand development process. This is elaborated in the next section. However it is worth noting that recent research in marketing has begun to highlight the role of relationships as a strong basis for building strong brands (Pearson, 1996; Fournier, 1996; Merrilees and Fry, 2002). In other words, rather than relying purely on say an advertising pull strategy, more recognition is being made to more direct, grassroots approaches, tapping into critical relationships. Despite this development, the scope of “relationship” tends to be fairly narrow, namely customer relationships. Therefore, although there is a growing literature on how relationship and direct marketing can enhance brand equity, there seems to have been little attempt to extend the scope of relationships to a broader range of stakeholders. The current case research does exactly that with respect to analyzing the branding of the Goodwill Games. Case research results: nature and role of stakeholder relations The starting point for analyzing stakeholder relations is to identify the various stakeholders as we have discussed (Freeman, 1984). The marketing department of the Goodwill Games Organization is our core organizational unit and so we simply asked that unit (through its manager) to identify the various stakeholders. The way we did this was to get the marketing manager to draw a stakeholder map. We asked that the marketing unit itself be the center or core of the map and that the more important stakeholders be drawn closer to the center. The marketing manager drew a freehand map on a large (A3 size) piece of paper, talking us through the story as it evolved. Figure 1 is a touched up version of the map. Figure 1 is remarkable in a number of ways. First, many stakeholder maps tend to be fairly general or generic, following the original Freeman (1984, p. 55, Exhibit 3.1) map. In contrast, Figure 1 is more realistic and portrays the actual organizations or divisions that each stakeholder represents. Second, not only is Figure 1 more realistic,

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Figure 1. Stakeholder map for Brisbane goodwill games

it also seems more comprehensive and detailed compared to some maps. Third, unexpectedly, the Manager organized the map into rays or zones, including sponsors, media, travel and accommodation, merchandising, the public/consumers (starting with South East Queensland) and sales/venues. In retrospect, this method of portraying a stakeholder map enables the different facets within each group to be identified and articulated and ranked. Fourthly, at our instruction, the manager was able to draw in other key interdependencies across stakeholder groups. For example, the link between the travel firms and Tourism Queensland was highlighted. Another example was the link between the Nine Network and Ticketek. These super-imposed linkages help to “close” the map (spider-like) in terms of complex cross-relations and add further operational reality to the map. It also makes the map more dynamic than is commonly portrayed. In explaining the interdependencies the marketing manager was able to explain how the roles of some stakeholders ebbed and flowed. For example, it became clear early on that more reliance would have to be placed on private travel agencies than was originally planned. Also it was necessary to replace the main merchandiser to get a more professional player. For all four reasons, the Figure 1 stakeholder map is remarkable. Further and more holistically, it is remarkable that anyone could sit down and calmly and methodically draw such a detailed and comprehensive map without notice. It suggests to the authors

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that the logic and power of stakeholder thinking had been conceptualized and internalized by the marketing manager, an interpretation accepted by the manager. Notwithstanding, the manager had not realized how elaborate the map would become, suggesting that companies could benefit by an early drawing and use of complex stakeholder maps. We can illustrate some of the stakeholder relations with the following analytical basis. Drawing on the three-component definition of a stakeholder that we propose, each stakeholder can be analyzed in terms of the interaction/interdependency with the core unit, clarifying the affect/being affected by and the extent to which the stakeholder has an interest/right in the core organization. We can add a fourth component, following Polonsky (2001), namely how strategic/proactive is the stakeholder relationship? A fifth component, following Kraatz (1998), is the potential importance of person-to-person linkages and contacts. This was also tested in the interviews. We might start with sponsors because we have already discussed them at some length. The sponsorship ray was the first one drawn in Figure 1, reflecting its overall importance to the core organization. The media partners and the sponsors were the two dominant sources of funding for the Games. The interdependency between the sponsors and the core organization was clearly financial and the details of media messages. The interaction was clearly two-way with scope for each party to affect the other. For example, there was an indication that both the health company major sponsor (MBA) and the financial institution major sponsor (Suncorp Metway) did advance their own brands through the Goodwill Games sponsorship. In the case of the first sponsor, they could progress their positioning on wellness rather than sickness. These claims were checked and supported by interviewing the sponsors. A media communications officer in the Public Affairs Unit of Suncorp Metway was interviewed. She was able to produce her own stakeholder map, with Games liaison connections on one ray, internal Suncorp Metway marketing (including sponsorship) units on another ray and media groups (mainly different newspapers and a radio station) on the third ray. It was felt that: The Goodwill Games team gave great support and service to Suncorp Metway’s media team (Media Communications Officer, Major Sponsor).

The notion of the sponsors having “rights” in the core organization comes naturally with sponsorship rights. The strategic/proactive nature of the relationship with the sponsors was two-way, as we have just explained, and goes right back to the careful way in which major sponsors were selected. Thereafter, there was close and frequent communication between the core organization and the sponsors, reflected in the quote above regards humor and long hours of work. The person-to-person links were strong. A designated staff person in the marketing department was assigned to a designated sponsor, with the latter having the same contact person. This was one of many situations that supported the Kraatz (1998) hypothesis that person-to-person contacts were important. The marketing manager had identified the public relations unit as being part of a co-operative team, working hand in hand with the marketing department. The cross-department cooperation thesis was tested through interviewing the Goodwill Games media and public relations manager:

The role of the PR unit was to support the marketing initiatives through good publicity to get across the marketing message by generating good news stories and events. As well, the job was to manage negative publicity, such as e´lite athletes not coming (Media and Public Relations Manager).

Co-operation seemed to prevail in all areas, including the links between the PR unit and marketing, the CEO’s unit, the media and the other government units. There were weekly reviews between the PR manager and the CEO of the Games Organization. The stakeholder map drawn by the PR manager by definition had PR as the core unit. Three main rays were drawn; with the media, government departments (including a close role and support from the Premier himself) and other Games units and athletes. So although the center of the universe was different, the perception of the main stakeholders was broadly the same. One understandable nuance was more attention to government departments, compared to the marketing department having more attention to sales. Another similarity was the importance of internal (staff) relationships: Teamwork and internal culture were seen as important from the start and addressed with careful recruitment and selection. The group had a tradition of drinks on Fridays after work that has continued even as operations wound down. I have an open door policy for all staff to discuss anything about their work (Media and Public Relations Manager).

Ticketek was an important stakeholder. The interaction seems fairly obvious, with Ticketek getting a commission on sales. However the relationship was much deeper than this. Ticketek data was used carefully to monitor the volume and pattern of sales. A lot of the special deals required close collaboration with Ticketek and their data was helpful to evaluate the effectiveness of these special promotions. The figure skating, basketball and athletics special deals seemed to work well. However some sports, such as women’s weightlifting and the men’s boxing, were destined to have a limited response and not sell well. The Ticketek relationship was leveraged in other ways as well: There was a lot of direct marketing in terms of the sporting clubs. We worked with people like Ticketek and their previous buyers of world figure skating championships. We didn’t solely rely on TV advertising. We tried to get the message across every major distribution channel, including student offers and those other things. Some were peripheral, but it was trying to capitalize on every opportunity (Marketing Manager).

To validate/elaborate on some of these perspectives we interviewed the Queensland client services manager of Ticketek. The interview confirmed a number of things. There was a close connection between Ticketek and the Nine Network, through ownership. This connection had been highlighted in the Figure 1 stakeholder map. Ticketek was not a sponsor, but it did encourage the use of its logo on all the promotional material. There was a high recall of the Ticketek phone number. Ticketek uses a special ticketing model to manage each event: In this case, it worked very well, as the Goodwill Games supplied very good support. For example, the “maps” of the venues matched up with the actual seats. The skills of the Games staff can be credited with this, particularly those that had experience in ticket sales rather than marketing (Ticketek Client Services Manager).

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The person-to-person linkages were also strong. Two members of the marketing department of the Goodwill Games were attached to Ticketing and Accreditation, with occasional involvement from the marketing manager. Also involved were staff from the finance division and the event operations division (for the technical and hardware issues of setting up ticketing points). Ticketek appointed a project manager for the games sales and he dealt with many of these people. All of the Ticketek sales team were located in the one building, linked to a 13 number and having been through a familiarization session and been given briefing booklets. The quality of the Goodwill Games team impressed Ticketek sufficiently for them to try and hire one staff member when the event was over. There were a number of government agencies stakeholders associated with tourism promotion, including Tourism Queensland and the Queensland Events Corporation (QEC). Both are state agencies responsible for developing and marketing event tourism (see Getz, 1997 for a profile of QEC). Queensland Events Corporation bid for the Games and sat on the board that oversaw government interests in the event. Tourism Queensland and QEC work very closely together. A lengthy interview was held with the destination marketing manager, Tourism Queensland. Tourism Queensland’s (TQ) mandate regarding events was to “leverage” them to gain visitors to Queensland. TQ did not perceive the Goodwill Games mandate as promoting the destination, so the relationship between the Games Organization and TQ was a bit difficult. TQ received no additional marketing funds for the Games, although they did put forward three business plans to leverage them. This appeared to be a concern, as TQ felt it could have done a better job if it had money. TQ stressed that leveraging events for tourism requires effort and money; you cannot simply rely on media coverage or other positive effects. Specific leveraging goals have to be set up front. TQ’s efforts consisted mainly of running Games promotions into existing programs or activities, or substituting Games messages for others, for example on interstate highway billboards. They picked up and used the Gods of Sport slogan. All in all, TQ thought the co-branding of event and destination worked well. However, they were troubled by the “your own back yard” messages. Even though most of the tickets were sold within Queensland, TQ still wanted to convey the impression that the event belonged to all of Australia. The interview with TQ suggests that an acceptable rather than high-level satisfaction with their inclusion in the Games. The funding issue in particular was a concern, as discussed. TQ cooperated as much as possible, with their own promotions and sharing experiences, such as the Gold Coast Indy. However, TQ felt “out of the loop” on many issues, including sponsorship relations. If we define TQ as a secondary stakeholder, then its interpretation of the quality of the event relationships can be put in perspective. This is not to say that arrangements could have been better. In the discussion section below we will put forward some ideas and propositions on how secondary stakeholders can be more effectively included in a framework where primary stakeholders dominate. The literature review does highlight the role of power and conflict with stakeholder groups. Such an emphasis probably is strongly associated with the emphasis on secondary stakeholders, such as environmental groups. This was not expected to be such a big feature in the case of the Goodwill Games and most of the interviews confirmed that. Our discussion of TQ does suggest not so much conflict, but at least a

difference of opinion about how inclusive were certain stakeholder relations. More dramatically, TV rights have the potential to be controversial. In the case of the Goodwill Games, international TV rights were not the subject of debate and negotiation, because these rights were externally controlled, by the Games American partners. In the interview we asked the marketing manager how can that be controlled from an arms length: With difficulty, but we took a fairly proactive approach. We had to ensure compatibility with the international sponsors and the national sponsors. There were global, local and joint categories. Alcohol is a global category, while financial services is a local category. We inherited a contract that said which products were in which category basket. We said, let’s work together in terms of getting major sponsors on board (Marketing Manager).

When asked if the relationship between the Channel Nine network and the Games Organization had elements of conflict, the Marketing Manager answered thus: TV broadcast has power, ultimately, as you know. I guess if there wasn’t such a good working relationship there could have been conflict because we could be pitching for different direct sponsors. If we had Foster’s brewing company on board they could be doing a deal with Lion Nathan, which could affect our negotiations with Foster’s, so it was in everybody’s best interest that we work together (Marketing Manager).

The working relationship between Channel Nine and the Goodwill Games Organization was at various levels. The Goodwill Games marketing manager worked closely with the sales manager from the Nine Network, while the CEO’s of each organization also worked closely together. The same personalities remained throughout the project, consistent with the Kraatz (1998) hypothesis. In summary, the five-prong basis for evaluating stakeholder relations has greatly assisted our analysis. For the most part there was a strong interdependency between the lead organization and each stakeholder. Finance was the main linkage, though information flows reinforced the financial interaction. A total, relationship-based commercial interdependency was formed in most cases, requiring time and trust to develop. Few of the stakeholder relations were mere transactional and this strong relationship basis even applied to the ticketing agency. Person-to-person communication emerged as powerful factor in maintaining strong stakeholder relationships. There were very few moments or cases of conflict. The latent conflict between the Games Organization and the most powerful stakeholder, the TV networks, was kept subdued through good working relationships. The other issue, which we expand below, was the organic and horizontal way management was applied. Implications of results for stakeholder theory Much of the previous debate and research on stakeholders has emphasized secondary stakeholders, such as environmental groups and local communities, with primary stakeholders relatively neglected. There is a sense in which marketing stakeholder analysis helps to redress this imbalance in the research literature. Certainly the emphasis in the current paper has been on the primary stakeholders that have strong marketing interdependencies with the lead organization. In the case of the Goodwill Games, complex marketing networks link the event organizers, sponsors, TV networks and other media groups, government agencies, merchandisers and ticketing agency. The study of these more complex marketing networks enables us to extend previous

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marketing network literature that has focused on more traditional supplier-type arrangements. Stakeholder marketing analysis has proven a useful theoretical tool to extend our understanding of less traditional marketing networks, such as sporting events. A stakeholder approach to marketing potentially offers more robust solutions. The Goodwill Games illustrate this point, but at the same time provides a proto-type framework for other organizations to follow. The proto-type is an adaptation of the four-step Freeman model. In common with the Freeman model, steps 1 and 2 are broadly similar. Step 1 involves identification of both primary and secondary stakeholders. Step 2 requires both grouping (for example into media, government, and other broad headings) and ranking in terms of importance. A stakeholder map is a useful tool in this respect. Figure 1 shows each ray as a grouping, for example the media ray and the proximity to the center indicates importance ranking within each ray. This particular configuration of the map may be innovative compared to others. Certainly it was a useful way of synthesizing complex patterns of relationships. Steps 3 and 4 in the Freeman framework are merged in our approach. Step 3 in the pure Freeman model concerns historic assessment of the needs of stakeholders, a phenomenon that does not exist in an ephemeral event like the Goodwill Games. Rather, the merger of steps 3 and 4 take us in the direction of proactively integrating each primary stakeholder in particular into a stronger and more unified whole event marketing. It is not the traditional case of redressing the neglected (secondary) stakeholder groups, but rather in deliberately actively managing and optimizing the interdependencies across the disparate (primary) marketing units across organizations. Another way of contrasting the Freeman model from our approach is a shift from hearing all the voices and balancing claims across (secondary) stakeholders, to that of proactive knowledge management in which the synergies of diverse but complementary marketing forces are synthesized. Notwithstanding the emphasis given to primary stakeholders, the interests of secondary stakeholders, including tourism, local communities and equity groups, was not neglected. Indeed these groups were strongly covered through government representatives. Perhaps it was the sheer power of the government as a major sponsor and organizer that enabled the interests of these secondary groups to be subsumed and taken as given. The interests of the secondary groups were naturally incorporated into the decision-making and it was not necessary to treat them as an appendage, as is often the case when a pure private enterprise is the core organization. Returning to the primary stakeholder approach, how exactly was proactive knowledge management achieved, as a lesson for other organizations to follow? Are there principles of stakeholder management implementation? The first principle is a tolerant organization culture that understands the importance of stakeholder roles and treats all stakeholder groups with fairness and respect. No group is considered to be an appendage, something to be somehow fitted in after the optimal solution is arrived at and therefore detracting from the optimal solution. In the case of the Goodwill Games, there was a highly developed culture that was sensitive to stakeholder needs. In part this may have been due to the extensive sponsorship experience of the marketing manager, with sponsorship sourcing and marketing an excellent learning ground for stakeholder skills. Regardless of the origin, the culture prevailing at the Goodwill

Games enabled a seamless integration of stakeholder group interests. Thus the first principle of stakeholder management implementation is essentially an appropriate and conducive mindset that sets the scene. The second principle is the technical know-how to integrate the interests of different stakeholders. Again, in the Goodwill Games case, this technical know-how may have been fostered by the experience of the marketing manager and other staff in the sponsorship field. Sponsorships require delicate negotiations in which the common and different needs and aspirations of multiple parties are sorted. Even the specific sponsorship deals for the Goodwill Games adopted a more flexible approach compared to the 2000 Olympic Games, so there was much greater choice about the configuration of a sponsorship package (tickets, viewing boxes, advertising representation, and so on). Further, technical know-how includes management style. Rather than the traditional, hierarchical management model, stakeholder management requires a more horizontal, organic approach that cuts across units and external stakeholders. The core management unit needs to take on a more facilitating role rather than a command production approach. Agility is a core competency because the environment is always evolving and all of the stakeholders need to be kept up to date and to assist with changing marketing strategy. The third principle of stakeholder management implementation involves the use of branding or branding concepts as a tool to unify stakeholders. The Goodwill Games case of course had a strong branding focus, as we have discussed. There were strong values that underpinned the Goodwill Games brand, which added a sense of goodness and virtue and ultimately unity across stakeholders. However even if the marketing activity were not necessarily primarily branding-based, it would still be possible to use branding concepts as a means of pulling stakeholders together. Related, the marketing activities can potentially be values-driven, as another way of saying brand-driven. This leads to interdependency between stakeholder management and branding, in that stakeholder analysis is a tool to facilitating better branding of the event, but equally branding is a tool facilitating stakeholder management and integration. Conclusions Qualitative research was used to develop a stakeholder-based theoretical model of event marketing. The case research used a single case, the Brisbane Goodwill Games, to analyze the processes used in the staging of a major sports event. The literature suggested a prevailing weak theoretical framework in the event marketing field and we developed the a priori position that a stakeholder perspective might form a suitable theoretical basis. A set of protocols was designed to facilitate the conduct of the interviews. Although some broad elements of the final theory were explicitly articulated initially, the remaining elements, the details of all of the elements and the unifying links of the theory, were grounded in the case itself. The end product is a new theory of event marketing, one with a strong stakeholder foundation. An eight-part model of the brand building process was articulated, with an emphasis on an underlying stakeholder relationship framework. This framework is relevant for any company wishing to take a global brand into a new local context. A detailed analysis of stakeholder relations was undertaken. A five-prong basis for evaluating stakeholder relations assisted the analysis. For the most part there was a strong interdependency between the lead organization and each stakeholder. Finance

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was the main linkage, though information flows reinforced the financial interaction. A total, relationship-based commercial interdependency was formed in most cases, requiring time and trust to develop. Few of the stakeholder relations were mere transactional and this strong relationship basis even applied to the ticketing agency. Person to person communication emerged as important in maintaining strong stakeholder relationships. There were few cases of conflict. The latent conflict between the Games Organization and the most powerful stakeholder, the TV networks, was kept subdued through good working relationships. Discussion of the results led us to propose three central principles for effective stakeholder management. First, a supportive culture is important, enabling a seamless integration of stakeholder interests. Second, technical skills or competencies help, including negotiation skills and a facilitating, agile management style. Third, branding or values can be used as a tool to unify stakeholders. There are always limitations of having just one case to build a theory. However the Goodwill Games is a suitable choice to construct this research because of its big budget, high profile nature. Notwithstanding, the emphasis of this paper has been on theory building and to a much lesser extent theory testing. Additional research, both qualitative and quantitative, is needed for theory testing. References Baum, J. and Oliver, C. (1991), “Institutional linkages and organizational mortality”, Administrative Science Quarterly, Vol. 36, pp. 187-218. Carroll, A. (1993), Business and Society: Ethics and Stakeholder Management, Southwestern Publishing, Cincinnati, OH. Clarkson, M. (1995), “A stakeholder framework for analyzing and evaluating corporate social performance”, Academy of Management Review, Vol. 20 No. 1, pp. 92-117. Clarkson, M. and Deck, M. (1993), “Applying stakeholder management to the analysis and evaluation of corporate codes”, in Ludwig, D. (Ed.), Business and Society in a Changing World Order, Mellen Press, New York, NY, pp. 55-76. D’Alesssandro, D. (2001), Brand Warfare: 10 Rules for Building the Killer Brand, McGraw-Hill, New York, NY. Donaldson, T. and Preston, L. (1995), “The stakeholder theory of the corporation: concepts, evidence and implementation”, Academy of Management Review, Vol. 20 No. 1, pp. 65-91. Fournier, S. (1996), “Understanding consumer-brand relationships”, working paper, No. 96-018, Harvard Business School, Boston, MA. Freeman, E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA. Getz, D. (1997), Event Management and Event Tourism, Cognizant Communications Corp., New York, NY. Kapferer, J. (1997), Strategic Brand Management, Kogan Page, London. Kraatz, M. (1998), “Learning by association? Inter-organizational networks and adaptation to environmental change”, Academy of Management Journal, Vol. 41 No. 6, pp. 621-43. Larson, M. and Wikstrom, E. (2001), “Organizing events: managing conflict and consensus in a political market square”, Event Management, Vol. 7 No. 1, pp. 51-65. Meenaghan, T. (2001), “Understanding sponsorship effects”, Psychology and Marketing, Vol. 18 No. 2, p. 95.

Mendleson, N. and Polonsky, M.J. (1995), “Using strategic alliances to develop credible green marketing”, Journal of Consumer Marketing, Vol. 12 No. 2, pp. 4-18. Merrilees, B. and Fry, M. (2002), “Corporate branding: a framework for e-retailers”, Corporate Reputation Review, Vol. 5 Nos 2 and 3, pp. 211-25. Mitchell, R.K., Agle, B.R. and Wood, D.J. (1997), “Toward a theory of stakeholder identification and salience: defining the principle of who and what really count”, Academy of Management Review, Vol. 22 No. 4, pp. 853-86. Nasi, J.S., Nasi, N., Phillips, N. and Zyglidopoulos, S. (1997), “The evolution of corporate social responsiveness”, Business Society, Vol. 36 No. 3, pp. 296-321. O’Neill, H., Pouder, R. and Buccholtz, A.K. (1998), “Patterns in the diffusion of strategies across organisations: insights from the innovation diffusion literature”, Academy of Management Review, Vol. 23 No. 1, pp. 98-114. Pearson, S. (1996), Building Brands Directly, Macmillan, London. Polonsky, M. (1995), “A stakeholder theory approach to designing environmental marketing strategy”, Journal of Business & Industrial Marketing, Vol. 5 No. 3, pp. 29-46. Polonsky, M.J. (2001), “Strategic bridging within firm-environmental group alliances: opportunities and pitfalls”, Journal of Marketing Theory and Practice, Vol. 9 No. 1, pp. 38-47. Polonsky, M. and Ottman, J. (1998), “Stakeholders’ contribution to the green new product development process”, Journal of Marketing Management, Vol. 14, pp. 533-57. Savage, G.T., Nix, T.W., Whitehead, C.J. and Blair, J.D. (1991), “Strategies for assessing and managing organizational stakeholders”, Academy of Management Executive, Vol. 5 No. 2, pp. 51-75. Scott, W.R., Mendel, P. and Pollack, S. (1996), “Environments and fields: studying the evolution of a field of medical care organizations”, revised version of a paper presented at Conference on Institutional Analysis, University of Arizona, Tuczon, AZ, 28-30 March. Skinner, B. and Rukavina, V. (2003), Event Sponsorship, Wiley, Hoboken, NJ. Stern, R.N. (1979), “The development of an inter-organizational network: the case of intercollegiate athletics”, Administrative Science Quarterly, Vol. 24, pp. 242-66. Wilkinson, I. (2001), “A history of network and channels thinking in marketing in the 20th century”, Australasian Marketing Journal, Vol. 9 No. 2, pp. 23-52. Wolfe, R.A. and Putler, D.S. (2002), “How tight are the ties that bind stakeholder groups?”, Organization Science, Vol. 13 No. 1, pp. 64-80. Further reading Meenaghan, T. (2001), “Sponsorship and advertising: a comparison of consumer perceptions”, Psychology and Marketing, Vol. 18 No. 2, p. 191. Timur, S. and Getz, D. (2004), “Stakeholder involvement in sustainable tourism: balancing the voices”, in Theobald, W. (Ed.), Global Tourism: The Next Decade, Butterworth-Heinemann, Oxford.

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A study of software firms in Finland Anu Marianne Vainio Helsinki School of Economics, Helsinki, Finland Abstract Purpose – To gain a better understanding of various network relationships in the software industry by classifying relationships by type and identifying distinctions with respect to the business potential of those relationships. Design/methodology/approach – On the basis of literature, the study presents a framework for the tasks of combining and exchanging knowledge-based resources in network relationships. In the empirical research setting, the relationships of nine Finnish software firms are first classified and placed in the framework, and then the organisational effectiveness of the relationships is measured. Findings – The findings reveal three relationship types, each leading to different effectiveness profiles. Research limitations/implications – It is recognised that this exploratory multiple-case study raises the concern of generalisability and, thus, a statistical research using more accurate quantitative methods could be useful in checking the validity of the findings. Further, the selected cases exclude non-networking companies, which is why future researchers may wish to consider whether the conclusions are valid across all firms and not just for those already in relationships. Practical implications – A very useful information for new software firms having and planning partnerships in the software industry. For a new venture with limited resources, in particular, the partnerships may offer valuable resources. The study advances the identification of those benefits. Originality/value – This study extends the understanding of management in strategic networks, particularly in the software industry, by classifying network relationships by type, describing the potential of these relationships, and indicating the capabilities needed for managing specific types of relationships. Keywords Knowledge management, Finland Paper type Research paper

European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 1078-1095 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610734

Introduction Partnering activities are important for the success of software products for the reason that they create interdependencies and synergies enabling, augmenting and extending the effectiveness of the partners. According to the resource-based view (Penrose, 1959; Barney, 1991), partnerships with other organisations constitute valuable capital by providing access to complementary resources and capabilities that may otherwise be unavailable. The underlying logic for this argument lies in the view that firms are heterogeneous entities differing in capabilities and resources (Wernerelt, 1984). By accessing complementary resources through cooperating with other organisations, a firm is able to improve its competitive advantage (e.g. Gulati, 1998; Hagedoorn, 1993; Hoch et al., 1999).

Ha˚kanson (1989) and Van de Ven and Ferry (1980) describe a network as a total pattern of relationships within a group of organisations; firms recognise that the best way to achieve common goals is to co-ordinate the business system in an adaptive fashion. Campbell and Wilson (1996) suggest that superior resources can also emerge from a synergy resulting from coordination of independent firms in a series of value-adding partnerships. For example, out of partnerships formed through industry forums such as Symbian (www.symbian.com), a software firm can deliver innovative solutions together with its network partners. This kind of cooperation aims to recognise the potential for synergy in developing capabilities that reinforce rather than minimise their dependence on partner firms. Campbell and Wilson (1996) have proposed a value-creating network describing purposeful cooperation between independent firms along a value-added chain for creating strategic advantage for the entire group. This definition focuses on the overall relationship between business organisations and includes both the exchange and social relationships. As social aspects are important for network formation (Beije and Groenewegen, 1992, e.g. Granovetter, 1985), the definition is also suitable for this study. In view of these arguments, this paper attempts to gain a better understanding of the various network relationships prevailing in the software industry by studying the current literature with the aim of classifying relationships by type and finding distinctions with respect to the business potential of those relationships. After a literature survey, a framework is presented, consisting of two dimensions for the tasks of combining and exchanging knowledge-based resources in network relationships. The empirical research setting is twofold. First, the relationships of nine Finnish software firms are studied and placed in the framework. Second, the organisational effectiveness of those relationships are measured against Quinn and Rohrbaugh’s (1983) framework. The findings revealed three existing relationship types leading to different effectiveness profiles. This study extends the understanding of management in strategic networks, particularly in the software industry, by classifying network relationships by type, describing the potential of these relationships, and indicating the capabilities needed for managing specific types of relationships. The paper is structured as follows. First, the importance of network relationships in the software industry is analysed on the basis of the literature survey. Second, the framework is created by studying the exchange and combination of knowledge-based resources in business networks. After introducing the methodology of a multiple-case study comprising nine young Finnish companies, a classification of a total of 36 relationship types and an evaluation of the organisational effectiveness of such relationships are presented. Finally, the findings are discussed and the major conclusions are highlighted. Network relationships in the software industry Especially in the software industry, both the number of partnerships and the average value per partnership have been increasing steadily (Hoch et al., 1999; Hietala et al., 2002). Although it has been established that the size of the firm has a positive effect on alliance participation (Berg et al., 1982), small software ventures are attractive partners because of both their innovativeness and flexible nature, which accounts for factors associated for positive learning outcomes for both parties in a partnership (Hamel, 1991). From a new software firm’s perspective, these interconnected relationships can

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offer unique and valuable assets and capabilities. Given that the resource limitations of start-ups make them prone to the liabilities of newness and adolescence (Amburgey et al., 1993), this perspective also helps to explain how and why some new software firms are able to grow and survive despite the lack of significant firm-specific resources. According to Hagedoorn (1993), the motives most often mentioned behind technology partnerships are technology complementarities, innovation time-span reduction, market access, and market structure influence. Other aims behind alliance formation in volatile, high-tech industries are to accelerate time to market, to increase market penetration, to divide the immense costs of developing the technology, to manage the uncertainty involved in emerging technologies, to further the convergence of several industry segments, and to combat the “follow the herd” mentality (Parise and Henderson, 2001; Gulati, 1998; Sengupta, 1998). By integrating their primary software product with other well-known and established software products, new ventures can gain enhanced market visibility, product repute, and customer trust (Sengupta, 1998). Nevertheless, technological standards or common interest in technology development may also be motives for joining partner webs, which may consist of even hundreds of informal, yet highly performance-driven partnerships (Hoch et al., 1999). To conclude, this study is based on the view that one salient reason for collaboration in high technology sectors is the possibility of bringing together complementary assets to marshal a full array of capabilities. Few high-technology products function in isolation. The partnerships typically take the form of research and development (R&D) agreements, in which a product is developed that will help sell the focal firm’s product, or joint marketing alliances, in which the focal firm will “bundle” the complementor’s product with its own (Parise and Henderson, 2001; Sengupta, 1998). However, as the different forms of these relationships overlap, the partnerships may include both R&D cooperation and joint marketing arrangements. Co-operation can be formed either vertically or horizontally. Vertical alliances are cooperative relationships between channel participants aiming at a solution for marketing problems, improved production efficiency, or the exploitation of market opportunities. These networks efficiently promote, modify and move goods to markets. Networks can also consist of horizontal partnerships among companies wishing to solve a common marketing problem, to improve production efficiency, or to exploit a market opportunity through resource mobilisation and sharing. Exchange and combination of knowledge-based resources In order to gain a better understanding of the various relationships and networks, a model was developed to classify the relationships by type according to network characteristics. Similarly to Schumpeter (1934), Moran and Ghoshal (1996) have argued that all new resources, including knowledge, are created through two generic key processes: combination and exchange. The framework was based on this argument, while setting the following dimensions for the model: . the value system describing the nature of the combination of knowledge resources; and . social capital describing how the exchange of knowledge is facilitated by social interaction, network ties and trust embedded in network relationships.

The framework of the two dimensions creating four combinations is presented in Figure 1. These combinations reflect the process viewed by Schumpeter as the foundation for economic development – “to produce means to combine materials and forces within out reach (1934)”. This is in line with Ha˚kanson and Snehota (1995), who have suggested that value creation in relationships is based on value activities and actors, and how they combine resources through activity links. Researchers have identified two types of value creation as regards combining knowledge-based resources (e.g. Ha˚kanson and Snehota, 1995; Mo¨ller and Svahn, 2003). First, value can be created through stable, incremental change and development of existing knowledge. Second, the authors also discuss a more radical change involving innovation and emerging value activities. Both types of value creation involve creating new combinations – incrementally or radically – either by combining elements previously unconnected or by developing novel ways of combining resources previously associated. This type of combining of knowledge-based resources can be illustrated by a simplified dimension of value system ranging from clearly specified and stable systems to emerging value systems (adapted from Mo¨ller and Svahn, 2003). The exchange of knowledge-based resources is embedded in ongoing networks of personal relationships and accompanied by non-economic goals such as sociability, approval, status and power (Granovetter, 1985). The social embeddedness of economic exchange has also been referred to by a number of other researchers (e.g. Kogut and Zander, 1992; Cohen and Levinthal, 1990; Beije and Groenewegen, 1992). Through close social interaction, firms are able to enhance the depth, breadth, and efficiency of mutual knowledge exchange in relationships (Dyer and Singh, 1998; Lane and Lubatkin, 1998). Based on these arguments, a dimension of social capital is inserted into the model. Social capital is defined as the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by a new software firm (Nahapiet and Ghoshal, 1998). Social capital thus comprises both the network and the assets that may be mobilised through that network (Burt, 1992). However, the focus of the analysis is on social knowledge alone due to the fact that it .

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Figure 1. Framework of value creation in network relationships

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has been argued that collective knowledge is the most secure and strategically significant kind of organisational knowledge (Spender, 1996). Using Nahapiet and Ghoshal’s (1998) framework, the paper conceptualises social capital with the help of three different dimensions, which nevertheless overlap to a considerable extent. The structural dimension of social capital refers to the overall pattern of connections between actors – that is, who you reach and how you reach them (Burt, 1992). Among the most important facets of this dimension is the presence or absence of network ties between actors (Scott, 1991). The relational dimension of social capital focuses on the particular relationships that people have, such as respect and friendship, which influence their behaviour. The key facets of this dimension are trust and trustworthiness (Putnam, 1995; Fukuyama, 1995), norms (Putnam, 1995), obligations and expectations (Burt, 1992; Granovetter, 1985), and identity and identification (Ha˚kanson and Snehota, 1995). Finally, the cognitive dimension of social capital involves such resources as shared languages and codes that are needed for providing shared interpretations and systems of meaning among the parties (Nahapiet and Ghoshal, 1998). The two dimensions, value system and social capital, form four combinations illustrating different types of relationships. In summary, the framework suggests that although all the types provide value, it is for different purposes. The combination of either stable or radical resources is regulated by the amount of social capital embedded in such relationships. By building relation-specific assets and relational governance mechanisms into relationships, firms are able to tap into the knowledge resources of their exchange partner. Research methodology In order to explore the various types of network relationships of new software firms and to analyse whether and in what ways these relationships affect the organisational effectiveness of a firm, a multiple-case study including nine young Finnish companies was carried out. The companies were selected due to their growth intentions, small size and the variation of their products. Since versatility is the major strength of a case study (Eisenhardt, 1989; Yin, 1994), various sources of evidence and data collection methods were used to provide greater validity for the findings. All of the companies chosen had been carrying on business for less than five financial years or the size varied from 10 to 65 employees. Additionally, all the firms acknowledged a strong growth initiative. The cases can also be described as a convenience sample because the researcher had previously been cooperating with the companies. However, it can be stated that the selected companies constitute a good representation of the type of software product ventures defined as the focus of our study. The details of the companies are illustrated in the appendix. The methods used in this study for data collection were theme interviews, structured interviews, and acquisitions of written documents and information from the companies chosen. Brochures, annual reports, internal documents and trade journal articles were also collected and used for the analyses. The purpose was to collect information for a classification of relationships and for measuring the organisational effectiveness of such relationships. The data collection succeeded well in each of the nine cases, and the relationships of the different organisations were specified, classified

by type and finally measured with Quinn and Rohrbaugh’s (1983) effectiveness approach. Classification of relationships The nine companies studied showed a total of 36 different types of relationship. The study took into account only the relationships that complemented the software product of a company. Accordingly, relationships with bookkeepers, investors, and non-strategic suppliers such as those for office materials were left out. Although these relationships may offer valuable contacts, information and references, they do not add value to the software product beyond its basic functionality. The relationships were arranged in a model through conducting a two-hour theme interview in each company. The main informant of the interview was the CEO, a partner manager or a sales director. Furthermore, it was checked that other company-specific material such as internal documents, news statements, and brochures supported the findings of the interviews. The relationships were placed on a two-dimensional graph of social capital and value systems as follows: Social capital. The amount of social capital was categorised as high or low by means of the 12 themes in the interview. All relationships were mapped on the continuum of the model without problems. The social capital variables are described in more detail in the appendix. Value system. The nature of the value system was codified as either stable and incremental or radical and emerging according to the 8 themes used in the interview. There were no problems in mapping the relationships on the continuum. The value system variables are described in more detail in the appendix. Finally, all of the relationships were arranged into the four combinations. However, there were no relationships representing the category “radical and emerging value system with low social capital”. For this reason, it was not possible to measure the organisational effectiveness of such relationships, but only to draw some conclusions of this non-appearance. Effect on the organisational effectiveness of a firm After grouping the relationships in the four combinations of the model, the average effectiveness of the existing three relationship types was measured. A structured interview was designed to measure the organisational advantage gained from a relationship. Structured interviews are a good method for testing formal hypotheses and presenting the collected data in a quantitative form (Robson, 1995). The CEOs of the companies were the objects of these interviews. The aim was to identify how a relationship defined in terms of the value system and the amount of social capital can lead to different profiles of effectiveness occurrences. The organisational effectiveness of each of the relationships (36) was measured as follows: Effectiveness. Quinn and Rohrbaugh’s (1983) framework of organisational effectiveness was used to measure the value appropriation in new software firms. This widely used framework was chosen due to the fact that the model comprises an overall framework for analysing multidimensional behaviour taking place in organisations. The framework conceptualises the criteria for organisational

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effectiveness according to the three axes of value dimensions. The first value dimension is related to organisational focus – internal or external. The second value dimension is related to organisational structure, ranging from an emphasis on stability to an emphasis on flexibility. The third value dimension is related to organisational means and ends, from an emphasis on important processes to an emphasis on final outcomes. The three dimensional criteria of effectiveness also make possible the identification of four basic models: human relations, open system, internal process, and rational goal model. According to Quinn and Rohrbaugh, an effective organisation may need to perform well in all four models of the framework. On the basis of an extensive literature survey and the considerations of effectiveness measurement (Lewin and Minton, 1986), organisational effectiveness was defined with 32 effectiveness items. The coverage of these items was checked by comparing them with the Quinn and Rohrbaugh framework. Finally, the items were refined to be suitable and relevant for the software product industry. The effectiveness variables are described in more detail in the appendix. A structured interview was designed using the variables described. The questionnaire was filled out by the CEO for every relationship of the company. The respondent assigned a value to each effectiveness item, the scale ranging from zero to two (0 denoting no effect, 1 a minor positive effect, and 2 a major positive effect). As a result, questionnaires were gathered for all of the 36 relationships. Finally, the averages of 32 effectiveness items were calculated for each of the three combinations of relationships. Results The results of the classification of network relationships for the companies included in this research are illustrated in Figure 2. As mentioned before, there were no instances representing the combination of emerging value system with low social capital to be found among the relationships studied. To describe the nature of cooperation, the relationships were named on the basis of announcement types: OEM agreement, sales partnership, technology supplier, R&D cooperation, R&D with a customer, delivery channel, and industry forum. The details of the relationships are illustrated in the appendix. The averages of the organisational effectiveness items are presented in Table I. Discussion Stable, incremental value system; high social capital Among the 18 relationships representing this combination, there were five highly coordinated and strong OEM agreements and eight long-term sales partnerships. In addition to these marketing-oriented relationships, there were also two R&D cooperation agreements with large global companies and three technology suppliers. In the R&D alliances, the exchange of technology was clearly specified in the agreements that might eventually turn into licensing or OEM contracts along with the maturing of co-developed product features. The technology suppliers, or preferably consulting companies, were delivering special technological skills and project resources as needed, while invoicing was time-based. Thus the cooperation was more like resource providing. Aside from these small suppliers, all partners were of the same

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Figure 2. Network relationships of the selected companies (total amount of relationships, 36)

size or clearly larger. The respondents pointed out that large companies provided a solid base for cooperation as they often had better resources and larger capacity. The average of effectiveness items for the human resource model was 1.41 on a scale from zero to two, which indicated that the cooperation was contributing to the cohesion and morale of the organisation with emphasis on human resources and learning. Motivation and employee satisfaction, ability to cooperate and technological distinctiveness were found to gain the greatest benefit (1.63). To conclude, it appears that a consistent and gradual combination of resources and high social capital between partners supports the construction of a common social system consisting of cooperating members. In addition to the enhancement of the social system, there was improvement to be seen in resource-training items such as learning, innovating and crisis management. In addition to the effects on human resources, this type of relationships also appeared to substantially affect the other models (1.13-1.88). This suggests that the learning outcomes had already turned into benefits for issues related to the open system model, the internal process model, and the rational goal model. The relationships had the strongest effect on the open system model (average 1.75). The respondents described how these long-term relationships were maintaining the organic system with emphasis on adaptability, growth and resource acquisition through advanced risk management and timely implementation of change. In spite of the stability and discipline of the cooperation, these relationships brought innovation and creativity, which indicates that familiar context and incremental approach are suitable for increasing flexibility in risk-averse high technology sectors. Because of the regular audits performed by the partners, the companies invested a great deal in improving internal operations, such as quality control and information management. This explains why the relationships had a relatively strong effect on internal process related issues with an average of 1.52, as the companies were elaborating their measurement, documentation and information management

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Stable, incremental value system High social capital (18) Human resource model Initiative Motivation, esprit de corps Employee satisfaction Organisational learning Capability of co-operating Capability og managing crisis New product innovations Technological distinctiveness Total average Open system model Controlled growth of operations Control of market uncertainty (risk management) Structure/strategy congruence Organisation/environment fit Customer-oriented focus Knowledge and resource acquisition Reputation, trust, market visibility Competitive position Total average Internal process model Change management Authority, discipline Quality control Efficient information processing Documentation of processes Congruence of processes Protecting core assets Efficiency through economies of scale Total average

Table I. Averages of effectiveness items (total number of relationships 36)

Rational goal model Product maximisation Optimal use of resources Minimising costs Productivity Return on investment Profitability More focused business objects Sales growth Total average

Effectiveness criteria Radical, emerging Stable, incremental value system value system High social capital Low social capital (6) (12)

1.13 1.63 1.38 1.25 1.63 1.25 1.38 1.63 1.41

1.60 2.00 1.80 1.80 1.60 1.20 1.80 1.80 1.70

0.00 0.25 0.00 0.25 0.50 0.25 0.50 0.00 0.22

1.63

1.00

0.75

1.75 1.63 1.63 1.88

1.20 0.80 1.40 1.80

0.50 0.75 0.75 0.75

1.88 1.75 1.88 1.75

2.00 1.40 1.00 1.33

1.25 1.75 1.25 0.97

1.38 1.63 1.50 1.63 1.50 1.63 1.13

0.00 0.20 0.20 0.40 0.00 0.20 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

1.75 1.52

0.00 0.13

0.25 0.03

1.63 1.63 1.25 1.38 1.20 1.50 1.88 1.63 1.51

0.20 0.40 0.20 0.40 0.00 0.40 0.80 0.80 0.40

1.00 0.50 0.50 0.75 0.00 0.50 0.50 1.25 0.63

processes. This type of relationships appeared to contribute to the stability and control of internal actions due to the fact that tasks were well understood. The average of the rational goal related effects on was 1.51, which indicates a financial profitability of the relationships and a positive influence on rational action. For example, the respondents reported business objects having become more focused (1.88), which had led to clarified tasks and, accordingly, to more resolute actions. The purpose of these relationships was to interlink the partners for better integration and to rationalise the value chain of the focal product (e.g. firms align with their suppliers to achieve better quality deliveries, to improve the market penetration, and to reduce cost). Relationships turned out to be perceived as successful for the reason that they were likely to increase the outcome of combined activities and to rationalise the cost of performing these activities. The study also suggest that high social capital is a precondition for mutual learning and development work; development teams appeared to perform better in an informal and social environment. As a result, the value created often resulted in strategic or highly differentiated capabilities in relationships, which were seen as institutionalised activities and strong social relations between the actors. Furthermore, the findings suggest that a sufficient size of the partner is a precondition for a small company to achieve the benefits described above. Radical, emerging value system; high social capital The 12 relationships representing this group consisted of five industry forums, three R&D cooperation agreements with other small companies, and four delivery channels. The relationships of this combination were aiming to produce new innovations, market information and radical technology developments through resource mobilisation and sharing. The relationships with industry forums formed a dyad of a partner web combining resources in order to develop an emerging product market. The purpose of the R&D cooperation was to produce new product combinations. All four delivery channels of company position were still in engagement stage without clear agreements, which was why the configuration was still highly changeable and thus classified as emerging. The relationships had the most obvious effect on human resources issues, as the average was 1.70. The respondents pointed out significant improvements in motivation (2.00), employee satisfaction (1.80), and organisational learning (1.80). Furthermore, this type of relationships accounted for positive outcomes in terms of new product innovations (1.80) and technological distinctiveness (1.80). Although these improvements are reported to be higher for relationships having to do with emerging value systems than those of a stable, incremental one, the relationships of this combination had only a negligible effect on the internal process model (average 0.13) and rational goal issues (average 0.40). This indicates that in radical and emerging value systems the partners continuously develop their knowledge but also that the learning is not fully accomplished. Due to the fact that the relationships discussed above appear to have failed to contribute to the control and stability of the organisations, it seems that this type of relationship does not provide the skills or resources needed for exploiting the cost advantage either. On the other hand, the relationships provide the respective organisations with an excellent “antenna” for fathoming the external environment.

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This creative flair, proven by the high averages for both open system and human resources models, helps to build up a unique combination of skills drawn from other businesses. In addition, the respondents reported improvement regarding the reputation for quality and technological leadership needed for differentiation of products. This shows that the context of emerging and radical changes is beneficial for improving organisational flexibility and adaptive function. Excluding four vague delivery channels, all of the relationships involved partners integrating their tacit knowledge to jointly develop innovations in the form of new products or technologies. Partner learning was a major objective of each partner. However, through these network relationships learning was rarely fully accomplished or ideas implemented, which is confirmed by the low scores for the control functions of integration and goal-attainment. The actor bonds of the relationships were emerging dynamically; some were declining and others being formed when new organisations joined the forum. The social capital between the members was high; otherwise, the bonds between actors would seem to weaken. There were no formal agreements or explicit rules for operating in the network. This sort of dynamics in relationships seems to contribute to high flexibility, while also presenting itself as an obstacle to moving towards a more centralised structure. Stable, incremental value system: low social capital All the six relationships representing this combination were marketing channel agreements, in which one partner provides market access or a brand name, while the other provides the product to market. The shape of the cooperation agreements varied, the strongest occurrences being technology licensing agreements with one partner paying royalties to gain access to the other partner’s technology, and the weakest were merely letters of intent. All six partners were large foreign corporations and there were no social relationships involved in the liaisons. The respondents described that no new products or technologies were developed between the partners, and that there was very little joint effort or integration apart from written contracts. The incentives of the agreements were based on quantitative targets such as the amount of sales. The technological resources exchanged were usually in codified form. As tacit knowledge was not provided, very little learning took place between the partners. Overall, this weak social commitment between actors easily led to loose connections and inefficiencies. Compared with the strong effect of relationships on the human resources model in both stable and emerging value systems, the impact was small, with an average of 0.22, for the combination of stable, incremental value system and low social capital. Therefore, in line with this finding, the study confirms that high social capital in network relationships facilitates organisational learning from the perspective of a new software firm. Furthermore, the effect on the internal process model, showing an average of 0.03, was weak. Thus, the study concludes that this type of relationships does not have any significant effect on the internal focus of an organisation. The relationships clearly contributed the most to the external focus of the company as improvements were reduced to the goal-attainment and adaptive functions. Although the effect for this combination was rather minor, with an average of 0.63 for the rational goal and 0.88 for the open system model, the relationships did produce some financial outcomes and provided companies with useful market information.

The relationships of the case companies proved to offer them opportunities to form vertical distribution systems and helped them structure their organisational responsibilities and activities. While the value gained from this type of relationships may not be sufficient to make the business take off, they still enable some benefit to be gained in terms of increased sales to new customers. Additionally, any preliminary work done on these relationships appears to provide potential for more powerful cooperation.

Summary and conclusion The study aims at understanding how network relationships can be used to access the complementary resources needed for managing software product business. Hence, the need for a more specific conceptualisation of the network relationships was suggested. This study proposes a framework classifying the different relationships according to network characteristics. The two dimensions of the framework comprise a “value system”, describing the nature of resource combination, and “social capital”, illustrating how the exchange of knowledge-based resources is facilitated by social interaction, network ties, and trust embedded in network relationships. Finally, in the empirical research setting, Quinn and Rohrbaugh’s (1983) effectiveness approach was employed to identify the potential offered by the classified relationships. Building on a multiple-case study approach, the study bases its analysis on various sources of data, such as theme interviews, structured interviews and the acquisition of written documents and information from the subject companies. In the empirical setting, 36 relationships were named in the nine companies involved, and placed in the framework. On the basis of this classification, three types of relationships leading to different effectiveness profiles were identified. Firstly, the relationships of a stable, incremental value system bundled with high social capital was found to contribute equally to all major organisational functions, including human resources, adaptation, goal-attainment and integration. The findings suggest that this type of familiar and stable context involving an incremental development approach is suitable for increasing flexibility and competitiveness in risk-averse high technology sectors. Secondly, the effect of relationships for the combination of emerging value system and high social capital proved likely to emphasise the flexibility and decentralised structure of an organisation. However, the results also indicated that learning and readiness could not be fully exploited by the respective organisations for the reason that the effect of relationships on centralisation-integration related values was insignificant. Because of the emerging context, there was no consistency in implementing improvements in the internal structure. Thirdly, the relationships of a stable, incremental value system coupled with low social capital appeared to contribute to the adaptation and goal-attainment capabilities of an organisation. In all, the impact of relationships was primarily focused on external issues. Although there was hardly any effect on internal equilibrium and human resources, the relationships contributed to some extent to productivity, efficiency, growth, and resource acquisition. Lastly, the as no relationships could be found for the combination of emerging value system and low social capital, it can be concluded that such an inconstant context of loose bonds is not likely to be beneficial for improving the effectiveness of businesses.

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Limitations and issues for further research More research on partnering among new software firms is clearly needed. It is also recognised that this exploratory multiple-case study raises the concern of generalisability and, thus, a statistical research using more accurate quantitative methods could be useful in checking the validity of the findings. However, this study involving nine companies yields some promising results. Further, the selected cases exclude non-networking companies, which is why future researchers may wish to consider whether the conclusions are valid across all firms and not just for those already in relationships. Another interesting direction for continuing the research could be an analysis of companies exploiting these network relationships during organisational development as regards product development. Additionally, a systematic longitudinal study would reveal how the benefits gained from co-operation evolve during the development of relationships. References Alvarez, S.A. and Meyer, G.D. (1999), “Technology-based strategic alliances: are they good for entrepreneurial firms?”, Frontiers of Entrepreneurship Research, Babson College, Babson Park, MA. Amburgey, T.L., Kelly, D. and Barnett, W.P. (1993), “Resetting the clock: the dynamics of organizational change and failure”, Administrative Science Quarterly, Vol. 38, pp. 51-73. Barney, J. (1991), “Firm resources and sustained competitive advantage”, Journal of Management, Vol. 17 No. 1, pp. 99-120. Beije, P.R. and Groenewegen, J. (1992), “A network analysis of markets”, Journal of Economic Issues, Vol. 26 No. 1, pp. 87-104. Berg, S.V., Duncan, J. and Friedman, P. (1982), Joint Venture Strategies and Corporate Innovation, Oelgeschlager, Gunn & Hain, Cambridge, MA. Brown, S.L. and Eisenhardt, K.M. (1995), “Product development: past research, present findings and future directions”, Academy of Management Review, Vol. 20 No. 2, pp. 343-78. Burt, R.S. (1992), The Structural Holes: The Social Structure of Competition, Harvard University Press, Cambridge, MA. Calantone, R.J., Cavusgil, S.T. and Zhao, Y. (2002), “Learning orientation, firm innovation capability, and firm performance”, Industrial Marketing Management, Vol. 31 No. 6, pp. 515-24. Campbell, A.J. and Wilson, D.T. (1996), “Managed networks: creating strategic advantage”, in Iacobucci, D. (Ed.), Networks in Marketing, Sage Publications, London, pp. 125-43. Chandler, A.D. (1962), Strategy and Structure, MIT Press, Cambridge, MA. Cohen, W.M. and Levinthal, D.A. (1990), “Absorptive capacity: a new perspective on learning and innovation”, Administrative Science Quarterly, Vol. 35 No. 1, pp. 128-52. Cooper, R. (1983), “The new product process: an empirically-based classification scheme”, R&D Management, Vol. 13 No. 1, pp. 1-13. Dyer, J.H. and Singh, R. (1998), “The relational view: cooperative strategy and sources of interorganizational competitive advantage”, Academy of Management Review, Vol. 23 No. 4, pp. 660-79. Eisenhardt, K. (1989), “Building theory from case study research”, Academy of Management Review, Vol. 14 No. 4, pp. 532-50.

Fayol, H. (1949), Administration Industrielle et Ge´ne´rale, Sir Isaac Pitman & Sons, London. Fukuyama, F. (1995), Trust: Social Virtues and the Creation of Prosperity, Hamish Hamilton, London. Granovetter, M. (1985), “Economic action and social structure: the problem of embeddedness”, American Journal of Sociology, Vol. 91, pp. 481-510. Gulati, R. (1998), “Alliances and networks”, Strategic Management Journal, Vol. 19, pp. 293-317. Hagedoorn, J. (1993), “Understanding the rationale of strategic technology partnering: interorganizational modes of cooperation and sectorial differences”, Strategic Management Journal, Vol. 14, pp. 371-85. Ha˚kanson, H. (1989), Corporate Technological Behaviour: Cooperation and Networks, Routledge, London. Ha˚kanson, H. and Snehota, I. (1995), Developing Relationships in Business Networks, Routledge, London. Hamel, G. (1991), “Competition for competence and interpartner learning within international strategic alliances”, Strategic Management Journal, Vol. 12, pp. 83-103. Hietala, J., Maula, M.V.J., Autere, J., Lassenius, C. and Autio, E. (2002), Finnish Software Product Business: Results from the National Software Industry Survey, Helsinki University of Technology, Espoo. Hoch, D., Roeding, C., Purkert, G. and Lindner, S. (1999), Secrets of Software Success, Harvard Business School Press, Boston, MA. Kale, P., Singh, H. and Perlmutter, H. (2000), “Learning and protection of proprietary assets in strategic alliances: building relational capital”, Strategic Management Journal, Vol. 21, pp. 217-37. Kazanjian, R.K. and Drazin, R. (1990), “A stage-contingent model of design and growth for technology-based new ventures”, Journal of Business Venturing, Vol. 5, pp. 137-50. Kogut, B. and Zander, U. (1992), “Knowledge of the firm, combinative capabilities and the replication of technology”, Organization Science, Vol. 3 No. 3, pp. 383-97. Koka, B.R. and Prescott, J.E. (2000), “Strategic dimension as social capital: a multidimensional view”, Strategic Management Journal, Vol. 23, pp. 795-816. Krishnan, V. and Bhattachraya, S. (2002), “Technology selection and commitment in new product development: the role of uncertainty and design flexibility”, Management Science, Vol. 48 No. 3, pp. 313-27. Lane, P.J. and Lubatkin, M. (1998), “Relative absorptive capacity and interorganizational learning”, Strategic Management Journal, Vol. 19 No. 5, pp. 461-78. Larson, A. (1992), “Network dyads in entrepreneurial settings: a study of the governance of exchange relationships”, Administrative Science Quarterly, Vol. 37, March, pp. 76-104. Lawrence, P.R. and Lorsch, J.W. (1967), Organization and Environment, Division of Research, Harvard Business School, Boston, MA. Lewin, A.Y. and Minton, J.W. (1986), “Determining organizational effectiveness: another look, and an agenda for research”, Management Science, Vol. 32 No. 5, pp. 514-38. Likert, R.L. (1967), The Human Organisation, McGraw-Hill, New York, NY. Lorsch, J.W. and Morse, J.J. (1974), Organizations and Their Members: A Contingency Approach, Harper & Row, New York, NY. McGregor, D. (1960), The Human Side of Enterprise, McGraw-Hill, New York, NY.

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Appendix

Company

Product

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1. Position 2. 3. 4. 5. 6. 7. 8. 9.

Positioning software for wireless networks Game Branded mobile games and entertainment Test Software for automated software testing Video coding Video coding software for wireless telecommunication Marketing Software for mobile marketing Messaging Software products for mobile messaging management Engine Games engine software Broadcasting Broadcast content management software Resource Resource and project management software

Turnover Employees Turnover Employees 2001, EUR 2001 2002, EUR 2002 400

10

63,000

17

550,000

40

500,000

25

111,000

7

550,000

22

100,000 400,000

50 30

1,000,000 1,300,000

55 23

2,000,000 7,200,000

60 20

3,000,000 5,600,000

80 25

6,000,000

70

6,000,000

70

7,000,000

80

8,000,000

75

Social capital

Value system

Network ties – structural component: We have got new contacts through the partner We have participated in several events organised by the partner The partner has “opened the door” for us.

The level of determination of the value activities and actors How well-known are the value activities in the relationship? How well-known are the capabilities of the actors performing the value activities? How explicitly can these be specified?

Social interaction – relational component: We maintain close social relationships with the partner There is high social interaction in the relationship We know the partner’s people on a personal level We rather trust the partner’s handshake than signed contracts Control through social relations – cognitive component: Certain key people are important for the success of the relationship Reciprocity is important in the relationship We solve problems rather by personal agreements than written contracts Both parties avoid making demands that can seriously damage the interest of the other The partner always keeps its promises

Table AI. The details of nine case companies

The goal of the value system What outcomes are pursued through the network: e.g. increasing the operative efficiency of an established system or creating a completely new business and products? How future-oriented are these outcomes? The structure of the value system How complex is the network comprising actors, activities and resources exchanged? How evolving is the structure of the network? (stable, incremental/radical, emerging) What kind of changes and occurrences exist in network (stable, incremental/radical, emerging)?

Table AII. Themes of value system and social capital used in the study

Ends: Human resource development, organisational learning (Kale et al., 2000; Lane and Lubatkin, 1998) Capability of co-operating, internal fit (Lorsch and Morse, 1974; Lane and Lubatkin, 1998) Capability of managing crisis (Larson, 1992; Volberda, 1998) New product innovations (Calantone et al., 2002) Technological distinctiveness (Taylor, 1911) Ends: Growth, resource acquisition Structure/strategy congruence (Chandler, 1962) Organisation/environment fit (Lawrence and Lorsch, 1967; Brown and Eisenhardt, 1995) Customer-oriented focus (Peters and Warterman, 1982) Knowledge and resource acquisition (Nohria and Garcia-Pont, 1991; Larson, 1992) Enhanced industry reputation, customer trust, market visibility (Larson, 1992; Nahapiet and Ghoshal, 1998; Alvarez and Meyer, 1999) Competitive position (Lawrence and Lorsch, 1967)

Ends: stability, control, congruence of internal processes (Trist and Bamforth, 1951) Protecting core assets (Kale et al., 2000) Efficiency through economies of scale (Sloan, 1963)

Means: Planning and goal setting, product maximisation (Taylor, 1911; Hamel, 1991) Optimal use of resources (Taylor, 1911)

Means: Information management, communication Change management, agility (Townsend, 1970; Lane and Lubatkin, 1998) Order, clear authority and discipline (Fayol, 1949) Quality control (Townsend, 1970) Efficient information processing, communication (Simon, 1947; Koka and Prescott, 2000; McGregor, 1960; Likert, 1967) Documentation of processes (Cooper, 1983)

Means: Flexibility, goal setting Controlled growth of operations (Chandler, 1962; Kazanjian and Drazin, 1990) Control of market uncertainty, implementation of change (Chandler, 1962; Krishnan and Bhattachraya, 2002; Lawrence and Lorsch, 1967; Hagedoorn, 1993)

Means: Cohesion, morale stability and initiative (Fayol, 1949) Motivation, esprit de corps (Fayol, 1949) Employee satisfaction (McGregor, 1960; Fayol, 1949; Likert, 1967) Openness (McGregor, 1960; Likert, 1967)

Ends: Productivity, efficiency, Minimising costs and investments, particularly in core products and technologies (Taylor, 1911; Hagedoorn, 1993) Productivity (McGregor, 1960; Hamel, 1991; Likert, 1967) Return on investment (Taylor, 1911; Sloan, 1963) Profitability (Townsend, 1970) More focused business objects (Sloan, 1963) Sales growth through gaining market power (Sengupta, 1998; Pfeffer and Salancik, 1978)

Rational goal model

Internal process model

Table AIII. Effectiveness variables used in the study Open systems model

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Human relations model

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The complementary relationships of the case companies

1. Position

Position has established first relationships with four potential delivery channels, but they have not succeeded in entering into any agreements. The reasons for the emerging nature of the relationships are to be found in high dominance of potential partners and uncertain value chains in the mobile positioning markets Game has a delivery channel, but the relationship has started to decline because of reorganisations in the partner company. Game is a member of two industry forums aiming at developing new standards and innovations for the mobile industry The company has just recently undersigned a letter of intent with two leading testing tool companies providing delivery channels Video coding has established three OEM agreements with multinational corporations operating in mobile communication industry. The value activities performed jointly in the relationships also include marketing activities. The company is a member of two industry forums aiming at developing technological standards and innovations for mobile industry Marketing has recently made an agreement with a delivery channel located in Switzerland. Because of the short history, the relationship is only in engagement state. Marketing is a member of an industry forum and the object of the relationship is to gain sales growth through gaining market power Messaging has two OEM agreements with global mobile communications companies. The company develops a critical sub-component for the partners’ messaging centre. The activities performed jointly in the relationships also include marketing support when necessary. Messaging has two delivery channels. The company is involved in R&D cooperation with three small software companies, in which R&D activities are performed jointly in the relationship by software developers. The object of the relationships is to develop complementary products and thus to offer customers better quality in terms of broader functionality Engine has a sales partnership with a global company that is one of the world’s leading publishers and distributors of video games Broadcasting has four sales partnerships with global companies. The main partnership involves a global IT company: broadcasting is a member of the Digital Media Factory portfolio, including only 20 selected partners. The other partners deliver, for example, media systems, networked audio devices, computer sound cards, and audio management software. Broadcasting has entered into a contract of R&D cooperation with a global mobile communications company. The nature of the cooperation is highly sophisticated and confidential, and the results of the cooperation will be announced in 2004. Resource has partnerships with three technology suppliers renting extra resources for software development when necessary. Resource has three sales partnerships with three global companies delivering ERP systems. Resource has established R&D cooperation with their key customer. The company also cooperates actively with the other members of the conglomerate

2. Game

3. Test 4. Video coding

5. Marketing

6. Messaging

7. Engine 8. Broadcasting

9. Resource

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Table AIV. The details of network relationships of case companies

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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0309-0566.htm

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Stakeholder relationships in an international retailing context: an investment bank perspective

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Mark Palmer Aston Business School, Aston University, Birmingham, UK, and

Barry Quinn School of Business, Retail and Financial Services, University of Ulster, Coleraine, UK Abstract Purpose – In the stakeholder marketing literature, there have been calls by several researchers to expand the stakeholder domain to incorporate a broader array of stakeholders. In developing this argument in this paper the authors aim to explore a set of stakeholder relationships in an international retailing context, notably those which exist between retail firms and investment banks. Design/methodology/approach – Theoretical ideas are subject to empirical scrutiny from 34 in-depth interviews with investment banks and senior retail executives from two retail multinationals. Findings – Exploratory findings suggest that US investment banks’ ideals were at odds with European retail firms – and both occupied “different thought worlds”. It is concluded that the relationships between financial stakeholders and the retail firm cannot be explained simply by reference to stylised economic interactions, but must also be examined in the light of the cultural contexts and different forms of market system within which different firms emerge, operate and interact. Originality/value – New strategies such as internationalisation stretch resources and capabilities to a point where retailers invariably will be exposed to different stakeholder issues and stresses. Towards this end, this paper contends that the significant international re-orientation under way in retailing must be understood within the wider context of stakeholder theory. The paper argues that the full potential of applying stakeholder marketing theory to the internationalisation process of retailers has yet to be realised. From this exploratory research, five research propositions are put forward that might serve as a guide to future research in this area. Keywords Stakeholder analysis, Investments, Banks, Buyer-seller relationships, Globalization, Retailing Paper type Case study

Introduction The subject of stakeholders has attracted much interest in the mainstream management literature since the mid 1990s (Clarkson, 1995; Rowley, 1997; Kochan and Rubinstein, 2000; Bryson, 2004; Unerman and Bennett, 2004). Overall however, it has been suggested that comparatively less is known about the way in which marketers have integrated stakeholder theory into marketing theory or practice (Polonsky et al., 1999; Jackson, 2001; Maignan and Ferrell, 2004; Greenley et al., 2004). European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 1096-1117 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610743

The authors are grateful to Gordon Greenley, Michael Polonsky and Ken Jones who made many helpful comments on earlier drafts of this paper. This paper has also benefited greatly from the reviewers’ comments and input.

In the stakeholder marketing literature there have been calls by several academics to expand the stakeholder domain to incorporate a broader array of stakeholders (Greenley and Foxall, 1998; Jackson, 2001). In this special issue on stakeholder theory in marketing we attempt to expand and incorporate other stakeholder relationships not least those which are exposed between the retail firm and their financial stakeholders during the process of internationalisation. The stakeholder marketing debate has broadly followed four main themes and these include: (1) the definitional issues of stakeholder constituents (Mitchell et al., 1997; Bunn et al., 2002); (2) the marketing process of addressing multiple stakeholders groups (Greenley and Foxall, 1996, 1997; Polonsky and Ottman, 1998; Mason and Gray, 1999; Polonsky et al., 1999; Greenley et al., 2004); (3) the impact of stakeholder marketing strategy on corporate performance (Polonsky, 1995; Greenley and Foxall, 1998); and (4) the consequences of stakeholder marketing (Fry and Polonsky, 2004). A shortcoming of stakeholder marketing research is that there has been a lack of appreciation of the range of stakeholders with research mainly focusing on two stakeholder groups notably consumers and competitors (Greenley and Foxall, 1998). The resulting theory is narrow or “monistic” (Jackson, 2001) and crucially ignores that each stakeholder group have their own unique set of expectations, needs and values (Freeman, 1984). There has been virtually no discussion of the marketing activities undertaken by both the firm and their financial stakeholders, although most studies identify them as important stakeholders in the literature (Greenley and Foxall, 1997; Mitchell et al., 1997). Where financial stakeholders are examined in the marketing literature, research has focused on the development and operationalisation of economic measures to capture how marketing activities contribute to firm performance (Doyle, 2000; Lukas et al., 2005) rather than distinguishing between the various ways in which firms engage with financial stakeholders and/or how relationships evolve between financial stakeholders and the firm. There is a presumption that financial stakeholders are an undifferentiated group of stakeholders. In the view developed here, we argue that the stakeholder marketing literature has under-specified how firms interact with financial stakeholders in practice. Our aim, therefore, is to provide a deeper understanding of financial stakeholders by exploring the specific attitudes of investment banks – mediated through analysts and “advisors” – in relation to their relationships with retail firms during the process of internationalisation. Within the context of the retail firm there is limited recognition of how new or abandoned strategies such as internationalisation, global product sourcing, outsourced distribution systems and internet shopping expose retailers to different stakeholder issues and stresses (Murphy, 2001; Coe, 2004). The recent critiques of Wrigley (2000), Burt and Sparks (2001) and Dawson (2001) also suggest that retail internationalisation conceptualisations do not incorporate an explanation for the interaction with

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institutional finance and other social, spatial and cultural issues. The dissatisfaction with existing conceptualisations of the retail internationalisation process suggests that further theoretical inquiry would add to a new perspective for reinterpreting the existing literature on retail internationalisation. We aim to use three specific questions to develop an argument for an expanded agenda of international retailing stakeholder studies: (1) How do investment banks influence international retail strategy? (2) To what extent do such relations change over the period of the international strategy? (3) Why do changes occur over the period of the international strategy? The paper begins by briefly setting the context for the growing importance of retail internationalisation and the contributions of a stakeholder approach to retail internationalisation. This is followed by a discussion of the case for exploring the relationships between the retail firm and investment banks. The research methodology is then outlined, followed by the study’s exploratory findings. Given the exploratory nature of this research, the discussion section puts forward five research propositions from the key findings, along with some conclusions and implications for further research. The context of the study For many large-scale retail firms – not least the world’s largest corporation, Wal-Mart – internationalisation has emerged as a key strategy for many retailers over the last ten years or so (Burt and Sparks, 2001; Fernie and Arnold, 2002). One very obvious and visible sign of this process is the high level of international retail merger and acquisition activity. In the fiscal period between 1995 and 2000, for example, an estimated US$54,985 billion worth of international retailing merger and acquisition transactions took place (Palmer and Quinn, 2003). The scale and scope of this activity has invariably led to more academic interest in the subject (Alexander and Doherty, 2000; Wrigley, 2002). This literature has primarily been concerned with measuring the growth in international actions (Davies and Fergusson, 1995; Godley and Fletcher, 2000), explaining the motivations that lie behind international activity (Alexander, 1990; Williams, 1992), plotting the psychic distance of retail markets (Evans et al., 2000; Evans and Mavondo, 2002) and reflecting individual retailer experiences (Sparks, 1995, 2000). Overall much of the international activity of retailers has been theorised in terms of progression and growth (Doherty, 2000; Fernie and Arnold, 2002), with more recent work stressing the role of retrenchment and divestment (Alexander and Quinn, 2002; Mellahi et al., 2002; Palmer, 2004). What appears to be emerging from this dichotomy in the literature is an overwhelming emphasis on the process of internationalisation. Much less considered are the stakeholder groups – which directly and indirectly influence the strategic decision-making process – that interact with retailers during this internationalisation process (Clarke and Rimmer, 1997). Some recent work in the broader area of retailing seems to suggest that this may be changing (Whysall, 2000a,b; Arnold and Luthra, 2000; Murphy, 2001). Whysall (2000b) felt that the literature on retailing had been “potentially constraining . . . and that the stakeholder

model may represent an alternative conceptual framework for addressing retailing issues”. Some research work has considered individual stakeholders in the retailing literature. Research has considered the evolution of power and how the enhanced power of large retailers had several consequences for supplier relationships (Shackleton, 1998; Hughes, 2001), and significant implications for local communities in terms of consumer choice (Hallsworth and Clarke, 2001; Hallsworth and Evers, 2002). The initiation of the divestment decision at a later point in the process can also have a different effect, possibly introducing a different set of imbalances between the internationalising retailer and various stakeholder groups. Indeed, Marks & Spencer’s withdrawal from France during April/May 2001 highlighted, in the starkest of ways, that the firm’s stakeholders in the “host” market (local) may have different priorities than those stakeholders in the domestic market. What is lacking from these research studies, however, is a unified or overarching framework to research that can satisfactorily accommodate the notion that various groups or stakeholders interact with retailers during the retail internationalisation process. This study therefore seeks to build on stakeholder theory in the international retail marketing literature. We propose three different conceptual challenges that internationalisation poses for international retail research and why stakeholder theory is more useful for understanding retail internationalisation. First, Dawson (2000) has pointed to the increasing role of outsourcing in international retailing, which has resulted in many more stakeholders being involved in the internationalisation process. It is reasonable to expect that outsourced activities are increasingly shaping stakeholder relationships. Second, the body of knowledge on the international retailing area is framed, for the most part, in descriptive accounts of the scale and scope of international activity, rather than any real understanding of the relationships involved and the nature of retailer decision-making (Palmer and Quinn, 2003). It is argued that studies which primarily focus on the firm as the sole level of analysis rather than the processes surrounding strategic decisions may be potentially constraining (Clarke and Rimmer, 1997). Finally, a broad perspective may be necessary so that these parameters can be used to raise a new set of more detailed priorities for research on retailer internationalisation (Clarke and Rimmer, 1997; Burt and Sparks, 2001) and incorporating a wider conceptual lens such as a stakeholder framework would potentially promote wider consideration of international retail relationship issues. Financial stakeholders Up to this point, we have discussed the ways in which international retail strategies may expose retail firms to new stakeholders. In this section, we discuss how financial stakeholders are portrayed in the literature. Initially, we adopt the structure and spirit of Freeman’s (1984) definition in order to interpret and understand the multiple relationships between financial stakeholders and the retail firm. Freeman’s (1984) stakeholder theory is based on the principle that the organisation takes into account all of those groups and individuals that can affect, or be affected by, the accomplishment of the organisational purpose. Applying this view allows us to expand the stakeholder domain and incorporate the various ways in which retail firms engage with financial stakeholders.

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The economic and finance literatures have considered financial stakeholder relationships largely from a narrow governance perspective – which deals with the separation of ownership and control, and the ways in which the suppliers of finance (i.e. the investment banks) assure themselves of getting a return on their investment (Sundaram and Inkpen, 2004). Recently a number of stakeholder theorists have criticised this literature for positioning shareholders as separate from stakeholders (see Freeman et al., 2004). Within the economic and finance literatures, financial stakeholders are studied from a transaction cost and agency theory perspective which focuses on the “proper” construction of impersonal contracts to bring the agent’s interests in line with the principal’s (Jensen and Meckling, 1976; Charkham, 1994; Monks and Minow, 1995; MacLean, 1999; La Porta et al., 2000). Much of this research tends to focus on the aggregated market as the primary (and often sole) level of analysis. However, financial measures fail to consider all of the approaches that financial stakeholders may evaluate outcomes (Fry and Polonsky, 2004). Moreover, Freeman et al.(2004) argue that a purely economic case cannot possibility do justice to the panoply of human activity of stakeholder business relationships and the contexts involved. It is acknowledged that firms also manage or manipulate the number and intensity of market ties or relations with other firms in less obvious ways, directly selecting the configuration of relations that (they believe) will yield desired results (Baker, 1990). Relationships between retail multinationals and financial stakeholders must therefore be considered to be socially constructed, like any other type of inter-organisational relations, rather than some undifferentiated, atomistic mass (Baker, 1990; Gedajlovic et al., 2004; Marchington and Vincent, 2004; Zahra and Filatotchev, 2004). Some progress has been made in considering the role of financial stakeholders in retailing, although most studies borrow the narrow conceptualisations of governance from the fields of economics and finance (see Hutchinson and Hunter, 1995; Cotter and Hutchinson, 1998; Wrigley, 1998). In opening up the debate, Burt (1989) highlighted that one feature of the retail sector in Europe towards the end of the 1980s was the trend away from family controlled enterprises to public corporations. This shift, and the resultant increase in external investment within retailing, whether in the form of share ownership or loan arrangements, created new pressures for corporate growth by virtue of creating a new body of stakeholders in the company. A decade later, Dawson (2000) confirmed Burt’s early observations placing these changes within the context of the broader corporate balance between the internalisation and externalisation of functions in the evolving patterns of structure and competition in retailing. The research work of Hutchinson and Hunter (1995) and Cotter and Hutchinson (1998) studied the economic consequences of retail-financial stakeholder decisions without really exploring the perceptions of the investment banks and those who shape these perceptions in various ways. Wrigley (1998) observed the controlling behaviour of investment banks during the leverage buy-out (LBO) wave in US retailing during the 1990s. Apart from these studies, there has been little consideration of the implications of the wider financial stakeholders and in the retail internationalisation process. Developing this theme, we argue that it is important to recognise that multiple relationships exist between financial stakeholders and firms (see Table I). What is clear from this research is that the relationships between firms and investment banks – and

Financial stakeholders

Description

Investment bankers (advisors)

Investment banks have a relatively low public profile, but significantly occupy a central position within the financial operating system. Investment banks act as intermediaries or advisors in merger and acquisitions, bid defences and divestment strategies of firms. Investment banks will also advise management on financial strategy and on the most appropriate ways of funding growth. Several investment banks usually form a syndicate to provide financing for a firm or they may work together on merger and acquisition activity. This situation creates ties between banks which adds to the complexity of the relationships within the environment (Palmer and Sparks, 2004) Analysts (sometimes referred to as sell-side analysts) study companies and generate forecasts on the back of assessing a company’s strategic strengths and weaknesses within the context of market structure, competition changes and dynamics in the marketplace. Ultimately, based on this evaluation analysts issue advice to potential investors to increase (buy), reduce (sell), or hold their financial investment in the company and sector. They are also an important link between professionals in the financial markets and the financial press Portfolio or fund managers work for investment funds which include public and union pension funds, mutual funds, investment bankers, insurance companies, private companies and make investment recommendations or decisions for these clients. The amount of equity owned by institutional investors has increased dramatically in recent years (Hawley and Williams, 1996), but perhaps more significantly, investment banks have become the largest institutional shareholder in firms. Institutional shareholders are therefore intimately bound up with the investment banks The brokerage function manages the flow of capital from those who have it (investors) to those who need it (issuers) (i.e. brokerage houses buy and sell shares). A firm will usually appoint a “house broker” in order to act as a “go-between” for managers and other investors. Viewpoints may be exchanged via brokers from investment institutions or fund manger concerning nature of the firm’s strategy. Messages can also be amplified by briefing the press via analysts or directly

Analysts

Investment institutions or fund managers

Brokers

mediated through analysts and “advisors” – are under-specified and under-researched (Treadgold, 1991; Sparks, 1996). Within the stakeholder marketing literature, there is little research on how such stakeholders influence firms, together with how firm-stakeholder relationships evolve during the internationalisation process (Polonsky et al., 2002). There is therefore a need to extend our understanding of financial stakeholder issues beyond the narrow confines of economic and finance perspectives to include contextual stakeholder marketing issues. Research method Given the paucity of research studies examining the role of investment banks as an important stakeholder during the retail internationalisation process, this study

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Table I. Financial stakeholders

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employed an interpretative, qualitative-based methodology where the main data collection method was a series of in-depth interviews. The methodology was designed to allow the researcher to explore and build thick descriptions of the nature of stakeholder relationships in order to develop a number of research propositions. Thirty interviews were carried out within the corporate finance (i.e. with advisors) and the securities divisions (i.e. with analysts) of the investment banks. These data were used to raise important issues directly with the executives of the retail firms during 1999 and 2000. Four additional interviews were conducted with senior retail executives of two retail multinationals – Tesco and Ahold, located within the firm’s headquarters (A brief overview of the retail examples cited in the findings section is included in the Appendix). The research used two separate interview protocols for the interviews with the retail multinationals and the investment banks. It was decided to make the interviews unstructured and then revolve them into a semi-structured format as more insights were gathered (Burgess, 1982). The interviews sought to explore two key areas: first, the investment banks’ perceptions of their involvement as a stakeholder in the internationalisation process of retailers and; secondly, the investment banks’ attitudes towards how their relationships evolved with retail firms during the internationalisation process. Total interview time with the investment banks and the retail executives ranged between 40 and 180 minutes in length. All of the interviews were conducted and tape-recorded by one of the authors and the grounding process started with the interviews. Data collection and analysis were therefore simultaneous. The analysis was guided by Huberman and Miles (1994) framework of qualitative data analysis and this analysis was deepened by the triangulation method in order to confirm, corroborate and cross-validate the data collection, analysis and interpretation (Carson et al., 2001). Attention was given to planning the interviews so that the interviewees did not simply reiterate the positive “official corporate line” or use the interview as another way of “talking up the company’s stock” (Francis and Philbrick, 1993; Sparks, 1996; Palmer and Sparks, 2004). The results from the in-depth interviews are excerpted extensively throughout the findings section in order to illuminate and contextualise relevant themes. The key themes from the findings are discussed in the section that now follows. For obvious disclosure reasons, neither the identity of the analyst or advisor, nor the identity of the investment bank will be disclosed during the remainder of this paper. Findings The findings are presented in the following order. The first section identifies areas where disparities exist between investment banks and retailers. The second section explores the dynamics of the relations between retail multinationals and investment banks during the internationalisation process. The final section reports on specific tensions in the relationships between financial stakeholders and the retail multinationals. Investment banking systems versus retail firm legacies According to all of the interviewees, US investment banks’ ideals were at odds with European retail firms – and both occupied “different thought worlds”.

Divergent cultures. In global market terms, consolidation activity during the 1990s in the financial services sector has had a significant impact on the whole investment banking landscape. With US investment banks dominating, the 1990s witnessed US-led investment banks transferring a distinct entrepreneurial corporate culture, an aggressive style of management and ways of doing things almost holistically to traditional UK investment banks. The resulting level of aggression was widely cited in the interviews as an explanation for the initiation of international retail acquisition activity, with US investment banks seeking to directly influence and intensely challenge firm decisions about where and in what ways to interact with the retail marketplace. Divergent human resources capacities and outlooks. A large part of investment banks dominance is reflected in the number of human resources at their disposal to develop future business opportunities. By virtue of high salaries and additional benefits, investment banks have been able to attract more qualified and experienced executives. In stark contrast, the interviewees highlighted human resource shortages for both experienced retail internationalists and those expanding into new markets for the first time. Typically, retail executives have emerged from internal promotions and benefited from a “bottom-up” holistic view of the business. By contrast, investment bankers are chosen for their financial acumen rather than their technical expertise of the retail industry. Divergent risk values. The contemporary orientation of US investment banks is high short-term goals which are less oriented towards the corporate position in the long-term. These goals are met in a variety of ways including, achieving quarterly growth estimates, comparable sales measures and market share performance. However, the retail interviewees widely acknowledged that retail expansion into new formats and markets requires a long-term resource commitment. Retail decision-makers also acknowledged that some international retail investments were based on a combination of hunch, intuitive “gut feel” judgments and opportunism. The evidence suggests that a disparity in views exists between how retailers perceive the risks associated with international expansion and how they were perceived by investment banks. Overall, however, analysts felt that those responsible for leading retail multinationals were moving away from “merchant-retail-entrepreneurs” and towards “merchant-banking-financiers”, creating immensely strong countervailing forces driven by “financial engineering levers” during the retail internationalisation process. For example, in April 2002 Ahold opened a financial centre in Geneva, Switzerland. The new centre included the company’s Treasury and Corporate Finance Department, and solely focused on inter-company financing, European “cash pooling” and centralised payment procedures for internationalisation. With particular reference to examples of multinational retailer activity, the next section will examine how financial stakeholder relationships evolved during the internationalisation process and what drives financial stakeholders to challenge retail multinationals. Financial stakeholder relations during the retail internationalisation process A feature of the relationships between retail multinationals and their financial stakeholders is the varying degrees of support and tension arising from the process of

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internationalisation. This is evident in the leading Dutch supermarket retailer, Ahold.. During the 1990s, there was widespread enthusiasm for Ahold’s international expansion, vision and strategy, and company executives suggested as much: The underwriters for the issues that have participated have made a lot of money. To go to the financial markets takes a lot of work and we realise that we are dependent on getting the fundamentals right. All our rights issues were over subscribed. What this tells you is that what we have is very attractive in terms of returns, our vision and strategy.

Yet several analysts were less confident of the prospects of the company’s international operations towards the late 1990s: Until mid 1999 Ahold was viewed as a serious contender for global leadership in food retailing. Wal-Mart’s acquisition of Asda in the UK and the merger of Carrefour and Promodes in France gave the impression that both of these groups had dramatically widened the lead in the race for global leadership. Ahold’s subsequent underperformance has been so substantial that the time is ripe to question whether the company is indeed so strategically challenged.

It was also evident from the analysts’ comments that increasingly the support for the company’s expansion began to wane because of the pace of the international expansion: Ahold is acquiring businesses so fast that I don’t think they are getting them fully integrated. Therefore, as a result of their aggressive assault on international markets, they buy from time to time poor assets.

This evidence provided little room for doubt of the trouble around the corner for Ahold. A period of intense pressure led the company to divest several small peripheral operations in order to project a more re-aligned and focused position. The analysts’ impatience was to be replaced by uncertainty and later replaced with widespread negative sentiment particularly in respect to Ahold’s international accounting practices as this analyst explains: An inherent weakness in Ahold’s international growth strategy is that it is considerably less industrial, that is to say, less attention is given to organic (store-by-store) expansion as the multinational is more concerned with integration and thereafter maintaining earnings growth. What Ahold achieves is the growth rate but they never get the returns. So when we [analysts] question this, they start cutting back the loss making operations so their growth rate looks even better. It’s really a financial engineering package which is helped by the Dutch tax situation.

Another example is that of the UK’s largest supermarket retailer Tesco. Tesco’s initial entry into Ireland seemed to be largely overlooked by their financial stakeholders, at least at first. During a period of relatively small and cautious expansion initiatives by retailers, global investment banks were gradually adopting a greater acceptance of internationalisation for the retail sector. After the entry into the French market by Tesco, the question from the analysts then became how rapid the firm should expand internationally, rather than whether or not they should actually internationalise. In terms of Tesco’s further international expansion in Europe, analysts at first heavily criticised the company’s international strategy because they were neither an experienced hypermarket operator nor a non-food operator and these areas would

represent a major component of their international investment. However, as one analyst explained, once Tesco brought analysts out to Central Europe to visit their stores, it changed many of their opinions:

Stakeholder relationships

We now feel much more assured that the company’s cashflow is being invested in a format and a region which could, one day, generate comparable returns to those of the UK business.

In this case, more effective communications ensured that the international expansion programme was reasonably understood and favourably received by the analyst community – an aggressive and ambitious expansion programme that could easily have been negatively received by investors due to the high level of financial leverage involved. This involvement also led to a better understanding by investment banks of the Tesco’s strategic direction. Tesco had learned to work more closely with the investment banks. Managing retailer-investment bank relationships Given the importance of financial stakeholder confidence, the question of how retail multinationals strive to cope with managing the analysts’ expectations, among various other stakeholder groups, raises legitimate stakeholder marketing relationship issues. The evidence suggests that it is critical that the financial stakeholders understand the retail multinational’s international plans. However, the general perception amongst the analysts was that several international retail acquisitions had been poorly communicated to them (see Table II for an overview of the financial stakeholders’ perceptions). These perceptions revealed that the financial stakeholder relationships often become critically strained as a result of “ineffectual stakeholder communication”. Sources of tension specifically stem from a lack of clarity and verification with respect to market contingencies and exit processes, expected levels of international retail synergies and international risks in emerging markets. Beyond these examples, several analysts cited issues concerning the provision and reporting of adequate accounting information. We found that several retail multinationals continue to provide a breakdown of financial information on geographical zones, rather than specific countries. For example, the French hypermarket retailer Carrefour has refrained from divulging the breakdown of “other” countries’ financial data, despite the fact that this sub-section now includes 16 countries with sales contributing 10 per cent of the group total and total capital employed equating to 19 per cent of Carrefour’s assets in 1999. During the early 1990s, several commentators also questioned the accounting policies of retail firms (see Hallsworth, 1992; Wrigley, 1992). Since then, according to the analysts, retail multinationals have undertaken significant changes in the reporting of their international operations (albeit slowly) during the course of internationalisation. Unfortunately, fundamental disparities still remain in many of the procedures and processes, with internationalisation compounding many of these reporting anomalies. Discussion and research propositions Based on our findings and the associated analysis of the investment banks as important stakeholders, we offer five research propositions to be tested in the future. While the data collected do not allow us to generalise about the nature of financial

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Retail multinational CarrefourPromode`s merger in France

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Wal-Mart’s acquisitions in the German market

Delhaize’s acquisition of Hannafords in the USA

Carrefour

Table II. Retailer-investment bank relationships

Financial stakeholder perceptions “The market was particularly rattled by Carrefour’s volte-face at the March 2000 AGM regarding reinvestment of merger synergies. Having confidently announced at the time of the Promode`s merger six months earlier that there was no need for significant price re-investment, management’s decision to re-invest an unspecified amount into lower prices caused understandable concern” “The financial community made a ‘big issue’ out of Wal-Mart’s German expansion. But they didn’t...tell investors how they were going to get out of a disastrous entry. Now that there is clearly a strategy of getting out, analysts are still annoyed. It’s all backward- and not forward-looking.” “By management’s candid admission, the positive points were poorly communicated to the investment community. This was one of the key reasons that Delhaize America stock fell 35 per cent following the announcement of the acquisition. Management did not state – even in response to direct questions from analysts – the key positives” “Investors can no longer put to one side the very sizeable amount of capital being invested in ‘other’ countries – the vast bulk of which are in emerging economies. Given that the market risk profile attached to the valuation of these assets is significantly higher than for Carrefour’s European assets, it becomes clear that the returns from these investments currently need to be made higher in order to cover the higher cost of capital”

Financial stakeholder expectations International retail synergies

Market contingencies and exit processes

International retail synergies

International risks in emerging markets

stakeholder relationships in the international retail sector as a whole, it has highlighted through the retail examples that investment banks, and those representing them – the analysts and advisors – are very influential parties in shaping, promoting or constraining preferences during the internationalisation process. The support of financial stakeholders is critical because it will impact the availability and cost of capital for international expansion. These outcomes in turn will influence aspects of a retailer’s strategy including the direction of international retail operations and the momentum of this expansion as well as the dynamics and relationships between the firm’s stakeholders. Retail firms can lesson the impact of such forces by relationship building measures through stakeholder marketing. Previous research by Housten and James (2001) indirectly supports this argument. Housten and James (2001) found that a close investment banking relationship lowers the cost of external funding for projects in which exclusive reliance on bank financing is feasible. P 1.

Retail firm-investment bank relationships are culturally determined processes.

This study suggests that stakeholder marketing theory must appreciate the fundamental role that stakeholder culture plays in influencing the relationships between financial stakeholders and retail firms. While much of the existing literature is obsessed with viewing stakeholders largely from the firm’s vantage point (Frooman, 1999), this study suggests that the culture of the financial stakeholders may have a significant bearing on the firm. On the surface, it seems that for retail multinationals such as Tesco, an initial cautionary approach towards internationalisation was attributable to restraints or control placed on the company by investment banks’ expectations regarding domestic market expansion opportunities. At another level, however, it may be argued that it is a result of deeply-rooted cultural differences endemic in specific corporate and national cultures, with the identities of US-led investment banks and European retailers colliding and contending for supremacy. We believe that richer insights can only be achieved when the deep-rooted cultural and historical legacies of retail firms and investment banks are recognised as partially, but dynamically, integral to relationship development. It perhaps explains why investment banks do not fully appreciate the complexities of retailing or what a retailer such as Tesco could contribute to retailing in other markets. This reasoning also sits well with the financial acumen of investment bankers rather than their knowledge of international retailing issues. There is therefore a vast chasm that separates the ethos and culture of an investment banker from a retailer. Exploring the culturally embedded attitudes of each stakeholder group remains an important challenge for stakeholder marketing theory: P 2.

Retail firm-investment bank relationships are shaped by the level of inter-functional cooperation.

This study also highlights that stakeholder marketing theory has perhaps not fully appreciated the diverse range of destabilising issues or tensions that undermine stakeholder relationships. To purposefully engage with financial stakeholders, we argue, requires an understanding of what drives investment banks to challenge retail multinationals for explanations of action. This requires inter-functional cooperation and a willingness to undertake relationship building activity in order to elicit stakeholder needs. However, research has shown that marketers have generally made the mistake of seeing the subject of marketing as a functional discipline (Doyle, 1995; Deshpande´, 1999). This may partially explain why international retail firms have been reluctant to tailor their marketing relationship efforts to encompass cross-functional teams (for example, marketing and investor relations), and as a consequence, this has arguably left them misunderstood and underrated by the investment banks. Previous research by Moss et al. (1996) supports this argument. They concluded that retailers did not strategically manage their marketing activities. Furthermore, within the context of international retail expansion in Europe, Alexander (1997) even contended that retailers have lacked systematic internal processes to support their decisions with respect to appropriate host market strategies: P 3.

Retail firm-investment bank relationships are positively shaped by purposeful stakeholder relationship building action.

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To engage purposefully with financial stakeholders, we argue, requires an eagerness to pursue relationship opportunities in the absent of environmental threats or poor international performance. The exploratory research findings suggest that few retail multinationals had been “sufficiently eager” or responsive to manage and take cognisance of investment banks’ requirements. A lack of communication was evident in Tesco’s actions during the early phase of internationalisation. It is revealing that Tesco’s management only started to engage with investment banks after realising that they had become increasingly marginalised in the acquisition-driven consolidation process. Ahold too had come under intense scrutiny regarding the reporting of international results. Many analysts felt that Ahold was leaving items undisclosed when presenting their financial results. This led the company to issue a press release to quash the negative rumours emerging about the firm. To varying degrees, there has been a lack of proactive stakeholder relationship marketing building measures. This mistake may not be as unique as this study suggests however. Duncan and Moriarty(1998) and Polonsky et al.(2002) suggest that communication is the initial platform for relationship building, although the relationship marketing literature has been strangely divorced from debating this issue. Quite why retail multinationals did not address the concerns, problems and questions of the investment banks in an ongoing manner remains unclear. It seems that to attract external investment for international expansion requires regular and meaningful marketing communication between the retail multinational and the investment banks, demonstrating clear evidence of how the retail multinational’s strategic global vision and competing operating model will succeed in different cultures and difficult competitive contexts. Moreover, the evidence from this study adds weight to the debate regarding the breadth of Freeman’s (1984) stakeholder definition (see Maltby and Wilkinson, 1998). This study underlines the practicalities of operationalising the multiplicity of individuals included in Freeman’s (1984) stakeholder definition, and whether or not it is (un)likely to lead to direct involvement and purposeful stakeholder relationship building action by firms. Initial findings show that, at least as far as the analysts were concerned, the retail multinationals appear to treat their relationships predominantly as a tactical publicity function: P 4.

Investment banks’ control of the international retail strategy is related to the level of market turbulence.

In order to understand financial stakeholder behaviour, it is important to understand the level of market turbulence. From the mid-1990s onwards the dynamics between the investment banks and retailers changed. Effectively all aspects of the UK investment banking sector had undergone significant restructuring. At the same time retailing had undergone an intense international metamorphosis. Retailers came under intense pressures from investment banks to internationalise; to increase the scale and scope of international store operations. These exploratory findings suggest that much of the adoption of international retail strategies has been the result of ideas and knowledge introduced by investment bankers. While retail executives can clearly be identified as an important “stimulator” of the decision-making process, the initiating and legitimating processes of international change appears be driven, for the most part,

by the investment banks through the persuasive behaviour of the analysts and advisors. It is also apparent from the findings that their involvement is much more than just an advisory capacity for the benefit of the retail firm – it is promoting fee-driven revenue for the investment bank and for the analysts and advisors themselves. This evidence therefore adds weight to the argument for understanding the (unintended) consequences of stakeholder involvement (Frooman, 1999; Fry and Polonsky, 2004). The full extent of the consequences of financial stakeholder involvement in international retailing and whether this will ultimately be negative or positive remain to be seen. As far as Ahold is concerned however, the pace of their expansion appears to have been an ill-conceived strategic move (Palmer and Sparks, 2004). This work therefore raises the question for stakeholder marketing theory of how stakeholder influence can change during the different phases of the firm’s lifecycle (i.e. during the internationalisation process). In other words, how much influence should any stakeholder have at different points in the firm’s development? P 5.

Investment banks’ control of international retail strategy is related to international retail experience.

We contend that it is vital that theory recognises that stakeholder activities are moderated by variations in corporate experience. A retailer establishing international operations for the first time may have different stakeholder priorities than a retailer withdrawing from international markets. Such differences tend to be underestimated in the stakeholder marketing literature. At the time of this study, a fundamental difference exists between the retail multinationals under investigation; changes occurring at Tesco related to the start of relatively new and embryonic international processes, while the ones at Ahold related to changes in relatively mature international processes. At Tesco, the early years of establishing international operations were periods when members of the company were learning how to undertake tasks they had never done before within an international context. Tesco have been relatively slow in recognising the strategic importance of international diversification. The spatial outcome of their relatively slow international beginnings has been a much more aggressive and ambitious international retail expansion programme. Inexperienced retail internationalists may therefore be particularly reliant on the investment banks for services and sources of knowledge and learning. It is proposed that inexperienced internationalists embarking on expansion into new markets may rely more on investment banks for international know-how than the more experienced multinationals who accumulated this propriety know-how from operating internationally over a longer period. While it is also true to say that even though more experienced retail multinationals are less reluctant to outsource activities, management are frequently encouraged to relinquish control in order to secure finance for international growth strategies. This proposition also suggests that experience encourages a proactive or at least a more active position from the internationalising retail firm in terms of their ability to deal with the pressures of investment banks – and those representing them – the advisors and analysts. Analysts’ views undoubtedly help to shape and affect the confidence of the international retailer. Disruptive relationships can easily influence

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other stakeholders which in turn undermine confidence in the firm. One way of reducing the influence of antagonistic stakeholders with negative attitudes towards the retailers’ international activities might be to explore the level of acceptance of internationalisation among the analysts and not just how the wider international retail environment affects or constrains the firm at the early stage of internationalisation. This view is also consistent with earlier research which emphasised the critical importance of relationship building measures, particularly where substantial financial resources are required to fund international growth (Wrigley, 2000).

Conclusions and further research directions While the stakeholder marketing literature identified the financial institutions/investment banks as an important stakeholder, there has been comparatively little research into this stakeholder in the retail marketing literature. This paper attempted to apply stakeholder theory as a suitable framework for addressing the changing dynamics and involvement of stakeholders in a new international retail setting. New strategies such as internationalisation stretch resources and capabilities to a point where retailers invariably will be exposed to different stakeholder issues and stresses. Towards this end, this paper has argued that the significant international re-orientation under way in retailing must be understood within the wider context of stakeholder theory. Stakeholder marketing theory has the potential to improve our understanding of the relationships between retail multinationals and investment banks – and how they might be managed effectively. It is concluded that the relationships between financial stakeholders and the retail firm cannot be explained simply by reference to stylised economic interactions, but must also be examined in the light of the cultural contexts and different forms of market system within which different firms emerge, operate and interact. Such legacies may partially explain the recent shift from public to private equity status by several British retailers. By way of illustration, Oasis, The Acadia Group, Debenhams, Harvey Nichols, Littlewoods and Selfridges have all made the reverse transition from public to private status after struggling with managing financial stakeholder relationships. In this respect, it is important to understand how financial stakeholder relationships evolve during different phases of the firm’s development cycle. While financing decisions are indeed important during the retail internationalisation process, there are other stakeholders at play as well. In order to illustrate the advantages that may be derived from further application of stakeholder theory in international retailing, we discuss some of the areas where a stakeholder lens could be beneficial. Table III suggests that there is a wide range of stakeholder groups surrounding international investment decisions which contribute to the presence of conflicting interests and tensions behind retailer internationalisation. The questions outlined in Table III are important and timely future research areas. Tackling these questions would extend the retail marketing debate which hitherto has focused on the internationalisation of retail operations.

Stakeholder group

International retailing issues

Customers

Are international customers exploited by currency differences? Do customers with extended warranties need protection against international retail withdrawal? How do customers protect themselves against international retail withdrawal? Is power legitimately exercised by the international retailer in the supply chain? Do national, regional and international supply chains facilitate retail market entry? Does the international retailer support local suppliers? Could the sourcing policy of the international lead to political boycotting of the stores? How do suppliers protect themselves against international retail withdrawal? Do incumbents erect barriers to entry for entrants? Do incumbents/new entrants sell below cost? How do host governments facilitate international store development? How do host governments prohibit international store development? What is the attitude of investment banks towards the retailer’s domestic business? What is the attitude of investment banks towards internationalisation? How have these relationships changed over time? How do distribution/haulage companies impact the environment? What is the input of management consultants in facilitating international expansion? What is the input of property consultants in facilitating international expansion? What is the level of union representation in different international markets? What is the “quality” of work differences between the domestic and host retail markets in terms of wage and benefit levels, job permanency/security, health and safety regulation, full-time/part-time status and training? What are the differences in property policies in different countries? What form do retailer relationships take with the community? Is the international retailer a supporter of local causes? What position does the international retailer adopt in relation to disadvantaged groups with respect to access for the disabled and credit facilities? What is the impact of local activists such as town planners, civic societies and eco-warriors on the retailers’ expansion plans?

Suppliers

Competitors Government Financial community

Service providers

Employees

Landlords Community

Activists

Source: Adapted from Whysall (2000)

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Table III. Stakeholders’ issues in an international retail setting

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Monks, R.A.G. and Minow, N. (1995), Corporate Governance, Blackwell, Cambridge, MA. Moss, D., Warnaby, G. and Thame, L. (1996), “Tactical publicity or strategic relationship management? An exploratory investigation of the role of public relations in the UK retail sector”, European Journal of Marketing, Vol. 30 No. 12, pp. 69-84. Murphy, A. (2001), “The emergence of online food retailing: a stakeholder perspective”, Journal of Economic and Social Geography, Vol. 93 No. 1, pp. 47-61. Palmer, M. (2004), “International retail restructuring and divestment: the experience of Tesco”, Journal of Marketing Management, Vol. 20 No. 10, pp. 1075-105. Palmer, M. and Quinn, B. (2003), “The strategic role of investment banks in the retail internationalisation process: is this venture marketing?”, European Journal of Marketing, Vol. 37 No. 10, pp. 1391-408. Palmer, M. and Sparks, L. (2004), “Investment bank analysts and retail research”, Environment and Planning A, Vol. 39 No. 9, pp. 1521-8. Polonsky, M.J. (1995), “A stakeholder theory approach to designing environmental marketing strategy”, Journal of Business & Industrial Marketing, Vol. 10 No. 3, pp. 29-46. Polonsky, M.J. and Ottman, J. (1998), “Stakeholder contribution to green product development process”, Journal of Marketing Management, Vol. 14 No. 3, pp. 29-46. Polonsky, M.J., Schuppisser, S. and Beldona, S. (2002), “A stakeholder perspective for analyzing marketing relationships”, Journal of Market-Focused Management, Vol. 5 No. 2, pp. 109-26. Polonsky, M.J., Suchard, H.T. and Scott, D.R. (1999), “The incorporation of an interactive external environment: an extended model of marketing relationships”, Journal of Strategic Marketing, Vol. 7, pp. 41-55. Rowley, T.J. (1997), “Moving beyond dyadic ties: a network theory of stakeholder influences”, Academy of Management Review, Vol. 22, pp. 887-910. Shackleton, R. (1998), “Exploring corporate culture and strategy: Sainsbury at home and abroad during the early to mid-1990s”, Environment and Planning A, Vol. 30, pp. 921-40. Sparks, L. (1995), “Reciprocal retail internationalisation: the Southland Corporation, Ito-Yokado and 7-Eleven convenience stores”, Service Industries Journal, Vol. 15 No. 4, pp. 57-96. Sparks, L. (1996), “Investment recommendations and commercial reality in Scottish grocery retailing”, Service Industries Journal, Vol. 16, pp. 165-90. Sparks, L. (2000), “7-Eleven Japan and the Southland Corporation: a marriage of convenience?”, International Marketing Review, Vol. 17 Nos 4/5, pp. 401-15. Sundaram, A. and Inkpen, A. (2004), “The corporate objective revisited”, Organizational Science, Vol. 15 No. 3, pp. 350-63. Treadgold, A. (1991), A City View of Retail, Longman, Oxford. Unerman, J. and Bennett, M. (2004), “Increased stakeholder dialogue and the internet: towards greater corporate accountability or reinforcing capitalist hegemony?”, Accounting, Organizations and Society, Vol. 29, pp. 685-707. Whysall, P. (2000a), “Stakeholder mismanagement in retailing: a British perspective”, Journal of Business Ethics, Vol. 23 No. 1, pp. 19-28. Whysall, P. (2000b), “Addressing ethical issues in retailing: a stakeholder perspective”, International Review of Retail, Distribution and Consumer Research, Vol. 10 No. 3, pp. 305-18. Williams, D.E. (1992), “Retailer internationalisation: an empirical inquiry”, European Journal of Marketing, Vol. 26 Nos 8/9, pp. 8-29.

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Wrigley, N. (1992), “Antitrust regulation and the restructuring of grocery retailing in Britain and the USA”, Environment and Planning A, Vol. 24, pp. 727-49. Wrigley, N. (1998), “Corporate finance, leveraged restructuring and the economic landscape: the LBO wave in US food retailing”, in Martin, R. (Ed.), Money and the Space Economy, John Wiley & Sons, Chichester. Wrigley, N. (2000), “Strategic market behaviour in the internationalisation of food retailing: interpreting the third wave of Sainsbury’s US diversification”, European Journal of Marketing, Vol. 34 No. 8, pp. 891-918. Wrigley, N. (2002), “Transforming the corporate landscape of US food retailing: market power, financial re-engineering and regulation”, Journal of Economic and Social Geography, Vol. 93 No. 1, pp. 62-82. Zahra, S.S. and Filatotchev, I. (2004), “Governance of the entrepreneurial threshold firm: a knowledge-based perspective”, Journal of Management Studies, Vol. 41 No. 5, pp. 885-97. Further reading Yin, R.K. (1994), Case Study Research: Design and Methods, Sage, Newbury Park, CA. Appendix. Background of international retailers Ahold Ahold is a supermarket retailer headquartered in The Netherlands. Ahold’s international division was formed in 1977 to utilise the access cash flow generated from the domestic market to expand internationally. Ahold witnessed an unprecedented period of growth during the late 1990s and early 2000s largely as result of international expansion. For example, during a three year period 1999-2002, Ahold doubled their sales from e33 billion to e66 billion. Through primarily international acquisitions, Ahold has grown to be the fifth largest food retail group in the USa, where over 70 per cent of the group’s operating profit now originates. The 1990s have seen the company’s expansion horizons widen to other European countries and recently to Asia and Latin America. Ahold’s very recent financial difficulties in February 2003 have prompted divestment decisions in South America, Asia and Europe however. Tesco Tesco is the largest supermarket retailer in the UK. Tesco’s initial international foray was in the late 1970s with the acquisition of the Three Guys chain in the neighbouring market of the Republic of Ireland. However, this early venture was later divested in 1987 following several years of ongoing difficulties and under performance. Towards the end of the 1980s, the company embarked upon research efforts into possible international growth options and these primarily centred on the US market, but also covered several European countries. This led to Tesco’s first foray into mainland Europe with the acquisition of the French-based Catteau chain in December 1992. After several years the company decided to withdraw from this market in 1997. In 1999, the company announced one of the most radical and ambitious international plans that would involve the development of 200 hypermarkets in Europe and Asia, generating GB£10 billion sales per annum by 2004. In 2002 Tesco operated in 11 countries outside the UK. Carrefour Carrefour is a hypermarket retailer headquartered in France. The company has been operating internationally since 1973 when they entered Spain via a joint venture with Pryca. Since then, the company has embarked on a major international expansion strategy, designed to increase their store presence most notably in Europe, South America and Asia. Carrefour’s US$16 billion merger with Promodes in 1999 marked an important watershed for the company and created the

world’s second-largest retailer. Carrefour’s international operation operations span 32 countries and almost US$32 billion sales (or 44 per cent of group sales) are derived from international markets in 2002.

Stakeholder relationships

Delhaize Delhaize is a supermarket retailer headquartered in Belgium. Delhaize’s international retail operations are primarily located in the USA, although recent international progress has seen the company’s expansion horizons widen to other emerging European and Asian countries during the 1990s. Delhaize’s international operation operations span 11 countries and US$16 billion sales were derived from international markets in 2002.

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Wal-Mart Wal-Mart is the largest retailer in the world. Wal-Mart has only been operating internationally since 1991 when they established a presence in the Mexican market. Over the last five years or so, the international division has increasingly become more important for Wal-Mart’s long-term growth. Wal-Mart’s $US10.6 billion acquisition of UK supermarket retailer, Asda, in 1999 marked a new beginning for Wal-Mart’s international operations and reinforced a shift in the company’s emphasis on larger retail markets. Wal-Mart currently operates in 12 countries outside the USA but significantly maintains a top three market share position in three countries: Canada, Mexico and the UK.

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EJM 39,9/10

Retailers’ press release activity: market signals for stakeholder engagement?

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Paul Whysall Nottingham Business School, Nottingham Trent University, Nottingham, UK Abstract Purpose – To increase understanding of the role, content and effectiveness of press releases. Design/methodology/approach – Qualitative and quantitative analyses of UK supermarkets’ press releases in 2001/2002, a medium previously little researched in marketing, are undertaken. Findings – Supermarkets seek stakeholder engagement on diverse issues with different mixes of groups. Treating releases as market signals demonstrates the important role of the press as filters and interpreters. Intended messages frequently fail to reach target audiences, and when they do can be significantly reinterpreted, so that positive claims are reported critically and negatively. Larger chains apparently produce more releases and gain more newspaper coverage, but generally volume of releases does not improve likelihood of press coverage. Research limitations/implications – The nature of qualitative data, the limited time frame, and possible omissions from source archives. Practical implications – As level of coverage varied independently of turnover, higher release activity of larger chains was questioned. Seeking differentiation through press releases becomes problematic with the press as filters. Originality/value – This paper increases knowledge of press releases as market communications, and contributes to the literature of market signalling, notably emphasising the press as important signal intermediaries. Keywords Press relations, Retail management, Stakeholder analysis Paper type Research paper

European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 1118-1131 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610752

Introduction Successful retail management involves balancing multiple demands and returns across key stakeholders, while mismanaging stakeholder relationships may have enduring negative effects (Whysall, 2000). Thus, prima facie, it seems retailers must manage communications to key stakeholders to ensure supportive, productive relations. Here, analyses are presented of press releases from leading British supermarkets to explore the tenor and effectiveness of retailer-stakeholder communications. Press releases are widely used corporate communications, yet receive little evaluative attention in the marketing literature. Supermarkets are selected as a competitive, dynamic sector wherein stakeholder relationship management should be crucial. This research explores major retailers’ communications with key stakeholders through press releases, focusing on release effectiveness. Press release activity has not previously been systematically researched in any sector, so the study has potentially wider significance. Moreover, as a new research area, there is a need to build a conceptual basis which is done by conjoining two emergent frameworks: stakeholder engagement and market signalling. Unlike previous market signalling studies, though,

direct communication between sender and receiver is not assumed, with the press emphasised as an intermediate message filter and processor. After reviewing the limited marketing literature concerning press releases, stakeholder engagement and market signalling are introduced. Following methodological explanation, the content of releases is investigated, showing the appropriateness of a stakeholder engagement approach. Viewing releases as market signals leads to analyses of their take-up in newspapers, which often appears limited. Moreover the previously ignored role of the press emerges as an important moderator. Press releases in the literature Press releases attract limited attention in marketing. To Kotler et al. (1999, p. 830) press relations involve “placing newsworthy information in the news media to attract attention”. Dibb et al. (2001) contend news reports appear more objective than advertising, increase visibility and counter negative imagery. Treatment is also limited in marketing communications texts. Fill (1999) devotes just eight lines to processing releases in over 600 pages. Coulson-Thomas (1987) provides concise advice for effective releases, advising sparing usage. Smith (2000) suggests 96.8 per cent of 125 million releases annually in the UK get ignored through poor style and targeting, again emphasising cost and credibility advantages even if control of messages is forsaken. Blythe (2000) suggests increasingly sceptical readers skip advertisements but read editorial coverage, so releases should be newsworthy. Belch and Belch (1998) reiterate the merits of interesting, well targeted releases. McGoldrick (2002) stresses retailing’s diverse publics, notwithstanding a consumer focus, with releases an alternative to costly advertising in “cluttered” media, but requiring newsworthiness and “professional” targeting, style, and timing. Newman and Cullen (2002) identify releases as proactive publicity, discussing little beyond costs. Sullivan and Adcock (2002) see releases as appropriate to image-led retailers, reiterating credibility and cost advantages. Again, critical consumer attitudes alongside advertising “noise” explain PR’s rising importance to retailers seeking to redress adverse publicity, build relationships and enhance image. Thus generally texts portray press release activity as uncomplicated, emphasising placement, newsworthiness, and simplicity. However little emerges concerning releases’ content or wider functions. Searching electronic databases for marketing or retailing articles containing “news release” or “press release” produced many “hits”, but most merely quoted releases. Practical “guides” to specific sectors were found typically portraying releases as mechanistic and formulaic: The primary tool used in public relations is the press release. This is usually a one-page, double spaced commentary. It includes names with titles (they add credibility) and several quotations . . . (Letourneau, 1996, p. 120).

For Sheridan (1997), formulaic releases lacking differentiation were frequently ignored. Yet releases also have strategic functions. Simkin and Cheng (1997) found many electronics firms monitored competitors’ releases. Positive reactions to announcements may enhance reputation and improve share prices (Gilley et al., 2000). But release effectiveness is questionable. Marken (1993-1994, p. 47) argued that, despite widespread use, releases “inform but they don’t persuade or sell”.

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Reportedly, then, releases should be simple, formulaic documents, but paradoxically may serve diverse, strategic functions. Do simplistic views, largely from the communications literature, underplay releases’ strategic potential across wider audiences? Clearly there is a need to research the content and functions of press releases, particularly in sectors, like retailing, where stakeholder relations are important.

1120 Towards a conceptual framework: (1) stakeholder engagement Even stakeholder theory’s critics such as Sternberg (1997, p. 9) concede “business cannot afford to ignore any stakeholder concern that might affect its ability to generate long-term owner value”. The simplest view of stakeholder management sees the business focal to independent, dyadic interactions, trading-off interests (Figure 1). However Andriof et al. (2002, p. 9) reject this “corporate-centric model”: From the original “spoke and wheel” design . . . stakeholder thinking has evolved into the study of interactive, mutually engaged and responsive relationships that establish the very context of doing modern business.

They propose a “network-based, relational and process-oriented view of company-stakeholder engagement” reflecting mutuality and interdependence. Stakeholder groups are not discrete and isolated; the modern firm must “answer the simultaneous demands of multiple stakeholders” (Andriof et al., 2002, p. 35), partnering and engaging with clusters of stakeholders. Although having implications beyond PR, stakeholder engagement would generate appeals to clusters of interest groups, seeking involvement rather than delivering information. Stakeholder engagement, though, seems more about why firms should send such messages than how those messages are transmitted or received. Thus further underpinning is needed with a locus in marketing communications. Towards a conceptual framework: (2) competitive market signalling Competitive market signalling, including preannouncements, provides linkage from press releases to the marketing literature. Heil and Langvardt (1994, p. 83) argue “competitive market signalling constitutes a necessary, natural, and vital facet of competitive behaviour”. Press releases, as manifestations of market signalling, contain

Figure 1. A “corporate-centric” view of stakeholder management in retailing

many examples of what Eliashberg and Robertson (1988) and Heil and Robertson (1991) term preannouncements. However other releases lack pre-announcements’ characteristics, being retrospective or reactive. Calantone and Schatzel (2000) propose a broader definition of preannouncements including firms’ communications concerning future industry states, yet many releases studied here are broader yet in content and motives. Heil and Robertson (1991) researched competitors as targets but Eliashberg and Robertson (1988) anticipated wider audiences for pre-announcements. Calantone and Schatzel (2000, p. 27) suggest a “pre-announcement can be directed at one or more industry constituents, such as buyers, channel members, employees, investors, industry influencers, and government agencies”, and such diverse audiences are revealed here. However, this study differs from much previous signalling or preannouncement literature in several respects: . This study explores “real” data, not experimental situations or theoretical models. Boulding and Kirmani (1993, p. 120) noted the absence of explicit empirical testing of signalling theory, with their study subject to “the usual caveats of lab experiments”. Lilly and Walters (2000) developed experimental settings, noting actual preannouncements may vary in unexamined respects, such as branding. Prabhu and Stewart (2001, p. 70) accepted their game-theoretic experiments “remain somewhat artificial”, suggesting different industries may exhibit different forms of signalling. Le Nagard-Assayag and Manceau (2001) calibrated their model to real data, but assumed that all preannouncements were appropriately received and interpreted, and always impacted positively on expectations. . The sender’s perspective is emphasised here. Heil and Walters (1993, p. 54) suggested: “We focus on the perceived or interpreted signal . . . It is entirely correct to contend that the intended signal, as opposed to received signal, is an important facet of competitive market signaling and needs to be researched.” . This study does not presume particular strategic intentions. Heil and Walters (1993) argue signalling researchers cannot judge motives, only observe actions. Nevertheless undoubtedly (pre)announcements “may be assumed to reflect the mind-set of the firm’s leading strategists” (Calantone and Schatzel, 2000, p. 18). The approach here parallels Calantone and Schatzel’s concept of “competitive equity building” whereby (pre)announcements are seen not just as strategy insights but articulating vision to broad audiences and marketing-related. . Prior studies have often been narrowly focused (e.g. new products, competitor reactions), arguably only catching limited parts of firms’ market signalling. For Calantone and Schatzel (2000, p. 17) such narrowness “may restrict understanding of preannouncements to only discrete, single events that are highly situation specific”. Here, in exploring all of each retailer’s press releases, it is assumed, via stakeholder engagement, that multiple recipients may simultaneously receive and interpret diverse signals. . Most signalling studies envisage direct sender-receiver relationships: “Signalling . . . allows efficiency and ease of communications between firms” (Herbig and Milewicz, 1996, p. 36) with “. . . the number and content of marketing signals . . .

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controlled by the sender” (Herbig and Milewicz, 1995, p. 37). Here the press are posited as active intermediaries, filtering and reinterpreting signals. Calantone and Schatzel (2000, p. 17) observe:

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. . . no broad investigation has examined a firm’s propensity to preannounce future actions across a wide range of content despite recent emphasis on communication as an enabler of many stakeholder relationships.

Schatzel et al. (2003) argued news wire preannouncements were extensive in content and may reach diverse groups. This study investigates actual signalling across one highly competitive sector. Benefits from adopting a wider stakeholder-framework of receivers reflect both that key constituents – notably consumers – have been under-researched thus far (Lilly and Walters, 2000) and that when different constituencies are addressed, their needs and propensities differ; hence Le Nagard-Assayag and Manceau (2001) advance different managerial implications regarding consumers and channel partners. Research questions With limited prior understanding of press releases and few empirical researches into market signalling, this study adopts a largely exploratory approach and addresses four broad questions: (1) What characterises supermarkets’ press releases in terms of style and target audiences? (2) How effectively are those characteristics reflected in subsequent press coverage? (3) Does size of chain influence release effectiveness? (4) What effects do the press have as signal-intermediaries? Academically, answering these questions will fill an important gap in our understanding of market signalling processes, as well as shedding light on the role and effectiveness of press releases as part of the practice of image management. Methodology Releases were sourced from online archives of leading British supermarkets: Asda, Co-operative Group, Iceland, Safeway, Sainsbury, Somerfield, and Tesco. Morrisons, the only other significant chain, offered no comparable archive. Industry data suggests these firms accounted for 81 per cent of British grocery spending[1]. Supermarkets were examined as representing that part of retailing that most impacts on daily lives, thereby having considerable implicit “newsworthiness”, and also being a dynamic and competitive sector where “state of the art” practices might be expected. Altogether, 559 releases were identified. Archives may have omissions, but their contents for the period 1 January 2001 to 31 December 2002 on 23 January 2003 was taken as representing retailers’ signals to stakeholders. Release take-up was gauged from electronically searching the FT.com “Top World Sources” database plus popular UK newspapers, thus reaching all the leading national, regional and financial newspapers in the UK. Table I lists newspapers in which stories were located. An extensive database of over 550 releases traced to around 800 reports over two years resulted.

Quality broadsheets

Mid-market/tabloid newspapers

Financial and specialist newspapers

UK and Irish regional newspapers

Sunday newspapers

The Times The Guardian The Independent The Daily Telegraph Daily Express Daily Mail Daily Mirror Daily Record Financial Times Investors Chronicle Financial Mail (Canada) Wall Street Journal (USA) Sunday Business Scotsman Belfast Telegraph Irish Times Irish Independent The Birmingham Post Glasgow Herald Evening Standard Express on Sunday The Independent on Sunday The Observer Mail on Sunday

This study adopts content analysis initially to gain insights into the nuances and richness of textual data, although recognising a common criticism of this type of analysis that the researcher highlights those aspects which fit a preconceived perception (Easterby-Smith et al., 1999). That criticism can be levelled here – in that appropriate examples were sought, and found. The number of examples that could be presented, and indeed are presented elsewhere (Whysall, 2004), suggests that aspects of stakeholder engagement genuinely are common across many releases, although like all such evidence it remains for the reader to be convinced – or not. Certainly further studies might add strength to these claims, as is suggested in discussing limitations later. For the subsequent analyses of reported releases, though, such problems are less relevant when all that is being sought is evidence of factual correspondence between release and press reports, with minimal subjective judgement. Simply because elements of a release appear in a press report cannot confirm that the release triggered the report, so numbers of “hits” – as releases traceable in newspaper reports – may over-emphasise release effectiveness. It was assumed coverage generated by a release would follow quickly, with searches extending one week after a release’s issue. Often, published stories were more critical or less flattering than releases, as will be evidenced, but no qualitative distinction was initially employed. The content and style of press releases Releases, reflecting formulaic tendencies, were readily categorised[2]. Two themes co-existed in a few releases, and these were considered “half releases”. Categories are listed in Table II. Releases vary in length, and alternative channels exist for

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Table I. Newspapers successfully searched for press coverage

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Table II. Categories of press releases

Category Products and services Corporate social responsibility (CSR) and environmental matters Corporate affairs, performance data, takeovers etc. Prices Promotional and seasonal activity Supply chain issues (including relations with farmers) Senior management appointments and activities Health and dietary matters (including organic and non-GM produce) Job creation Property, new stores, urban regeneration Stories following an outbreak of foot and mouth disease Awards gained and given Human resource issues (e.g. training, share schemes, pensions) Government (including EU) matters International matters (Tesco only) Product recalls Miscellaneous matters Total

Percentage releases 18.9 15.8 10.1 8.2 7.8 7.3 6.1 6.0 3.7 3.6 3.0 2.8 2.1 1.6 0.9 0.7 1.3 100.0

communication, so caution is advised in interpreting these percentages. Yet insights result into matters companies seek to communicate to stakeholders, the diversity of themes suggesting concomitant diversity of target. Differences emerged between companies, however, in release content. Asda’s emphasis on products and services, promotions and prices may reflect influences of the parent company Wal-Mart; contrastingly the prominence of corporate affairs and senior appointments at Sainsbury’s reflects a difficult period of intense competition perhaps. Stakeholder engagement intentions appeared in retailers’ signals to farmers. Tesco saw themselves central to a stakeholder network of farmers, suppliers, and customers: . . . after a great deal of hard work by our staff, suppliers and farmers. . . . it’s a credit to them, our suppliers and farmers that there has always been enough meat for our customers (8.3.01).

Tesco’s “language of engagement” purportedly reflected what customers “told” them: . . . customers from all walks of life . . . are telling us that they want to buy more organic food (1.11.01).

Similarly Sainsbury’s “sought the views of farmers on ways in which the company could work more closely with them to understand customers needs” (28.6.02), appointing a manager to improve communications “from farmer to supermarkets to help guarantee that greater efficiencies are operated to the benefit of all involved” (17.9.02). Tesco, significantly mentioning “market signals”, sought improved supply chain communication through a stakeholder network comprising: . . . all the businesses involved in the Dairy value chain – from farmers to distributors, processors and Tesco . . . In this way, we can help transmit market signals along the supply chain and in turn understand better the issues that producers face (14.3.02).

Somerfield similarly depicted an active network, wanting “to talk directly to farmers about . . . how they can work together with supermarkets and suppliers” (8.1.01). Later, Somerfield wanted “customers . . . to link through us to their neighbourhood.” (9.11.02), language redolent of a network of interests with the retailer focal. 1Stakeholder engagement also accompanied charitable campaigns:

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All ASDA stores aim to play an active part in local life and . . . to enable stores to achieve “store of the community” status . . . includes demonstrating good relationships with local MPs, Councillors, emergency services, schools and charities (4.5.02).

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Store development releases were replete with imagery of networks and shared interests. Tesco even offered to “advise the Government on what good community involvement looked like” (19.3.02). In a scheme promising jobs, environmental improvement and business regeneration, Tesco were “inspired by the Council’s vision”, wanting “to work with the Council and local people” (4.6.01). Other examples of stakeholder engagement appeared in releases about health-related initiatives and Fair Traded goods. All supermarkets sought to demonstrate involvement in networks of interests for the greater good, even if customers’ interests were emphasised. The language of diverse linkages and dialogues was consistent with expectations under stakeholder engagement. Press release effectiveness – comparisons across retailers Interesting relationships emerge between release activity, press coverage, and firm size (measured by turnover): . Releases issued per chain correlate significantly with turnover[3] (r ¼ 0:811; significant at 0.05 level) . Releases reported correlate highly significantly with turnover (r ¼ 0:934; significant at 0.01 level). . Total reports per retailer correlate highly significantly with turnover (r ¼ 0:958; significant at 0.01 level). Thus while larger chains issue more releases, more significantly, they are reported more frequently. Yet causalities remain unknown. Does releases activity reflect company resources or PR/marketing strategies? Perhaps a belief that editorial interests favour larger chains discourages smaller chains’ release activity. Notably, size is a stronger correlate of press reporting than of release activity. Smith (2000) suggested 96 per cent of press releases are discarded. A very different measure here suggests 38 per cent of all releases issued were subsequently reported at least once. Two measures of relative release impact are calculated: percentage of releases reported at least once, and numbers of reports per reported release (Table III). Analyses found: . No significant relationship between proportions of releases gaining press coverage and turnover (r ¼ 0:722; p ¼ 0:067). . No relationship whatsoever between turnover and reports per story (r ¼ 20:017; p ¼ 0:971).

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Turnover is no indicator of release success, then, bearing no relationship whatsoever to extent of coverage. Editorial judgements of newsworthiness appear more important than patterns of release activity: while larger chains produce more releases, that does not increase coverage per story.

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Press releases effectiveness – comparisons across story category Take-up was also analysed across categories of story (Table II). Categories differ greatly in volume, and only those with over ten releases are discussed. Take-up varied markedly. Several categories showed over half of releases being reported, against an average of 38 per cent: corporate and performance issues (73 per cent), prices (66 per cent), human resources (61 per cent), senior appointments (58 per cent) and job creation (56 per cent). Contrastingly, categories with under a quarter of releases generating coverage included awards (3 per cent), corporate social responsibility (14 per cent), supply chain/farming issues (22 per cent) and property deals (24 per cent). Some categories may find coverage in specialist publications, however. Evidence supporting stakeholder engagement was prominent within CSR (notably charitable) activity and relations with farmers, but actual reporting was limited. Retailers’ attempts to portray themselves as “farming friendly” spread across categories, but taken together only 26 per cent of releases generated reports. Using a second impact measure, on average each reported story appeared in 3.77 newspapers, yet only corporate and performance issues exceed this (7.58), followed by prices (3.66). Least reported are promotional activity (1.16), foot and mouth disease (1.55), awards (2.0), job creation (2.26), supply chain and farming matters (2.26), and senior management (2.55). Synthesising impact measures suggests: . Newsworthy categories are reported often and widely, notably corporate performance, plus, to a lesser degree, prices. Editorial interest traces the performance of these prominent businesses, often as “winners” or “losers”. . Awards and supply chain issues make little impact on either measure. They may find specialist coverage, but press editors do not see them as newsworthy. . Some categories find isolated but not widespread reporting: job creation may achieve regional coverage in relevant localities, while senior management matters typically find coverage in the business/financial press.

Table III. Impacts of retailers’ press releases

Asda Co-op Iceland Safeway Sainsbury Somerfield Tesco Total

Per cent releases reported at least once

Average number of “hits” per story reported

Total number releases

47.4 41.7 14.1 26.3 56.4 17.5 46.1 37.7

2.6 3.7 4.7 3.3 4.5 3.8 4.3 3.8

116 36 64 57 78 80 128 559

.

Fourth, are categories that go largely unreported, although occasionally gaining wider coverage. Within the CSR category, charitable activities were not reported widely, yet innovative environmental initiatives, such as biodegradable packaging from potatoes and degradable carrier bags proved newsworthy.

Press interest, notably in performance and prices, apparently determines coverage, notwithstanding supermarkets’ efforts to promote wider issues. Spearman’s rank correlation (r ¼ 20:030) confirms no significant relationship exists between releases per category and tendency to be reported: again, volume of releases does not generate coverage. Contrasting relationships emerge between profiles of retailers’ release categories and subsequent reporting (Table IV). Retailers’ releases demonstrate diversity, only five of 21 relationships proving highly significant. Yet considerable similarity exists in subsequent reporting, with 14 of 21 relationships highly significant. All six non-significant relationships involved American-owned Asda, whose performance reporting, the most reported category, consequentially differs from the others. Hence even these six non-significant results may represent “special cases”. Retailers, then, send diverse signals to stakeholders, but the press as “gatekeepers” of newsworthiness report preferred themes regardless. Thus editorial policies seemingly thwart supermarkets’ search for diversified stakeholder engagement through press releases.

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And the message may change! A retailer might reasonably, though, anticipate widespread coverage of positive performance. On 10 April 2001, Tesco released details of record-breaking profits, typically citing stakeholder benefits: . shareholders benefited through dividends; . Tesco was “totally focused with getting it right for customers . . . while cutting prices, we constantly respond to other customer needs”; . Tesco welcomed the Competition Commission’s report, intending to cooperate with it; . “(W)orking closely with the farmers’ unions . . . Tesco has stood by British farmers . . . and this has significantly benefited farm incomes . . . Farmers know they can count on the support of Tesco customers and staff;” and

Of 21 correlations between supermarkets’ releases Of 21 correlations between reports of supermarkets’ releases

Number significant at p ¼ 0:01

Number significant at p ¼ 0:05

Non-significant

5

5

11

14

1

6

Table IV. Significance of correlations between categories of news release stories and press reports subsequently arising

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.

New stores “tailored to the needs of different customers” enabled “partnerships throughout the UK . . . providing jobs, training, subsidised transport and childcare”.

The message was of engagement and shared benefits across stakeholders. The Scotsman, under an apparently supportive headline celebrating jobs for Scotland, reported withering criticisms: Farming and consumer groups reacted to Tesco’s record profits with a stinging attack on the supermarket giant and called on shoppers to think twice before shopping in its stores. The National Consumer Protection Council called on shoppers to go elsewhere if they could find cheaper goods, while rural representatives said farmers would find the profit levels “hard” to comprehend (11.04.01).

The Irish Independent reiterated criticisms, while The Times reported Tesco’s denials profits were at consumers’ expense. The Guardian reported farmers’ accusations that supermarkets were a “new food baronial class”, and calls for a regulator not “in the pockets of the supermarkets”. The Independent’s headline was “Farmers savage Tesco over ‘obscene’ £1 billion profits”, while the Financial Times proclaimed: “Tesco chief defends £1bn profits” quoting Tesco’s CEO denying supermarkets were to blame for foot-and-mouth! Thus Tesco’s press release and what the press reported differed diametrically. We may usefully recall the warning that while press coverage brings advantages, it also means control of the message is lost (Smith, 2000). Concluding remarks, limitations, and implications This paper makes a number of contributions: it offers a rare evaluative insight into press releases as market communications, and contributes to the literature of market signalling by developing a broad, sender-based, empirical study. Importantly, it introduces a notion of signal intermediaries, the press in this case. In relation to the four research questions posed, it can be concluded: (1) Supermarkets’ press releases are characterised by a style in line with expectations from stakeholder engagement, of attempted dialogue, bridge-building and partnering with stakeholders. Correlation analysis suggests releases show considerable diversity across retailers, apparently targeting different sets of stakeholders. (2) Despite diversity in release activity, press coverage shows consistency across retailers, with all exceptions attributable in part at least to Asda’s American ownership. (3) Larger chains issue more releases, and get more coverage, yet higher turnover does not increase proportions of releases reported, or the extent of coverage. (4) The press plays a crucial role imposing its own agenda on news coverage, largely in disregard of retailers’ strategies to differentiate through signalling. The press has the ability totally to reinterpret news coverage. Even if retailers believe themselves focal to stakeholder networks, as releases imply, they neither control the range of issues reported nor the content of reporting. Rowley (1997) suggested stakeholder networks are better understood by thinking of all

connections between groups, and the ability to exercise power. Retailers’ inability to control news agendas may reflect stronger “stakeholder ! press” linkages by-passing retailers in comparison with supermarkets’ intended “retailer ! media ! stakeholder” channel. Other stakeholders (e.g. farming, consumer groups) clearly have effective linkages to the press (as the Tesco example demonstrates), and journalists probably believe they better understand what their readerships wish to hear. There is evidence here that implies retailers’ search for stakeholder engagement through the press is currently not effective, suggesting they should either review the appropriateness of the medium for that purpose or take fuller note of the press’s roles, perceptions and news agendas. To attempt to engage with stakeholders through the intermediary of the press either needs acceptance of the loss of control this implies or must seek to work within the constraints of press interest. An interesting contrast emerges, then. Despite diverse attempts by retailers to engage with different stakeholder mixes, relatively consistent patterns of reporting result, through the press, as an intervening filter, imposing their own, sometimes retailer-unfriendly, interpretation on signals. The emergence of the press as an influential moderator of market signals is a significant contribution. Perhaps we should treat the press as a stakeholder, one firms need better to engage with. More generally, this reinforces the obvious caveat to non-empirical signalling studies that signals sent may not be received as intended, if at all. Limitations to this study include the nature of the data, the limited time frame used, and possible omissions from data archives. Nonetheless, useful and original insights have been gained from an extensive data set, and there remains considerable scope for further study. One might usefully look into release take-up across different media, both within the sources explored here (e.g. the financial and regional presses) and more widely (e.g. non-print media, publications for specific stakeholders). A broader framework which seeks to integrate understanding of one set of signals (i.e. press releases) with others (e.g. annual reports, analyst briefings, advertising, in-store communications) would more fully test the relevance and robustness of the market signalling paradigm. Finally, it would be useful to ascertain if findings from this study of British supermarkets, and notably the role of the press that emerges, is replicated in other sectors and other countries. Managerial implications of such an exploratory study can only be tentatively offered, and then in the light of the limitations and further research needs set out above. The lack of clear relationships between turnover and release success is one area that merits reflection. Larger chains did generate more releases, perhaps simply reflecting their greater scales of activity, and did receive more press coverage, as might be expected. However the proportion of releases reported did not correlate significantly with turnover, while extent of coverage appeared totally independent of turnover. This raises a question: are the larger chains “trying too hard”? Would they get similar levels of coverage if they concentrated releases on those areas shown to attract editorial attention, and save resources in so doing? Second, but linked, the search for differentiation through press releases appears not to have been very successful for these retailers. Is seeking differentiation an activity for which the press release is an inappropriate vehicle, given editorial priorities? Might these efforts be directed into communication channels less prone to intermediate filtering? Or should the press be

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seen less as an external “market” for releases, and more as another stakeholder group to understand and engage with?

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Notes 1. TNS Superpanel customer spend (GB) for 12 weeks to 13.10.02 2. To check consistency a 10 per cent sample of stories was independently classified by a non-specialist, with few differences emerging (three in 55), save some where stories were allocated to two categories. 3. TNS Superpanel customer spend (GB) for 12 weeks to 13.10.02 References Andriof, J., Waddock, S., Husted, B. and Rahman, S.S. (2002), Unfolding Stakeholder Thinking, Greenleaf Publishing, Sheffield. Belch, G.E. and Belch, M.A. (1998), Advertising and Promotion. An Integrated Marketing Communications Perspective, Irwin McGraw-Hill, Boston, MA. Blythe, J. (2000), Essentials of Marketing Communications, 2nd ed., FT Prentice-Hall, Harlow. Boulding, W. and Kirmani, A. (1993), “A consumer-side experimental examination of signalling theory: do consumers perceive warranties as signals of quality?”, Journal of Consumer Research, Vol. 20, June, pp. 111-23. Calantone, R.J. and Schatzel, K.E. (2000), “Strategic foretelling: communication-based antecedents of a firm’s propensity to pre-announce”, Journal of Marketing, Vol. 64, January, pp. 17-30. Coulson-Thomas, C.J. (1987), Marketing Communications, Heinemann, London. Dibb, S., Simpkin, L., Pride, W.M. and Ferrell, O.C. (2001), Marketing. Concepts and Strategies, 4th ed., Houghton-Mifflin, Boston, MA. Easterby-Smith, M., Thorpe, R. and Lowe, A. (1999), Management Research. An Introduction, Sage, London. Eliashberg, J. and Robertson, T.S. (1988), “New product pre-announcing behaviour: a market signaling study”, Journal of Marketing Research, Vol. 25, August, pp. 282-92. Fill, C. (1999), Marketing Communications. Contexts, Contents and Strategies, 2nd ed., Prentice-Hall Europe, London. Gilley, K.M., Worrell, D.L., Davidson, W.N. and El-Jelly, A. (2000), “Corporate environmental initiatives and anticipated firm performance: the differential effects of process-driven versus product-driven greening initiatives”, Journal of Management, Vol. 26 No. 6, pp. 1199-216. Heil, O.P. and Langvardt, A.W. (1994), “The interface between competitive market signaling and antitrust law”, Journal of Marketing, Vol. 58, July, pp. 81-96. Heil, O.P. and Robertson, T.S. (1991), “Toward a theory of competitive market signaling: a research agenda”, Strategic Management Journal, Vol. 12, pp. 403-18. Heil, O. and Walters, R.G. (1993), “Explaining competitive reactions to new products: an empirical signaling study”, Journal of Product Innovation Management, Vol. 10 No. 1, pp. 53-65. Herbig, P. and Milewicz, J. (1995), “The impact of market signals on strategic decision-making ability and profitability”, Market Intelligence & Planning, Vol. 13 No. 7, pp. 37-46. Herbig, P. and Milewicz, J. (1996), “Market signalling: a review”, Management Decision, Vol. 34 No. 1, pp. 35-45.

Kotler, P., Armstrong, G., Saunders, J. and Wong, V. (1999), Principles of Marketing, 2nd European ed,, Prentice-Hall Europe, London. Le Nagard-Assayag, E. and Manceau, D. (2001), “Modelling the impact of product preannouncements in the context of indirect network externalities”, International Journal of Research in Marketing, Vol. 18 No. 3, pp. 203-19. Letourneau, T. (1996), “The spokes of the marketing wheel”, Bank Marketing, July, pp. 117-22. Lilly, B. and Walters, R.G. (2000), “An exploratory examination of retaliatory pre-announcing”, Journal of Marketing Theory and Practice, Vol. 8 No. 3, pp. 1-9. McGoldrick, P.J. (2002), Retail Marketing, 2nd ed., McGraw-Hill, Maidenhead. Marken, G.A. (1993-1994), “Effective public relations . . . More than a few news releases”, Public Relations Quarterly, Winter, pp. 47-8. Newman, A.J. and Cullen, P. (2002), Retailing: Environment and Operations, Thomson Learning, London. Prabhu, J. and Stewart, D.W. (2001), “Signaling strategies in competitive interaction: building reputations and hiding the truth”, Journal of Marketing Research, Vol. 38 No. 1, pp. 62-72. Rowley, T.J. (1997), “Moving beyond dyadic ties: a network theory of stakeholder influences”, Academy of Management Review, Vol. 22 No. 4, pp. 887-910. Schatzel, K., Droge, C. and Calantone, R. (2003), “Strategic channel activity pre-announcements. An exploratory investigation of antecedent effects”, Journal of Business Research, Vol. 56, pp. 923-33. Sheridan, K. (1997), “Depressing releases”, Bank Marketing, Vol. 29 No. 4, pp. 51-60. Simkin, L. and Cheng, A. (1997), “Understanding competitors’ strategies: the practitioner-academic gap”, Marketing Intelligence & Planning, Vol. 15 Nos 2-3, pp. 124-34. Smith, P.A. (2000), Marketing Communications. An Integrated Approach, Kogan Page, London. Sternberg, E. (1997), “The defects of stakeholder theory”, Corporate Governance, Vol. 5 No. 1, pp. 3-10. Sullivan, M. and Adcock, D. (2002), Retail Marketing, Thomson Learning, London. Whysall, P.T. (2000), “Stakeholder mismanagement in retailing: a British perspective”, Journal of Business Ethics, Vol. 23 No. 1, pp. 19-28. Whysall, P.T. (2004), “What can we learn from retailers’ news releases? A ‘stakeholder engagement’ perspective”, International Review of Retail, Distribution and Consumer Research, Vol. 14 No. 1, pp. 31-45.

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An empirical examination of the complex relationships between entrepreneurial orientation and stakeholder support Zannie Giraud Voss Department of Theater Studies, Duke University, Durham, North Carolina, USA

Glenn B. Voss Department of Business Management, College of Management, North Carolina State University, Raleigh, North Carolina, USA, and

Christine Moorman Fuqua School of Business, Duke University, Durham, North Carolina, USA Abstract Purpose – This paper seeks to integrate stakeholder theory with the entrepreneurial orientation literature to explore relationships between distinct entrepreneurial behaviors and support from stakeholders with divergent interests. Design/methodology/approach – A longitudinal study in the non-profit professional theatre industry examines how relationships between entrepreneurial orientation and stakeholder support evolve over time. A series of regression analyses examine how support from diverse stakeholders influences entrepreneurial behaviors and, subsequently, how those entrepreneurial behaviors influence future stakeholder support. Findings – The findings support a multi-dimensional conceptualization of entrepreneurial orientation, point to tensions inherent in satisfying multiple stakeholder demands, and illustrate that different stakeholders support entrepreneurial behaviors in unique and sometimes unexpected ways. The findings offer insight into the complex balancing act that entrepreneurial managers must execute to generate support from distinct stakeholder markets. Originality/value – This research provides researchers and managers with unique insights into the evolutionary nature of the relationships between distinct entrepreneurial behaviors and external stakeholder support. Keywords Entrepreneurialism, Stakeholder analysis, Non-profit organizations

Empirical research suggests that long-term firm success depends on the firm’s ability to create value and satisfaction for a variety of stakeholders, such as customers, suppliers, investors, and employees (Berman et al., 1999; Graves and Waddock, 1994; Ogden and Watson, 1999; Ruf et al., 2001). A stakeholder is any individual or group European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 1132-1150 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610761

The authors thank the Aspen Institute’s Nonprofit Sector Research Fund and Theatre Communications Group for supporting this research. The authors also thank the focus group participants and field experts whose insights informed and shaped our research. An empirical examination of the complex relationships between entrepreneurial orientation and stakeholder support

that can influence or is affected by the achievement of the organization’s objectives (Freeman, 1984). According to instrumental stakeholder theory, competitive advantage accrues to firms that take strategic actions that satisfy influential stakeholders (Carroll, 1993; Clarkson, 1995), particularly in accordance with their ability to impact the firm’s performance (Berman et al., 1999; Freeman, 1984; Frooman, 1999). Normative stakeholder theory, on the other hand, explores how a firm should treat stakeholders based on what is morally or socially acceptable (Donaldson and Preston, 1995), emphasizing philosophical guidelines that consider the social and ethical impact of firm behaviors rather than the financial benefits that accrue to the firm through satisfying stakeholder demands. Both approaches to stakeholder theory recognize the tensions and conflict inherent in managing multiple constituencies. For example, what should managers do when normative and instrumental considerations are at odds? Or how should managers treat key instrumental stakeholders that hold divergent interests? Each case requires trade-offs between fully appeasing one or more stakeholders at the expense of others. These tensions are amplified by organizational networks that feature divergent demands and financial rewards as well as various levels of power, legitimacy and urgency (Mitchell et al., 1997). Managers’ decisions are further complicated when stakeholders’ needs or demands are dynamic, latent or difficult to discern. For example, anticipating new product preferences is complicated by customers’ limited ability to offer creative input or predict which new product ideas they will find attractive (e.g. Veryzer, 1998). These conditions have prompted scholars to recommend that firms ignore the customer in the research and development process (Martin, 1995; Moore, 1995) or that they use a probe-and-learn process to gather feedback from stakeholders for the purpose of (re)directing the development process (Lynn, 1996). We explore the delicate balancing act that managers orchestrate in their attempts to satisfy diverse stakeholders. To limit the scope of our investigation, we focus on a sub-set of strategic actions – a firm’s entrepreneurial behaviors that lead to change in the organization or marketplace. These behaviors have been examined under the umbrella term entrepreneurial orientation (EO). EO is particularly relevant to the current examination because the organizational and marketplace changes that accompany these actions likely affect and are valued differently by various stakeholders. This study seeks to answer the following questions: . To what extent are various entrepreneurial behaviors influenced and rewarded by diverse stakeholders? . How perceptive are managers in identifying and managing the causal links between stakeholder support and entrepreneurial behaviors? We conduct our examination within the context of the non-profit professional theatre industry, an artistic industry that revolves around creativity, the generation of new products, and the management of their acceptance by multiple stakeholders. Using an artistic context builds on a trend in the management literature, which is to turn to non-business organizations for insight into the management of innovation and creativity (Crossan and Sorrenti, 1997; Hatch, 1997; Kamoche and Pina e Cunha, 2001; Meyer et al., 1998; Weick, 1998). As Kao (1989, p. 13) points out:

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All entrepreneurial activity unfolds around the birth of new ideas. Understanding how the creative process begins and evolves is therefore critical for entrepreneurial success.

Our results contribute to the understanding of both EO and stakeholder theory. We use focus groups and an empirical study to develop and validate scales for five dimensions of EO in an artistic context. Incorporating stakeholder theory, we extend EO theory by examining the independent associations of each EO dimension with the financial support provided by three distinct stakeholders. This allows us to explicitly examine how environmental heterogeneity in the form of multiple stakeholders moderates the EO-performance relationship. Though prior research has explored interactions between environmental heterogeneity, EO and firm performance (Lumpkin and Dess, 1996, 2001; Miller, 1983; Miller and Friesen, 1982), the direct relationship between EO and heterogeneous market outcomes has not been examined. We also use longitudinal data to observe the evolution of the relationship between EO behaviors and financial support from external stakeholders. Our empirical results demonstrate how stakeholder support can influence firm behavior, which in turn drives future stakeholder support. The findings illuminate the challenge managers face in choosing the level of EO when support for an EO behavior varies across stakeholders. The resulting insights contest prior criticism that stakeholder theory is not capable of providing worthwhile answers to important conceptual and empirical questions (Trevino and Weaver, 1999). In the next section, we conceptualize the relationship between EO and stakeholder support, incorporating insights from five focus group discussions with experts from artistic industries. We then report the results of an empirical study that collected EO scale responses from managers in the non-profit professional theatre industry and matched these responses with objective financial performance collected and validated by a third party. We conclude with a discussion of the results. Conceptualizing the EO-stakeholder nexus The entrepreneurship literature argues that a set of organizational attitudes and behaviors characterizes entrepreneurial firms (e.g. Miller, 1983; Stevenson and Gumpert, 1985; Stevenson and Jarillo, 1990; Covin and Slevin, 1991; Covin and Miles, 1999; Lumpkin and Dess, 1996; Morris and Jones, 1999; Lyon et al., 2000; Lee et al., 2001). As a strategic choice, EO is an embedded organizational philosophy that drives decision-making and behavior toward creating new goods, new methods of production, new markets, or the new organization of an industry (Stevenson and Jarillo, 1990). As Lumpkin and Dess (1996, p. 136) observe, “. . .new entry explains what entrepreneurship consists of, and entrepreneurial orientation describes how new entry is undertaken”. Following this literature stream, we define EO as a firm-level predisposition to engage in behaviors that lead to change in the organization or marketplace. Historically, the literature pointed to the importance of three EO behaviors: innovativeness, risk taking, and proactiveness (Miller, 1983; Morris and Paul, 1987; Covin and Slevin, 1989; Davis et al., 1991). More recently, Lumpkin and Dess (1996) added autonomy and competitive aggressiveness to this set in an attempt to capture the full range of behaviors that lead to change in the organization or marketplace. They call for explicit examination of the independent role that each EO dimension plays in influencing firm performance.

Empirical research has focused on the impact of EO on overall firm outcomes, such as return on equity/assets/sales (Miller and Bromiley, 1990; Zahra and Covin, 1995), growth of the firm (Matsuno et al., 2002; Wiklund, 1999; Zahra and Covin, 1995), and innovation performance (Atuahene-Gima and Ko, 2001; Matsuno et al., 2002). While important, these studies provide little insight into the tensions and tradeoffs that firms face when various stakeholders value and support different entrepreneurial behaviors. For example, firms widely recognized for their innovativeness frequently attract a small, loyal following of customers (e.g. Apple Computers) but may fail to achieve mass-market acceptance (e.g. Dell). Likewise, a firm might win critical acclaim among the engineering or artistic community for the aesthetic qualities of new products (e.g. Bauhaus) but generate little enthusiasm among mainstream consumers (e.g. Lay-Z-Boy devotees). In short, different dimensions of EO may hold different levels of appeal for and satisfy the demands of heterogeneous stakeholders.

Conceptualizing EO in an artistic context Given the divergent perspectives regarding the behaviors subsumed by EO and the lack of research examining specific EO-stakeholder relationships, we organized five focus group discussions with 24 experts representing theatre, opera, and dance. Our goal was to explore the meaning, dimensions, and impact of EO as it relates to nonprofit professional arts organizations. In the first four focus groups, we explored the appropriateness of a multidimensional EO conceptualization in an artistic context. The discussions supported a direct adaptation of some of the five EO dimensions proposed by Lumpkin and Dess (1996) but suggested that other dimensions required modification. The EO dimensions and definitions that emerged from these focus groups are: (1) Innovativeness is a commitment to generating and cultivating new ideas that result in new product offerings. (2) Market pro-activeness is a commitment to implementing new business processes designed to cultivate new markets for the firm’s offerings. (3) Risk taking is a commitment to experimentation in the face of uncertainty. (4) Employee autonomy is a commitment to encouraging employees to be self-directed and independent in the generation and implementation of novel ideas. (5) Competitive scanning is a commitment to monitoring industry trends and peer organizations’ best practices. We confirmed the face validity of these dimensions in the final focus group, which included an arts consultant, the artistic director of a nationally-recognized theatre, and the executive director of another nationally-recognized theatre. We then asked the experts to allocate 100 points to each EO dimension according to its importance. They ranked innovativeness (32 out of 100) the most important dimension, followed by risk taking (25), market pro-activeness (18), employee autonomy (17), and competitive scanning (8).

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Linking EO dimensions to stakeholder support The final task for our experts was to predict associations between each EO dimension and support from three key external stakeholders relevant to professional theatres: creative stakeholders (i.e. peer arts organizations and commercial producers of theatre and film that pay royalties for the rights to new productions), customer stakeholders (i.e. ticket buyers), and philanthropic stakeholders (i.e. individuals, corporations, foundations, and public funding agencies that provide donations or grants). We now offer a brief summary of the outcomes of this exercise. Innovativeness has been recognized as a necessary (Drucker, 1998; Covin and Miles, 1999) but not sufficient (Miller, 1983; Stevenson and Gumpert, 1985; Covin and Slevin, 1991; Lumpkin and Dess, 1996) condition to EO. The experts were in complete agreement that innovativeness would be positively related to financial support from creative stakeholders in search of creative new products. The experts either disagreed or expected no relationship between innovativeness and customer or philanthropic support. Thus, we expect that innovativeness will have a strong positive association with creative stakeholder support and a weak or non-existent association with customer and philanthropic support. Whereas innovativeness captures entrepreneurial activities associated with a new product development strategy, market pro-activeness captures entrepreneurial activities associated with market penetration and market development strategies. There was no consensus among the experts regarding the link between market pro-activeness and stakeholder support: the arts consultant predicted a positive relationship between market pro-activeness and customer and philanthropic support; the artistic director expected no relationship; and the executive director predicted a negative relationship between market pro-activeness and customer support. As a result, we expect to find either a weak relationship or no relationship between market pro-activeness and stakeholder support. Risk is often viewed as a function of asset commitment (Covin and Slevin, 1991; Lumpkin and Dess, 1996), but risk associated with non-financial assets such as reputation among stakeholders also is important (Srivastava et al., 1998). At the core of each risky decision is the prospect of an uncertain outcome (e.g. Baird and Thomas, 1985; March and Shapira, 1987; Lumpkin and Dess, 1996). There were discussions of the need to moderate artistic risk and general agreement that risk taking would be positively related to creative and philanthropic support and negatively related to customer support. We conclude that managing risk taking requires an adept balancing act to satisfy everyone. Employee autonomy reflects employees’ ability to be self-directed in the pursuit of entrepreneurial opportunities (Lumpkin and Dess, 1996). The focus group discussions suggested that arts managers feel normative pressures to allow employees the freedom and independence to generate and implement new ideas even though external stakeholders may not value the behavior. Given the importance of employees as the engine of creativity in many artistic settings, managers apparently make a trade-off between normative and instrumental rewards. The discussion led us to anticipate high levels of employee autonomy in arts organizations, even though the autonomy likely is unrelated, or even negatively related, to instrumental stakeholder support. Lumpkin and Dess (1996) propose competitive aggressiveness, which involves challenging competitors to improve relative industry position, as a dimension of EO.

But in a nonprofit industry, competition between firms is tempered by frequent collaborations and the absence of a profit motive. Competitors tend to monitor the competition rather than aggressively target competitors’ weaknesses to acquire market share, a perspective that is consistent with the notion that entrepreneurial behaviors can be imitative rather than initiating (Baumol, 1986), and can include innovative, late mover activities (Shankar et al., 1998) that remix existing ideas to invent new applications in a type of bricolage (Levi-Strauss, 1967; Morris and Jones, 1999; Stevenson and Gumpert, 1985). We capture these activities as competitive scanning. There was near-complete agreement among our experts that competitive scanning would be positively related to instrumental support from all three stakeholders. We conclude that competitive scanning is enacted based on a general belief that it provides a pre-emptive means to garner and maintain instrumental support from all external stakeholders. An empirical study To empirically examine the relationships between EO and stakeholder support, we conducted a survey in conjunction with Theatre Communications Group (TCG). TCG is the largest service organization to the non-profit professional theatre industry in the USA. All TCG member theatres are professional as opposed to community or avocational theatres, meaning that artists are professional employees paid union wages. TCG member theatres also are producing organizations, meaning that they select and manage all product inputs, develop the product, and bring it to market. This is in contrast to presenting organizations that contract performances of already-completed, touring productions. Each year, TCG conducts a survey of its member theatres. Participation rates typically vary between 35-50 per cent, with larger theatres being more likely to participate. In fiscal year 2001, 197 of the 407 TCG theatres completed the in-depth survey. These 197 theatres constituted a $751 million industry and produced more than 38,000 performances for 12.8 million ticket buyers; the average theatre had a budget of $3.8 million, an average ticket price of $21, and total paid attendance of 70,324 over 195 performances (Voss et al., 2002). EO data collection The empirical study was designed to minimize concerns of endogeneity and simultaneity and to allow us to examine the evolution of the relationships between EO and stakeholder support over three years. To accomplish this, we mailed EO surveys to 324 managing directors during fiscal year 2000 (TCG membership increased from 324 theatres in 2000 to 407 theatres in 2001). Our use of a single key informant approach is consistent with prior studies (Covin and Slevin, 1989; Knight, 1997; Miller and Friesen, 1982; Zahra and Covin, 1995) that have collected measures of firm-level entrepreneurship from high-level executives who are responsible for developing and executing firm strategy. In the case of non-profit professional theatres, the managing director is the senior executive with full knowledge of and responsibility for the organization’s strategy. The order of the EO items was randomized within the survey. We received EO responses from 136 managing directors, for a 42 per cent response rate. We then examined the relationships between EO scores collected during FY2000 and

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stakeholder support measures collected by TCG for FY1999 and FY2001. Of the 136 theatres responding to the EO survey, 111 completed the in-depth TCG survey for 1999 and 2001. Compared to the TCG population and to the 197 theatres that completed the in-depth TCG survey in 2001, smaller theatres were under-represented in our sample, which had an average budget size of $4.5 million, with attendance of 76,443 at 298 performances.

1138 Measure description Stakeholder support measures. To operationalize stakeholder support, we used objective revenue measures collected by TCG for FY1999 and FY2001. Creative stakeholder support was measured as the level of royalty revenue a theatre receives when plays that it originates are picked up and produced by other theatres or made into film. Customer stakeholder support was measured as the theatre’s total ticket revenue. Philanthropic stakeholder support was measured as total contributed revenue. EO scales. We conceptualized EO as a higher-order construct with multiple, independent dimensions. Our EO measures used parlance common to the non-profit professional theatre context. We assessed the reliability and validity of the EO scales using exploratory factor analysis, which indicated that five factors had eigenvalues greater than 1. One item exhibited strong cross-loadings and low item-to-total correlations in reliability analyses, so we deleted it from subsequent analyses. The remaining items all loaded together on a single factor and all construct reliabilities exceeded 0.70. We also assessed the construct validity of our measures by examining correlations between the EO dimensions and objective measures of new product development activity and resource allocations (see Lyon et al., 2000). This analysis supported the construct validity of each EO dimension. We present a description of each item, the rotated factor pattern, and coefficient alphas for each scale in Table I. Control variables. To minimize bias associated with omitted variables, we included control variables in each analysis, three to control for variations in theatres’ resources and pricing strategy and two to control for marketplace variations. The three firm-level controls were collected by TCG and include the number of seats in the theatre, the number of full-time employees, and the average ticket price. Two marketplace controls were drawn from the US Department of Commerce Bureau of Economic Analysis data for 2000: market population and per capita income. Summary statistics and a correlation matrix for the variables of interest are provided in Table II. Longitudinal assessment of the relationships between EO and stakeholder support To examine the complex evolution of the relationships between EO and stakeholder support, we conducted two series of regression analyses. In the first series, we regressed each EO dimension (measured in FY2000) on stakeholder support measures from FY1999. These analyses allowed us to examine whether stakeholder support influences subsequent EO behaviors (Frooman, 1999). In the second series of analyses, we regressed stakeholder support measures from FY2001 on FY2000 EO dimensions. These analyses allowed us to examine whether EO behaviors in FY2000 influence stakeholder support in FY2001 (Berman et al., 1999).

Scale Items Innovativeness (a ¼ 0:86) A key component of our artistic mission is to develop innovative new works We actively solicit and develop new plays We regularly commission playwrights to develop new work Competitive scanning (a ¼ 0:78) We pay close attention to our competitors’ fundraising activities We keep a close eye on our competitors’ audience development tactics We keep abreast of industry trends Employee autonomy (a ¼ 0:72) We reward people for being innovative We encourage employees to implement their novel ideas We encourage our employees to be independent problem-solvers Market proactiveness (a ¼ 0:72) We try out new marketing and fundraising programs each year We constantly seek new ways to market the theatre We are not afraid of implementing new marketing and fundraising initiatives Risk taking (a ¼ 0:72) There is a major element of artistic risk in all of our productions We generally avoid high-risk projectsa. Variance explained by each factor (%)

Factor 1

Factor 2

Factor 3

Factor 4

Factor 5

Complex relationships

0.91 0.84

0.04 20.04

0.10 0.10

0.10 0.18

20.17 20.33

1139

0.80

0.14

0.14

0.04

20.11

2 0.03

0.87

0.14

0.04

0.01

0.07 0.12

0.86 0.65

20.02 0.27

0.20 0.29

0.00 0.05

0.05

0.19

0.77

0.27

0.08

0.14

20.09

0.77

0.00

20.18

0.12

0.31

0.74

0.10

20.08

0.09 0.16

0.07 0.30

0.20 0.27

0.84 0.73

20.09 0.07

0.08

0.23

20.12

0.65

20.40

2 0.29 2 0.22 17

0.10 20.03 16

0.01 20.20 15

2 0.07 2 0.11 14

0.84 0.80 12

Notes: a Denotes reverse-coded item. All items used Likert-type seven-point scales anchored by strongly disagree (1) and strongly agree (7). Loadings greater than 0.40 are italicised for visual clarity

The influence of stakeholder support on subsequent EO To explore the influence of stakeholder support on EO, we estimated separate regression models with each of the five EO dimensions as dependent variables. We included number of seats, number of full-time employees and average ticket price as firm-level control variables. The models explained between 6-29 per cent of the variation in firm EO (see Table III). An examination of variance inflation factors indicated that the largest value was 5, suggesting that multicollinearity was not a serious problem in any of the analyses. An examination of residuals did not indicate any outliers or gross departures from normality. The results indicate that royalty revenue in FY1999 was positively (p , 0:01) related to innovativeness. This result is consistent with the experts’ predictions that innovativeness would be positively related to support from creative stakeholders.

Table I. Factor analysis results for entrepreneurial orientation items

Table II. Summary statistics and correlation matrix for variables of interest 1.01 1.35 0.78 1.09 4.22 4.37 1.38 1.39 1.24 1.20 1.22 1.13 7.79 1.33 0.23

5.14

4.90

5.45

5.16

3.39

3.45

13.63

13.74

13.70

13.97

6.24

3.69

22.22

14.16

10.40

0.12

0.13***

2 0.04

2 0.06

0.08

0.11

0.07

2 0.00

2 0.03

0.35*

0.35*

0.14***

0.29*

0.50*

0.32*

1.00

1

0.03

0.15***

0.06

2 0.00

0.07

0.12

0.08

0.02

0.02

0.05

0.07

0.43*

0.35*

0.28*

1.00

2

2 0.09

0.01

0.32*

1.00

4

0.11

0.30*

0.28*

0.03

0.46*

0.77*

2 0.10

0.04

2 0.13*** 0.17**

0.41*

0.11 0.10

2 0.03

0.30*

0.34*

0.15*** 0.35* 0.00

2 0.04

0.55*

0.55*

0.52*

0.49*

1.00

7

0.85*

0.85*

0.96*

1.00

8

0.25*

0.73*

0.86*

0.24*

0.75*

0.82*

0.40*

0.83*

0.82*

1.00

9

11

0.27*

0.38*

1.00

12

0.63*

1.00

13

1.00

14

15

0.08

16

0.25* 0.43* 1.00

0.38* 0.40* 2 0.15*** 0.13*** 0.33* 1.00

0.65* 0.69*

0.82* 0.81*

0.32* 0.33*

0.94* 1.00

1.00

10

0.22** 0.15*** 0.20** 0.24* 0.24* 2 0.10

0.28*

0.30*

0.48*

0.22** 0.26** 0.39*

0.54*

0.52*

2 0.16*** 0.15*** 0.48* 2 0.13*** 0.16**

2 0.13*** 2 0.15*** 0.05

2 0.19**

0.06

0.06

2 0.12

6

0.16*** 1.00

1.00

5

2 0.15*** 2 0.14*** 0.16**

0.21**

0.30*

2 0.02

0.18**

1.00

3

Notes: a Indicates log transformed variables * Significant at p , 0:01; ** Significant at p , 0:05; *** Significant at p , 0:10

1.73

4.88

Standard deviation

1140

1 Innovativeness 2000 2 Market proactiveness 2000 3 Risk taking 2000 4 Employee autonomy 2000 5 Competitive scanning 2000 6 Royalty revenue 1999a 7 Royalty revenue 2001a 8 Ticket revenue 1999a 9 Ticket revenue 2001a 10 Contributed revenue 1999a 11 Contributed revenue 2001a 12 Number of seats 2001a 13 Number of employees 2001a 14 Average ticket price 2001 15 Market populationa 16 Per capita incomea

Mean

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Contributed revenue in FY1999 also was positively (p , 0:05) related to market proactiveness. This result suggests that philanthropic stakeholders may encourage the development of new marketplace initiatives. Royalty and contributed revenue were positively (p , 0:01) associated with risk taking and ticket revenue was negatively (p , 0:01) related to risk taking. These results are consistent with ideas expressed in our focus group that creative and philanthropic stakeholders value risk taking and customer stakeholders do not. Consistent with the experts’ predictions, employee autonomy was not related to creative, customer, or philanthropic stakeholder support. These results are consistent with the notion that managers support employee autonomy in response to normative internal pressures rather than in response to instrumental support from external stakeholders. Contrary to our experts’ predictions, stakeholder support in FY1999 was not related to competitive scanning. This finding reveals that competitive scanning is not driven by any specific form of instrumental stakeholder influence. Competitive scanning is negatively related to the number of employees, suggesting that smaller theatres view the marketplace as an external resource that augments internal employee expertise. Small, entrepreneurial firms outsource and stay lean so that they can remain more flexible and responsive to marketplace changes and trends. As they grow, theatres diversify and enrich their internal employee assets and rely less on competitive scanning.

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The influence of EO on stakeholder support To explore the influence of EO on subsequent stakeholder support, we estimated separate regression models with each of the three FY2001 stakeholder support measures as dependent variables. We included number of seats, number of full-time employees and average ticket price as firm-level control variables and market population and per capita income as marketplace controls. All three regression models were highly significant, explaining between 46-80 per cent of the variation in performance outcomes (see Table IV). We assessed whether multicollinearity might be biasing individual regression coefficients by examining variance inflation factors. The largest value was less than 2, suggesting that multicollinearity was not a problem in any of the analyses. Residual

Independent variables Royalty revenue ’99 Ticket revenue ’99 Contributed revenue ’99 Number of seats ’99 Number of employees ’99 Average ticket price ’99 Model R 2

Innovativeness ’00

Market proactiveness ’00

Risk taking ’00

Employee autonomy ’00

Competitive scanning ’00

0.45* 20.23 0.18 0.15*** 20.23*** 20.10 0.19*

0.03 2 0.08 0.34** 0.17*** 2 0.39* 0.03 0.07

0.34* 20.66* 0.54* 20.12 20.19 0.19** 0.29*

0.09 20.18 20.02 0.12 20.18 0.15 0.06

0.06 0.15 0.21 20.03 20.36** 0.18*** 0.10***

Notes: * Significant at p , 0:01; ** Significant at p , 0:05; *** Significant at p , 0:10

Table III. Regression analysis results examining the effect of stakeholder support in 1999 on EO in 2000

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1142 Table IV. Regression analysis results examining the effect of EO in 2000 on stakeholder support in 2001

Independent variables Innovativeness ’00 Market proactiveness ’00 Risk taking ’00 Employee autonomy ’00 Competitive scanning ’00 Number of seats ’01 Number of employees ’01 Average ticket price ’01 Market population Per capita income Model R 2

Royalty revenue ’01

Ticket revenue ’01

Contributed revenue ’01

0.33* 20.13*** 0.14*** 20.12*** 0.13*** 0.12*** 0.49* 20.11 0.17*** 0.05 0.46*

0.09** 20.01 20.10** 20.08*** 0.07*** 0.08*** 0.54* 0.35* 0.04 0.07*** 0.80*

0.11** 0.02 0.04 20.09** 0.09*** 0.06 0.63* 0.19* 0.22* 0.01 0.79*

Notes: * Significant at p , 0:01; ** Significant at p , 0:05; *** Significant at p , 0:10

analysis did not indicate any significant problems. To assess the relative explanatory value of the EO dimensions, we conducted a two-step analysis, entering the control variables first and the EO dimensions next. This indicated that EO explained between 2 per cent (ticket revenue) and 15 per cent (royalty revenue) of the total variance in the dependent variables. Results indicate that innovativeness had a positive (p , 0:05) relationship with royalty revenue, ticket revenue, and contributed revenue. The royalty revenue result was predicted by our experts, but the ticket and contributed revenue results were not. Recall that our experts’ predictions and the first set of analyses suggested that theatre managers understand how innovativeness is linked to support from creative stakeholders. This is borne out in this second analysis as well. However, results indicate that managers under-appreciate the degree to which innovativeness creates a positive response from customers and philanthropic stakeholders. Market proactiveness had a marginally negative (p , 0:10) association with royalty revenue but no significant relationship with ticket or contributed revenue. The experts and the first set of analyses suggested that the relationship between ticket revenue and market pro-activeness is well-understood by theatres. However, to what degree this understanding creates a self-fulfilling prophecy or whether customers really do not respond to marketing activities remains unanswered. On the other hand, based on the stage one analyses, we might have expected contributed revenue and marketing pro-activeness to have a stronger relationship in stage two. It appears there is weak instrumental basis for this belief. Finally the negative relationship between market pro-activeness and royalty revenues was not anticipated but points again to the tension between artistic and business missions within theatres. Risk taking had a positive (p , 0:10) association with royalty revenue, a negative (p , 0:05) association with ticket revenue, and no significant relationship with contributed revenue. The royalty and ticket revenue results are consistent with the experts’ expectations (and with the results reported in Table III) but the non-significant contributed revenue result was not. Surprisingly, employee autonomy had a negative (p , 0:10) relationship with all forms of external stakeholder support. Though the first series of analyses did not

uncover an instrumental relationship between employee autonomy and stakeholder support, our experts hinted at these concerns. It appears that normative obligations to employees lead theatres to adopt levels of employee autonomy that are detrimental to external stakeholder support. Consistent with the experts’ predictions, competitive scanning was positively (p , 0:10) associated with all three revenue sources. Thus, though prior stakeholder support does not appear to influence competitive scanning (Table III), competitive scanning leads to higher levels of support from all three external stakeholders. Discussion The objective for this research was to explore the evolutionary relationships between different dimensions of EO and heterogeneous stakeholder support. We examined these relationships in an artistic context and offer insights that may be useful to other corporate and non-profit sectors. The results suggest that when the relationship between stakeholder influence and EO behaviors is transparent, managers develop reciprocal, strategic relationships that reinforce valued behaviors. When the interaction between stakeholder influence and EO behaviors is less transparent, managers must perform a balancing act to contend with complex, pluralistic and conflicting stakeholder demands and responses. Instrumental and normative behaviors Our research provides an empirical basis for distinguishing between instrumental behaviors, which are driven by an economic valuation of stakeholder relationships, and normative behaviors, which are driven by social, ethical, or cultural obligations. We infer that firms are making instrumental choices when historical stakeholder support influences future firm behavior. Using this perspective, the results offer insights into the dynamics driving the evolution of instrumental strategies. Table III results suggest that theatres view as instrumental the relationships between innovativeness and risk taking and creative stakeholders (positive), between market pro-activeness and risk taking and philanthropic stakeholders (positive), and between risk taking and customer stakeholders (negative). The findings in Table IV indicate a through-line in the evolution of instrumental response in some cases. For example, it appears that theatres recognize creative stakeholders’ support of innovativeness and risk taking, they then engage in higher levels of these two entrepreneurial behaviors, and they are subsequently rewarded with higher levels of support from creative stakeholders. Similarly, it appears that theatres are aware that customer stakeholders do not value high levels of risk taking but they continue to engage in risk taking behaviors for reasons germane to their mission or artistic vision, despite knowing that customers will respond with lower levels of support for this behavior as played out in Table IV. The findings in Table IV also indicate that there can be spill-over effects associated with instrumental choices. For example, experts predicted that creative stakeholder support would be positively associated with innovativeness, and royalty revenue in 1999 and 2001 was positively related to innovativeness in the empirical analysis. However, innovativeness also produced higher ticket revenue and contributed revenue in FY2001. It appears that support from customer and philanthropic stakeholders does not lead to higher innovativeness, even though innovative actions attract strong

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customer and philanthropic support. Theatres may fear that launching innovative new products increases the potential for rejection by these stakeholders, despite instrumental evidence to the contrary (Voss and Voss, 2000). In many instances, the evolutionary through-line of the relationship between stakeholders’ support of entrepreneurial behaviors is murky, perhaps reflecting complex relationships. For example, although instrumental support from philanthropic stakeholders encouraged pro-activeness, higher levels of pro-activeness were not rewarded with subsequent support from contributors. Philanthropic stakeholders may be fickle in their support of pro-active entrepreneurial behaviors, at times encouraging and rewarding the behaviors and at times not. The firm’s ability to create value and satisfaction for these stakeholders in the context of entrepreneurial behaviors may require a high level of managerial sophistication. We infer that decisions are likely influenced by normative obligations or beliefs when historical stakeholder support has no influence on firm behavior. In our study, both employee autonomy and competitive scanning were unrelated to past instrumental stakeholder support; yet, our experts rated these behaviors as relevant to EO, and the survey respondents reported higher levels for these behaviors than for the other three (see mean values in Table II). Collectively, the results suggest that these behaviors are driven by factors other than direct influence exerted by the three instrumental stakeholders examined. Managers may believe that competitive scanning is a required activity that enhances all forms of instrumental support. The positive link between competitive scanning and creative stakeholder support in FY2001 is particularly noteworthy because it offers additional insight into an ongoing conceptual debate. Much of the literature on competitive strategy suggests that competitive scanning should lead to reacting to the industry (i.e. paying close attention to incremental change, relative performance, and cost differences (Day and Nedungadi, 1994; Glazer et al., 1999)) rather than shaping the industry. However, the positive relationship between competitive scanning and royalty revenue may reflect what Eisenhardt and Tabrizi (1995, p. 91) refer to as an experiential strategy that involves “rapidly building intuition and flexible options in order to learn quickly about and shift with uncertain environments.” Thus, rather than simply remixing existing ideas or innovating incrementally (Baumol, 1986), these organizations apparently scan the industry, adopt competitors’ sources of innovation (e.g. playwrights) with proven utility, and create and diffuse their own new products. Insights from our focus groups suggested that theatre managers are motivated by normative obligations to provide employees with autonomy even though they recognize the instrumental downside of doing so. Employee autonomy did, in fact, lead to lower support from all three stakeholders. We interpret these results as support for the omission of employee autonomy as an EO dimension in future EO research. EO has been conceptualized at the strategic level to include behaviors that lead to change in the organization or marketplace, and the implicit motivation in all strategic decisions is the enhancement of firm performance. Our results indicate that managers do not view employee autonomy as a strategic decision leading to enhanced firm performance; rather, it is a normative obligation associated with organizational behavior or culture with no direct, positive link to performance envisioned or found.

Tensions in managing multiple stakeholders The results underscore the complexity inherent in coordinating and balancing EO behaviors to satisfy divergent stakeholder interests and hint at a larger issue involved in the theory and management of organizations that have both creative and business missions (Thornton, 2001). This is particularly reflected in the innovativeness, risk taking, and market pro-activeness dimensions. For example, the negative link between market pro-activeness and subsequent creative support suggests a danger in placing too great an emphasis on business aspects to the detriment of the art. The non-significant results for customer support in both analyses indicate that this shift in resources is neither encouraged nor valued by theatre customers. These results are consistent with the notion that market pro-activeness may be a more salient EO behavior in industries marked by relatively stable products, where market penetration and market development are more relevant growth strategies, rather than in creative and dynamic industries (Kao, 1989). In artistic industries, word-of-mouth and critics’ reviews – not new marketing initiatives – may be the primary drivers of customer response. The associations between risk taking and stakeholder support were largely consistent across experts’ predictions and across the analyses linking risk taking to prior and subsequent years’ stakeholder support. The through-line is fairly clear: managers learn which stakeholders are instrumental to the organization’s continued ability to take risks. The only inconsistency was the non-significant association between risk taking and contributed revenue in 2001 (see Table IV). Several focus group participants alluded to the idea that some risk was desirable but that too much risk was bad. An artistic director observed, “On a scale of 10, 1 is bad and 10 is bad but 3 is pretty good.” To explore the possibility that the relationship between risk taking and stakeholder support might be curvilinear, we re-estimated the models in Table IV, including a quadratic term for risk taking. The results indicated that the quadratic term was non-significant with royalty and ticket revenues as dependent variables but significantly negative with contributed revenue as the dependent variable. This post hoc analysis further highlights the tension that managers face in finding the right balance of risk to satisfy divergent stakeholders (see Figure 1). The tension is particularly acute for theatres that engage in risky innovation that may result in higher royalty revenue, critical acclaim, and recognition from industry peers. Pursued too aggressively, this type of entrepreneurial activity may alienate traditional audiences and funders. Translating artistic risk taking into higher (or acceptable) customer and philanthropic support requires a complex balancing act that combines high levels of innovativeness with low-to-moderate levels of risk taking; high levels of innovativeness to maximize revenues from all stakeholders and low to moderate levels of risk to maximize ticket and contributed revenue. These findings support Rowley’s (1997, p. 887) theoretical framework that argues for moving beyond the dyadic ties between a firm and its stakeholders and to instead “consider the multiple and interdependent interactions that simultaneously exist in stakeholder environments”. As Pfeffer and Salancik (1978, p. 27) suggest: That different people, groups, organizations may have different criteria for evaluating an organization creates problems for the organization . . . Faced with conflicting demands, the organization must decide which groups to attend to and which to ignore.

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Figure 1. Plotting the effect of risk taking on stakeholder support

Conclusion As an initial attempt to unravel the complex set of relationships that define the EO-stakeholder nexus, this study reveals as many questions as answers. For example, does downstream market pro-activeness play a more important role in stable industries than it does in this dynamic, artistic industry? Should employee autonomy be considered an organizational behavior or a strategic construct? Will the negative effects for employee autonomy found in this artistic context extend to other environments or, in a widely representative sample of firms from different industries, would evidence of an inverted U-shaped effect for employee autonomy and support from various stakeholders emerge? Would the largely positive effects of competitive scanning and the curvilinear effects of risk taking on philanthropic support be found in other, non-artistic contexts? When multiple stakeholders wield influence but diverge in the behaviors that they value, how should managers prioritize and meet their stakeholders’ demands? We hope that these questions, among others, will encourage researchers to explore further the links between EO and all types of firm performance. Empirical strengths of the research include the examination of independent effects for each of the five EO dimensions, the examination of instrumental and normative stakeholder support, the use of objective performance measures that capture support from distinct stakeholders, the study of a single industry and longitudinal data collection (Kreiser et al., 2002; Schwartz and Teach, 2000). Though single-industry studies enhance internal validity, focusing on a single industry limits the generalizability of the findings. Nevertheless, it may be useful for comparative purposes to contrast our findings with those that examine the relationship between EO and performance in other industries. As already noted, the sample in our study omits some of the smallest non-profit professional theatres, which may be among the most entrepreneurial of theatres. Furthermore, we examined the evolution of the

relationships between EO dimensions and stakeholder support by studying a three-year period of time. A longer arc in the evolutionary cycle would provide greater understanding of long-term relationship development and management of stakeholder influence. As Covin and Slevin (1991) point out, an organization’s entrepreneurial posture is dependent on its mission. Our focus group participants frequently alluded to the importance of embracing a macro view of EO that takes into account such philosophical issues as the inherent desirability of risk taking for a non-profit organization. Thus, it is not our intent to imply that our results should guide an organization’s values or goals, that EO is appropriate in all cases, or that every organization should strive for high levels of the outcome measures examined herein. Especially in the non-profit sector, desired outcomes can vary dramatically in terms of manifest (e.g. number of people served, growth in the number of new or returning clients, annual net surplus/deficit) and latent (e.g. quality of service provided, improved reputation, client satisfaction) measures. Nevertheless, our empirical findings indicate that an organization’s EO levels should be considered when examining factors that influence stakeholder support. References Atuahene-Gima, K. and Ko, A. (2001), “An empirical investigation of the effect of market orientation and entrepreneurship orientation alignment on product innovation”, Organization Science, Vol. 12 No. 1, pp. 54-74. Baird, I.S. and Thomas, H. (1985), “Toward a contingency model of strategic risk taking”, Academy of Management Review, Vol. 10 No. 2, pp. 230-43. Baumol, W.J. (1986), “Entrepreneurship and a century of growth”, Journal of Business Venturing., Vol. 1 No. 2, pp. 141-5. Berman, S.L., Wicks, A.C., Kotha, S. and Jones, T.M. (1999), “Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance”, Academy of Management Journal, Vol. 42 No. 5, pp. 488-506. Carroll, A.B. (1993), “A three-dimensional conceptual model of corporate social performance”, Academy of Management Review, Vol. 4, pp. 497-505. Clarkson, M.B.E. (1995), “A stakeholder framework for analyzing and evaluating corporate social performance”, Academy of Management Review, Vol. 20 No. 1, pp. 92-117. Covin, J.G. and Miles, M.P. (1999), “Corporate entrepreneurship and the pursuit of competitive advantage”, Entrepreneurship Theory and Practice, Vol. 23 No. 3, pp. 47-62. Covin, J.G. and Slevin, D.P. (1989), “Strategic management of small firms in hostile and benign environments”, Strategic Management Journal, Vol. 10 No. 1, pp. 75-87. Covin, J.G. and Slevin, D.P. (1991), “A conceptual model of entrepreneurship as firm behavior”, Entrepreneurship Theory and Practice, Vol. 16 No. 1, pp. 7-25. Crossan, M. and Sorrenti, M. (1997), “Making sense of improvisation”, in Walsh, J.P. and Huff, A.S. (Eds), Advances in Strategic Management, JAI Press, Greenwich, CT, pp. 155-80. Davis, D., Morris, M. and Allen, J. (1991), “Perceived environmental turbulence and its effect on selected entrepreneurship, marketing, and organizational characteristics in industrial firms”, Journal of the Academy of Marketing Science, Vol. 19 No. 1, pp. 43-51. Day, G.S. and Nedungadi, P. (1994), “Managerial representations of competitive advantage”, Journal of Marketing, Vol. 58 No. 2, pp. 31-44.

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A model for addressing stakeholders’ concerns about direct-to-consumer advertising of prescription medicines

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Janet Hoek and Ninya Maubach College of Business, Massey University, Palmerston North, New Zealand Abstract Purpose – To explore how a “harm chain” analysis could identify and address stakeholders’ concerns about direct-to-consumer advertising of prescription medicines (DTCA). Design/methodology/approach – The paper analyses the development of stakeholder theory before exploring and discussing the tension between normative and instrumental logic. The authors adopt a utilitarian perspective, which they use to identify the range of stakeholders involved with or affected by DTCA. Findings – A “harm chain” analysis identifies common concerns held by stakeholders; these include disquiet over the quality of information provided via DTCA and possible derogation of doctors’ role as prescribers. The paper outlines prescriptive advertising guidelines that could address these issues, but notes that failure to achieve a satisfactory reduction in harm potential may result in a ban on DTCA. Research limitations/implications – Although a utilitarian norm will not satisfy all stakeholders’ interests, the authors believe that it will produce the greatest reduction in harm, as well as maximising the benefits that can result from DTCA. The conclusions imply the need for independent monitoring of DTCA’s effects on stakeholder groups to ensure that regulations governing this advertising are broadly based. Practical implications – The authors suggest changes to DTCA regulation, specifically the introduction of a “fair balance” criterion and a statement explicitly recognising doctors’ role in determining appropriate treatments. Originality/value – Although the debate over DTCA has been well documented, this paper represents the first attempt to use stakeholder theory to explore the ethical issues associated with this advertising. The analysis produces a decision-making model that the authors recommend should guide future policy decisions. Keywords Stakeholder analysis, Marketing information, Regulation, Advertising, Direct marketing Paper type Conceptual paper

Introduction Examination of corporations’ obligations to the wider community led to the development of stakeholder theory, which recognises the diverse groups an organisation interacts with and the responsibilities it may have to these (Freeman, 1984, 1994; Abratt and Sacks, 1988; Petkus and Woodruff, 1992; Polonsky, 1995; Whysall, 2000; Waddock et al., 2002). Recent work has extended stakeholder theory beyond management, using it to review, evaluate, and guide marketing decision making. Polonsky et al. (1999), for example, described stakeholder theory as a natural extrapolation of the marketing concept and suggested it had much in common with relationship marketing. However, stakeholders extend beyond the groups typically considered in relationship marketing and form part of a wider network whose needs

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and concerns organisations should consider (Carrigan, 1995; Polonsky, 1995; DeBussy et al., 2003; Smith, 2003). Broad definitions of stakeholders, which include customers, employees, shareholders, community groups and regulators, among others, increase the potential for conflicting expectations to arise (Gregory and Keeney, 1994). To address the problem of competing interests, researchers have suggested classifying stakeholders according to their perceived importance (Mitchell et al., 1997). However, it is not clear how researchers should establish priorities or resolve differences between stakeholders, although Carrigan (1995) suggested changes in the political or regulatory environment might achieve compromises (see also Polonsky et al., 2003). This paper briefly overviews stakeholder theory and the recently proposed “harm chain” (Polonsky et al., 2003) before examining how this approach could better inform policy decisions relating to prescription medicine advertising. Direct to consumer advertising (DTCA) of prescription medicines has generated considerable controversy in both the USA and New Zealand, the only two countries where it is currently permitted. While pharmaceutical companies resolutely defend their right to reach consumers directly, some doctors and consumer groups have lobbied for complete bans on DTCA. Consumers themselves appear to appreciate access to drug information, although they have some concerns about how effectively DTCA provides this information (Hoek et al., 2004). These widely divergent opinions have complicated the development of public policy approaches to DTCA; a harm-chain analysis offers a means of identifying risks associated with this advertising, thus providing a focus for regulatory development. Adoption of Elms et al.’s (2002) and Polonsky et al.’s (2003) approach enables an evaluation of stakeholder theory at industry-level, rather than in the context of specific organisations. This perspective promotes a more detailed analysis of regulatory stakeholders and interest groups, who may have profound effects on organisations’ external environment (Miller and Lewis, 1991). In particular, application of Polonsky et al.’s “harm chain” supports a comprehensive examination of DTCA’s wider effects. Integrating the results of a “harm chain” analysis with greater use of public opinion research produces an evaluation model that could better recognise stakeholders’ concerns and lead to more inclusive policy development. Stakeholder theory Stakeholder theory emerged as a response to challenges levelled at what Donaldson and Preston (1995) described as the “input-output” model of management. Researchers questioned Friedman’s (1970) assertion that organisations’ primary responsibility was to maximise the return they provided to shareholders and argued that this perspective failed to recognise groups affected by firms’ decisions (Carrigan, 1995; Werhane and Freeman, 1999; Werhane, 2000). Freeman’s (1984) development of stakeholder theory explicitly acknowledged these groups and their diversity (see also Freeman, 1994; Page, 2002). Early definitions of stakeholder theory stressed its explicitly moral orientation and viewed it as a primarily normative theory that sets out an ethical framework underpinned by moral values (Gibson, 2000; Jawahar and McLaughlin, 2001; Kaler, 2003; Phillips et al., 2003; Smith, 2003). However, other researchers have suggested stakeholder theory is primarily descriptive rather than normative, and that it assists managers to summarise their own

personal management philosophy (Donaldson and Preston, 1995; Jones and Wicks, 1999). This latter interpretation of stakeholder theory is less prescriptive, and Donaldson and Preston (1995) argued that, to function effectively as a management tool, stakeholder theory must provide more than a mechanism for summarising work practices. They proposed an instrumental approach, which viewed stakeholder theory as a means of enabling organisations to achieve their objectives. Under this framework, managers’ main objective is to serve the organisation; thus, stakeholders are important insofar as they can assist or impede an organisation’s success. Although managers adopting an instrumental approach still need to recognise stakeholders’ interests, they focus on managing these interests in the most appropriate way for the organisation (Atkinson et al., 1997). This focus on organisational goals reduces the importance of stakeholders, who become viewed as a conduit to management success, rather than as legitimate ends in their own right. Because of this diminishment in stakeholders’ role, researchers have raised several questions about stakeholder theory when it is used to implement an instrumental strategy. Maignan and Ferrell (2004) questioned whether use of stakeholder theory to achieve organisational goals could, ironically, result in less scrupulous management practices. Mellahi and Wood (2003) argued that stakeholders with the greatest power to influence an organisation would receive more attention, leading to a reinforcement of existing power relationships. However, Phillips et al. (2003), disputed this view, suggesting that all management theories required consideration of managers’ self-interest and that being answerable to multiple constituencies would increase managers’ accountability. While these researchers continue to debate the basis of stakeholder theory, others have examined its effects on an organisation. Greenley and Foxall (1997) argued that the only rationale for adopting a stakeholder orientation is to assist organisations to achieve their goals more effectively than would otherwise be possible. They noted that although managers might believe they have adopted a stakeholder perspective, this was not proof that the organisation had recognised and responded to stakeholders’ concerns and interests. Although they found little empirical support for assertions that stakeholder theory provided superior returns to other management theories, they did detect relationships between stakeholder theory and more specific performance measures. Overall, researchers generally concur that stakeholder theory’s rationale lies in its moral basis and that neither a descriptive nor an instrumental logic provides sufficient justification for adopting this perspective. However, while instrumental logic suggests stakeholders worthy of attention are those with the ability to affect an organisation, normative logic suggests managers must consider a wider network. Defining this network, and considering whether and if priorities should exist within it, has also generated considerable debate. Identification of stakeholders Phillips et al. (2003) relied on normative reasoning and suggested that adoption of stakeholder theory requires managers to consider all legitimate stakeholders. However, Mellahi and Wood (2003) argued that attending to all groups’ views and concerns could lead to a firm becoming overloaded with competing demands that cannot all be

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accommodated without creating either organisational chaos or ruin, or both (see also Carrigan, 1995). Friedman and Miles (2002) responded to this problem by suggesting that different stakeholder groups receive different priorities (see also Donaldson and Preston, 1995). However, although researchers generally accept this logic, they have not agreed on how they would establish these priorities. Polonsky (1995) clarified the difference between primary and secondary stakeholders, but did not suggest how managers might differentiate between these groups. Mitchell et al. (1997) suggested marketers assess stakeholders’ salience by considering the power different stakeholders can exert, and the legitimacy and urgency of their claims. In addition to these variables, Maignan and Ferrell (2004) suggested considering stakeholders’ interactions with other stakeholder groups, since this can increase the power individual groups may wield. Although analysis of stakeholders’ shared interests may help identify high salience issues and conflicts among stakeholders, adoption of stakeholder theory does not mean all stakeholders will benefit equally. For example, Carrigan’s (2001) analysis of the tobacco industry revealed deep divisions among stakeholders whose economic, health or social well-being would be affected by changes to the current regime. In highlighting the difficulty of reconciling competing interests, Carrigan also alluded to the role regulators have in shaping the external environment, which she argued determines the extent to which marketers can interact with and respond to stakeholders. Polonsky et al. (2003) developed this point further when they discussed the use of a “harm chain” to develop public policy. They suggested that clarifying the potential negative consequences of corporate strategies could assist organisations to develop measures to minimise harm and identify where regulatory intervention may be required. Their approach involves identifying three general groups: those who cause harm, those affected by harm, and those able to address harm; this latter group typically comprises regulators (Polonsky et al., 2003, p. 350). Polonsky et al.’s approach implicitly acknowledges that businesses might not always be able or willing to respond to stakeholders’ concerns, a point made also by Mellahi and Wood (2003), although the latter were pessimistic about governments’ willingness to intervene directly to hold firms to account. While Polonsky et al. (2003, p. 353) held a more optimistic view of governments’ willingness to intercede, they suggested that regulations were “less likely to address the fundamental causes of harm”. Reducing harm, they argued, required the adoption of a network philosophy that ensured harmful situations, and those involved or affected by these, were broadly recognised and defined (Polonsky et al., 2003, p. 354). The remainder of this paper uses Polonsky et al.’s “harm chain” approach to analyse the effects of DTCA and develop public policy options that could better manage this advertising. The research extends Polonsky et al.’s model by demonstrating how independent public opinion research enables identification of stakeholders’ concerns and evaluation of policies designed to address these concerns. DTCA’s harm chain Advertisements for prescription medicines (DTCA) became widespread on New Zealand television channels in the mid-1990s. However, DTCA was not a planned phenomenon and emerged largely because of a regulatory loophole that did not

formally prohibit it. Because DTCA’s appearance was not preceded by any formal discussions, some stakeholder groups felt outraged by these promotions, concerns that were fuelled by the highly emotive images used in early campaigns and the apparent lack of guidelines governing these. The regulatory void was filled not by legal amendments, but through the development of a self-regulatory system. While welcomed by advertisers and the pharmaceutical industry, many of those opposed to DTCA felt industry-based self-regulation was fatally flawed because of the self-interest of those involved in assessing complaints (Lexchin and Mintzes, 2002; but see Wiggs (2003), for an alternative view). The rapid emergence of DTCA, the lack of an immediate public policy response by government, and the swiftness of the advertising industry’s development of self-regulation, created a wide network of stakeholders. However, harm chain analysis suggests even beneficiaries of DTCA could potentially be harmed by these promotions. For example, direct harm could occur to men prescribed Viagra over the Internet without first having disclosed health conditions that would indicate they were not suitable candidates for this drug. These individuals could suffer serious medical consequences if they combine incompatible medications or take a drug likely to exacerbate an untreated condition. Women have also reportedly suffered indirect harm when their partners use Viagra. Potts et al. (2003) report that women do not always adjust well to their partners’ enhanced sexual performance and increased expectations, both of which may create stress rather than removing a source of tension. Thus, while Viagra may address a specific physical problem, it could adversely affect other conditions and intensify underlying relationship difficulties. This example draws on two stakeholders to demonstrate how therapeutic treatments may have both positive and negative consequences. Figure 1 uses Polonsky et al.’s (2003) approach to extend this example and identify the full range of groups within this harm network. Figure 1 illustrates the differing levels of support each group has for DTCA and highlights the strikingly different opinions that exist. Irrespective of its position in the

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Figure 1. Pharmaceutical industry stakeholders

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figure, each group has the potential to be harmed; thus, a detailed knowledge of stakeholders’ expectations and the way in which DTCA affects them is vital for the development of a comprehensive public policy framework. Hastak et al. (2001) discussed the use of consumer surveys in the development of US DTCA regulation and suggested how research undertaken by the Food and Drug Administration during the moratorium on DTCA in the early 1980s assisted clarification of its regulatory stance. In sharp contrast to the FDA’s approach, the New Zealand government has not undertaken stakeholder research into DTCA and has drawn very selectively on research conducted by industry associations, academics and interest groups. This has led to a situation where public policy responds primarily to lobby groups whose views happen to align with the relevant government minister’s prejudices and fails to recognise the diverse range of stakeholder views that exist. A “harm chain” analysis explicitly recognises wider stakeholder interests; we extend Polonsky et al.’s (2003) model by demonstrating how the outcome of “harm chain” analyses may be used to develop public opinion research objectives. The overall objective was thus to develop Polonsky et al.’s model to support a more inclusive approach to public policy development.

Doctors Self-completion surveys undertaken with doctors in New Zealand and the USA have relied on batteries of attitude statements, which are not well suited to probing the complex and sometimes conflicting views that doctors hold about DTCA. For this reason, 20 depth interviews were undertaken with general practitioners, the group most likely to encounter patients wishing to discuss or request prescription medicines they had seen advertised. The sample was selected from the “Registered Medical Practitioners & Medical Centres” sections of the White Pages telephone directories. Invitations to participate in the study were sent to one GP in each medical centre, and to every GP who operated a solo practice; a total of 67 letters were sent out and 11 were returned as GNA or by doctors who had retired. a total of 22 doctors agreed to participate, a response rate of 39 per cent, resulting in 20 eligible interviews, which were conducted in GPs’ consulting rooms during clinic hours. Each interview lasted between 30 and 45 minutes and a payment of $80 was offered in recognition of the consultation time forgone. The questionnaire examined respondents’ perception of DTCA and its effect on patients, doctors and the wider community. Many respondents believed DTCA created unrealistic expectations among patients, who would request a particular drug believing it would provide a “quick fix” for a chronic health condition. In addition, doctors considered harm occurred when patients relied excessively on medical interventions, and used them as an excuse to avoid lifestyle changes. Where doctors resisted providing “quick fix” solutions, some felt they ran the risk of leaving their patients dissatisfied. For these doctors, harm occurs when patients resist adoption of a non-pharmaceutical treatment regime and feel disappointed with their GP’s advice. One doctor summarised this view: I think they’re usually a bit dissatisfied [if] they’re made up their mind before they come in that that’s what they want.

Many doctors were concerned that they encountered patients who sought prescriptions for drugs they did not understand. One commented: People say: “I want that product!” but they haven’t got enough information to make that decision.

In addition, doctors criticised the format of DTCA, which some described as overtly emotional and manipulative, and that they felt encouraged unrealistic expectations among patients. Others were critical of the range of drugs promoted, and thought DTCA was not a suitable medium to promote life-saving treatments, especially where the underlying medical condition was complex and advertising could create unfounded expectations about new or superior treatments. Because doctors did not believe that all conditions required a prescription, they disliked coming under pressure to prescribe, which they felt could introduce tension to the relationship. As one doctor noted: I have some concerns about the fact that you then are expected to prescribe something that’s not always appropriate and you have to be the censor in explaining to the person why, in time that the patient ultimately paid for.

Although few doctors found their relationships with patients had deteriorated since the introduction of DTCA, some felt maintaining a rapport was now more complex. Doctors also reported that DTCA complicated their consultations, requiring them to “waste time” correcting misconceptions before they could turn their attention to their patients’ specific condition. Several mentioned that GPs effectively ran businesses and sub-optimal use of their time reduced the efficiency of their practices: [DTCA] puts stress on the time factor more than anything. Patients don’t realise there is a direct correlation between time and money.

Doctors were concerned that patients might also waste time pursuing a prescription for a drug that was unsuitable or unaffordable. Doctors commented: I say, “well, there’s no clear indications for you, and I’m not sure if you can afford it as it will cost you $40 a month”, and they say “crikey ”.

In addition, some doctors mentioned that unnecessary prescriptions put further pressure on an already strained health budget. As one noted: I think that the hidden agenda there is to create a demand for [the advertised drugs] so that they will be funded later.

Overall, doctors’ comments reveal three general areas where harm could occur: financial, personal and physical. Financial harm occurs when unnecessary prescribing places a burden on the government’s pharmaceutical budget. On a more specific level, doctors and patients also suffer financial harm when consultation time is used to clarify misconceptions created by DTCA. DTCA can also cause tension where doctors’ and patients’ views on appropriate treatments vary and may cause harm if the relationship becomes less trusting than it had previously been. Finally, harm occurs when patients believe medical interventions obviate the need to make lifestyle changes. Growing awareness of these problems has led doctors’ associations to become more critical of DTCA and less willing to accept that industry regulation provides appropriate oversight.

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While many doctors saw some benefits to DTCA, a core group has remained consistently opposed to DTCA. This group recently submitted a report on DTCA to the Minister of Health, in which they called for a ban on this advertising (Toop et al., 2003). This report included only a short consumer survey; this highlights the irony that consumers’ voices are rarely heard in this debate, despite the fact that consumers are at more risk of harm than any other stakeholder group. The following section uses data from a mail survey of 800 New Zealanders conducted between October 2003 and December 2003 to examine consumers’ views of DTCA. The sample was drawn from the 2002 electoral roll and was stratified by electorate. After three contacts, the survey achieved a 62 per cent response rate (n ¼ 418). The sample’s age-gender profile was compared to Census profiles and was generally consistent with the New Zealand population. The questionnaire included a variety of prompted awareness, behavioural and attitudinal measures; the latter included a series of forced choice questions specifically designed to test the types of harm that could result from DTC promotions. Consumers and potential end-users of medicines Consumer surveys report very high levels of awareness of DTCA, thus highlighting concerns that the potential for harm is not confined to a small or knowledgeable group of possible users. Respondents’ reactions to the forced choice statements reinforce the potential for harm that may occur; Table I examines these responses according to whether respondents have discussed a medicine they saw advertised with their GP. Nearly three-quarters of the sample felt DTCA was unbalanced and over-emphasised benefit information at the expense of risk and side-effect details,

Forced choice statements

Table I. New Zealand consumers’ attitudes to DTCA

DTCA over-emphasises benefits DTCA balances risks and benefits DTCA leads to more informed discussions with doctors DTCA creates unnecessary demand for medicines Most people understand DTCA Most people find DTCA confusing DTCA improves patients’ relationship with their doctor DTCA has no effect on patients’ relationship with their doctor DTCA harms the relationship patients have with their doctor DTCA makes people more aware of options DTCA makes people more reliant on medicines

Response to DTC Advertisementa No response to advertisement Followed up GP Total sample (n ¼ 294) (n ¼ 92) (n ¼ 386) % % % 75 18

67 27

72 21

46

67

51

36 43 38

23 59 33

33 46 37

14

21

16

42

48

43

13 51 34

9 73 17

11 56 30

Note: a Responses to each pair of statements do not sum to 100 per cent because “can’t choose” responses have not been reported

and over a third considered that most people would find DTCA confusing. These findings reflect concerns raised by doctors, namely that DTCA routinely omits important information, while the details that are provided perplex many consumers. However, other potentially harmful outcomes noted by doctors do not feature prominently among consumers’ concerns: more than half thought DTCA made people more aware of treatment options and promoted more informed discussions with doctors. Nevertheless, the fact that sizeable minorities held dissenting views indicates concern that DTCA could foster greater reliance on medical intervention in preference to non-therapeutic treatments. The growing resistance to antibiotics, which were once widely prescribed, demonstrates how inappropriate use of medical solutions may have profound and wide-ranging longer-term effects. However, doctors’ concerns that DTCA may create tensions with patients are not supported by respondents’ experiences. Nearly half believe DTCA has had no effect on their relationship with their doctors and only 11 per cent felt it had harmed this relationship. Interestingly, respondents who had discussed a medicine they had seen advertised with their doctor were consistently more positive about this advertising than those who had not. This suggests that perceptions of harm may not be matched by actual experience, and highlights the importance of recognising that stakeholder groups themselves may comprise several sub-groups. Overall, although consumers hold largely positive views of DTCA, more balanced and informative promotions would address concerns raised. Advertisers could also consider the wider implications of the images used in DTCA as these may create psychological discomfort that differs from the physical and financial harm discussed above. For example, weight loss advertising has focussed on the social embarrassment obese individuals experience, and often uses images of social alienation. Although designed to promote a solution to obesity, these advertisements may also reinforce social stereotypes, which may harm those in the target group. These issues have caused particular concern to the Public Health Association (PHA) and Women’s Health Action Group (WHAT), two consumer interest groups that have opposed continuation of DTCA. Interestingly, the largest consumer group, Consumers’ Institute, has criticised both sides in the debate: advertisers for failing to prove clear, balanced and accessible information, and doctors for adopting an overly paternalistic stance. Their criticisms highlight the harm created when information is not easily understood, and when power relationships are used to impede discussion. Consumers’ Institute also recognises a ban on DTCA may create harm as consumers value the information provided, even if this has deficiencies. Consumers’ and doctors’ views raise important questions about advertisers’ objectives and the regulation of DTCA. To examine these perspectives, a series of depth interviews were undertaken with 20 individuals representing, medical and advertising industry groups, pharmaceutical companies, advertising agencies, and regulators. A loosely structured interview protocol was used to investigate respondents’ views of the Code for Therapeutic Advertising and the advertising pre-vetting system (TAPS), and how effectively these protected consumers. Advertising, pharmaceutical and media industries Industries involved in supplying media, advertising or promoted products fear increasing restrictions on their promotional activities. To avoid this outcome, these

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stakeholders voluntarily developed the TAPS, a mandatory pre-vetting operation established to promote higher levels of compliance with self-regulatory Code for Therapeutic Advertising. DTCA generates demand for the promoted drugs, thus increasing the penetration of these brands and shortening the diffusion cycle. Although it is difficult to establish a causal relationship between DTCA and sales of promoted products, PHARMAC reports strong correlations between some advertised brands and prescription levels (PHARMAC, 2000). Ironically, DTCA’s potential to expand sales has increased the level of competition between rival companies, and prompted more competitor complaints about allegedly inaccurate, unfair and misleading claims. Despite this adverse consequence, drug companies oppose stricter regulation of DTCA, which they argue is their only means of generating demand for unsubsidised products, revenue from which supports research and development in other areas. On a philosophical level, advertisers argue restraints on DTCA would affect the free-flow of information that underpins democratic societies (RMI, 2000). This would harm advertisers as well as the public, who would be denied access to information that could potentially benefit them. The media current generate considerable revenue from DTCA, which represents one of the fastest growing advertising categories. A ban on this advertising would reduce their revenue base, which they use to develop programmes; restrictions that adversely affect the media may therefore constrain viewers’ programme options. These stakeholders support continuation of DTCA under a self-regulatory framework, and argue that the economic consequences of restricting this advertising would have widely felt consequences. However, these arguments hold little sway with those who believe these products have a high potential for harm when misused, and place pressure on regulators, who must maintain the safety and rights of all groups. Regulators Like interest groups, regulators’ views are not disinterested. The drug-funding agency, PHARMAC, has opposed DTCA because of the increased pressure it has come under to subsidise expensive lifestyle drugs that do not attract a subsidy. PHARMAC has alleged that drug companies use demand generated by DTCA to support arguments that lifestyle drugs should be added to the subsidised list. Since the health budget is limited, these requests create pressure to allocate resources in a sub-optimal manner, an outcome that has the potential to harm many. Ministry of Health officials have adopted a more sanguine perspective and accept that DTCA may increase consumers’ knowledge and well being (where advertisements meet the standards set in the legislation). However, audits of DTCA promotions have revealed comparatively low levels of overall compliance with these standards. These findings reinforce concerns raised by both consumers and doctors and highlight the need for more informative promotions that reduce this potential for harm. Both PHARMAC and the Ministry of Health report to the Minister of Health, who has been vigorously lobbied by interest and industry groups, and who has consistently opposed DTCA and promised to do her best to ban it (King, 2003). Yet, while her stance recognises the concerns of those opposed to DTCA, it fails to acknowledge stakeholders who support this advertising.

DTCA may result in harmful outcomes to some groups, however, bans on DTCA may also create harm, and public policy development needs to consider this possibility. Figure 2 summarises concerns held by stakeholder groups, outlines a harm chain, and proposes research that would inform future policy development. Public policy implications Polonsky et al. (2003) suggested harm chain analyses identified gaps between stakeholders’ expectations and the current situation, and policy options that could address these. However, the diverse views on DTCA – some stakeholders believe it should be banned, while others are equally convinced that it should be maintained – makes it difficult to develop inclusive public policy. To avoid a regulatory impasse, regulators could adopt normative principles, as stakeholder theorists recommend. In the case of DTCA, this may require a utilitarian approach, where policy attempts to achieve the greatest good for the greatest number, even if it cannot address the concerns of all stakeholders in full. Adopting this approach would see regulatory changes introduced as an initial measure, to be replaced by a ban if they failed to reduce the potential for harm outlined above.

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Figure 2. Harm chain analysis

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Analysis of the stakeholder research and harm chain outlined above reveals some common themes: doctors, patients and regulators (government and self-regulatory) all expressed concerns about the quality of information provided via DTCA. Regulators should thus clarify the level and type of side effect and risk information that DTCA contains, the format this should take, and a minimum level of legibility. Adoption of the US “fair balance” criterion, which requires advertisers to provide a reasonable overview of risk and benefit information, could also address concerns about DTCA’s information content. Introducing mandatory pre-testing and setting minimum comprehension scores would ensure advertising reflected these policies. Requiring television advertisers to run contiguous print campaigns, and offer additional access to information through 0800 numbers and web sites would increase access to a range of more detailed information. These changes to the content and format of advertisements, together with improved accessibility to more detailed information sources, would reduce the potential for consumers to incur personal, financial or physical harm. Prescriptive guidelines that clarified doctors’ role and required inclusion of statements such as “Only your doctor can advise whether a drug is suitable for you” could reduce tension created when patients requested inappropriate drugs. Regulatory changes could also ensure drug costs, including the initial consultation fee and any full or part-charges, were made clear in advertising. These developments could occur through amendments to the industry managed self-regulatory codes. However, this system relies on education rather than punishment as an incentive, and some complainants view the complaints process as ineffective, since campaigns may have concluded by the time a complaint has been adjudicated. Because self-regulation requires a strong legal framework to be effective, the Ministry of Health should take a more pro-active stance in reviewing compliance with the medicines legislation, for which they are responsible. Better liaison between the self-regulatory groups and government officials would assist prosecution of recidivist offenders, creating a fairer climate for consumers and advertisers alike. More robust penalties, such as loss of advertising time and space, would provide advertisers and the media with a strong incentive to meet the high social standards prescribed in the self-regulatory code. Stronger integration of the two regulatory systems would strengthen each and could address concerns raised by stakeholder groups. However, the measures outlined above should be thoroughly tested with stakeholders before being implemented as policy. If stakeholders see they have an interest in the policy succeeding, their behaviour should change to support that policy. This implies that stakeholders should also be aware that failure of a utilitarian approach could see it replaced by a deontological stance, where harm to any group would not be tolerated, and a ban on DTCA would result. Thus, as well as testing policy options prior to their adoption, regulators need also to monitor the effects of their activities on the behaviour and perceptions of all stakeholder groups. As Hastak et al. (2001) noted, and as Figure 2 proposes, consumer research should be longitudinal, to ensure policy changes address and anticipate stakeholders’ concerns. Conclusions DTCA has attracted considerable controversy in both New Zealand and the USA, partly because of the difficulty of satisfying competing stakeholders’ needs. This

difficulty has led policy makers to favour specific interest groups and overlook how common concerns could be addressed. Analysis of the harm likely to result from DTCA reveals consumers, doctors, regulators and interest groups alike are concerned about the adequacy of information provided. Public policy responses could include development of guidelines about the format, content and style of these promotions, and a reconsideration of the types of drugs advertised. The self-regulatory system, which is typically very responsive to the political climate, could manage these changes if industry stakeholders recognise the penalties for non-compliance exist. To foster compliance, government must restrain advertisers who transgress the regulations; in addition, government should undertake systematic monitoring of stakeholders’ views to assess the effectiveness of policy changes. While adoption of a utilitarian norm will not satisfy all stakeholder interests, it could produce the greatest reduction in harm, and maximise the benefits that can result from DTCA. However, the ultimate weapon in a regulatory arsenal is a ban on the activity in question, and it is important that stakeholders who view DTCA as their right recognise the responsibilities associated with this right. If more prescriptive public policy does not reduce the potential for harm, and surveys of stakeholders continue to reveal the same concerns, policy makers will have little option but to ban DTCA. Hastak et al. (2001) suggest that academic researchers have an important role to play in the formation of public policy, through researching stakeholders, challenging prevailing assumptions, and evaluating policy options. It is unfortunate that the debate in New Zealand has focussed on highly partisan interests and has tended to overlook the interests of important stakeholder groups. Regular harm chain analyses, conducted by independent researchers, would reduce the risk that public policy is driven by groups with narrow agendas, provide important insights into DTCA’s wider effects, and ensure the adequacy of policy changes in managing these. References Abratt, R. and Sacks, D. (1988), “The marketing challenge: towards being profitable and socially responsible”, Journal of Business Ethics, Vol. 7, pp. 497-507. Atkinson, A., Waterhouse, J. and Wells, R. (1997), “A stakeholder approach to strategic performance measurement”, Sloan Management Review, Vol. 38 No. 3, pp. 25-37. Carrigan, M. (1995), “POSIT-ive and negative aspects of the societal marketing concept: stakeholder conflicts of the tobacco industry”, Journal of Marketing Management, Vol. 11, pp. 469-85. DeBussy, N., Ewing, M. and Pitt, L. (2003), “Stakeholder theory and internal marketing communications: a framework for analysing the influence of new media”, Journal of Marketing Communications, Vol. 9 No. 3, pp. 147-61. Donaldson, T. and Preston, L. (1995), “The stakeholder theory of the corporation: concepts, evidence, implications”, Academy of Management Review, Vol. 20 No. 1, pp. 65-91. Elms, H., Berman, S. and Wicks, A. (2002), “Ethics and incentives: an evaluation and development of stakeholder theory in the health-care industry”, Business Ethics Quarterly, Vol. 12 No. 4, pp. 413-32. Freeman, R. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA.

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Freeman, R. (1994), “The politics of stakeholder theory: some future directions”, Business Ethics Quarterly, Vol. 4 No. 4, pp. 409-21. Friedman, A. and Miles, S. (2002), “Developing stakeholder theory”, Journal of Management Studies, Vol. 39 No. 1, pp. 1-21. Friedman, M. (1970), “The social responsibility of business is to increase its profits”, New York Times Magazine, Vol. 122, September 13, pp. 32-3. Gibson, K. (2000), “The moral basis of stakeholder theory”, Journal of Business Ethics, Vol. 26, pp. 245-57. Greenley, G. and Foxall, G. (1997), “Multiple stakeholder orientation in UK companies and the implications for company performance”, Journal of Management Studies, Vol. 34 No. 2, pp. 259-84. Gregory, R. and Keeney, R. (1994), “Creating policy alternatives using stakeholder values”, Management Science, Vol. 40 No. 8, pp. 1035-48. Hastak, M., Mazis, M. and Morris, L. (2001), “The role of consumer surveys in public policy decision making”, Journal of Public Policy and Marketing, Vol. 20 No. 2, pp. 170-85. Hoek, J., Gendall, P. and Calfee, J. (2004), “Direct to consumer advertising of prescription medicines in the United States and New Zealand: an analysis of regulatory approaches and consumer responses”, International Journal of Advertising, Vol. 23 No. 2, pp. 197-227. Jawahar, I. and McLaughlin, G. (2001), “Toward a descriptive stakeholder theory: an organisation life cycle approach”, Academy of Management Review, Vol. 26 No. 3, pp. 317-414. Jones, T. and Wicks, A. (1999), “Convergent stakeholder theory”, Academy of Management Review, Vol. 24 No. 2, pp. 206-21. Kaler, J. (2003), “Differentiating stakeholder theories”, Journal of Business Ethics, Vol. 46 No. 1, pp. 71-83. King, A. (2003), “Mid-winter dialogue, Christchurch Medical School”, speech delivered 7 August, available at: www.beehive.govt.nz/ViewDocument.cfm?DocumentID ¼ 17505 Lexchin, J. and Mintzes, B. (2002), “Direct-to-consumer advertising of prescription drugs: the evidence says no”, Journal of Public Policy and Marketing, Vol. 21 No. 2, pp. 194-202. Maignan, I. and Ferrell, O.C. (2004), “Corporate social responsibility and marketing: an integrative framework”, Journal of the Academy of Marketing Science, Vol. 32 No. 1, pp. 3-19. Mellahi, K. and Wood, G. (2003), “The role and potential of stakeholders in hollow participation: conventional stakeholder theory and institutionalist alternatives”, Business and Society Review, Vol. 108 No. 2, pp. 183-202. Miller, R. and Lewis, W. (1991), “A stakeholder approach to marketing management using the value exchange model”, European Journal of Marketing, Vol. 25 No. 8, pp. 55-68. Mitchell, R., Agle, B. and Wood, D. (1997), “Toward a theory of stakeholder identification and salience: defining the principle of who and what really count”, Academy of Management Review, Vol. 22 No. 4, pp. 853-86. Page, C. (2002), “The development of organisation stakeholder salience in public health”, Journal of Public Health Management Practice, Vol. 8 No. 5, pp. 76-84. Petkus, E. and Woodruff, R. (1992), “A model of socially responsible decision-making processes in marketing: linking decision makers and stakeholders”, Marketing Theory and Application, Vol. 3, pp. 154-61. PHARMAC (2000), submission for Ministry of Health Review of Direct to Consumer Advertising, PHARMAC, Wellington, November.

Phillips, R., Freeman, R.E. and Wicks, A. (2003), “What stakeholder theory is not”, Business Ethics Quarterly, Vol. 13 No. 4, pp. 479-502. Polonsky, M.J. (1995), “A stakeholder theory approach to designing environmental marketing strategy”, Journal of Business & Industrial Marketing, Vol. 10 No. 3, pp. 29-46. Polonsky, M.J., Carlson, L. and Fry, M.L. (2003), “The harm chain: a public policy development and stakeholder perspective”, Marketing Theory, Vol. 3 No. 3, pp. 345-64. Polonsky, M.J., Suchard, H. and Scott, D. (1999), “The incorporation of an interactive external environment: an extended model of marketing relationships”, Journal of Strategic Marketing, Vol. 7 No. 1, pp. 41-55. Potts, A., Gavey, N., Grace, V. and Vares, T. (2003), “The downside of Viagra: women’s experiences and perspectives”, Sociology of Health & Illness, Vol. 25 No. 7, pp. 697-719. Smith, H.J. (2003), “The shareholders vs stakeholders debate”, MIT Sloan Management Review, Summer, pp. 85-90. Toop, L., Richards, D., Dowell, T., Tilyard, M., Fraser, T. and Arroll, B. (2003), “Direct to consumer advertising of prescription drugs in New Zealand: for health or for profit?”, available at: www.chmeds.ac.nz/report.pdf Waddock, S., Bodwell, C. and Graves, S. (2002), “Responsibility: the new business imperative”, Academy of Management Executive, Vol. 16 No. 2, pp. 132-48. Werhane, P. (2000), “Business ethics, stakeholder theory and the ethics of healthcare organisations”, Cambridge Quarterly of Health-care Ethics, Vol. 9, pp. 169-81. Werhane, P. and Freeman, R. (1999), “Business ethics: the state-of-the-art”, International Journal of Management Review, Vol. 1 No. 1, pp. 1-16. Whysall, P. (2000), “Addressing ethical issues in retailing: a stakeholder perspective”, International Review of Retail, Distribution and Consumer Research, Vol. 10 No. 3, pp. 305-18. Wiggs, G. (2003), “The New Zealand experience with DTC”, paper presented at the American Enterprise Institute Seminar, Washington, DC, May 29. Further reading Brønn, P. and Brønn, G. (2003), “A reflective stakeholder approach: co-orientation as a basis for communication and learning”, Journal of Communication Management, Vol. 7 No. 4, pp. 291-303. Calfee, J. (2002), “Public policy issues in direct-to-consumer advertising of prescription drugs”, Journal of Public Policy & Marketing, Vol. 21 No. 2, pp. 174-93.

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Balanced versus focused responsiveness to core constituencies and organizational effectiveness Oliver Koll Institut fu¨r Marketing – Strategy Consultancy, Innsbruck, Austria

Arch G. Woodside Boston College, Chestnut Hill, Massachusetts, USA, and

Hans Mu¨hlbacher University of Innsbruck, Innsbruck, Austria Abstract Purpose – To test how responsiveness to key organizational stakeholders (owners, customers, employees) is related to organizational effectiveness (OE). Focused versus balanced strategies of responsiveness are compared. Design/methodology/approach – Employs Boolean algebra to study performance of 69 companies in three industries over a ten-year period. Responsiveness to key stakeholders and performance are measured using publicly available data provided by these organizations (Compustat by Standard & Poor’s). Findings – Provides evidence that balanced responsiveness to multiple constituencies is more likely to lead to high OE than focused responsiveness to a single one. Trade-offs in responsiveness to key stakeholders are found supporting the idea that serving multiple interests is challenging. Most results are not industry-specific – the usefulness of a balanced strategy of responsiveness may be generalized. Research limitations/implications – Responsiveness embraces organizational behaviors not covered by accounting information. Development of more comprehensive responsiveness measures may be a fruitful avenue for further research. Analyses are limited to a subset of key stakeholders and three industries. Practical implications – Provides evidence that organizations avoiding extreme unresponsiveness to any of its key stakeholders are more effective. Aiming for above-average responsiveness to any constituency only pays off if no other constituency simultaneously enjoys below-average responsiveness. Originality/value – This article develops a comprehensive methodological framework to assess strategies comparing balanced versus focused responsiveness to multiple organizational constituencies. Empirical results should be of relevance to strategy practitioners and scholars alike. Keywords Stakeholder analysis, Organizational effectiveness, Boolean algebra Paper type Research paper

European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 1166-1183 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610789

Introduction Scanning both the academic and popular business literature of the last 40 years puzzles the alert reader: “Being close to the customer”, total quality management, corporate social responsibility, shareholder value, efficient consumer response, or employee empowerment are but a few of the slogans introduced as means to increase

organizational effectiveness (OE). Management scholars have made little effort to integrate the various performance-enhancing strategies. OE is usually studied in piecemeal fashion where the focus of attention is: . a single element in the organizational environment; for example, how industry concentration relates to performance (Go et al., 1999); . a single constituency; for example, how an organization’s customer orientation relates to its effectiveness (Peters and Waterman, 1982; Narver and Slater, 1990); and . a single facet of organizational behavior; for example, how organizational culture (Denison and Mishra, 1995) affects OE. Such studies disregard potential interdependencies with other factors – applying the caveat “everything else remains equal” – in the organizational environment in proposals of linear and interaction causal path effects (Lieberson, 1985). For example, depending on other factors, changes in industry concentration may affect different organizations differently, changes in the orientation towards a given constituency may have an impact on the relationship with other constituencies (and might consequently impact the relationship with the former one), and a certain organizational culture may be more effective for some organizations than for others. Consequently, greater use of contingency theory construction and testing is necessary to represent the variety of interactive factors that lead to high versus low OE (see Ragin, 1987). This study classifies organizations by the importance they attach to different constituencies. A number of researchers divide an organization’s environment into various constituency groups and argue that these groups constitute – as providers and recipients of resources – the basis for organizational survival and well-being (Cyert and March, 1963; Pfeffer and Salancik, 1978; Freeman, 1984). Some theoretical schools argue for the foremost importance of responsiveness to certain constituencies while stakeholder theory calls for a – situation-contingent – balance in these responsiveness levels. Since responsiveness levels to different groups may be limited by an organization’s resource endowment (or even counterbalanced), a concurrent assessment of these competing claims provides a “critical test” of multiple, opposing theories (Carlsmith et al., 1976). The authors employ Boolean algebra to test the performance effect of different degrees of responsiveness to stakeholders as exhibited by organizations. The strength of the approach is the ability to address questions about outcomes which result from multiple and conjunctural causes – where different conditions may combine to result in the same outcomes. By linking actual indicators of corporate behavior towards stakeholders with corporate performance and investigating the impact of such behavior across three industries this study evaluates the respective merits of implementing a business strategy focusing on a single constituency versus one aiming to balance stakeholders’ interests. OE and stakeholder responsiveness Although OE is the most widely used dependent variable in business research, the construct space is ambiguous and lacks a consistent agreed-on definition. More than 30 years ago Katz and Kahn (1966, p. 149) wrote:

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There is no lack of material on criteria for organizational success . . . Most of what has been written on the meaning of these criteria and on their inter-relatedness, however, is judgmental and open to question. What is worse, it is filled with advice that seems sagacious but is tautological and contradictory.

This statement still applies today. Today most studies employing some type of effectiveness measure define it – unconsciously or not – using one of four frameworks: the goal approach, the systems resource approach, the internal approach or the strategic constituency approach (Ford and Schellenberg, 1982). A majority of studies assume that organizations have ultimate and identifiable goals, e.g. market share, profitability, market value or customer satisfaction. The systems resource approach conceptualizes effectiveness as a bargaining position for scarce and valued resources. The internal approach focuses on the functioning of internal processes while the strategic constituency approach assesses OE by the organization’s ability to fulfill its constituencies’ needs. While all of these approaches to OE are suitable for certain situations, most empirical studies choose effectiveness constructs within the goal approach. Although these typically benefit certain constituencies more than others they are accepted as sensible yardsticks to evaluate performance. They also are frequently employed in popular and scientific effectiveness reports (see Ambler and Kokkinaki (1997) for an overview). While no “official” classification scheme for OE studies exists, most studies have either an economic or an organizational background. Studies in the economic tradition assume that external market factors are important in explaining performance differences between companies whereas those in the organizational tradition assume that the behavior of organizations is the major determinant of performance. Little attempt has yet been made to integrate this widely-scattered field of research. To arrive at a comprehensive understanding of OE, the authors propose a stakeholder-relationship perspective for studying firm performance. We believe that a firm’s responsiveness towards its stakeholders impacts their willingness to provide resources necessary for organizational survival (Pfeffer and Salancik, 1978; Cyert and March, 1963). Therefore we link the organizational and economic traditions by relating an organization’s behavior to external market forces. Each of the following arguments endorses the management of responsiveness to multiple constituencies as a main driver of OE. The industry analysis – resource view concept The industry analysis framework (Porter, 1980; Schmalensee, 1985) views the sources of performance to be the characteristics of an industry and the firm’s position within that industry. Such a perspective might incorrectly over-emphasize industry effects in explaining performance differences. Therefore Amit and Shoemaker (1993) attempt to integrate the industry analysis framework with the resource view of the firm (Wernerfelt, 1984; Barney, 1986, 1991), the conceptualization of the firm as a collection of resources and capabilities. They term the set of resources and capabilities that guarantees a firm’s competitiveness its strategic assets (Amit and Shoemaker, 1993). Whether the set of capabilities and resources a company has currently available are strategic assets depends on the strategic industry factors, those resources and capabilities that, at a given point in time, are the prime determinants of performance in an industry. Not all players in the industry are aware of the current composition and

future development of these strategic industry factors, otherwise these factors would lose relevance. Interactions between key players in an industry – competitors, customers, suppliers, and other stakeholders , determine strategic industry factors (Amit and Shoemaker, 1993). Therefore companies that are able to first understand the development and meaning of these interactions should be in a position to most effectively act on this knowledge.

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Environmental orientation of companies While it has been shown that managers are able to process vast amounts of data (Lord and Maher, 1990), it is also true that their attention is selective and biased (Dearborn and Simon, 1958). Lines and Gronhaug (1993, p. 6) term the pattern of this attention the environmental orientation of managers: It is a: [. . .] set of beliefs held by managers reflecting the relative importance of different environmental sectors (elements) for the goal achievement of their firms.

Comprehensive attendance to the entire environment is not feasible. Thus, whatever form the environmental orientation of managers takes, the orientation adopted results in incomplete and possibly unbalanced monitoring of environmental subsegments. The fact that different researchers as well as practitioners call for focused attention to specific environmental sub-segments is a sign that they hold different views about the relative importance of these segments in achieving their goals. Competitive advantage as a result of firm-constituent interactions Rindova and Fombrun (1999) argue that four sources of a competitive advantage exist all of which are linked by processes connecting an organization and its environment. One source is an organization’s differential market power which allows the organization to control prices and earn monopoly rents (Porter, 1980; Scherer and Ross, 1990). Another source is control over a bundle of unique resources that allows exploitation of above-average economic rents (Barney, 1991). These two economic sources need to be complemented by interpretational sources: cognitive research emphasizes the importance of useful interpretation of economic conditions guided by knowledge, values and beliefs. “Sensemaking” skills are the third source of competitive advantage (see Fiol, 1991; Weick, 1995). External parties also exchange information, form opinions and create preferences (Hill and Jones, 1992) that can lead to competitive advantage. Rindova and Fombrun (1999) outline various forms of interaction (investments, forecasts, image, etc.) between an organization and its environment nurturing these sources of competitive advantage. How an organization manages relationships with its stakeholders thus becomes a critical factor in achieving performance. Focus versus balance of responsiveness The three ideas outlined support a perspective to view organizational performance as the result of multiple relationships with stakeholders. Each group provides necessary resources and responding to their requirements should pay off. However, maintaining relationships with constituencies is a resource-intensive effort. Therefore a trade-off between the diverse relationships to different key-players can be assumed: By putting more emphasis on certain relationships, others may have to be limited, and vice versa.

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Different research traditions argue – more or less strongly – for organizations to concentrate (not limit) their efforts on certain stakeholders (marketing for customers, finance for shareholders, human resources for employees). Attending most to one stakeholder group implies attending less (or, unlikely, not at all) to other ones (Doyle, 1992). The stakeholder idea calls for striking a balance between the responsiveness shown to these groups. How an organization balances responsiveness may be evaluated in two ways: (1) by comparing responsiveness to one stakeholder group with responsiveness to another one; or (2) by comparing responsiveness to one stakeholder group with responsiveness to this stakeholder group shown by peer organizations. Perspective (1) is difficult to conceptualize and to examine: Some industries may warrant more responsiveness for certain constituencies simply to survive. The second problem would be a methodological one: Each stakeholder group expects different types of behavior from an organization and different resources are exchanged. Comparing these exchange relationships becomes a difficult, if not impossible task. How would one assess whether customers receive exactly the same level of responsiveness as employees? Perspective (2) towards “balance” therefore seems more useful. Since comparisons are now made between organizations and not within organizations a certain set of measures applies for each constituency group. Above-average responsiveness to a stakeholder group would be captured at the industry or strategic group level where most constituencies will judge performance. No assumption is made that all constituencies a priori deserve the same level of responsiveness but that industry standards shape the expectations of constituencies. Finally, organizations capable of using their resources in a unique way are above average responsive to multiple/all stakeholders (Greenley and Foxall, 1996; Preston and Sapienza, 1990) which could not be picked up by applying perspective (1). Evaluating responsiveness to constituencies Data sources for measuring responsiveness The relationship between an organization and its constituencies is characterized by the exchange of resources. To guarantee the continuous supply of these resources an organization has to offer inducements, e.g. financial rewards, personal attention or emotional commitment. How well an organization does in offering these inducements can be learned from three different sources: (1) by surveying management; (2) by surveying constituencies about the level of responsiveness they experience; or (3) by developing responsiveness indicators. By gathering relevant information from managers one assumes that a single (or possibly a number of) organizational member(s) can assess the responsiveness an organization devotes to different constituencies. However, management’s perception is biased and selective (Dearborn and Simon, 1958) – which would only be aggravated if the research aims to cover an extended period of time – rendering inter-organizational

comparisons difficult Thus management surveys are mainly used to understand the importance management attaches to constituencies in strategy development (Greenley and Foxall, 1996). Collecting information from stakeholders may be the obvious way to learn about the organization-stakeholder interface. However, the development of a suitable instrument for each stakeholder group, the identification of a relevant sampling frame and the data collection step might turn out to be overwhelming tasks. Some relevant respondents may have to provide more information than reasonable, for example if a supplier has a large number of customers in the industry under study. Information from other constituency groups would have to be collected from a possibly large number of individual sources (e.g. employees, customers, local community). The third strategy to learn about organizational responsiveness to stakeholders relies on information from secondary sources. Instead of questioning organizational or constituent representatives indicators for organizational attitudes and behavior targeted at stakeholder groups are developed. When cross-sectional research is carried out accounting or financial statements may serve as information sources. For example, sales, repurchase rates, and share-of-pocket may all indicate the fulfillment of customer expectations. Given accuracy concerns with secondary data special caution has to be exercised in the choice of the data source. Sampling Comparing responsiveness to stakeholders should only take place within single industries, as the impact of different constituencies on organizational behavior is likely to differ between industries (McDougall and Robinson, 1990; Spekman and Gronhaug, 1986). Modeling Two broad options for modeling the relationship between constituency responsiveness and OE come to mind. The first – regression-based analysis – incorporates the hypothesized causal relationships into the statistical model in an attempt to assess the quantitative effect of responsiveness to each stakeholder group on performance. The second option – the comparative method , takes an explorative approach in an attempt to assess the interrelationships among the respective behaviors to stakeholder groups and organizational performance. Causality is not built into the model, but can be derived from the results obtained. Strategy research usually relies on regression-based techniques to estimate effects of organizational behavior on performance. Bowen and Wiersema (1999) criticize that the method employed in strategy research is at odds with its central paradigm. While the latter assumes that firms differ in their responses to environmental factors and that responses may have different effects in different time periods cross-sectional regression techniques assume stable model parameters across firms and across time. If these parameters in fact vary across firms and over time any inferences drawn from the results may be useless. Ignorance of firm- or time-specific effects causes most cross-sectional research to “suffer from an inability to determine the true causal relationships” (Hill and Hansen, 1991, p. 187). Single-period regression needs to assume that both the constant and the individual coefficients are constant across firms. In addition, by claiming to uncover some stable relationship between dependent and independent variables the researcher – consciously or not – makes the assumption

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that parameters are also constant over time. When model parameters are assumed to vary across firms pooled time-series, cross-sectional data and corresponding statistical techniques need to be employed (Bass and Wittink, 1975; Greene, 1993). In addition to these purely methodological concerns multivariate statistical analysis tends to be “radically analytic because it breaks cases into parts – variables – that are difficult to reassemble into wholes“ (Ragin, 1987, p. 10). Specificity and insight are given up for generalizability. This results in shortcomings of traditional statistical techniques versus the “ideal“ technique of comparison, experimental design (Ragin, 1987), especially for testing multiple versus focused responsiveness strategies: . The dependent variable cannot be examined under all combinations of the independent variables. . The coefficients for the independent variables are assumed to be the same irrespective of the values of other independent variables. Conjunctural causation may hence go undetected. . By collecting large samples results are sensitive to the relative frequency of certain cases since statistical techniques estimate population parameters for a given set of observations. . Finally, the goal of estimating the independent contribution of each effect is inconsistent with the goal of determining combinations of conditions that cause a certain phenomenon. The first problem outlined plagues all non-experimental work. Most multivariate techniques were actually developed to provide the social sciences with a technique circumventing the problem of data deficiencies resulting from the observation of real-world phenomena. Applying more sophisticated statistical techniques, e.g. interaction models, can circumvent the second and fourth problem outlined. However, testing for interaction effects requires the researcher to have some a priori hypotheses regarding possible interaction effects. For the purpose of this study a large variety of interaction effects could be formulated due to little knowledge on possible interactions between the independent variables in question. Trying different specifications of an argument until one fits the data set without having theory-backed arguments for these specification corresponds with the notion of “data in search of a theory” (Ullmann, 1985). By splitting the sample and estimating different models for different sub-populations one could circumvent the third problem mentioned, the effect of the relative frequency of cases on the estimation of population parameters. The resulting parameters could then be tested for significant differences. In addition to sample size problems splitting should be the result of theoretical concerns and not be guided by the data at hand. In summary, the conventional statistical techniques commonly used in the social sciences achieve rigor through statistical manipulation that allows to calculate partial effects and control other – possibly competing – explanatory variables. The comparative method, however, focuses on cases, not variables, by identifying comparable instances of a phenomenon and analyzing theoretically important similarities and differences among them (Smelser, 1976; Ragin and Zaret, 1983). The strength of the approach is the ability to address questions about outcomes which result from multiple and conjunctural causes – where different conditions may

combine to result in the same outcomes. The comparative method uses two of Mill’s (1967) methods of inductive inquiry: the method of agreement and the indirect method of difference. These methods use all available and pertinent data concerning the preconditions of a specific outcome and, by examining the similarities and differences among relevant instances, elucidate its causes. The comparative researcher faces two challenges: (1) the identification of the various types of cases; and (2) the identification of the various types of causes. The first problem is concerned with the construction of useful empirical typologies and demands simplifying the complexity among combinations of characteristics of cases. Step (2) requires identification of variables that might help explain the phenomenon of interest. The challenge here comes “in trying to make sense of the diversity across cases in a way that unites similarities and differences in a single coherent framework” (Ragin, 1987, p. 20). The comparative method and traditional statistical techniques both offer opportunities which, when combined, may improve the quality of comparative analysis. Multivariate statistical techniques allow analysis of a large number of cases and are ideal for estimating probabilistic relationships between variables. The comparative method, in contrast, is ideally suited to identify invariant patterns common to a small number of cases. The benefits of the variable-oriented approach are reduced by complex, conjunctural causal arguments that require estimation of a large number of interaction effects while the benefits of the case-oriented method cannot be enjoyed when the number of cases is large. The technique suggested to combine these benefits is a Boolean approach to qualitative comparison. Boolean techniques use binary data, i.e. presence/absence of explanatory variables and of the outcome variable are coded 1/0. For a more differentiated discrimination one can employ several binary variables for each explanatory factor. The data are presented in a truth table where each logical value combination of explanatory factors is represented in one row. Thus each row may contain zero, one or multiple cases. This does not impact Boolean analysis since the focus is on combinations of independent variables leading to certain outcomes. These frequencies provide information about typical, rare or non-existent configurations of independent factors. In addition they might be used to solve contradictory rows including both successful and unsuccessful companies: One may calculate the likelihood of each outcome if the number of cases in a contradictory row is sufficiently large, disregard the row if the number is very low or conclude that an important explanatory variable has not been integrated (Ragin, 1987). Once such a complete truth table is constructed various procedures (Boolean addition, multiplication, minimization and implication) allow the determination of causal conditions that lead to the outcome of interest. The study This study relies on data from Compustat, a secondary source widely used in strategy research (Ailawadi et al., 1995; Bowen and Wiersema, 1999; Miles et al., 1993). Compustat contains financial information for over 10,300 US corporations and provides 25 years of annual data, 17 years of quarterly data plus business and geographic segment data. While organizations have a great deal of latitude regarding

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their reporting practices, Compustat claims to remove any reporting variability through standardized collection techniques. We limit the analysis to three organizational constituencies, namely employees, shareholders and customers, the three groups for which organizational researchers and practitioners claim a dominant position among organizational stakeholders. Donaldson and Lorsch (1983) argue that three constituencies are most salient (Mitchell et al., 1997) to managerial action, namely the capital market, the product market and the organization. These roughly correspond to shareholders, customers and employees respectively. Kaplan and Norton (1996) also highlight the importance of these three groups by including measures specifically related to their well-being in the generic model of the Balanced Scorecard. Due to the limitation to financial variables responsiveness to organizational constituencies and OE was captured by the measures shown in Table I. Organizations providing the market (intermediaries and consumers) with goods and services offering better benefits than competition should be able to enjoy growth in sales (Kohli and Jaworski, 1990; Kotler, 1991; Ruekert, 1992). Furthermore, these companies should ceteris paribus be able to earn comparably high margins as distributors, resellers and consumers perceive higher value from their offering. Shareholder responsiveness is measured by the financial return provided whereas labor and pension expenses per capita indicate an organization’s employee responsiveness. This study employs the goal approach to OE and uses the following indicators: . Return on assets, one of the most widely used criteria of organizational effectiveness (Berman et al., 1999; Narver and Slater, 1990; Capon et al., 1990). . The z-score measure of bankruptcy (Altman, 1971; Argenti, 1976) for which a higher score signals lower danger of bankruptcy. As such, this measure closely corresponds to the foundations of the stakeholder idea – resource dependence theory (Pfeffer and Salancik, 1978) and open systems theory (Katz and Kahn, 1966) , which emphasize the importance of constituencies for organizational survival. The decision to include two dependent variables in the analysis follows the suggestion by Venkatraman and Ramanujam (1986) to use multiple effectiveness measures to check for consistency of results. Comparing responsiveness to stakeholders only makes sense within a single industry since the impact of different constituencies on organizational behavior is

Table I. Empirical measures

Success measures

Responsiveness measures

Industries studied

Period of analysis

Return on assets

Customers: Relative sales change, gross profit margin

Airlines

1988-1997

Measure of bankruptcy Employees: (z-score) Salary/employee, pension/employee Shareholders: Total financial return

Oil Utilities

likely to differ between industries. Three industries with relatively low levels of diversification were chosen for this study: oil industry (SIC code 2911), utilities (SIC code 4911) and airlines (SIC code 4512). Data availability resulted in 17, 35, and 17 organizations respectively in the final samples. The analysis period covers the years 1988-1997. Thus we arrive at 690 observations. To evaluate responsiveness the relevant measures for every period are ranked for each of the three industries. If there are two indicators for one stakeholder group (customers and employees) the respective ranks are multiplied. For these cases an organization is considered more stakeholder x-responsive if it scores high on both indicators (high gross profit margin and high positive sales change or high labor expenses and high pension expenses) than if it scores high on one and low on the other. The results of these multiplications are ranked again and used as indicators for the responsiveness towards this stakeholder group. For every year organizations are allocated to one of three groups on each of the three resulting responsiveness scores (employee responsiveness, shareholder responsiveness and customer responsiveness). The three groups comprise 20 percent, 60 percent and 20 percent of the respective organizations in an industry. The idea guiding this allocation is that a constituency may only recognize – positively or negatively – outstanding responsiveness, not average responsiveness. It is assumed that constituencies have a tolerance zone (Doyle, 1992; Strandvik, 1994) where small variations in responsiveness do not lead to increased support or withdrawal of support by this constituency. Only when organizations do significantly over- or underperform compared to the standard responsiveness within an industry will constituencies be affected. The cut-off level chosen is somewhat arbitrary but one can argue that performance has to differ substantially from industry standards before likely affecting performance. Therefore rather small clusters of organizations are formed at the two extremes and a rather large one in the middle instead of taking three groups identical in size. Each organization is then assigned membership to one of 27 groups depending on the responsiveness levels for each of the three constituencies. By definition the expected size of these 27 groups will differ since the likelihood of an organization to be in the top or bottom 20 percent of organizations is lower than to be in the middle 60 percent. Findings If responsiveness to each constituency was independent from responsiveness to the other ones the expected frequency in each group would be determined by multiplying the probabilities of belonging to each group;, e.g. the group exhibiting “medium” responsiveness to all constituencies should contain 690* 0:6* 0:6* 0:6 ¼ 149 cases. We found a number of considerable deviations. One relates to the discussed trade-off between responsiveness to different constituencies. The group with low responsiveness to all three constituencies contains substantially more organizations than would be expected (18 vs 7) whereas the group with respectively high responsiveness contains less (4 vs 7). Also, the combination of above average responsiveness to employees and customers with below average responsiveness to shareholders is less frequent than expected. Attending disproportionately to the former two groups, at the cost of the latter, may be a difficult road to take. One might expect shareholders to penalize such behavior by reallocating their funds.

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Table II shows the effect of responsiveness in each industry by comparing ROA and z-scores for each predefined responsiveness level. Low levels of customer responsiveness seem to be detrimental for success in all three industries with the most substantial impact in the airline industry. Here moving from one group to the next higher one in terms of responsiveness translates into an increase in return on assets of more than 7 percent and a significant increase in the z-score. The differences between the groups are significant for all industries but being highly customer responsive may not pay off for the oil and utility industry where medium levels show the highest success rates. One may conclude that avoidance of low levels of customer responsiveness is generally helpful and aiming for high levels pays off in the airline industry. The results for employee responsiveness are less clear-cut. In the utility industry performance hardly differs for different levels of employee responsiveness. The oil industry benefits from higher levels of employee responsiveness, but high levels of employee responsiveness are not rewarded in the airline industry where they result in negative return on assets and an extremely low z-score. In addition, organizations showing low levels of responsiveness substantially outperform the rest. Table III contains the truth table for each industry. To reduce the number of rows in each truth table we distinguish only two types of responsiveness to a constituency. Presence of responsiveness (value 1) encompasses both the top (20 percent) and medium (60 percent) responsiveness groups. While this level of responsiveness exhibited may not be impressive it means that an organization is not among the bottom fifth of the industry in a given year. Absence of responsiveness (value 0) indicates an extremely low level of responsiveness (bottom 20 percent for the utility industry and bottom 23.5 percent for the airline and oil industry due to the number of observations available for each year, 17). With three constituencies studied the truth table consists of eight rows with all possible combinations of presence or absence (shown in the first three columns).

Airlines ROA (%) z-score

Table II. Constituency responsiveness and organizational effectiveness

Low customer responsiveness Medium customer responsiveness High customer responsiveness F-value Significance level Low employee responsiveness Medium employee responsiveness High employee responsiveness F-value Significance level Low shareholder responsiveness Medium shareholder responsiveness High shareholder responsiveness F-value Significance level

26.96 2.60 9.64 27.168 0.000 7.92 0.76 20.92 7.39 0.001 24.2 3.52 4.82 8.347 0.000

0.89 1.94 3.48 49.165 0.000 3.56 1.76 1.27 40.86 0.000 1.3 2.17 2.57 8.605 0.000

Oil ROA (%) z-score 2.79 4.62 4.08 4.889 0.009 2.92 4.08 5.23 5.702 0.004 2.52 4.43 4.84 7.134 0.001

2.3 2.63 2.46 4.427 0.013 2.33 2.52 2.69 3.542 0.031 2.33 2.57 2.58 2.417 0.092

Utilities ROA (%) z-score 1.72 3.32 3.26 10.359 0.000 3.02 2.84 3.4 1.185 0.307 1.43 3.46 3.13 16.537 0.000

1.04 1.22 1.17 6.755 0.001 1.23 1.14 1.2 1.721 0.18 0.96 1.23 1.13 17.754 0.000

Customera

Employeea

Shareholdera

Instances

Low

Med.

High

Outcomeb

Airlines 1 2 3 4 5 6 7 8

0 0 0 0 1 1 1 1

0 0 1 1 0 1 0 1

0 1 0 1 0 0 1 1

2 0 16 22 5 17 32 76

2 0 13 10 1 5 1 8

0 0 3 11 2 11 11 52

0 0 0 1 2 1 20 16

0 – 0 0 ? 0 1 1

Oil 1 2 3 4 5 6 7 8

0 0 0 0 1 1 1 1

0 0 1 1 0 1 0 1

0 1 0 1 0 0 1 1

7 14 5 13 4 24 15 88

4 9 3 3 1 9 5 6

3 5 2 7 3 11 10 49

0 0 0 3 0 4 0 33

0 0 0 ? ? 0 0 1

Utilities 1 2 3 4 5 6 7 8

0 0 0 0 1 1 1 1

0 0 1 1 0 1 0 1

0 1 0 1 0 0 1 1

9 9 21 31 11 29 41 199

3 1 14 8 5 5 3 31

5 7 7 15 4 20 32 120

1 1 0 8 2 4 6 48

0 ? 0 ? 0 ? 1 1

Notes: a 0 indicates absence of responsiveness to constituency, 1 indicates presence; b 0: combination typically leads to low performance, 1: high performance, ?: inconclusive

The next column shows the number of observations exhibiting this very combination of presence/absence and the following three columns the performance levels of these observations. Performance is again assessed by employing the 20/60/20 rule used for the independent variables (thus assessing an organization’s performance relative to its peers in a given year). The “Outcome” column shows a 0 when the combination of responsiveness typically leads to low performance, a 1 for high performance and a question mark when the performance effect is less clear-cut. We employ Boolean algebra to identify the effect of combinations of responsiveness on performance. In the airline industry, the following combinations of presence or absence of responsiveness to the three constituencies typically lead to low performance (LP): absence of responsiveness to all three stakeholder groups, absence of responsiveness to customers and shareholders and presence of responsiveness to employees, presence for both employees and shareholders combined with absence for customers and absence of shareholder responsiveness with presence for employees and

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Table III. Truth tables for the three industries studied

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customers. High performance (HP) typically is achieved when all relationships are characterized by presence of responsiveness or when it is absent only for employees. In Boolean terms the following expressions describe these observations: LP ¼ ces þ cEs þ cES þ CEs HP ¼ CeS þ CES:

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Combining ces and cEs to cs can further reduce the combinations leading to low performance since employee responsiveness is irrelevant once both other responsiveness types are absent. In the same way cEs and CEs can be reduced to Es as well as cEs and cES to cE. The combinations related to high performance (CeS and CES) may accordingly be summarized as CS since neither presence or absence of employee responsiveness does lead to a different outcome. Therefore: LP ¼ cs þ cE þ ES HP ¼ CS: The outcomes for all three industries are shown in Table IV (a capital letter implies presence of responsiveness to a shareholder and a lower case letter implies absence). Conclusions and implications While the results differ between the three industries studied, some combinations of responsiveness are related to the same level of performance respectively. Figure 1 summarizes these findings and offers an overview how combinations of responsiveness absence or presence relate to organizational performance. The area within the circles corresponds to presence of such a responsiveness type whereas the area outside a circle corresponds to its absence. It is easy to recognize that certain strategic postures towards constituencies never seem to be useful, e.g. responsiveness towards employees without a minimum level of responsiveness to the other two groups or no responsiveness to each of the groups. Other combinations are sensible for each of the industries (presence of responsiveness to all groups). One may conclude that each of the three groups studied provides necessary resources for an organization to succeed and low levels of responsiveness to just one of them may undermine an organization’s effectiveness. In addition, strategies focusing on single constituencies and disregarding other ones usually lead to low performance or inconclusive results at best. Presence of responsiveness to all groups is often rewarded with above-average performance and hardly ever related to below-average performance. The number of similarities between the industries clearly outnumbers the differences. The most notable difference is the negative relationship between employee

Table IV. Comparison of the Boolean expressions across industries

High performance Low performance Inconclusive

Airline

Oil

Utility

CS cs þ cE þ Es Ces

CES ce þ cs þ eS þ Es cES þ Ces

CS cs þ es cS þ CEs

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Figure 1. Effective vs ineffective combinations of stakeholder responsiveness

responsiveness and performance in the airline industry not present in the other two industries. There, especially in the oil industry, a positive relationship between responsiveness to employees and organizational effectiveness was identified. Some explanations for these results are feasible. The airline industry is characterized by comparatively high labor costs (in relation to sales) that may more strongly affect return on assets than labor costs in industries where they do not impact the bottom line as strongly. In addition, a higher percentage of employees in the airline industry might choose to pursue such a career in pursuit of benefits apart from salary. A substantial percentage of employees may enter such a relationship for a limited time only and aim for benefits which may matter as much as the average salary (like extended stays at certain locations, low-priced or free private trips, etc.). Low salary levels may therefore not automatically have a negative effect on employee performance as usually suggested (Pfeffer, 1998). In contrast, for people working in the oil or utility industry the absolute salary levels they receive may motivate them relatively more than airline employees. The positive effect of low employee responsiveness on organizational effectiveness still warrants further discussion. Going back to the original data one learns that the big airline companies like United, USAir, KLM, or Delta usually ranked among the top performers were also the ones with the lowest average salary levels. An explanation for the negative relationship between employee responsiveness (which in this study only captures the average salary) and performance comes to mind: Especially these airlines may be able to offer benefits not provided to the same extent by other airlines

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(attractive destinations, non-salary social benefits, career opportunities) and are therefore able to afford paying lower salaries. In combination with the competitive pressure during that period which led to immense price competition low salary levels might have been a necessity to achieve above average return on assets. The fact that the explanatory factors chosen for this research project seem to explain better effectiveness levels in the airline and oil industry than in the utility industry may be the result of different competitive circumstances in these industries. The authors assume that the regional concentration of the players in the utility sector and their historical development affect the relationships to stakeholders by limiting their respective choice set. For example, customers may not easily be able to switch their electricity suppliers. To some degree, shareholders often are state- or municipality-related bodies that may be less taxing on the return their investment provides. Even employees, especially when they possess highly specialized abilities may not be likely to terminate their relationship with an organization and pursue a different professional career. These factors may be less influential for the other two industries where investors usually have a more financially oriented relationship, employees may more easily be able to switch employers and customers have a broader choice set to satisfy their demands. This study has several limitations: While we think that the data drawn from Compustat provide reliable information we do not cover all aspects of responsiveness an organization can exhibit towards its stakeholders. Other factors not included in the financial accounting system (e.g. advertising or return policies for customers or job climate for employees) will impact the relationship with stakeholders. It would also be interesting to extend this study to a larger number of organizations and stakeholders and to other geographical areas where the importance of constituencies may be perceived differently. In light of the findings of this research project one may conclude that managers should strive to aim for a minimum level of responsiveness to all stakeholder groups. Given the thresholds chosen for this analysis any organization should aim to belong to the top 80 percent of an industry in terms of responsiveness to employees, shareholders and customers. Such a strategy makes low performance very unlikely and is disproportionately related to high levels of performance. A trade-off between the responsiveness to each of the three groups studied may be derived from the fact that the number of organizations able to respond above average to more than one constituency is lower than the expected number. Therefore we claim that managers should not aim for extremely high levels of responsiveness to any one group if such behavior results in below-average responsiveness to another group. The close link between organizational behavior towards stakeholders and the resulting level of OE justifies the combination of the organizational with the economic tradition in performance measurement applied in this research. We conclude that resources need to be spent wisely between different constituencies since organizations face a limited capacity to be responsive (even though some of the organizations seem to be more versatile in using their resources and achieving high levels of responsiveness to all groups) and being non-responsive to just one of these groups typically results in low OE.

References Ailawadi, K.L., Borin, N. and Farris, P.W. (1995), “Market power and performance: a cross-industry analysis of manufacturers and retailers”, Journal of Retailing, Vol. 71 No. 3, pp. 211-50.

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Corporate reputation, stakeholders and the social performance-financial performance relationship Benjamin A. Neville Department of Management, University of Melbourne, Melbourne, Australia

Simon J. Bell Judge Institute of Management, University of Cambridge, Cambridge, UK, and

Bu¨lent Mengu¨c¸ Department of Management, Marketing, and Human Resources, Faculty of Business, Brock University, St Catharines, Canada Abstract Purpose – To increase understanding of the role of reputation in the corporate social performance (CSP) and financial performance (FP) relationship, including contingencies. Design/methodology/approach – Stakeholder theory is drawn on to present a model of reputation’s role in the contingent CSP-FP relationship. Findings – CSP is affected by stakeholders’ resource allocation to the organisation. This allocation is based on stakeholders’ assessment of the organisation’s reputation relative to stakeholders’ particular expectations, which may be instrumentally and/or normatively framed. Reputation, therefore, plays a key role in the CSP-FP relationship. Additionally, the authors propose that the equivocal results of previous research into the CSP-FP relationship may be partly explained by organisational and market contingencies. Specifically, the authors contend that strategic fit, competitive intensity and reputation management capability moderate the CSP-FP relationship. Research limitations/implications – Empirical measurement issues and future research directions are discussed. Originality/value – This paper increases the understanding of the role of reputation in the CSP-FP relationship. Owing to its rich pedigree in research in corporate branding and reputation, marketing is uniquely positioned to contribute toward the better understanding of this issue. Keywords Corporate image, Stakeholder analysis, Business ethics, Financial performance Paper type Research paper

European Journal of Marketing Vol. 39 No. 9/10, 2005 pp. 1184-1198 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560510610798

Introduction The recent spate of corporate scandals and collapses has coalesced with social and environmental protests to focus research and managerial attention on corporate power and influence. Scholars have turned to the concept of corporate social performance (CSP) in an effort to justify arguments for why management should, or should not, focus on socially responsible behaviours. CSP and its implications for financial performance have long been of interest to marketers who have made some valuable contributions to the field (e.g. Brown and Dacin, 1997; Maignan and Ferrell, 2004; Markwick and Fill, 1997; Sen and Bhattacharya, 2001, Varadarajan and Menon 1988).

Despite such contributions, however, managers have been wary of allocating resources to CSP largely due to disagreement over the extent to which it will lead to superior business performance. In addition, socially beneficial initiatives have not traditionally come under the umbrella of strategic decision-making. Indeed, motivating such behaviour has not been helped by equivocal research findings on the relationship between CSP and financial performance (FP) (Griffin and Mahon, 1997; Margolis and Walsh, 2003). If academics are to guide practitioners in their adoption of improved CSP, a detailed understanding of the CSP-FP relationship, including processes and contingencies, is necessary. Specifically, what is the sequence of events or behaviours that relates CSP and FP, and under what conditions are CSP and FP positively and negatively related (Rowley and Berman, 2000)? To address these questions we turn to the notion of corporate reputation as the vehicle through which socially responsible initiatives affect business performance. Marketing is uniquely positioned in this debate owing to a rich pedigree in research in corporate branding and reputation (e.g. Balmer, 2001; Harris and de Chernatony, 2001; Maignan and Ferrell, 2001). The reputation of corporate brands among stakeholders provides an appropriate analytical framework for considering the impact of CSP on FP. We consider the range of organisational stakeholders who, as the receivers of information embodied within corporate reputation, collectively influence the FP of the organisation via their decisions to provide or withhold resources. Finally, we consider both the manageable and environmental variables that influence the strength of these relationships. In particular, we consider the influence of CSP behaviour-business strategy fit and competitive intensity as external moderators. We then consider the role of reputation management capabilities as a facilitator of the relationships between CSP, corporate reputation and stakeholder perceptions.

Background Testing of the CSP-FP relationship has been motivated by researchers endeavouring to demonstrate that it is possible for business to “do well while doing good”. However, there has been considerable conjecture over whether the relationship is positive, neutral or negative, although most studies have concluded that it is generally positive depending on which measures of financial performance are used (see Frooman, 1994; Griffin and Mahon, 1997; Orlitzky et al., 2003). Theorists have also considered whether the direction of causality is inverse (Waddock and Graves, 1997). It is plausible, however, that such inconsistent findings have been a result of incomplete specification of the CSP and FP relationship. In line with the views of Rowley and Berman (2000, p. 397), we “recast the research question to investigate the conditions under which stakeholders will take action to influence the focal organisation and when those actions will influence the CSP-FP link”. These researchers argued for a contingency approach (e.g. Greening and Gray, 1994) to identify when CSP and FP will be related, and to identify the conditions and boundaries under which the relationship ceases to exist. In the following sections we discuss the concepts of corporate social performance, stakeholder perceptions, and corporate reputation by way of background for our proposed model.

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Corporate social performance The concept of CSP evolved from the concepts of corporate social responsibility and corporate social responsiveness, which responded to questions regarding organisations’ social responsibilities and how these should be enacted. While important considerations, it was recognised that considering the outcomes, or the effects, of organisational behaviour was crucial. Drawing particularly on Carroll (1979) and Wartick and Cochran (1985), Wood (1991) proposed a principles, processes and outcomes framework for CSP. CSP was thus defined as: . . . a business organisation’s configuration of principles of social responsibility, processes of social responsiveness, and policies, programs and observable outcomes as they relate to the firm’s societal relationships (Wood, 1991, p. 693).

First, to assess an organisation’s motivations, the principle of CSR incorporates the principle of legitimacy, based on Davis’ (1973) Iron Law of Responsibility, whereby society has the right to define an organisation’s legitimate functions; the principle of public responsibility, where an organisation must take responsibility for social problems that they have caused or that are related to their business operations (Preston and Post, 1975); and the principle of managerial discretion, which recognized that business decisions are made by moral human actors (Carroll, 1979). Second, Wood (1991) outlined the processes needed to respond to these responsibilities. This requires scanning and analyzing the social, legal, political, economic and technological environments; an understanding of which stakeholders matter (e.g. Mitchell et al., 1997); and identification of social issues and response management. Finally, Wood distinguished three types of outcomes: the social and environmental outcomes, as measured by the various available indicators, for example, the triple bottom line (Elkington, 1997) and social responsibility audits (Waddock and Smith, 2000); the corporate programs organisations put in place to achieve responsibility and/or responsiveness; and the corporate policies organisations put in place to manage social issues and stakeholder concerns. However, this definition of CSP continues to suffer from a lack of parsimony and tangibility. Indeed, Wood critiqued the operationalisation of this definition in a later paper (Wood and Jones, 1995). Scholars have since argued that it is stakeholder theory that holds the potential for providing the CSP-FP relationship with the theoretical support necessary for its further understanding and development (e.g. Clarkson, 1995; Mitchell et al., 1997; Rowley and Berman, 2000). That is, it is within the context of an organisation’s relationships with its stakeholders that the extent of its responsibilities is framed and that its performance is assessed. We now outline the stakeholder perspective of the CSP-FP relationship. Organisational stakeholders Stakeholders have been defined as “any group or individual who can affect or is affected by the achievement of the organisation’s objectives” (Freeman, 1984, p. 46). The stakeholder perspective views the organisation at the centre of a network of relationships with various stakeholders. These individuals or groups usually incorporate shareholders, consumers, employees, business partners, governments, media, local communities and the natural environment.

The individual, dyadic relationships between organisations and their stakeholders are reciprocal “in terms of harms and benefits as well as rights and duties” (Freeman, 1997, p. 69). Most recently, resource dependence theory (Pfeffer and Salancik, 1978) has been utilised to explain the relationship (e.g. Frooman, 1999; Jawahar and McLaughlin, 2001). From this perspective, an organisation is viewed as being dependent on various stakeholders for the critical resources that enable it to operate. For example, consumers provide the organisation with financial returns while governments provide infrastructure and other services. As Clarkson (1995, p. 112) described, “[i]f any primary group perceives, over time, that it is not being treated fairly or adequately. . .it will seek alternatives and may ultimately withdraw from that firm’s stakeholder system”. Similarly, Rowley and Berman (2000, p. 409) argued that, “stakeholders take actions to sanction – reward or punish – a firm’s action in an attempt to change or reinforce that behaviour”. This action will be taken when the organisation’s actions do not meet stakeholders’ expectations (Polonsky, 1996; Post et al., 2002). The role of stakeholders in relation to the organisation is to: (1) set expectations; (2) experience effects; (3) evaluate outcomes; and (4) act on these evaluations (Wood and Jones, 1995). Stakeholders changing of the level of resources that the corporation is dependent on – customers for revenue, employees for labour, and so on – then directly impacts financial performance. This may be done through withholding resources from the organisation or through placing conditions on the usage of the required resources (Frooman, 1999). Limiting the provision of resources will negatively impact the organisation’s performance and may place its survival in jeopardy. The issue of stakeholders’ impact on the organisation was comprehensively addressed by Mitchell et al. (1997), who theorised that the stakeholders to which managers pay attention may be identified by their possession of one or more of three attributes: their power to affect the firm; the legitimacy of their claim; and the urgency of their claim. Stakeholders’ expectations have generally been framed in terms of protecting their interests (Frooman, 1999; Rowley and Moldoveanu, 2003; Savage et al., 1991). Rowley and Moldoveanu (2003) argue that stakeholders may also be motivated by personal, identity-based outcomes achieved by participating in the stakeholder group’s activities. Notwithstanding the importance of the protection of interests and intra-group identification, authors within the marketing discipline have proposed that organisational identity theory (Ashforth and Mael, 1989; Dutton et al., 1994; Gioia et al., 2000) is appropriate to understand stakeholders’ resource allocations (Drumwright, 1994; Maignan and Ferrell, 2001, 2004; Sen and Bhattacharya, 2001). Stakeholders will identify with an organisation where they perceive that the characteristics of the organisation correspond with their self-identity. Identification with the organisation will result in the stakeholder aligning their resources with the organisation. For example, employees identifying with their employing organisation will be more likely to socially interact within the organisation, cooperate with other employees, exhibit organisational citizenship behaviours, and be competitive towards those

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outside of the organisation (Dutton et al., 1994). By contrast, employees may “disidentify” with an organisation when its behaviours “violate the norms embraced by a stakeholder community” (Maignan and Ferrell, 2004, p. 14). Employees are more likely to withhold effort (e.g. through shirking, social loafing, or free riding) as a consequence (Kidwell and Bennett, 1993). Stakeholders’ resource allocation decisions are complex and include myriad considerations. Indeed, the extraordinary variety of issues that may potentially concern stakeholders is such that a framework of the specific motivations for stakeholder decision-making across all the stakeholder groups is unfeasible. Donaldson and Preston (1995), however, provide a more general framework of organisational responses to stakeholders based on instrumental and/or normative motivations. We may similarly frame stakeholders’ responses to organisations as being instrumentally and/or normatively motivated. Instrumental responses will be motivated by the achievement of one’s own ends, while on the other hand, normative responses will be motivated by an understanding that the interests of all stakeholders are of intrinsic value, that is, “each group of stakeholders merits consideration for its own sake and not merely because of its ability to further the interests of some other group” (Donaldson and Preston, 1995, p. 67). For example, consumers may cease purchasing the organisation’s products or services due to a lowering of quality or increase in prices (i.e. instrumental motivation), or due to becoming aware of the negative experience of the organisation’s employees, as in the case of sweatshop labour (i.e. normative motivation). In the latter case, consumers have based their resource allocation on the intrinsic value they place on other stakeholder groups. While some stakeholder groups will be more normatively motivated than others, almost without exception organisations will need to integrate both instrumental and normative concerns in responding collectively to their stakeholders. For example, Maignan et al. (2002) explain how organisations may conduct socially responsible buying behaviour through the incorporation of non-economic criteria within the traditional decision making model. Alternatively, Mahon (2002) referred to a marketplace of goods and services (i.e. instrumental) and a marketplace for ideas (i.e. normative), where stakeholder assessments within one market may be transferred and thus considered within the other market. Given the myriad issues requiring consideration by stakeholders (e.g. instrumental and normative concerns), it is likely that their resource allocation decision will be based on a holistic processing of information. Accordingly, we turn to the notion of corporate reputation (Fombrun and Shanley, 1990) as a means by which stakeholders evaluate the motivations, processes and outcomes of focal organisations. Reputation is thus considered a key mediator of the relationship between the firm’s CSP and its FP. In the next section, we define reputation and argue why it is the appropriate metric to consider within the CSP-FP relationship. Corporate reputation Recently, Orlitzky et al. (2003) found that measures of CSP reputation were more highly correlated with FP than other measures. Indeed, the role of reputation has recently been identified as an important theoretical construct for the study of CSP (e.g. Business and Society, vol. 41 no.4, Dec. 2002, special issue). It still remains, however, for academics to

investigate and understand the role that reputation plays within the sequence of events or behaviours that contribute towards the CSP-FP relationship (e.g. Mahon, 2002). Weiss et al. (1999, p. 75) defined corporate reputation as “a global perception of the extent to which an organisation is held in high esteem or regard”. Fombrun and Shanley (1990, p. 234) suggest that a reputation is the aggregation of information “into collective judgments that crystallize into reputational orderings of firms in organisational fields”. The definition incorporates, first, the ‘global perception’ or unidimensional aspect of reputation. Although an organisation will have different sub-reputations for different aspects of its activities (e.g. for its profitability, or for the quality of its products or services), observers will tend to give a net assessment of the organisation’s reputation (Fombrun, 1996). The net assessment may incorporate both instrumental and normative concerns. Thus, while different stakeholders may hold varying views on an organisation’s reputation, they are nevertheless “an overall, affective impression” (Hutton et al., 2001, p. 257). Organisations will be likely to have different reputations with different stakeholder groups (Bromley, 2000). The evaluation criteria stakeholders use to judge an organisation’s reputation will differ depending on the particular stakeholder’s expectations of the organisation’s role. For example, consumers may expect the firm to provide a quality offering, investors may expect high returns on their investment, while environmental groups may expect sustainable environmental practices. Thus, the organisation will have a different reputation with each of the stakeholder groups, and may have different reputations with individual stakeholder group members as expectations vary from one member to the next. Furthermore, stakeholders’ expectations of an organisation’s actions are dynamic, and thus likely to change over time (Hanson and Stuart, 2001). Additionally, as an organisation’s reputation increases, so do stakeholders’ expectations (Mahon, 2002). Thus, salient organisations are likely to attract more scrutiny than less salient organisations. Conceptual model Having provided a background to the key concepts of CSP, stakeholders’ decision-making and corporate reputation, we outline a conceptual model that proposes a series of mediating and moderating relationships that help inform the CSP-FP nexus (see Figure 1). Stakeholders and the firm’s financial performance It has previously been suggested by scholars that stakeholder theory holds the potential for understanding the CSP-FP relationship (e.g. Clarkson, 1995; Mitchell et al., 1997; Rowley and Berman, 2000; Wood and Jones, 1995). Stakeholder theorists argue that the organisation’s FP is determined by their stakeholders’ provision of resources in response to the organisation’s actions (e.g. Frooman, 1999). We argue that this decision may be instrumentally and/or normatively motivated. A stakeholder’s decision to either provide or cease to provide resources to the organisation is the culmination of complex considerations that coalesce within an overall evaluation of the organisation’s reputation. Stakeholders are uniquely positioned to affect the FP of the organisation whether through withholding or providing effort (e.g. employees), infrastructure (e.g. government), or cash flow (e.g. customers), among other things.

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Figure 1. Reputation, stakeholders and the CSP-FP relationship

Further, Fombrun (1996) argued that a positive reputation can imbue an organisation with a competitive advantage, similar to brand equity. This enables the firm to charge premium prices and economise on promotional costs (Fombrun, 1996). Black et al. (2000) found that organisations devote resources to the intangible asset of reputation, with the expectation that these efforts will improve the performance of the firm. For example, a positive reputation has been shown to affect customers’ buying intentions (Yoon et al., 1993), supplier choice (Weiss et al., 1999), and to support superior profit outcomes over time (Roberts and Dowling, 2002). Specifically relevant to this study, Little and Little (2000) found that companies with stronger reputations for social responsibility have marginally higher price-earnings ratios. The key role of reputation within the CSP-FP relationship is further underscored by the role of indirectly affected stakeholders. Many stakeholders will have had no direct experience of the organisation’s actions regarding an issue key to their decision to allocate resources to the organisation. For example, a consumer’s instrumentally motivated purchasing decision may be based not on their own direct experience, but on a recommendation from an associate who has direct experience of the organisation’s products or services. Alternatively, a consumer’s normatively motivated purchasing decision may be based on a media report regarding the organisation’s treatment of its employees. In both cases, the stakeholders have based their resource allocation on vicarious experience (Mahon, 2002). Based on the preceding arguments it is apparent that reputation will have an impact on a firm’s FP. Accordingly we propose: P1.

A firm’s financial performance will be directly and significantly related to corporate reputation.

CSP and corporate reputation Reputation has recently received increased attention by scholars as an important theoretical construct for the study of CSP (e.g. Business and Society, Vol. 41 No. 4, December 2002, special issue). This has resulted from the recognition that stakeholders’ resource allocation decisions are based on an overall evaluation of the organisation’s behaviour. Recent work on reputation has focused on understanding its similarities and differences with corporate identity or corporate image (e.g. Bromley, 2000; Lewellyn, 2002; Wartick, 2002; Whetten and Mackey, 2002). Corporate identity relates to the shared understanding of those within the organisation regarding what the organisation stands for, and is thus only relevant to internal stakeholders (Whetten and Mackey, 2002). Distinguishing corporate image and reputation, however, has proved more contentious. To clarify this issue, we adopt the definitions utilised by Whetten and Mackey (2002), whereby corporate image is the projection – intentional and unintentional – of the organisation’s self-definition to external stakeholders. In contrast, reputation is stakeholders’ assessment of the credibility of the organisation’s projection. Reputation, therefore, comprises a holistic evaluation of the organisation’s image, framed by the stakeholder’s personal values. More specifically, corporate reputation comprises a global perception, or net assessment, of the organisation’s behaviour based on stakeholders’ instrumental and/or normative expectations. It is within the context of an organisation’s relationships with its stakeholders that its CSP is framed and assessed. That is, stakeholders evaluate organisations’ motivations, processes and outcomes holistically and relative to their particular expectations. Consequently we propose that: P2.

Corporate reputation will be directly and significantly related to CSP.

Strategic fit, competitive intensity and the CSP-FP relationship Equivocal results from empirical studies into the CSP-FP relationship point to the need for a contingent perspective to determine the conditions that affect the nature of the CSP-FP relationship (Rowley and Berman, 2000). Husted (2000), for instance, proposed that the CSP-FP relationship is a function of the fit between the nature of relevant social issues and the organisation’s corresponding strategies and structures. Further, McWilliams and Siegel (2001) proposed that the impact of socially responsible actions on financial performance would be contingent on the economies garnered from the organisation’s size and level of diversification, product mix, advertising, consumer income, government contracts and competitors’ prices. The products, markets and activities that define organisational strategy also define the organisation’s stakeholder set. Consequently, a firm pursuing socially responsible initiatives that lack consistency with its corporate strategy is not likely to meet the particular expectations of its stakeholders. Due to the stakeholder context of CSP, an organisation’s socially responsible initiatives will be assessed relative to standards important to its stakeholders (Wartick, 2002). Therefore we suggest that: P3.

The positive relationship between CSP and corporate reputation will strengthen as the fit between social initiatives and corporate strategy increases.

Davidson (1990) considered that stakeholders might be forced to allocate resources to an organisation despite the organisation’s reputation. For example, a consumer may

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purchase a product from an organisation, ignoring its reputation for polluting the natural environment, despite its importance to the consumer, due to the superior product quality or perhaps a lack of available alternatives. This issue was considered by Mahon (2002) who explained that organisations have many reputations, and one reputation may be traded off for another. Thus, reputation’s role in the resource allocation decisions of these stakeholders is contingent on the existence of competitive alternatives. As competitive intensity increases, parity products (e.g. for consumers) and job opportunities (e.g. for potential employees) are likely to emerge. Thus, a firm’s reputation is more likely to play a more significant role in these stakeholders’ resource allocation decisions. Accordingly we suggest that: P4.

The positive relationship between corporate reputation and a firm’s financial performance will strengthen as competitive intensity increases.

Reputation management and the CSP-FP relationship The CSP-FP relationship is also contingent on organisation’s efforts to manipulate reputation’s role in the relationship. Indeed, the role of reputation in the relationship implies that reputation can and should be managed (Bromley, 1993; Weiss et al., 1999). The deliberate attempt at influencing reputation requires organisations to both monitor and manage their reputations, as an organisation must first be aware of its reputation before being able to influence it. While it is clear that firms that are not satisfied with their current reputation will attempt to enhance it, firms that are satisfied may nevertheless attempt to sustain or even further enhance their reputation. Accordingly, we propose that reputation management capability can be both proactive and defensive (Greening and Gray, 1994; Shimp, 1997). Proactive reputation management is the provision of information to stakeholders about organisational actions that enhance perceptions of performance. Defensive reputation management is the use of communications with stakeholders to mitigate the effects of negative information about the organisation. In addition to proactive and defensive approaches, information provision can be further considered in terms of two objectives. First, information can be designed to affect the expectations of stakeholders; and second, information can be designed to affect stakeholders’ perceptions of how successfully the firm’s actions or behaviour met these expectations (Bromley, 1993, 2000). For example, organisations may attempt to influence stakeholders’ expectations regarding the necessity for environmentally sustainable products and production methods. This has been evidenced by the US coal industry financing research and media aimed at questioning the negative impact of the greenhouse effect. Second, organisations may influence stakeholders’ perceptions of how successfully the organisation has met their expectations through reputation-building activities, such as advertising and other communications, effectively ensuring that the organisation’s behaviour has been transmitted to its reputation (Roberts and Dowling, 2002). While some of these efforts may be viewed sceptically by stakeholder groups (e.g. some of the recent repositioning efforts made by global petroleum companies), clearly the capability to manage a reputation (whether well-meant or elaborate impression management) has an impact on the extent to which CSP translates into reputation and the degree to which reputation influences stakeholders’ resource allocation decisions. Accordingly, we suggest that:

P5a. The positive relationship between CSP and corporate reputation will strengthen as reputation management capability increases.

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P5b. The positive relationship between corporate reputation and a firm’s financial performance will strengthen as reputation management capability increases. Stakeholder power and the CSP-FP relationship A final yet critical issue to consider is the relative importance to the organisation of particular stakeholders. That is, some stakeholders have the capacity to affect FP more than others. Mitchell et al. (1997) proposed that the ability to affect the organisation should be framed in terms of stakeholder power. Stakeholders possessing power have the ability to exercise their own will despite resistance (Weber, 1947). From a resource dependence viewpoint (Pfeffer and Salancik, 1978), an organisation’s reliance on a stakeholder for critical resources puts the organisation in a relatively weaker or dependent position. And it is a firm’s reputation that provides the impetus for stakeholders to make such resource allocation decisions. A poor (better) reputation, therefore, will lead to worse (stronger) FP if a firm is dependent on a group of stakeholders who have critical resources and sufficient autonomy to sanction (reward) the organisation as a result of its reputation. Accordingly, we suggest that: P6.

The positive relationship between corporate reputation and a firm’s financial performance will strengthen as stakeholder power increases.

Finally, previous theorists have also found that the direction of the CSP-FP relationship may be reversed (Waddock and Graves, 1997). These authors argued that slack financial resources create the opportunity for future corporate social initiatives. Additionally, it may be expected that the feedback and learning from previous corporate social initiatives will inform future corporate social initiatives. While it is beyond the scope of this paper to explore the intricacies of an iterative relationship, we include feedback and learning to reflect the potential for this eventuality. Conclusions and directions for future research We propose that organisational reputation plays a key role in the CSP-FP relationship. Drawing on stakeholder theory, we propose that CSP is assessed by stakeholders in a complex, holistic evaluation relative to their expectations, which is represented by reputation. Stakeholders then utilise their evaluation of the organisation’s reputation to determine their resource allocation toward the organisation, impacting financial performance. Stakeholders’ utilisation of reputation may be based on either direct or indirect encounters with the organisation. More specifically, we propose that stakeholder’s resource allocation decisions are instrumentally and/or normatively framed. The understanding of reputation’s role in the CSP-FP relationship then allowed for the exploration of some of the contingencies affecting the relationship, an issue of concern to CSP researchers. Specifically, social initiative-corporate strategy fit will have a positive moderating effect along with the competitive intensity of the market in which the firm competes. Finally, an organisation’s reputation management capability will also positively moderate the relationships between CSP and reputation and reputation and stakeholder perceptions. The obvious question is now, where to from here?

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Clearly a next step to take would be to examine the research propositions empirically. This, however, may prove problematic due to the fine-grained distinctions between CSP, reputation and stakeholders’ resource allocation decisions, and other methodological considerations. To begin with, the construct of stakeholders’ resource allocation decisions would need to be assessed. This would entail surveying stakeholders from across the stakeholder spectrum (i.e. shareholders, consumers, employees, business partners, governments, media, local communities and environmental groups). Also at issue is the fact that the two most prominent tools for measuring reputation have often been used to operationalise the construct of CSP. First, the Fortune magazine reputation survey (Harrison and Freeman, 1999) ranks organisations based on the opinions of senior executives, directors and analysts, who are asked to rate companies on eight different aspects of reputation, including CSP (Harrison and Freeman, 1999). The weaknesses of this measurement tool are the single measure of CSP and the sample of respondents being selected from within the business field. Second, the Kinder, Lydenberg, Domini and Company (KLD) index is based on extensive research of independent analysts employed by KLD to evaluate firms’ CSP for an ethical investment fund (Berman et al., 1999). Although its focus is the organisations’ CSP, the external evaluative nature of the measure is effectively a reputation measure. This index has proved particularly popular with researchers, however it has also been criticised for its evaluation method and for not using distinguishable stakeholder groups as evaluators (Wartick, 2002). The popularity of these measures, however, underscores the necessity for future studies to develop measures of CSP that are distinct from measures of corporate reputation. Importantly, it takes time for reputations to be established and to then change, such that stakeholders may be motivated to alter their resource allocation to the organisation. Thus, we may expect to more readily observe the proposed relationships between CSP, reputation and financial performance over time, in a longitudinal study. This will allow testing of Fombrun’s (1996, p. 38) assertion that, “the long-term viability of a company requires fulfilling the expectations of all stakeholder groups”. Another key research direction would be to consider the conditions under which stakeholders will alter their resource allocation towards the organisation, and thus increase or decrease FP. To date, stakeholder theorists have focused almost exclusively on the role of managers and how they should deal with an environment constructed of multiple stakeholders with multiple objectives (for an exception, see Rowley and Moldoveanu, 2003). In generalising across stakeholder decision-making motivations, we specified that stakeholders have instrumental and normative motivations. Future studies should explore how instrumental and normative motivations are constructed, and when instrumental considerations are likely to dominate normative considerations and vice versa. For example, Mahon (2002) argued that stakeholders will “trade-off” one reputation for another. What is the context under which this trade-off will occur? We accounted for stakeholders’ ability to affect the organisation via stakeholder power. However, different stakeholders have different expectations, and thus evaluate the organisation differently (Wood and Jones, 1995). A future research direction could be to ascertain the relative impact of the instrumental and normative concerns and the relative emphasis on CSP dimensions (e.g. natural environment, HRM practice, legal/fiduciary prudence) on the resource allocation decisions of key stakeholders.

Stakeholder theorists should perhaps consider models of consumer behaviour to help understand such complex decision-making. Sen and Bhattacharya (2001), for example, suggested that the impact of CSP on consumers’ purchasing decisions will be related to their interest in, and support for, the relevant CSP issues. Meanwhile, Maignan et al. (2002) provided a prescription for socially responsible buying behaviour through the incorporation of non-economic criteria. The insights from the marketing literature, however, would need to be extrapolated to address the entire set of organisational stakeholders. Addressing these issues will begin to further develop the understanding of reputation’s role in the CSP-FP relationship beyond what is presented here. In this era of increased stakeholder mobilization and economic globalization, a detailed understanding of the CSP-FP relationship, including the processes and contingencies, is necessary if academics are to guide practitioners in their CSP. References Ashforth, B.E. and Mael, F. (1989), “Social identity theory and the organisation”, The Academy of Management Review, Vol. 14 No. 1, pp. 20-39. Balmer, J.M.T. (2001), “Corporate identity, corporate branding and corporate marketing – seeing through the fog”, European Journal of Marketing, Vol. 35 Nos 3/4, pp. 248-91. Berman, S.L., Wicks, A.C., Kotha, S. and Jones, T.M. (1999), “Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance”, Academy of Management Journal, Vol. 42 No. 5, pp. 488-506. Black, E.L., Carnes, T.A. and Richardson, V.J. (2000), “The market valuation of corporate reputation”, Corporate Reputation Review, Vol. 3 No. 1, pp. 31-42. Bromley, D.B. (1993), Reputation, Image, and Impression Management, John Wiley & Sons, Chichester. Bromley, D.B. (2000), “Psychological aspects of corporate identity, image and reputation”, Corporate Reputation Review, Vol. 3 No. 3, pp. 240-52. Brown, T.J. and Dacin, P.A. (1997), “The company and the product: corporate associations and consumer product responses”, Journal of Marketing, Vol. 61 No. 1, pp. 68-84. Carroll, A.B. (1979), “A three-dimensional conceptual model of corporate social performance”, The Academy of Management Review, Vol. 4 No. 1, pp. 497-505. Clarkson, M.B.E. (1995), “A stakeholder framework for analyzing and evaluating corporate social performance”, Academy of Management Review, Vol. 20 No. 1, pp. 92-117. Davidson, D.K. (1990), “On corporate reputation: a reply to Dobson”, Business and Society, Vol. 29 No. 1, pp. 39-41. Davis, K. (1973), “The case for and against business assumption of social-responsibilites”, Academy of Management Journal, Vol. 16 No. 2, pp. 312-22. Donaldson, T. and Preston, L.E. (1995), “The stakeholder theory of the corporation – concepts, evidence, and implications”, Academy of Management Review, Vol. 20 No. 1, pp. 65-91. Drumwright, M.E. (1994), “Socially responsible organisational buying: environmental concern as a non-economic buying criterion”, Journal of Marketing, Vol. 58 No. 3, pp. 1-19. Dutton, J.E., Dukerich, J.M. and Harquail, C.V. (1994), “Organisational images and member identification”, Administrative Science Quarterly, Vol. 39 No. 2, pp. 239-63. Elkington, J. (1997), Cannibals with Forks: The Triple Bottom Line of 21st Century Business, Capstone, Oxford.

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Fombrun, C.J. (1996), Reputation: Realizing Value from the Corporate Image, Harvard Business School Press, Boston, MA. Fombrun, C. and Shanley, M. (1990), “What’s in a name? Reputation building and corporate strategy”, Academy of Management Journal, Vol. 33 No. 2, pp. 233-58. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA. Freeman, R.E. (1997), “A stakeholder theory of the modern corporation”, in Beauchamp, T.L. and Bowie, N.E. (Eds), Ethical Theory and Business, Prentice-Hall, Upper Saddle River, NJ, pp. 66-76. Frooman, J. (1994), “Does the market penalize firms for socially irresponsible behavior?”, Proceedings of the International Association of Business and Society Conference, pp. 112-19. Frooman, J. (1999), “Stakeholder influence strategies”, The Academy of Management Review, Vol. 24 No. 2, pp. 191-205. Gioia, D.A., Schultz, M. and Corley, K.G. (2000), “Organisational identity, image, and adaptive instability”, The Academy of Management Review, Vol. 25 No. 1, pp. 63-81. Greening, D.W. and Gray, B. (1994), “Testing a model of organisational response to social and political issues”, Academy of Management Journal, Vol. 37 No. 3, pp. 467-98. Griffin, J.J. and Mahon, J.F. (1997), “The corporate social performance and corporate financial performance debate: 25 years of incomparable research”, Business and Society, Vol. 36 No. 1, pp. 5-31. Hanson, D. and Stuart, H. (2001), “Failing the reputation management test: the case of BHP, the big Australian”, Corporate Reputation Review, Vol. 4 No. 2, pp. 128-43. Harris, F. and de Chernatony, L. (2001), “Corporate branding and corporate brand performance”, European Journal of Marketing, Vol. 35 Nos 3/4, pp. 441-56. Harrison, J.S. and Freeman, R.E. (1999), “Stakeholders, social responsibility, and performance: empirical evidence and theoretical perspectives”, Academy of Management Journal, Vol. 42 No. 5, pp. 479-85. Husted, B.W. (2000), “A contingency theory of corporate social performance”, Business and Society, Vol. 39 No. 1, pp. 24-48. Hutton, J.G., Goodman, M.B., Alexander, J.B. and Genest, C.M. (2001), “Reputation management: the new face of corporate public relations?”, Public Relations Review, Vol. 27 No. 3, pp. 247-61. Jawahar, I.M. and McLaughlin, G.L. (2001), “Toward a descriptive stakeholder theory: an organisational life cycle approach”, The Academy of Management Review, Vol. 26 No. 1, pp. 397-414. Kidwell, R.E. Jr and Bennett, N. (1993), “Employee propensity to withhold effort: a conceptual model to intersect three avenues of research”, Academy of Management Review, Vol. 18 No. 3, pp. 429-56. Lewellyn, P.G. (2002), “Corporate reputation: focusing the Zeitgeist”, Business and Society, Vol. 41 No. 4, pp. 446-55. Little, P.L. and Little, B.L. (2000), “Do perceptions of corporate social responsibility contribute to explaining differences in corporate price-earnings ratios? A research note”, Corporate Reputation Review, Vol. 3 No. 2, pp. 137-42. McWilliams, A. and Siegel, D. (2001), “Corporate social responsibility: a theory of the firm perspective”, Academy of Management Review, Vol. 26 No. 1, pp. 117-27. Mahon, J.F. (2002), “Corporate reputation: a research agenda using strategy and stakeholder literature”, Business and Society, Vol. 41 No. 4, pp. 415-45.

Maignan, I. and Ferrell, O.C. (2001), “Corporate citizenship as a marketing instrument – concepts, evidence and research directions”, European Journal of Marketing, Vol. 35 Nos 3/4, pp. 457-84. Maignan, I. and Ferrell, O.C. (2004), “Corporate social responsibility and marketing: an integrative framework”, Journal of the Academy of Marketing Science, Vol. 32 No. 1, pp. 3-19. Maignan, I., Hillebrand, B. and McAlister, D. (2002), “Managing socially-responsible buying: how to integrate non-economic criteria into the purchasing process”, European Management Journal, Vol. 20 No. 6, pp. 641-8. Margolis, J.D. and Walsh, J.P. (2003), “Misery loves companies: rethinking social initiatives by business”, Administrative Science Quarterly, Vol. 48 No. 2, pp. 268-305. Marknick, N. and Fill, C. (1997), “Towards a framework for managing corporate identity”, European Journal of Marketing, Vol. 31 No. 5, pp. 396-409. Mitchell, R.K., Agle, B.R. and Wood, D.J. (1997), “Toward a theory of stakeholder identification and salience: defining the principle of who and what really count”, Academy of Management Review, Vol. 22 No. 1, pp. 853-86. Orlitzky, M., Schmidt, F.L. and Rynes, S. (2003), “Corporate social and financial performance: a meta-analysis”, Organisation Studies, Vol. 24 No. 3, pp. 403-41. Pfeffer, J. and Salancik, G.R. (1978), The External Control of Organisations: A Resource Dependence Perspective, Harper & Row, New York, NY. Polonsky, M.J. (1996), “Stakeholder management and the stakeholder matrix: potential strategic marketing tools”, Journal of Marketing-Focused Management, Vol. 1 No. 1, pp. 209-29. Post, J.E., Lawrence, A.T. and Weber, J. (2002), Business and Society: Corporate Strategy, Public Policy, Ethics, McGraw-Hill, New Delhi. Preston, L.E. and Post, J.E. (1975), Private Management and Public Policy: The Principle of Public Responsibility, Prentice-Hall, Englewood Cliffs, NJ. Roberts, P.W. and Dowling, G.R. (2002), “Corporate reputation and sustained superior financial performance”, Strategic Management Journal, Vol. 23 No. 12, pp. 1077-93. Rowley, T. and Berman, S.L. (2000), “A brand new brand of corporate social performance”, Business and Society Review, Vol. 39 No. 4, pp. 397-418. Rowley, T.J. and Moldoveanu, M. (2003), “When will stakeholder groups act? An interest- and identity-based model of stakeholder group mobilization”, The Academy of Management Review, Vol. 28 No. 2, pp. 204-19. Savage, G.T., Nix, T.W., Whitehead, C.J. and Blair, J.D. (1991), “Strategies for assessing and managing organisational stakeholders”, Academy of Management Executive, Vol. 5 No. 2, pp. 61-75. Sen, S. and Bhattacharya, C.B. (2001), “Does doing good always lead to doing better? Consumer reactions to corporate social responsibility”, Journal of Marketing Research, Vol. 38 No. 2, pp. 225-43. Shimp, T.A. (1997), Advertising, Promotion and Supplemental Aspects of Integrated Marketing Communications, Dryden, Orlando, FL. Varadarajan, P.R. and Menon, A. (1988), “Cause-related marketing: a coalignment of marketing strategy and corporate philanthropy”, Journal of Marketing, Vol. 52 No. 3, pp. 58-74. Waddock, S.A. and Graves, S.B. (1997), “The corporate social performance-financial performance link”, Strategic Management Journal, Vol. 18 No. 4, pp. 303-19. Waddock, S. and Smith, N. (2000), “Corporate responsibility audits: doing well by going good”, Sloan Management Review, Vol. 41 No. 2, pp. 75-83.

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Wartick, S.L. (2002), “Measuring corporate reputation: definition and data”, Business and Society, Vol. 41 No. 4, pp. 371-92. Wartick, S.L. and Cochran, P.L. (1985), “The evolution of the corporate social performance model”, The Academy of Management Review, Vol. 10 No. 4, pp. 758-69. Weber, M. (1947), The Theory of Social and Economic Organization, Oxford University Press, New York, NY. Weiss, A.M., Anderson, E. and MacInnis, D.J. (1999), “Reputation management as a motivation for sales structure decisions”, Journal of Marketing, Vol. 63 No. 4, pp. 74-89. Whetten, D.A. and Mackey, A. (2002), “A social actor conception of organisational identity and its implications for the study of organisational reputation”, Business and Society, Vol. 41 No. 4, pp. 393-414. Wood, D.J. (1991), “Corporate social performance revisited”, The Academy of Management Review, Vol. 16 No. 4, pp. 691-718. Wood, D.J. and Jones, R.E. (1995), “Stakeholder mismatching: a theoretical problem in empirical research on corporate social performance”, The International Journal of Organisational Analysis, Vol. 3 No. 3, pp. 229-67. Yoon, E., Guffey, H.J. and Kijewski, V. (1993), “The effects of information and company reputation on intentions to buy a business service”, Journal of Business Research, Vol. 27 No. 3, pp. 215-28. Further reading Dobson, J. (1989), “Corporate reputation: a free-market solution to unethical behavior”, Business and Society, Vol. 28 No. 1, pp. 1-5. Emerson, R.M. (1962), “Power-dependence relations”, American Sociological Review, Vol. 27, pp. 31-41. Friends of the Earth (2002), “Greenwash Oscars – Johannesburg”, Corporates, 23 August, available at: www.foe.co.uk/ campaigns/corporates/news/ earth_summit/23_ august.html

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An empirical examination of the stakeholder strategy matrix

Stakeholder strategy matrix

Michael Jay Polonsky School of Hospitality, Tourism and Marketing, Victoria University, Melbourne, Australia, and

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Don Scott School of Commerce and Management, Southern Cross University, Lismore, Australia Abstract Purpose – This paper seeks to examine whether the stakeholder strategy matrix provides useful guidance for managers in dealing with stakeholders. The matrix suggests that strategies for dealing with stakeholders can be determined based on stakeholder ability to cooperate and threaten organisational outcomes. Design/methodology/approach – The study uses a hypothetical scenario looking at the development of a new environmentally friendly product, where eight stakeholder groups and their influencing abilities are manipulated. Marketers reviewed one version of the scenario and were then asked the applicability of 13 strategies for each stakeholder group described. Mixed design analysis is then undertaken to examine the direct effects and interactions between the four combinations of influencing abilities, the stakeholder group examined or how the strategy suggested impacted on managers’ views. Findings – The research found that there was an interaction effect suggesting that some strategies were more applicable to stakeholders with certain sets of influencing abilities, as the stakeholder strategy matrix suggested. The specific stakeholder group examined also appeared to impact on managers’ views, which is inconsistent with the theory. Research limitations/implications – The limitations are that the research focused on managers’ perceptions of the applicability of strategies, rather than the actual success of strategies examined. Research into the effectiveness of actual behaviours would possibly require more in-depth examination of case studies. Practical implications – The research suggests that the stakeholder strategy matrix may provide some guidance as to how managers deal with stakeholders. However, it also suggests that managers may be implicitly applying influencing abilities to groups irrespective of their “true” influencing ability. In this case managers are in fact ignoring valuable information when deciding how to interact with stakeholders and therefore possibly using less effective strategies to interact with stakeholders. Originality/value – The research is unique as it looks at determining whether different types of strategies for dealing with stakeholders are perceived to be more or less effective. This therefore seeks to make stakeholder theory more strategic and applicable in a broader set of contexts. As such the paper would be of interest to managers seeking to understand better how to deal with stakeholders and to theorists seeking to understand better how stakeholder theory impacts on organisational outcomes. Keywords Stakeholder analysis, Strategic management Paper type Research paper

Introduction Stakeholder theory suggests organisations that address their stakeholders’ interests will somehow perform “better” than firms that do not address these groups’ interests

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(Agle et al., 1999; Berman et al., 1999; Post et al., 2002, Wood and Jones, 1995). In considering this issue, most of the research on stakeholder theory has focused on an examination of the outcomes of addressing different groups of stakeholders (for example Agle et al., 1999; Berman et al., 1999; Berman et al., 1999), rather than explicitly considering the specific strategies that are applied to deal with stakeholders’ interests. Understanding the link between the application of given strategies to engage stakeholders and outcomes is critical (Heugens et al., 2002), insofar as improvement in outcomes infers that the correct strategy has been applied and these strategies have been applied successful. It is therefore possible that poor outcomes might reflect incorrect strategic choice in the specific situation or inadequate implementation, rather than a failure in the application of stakeholder theory. If this were the case, different strategies would potentially result in more positive organisational outcomes. In a seminal work on stakeholder theory, Freeman (1984) defined stakeholders as any group that is affected by, or can affect, organisational activities. While other definitions have been proposed by Clarkson (1995) – those that have something at risk, or Mitchell et al. (1997) – those who have urgency, legitimacy and power, Freeman’s definition is still widely used and is the definition applied in this study. In his early work Freeman (1984) put forward a theoretical stakeholder strategy matrix suggesting that firms should apply a range of generic strategies to address stakeholders’ interests based on stakeholder’s ability to threaten and cooperate with organisations (i.e. influencing ability). Other authors, such as Savage et al. (1991), Kimery and Rinehart (1998) and Polonsky (1996) have also discussed the stakeholder strategy matrix as a potentially useful tool for explaining individual stakeholders’ interests and for providing managers guidance in regards to strategies that can be used to manage stakeholder relationships, thereby improving organisational performance. Heugens et al. (2002) has also examined the importance of “generic strategies” for dealing with stakeholders and suggested that correctly targeted strategies could increase organisational learning and organisational legitimacy. This complements the broader strategy literature, which has suggested that generic strategies can be applied in various circumstances (Parnell, 1997). For example, it has been suggested that adopting any one of Porters (see Miller and Friesen, 1986) or Miles and Snow’s (see Parnell and Wright, 1993) generic strategies should improve organisational performance. Within the literature there has been limited empirical work examining the applicability of the proposed generic strategies to stakeholders, even though previous literature (e.g. Freeman, 1984; Savage et al., 1991) has suggested that these strategies should be used to manage stakeholder relationships and the application of the strategies should vary based on stakeholders’ ability to cooperate and threaten organisational activities. It should be noted that more recent works have criticised Freeman’s stakeholder strategy matrix as being too restrictive in terms of defining stakeholders’ influencing abilities (Mitchell et al., 1997). However, those providing alternative approaches for defining stakeholders, have also suggested that effectively dealing with stakeholders should improve performance (Agle et al., 1999). Although these more recent authors have not suggested how stakeholder relationships should be managed and thus they too have not undertaken empirical research to examine alternative strategies for integrating stakeholders’ interests.

The object of this paper is to examine empirically the stakeholder strategy matrix, by determining whether marketing managers perceive that the applicability of the generic strategies, suggested by Freeman (1984), Savage et al. (1991) and others, vary according to stakeholders influencing abilities (i.e. cooperating and threatening potential). As will be discussed latter in this paper other relationships will also be examined in an attempt to address the research’s core question of interest.

Stakeholder strategy matrix

1201 The stakeholder strategy matrix Freeman’s (1984) stakeholder strategy matrix model suggests that firms will design strategies to address stakeholders’ interests, depending on these stakeholders’ abilities to threaten and cooperate (i.e. influencing ability) with organisations (i.e. a 2 £ 2 matrix) an idea that is also supported by other authors (Kimery and Rinehart, 1998; Polonsky, 1996; Savage et al., 1991). In other words, a stakeholders’ position in the two-dimensional matrix allows the firm to determine the most appropriate strategies for managing firm-stakeholder relationships. All authors examining the stakeholder matrix have suggested that stakeholder’s influences resulted in four categorisations of stakeholders influencing abilities, and that there are strategies appropriate for dealing with each category (see Figure 1). Freeman (1984) suggested that those with high cooperative and threatening abilities were Swing stakeholders, as these stakeholders can either assist or hinder organisational activities. Strategies for dealing with Swing stakeholders should “seek to change or influence the rules of the game that govern stakeholder interactions” (Freeman, 1984, p. 144). Savage et al. (1991) defined this group more positively as Mixed Blessing stakeholders, who firms should collaborate with to maximise their positive influencing abilities and minimise threatening abilities. The marketing focused work of Kimery and Rinehart (1998) chose to focus on the potential positive Mixed Blessing perspective rather than the more ambivalent Swing perspective, which could potentially be considered to have some negative connotations. Polonsky (1996) too focused on the Mixed Blessing type of categorisation, recognising that this

Figure 1. Freeman (1984) and Savage et al. (1991) stakeholder strategy matrix model

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stakeholder group needs positive engagement to nurture their positive cooperating potential. Stakeholders with a high cooperative potential and low threatening potential were classified as Offensive by Freeman (1984, p. 143) who suggested that “the firm should adopt a offensive strategy to bring about the cooperative potential” and thus the stakeholder’s positive orientation is exploited. Savage et al. (1991) focused on this stakeholder’s supportive potential (i.e. Supportive stakeholders) and suggested that by involving these stakeholders in corporate activities their support could be leveraged. Interesting, Kimery and Rinehart (1998) classified these stakeholders as Supportive, but suggested that strategies should exploit rather than involve these stakeholders. From a strategy perspective this subtle difference could have implications in regards to how firms engage stakeholders, especially if stakeholders feel they are being exploited rather than involved (Polonsky, 1996). Stakeholders with a low cooperative potential, but high threatening potential, were classified as Defensive stakeholders by Freeman (1984). He suggested that organisations should isolate themselves from these groups with defensive strategies. Savage et al. (1991) recognise the non-supportive nature of this group, as well as the need to adopt defensive organisational strategies. Kimery and Rinehart (1998) took a similar view, in suggesting that non-supportive groups should be defended against. These authors have assumed that negative potential will be acted on, which may not be the case. Thus, while defensive strategies might possibly reduce dependence on these groups, Polonsky (1996) suggested that engaging these non-supportive stakeholders might be a better approach to better manage relationships and minimising negative outcomes (Heugens et al., 2002). The final group of stakeholders have a low cooperative and low threatening potential. Freeman defines these as Holding stakeholders, with whom organisations should seek to maintain current positions, including monitoring them for changes in their position. In this situation Savage et al. (1991) and Kimery and Rinehart (1998) have similar definitions of this group, suggesting they are marginal stakeholders who should be monitored. While not completely disagreeing, Polonsky (1996) suggests that the importance of holding stakeholders might be in their indirect influencing abilities (positive and negative) on organisational outcomes. He suggests that while monitoring is important, other strategies might be used to assist in building support from these stakeholders, ensuring any changes in relationships are positive. As such the stakeholder strategy matrix would suggest that it is stakeholders influencing ability (i.e. their cooperative and threatening ability) that should guide managers decision making in regards to strategic decision making with regard to managing stakeholder relationships. There is no suggestion that stakeholders in any one quadrant of the matrix are more important than others, but it might be argued that stakeholders with low cooperating and low threatening potential are less important (Freeman, 1984; Savage et al., 1991). However, this would be disputed by Polonsky (1996), who suggests all stakeholder positions within the matrix are equally important. We suggest that there should not be a difference in how stakeholders are viewed: H1. Varying influencing abilities (i.e. positions within the matrix based on cooperative and threatening ability) will not affect manager’s views.

Table I provides Polonsky’s (1996) synthesis of 13 “generic” stakeholder strategies as suggested by Freeman (1984) and Savage et al. (1991)[1]. It is worthwhile noting that seven of these “generic” strategies have been suggested to be equally applicable to more than one classification of stakeholders and two strategies have been suggested to be applicable to three classifications of stakeholders. We suggest that individual strategies should each be viewed equally applicable, although given the fact that some strategies seem to be considered relevant to multiple influencing abilities this may not be the case: H2. The strategy will not affect managers’ views. Within the previous research on stakeholder relationships, authors have examined a range of stakeholder groups (Berman et al., 1999; Henriques and Sadorsky, 1999; Greenley and Foxall, 1997). For example, Miller and Lewis (1991) suggested that there are at least 52 marketing-related stakeholders. Some early research has suggested that different stakeholder groups impact organisational decision making more than others (Peattie and Ratnayaka, 1992). It is therefore important to consider whether the specific stakeholder group being considered impacts on managers’ views, even though theory suggests this should not be the case: H3. The stakeholder group will not affect managers’ views. The key relationship of interest for the stakeholder strategy matrix is the interaction between the strategy applied and the stakeholder’s influencing ability. Figure 1 and Table I identify that the applicability of strategies should vary based on these influencing abilities, even though some strategies seem to be applicable across more than one classification in the matrix (see Table I). If stakeholder theory is to be a valuable decision-making tool, then the interaction effect between influencing ability and strategy should be significant. As is discussed within the methodology section this interaction will be examined across the set of strategies and influencing abilities within the matrix, as well across influencing abilities for each individual strategy: H4. The interaction between strategy and stakeholder’s influencing ability will affect managers’ views. There should not be any interaction effect between the stakeholder group and strategy applied. The reason being that the stakeholder groups’ influencing ability is core to the determination of strategic action, not on “who they are”. Thus, any interaction effect between the stakeholder group and strategy would suggest that managers are attributing innate influencing abilities to stakeholders even when these abilities are not defined. As such: H5. The interaction between stakeholder group and strategy will not affect managers’ views. In regards to the interaction between stakeholder group and influencing ability, here too stakeholder theory suggests there should not be a statistically significant interaction. Any stakeholder who has a specific influencing ability should be viewed similarity. That is “suppliers” with low cooperative potential and high threatening potential should be treated the same as “owners” with low cooperative and height threatening abilities. Thus:

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Table I. Applicable generic strategies identified by Freeman (1984) and Savage et al. (1991)

Source: Adapted from Polonsky (1996)

(1) Modify the circumstances in which the firm and this stakeholder interact (2) Change the formal or informal rules under which this stakeholder operates (3) Refocus this stakeholder’s objectives (4) Informally collaborate with this stakeholder when establishing policy (5) Reinforce this stakeholder’s beliefs about the firm (6) Include this stakeholder when developing strategy (7) Modify this stakeholder’s beliefs about the firm (8) Change organisational behaviour to address this stakeholder’s concerns (9) Continue with existing activities (i.e. ignore this group) (10) Reduce reliance on this stakeholder (11) Monitor this stakeholder for change in their beliefs/behaviour/attitudes (12) Minimise the possibility of this stakeholder-firm relationship changing in any way (13) Link this stakeholder to the firm’s wider objectives £ £ £ £

£ £ £ £

£ £

£ £ £ £ £ £

£ £

£ £

£ £ £ £

Offensive – exploit Low High

£ £

£ £ £ £

£ £

Defensive – defend High Low

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Dependent variable

Matrix position Threatening ability Cooperative ability

Swing-change rules High High

£ £

£ £

£ £ £ £

Hold – hold current position Low Low

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H6. The interaction between the stakeholder group and stakeholder’s influencing ability, will not affect managers’ views. For completeness, the three-way interaction is also examined across the stakeholder group, influencing ability and strategy. While there should be a significant two-way interaction between stakeholder’s influencing ability and strategy, this would not vary based on the stakeholder considered. The final hypothesis is: H7. The interaction between the stakeholder group, their influencing ability and strategy will not affect managers’ views. Should empirical results identify managers view the applicability of strategies vary based on stakeholders’ influencing abilities, this would move stakeholder theory beyond being normative (i.e. what ought to happen) but would become instrumental (i.e. explain the outcomes of applying strategies for dealing with stakeholders). That is, the application of the stakeholder strategy matrix model would provide justifiable guidance, supported by empirical evidence, to managers trying to address stakeholders’ interests. If managers cannot appropriately address stakeholders’ interests, it is unlikely that there will be improvements in organisational outcomes, which might explain why there is often a mismatch of interests, resulting in equivocal results relating to financial performance and being stakeholder oriented (Wood and Jones, 1995). Methodology The literature suggests that stakeholders’ influences are highly context specific (Freeman, 1984; Mitchell et al., 1997) and thus within this study the evaluation of the applicability of generic strategies was carried out in a marketing environment for new products. The literature in this area has identified that firms have to take a number of internal and external stakeholder interests into account (Jones, 1998; McQuater et al., 1998; Peattie and Ratnayaka, 1992; Polonsky and Ottman, 1998). Thus a green marketing context, using a hypothetical scenario related to the new product process was deemed applicable to stakeholder evaluations. The dependent variable asked respondents to evaluate the perceived appropriateness of the 13 generic strategies (see Table I) for each of eight stakeholders frequently examined in the literature, i.e. there were 104 evaluations per respondent related to testing the matrix and associated hypotheses. A seven point scale was used: 1 – very unlikely to be applied; to 7 – very likely to be applied. Stakeholders’ position within the strategy matrix (i.e. their potential ability to cooperate or threaten the organisation) was varied within the scenario description (this is described in more detail in the next section). The mixed design analysis determined whether the mean responses varied based on managers’ average perceptions of the appropriateness across the three main effects: stakeholder influencing ability – Influence (H1); the strategy being considered – Strategy (H2); and the stakeholder group – Group (H3). There were also three possible two-way interactions: Strategy *Influence (H4), Group *Strategy (H5), and Influence *Group (H6), which could be examined and one three-way interaction – Strategy *Influence *Group (H7). The mixed design allows the set of variable to be examined, but does not consider the impact of the stakeholder group (Group), influencing ability (Influence), or

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interaction of these (Group * Influence) on individual strategies. More in-depth analysis is therefore needed, especially if the mixed analysis identifies that there are differences for the Group *Influence interaction. Analyses of variance (ANOVAs) were therefore undertaken to examine the direct and interaction affects on individual strategies as well. This analysis can be used to further evaluate H4 (i.e. Influence *Strategy) H5 (i.e. Group *Influence) and H7 (i.e. Influence *Group *Strategy). The rational for examining these various relationships has been discussed in the previous section. While all empirical evaluations were of interest, a significant difference in the Influence *Strategy effect in the mixed design would identify that there are indeed differences between the applicable of strategies across influencing abilities, which previous authors have suggested these exist (Freeman, 1984; Savage et al., 1991; Polonsky, 1996; Kimery and Rinehart, 1998). A statistical difference for any of the individual strategies, using the ANOVAs, would identify that there are differences in the applicability of specific strategies (Freeman, 1984; Savage et al., 1991; Polonsky, 1996; Kimery and Rinehart, 1998). The other main effects and interaction effects, in both the mixed design and the ANOVA tests, were examined for empirical completeness. As will be discussed in regard to the results, there is no suggestion in the literature that these other main effects or interaction effects should be statistically significant. Scenario and survey design The scenario used in this study was developed following suggestions in the literature (Wason et al., 2002; Wason and Cox, 1996; Cavanagh et al., 1985; Chonko et al., 1996; Hyman and Steiner, 1996), allowing for specific points of interest to be emphasised (Cavanagh et al., 1985; Hyman and Steiner, 1996). The scenario approach allowed for the control of the independent variables (influencing ability and stakeholder group) as well as placing respondents in a common decision context. It included an unchanging core that broadly set out the decision context (as will be discussed below) and an expanded section where independent variables were manipulated. This approach is superior to a constant variable approach as it is more dynamic than a static scenario (Chonko et al., 1996; Hyman and Steiner, 1996; Wason and Cox, 1996). The use of a hypothetical scenario placed individuals in a common context and controlled for a range of moderating factors that might complicate managers’ evaluation of stakeholders (Cavanagh et al., 1985). This was especially important when examining stakeholder theory, as each firm’s stakeholder network may not only involve different stakeholders (Freeman, 1984), but also relationships within each network may vary (Freeman, 1984; Rowley, 1997; Wolfe and Putler, 2002). The scenario examined a decision context at one point in time and was designed to be as realistic as possible to improve the quality of the data (Wason et al., 2002). As was identified previously (see Table I), the strategies examined within the scenario were developed based on those suggested by Freeman (1984), Savage et al. (1991) model, Kimery and Rinehart (1998), and summarised by Polonsky (1996). Table I lists the quadrants of stakeholder strategy matrix based on influencing ability and strategies applicable to each quadrant. Eight stakeholder groups were included in the survey – Competitors; Customers; Employees; Government; Owners/Shareholders; Special Interest Groups; Suppliers and Top Management. These groups were included

based on a review of the literature, which suggested they were the most salient (for example, in Freeman, 1984; Greenley and Foxall, 1996; Polonsky, 1996). Ten in-depth pre-test interviews were held with marketing managers, similar to the targeted respondents. The objective of the pre-test was to determine whether the generic strategies identified in the literature were realistic and that no alternative strategies should be considered. The interviewed marketing managers also examined the scenario, to ensure all relevant stakeholder groups were included. The final questionnaire asked managers their views of stakeholders influencing abilities in regards to an unchanging core situation. It then provided expanded information where respondents were asked their perceptions of the appropriateness of each of the 13 generic strategies for each of eight stakeholders groups. Stakeholder groups’ influencing abilities were varied within the four positions in matrix within versions of the survey (i.e. cooperating and threatening abilities were varied (see Figure 1)). The final section of the survey asked demographic questions. Lerner and Fryxell (1994, p. 59) suggested that it is “. . . manager’s attitudes about stakeholders that predispose action”. Greenley and Foxall (1997, p. 12) reinforced this view, suggesting that “. . . managerial decision-making is largely based on managerial perceptions . . . ”. As such managers’ perceptions of the role of stakeholders should identify how they would deal with various stakeholder groups (Agle et al., 1999). Marketing managers’ views of a hypothetical scenario involving multiple stakeholders should therefore be sufficient to evaluate the appropriateness of strategies, since their perceptions of the effectiveness of alternate strategies, would determine managerial actions. Given the complexity of the task (13 strategies for eight different stakeholders), each respondent evaluated only one of the versions of the instrument. An equal number of each version of the instrument, describing stakeholders within the 2 £ 2 matrix, was distributed. This amounted to 343 questionnaires per version, i.e. 1,372 questionnaires in total. Sample The potential respondents were 1,372 members of the Australian Marketing Institute (AMI) who were classified as Australian Fellows, Associate Fellows and Associate members. According to the AMI, the criteria for being an Associate Member are: a “degree in marketing, or a marketing major, or – Associate Diploma in Marketing and three or more years practical marketing experience, or – Persons with significant practical marketing experience, e.g. 15 years”. These potential respondents were therefore deemed to be experienced marketing managers. This view was supported by an examination of the demographic factors (see Table II) relating to experience, with 19 per cent of the respondents having more than 20 years’ experience in their industry and 44 per cent having between six and 20 years’ experience. An examination of individuals’ titles also suggested they were actively involved in the strategic decision making of their organisations (i.e. 65 per cent were at least national/regional sales/marketing managers). The survey response rate was 8.9 per cent (119 fully completed surveys), with a relatively even distribution of responses across the different versions, yielding a low of 25 and a high of 34 responses and a median number of 30 responses per version. The questionnaire was distributed with the support of the participants’ professional

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1208 Table II. Comparison of AMI and sample demographics

Male Female Gender not specified Age group under 25 Age group 25-34 Age group 35-44 Age group 45-54 Age group 55-64 Age group 65-75 Age group over 75 Age group not specified

Respondent proportions

AMI proportions (%)

74.8 24.4 0.8 3.4 26.1 30.3 31.9 7.6 0 0 0.8

77.0 23.0 – 5.0 32.0 31.0 24.0 8.0 – – –

organisation and a reminder about the study, via a brief article on the cover of the organisation’s newsletter, was used. Both of these activities should have improved the response rate according to literature (Angur and Nataraajan, 1995; Fox et al., 1988; Herberlein and Baumgartner, 1978; Kanuk and Berenson, 1975). It is recognised that the, lack of a reminder letter, survey length, complexity of the survey and respondent’s potential low level of involvement in the topic, may each have contributed to the low response rate (Fox et al., 1988; Herberlein and Baumgartner, 1978; Kanuk and Berenson, 1975). It should be noted that some non-US-based managerial studies have reported even lower response rates when no reminder is used (for example Angur and Nataraajan, 1995). An examination of early and late respondents was undertaken to determine whether bias existed. No statistical difference between the two groups’ responses was found, suggesting non-response bias was not an issue of concern (Kanuk and Berenson 1975, Berdie, 1989). The sample demographics were also not substantially different from those of the AMI membership as can be seen in Table II. According to Herberlein and Baumgartner (1978), if respondents are representative of the sample, a smaller response rate is not problematic. Berdie (1989) in a review of the response rate literature identified that even when there were differences between respondents and non-respondents, a small sample rarely affected overall outcomes. The small sample size was therefore not considered to be a significant issue for this work, given that there was no statistically significant difference between early and late respondents and the sample membership was similar in nature to that of the AMI membership. Furthermore, a small response level would possible have meant that empirical test power would possible be low. While this would have posed problems if evaluations had resulted in there being non-significant findings, i.e. the non-significance could have been a sample size issue. However, according to Denis (2003), the fact that significant results were found (to be discussed below) with a small sample size would indicate that substantial differences did exist. Results The first step in the examination of the data was to identify how marketing managers evaluated stakeholders in relation to the common core scenario. Managers’ perceptions of stakeholders’ influencing abilities were calculated for each stakeholder groups using a high-low dichotomy, which included a neutral point (1 2 3:5 ¼ High,

3:5 2 4:5 ¼ Neutral, 4:5 2 7 ¼ Low). As can be seen in Table III, most stakeholders were generally believed to have a high positive and negative influencing ability. The only exceptions were Suppliers who were believed to have a neutral/threatening ability, Competitors who were seen to have a neutral cooperative ability and Government, which was also seen to have a neutral cooperative ability. The second step was to determine whether there was support for the appropriateness of using different strategies to address stakeholders’ interests based on stakeholders described influencing (i.e. cooperative and threatening) abilities, using the mixed design process – PROC MIXED (SAS Institute Inc., 1997). This SAS PROC MIXED program fits mixed method linear models and allows for the evaluation of fixed effects in models with repeated measures on some variables. Table IV lists the results of tests for mean differences in respect of H1-H7 based on the mixed design analysis. The test of H1 through H3 examines the direct effects of Influence, Strategy and Group. The results suggest that varying stakeholders influencing abilities (i.e. Influence) did not affect respondents views, thus H1 is not rejected (p . 0:05). This suggests that the positions within the stakeholder strategy matrix (based on influencing ability) are seen to be inherently “equally” important and thus no type of stakeholder should be ignored (Polonsky, 1996). Managers view some strategies differently than others, thus H2 (Strategy) was rejected (p , 0:000). This would suggest that some strategies would seem to be seen to be universally “better or worse” than others. An examination of Table I does seem to

Stakeholder Competitors Customers Employees Government Owners/stockholders Special interest groups Suppliers Top management

Direct threat Mean (var) 2.5 2.3 3.3 3.1 3.2 3.2 3.6 2.1

(1.43) (1.60) (1.64) (1.59) (1.70) (1.74) (1.83) (0.33)

ID Group Influence Strategy Group *strategy Influence *strategy Group *influence Group *influence *strategy

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Direct cooperation Mean (var) 4.3 2.2 2.3 3.5 3.3 2.7 3.1 2.0

(2.15) (1.43) (1.12) (1.87) (1.81) (1.50) (1.67) (1.20)

Note: The lower the score, the higher the influence

Source

Stakeholder strategy matrix

F

Pr . F

8.24 48.38 2.46 55.46 9.42 2.60 5.39 0.89

0.0000 0.0000 0.0608 0.0000 0.0000 0.0000 0.0000 0.8713

Table III. Mean (variance) scores for stakeholders’ influence

Table IV. Differences in mean appropriateness scores for hypotheses H1 to H7

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suggest that some strategies can be used in multiple situations, which might lead to managers considering these to be “better”, in the sense that they are more widely applicable. The analysis of the ANOVAs for specific strategies will examine whether Group or Influence affects individual views of strategies. The stakeholder group examined (Group) was found to also affect managers’ views, i.e. H3 was rejected (p , 0:000). This is inconsistent with theory as it suggests that managers view some stakeholders to be more (or less) important than others and thus there seems to be some perceived inherent influencing abilities. This is also supported by respondents’ general view of stakeholders to the core scenario (see Table III), which suggests that managers believe stakeholders have differing influencing abilities (that is suppliers and competitors were seen differently, even though no influencing abilities were specified). In terms of the two-way interaction effects, all three were statistically significant within the mixed design. The fact that the Influence *Strategy (H4) interaction was significant suggests H4 was not rejected, that is managers’ views varied based on stakeholders’ influencing abilities. This supports the applicability of the matrix for decision-making. The Group *Strategy interaction (H5) was statistically significant, re-enforcing that managers could be attributing different strategies to stakeholders based on who they are rather than their influencing ability. The significant results from the stakeholder Group *Influence (H6) interaction would seem to suggest that managers perceived some stakeholders to be more likely to have (or are more unlikely to have) some types of influencing abilities (also potentially supported by the results in Table III). Thus H6 was also rejected. While the pre-tests suggested that the stakeholders described influencing abilities were realistic, these results might suggest that there are some positions that some stakeholders do not have, or, at least are not perceived to be able to have. The three-way interaction of Stakeholder *Position *Strategy examines H7 in the mixed design and was found to be insignificant at the 95 per cent level. This suggests that there were no differences in the applicability of strategies (Strategy) for groups of stakeholders (Group) described within a given influencing ability (Influence), as stakeholder theory would suggest. Table V provides the results from the ANOVAs examining the impact of stakeholder group (i.e. Group) and their influencing abilities (i.e. Influence) in regards to each of the individual strategies, as well as the interaction effect between these two variables (Group *Influence). At the 95 per cent level, the stakeholder Group effect was found to be significant for each individual strategy. That is, the strategy to be applied was viewed differently based on the stakeholder being considered, further supporting the rejection of H5. Thus the stakeholder group examined seems to impact on managers’ perception of the appropriateness of the strategy used. As was suggested previously this is inconsistent with stakeholder theory, and suggests that the marketing managers were not determining how stakeholders should be addressed based on their actual influencing abilities, but were using a preconceived view of a given stakeholder’s general influencing role and were ignoring the information provided potentially resulting in an inaccurate perception of the stakeholders’ ability to impact on organisations as has been also suggested by Friedman and Miles (2002). The implication of this empirical result is extremely important, for it might identify that managers are applying the

Group

Stakeholder strategy matrix

Influence

Group *influence Dependent variable (1) Modify the circumstances in which the firm and this stakeholder interact (2) Change the formal or informal rules under which this stakeholder operates (3) Refocus this stakeholder’s objectives (4) Informally collaborate with this stakeholder when establishing policy (5) Reinforce this stakeholder’s beliefs about the firm (6) Include this stakeholder when developing strategy (7) Modify this stakeholder’s beliefs about the firm (8) Change organisational behaviour to address this stakeholder’s concerns (9) Continue with existing activities (i.e. ignore this group) (10) Reduce reliance on this stakeholder (11) Monitor this stakeholder for change in their beliefs/behaviour/attitudes (12) Minimise the possibility of this stakeholder-firm relationship changing in any way (13) Link this stakeholder to the firm’s wider objectives

F

sig.

F

sig.

F

sig.

8.50

0.000

2.92

0.056

4.76

0.000

6.48 10.61

0.000 0.000

1.72 6.06

0.181 0.003

2.82 2.99

0.005 0.003

6.41

0.000

2.36

0.097

2.65

0.009

8.37

0.000

0.07

0.932

1.54

0.143

11.52 8.55

0.000 0.000

1.20 7.51

0.303 0.001

1.31 1.98

0.238 0.05

14.29

0.000

3.00

0.051

1.72

0.094

6.51 11.91

0.000 0.000

4.22 3.21

0.016 0.042

1.65 0.64

0.402 0.743

7.27

0.000

0.06

0.946

0.46

0.884

2.07

0.047

0.92

0.398

0.92

0.504

14.20

0.000

4.46

0.0126

4.29

0.000

wrong strategies, simply because they do not understand stakeholders’ influencing abilities. In such situations it would not be surprising to then find that the strategy applied did not work, as it was possibly the wrong strategy in the first place. There was a statistically significant difference (p , 0:05) between the mean perceived values of the appropriateness of five of the 13 strategies examined based on stakeholders influencing ability (i.e. Influence), with a further three strategies being significant at the 0.10 level. These results suggested that there is some support for the view that stakeholders’ influencing abilities did affect the perceived appropriateness of some strategies further supporting H4. As such the stakeholder strategy matrix model does seem to have some degree of validity in terms of directing managerial action in regard to dealing with stakeholders based on their influencing abilities. A closer examination of where differences existed for individual strategies identified some important results. Firstly it was noted that stakeholder theorists suggested that there were two generic strategies that could be applied across three groups of stakeholder (see Table I). It was therefore not necessarily surprising that there were no significant differences based on their influencing ability (i.e. Position was non-significant). If these strategies were to be excluded, the results would more strongly support the usefulness of the matrix for determining how strategies should be applied (i.e. statistical differences exist for eight out of 11 strategies based on position). A second important result was that none of the strategies identified in the literature as being applicable for stakeholders with low cooperative and low threatening ability

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Table V. Comparisons of mean perceived appropriateness of approaches

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were found to be significantly different across groups. This suggested that the strategies for dealing with these low influencers were not uniquely applicable. While one might suggest that managing relationships with these groups is not seen to be important, this view might not consider stakeholders’ ability to change influence over time or the fact that these groups might influence others (Polonsky, 1996). The results did seem to suggest that the generic strategies for this group needed more consideration. In examining the interaction between the stakeholder group and their influence for individual strategies, it was identified that there were statistical differences (p , 0:05) in the managers’ views for of six of the 13 strategies, with another strategy being statistically different at the 90 per cent level. This result further supports the idea that marketing managers were differentiating their strategies based on who the stakeholder was rather than their influencing role. The strategies that could be applied to three groups and all those targeting low threat and low cooperation groups again seemed to be equally applicable to all stakeholders. The results suggested that the stakeholder strategy matrix, as it stands, gives marketing managers some guidance as to how they should deal with stakeholders, although there is also evidence that additional work needs to be undertaken to develop strategies for stakeholders with specific influencing abilities, particularly those with a low threatening and low cooperative potential. Discussion and conclusions The significant results for the direct and interaction effects (i.e. H1-H7) showed that some aspects of stakeholder strategic matrix did hold. Thus there was partial support for using the matrix to guide managerial decision making in terms of applying strategies based on stakeholder’s influencing characteristics. While there were differences in the appropriateness of some strategies based on stakeholders’ influencing abilities, other strategies appear to be equally applicable across types of stakeholders. As such, some of the strategies would appear to be appropriate for all situations. If this is the case it might suggest that there are in fact some general stakeholder strategies that can be applied universally applied, as well as some strategies that are appropriate in situations where stakeholders have specific influencing abilities. For example, there do not appear to be any “unique” strategies for dealing with stakeholders who have low cooperative and threatening potentials. The finding that marketing managers appeared to perceive some strategies to be applicable to specific stakeholder groups irrespective of their influencing ability, suggested that managers might not have been considering the facts before them, but rather developing strategy based on their perceptions of stakeholders’ influence as has been suggested by Friedman and Miles (2002). In this situation a marketing manager’s perceptions may not reflect the reality of the stakeholders’ ability to perform. The fact that marketing managers perceive stakeholders to have inherent influencing abilities, no matter how they are described, may shed some light on why there are mismatches in firm-stakeholder activities. Such mismatches could result in firms (i.e. managers) having greater difficulty in dealing with stakeholders, as they would not understand their influencing abilities. If this were the case, firms using a stakeholder approach would need to ensure that they implemented clear procedures for

evaluating stakeholder-firm relationships before acting. This would in turn allow these organisations to design strategies that address actual rather than perceived views of stakeholders. In this way the value of the network of firm-stakeholder and stakeholder-stakeholder exchanges could be maximised. There might also be fewer shocks to the firm specific business environment, as stakeholder oriented firms would more carefully consider how various stakeholders might act and would therefore act to minimise the potential of firm-stakeholder conflict. Even if these potential negative outcomes eventuated, firms would have had the opportunity to develop contingency programs and would therefore be in a position to modify activities accordingly. This activity could give these firms a competitive advantage over those who had not adopted a stakeholder perspective. Note 1. Kimery and Rinehart (1998) did not provide any additional strategies, rather they examined those discussed by Savage et al. (1991) and Freeman (1984) References Agle, B.R., Mitchell, R.K. and Sonnenfeld, J.A. (1999), “Who matters to CEOs? An investigation of stakeholder attributes and salience, corporate performance, and CEO values”, Academy of Management Journal, Vol. 42 No. 5, pp. 507-25. Angur, M.G. and Nataraajan, R. (1995), “Do source of mailing and monetary incentives matter in international industrial mail surveys?”, Industrial Marketing Management, Vol. 24 No. 3, pp. 351-7. Berdie, D.R. (1989), “Reassessing the value of high response rates to mail surveys”, Marketing Research, Vol. 1, September, pp. 52-64. Berman, S., Wicks, A., Kotha, S. and Jones, T. (1999), “Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance”, Academy of Management Journal, Vol. 42 No. 5, pp. 488-506. Cavanagh, S.J., Gerald, F. and Fritzsche, D.J. (1985), “Using vignettes in business ethics research”, Research in Corporate Social Performance and Policy, Vol. 7, pp. 279-93. Chonko, L.B., Tanner, J.F. Jr and Weeks, W.A. (1996), “Ethics in salesperson decision making: a synthesis of research approaches and an extension of the scenario method”, Journal of Personal Selling and Sales Management, Vol. 16 No. 1, pp. 35-52. Clarkson, M.E. (1995), “A stakeholder framework for analyzing and evaluating corporate social performance”, Academy of Management Review, Vol. 20 No. 1, pp. 92-118. Denis, D.J. (2003), “Alternative null hypothesis significance testing”, Theory and Science, Vol. 4 No. 1, pp. 1-22, available at: http://theoryandscience.icaap.org/volume4issue1.html Fox, R.J., Crask, M.R. and Kim, J. (1988), “Mail survey response rate: a meta-analysis of selected techniques for inducing response”, Public Opinion Quarterly, Vol. 52, pp. 467-91. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman Publishing, Boston, MA. Friedman, A. and Miles, S. (2002), “Developing stakeholder theory”, The Journal of Management Studies, Vol. 39 No. 1, pp. 1-21. Greenley, G. and Foxall, G. (1996), “Consumer and non-consumer stakeholder orientation in UK companies”, Journal of Business Research, Vol. 35 No. 2, pp. 105-16.

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Greenley, G. and Foxall, G. (1997), “Multiple stakeholder orientation in UK companies and the implications for company performance”, Journal of Management Studies, Vol. 34 No. 2, pp. 259-84. Henriques, I. and Sadorsky, P. (1999), “The relationship between environmental commitment and managerial perceptions of stakeholder importance”, Academy of Management Journal, Vol. 42 No. 1, pp. 87-99. Herberlein, T.A. and Baumgartner, R. (1978), “Factors affecting response rates to mailed questionnaires: a quantitative analysis of the published literature”, American Sociological Review, Vol. 43 No. 4, pp. 447-62. Heugens, P.P.M.A.R., Van Den Bosch, F.A.J. and Van Riel, C.B.M. (2002), “Stakeholder integration”, Business and Society, Vol. 41 No. 1, pp. 36-60. Hyman, M.R. and Steiner, S.D. (1996), “The vignette method in business research: current uses, limitations and recommendations”, in Stuart, E.W., Ortinau, D.J. and Moore, E.M. (Eds), Marketing: Moving toward the 21st Century, Winthrop University School of Business Administration, Rock Hill, SC, pp. 261-5. Jones, O. (1998), “From maturity to entrepreneurship: a stakeholder model of innovation”, Creativity & Innovation Management, Vol. 7 No. 2, pp. 107-14. Kanuk, L. and Berenson, C. (1975), “Mail survey and response rates: a literature review”, Journal of Marketing Research, Vol. 12 No. 4, pp. 440-53. Kimery, K.M. and Rinehart, S.M. (1998), “Markets and constituencies: an alternative view of the marketing concept”, Journal of Business Research, Vol. 43 No. 3, pp. 117-24. Lerner, L.D. and Fryxell, G. (1994), “CEO stakeholder attitudes and corporate social activity in Fortune 500”, Business and Society, Vol. 33 No. 1, pp. 58-81. McQuater, R.E., Peters, A.J. and Dale, B.G. (1998), “The management and organisational context of new product development: diagnosis and self-assessment”, International Journal of Production Economics, Vol. 55 No. 2, pp. 121-31. Miller, D. and Friesen, P.H. (1986), “Porter’s (1980) generic strategies and performance: an empirical examination with American data. Part II: Performance implications”, Organizational Studies, Vol. 7 No. 3, pp. 255-61. Miller, R.L. and Lewis, W.F. (1991), “A stakeholder approach to marketing management using the value exchange model”, European Journal of Marketing, Vol. 25 No. 8, pp. 55-68. Mitchell, R.K., Agle, B.R. and Wood, D.J. (1997), “Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts”, Academy of Management Review, Vol. 22 No. 4, pp. 853-86. Parnell, J.A. (1997), “New evidence in the generic strategy and business performance debate: a research note”, British Academy of Management Journal, Vol. 8 No. 2, pp. 175-81. Parnell, J.A. and Wright, P. (1993), “Generic strategy and performance: an empirical test of the Miles and Snow typology”, British Academy of Management Journal, Vol. 4 No. 1, pp. 29-36. Peattie, K. and Ratnayaka, M. (1992), “Responding to the green movement”, Industrial Marketing Management, Vol. 21, pp. 103-10. Polonsky, M.J. (1996), “Stakeholder management and the stakeholder matrix: potential strategic marketing tools”, Journal of Market-Focused Management, Vol. 1 No. 3, pp. 209-29. Polonsky, M.J. and Ottman, J. (1998), “Stakeholders’ contribution to the green new product development process”, Journal of Marketing Management, Vol. 14 No. 6, pp. 533-58. Post, J.E., Preston, L.E. and Sachs, S. (2002), “Managing the extended enterprise: the new stakeholder view”, California Management Review, Vol. 45 No. 1, pp. 6-27.

Rowley, T. (1997), “Moving beyond dyadic ties: a network theory of stakeholder influences”, Academy of Management Review, Vol. 22 No. 4, pp. 1-40. SAS Institute Inc. (1997), SAS/STAT Software: Changes and Enhancements through Release 6.12, SAS Institute Inc., Cary, NC, pp. 573-702. Savage, G.T., Nix, T.W., Whitehead, C.J. and Blair, J.D. (1991), “Strategies for assessing and managing organisational stakeholders”, Academy of Management Executive, Vol. 5 No. 2, pp. 61-75. Wason, K.D. and Cox, K.C. (1996), “Scenario utilization in marketing research”, in Strutton, D., Pelton, L.E. and Shipp, S. (Eds), Advances in Marketing, Southwestern Marketing Association, Dallas, TX, pp. 155-62. Wason, K.D., Hyman, M. and Polonsky, M.J. (2002), “Developing hypothetical scenarios for marketing research”, Australasian Marketing Journal, Vol. 10 No. 3, pp. 41-58. Wolfe, R.A. and Putler, D.S. (2002), “How tight are the ties that bind stakeholder groups?”, Organization Science, Vol. 13 No. 1, pp. 64-80. Wood, D.J. and Jones, R.E. (1995), “Stakeholder mismatch: a theoretical problem in empirical research on corporate social performance”, International Journal of Organizational Analysis, Vol. 3 No. 3, pp. 229-67.

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About the authors Simon J. Bell Simon J. Bell (PhD, University of Melbourne) is a university lecturer in marketing at the Judge Institute of Management, the business school of the University of Cambridge. His research has appeared in the Journal of the Academy of Marketing Science, Journal of Retailing, Journal of Business Research, Industrial Marketing Management, Marketing Theory, among others. His areas of research interest include organizational learning, sales force management and internal marketing, services and relationship marketing, and corporate social responsibility. Val Clulow Val Clulow is Professor and Head, School of Business and Economics, Monash University, Gippsland (Australia). Prior to recently re-joining Monash University, Val was the Associate Professor of Marketing at Swinburne University of Technology, Australia. She has previously worked in the Department of Marketing, Monash University, developing retail courses at both undergraduate and post-graduate delivered by multi-media. Val has researched, published and supervised in the areas of consumer and services marketing and in higher education (online teaching and learning) and has also published a range of cross disciplinary work. She has recently undertaken a number of funded research projects for public sector clients who are now adopting more strategic approaches to management and marketing their services. Claus-Heinrich Daub Professor Claus-Heinrich Daub is Professor for Marketing and Management and Scientific Director of the Institute for Sustainable Management at the University oAS Aargau Northwestern Switzerland and Senior Lecturer of sociology at the University of Basel. He has researched and published on a wide variety of sociological, marketing and communication topics including sustainable management, globalization of society and markets, consumer behaviour and corporate identity and communication strategies. Prior to be elected as Professor in 1999, Claus-Heinrich Daub held a number of roles in industry. These positions included Communications and Marketing Research Manager, Business Trainer and Consultant and Head of Marketing and Communications of the European Centre for Economic Research and Strategy Consulting (Prognos). He is or was Visiting Professor at the Universities of Va¨steras (Sweden), Galway and Limerick (Ireland), Primorska (Slovenia) and the Universite´ de Fribourg (Switzerland).

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Rudolf Ergenzinger Professor Rudolf Ergenzinger is Professor for Marketing at the University oAS Aargau Northwestern Switzerland and heads the marketing research department at the Institute for Sustainable Management. He has published in a wide range of books and journals. After studying economics at the University of Zurich he obtained a doctorate with a dissertation on “Flexibilisation of working time and its consequences for management”. He is lecturer and senior researcher at the Chair of Marketing at the

University of Zurich and teaches at various institutions, focusing on marketing, international marketing, management, organisation and human resources management. Prior to be elected as Professor Rudolf Ergenzinger held a number of roles in industry and has consulted for a range of businesses and governmental organisations.

About the authors

Linda Ferrell Linda Ferrell, PhD is an Assistant Professor of Marketing at the University of Wyoming. She has published in the Journal of Public Policy & Marketing, Journal of Business Research, Journal of Business Ethics, European Journal of Marketing, Journal of Teaching Business Ethics, Case Research Journal, etc. Her research interests include marketing ethics, ethics training, and corporate social responsibility. She is co-author of Business Ethics: Ethical Decision Making and Cases (6th edition), Business and Society (2nd edition) and Business in a Changing World (5th edition). She has served as an expert witness in several business ethics cases. She is also involved with AACSB in developing the Ethics Education Resource Center (www.aacsb.edu). She is conference co-coordinator for the AACSB International Teaching Business Ethics Conference.

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O.C. Ferrell Dr O.C. Ferrell (PhD Louisiana State University) is Chair of the Department of Marketing and Ehrhardt, Keefe, Steiner, and Hottman, P.C. Professor of Business Administration at Colorado State University and is Co-director of the Center for Business Ethics and Social Issues. Ferrell is the co-author of 17 books and more than 80 articles. His articles have been published in the Journal of Marketing Research, Journal of Marketing, European Journal of Marketing, Journal of Business Research, Journal of the Academy of Marketing Science, as well as other journals. He is past president of the Academic Council of the American Marketing Association and chairs the American Marketing Association Ethics Committee. Under his leadership, the committee developed the 2004 AMA Code of Ethics and the AMA Code of Ethics for Marketing on the Internet. Moira Fischbacher Dr Moira Fischbacher is a Senior Lecturer in Strategic Management at the School of Business and Management, University of Glasgow. Her research interests are in the organisation and design of services, particularly in a network context. Studies to date have focused on structural and process aspects of multi-agency service provision, and have concentrated mainly on the health service setting. More recently, her interests have developed to include studies of Public Private Partnerships and the Private Finance Initiative. She has published in journals such as Financial Accountability and Management, Public Money and Management, and the Journal of Management in Medicine. Don Getz Dr Getz is Professor of Tourism and Hospitality Management, Faculty of Management, at the University of Calgary. Don conducted his advanced education at the University of Waterloo (Bachelor of Environmental Studies in Urban and Regional Planning), Carleton University (Master of Arts, Geography) and the University of Edinburgh, in

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Scotland (PhD in Social Sciences – Geography). Professor Getz teaches, conducts research, writes and consults in the field of tourism and hospitality management. He has developed an international reputation as a leading scholar and proponent of event management and event tourism.

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Janet Hoek Janet Hoek is a professor in the Department of Marketing at Massey University’s main campus in Palmerston North, New Zealand. She has a particular interest in marketing regulation; she has written extensively on the regulation of tobacco promotions and the ethics and effects of prescription medicine advertising. She has also published several papers on the measurement of consumer deception and has served as an expert witness in several cases involving alleged deception or breach of trademarks. Professor Hoek’s work has been published in the Journal of Public Policy and Marketing; Public Opinion Quarterly and the International Journal of Market Research. Fre´de´ric Jallat Fre´de´ric Jallat is Professor and Academic Director of the program in “International Business and Projects Management” at the European School of Management (ESCP-EAP). He has been a visiting professor in numerous institutions including the Stern School of Business at New York University, the University of Texas at Austin, the Asian Institute of Technology and the Foreign Trade Academy of Russia. He received a Master’s Degree from University Panthe´on-Sorbonne and a PhD from University Aix-Marseille III and ESSEC, France. He is an Editorial Board member for the Journal of Euro-Marketing, the Journal of Transnational Management Development and Revue Franc¸aise du Marketing. He is on the Board of Country Directors for the International Management Development Association and part of the scientific committee for the National Commission on Business Education, France. His research focuses on relationship marketing and service management, cross-cultural management and European marketing. Oliver Koll Oliver Koll is managing partner of Institut fu¨r Marketing PLC, a marketing strategy consultancy based in Innsbruck. He also is the Director of Consumer Insights of Europanel (a joint GfK and TNS subsidiary), the world’s leading provider of household panel information. He earned his PhD in marketing from the University of Innsbruck, Austria and his MBA from Tulane University, New Orleans. He formerly was a lecturer at the University of Innsbruck and an Assistant Professor at HEC Montreal and currently teaches in various university-sponsored executive programs on marketing strategy, marketing research and international marketing. His main research interests include branding, management of customer satisfaction, strategic positioning and stakeholder management. Results of this research have been presented at international conferences and in various scientific journals. In his consulting activities he supports organizations in the evaluation of their current market position as well as the identification and occupation of attractive market positions.

Wu Ma Jing Jing Wu Ma is Researcher in the Future Research Group in the Department of Commerce in Massey University at Albany ([email protected]). Paul Robert Maguiness Paul Robert Maguiness is Researcher in the Future Research Group in the Department of Commerce in Massey University at Albany ([email protected]) Isabell Maignan Isabell Maignan is Ethics and Compliance Officer at ING Bank, based in Amsterdam, The Netherlands Ninya Maubach Ninya Maubach is a tutor and PhD candidate in the Department of Marketing at Massey University. Ninya was awarded a Massey Scholarship in recognition of her outstanding record in both marketing and health psychology. She is part of a broad research programme investigating the advertising and regulation of prescription medicines and has been involved in several specific projects as part of this programme. Her PhD research examines consumers’ understanding of nutrition information. Bu¨lent Mengu¨c Bulent Menguc is an associate professor of marketing at Brock University, Canada. He received his PhD from Marmara University, Turkey. He has published 30 refereed journal articles in the European Journal of Marketing, Journal of Retailing, Journal of the Academy of Marketing Science, International Journal of Research in Marketing, Journal of Business Research, Journal of Business Ethics, Industrial Marketing Management, among others. His research interest is in the areas of sales force management, strategic orientations, and cross-cultural research methodology. Bill Merrilees Bill Merrilees is currently in the Griffith Business School as Head of the Department of Marketing, based on the Gold Coast campus. Bill is also associated with the Services Industry Research Centre. He has worked in both academia and the government. Bill particularly enjoys conducting case research as it builds a bridge to the real world. He has published more than 70 refereed journal articles or book chapters. His journal articles include the Journal of Business Research, Journal of Relationship Marketing, Journal of Business Strategies, Corporate Reputation Review, Long Range Planning and Journal of Product & Brand Management. Christine Moorman Christine Moorman is Professor of Marketing at the Fuqua School of Business, Duke University. Christine’s work examines how consumers, managers, and organizations use marketplace information as well as how information affects how well markets function. Chris’ research has been published in the Journal of Marketing Research, Journal of Marketing, Marketing Science, Journal of Consumer Research, Administrative Science Quarterly, Academy of Management Review, Journal of Public Policy & Marketing, and International Journal of Research in Marketing. Christine’s

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research has been funded by MSI and NSF and she is on the AMA National Board of Directors, the Director of Public Policy for the Association for Consumer Research, and an Academic Trustee for the Marketing Science Institute. Hans Mu¨hlbacher Hans Mu¨hlbacher is a Full Professor of Business Administration in the School of Business at the University of Innsbruck, Austria. He is a Visiting Professor at ESSEC and Paris II-Panthe´on-Assas. Hans Mu¨hlbacher is the author of International Marketing (2005). He has published in various marketing journals including the International Journal of Research in Marketing, Journal of Business Research, and the Journal of Marketing Management. He has been the President of the European Marketing Academy. He is associate editor for International Business of the Journal of Business Research. His major research interests are in the fields of strategic marketing and branding. Brian Douglas Murphy Brian Douglas Murphy is Adjunct Professor of Marketing and Director of the Future Research Group in the Department of Commerce in Massey University at Albany, and Director of Research Consultants Ltd ([email protected]) Benjamin A. Neville Benjamin A. Neville is a lecturer and PhD student at the University of Melbourne, Australia. His research has appeared in the proceedings of various conferences including the Academy of Management Best Paper Proceedings. His research interest is in the areas of stakeholder management, corporate social responsibility, and business and marketing ethics. Danny O’Brien Dr Danny O’Brien has qualifications from DeMontfort University, Bedford, UK; California State University, Long Beach; and Australian Catholic University, Sydney. Currently, he teaches classes in strategic management, and sport organisation and governance in the Griffith Business School, Department of Tourism, Leisure, Hotel and Sport Management, Griffith University, Gold Coast, Queensland, Australia. He has published several book chapters, as well as peer-reviewed journal articles in Sport Management Review and Journal of Sport Management. These published works and international conference presentations have been in the areas of organisational and strategic change in sport, as well as sport tourism and sport event leveraging. Mark Palmer Mark Palmer is a Lecturer in Marketing at Aston Business School, Aston University, Birmingham, UK Christopher James Pescott Christopher James Pescott is Researcher in the Future Research Group in the Department of Commerce in Massey University at Albany (chris@ perceptiveinsight.com)

Michael Jay Polonsky Professor Michael Jay Polonsky is the Melbourne Airport Chair in Marketing at Victoria University in Melbourne Australia. He has previously taught at a range of institutions in Australia, New Zealand, South Africa and the USA. His areas of research include stakeholder theory, environmental marketing/management, ethical and social issue in marketing, cross-cultural studies and marketing education. He has published over 80 journal articles in a wide range of journals including Journal of Business Research, Marketing Theory, Journal of Market Focused Management, Journal of Marketing Communications, European Journal of Marketing, Business Horizons, Journal of Marketing Theory and Practice, Journal of Business Ethics, Journal of Macromarketing, Journal of Marketing Management, International Journal of Nonprofit and Voluntary Sector Marketing, Business Strategy and the Environment, International Journal of Retailing & Distribution Management, Journal of Organizational Change Management, Journal of Business and Industrial Marketing, International Marketing Review, International Journal of Advertising, and Journal of Advertising Research. He has also consulted for a range of businesses and governmental organisations.

Barry Quinn Barry Quinn is a Lecturer in International Retailing at the University of Ulster, School of Business, Retail & Financial Services Coleraine, Northern Ireland.

Don Scott Don Scott is Professor of Management at Southern Cross University, where he lectures in strategic management, international management, marketing, management science and research methods. His research interests are in economic evaluations and modelling, services marketing and strategic management. He has published articles in journals such as the Applied Economics, European Journal of Marketing, International Journal of Advertising, International Journal of Physical Distribution and Materials Management, International Journal of Services Industry Management, International Migration Review, Journal of Business Research, Journal of Computer Information Systems, Journal of Strategic Marketing and Managerial and Decision Economics. He has also been a consultant to a range of different companies in strategic management, marketing and forecasting.

Anne M. Smith Dr Anne M. Smith is a Reader in Marketing at the Open University Business School. Her research interests are in the measurement of service quality (particularly in health, financial and professional services), internationalisation of services and cross cultural service quality evaluation and measurement, service design and the process and practice of reorganisation. She has published in a number of journals including the Journal of Marketing Management, Journal of Business Research, Service Industries Journal and the International Marketing Review.

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Anu Marianne Vainio Anu Marianne Vainio, MSc (econ) (Jyvaskyla, 1999), is pursuing a PhD degree in information systems science at the Helsinki School of Economics. Her research focuses on partnership networks and value networks in the software industry.

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Glenn B. Voss Glenn B. Voss (PhD, Texas A&M University) is an Associate Professor of Marketing in the Department of Business Management at North Carolina State University. His research interests include relationship marketing, entrepreneurship and creativity, and retail pricing strategies. His research has appeared in leading academic journals in marketing (e.g. European Journal of Marketing, Journal of the Academy of Marketing Science, Journal of Marketing, Journal of Retailing, Marketing Letters), management (e.g Organization Science), and the arts (e.g. International Journal of Arts Management). He is the recipient of research grants awarded by the National Science Foundation, Marketing Science Institute, and Aspen Institute, among others. As a member of the editorial review board of the Journal of the Academy of Marketing Science, he was recognized with an Outstanding Reviewer Award for 2000-2003. He also is a member of the editorial review board for the Journal of Retailing and an ad hoc reviewer for the Journal of Marketing and Journal of Marketing Research. He teaches courses in marketing strategy, retail management, international entrepreneurship, and nonprofit management in MBA programs in the USA and Europe.

Zannie Giraud Voss Zannie Giraud Voss (PhD, IAE-Aix-en-Provence) is an Associate Professor of Theater Studies at Duke University and Producing Director of Theater Previews at Duke, a professional theater company that co-produces new works, including the current Broadway production of Little Women. Her research interests include organizational identity management, entrepreneurship and creativity, and strategic orientation. Her research has appeared in leading academic journals in marketing (e.g. European Journal of Marketing, Journal of Marketing), management (e.g. Organization Science), and the arts (e.g. International Journal of Arts Management, ArtsReach, American Theatre). She serves as a site visitor for the National Endowment for the Arts and as a consultant for Theatre Communications Group, for whom she has co-authored the annual industry analysis, Theatre Facts, since 1998. She teaches courses in entrepreneurship and international arts management, producing theatre, and non-profit management both in the USA and in Europe. Zannie is the co-recipient of National Science Foundation and Aspen Institute Nonprofit Sector Research Fund grants, and she is a Research Associate with the French Centre d’Etudes et de Recherche sur les Organisations et la Gestion.

Rong Mei Wang Rong Mei Wang is Researcher in the Future Research Group in the Department of Commerce in Massey University at Albany ([email protected]).

Paul Whysall Paul Whysall is Professor of Retailing at Nottingham Business School, Nottingham Trent University. In recent years he has published several articles on the ethical aspects of retailing and on applications of stakeholder thinking to the field of retailing. Soren Wislang Soren Wislang is Researcher in the Future Research Group in the Department of Commerce in Massey University at Albany ([email protected]). Elliot Wood Elliot Wood is a registered Psychologist and Lecturer in Organisational Behaviour at the Graduate School of Business, Curtin University of Technology. He teaches in Australia, Singapore, Hong Kong, Sri Lanka and Malaysia and regularly consults to business on cross-cultural management. He is an Editorial Board member for the Journal of Transnational Management Development and is on the Board of Country Directors for the International Management Development Association. He holds a Bachelor of Psychology from the University of Western Australia, and a Master of Psychology (with distinction) and PhD from Curtin University. His research centres on work autonomy and empowerment, corporate volunteering, work-life balance and cross-cultural management. Arch G. Woodside Arch Woodside is Professor of Marketing, Boston College. He is a Fellow of the Royal Society of Canada; Society for Marketing Advances; American Psychological Association; and the American Psychological Society. He is the Editor-in-Chief of the Journal of Business Research (published by Elsevier 12 issues per annual volume). He is the editor of Designing Winning Products (2000) and the author of Market-Driven Thinking (2005). He is a Fellow of the International Academy of Tourism Research. He co-founded the Advertising and Consumer Psychology Symposium held annually by the Society of Consumer Psychology. He has served as a Visiting Professor of Marketing Monash University, the University of Warwick; University of Hawaii – Monoa Valley; University of Hawaii, Hilo; University of Innsbruck; International Management Center, Budapest; Helsinki School of Economics and Business Administration; Swedish School of Economics, Helsinki; University of Osijeck, Croatia; Hernstein Institute, Vienna; University of Prince Edward Island; University of Auckland; University of Christchurch, Canterbury. Currently he serves as Honorary Professor of Marketing at the University of New South Wales, Sydney. His management consultancy work is in the areas of advertising effectiveness; marketing strategy performance auditing; customer and patient satisfaction program design; customer acceptance of alternative new product designs, and tourism marketing strategy and tourism behavior.

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Call for papers European Journal of Marketing Special issue on

Trust in marketing Guest Editors: David C Arnott and David Wilson, Warwick Business School Trust is a pivotal concept in both social and business life. It is fundamental to almost every successful relationship (personal or business) and yet research into this most basic of concepts is limited. What research exists emanates mostly from the fields of psychology andorganisationtheory, leavinga researchgapinto the role of trust in a marketing context. Five key arguments support a need for this special issue. First, the heavily researched areas of relationship marketing, customer relationship management, branding, etc., support the need to understand, to gain and to maintain long term relationships which, at least from the customers’ perspectives, are based almost entirely on trust and confidence in the organisation. Secondly, there is a growth in trustrelated research activity evident in a number of recent articles in the major marketing journals and conferences. Thirdly, there is a growth of arms-length dealings via direct sales and via the internet with growing consumer uncertainty about security issues, about globalised, anonymous, ‘‘faceless’’ companies, and about corporate ethics. Fourthly, and as a consequence of point three, various research for a (e.g. World Economic Forum, 2003) adopt Trust as their conference theme and the research presented suggests that the two groups least trusted (and equally mistrusted) are politicians and large companies. The latter of these spend enormous amounts of scarce resource (money and time) on understanding customer relationships but very little on managing the basic elements of trust building – integrity, benevolence and ability. And finally, there is the ease with which reputations built on trust can be destroyed and a consequent need to avoid disasters. Marketing is at the post-introduction/early-growth phase of research into the trust concept, the ideal point for a special issue (especially for a journal at the forefront of marketing thought). This special issue of the EJM is aimed at filling some of the theoretical and empirical gaps in research into the trust concept in a marketing context. Consequently, we are seeking original, marketing-focussed, conceptual and/or empirical, quantitative and/or qualitative papers on the topic and invite submissions which investigate or explore issues such as: . Conceptualising trust in a marketing context . Dimensions (determinants, antecedents) of trust/distrust in a

marketing context

. Modelling of trust/distrust in marketing context . Measurement of trust/distrust in a marketing context . Trust in the buyer-seller relationship . Trust in business to business marketing relationships . Trust in business to consumer marketing relationships . Building trust in online environments . Building trust in entrepreneurial or new businesses . The interaction between trust and branding . The interaction between trust and product involvement . The impact of competitors activities on trust-based relationships . The interaction between trust and time and contact frequency . Managing trust-based relationships . Trust recovery/rebuilding after marketing disasters . Measuring the consequences of trust (i.e. cost of losing or

benefits of retaining) . Intra-organisational trust between marketing and other

departments or functions . Marketing as the initiator of trust-based relationships . Role of and/or impact of marketing intermediaries in the

development of trust

Prior to submission please consult the author guidelines available on the journal home page at www.emeraldinsight.com/ejm.htm or on the inside back cover of any hard copy of the journal. Papers, with a maximum length of 4,000 words, should be sent in standard EJM submission format but to the attention of the guest editors: Dr David C Arnott, Lecturer in Marketing, Warwick Business School, University of Warwick, Coventry, CV4 7AL, UK. Professor David Wilson, Professor in Strategic Management, Warwick Business School, University of Warwick, Coventry, CV4 7AL, UK. Please address telephone or e-mail queries to David Arnott at: 44 (0)2476 524487 (voicemail); E-mail: [email protected] The deadline for submission of papers is: 1 December 2005