Reject Trade-Offs
Managing for stakeholders is not about trade-off thinking. It is about using innovation and entrepreneurship to make all key stakeholders better off and get all their interests going in the same direction. – Freeman, Harrison, & Wicks1
It’s time now to take the last two philosophy lessons and get practical. While it is easy to agree with these concepts in principle, acting consistently with them is quite challenging - particularly when you face a hard decision about your business.
Such decisions come up all the time. The interests of one stakeholder appear to be pitted against another in a zero-sum tradeoff:
Cash is tight at the end of the year so… do you pay your vendors on time or give your team a happy holiday?
You realize that you underbid a project so… do you charge your customer more, squeeze your suppliers for a discount, or ask the shareholders to take the loss?
A customer and an employee get into a screaming match and both give you an ultimatum... Do you fire the customer or the employee?
These choices and many more face business leaders every day. And every day, business leaders do their best to make the right choice. There is just one problem, when a trade-off is involved, there isn’t a right choice. This idea is the absolute key to stakeholder management so we are going to state it again:
When a trade-off is involved, there isn’t a right choice.
Stakeholder Orientation challenges us to face such a choice, step back and reexamine the thinking that created the choice in the first place. Take a look at the bigger picture and find a way to align the interests of all of your stakeholders. This is much easier said than done, but this idea not only ensures that you are creating value for your stakeholders; it drives unprecedented innovation within a company.
Let’s return to the examples from above:
Cash is tight at the end of the year so… do you pay your vendors on time or give your team a happy holiday? You can get in touch with your vendors and explain the situation to see which of them really needs the money now, and which would be happy to post the revenue in the next year. You can talk with your team and explain the situation and find out how you can give bonuses that will hit later such as giving an extra week of paid vacation and a honeymoon bonus to an employee who is going to be married that summer, or get a company car (with low monthly payments) for an employee who was going to use the bonus for some badly needed repairs.
You realize that you underbid a project so… do you charge your customer more, squeeze your suppliers for a discount, or ask the shareholders to take the loss? You can get in touch with the customer to really understand what is most valuable to them in the project and see if there are costs to you that add no value to them. You could meet with your suppliers to find ways to forge a win/win - perhaps they would gladly offer a discount if you can pay in full up front, and you could discuss the situation with your team to see how the constrained budget can serve as a catalyst to develop new hyper-efficient processes to cut out waste and improve margins.
A customer and an employee get into a screaming match and both give you an ultimatum. Do you fire the customer or the employee? This is a tough one, but if you are building a conscious business, then you get them both into the same room and talk things out until they see each other's perspectives. That creates an opening for valuable growth for both of them, and the incident can become an archetypal story for the company culture.
By taking a step back, you can expand your thinking, get in communication with your stakeholders and find creative win-win solutions. But that only happens if you commit to rejecting tradeoffs when they arise. This is obviously very time consuming in the short term, but the loyalty, collaboration, and innovation it fosters will be worth it.
1 Freeman, R. E., Harrison, J. S., & Wicks, A. C. (2007). Managing for stakeholders: Survival, reputation, and success. New Haven: Yale University Press.