Stakeholder Approach, Dynamic Capabilities Approach And Sustainable Approach In Strategic Management

1.1 Stakeholder Approach

Three approaches to strategic management

1.1 Stakeholder approach 

According to Wheelen et al. (2017), stakeholder approach in management implies that the managers of an organization design the plans and implement those with a focus to meet the demands and expectations of the stakeholders of the organization to achieve long term success. Stakeholders are of two types, internal and external. Owners, employees and managers are internal stakeholders, while, government, suppliers, society, creditors, shareholders and customers are external shareholders. As the degree of participation is different for different groups of stakeholders, the market imperfections give them the scope for creating valuable opportunities for the stakeholders (Hill, Jones and Schilling 2014). In this approach, the emphasis is on the value creation for all the parties with shared interests.

1.1.1 Viability

For long term success of a firm, stakeholder approach is viable as it helps to keep the customers and other groups of stakeholders interested in the growth of the firm and hence, they actively participate in that. Hence, the strategies are made in a way that aims only for stakeholders’ satisfaction (Cooper 2017). For example, sometimes, a firm may opt for lay off for the employees to increase profit margin. This action conflicts with the benefits or welfare of the employees, who are also stakeholders of the firm. For example, Xerox Company launched Community Involvement Program that gives opportunity to channelize the funds towards the local teams of employees for selecting and working on particular community projects identified in their communities, such as, the employees built shelving units at a Maui Food bank in 2016 for the benefit of the community (Xerox.com 2018).

1.1.2 Suggested benefits: 

Creation of competitive advantage: for long term sustenance in the market, it is important for a firm to build a good relationship with the stakeholders. The firm aims to build brand awareness among the stakeholders by delivering the value, needed or expected by them. In this approach, the firm gathers information about the stakeholders needs’, tastes and preferences and develops their expertise accordingly (Weiss 2014). Eventually, this would help the firm to develop core competencies, leading to competitive advantage. On one hand, stakeholders gain more trust on the firm, resulting in the business growth, on the other hand, the firm is able to create competitive advantage, which helps in growth.

Innovation and value creation: As the firms are more focused on stakeholders’ satisfaction, they tend to involve in innovation. If employees get job satisfaction, they are more likely to involve in staying longer with the firm and generate potentially important ideas, which aim for long term growth. The firms can also invest in new ways to meet the stakeholders’ demands, leading to innovation. Through reciprocity, stakeholders give valuable information to them, while the firms use this information for further value creation.

1.1.1 Viability

1.1.3 Implementation issues 

The fundamental of this approach is to obtain detailed information from all types of stakeholders of a firm and meet their needs and expectations. However, since, the firms have a large number of internal and external stakeholders, with different needs and expectations, it is extremely difficult for a firm to gather the information from all of them, as well as meet them. Although, the firms adopt measures, such as, surveys, feedbacks, suggestions etc. yet it is difficult to meet all types of demands of the stakeholders. In many cases, implementation results in more cost than the benefits, which is not profitable for the firms (Bridoux and Stoelhorst 2014).

1.1.4 Limitations 

Diverging interests: Since, there are a large number of stakeholders of a firm; it is natural that they will have different interests. While the creditors will think about the profit of the firm, the government will think about the tax revenues, which affects the profits. Thus, attempts to satisfy all the stakeholders create complications in the management operations. Negotiation of mutual interests and benefits along with resource inequality often creates difficulty for the business operations of the firm.

Overvaluation of stakeholders: As stated by Godos-Díez, Fernández-Gago and Cabeza-García (2015), the attempt to create value for the stakeholders as per their demands often leads to costs more than the benefits. Hence, to create more value for a large number of stakeholders, the firms misallocate the resources. Moreover, all the stakeholders do not hold equal power and thus, the profit distribution is not equal. Thus, overvaluation of stakeholders is a common limitation in this approach of strategic management.

1.2 Dynamic capabilities approach 

Dynamic capabilities approach in strategic management refers to the ability of the firms of integrating, building and reconfiguring the internal as well as external resources and competencies for addressing the quickly changing environment (Vogel and Güttel 2013). This approach demonstrates the ability of an organization to achieve new and innovative ways of competitive advantage, given the restrictions of resources and its market position.

1.2.1 Viability 

Viability of this approach lies in the adaptability of the firm. Since, the resource base and market position of a firm can change over the course of business, it needs to adjust its working capabilities and competencies to continue its operations and sustain in the market. Thus, dynamic capability enables a firm to work under any condition and continue doing business (Beske 2012). Apple and IBM are two major companies that have shown examples of dynamic capabilities. These two companies have learned how to evolve as soon as the market demand and environment changed. IBM is a technological innovator and it changed its products to mainframe and personal computers from electromechanical tabulating machines and currently it has cloud computing, software and IT services. On the other hand, Apple is not a technological leader but it was able to give the value to the people from the product features (Helfat 2012).

1.1.2 Suggested benefits

1.2.2 Suggested benefits 

Competitive advantage, innovation and new competencies: this approach helps a firm to adjust its working capabilities as per the available resources and thus, lack of resources does not create an obstacle for it. Rather the firm can gain expertise on different competencies and areas and can also invest in innovating new ways to adapt to the resource base. It can also focus on its competitive advantage in the market using its existing resources (Teece 2012).

Dynamic capabilities framework is based on three factors, namely, processes, positions and paths. Processes represent the way of doing things, that is, routines, practice and learning patterns. Positions refer to the present specific endowments, such as, technology, external factors, customer base, etc. and lastly, paths refer to the strategic alternatives, such as, the presence or absence of the dependencies like increasing returns to scale (Villar, Alegre and Pla-Barber 2014). Thus, implementation issues arise from positions and path dependencies. As stated by Ljungquist (2013), unbalanced dynamic capability framework often results in inefficiency of the organizations and the author found that implementation issues are often generated from adoption of new and innovative technologies. Firms often do not have the adequate resources to adapt to the new requirements of technology and thus, face challenges while implementing the dynamic capabilities. According to Burisch and Wohlgemuth (2016), the firms often do not have complete understanding of their working environment and hence, they adopt oversimplified actions. Completely flexible company capabilities are not achievable theoretically and continuous adaptation to each and every type of environmental change is not possible for any company due to resource limitations.

1.2.4 Limitations 

The limitations in dynamic capability approach generally come from the path dependencies. Firms that have high dependencies on the path, often face challenges in adaptation. The firms need to develop a strategy that is difficult to imitate. Along with that, this approach is difficult to operationalize and there can be lack of algorithm for translating the environmental factors into the required capabilities. Moreover, in many cases, the transformation of the processes and resources to adapt to the frequent environmental changes results in more costs than benefits (Wilden et al. 2013). Thus, when there is instability, that is, frequent changes in the internal and external environment, then dynamic capabilities approach is not always suitable to maintain the profitability of the organization.

1.3 Sustainable approach 

Sustainable approach in strategic management is a concept that integrates the sustainability practices with strategic management of a firm. Sustainability includes the concepts of environment, economy and their integration for achieving a better future for the upcoming generations. Sustainability approach in management aims to create a system that maintains economic viability and also satisfies the needs of the present as well as future generations by reducing the depletion of resources and environmental damages (Hill, Jones and Schilling 2014).

1.1.3 Implementation issues

1.3.1 Viability

The viability of this approach depends heavily on the relevance of the concept in the modern world, that is, the need to minimize the impact of the organizational activity on the external environment for protecting the resources for future generations. It also includes responsible production and consumption by the organization. The firms thus focus not only on the preservation of natural resources but also on the development of the community through various initiatives under corporate social responsibility (Stead and Stead 2014). The CSR activities and sustainable business practices of the companies are targeted towards development of the society and environment to achieve sustainability. For example, to reduce the wastage of fresh food and vegetables those look less perfect, Chipotle and Intermarché’ came together for their ingenious campaign called ‘The Inglorious Fruit and Vegetable’. These fruits and vegetables are sold at 30% less price and due to heavy campaigning, the wastages of the ugly looking produces have reduced significantly, contributing in the sustainable production and consumption (Prezly.com 2018).

1.3.2 Suggested benefits

Reduced compliance cost: as the governments of all the countries are focused on implementing sustainability practices, they have reduced compliance costs for the companies adopting sustainability measures, such as, green technology reducing greenhouse gas emissions, fuel efficiency etc. thus, sustainability approach of strategic management is beneficial for reducing compliance, thereby, operating costs of the companies.

Greater public health benefits: using sustainability practices, the companies ensure that the social and environmental damage and pollution is reduced, such as, reducing pollution in air and water. This has a better impact on the public health.

Protection of resources: companies are now using energy efficient devices, such as, LED lights, fuel efficient automobiles, and renewable energy sources, such as, solar lights, hydro energy, and wind energy for production and business operations. This has a positive impact on the sources of energy.

1.3.3 Implementation issues 

Various factors create challenges during the implantation of the sustainability practices. The concept of sustainability, the organizational structure, culture and decision making process, resource allocation, mission and vision of the company, profit motives and feasible sustainability processes are some of the challenging factors in this approach of strategic management (Haines 2016). The efficiency of the managers is very crucial for planning the sustainability practices. Environmental protection has to be considered along with the economic impact on the company. The profitability of the company has a risk of declining due to the sustainable programs; hence, the managers must consider the benefits of the company as well as the stakeholders as the environmental programs might not always be profitable. Thus, the stakeholders must be convinced about the sustainability approach.

1.1.4 Limitations

1.3.4 Limitations 

Budget: the budget or capital resources of the companies often create obstacles in the path of adopting sustainable practices. The techniques are quite new and require larger amount of initial investment. Thus, it often becomes difficult for the small and medium enterprises to invest a larger amount of capital for sustainable practices, which do not yield visible results initially. The costs of adopting sustainable practices often create challenges for these companies as it reduces some of the profitability (Wolf 2014).

Lack of profitability: sustainability approach often goes in the opposite direction of the profit motives of the organizations.  These are mostly philanthropic activities, undertaken for the benefit of the society and nature. Thus, the management of many organizations is not interested in investing substantially in the sustainable practices.

Inconsistent sustainability practices: The sustainability practices across various industries are not consistent and thus, the desired outcomes are not always achieved. The pollution control activities are not same across the industries and hence, the impact is not always effective.

Conclusions: 

Strategic management is an essential factor of any business in the world. There are many approaches of strategic management. Different companies take different approaches of strategic management based on their resources, competitive advantage and competencies. Stakeholder approach, dynamic capabilities and sustainable approach are three most common approaches of the strategic management. Stakeholder approach considers the benefit of the stakeholders along with that of the organizations. Dynamic capability approach allowed the firms to create competencies by adapting to the resources and market situations and lastly, sustainability approach involves the practice of sustainable activities to bring benefits to the environment and society. All these approaches have their own benefits and limitations. All these activities have the ultimate goal of achieving the goals and objectives of profit maximization through various measures. However, there are many challenges in effective implementation of these approaches. Understanding the needs of every stakeholder and implementing those is difficult for the firms, while inconsistency in sustainability practices and inadequate resource allocation are often a serious challenge for the sustainability approach in strategic management. On the other hand, inefficient decision making, inadequate resources and incompetence and lack of expertise often create challenges in the dynamic capabilities approach.

Strategic management is an important function of all businesses to sustain in the industry. The term strategic management refers to the long term planning and strategies of a company to accomplish its goals and objectives (Hitt, Ireland and Hoskisson 2012). In other words, strategic management is the process of nonstop planning, analysis, monitoring and evaluating all the steps or actions required to meet the goals of an organization. Strategic management is an essential function for any organization as it helps it to understand the present situation of the organization, developing the strategies or plans accordingly to meet the market demands, implementing those in the most efficient and effective manner and analyze the impacts. As there is rapid change in technologies coupled with change in customers’ tastes and preferences and demands, every organization needs to change its business strategies and strategic management enables the organizations to analyze the internal and external environments, formulate and execute the action plans accordingly, and lastly evaluate the extent to which the plans were successful (Hill, Jones and Schilling 2014). There are various approaches to strategic management. Among those, this report will highlight three approaches to strategic management, namely, stakeholder approach, dynamic capabilities, and sustainable approach. Stakeholder approach focuses on the strategic management to meet the needs and expectations of the stakeholders through business decisions. Dynamic capability approach focuses on the ability of the organizations to adapt the resource base to sustain in the industry and sustainable approach represents the planning of the organizations, embedding the ways to achieve sustainability (Eden and Ackermann 2013). The viability, benefits, implementation issues and limitations of each approach will be discussed in this report.

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