Firms value a good strategy, as formulating a good strategy had always been key to organizational performance and success. A key consideration is that a firm is not a single entity and consists of different activities managed by different stakeholders who each have idiosyncratic information. To the extent a strategy facilitates the coordination of activities among stakeholders, it makes sense for organizations to involve its stakeholders in the strategy process to ensure that the devised strategy is one that avoid potential and costly mistakes during implementation.
More and more firms are recognizing this as they start to embrace more open forms of strategizing. One great example is IBM. Since 2001, the organization started engaging with their employees on a large-scale basis to help determine what would be the ideal strategic vision moving forward. Even organizations like Microsoft that used to be traditionally closed in terms of policy making, is now also engaging with external stakeholders to define its forward looking product road-map.
However, such large-scale activities can be complex and costly, and knowing when and how such stakeholder engagement practices should be implemented are important to the organization.
In their study, “Managing Participation and Inclusion in the Strategy Process”, INSEAD researchers Daniel Mack and Gabriel Szulanski unpack and distinguish two forms of engagement—participation and inclusion. Whereas participation is about gathering stakeholders’ diverse inputs that are relevant for strategy making, inclusion is about creating a community of stakeholders involved in co-influencing and co-producing the organization’s strategy.
Results from their analyses suggest that while in general both participation and inclusion becomes increasingly beneficial as the uncertainty of the strategy rises, the choice of the type of engagement depends on how the preferences of stakeholders are distributed. In particular, inclusive practices are more likely to be beneficial in scenarios where there are minority stakeholder groups with more extreme preferences. Activist investors, for instance, may own a fairly small stake in a firm but often have a loud and sometimes overt voice in how the organization should be managed differently. Yet companies like Mondelez have found it beneficial to include such activists on their company boards to add value to their strategy making process.
These findings have important implications for organizations as they design processes to engage with stakeholders on strategic issues. Participation and inclusion are important engagement devices that organizations can implement on to coordinate strategy development, but organizations should also be aware and consider the preferences of their stakeholders when deciding on how to engage.
Daniel Mack is a Ph.D candidate in strategy at INSEAD. He is interested in strategy processes and how organizations manage complexities arising from within and across their boundaries. He was awarded with the Best PhD Proposal Award by the Coller Institute of Venture at the 2015 Israel Strategy Conference that took place in Jerusalem, on December 20-22, 2015.
Gabriel Szulanski is Professor of Strategy at INSEAD, where he also earned his PhD in Strategy. He joined the faculty of INSEAD after serving several years on the faculty of the Wharton School of the University of Pennsylvania. Gabriel’s research focuses on knowledge transfer and the making of strategy.