Managing in a Complex World

1.2 Technology

The second environmental sphere – technology – is closely linked to the dynamics of the first sphere (economy). Technological innovation often results from the interaction between enterprises and public research and educational institutions such as universities. Innovative technologies may bring forth new products and services, new needs, and new market potentials. Conversely, technological innovation depends on economic investment. Technological developments in the following areas may be significant for an organization:

• Communication and information technology

• Digitalization

• Biotechnology and genetic engineering

• Process technologies

• Materials technologies

• Energy production technologies

• Mobility technologies

• …

It is important to closely examine the conditions either favorable or detrimental to technological innovation and diffusion. These include the designing of licensing procedures for innovative experiments and intellectual property rights. But overall location attractiveness is also relevant for innovative organizations. Such areas include Silicon Valley in semiconductor technology, or Boston (USA), Cambridge (UK), and Basel (CH) in biotechnology and genetic engineering. The proximity and density of development hubs, and the corresponding synergies, make such areas “powerhouses” for high developmental dynamics.

It may be important for organizations to not only closely heed technological development but also form location-based technology clusters or innovation ecosystems. At the same time, today’s technologies enable global interconnectedness regardless of location.

These considerations show that technology, as an environmental sphere, is strongly influenced by overall societal developments, for instance, regarding risk perception and risk acceptance. [46]

1.3 Nature

The third environmental sphere – nature – represents the basic space for human life and survival. It is also a key resource supplier for organizational value creation. How nature is perceived, and which attitude is adopted toward it, depends essentially on current societal discourses. These discourses may differ greatly depending on the country, culture, and societal and economic context, above all regarding controversial ecological concerns (e.g., global warming, ocean pollution, loss of biodiversity). Such considerations are particularly important for globally active companies – especially concerning the respective NGOs. Different aspects of this environmental sphere may be important for an organization:

• Resource wealth

• Sea access

• Threat of natural disasters

• Agricultural potential

• Topography

• Climate and climate change

• Biodiversity

• Degree and severity of environmental pollution

• …

The SGMM considers not only the objective properties of these aspects of nature essential, but also their local impact, and how they are assessed and discussed more or less controversially by which stakeholders in which contexts. The various environmental spheres must always be observed and analyzed in terms of their concrete societal relevance. [47]

1.4 Society

In the SGMM’s task perspective, the most comprehensive environmental sphere is society. Societal discourses and controversies decisively influence various key issues: how the relationship to nature is shaped, how developments in nature are perceived and evaluated, how technological innovations are assessed and implemented, and which forms of economic value creation are considered desirable or suddenly become problematic (e.g., diesel engines). Essential spaces of action and communication in society include politics, law, science, religion, art, and the public sphere. This diversity is an expression of ongoing societal differentiation.

The fundamental aspects of society listed below may become relevant for an organization:

• The population’s willingness to perform and its educational level

• Its openness to the foreign and the new

• Its willingness to take risks

• Its age structure

• Income and wealth distribution

• Social problems and conflict potential

• The role of the media in the public sphere

• The role of the state and the forms of political opinion formation

• National norms and conditions

• Political stability, political forces, and development dynamics

• Public infrastructure, education, public safety

• … [48]

1.5 Relationships between Dynamic Environmental Spheres

As mentioned, the division of an organization’s environment into four environmental spheres is merely an example. Under no circumstances are we suggesting that these “spaces” are clearly identifiable and easily distinguishable. Rather, they constitute overlapping spaces of action (→ PPP, 3). For example, it is impossible to determine whether developments in intellectual property law should be attributed to society as an environmental sphere (influence of NGOs on political opinion-forming), to technology (implications of the patentability of life for further developing biotechnology and genetic engineering), or to the economy (supplier, partner, and customer migration to countries with “business-friendly legislation”). Environmental spheres merely help structure analysis, in order to identify success- and existence-critical trends and controversies as seen from a specific organization. [49]

2 Stakeholders

2.1 Individuals, Communities, and Organizations

For the SGMM, an organization’s raison d’être depends largely on how far it generates relevant value, i.e., creates a specific benefit or another form of added value for selected value creation addressees. An organization creates value through actively engaging (interacting) with diverse stakeholders. An organization’s stakeholders are the individuals, communities, or organizations participating in or (currently or potentially) affected by that organization’s value creation.

The SGMM’s task perspective (Figure 4) places an organization’s stakeholders in an outer circle, which is embedded in the various environmental spheres. Dependence on success-critical resources is crucial to identifying key stakeholders. On the left are those stakeholders that tend to provide enabling conditions or resources. On the right are those that tend to benefit directly and essentially from organizational value creation. The latter include key target groups (e.g., customers, citizens, patients, students).

This visualization is illustrative rather than conclusive. Every organization must carefully consider over and again which individuals, communities, or organizations fundamentally benefit from its value creation or are affected by any negative (side) effects, and thus can be addressed as stakeholders.

Carefully identifying relevant stakeholders is particularly important and also critical in case of controversial discussions. Such disputes may make new stakeholders relevant, e.g., social media. In turn, these media may bring together previously unrelated stakeholders in the shortest possible time as well as mobilize protest potential.

However, concrete disputes may also entail more precisely differentiating already identified stakeholders. If aircraft noise increases significantly in an airport’s conurbation due to political disputes, it will not be enough to merely consider governmental or specific agencies as relevant stakeholders. In such disputes (as happens in Switzerland, for instance), the directly-affected municipalities, the home canton, and the federal government (Swiss Confederation) may be pursuing very different concerns and interests. Stronger stakeholder differentiation (e.g., into different [50] customer segments or employee categories) should help to identify and appropriately assess concerns and interests previously unaccounted for as early as possible in the context of all existing concerns and interests.

2.2 Stakeholder Concepts

Relevant stakeholders can be identified and prioritized based on either a strategic or a normative-ethical stakeholder concept (for details, see P. Ulrich, 2008). These two concepts are based on ideal-type guiding ideas, which are briefly discussed below.

• In a strategic stakeholder concept (Freeman, 1984), selecting and weighting relevant stakeholders is based primarily on how strongly stakeholder interests and demands affect securing an organization’s future and its value creation (stakeholder power): Who can decisively influence an organization’s future existence in the short or long term, e.g., by controlling scarce resources or by exercising sanctioning power?

Answering this question requires assessing power and dependency. Hence, when designing stakeholder relationships according to a strategic stakeholder concept, the main aim is to maintain all participants’ willingness to cooperate and to secure the acceptance of influential stakeholders.

• A normative-ethical stakeholder concept (P. Ulrich, 2008) recognizes as relevant stakeholders all individuals, communities, and organizations – regardless of influence or power constellation – that are potentially or actually affected, positively or negatively, by organizational value creation, and that are entitled to human dignity and moral rights (e.g., children without a lobby or future generations). The relevant selection criterion is not simply how powerful a stakeholder’s claims are, but above all how far individuals, communities, and organizations are currently or potentially affected. Hence, shaping stakeholder relationships in line with a normative-ethical stakeholder concept requires ensuring that conflicts of interest are dealt with consensually. It also requires carefully and ethically weighing up and legitimizing claims as a respectful, impartial, and responsible cosmopolitan would do. It is crucial in this respect to recognize affectedness and to systematically ensure that the benefits and burdens of organizational value creation are fairly “distributed.” [51]

2.3 Interrelations between Different Stakeholder Concepts

When comparing these two ideal-type stakeholder concepts, we do well to note that a normative-ethical stakeholder concept includes essential aspects and selection criteria that are part of a strategic stakeholder concept. It does so without absolutizing these aspects and criteria, and instead places these within a larger ethical context. Applying a normative-ethical stakeholder concept also ought to involve carefully considering dependence on external stakeholders, who control resources existentially relevant to one’s organizational value creation. Even with a normative-ethical stakeholder concept, (financial) claims by an enterprise’s owners are legitimate. When making momentous decisions, such claims must be carefully weighed against those of other stakeholders. It is hence barely surprising that, when applied, these two ideal stakeholder concepts often assume a mixed form.

In contrast, advocates of the shareholder-value approach firmly believe that systematic stakeholder management is dispensable. They also argue that concepts not focusing solely on owners’ immediate economic interests systematically invite glossing over the enterprise’s poor performance. Based on utilitarian thinking, they claim that a firm’s societal responsibility is primarily to maximize profits (Milton Friedman). They justify this position as follows: Free, transparent, and efficient markets guarantee, through the disciplining “invisible hand” (Adam Smith), that – within legal boundaries – consistent orientation toward self-interest automatically maximizes societal welfare and thus optimally satisfies stakeholder needs.

Those advocating a strategic stakeholder concept would counter this argument by claiming that shareholder value one-sidedly favors owner interests, and that shareholder value can only be maximized by giving the needs of all stakeholders long-term and balanced consideration. Thus, adopting a differentiated stakeholder perspective is in shareholders’ own interest. [52]

Furthermore, those advocating a normative-ethical stakeholder concept point out that far from every legally compliant contract is necessarily legitimate. In fact, a contract not only unanimously expresses the will of free and responsible economic entities, but also always reflects a specific relationship of power and dependence. A “smart deal” may be legal, yet need not be fair and ethically legitimate.

Finally, those advocating an ethical-normative stakeholder concept counter both the shareholder-value and the strategic-stakeholder concept by indicating that ethically justifiable and morally necessary decisions favoring certain stakeholders may never positively affect shareholder value in the long term. In other words, some decisions, in terms of an ethical-normative stakeholder concept, may require investors to consciously forgo their interests in favor of other stakeholders. [53]

3 Interaction Issues

Organization-stakeholder interaction involves manifold exchanges and communicative relationships. These relationships are shaped by specific topics and issues. Thematic points of reference may be ideal or material. They may also be conflictual and ignite controversy. And they are conveyed communicatively – in an open communicative space, which the SGMM visualizes as an overlapping “bubble” (Figure 4).

Thus, we understand interaction issues (e.g., customer wishes, job security, transparency requirements), which shape stakeholder-organization relationships, as whatever stakeholders bring to an organization, place at the disposal of its value creation, or dispute. Or vice versa: whatever an organization must actively strive for and develop to reliably create its organizational value. The SGMM distinguishes three descriptive categories of interaction issues: concerns and interests, norms and values, and resources.

3.1 Concerns and Interests

Individuals, communities, and organizations in an organization’s environment are stakeholders if they are directly or indirectly involved in or affected by its organizational value creation. Stakeholders may enjoy a benefit or added value, may face negative emissions or risks, or may experience short- or long-term enhancement or impairment of their quality of life and development opportunities.

Against this background, stakeholders articulate specific claims and demands toward an organization by addressing specific concerns relative to different environmental spheres and by expressing their interest in realizing these concerns and interests. Depending on stakeholder composition, these concerns and interests may be homogeneous, heterogeneous, or even contradictory.

Hence, the concerns and interests of the various stakeholders require careful consideration and appreciation. Whether producing genetically modified organisms is concerned, or new working time and remuneration models, or closing down a production facility: Such activities raise controversial concerns and conflicting interests. On the one hand, genetically modified organisms highlight new possibilities (e.g., higher yields of cereal varieties, [54] better pest resistance, etc.). On the other, they involve irreversibly interfering with nature’s gene pool, without us being able to conclusively anticipate how genetically modified organisms as a whole will affect the human ecosystem. Especially in terms of a normative-ethical stakeholder concept, these different concerns and interests require respectful appreciation and careful argumentation. Finally, any decision must be comprehensibly justified to be considered legitimate.

3.2 Norms and Values

Central to controversial disputes with stakeholders and legitimizing corresponding positions are the norms and values existing and valid in a particular society at a given time. On the one hand, these norms and values require interpretation, while on the other they are constantly evolving. “Security” in the field of energy supply may mean that companies need not worry about power failures. It may, however, also mean forgoing nuclear power plants in order to avoid exposing the population to the risk of nuclear disasters. A nuclear incident may lead to completely new interpretations and assessments of secure energy supply.

These norms and values, as well as an organization’s decisions and actions based thereupon, require new ethical reflection. Such reflection – and not simply short-term market success or maintaining long-term viability – must form the key point of reference within normative orientation processes for legitimizing organizational value creation as outcome and process. Such reflection thereby shapes an organization’s ongoing strategic and operational decision-making processes.

Conversely, a society’s norms and values are also strongly influenced by organizational legitimization and decision-making processes. What “health” means as a value, and what may be expected of health, is heavily affected by healthcare providers (via treatments, therapies, publications, medicines, etc.). This becomes particularly evident in controversial discussions with the critics of today’s healthcare system.

On the one hand, legitimization and decision-making processes, which may go hand in hand with controversial disputes with stakeholders, result in an organization’s independent normative orientation (→ PPP, 2.3). On the other, these processes also result in specific access to important, sometimes even existence-relevant, resources needed for organizational value creation. [55]

3.3 Resources

Resources are the material and immaterial preconditions for organizational value creation. They must be tapped, maintained, and utilized. Which resources are available to an organization and under which conditions (e.g., price, condition, restrictions), i.e., what exactly is available as a legitimate and usable resource (e.g., raw materials, energy, land, rights of use, funds, human labor, knowledge, technical expertise, attention, or reputation), depends crucially on the applicable norms and values and on the related disputes over the normative orientation of organizational value creation.

For instance, it may be ambivalent to describe employees as human resources. On the one hand, this term may suggest that employee capacities are being utilized similarly to technology in order to achieve an organization’s goals: Employees are instrumentalized and regarded as a useful production factor, which must be optimally deployed or dismissed in order to continuously increase productivity. On the other hand, the term human resources may also be used to emphasize the necessity of systematically promoting and realizing human aptitudes and potentials.

3.4 The Importance of Interaction Issues for Normative and Strategic Orientation

An organization’s environment is opened up through stakeholder relationships. Against the background of certain norms and values, stakeholders assert specific concerns, interests and demands. These must be evaluated and prioritized in the context of sometimes controversial processes of clarification, negotiation, and legitimization involving diverse stakeholders. These processes crystallize a certain normative orientation within an organization. This orientation – often stated explicitly and presented as a vision, mission, or guiding principle – conveys fundamental guidelines for determining which value creation is considered desirable, and which is excluded. Normative orientation also conveys behavioral maxims on how conflicts of interest should be dealt with – for instance, more power- or more communication-oriented. This has far-reaching consequences for opening up and handling resources. [56]

Ideally, an organization’s normative orientation creates a fundamental decision-making framework for developing robust strategic positioning within a network of stakeholder relationships. The focus lies on establishing the prerequisites for success and on securing one’s long-term existence. Pursuing these goals, an enterprise orients itself primarily toward the economic market logic, i.e., business opportunities. Positioning itself, an enterprise selectively takes up the needs of specific target groups, prioritizes these needs and, on this basis, defines strategic development directions, implementation initiatives, and projects. The specified expectations and goals must be “translated” into efficient operational value creation processes.

Adequately understanding the tasks and challenges involved requires closely examining how value is created. This should help us to better understand how an organization “functions.” How can an organization specify its desired organizational value creation to meet its addressees’ needs and to create that value as efficiently as possible? What are the prerequisites for achieving these goals? How can the measure of quality desired by stakeholders be achieved and continuously guaranteed? And what are the resulting fields of work for management practice? [57]