New and
modern strategic management approaches which also consider societal demands
still aren’t the norm in many corporations. This becomes clear one sees that
even technically highly innovative corporations sometimes follow old strategic
approaches.
Last month Apple
launched the new iPhone 5 to the market. As its precursor, it was assembled in
factories like Foxconn in China. Foxconn won notoriety when 13 workers
committed suicide because of working conditions. Some improvements were
subsequently made but the situation is still far from satisfactory. From the
selling price for an iPhone 4 of $ 560, material costs of $ 187 and the assembly
in China comes to just $ 7 (according to isuppli and the German ZDF television
broadcast “Frontal 21”). Hence, Apple has a gross margin of $ 366 or 65%,
respectively per one sold iPhone. Experts have calculated that if the
production would be in the USA, the costs would be ten times higher, but the gross
margin for Apple would still be about 50%.
This simple calculation
reveals that – although being a technically highly innovative company – the
strategic approach of Apple is still guided by the old, short-term
profit-maximization strategy for owners and managers, at the expense of other
stakeholders. According to such a conception of corporate strategy, society (and
with it all stakeholders) gets compensated for the risks that result from the
corporation’s activities by means of dividends for the stockholders. This is,
however, a very narrow understanding of compensating society.
A broader and
more modern strategic view recognizes that besides the stockholders there are also
stakeholders like employees, suppliers, clients, communities having relevant
and legitimate stakes in a corporation. The reason is that they all contribute
to the value-creating process of a corporation and are likely to also carry
risks. This gives them the right to be considered in the distribution of the
created value.
In the case of
the iPhone, this would mean that workers in the factories in China get
compensated more appropriately: not only concerning wages but also concerning
conditions at the workplace itself, company sponsored accommodations etc. This
would result in a shift away from a short-term financial profit-maximization strategy
towards a socially more sustainable strategy, fully acknowledging the
stakeholder worker’s participation in the value creation chain.
In the long
run, it can be assumed that a more appropriate consideration of all relevant
stakeholders would lead to a larger and more sustainable value of the
corporation (as long as innovation is still provided for): The clients would
have no reason to boycott the product because there would be no horrifying
pictures in the media following non-compliance with worker rights, no
potentially costly juridical process would be menacing, institutional investors
had nothing to complain about and the stockholders would have titles with potentially
more sustainable values. The figures above show that this would be possible. Lastly
it is a question of will and insight of the management to adopt an innovative
management approach that considers relevant stakeholders more strongly.
Claude Meier
Links and literature:
Frontal 21 (ZDF):
or
Isuppli:
Friedman, Milton (1962): Capitalism and Freedom. Chicago, IL: University of Chicago Press.
Hill, Ch. W. L., Hones, Th. M. (1992):
Stakeholder-Agency Theory. Journal of
Management Studies 29(2): 131-154.
Shankman, N. A. (1999): Refraiming the Debate Between
Agency and Stakeholder Theories of the Firm. Journal of Business Ethics 19: 319-334.
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