Learning with stakeholders: do it with moderation!

by , | Dec 7, 2021 | Management Insights

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How do companies’ managers develop their capabilities by leveraging lessons learned from prior experiences? What sources of knowledge do they rely on to make sense of the events the firm experienced? How firms learn from their experience has been the topic of a vast amount of research in the last decades. However, most of these studies envision managers as the only actors interpreting the events a firm undergoes and assessing the outcomes that these events have generated. This approach needs to be complemented with a wider perspective that encompasses the role of the firm stakeholders. Different stakeholders, in fact, make sense of the firm’s events according to their preferences, reach different conclusions about these events, and react depending on these conclusions. These reactions might be valuable sources of information for managers to learn from the firm’s prior events. If, on the one hand, this increased information availability can improve the quality of the lessons learned from experience, on the other, it can impose cognitive challenges to managers associated with combining different stakeholders’ inputs. A new study by Emanuele L. M. Bettinazzi (Universita` della Svizzera italiana) and Maurizio Zollo (Imperial college) published in the Journal of Management Studies combines two main theories of management (organizational learning and stakeholder theory) to study this conundrum in the context of corporate acquisitions.

Stakeholder orientation can improve learning from experience up to a certain point

The authors propose that the level of stakeholder orientation (i.e., the extent to which managers focus their attention on and integrate stakeholders’ inputs in the firm’s decisions) has an inverted U-shaped influence on managers’ ability to learn from their prior experience. Specifically, they theorize that at low levels of stakeholder orientation, managers receive only a few inputs from stakeholders and so rely on fewer cues to make sense of prior events. At the opposite extreme (i.e., at very high levels of stakeholder orientation), managers leverage redundant stakeholders’ information, but they also face severe attention and interpretation difficulties because of the multiple inputs. At moderate levels of stakeholder orientation, instead, managers can benefit from inputs that are only partially redundant and can still handle the input complexity. In these circumstances, the ability to learn will be at the maximum.

Their analyses, in the context of corporate acquisitions, robustly confirm this intuition, showing that an optimal level of stakeholder orientation to unleash managers’ ability to learn exists, and it locates at intermediate levels of stakeholder orientation. In other words, to learn from experience, managers shall be attentive to stakeholders, but not too much. Additional analyses indicate that this optimal level may vary depending on how homogenous is the experience managers accumulate or how proximate it is to their knowledge domain. In addition, listening to only a few stakeholder groups, rather than spreading attention across all stakeholder types, might be a good choice when developing capability from experience.

Main theoretical takeaways

The theoretical implications are manifold. First, it adds to experiential learning literature by developing a theory about the influence of managerial attention to primary stakeholders’ signals on the ability to learn from experience. While prior works have discussed the role of signals from specific constituents, this paper shows that the overall attention managers devote to stakeholders can influence managers’ ability to learn from experience. Second, this paper contributes to stakeholder theory and to the debate on the benefits and hazards of being attentive to multiple stakeholders by proposing that there may be an optimal level of stakeholder orientation to unleash the advantages of stakeholders’ inputs in managerial processes. Third, it adds to the literature on corporate acquisitions by developing a new interdependence between experience and stakeholder relationships as an engine for developing acquisition capabilities.

 The managerial implications are also various. The evidence this paper unearth suggests that the development of organizational capabilities depends on the degree of attention that managers devote to the firm’s stakeholders. In particular, managers should aim for an intermediate level of stakeholder inclusion since an excessive amount might end up hurting their capacity to generate valuable lessons from experience. This might imply that openness to stakeholders’ voices should be emphasized only in some phases of the learning process but not in others or that managers shall attend to only some categories during the process.

Main takeaways for managers

First, decision-makers need to develop a specific sensitivity about their capacity to manage the interactions with stakeholders since selecting the appropriate level of engagement is paramount to the quality of their learning-by-doing processes. In a dynamic sense, managers also need to adapt their level of stakeholder orientation to the mindsets related to absorbing and processing stimuli from increasingly diverse sources: an adaptation challenge that requires, by itself, a significant amount of self-knowledge on the part of the managerial team. 

Second, we know from prior work that good relationships with stakeholders enhance corporate acquisition performance. The current study emphasizes that engaging stakeholders in acquisition capabilities development might be more complex and requires striking the right balance between stakeholder inclusion and exclusion from managerial processes. 

Authors

  • Emanuele L. M. Bettinazzi

    Emanuele L. M. Bettinazzi is an Assistant Professor of strategy at the Università della Svizzera italiana. His research examines how firms' relationships (particularly with stakeholders) influence corporate strategy decisions, performance, and learning mechanisms.

  • Maurizio Zollo

    Maurizio Zollo isa Professor of Strategy and Sustainability at the Imperial College Business School and the Founding Director of the Leonardo Center on reinventing business for society. His research aims to understand how business organizations learn to grow and adapt to environmental turbulence and how managers can guide these evolutionary processes through the combined use of strategic growth initiatives and organizational change, innovation, and learning processes.

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