Professor Brian Murphy
Adjunct Professor of Marketing, Massey
He has an MA and PhD from the University of Auckland, and is currently Adjunct
Professor of Marketing and Director of The Future Research Group in the
Department of Commerce at Massey University at Albany. He was formerly President
of the Auckland Institute of Studies at St Helens, Dean of Business at UNITEC, and
lectured and held various Dean of Commerce positions at The University of
Auckland. He is a pioneer practitioner of marketing research, stakeholder research,
and public opinion polling in New Zealand, and directs the Stakeholder Performance
Appraisal Benchmark Project at Massey University Albany.
"The Good Business Commonsense of Leading Businesses"
Abstract
Leading businesses practise the commonsense of good business by being ethically
good and by being good stewards of resources. These businesses are sustainable
businesses who are stakeholder and Triple Bottom Line orientated and whose higher
stakeholder performance perceptions presage higher Return on Investment. (This is
an academic paper on the subject.)
Paper
Leading businesses are sustainable businesses, implying being in business for the long term
by being responsible stewards of resources. Sustainable business planning requires
managers to have a sense of the likely future state of their business through a systematic
research process such as the foresight research paradigm. Foresight is a process of future
sensemaking, “a human capacity that can be harnessed to facilitate desirable individual and
social change” (Slaughter 1995). In order to operationalise the foresight research paradigm I
postulate the following Foresight Model derived from my earlier work on Attitudinal
Management Planning Models (Murphy 1980):
Macro Society Context:
Behaviour t-1 → Attitudes t → Behaviour t+1 →
↕
Micro Business Context:
↕
↕
Behaviour t-1 → Attitudes t → Behaviour t+1 →
1
where t represents sequential time periods of indeterminate length
Within the Micro Business Context managers do not know what the future will be, but they
can attempt to make some sense of it by measuring present stakeholder attitudes through a
Foresight Model and interpreting these “weak signals” (Ansoff 1979) to assist their foreseeing
of future business behaviour as manifested in stakeholder behaviour. Businesses are a
coalition of stakeholders (customers, employees, suppliers, community, shareholders) whose
collective behaviour determines business behaviour expressed in business performance.
Stakeholders are those with a vital stake in the operation of a business without
whose sanction and support the business would cease to exist (Murphy et al. 1997):
Customers – provide patronage and revenue support
Employees – provide human talent resources support
Suppliers – provide materials and services resources support
Community
Human – provide legal sanction
Natural – provide ecological sanction
Shareholders – provide financial sanction
It is commonsense to consider the five stakeholder groups as being indispensable in the
functioning of a sustainable business. The business is financed by shareholders, is allowed
to exist by the community, has suppliers providing materials and services, for employees to
create products, which customers purchase. Stakeholders can rightfully expect a sustainable
business to exhibit (Murphy et al. 1999):
Excellence in customer service, employee relationships, supplier partnerships, community
corporate citizenship, shareholder investment returns;
Based on ethical values of Affirmation (respect), Integrity (morality), Efficiency (stewardship),
Equity (fairness).
The holistic contribution of stakeholders to business performance underpins the Triple
Bottom Line (TBL) sustainable business philosophy of equally weighted economic
profitability, social responsibility, and environmental preservation (Elkington 1997).
The desirable collective stakeholder behaviour which will result in sustainable business
performance is:
optimised revenue (from customer purchases and community reputation)
- minimised costs (from employee and supplier productivity)
= optimal profit  shareholders’ investment = optimal ROI = optimal economic, social, and
environmental returns for all stakeholders)
To help manage a business towards the goal of an optimal ROI a stakeholder relationship
manager needs to understand the determinants of stakeholder behaviour through an
appropriate measurement model. Murphy (2002) postulated the Stakeholder Performance
Appraisal as a variant of the Foresight Model which incorporates a
Behaviour→Attitude→Behaviour continuum over time (Ajzen 2001), implying that emerging
stakeholder behaviour and business performance is influenced by present stakeholder
attitudes which are influenced by previous stakeholder behaviour:
Stakeholder Behaviourt-1 → Stakeholder Attitudes t → Stakeholder Behaviour t+1= Business Performance t+1
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This model focuses on the measurement of present stakeholder attitudes as timely, early
warning signals of future stakeholder behaviour and concomitant future business
performance. It is contended that stakeholders’ frontline, holistic, perceptual appraisal of a
business’s performance will reflect actual performance in terms of ROI (Enderle and Tavis
1998; Berman et al. 1999; Caulkin 2002).
In each Stakeholder Performance Appraisal a survey of a knowledgeable sample of
customers, employees, suppliers, community, and shareholders of a business is undertaken
to measure present perceptual business performance in terms of the following economic,
social and environmental indicators on a 0 – 10 rating scale:
Economic: profitability; return on investment; provision of value for money products
Social: customer, employee, supplier, community, shareholder relationships; ethical
standards
Environmental: environmental preservation; sustainable resource use
The CEO of the business is asked to rate the business’s future ROI in relation to the average
percentage return in the financial market on a 0 – 10 scale, which provides a standardised
measure of perceptual, future business performance.
The perceptual performance data are analysed by stakeholder group which are averaged to
give the total sample results. The performance data are also averaged into Social,
Environmental, Economic Performance, which are then averaged into the Stakeholder
Performance Index (SPI). The SPI incorporates TBL philosophy and commonsense
stakeholder management philosophy by equally weighting Social, Environmental, Economic
Performance, and equally weighting each stakeholder group. The SPI is a standardised
index which is benchmarkable over time and against other businesses.
The Future Research Group (FRG) has established the FRG Stakeholder Performance
Appraisal (SPA) Benchmark Project to enable businesses to benchmark their stakeholder
perceptions of business performance against other businesses, by comparing perceptual SPI
and ROI ratings by business size and type. Example SPA data for a business from the FRG
SPA Benchmark Project data base are shown in Table 1.
Table 1 Stakeholder Performance Appraisal Data
Small Service Provider
Customer relationships
Employee relationships
Supplier relationships
Community relationships
Shareholder relationships
Ethical standards
Customers
6.6
5.6
5.8
5.3
6.3
6.1
Employees Suppliers
6.6
6.5
5.6
6.5
5.3
7
5.6
6.5
5.6
6
6.6
7
3
Community Shareholders
7
8
8
7
6
6
7
6
7
7
7
7
Total
6.9
6.5
6.0
6.1
6.4
6.7
Preservation of the environment 5.5
Sustainable use of natural
resources
5.1
6
6
5
5
5.5
5.6
5.5
6
5
5.4
Provision of value for money
products
6.8
Profitability
5.6
Return on Investment
5.6
7.6
5.3
5.6
8
6
6
8
6
6
8
6
6
7.7
5.8
5.8
Social Performance
Environmental Performance
Economic Performance
6.0
5.3
6
5.9
5.8
6.2
6.6
5.8
6.7
7
5.5
6.7
6.8
5
6.7
6.4
5.5
6.4
Stakeholder Performance Index 5.8
6.0
6.4
6.4
6.2
6.1
ROI Rating
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Benchmark norms for the 33 businesses in the FRG SPA Benchmark Project data base as at
November 2003 are shown in Table 2.
Table 2 Benchmark Norms in the FRG SPA Project Data Base to Date
Business Size/Type
Goods Provider
Services Provider
Total
Small
No
SPI
ROI
4
7.0 (6.1 - 7.7)
7.3 (6 - 8)
12
6.3 (5.3 - 7.1)
6.1 (4 - 10)
16
6.5 (5.3 - 7.7)
6.4 (4 - 10)
Medium
No
SPI
ROI
4
6.8 (5.6 - 7.7)
8.3 (5 - 10)
9
7.2 (6.3 - 7.8)
6.9 (2.5 - 10)
13
7.1 (5.6 - 7.8)
7.3 (2.5 - 10)
Large
No
SPI
ROI
-
4
6.8 (6.5 - 7.0)
6.3 (5 - 8)
4
6.8 (6.5 - 7.0)
6.3 (5 - 8)
Total
No
SPI
ROI
8
6.9 (5.6 - 7.7)
7.8 (5 - 10)
25
6.7 (5.3 - 7.8)
6.4 (2.5 - 10)
33
6.8 (5.3 - 7.8)
6.7 (2.5 - 10)
No is the number of businesses in the category; (
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) is the range of the scores
Correlation between ROI and SPI: r = 0.558 (significant at the .01 level)
Regression between ROI and SPI: ROI = -4.2 + 1.6SPI (r² = 0.31, significant
at the .01 level; ROI is 0 when SPI is 2.6, ROI is 10 when SPI is 8.9)
These results indicate that SPI is significantly correlated with ROI, and that present SPI is a
significant explainer of future ROI.
Conclusions
There is a clear indication that higher stakeholder performance perception in terms of a
higher SPI presages higher ROI for sustainable businesses, those which have a
management philosophy of being stakeholder relationship orientated towards giving each
stakeholder group equal importance, and being TBL orientated towards giving economic,
social and environmental performance equal importance. An holistic, stakeholder orientated
triple bottom line emphasis on economic, social, and environmental returns to all
stakeholders is likely to enhance traditional, single bottom line economic returns for
shareholders.
I contend that a good, commonsense modus operandi for leading, sustainable businesses is
to be stakeholder relationship orientated and synchronous with TBL philosophy. Based on
the significant correlation between SPI and ROI, stakeholders are likely to support and
reward such businesses. This is a good business outcome for good, leading businesses.
References
Ajzen I. (2001). 'Nature and Operation of Attitudes'. Annual Review of Psychology 2001. 52:
27-28.
Ansoff I. H. (1979). Strategic Management. London: Macmillan.
Berman S. L., Wicks A. C., Kotha S., Jones T. M. (1999). 'Does stakeholder orientation
matter? The relationship between stakeholder management models and firm financial
performance'. Academy of Management Journal. Vol. 42, No. 5: 488-506.
Caulkin S. (2002). 'Four moves to live long and prosper'. Business Herald. Wednesday 25
September: D1.
Elkington J. (1997). Cannibals with Forks: The Triple Bottom Line of 21st Century Business.
Oxford: Capstone.
Enderle G., Tavis L. A. (1998). 'A Balanced Concept of the Firm and the Measurement of Its
Long-term Planning and Performance'. Journal of Business Ethics. 17: 1129-1144.
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Murphy B. (1980). An Evaluation of Attitudinal Management Planning Models for SocioEconomic Resource Management in New Zealand. PhD Thesis. Auckland: The University of
Auckland.
Murphy B. (2002). The Stakeholder Business Model. Working Paper 02.20FRG Department
of Commerce. Auckland: Massey University at Albany.
Murphy B., Stevens K., McLeod R. (1997). 'A Stakeholderism Framework for Measuring
Relationship Marketing'. Journal of Marketing Theory and Practice. 5, Spring: 43-57.
Murphy B., Murphy A., Woodall S., O’Hare R. (1999). 'The Stakeholder Relationship Audit:
Measuring the Effectiveness of Integrated Marketing Communications'. Integrated Marketing
Communications Research Journal. Vol. 5, Issue 1, Spring: 9-12.
Slaughter R. (1995). The Foresight Principle: Cultural Recovery in the 21st Century. London:
Adamantine.
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