Cross-Sector Partnerships and the Co-creation of Dynamic Capabilities for Stakeholder Orientation

From a resource-based view, a key driving force for organizations entering into CSPs is the prospect of accessing and co-creating new resources and capabilities (Austin 2000; Waddell 2000; Rondinelli and London 2003; Selsky and Parker 2005). Resources are strengths, advantages, or assets, including technical know-how, management skills, human capital, and reputation, which organizations can use to conceive of and implement their strategies (Barney 1991; Penrose 1959; Wernerfelt 1984). Among these resources, capabilities describe the ability of adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competences (Teece et al. 1997). Accordingly, organizations are motivated to collaborate in order to develop and gain access to new external resources, particularly those that are scarce and inimitable, such as tacit knowledge-related and competence-related resources (Dierickx and Cool 1989; Barney 1991; Peteraf 1993; Gulati 1999; Prahalad and Ramaswamy 2004). However, contrary to traditional business alliances that are characterized by low organizational diversity and high task specificity, CSPs include actors that have fundamentally different core logics, operating principles, and goals (Waddell 2002). This diversity makes collaboration more vulnerable to tensions and conflict unless trust is created (Le Ber and Branzei 2010a; Glasbergen 2011). At the same time, it creates high incentives for collaboration due to the heterogeneous resources and capabilities of partners, which can, if they are shared, produce collaborative advantage and create impact which no organization could have created on its own (Huxham 1993). Studies have distinguished between a variety of resources and capabilities among CSP participants, among which the provision of financial capital, market knowledge, and management expertise by business participants, and the provision of issue knowledge, legitimacy, and community relationships by NGOs are most frequently mentioned in the literature (Waddell 2002; Dahan et al. 2010). By participating in CSPs, businesses can enhance reputation, access local knowledge, and increase their corporate social responsibility performance, while NGOs can receive access to technical, organizational, and financial resources (Arts 2002; Teegen et al. 2004).

Relative to this co-creation of “operational capabilities” (Winter 2003), dynamic capabilities represent a form of “double-loop learning” or “learning how to learn” (Argyris 1977). They refer to “the ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments” (Teece et al. 1997, p. 516). Dynamic capabilities are considered critical for sustainable competitive advantage in the face of rapid technological change and the uncertain nature of future competition and markets (Teece et al. 1997; Helfat et al. 2007). Yet, addressing wicked problems, including various sustainability challenges, and responding to stakeholders’ concerns changes the nature of dynamic capabilities needed by companies (Verona and Zollo 2011; Dentoni et al. 2012a) for two major reasons. First, the notion of sustainability requires the integration of economic, social, and environmental outcomes, whereas the outcomes of dynamic capabilities are traditionally defined in terms of economic efficiency/effectiveness. Second, traditional dynamic capabilities may not attend to key issues required to address sustainability challenges, including the nature of the core business activity, firm values, and strategic intent (Teece 2007). This suggests that the ability of CSPs to create impact in the form of co-creating dynamic capabilities depends on how organizations engage with their stakeholders.

The strategic value of collaboration is also recognized in stakeholder theory, which views organizations to be at the center of a network of stakeholders who can affect or are affected by the achievement of the organization’s objectives (Freeman 2010). Stakeholders are defined according to their relation with the focal organization, which is usually a company (Clarkson 1995). The challenge for companies is then to accommodate the claims of stakeholders, recognizing that the long-term sustainability of their business depends on co-operative relations with these stakeholders (Freeman 2010; Donaldson and Preston 1995). Starting from the 1990s, the literature has debated on how firms should identify stakeholders as well as manage and respond to their claims (Laplume et al. 2008). According to Mitchell et al. (1997), the question of whether or not stakeholders deserve attention depends on their legitimacy, the urgency of their claims, and their (potentially threatening) power. From this perspective, developing partnerships is a vehicle for businesses to be “more socially responsible to address stakeholder demands and develop or sustain a competitive advantage” (Selsky and Parker 2005, p. 852). Yet, scholars recognize that firms may identify different stakeholders depending on their culture (Jones et al. 2007), their own life cycle (Fineman and Clarke 1996), and the industry context (Jawahar and McLaughlin 2001). Moreover, they may engage in different ways with stakeholders depending on their motivation and capacity (Lawrence 2002) and their leadership (Maak 2007).

Despite this advancement of stakeholder theory, only in the last decade have scholars started focusing on the organizational capabilities that make stakeholder orientation, identification, and engagement more effective (Ferrell et al. 2010; Verona and Zollo 2011). Cross-sector collaboration presupposes that organizations are “dedicated to learning about and addressing stakeholder issues” (Ferrell et al. 2010, p. 95) and oriented towards two-way communication and consensual decision-making (Ansell and Gash 2008). Such stakeholder orientation is an organizational culture and behavior inducing organizations to be continuously aware of and proactively act on issues that are of concern to one or more stakeholders (Maignan and Ferrell 2004; Ferrell et al. 2010). In the context of wicked problems, stakeholder orientation is critical, as organizations are forced to transcend their traditional relationship boundaries and interact with multiple stakeholders that may have differing goals and cultures (Batie 2008). This entails moving from viewing stakeholders as opponents to valuing them as complements (Freeman 2010), which, in turn, makes it easier to be structurally oriented towards each other’s needs, to learn from each other and to change based on jointly agreed goals (Selsky and Parker 2010). Thus, by interacting with multiple stakeholders and tackling wicked problems, organizations mitigate and share risks, which, in the long run, increases their chances of survival (Clarkson 1995; Freeman 2010). Particularly with regard to managing wicked problems, companies increasingly realize that they need to understand, interact and, at least to some extent, adapt to the pressures of stakeholders (Ferrell et al. 2010; Hult 2011). Thus, stakeholder orientation is becoming an essential dynamic capability (Clarke and Roome 1999; Hult 2011) rather than an optional managerial attitude (Berman et al. 1999).

The argument that CSPs impact on the co-creation of resources and capabilities as well as on the relationships between organizations and their stakeholders implies that the partners themselves tend to be beneficiaries of partnerships. Such a concentration of impact for the participating organizations in CSP is not surprising, considering the amount of time and resources invested in partnerships (Biermann et al. 2007). To systematize the analysis of the impact of CSPs on the organizational level, this study introduces the concept of dynamic capabilities for stakeholder orientation, which help organizations manage wicked problems by responding effectively to multiple stakeholders’ concerns (Verona and Zollo 2011).

The basic premise is that over time CSPs can influence the ability of organizations to react, anticipate, and harmonize the pressures of multiple stakeholders (Vurro et al. 2010; Waddock 2012) through organizational learning and relationship building (Seitanidi and Ryan 2007). From a business perspective, the ability of a firm to successfully partner with an NGO or with other cross-sector stakeholders may itself constitute a dynamic capability that can lead to competitive advantage (Dahan et al. 2010). Such capabilities do not reside in individual participants or organizations themselves, but rather depend on an array of linkages that they have with other actors in the system, and especially on their approach to participation (Robinson and Berkes 2011). This suggests that such dynamic capabilities are the result of interconnected organizations and actors, whose linkages facilitate social learning and co-creation of knowledge (Armitage et al. 2011). In this way, dynamic capabilities for stakeholder orientation can be classified as higher order dynamic capabilities that are difficult to imitate and have the potential to lead to competitive advantage.

Based on the insights from the theoretical perspectives introduced above and the empirical evidence from the interviews, this study identifies four dynamic capabilities for stakeholder orientation: sensing stakeholders, interacting with stakeholders, learning from stakeholders, and changing based on stakeholders (hereby synthesized as SILC, see Table 1).

Sensing stakeholders within CSPs is important due to the differences in mission and core logics as well as the historical aversion between partners (Austin 2000; Arts 2002). These can create conflict and distrust between partners that may constrict the formation and implementation of a partnership (Rondinelli and London 2003). Outside of CSPs, sensing stakeholders may be particularly challenging and represents a distinctive asset in a context of wicked problems, since the societal groups affected by the issues tackled within CSPs may swiftly change, making them difficult to identify (Waddock 2012).

Similar to “alliance capability” (Huxham 1993), interacting with stakeholders represents the capacity and readiness of an organization to engage with stakeholders based on reciprocal exchange. Austin (2000) suggests that partnerships require a high level of interaction in order to create value for their participants as well as society at large. Accordingly, success or failure of partnerships to a great extent depends on how partners frame their interactions, appreciate differing perspectives (Le Ber and Branzei 2010b), and learn how to interact in a constructive manner (Roloff 2008). Especially in a context of wicked problems, the vastly different cultures, values, and goals among stakeholders within and outside CSPs create major interaction challenges which demand heightened capabilities in negotiation, communication, and reciprocal understanding.

The process of interaction is crucial for mutual learning and co-production of knowledge (Robinson and Berkes 2011). Learning from stakeholders may result from understanding and finding different approaches to the same challenges, demanding an iterative process of exchanging and combining the knowledge, experience, and competencies of the actors involved (Murphy et al. 2012). However, learning does not only concern the wicked problem which the overall partnership seeks to address, it also feeds back into the participating organizations who learn “about themselves as organizational and sectoral entities” (Selsky and Parker 2010, p. 32).

Engaging with partners through problem sharing purposefully aims at co-designing and implementing innovative solutions to address wicked problems (Murphy et al. 2012). This includes internal changes, such as altering organizational structures, and externally oriented changes, such as co-developing product and process innovations. Changing based on stakeholders is strongly correlated with improved relationships, i.e., sensing and interacting with stakeholders, and the social learning processes emanating from these (Mandarano and Paulsen 2011). Seitanidi et al. (2010) suggest that the previous history of interactions with stakeholders provides an indication of the transformative potential of organizations. In other words, organizations that lack collaboration experience may be unable to articulate their interests and competencies vis-à-vis the strategic approach of other actors, which may make it difficult to develop the transformational capacity required to promote change in the partner organizations.

Since 2001, 22 of the world’s 50 largest MNCs in the agri-food sector have formed and/or joined CSPs with one or multiple heterogeneous stakeholders, including NGOs, governments, and knowledge institutes (Dentoni and Peterson 2011). Within this growing trend of CSP formation, MNCs have taken different approaches of engaging with stakeholders (Dentoni and Peterson 2011). The largest MNCs, such as Nestlé, PepsiCo, Kraft, and Unilever—which each own a portfolio of brands diversified into a number of food sub-sectors—participate in a variety of partnerships covering multiple food sectors with a broader focus on both environmental and social sustainability issues (Dentoni and Peterson 2011). Less diversified and relatively smaller MNCs, such as Bunge, Ferrero, and Friesland Campina, focus mainly on CSPs within a particular sector (e.g., cocoa, palm oil, cashew, or coffee) which correspond more closely to their core strategy. Next to their participation in CSPs, over time several MNCs have codified a strategic intent for their sustainability activities (such as Nestlé’s “Shared Value Creation” model) that strictly relates to their core business strategy, and have started reporting through recently developed environmental and/or social standards (UN Global Compact, the Global Reporting Initiative, and the Carbon Footprint Disclosure).

Empirical evidence indicates that, although starting from different initial levels, in the years after founding the first CSPs companies’ capability of sensing stakeholders both within and outside the partnerships increased. Yet, with growing experience in CSP participation, the capability of the four MNCs to sense stakeholders outside existing CSPs decreased (Table 3). Since experience in CSP is measured as a combination of qualitative variables, the “early” rather than “later” level of experience (as in Table 3 and following) is approximate and subject to interpretation. Unilever’s “early” stage is considered to be 10 years (1996–2006) as the company took a long time to participate in other CSPs after founding the first one. On the other hand, Heinz’s “later” stage is restricted to only 2 years (2010–2012) because the company has the shortest experience with CSPs. This pattern of increasing and then decreasing sensing capabilities across the four companies leads to the following proposition:

A key factor that drives such an inverted U-shaped effect seems to be the development of a corporate strategy on sustainability. Unilever started developing its Sustainable Living Plan in 2007 and launched it in 2010. Friesland Campina did so with their Route 2020 strategy, published in 2010. Sara Lee and Heinz developed specific targets on greenhouse gas emissions and certified procurement in the late 2000s. Over time, this trend of increased strategic focus made companies more proactive in sensing and understanding established partners within CSPs and less reactive to the demands of stakeholders outside of CSPs (Table 3). It could be argued that this could be interpreted as a decrease in the motivation rather than a decrease of a dynamic capability of sensing stakeholders. Yet, the adoption of a corporate strategy pre-defining scope, goals, and partners limits companies’ opportunity of re-deploying organizational resources and skills to understand and react to stakeholders outside CSPs. Therefore, while developing a corporate strategy during early stages of CSP experience is a voluntary corporate action, the decreased capability of sensing stakeholders over time seems to be an involuntary side effect of developing such a strategy.

Relative to the inverted U-shaped effect of CSP experience on firms’ sensing capability, two notes of caution are needed. First, the proposition indicates a pattern of change over time, but the initial and final levels of sensing capabilities vary significantly across companies. Some companies demonstrated a higher capability of sensing stakeholders than other companies. This might depend on factors such as resources available to the firms, history, culture, leadership, and the location of their headquarters. Second, after the described decrease, firms’ sensing capabilities may increase again if firms realize the risks of not sensing stakeholders outside of CSPs. For instance, sensing capabilities may increase again as CSP experience further develops or as pressure on companies grows, either from stakeholders outside of CSPs or from internal stakeholders that decide (or threaten) to exit CSPs.

As described in Table 4, due to growing CSP experience, the four companies continually increased their capability of interacting with stakeholders over time. This leads to the following proposition:

The increased capability of interacting with stakeholders is not surprising, neither from a managerial nor an institutional standpoint. Interviews with company managers confirmed a learning curve for the organizations on how to establish interactions and collaboration with new stakeholders outside their supply chain, especially NGOs and non-business organizations. After the first experience of engaging with new stakeholders in CSPs, managers sought further opportunities to collaborate—either with the same partners or with new stakeholders having a similar background and culture—as they expected to become more efficient in taking joint decisions. From an institutional point of view, once they had joined one or more new CSPs with stakeholders, the companies could efficiently use the same CSP governance structure to extend the interaction with existing stakeholders, either discussing new sustainability issues or the same issues in new sectors or geographical areas, or establish ties with new stakeholders within the frame of their emerging corporate sustainability strategies.

Similar to the stakeholder sensing capabilities, also the capability of interacting with stakeholders varied across the four companies. Over time, some companies led discussions in CSPs on sustainability problems that were “very wicked,” that is, global, particularly messy, urgent, and with a larger number of actors’ interests to orchestrate (Levin et al. 2012). These interactions required an intense learning process, as the aspects of the problems to be discussed required more time, resources, and participation. Other companies chose not to expand their stakeholder interaction, but rather intensify the engagement with a smaller set of stakeholders, mainly for the adoption and implementation of specific social or environmental standards.

Empirical evidence shows that the relationship between CSP experience and the capability of learning from stakeholders follows an inverted U-shaped pattern similar to stakeholder sensing in P1 (Table 5). Initially, during the development of the first CSPs, companies rapidly “learned how to learn” from stakeholders. However, as their experience in CSPs increases over time, their capability of learning from stakeholders seemed to decrease. Data suggest that three out of the four companies (Unilever, Friesland Campina, and Sara Lee) mainly kept focusing on learning from stakeholders within the established CSPs, but not from new stakeholders outside the early founded CSPs. Heinz has a shorter experience with CSPs and still seems to be in the growing stage of learning from stakeholders (Table 5). This leads to the following proposition:

Similar to sensing, also the inverted U-shaped effect of CSP experience on learning from stakeholders seems to be influenced by the development of a corporate strategy on sustainability. While all cases appear to follow the trend of first increased and then decreased learning capability, a distinction can be made between different types of learning. Companies that interacted with a large set of stakeholders on “very wicked” sustainability issues co-created broader knowledge to understand which practices are acceptable for a large number of stakeholders participating in the discussion. This can be considered a type of social learning which deals with problem framing and re-framing based on joint information sharing and knowledge development. We see that Unilever and Friesland Campina initially engaged in this type of learning. On the other hand, companies that built relationships with only few stakeholders based on a specific topic focused on technical learning to understand measurement and assessment issues, and establish indicators and criteria. Sara Lee and Heinz, but also Unilever and Friesland Campina in their later stages of CSP experience, appear to follow this strategy of technical learning.

As the experience with CSPs increases, the capability of the four companies to change based on stakeholders first seemed to increase and then to decrease (Table 6). In other words, the capability of changing based on stakeholders follows the same pattern as sensing and learning from stakeholders. During their early experience with CSPs, the companies studied featured a high ability to implement organizational changes based on their engagement with stakeholders. With growing experience, however, the companies seemed to significantly slow down and “merely” follow through with the changes agreed upon in the earlier years of their CSP participation (Table 6). This does not imply that the companies stagnated, but rather that any type of new change appeared to be based on internal initiatives instead of stakeholders. Only Heinz still seems to be in the stage of significant change given its shorter CSP experience (Table 6). This leads to the following proposition:

Similar to sensing and learning from stakeholders, also the capability of changing based on stakeholders is influenced by the development of a corporate sustainability strategy. Based on their CSP experience and an earlier period of reaction to stakeholder pressures, the companies became proactive in addressing sustainability issues, either on a broad range of issues or in a specific domain. In other words, a company’s corporate strategy on sustainability has become more important as a driver for organizational change than the agenda of stakeholders.