Academic journal article Journal of Business Strategies

Stakeholder Networks and Strategy: The Influence of Network Consistency and Network Diversity on Firm Performance

Academic journal article Journal of Business Strategies

Stakeholder Networks and Strategy: The Influence of Network Consistency and Network Diversity on Firm Performance

Article excerpt

ABSTRACT

As academic and practitioners continue to demand greater stakeholder acknowledgement and engagement, firms must seek ways to move beyond dyadic interactions and treat internal and external stakeholders as components of a holistic network. This paper introduces two new constructs, Network Diversity and Network Consistency, proposing that both the variety of stakeholder partners (Network Diversity) as well as the uniformity of social performance across multiple stakeholder constituencies (Network Consistency), will influence Corporate Reputation (CR) and ultimately, firm financial performance. Using a sample of 158 firms, across a five year time span, we find that while Network Diversity has no significant relationship to CR, Network Consistency is in fact related to Corporate Reputation. Further, high levels of Network Diversity may actually detract from, rather than enhance financial performance, via increased cost and relationship management complexity.

INTRODUCTION

The concept of Corporate Reputation, and its relationship to firm performance, is not novel to business literature. Academics have written extensively and even previously tested this link, indicating that there is both theoretical and empirical evidence supporting the strategic benefit of a superior CR.

Yet, despite this previous work, less emphasis has been placed upon identifying the antecedents of CR and how they can best be used to enhance financial outcomes. To address this deficiency, we address two specific questions: (1) How can the firm's CR, or what we will soon refer to as its reputational stock, be increased, and (2) How can the firm's approach to stakeholder management attenuate the relationship between its reputation and financial performance.

Exploration of these two issues requires richer understanding of the underpinnings of Corporate Reputations. Generally, most authors agree that corporate reputations emerge from the evaluations stakeholders (both internal and external), ascribe to the firm (Barnett, 2007). Two important characteristics of these evaluations may help illuminate the nature and antecedents of firm reputations.

First, these evaluations are based upon the firm's behavior, both intentional and unintentional, towards its various stakeholder constituents (Fombrun & Shanley, 1990; Fombrun, 1996). Thus the firm's ability to effectively manage and meet its stakeholder obligations is likely to positively influence evaluations (Russo & Fours, 1997; Hillman & Keim, 2001) and enhance the firm's CR (Fombrun, 1996; Fombrun et al. 2000). Second, while individual stakeholders provide separate evaluations; "sub-reputations" (Neville, Bell & Mengue, 2005:1189), the firm's overall Corporate Reputation is essentially a collection and/or integration of these individualized assessments (Fombrun, 1996; Weiss, Anderson & MacInnis, 1999; Hutton, Goodman, Alexander & Genest, 2001; Neville et al. 2005, Barnett, 2007).

Thus, it is clear that a firm's CR is a function of both its individual and collective stakeholder performance and that a network approach to stakeholder management is essential to explaining the firm's reputational 'drivers'. A stakeholder network approach, unlike a dyadic treatment of firm-stakeholder interaction, simultaneously accounts for both individual as well as structural ties. It acknowledges that while specific firm-stakeholder ties provide firms with opportunities and constraints, the assimilation and integration of these ties create an holistic network structure, that can impact, if or how the firm derives and/or benefits from CR (Granovetter, 1992; Gulati & Gargiulo, 1999; Borgatti & Foster, 2003).

Consistent with this stakeholder network approach, two concepts, Network Diversity and Network Consistency, are introduced. Network Diversity refers to the number of distinct stakeholder relationships the firm adopts and implements. …

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