Positive Impact Blog

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Tag Archives: business and sustainability


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When the Stakeholder Perspective takes a Purpose Orientation

Understanding Business Sustainability Types in terms of stakeholder engagement

Every organization talks about stakeholder engagement – yet what does this really mean? In the era of positive impact, engaging with stakeholders goes beyond reaching out to your employees, customers, suppliers and concerned civil society institutions. A truly sustainable organization will have recognized that it is itself a stakeholder in a much larger context, in which it doesn’t play the central role. Creating a positive impact through focusing on purpose is all about recognizing one’s own limited perspective and value contribution to a society which includes other perspectives such as civil society and government.

The purpose orientation of business has become a popular topic recently. It is hard to open a new book on the current and future challenges for business and society and not stumble over the purpose topic. In analyzing the evolution of business sustainability empirically, Grayson et al. conclude in their book “All In” (2018: 30-32) that we have entered the “Purpose Driven Era” in 2016. For them, today’s best corporate leaders focus what they do through the lens of the purposeful and positive impact they aspire to have in the world.

This understanding of purpose contrasts with another popular interpretation of the role of business, the stakeholder model. The Business Roundtable, an association of some 200 CEOs of major U.S. companies, published a widely acclaimed statement on the purpose of a corporation in August 2019. These companies committed for the first time since 1997 to a responsibility to all stakeholders – namely customers, employees, suppliers, the communities in which they operate, and their owners. All stakeholders are seen by them as important, and value must be created for all of them. This is a significant extension of understanding from seeing the shareholder as the one primary stakeholder of business.

What is the difference between these two interpretations of business and its role in society?

What is the difference between the purpose orientation of business and the stakeholder model? And how do they relate to each other?

A helpful answer can be found in the Davos Manifesto 2020 on the role of business in the 21st century presented by Klaus Schwab, the founder and chairman of the World Economic Forum. This manifesto goes beyond the Business Roundtable’s position in two different ways. First, it includes society in the catalog of stakeholders. Second and more significantly, it sees business not only as an economic entity in the service of wealth creation for different stakeholders, but also as a societal institution delivering multiple values. Along with government and civil society, business here is seen as another, equally important “stakeholder of our global future”. Business is expected to contribute through its specific resources and capabilities to improve the state of the world, together with government and civil society. To achieve this, a purpose orientation is needed to guide the business.

How do we make sense of this evolution of understanding of stakeholders?

In a first step, an organization extends its understanding from a single stakeholder, often the owner or shareholder, to a more extensive group of business-relevant stakeholders. This is the shift from Business Sustainability 1.0 to Business Sustainability 2.0 in the Dyllick-Muff Typology (see below).  This extension from a single to a number of relevant stakeholder groups can be viewed as a “horizontal extension,” with new stakeholder groups being added to existing ones. A majority of organizations are in this conceptual phase of understanding stakeholder engagement. At this stage, the central focus, however, remains on the business, which is seen to fulfill multiple demands through its activities.

When an organization, in a further step, starts to consider itself as a societal stakeholder, this is a completely different perspective. It represents the shift from inside-out to outside-in thinking which means that an organization is able to look at its own role from an external meta level. It starts perceiving itself as just another stakeholder in society. It is society which takes on the central space, no longer the organizations which sees its role as providing a positive value to society. This shift introduces an additional dimension and can be seen as a “vertical expansion” of the relevant perspective. This new position is what Business Sustainability 3.0, or true business sustainability, is all about.

The graph illustrates that we are in effect dealing with two different perspectives on business and society. And these two perspectives bring about two quite different discussions, as has been demonstrated also in developing our concept of True Business Sustainability.

In reviewing the established approaches to Business Sustainability, we developed a typology that focuses on effective business contributions to sustainable development (Dyllick and Muff, 2016). We call it the Business Sustainability Typology (BST). It ranges from Business Sustainability (BST) 1.0 to BST 2.0 and BST 3.0.

What do we mean by this?

In a first phase of BST 1.0 companies recognize that through sustainability management they can save costs and reduce risks, they can increase their reputation on the job market as well as their differentiation in the product markets. We defined this early form of Business Sustainability 1.0 as a form of “refined shareholder value-management” where shareholders play the dominating role. This is reflected in the interaction between business and their shareholders in the graphic.

In a second phase, companies start broadening their stakeholder perspective beyond their shareholders, thereby pursuing a triple bottom line approach. Value creation mow includes economic or social values to other stakeholders as well. This advanced view of BST 2.0 we have called “Managing for the Triple Bottom Line”. In contrast to BST 1.0 not only economic objectives, but also social and environmental objectives are pursued by business as part of their stakeholder management. But the companies still look at things from the inside out, from its own activities to stakeholders and to society. And it is about diminishing the negative side effects of the economic activities. This is well reflected in the horizontal extension to multiple stakeholders in the above graphic.

In a third phase, companies shift from an “Inside-Out-Thinking” to an “Outside-In-Thinking”, i.e. when the company starts from society and its problems and then asks itself which opportunities arise by contributing to solving societal challenges? This results in BST 3.0 or “True Business Sustainability” and is well reflected in the perspective where an organization sees itself as a societal stakeholder.

With regard to the vertical expansion the relevant questions address the needs of society to continue solving its problems and the relevant contributions made by government, civil society, and business. It raises questions about the role of business and its purpose in the development of the economy and society. This requires business to engage with the broader external environment, beyond the economic and market environments. And it requires an “outside-in perspective” instead of the dominant “inside-out perspective.” Such a perspective considers the company and its impact from the outside, starting with the societal problems and challenges; rather than from the inside, starting from the goals and concerns of the company itself.

This is a major step change in thinking about the development of business sustainability, or more generally, about business and society. It opens the discussion for the new question about corporate purpose. And it frames the discussion in a different way. Not as adding value to more stakeholder groups, but as focusing on very different challenges, societal challenges, where corporate contributions are much in need.


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The challenge for business educators

As business educators we must challenge the underlying assumptions of economic and business development, like the need for economic growth, unlimited consumerism, shareholder value. It is up to us to ensure that we create leaders who will focus on creating value for the world rather than only for a few shareholders. Leaders who act as servants for the common good operate a conscious business, they are engaged with society and the planet and they are asking for their real needs concerning economic innovation.

This is the contract we as management educators have with the world and with society. No more silos, no more tenure, no more clear-cut divisions between institutions, nor between business and other active players in the world (formally known as NGOs) , nor more citation indices to evaluate scholars.  This is what we must measure ourselves by and this is what we should strive to achieve. And we shouldn’t leave a stone unturned in order to get there, even if it means undoing some brick and mortar and doing away with some ivory towers.

Business executives – more than any other profession – have developed the capacity to deal with complexity and to adapt their strategy to an evolving environment. Businesses have evolved beyond national boundaries into global enterprises, uniquely able to address and act on global issues. As such, they do have an important contribution to make as co-trustees and co-actors, working with all stakeholders towards a larger vision for the world (“Living well and within the limits of the planet’s natural resources”, WBCSD).


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A call for a radically new vision for business education

When considering the short-comings of existing business schools, it becomes clear that nothing less than a fundamental, possibly radical, new vision for business education is required. Leading business schools congratulate each other on their important incremental steps forward. The trouble is that they don’t even know how far off the mark they really are! All of us, from Harvard all the way to the uncountable business schools in the Philippines. There isn’t a single business school that has gotten it right, and most of us are not even aiming in the right direction!

We need an ideal, maybe illusionary, model of business education to enable business education to find its North again. This ideal may not be achievable or even realizable, but it shall serve as a flagpole on the horizon guiding institutions with a desire to educate leaders that are equipped with skills and competences to embrace the emerging global environmental, societal and business challenges of the future.


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Diploma in Sustainable Business Module One- September 2011

Dr. Katrin Muff, Dean of Business School Lausanne, shares first impressions after the launch of the new 1-year executive program in cooperation with the University of St. Gallen and the WBCSD: Diploma in Sustainable Business.

Prof. Dr. Thomas Dyllick, Professor for Sustainability Management at the University of St. Gallen, shares first impressions about the launch of the new 1-year executive program in cooperation with Business School Lausanne and the WBCSD: Diploma in Sustainable Business.

Caroline Van der Veeken, participant in the newly launched 1-year executive program of Business School Lausanne and the University of St. Gallen – Diploma in Sustainable Business – shares first impressions about the program participation.