A firm that manages for stakeholders allocates more resources to satisfying the needs and demands of its legitimate stakeholders than what is necessary to simply retain their willful participation in the productive activities of the firm. Firms that exhibit this sort of behavior develop trusting relationships with stakeholders based on principles of distributional, procedural and interactional justice. Under these conditions, stakeholders are more likely to share nuanced information regarding their utility functions, which increases the ability of the firm to allocate its resources to areas that will best satisfy them (thus increasing demand for business transactions with the firm). In addition, this information can spur innovation, as well as allowing the firm to deal better with changes in the environment. Competitive advantages stemming from a managing-for-stakeholders approach are argued to be sustainable because they are associated with path dependence and causal ambiguity. These explanations provide a strong rationale for including stakeholder theory in the discussion of firm competitiveness and performance.

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Copyright © 2010 John Wiley & Sons, Ltd. Article first published online: August 2009.

DOI: 10.1002/smj.801.

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Full Citation:

Harrison, Jeffrey S., Douglas A. Bosse and Robert A. Phillips. "Managing for Stakeholders, Stakeholder Utility Functions, and Competitive Advantage." Strategic Management Journal 31, no. 1 (2010): 58-74.