The support of organizational capabilities for improving strategic issue management

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The Support of Organizational Capabilities for Improving

Strategic Issue Management

Student number: 11139862 Date: August 19 , 2016 University of Amsterdam MSc Business Administration – International Management

Supervisor: Michelle Westermann-Behaylo Second reader: Johan Lindeque

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Statement of Originality

This document is written by Student Christine de Graaf who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Index of Tables and Figures

TABLE 1. Appropriate or inappropriate response according to Bundy et al. (2013). 62

TABLE 2. The organizations’ strong or weak CSR capability.………..…… 62

TABLE 3. The organizations’ strong or weak innovation capability..……….. 64

FIGURE 1. SIM model……….……..…. 6

FIGURE 2. A strategic-cognition framework for issue salience….………... 10

FIGURE 3. Strategic cognition, issue type and responsiveness………. 13

FIGURE 4. Conceptual model……… 16

FIGURE 5. Conceptual model for future research……….. 68

List of Abbreviations

SIM - Strategic Issue Management CSR - Corporate Social Responsibility

FWMAC - Fortune’s World’s Most Admired Companies MSCI - MSCI ESG KLD STATS

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1. Abstract

The objective of this master’s thesis is to investigate if and which capabilities improve the attention – interpretation process of strategic issue management (SIM) in a way that the response of organizations to stakeholder issues raised through social media is appropriate. Due to the constraints of a thesis it goes too far to investigate all possible capabilities, that is why this thesis focuses on two capabilities that possibly improve the attention – interpretation process. This makes this study a part of a larger still to be carried out research. The researched capabilities in this thesis are: corporate social responsibility and innovativeness. The research design used in this study is a multiple case study. Eight cases from change.org are selected by means of purposive sampling. The data in this study is collected from multiple secondary sources: Fortune’s World’s Most Admired Companies dataset, the MSCI ESG KLD STATS dataset, the Most Admired Knowledge Enterprises dataset, and the annual reports, the corporate websites, and the CSR reports of the organizations used in this study. This made it possible to draw conclusions about the capabilities by means of triangulation. The findings of this study indicate that the two capabilities studied do not seem to improve SIM’s attention-interpretation process as predicted. The findings of this study also show that the model of Bundy, Shropshire and Buchholtz (2013) is probably not related to all stakeholder issues. This exploratory research needs to be followed up with more detailed research to provide more reliable answers, investigating the influence of more different types of capabilities. Moreover future research should examine how the model of Bundy et al. (2013) can be improved by means of urgency.

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2. Introduction

Facing an increasing and varied number of stakeholder issues with the rise of social media, organizations must decide how to respond to these issues. Social media has a tremendous impact on organizations. The power is shifting from organizations to individuals and communities which create, consume and share Facebook posts, tweets, blogs, online petitions and so forth, and communication about organizations happens with or without permission from the organization (Kietzmann et al. 2011, p. 242). Today it is barely possible for organizations to respond to all of the stakeholder issues that are addressed, and they therefore need to decide whether they want to respond to these issues or not (Veil, et al. 2015, p. 104).

Explaining how organizations respond to stakeholder issues is one of the contributions of strategic issue management (SIM) (Bundy, Shropshire & Buchholtz 2013, p. 352). It consists of a set of processes, procedures, and routines within an organization for the early identification, analysis and fast response to strategic issues (Ansoff 1980, p. 136 ; Dutton & Ottensmeyer 1987, p. 355). Based on the existing literature, this thesis introduces a model that describes how SIM works, which is a process of attention, interpretation and response to a strategic issue. Attention and interpretation mutually reinforce each other. A strategic issue receives a certain amount of attention from an organization. The organization interprets the issue, as a result of which an issue receives more or less attention: the organization’s response is dependent on how much attention an issue receives and how it is interpreted.

Most of the research regarding SIM is not about stakeholder issues that have been raised through social media. In addition, little is known about the impact of capabilities on SIM’s attention-interpretation process, i.e. which capabilities improve this process in such a way that organzisations’ response to stakeholder issues is appropriate. This thesis attempts to partly fill this gap in the literature by investigating the influence of two capabilities on the SIM process. The two capabilities that are most closely connected to the research question are corporate social responsibility (CSR) and innovativeness. The former refers to “serving people, communities, society, and environment in ways that go above and beyond what is legally required

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of a firm” (Cai, Jo & Pan 2012, p. 467). Innovation capability is the organization’s ability to explore new market possibilities and to apply its internal knowledge stock to produce new technology, services and products, for instance (Luo & Bhattacharya 2006, p. 6).

The objective of this thesis is to investigate if and which of these two capabilities improve SIM’s attention-interpretation process in such a way that organization’s response to stakeholder issues that are raised through social media is appropriate. The research question is formulated as follows:

Which of the researched capabilities improve SIM’s attention-interpretation process in such a way that the organization’s response to stakeholder issues that are raised through social media is appropriate?

This study investigates petitions on change.org, a website which makes it possible for

anyone to start a petition and on which people across geographic and cultural borders

connect in order to support causes that they care about (change.org/impact). The

website causes organizations to change how they do business and recent petition victories have led to many different company responses, including Abercrombie & Fitch offering plus sizes in their product line and Ben & Jerry making non-dairy ice

cream flavors (change.org/victories).

This thesis contributes new insights about how capabilities may improve SIM’s attention-interpretation process in such a way that organizations offer an appropriate response to stakeholder issues that are raised through social media. The findings indicate that neither of the studied capabilities appear to improve SIM’s attention-interpretation process, as predicted. However, future research should confirm this and investigate other capabilities which may improve the attention-interpretation process.

This study’s findings also show that the model of Bundy et al. (2013) is probably not related to all stakeholder issues and future research should examine how this model can be improved by means of urgency.

Firstly, this study’s theoretical foundations are discussed in the literature review, which begins with a description of the impact of social media on organizations, followed by a detailed explanation of SIM. Subsequently, the capabilities-based

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perspective is explained and its potential impact on SIM is discussed. This is followed by a discussion of the methodology of the research, in which a sample of eight cases is selected from the website change.org and a multiple case study is executed, the findings of which are described in the findings section. They are subsequently discussed in the discussion section, in which the research limitations, managerial implications and recommendations for future research are provided. The research concludes with a summary of the key findings.

3. Literature Review

3.1 Social Media

Social media are internet-based applications, such as Wikipedia, YouTube, Facebook, Twitter, and so forth (Kaplan & Haenlein 2010, p. 61). They are online information sources that are created, initiated, circulated and used by consumers with the intention of educating each other about products, services, brands, personalities and issues related to them (Mangold & Faulds 2009, p. 357). Social media allows for interactions across very large distances (Juris 2005, p. 191).

Due to social media, organizations face an increasing and varied number of stakeholder issues which they have to analyze and prioritize (Kietzmann et al. 2011, p. 242). Moreover, since the advent of social media, the world has become more volatile, making it necessary for organizations to process information faster, act faster and come up with a faster response (Peters 1988, p. 109). Social media enhances the speed, flexibility and global reach of information flows (Juris 2005, p. 191) and creates a shift of power from organizations to individuals and communities that create, consume and share Facebook posts, tweets, blogs, online petitions, and so forth. Communication about organizations occurs with or without the organization’s permission (Kietzmann et al. 2011, p. 242) and organziations today need organizational flexibility and high levels of participation in the decision-making process (Ashmos, Duchon & McDaniel 1998, p. 26).

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As the world has become more volatile and due to the increasing number and variety of stakeholder issues that organizations face today, it is barely possible for organizations to respond to all of the stakeholder issues that are addressed to them, because organizations have a limited capacity with which to process and respond to strategic issues (Bundy et al. 2013, p. 364). Organizations therefore need to decide about which stakeholder issues they want to respond to and which they want to ignore (Kietzmann et al. 2011, p. 242 ; Veil, et al. 2015, p. 104). Strategic issue management is a process which helps in such a prioritization of strategic issues (Bundy et al. 2013, p. 352).

3.2 Strategic Issue Management

This section of the literature review includes an explanation of the SIM process, first by explaining what is meant by a strategic issue and SIM, followed by a step-by-step explanation of SIM.

A strategic issue is an emerging development, trend or event, either outside or inside the organization, which is likely to have an important impact on the organization (Ansoff 1980, p. 133 ; Dutton & Duncan 1987, p. 281). It is an inconsistency between what is and what ought to be, originating from gaps in societal expectations about the performance of an organization which have a significant impact on it, be it in the immediate present or in the future (Clark, Bryant & Griffin 2015, p. 6). A strategic issue is either a possible opportunity that can be obtained within the environment, an internal strength that can be used to become an advantage, or an external threat or internal weakness (Ansoff 1980, p. 133 ; Ashmos et al. 1998, p. 29). External threats can be converted into opportunities by management, because they indicate important discontinuities in the environment (Ansoff 1980, p. 133). In order for something to be perceived as a strategic issue, it must be viewed and interpreted as likely relevant to the status or performance of the organization (Bundy et al. 2013, p. 359).

There are three possible sources of information regarding forthcoming strategic issues: trends in the external environment, trends in the performance of the organization and evolutionary trends within the organization (Ansoff 1980, p. 136). This paper focuses on trends in the external environment and specifically on so-called

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stakeholder issues, which Bundy et al. (2013, p. 352) describe as “the explicit concerns and requests raised by individuals/groups that can affect or be affected by the firm.” In particular, this paper focuses on stakeholder issues that have been raised through petitions on social media.

Scholars have long been concerned with what motivates an organization to respond to certain strategic issues and not to others. The process by which organizations interpret, balance and respond to strategic issues, SIM (Bundy et al. 2013, p. 352), focuses on an organization’s ability to identify, evaluate and respond to strategic issues that have a significant impact on the organization, thereby establishing a connection between strategic issues and the behavior of the organization (Clark et al. 2015, p. 2). It is a set of procedures, routines, personnel and processes in an organization for the early identification, analysis and quick response to strategic issues (Ansoff 1980, p. 136 ; Dutton & Ottensmeyer 1987, p. 355). It is successful when it completes the response in time in order to block off threats and to ‘cash in’ on opportunities (Ansoff 1980, p. 136). Organizations can learn to attend to certain environmental trends and not to others (Cyert & March 1963, p. 123). Strategic issue management can give legitimacy to decisions in taking action towards certain issues while ignoring others (Dutton & Ottensmeyer 1987, p355).

Based on the existing literature, this paper proposes a model regarding how SIM works (see figure 1).

Figure 1. SIM model (source: adapted from Isabella 1990).

Attention and interpretation mutually reinforce each other. A strategic issue receives a certain amount of attention from an organization, which interprets the issue in order to

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determine whether it receives more or less attention: the response of the organization is dependent on the amount of attention that an issue receives and how it is interpreted. Issues that have been given much attention are more likely to obtain a response which is committed to investing substantial resources, energy, time and effort into the strategic issue. Issues that have been given less attention are more likely to obtain a symbolic response or no response at all. A symbolic response is one by which organizations “may seek to signal compliance with external demands while, in reality, continuing in their own incumbent self-interest” (Bundy et al. 2013, p. 364). These three indicators of SIM are explained in detail below.

3.2.1 Attention

Issue attention entails taking possession of the collective minds of an organization’s managers (James 1980, p. 403). It is the extent to which an issue resounds and is prioritized by the organization’s management (Clark et al. 2015, p. 2). Attention entails withdrawing from some issues and dealing effectively with others (James 1980, p. 403) and represents the priority of an issue (Bundy et al. 2013, p. 357). The reason for which specific stakeholder issues receive more attention than others depends on a number of factors. Goranova and Ryan (2014, p. 1232), for example, argue that this depends on activists’ interests, power, legitimacy, urgency and identity. Perrault and Clark (2015, p. 3) indicate that organizations pay more attention to stakeholder issues from stakeholders who have a high status and to issues that can threaten the reputation of the firm. Bundy et al. (2013, p. 353) argue that this depends on the extent to which the stakeholder issue is consistent or conflicting with the

organization’s strategic frame and/or organizational identity.

Attention and interpretation are mutually dependent. In first instance, an issue can receive attention from the management of an organization because of public opinion and special interest groups which repeatedly put an issue in the headlines (Clark et al. 2015, p. 2). Such initial attention for a strategic issue shows that the organization is aware of it, after which the organization interprets it. Interpretation determines the amount of further attention that an issue receives (Bundy et al. 2013, p. 353).

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3.2.2 Interpretation

Issue interpretation is the perception by an organization’s managers that an issue is important and has an instrumental or expressive influence, or that an issue is not important (Bundy et al. 2013, p. 353). Interpretation translates issue information into knowledge and understanding (Ashmos et al. 1998, p. 28). In order to receive managerial attention and a response of an organization, an issue must be interpreted to be relevant or related to the organization (Bundy et al. 2013, p. 357). One way for organizations to interpret whether an issue is important is to track public opinion and pay attention to activists’ targeting behavior (Clark et al. 2015, p. 7). The interpretation of an issue triggers different behaviors and decision processes. It affects resource allocation, including who participates in resolving the issue, as well as determining a course of action and the amount of time, energy and effort that is dedicated to it (Ashmos et al. 1998, p. 27 ; Bundy et al. 2013, p. 363).

When managers in different organizations are presented with similar issues, they respond in different ways as they form different interpretations because “interpretations are expressions of the collective mind of the organization, represented through shared meanings and a common language” (Ashmos et al. 1998, p. 28). Due to cognitive limitations, an organization’s managers are exposed to more information than they can process. They can only deal with a selected portion of the environment and cannot treat all strategic issues in the same way (Hahn et al. 2014, p. 469).

Organizations interpret strategic issues by means of cognitive structures in order to determine the amount of attention and subsequent responsiveness that should be dedicated to a strategic issue. “Cognitive structures represent the relatively stable characteristics and/or repeated patterns of behavior used to interpret strategic information” (Bundy et al. 2013, p. 357), which include managers’ beliefs about environment, business portfolio, strategy and the state of an organization (Narayanan, Zane & Kemmerer 2011, p. 307). Organization’s managers reduce ambiguity and complexity through cognitive structures, and selectively organize and interpret signals from the organizational context (Hahn et al. 2014, p. 465). Such cognitive structures determine which issues gain managerial attention and how issues are interpreted by managers (Bundy et al. 2013, p. 356). Cognitive structures act as cognitive filters that

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accept certain pieces of information to enter into the strategizing process while excluding others (Hahn et al. 2014, p. 463).

Cognitive structures develop based on past learning and categorization, which results in a confirmatory bias. This entails that cognitive structures “may encourage stereotypic thinking, subvert controlled information processing, fill data gaps with typical but perhaps inaccurate information, prompt one to ignore discrepant and possibly important information, discourage disconfirmation of the existing knowledge structure and inhibit creative problem solving” (Hahn et al. 2014, p. 465). As a result of the confirmatory bias, managers interpret strategic issues that conform to their cognitive structures as important and assign attention to these issues, whereby managers ignore strategic issues that contradict such structures (Hahn et al. 2014, p. 469).

Bundy et al. (2013, p. 357) position two strategic cognition structures as components within the issue interpretation process: organizational identity and strategic frame. “Both cognitive structures work simultaneously to influence issue interpretation” (Bundy et al. 2013, p. 353). Both are of great importance within this thesis and are explained in more detail below.

Bundy et al. (2013, p. 353) make a strategic-cognition framework with which to determine issue salience based on the two strategic-cognition structures specified above (see figure 2). Issue salience is “the degree to which a stakeholder issue resonates with and is prioritized by management” (Bundy et al. 2013, p. 355). By using this framework, managers can determine whether a stakeholder issue has the potential to be more or less impactful (Cantrell, Kyriazis & Noble 2015, p. 406). When stakeholder issues are perceived to be consistent (i.e. materially supporting, reinforcing or confirming) or conflicting (i.e. materially challenging or threatening) with the core logic of both of the strategic-cognition structures, they are interpreted as having high salience. Issues that are perceived as consistent or conflicting with only one cognitive structure are described as moderately salient and issues that are perceived as unrelated (i.e. immaterial to cognitive structures) are interpreted as having low salience (Bundy et al. 2013, p. 353). The research in this thesis makes use of this strategic-cognition framework in determining issue salience.

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Figure 2. A strategic-cognition framework for issue salience (Bundy et al. 2013, p. 355).

3.2.2.1 Organizational identity

This subsection of interpretation offers an explanation of what is meant by organizational identity, which refers to how the organization wishes to be perceived and which is used to construct a desirable self (Cantrell et al. 2015, p. 406 ; Bundy et al. 2013, p. 357): “It represents the shared beliefs about the central, distinctive, and enduring features of an organization” (Hahn et al. 2014, p. 475). Organizational identity represents the collective understanding of the members of an organization about the features that distinguish it from other organizations (Narayanan et al. 2011, p. 309). Since management’s sense making of stakeholder issues is entrenched within an organizational context, it has been suggested that organizational identity is an important factor that affects interpretation (Hahn et al. 2014, p. 475). It guides issue interpretation by applying an expressive logic, which is related to how an organization defines and displays itself (Bundy et al. 2013, p. 353). The identity of an organization serves to express its uniqueness and functions a tool for differentiation (Bundy et al. 2013, p. 359).

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Bundy et al. (2013, p. 355) contend that a strategic issue is consistent with the organizational identity if “it is perceived as having bearing on or being material to the expression of an organization’s core values and beliefs” (Bundy et al. 2013, p. 355). A strategic issue is conflicting with the organizational identity if it is interpreted as materially threatening or challenging to the organization’s identity. A strategic issue may also be interpreted as unrelated to the organizational identity, which means that it is largely viewed as irrelevant to the expression of the organization’s identity (Bundy et al. 2013, p. 355).

3.2.2.2 Strategic frame

This subsection offers an explanation of the second strategic-cognition structure of interpretation: strategic frame. A strategic frame refers to how an organization incorporates its desired organizational identity into strategy (Cantrell et al. 2015, p. 406) and the cognitive structure that informs strategic decisions. A strategic frame is the filter that managers dedicate attention to and which they consider to be appropriate for strategy formulation (Narayana et al. 2011, p. 309): “A firm’s strategic frame facilitates issue interpretation using an instrumental logic, which is predicated on the rational pursuit of organizational goals” (Bundy et al. 2013, p. 353). In order to determine issue salience, a strategic frame focuses on how a stakeholder issue potentially affects the organization as it tries to reach its goals. When stakeholder issues are interpreted as related, either as consistent or conflicting with strategic goals, they receive attention and consideration (Bundy et al. 2013, p. 354).

Bundy et al. (2013, p. 355) contend that a stakeholder issue is consistent with an organization’s strategic frame if it is interpreted as supporting or useful towards reaching its strategic goals. A stakeholder issue is conflicting with an organization’s strategic frame if it is interpreted as materially threatening or challenging its strategic goals. Stakeholder issues may also be interpreted as unrelated to an organization’s strategic frame, which means that it is largely viewed as irrelevant in achieving an organization’s goals.

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3.2.3 Response

This section focuses on an organization’s response to strategic issues. One result of the attention that is given to a strategic issue and of its interpretation is the decision that managers make about what kind of response is appropriate for it (Ashmos et al. 1998, p. 29 ; Bundy et al. 2013, p. 363). Bundy et al. (2013, p.363) define a response as the commitment of an organization and a course of action following perceptions of issue salience. A response does not imply a strict adoption or rejection of a strategic issue, but rather contains a range of possible outcomes. A response can range from doing a great deal to doing nothing.

Due to organization’s limited capacity to process and respond to strategic issues, managers must prioritize issues. Bundy et al. (2013, p. 364) make a distinction between three different ways in which organizations can respond to stakeholder issues: substantive response, symbolic response or no response.

Organizations offer a substantive response to stakeholder issues that are most critical to the organization. A substantive response is one that commits substantial resources, energy, time and effort to a strategic issue (Bundy et al. 2013, p. 364). An example of a substantive response is Facebook’s response to a petition on change.org, which asked Facebook to prohibit gun sales on their website. Facebook responded that it would make new policies related to gun sales and today indeed has new policies that ban the private sale of guns and ammunition on its website.

Organizations offer a symbolic response to issues that are found to be less important. These symbolic responses enjoy some level of priority, but do not receive the attention or response that is granted with a substantive response. A symbolic response is one by which organizations “may seek to signal compliance with external demands while, in reality, continuing in their own incumbent self-interest” (Bundy et al. 2013, p. 364). Through symbolic action, organizations depict compliance, and gain legitimacy and other benefits, while doing little to change their organizational processes and cognitions. A symbolic response is an organization’s active attempt to manipulate external expectations so that they become more closely aligned with its

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organizational goals. An example of a symbolic response is asking an external partner to deal with a strategic issue (Bundy et al. 2013, p. 364).

Organizations offer no response to issues that are interpreted as insufficiently important to them (Bundy et al. 2013, p. 368).

Figure 3. Strategic cognition, issue type and responsiveness (Bundy et al. 2013, p. 362).

Figure 3 shows the three different types of responses that organizations can offer to stakeholder issues and is based on figure 2, which shows how the amount of issue salience determines the appropriate response. Strategic issues that are interpreted as highly salient are likely to garner a substantive response. Issues that are interpreted as less salient are more likely to be symbolic in nature. When issue salience is low, a strategic issue is likely to receive no response (Bundy et al. 2013, p. 364).

Empirical studies show that the reason for organizations to respond to stakeholder issues is their fear for the potential impact that such issues may have on their activities or profitability (Perrault & Clark 2015, p. 6). Appropriate responses to strategic issues can result in increased financial performance, trust, reputation, innovation, efficiency and flexibility. Inappropriate responses are related to uncertainty and risk (Bundy et al. 2013, p. 370).

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Theorists have shown that capabilities are essential drivers for organizations’ response to environmental changes (Adner & Helfat 2003, p. 1013 ; Kaplan 2008, p. 672 ; Teece, Pisano & Shuen 1997, p. 515). Ansoff (1980, p. 147) argues that in order to deal with new strategic issues, an organization needs to identify which capabilities must be used and which must be developed, which indicates that capabilities help organizations to deal with strategic issues.

3.3 Capabilities-based perspective

This part of the literature review elaborates on the capabilities-based perspective. The capabilities-based perspective is explained, followed by a description of the expected influence of this perspective on SIM. The two capabilities that are used in this research are then explained in more detail.

The capabilities-based perspective is a theory that argues that the performance of an organization is determined by its effectiveness in converting resources into capabilities. Resources are the organization’s assets, knowledge and business processes which are semi-permanently tied to it (Trainor et al. 2012, p. 1202 ; Wernerfelt 1984, p. 172). Examples of resources are in-house knowledge of technology and brand names, as well as trade contracts, employment of skilled personnel, machinery, capital and so forth (Wernerfelt 1984, p. 172). In order to gain a competitive advantage, an organization needs to possess valuable, rare, inimitable and non-substitutable resources (Barney 1991, p. 105). While resources are very important for an organization’s competitive advantage, they alone are not sufficient: resources are hidden and provide no benefit until they are deployed. According to the capabilities-based perspective they can only be deployed with the aligned organizational capability (O’Cass, Ngo & Siahtiri 2015, p. 195). This means that while an organization may possess marketing resources, for instance, its ability to create a positive impact on its performance is only revealed when it applies superior marketing capabilities (O’Cass et al. 2015, p. 195).

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Organizational capabilities are an organization’s ability to assemble, integrate and deploy valued resources in combination or co-presence in order to achieve a competitive advantage (Trainor et al. 2014, p. 1202 ; Teece et al. 1997, p. 515 ; Amit & Schoemaker 1993, p. 35). Amit and Schoemaker (1993, p. 35) define organizational capabilities as the way in which organizations are able to use their resources productively. They are an organization’s assets which are developed over time through complex interactions among the organization’s resources. Capabilities are processes that are embedded within an organization and which are not easily transferable. Wang and Feng (2012, p. 117) argue that capabilities enable an organization to coordinate its activities more effectively. Capabilities are an organization’s ability to integrate, build and reconfigure internal and external resources, competences and skills so that these match with the changing environment and each organization must specifically create capabilities (Teece et al. 1997, p. 515). Capabilities differ from resources, which to a great extent are static, while capabilities are dynamic (Wang & Feng 2012, p. 117). Examples of capabilities are human resource management, cost reduction, product development, negotiation and innovativeness (Newbert 2007, p. 130).

Organizations that seek an economic performance that is greater than normal should try to possess unique resources and capabilities (Barney 1986, p. 1238). In a volatile world with unstable market conditions, resources and capabilities are the primary basis on which organizations establish their long-term strategies (Grant 1996, p. 375). When an organization’s capabilities are highly applicable in dealing with new challenges, the attractiveness of opportunities is enhanced, while the negative impact of threats is perceived less serious (Ansoff 1980, p. 145).

Unfortunately, little is known about the impact of different capabilities on SIM’s attention-interpretation process and about which capabilities improve this process in such a way that an organization offers a more appropriate response to strategic issues. What is known is that when an organization offers an appropriate response to a strategic issue, it performs better than one which offers an inappropriate response (Bundy et al. 2013, p. 370). In addition, it is known that capabilities can improve an organization’s performance (Trainor et al. 2012, p. 1202). Ansoff (1980, p. 147) argues that in order to deal with new strategic issues, an organization needs to identify

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which capabilities must be used and which must be developed, which indicates that capabilities help organizations to deal with strategic issues by enabling them to adapt to change (Adner & Helfat 2003, p. 1013). Theorists have also shown that capabilities are essential drivers for organization’s response to environmental changes (Adner & Helfat 2003, p. 1013 ; Kaplan 2008, p. 672 ; Teece et al. 1997, p. 515).

This study aims to investigate whether capabilities also improve organizations’ response to stakeholder issues that have been raised through social media by means of improving their SIM process. It is expected that some organizations respond better than others to stakeholder issues because they possess certain types of capabilities that improve their attention, i.e. the interpretation process. Figure 4 shows the conceptual model that is based on this assumption.

Figure 4. Conceptual model (source: adapted from Isabella 1990).

As it exceeds the constraints of a thesis to investigate all possible capabilities, this thesis focuses on two capabilities that possibly improve the attention-interpretation process. The two capabilities that are most closely connected to the research question are CSR and innovativeness. Their definition and why they have been chosen are explained in more detail below.

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3.3.1 Corporate social responsibility

The first capability that is investigated within this thesis is CSR capability, which is “an organization’s knowledge, skills, and processes relating to the planning, implementation and evaluation of CSR activity” (Lee, Park & Lee 2013, p. 1718). It is the capability that refers to “serving people, communities, society, and environment in ways that go above and beyond what is legally required of a firm.” Corporate social responsibility activity is an extension of an organization’s efforts to foster effective corporate governance, which ensures their sustainability via sound business practices that promote corporate philanthropy, information transparency and accountability (Cai et al. 2012, p. 467). It comprises the moral, legal, economic and philanthropic actions of organizations, which influence stakeholders’ quality of life, and describes how organizations manage their business processes in order to produce an overall positive impact on society (Harjoto & Jo 2011, p. 45).

It is expected that an organization’s CSR capability has a positive influence on SIM’s attention-interpretation process and that organizations with a stronger CSR capability respond better to stakeholder issues which have been raised through social media, because they care more about people and the environment (Cai et al. 2012, p. 467). Such organizations consider CSR not merely as the “right thing to do” but also as the “smart thing to do” because it increases firm performance (Luo & Bhattacharya 2006, p. 1). This is because organizations with a stronger CSR capability are connected to better stakeholder engagement, which enhances organizations’ profit-generating potential through high quality relationships with stakeholders, such as customers, business partners and employees (Cheng, Ioannou & Serafeim 2014, p. 16). It can consequently be expected that organizations with better CSR are more focused on doing right for their stakeholders, for other people in society and for the environment, and that they dedicate greater efforts to offering appropriate responses.

3.3.2 Innovativeness

The second capability that is investigated here is innovativeness, which is the capability that defines an organization’s degree of openness towards new ideas as an aspect of its culture (Calantone, Cavusgil & Zhao 2002, p. 517). It is an

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organization’s ability to explore new market possibilities and to apply its internal knowledge stock in order to produce new technology, services, products and so forth (Luo & Bhattacharya 2006, p. 6). Truly innovative organizations are those that exhibit innovative behavior consistently over time (Subramanian & Nilakanta 1996, p. 633). Innovation is “the generation, acceptance, and implementation of new ideas, processes, products, or services” (Calantone et al. 2002, p. 515) and innovative organizations are proactive in exploring new opportunities rather than merely exploiting current strengths (Menguc & Auh 2006, p. 65).

Innovation is highly dependent on the availability of knowledge, which is why knowledge management plays a major role in innovation (Du Plessis 2007, p. 23). Knowledge management refers to any process that involves activities towards generating new knowledge through discovery or derivation, selecting necessary knowledge from internal sources, acquiring valuable knowledge from external sources, changing the state of knowledge resources and embedding knowledge into organizational outputs (Holsapple & Wu 2011, p. 272). Harkema (2003, p. 341) argues that innovation is a process through which knowledge is acquired, shared and assimilated with the goal of creating new knowledge, which embodies products and services.

Innovativeness contributes to an organization’s competitive advantage (Menguc & Auh 2006, p. 65) and is essential in reaching new customers and in adapting to ever-changing customer needs. “It is critical for the survival and success of organizations because dynamic markets constantly shake out the players that lack capabilities to explore new market opportunities” (Luo & Bhattacharya 2006, p. 7).

It is expected here that organizations with a stronger innovation capability are more able to respond correctly to stakeholder issues that are raised through social media, as organizations with better innovation capability are more able to explore new market possibilities (Luo & Bhattacharya 2006, p. 6), and as knowledge management plays a major role in innovation (Du Plessis 2007, p. 23). Consequently, it is expected that innovative organizations are more likely to identify stakeholder issues on time and less likely to miss issues that are directed to them. They are also expected to be more able in dealing with information that is related to a stakeholder issue.

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Another reason why it is expected that organizations with a stronger innovation capability respond better to stakeholder issues is that innovative organizations are more able to apply their internal knowledge stock in order to produce new technology, services, products and so forth (Luo & Bhattacharya 2006, p. 6). Less innovative organizations are expected less likely to know how to accomplish a stakeholder request and as a result more likely to offer a symbolic response or no response, in cases in which a substantive response would be the most appropriate. More innovative organizations are expected to be more able to improve or change their processes, products and services or to make something new on time because they are more able to apply their internal knowledge. As a result, it is expected here that innovative organizations are more able to give a substantive response when appropriate.

4. Methodology

This chapter discusses the research methodology and begins by explaining the research philosophy and approach that were adopted during this research. Thereafter, the type of study and the research design is discussed, followed by an explanation of the case selection and a clarification of the data collection and analysis.

4.1 Research philosophy

“Philosophy is the critical analysis of the fundamental assumptions or beliefs held by an individual, such as yourself” (Saunders & Lewis 2012, p. 104): the research philosophy that is chosen contains essential assumptions about how researchers view the world around them. It is important that researchers are aware of their philosophical positions because these influence the way in which they conduct research. The research philosophy underpins the research strategy and data collection

methods (Saunders & Lewis 2012, p. 104). Researchers should be aware of the fact that the philosophical commitments that they make through their methodological

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choices have a significant impact on their endeavors and on how they understand

what they think they are doing in the first place (Gill & Johnson 2010, p. 189).

This research adopts an interpretivist philosophy, the philosophical strand which is most appropriate within its purpose because interpretivism is about understanding differences between humans in their role as social actors. How an actor makes sense of the world influences his or her behavior and researchers’ personal values play a part in the research process. Decisions regarding which research methods to adopt and choices for research topics, for instance, are reflections of researchers’ values (Saunders & Lewis 2012, p. 106).

4.2 Research approach

There are two different research approaches that can be used to conduct research: deduction and induction. The difference between them lies in how theory is developed. Deduction “involves the testing of a theoretical proposition by using a research strategy specifically designed for the purpose of its testing” (Saunders & Lewis 2012, p. 108) and moves from general to more specific observations. Induction, on the other hand, is a research approach which revolves around theory development as a result of analyzing secondary data: data that has been previously collected for another purpose (Saunders & Lewis 2012, p. 85). “Inductive reasoning moves from specific observations to broader generalizations and theories” (Saunders & Lewis 2012, p. 109) and starts with specific observations and measures, observing patterns and repeated occurrences of phenomena, followed by formulating speculative hypotheses which can be studied. This is done with the aim of developing general theories or conclusions (Saunders & Lewis 2012, p. 109). The approach of this research is inductive because the study is used to build propositions and gain new insights into SIM theory.

4.3 Type of study

The purpose of this research is to provide new insights into SIM theory, which is why this type of study is exploratory, aiming to seek new insights, to assess topics in a new

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light and to pose new questions. In exploratory research, researchers attempt to discover general information about a topic that they do not fully understand, which is particularly useful for new phenomena about which researchers are not prepared to launch into full-scale research, but of which they want to gain insights. An exploratory study needs to be followed up with more detailed research in order to provide more reliable answers.

Exploratory studies are well suited to qualitative methods (Saunders & Lewis 2012, p. 110), which use a naturalistic, interpretive approach towards their subject matter (Taylor 2005, p. 101). The goal of qualitative research is to describe meaning and understandings and to discover the truth. Mostly it studies phenomena in the surroundings in which they naturally occur (Gephart 2004, p. 455) with the purpose of describing multiple realities, developing a deeper understanding and capturing everyday life and human perspectives (Taylor 2005, p. 101). This research makes use of qualitative data, because its goal is to gain a deeper understanding of the influence of the two capabilities on SIM’s attention-interpretation process: which of these capabilities improve SIM such that organizations’ response to stakeholder issues that are raised through social media is appropriate.

4.4 Research design: multiple case study

The research design that is used in this study is a multiple case study. Case studies can provide important exploratory information and evidence for future development of a theory (Eisenhardt 1989, p. 546) and can be used as tools with which to generate and test theory (Gibbert, Ruigrok & Wicki 2008, p. 1465). Case studies are qualitative research strategies that allow one to identify processes within their real-life contemporary context, especially when the boundaries between phenomena and their context are not evident. In a case study, behaviors cannot be manipulated (Yin 2009, p. 18). The case study strategy is appropriate for asking ‘why?’, though questions of ‘what?’ and ‘how?’ are also relevant (Saunders & Lewis 2012, p. 116). Case studies enable researchers to develop an accurate understanding of the research context and the activities that take place within that context (Saunders & Lewis 2012, p. 117). Using another method in this research, such as a survey or an experiment, would

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unlikely provide as much detailed information as a case study because researchers are more able to develop an accurate understanding of the research context while conducting case studies (Saunders & Lewis 2012, p. 117).

Case studies can include single or multiple cases and numerous levels of analysis (Eisenhardt 1989, p. 535). This research makes use of multiple cases because this is mostly better in building theory, as multiple case studies are easier to generalize than single case studies (Eisenhardt & Graebner 2007, p. 27). Multiple case studies allow for an in-depth description and analysis (Yin 2013, 24). The cases in this study are used concurrently to build propositions.

The strength of this research design is that case studies show how theoretical mechanisms work and how they relate to the context (Siggelkow 2007, p. 21). Multiple case studies are easier to generalize than single case studies, which makes the external validity higher (Eisenhardt & Graebner 2007, p. 27). Limitations of conducting a case study are that researchers can feel overwhelmed by the amount of data (Eisenhardt 1989, p. 536) and that in interpreting, the researcher has to be as objective as possible as close exposure to the case can bias the findings (Saunders & Lewis 2012, p. 117).

4.5 Case selection

The cases are selected by means of purposive sampling, in which researchers’ judgements are used to select cases based on a range of possible reasons and premises (Saunders & Lewis 2012, p. 138). In this research, this is the most appropriate way to select cases because the researcher can choose those cases that will be most helpful in answering the research question.

While selecting cases, a number of elements had to be kept in mind. Firstly, the organizations had to be American for-profits in order to ensure that there would be no cultural differences influencing how decisions were made. The organizations also had to be in the Fortune’s World’s Most Admired Companies datasets of 2014, 2015, and 2016 and in the MSCI ESG KLD STATS dataset of 2014. Furthermore, information

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had to be available about the research and development (R&D) expense of the organization and about the total amount of employees. The petitions had to be from 2013 or more recent, as the analysis of data spanned 2013, 2014 and 2015. The cases had to be about organizations with different strong capabilities: some about organizations that are good at both capabilities, some about those that are only good at one of the two capabilities, and some about organizations that are less good at both capabilities. In addition, some petitions had to be victories and others had to have no response. The petitions with no response had to have a significant amount of supporters, in order to ensure that they regarded real issues which people cared about.

In this study, eight cases were selected from change.org, a website which makes it possible for anyone to start a petition. On this social platform, one can find a myriad of online petitions sorted by category, e.g. “Environment”, “Human rights”, “Technology”, “Food”, “Health”, and so forth. On change.org, people across geographic and cultural borders connect to support causes that they care about (change.org/impact). Because of change.org, more than 100 million people in 196 countries are creating change in their communities and more than 100.000 organizations are advancing their causes (change.org/about).

As social media continues to decentralize power in every aspect of life, people develop different expectations about the way the world works. When people tweet a message to an elected official, they expect an answer, and when people file a

complaint to an organization, they expect more than a standard response. Change.org

is a website that helps such expectations to be met. When a petition has a chance to

win, the staff of change.org take action, e-mailing press releases to thousands of

journalists, publicizing campaigns via Facebook and even offering media coaching to the creators of petitions that receive great attention. Petitions that have a chance to win are those with a certain amount of signatures, which demand a focused action and which target an organization or person with the power to take such action. Since 2014, organizations, elected officials and other entities have the possibility to create a special Decision Maker page in which they can respond directly to petitions that

target them. This makes change.org a place in which stakeholders can create solutions

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with decision makers to find solutions to the issues that impact their lives (change.org/impact).

4.6 Data collection and data analysis

The data in this thesis is collected from multiple secondary sources. In order to draw conclusions it was necessary for there to be data for all eight cases about the organization’s organizational identity, strategic frame, CSR capability and innovation capability. How the data were collected and analyzed for these variables is explained in more detail below.

The data analysis starts with a within-case analysis, followed by a cross-case analysis, as “A cross-case analysis involving four to 10 case studies may provide a good basis for analytical generalization” (Gibbert et al. 2008, p. 1468).

4.6.1 Type of response

To check whether organizations responded in the right way to the petition, the typology of responses by Bundy et al. (2013) is used, as previously explained in the literature review and as illustrated in figure 3. Their typology of responses makes a distinction between three different ways in which organizations can respond to stakeholder issues: organizations can give a substantive response, a symbolic response or no response. According to Bundy et al. (2013, p. 372), organizations give an appropriate response if they respond in agreement with their typology of responses: if organizations respond differently, their response is inappropriate.

In order to examine if an organization gave an appropriate or inappropriate response to the petition according to Bundy et al. (2013), it had to be determined whether a petition was consistent, conflicting or unrelated to the organizational identity and strategic frame of an organization. Information about the organizational identity and strategic frame were acquired through the organization’s annual report and corporate website. For all organizations, the annual report of 2015 was used, except for Netflix,

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for which the annual report of 2014 was used, since this is their most recent one. Corporate websites were accessed in June 2016.

In order to make sense of these data, thematic analysis was used in this study (Ryan &

Bernard 2003, p. 86), which refers to investigating themes which are also called

‘codes’ or ‘categories’ (Miles & Huberman 1994, p. 280). The thematic category that was used for organizational identity is ‘features of the organization’. The thematic categories that were used for strategic frame are ‘organizational strategy’ and

‘organizational goal’. The thematic categories are based on a prior theoretical

understanding of organizational identity and of strategic frame (Ryan & Bernard 2003, p. 88) (See the appendices A and B for the sources of these themes and their

representative quotes). In order to assign data to themes and to analyze data, the

qualitative research software program Nvivo was used.

4.6.2 Corporate social responsibility capability

Conclusions about the CSR capability were drawn on the basis of triangulation, which means using a combination of methodologies for the study of the same phenomenon. Using more than one method in the validation process can help to ensure that the results are valid and not a methodological artefact (Jick 1979, p. 602). Data have been gathered through the following sources: Fortune’s World’s Most Admired Companies dataset, MSCI ESG KLD STATS dataset, and the organization’s annual report of 2015, report about CSR (if existing) and corporate website.

4.6.2.1 Fortune’s World’s Most Admired Companies dataset

The first method for the collection of data about CSR was by means of the Fortune’s World’s Most Admired Companies (FWMAC) datasets. Previous research recommends the use of the comprehensive, large-scale survey dataset that is available from Fortune’s World’s Most Admired Companies in order to measure CSR. Studies of both strategy and marketing have reported evidence of validity and reliability of this data source (Luo & Bhattacharya 2006, p. 5). The survey that was used for this dataset measured the performance of organizations in terms of nine attributes:

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innovativeness, people management, use of corporate assets, CSR, quality of management, financial soundness, long-term investment value, quality of products/services and the global competitiveness. The respondents of the survey are over 10,000 CEOs, top executives and corporate analysts from over 580 large companies. They were asked to rate companies within their own industry on the nine

attributes (http://fortune.com/worlds-most-admired-companies/ ; Luo & Bhattacharya

2006, p. 5). This thesis makes use of the FWMAC datasets of 2014, 2015 and 2016. The dataset of 2016 contains information about the performance of organizations in 2015, while that of 2015 contains information about the performance of organizations in 2014, and so forth. This study makes use of the scores for CSR of the FWMAC datasets as one of the ways in which data was collected in order to draw conclusions on an organization’s degree of CSR.

4.6.2.2 MSCI ESG KLD STATS dataset

The second method for the collection of data about CSR was by means of the MSCI ESG KLD STATS (MSCI) dataset. This is an annual dataset of positive and negative environmental, social and governance (ESG) performance indicators applied to a universe of publicly traded organizations. The performance indicators that are

relevant for this thesis are explained in Appendix E. In order to generate this dataset, a

global team of over 140 experienced research analysts assessed how well organizations manage their ESG risks and opportunities. Data were collected about organizations’ exposure to and management of ESG risks, and about opportunities from different sources: macro data at segment or geographic level from academic, government, NGO datasets, government databases, 1600+ media, NGO, other stakeholder sources and company disclosure (10-K, sustainability report, proxy

report, AGM results, etc.) (MSCI ESG Research Inc. 2015, p. 10). Previous research

has made use of this research method (Cai et al. 2012, p. 470 ; Harjoto & Jo 2011, p. 49 ; Servaes & Tamayo 2013, p. 1049). The most recent year in which MSCI published data is 2014. This thesis makes use of data from this year and assumes that it is still valid today.

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4.6.2.3 Corporate websites, annual reports and reports about CSR.

The third method for the collection of data about CSR was by means of examining organization’s annual report, corporate website and report about CSR (if existing). Many organizations dedicate a section of their corporate websites and annual reports to CSR activities, which illustrates the importance that they attach to such activities (Servaes & Tamayo 2012, p. 1045). Organizations with a special report about CSR probably attach more importance to CSR activities than those without a report about CSR. The organizations studied in this thesis that have a special report about CSR are the following: Apple, General Mills, Nike, P&G and Tyson Foods. However, Tyson Foods’ sustainability report is very limited. For all organizations, the annual report of 2015 was used, except for Netflix, for which the annual report of 2014 was used, since this is their most recent one. Corporate websites were accessed in June 2016.

In order to make sense of these data, thematic analysis was used in this study (Ryan & Bernard 2003, p. 86). According to Ryan & Bernard (2003, p. 86) “without thematic categories, investigators have nothing to describe, nothing to compare, and nothing to explain”. In this thesis, thematic analysis was used to find patterns within the data. The thematic categories that were used for CSR are ‘serving environment’ and ‘serving people (communities, society, stakeholders)’ (See Appendix C for the sources and representative quotes of these themes). These thematic categories are based on a prior theoretical understanding of CSR (Ryan & Bernard 2003, p. 88). In this way, everything in the annual reports, the reports about CSR, and on the corporate websites which was related to one of these thematic categories was selected and analyzed. This resulted in different CSR data for all eight organizations and made it possible to describe and explain the CSR capability of the organizations and to compare them.

4.6.3 Innovation capability

Conclusions about the innovation capability of an organization were also drawn on the basis of triangulation. Data have been gathered through the R&D intensity, the Fortune’s World’s Most Admired Companies datasets of 2014, 2015 and 2016, the

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Most Admired Knowledge Enterprises datasets of 2013, 2014 and 2015, and the annual reports and corporate websites.

4.6.3.1 R&D intensity ratio

In this study, the R&D intensity was used as a proxy for innovation. The R&D intensity is positively related to measures of innovative output, such as new product introductions and patents. It is measured as a ratio of R&D expenditures to an organization’s total number of employees. The R&D intensity ratio has previously been widely used in studies of innovation (Hitt, Hoskisson & Kim 1997, p. 778). Information about the R&D expenditures and the number of employees was gained through the annual report of 2015. Amazon, Netflix and Nike did not take note of the R&D expenditures for 2015 in their annual report, so information about their R&D expenditures was gained through www.wikinvest.com. This website proves reliable information because the organizations that take note of their R&D expenditures in their annual reports have the same number of R&D expenditures as indicated on this website.

4.6.3.2 Fortune’s World’s Most Admired Companies dataset

Innovativeness also makes use of the Fortune’s World’s Most Admired Companies datasets of 2014, 2015 and 2016. In order to study the degree of innovativeness of an organization, the attribute about innovativeness in the datasets was used. Prior research has used this data source to measure an organization’s innovation capability (Luo & Bhattacharya 2006, p. 7 ; Cho & Pucik 2005, p. 561) and studies of both strategy and marketing have reported evidence of its validity and reliability (Luo & Bhattacharya 2006, p. 5). The respondents of the survey that were used for this dataset are over 10,000 CEOs, top executives and corporate analysts from over 580 large companies. They were asked to rate companies within their industry on innovativeness and on eight other attributes (http://fortune.com/worlds-most-admired-companies/ ; Luo & Bhattacharya 2006, p. 5).

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4.6.3.3 Most Admired Knowledge Enterprises dataset

Since knowledge management is a particularly important part of innovativeness, this study also identifies organizations with superior knowledge management performance (Du Plessis 2007, p. 23) and does so by means of the Most Admired Knowledge Enterprises (MAKE) datasets. The MAKE study makes use of a Delphi-based method in order to determine organizations with superior knowledge management performance. These organizations are considered to be better in generating, acquiring, selecting, assimilating and emitting knowledge in pursuit of a competitive advantage. The panel that is used for the MAKE datasets is comprised of knowledge management experts, who are CEOs, CIOs and CFOs for Fortune Global 500 firms, and about 300 chief knowledge officers and knowledge management practitioners

who belong to the KNOW Network. Organizations that are nominated or recognized

as winners by MAKE are considered to have a strong knowledge management capability, while those that are not on the MAKE datasets are considered to be less strong in knowledge management. Prior research has used this method (Holsapple & Wu 2011, p. 274). The MAKE datasets of 2013, 2014 and 2015 were used.

4.6.3.4 Corporate websites and annual reports

The fourth method for the collection of data about the innovation capability is by examining an organization’s corporate website and annual report. Corporate websites were accessed in June 2016 and the annual reports of 2015 were used, except for Netflix, for which the annual report of 2014 was used. In order to make sense of these data, this thesis makes use of thematic analysis again (Ryan & Bernard 2003, p. 86). The thematic categories that were used for innovativeness are ‘innovative behavior’, ‘new market possibilities’, ‘new technology’, ‘new services’, ‘new products’ and ‘knowledge management’. These themes are based on a prior theoretical

understanding of innovativeness (Ryan & Bernard 2003, p. 88) (See appendix D for

the sources and representative quotes of these themes). In this way, everything in the annual reports and on the corporate websites that is related to one of the thematic categories was selected and analyzed. This resulted in different innovativeness data

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for all eight organizations and made it possible to describe and explain organizations’ innovation capability and to compare them.

5. Findings

5.1 Within-case analysis 5.1.1 Amazon.com, Inc.

Amazon.com, Inc. (Amazon) is an American Internet-based retailer which started as an online bookstore, but later diversified to also selling items such as DVDs, video games, furniture, and so forth (www.amazon.com). The case on Amazon is a petition that urges it to refuse to sell the book “Pickton: In His Own Words” on its website and can be found on the following website: www.change.org/p/amazon-com-tell-amazon-to-refuse-to-sell-serial-killer-robert-pickton-s-book. The petition against Amazon started on February 22, 2016 and was confirmed as a victory after one month, at which time the petition had 58,362 supporters.

5.1.1.1 Type of response

In order to check whether Amazon responded correctly to the petition, the typology of responses by Bundy et al. (2013) is used, as previously explained in the literature review and as illustrated in figure 3. According to Bundy et al. (2013, p. 372), organizations give an appropriate response if they respond in agreement with their typology of responses: if organizations respond differently, their response is inappropriate. In order to assess whether Amazon gave an appropriate or inappropriate response to the petition according to Bundy et al. (2013), it was necessary to determine whether the petition was consistent, conflicting or unrelated to the organizational identity and strategic frame of the organization. Firstly, the organizational identity of Amazon is explained, followed by Amazon’s strategic frame.

The support of organizational capabilities for improving strategic issue management