The Arctic Expedition - the Crow’s Nest. Cover illustration (detail) for The Graphic, May 1875, by Samuel Edmund Waller
Ideas for Leaders #362

Does Your Organization Need a Chief External Officer?

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Key Concept

Many large organizations face challenges in managing the demands of external non-market environments — political and social aspects of their working environment. This Idea suggests the creation of a chief external officer and gives some guidance on how to ensure their success.

Idea Summary

Major social and political events around the world can often have rippling and lasting effects on businesses. Take the tragic fires and accidents in factories in India and Bangladesh during the spring of 2013 that shook the global apparel and textiles industry; companies like Wal-Mart Stores, The Gap, H&M and many others suddenly found they were unable to provide coherent responses to criticisms from a range of stakeholders.

Would companies be better served if they elevated external affairs function within their corporate hierarchy, and perhaps even created a new executive-level role: the chief external officer? In a 2014 paper published in Organizational Dynamics, this is the suggestion put forward by researchers including Cranfield School of Management’s Tazeeb Rajwani.

They highlight two cases that illustrate the evolution of non-market strategies in the face of political and social pressures, as well as the structures established to advance them. Each case underscores how the magnitude of such pressures may require managerial attention at the highest levels. The first is of the airline Lufthansa and the pressures it faced (along with other airlines) to increase fuel efficiency, reduce emissions, and adopt an overall social responsibility and sustainability strategy. Lufthansa engaged with legislators and administrators, international organizations, NGOs and trade associations, and eventually emerged as one of Europe’s most politically astute, socially aware and environmentally responsive air transport groups.

The second case highlighted is of Tata Consultancy Services, and its securing of the Coffey International Award/Business in the Community (BITC) Award for Excellence 2011. The awards reflected the organization’s work in addressing the UN Millennium Development Goals that seek to reduce global poverty.

The success of both companies can be attributed to the people that effectively acted as their chief external officers — namely, Thomas Kropp for Lufthansa, and Malcolm Lane for Tata Consultancy Services. These executives were empowered to make strategic decisions on various social and political issues, and worked closely with top management teams to strengthen long-term competitive advantage.

Though, there will always be some variation in how different organizations design external affairs into their structures. The researchers highlight four potential options as follows:

  • High political orientation/high social responsiveness: here, firms are acutely attuned and responsive to both political and social pressures.
  • Low political orientation/high social responsiveness: firms are more social responsibility-focused and less politically oriented or active.
  • Low political orientation/low social responsiveness: neither political nor social activism is given strategic priority here — something that is neither common nor typically advantageous.
  • High political orientation/low social responsiveness: these firms are politically engaged but do not connect much, if at all, with social initiatives.

Business Application

According to the Rajwani et al, the degree to which an organization should emphasize political concerns versus social concerns — or both — will be contingent upon their particular industry, strategies and product mix. Nevertheless, they suggest four stages in creating a “chief external officer support team”:

  1. Initiate: top management should create the conditions and urgency for integration of the external affairs function.
  2. Resource: identify and provide the necessary resources (primarily human and financial), with specific budgets and staff lines.
  3. Establish: create the new office and ensure communications about its role and functions are distributed to other departments.
  4. Implement: agree and disseminate the strategic priorities of the new office.
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