Stakeholders are persons or groups that affect or are affected by an organization. They fulfill many roles within organizations. What is the most significant role stakeholders play in an organization? Why? How do stakeholders acting in this role influence the organization’s mission, vision, and strategy?
According to Lawrence & Weber (2014), accounting for stakeholder needs leads to improved decision making. Under what circumstances might developing a relationship between an organization and its stakeholders be counterproductive to decision making? What are the most significant consequences of organizations not developing a relationship with stakeholders (consider the example of McDonald’s addressing stakeholder concerns over animal welfare issues)? Why are these consequences the most significant?
In today’s business environment organizations and entities have complex relationships with many people, groups, and entities. These entities are commonly called stakeholders. A stakeholder is typically described as a person, group, or organization that has direct or indirect interest in an organization. These individuals or groups can affect, or be affected by, the organization’s actions, objectives, and policies. Although the act of being a stakeholder is usually self-legitimizing (those who judge themselves to be stakeholders are stakeholders), all stakeholders are not equal, and different stakeholders areentitled to different considerations. For example, a company’s customers are entitled to fair business practices but they are not entitled to the same consideration as the company’s employees. In other organizations key stakeholders may be the employees themselves and would be entitled to fair employment practices.
An important part of the role of a manager or business leader is to identify the firm’s stakeholders and understand their interests in, needs from, and involvement with the organization. Managers should also be aware of stakeholders’ coalitions and power, as they will need to be able to address specific stakeholder needs and use the influence of these stakeholders to the best advantage of the organization. It is critical to good business decision making for managers to be aware of the effect their decisions will have on stakeholders, along with the impact these same stakeholders will have on the organization (Lawrence & Weber, 2011). Key stakeholders in a business organization may include creditors, customers, directors,employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources. In addition, based on the type of business or entity, key stakeholders may change. One way a manager can determine these types of relationships and how to address their influence is to map the relationships by conducting a stakeholder analysis.
A manager who conducts such an analysis would ask four questions: Who are the stakeholders? What are the interests of the stakeholders? What is the power of each stakeholder? How are coalitions likely to form (Boutelle, 2004)? Answering these questions becomes an important part of any manager’s approach to developing an ongoing relationship with the organization’s stakeholders and stakeholder groups. These stakeholders vary both in terms of their interestin the business activities and also their power to influence business decisions. Understanding and defining these relationships is critical to managers when they are making long-term and short-term business-related decisions. A manager should never assume he or she knows what is most important to stakeholders. Making decisions without all of the information proves to be quite costly. Here is a useful summary of some primary stakeholders and their interests and power:
|Stakeholder||Main interests||Power and influence|
|Shareholders||Profit growth, share price growth, dividends||Election of directors|
|Banks and other lenders||Interest and principal to be repaid, maintain credit rating||Can enforce loan covenants, can withdraw banking facilities|
|Directors and managers||Salary, share options, job satisfaction, status||Make decisions, have detailed information|
|Employees||Salaries and wages, job security, job satisfaction and motivation||Staff turnover, industrial action, service quality|
|Suppliers||Long-term contracts, prompt payment, growth of purchasing||Pricing, quality, product availability|
|Customers||Reliable quality, value for money, product availability, customer service||Revenue/repeat business, word-of-mouth recommendation|
|Community||Environment, local jobs, local impact||Indirect via local planning and opinion leaders|
|Government||Operate legally, tax receipts, jobs||Regulation, subsidies, taxation, planning|
Building Stakeholder Relationships
Building positive and lasting mutually beneficial relationships becomes critical in developing both internal and external relationships that influence the reputations of organizations. Rayner (2009) states that reputation resides in the consciousness of stakeholders and is an accumulation of perceptions and opinions about an organization. An organization will enjoy a good reputation when its behavior and performance consistently meet or exceed the expectations of its stakeholders. Reputation will diminish if an organization’s words and deeds are perceived as failing to meet stakeholder expectations. Lawrence and Weber (2011) state that building positive relationships can further enhance an organization’s ability to address critical social and ethical challenges. Reputation is not the only consideration. However, it is a critical component of any stakeholder-organization relationship.
Identifying Stakeholder Influence
The influence a stakeholder has on a corporation may be classified in several different categories and can be mapped effectively by organizations. By understanding where and how stakeholder influence impacts the organization, a manager is better prepared to make astute business decisions, to identify possible areas where coalitions may be formed, and to develop plans to span any chasms that may develop. Pass, Pendleton, Chadwick, and Reilly (2005) developed the Collins Business Dictionary and state that stakeholder mapping seeks to assess first the power of different stakeholder groups to affect the organization and, second, the level of interest which stakeholders have in the organization’s activities. By plotting power and interest levels of different stakeholders in a matrix, it is possible to track the changes in the potential influences of different stakeholder groups and to assess the effect of a particular strategic development on stakeholders. A useful matrix tool to plot this information is the “Interest-Influence Grid.” Once information about stakeholders has been organized and identified, stakeholders can be categorized based on their identity, their level of influence, and their power. Broadly speaking, stakeholders can be organized into four groups:
- High Influence, High Interest:Some stakeholders might have a great amount of influence over the organization and also be very interested in how the organization is managed. It is vital to understand the viewpoints of such stakeholders, specifically what potential objections they might raise. Spend the most time on these stakeholders.
- Low Influence, High Interest:Other stakeholders might have a high level of interest, but possess little real influence. Such stakeholders can be valuable sources of information. They can assist with specific details such as forms or processes, inform managers of the institutional history of the organization and specific projects, and help identify the potential organizational issues. These are good stakeholders to meet with first since each interaction is relatively low risk.
- High Influence, Low Interest:Stakeholders with high power, but low interest, need to be broadly satisfied. They will not pay attention to the fine print regarding any specific project since they perceive the project as not affecting them. However, they have influence on whether a specific project will be a success. For example, they may have a vote during the approval process of a project. The goal of interactions with this type of stakeholder should be to give them enough information about specific parts of the organization so that they will not create obstacles for the project.
- Low Influence, Low Interest:Less time should be spent with stakeholders who have little influence and little interest in the success of the organization or any specific project. They are not interested in what the organization is doing and are not in a position to help accomplish it (Boutelle, 2004).
Boutelle, J. (2004). Understanding stakeholders for design success. Boxes and Arrows (2012). Retrieved from http://www.boxesandarrows.com/view/understanding_organizational_stakeholders_for_design_success
Lawrence, A., & Weber, J. (2011). Business and society: Stakeholders, ethics, and public policy. (13th ed.). New York, NY: McGraw Hill.
Pass, C., Pendleton, A., Chadwick, L., & Reilly, D. (2005). Collins dictionary of business. Retrieved fromhttp://www.credoreference.com.library.gcu.edu:2048/entry/collinsbus/stakeholder_mapping
Rayner, J. (2009). Understanding reputation risk and its importance. (2009). QFinance: The Ultimate Resource. Retrieved from http://www.credoreference.com/entry/qfinance/understanding_reputation_risk_and_its_importance