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Stakeholders, by the nature of their role, conduct ongoing assessments of the effectiveness of organizations. What are some of the ways stakeholders assess organizational effectiveness? Which of these is most valid? Why? Is there ever a time when stakeholders wield too much influence on the organization? Why or why not?
The nature of an organization’s relationship with stakeholders often evolves through a series of stages (inactive, reactive, proactive, and interactive). In which of these stages is the organizational response to stakeholder input most effective? Why? Is there ever a situation in which a response based in the seemingly least desirable stage is actually the most valid? Why or why not?
Stakeholders and Organizational Effectiveness
Defining organizational effectiveness in relation to the contributions of multiple stakeholders is difficult. Searching the internet for a definition of organizational effectiveness returns thousands of possibilities. This indicates that there is a great deal written on the subject with no definitive answer. This lecture will explore the issues of multiple stakeholder perspective. In addition, the stages of organizational/stakeholder interactions will be explored. These stages include the inactive, reactive, proactive, and interactive stages. Combined, the perspectives and data generated must entwine to become effective organizational stakeholder strategy.
Examining Stakeholder Needs and Goals
Stakeholder groups relate to an organization in a variety of ways. These stakeholders are either working independently or in coalitions to achieve specific goals, which may or may not be evident to the organization. This produces both positive and negative effects on the organization. On the positive side, an organization depends on the collective contributions of stakeholders as a means to become viable. Since each group is motivated by its own individual set of goals, the organization becomes effective by discovering and working toward meeting those goals. Further, by evaluating how well it meets these goals, the organization can determine if success criteria are met. On the other hand, stakeholders evaluate the organization by how well their goals are met; if their goals are not met and/or if the organization does a poor job of evaluating needs, there is a good chance these stakeholders will look elsewhere for ways to attain their goals and objectives. For this reason, the way an organization evaluates and works toward meeting the goals of their stakeholder groups greatly determines the success or failure of the organization (Beardshaw & Palfreman, 1990).
Stakeholders further evaluate an organization by the return they receive on their investment. Because there are many different types of stakeholders with a large variety of needs, the value they place on these returns could be created by any number of resources including but not limited to their salaries, stock options, conditions of employment, goods received, or career prospects along with community service or a myriad of other things. The value placed depends entirely on primary drivers of the stakeholder. Necmi and Mezuno (2012) state that the basic issue in determining return on investment becomes how to capture different stakeholder perceptions on a common set of performance measures and to distill this information into a single and workable organizational plan.
Based on the needs of the organization, it is important that a strong identity be developed while also creating a relationship between the organization and stakeholders. Once the relationship is developed, stakeholders find it much easier to relate to the organization in terms of identifying with its mission and vision. This close identification will, in turn, contribute to positive outcomes for the firm and stronger stakeholder support. However, the extant research on organizational identity largely has overlooked the fact that an individual’s “self” actually is a collection of multiple social identities. Fombelle, Jarvis, Ward, and Ostrom (2012) propose and empirically demonstrate that marketers can leverage the varying roles of stakeholders within society (e.g., parent, environmentalist, professor) to build and reinforce their relationships with the firm. Specifically, this research introduces the concept of identity synergy. Identity synergy occurs when individuals’ involvement with an organization facilitates their pursuit of other important social identities. This further promotes the idea that meeting stakeholder goals and objectives will have a positive impact when they are aligned with those of the organization. Their study also contributes to the understanding of organizational identity theory by explaining how coalitions form and interact. Often these goals conflict, and stakeholder groups must bargain over the appropriate balance between the inducements that they should receive and the contributions that they should make. For this reason, organizations are often regarded as alliances or coalitions of stakeholder groups that directly and indirectly affect the firm (Beardshaw & Palfreman, 1990).
Multiple Stakeholder Perspective
Since stakeholder management can help an organization improve the efficiency of its decision-making processes, it is critical for the organization to take the legitimate interests and claims of its stakeholders and the various needs of multiple categories of stakeholders into consideration. Stakeholder management has become a common expression in the business world. However, this concept and its practical implications regarding the way stakeholder relationships are, and should be, managed are still at the center of many discussions. This type of management crosses a number of disciplines, notably business ethics, management theory, corporate law, and organization theory. The key questions lie in balancing the discovery of the true needs and wants of multiple stakeholders with the necessity of finding a middle ground in providing support.
How a firm would compare against its peers when evaluated from a multiple-stakeholder perspective is a primary concern both for the marketing department and for decision makers. Since most medium-to-large organizations acknowledge the multidimensional nature of their operations, analyzing the performance evaluations and identifying the driving needs of various stakeholders can inform managerial decision making. Orlitzky and Swanson (2012) propose that to measure successful interaction between the organization and stakeholders promotes corporate social responsibility. They do this by using generalizability theory to measure the extent to which corporate conduct is perceived as acceptable to various stakeholder groups. More important, some publications highlight the importance of accounting for the diverse interests of stakeholders and suggest that a failure to address the interests of multiple stakeholders may harm company performance (Greenley & Foxall, 1997). This is also compounded by the type of organization. Both public and private organizations have specific rules, regulations, accounting practices, and guidelines, both internally and at the external governmental level. McAdam, Hazlett, and Casey (2005) summarize that management of multiple stakeholders in the public sector in comparison to the singular focus of the private sector on customers presents difficulties that must be addressed in attempting to adapt private sector approaches to the public sector. For example, the use of balanced scorecards or the business excellence model of McAdam et al. (2002) in the public sector will work quite well. However, simply translating the language of the private sector with minor modifications is unlikely to be sufficient. There is a need for increased understanding in relation to developing appropriate performance management approaches within the context of either sector. The complexity of multiple stakeholders combined with the acknowledged difficulties in simply adapting and transferring private sector solutions has, therefore, become a major concern in many board rooms
Stages of Organizational/Stakeholder Interactions
The organizational relationship with stakeholders often evolves over time through different stages or styles. Over the years many different philosophies surrounding the most effective way to interact with stakeholders have developed. Lim, Ahn, and Lee (2005) provide the most recent development with four possible stages of interaction as represented in the chart below:
Stages of Interaction with Stakeholders
|Stage of Interaction||Action|
|Inactive||Take no action-Ignore stakeholder concerns|
|Defensive||React minimally to stakeholder concerns|
|Proactive||Anticipate stakeholder needs: Doing more than required: Most involvement of employees and top managers|
|Interactive||Actively engage with stakeholders in an ongoing relationship|
(Lim, Ahn & Lee, 2005, p.835)
Similarly, Lawrence and Weber (2011) discuss four stages of interaction, which include the inactive, reactive, proactive, and interactive stages. Organizations may move from one stage to another or back again. Typically, the level of interaction is dependent on the current leadership preferences. It is not uncommon for external influences also to play a large part in the level of interaction. The real benefit comes in when organizations recognize that positive stakeholder relationships are the source of value and competitive advantage for the company.
An organization’s discovery of the driving goals and influences of its stakeholders is critical in successfully developing initiatives for managing multiple stakeholders. This type of management crosses a number of disciplines such as business ethics, management theory, corporate law, and organization theory. The key questions lie in discovery of the true needs and wants of multiple stakeholders and subsequently finding a middle ground in providing support. In addition, once the discovery has been completed, the organization should take the appropriate steps to continue meeting these needs. Those companies striving to develop ongoing relationships and engagement with their stakeholders are the companies most likely to hold the competitive advantage.
Beardshaw, J., & Palfreman, D. (1990). The organization and its environment (4th ed.). London, England: Pitman Publishing.
Fombelle, P. W., Jarvis, C. B., Ward, J., & Ostrom, L. (2012). Leveraging customers multiple identities: Identity synergy as a driver of organizational identification. Academy of Marketing Science Journal, 40(4), 587-604. doi:10.1007/s11747-011-0254-5
Greenley, G.E., & Foxall, G.R. (1997). Multiple stakeholder orientation in UK companies and the implications for company performance.Journal of Management Studies, 34, 259-84.
Lawrence, A., & Weber, J. (2011). Business and society: Stakeholders, ethics, and public policy. (13th ed.). New York, NY: McGraw Hill.
Lim G., Ahn H., & Lee H. (2005). Formulating strategies for stakeholder management: A case-based reasoning approach. Expert Systems With Applications, 28, 831-840.
McAdam, R., Hazlett, S., & Casey, C. (2005). Performance management in the UK public sector: Addressing multiple stakeholdercomplexity. The International Journal of Public Sector Management, 18(3), 256-273.
Necmi, A., & Mizuno, M. (2012). Measuring bank peer performance from a multiple shareholder perspective. Retrieved from http://economics-finance.massey.ac.nz/documents/seminarseries/manawatu/AVKIRAN%20&%20MIZUNO_Multiple%20Stakeholder%20Perspective_29%20Jan_2012.pdf
Orlitzky, M., & Swanson, D. L. (2012). Assessing stakeholder satisfaction: Toward a supplemental measure of corporate social performance as reputation. Corporate Reputation Review, 15(2), 119-137. doi:10.1057/crr.2012.3