Stakeholders in the Process

 

Stakeholders in the Process

 

Stakeholders are the individuals and groups who can affect and are affected by the strategic outcomes achieved and who have enforceable claims on a company’s performance.

 

The stakeholder concept reflects that individuals and groups have a "stake" in the strategic outcomes of the company because they can be either positively or negatively affected by those outcomes and because achieving the strategic outcomes may be dependent upon the support or active participation of certain stakeholder groups.

 

 

Figure : Primary Stakeholder Groups

 

Figure above provides a definition of a stakeholder and illustrates the three general classifications and members of each primary stakeholder group:

• Capital market stakeholders
• Product market stakeholders
• Organisational stakeholders
• Secondary stakeholders

 

Beyond these primary stakeholders there are other secondary stakeholders as well and include entities like the community at large, environmental groups, government, etc.

 

Each type of stakeholders has different expectations or demands.  This leads to potential conflicts between these stakeholders leading to friction.  The primary expectations of each group are summarised in Table below.

 

When we review the primary expectations or demands of each stakeholder group, it becomes obvious that a potential for conflict exists.  For instance, shareholders generally invest for wealth-maximisation purposes and are therefore interested in a company’s maximising its return on investment or ROI.  However, if a company increases its ROI by making short-term decisions, the company can negatively affect employee or customer stakeholders.

 

If the company is strategically competitive and earns above average returns, it can afford to simultaneously satisfy all stakeholders.  When earning average or below-average returns, tradeoffs must be made.  At the level of average returns, companies must minimally satisfy all stakeholders.  When returns are below average, some stakeholders can be minimally satisfied, while others may be dissatisfied. 

 

 

Table : Expectations of Primary Stakeholder Groups

 

For example, reducing the level of research and development expenditures (to increase short-term profits) enables the company to pay out the additional short-term profits to shareholders as dividends.  However, if reducing R&D expenditure results in a decline in the long-term strategic competitiveness of the company’s products or services, it is possible that employees will not enjoy a secure or rewarding career environment (this also violates a primary union expectation or demand for job security for its membership).  At the same time, customers may be offered products that are less reliable at unattractive prices, relative to those offered by companies that did not reduce R&D expenditures.  This would lead to lower profitability and even lower returns for the shareholders.

 

Thus, the stakeholder management process may involve a series of trade-offs that is dependent on the extent to which the company is dependent on the support of each affected stakeholder and the company’s ability to earn above-average returns.

 

While it is dependent on the size of the company, all companies have a CEO or top manager and this individual is the primary organisational strategist in every company.  Small companies may have a single strategist: the CEO or owner. Large companies may have few or several top-level managers, executives or a top management team.  All of these individuals are organisational strategists.

 

Top managers play decisive roles in firms’ efforts to achieve their desired strategic outcomes.  As organisational strategists, top managers are responsible for deciding how resources will be developed or acquired, at what cost and how they will be used or allocated throughout the company.  Strategists also must consider the risks of actions under consideration, along with the company’s strategic intent and managers’ strategic orientations.

 

Organisational strategists also are responsible for determining how the company does business.  This responsibility is reflected in the organisational culture, which refers to the complex set of ideologies, symbols, and core values shared throughout the company and that influences the way it conducts business. The company’s culture is the social energy that drives, or fails to drive, the company.

 

While it seems simplistic, performing their role effectively requires strategists to work hard, perform thorough analyses of available information, be brutally honest, exercise common sense, think clearly, and ask questions and listen.  Additionally, the proliferation of e-commerce requires strategists to emphasise speed and flexibility—key sources of competitive advantage.

 

Strategists face ambiguous decision situations, but also have opportunities to dream and act in concert with a compelling strategic intent that motivates others in creating competitive advantage.