9.2 Stakeholder Theory and Management
4 min read•august 7, 2024
theory emphasizes the importance of considering all groups affected by a company's actions. It's not just about profits anymore - businesses need to balance the needs of employees, customers, communities, and more. This approach can lead to better decision-making and long-term success.
Effective stakeholder management involves identifying key groups, analyzing their interests, and engaging with them meaningfully. Tools like and the salience model help prioritize efforts. Performance frameworks like the Balanced Scorecard and Triple Bottom Line measure progress across multiple dimensions.
Stakeholder Identification and Analysis
Identifying Stakeholders
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- Stakeholder identification involves determining which individuals, groups, or organizations have an interest in or are affected by a company's actions and decisions
- Stakeholders can be internal (employees, managers, owners) or external (customers, suppliers, local communities, government agencies)
- Identifying stakeholders is crucial for understanding their needs, expectations, and potential impact on the company
- Techniques for stakeholder identification include brainstorming, interviews, surveys, and analyzing existing relationships and networks
Analyzing Stakeholders
- assesses the interests, power, and influence of identified stakeholders
- Involves gathering information about stakeholders' needs, expectations, and potential contributions or threats to the company
- Helps prioritize stakeholders based on their level of importance and influence
- Stakeholder analysis tools include power-interest matrix, stakeholder influence diagram, and stakeholder impact analysis
Mapping Stakeholders
- Stakeholder mapping visually represents the relationships between a company and its stakeholders
- Helps identify key stakeholders, their level of influence, and potential alliances or conflicts
- Common stakeholder mapping techniques include stakeholder matrix, stakeholder network map, and stakeholder onion diagram
- Mapping stakeholders facilitates effective communication and engagement strategies tailored to each stakeholder group
Distinguishing Primary and Secondary Stakeholders
- have a direct and significant impact on a company's operations and performance (employees, customers, investors)
- are indirectly affected by a company's actions or have a less immediate impact (local communities, media, interest groups)
- Distinguishing between primary and secondary stakeholders helps prioritize stakeholder management efforts and resource allocation
- Primary stakeholders often require more frequent and intensive engagement, while secondary stakeholders may be engaged on an as-needed basis
Stakeholder Engagement and Management
Engaging Stakeholders
- Stakeholder engagement involves communicating and interacting with stakeholders to build relationships, understand their concerns, and involve them in decision-making processes
- Engagement strategies vary based on stakeholder type and level of influence (information sharing, consultation, collaboration, empowerment)
- Effective stakeholder engagement fosters trust, transparency, and mutual understanding between a company and its stakeholders
- Engagement methods include stakeholder meetings, focus groups, workshops, online platforms, and social media interactions
Applying the Stakeholder Salience Model
- The Model, developed by Mitchell, Agle, and Wood, assesses stakeholder importance based on three attributes: power, legitimacy, and urgency
- Power refers to a stakeholder's ability to influence a company's actions and decisions (coercive, utilitarian, normative power)
- Legitimacy relates to the perceived appropriateness and desirability of a stakeholder's claims or actions (individual, organizational, societal legitimacy)
- Urgency indicates the degree to which stakeholder claims require immediate attention (time sensitivity, criticality)
- Stakeholders with high levels of power, legitimacy, and urgency are considered definitive stakeholders and require prioritized attention and engagement
Performance Measurement Frameworks
Balanced Scorecard
- The Balanced Scorecard, developed by Kaplan and Norton, is a performance measurement framework that balances financial and non-financial metrics across four perspectives: financial, customer, internal processes, and learning and growth
- Financial perspective measures a company's financial performance and shareholder value creation (revenue growth, profitability, return on investment)
- Customer perspective assesses customer satisfaction, loyalty, and market share (customer retention rate, net promoter score)
- Internal processes perspective focuses on the efficiency and effectiveness of a company's operations (cycle time, quality, innovation)
- Learning and growth perspective evaluates a company's ability to adapt, improve, and create value (employee skills, information systems, organizational alignment)
- The Balanced Scorecard helps align strategic objectives with performance measures and initiatives across the four perspectives
Triple Bottom Line
- The Triple Bottom Line (TBL) is a sustainability framework that measures a company's performance across three dimensions: economic, social, and environmental
- Economic dimension assesses a company's financial performance and economic impact (profit, return on investment, job creation)
- Social dimension evaluates a company's impact on people and communities (employee well-being, diversity and inclusion, community engagement)
- Environmental dimension measures a company's impact on the natural environment (carbon footprint, resource consumption, waste management)
- TBL reporting helps companies balance financial success with social responsibility and environmental stewardship
- Examples of TBL metrics include greenhouse gas emissions, employee turnover rate, and community investment programs
Key Terms to Review (18)
Collaborative Governance: Collaborative governance is a process in which multiple stakeholders, including public agencies, private organizations, and community groups, come together to make decisions and solve problems collaboratively. This approach emphasizes shared responsibility, transparency, and active participation from all involved parties, fostering a more inclusive decision-making environment that can lead to better outcomes for communities and organizations.
Competing interests: Competing interests refer to the diverse and often conflicting goals, needs, and priorities held by different stakeholders within an organization or system. These interests can arise from varying perspectives, motivations, or values among stakeholders, leading to challenges in decision-making and resource allocation. Understanding these competing interests is crucial for effective stakeholder management, as it helps identify potential conflicts and opportunities for collaboration.
Corporate social responsibility (CSR): Corporate social responsibility (CSR) is a business model where companies integrate social and environmental concerns into their operations and interactions with stakeholders. This approach goes beyond profit maximization, promoting ethical practices that consider the interests of various parties, including employees, customers, communities, and the environment. By embracing CSR, businesses aim to create a positive impact on society while enhancing their brand reputation and long-term sustainability.
Descriptive stakeholder theory: Descriptive stakeholder theory explains how organizations actually behave in relation to their stakeholders, focusing on the relationships and interactions between a business and its various stakeholders. This theory emphasizes that companies are influenced by the needs and expectations of their stakeholders, which include employees, customers, suppliers, and the community, rather than solely pursuing profit maximization.
Julian Birkinshaw: Julian Birkinshaw is a prominent scholar in the field of management, particularly known for his work on innovation, strategy, and organizational structure. He emphasizes the importance of balancing the interests of various stakeholders within organizations, suggesting that effective management involves not only focusing on shareholder value but also considering the needs and impacts on employees, customers, suppliers, and the community.
Normative stakeholder theory: Normative stakeholder theory is a framework that emphasizes the ethical and moral obligations that a corporation has towards its stakeholders, advocating that the interests of all stakeholders should be considered in corporate decision-making. This theory argues that businesses have a duty to act in the best interest of those affected by their actions, including employees, customers, suppliers, and the broader community, rather than focusing solely on shareholder value.
Primary Stakeholders: Primary stakeholders are individuals or groups that have a direct interest or stake in a company's operations and decisions, significantly impacting or being impacted by its activities. These stakeholders typically include employees, customers, investors, suppliers, and the local community. Their interests and concerns must be carefully managed, as they play a crucial role in the overall success and sustainability of the organization.
R. Edward Freeman: R. Edward Freeman is a prominent philosopher and scholar known for his development of stakeholder theory, which emphasizes the importance of considering all parties affected by business decisions. This approach challenges the traditional focus on shareholder value and advocates for a broader view of corporate responsibility that includes stakeholders such as employees, customers, suppliers, and the community.
Satisfaction surveys: Satisfaction surveys are tools used by organizations to gauge the level of satisfaction among various stakeholders, such as customers, employees, or partners, regarding their experiences with the organization’s products or services. These surveys collect feedback that is essential for understanding stakeholder needs and improving overall performance, enabling businesses to align their strategies with stakeholder expectations and enhance engagement.
Secondary Stakeholders: Secondary stakeholders are individuals or groups that do not have a direct stake in a company’s operations but can still affect or be affected by its activities. This includes parties like communities, media, and advocacy groups, which play a role in shaping public perception and influencing corporate behavior, even though they may not have formal power or financial ties to the organization.
Stakeholder: A stakeholder is any individual or group that has an interest in, or is affected by, the actions and decisions of a company or organization. This concept emphasizes the importance of considering various perspectives, including those of employees, customers, suppliers, investors, and the broader community when making strategic decisions. Understanding stakeholders helps organizations align their goals and manage relationships effectively to create value for all parties involved.
Stakeholder analysis: Stakeholder analysis is the process of identifying and assessing the influence, interests, and relationships of individuals or groups that can affect or be affected by an organization’s actions. This analytical tool helps organizations understand who their key stakeholders are, how they relate to the organization's vision, mission, and strategic objectives, and how best to engage with them to achieve mutual benefits.
Stakeholder conflict: Stakeholder conflict refers to the disagreement or clash of interests among various stakeholders involved in an organization, including shareholders, employees, customers, suppliers, and the community. This conflict arises when the goals and priorities of one stakeholder group contradict those of another, leading to challenges in decision-making and resource allocation. Effectively managing stakeholder conflict is crucial for achieving organizational objectives and maintaining a positive relationship with all parties involved.
Stakeholder engagement strategy: A stakeholder engagement strategy is a plan that outlines how an organization will communicate and interact with its stakeholders to build relationships, manage expectations, and gain support for its initiatives. This strategy is vital for identifying stakeholders' interests, understanding their concerns, and fostering collaboration, ultimately leading to improved decision-making and sustainable outcomes.
Stakeholder feedback: Stakeholder feedback refers to the insights, opinions, and evaluations provided by individuals or groups that have an interest in or are affected by an organization's actions and decisions. This feedback is crucial for organizations as it helps them understand stakeholder expectations, improve their strategies, and foster stronger relationships with various stakeholders such as customers, employees, suppliers, and the community. Engaging with stakeholder feedback can drive organizational performance and create a more inclusive decision-making process.
Stakeholder mapping: Stakeholder mapping is a strategic process used to identify, analyze, and prioritize the various stakeholders that influence or are affected by an organization’s activities. This method helps organizations understand the interests and potential impacts of different stakeholders, enabling them to effectively manage relationships and align strategies with stakeholder expectations.
Stakeholder salience: Stakeholder salience refers to the degree to which stakeholders are perceived as important or influential by an organization, based on their power, legitimacy, and urgency. This concept helps organizations prioritize their stakeholders and understand which relationships require more attention and resources, ultimately guiding management decisions and strategies.
Stakeholder value: Stakeholder value refers to the importance placed on satisfying the interests and needs of all stakeholders involved with a business, including employees, customers, suppliers, communities, and shareholders. This concept extends beyond just focusing on shareholder profit to consider the overall impact a company has on various parties, ultimately fostering sustainable business practices and long-term success.