Stakeholders refer to those people and groups who have a stake in some aspect of the organizational products, operations, markets, industry, or outcomes. Stake is an interest or a share in an undertaking and can be categorized as legal or moral.
The stakeholders of an organization are the individuals, groups, or other organizations that are affected by and also affect the decisions and actions of the organization. Depending on the specific organization, stakeholders may include governmental agencies, statutory bodies, social activist groups, self regulatory organizations, employees, shareholders, customers, suppliers, distributors, media and even the community in which the organization is located among many others.
An organization exists because of its ability to create valued goods and services and which yield acceptable outcomes for various groups of stakeholders, people who have an interest, claim, or stake in the organization, in what it does, and in how well it performs. In general, stakeholders are motivated to participate in an organization if they receive inducements that exceed the value of the contributions they are required to make. Inducements are rewards such as money, power, the support of beliefs or values, and organizational status. Contributions are the skills, knowledge, and expertise that the organization requires from the stakeholders during its task performance.
Stakeholders can be categorized into two groups namely (i) primary stakeholders, and (ii) secondary stakeholders. Primary stakeholders have direct stake in the organization and its success. They are fundamental to its operations and survival. These stakeholders include shareholders and investors, employees, customers, suppliers, and public stakeholders, such as government and the community. Secondary stakeholders influence and/or are affected by the organization but are neither engaged in transactions with the organization nor essential for its survival. These stakeholders are those that have a public or special interest stake in the organization.
Stakeholders can also be categorized into two different groups namely (i) internal stakeholders, and (ii) external stakeholders. Internal stakeholders are those people who are closest to the organization and have the strongest or most direct claim on the organizational resources such as shareholders, management, and employees etc. External stakeholders are those people who neither own the organization (such as shareholders) and nor are employed by it, but they do have some interest in it or its activities. Customers, suppliers, the government, statutory bodies, trade and other unions, local communities, special interest groups, and the general public are some of the external stakeholders.
The organization is used simultaneously by different groups of stakeholders to each accomplish or further their own goals. It is the collective contributions of all stakeholders that are needed for the organization to be viable and to accomplish its mission of producing valued goods and services. Each group of stakeholder is motivated to contribute to the organization by its own set of goals, and each stakeholder group evaluates the effectiveness of the organization by judging how well it meets the specific goals of the group.
Stakeholders are often in conflict with one another. The goals of various organizational stakeholders might differ as well. Stakeholder management involves taking into consideration the different interests and values which the stakeholders have and addressing them in order to ensure that all stakeholders are happy.
It is necessary for the organization to know more about the key stakeholders. The organization need to know how they are likely to feel about and react to the organizational activities. Management also need to know how best to engage them in the organizational activities and how best to communicate with them. Key issues that can help the management to understand the stakeholders are s follows.
- The financial or emotional interest the stakeholders have in the outcome of organizational activities. These interests can be positive or negative.
- The issues that motivates the stakeholders most of all.
- The information needed by the stakeholders from the organization.
- The method by which the stakeholder want to receive information from the organization. The way of communicating the message to them is an important issue.
- The current opinion of the stakeholder about the organization. To know the basis of this opinion is important.
- People who generally influence the opinions of the stakeholders about the organization and the people who might be influenced by the opinions of the stakeholders. It may be of interest to include some of these people as important stakeholders of the organization in their own right.
- If the stakeholders are not likely to be positive, the necessary actions needed to get their support. While getting their support, it is necessary manage their opposition.
Stakeholders are usually organized into the following four groups on the basis of their power and interest in the organization (Fig 1).
- High influence and high interest – Some stakeholders might have a lot of influence over the organization and also may be very interested in the organization. It is vital to understand the viewpoints of these stakeholders. These stakeholders deserve maximum attention of the organizational management. Management is to make greatest efforts to engage and satisfy these stakeholders.
- High influence and low interest – Stakeholders with high power, but low interest need to be broadly satisfied. These stakeholders usually do not pay attention to the finer points since the organizational operations are not affecting them. However, they have influence on the success of the organization. The goal of the management interactions with this type of stakeholders should be to give them enough information about the organization so that they do not create any obstacles in the organizational activities.
- Low influence and high interest – These stakeholders have a lot of interest but little real influence. Such stakeholders can be valuable source of information. They help in identifying the organizational challenges. These stakeholders are to be adequately informed to ensure that no major issues are arising. They are good stakeholders to meet since each interaction is relatively of low risk.
- Low influence and low interest – These stakeholders need minimum attention of the management since they have very little influence and very little interest in the organizational activities. They are neither interested in what the organization is doing nor in a position to help the organization in case of need.
Fig 1 Groups of stakeholders
Stakeholder management is the process of managing the expectation of the different groups of stakeholders. It is essentially stakeholder relationship management as it is the relationship and not the actual stakeholder groups that are managed. It is a critical component for the successful delivery of the products, programs or activities of the organization.
Stakeholder management is also important because it helps identify positive existing relationships with stakeholders. These relationships can be converted to coalitions and partnerships, which go on to build trust and encourage collaboration among the stakeholders. Effective stakeholder management creates positive relationships with stakeholders through the appropriate management of their expectations and agreed objectives. It is a process and control that must be planned and guided by principles.
Principles of stakeholder management
The following are the principles of the stakeholder management.
- Management is to acknowledge and actively monitor the concerns of all legitimate stakeholders, and should take their interests appropriately into account in the decision making process and in the activities of the organization.
- Management is to listen to and openly communicate with stakeholders about their respective concerns and contributions, and about the risks that they assume because of their involvement with the organization.
- Management is to adopt processes and modes of behaviour that are sensitive to the concerns and capabilities of each stakeholder area of expertise.
- Management is to recognize the interdependence of efforts and rewards among stakeholders, and should attempt to achieve a fair distribution of the benefits and burdens of the organizational activity among them, taking into account their respective risks and vulnerabilities.
- Management is to work cooperatively with other entities, both public and private, to ensure that risks and harms arising from the organizational activities are minimized and, where they cannot be avoided, appropriately compensated.
- Management is to avoid altogether activities that might jeopardize inalienable human rights or give rise to risks which, if clearly understood, would be patently unacceptable to relevant
- Management is to acknowledge the potential conflicts between (i) their own role as organizational stakeholders, and (ii) their legal and moral responsibilities for the interests of stakeholders, and should address such conflicts through open communication, appropriate reporting and incentive systems and, where necessary, third party review.
Stakeholder management in the organization works through a strategy. This strategy is created using information gathered through the following processes.
- Stakeholder identification – It is first important to note all the stakeholders involved, whether internal or external. An ideal way to do this is by creating a stakeholder map.
- Stakeholder analysis – Through stakeholder analysis, management identifies the needs, interfaces, expectations, authority and common relationship of the stakeholders.
- Stakeholder matrix – During this process, management positions stakeholders using information gathered during the stakeholder analysis process. Stakeholders are positioned according to their level of influence or enrichment they provide to the organization.
- Stakeholder engagement – This is one of the most important processes of stakeholder management where all stakeholders engage with the management to get to know each other and understand each other better, at an executive level. This communication is important since it gives both the management and the stakeholder a chance to discuss and concur upon expectations and most importantly agree on a common set of values and principals, which all stakeholders are to stand by.
- Communicating information – Here, expectations of communication are agreed upon and the manner in which communication is managed between the stakeholders is established, that is, how and when communication is received and who receives it.
- Stakeholder agreements – Through agreements the objectives are set forth. All key stakeholders sign this stakeholder agreement, which is a collection of all the agreed decisions. In the modern management practice, management and stakeholders favour an honest and transparent stakeholder relationship.
The stakeholder management has normally three levels.
- The first level is the lower level and is relates to the situations in which the organization is merely informing stakeholders about decisions that have already taken place, although these levels represent bad practice if done in isolation.
- The second level is the middle levels and is relates to situations in which the stakeholders have the opportunity to voice their concerns prior to a decision being made, but with no assurance that their concerns will impact on the end result.
- The third level is the highest levels and is characterized by active or responsive attempts at empowering stakeholders in the organizational decision making process.
It is likely that different stakeholder groups or the same stakeholder groups at different times can be treated at different levels and these can be affected by stakeholder characteristics, different stages in the life cycle of the organization, different strategies pursued by stakeholders and different focus at stages of the organization.
The following are a few ideas that can be used to achieve good stakeholder management practices.
- Management and stakeholders are to work together to draw up a realistic list of goals and objectives. Engaging of stakeholders improves organizational performance and they take an active interest in the organizational activities.
- Communication is the key. It is important for stakeholders and management to communicate on a regular basis. This ensures that both parties are actively engaged and ensure smooth sailing.
- Agreeing on deliverables is important during the course of an activity. This makes sure there is no undue disappointment at the end when the activity get completed..
Whatever way stakeholder management is approached, it should be done attentively so as to achieve the best results. Stakeholder management is not very successful in case of the following.
- Communicating with a stakeholder too late. This does not allow for ample revision of stakeholder expectations and hence their views may not be taken into consideration.
- Inviting stakeholders to take part in the decision making process too early. This results in a complicated decision making process.
- Involving the wrong stakeholders for an issue. This results in a reduction in the value of their contribution and this leads to external criticism in the end.
- The management does not value the contribution of stakeholders. Their participation is viewed as unimportant and inconsequential.