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The Role of Stakeholders in Strategic Management

In today’s modern world of business, individuals in management constantly face critical decisions, ethical dilemmas, and other concerns that can affect a business, its employees, its shareholders and other associated stakeholders. Strategic management is an important task for organisations, and concentrates on the preparation for success in both the short and long term. Incorporating planning, implementation, and assessment, it is a comprehensive management process and aims to formulate and implement strategies that are effective to the organisation.

Chandler’s (1962) definition of strategic management is: An organisation-wide task, it provides new ways of tackling opportunities and challenges presented to the business. Organisations have to consider a number of factors before implementing strategic decisions that will affect people whether they are internal or external to the organisation. Such aspects affecting decisions include corporate governance, business ethics, culture, and stakeholders, who will be the focus of this paper. Organisations have duties towards stakeholders that are directly affected by the practices used.

Stakeholders play a key role in the shaping of a companies strategy. Organisations must understand who their stakeholders are, as well as recognising differing requirements of each group. In this essay, I will look at the importance of stakeholders in today’s organisations, taking into

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consideration the other key factors that organisations have to contemplate when making strategic decisions. I will also explore who has the responsibility to manage stakeholders, along with their expectations. This in itself is an important characteristic for organisations to understand, and will assist with future decision making.

The Role of Stakeholders in Strategic Management It is essential to consider all stakeholders when determining your organisations strategy, and key to this is identifying their ‘role’. Stakeholders are the life-blood of an organisation and can determine the level of success an organisation can have. So who, or what, are stakeholders? The term ‘stakeholder’ is used when describing a person or persons, even organisations, that depend on the organisation in order to achieve ‘their’ purposes as well as the organisation depending on the stakeholders in order to achieve ‘its’ purposes.

The best way to answer these questions is to communicate directly with your stakeholders. Asking for people’s opinions can assist in building relationships and in turn successful relationships help build successful organisations. In any aspect of business, communication is key. If you don’t communicate, how can you understand the views of people relevant to your organisation? You can’t. Table 1 below shows the main groups of stakeholders and their potential interests. Meeting the interests of stakeholders is necessary for the organisation to have any chance of succeeding.

Evan and Freeman (1990) state that the success of a firm depends on satisfying all groups. However, the difficulty facing management is that stakeholder viewpoints and needs often conflict. A conflict of interest can occur when the needs of one stakeholder group are put ahead of another group whose interests should be served. As can be seen in table 1, there are a number of dual interests, for example employees and managers are concerned about job security. Similarly, managers are concerned in the profitability and growth of the organisation, an interest shared by shareholders who care about the value of their investments.

Common conflicts between stakeholder groups are shown in figure 1 below: It is difficult to satisfy all stakeholders, and is why conflict resolution and stakeholder management is a difficult task. I will cover this in more detail later in the paper. Stakeholder Mapping Identifying your stakeholders is a crucial exercise. Recognising the relationships between the organisation and the stakeholders is equally important. There are now numerous methodologies or models that assist organisations in understanding the influence its stakeholders have, as well as the influence the organisation has on the stakeholders.

One such model is stakeholder mapping. Mendelow (1991) states that this tool assists an organisation in identifying the expectations and power of stakeholders. A stakeholder map allows an organisation to categorise its stakeholders, detailing their inter-relationships, and shows paths the company can pursue to achieve its business objectives. It is a useful strategic planning tool, which helps organisations allocate their limited human and financial resources to meet stakeholders’ needs.

Figure 2 shows the graphical power/interest matrix, which can be used to ‘map’ the interests of stakeholder groups to the relative power of the group. This tool assists organisations by classifying stakeholders in relation to the power they hold and the extent of likelihood of supporting or opposing particular strategies. Stakeholder mapping is used by many organisations to assist them with strategy decisions. From this tool you can develop an overall stakeholder network, identifying all key stakeholders and their inter-links.

Many organisations develop a stakeholder network diagram following the creation of a stakeholder map. Figure 3 shows the diagram created by EQ, a national equality and diversity agency that works in creative industries, for the arts and entertainment sector it covers. Mapping its main stakeholders assisted in clarifying an intricate web of organisations. The diagram endeavours to show the range of stakeholders that could have an influence on arts organisations. As can be seen from the diagram, the number of stakeholders can be complex and diverse.

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