Image via WikipediaThis overview of stakeholders was prepared by Whitney Varnado while a Business Administration major in the College of Business at Southeastern Louisiana University.
Stakeholders are any constituencies in an organization’s environment that are affected by the organization’s decisions and actions. These groups have a stake in or are significantly influenced by what the organization does and these groups can influence the organization. Some of the most common stakeholders, both internal and external groups, that an organization might have to deal with include: customers, social and political action groups, competitors, trade and industry associations, governments, media, suppliers, communities, shareholders, unions, and employees.
The Idea in a Nutshell
Managers should care about managing stakeholder relationships because doing so can lead to desirable organizational outcomes, such as improved predictability of environmental changes, more successful innovations, greater degree of trust among stakeholders, and greater organizational flexibility to reduce the impact of change. It affects organizational performance because managers of high-performing companies tend to consider the interests of all major stakeholder groups as they make decisions. Another reason for managing external stakeholder relationships is that it’s the “right” thing to do because an organization depends on these external groups as sources of inputs and as outlets for outputs. Managers should consider their interests as they make decisions.
Managers can manage stakeholder relationships identifying the organization’s stakeholders. Groups that are likely to be influenced by and to influence organizational decisions are the organization’s stakeholders. They need to determine what particular interests or concerns the stakeholders might have. They need to decide how critical each stakeholder is to the organization’s decisions and actions. The very idea of a stakeholder, a group that has a “stake” in what the organization does, means that it is important. Some stakeholders are more critical to the organization’s decisions and actions than others. The final step is to determine how to manage the external stakeholder relationships. This decision depends on how critical an external stakeholder is to the organization and how uncertain the environment is. The more critical the stakeholder and the more uncertain the environment, the more that managers need to rely on establishing explicit stakeholder partnerships rather than just acknowledging their existence.
The Top Ten Things You Need to Know About Stakeholders
1. The stakeholder concept was first used in 1963. It was first used in an internal memorandum at the Standford Research institute. The theory was later developed and championed by R. Edward Freeman in the 1980s.
2. In the last decades of the 20th century, the word “stakeholder” has become more commonly used to mean a person or organization that has a legitimate interest in a project or entity. In discussing the decision-making process for institutions the concept has been broadened to include everyone with an interest (or “stake”) in what the entity does.
3. Post, Preston, Sachs (2002), in their theory called Stakeholder view, use the following definition of the term “stakeholder”: “The stakeholders in a corporation are the individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and that are therefore its potential beneficiaries and/or risk bearers.” This definition differs from the older definition of the term stakeholder in Stakeholder theory that also includes competitors as stakeholders of a corporation.
4. Robert Phillips provides a moral foundation for stakeholder theory in Stakeholder Theory and Organizational Ethics. There he defends a “principle of stakeholder fairness” based on the work of John Rawls, as well as a distinction between normatively and derivatively legitimate stakeholders.
5. The word “stakeholder” has been listed as one of the top ten classic jargon terms used by English councils, and as such alarms or confuses ordinary people is best avoided. It is recognized as jargon by the UK government, and defined as such by the Learning and Skills Council.
6. There are two major elements to Stakeholder Management. These two major elements are Stakeholder Analysis and Stakeholder Planning.
7. Stakeholder Analysis is the technique used to identify the key people who have to be won over. There are three steps of Stakeholder Analysis: Identifying your stakeholders, prioritizing your stakeholders, and understanding your key stakeholders.
8. By using a stakeholder-based approach you can use opinions of the most powerful stakeholders to shape your projects at an early stage. Not only does this make it more likely that they will support you, their input can also improve the quality of your project. Gaining support from powerful stakeholders can help you to win more resources; this makes it more likely that your projects will be successful.
9. By communicating with stakeholders early and often, you can ensure that they know what you are doing and fully understand the benefits of your project – this means they can support you actively when necessary. You can anticipate what people’s reaction to your project may be, and build into your plan the actions that will win people’s support.
10. Stakeholders matter because projects are much larger, take longer, cost more, and involve much greater technological risk – and so, much more risk budgets and schedules – than ever before. Secondly, there are far more kinds of stakeholders involved than meet the eye. Thirdly, it only takes one determined and disgruntled stakeholder to throw a spanner right into the heart of a project.
The Video Lounge
This video explains what a stakeholder is and who the main stakeholders are in the VET sector. It also explains why it is important to include stakeholders in what we do as trainers and assessors.
This video explains stakeholder management. David Butter discusses one of the many issues facing business and other organizations in today’s marketplace.
I think the concept of Stakeholders is still relevant today. We are faced with internal and external decisions and opportunities in our daily lives as well as in the business world. Managers and employees have to be aware of the world and stakeholders changing around us daily. Managers should care about managing stakeholder relationships because doing so can lead to desirable organizational outcomes, such as improved predictability of environmental changes, more successful innovations, greater degree of trust among stakeholders, and greater organizational flexibility to reduce the impact of change.
Robbins, Stephen P., & Coulter, Mary (2009). Management. Upper Saddle River, New Jersey: Pearson Prentice Hall.
Alexander, Ian (2003). Stakeholders – Who is Your System For? Retrieved from http://easyweb.easynet.co.uk/~iany/consultancy/stakeholders/stakeholders.htm
Thompson, Rachel (2010). Stakeholder Analysis. Winning Support for your Projects. Retrieved from http://www.mindtools.com/pages/article/newPPM_07.htm
Wikipedia (2010). Stakeholder (corporate). Retrieved from http://en.wikipedia.org/wiki/Stakeholder_(corporate)
Contact Info: To contact the author of “Top Ten Management on Stakeholders,” please email Whitney Varnado at firstname.lastname@example.org.
David C. Wyld (email@example.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also maintains compilations of his student’s publications regarding book reviews (http://wyld-about-books.blogspot.com/) and international foods (http://wyld-about-food.blogspot.com/).
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Top Ten Management on Stakeholders: An Overview of Who Has a Real Stake in The Operations of Organizations