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 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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