Tuesday 14 March 2023

Stakeholder strategy

Stakeholder strategy aims to optimise  how the various stakeholders, interact with one another in order to create value. An organization could be understood as a set of relationships between different stakeholders., and to understand how these relationships work, is to understand the business organization. The goal of a stakeholder strategy is to support the executives,  managers, and leaders in shaping these relationships in such a manner that value can be created ideally for all of them. 

Organisations have generally two types of stakeholders, primary as well as secondary stakeholders. The primary ones have a vested interest in the organisation, they are directly affected by the actions good or bad by the firm in question. These primary stakeholders most often are:

  • Investors: are generally looking for ROI
  • Employees: are generally looking for a great place to work, with job security and fair pay
  • Customers: are looking for value for price 
  • Suppliers: are looking for long term mutually beneficial relationship
  • Communities: are looking for a good neighbor
Because all of these stakeholders are important the best strategies do not favor one group of stakeholders over another, but aim for is to align their interests. In order to align stakeholder interests we must first understand their interests, to accomplish this we can use a stakeholder interest matrix.

Interest Employees Customers Government Community Shareholders
Product safety Medium High High High Medium
Job security High Low Low Medium Low
ROI Medium Low Low Low High
Environment Medium Medium High High Low

By mapping out all the different stakeholders and  their interests, we can gain an understanding of where and how we can align these interests to maximise value for each group and in turn the organisation.

Secondary stakeholders may not have a vested interest in the organisation, but they can bring institutional pressure onto the firm, influencing its strategy and performance.
  • Special interest groups: Can lobby against or for your interests 
  • Media: Media can provide both negative or positive press coverage.
  • Government: Through legislation can make it easier or more difficult to turn a profit
  • Competitors: Can aggressively compete to drive profits down, or can keep a distance
  • Consumer advocate groups: Can either recommend or can criticize your product
On occasion Institutional pressure my be completely unwarranted, it may very well come from an individual or group wanting to draw attention to themselves for self-interest reasons, whenever dealing with slander transparency and  information are your weapons of choice. However more often than not institutional pressure comes from normative or distributional conflict. 

Normative conflict arises when an organisation violates the norms and beliefs of the community which they are located in or serve, examples: unsafe working conditions, child labor, polluting the environment, etc. Anything that society would find in conflict with their values or beliefs, has the potential to become a normative conflict. These sorts of conflicts are extremely costly, and should be proactively avoided like the plague.

Distributive conflicts are more nuanced than normative ones, some types are:
  • Market power: when organisations leverage unfair practices to price their goods or services above competitive levels. This generally happens through collusion, cartels, and predatory pricing.
  • Negative externalities: when an organisation imposes some sort of 'cost' which could be monetary, but most likely in the form of some other inconvenience onto a third party without compensations. This most often comes in the form of Noise, air, or water pollution.
  • Common goods: when an organisation exploits a common good such as fish, oil fields, water, forests, any sort of natural resource, which a company can extract to the determent of others.
  • Information Asymmetries: when one party know more than another and can leverage this privileged information to take advantage of the other, a common example is the used car salesman who knows the value of a car, but doesn't share information about the care accident the care was in with the potential customer, and just tries to maximise the sale price.