Understanding the role and importance of stakeholders

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A stakeholder is...

...an individual or group that has an effects on, and is affected by, the activities of an organisation.

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The need to consider stakeholder needs

The need to consider stakeholder needs when making decisions

  • In 1991 Professor Mendelow devised a way of analysing the key stakeholders for a specific business. To do this he used the familiar matrix method to measure stakeholder power against stakeholder interest (stakeholder mapping). The map below is for Tesco.

  • Despite the example given it may be wrong to generalise at all about stakeholder mapping. The essence of the analysis is to assess the specific circumstances of particular businesses and only then decide which stakeholders fall into which category.


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Overlapping and conflicting stakeholder needs

  • Certain business circumstances may be to the advantage of all your primary stakeholders. EXAMPLE: Primark’s business concept is working successfully overseas → staff promotions → board of directors get bonuses → suppliers have larger orders → shareholders make more in dividends → distributors have more business.

  • However among external stakeholders there may be some negative comments perhaps from pressure groups on the business's ethics. This usually isn’t the case and most of the time businesses will have priorities eg. Lloyds Bank’s priority was toward shareholders.

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Overlapping and conflicting stakeholder needs


1) SITUATION: Productivity advance eg, new technology

OVERLAPPING NEEDS/ INTERESTS: Shareholders, managers & customers

CONFLICTING NEEDS/ INTERESTS: Managers & employees (threat of redundancy)

2) SITUATION: Fashion or weather turns in your favour

OVERLAPPING NEEDS/ INTERESTS: Shareholders, managers, suppliers & employees

CONFLICTING NEEDS/ INTERESTS: Perhaps green companies eg, airline travel

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Influences on the relationship with stakeholders

  • Personal conviction; the boss of the business may reject the notion of stakeholders, believing instead that shareholders should be the board’s sole focus. →  Employees & managers won’t get pay rises, firm won’t help the local community because they take profits and so shareholder dividends get smaller.

  • Financial pressure: if the business is struggling it’s understandable that they won’t focus so much on external stakeholders, they’ll focus on internal stakeholders who can fix the problem.

  • The labour market: when there’s lots of jobs, staff demand better pay, better working conditions and (sometimes) job redesign to make things more interesting. In these circumstances conflict between managers & workers is easy to conceive.  

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Managing the relationship with stakeholders

  • Over the past 10 years a criticism of plcs has been the excessive pay and the extent to which its growth has outstripped both staff pay rises & dividend payments to its shareholders. To they employ PR experts to try and smooth over these issues.

  • Generally, companies will produce websites to generate publicity that suggests that all stakeholders are treated with equal respect.


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Communicating with stakeholders

  • Means electronic communication:  social media, email updates and a website with a ‘supplier’ section that’s as substantial as the customer website.

  • The key issue is whether ‘communication’ means a two-way process of discussion or whether it’s simply a mix of propaganda & public relations.

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Consulting with stakeholders

  • Stakeholder mapping is usually done to identify which stakeholders matter most to the company.

  • In most cases the internal stakeholders are the most important. If the business has let something slip then external groups may become a priority.

  • Having identifies your most important stakeholders, it is then possible to set up regular consultation links & groupings.


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