Strategic Management: Formulation and Implementation

Strategy Implementation And Stakeholders

The role of the management (and the board of the directors) sometimes has been narrowly interpreted to mean maximization of financial returns to the stockolder in the form of dividends and capital gains.

Moreover, the articles of incorporation of most corporations place a legal responsibility on the board of directors to represent the interests of the stockholders, whose capital made it possible for the organization in the first place.

Many organizational theorists, however, take a broader view of the role of the board (and management). This role includes many dimensions of corporate social responsibility such as responsibility to employees, the community, and the environment.

R. Edward Freeman, author of a book on stakeholder management, shows how the process of managing relations with groups not traditionally considered within strategic planning frameworks should be part of strategic management.

These groups (stakeholders) include a firm's owners (stockholders), members of the board of directors, managers and operating employees, suppliers, creditors, customers, and other interest groups. At the broadest level, stakeholders include the general public. Stakeholders have expectations about how the firm should behave and what the firm should provide in terms of economic, social, and psychological benefits.

Thus, stakeholder analysis is a consistent way of identifying, analyzing, and responding to these critical interdependencies. It represents an active, integrated approach to achieving corporate purpose.

Each group or individual who either affects or is affected by the achievement of the firm's mission has a "stake" in corporate decisions and actions.

Therefore, managers are increasingly expected to consider a growing number of stakeholders when formulating and implementing strategy. An important outcome from this analysis is determination of the timing and degree of participation of stakeholders in decision making in the firm.

Illustrative preferences / values of these stakeholders and how they encourage managers to meet them are presented in Exhibit 1-4.

However, stakeholders' expectations of business present opportunities and constraints. In a more limited sense, stakeholder groups may hold conflicting expectations of business performance. Factors influencing the potential power of stakeholders are outlined in Exhibit 1-5.

The following questions are relevant when determining the influence of stakeholder interests:

  1. Which stakeholder' interests are most important?
  2. To which stakeholder should management give its loyalty?
  3. Will any stakeholder be injured by the proposed decisions?
  4. Should strategy be changed to meet stakeholder expectations?
  5. It is possible to negotiate a compromise?
  6. Should certain stakeholder be replaced?

On the other hand, stakeholder are affected by the activities of the companies. Chapter 5 will elaborate further on this topic.