Strategic Management

Unit 2: Strategic Planning

Organizational Goals

Stakeholders
 Stakeholders and Stakeholder
Analysis
Stakeholders are individuals or
groups who have an interest in an
organization’s ability to deliver
intended results and maintain the
viability of its products and services.
We’ve already stressed the
importance of stakeholders to a
firm’s mission and vision. We’ve also
 Stakeholders and Stakeholder Analysis

able to a broad range of

stakeholders, including
shareholders, who can make it
either more difficult or easier to
execute a strategy and realize its
mission and vision. This is the main
reason managers must consider
stakeholders’ interests, needs, and
 Stakeholders and Stakeholder Analysis

Considering these factors in the

development of a firm’s mission and
vision is a good place to start, but
first, of course, you must identify
critical stakeholders, get a handle on
their short- and long-term interests,
calculate their potential influence on
your strategy, and take into
consideration how the firms strategy
 Stakeholders and Stakeholder Analysis

stakeholders (beneficially or
adversely).
provides one
Table 4.2 "Stakeholder Categories"
way to begin thinking about the
various stakeholder groups, their
interests, importance, and influence.
Influence
reflects a stakeholder’s relative
 Stakeholders and Stakeholder Analysis

which the organization cannot be

considered successful if a
stakeholder’s needs, expectations,
and issues are not addressed.
Table 4.2 Stakeholder Categories

Categori Interest Importanc Influenc

Stakeholder
es s e e
Owners
Managers
Employees
Customers
Environment
al
Social
Government
Suppliers
Competitors
Others?
Adapted from [Link]
 Stakeholders and Stakeholder Analysis

As you can imagine, for instance,

one key stakeholder group
comprises the CEO and the
members of the top-management
team. These are key managers, and
they might be owners as well. This
group is important for at least three
reasons:
 Stakeholders and Stakeholder Analysis

[Link] influence as either originator or

steward of the organization’s
mission and vision.
[Link] responsibility for formulating a
strategy that realizes the mission
and vision.
[Link] ultimate role in strategy
implementation.
 Stakeholders and Stakeholder Analysis

Typically, stakeholder evaluation

of both quantitative and qualitative
performance outcomes will
determine whether management is
effective. Quantitative outcomes
include stock price, total sales, and
net profits, while qualitative
outcomes include customer service
 Stakeholders and Stakeholder Analysis

you can imagine, different

stakeholders may place more
emphasis on some outcomes than
other stakeholders, who have other
priorities.
 Stakeholders, Mission, and Vision

Stakeholder analysis refers to

the range of techniques or tools
used to identify and understand the
needs and expectations of major
interests inside and outside the
organization environment. Managers
perform stake-holder analysis to
gain a better under-standing of the
range and variety of groups and
 Stakeholders, Mission, and Vision

a vested interest in the organization,

and ultimately the formulation and
implementation of a firm’s strategy,
but who also have some influence
on firm performance. Managers thus
develop mission and vision
statements, not only to clarify the
organization’s larger purpose but
also to meet or exceed the needs of
 Stakeholders, Mission, and Vision

Stakeholder analysis may also

enable managers to identify other
parties that might derail otherwise
well-formulated strategies, such as
local, state, national, or foreign
governmental bodies. Finally,
stakeholder analysis enables
organizations to better formulate,
 Stakeholders, Mission, and Vision

and this is why stakeholder analysis

is a critical factor in the ultimate
implementation of a strategy.
 Identifying Stakeholders

The first step in stakeholder

analysis is identifying major
stakeholder groups. As you can
imagine, the groups of stakeholders
who will, either directly or indirectly,
be affected by or have an effect on a
firm’s strategy and its execution can
run the gamut from employees, to
 Identifying Stakeholders

to the government. Ultimately, we

will want to take these stakeholders
and plot them on a chart, similar to
that shown in the following figure.
Figure 4.10 Stakeholder Mapping

Adapted from
Freeman, R. E.
(1984).
Strategic
Management: A
Stakeholder
Approach.
Boston: Pitman.
 Identifying Stakeholders

Let’s pause for a moment to

consider the important
constituencies we will be charting on
our stakeholder map. Before we
start, however, we need to remind
ourselves that stakeholders can be
individuals or groups—communities,
social or political organizations, and
 Identifying Stakeholders

down demographically,
geographically, by level and branch
of government, or according to other
relevant criteria. In so doing, we’re
more likely to identify important
groups that we might otherwise
overlook.
 Identifying Stakeholders

With these facts in mind, you can

see that, externally, a map of
stakeholders will include such
diverse groups as governmental
bodies, community-based
organizations, social and political
action groups, trade unions and
guilds, and even journalists. National
 Identifying Stakeholders

bodies will probably be key

stakeholders for global firms or those
whose strategy calls for greater
international presence. Internally,
key stakeholders include
shareholders, business units,
employees, and managers.
 Steps in Identifying Stakeholders

Identifying all of a firm’s

stakeholders can be a daunting task.
In fact, as we will note again shortly,
a list of stakeholders that is too long
actually may reduce the
effectiveness of this important tool
by overwhelming decision makers
with too much information. To
 Steps in Identifying Stakeholders

start by identifying groups that fall

into one of four
categories: organizational, capital
market, product market, and social.
Let’s take a closer look at this step.
 Steps in Identifying Stakeholders

Step 1: Determining Influences on

Mission, Vision, and Strategy
Formulation. One way to analyze the
importance and roles of the
individuals who compose a
stakeholder group is to identify the
people and teams who should be
consulted as strategy is developed
 Steps in Identifying Stakeholders

its eventual implementation. These

are organizational stakeholders, and
they include both high-level
managers and frontline
workers. Capital-market
stakeholders are groups that affect
the availability or cost of capital—
shareholders, venture capitalists,
 Steps in Identifying Stakeholders

Product-market stakeholders include

parties with whom the firm shares its
industry, including suppliers and
customers. Social stakeholders
consist broadly of external groups
and organizations that may be
affected by or exercise influence
over firm strategy and performance,
 Steps in Identifying Stakeholders

ments, and activist groups. The next

two steps are to determine how
various stakeholders are affected by
the firm’s strategic decisions and the
degree of power that various
stakeholders wield over the firm’s
ability to choose a course of action.
 Steps in Identifying Stakeholders

Step 2: Determining the Effects of

Key Decisions on the Stakeholder.
Step 2 in stakeholder analysis is to
determine the nature of the effect of
the firm’s strategic decisions on the
list of relevant stakeholders. Not all
stakeholders are affected equally by
strategic decisions. Some effects
 Steps in Identifying Stakeholders

any positive or negative effects may

be secondary and of minimal impact.
At the other end of the spectrum,
some stakeholders bear the brunt of
firm decisions, good or bad.
In performing step 1, companies
often develop overly broad and
unwieldy lists of stakeholders. At this
 Steps in Identifying Stakeholders

to determine the stakeholders who

are most important based on how
the firm’s strategy affects the
stakeholders. You must determine
which of the groups still on your list
have direct or indirect material
claims on firm performance or which
are potentially adversely affected.
 Steps in Identifying Stakeholders

holders are affected by firm

strategies—their wealth either
increases or decreases in
correspondence with the firm’s
actions. Other parties have economic
interests in the firm as well, such as
parties the firm interacts with in the
marketplace, including suppliers and
 Steps in Identifying Stakeholders

may be much more indirect. For

instance, governments have an
economic interest in firms doing well
—they collect tax revenue from
them. However, in cities that are well
diversified with many employers, a
single firm has minimal economic
impact on what the government
 Steps in Identifying Stakeholders

other areas, individual firms

represent a significant contribution
to local employment and tax
revenue. In those situations, the
effect of firm actions on the
government would be much greater.
 Steps in Identifying Stakeholders

Step 3: Determining Stakeholders’

Power and Influence over Decisions.
The third step of a stakeholder
analysis is to determine the degree
to which a stakeholder group can
exercise power and influence over
the decisions the firm makes. Does
the group have direct control over
 Steps in Identifying Stakeholders

over decisions, nuisance influence,

or no influence? Recognize that
although the degree to which a
stakeholder is affected by firm
decisions (i.e., step 2) is sometimes
highly correlated with their power
and influence over the decision, this
is often not the case. For instance, in
 Steps in Identifying Stakeholders

may be directly affected by firm

decisions but have no say in what
those decisions are. Power can take
the form of formal voting power
(boards of directors and owners),
economic power (suppliers, financial
institutions, and unions), or political
power (dissident stockholders,
 Steps in Identifying Stakeholders

governmental bodies). Sometimes

the parties that exercise significant
power over firm decisions don’t
register as having a significant stake
in the firm (step 2). In recent years,
for example, Wal-Mart has
encountered significant resistance in
some communities by well-organized
 Steps in Identifying Stakeholders

of the mega-retailer. Wal-Mart

executives now have to anticipate
whether a vocal and politically
powerful community group will
oppose its new stores or aim to
reduce their size, which decreases
Wal-Mart’s per store profitability.
Indeed, in many markets, such
 Steps in Identifying Stakeholders

cing their size, or changing building

specifications.
Once you’ve determined who has
a stake in the outcomes of the firm’s
decisions as well as who has power
over these decisions, you’ll have a
basis on which to allocate
prominence in the strategy-
 Steps in Identifying Stakeholders

mentation processes. The framework

in the figure will also help you
categorize stakeholders according to
their influence in determining
strategy versus their importance to
strategy execution. For one thing,
this distinction may help you identify
major omissions in strategy
 Steps in Identifying Stakeholders

Having identified stakeholder groups

and differentiated them by how they
are affected by firm decisions and
the power they have to influence
decisions, you’ll want to ask yourself
some additional questions:
 Steps in Identifying Stakeholders

• Have I identified any vulnerable

points in either the strategy or its
potential implementation?
• Which groups are mobilized and
active in promoting their interests?
• Have I identified supporters and
opponents of the strategy?
 Steps in Identifying Stakeholders

• Which groups will benefit from

successful execution of the strategy
and which may be adversely
affected?
• Where are various groups located?
Who belongs to them? Who
represents them?
 Steps in Identifying Stakeholders

The stakeholder-analysis
framework summarized in the figure
is a good starting point. Ultimately,
because mission and vision are
necessarily long term in orientation,
identifying important stakeholder
groups will help you to understand
which constituencies stand to gain or
to lose the most if they’re realized.
 Two Challenges

Two of the challenges of

performing stakeholder analysis are
determining how stakeholders are
affected by a firm’s decisions and
how much influence they have over
the implementation of the decisions
that are made. Many people have a
tendency to fall into the trap of
 Two Challenges

important on both dimensions. In

reality, not all stakeholders are
affected in the same way and not all
stakeholders have the same level of
influence in determining what a firm
does. Moreover, when stakeholder
analysis is executed well, the
resulting strategy has a better
 Two Challenges

the entities you might rely on in the

implementation phase were already
involved in the strategy starting with
the formulation phase. Thus, you
now have a good idea of how to
engage various stakeholders in all
the stages of the P-O-L-C framework.
 Thank you…

That ends our topic for this week.

See you next meeting for the continuation of our
lesson.

Sir Knap