Stakeholder power is an important factor to consider whenever you are asked to write about the relationship between a business and its stakeholders. In the context of strategy, what is important is the power and influence that a stakeholder has over the business objectives.
For stakeholders to have power and influence, their desire to exert influence must be combined with their ability to exert influence on the business. The power a stakeholder can exert will reflect the extent to which:
The stakeholder can disrupt the business’ plans
The stakeholder causes uncertainty in the plans
The business needs and relies on the stakeholder
The reality is that stakeholders do not have equality in terms of their power and influence. For example:
Senior managers have more influence than environmental activists
A venture capitalist with 40% of the company’s share capital will have a greater influence that a small shareholder
Banks have a considerable impact on firms facing cash flow problems but can be ignored by a cash rich firm
A customer that provides 50% of a business’ revenues exerts significantly more influence than several smaller customer accounts
Businesses that operate from many locations across the country will be less relevant to the local community than a business which is the dominant employer in a town or village
Governments exercise relatively little influence on many well-established and competitive business-to-business markets. However their power is much stronger over businesses in markets which are regulated (e.g. water, gas & electricity) or where the public sector has a direct stake (e.g. retail banking)
Employees have traditionally sought to increase their power as stakeholders by grouping together in trade unions and exercising that power through industrial action. However, in the last two decades the level of union membership has declined significantly as has the total time lost to industrial action
How should a business handle stakeholders?
How should a business respond to these variations in stakeholder power and influence? The matrix below provides some guidance on the approaches often taken:
High level of interest
Low level of interest
High level of power
Key players
Take notice of them
Keep them satisfied
Low level of power
Communicate regularly with them
Can usually be ignored
In handling its stakeholders, a business also has to accept that it will have to make choices. It is rare that “win-win” solutions can be found for key business decisions. Almost certainly the business cannot meet the needs of every stakeholder group and most decisions will end up being “win-lose”: i.e. supporting one stakeholder means another misses out.
There are often areas where stakeholder interests are aligned (in agreement) – where a decision can benefit more than one stakeholder group. In other cases, there is a clear conflict of interest. Here are some common examples:
Where Stakeholder Interests are Aligned
Where Stakeholder Interests Conflict
Shareholders and employees have a common interest in the success and growth of the business
High profits lead not only lead to good dividends but also greater investment (retained) in the business
Suppliers have an interest in the growth and prosperity of the business
Local community, employees and shareholders benefit from business involvement in the community
Wage rises might be at the expense of lower profits and dividends
Managers have an interest in organisational growth but this might be at the expense of short term profits
Expansion of production activity might cause extra noise and disruption in local community
