In considering the issue of stakeholder analysis, one needs to position what one intends to analyze in the context of stakeholder management. The term stakeholder management produces an impression that when leadership of an enterprise tries to deal with stakeholders, they have to somehow find a balance between opposing interests. That is in order to be able to run the business sustainably.
This approach to dealing with stakeholders is rooted in an assumption that the interests of stakeholders aren’t necessarily aligned. And that they’re more likely to be competitive. If seen from this point of view, there is an assumption that there is an inherent conflict in the interests of different stakeholders that requires to be managed.
The Intent behind the Goal
At Schuitema we have argued that conflict across a group of people is the product of the intent of the individuals participating in the group. This is very demonstrable in a sports team. A feature of a successful soccer team, for example, is that most of the work that happens on the field is not about somebody scoring, it’s about somebody trying to set somebody else up to score.
From the point of view of the individual player, who is trying to set their colleague up to score, it suggests that their intent is to set the colleague up to be the star. It is precisely this intent, to set you colleague up to be the star, that produces collaboration. Clearly, if each player is trying to be the star themselves, it would produce competition between the players and a dysfunctional team. The team would operate like a proverbial heard of cats.
This truth, that teams succeed based on the degree to which the individual is magnanimous enough to set others up to succeed, is true for groups at every order of abstraction from the smallest to the biggest. This therefore has to also be true for how the stakeholders of an enterprise function. One can understand an enterprise to be functioning as part of an ecosystem that includes actors such as customers, employees, owners, the state, the community and suppliers.
If each one of these elements in the ecosystem dealt with the rest of the ecosystem in a competitive spirit, trying to get as much out of the other as possible for giving as little as possible, the ecosystem would be fraught with conflict. Furthermore, it would require significant superordinate control and management to function. However, if one could solicit the intent of each stakeholder to contribute to the ecosystem, this would establish a spontaneous order. Thus, adding maximum value to all stakeholders. The key challenge from a stakeholder management point of view is how do we solicit the intent to give rather than the intent to take in the various actors.
In order to describe what each stakeholder contributes to the ecosystem, it is useful to class all stakeholders in an enterprise in three broad categories. This can broadly be described as input, throughput and output actors.
- The Output Actors
Customers in this sense represent the purpose of the ecosystem. Of all stakeholders in the enterprise, the customer has pride of place. They should be viewed as the first among equals. To put this differently, is to suggest that businesses exist in order to provide goods and services to customers and clients, rather than to enrich owners.
There is a fundamental responsibility of service in the business with regard to customers and clients who, after all, supply the turnover that funds the interest of all other actors in the system. Supply is there for demand, not the other way round. There is a direction of service that is implicit in any transaction which puts a responsibility of a service on the supply side of the transaction.
However, this responsibility on the supply side of the transaction, has a mirror responsibility on the demand side of the transaction. The customer has a responsibility to reward a supplier fairly for goods and services rendered. And not to squeeze the last farthing out of every transaction. Responsible customers view themselves as having a degree of custodial responsibility with regard to their suppliers. Both in paying fairly, but also in providing the feedback that enables the supplier to render better service.
The Throughput Actors
In the throughput part of the ecosystem, one finds the owners, employees, the state, and the community.
They provide the capital that sets up the enterprise to be able to serve customers and clients. It stands to reason that owners should be fairly rewarded for the contribution that they’ve made. However, should the owner only be interested in their own short term gain, they would produce a short-term focus on profit in the leadership of the enterprise. This short-term focus would result in antagonistic relations with all other actors.
On the other hand, should owners be deliberate in making the intent of the capital that they provided enabling a successful enterprise, it would enable the leadership team of an enterprise to take a more long-term approach to running their business and a less combative stance toward other actors in the ecosystem. This means that owners shift from short term gains to investing in the future viability of the enterprise.
Of all stakeholders in the throughput side, employees are in pride of place. The reason for this is that insofar as the enterprise exists to add value to the lives of customers and clients, the people who actually add that value are employees. This value adding of employees also produces a direct line of sight to the financial success and viability of the enterprise.
Any enterprise produces a surplus based on the degree to which the individual employee gives more than what they take. This is in pursuit of the organization’s objectives. When employees have a fundamentally combative approach to their enterprise, they deal with the enterprise with the intent to get as much as they can for giving as little as possible. By definition that enterprise will be consistently in crisis and will eventually no longer be sustainable.
The real value and wealth of an enterprise is the cumulative effect of everyone’s intent to make a discretionary contribution to the enterprise. This discretionary contribution can be described as the intent to contribute over and above what one is being rewarded for. When employees give more than they take enterprises thrive, then they take more than they give enterprises fail.
The third actor in the throughput side of our ecosystem is the state, and principally the taxing authority of the state. The reason why enterprises pay tax is to enable the state to provide an infrastructure and the governance which enables a business to function and add value. This becomes painfully apparent in situations where the state is either hostile to enterprise or is governed by corrupt officials who do not live up to their responsibility to provide a context within which the business can trade. When officials make enriching themselves the aim of their role very little value gets added to the ecosystem and all stakeholders suffer a diminishment of their interests.
The fourth actor on the throughput side of our ecosystem is the community that the enterprise operates in. If the community provides an attractive environment for enterprises to flourish, then the mere fact that the enterprises are trading within that community helps to build the quality of life of members of the community. On the other hand, when communities become hostile to enterprises it makes the operating them very challenging.
A very good example of this is what happens very often in mining enterprises in South Africa. Many mining enterprises operate in rural communities where there are many competing political influences and interests. These rural communities often mobilize against a business operating in their area because they feel that they do not get enough from the enterprises concerned. These mobilizations can have catastrophic consequences for the businesses concerned.
The Input Actors.
In the input class of actors, we would, in the first instance, understand any suppliers to the business. It is clearly in the interest of suppliers to a business that their customer is viable. This produces a responsibility with the supplier to provide the appropriate quality at a reasonable price of goods and services provided. However, should enterprise only deal with suppliers in the spirit of a haggle aimed at achieving the cheapest price possible in every transaction, it eventually makes the supplier unviable. Assuming that an enterprise has suppliers that are actually adding value, it has an interest in the survival of the supplier. That survival is promoted by fairly and adequately rewarding the supplier for the contribution they make. And furthermore, to provide the feedback that the supplier needs to provide an enhanced service.
The final group of actors in the input class are banks. It is true that the role of banks generally is to provide capital. However banks do not have the same committed interest in enterprises as owners have. They should therefore be viewed purely as suppliers of capital. Like any other resource. Over and above this, they also provide transaction service. Like all suppliers, there is a responsibility on the banker side to ensure that they provide whatever services are required. This would be to enable the enterprise to trade sustainably. And there’s a responsibility with the enterprise to ensure that the bank is appropriately rewarded for the service given.
An enterprise operates in an ecosystem of actors. Each one whom can either deal with the ecosystem on the basis of they get. Or on the basis of what they can give. As seen above, it is possible for every one of these actors to engage ecosystem on the basis of what they contribute or give. The degree to which that is the case, is the degree to which that ecosystem would be in harmony and provide maximum benefit to all stakeholders. The degree to which the opposite is the case, is the degree to which the ecosystem is in conflict and value is destroyed. The task of stakeholder management therefore has to be about promoting dialogue and actions. These would be aimed at cultivating the intent to contribute to the ecosystem by all actors.
One of the most commonly used tool for stakeholder analysis seeks to plot stakeholders on two axes. One relating to power. And the other relating to interest. In the light of what we have examined above, one can define interest as the degree to which there is alignment of intent by the stakeholders concerned. Power is meant the degree to which the particular stakeholder can actually affect the enterprise. This produces the four-quadrant model indicated below.
Bearing in mind that one is analyzing these stakeholders from the point of view of the degree to which they contribute to the ecosystem they are in. Any remedial strategy has to be concerned with identifying the basic expectations between the stakeholder and the enterprise. These would form a baseline that would define what needs to be exceeded for real value to be added in that relationship.
Stakeholders in the ecosystem who have little power to affect the enterprise. And are not particularly aligned with what the enterprise is attempting to achieve to achieve. No remedial strategy is required here other than monitoring.
They do not have power to affect the enterprise. But are aligned with the enterprise’s objectives. These people should be kept informed of how the enterprise is progressing with regard to its stated goals.
These are stakeholders who have the power to affect the enterprise. But they are not aligned with the enterprise’s objectives or its survival. The remedial strategy here would be to do what is required to ensure that the basic expectations are clarified on both sides. And for the enterprise to ensure that it does what is necessary to live up to what is required of it.
These are people who have the power to affect the enterprise. Furthermore, they share the objectives of the enterprise and have a vested interest in the survival of the enterprise. The approach to such stakeholders would be to be very clear on what the basic expectations are on both sides. And to define what discretionary contributions over and above those basic expectations would enhance the enterprise’s ability to contribute.