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Stakeholder Management: An instrument for decision making Howitt, Michael; McManus, John . Management Services ; Enfield Vol. 56, Iss. 3, (Autumn 2012): 29-34.

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Freeman's original definition 0f stakeholders in management labels a stakeholder as "any group or individual who

can affect or is affected by the achievement of the decision-making organisation's objectives" (1984). As the

authors examine stakeholders besides shareholders, they see various groups being highlighted by stakeholder

theorists (Hillman and Keim, 2001). Freeman's (1984) listing of stakeholders includes such diverse constituencies

as owners of various kinds, supplier organisations, customer segments, employee segments, various members of

the financial community, several levels and branches of government, consumer advocate groups and other activist

groups, trade associations, political groups, unions, and competitors. Organisations generally have limited

resources for which stakeholders compete. Often as not, stakeholder values and needs differ widely and there is

usually a highly skewed distribution of resources among stakeholder groups. Typically stakeholders have different

priorities and different objectives. Decision-making managers are normally part of senior management that have

responsibility for and make the key resource decisions for the business. FULL TEXT

What defines stakeholders in management? Freeman's original definition, labels a stakeholder as "any group or

individual who can affect or is affected by the achievement of the decision-making organisation's objectives"

(1984). As we examine stakeholders besides shareholders, we see various groups being highlighted by stakeholder

theorists (Hillman and Keim, 2001). Freeman's (1984) listing of stakeholders includes such diverse constituencies

as owners of various kinds, supplier organisations, customer segments, employee segments, various members of

the financial community, several levels and branches of government, consumer advocate groups and other activist

groups, trade associations, political groups, unions, and competitors. Brenner and Cochran's (1991) list includes

such stakeholders as stockholders, wholesalers, sales force, competition, customers, suppliers, managers,

employees, and government. Hill and Jones (1992) list managers, stockholders, employees, customers, suppliers,

and creditors. Clarkson (1995) lists the company itself, employees, shareholders, customers, and suppliers as

primary stakeholders, with the media and various special interest groups classified as secondary stakeholders.

Donaldson and Preston (1995) diagram investors, political groups, customers, employees, trade associations,

suppliers, and governments. Consensus, stockholders, employees of all types can consider suppliers, customers,

and governments, competitors, and activists groups considered stakeholders.

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Also typically included are the entities "community" (Brenner and Cochran, 1991; Donaldson and Preston, 1995; Hill

and Jones, 1992), "general public" (Hill and Jones, 1992), or "public stakeholders" (Clarkson, 1995), as well as the

natural environment (Buchholz, 1993).

More recent authors (Read, 1999, Shearer, 2002, Floyd and McManus, 2004, McManus, 2005) have included both

ethical and moral obligations of internal and external stakeholders. According to MacAvoy and Millstein (2003),

recent developments in stakeholder thinking lean towards the view that stakeholders should participate in both

ethical and governance programmes and they should make major strategic decisions together with owners, as well

as supervise managerial decisions.

A feature of stakeholder theory is that it goes beyond traditional participatory management methods and practices

that emphasise popular involvement but, which pay little attention to inherent structural problems and conflicts

that plague middle managers. By the same token, stakeholder theory represents a challenge to conventional

economic analysis, an approach that does not adequately consider the distribution of costs and benefits among

different stakeholders: the winners and losers. It ignores the fact that different stakeholders do not perceive

environmental problems in exactly the same way and will therefore seek different solutions and use different

criteria to assess the desirability or worth of an intervention. Ways for better anticipating and dealing with

stakeholder opposition and conflict, and better incorporating various interests, especially those of weaker groups

in society, are therefore crucial for improving policy design and decision-making.

There are many reasons to believe that adoption of a stakeholder approach to decision-making and management

in general will contribute to the long-term survival and success of an organisation. Positive and mutually

supportive stakeholder relationships encourage trust, and stimulate collaborative efforts that lead to relational

wealth, ie, organisational assets arising from familiarity and teamwork. By contrast, conflict and suspicion

stimulate formal bargaining and limit efforts and rewards to teams, which result in time delays and increased

costs. In addition, more and more executives are recognising that a reputation for 'ethical and socially responsible

behaviour' can be the basis for a competitive edge in both market and public policy relationships. Finally, in spite

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of the specification and measurement difficulties involved, for example, research undertaken by McManus and

Wood-Harper (2003) found evidence of positive associations (few have found negative associations) between

various socially and ethically responsible practices and conventional economic and financial indicators of

corporate performance, such as profitability and growth. Thus, there is no reason to think that the conscientious

and continuing practice of stakeholder management will conflict with conventional financial performance goals.

A question of categorisation and contribution

Theory suggests that stakeholders fall into two broad categories - primary and secondary. Primary stakeholders

(the ones who can directly affect a decision-making outcome) "must be managed" so that the decision-making

may achieve its objectives. Secondary stakeholders are generally individuals who are affected by the decision-

making in some way, but may not have a primary stake in the decisionmaking. If these stakeholders are not

supported effectively the decision-making manager may not achieve success.

Missing from general stakeholder theory is an account of how primary and secondary stakeholders work within a

decision-making organisation to enable them to achieve their interests. Decision-making managers tend to hold

high office and may be regarded as agents of the decision-making organisation. Jones (1995) has advanced one

form of instrumental stakeholder theory and proposes that if organisations contract (through their managers) with

their stakeholders on the basis of mutual trust and co-operation, they will have advantage over organisations that

do not. Put another way, they will deliver and win future business. No assumption is made that managers will try to

develop trusting and co-operative relationships with stakeholders, but an argument is made that if they do,

competitive advantage will result.

Organisations generally have limited resources for which stakeholders compete. Often as not, stakeholder values

and needs differ widely and there is usually a highly skewed distribution of resources among stakeholder groups.

Typically stakeholders have different priorities and different objectives. Unequal influence and distribution of

resources exacerbate conflict of interests. Decision-making managers are normally part of senior management

that have responsibility for and make the key resource decisions for the business. Because resources (especially

people) can be prioritised from several different aspects, different stakeholders will undoubtedly be involved in the

prioritisation process to get the correct views (for example, senior managers prioritise strategic importance and

prioritise risk). In any decision-making undertaking at least three perspectives should always be represented:

purchasers (customers), providers (suppliers) and the decision-making manager. Each of these stakeholders

provides information that the other two may neglect or are unable to produce - customers care about customer

value, suppliers know about logistical difficulties, and decision-making managers know and care for budgetary

constraints and risks. Nevertheless, it is of course important to involve all stakeholders that have a stake in the

decision-making (Buysse and Verbeke, 2003).

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It could be argued that theorists such as McAllister (1999), Hill and Jones (1992) emphasise that evaluation of

stakeholder participation is concerned with processes which are qualitative and not results that are quantitative;

and more concerned with description and interpretation than with measurement and prediction. The measurement

of participation requires the decision-making manager to: (1) validate criteria for understanding the nature of

participation in decisionmaking; (2) formulate a set of indicators to give form to these criteria; (3) produce

appropriate methods at decision-making level for monitoring the indicators and maintaining a continuous record of

the process of participation; and (4) undertake the action of interpretation of the information recorded in terms of

making a judgement concerning participation.

Since traditional monitoring and evaluation of decision-making has been concerned with quantifiable

measurements such as profit, there is a new focus on the qualitative aspects of participation and on the process

of participation. However, both qualitative and quantitative aspects of participation are important (Clayton et al

1998). This requires two forms of monitoring and evaluation: measurement based on numerical values leading to

judgement and description leading to interpretation. Because participation is a dynamic process that must be

evaluated over time, conventional post evaluations are inadequate. Ongoing monitoring is the only way qualitative

descriptions can be obtained over time. It should be participatory, involving the key personnel involved in the

decision-making.

According to Clayton et al (1998) key characteristics to this qualitative approach to evaluating stakeholder

participation are described as: (1) naturalistic: a study of processes rather than on the basis of predetermined and

expected outcomes; (2) heuristic: subject to continuous redefinition as knowledge of a decision-making and its

outcome increases; (3) holistic: viewing the decision-making as a whole, needing to be understood from many

different perspectives; and (4) inductive: seeking to understand outcomes without imposing predetermined

expectations or benchmarks. It begins with specific observations and builds towards a general pattern of

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outcomes (Clayton et al 1998). It could be argued that there are few generic indicators of participation. Indicators

selected will vary according to the decision-making and its objectives. Bhatnagar and Williams (1992) propose two

very broad categories of indicators:

1. Empowerment indicators, eg, how many new initiatives were launched?

2. How proactive is the group, as measured against a specially devised index?

Authors like McManus (2005) have drawn up categories or questions that can be used in developing indicators of

the extent and quality of participation (Table 1, p. 31).

If managers fail, they generally fail because the various stakeholders have different and conflicting expectations

about their roles. The participation matrix is a dynamic tool, which provides a means for identifying potential areas

of disagreement between the various stakeholders. As already stated, stakeholders have varying degrees of power

and access to resources; some may lack the organisational basis and psychological/ skill basis for negotiation.

Indeed, at the identification stage of a decision-making intended beneficiaries may not even be aware that they are

stakeholders in the decision-making. The participation matrix is likely to be used at the negotiation stage between

the provider decision-making manager and perhaps only some of the concerned formal stakeholder groups on the

recipient side, with informed guesswork about the possible type of participation from beneficiaries and other

institutions. But agreement as to how to include these other stakeholders so that they can be involved, as

appropriate, in subsequent negotiations is essential. For example, in contract or tender related work this may often

mean providing priming funds to enable stakeholders to organise and equip themselves for negotiations

(McManus &Wood-Harper 2003).

A question of values

Organisations have finite resources and the CEO, COO, and CFO control much of these. In decision-making, policy

debates on resource allocation often involve the balancing of needs, some of which may compete: employment,

profit, intrinsic values, recreation, and, for example, social status and power. While we can conceptualise a wide

variety of types of values, policy debates and solutions require an understanding of how things are actually valued

by different people. Little of the work on stakeholder values has been empirically based to this point. Defining the

values being promoted and the sources of these values could facilitate decision-making management and conflict

resolution between groups, both within decision-making and in disputes over inter-organisational resources. A

variety of methods are possible for assessing different types of stakeholder values. Some values may be

quantifiable by their nature. There are, however, ranges of intrinsic values that have been variously referred to have

non-commercial, non-quantitative, and non-market values (Guilmette et al, 1996).

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Intrinsic values are often associated with what behaviourists call 'higher needs' (Maslow, 1970 and Skinner, 1974)

that is trust, motivation, empowerment, success, relationships and influence. Within decision-makings

management people are an organisation's only real resource. It is the individuals associated with decision-making

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who create and implement ideas. Without them, nothing would exist: there would be no memory, no strength, and

no advantage. The basic value, which is so important, is 'respect for people'. Individuals have rights and duties, and

the most essential of these is the right to do an excellent job coupled with the duty to do so with satisfaction

Guilmette et al, (1996).

Stakeholders have both a positive and a negative impact on decision-making. One of the most common ways of

examining the impact of stakeholder participation within decision-making is through empirical studies. Sometimes

these observations are based on decision-making appraisal and/or post evaluation. Not all decisions are deemed

successful in their outcomes. It should be considered equally important to analyse why decision-making was not

as successful as expected and to deduce where participation of stakeholders, particularly in the implementation

phase, might have helped avoid some of the mistakes made. Research undertaken by McManus (2005) surveyed

executives for their opinions about why decision-making succeed. Findings suggest the three major reasons why a

decision-making will succeeds are stakeholder involvement, executive management support, and a clear statement

of requirements. Without them, the chance of failure increases dramatically. Another key finding of this research is

that a high percentage of executive managers believed that there is more decision-making failure attributed to

stakeholder mismanagement than any other factor. The lack of support from stakeholders forces decision-makers

into disarray and in the worst of cases leads to the decision-making being neglected or not followed-up. Why?

Because the majority of decision-making is not self-contained or self sufficient, the stakeholder groups must be

relied upon to provide support. For continuing to provide what the decision-maker needs, the external stakeholders

may demand certain quid pro quos from the decision-maker in return. In short, it is the dependence of the decision-

maker on external stakeholders for favours (eg resources) that give those individuals involved leverage over a

decision-maker. In applying this leverage, power and influence plays a large part. Power can be defined as "the

structural determined potential for obtaining favoured payoffs in relations where interests are opposed" (Wilier et

al 1997). Power is structurally determined in the sense that the nature of relationship that is, who is dependent on

whom and how much determines who as power. There is some evidence to suggest that managers do not have

the influence or power over key stakeholders. Initially, their problems stemmed from poor perception and political

issues that damaged relationships with the external stakeholder community, which are not addressed early in the

decision-making lifecyde.

A question of tactics

In management decisionmaking, management have to acknowledge that it is highly unlikely that all stakeholders'

expectations will be met. Therefore, the manager must somehow ascertain which stakeholders should be satisfied.

Since stakeholders have the ability to positively or negatively influence the decision-making process, integrating

the right group is essential. Specific organisational strategies used to integrate stakeholders will differ, depending

on the issue and the stakeholder's potential to co-operate or threaten the decision-maker's performance. Using the

problem-frame/ stakeholder maps described by Bryson (2003) is a good starting point to developing stakeholder

strategies. The problem-frame stakeholder mapping technique was developed by Anderson et al, (1999). This

technique is especially useful in helping develop problem definitions likely to lead to a winning coalition. Careful

analysis is usually necessary to find desirable problem definitions that can motivate action by a coalition of

stakeholders large enough to secure adoption of preferred solutions and to protect them during implementation

(Jacobs and Shapiro, 2000). A crucial first step in this analysis is to link stakeholders to alternative problem

definitions through a problem definition stakeholder map (figure 1). Ideally, once a 'winning' frame has been

identified, specific policy proposals can be developed within that framing.

A question of followers and challengers

Managers should understand that each stakeholder has the ability to equally threaten and co-operate with the

decision-making process. The objective is to reduce the threatening element and increase co-operative behaviour.

It is important to realise that the stakeholder's potential to act and their willingness to act are not directly related.

Therefore, when looking at strategies, it is important to examine not only strategies addressing stakeholders who

are positively disposed towards a decision-making but those who are negatively disposed towards decision-

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making as well. Some strategies may only be appropriate for a stakeholder with a specific disposition towards

decisionmaking, that is, positive or negative. In other cases a given strategy may be appropriate for either type of

stakeholder that is both (Polonsky, 1995). There are several different strategies the decision-making manger can

adopt for different types of stakeholders (Table 2). Each strategy is not mutually exclusive; some are appropriate

for more than one type of stakeholder or group of stakeholders.

The principal theme running through each of the strategies is communication. Developing good stakeholder

communication channels between the decision-making and its stakeholders is one effective way of managing

stakeholders. According to Polonsky in those cases where stakeholders cannot be communicated with (due to

their negative disposition towards the decision-making process) alternative strategies need to be developed.

These strategies may attempt to change the stakeholder group's disposition, or minimise its negativity. Strategies

to undertake this change may require the manager to use "bridging stakeholders" to communicate on behalf of the

decision-maker with those negatively disposed stakeholders. In cases where stakeholders' expectations cannot be

met or changed, the decision-maker will at least be able to develop contingency plans to minimise any potential

harm (Polonsky 1995).

Whilst by no means complete the views described here move forward the foundation for understanding the issues

and importance between decisionmaking, stakeholders and management. Evidence would suggest that

stakeholder involvement represents an empirical shift towards an inclusive approach to decisionmaking. In this

context managers adopt a widespread concern for the long-term strategic interests of all stakeholders, towards a

sense of residency and an emphasis on stakeholder management within decision-making.

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Sidebar

No assumption is made that managers will try to develop trusting and co-operative relationships with

stakeholders, but an argument is made that if they do, competitive advantage will result.

Sidebar

The lack of support from stakeholders forces decision-makers into disarray and in the worst of cases leads to the

decision-making being neglected or not followed-up.

Sidebar

If managers fail, they generally fail because the various stakeholders have different and conflicting expectations

about their roles.

Sidebar

In cases where stakeholders' expectations cannot be met or changed, the decision-maker will at least be able to

develop contingency plans to minimise any potential harm.

Sidebar

In management decision-making, management have to acknowledge that it is highly unlikely that all stakeholders'

expectations will be met.

AuthorAffiliation

By Michael Howitt &Dr John McManus, Lincoln Business School. DETAILS

Subject: Decision making; Stakeholders; Management; Business community

Location: United Kingdom--UK

Classification: 9175: Western Europe; 3400: Investment analysis &personal finance

Publication title: Management Services; Enfield

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LINKS Linking Service

Volume: 56

Issue: 3

Pages: 29-34

Number of pages: 6

Publication year: 2012

Publication date: Autumn 2012

Section: Management

Publisher: Institute of Management Services

Place of publication: Enfield

Country of publication: United Kingdom, Enfield

Publication subject: Business And Economics--Labor And Industrial Relations

ISSN: 03076768

CODEN: MASEDZ

Source type: Trade Journals

Language of publication: English

Document type: Feature

Document feature: Illustrations Diagrams

ProQuest document ID: 1419016056

Document URL: https://search.proquest.com/docview/1419016056?accountid=28844

Last updated: 2014-09-13

Database: ProQuest Central

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