UNIT 2 - CHAPTER 6 - UNDERSTANDING ROLE AND IMPORTANCE OF STAKEHOLDERS

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS EXTERNAL b) POWER OF STAKEHOLDER GROUPS -a majority of stakeholders including influential pension funds, voted against a pay deal for the CEO of BURBERRY...

(the uk fashion company) in 2014. -they considered the proposed pay settlement excessive and this vote may impact significantly on future decisions on management pay.

STAKEHOLDERS -Interest a stakeholder has varies according to the nature of the group -stakeholders can be classified as shown...

- primary stakeholders -secondary stakeholders

STAKEHOLDER MAPPING -QUADRANT D

-Most powerful and interested groups and are likely to have a major influence on management decisions. -this group could include a customer who purchases a high proportion of the businesses products and only wants to deal with reliable and ethical suppliers. -managers need to keep this group happy, possibly by involving this group in decision making processes.

POSSIBLE APPROACHES TO STAKEHOLDER MANAGEMENT -4. 'PUSH' COMMUNICATIONS this form of engagement entails 1 way communication from the business to relevant stakeholder groups. -communication methods such as...

-emails, podcasts, mailshots or letters may be used. -this approach is suited to stakeholders with low levels of power and mainly low levels of interest in the project or decision in question. -a business possibly a license restaurant may opt to use this approach to inform local residents of its intentions to open for longer hours each evening.

STAKEHOLDER NEEDS >>SUPPLIERS

-frequent and regular orders -a sole supplier agreement -fair prices

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERANAL a) BUSINESS OBJECTIVES -the CO - OP GROUP is one of the Uk's largest retailers and operates other businesses, including...

-funeral services and an insurance company, with strongly ethical principles. -the co - op group gives its customers and employees a say in how the business is managed, seeks to protect suppliers by selling a wide range of fair trade products and funds projects in many of the communities in which it operates.

STAKEHOLDER MAPPING -QUADRANT B

-group of stakeholders do not have a huge amount of power either but are interested in the business's activities. -could be a group of residents close to a manufacturing business, who are concerned about the impact of the business's operations on their lives. -managers should keep this group informed on its interest area and may choose to consult on specific low risk matters with this group. -careful management here may enhance the business's reputation and generate goodwill.

STAKEHOLDERS >>PRIMARY STAKEHOLDERS

-individuals or groups that are affected by a particular activity, such as a decision to increase production. -this category includes customers, employees, creditors or anyone else with a functional or financial interest in the business.

STAKEHOLDER MAPPING -QUADRANT A

-not a powerful group of stakeholders -could be businesses that supply small quantities of low value materials. -or a customer group that purchases small amounts of the businesses products -managers do not need to worry about this group too much and may only update them using general communications (e.g. newsletters and the business's website.) -minimal effort is required.

TRIANGLE FOR STAKEHOLDER ENGAGEMENT METHODS...

-partnership high power, high interest stakeholders. -participation high - low interest stake- holders. -consultation low power, high interest stakeholders -'push' communications low power -'pull' communications low interest

STAKEHOLDER MAPPING -can categorise stakeholders by using a power - interest grid which can guide managers on how to treat different groups. -there are 4 different quandrants, these are...

-quadrant a -quadrant b -quadrant c -quadrant d

STAKEHOLDER NEEDS >>CUSTOMERS

-reliable supply of goods -clear pricing policies -safe products -after - sales service and technical support

STAKEHOLDER NEEDS >>CREDITORS

-repayment of money owed at agreed date -profitable returns on investments -minimal risk of failure to repay money owed

STAKEHOLDERS -Individuals or groups within society that have an interest in an orgs operation and performance. -stakeholders include...

-shareholders -customers -employees -suppliers -creditors -gov -competitors -local community

STAKEHOLDER NEEDS >>EMPLOYEES

-steady and regular income -safe working environment -job security

STAKEHOLDER NEEDS >>LOCAL COMMUNITY

-steady employment -avoidance of pollution and noise -provision of facilities (e.g. parks or arts centres) for local community.

STAKEHOLDERS >>SECONDARY STAKEHOLDERS

-these groups or individuals do not have direct functional or financial relationships with the business altho they are affected by, or can influence its actions. -e.g. general public, local communities, activist groups and the media.

STAKEHOLDER MAPPING -QUADRANT C

-this area of the map represents powerful groups who do not have a great interest in the companys activities. -group could include investors who are only interested in high financial returns. -it is important for managers to engage and consult with this group and possibly aim to increase their level of interest. -businesses that involve stakeholder groups in their activities can benefit from diff perspectives and expertise as well as recieving favourable publicity for encouraging their involvement.

STAKEHOLDER MAPPING -similarly managers in a business may listen carefully to a shareholder that owns...

60% of the companys shares and is keen to see a good return on this investment.

SOCIAL RESPONSIBILITY

A term describing the duties a business has towards stakeholder groups such as employees, customers and the gov.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -certain decisions appear to benefit particular stakeholder groups and not others. -however this may depend on the objective on which the managers decision was based. -e.g. for many years so called budget airlines such as..

EASYJET have cut their operating costs wherever possible with the objective of increasing sales and revenue. -this has been enormously successful. -when the airline was launched in 1995 it carried only 30,000 passengers that year. -in 2013 = over 60 million passengers

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS -a number of internal and external factors that influence these relationships are...

INTERNAL -business objectives -management and leadership styles -size and ownership of the business EXTERNAL -market conditions -power of stakeholder groups -gov policies

STAKEHOLDER NEEDS >>SHAREHOLDERS

NEED: -steady return on investment on form of dividends -investment that does not lose value -preferential treatment as customer (e.g. lower prices)

STAKEHOLDER ENGAGEMENT

a process by which managers involve individuals and groups who may be affected by their decisions in these decisions.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -in contrast the decision of some other consumer product business to launch a new product, could have notable impacts for many of the company's stakeholders and could have the potential for conflict. -a new product may offer consumers increased benefits but the associated price rise could be prohibitive for many. -shareholders may be content at the rise in share price and profits that may...

accompany a successful launch, while competitors may disapprove as they may as a result suffer a large decline in sales.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL a) BUSINESS OBJECTIVES -trading with objectives to maximise short term profits may also limit the willingness of the business to engage in communication and consultation with certain stakeholder groups. -however communication could be an uncomfortable activity if stakeholders feel their needs...

are not even being considered let alone met.

STAKEHOLDER NEEDS -socially responsible businesses should not only operate within the law but should also...

avoid pollution, reckless use of limited resources or the mistreatment of employees or consumers. (some businesses willing accept these responsibilities, partly because their managers want to do so and partly because they fear negative public image)

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL c) SIZE AND OWNERSHIP OF THE BUSINESS -a sole trader may have a harmonious relationship with its stakeholders because the owner knows many of them personally and communicates with them regularly. -they are able to shape this relationship as they wish without...

being influenced by other owners in the business.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS EXTERNAL b) POWER OF STAKEHOLDER GROUPS -some stakeholder groups have considerable power to impact on the activities and success of a business. -e.g. large pension funds and insurance company's invest peoples savings in a range of ways, including...

buying shares in plc's. -because of the size of their shareholding, they can become very influential and managers are conscious of their likely reactions when making decisions.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -stakeholder groups may have different objectives, which at times can conflict. -equally on other occasions the objectives of stakeholders may coincide. -some decisions generally favour certain stakeholder groups and create disadvantages for others. -e.g. a decision to raise prices is unlikely to offer many benefits to customers but this on the other hand could benefit the businesses...

by allowing improvements to be made to the good or service being provided.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -some decisions can benefit more than one stakeholder group while disadvantaging others. -however the precise impact will depend upon the...

circumstances.

MANAGING RELATIONSHIPS WITH STAKEHOLDERS -managers can reduce the likelihood of opposition by stakeholders to a business's actions and decisions through...

communication and by involoving them in the decision making process to some extent. -this approach to managing interested parties is called STAKEHOLDER MANAGEMENT.

STAKEHOLDER NEEDS -over recent years businesses have become more aware of differing expectations and objectives of their stakeholder groups. -previously managers operated businesses largely in the interests of the shareholders. -a growing awareness of business activities among the general public has...

complicated the task of the management team of a business. -today managers must attempt to meet the conflicting demands of a number of stakeholders.

STAKEHOLDERS -it is also possible to categorise stakeholders as internal and external. -internal stakeholders are those that are

considered to be a part of the org, such as employees, shareholders and managers. -in contrast external stakeholders exist outside the business. -e.g. govs and suppliers.

POSSIBLE APPROACHES TO STAKEHOLDER MANAGEMENT -3. CONSULTATION -consultation in this context means finding out the views of the relevant stakeholder groups. -it is not unusual for such consultation to be carried out within guidelines set by the business, and with the business shaping the...

consultation process. -stakeholders will be expected to respond to questions and altho there will be 2 way communication, stakeholders will have limited power to influence decisions and subsequent actions.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -employees and suppliers could benefit from increased workloads but large rises in sales and revenue may reduce the companys need for...

creditors (banks and loans etc.) -e.g. APPLE has been subject to complaints by consumers that its computers, tablets and other products are overpriced.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS EASYJET -a decision to simply cut costs to increase profits might be expected to create conflict in terms of stakeholder's objectives. -if successful it could be expected to benefit shareholders whilst other stakeholders such as...

customers and employees could be disadvantaged. -this is less pronounced when cost reduction is associated with a policy of growth.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL b) MANAGEMENT AND LEADERSHIP STYLES -in contrast, other management styles may be based on greater democracy or involvement and concern for the wellbeing of employees. -this is likely to foster a better long - term relationship with...

employees but the openness and belief in 2 way communication may also have significant implications for other stakeholder groups. -e.g. many stakeholders would benefit from efficient 2 way communication and consultation as well as opportunities to play a part in decision making. -many businesses profess to engage stakeholders in this way, though a smaller number do so effectively.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL b) MANAGEMENT AND LEADERSHIP STYLES - managers who take an autocratic approach are likely to focus less on the objectives and needs of...

employees, especially in terms of non - pay issues such as the amount of delegation they allow or the extent to which an employee is permitted to play part in decision making.

POSSIBLE APPROACHES TO STAKEHOLDER MANAGEMENT -5. 'PULL' COMMUNICATIONS -the final category of engagement communicates with stakeholder groups but only if they choose to..

engage with the business and access the communication. -this would be most appropriate for stakeholder groups with little power or interest in a decision. -managers might choose this approach to advise a minor supplier of its intentions to adopt a new brand image for some of its products. -this is unlikely to have much impact on this particular stakeholder, provoking little interest on their part.

COMMUNICATION

exchange of info or ideas between 2 or more parties

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS EXTERNAL a)MARKET CONDITIONS -in some markets one or 2 businesses may be dominant, which can have implications for stakeholder groups such as suppliers. -in the uk a number of large supermarkets have recieved criticism for imposing tough conditions on suppliers recieving low prices or facing overly stringent quality checks. -a business that dominates a market may also be able to...

exploit consumers by failing to offer value for money if realistic competition does not exist. -this can also occur if a few large firms dominate a market and appear to collude on pricing. -the 6 major suppliers of gas and electricity in the uk have faced claims of charging excessive prices recently.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -on the other hand, shareholders may be concerned about the launch of new products, especially if it is a risky decision because it could damage the business's...

financial performance. -customers however will generally approve as they will receive greater choice of products and the launch may be innovative and appealing. -this decision may also have positive effects for employees if it increases the security of their jobs, or offers increased working hours or the prospects of promotion and/or higher pay rates.

STAKEHOLDER NEEDS -the terms stakeholders and social responsibility are interrelated. -social responsibility is a business philosophy proposing that..

firms should behave as good citizens.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL b) MANAGEMENT AND LEADERSHIP STYLES -SATYA NADELLA succeeded STEVE BALMER as CEO at MICROSOFT in 2014 and has brought a very different style to the leadership role. -NADELLA was recognised for being a..

good listener and one who welcomes input from interested and informed stakeholders. -his leadership style as well as his calm personality and excellent communication skills are expected to have a profound effect on the company's relationship with its stakeholders.

STAKEHOLDERS

groups or individuals who have an interest in a business.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -in the circumstances of the electric and gas companies, the conflict in stakeholder objectives is between those of customers and many other stakeholder groups. -energy customers want lower prices whereas other stakeholders want to benefit from...

high prices.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL a) BUSINESS OBJECTIVES -In contrast to CO - OP GROUP, a business that is focused on its profits or achieving rapid rates of growth may have a very different relationship with its stakeholders. -such businesses may seek to make max possible profit or to allow it to offer lower prices to facilitate..

higher sales. -this may entail making decisions that do not meet the objectives of many stakeholders. -e.g. paying minimum wages, ignoring needs of local communities wherever possible and charging prices that some consumers may consider excessive.

STAKEHOLDER MAPPING -analysing stakeholders via their power and interest enables managers to consider important questions such as whether or not they should...

involve the stakeholder group in a decision, consult on their views or simply advise them what is to happen?

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS EXTERNAL c) GOV POLICIES - the uk gov has a substantial influence on the way in which a range of business's manage relationships with their stakeholders. -it uses...

laws and less formal codes of conduct to guide businesses in their relationships with suppliers, customers, employees and local communities. -for businesses operating in industries that were prev owned and operated by gov, such as rail services, energy supply and water services, these controls can be extensive. (inc restricting their ability to raise prices)

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS EXTERNAL a)MARKET CONDITIONS -a number of factors determine the market conditions faced by a business. -these factors include the

level of sales, the rate at which they are changing and the number and the number and strength of competitors. -in turn the conditions a business encounters in the markets in which it trades may influence its relations with stakeholder groups.

POSSIBLE APPROACHES TO STAKEHOLDER MANAGEMENT -3.CONSULTATION -may be used when stakeholders have high interest but relatively low power. -a house construction company may consult with..

local residents on certain aspects of a plan to build new homes in a locality, but only permit this to take place in relation to certain (perhaps less controversial) elements of the proposal.

SUMMARY >>a business's relationship with its stakeholders can be handled efficiently and cost effectively using an approach that starts with stakeholder..

mapping to analyse the stakeholders degree of power and the level of interest. -the results of this analysis can then be used to determine the most suitable and cost effective approach to stakeholder engagement.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL c) SIZE AND OWNERSHIP OF THE BUSINESS -in contrast to a sole trader, a large plc may develop different relationships with its stakeholders because of its legal structure. -some boards of directors may be under intense pressure from powerful shareholder groups to...

maximise short term profits. -this could result in a series of decisions that alienate stakeholders. -e.g. the company may press suppliers to reduce prices by threatening to move to competitors, refuse to negotiate with trade unions to avoid paying higher wages and acquire a poor reputation for customer service by failing to employ and train sufficient numbers of staff.

STAKEHOLDER MAPPING -when taking decisions managers need to think about the relative power of stakeholder groups that may be affected by the outcomes. -a well organised highly unionised workforce operating on a single site for example may be able to...

negotiate for more participation and influence on decision making than could individual employees working along in scattered locations.

POSSIBLE APPROACHES TO STAKEHOLDER MANAGEMENT -2. PARTICIPATION -really a lesser form of partnership. -stakeholders still part of the relevant team and involved in decision making. -may have responsibility for a...

part of the activity and may implement part of the decision. -they are likely to be engaged in extensive 2 way communication for that element of the decision or activity for which they have some responsibility. -this is possibly more suited to stakeholder groups that have high power but a relatively low level of interest. -it may be used with powerful stakeholders who have a higher level of interest. -e.g. major customers might be invited to carry out roles in the design stage of the development of a new product. -this might be a relevant engagement approach for an aircraft manufacturer redesigning the interior of its aircraft.

STAKEHOLDER MAPPING AND STAKEHOLDER MANAGEMENT -managers can use a variety of techniques to engage stakeholders in the activities and decisions of the business. -these can range from communicating about the business and its activities with stakeholders to forming a...

partnership to share decision making and responsibility for a particular project. -deciding the appropriate level of engagement will depend on an assessment of the power of the stakeholder group, its level of interest in the decision or project and the resources available.

POSSIBLE APPROACHES TO STAKEHOLDER MANAGEMENT -1. PARTNERSHIP -It is therefore most suitable for stakeholders that have considerable power and interest in the project or decision in hand. -it may be worth the business concerned investing in substantial resources in the partnership. -a business that is undertaking a major construction project may involve its main suppliers in a joint...

planning and construction process to utilise their expertise and to share responsibility for the project.

STAKEHOLDER MAPPING -managing stakeholders effectively is an important part of taking successful decisions. -analysing the position of stakeholders as part of the decision making process is important and mapping on the basis of stakeholders...

power and interest can help managers to consider decisions in relation to stakeholders needs and their ability to influence it.

CONSULTATION

process by which one group discovers the views of another.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -EASYJET -the objective of the decision to operate with low costs per passenger or flight and to subsequently reduce them, was to achieve a growth in sales rather than simply higher...

profits for the business. -with this objective many of the companys stakeholders have benefited from more jobs, cheaper flights, increased orders for supplies, higher levels of tax paid on profits and rising share prices.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS EXTERNAL a)MARKET CONDITIONS -ERNST AND YOUNG (EY) is a global company supplying professional services such as accountancy, auditing and advice on taxation issues. -it promotes itself as focusing strongly on the needs of its stakeholders by supporting the communities in which it works as well as...

protecting the environment. -this helps it to differentiate itself from powerful rivals such as DELOITTE and KPMG.

MARKET CONDITIONS

refers to the number of features of a market such as the level of sales, rate at which they are changing and the number and strength of competitors.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS EXTERNAL a)MARKET CONDITIONS a business facing particularly intense competition from rivals may deliberately opt to engage more closely with stakeholders such as customers, employees and suppliers to establish a distinctive...

reputation for meeting the needs of stakeholders as fully as possible. -this may help it to compete with other businesses that may be more established or financially stronger, or simply to be distinctive.

STAKEHOLDER MAPPING -alternatively rapid increases in demand for products may increase the power of suppliers if their materials and components are judged to be increasingly..

scarce and difficult to acquire.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL b) MANAGEMENT AND LEADERSHIP STYLES -other stakeholders including shareholders and local residents, may find that they have little or no opportunities to...

shape management decisions and may feel that their interests are not considered or met by the business's management team. -this lack of involvement or communication can lead to resentment and unnecessary opposition to decisions.

POSSIBLE APPROACHES TO STAKEHOLDER MANAGEMENT -1. PARTNERSHIP -method that will involve the stakeholder group most closely in the decision or project. -partnership may mean that decisions are taken jointly by the management team and the relevant stakeholders and that the subsequent actions will also be implemented together. -responsibility will be...

shared and this approach will inevitably involve a great deal of 2 way communication.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS -businesses take a variety of diff approaches to their relationships with stakeholders. -some give meeting the needs of all stakeholders as fully as possible priority while others may focus on meeting the objectives of key...

stakeholder groups such as shareholders.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL a) BUSINESS OBJECTIVES -a businesses objectives may arguably have the strongest influence on its relationship with its stakeholders. -a business committed to pursuing ethical and social objectives would naturally giv e a high priority to meeting the objectives of as many...

stakeholders as possible. -this would have a sig implications on decision making.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -it is important to note however that these effects depend on circumstances and actions and reaction of certain stakeholders. -e.g. a small increase in price may have very little impact on a businesses...

stakeholders especially if competitors also increasing. -the impact of a price increase on stakeholders may be reduced to some extent if the product is a necessity and competitors are taking similar actions. -e.g. the well publicised decisions of many energy companies in the uk to raise prices substantially for gas and electric have created an outcry. >however due to the nature of the products, the impact of employees, shareholders, suppliers and creditors has been limited as demand has remained fairly constant. (despite customers attempts to reduce usage).

STAKEHOLDER NEEDS -any business has a number of stakeholder groups with interest in its affairs. -there are various needs of all...

stakeholders of businesses.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -similarly the launch of some new products in industries such as computer games or software may have a limited impact on stakeholders as this regularly occurs in ...

such industries and can be essential as existing products become obsolete. -this may result in objectives of stakeholders overlapping as the decision fulfils those of a number of groups.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS EXTERNAL b) similarly, businesses have to manage relationships with major suppliers and customers effectively. -some management teams may seek to avoid becoming too reliant on a single...

supplier for fear of the business gaining too much influence over decisions. -in this circumstance a threat to delay supplies or to stop supplying could be worrying. (especially if the supplier deals with many other businesses.) -equally, a major customer could have considerable influence over a business's decisions on pricing and product range and may wish to be the sole seller of products.

STAKEHOLDER MAPPING -Stakeholder maps do not illustrate a static situation. -levels of interest and degrees of power may change overtime. -e.g. the power of a strongly unionised workforce could be reduced by laws that limit...

the activities of trade unions. -equally a relatively uninterested local residents group may become very interested if a local business opts to install a large number of wind turbines nearby to generate electricity.

OVERLAPPING AND CONFLICTING STAKEHOLDER NEEDS -however a price rise does offer shareholders...

the benefit of the very appealing possibility of rising profits, dividends and share prices.

STAKEHOLDER MAPPING AND STAKEHOLDER MANAGEMENT -Altho the various methods of engaging stakeholders set out below are all valid, engaging stakeholders will be more efficient and cost effective if used alongside stakeholder mapping. -mapping allows managers to select and use...

the means of engagement that are appropriate for the degree of power and level of interest held by the relevant stakeholder. -greater power and level of interest a stakeholder exibits, the more closely managers may choose to engage them in the decision making process.

INFLUENCES IN THE RELATIONSHIPS WITH STAKEHOLDERS INTERNAL c) SIZE AND OWNERSHIP OF THE BUSINESS -for some small businesses it can be simpler to communicate with and involve stakeholders in decision making simply because...

there are fewer of them.