Stakeholder management theory is commonly used in business nowadays. The understanding that stakeholders need to be engaged in the decision-making process made this theory significant for all the levels of the organization. According to Edward Freeman, the American philosopher and professor of business administration, the stakeholders are considered to be “any group or an individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 2010, p. 46). The stakeholder management theory shows that every element is involved in business contributes to the benefit of the company, proving that everyone who can be affected by a decision-making process can influence the outcome.
Stakeholder Management Theory (Meaning)
According to Edward Freeman, every business consists of customers, employees, competitors, suppliers, trade unions, and trade associations (Freeman, 2010, p. 71). The organization that understands who its shareholders are and takes them into account every time making decisions will have high stakeholder management capability. The stakeholder theory is about identifying stakeholders, their mission in the organization, and their strategy (Chinyio, 2010, p. 3). Usually, all the stakeholders that are involved in the project can be referred as internal or primary (individuals, who directly affect the outcome) and external or secondary (individuals, who face the consequences) (Weiss, 2014, p. 13).
Having rights and expectations stakeholders’ interests should be taken into account not to influence the outcome of the firm’s project (Howitt & McManus, 2012, p. 30). It should be pointed out that the impact can be both, positive and negative. However, not to face the difficulties the company should manage to involve all the people who can be affected while making strategies. That is, a lot of enterprises use templates for mapping their stakeholders. The stakeholder theory is considered to emerge from the business management and has a goal to analyze, identify, and deal with stakeholders (Chinyio, 2010, p. 6). Stakeholder management has different kinds of approaches, namely economic, moral, and political (Chinyio, 2010, p. 6). Managers should understand their stakeholder environment and try to manage them for the company to succeed.
Strategies and Tactics for Managing Stakeholders
There are believed to be two primary strategies for stakeholder management, namely proactive and reactive (Eskerod & Jepsen, 2013, p. 49). A proactive approach is about predicting and planning the relations with the stakeholder and easing the consequence. It involves keeping the stakeholder informed about the progress made by sending him letters. Whereas the reactive strategy implies that the company does something in response to the actions of the stakeholder. It should be stated that the proactive approach has more advantages while being able to control the situation means that stakeholders cannot dictate the rules and act in contrary to the company’s objectives.
Guided by these two strategies the company may keep to a collaborative or power-based approach (Carroll & Buchholtz, 2015, p. 225). The difference between such approaches is that while the power-based approach the organization wants to manipulate or even force the stakeholder to adhere to the company’s choice. In contrast to the power-based approach, the collaborative one is about finding the possible way out with benefits for both, the project and the stakeholder as well. The strategies of the stakeholder management are usually directed at changing the attitude, stimulating the help potential and reducing the harmful (Eskerod & Jepsen, 2013, p. 49).
Stakeholder Analyses of the Scenario
The stakeholder theory describes how business can work best cooperating with everyone who is involved in it (Freeman, Harrison, Wicks, Parmar, & Colle, 2010, p. 9). The situation, when the company wants to decrease the total cost per unit of production by off-shoring the manufacturing facilities to a poor nation, is rather widespread nowadays. However, let’s take a closer look at the consequences that the company will face if the decision is made. First of all, it should be pointed out that the primary stakeholders of the public corporation of 980 employees are the owners of the company, workers, customers, and suppliers. The secondary stakeholder, in this case, is the consulting firm. The public corporation has the reputation of selling “Made in the USA” garments. That is, changing the place of manufacturing goods will impact customers in a significant way as it contradicts their desire to buy American garments. Attracted by a chance to purchase good quality jeans made in the USA a vast majority of customers will be not satisfied with the company’s decision to save money on labor.
Stakeholder groups should always be taken into account as they have a significant influence on the outcome. The public corporation should apply a proactive strategy and collaborative approach. They need to know the stakeholder’s environment, as it might affect their profit. The company will benefit by leaving its manufacturing facilities in America, as it will fulfill the needs of the primary stakeholders.
In conclusion, it should be stated that stakeholder management theory is aimed to involve every element that can contribute to the overall good of the company in the decision-making process. The strategies applied to the theory can help organizations to achieve the goal, find approaches, and distinguish their stakeholders, as it might be significant to take into account their interest in order not to suffer possible adverse consequences.
Carroll, A., & Buchholtz, A. (2015). Business and Society: Ethics, sustainability, and stakeholder management (9th ed.). Stamford, CT: Cengage Learning.
Chinyio, E. (2010). Construction stakeholder management. Chichester, U.K.: Wiley-Blackwell.
Eskerod, P., & Jepsen, A. (2013). Project stakeholder management. Farnham, Surrey, England: Gower.
Freeman, E. (2010). Strategic management: A stakeholder approach. Cambridge, U. K.: Cambridge University Press.
Freeman, E., Harrison, J., Wicks, A., Parmar, B., & Colle, S. (2010). Stakeholder Theory: The state of the art. Cambridge, U.K.: Cambridge University Press.
Howitt, M., & McManus, J. (2012). Stakeholder management: An instrument for decision making. Management Services, 56(3), 29-34.
Weiss, J. (2014). Business ethics: A stakeholder and issues management approach (6th ed.). San Francisco, CA: Berrett-Koehler.