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DQ 1. In order to make effective decisions, organizations must consider the opinions and values of the involved stakeholders. What are the major challenges that organizations face when attempting to balance differing stakeholder values? How do these challenges influence the effectiveness of the organization? How can organizations best mitigate these challenges?
DQ 2. Stakeholders often form partnerships across organizations. What is the primary motivation for the formation of these partnerships? What are the most significant contributions these partnerships can make to organizational effectiveness?
Stakeholder Perspective
This module addresses issues from the stakeholder’s viewpoint. Interests of the stakeholder are taken into account, since what drives them to either become involved or detached may simply be based on an organization’s ability to accurately identify the stakeholder’s needs. This, in turn, drives the strategic plans an organization makes to meet these needs. In addition the power a stakeholder wields both within and external to the organization will be discussed. What are the main drivers, and how is the power both generated and influenced? Last, stakeholders may take special interests in common needs or issues. As they form coalitions and act to influence specific issues, the power and ability of stakeholders to generate plans and outcomes will become a driving influence in organizational process and policy.
Stakeholder Interests
Each stakeholder has a unique relationship with the organization. They also each have a unique hand in assisting the organization in value creation. Managers have a responsibility to both the organization and the stakeholders to remain cognizant of these needs and the interrelationships. Lawrence and Weber (2011) state that in exchange for their investment, stakeholders expect to receive various things in return. Although there are multiple stakeholders in any one organization, the process of identifying each stakeholder’s interests is difficult at best. In addition, Koll, Woodside, and Muhlbacher (2005) have found that, once these interests are identified, organizational responsiveness to keystakeholdersand performance becomes increasingly difficult based on the variety of needs. They further found that balanced responsiveness to multiple constituencies is more likely to lead to high organizational effectiveness than is focused responsiveness to a single group. They also noted that serving multiple stakeholderinterestsis challenging. Accurately and clearly identifying individual stakeholders and their related interests becomes critical.
Strategically, an organization must look broadly at all of the stakeholders involved in the entire value creation process. By doing so, they will have a more complete picture of those who affect how the organization functions. Freeman, Harrison, and Wicks (2007) state that an organization should recognize the need to take into account, at a minimum, customers, suppliers, employees, communities, and financiers. By paying attention to this set of stakeholders, the company not only adds value to its internal organization but to the community at large.
Stakeholder Power
Caughlin (2002) states that the overall influence of a stakeholder or stakeholder group will depend both on the relative power and the level of conviction for a particular outcome. To be effective and to make efficient decisions, managers must incorporate the opinions and values of affected stakeholders as well as understand the complex institutional relationships, constraints, and opportunities that are involved in the overall decision-making process.
Making organizations more innovative, responsive, and responsible requires focusing on issues of power and influence held by stakeholders.
These issues are critical in coping with the strategic environment within which stakeholders evolve. Strategic leader performance and stakeholder analysis require the organization to be aware of the sources of stakeholder power (Pfeffer&Sananick, 1978). By identifying the issues and planning the means to benefit from them, the organization is in a better position to succeed. The issues influence development of plans at the strategic level as well as managing organizational processes linked to values and ethics, organizational culture, visioning, and the management of change.
The simplest form of power is that vested in the manager. A manager has subordinates who must do his or her bidding within legal, ethical, and organizational rules. This is legitimate power, which is granted by virtue of the holder’s position or by which the organization has granted the holder a specific power such as voting power or position authority. The basic employment transaction is the exchange of money for actions determined by the employer. Of course, there are many more ways that power can be exerted, notably in the effective motivation of people such as is found in transformational leadership. Also, there is economic power, which can be held by suppliers or customers. This power involves the economic gain or loss of the organizations resources. There is also political power in which legislation, regulations, or even legal issues may reside. Last, there is legal power, which causes an organization to be responsible for abiding by the myriad of regulations, restrictions, and legal boundaries set by political and legal entities. This type of power may also require organizations to take specific steps to avoid lawsuits or other sanctions.
Organizational Effectiveness
Organizational effectiveness is difficult, at best, to measure. Because of this, Kraft and Jauch (1992) suggest it is more meaningful to discuss the determinants of effectiveness in terms of specific situations and the needs of various stakeholders. The key measure then becomes how well the organization is meeting stakeholder needs. Though many managers often struggle with this, it is critical to make it a priority to understand the influence each stakeholder has on the organization. Indeed, managers must often define and defend their organization’s effectiveness to key stakeholders due to the stakeholder influence over the organization’s ability to achieve its objectives. In addition, Kraft and Jauch state that these stakeholders may have many different ideas about what effectiveness means or different expectations of what is to be accomplished. These authors argue that it is meaningful to discuss organizational effectiveness only in terms of these stakeholders and their perceptions.
Stakeholder Coalitions
An additional concept a manager must be aware of is the best utilization of stakeholders as they band together into groups or coalitions. Identifying and working with coalitions is a difficult and tricky process. Some coalitions form based on common interests while others form based on controversial issues. Coalitions do not remain static; as issues and interests change, the coalitions may also change. Heath (1997) states that the key stakeholder issues managers are expected to identify typically focus on the quality of relationship between the stakeholder and the organization. With that information, managers are better able to determine what can be done to enhance that relationship and to take action on issues around which coalitions have been built. The quality of these relationships predicts that stakeholders will be granted additional power in support of the organization.
Stakeholder coalitions can have a positive or negative effect on the organization. The reason managers want to determine the nature of the stakeholder interests and any coalitions they have developed is to determine what kind of power they have, positive or negative, and if the organization should pay attention to them. If the potential impact is determined to be significant enough and the organization determines they should pay attention to the coalitions, then it can develop a plan to deal with the current and future issues that the stakeholders may have.
Each relevant political, social, or economic community or stakeholder coalition (both formal and informal) is involved in generating norms pertaining to stakeholder obligations including political entities, industry groups, consumer groups, and personal interests. These coalitions may be able to identify and define the primary points of interest and possibilities for organizational improvements, clearly identifying specific issues and developing plans to address and improve them (Dunfee, 1996).
To support this focus, participating coalitions should be encouraged to explore and to define roles for stakeholders during all stages of their interaction with the organization. For example, according to Guillory, Everson, and Ivester (2006), coalition members in an organization representing disabled members received assistance with developing needs assessments that articulated the needs of all stakeholders; defining roles that stakeholders could play in collecting and interpreting needs assessment data; delineating coalition leadership roles for stakeholders with disabilities, and developing strategies for encouraging leadership skills and behaviors. As a result, the participating coalitions embarked upon a number of activities during their developments that resulted in stronger voices, enhanced leadership roles, and more consumer-focused action planning and systems outcomes. This involvement and the awareness of the benefits generated by this type of coalition are critical in the overall success of both the organization and the ongoing relationships with stakeholders.
Making organizations more innovative, responsive, and responsible requires focusing on and supporting the different positions of power and influence held by stakeholders. Coalitions which have formed to address specific issues hold a great deal of power for an organization. By becoming aware of the types of involvement and harnessing the large amount of energy and knowledge brought to the table by stakeholders who hold a passion for specific areas of interest, the manager is capable of generating significantly better results than if these issues were addressed with a workforce with less interest in the topic.
Caughlin, L. (2002). How stakeholder roles, power and negotiation impact natural resource policy: A political economy. Available from ProQuest Dissertations and Theses database. ABI/INFORM Complete.
Dunfee, T. (1996). Toward a generic stakeholder theory: Social contracts and stakeholder obligations. Retrieved from
Freeman, R. E., Harrison, J. S., & Wicks, JA. C. (2007). Managing for stakeholders: Survival, reputation, and success. New Haven, CT: Yale University Press.
Guillory, J., Everson, J., &Ivester, J. (2006). Community development: Lessons learned from coalition building and community connections for stakeholders with disabilities. Journal of the Community Development Society. Heath, R. (1997). Strategic issues management. Thousand Oaks, CA: Sage Publications.
Koll, O., Woodside, A., &Muhlbacher, H. (2005). Balanced versus focused responsiveness to core constituencies and organizational effectiveness. European Journal of Marketing 39(9/10) 1166-1183,1218,1220,1223.
Kraft, K., &Jauch, L. (1992). The organizational effectiveness menu: A device for stakeholder assessment. American Journal of Business 7(1)18-23.
Lawrence, A., & Weber, J. (2011). Business and society: Stakeholders, ethics, and public policy. (13 ed.). New York, NY: McGraw Hill.
Pfeffer, J., &Sananick, G. (1978). The external control of organizations. New York, NY: Harper and Row pp. 39-61.

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