Approaches to Managing Stakeholders in Organizations

Strategic Stakeholder Management
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Strategic Stakeholder Management
Approaches to Managing Stakeholders in Organizations
Shareholder Theory
The shareholder theory demonstrates that it is the core responsibility of the organization to generate high revenue and increase its profitability ratio resulting from the stakeholders. According to the shareholder theory, the management works in collaboration with all the stakeholders to maximize the returns. The received value can be in the shape of increased dividends or share price. The line manager's role is essential in generating sufficient value from all the stakeholders. It is not appropriate for the organization to involve itself in philanthropy (Freeman, 2010). The organization management can ensure that significant dividends are delivered to the shareholders who can then opt to donate the available funds for philanthropy. The total number of shares determines the ownership of the organization. When an entity purchases shares, they become the company's shareholder and own some part of the business. The percentage of total shares determines the influence of the shareholder on the overall decision making of the organization. If the organization goes into debt, the shareholder is held responsible for the company's performance. Their total investment in the business determines the liability of the shareholder in the loss. Shareholders influence the future policy plan and setting organizational objectives. Sometimes it can impact the company negatively when the desired goals are not met.
Stakeholder Theory
The stakeholder theory describes that shareholders can be considered as a stakeholder of the company. Anyone who is involved and invested in the organization, whether it is an employee, government agencies or vendors, they are a significant part of the company's business. The organization management's main goal is to satisfy and fulfil the needs of all the stakeholders (Schibi, 2013). Stakeholder theory is all about business ethics and organizational management, which focuses on analyzing how the business operations impact the stakeholders with a shared interest. The creditors, suppliers, employees and local communities all play a role in the success and development of the organization.
Stakeholder Salience
Salience of a stakeholder is the degree to which all the stakeholders associated with the organization are essential, vocal and visible for the success of the project. It is one of the essential components of stakeholder management, which is a common practice in identifying the requirements of vocal stakeholders (Eskerod & Jepsen, 2013). The organization's management takes the decision based on the overall situation and takes the necessary decision to achieve the desired results. The evaluation of all the parameters plays a role in addressing the issues faced by the stakeholders.
Similarities and Dissimilarities Present in Theories
Shareholders are significant stakeholders in any organization, whereas not all stakeholders are shareholders in the company. It is one of the main differences present in stakeholder and shareholder theories. A shareholder is a partner in a company and owns some part of the business via stock shares. On the other hand, stakeholders take an interest in analyzing the overall organizational performance. The stakeholders want the company to perform positively in long terms so that the stock performance and shares increase to a significant level (Smith, 2003). Shareholders are not interested in examining the company's performance for a long term period as the shareholders can sell the shares and stocks whenever needed. The stakeholders make use of the dominating power and status for making changes in the organizational plan or policy. The capability of the business processes is evaluated to develop a business procedure that may benefit the organization in the long run. The cooperatives consider the stakeholder's interests which revolve around the company's employees, community, clients and shareholders. These similarities present in the theories help the organization's management to select a particular approach for the overall benefit of the organization. The stakeholder theory is applied in context to the varying interests of all the stakeholders. The cooperatives adopt a more balanced approach for enhancing the efficiency of the company's business operations and profitability.
The stakeholder salience is focused on characterizing the stakeholders based on urgency, power and legitimacy. The stakeholder attributes are examined and prioritized following the stakeholder claims. The stakeholder attributes and stakeholder salience are directly linked with one another (Darškuvienė & Bendoraitienė, 2013). A rise in stakeholder salience is observed with the increase in stakeholder attributes. The stakeholders can be pragmatic, narrow or broad depending on the organization's situation. In a given situation, anyone has the power of influencing or affecting the company.
Benefits and Challenges
The stakeholder's theory benefits the organization only in a situation where actual values are delivered to all the stakeholders. It has a direct influence on the businesses negatively and positively. Satisfying stakeholders interests are beneficial for the organization as it keeps the employees motivated (Susniene & Sargunas, 2009). The employees put more efforts into enhancing their work efficiency and contributing positively to the success of the organization. The improvement in business efficiency results in more number of loyal and satisfied customers. The problems and challenges present in the stakeholder theory are that only the manager remains answerable and accountable at multiple stages of the business process. It creates a negative impact on the work performance and morale of the manager.
The benefits of shareholder theory include that it provides a base to the organization in making informed business decisions. The theory encourages the organization to focus solely on maximizing market equity value of all the current shareholders. The narrowing down of goals makes it easier and convenient for the organization to meet its strategic plans. Another advantage is that the scope of the organization's operations and projects tasks are defined clearly and concisely (Worsley, 2016). It makes it convenient for managers to designate tasks to team members based on their competency and skill level. The disadvantage or challenge associated with the theory includes it does not take into consideration the components which directly influence the company's performance.
The stakeholder salience theory values stakeholders due to the unique attributes they can bring to manage the company's operations. The workforce is managed appropriately, and the tasks are assigned based on their capability and skills. It helps businesses to achieve growth and success in the long run (Krstić, 2014). The challenge or disadvantage of the theory is that people are resistant to change as they do not want to change the process of workflow. It creates conflicts and tensions among the management and labours. It creates a negative impact on the overall efficiency and performance of the business processes.
Stakeholder Management and Business Impact
Theory Likely to Have Positive Impact on Business Strategy
The stakeholder theory can have potential impact on how business activities are shaped. The benefit of applying the theory is that it helps in identifying the issues and problems present in the organization. Moreover, the ethical and economic components are taken into consideration in developing a long term policy (Mitchell et al., 1997). When the shareholder's interests are fulfilled the overall efficiency of the business processes is enhanced.
Maintaining high stakeholder engagement levels benefits the organization in terms of reduced costs, and the project is completed on time. Furthermore, the roadblocks that may arise during the project are managed efficiently without slowing down the business processes. It is imperative on the part of the company's management to manage stakeholders and keep a high engagement level with them. It will help the organization to achieve the desired results.
Engaging the stakeholders in the organization's processes is vital in enhancing accountability in the organization. With a transparent and effective policy in place, the project team finds it easier to achieve the desired results. The organization's management needs to follow up with the stakeholders on their overall progress. The company's management can also conduct a meeting with the stakeholders to address the issues faced by them. It will ensure that the organization's processes function smoothly without any interruption.
Theory Likely to Negatively Impact Business Strategy
The shareholder theory is most likely to impact the business strategy negatively because it ignores the components which influence the company's performance. When the organization's management takes into consideration factors such as stakeholder interests, it may benefit the organization in the long-run (Zou et al., 2010). All the responsibility lies on the organization to increase the overall profitability of the business processes. All the stakeholders are not taken into consideration when evaluating the overall performance of the organization. It affects the efficiency of the organization's different processes.
The maximization of stakeholder value can create a negative impact on the business. The employees may be most affected with the implementation of shareholder theory. If a corporation reaches low costs, it results in the cutting of employee wages and fringe benefits. It results in demotivating the employees and reduced performance from them. Another example is that if the productivity level of cheap labour becomes low, the company may opt for outsourcing labour with low wages.
Corporate governance has a direct impact on the total wealth of the stakeholder. The management of the business processes has an immediate impact on the total shareholders' value. A wrong decision taken by the stakeholder creates a negative impact on the overall efficiency and productivity of the business processes. The stakeholders impact the decision making of the core business processes.
Effective Stakeholder Management
Stakeholder Management Approach at Aetna
The Aetna Company adopted a unique strategic course as the organization's management decided to persuade away from the insurance company. The senior leadership of the organization thinks that focusing on financial services and healthcare was essential for the overall growth of the organization in the long run. The sale of the Aetna Company's finances to Travelers Insurance Group was a major transformation phase in the history of the company as the company moved from insurer to a top retirement and healthcare services company (Rubin & Carmichael, 2009). Aetna Inc. adopted the enterprise risk management approach for providing benefit to all the stakeholders before class action litigation.
The implementation of enterprise risk management provided a better analysis of risks, structure and reporting. The senior leadership of the organization was able to prepare standardized reports to monitor and identify enterprise risks. It was helpful for the organization in developing a focused strategy (Rubin & Carmichael, 2009). Moreover, the availability of different types of data like emerging risk and mitigation strategies allowed the leadership to determine the critical risk areas. With the help of the report, the company's management was able to examine risk tolerances and risk appetite.
The Aetna Company was following HMO model, which was making it difficult for the organization to manage and control the healthcare system. Moreover, the arrogant behaviour shown by the top management created conflict in the organization. The Aetna organization was unaware of the power of medical staff and physicians. The full implementation of the HMO model became difficult for the organization as the doctors did not agree with the adoption of the HMO model (Rubin & Carmichael, 2009). The business practices adopted by the company was not acceptable to the physicians. The HMO model adoption proved to be a failure for the company as the doctors united against the company and started consultation with the lawyers.
Theory Aligned with Managing Organization's Constituents
The stakeholder theory approach is ideal for effectively managing the organization's constituents. Aetna Inc. can use the approach to their benefit for keeping the employees motivated. It will also help the organization to improve the productivity level of the employees (Rubin & Carmichael, 2009). Moreover, the organization's ma...