Stakeholder Management in Organisations

Over the past three decades, stakeholder management has increasingly become an important management to management practice and strategy. From the era of Freeman in “Strategic Management: A Stakeholder Approach” which being published in 1984, the area of stakeholder has not being study holistically in the public management environment (Gomes, 2004).

Generally, Freeman and Reed (1983) defined stakeholders into two perspectives: broad and narrow. From the broad perspective, stakeholders are considered to any party who can effect or have an effect on the organisation (Freeman, 1984). More inclusive definitions expand the scope of the stakeholder group significantly and the broader focus tends to be adopted by public organisations due to a number of factors. Firstly, public organisations have historically engaged with a broad range of clients, including the nominally powerless, interest and pressure groups in delivering servicesthere has been necessity to be inclusive to achieve democratic and socially just outcomes (Bryson, 2004). The impressive research on stakeholder theory has proceeded along three views: descriptive, normative and instrumental (Donaldson and Dunfee, 1994; Donaldson and Preston, 1995). However, Jones and Wicks (1999) argument involves discussions on (1) the emergence of two divergent approaches to stakeholder theory (a social science ap-proach and an ethics-based approach), (2) a proposed convergent approach to stake-holder theory development, (3) the extent of integration of normative and empirical theory in convergent stakeholder theory, and (4) the relationship of convergent stakeholder theory to other theories of organization. According to Freeman (2004), the development of the idea of “stakeholders” or “stakeholder management” or “managing for stakeholders” or “stakeholder capitalism” need to be traced and well explained.

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This research paper objective is to discuss about contribution on the importance of the stakeholder management for Malaysian Administrative Modernization and Management Planning Unit (MAMPU) by delivering empirical evidence on stakeholder attributes, stakeholder salience and stakeholder management strategies. The results of a survey will be carried out with executive level of MAMPU. This paper also identifies a stakeholder’s list and a stakeholder map in order to understand stakeholder attributes in order to describe the stakeholder salience of the organization which possibility as threat or opportunity to the organization.

Justification for the Research and Research Problem

Undertaking this research has been justified on the basis of the identification of the theoretical gap in relation to the determinants of stakeholder salience in stakeholder management strategies in organization.

The results of this research will provide a better understanding of the impact of the stakeholder attributes on the stakeholder salience in organization and the impact of the stakeholders salience on the stakeholder management strategies in organization. Because these issues have not been previously studied in the Malaysian public organization context, this study could be of great value in involving public sector organization what the organization could do to enhance the stakeholder approach in the organisations.

The results may also be of value in informing government policy makers to make a move in assisting organisations to achieve their stakeholder management strategies in their organizations. Furthermore, the research is expected to raise awareness of stakeholder management strategies for MAMPU.

For the past decades, scholars and practitioners has tempted stakeholder concept to describe, explain and prescribe the behaviour of organizations and managers. The important of stakeholders by scholars and practitioners, give new urgency to understanding the relationships between stakeholders and organization. In view of the above, the research objective of this study is to examine the relationship of stakeholder attributes, stakeholder salience on the stakeholder management strategies in MAMPU.

In the event of this research, researcher also will moderate management values with stakeholder attribute and stakeholder management strategies.

RESEARCH OBJECTIVES

This paper objective is to discuss about contribution on the importance and relationship of the stakeholder attributes and salience on stakeholder management strategies in MAMPU. This research also aims to get empirical evidence of management values as moderator towards stakeholder attribute and salience in organization performance. Thus this research hopes to achieve the following objectives:

1. To understand the relationship in stakeholder attributes and stakeholder salience through stakeholder management strategies.
2. To identify the impact of stakeholder salience on stakeholder management strategies.
3. To identify differences in management values of stakeholder attributes and stakeholder salience.

RESEARCH QUESTIONS

In addition, in order to achieve the above objectives, the following research questions have been formulated to examine the research objective:

1. What is the nature relationship of the stakeholder attributes in determining stakeholder salience?
2. What is the impact of stakeholder salience on stakeholder management strategies?
3. What is the impact in management values on management perception of stakeholder attributes and stakeholder management strategies?

DEFINITIONS OF KEY CONCEPTS

The definitions of Stakeholder

In management literature, the concept of “stakeholder” is being discussed either implicitly or explicitly for a long period. Ansoff (as cited in Freeman, 1984) explicitly used the term “stakeholder” in his theory of corporate planning, while Andrews (as cited in Freeman, 1984) identified stakeholder as a place for shareholders, employees, customers and communities in line with corporate strategy.

Freeman and Reed (1983) stated that stakeholder is:

“Any identifiable group who can affect the achievement of an organization’s objectives or who is affected by the achievement of an organization’s objectives”

Later R. Edward Freeman (1984) explained stakeholder’s concept as:

“Any group or individual who can affect or is affected by the achievement of the organization’s objectives”

The definition of stakeholder concludes to two classes of stakeholder: (1) those who are affected by the organization in the sense of their interests with the organization; and (2) those who can affect the organization in the sense of their interests in the organization.

Donaldson and Preston (1995) have identified framework in the scholarly literature: normative, descriptive and instrumental in the stakeholder theory. However, Agle, Mitchell and Sonnenfeld believed normative foundation of stakeholder theory is the departure point to inspire the creation of better theories, methods and tools. Furthermore, Jensen (2002) argued stock value maximization is the organization goal. However according to Attas (2004), stakeholder is a person who has much to lose – financially, socially, or psychologically – from the failure of the firm.

While Mitchell, Agle and Wood (1997) categorized stakeholder as: (1) real stakeholders have a claim on the organization, (2) pressure groups have influence on the organization and (3) regulators have no claim. In Table 1, the three categories with different element of the typology: legitimacy, power and responsibility.

TABLE 1:

Differences between three categories of stakeholders

On the other hand, Fassin (2008) has introduced new terminology: (1) stakeholders as those who have a concrete stake, (2) stakewatchers as stakeholders who look after a stake with care, attention and scrutiny like watchdogs do and (3) stakekeepers as gatekeeper.

The definitions of Stakeholder Attributes

Power

According to Mintzberg (1983), power can be defined as capacity to make a person do otherwise the person would not do. Mintzberg (1983) also highlighted five basic elements of power: (1) Control of resources; (2) Control of a technical skill; (3) Control of a body of knowledge; (4) Power from legal prerogatives and (5) The access to the power from previous sources.

Mitchell, Agle and Wood (1997) described stakeholder’s power is the influence in the organization. Furthermore, Agle, Mitchell and Sonnenfeld (1999) defined stakeholder power exists where one social actor can get another social actor to do something.

Legitimacy

Legitimacy of the stakeholder’s relationship with the firm (Mitchell, Agle, and Wood 1997, 853). Mitchell, Agle, and Wood (1997, 866) adopt Suchman’s sociological definition of legitimacy as – a common assumption about the actions of an actor are consider appropriate norms, values, beliefs and definitions within acceptable socially constructed system.

Furthermore, Agle, Mitchell and Sonnenfeld (1999) defined stakeholder legitimacy is assumption that the actions are appropriate within norms, values, beliefs and definition of socially constructed system.

Urgency

The third attribute identified by Mitchell, Agle, and Wood (1997) – the urgency of the stakeholder’s claim on the firm is the degree to which stakeholder claims for immediate attention. Examples of variables used in previous research to measure stakeholder attributes include power, legitimacy and urgency (Mitchell, Agle, and Wood,1997).

Furthermore, Agle, Mitchell and Sonnenfeld (1999) defined Stakeholder urgency is multidimensional notion includes both criticality and temporality. Stakeholder claims considered to be urgent both when it is important and when the delay is paying attention to it is unacceptable.

Based on literature review, Mitchell, Agle, and Wood (1997) have explained well in stakeholder attributes in their research. For this reason, this research will adapt Mitchell, Agle, and Wood (1997) stakeholder attributes: power, legitimacy and urgency.

Stakeholder Salience

Freeman (1984) original framework included eleven stakeholders on a non-exhaustive basis. To the elements of the managerial capitalism model – shareholders (or financiers), customers, suppliers and employees – Freeman added competitors plus two important external stakeholders: the government and the communities.

In a later version of the model, Freeman (2003) reduced the scheme to five internal stakeholders: financiers, customers, suppliers, employees and communities (dropping competitors), placed a box around these five stakeholders, and introduced six external stakeholders: governments, environmentalists, NGOs, critics, the media and others, without arrows linking these to the central hub. On the other hand, Mitchell, Agle and Wood (1997) found a model which power, legitimacy, and urgency are worked together in identified stakeholder salience. Mitchell, Agle, & Wood (1997) highlighted the identification of stakeholder remains a vexed and difficult question because of the differing paradigms that drive stakeholder activities in organisations.

Furthermore, Mitchell, Agle and Wood (1997) also defined stakeholder salience as “who or what really counts” which means managers need to determine what they really pay attention to as they weigh stakeholder concern in their organizations. Mitchell, Agle and Wood (1997) also described stakeholder salience as managers’ priorities in compete with stakeholder claims.

However, Beach, Brown and Keast (2009) argued that these definitions are not sufficiently to the public good context to be meaningful in complicated stakeholder situations facing public organisations. Therefore, Beach, Brown and Keast (2009) have suggested incorporating the dimensions of stakeholder definition, classification and engagement style, a public management specific stakeholder classification model has been constructed. Examples of variables used in previous research to measure stakeholder salience include key organisational level of stakeholders (government agencies), operational organisational level of stakeholders (employees) and project level of stakeholders (customers) (Beach, Brown and Keast, 2009).

However, Saidah (2010) research shows that supplier and employee added value have a significant influence on corporate governance ratings, but not so for customer, investor and public added value. The findings also found a formal process is more effective in project stakeholders’ identification. On the other hand, Roshana (2009) emphasized priority criteria is being set in order to manage the stakeholders’ needs and expectations between the private and public sectors. Roshana (2009) also found government and consultants are putting social and political matters first priority, whereas the private sector emphasis on forming project coalitions and lobby tactics mechanisms.

Based on literature review, the organization is exposed to influence stakeholders based on power, legitimacy and urgency. For this reason, this research identifies the stakeholders’ salience as: financiers, customers, suppliers, employees and communities in order to have effective stakeholder management strategies.

Stakeholder Management Strategies

Savage, Nix, Whitehead and Blair (1991) indicated four essential elements in the stakeholder management process: (1) identify key organizational stakeholders; (2) diagnose stakeholders along two critical dimensions: (a) threat potential and (b) cooperation potential, (3) formulate appropriate strategies both to enhance change relationships with those key stakeholders and to improve the organization’s overall situation, and (4) effectively implement these strategies. Savage, Nix, Whitehead and Blair (1991) also explained examples of variables used in the research to measure stakeholder strategic management process include potential for threat and potential for cooperation.

On the other hands, Polonsky (1995) believed in his modified stakeholder strategy matrix as shown in Table 1 and Figure 1.

Table 1:

Generic Stakeholder Strategies

Strategy

Collaborate:

• Use allianceswithstakeholdersto change the officialrulesgoverningfirm behavior.
• Workto involve differentstakeholdersrule establishmentprocess.
• Refocusstakeholders, suchthattheyaddress”different” issues.
• Integrate morestakeholder input.

Involve:

• Modify stakeholderbeliefsor expectations regardingfirmbehaviour.
• Modify organizationalbehaviour.
• Modify stakeholderobjectives.
• Adopt stakeholderobjectivesregardingconcerningissue.
• Tie the issue of concernto broader stakeholder strategy.
• Tryto have more stakeholders input.

Defend:

• Re-enforce stakeholders’positive position.
• Continue withexistingorganisationalactivities.
• Tieorganisationalactivitiesto other issuesthat stakeholders are pursuing.
• Include stakeholdersin the decisionprocess.
• Reduce Stakeholdersstatus.

Monitor:

• Don’t change organisational behaviour, try to monitor stakeholders.
• Re enforce stakeholdersexistingbeliefs.
• Tryto minimize the change possibility about rules of organization.

Bridging:

• Attempt to have morestakeholder communication.
• Attempt to gather stakeholder input.
• Attempt to affect the perceptionof other stakeholders towardsthe bridging group.
• Attempt to change otherstakeholder expectations directly.

Figure 2:

Stakeholder strategy matrix

StakeholdersPotentialto HarmtheOrganisation

HIGH

LOW

Stakeholders Potential to Cooperate With the Organisation

HIGH

StakeholderType (1): Mixed Blessing

Strategy: Collaborate

StakeholderType (1): Supportive

Strategy: Involve

StakeholderType (5): Bridging

Strategy: Mixed Approach

LOW

StakeholderType (3): Non Supportive

Strategy: Defend

StakeholderType (4): Marginal

Strategy: Monitor

[Source: Polonsky, 1995]

Bryson (1995) identfied six step process in stakeholder identification scanning organizational environment: (1) organization’s main stakeholders identification; (2) the criteria to identify stakeholders; (3) stakeholders’ demands decision making identification; (4) stakeholder’s influence identification; (5) organization needs from these stakeholders identification; (6) the important of each stakeholder to the organization.

According to Attas (2004), five steps in stakeholder management can be specified as a rough and ready procedure for implementing stakeholder management: (1) Identify the relevant stakeholders. The central marks of stakeholders are their reduced possibility of exit, and their exhibited commitment to the relationship with the firm. (2) Assess the strength of the stakeholder claim to special consideration as insiders. (3) Stakeholder interests are to be ascertained. (4) Evaluate priorities among the divergent and, at times, conflicting stakeholder interests or assign weights and aggregate weighted claims so as to achieve a comprehensive solution. (5) Impose institutional arrangements that would take appropriate account of stakeholder interests. For example, party membership of the board might lead to adequate representation of the various interests.

However, Beach, Brown and Keast (2009) have revealed that government agencies undertook a wide range of activities to engage with stakeholders. From the research, Beach, Brown and Keast (2009) emerged that stakeholder initiatives were undertaken for the following purposes: strategic, engagement, communication and measurement as explained in Table 2.

Table 2:

Stakeholder Engagement Initiatives

FOCUS

INITIATIVES

Strategic:todirect

organisationalaction

Strategicperformanceframework

customerfocusstrategy

staffengagementstrategy

Engagement:toconnectwith Stakeholders

Dialogueworkshops

Director-Generals’roundtables

achievementplanning

networks

publicforums

community engagementinitiatives

client/liaisonofficers

onlineconsultation

Communication:toinform

Stakeholders

Media

Advertising

Branding

newsletters,websites,

stakeholderdatabase

Ministerialresponses

Ministerial

AdvisoryCommittees

Stafftraining

Measurement: to measure the satisfaction of stakeholders

Stakeholder/ client/ community/ servicetrackersurveys

simulationlaboratory

project reviews

focusgroups

customer clinics

From the literature review, the organization is exposed to influences of various stakeholder management strategies. For this research, the organization needs to identify the stakeholder management strategies based on: (1) Collaborate; (2) Involve; (3) Defend; (4) Monitor; and (5) Bridging.

Management Values

Management values in this research will be based on ISO 9000 family of standards. ISO 9001:2008 (source: www.iso.ch) is the standard that provides a standard requirements for a quality management system, either in the private or public sector. The ISO 9001:2008 standard explains an international framework in systematic approach in quality management system that can satisfy customers based on:

• Principle 1: Customer focus
• Principle 2: Leadership
• Principle 3: Involvement of people
• Principle 4: Process approach
• Principle 5: System approach to management
• Principle 6: Continual improvement
• Principle 7: Factual approach to decision making
• Principle 8: Mutually beneficial supplier relationships

(Cited from )

Based on the above ISO 9000:2008 principles, researcher will moderate management values based on ISO 9000 quality management system values with stakeholder attributes and stakeholder strategic management process. Examples of variables used in this research to measure management values include customer focus, leadership Involvement of people, factual approach to decision making, and mutually beneficial supplier relationships (ISO 9000 family standard, 2008).

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From the literature review, the organization is exposed to influences of various management values. For this research, the organization needs to identify the management values based on: (1) Customer focus; (2) Leadership; (3) Involvement of people; (4) Process approach; and (5) System approach to management; (6) Continual improvement; (7) Factual approach to decision making; and (8) Mutually beneficial supplier relationships.

CONCEPTUAL FRAMEWORK

This research embarked on the assumption that high management perception of stakeholder attributes such as power, legitimacy and urgency influence stakeholder salience including customers, employees and government agencies. Thus, management perception of stakeholder attributes together with stakeholder salience will lead to the high organization performance. Besides this, management values consist of ISO 9000 values can act as moderator to management perception of stakeholder attributes and stakeholder strategic management process. The conceptual framework of this research is shown as Figure 3.

Figure 3:

Conceptual framework

This research consists of hypothesis are shown as below:

• Hypothesis 1a: The stakeholder attribute of power will be positively related to the stakeholder salience of customers, employees, suppliers, financiers and communities.
• Hypothesis 1b: The stakeholder attribute of legitimacy will be positively related to the stakeholder salience of customers, employees, suppliers, financiers and communities.
• Hypothesis 1c: The stakeholder attribute of urgency will be positively related to the stakeholder salience of customers, employees, suppliers, financiers and communities.
• Hypothesis 1d: The cumulative number of stakeholder attribute of power, legitimacy and urgency will be positively related to the stakeholder salience of customers, employees, suppliers, financiers and communities.
• Hypothesis 2: Stakeholder salience as perceived by management will be positively related to Stakeholder management strategies.
• Hypothesis 3: Management values will affect management perceptions of power, legitimacy and urgency and thus related to the stakeholder salience of customers, employees, suppliers, financiers and communities.

EXPECTATIONS

This paper presents an investigation which will be out with executives (ranked grade 54 and above) of MAMPU. Its main aim has been to identify and gather evidence concerning stakeholder salience and stakeholder management strategies based on criteria of power, legitimacy and urgency.

The research will identify two types of contributions to the current literature. The research will contribute on empirical study of stakeholder salience identification which will later relate to strategic management strategies. A theoretical contribution of the findings will be related to the stakeholder theory. Evidence which will be gathered in this research will support Mitchell, Agle and Wood (1997) definition of stakeholder salience.

From the findings, we expect to uncover the relationships in stakeholders salience which will use different strategies with organization because they are playing different roles with organization and have different degrees of importance based on stakeholder attributes (power, legitimacy and urgency).