Common and conflicting interests of stakeholders
The different stakeholder groups have different interests some in common with other stakeholders and some in conflict.
Examples of common interests:
* Shareholders and employees have a common interest in the success of the organisation. * High profits which not only lead to high dividends but also job security. * Suppliers have an interest in the growth and prosperity of the firm.
Examples of conflicting interests
* Wage rises might be at the expense of dividend.
* Managers have an interest in organisational growth but this might be at the expense of short term profits. * Growth of the organisation might be at the expense of the local community and the environment.
Thinking about stakeholder power
The study of stakeholders should not be limited to a description of the way in which the organisation impacts upon the stakeholders. In the context of strategy, what is more important is the power and influence that a stakeholder has over the organisation and its objectives.
Current and future strategies of the organisation are affected by:
* External pressure from the market place, including competitors, customers, suppliers, shareholders, pressure groups threatening a boycott, the government (through taxation and spending). * Internal pressures from existing commitments, managers, employees and their trade unions. * The personal ethical and moral perspectives of senior managers
(adapted from Newbould and Luffman, Successful Business Policies 1979).
The importance of profit maximisation
Traditional economic theory is based on the assumption that firms seek to maximise profits. It must be appreciated that this does not mean “any old level of profits” or even a certain target level of profits but it means squeezing the last penny of profits out of the firm’s operations. This assumption was based on the circumstances of 19th century business where owners acted as managers and could ignore the interests of stakeholders such as the employees and the community.
The profit maximising theory of the firm that characterised Neo-Classical Economics has to be modified to taken into account the power and influence of stakeholders. Various writers have put forward theories based on an alternative to the profit maximising aim:
* Baumol (1959) put forward a theory based on a sales maximising objective. * Williamson (1964) offered a theory based on managers setting the objectives to maximise their personal satisfaction. * Marris (1964) offered theory based on growth as the key concern.
In all three cases:
* The objective the result of managerial power over decision making. * Reflected the interests of managers rather than shareholders. * There was a limiting factor- these objectives are pursued subject to producing a satisfactory level of profits.
In “A Behavioural theory of the Firm” (1963) Cyert and March argued the goals of an organisation are a compromise between members of a coalition made up of the stakeholders.
The outcome of decision making is a compromise or “trade off” between the interests of the various stakeholder groups.
In the process leading to compromise much will depend on the relative power of the different stakeholder groups.
The Cyert and March theory of decisions being a compromise between the different stakeholders has certain features in common with the idea of satisficing behaviour which is associated with Herbert Simon.
Simon argued that decisions are taken in conditions of uncertainty and ignorance. Rather than an exhaustive search for the best or ideal solution, decision makers seek an acceptable or satisfactory outcome.
This is chosen because of the internal and external constraints such as time pressure, lack of information and the...