The Importance of Stakeholder Management

by Alan Valdez; Updated September 26, 2017

Although it is usually thought that a firm's only concern should be the bottom line of its shareholders, stakeholders also have the potential to make or break a project. A stakeholder is a group or individual that can affect or is affected by the organization, such as customers, suppliers, employees, and local communities. Stakeholder management is concerned with the fit between the values of the firm and the expectations of the stakeholders, particularly when they determine the ability of the firm to achieve its objectives.

Rationale

There are two commonly held views on the importance of stakeholder management. In the strategic stakeholder management model, managerial concern for a given stakeholder group is proportional to the perceived ability of such group to impact financial performance. In intrinsic stakeholder commitment model, firms are viewed as having a moral duty to their stakeholders, claiming that the real benefits from stakeholder management can only come from a genuine commitment to ethical principles.

Identification and Evaluation

Stakeholder management will be more important for some projects than others; construction of a new nuclear plant will probably require more careful stakeholder management than the opening of a new shopping mall. Likewise, some stakeholders have more potential impact than others for any given project. Identification of stakeholders and evaluation of their potential to affect the project are key for the stakeholder management process. Stakeholders with high potential for affecting or collaborating with the project should be actively involved, while monitoring may be sufficient for those with low potential.

Direct Benefits

The benefits from communicating with and managing some stakeholder categories is well understood. For example, identification and satisfaction of the needs of the users will lead to more sales, while commitment to the well-being of employees has the potential for improving productivity and work commitment, reducing turnover and absenteeism.

Risk Prevention

The business environment is complex and changing, and if stakeholders are not carefully managed they can cause unexpected problems. Stakeholder management may reduce the risk of poor communication, unfavorable press or negative public reactions. As stakeholder management involves identification and monitoring of groups affected by the project, risks and unexpected negative developments can be detected before they become problematic.

About the Author

Alan Valdez started his career reviewing video games for an obscure California retailer in 2003 and has been writing weekly articles on science and technology for Grupo Reforma since 2006. He got his Bachelor of Science in engineering from Monterrey Tech in 2003 and moved to the U.K., where he is currently doing research on competitive intelligence applied to the diffusion of innovations.