Classifications of Stakeholders

• The parties involved with a firm’s operations can be separated into at least three groups.
• Classifications of stakeholders:

  • capital market stakeholders
  • product market stakeholders
  • organizational stakeholders
• shareholders and the major suppliers of a firm’s capital

  capital market stakeholders
• the firm’s primary customers, suppliers, host communities, and unions representing the workforce

  product market stakeholders
• all of a firm’s employees, including both non- managerial and managerial

  personnel

  organizational stakeholders
• Each stakeholder group expects those who makes strategic decisions in a firm to provide the leadership through which its valued objectives will

  be reached.
• The objectives of the various stakeholder groups often differ from one another, sometimes placing those involved with a firm’s strategic management process in situations where trade-offs have to be made.
• individuals and groups who have invested capital in a firm in the expectation of earning a positive return on their investments

  shareholders
• The most obvious stakeholders, at least in organizations, are shareholders
• Shareholders' rights are grounded in laws governing private property and private enterprise.
• In contrast to shareholders, customers prefer that investors receive a minimum return on their investments.
• Customers could have their interests maximized when the quality and reliability of a firm’s products are improved, but without high prices.
• High returns to customers might come at the expense of lower returns for capital market stakeholders.
• Because of potential conflicts, each firm must carefully manage its stakeholders.
• First, a firm must thoroughly identify and understand all important stakeholders.
• Second, a firm must prioritize important stakeholders in case it cannot satisfy all of them.
• Power is the most critical criterion in prioritizing stakeholders.
• Other criteria in prioritizing stakeholders include the urgency of satisfying each particular stakeholder group and the degree of importance of each to the firm.
• When the firm earns above-average returns, the challenge of effectively managing stakeholder relationships is lessened substantially.
• With the capability and flexibility provided by above- average returns, a firm can more easily satisfy multiple stakeholders.
• When the firm earns only average returns, it is unable to maximize the interests of all stakeholders.
• The objective then becomes one of at least minimally satisfying each stakeholder.