Why Stakeholder Management is Important?

In order to justify why managing stakeholders is important to the organization, first, we have to clarify what is a stakeholder? A stakeholder is a person, group, or association that has a direct or indirect post in an organization because it can affect or be affected by the organization’s achievement objectives, and rules. Key stakeholders in a business organization include creditors, customers, administrations, employees, government (and its agencies), owners (shareholders), traders, unions, and the community from which the business gains its capital.

A stakeholder can be dividing into primary and secondary groups. Primary stakeholders are important to the continued success of the organizational venture and include shareholders and investors, staff, contractors, customers, and suppliers. The secondary stakeholder can impact the business or are affected by the organizational venture. They are not involved in direct transactions with the company. Also, they are not directly critical to the survival of the business yet they can often have long-term impacts on the organization venture.

Stakeholder management is the central part of an organization’s effectiveness. Stakeholders play important roles as advocates, sponsors, partners, and agents of change. Stakeholder management seems to be very important than ever because of the increasing globalization and the interconnected nature of the modern world. Administrative reforms across the world are also encouraging the need to pay more attention to stakeholder analyses as they emphasize markets, contribution, flexibility, and deregulation. The need to manage relationships has become such a part and parcel of the need to manage that to manage is to govern. And it is hard to visualize effectively managing relationships without creating use of carefully done stakeholder analyses. In addition, as organizational ventures grow they are likely to have more complex and entangled webs of stakeholders, hence it becomes necessary that entrepreneurs have the ability to understand and negotiate these relationships.

The use of stakeholder mapping is planned to identify stakeholders, group them and develop strategies for managing them: characteristically by securing their support and collaboration or overcoming their holdout. It is very useful in helping entrepreneurs/directors to understand the social/economic and political situation. Stakeholder mapping works by first identifying who the stakeholders in a project are and then establishing their personal degree of interest and power. From here, strategies may be worked out in order to manage and respond to the different situations that can occur. Stakeholder positions can vary over time and the map will need to be revisited at various points in the project. Stakeholders may also need to be increased or removed from the map as the project grows.

According to Johnson and Scholes’ power interest matrix (1999), this tool is very important to identify and evaluate the impact and expectations of particular stakeholders.

Johnson and Scholes’ power interest matrix - Stakeholder Management

Stakeholders such as the local community in group A require minimal effort is less interest and less power. They have little power to influence decisions and actions in the company; they don’t have a high level of interest, so the organization should not invest so much time and effort in them.

Stakeholders such as Suppliers in group B require to keep Informedis high level of interest and less power. This group has a high level of interest in the company and its activities but has limited means to influence decisions or actions. However, this group may contain potential allies; therefore they should be kept informed.

Stakeholders such as Government in group C (Keep satisfied) are high power and less interest. This group can present some difficulties. Although they behave passively they can have an enormous impact on the company or project. So, the company must put enough work in with this group of people and keep them satisfied, instead, they will bore with your message. Not only that, but the company also recognizes their potential reactions, engages in a dialogue in order to learn more about their discontent, and involve them according to their interest.

Stakeholders such as employee and customers group D (Key players) are high interest and high power people. The most important group of stakeholders with a high level of interest and power.

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