What do we mean by the term stakeholder? Is it just another way of saying “customer” or does it mean something (or someone) more? This is an important question to clear up right from the top in the strategy process because it turns out that stakeholders can have a huge impact on the success of your business.
When I work with clients, I use this definition for stakeholder: A stakeholder is anyone who can influence (either positively or negatively) the achievement of your mission/vision and/or who is the recipient of the products and services your organization produces/provides. Looking at this definition, customers are definitely a stakeholder. So are employees.
As an example, a public sector organization might come up with this stakeholder list: Clients/Citizens, The Community, Service Delivery Partners, Governments/Funders, Our Employees, The Board of Directors, and Other Interested/Invested Organizations.
It’s important to realize that taking the time to list out who your stakeholders are isn’t just for public and non-profit sector organizations – it’s also an important activity for private sector organizations. However, this often seems to get lost in the shuffle.
This is a problem and here’s why.
Whether you admit it or not, your organization, regardless of sector, is working pretty hard to balance the needs of a long list of stakeholders every business day. This can be quite a struggle though because, very often, stakeholder needs and expectations compete against each other. For example, if you are mining company, you want to develop a mineral deposit profitably and deliver shareholder value. In contrast, environmental agencies would prefer that you don’t develop the mine or, if you do, they want you to do it with the least amount of impact to the natural environment. If you need to modify your mining methods and add additional controls and measures, this will most certainly impact your bottom line. It can take a lot of hard work and careful planning to manage a tension like this successfully, however, in the mining company’s case, it turns out that doing just that is absolutely critical to getting community and government support for their mine development plans. Success in a situation like this begins with acknowledging who is on your stakeholder list.
STEP 1: Develop “Profiles” for Each Stakeholder
When I work with my clients, we take a fairly thorough approach to considering stakeholders. We begin by identifying all of their stakeholders using the definition above. It helps to get your stakeholder list down to a manageable number (i.e. eight stakeholders or less) if possible – this can be done by challenging yourself on whether a stakeholder is really a stakeholder (Do they really fit according to our stakeholder definition?) and/or by grouping stakeholders with similar needs and expectations together. While it will help later in strategic planning to focus and shorten your stakeholder list, this should never be done at the expense of eliminating or minimizing the influence of a legitimate stakeholder.
Once you have a reasonable stakeholder list together, the next step is to prioritize it. That is, determine who your number one stakeholder is and then list them in rank order from there. While you will never tell your stakeholders where they fall in the order, ranking your stakeholders is critical in helping you set and execute your strategic direction moving forward. That is, it will help you make those inevitable and critical tradeoffs that are required when managing competing stakeholder demands.
Having a prioritized list of stakeholders, however, is not good enough for your planning process. It is also important to identify the top needs and expectations for each stakeholder, to list them in rank order, and to determine how well your organization is doing today at meeting those stakeholder needs. This work can be done using both formal (i.e. surveys and stakeholder focus groups) and informal (i.e. insights obtained from the stakeholder-facing members of your organization) stakeholder information and intelligence. Sometimes you discover that different stakeholders/stakeholder groups have the same or similar needs and expectations. When this is the case, it can make addressing, and then satisfying, the needs of multiple stakeholders a little easier – often one strategic objective can do the trick. Either way, this part of the stakeholder profile development exercise provides you with a good indication of your stakeholders’ primary expectations for your organization and your strengths and weaknesses in terms of meeting those needs and expectations.
Your next step is to leverage this information to build your organization’s strategy.
STEP 2: Translating Stakeholder Intelligence into Your Business Strategy
The objective in step two is to translate key stakeholder needs into strategic objectives and to place them on your strategy map. Here, let your stakeholder prioritization guide you. For example, be sure that addressing the primary needs and expectations of your number 1 stakeholder is reflected on your strategy map. Ideally, the top needs and expectations of all your stakeholders should be represented in your strategy. In my experience, there are often enough similarities in stakeholder needs that you can cover most, if not all, of them with just a few strategic objectives.
However, the real first step in translating your stakeholder intelligence into applicable strategic objectives is to define your strategy map (SM) perspectives and their arrangement in a hierarchy that maps out the way your business “flows” to produce results and desired outcomes. We all know what the traditional SM perspectives are and how they are generally arranged in the various business sectors so I won’t go over them here.
Some interesting questions arise when you start thinking about strategy map hierarchies and where to place various stakeholder needs-related strategic objectives on your strategy map.
I believe that, in the case of private sector companies, we have gravitated to using certain traditional SM perspectives for addressing certain “universal” stakeholders and their associated strategic objectives. For example, almost all private sector companies will identify customers, employees, and shareholders as key stakeholders. Strategic objectives related to employees tend to appear in the organizational capabilities (or learning and growth) perspective, customers have their own SM perspective so objectives related to satisfying their needs and delivering customer benefits go there, and, finally, the shareholder and their expectations are well represented by the objectives that go in the financial perspective.
Most private sector organizations also have several other stakeholders but who they are varies from company to company. Should we include strategic objectives for these other stakeholders on the strategy map even though there aren’t “natural” placeholders for them? Of course we should! Generally, I find that they get sprinkled throughout the strategy map in places and ways that flow based on the SM hierarchy – most often though, in my experience, they tend to appear in the internal process and organizational capabilities perspectives. The key is to place them into your strategy in a way that works with the flow of the business.
Now - what about the public and non-profit sectors? Are there universal stakeholders in those organizations? I would argue that there are: employees for sure and funders. However, funders as a group are actually highly variable in terms of who they are and the contribution they make. Sometimes they’re the government, sometimes they’re donors, and sometimes they’re actually customers (for example, in the case of a provincial lottery corporation). With the nature of the funders group’s contribution and needs being so variable, it’s difficult to say that they are “naturally” represented in the financial or resource management perspective on a public/non-profit SM. Perhaps this uncertainty is one of the reasons why we tend to include a stakeholder perspective on the public/non-profit SM – while we can put stakeholder objectives anywhere within the SM hierarchy based on their contribution to the achievement of results, the stakeholder perspective gives us a “home” for these stakeholder strategic objectives just like the customer perspective does.
Recently, some forums have debated the relevance of a dedicated stakeholder perspective on the public/non-profit SM. One suggestion is that since we call out one specific stakeholder in the private sector (the customer), give them their own SM perspective, and leave the needs of other stakeholders to be addressed throughout the remaining SM perspectives if we wish to include them, perhaps we should take a similar approach with the public/non-profit SM. That is, rather than calling that perspective “stakeholders”, perhaps we should name it for the organization’s number one stakeholder. An even more provocative suggestion is to eliminate the stakeholder perspective all together.
Here’s what I think.
In private sector organizations, I think that it makes sense, based on the way that these companies work to produce results (usually profitable business growth), to identify the customer and give them their own perspective, and then place it where it traditionally goes in the SM hierarchy. While expense management is a key element in delivering profits, the ultimate driver of profitable business growth is the customer. As a result, I am fine (1) with the customer being called out as a key stakeholder group, and (2) that their perspective sits just below the financial perspective. However, the fact that the customer has their own perspective has nothing necessarily to do with their importance or ranking as a stakeholder. For example, some organizations rank their employees higher than customers on their prioritized stakeholder list – yet, in these cases, the customer keeps their own SM perspective and it stays in its traditional spot in the SM hierarchy. It's important to realize that where the customer perspective sits on the strategy map has nothing to do with the relative importance of the customer as a stakeholder and everything to do how the business flows to produce results.
Keeping this in mind, let’s consider public and non-profit sector organizations which are predominantly mission-oriented. Key to achieving their mission is receiving financial, resource/time, and emotional support from stakeholders, and earning stakeholder confidence that the organization can do its work in the name of its mission. Almost all public and non-profit sector organizations must deliver to their stakeholders’ needs and expectations to earn their support and confidence and then get to their mission. In other words, producing required stakeholder outcomes for a group of stakeholders (not just one stakeholder) is a key stepping stone in achieving its ultimate result (its mission). It’s just the way the organization’s “business” flows. With this being the case, it only makes sense to me to have the stakeholder perspective (or outcomes as some prefer to rebrand it) at the top of the SM hierarchy placed just below the mission. This doesn’t preclude you from placing additional stakeholder objectives in other places on your SM (e.g. employee objectives in the organizational capabilities perspective). Essentially, I believe that not including a stakeholder perspective on the public/non-profit sector SM is a fundamental omission and without it, a public/non-profit sector SM doesn’t accurately reflect the macro flow of value delivery and results achievement.
I began this blog post by talking about stakeholders and who they are. Before you can embed your response to your stakeholders’ needs in your business strategy you must take the time to develop your prioritized stakeholder list and profiles. Armed with this intelligence, your next step is to create strategic objectives that are focused on delivering what your stakeholders need you to deliver to achieve the business results and outcomes your organization is striving to achieve. In the end, I am most interested in ensuring that the necessary stakeholder strategic objectives make it to your strategy map and that they are placed on your SM in a way that makes sense in the context, and flow, of your strategy story. I do think that it’s essential for your SM hierarchy to reflect the flow of your business in producing results because it helps your strategy story make better sense to employees and other stakeholders and it’s ultimately easier to work with.
However, at the end of the day, whether your stakeholder strategic objectives appear in a specific perspective or all across your strategy map, is perhaps a bit “academic”. The key is that you have relevant stakeholder objectives that fit appropriately in the value chain of your business in your strategy and on your strategy map. When your stakeholder objectives are defined with the help of a good stakeholder identification and profiling process, you and your organization will be in the best position to actually achieve the customer/stakeholder and business outcomes you are working so hard for.