Article by Herb Rubenstein, President, Sustainable Business Group
The days of “one man rules” are dying fast. Some suggest the days of “one woman rules” are coming fast. Most likely, the future will be characterized by a middle ground where enlightened leadership will be leadership that actively takes into account the positions of many groups within an organization.
Stakeholder analysis is the systematic identification of key stakeholders and appraisal of their influence and posture towards implementation of high-growth and sustainability strategies. This form of “organizational radar” is necessary at the early stages in developing these strategies, in order to avoid wasting resources on a strategy that key stakeholders will not support.
Broadening Your Definition
Organizations need support of front-line workers who can determine the exact level of customer satisfaction that is achieved. Management needs to know what the front-line workers are learning from customers on a daily basis. Companies need to know who the stakeholders are in every situation:
• the Internet
• human capital
• knowledge management
• the role of teams and virtual teams
• values-driven growth models
• new paradigm for boards of directors
• Councils of Masters/advisers
• consolidation and roll ups
• profit zone analysis
For example, Child Trends, Inc. is a non-profit organization that analyzes data on the well-being of children and youth. With a budget of nearly $3 million from government funds, foundations and publication revenues, the organization prepares papers for key Congressional Committees and policy makers in the US at the federal level.
When asked who the stakeholders were for their organization, we were told that the 100 leading federal policy makers were the key stakeholders. Our own analysis of their research findings shows that the true stakeholders are the 50 million people in the US who either are children, have children, or are likely to be very interested in the well-being of children. An organization with 100 stakeholders will have a completely different business model and different breakthrough potential than an organization with 50 million.
Just ask the people at the American Association of Retired Persons (AARP), which has 32 million members with over 500,000 persons volunteering on a regular basis. This is an organization that knows who its stakeholders are – and it is not the 100 leading policy makers on issues affecting the senior population.
Stakeholder analysis is also very helpful in reformulating and improving high-growth strategies in order to win the approval of key stakeholders who have objections. Defining the key stakeholders as broadly as possible will open up not only areas of potential, but also new approaches to rapidly expanding the capacity and capability of your organization.
Organizations usually define their stakeholders as owners – people occupying powerful positions within the organization, or people with the power to affect the organization’s costs and revenues significantly. Stakeholders may be internal or external. This narrow, stifling view of stakeholders may have been appropriate before the world became linked, or at least linkable, via the Internet. It is now less appropriate.
Defining who the key stakeholders are is an art. But, we do know that most mistakes are made by defining stakeholders too narrowly. Usually, stakeholders are defined by their power within the organization. We expand the term stakeholders to include people who are currently outside of your organization who could become an important part of your business model if you achieved breakthrough growth. Stakeholders are those interested in and capable of significantly contributing to (or creating barriers to) your organization implementing high-growth strategies and improving its organizational capacity.
Another example comes to mind of how a progressive organization defined its stakeholders far too narrowly. Upon the proper identification of the broader range of its actual stakeholders, it reversed a key policy and embarked on a very successful high-growth strategy.
For several years, Starbucks refused to serve drinks with skim milk and non-fat milk, as Howard Schultz believed the company should only sell coffee with whole milk. Schultz reportedly said that products with skim or non-fat milk could not be “Starbucks products.”
Presumably, he was trying to keep his company’s products consistent with those whole milk coffee products he experienced in Italy and upon which he modeled his company. By refusing to sell skim and non-fat milk in his products, he may have been faithful to the tradition upon which the Starbucks product was based, but he ignored the important stakeholder: the person who wanted the Starbucks’ experience, but did not want the taste, fat or calories of whole milk.
In the Starbucks example, someone within the organization spoke up often enough and loudly enough to change not only the way Starbucks served coffee, but also how it defined itself as a business. This illustrates the value of the employee as a stakeholder. The result was that the company was able to multiply the number of customer shareholders and capture increased earnings from these additional sales.
Stakeholders, especially those within the organization, do have immediate political power. They must have an opportunity to have their views heard at every stage in the process. Employees are clearly stakeholders.
One airline in the US did not consult its employees on an issue that adversely affected the employees and soon thereafter customer luggage mysteriously began to be rerouted to the wrong city to the great dismay of customers – and you thought they “lost your baggage” through incompetence!
The stakeholder analysis will tell you early on which stakeholders will need to have their issues addressed before strategic alignment takes hold. In addition, by weighting the relative influence of each stakeholder or stakeholder group, an organization could go far in gaining insight into making the right judgment calls.
Two Analytical Methods
In the Starbucks example, the relative influence of hundreds of thousands of potential customers for skim or non-fat products should easily have outweighed the lone voice of one man, Howard Schultz, voting with the past in mind rather than engaging in breakthrough thinking.
If Starbucks at that time before skim and non-fat milk products had sought to reinvent itself to expand its customer base, rather than sticking to its traditional product line, it might have had an easier time in giving consumers what they wanted. Today Starbucks sells ice cream and other products, and is clearly a company capable of listening to all of its major stakeholders.
A deeper form of stakeholder analysis is called the stakeholder agenda analysis. This type of analysis takes each stakeholder, one at a time, and probes deeply as to why this particular stakeholder is either supportive of the high-growth strategy or against it.
This detailed analysis is now becoming more critical as our workplaces are becoming more culturally diverse, and a higher level of understanding of the values, predispositions, attitudes and personalities of key stakeholders is becoming more important.
This form of “high touch” analysis is qualitative in nature and subject to being only as good as the person performing the analysis. However, its value cannot be underestimated in getting an organization from the conceptual stage of “we want high-growth” through successful implementation.
A third stakeholder analysis technique called stakeholder prioritization completes the stakeholder analysis triad. One of the authors developed this technique while working with Domino Printing Sciences, an international technology company based in Cambridge, UK.
The process rank orders the stakeholders in terms of the importance they have or influence they have in getting their way within the organization. Use of this simple device creates a navigational device through the political minefields of the organization and provides key insight to strategic planning consultants in the development and promotional aspects of the planning process for high-growth strategies.
Stakeholder analysis requires learning. Often, organizations have never defined “stakeholders” more broadly than owners, board members, key customers, suppliers and top management. Defining stakeholders to include large blocks of potentially profitable customers or persons in need of the services or products that your organization offers could lead to breakthrough growth.
Often when organizations, especially non-profits, gather data and information showing just how many people need their services, they get energized, raise funds, expand the number of volunteers, gear up their strategic planning processes and seek to expand to meet the need for their services.
To achieve success in the marketplace today, organizations need to know exactly who their stakeholders are. Gone are the days when an organization can narrowly define this group as just customers or board members.
Do not be conservative when labeling individuals or groups as stakeholders. The more stakeholders your organization can identify, the more opportunity is created and the greater your chances of achieving high-growth and sustainability.
About the Author
Herb Rubenstein is the Executive Director of the nonprofit organization, THE LEEEGH, which stands for leadership in education, energy, environment, governance and health. He is also the President of the Sustainable Business Group, a consulting firm to businesses, He is an adjunct professor of strategic management at the Global Energy Management Program of the University of Colorado Denver.
He is the lead author of Breakthrough, Inc.: High Growth Strategies for Entrepreneurial Organizations, lead author of Leadership Development for Educators, and the author of the American Bar Association book, Leadership for Lawyers. He has authored over 100 articles and over 80 videos on business strategy, entrepreneurship, leadership, and improving organizations.
He can be reached at firstname.lastname@example.org or 303 910-7961. The website for the Sustainable Business Group is www.sbizgroup.com and for THE LEEEGH please see www.theleeegh.org. You can learn more about Mr. Rubenstein’s books at www.leadershipforattorneys.org, www.leadershipforeducators.org and view his videos at www.youtube.com/theleeegh and www.vimeo.com.