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In-Depth Information
relationships that are defined mutually and dynamically. The competitive response of an orga-
nization is the result of all such stakeholder relationships or collaborations. One of the earliest
proponents of what is known as the stakeholder theory is R. E. Freeman, who wrote
Strategic
Management: A Stakeholder Approach
. The stakeholders are investors, owners, management,
political groups, customers, community, employees, trade associations, suppliers, alliance part-
ners, government, competitors, and so forth.
Two kinds of stakeholders exist: primary and secondary. Primary stakeholders are those enti-
ties that are affected directly by the success or decline of a company like investors, financial insti-
tutions, customers, suppliers/vendors, and employees. Secondary stakeholders like the media,
government, and regulatory agencies are affected only indirectly by the varying fortunes of the
company, but they definitely exercise influence on the functioning of the company. Sometimes,
this influence may not only exceed the influence of the primary stakeholders but may also prove
to be decisive for the enterprise.
For the value created by an enterprise, the five stakeholders of primary importance are
1. Customer
2. Investors
3. Vendors
4. Managers
5. Employees
Collaborations are characterized by contracts that can range from explicit to the implicit. These
contracts specify or allude to what the company can expect from each stakeholder in achieving
its objectives and what each stakeholder can expect in return from the organization. For instance,
explicit contracts are contracts whereby a customer pays a predetermined amount of money for
availing of the company's products or services. Similarly, implicit contracts are contracts whereby
an employee gets a promotion, depending on the performance with reference to the expectations
set at the beginning of the concerned period.
It is with reference to these contracts, whether implicit or explicit, that every stakeholder
invests capital in the continued and envisaged future success of the company; this capital could
be financial, managerial, intellectual, environmental, social, and so forth. The continued involve-
ment, interest, and commitment of the stakeholders are dependent on the stakeholders getting
a reasonable
return on investment
(
ROI
). This ROI could be different for different stakeholders.
For the customers, it could be in terms of assured competitive products, services, support, and
upgrades in the future. For the vendors, it could be in terms of assured supply contracts on favor-
able terms. For the investors, it could be in terms of an assured dividend in the future. For the
managers, it could be in terms of an assured rise up the corporate ladder, and for the employees
of the company, it could be in terms of assured security, professional development, and career
growth.
15.1.1 From Built-to-Last to Built-to-Perform Organizations
In the early 1980s, Peters and Waterman published a study of 43 major American corporations.
The sample included such household names as Disney, Boeing, IBM, Mars, McDonalds, Dupont,
Levi-Strauss, Procter & Gamble, 3M, Caterpillar, Hewlett Packard, Kodak, Wang, and Atari.
All 43 companies were selected because they had been innovative and adaptable over reasonably
