Stakeholder strategy for not-for-profit organisations

Who is a stakeholder? A stakeholder is defined as ‘any group or individual who is affected by or can affect the achievement of an organisation’s objectives’ (Freeman, 1984). In other words, a stakeholder is someone who has a ‘stake’ in an organisation. There are dozens of stakeholder classifications. One of the most widely accepted and commonly used is the simple classification of Primary and Secondary Stakeholders. As per this classification, Primary Stakeholders are owners of the organisation (shareholders), employees, customers, suppliers, and local community. Secondary stakeholders are the government, media, regulatory bodies, interest groups, etc.

So, what does the stakeholder concept entail? The stakeholder concept holds that an organisation should aim to add value to all its stakeholders. The antithesis of the stakeholder concept holds that the primary focus of an organisation should be its financial performance. In other words, an organisation should only have its shareholders’ interest at heart. Let us take a moment to examine a practical situation of two types of organisations; firstly, an organisation which does not embrace the stakeholder concept, and second, an organisation which does. Let’s take the example of ‘suppliers’. The mindset of the first organisation would be to obtain goods from the supplier at the lowest possible price, by squeezing the supplier’s margin as far as boundaries allow, and by forcing other disadvantages on the supplier. Contrary to this, the mindset of the organisation which does embrace the stakeholder concept would be to ensure the well-being of the supplier, because, amongst other reasons, this organisation recognises that its own survival depends on the survival of its suppliers. Take for example the Toyota car company. There are approximately 200 companies which supply parts and services to Toyota, Japan. Imagine the chaos and disruption that would occur within Toyota’s manufacturing lines, if 10 or even five of its suppliers went out of business! The stakeholder concept has thus developed into a powerful heuristic device, intended to broaden management’s vision of its roles and responsibilities beyond the profit maximisation function, to include interests and claims from non-stockholding groups. There is vast evidence to corroborate that financial performances of organisations which embrace the stakeholder concept is greater than its counterparts.

Good examples

Since the intention of this article is to suggest a strategy for not-for-profit organisations ( such as NGOs, voluntary organisations, sports bodies, regulatory bodies, interest groups, etc), and since the vast majority of Sri Lankans relate to cricket, let’s consider a few cricket bodies, starting with the Interactional Cricket Council (ICC). The ICC can be seen as one of the finest examples of organisations which has embraced the stakeholder concept. A case in point would be its implementation of the decision review system (DRS), to its full members. Of the 10 full members at the time (now it has 12 full members), nine took to the DRS like ducks-to-water, while India resisted. Now, the ICC could have forced it on India. But instead, the ICC took it upon itself to ‘sell’ the DRS concept to India. When one observes the manner in which the ICC conducts itself, it can be seen that it is an organisation which practices the stakeholder concept to the letter. Amongst its full- members, West Indies, Bangladesh, and Sri Lanka are recognised as boards which are generally bad at managing its affairs. The West Indies board is internally in conflict with its national players, and as a result, the depths to which its national team has plunged is sad for any lover of the game. As per cricket in Sri Lanka, the less said about it, the better. A common feature in badly managed organisations is that the managerial repartees miss the major issue: how to manage in a world where there are multiple influences. Management myopia, if I may.

Though a surprisingly vast number of organisations have failed to embrace the stakeholder concept, it has been around for decades. It was incepted by a research team at the Stanford Research Institute (USA), in 1963, and was formally theorised by Professor Edward Freeman, in 1984. However, there was a missing link; a framework for its operationalisation. This framework was provided by Mitchell, Agle, and Wood (1997). The framework introduced by Mitchell, et al., identified three key stakeholder attributes, and posit that at least one of the three attributes must be present in every stakeholder. The attributes are power, legitimacy, and urgency. In this context, ‘power’ refers to ‘the stakeholder’s power to influence the firm’, ‘legitimacy’ refers to ‘the legitimacy of the stakeholder’s relationship with the firm’, and ‘urgency’ refers to ‘the urgency of the stakeholder’s claim of the firm’ (Mitchell et al, 1997). If none of these attributes are present, a person (or a group, or institute) would be a non-stakeholder. The main focus of Mitchell et al., was to create a model which would help managers identify and prioritise stakeholders, and assist managers to create stakeholder salience. ‘Salience’ is defined as ‘the degree to which managers give priority to competing stakeholder claims’ (Mitchell et al, 1997). Mitchell et al., posit that if a stakeholder possesses all three attributes, the stakeholder is likely to gain much salience, and the level of salience would reduce if the stakeholder holds one or two attributes.

Best strategy

Finally, before the strategy is proposed, it is important to understand that in the context of not-for-profit organisations, the stakeholder classification needs to be revisited. For instance, the primary stakeholder classification of owners, employees, customers, suppliers, and local community would not apply to a voluntary organisation. Instead, a voluntary organisation may have trustees and patrons. It is also likely to have a management committee or a council of management. It may have employees, but its volunteers would be prominent amongst its primary stakeholders. Then the people it strives to serve would be its primary stakeholders. Finally, government institutes and other regulatory bodies which it may be answerable to, or work with, would be its primary stakeholders. Thus each notfor-profit organisation needs to carefully consider who its primary stakeholders are.

The strategy that is proposed herewith is simple, yet it eludes almost all, possibly due to its simplicity. That is to depart from the conventional stakeholder mindset, and to question yourself (i.e., your organisation) “whose stakeholder are we?” For instance, if the purpose of your organisation is to curtail the use of narcotics in society, your organisation is a stakeholder of The National Dangerous Drugs Control Board and the Presidential Task Force set-up for the purpose of curtailing drugs in the society. If your organisation is a sports body, your organisation is a stakeholder of the Ministry of Sports, and so on. This approach would enable your organisation to identify which of the three stakeholder attributes you have in relation to each organisation that is important to you, and what you need to do to increase the level of salience your organisation is currently receiving from that organisation. For instance, if your organisation only possesses the attribute of legitimacy in relation to another organisation which you need to work with, and your organisation is currently not receiving the desired level of attention from the other organisation, it is possible to increase the level of attention that organisation would afford to your organisation by adding-on another stakeholder attribute, i.e., power or urgency (yes, it is possible to add-on attributes). The adoption of this strategy would increase the efficiency and effectiveness levels of the organisation. It cannot be over-emphasised that a good stakeholder salience strategy is of paramount importance for not-for-profit organisations, and such strategy is more important for not-for-profit organisations in comparison to its profit-oriented counterparts.