BB835 The dynamics of strategy

4.1: Introduction to Unit 4

WEB046597

4.1: Introduction to Unit 4

Contents
Introduction 2
Planning your work 2
Learning outcomes 3
Introducing an organisation’s stakeholders 3
The structure of this unit 5
References 5
4.1: Introduction to Unit 4
Introduction

Introduction
Previous: 3.6: Managerial implications, strategic discourse and conclusions.
Welcome to Unit 4: Relating the inside to the outside – stakeholders, ethics and risk. To
start, listen to an audio welcome from one of the authors of this unit, Howard Viney.

Audio content is not available in this format.

Planning your work

There are four sessions in this unit. You should allow about 20 hours over the next two
weeks to complete these activities.

4.1: Introduction to Unit 4 Allow 30 minutes

4.2: Who is a stakeholder? Allow 3 hours
4.3: Organisational Allow 6.5 hours
purpose
4.4: Stakeholder analysis Allow 10 hours

Organise your work to suit your schedule. You may find it useful to note the following
points:

l Activity 3.1 involves exploring the missions of the various organisations that
members of your tutor group work for. All members of the tutor group need to
contribute to drawing up a list of organisations that will form the basis of this activity.
l Activities 2.2, 3.2, and 4.3 include substantial online readings, so you should allow
time to read these. You may wish to print off these readings ahead of the activities;
they are listed for you here:
l
Campbell, A. and Yeung, S. (1991) ‘Creating a sense of mission’, Long Range
Planning, vol. 24, no. 4, pp. 10–20.
l
Harrison, J, Bosse, D. and Phillips, R. (2010) ‘Managing for stakeholders,

2 of 5 Wednesday 10 January 2018

4.1: Introduction to Unit 4
Introducing an organisation’s stakeholders

stakeholder utility functions, and competitive advantage’, Strategic Manage-

ment Journal, vol. 31, no. 1, pp. 58–74.
l
Mitchell, R. K., Agle, B. R. and Wood, D. J. (1997) ‘Toward a theory of
stakeholder identification and salience: defining the principle of who and what
really counts’, Academy of Management Review, vol. 22, no. 4, pp. 853–86.

Learning outcomes
By the end of this unit, you should be able to:

l define who or what is a stakeholder, and have developed your own view on how
shareholder and stakeholder perspectives should be integrated within an organisa-
tion
l undertake a stakeholder power analysis and categorise stakeholders in terms of their
salience
l appreciate the position of stakeholders in the strategy process and the extent to
which they can enable or constrain the strategic choices available to an organisation.

Introducing an organisation’s stakeholders

The theme of this unit is understanding an organisation’s stakeholders. We shall discuss:

l who or what is a stakeholder

l what is the purpose and mission of an organisation
l the basis on which a stakeholder makes a claim on the actions of an organisation
l how organisations can attempt to manage relationships with stakeholders
l corporate social responsibility, ethics and governance.

In Unit 1 we discussed the idea that strategy is a process and that managers intending to
create strategy must first undertake the analysing phase of this process. Units 2 and 3
discussed different types of analysis that managers need to do to develop a better
understanding of two important factors: the impacts that environmental factors can have
on the range and content of an organisation’s strategy; and how an organisation’s
resources and capabilities can either enable or constrain the scope it has in pursuing a
particular strategy.
To complete the analysing phase we now turn our attention to organisations’ stakeholders
and consider their ability to enable or constrain the strategic choices available to an
organisation. For most managers, addressing the questions ‘Who are our stakeholders?’
and ‘How do I manage them?’ are central concerns, and directly or indirectly constitute
most of their working days. After all, every customer, colleague, employee, owner,
supplier, government oversight body, and so on can be considered a stakeholder, so you
can see the importance of stakeholder analysis to the strategy process. If we do not
understand what is acceptable to our key stakeholders, we are unlikely to make
appropriate strategic choices, or be able to assess the success or otherwise of the
decisions made.

3 of 5 Wednesday 10 January 2018

4.1: Introduction to Unit 4
Introducing an organisation’s stakeholders

The importance of stakeholders in the strategy

process
We have indirectly considered stakeholders in the previous units – important stakeholders
include buyers, suppliers and competitors from the five forces analysis, for example, while
identifying and managing stakeholders may be a valuable capability of an organisation.
But in this unit we focus directly on stakeholders and introduce a variety of tools designed
specifically to identify, understand and manage relationships with an organisation’s
stakeholders. As we shall see in this unit, poorly managed stakeholder relationships can
sometimes lead to difficulties in choosing and implementing effective strategy.
Stakeholder theory is a contentious area. As we shall see, there are a number of theorists
who believe that organisations should not seek to address specific stakeholder concerns
– they contend that firms should simply understand their organisational purpose and act
accordingly (by creating value for shareholders), a view that can perhaps best be summed
up by remembering American economist Milton Friedman’s famous statement that ‘the
business of business is business’ (Friedman, 1970). However, organisational life has got
more complex since this statement was first made and other theorists now argue that
such an approach (usually referred to as the shareholder perspective) is dangerous and
risks harming the interests of sets of stakeholders who may have legitimate claims on the
organisation but for one reason or another cannot make themselves heard by it. We have
also seen the rise of concerns such as corporate social responsibility, business ethics and
corporate governance which have made the job of managing stakeholders more complex.

Understanding who is, and who is not, a stakeholder

We therefore begin by asking the question ‘Who is a stakeholder?’ and exploring the
various perspectives. This involves a brief consideration of organisational purpose, and
how this impacts on the strategy process. Having established who may, or may not, be
considered a stakeholder, we then turn to a series of tools aimed at mapping an
organisation’s relationships with its stakeholders, estimating their significance, and
assessing how stakeholder interests may be prioritised and hence managed.
In so doing, we aim to clarify the importance of understanding stakeholders within the
strategy process. Stakeholder management is not straightforward, as it involves human
interaction. Moreover, the decision to pay attention to stakeholder interests is often
heavily influenced by the personal values and subjective judgement of the manager
making the decision. What happens if a stakeholder thinks that they possess a legitimate
claim over the actions of an organisation, but the managers within that organisation do
not? Such a situation can create a significant potential for conflict – just think about
examples of green activists protesting at the environmental policies of oil companies for
an illustration of the potentially significant consequences of a disagreement over the
legitimacy of a claim. We therefore expect you to develop your own opinion as to who is a
legitimate stakeholder in any organisation, and this is something you can use your tutor
group forum (TGF) to explore and debate.

4 of 5 Wednesday 10 January 2018

4.1: Introduction to Unit 4
Introducing an organisation’s stakeholders

The structure of this unit

l Session 4.2 begins the discussion by introducing the concept of the stakeholder and
provides an approach for identifying who an organisation’s stakeholders are.
l Session 4.3 asks ‘What or who is the organisation for?’ as we explore the question of
organisational purpose and introduce the ‘shareholder or stakeholder’ debate.
l In Session 4.4 we analyse stakeholders from a number of perspectives. We discuss
how organisations can understand their stakeholders and what the basis of
stakeholders’ claims over an organisation is, by considering the themes of power and
legitimacy and how organisations can manage stakeholder relationships. We also
discuss arguments that understanding stakeholders can have a positive impact on
organisational performance.

While you may already be familiar with a number of the concepts addressed in this unit,
the aim here is to deepen your understanding of the importance of the stakeholder debate
and appreciate the specific impact of your organisation’s stakeholders on the nature and
direction of strategy.

When you are ready, please move on to 4.2: Who is a stakeholder?

References
Friedman, M. (1970) ‘The social responsibility of business is to increase its profits’, New
York Times Magazine, 13 September.

All rights including copyright in these materials are owned or controlled by The Open
University and are protected by copyright in the United Kingdom and by international
treaties worldwide.
In accessing these materials, you agree that you may only use the materials for your
own personal non-commercial use.
You are not permitted to copy, broadcast, download, store (in any medium), transmit,
show or play in public, adapt or change in any way these materials, in whole or in part,
for any purpose whatsoever without the prior written permission of The Open
University.
WEB046597
3.1

5 of 5 Wednesday 10 January 2018