MGT Notes

Reference: Strategic Management (5e) – Frank T. Rothaermel (Pg 14)

A stakeholder is any entity that can affect or be affected by a firm’s actions. They have vested interests and claims on the successful operation of the firm. Stakeholders can be internal or external. A firm typically has both. They make contributions to the firm and receive benefits in return, thus forming a multifaceted exchange relationship. If any stakeholder withholds participation, it can negatively affect a firm’s performance.

Managing stakeholders is critical to gain and sustain competitive advantage (part of overall strategy). A single minded focus on shareholders (one type of external stakeholder) exposes a firm to undue risk, it undermines its economic performance and can even threaten the survival of the firm.

Successful stakeholder management aims to understand this complex web of exchange relationships and proactively shape them thus leading to the maximization of the joint value created. Satisfied stakeholders are usually more cooperative and the increased trust lowers costs down the line. Proper management also leads to organizational adaptability & flexibility and lessens the likelihood of negative outcomes.

Effect stakeholder management allows a firm to build a strong reputation over time.