Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

22 Part 1: Strategic Management Inputs

those involved with a firm’s strategic management process in situations where trade-offs

have to be made. The most obvious stakeholders, at least in U.S. organizations, are

shareholders—individuals and groups who have invested capital in a firm in the expec-

tation of earning a positive return on their investments. These stakeholders’ rights are

grounded in laws governing private property and private enterprise.

In contrast to shareholders, another group of stakeholders—the firm’s customers—

prefers that investors receive a minimum return on their investments. Customers could

have their interests maximized when the quality and reliability of a firm’s products are

improved, but without high prices. High returns to customers, therefore, might come at

the expense of lower returns for capital market stakeholders.

Because of potential conflicts, each firm must carefully manage its stakeholders. First,

a firm must thoroughly identify and understand all important stakeholders. Second, it

must prioritize them in case it cannot satisfy all of them. Power is the most critical cri-

terion in prioritizing stakeholders. Other criteria might include the urgency of satisfying

each particular stakeholder group and the degree of importance of each to the firm.^115

When the firm earns above-average returns, the challenge of effectively managing

stakeholder relationships is lessened substantially. With the capability and flexibility

provided by above-average returns, a firm can more easily satisfy multiple stakehold-

ers. When the firm earns only average returns, it is unable to maximize the interests of

all stakeholders. The objective then becomes one of at least minimally satisfying each

stakeholder.

Figure 1.4 The Three Stakeholder Groups

Stakeholders

People who are affected by a firm’s

performance and who have claims on

its performance

Capital Market Stakeholders

• Shareholders


• Major suppliers of capital
  (e.g., banks)

Product Market Stakeholders

• Primary customers


• Suppliers


• Host communities


• Unions

Organizational Stakeholders

• Employees


• Managers


• Nonmanagers