Stakeholder Management Strategy: Measuring its Bottom-Line Impact
Apr 11, 2022
Applying the ROI Marketing Matrix to stakeholder management efforts
This blog is excerpted from Marketing & Sales ROI: What is it Good For, 2nd Edition.
Since R. Edward Freeman published his book Strategic Management: A Stakeholder Approach (1984), stakeholder management strategy has been at the top of managers’ agendas. This is because every aspect of a business involves a variety of stakeholders with different, and sometimes competing, interests that can have significant influence over the eventual success or failure of the enterprise or its initiatives.
What is Stakeholder Management?
Stakeholders are all different, bringing different perspectives and expertise, operating in different cultures and environments, and often possessing different views about what the outcomes should be. Stakeholder management is a set of strategies and techniques used to manage these challenges, including the systematic identification, analysis, planning and implementation of actions designed to engage with stakeholders. Most literature and research written about stakeholder management theory is based on determining how to classify and measure the quality of these relationships and how to plan actions to favor its improvement.
Planning for stakeholder management, however, should also consider how to generate value for both stakeholders and the organization—including a positive economic return. This planning will generate value for the organization by harnessing the positive influences and minimizing the effect of the negative ones. In other words, it should be about achieving certain results: a specific set of measurable goals that have both tangible (economic) and intangible impacts.
How Can I measure the ROI of my Stakeholder Management Strategy?
The impact of stakeholder management on a company’s bottom line can be predicted and measured, in the same way that the return on investment of any marketing effort can be measured, using the same principles as ROI marketing. To do so, you’ll need to create a custom attribution model that connects each stakeholder management activity to the company’s bottom line.
To generate value for both your organization and your stakeholders, your stakeholder management strategy needs to answer several questions:
- What defines a stakeholder for your organization?
- Who, specifically, are your stakeholders?
- How can you segment your stakeholders?
- What is the influence of your stakeholders on your organization?
- What is the influence of of your organization on each stakeholder?
What defines a stakeholder for your organization?
There is nothing worse than a stakeholder management strategy that fails to specify a proper definition of what and who the main stakeholders are.
A stakeholder is a person, group of persons or organization that has interests and/or concerns that can be affected by the organization’s activities and interactions. At the same time, the activities and interactions of this person, group or organization must also be able to influence the interests and concerns of the organization. The interaction must be able to affect both parties.
Who, specifically, are your stakeholders, and how can you segment them?
This is the first question your stakeholder management strategy must answer, and it is really about segmenting your various stakeholders. There are many options for how to do this, but it boils down to their ability to impact your bottom line and their capability to spread your message and the reach of your activities and interactions.
You’ll need to examine and classify stakeholders’ extent of impact (small or large) and the tone of your interactions with them (positive or negative). These factors may change over time, requiring re-segmentation of your stakeholder groups.
Most organizations have common groups of stakeholders, which might include employees, customers, media, suppliers, regulatory bodies, industry associations and universities. For example, landowners will always be stakeholders for companies that want to install antennas for the telecommunications industry or install windmill generators for renewable-energy businesses.
Regardless of the segmentation model you choose, you must have one. You can build your own segmentation model based on whatever is strategic to your business. A segmentation model will help to allocate resources and define actions and objectives.
What Is the influence of stakeholders on your organization?
Once you’ve defined the influence of each stakeholder segment on your organization, the next step in developing a measurable stakeholder management strategy is to classify each segment’s impact on the business and the visibility of those impacts.
Stakeholders’ impacts on business include:
- Any activity or interaction that increases operating costs, such as fines, insurance costs, preventative maintenance, etc.
- Any interaction that affects the organization’s ability to generate income, such as enhancing or preventing sales and increasing or decreasing costs.
The ability to influence real cash inflows and outflows determines the degree of impact that the relationship with the stakeholder has on the organization and its relevance from a bottom-line perspective.
For example, in industries such as telecommunications, food, automotive, finance and energy, regulatory bodies are an extremely relevant and impactful stakeholder that can very quickly drive profits and businesses from likely and viable to unlikely and unsuccessful.
The visibility of stakeholders’ interactions with your organization matters, too. This is especially important when one stakeholder segment’s activities become visible to, and begin to affect, other stakeholder segments.
Communication and social media mean that stakeholders’ ability to spread a message is greater than ever, whether they’re raising awareness about illegal activities, environmental impacts or corporate social responsibility. This further increases the pressure on companies to manage all three dimensions of sustainability: economic, social and environmental.
Seeing the relationship with stakeholders in terms of their impact on the business and their visibility puts the focus on what generates value to the business, in direct relation to the concerns and interests of each stakeholder. These two aspects together clearly define the stakeholder’s salience, relevance and the urgency of responding to their claims and requests. It will also allow an organization to proactively plan a stakeholder management strategy.
Once an organization is able to define the persons, groups of persons and organizations that can affect the bottom line and spread their messages (while being affected by the activities and interactions of the organization), stakeholder managers should focus on defining the value-drivers for both stakeholders and the organization.
What Is the influence of your organization on each stakeholder?
Essentially, stakeholders can influence the company’s bottom line, its positioning and the knowledge that the organization is able to transmit to other stakeholders. The goal of your stakeholder management strategy is to influence each stakeholder to have a positive influence on each of these areas.
Bear in mind that stakeholder management becomes more complex when stakeholders’ views, roles, allegiances, etc. change. For that reason, the steps to creating a stakeholder management strategy must be repeated throughout the lifecycle.
My free objectives-setting template can help you structure your thinking in this area. Download it here.
In part 2 of this blog, I’ll share a methodology for measuring the influence of an organization on each stakeholder, and the influence of each stakeholder on the organization – for measuring the ROI of your stakeholder management strategy.
Pablo Turletti, an internationally-recognized expert on marketing and sales efficiency and accountability, as well as a marketing keynote speaker, is the founder and CEO of ROI Marketing Institute (ROIMI), which has offices in Miami, Lucerne, and Madrid. ROI Marketing Institute helps companies around the world improve the efficiency of their marketing investments through precise measurement of the economic return on marketing activities. By directly connecting marketing projects and campaigns to a company’s bottom line, he helps turn them into true business investments. ROIMI provides a broad array of services, including auditing, competency-building, implementation support, consulting and research. Turletti is the author of the books ROI Marketing: The New Performance Standard and Marketing & Sales ROI: What Is It Good For? Learn more about the ROI Marketing Institute at roimarketinginstitute.com, and follow Pablo Turletti at twitter.com/pabloturletti or linkedin.com/in/pabloturletti/.