Towards a Categorization of Stakeholder Groups - Taylor & Francis ...

Journal of Marketing Communications Vol. 12, No. 4, 297–308, December 2006

Towards a Categorization of Stakeholder Groups: An Empirical Verification of a Three-Level Model KLEMENT PODNAR & ZLATKO JANCIC Marketing Communication and Public Relations Department, Faculty of Social Sciences, University of Ljubljana, Ljubljana, Slovenia

ABSTRACT This study focuses on a categorization of different stakeholder groups, specifically on their power in relation to a company. Stakeholder theory argues that the company must be seen throughout numerous interactions with its stakeholders. Within the marketing communications field, the theory draws attention to communication (dialogue) with different stakeholders, not only consumers. An empirical verification of a three-level stakeholder model is presented in the study. The results, based on a sample of employees in marketing communications and public relations agencies, show that three different levels of exchange and communication – inevitable, necessary and desirous levels – can be expected. Authors argue that such a result has important implications for marketing communications. A company can achieve optimal effects with a rational management of communication resources, according to different stakeholders’ importance to the company and their power. KEY WORDS: Stakeholders, stakeholder theory, marketing communications, exchange, corporate communications

Introduction The stakeholder theory can be understood as an alternative view to the neo-classical economic theory of the firm (Hendry, 2001). It brings the perception that in a monopolistic-competition environment, those operations that supply nothing more than a company’s selfish interests can have a negative or even harmful influence on society (Cassidy and Pustay, 2003). The stakeholder theory argues that the company must be seen throughout numerous interactions with its stakeholders. It embraces the view of the company as a group or a chain of implicit and/or explicit contractions between individuals and groups (Jensen and Meekling, 1976). According to the

Correspondence Address: Marketing Communication and Public Relations Department, Faculty of Social Sciences, University of Ljubljana, Kardeljeva pl. 5, SI-1000 Ljubljana, Slovenia. Email: [email protected] 1352-7266 Print/1466-4445 Online/06/040297–12 # 2006 Taylor & Francis DOI: 10.1080/13527260600720376

298

K. Podnar & Z. Jancic

stakeholder theory, companies are involved in the social system and are forced to enter exchange episodes with different social subjects (Jancˇicˇ, 1999). Companies are compelled to the ‘new social contract’ (Carroll, 1999; Podnar and Golob, 2002), which presents a mix of reciprocal expectations of the role and responsibilities of each of the involved parties in a corporate and social environment. In addition to economic and legal rights or duties, the contract (which is not necessarily formalized as is the case in an economic theory) demands that companies perform social, ethical and environmental responsibilities as well (see for instance, European Commission, 2001). Therefore, the company’s management has to balance different stakeholders’ interests. Within the marketing communications field, the stakeholder theory draws attention to communication (dialogue) with different stakeholders, not only consumers. It is important to identify who they are and what kind of concerns or interests they have regarding the company (Cooper, 2003, p. 232). We argue that communication is the only way to accomplish understanding, balance and reception of different company and stakeholder interests. Just as stakeholder theory has burgeoned in recent years, understanding of the term ‘stakeholder’ has become diffused (for literature review, see Pouloundi, 1999; Pesqueux and Damak-Ayadi, 2005). Sternberg (1997) demonstrated that Freeman (1984) himself used multiple definitions of stakeholders. In his first definition, stakeholders are ‘those groups without whose support the organisation would cease to exist’ (Sternberg, 1997, p. 31). His second, probably the most commonly used definition, states that the term ‘stakeholder’ means ‘any group or individual who can affect or is affected by the achievement of the organisation’s objectives’ (Freeman, 1984, p. 46). This supplementary understanding of a stakeholder has important consequences for marketing communication, especially for the question of who among different parties has a bigger influence on whom. According to the first definition, only stakeholders can influence the company. However, the second definition stresses that the influence between different stakeholders and the company is a two-way process. Just as a particular company has some power over stakeholders, stakeholders have power over the company (Pouloudi, 1999). The consequence of the first definition from the point of view of marketing communications is that a company has to be very selective when entering into communication with stakeholders, usually with limited resources (time, money, etc.). This is in contrast with the second definition, where relations between the company and its stakeholders are very broad. The company can influence almost anyone and anyone can affect the company (Mitchell et al., 1997). Different understanding of the term ‘stakeholder’ also has some consequences concerning the question of differentiation among different types of stakeholders according to the power they have in relation to the company (and vice versa). It also influences the level of opposition between stakeholder and company interests as well as the differences among stakeholders concerns. Greenwood (2001) ascertains two main issues of modern stakeholder management:

N N

The issue of stakeholders’ identification regarding who they are and regarding what differentiates them. The issue of the nature of the relations among the organization and stakeholders and between various stakeholders.

Towards a Categorization of Stakeholder Groups

299

Despite the fact that a broader definition is indeed much closer to the reality of the environments in which companies operate daily, companies and their managers do not and cannot treat all stakeholders equally or communicate with them with the same intensity. Managers must set priorities according to their time, allocation of resources and the importance placed upon various issues. They must prioritise some groups or individuals and some issues over others. Thus, this study set out to explore whether marketing communication practitioners assess stakeholders according to their relative importance to the organization or feel that the organization is equally accountable to all stakeholders. The remainder of this study is organized as follows. The second section introduces a short literature review. The review is followed by an outline of our research questions and methodology. In the next section, the results of the study are interpreted and the last section concludes this study. Literature Review Stakeholder Classifications Various authors argue that many different stakeholder groups should be taken into account by an organization in its communication plans. Groups mentioned most often are employees, consumers, shareholders, media, business partners, competitors, the government, the local community, NGOs, etc. There have been numerous attempts to produce suitable criteria to classify relevant stakeholders. Many argue there is considerable difference between primary and secondary stakeholders (Clarkson, 1995). Primary stakeholders are those individuals or groups whose continuous support is needed if the company wants to avoid serious (reputation) damage. Clarkson (1995) suggests a distinction between voluntary and involuntary stakeholders. The main difference between these is that involuntary stakeholders do not choose to enter into a relationship, nor can they withdraw the stake they have in a company. Wheeler and Sillanpa¨a¨ (1997, pp. 167–168) classified stakeholders according to two dimensions: primary – secondary and social – non-social. Accordingly, they suggest four groups of stakeholders:

N N N N

Primary social stakeholders (shareholders, investors, employees and managers, customers, local communities, suppliers and partners). Secondary social stakeholders (government, social pressure groups, trade bodies, civic institutions, media and academic commentators, competitors). Primary non-social stakeholders (natural environment, future generations, nonhuman species). Secondary non-social stakeholders (environmental pressure groups, animal welfare organizations).

Friedman and Miles (2002) distinguish four types of structural configuration between a company and its stakeholders. According to their model, relations between them can be necessary or contingent and at the same time compatible or incompatible. When a relationship is compatible, necessary and explicit or implicit, contractual forms are recognized among stakeholders and companies. Stakeholders

300


and the company are involved in defensive relations. When relations are compatible but contingent and contractual forms are implicitly unrecognized, an opportunistic relationship exists. When a relationship is incompatible but necessary, and contractual forms are recognized explicitly or implicitly, compromise between the parties is necessary. Finally, when there is a case of incompatible and contingent relationship with no contract among parties, elimination occurs (Friedman and Miles, 2002, p. 7). This particular model provides a framework that enables us to analyse how and why organization/stakeholder relations change over time. Changes in relations between a company and its stakeholders can occur in any direction because of different predictable or unpredictable, internal or external factors such as an ecological accident, changes in opinion on either side, downsizing, etc. Manktelow (2003) suggests another useful framework for understanding mutable relations between the company and its various stakeholders. Similarly, she distinguishes among four groups of stakeholders. Her categorization criteria are power and interest of particular stakeholders towards a particular company. The same categorization can also be found in Johnson et al. (2005). In addition to stakeholders’ power and interest, Mitchell et al. (1997) suggest legitimacy and necessity of claims as additional criteria for classifying stakeholders. Similarly, Jancˇicˇ (1996) introduces the idea that not all stakeholders are equally important for the company and its communications. A company’s public can be active or passive, or just latently active. Following Kotler’s idea of different company publics, Jancˇicˇ adduces that companies have three main levels of exchange and communication with numerous stakeholders (the author listed 24 different stakeholders). A company’s primary stakeholders or key relationships are those with whom exchange and communication is inevitable. The second level presents stakeholders with whom exchange is necessary, and the final level represents those stakeholders with whom communication is desirable (Jancˇicˇ, 1999, pp. 77–78; see Figure 1). His model is in a way similar to the model suggested by Friedman and Miles (2002). The most significant difference is that Jancˇicˇ’s origins are in a marketing relationship model. His main emphasis is on the breadth of relationships in which companies must be involved and be managed (Jancˇicˇ, 1999, p. 78). According to different levels of exchange, the organization must properly accommodate its communication activities in order to sustain good relations with its numerous stakeholders. ‘The strength of current (or anticipated) relationships between key stakeholders and the degree of fit with corporate and competitive strategies will impact the form, nature, strength and desired effectiveness of the marketing communications between the members’ (Fill, 2002, p. 127). Fill (2002), therefore, suggests four different types of communication links: heavy impact communication links, important communication links, moderate communication links, and light communication links. To sum up, this literature review indicates that the nature of relationships between a company and its different and numerous stakeholders is dynamic. Stakeholder groups are liable to change and their power towards the company varies in time, context and environment. The literature suggests that stakeholders can be classified according to how ‘important’ they are to the company. In other


301

Figure 1. Three main levels of exchange and communication with company stakeholders

words, stakeholders are not all equally important and hence a company categorizes them differently. Research Questions This study empirically complements the theoretical postulate that not all stakeholders are equally important for an organization by investigating whether or not communication managers categorize stakeholders into three groups with different levels of influence and power. Thus, the following questions will be addressed: 1. Are some stakeholders more important than others are for the successful economic performance of a company? 2. If so, which are more important than others? For our empirical test of these questions, we employ Jancˇicˇ’s (1996) model. It suggests three levels of exchange (with respect to their importance to a company’s economic performance and the power that different stakeholders have towards the company) exist between a company and its stakeholders: inevitable, necessary and desirous levels.

302


Methodology Data for our study were gathered within a broader research study entitled ‘FDV Marketing Korpus 2002’ (Podnar et al., 2003). The data were collected from employees in Slovene marketing communications and public relations agencies. Twelve of 40 entities were selected randomly from a list of agencies, all members of the Slovenian Advertising Chamber. The sample of employees was chosen because this survey was a part of a broader research project dealing with Slovene marketing communications agencies. The sampling of employees in a particular agency was undertaken randomly by the authors. One hundred and forty-five completed questionnaires were obtained resulting in a response rate of 72%. Thirty-eight per cent of the questionnaires were returned by male respondents, 62% by female. The question for our research purpose was as follows: ‘On a five-point scale (1 – not important, 5 – very important) evaluate which stakeholders will be crucial for successful economic performance of your or any other company in the future.’ Respondents evaluated 24 different stakeholders defined by Jancˇicˇ (1999). In our analysis, we used descriptive statistical methods as well as Ward’s multivariate method in order to identify the groups and test our hypothesis. Results and Discussion The results of the study show that respondents’ evaluations of the importance of different stakeholders were quite different (Table 1). Respondents identified five important stakeholder groups: employees, consumers, competitors, media and suppliers (average score above 3.6), followed by professional organizations, financial publics, opinion makers, state officials (regulation), schools and universities, economic associations, etc. (with an average score between 3.0 and 3.5). The least important for successful economic performance of the company were sports and religious organizations (average score below 2.0). From different average scores, which measure importance, we can identify existing differences among stakeholder groups. Further, as seen from the dendrogram, we compiled three basic groups of stakeholders according to Ward’s method (the measures were quadrates of Euclidian distance). The dendrogram analysis suggested that the first group consisted of suppliers, shareholders, consumers, media, employees and competitors. These were previously evaluated by respondents as the most important group of stakeholders. Theory and analysis suggest that this group may be called ‘essential’ and is labelled ‘inevitable exchange’ in Jancˇicˇ’s (1999) stakeholder model. It is argued that the stakeholders in this particular group have the most powerful relationship with a company and vice versa. Thus, this group is crucial for successful economic performance of the company. The next group equals the second level with ‘required exchange’ among stakeholders and the company. These stakeholders have less power but it is still recognizable: economic associations, financial publics, opinion makers, professional organizations, schools and universities, pressure groups and political parties.


303

Figure 2. Three basic groups of stakeholders (cluster analysis-Ward’s method)

The third group is the largest one. It consists of families of employees, other companies, the natural environment, job seekers, trade unions, local community, cultural organizations, charity foundations, as well as sports and religious organizations. These groups of stakeholders fall under ‘desirable exchange’ and have less power to influence a company. Summing up, the results indicate that respondents from our survey saw three different levels of exchange between stakeholders and a particular company. The levels of exchange differ on the basis of the stakeholders’ relative power. This implies the importance of a particular stakeholder group for the economic performance of a company. The three-cluster solution of various stakeholder groups suggested by the dendrogram corresponds closely with the proposed arbitrary model introduced in the theoretical part. However, a few discrepancies are worth mentioning. First, the respondents recognized the higher importance of the media and considered them as part of the necessary exchange. This can be explained through the interdependence between the media and advertising agencies as very important partners in media planning and buying.

304

K. Podnar & Z. Jancic Table 1. Respondents’ evaluations of the importance of different stakeholders

Stakeholder groups Employees Consumers Competitors Media Shareholders Suppliers Trade organizations Financial public Opinion leaders State (regulation) Schools and universities Trade associations Nature Pressure groups Political parties Families of employees Local community Unemployed Cultural organizations Trade unions Non-competitive companies Foundations Sport organizations Religious organizations

n

Mean

Standard deviation

134 135 134 134 134 134 134 134 134 134 134 134 134 132 134 134 134 132 134 134 132 134 134 129

4.54 4.41 4.33 4.17 4.11 3.69 3.58 3.51 3.37 3.28 3.22 3.22 2.89 2.79 2.67 2.63 2.56 2.51 2.39 2.31 2.26 2.25 1.84 1.60

0.810 0.884 0.783 0.897 1.031 1.125 1.006 1.002 1.108 1.159 1.153 1.057 1.180 1.126 1.122 1.080 1.141 1.115 1.069 1.014 1.046 1.058 0.916 0.833

Second, a heightened importance of (leading) political parties can be explained by the fact that the Slovenian economy is at the end of a transition phase with still a relatively large share of state-owned companies, which sometimes has certain consequences for the process of fair competition. Third, there is the low importance of the local community. Advertising agencies are small service companies working predominantly in the metropolitan area with relatively small impact on the local community. Fourthly, respondents saw trade unions as relatively unimportant. This can be understood in the context of the traditionally low interest of Slovenian advertising agency employees becoming members of trade unions. Therefore, we should point out that the characteristics of the sample show a distorted image of the actual role of trade unions in Slovenian society. We assume that this can be easily proved by extending the research sample to the broader population of Slovenian companies. In the light of the results of this study, we can conclude that different stakeholder groups play different roles in relation to a company. Since an individual company has numerous stakeholders, it is not possible to meet the needs and demands of everyone, especially because interests and ‘stakes’ of various stakeholders are often very different and have competing goals. Thus, it makes sense to identify the most important and relevant groups of stakeholders. In this study, we have empirically tested Jancˇicˇ’s (1999) model, which distinguished between three main levels of exchange with stakeholders visualized as a set of inner and outer circles. The


305

inner circles stand for the most important stakeholders who have the highest influence. The three level model of stakeholders obtained in this study is consistent with Waddock et al. (2002), who proposed three main groups of stakeholders as well: primary stakeholders, such as owners, employees and customers; secondary stakeholders, including governments, NGOs; and broader institutional and societal pressures. Recently, Waddock (2005) wrote about different types of company involvement concerning primary stakeholders, secondary stakeholders and nonstakeholders. She thoroughly explains the role and characteristics of primary and secondary stakeholders, which are accordance with our first and second levels. The third level of our model is comparable with Waddock’s group of ‘nonstakeholders’. Her arguement is similar to our findings about the dynamic view when identifying the most important stakeholders. A scanning process is needed, since many of them could convert into stakeholders, due to emerging issues and concerns. In addition, Clarkson’s (1995) distinction between primary and secondary stakeholders fits well with our model. Our first group of stakeholders, exactly as Clarkson’s primary group, is essential for the survival of an organization, which is not the case for other stakeholders. In the light of Clarkham’s (1992) distinction between contractual and community stakeholders it is clear from our model that in the first, most important group, we can find contractual (shareholders, suppliers, employees) as well as community stakeholders (consumers, media and competitors) (Clark, 1998). However, the other two levels of stakeholders are primarily consistent with community stakeholders. Therefore, when determining which are the relevant and the most important stakeholder groups, it is not sufficient to focus on the formal structure of the organization but it is important for companies to consider both internal and external groups (Polonsky, 1995). Conclusions, Implications and Further Research Our study aims to emphasize the important role of stakeholders in a service business environment. Although the importance of stakeholder relationships seems unquestionable, the focus should be directed to differences in the stakes that different groups hold towards a company. Our conclusion about a company’s relationships with various stakeholders shows their dynamic nature. The research clearly indicates that different stakeholder groups play different roles in relation to a company and they can be classified according to their importance to the company. Such a result also has important implications for marketing communications. From a company’s standpoint, marketing communications are sometimes seen as (unnecessary) costs. When the company finds itself in a situation of limited resources, marketing communication programmes need to be duly restricted. Therefore, the company can choose its ‘stakeholder target groups’ and omit the others according to their levels of importance or their potential power. Thus, the company can achieve optimal effects out of limited communication resources and has the chance to avoid costly and ineffective dissipation of resources through their strategic relocation.

306


However, the company must be aware of the changing nature of stakeholder power and has to be careful in selecting and reallocating resources. It also has to monitor any changes constantly. More specifically, our empirical result has important implications for the practice of corporate communications and public relations. 1. For lack of resources, corporate communications and public relations (PR) should primarily focus on those stakeholders that have a direct effect on the success of a firm. With them, the exchange is inevitable. Therefore, companies should develop direct and indirect public relations programmes to establish and develop long-term relationships with stakeholders. The key to success is in constant monitoring of what is going on with these stakeholders and communicate with them on a regular basis to ensure a stream of information in both directions. 2. The second group of stakeholders must also be carefully monitored. The company should watch their activities, especially in those areas that can have negative or positive influences on the company and its interests. Communications still need careful strategic consideration. However, in contrast to the first group, there is no need for constant communication. Ad hoc communication programmes should be developed and implemented. 3. The third group of stakeholders has no direct impact on the success of a company. However, carefully selected communication activities and corporate social responsibility programmes directed towards this group should be used to gain competitive advantage and reputation. In addition, they can be used with the aim of influencing or channelling messages more effectively to stakeholders from the first and the second group when necessary. To sum up, our empirical study shows that not all stakeholders are equally important for a firm’s success so there is no need for organizations to be accountable to all their stakeholders equally. It means it is necessary to think about the relationships and communications with important stakeholders and to allocate their communications resources accordingly. Our study has several limitations. The research was conducted in a business-tobusiness and services marketing context. The respondents were employees of Slovenian advertising agencies. It can easily be assumed that the ranking of stakeholders would be different in a different context. According to this, it can also be assumed that the power distribution would be different in other industries. Even among companies in a particular industry, we should fairly expect differences depending on size, international orientation, etc. Therefore, our conclusion is that each company has a unique network of stakeholders, with different distributions of power, and that common rules cannot apply. This argument, however, was not fully covered by our research. That is why the biggest limitation of our research is that several questions related to the nature and content of stakeholder relationships were not included. Here lies the opportunity and the need for further research. In addition, future research should address the question of how stakeholder power changes in time and space and what


307

happens if companies fail to consider the factual power of its stakeholders. Further research should also investigate different forms of communication with various stakeholders. References Carroll, A. B. (1999) Corporate social responsibility, Business & Society, 38(3), pp. 268–295. Casidy, C. (2003) in: M. Pustay (Ed.) Economic stakeholder theory: working study (Texas: A&M University). Clark, T. (1998) The stakeholder corporation: a business philosophy for the information age, Long Range Planning, 31(2), pp. 182–194. Clarkham, J. (1992) Corporate governance: lessons form abroad, European Business Journal, 4(2), pp. 8–16. Clarkson, M. (1995) A stakeholder framework for analysing and evaluating corporate social performance, Academy of Management Review, 20(1), pp. 92–117. Cooper, S. M. (2003) Stakeholder communication and the internet in UK electricity companies, Managerial Auditing Journal, 18(3), pp. 232–243. European Commission (2001) Promoting a European Framework for Corporate Social Responsibility, Green Study (Brussels: European Commission). Fill, C. (2002) Marketing Communications. Contexts, Strategies and Applications, 3rd edn (Englewood Cliffs, NJ: Prentice Hall). Freeman, R. E. (1984) Strategic management: A stakeholder approach (Boston MA: Pittman). Friedman, A. L. & Miles, S. (2002) Developing stakeholder theory, Journal of Management Studies, 39(1), pp. 1–21. Greenwood, M. R. (2001) Community as a stakeholder in corporate social and environmental reporting, Working study series (Victoria: Monash University). Hendry, J. (2001) Economic contracts versus social relationships as a foundation for normative stakeholder theory, Business Ethics: A European Review, 10(3), pp. 223–232. Jancˇicˇ, Z. (1996) Celostni marketing (Ljubljana: FDV). Jancˇicˇ, Z. (1999) Celostni marketing, 2nd revised edn (Ljubljana: FDV). Jensen, M. C. & Meckling, W. H. (1976) Theory of the firm. Managerial behavior: agency cost and ownership structure, Journal of financial economics, 3(4), pp. 305–360. Johnson, G. et al. (2005) Exploring Corporate Strategy, 7th edn (Harlow: Pearson Education Limited). Manktelow, R. (2003) Stakeholder mangement – wining suport for your projects. Available at http:// www.mindtools.com/pages/article/newPPM_07.htm (accessed 1 October 2003). Mitchell, R. K. et al. (1997) Toward a stakeholder identification and salience: defining the principle who really counts, The Academy of Management Review, 22(4), pp. 853–886. Pesqueux, Y. & Damak-Ayadi, S. D. (2005) Stakeholder theory in perspective, Corporate Governance, 5(2), pp. 5–21. Podnar, K. & Golob, U. (2002) Socialna ekonomija in druzˇbena odgovornost: alternativi globalni anarhiji neoliberalizma, Teorija in Praksa, 39(6), pp. 952–969. Podnar, K. et al. (2003) Integrirano trzˇno komuniciranje v slovenskih oglasˇevalskih agencijah: [research report 1/2: FDV – Marketing korpus 2002], MM, Media Mark, 23(6), pp. 21–25. Polonsky, M. J. (1995) A stakeholder theory approach to designing environmental marketing strategy, Journal of Business & Industrial Marketing, 10(3), pp. 29–46. Pouloudi, A. (1999) Aspects of the stakeholder concept and their implications for information systems development, Proceedings of the 32nd Hawaii International Conference on System Science, pp. 1–17. Sternberg, E. (1997) The defects of stakeholder theory, Corporate Governance: An International Review, 5(1), pp. 3–10. Waddock, S. A. et al. (2002) Responsibility: the New Business Imperative, Academy of Management Executive, 16(2), pp. 132–148. Waddock, Sandra (2005) Leading Corporate Citizens. Vision, Values, Value Added, 2nd edn (New York, McGraw-Hill, Irwin). Wheeler, D. & Sillanpa¨a¨, M. (1997) The stakeholder corporation: A blueprint for maximising stakeholder value (London: Pitman Publishing).

308


Notes on Contributors Klement Podnar is a fellow at the Marketing Communication and Public Relations Department, Faculty of Social Sciences, University of Ljubljana. Currently he gives lectures in Marketing and Visual Communications. His research interests lie in corporate identity, marketing and corporate communications. He has published several studies in this area in such journals as the Corporate Reputation Review and Corporate Communications: An International Journal. Zlatko Jancic is the head of Communication Department at the Faculty of Social Sciences, University of Ljubljana. Until 2005, he held the position of associate dean of graduate and doctoral studies at the Faculty of Social Sciences. He teaches Strategic Marketing and Advertising. His main research interests lie in relationship marketing, corporate social responsibility and advertising. He has published books and articles in such journals such as Journal of Advertising Research and Journal of Marketing Management.