Stakeholder Impact Analysis
In principle, all stakeholders are interested in the profitability and survival of a company. At the same time, stakeholders’ interests may often diverge. Customers generally don’t mind the company earning a profit, but these customers also do not want to pay too much. The purpose of stakeholder impact analysis (SIA) is to force the company to think about and identify which stakeholders groups are most critical to the company.
On this page, we discuss the objectives of stakeholder impact analysis. We also discuss the unique role that shareholders play.
Objectives stakeholder analysis
The stakeholder analysis should cover at least the following set of topics:
- identify the relevant stakeholders
- identify the interests and concerns of each group
- identify the demands of each group on the company
- prioritize the importance of various stakeholders to the company
- identify the strategic challenges these conflicting demands pose
Stockholders are unique stakeholders in that they supply the risk capital that supports the business. Shareholders seek a return on investment in the form of dividends and growth to supply increasing dividends and stock price. Return on invested capital (ROIC) and growth in profits are arguably the best tools with which to measure the ability of the company to satisfy shareholders and other stakeholders’ demands. Of course return and growth must be maximized while staying in compliance with laws and regulations; illegal activities will have severe adverse consequences for the company.
The dual goals of ROIC and growth also involve a number of tradeoffs. Excess attention to growth would lead to investment in less attractive business lines and lower ROIC. However, excess attention to maximizing ROIC could lead to ignoring growth opportunities that would produce future profits. Firms should choose a middle ground between highest and lowest growth that maximizes shareholder and stakeholder value.
Stakeholders are not always in conflict. Many stakeholders are also shareholders. The general public can be shareholders, as are many employees. Even when there is a conflict between stakeholders, in the long term, the twin strategies of maximizing ROIC and growth maximizes the funds available for division among the stakeholders. While not minimizing the real conflicts among stakeholders, all are served by a dual focus on ROIC and growth.
The above analysis can also be done for the other important stakeholders such as customers, suppliers, the government,… .
We discussed the basics that underpin stakeholder impact analysis (SIA) and applied the analysis to the stockholders of a company.