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H. James Harrington  |  05/03/2009

H. James Harrington’s picture

Bio

The Organization’s Stakeholders: Resource or Obligation?

The most important get the least returns.

I’m often asked, “Of all the stakeholders, which one is the most important? Which one is the most valuable resource that the organization must be sure is satisfied?” Let’s look at who the stakeholders are.

Investors

Management

Employees

Customers

Suppliers

Employees’ families

Community

Special interest groups

 

Investors. An organization promises the investors an income that is better than what they could get from any other place. As a result, they invest their hard-earned money in the organization.

Management. Managers are promised a good income if they can develop the organization and make it profitable. They often work 50 to 60 hours a week, giving up a lot of their family life. Certainly the organization has an obligation to its managers to provide them financial security and give them meaningful work assignments.

Employees. The employees produce and sell the products and services to the external customers. Essentially, employees are selling a big part of their lives and must receive equitable pay.

Customers. The customers provide the money that allows an organization to meet its obligations to the first three stakeholders. An organization must have satisfied customers to meet those obligations.

Suppliers. I can’t think of any organization that can exist without good suppliers. Organizations must work with their suppliers and pay them a fair price for their products and services.

Employees’ families. An organization uses about 40 percent of the family breadwinner’s waking hours per week even if he or she puts in no overtime. Employees must have enough time to meet their obligations to their families—time to take care of running a home and time to spend with their spouses and children.

Community. An organization needs the community to survive because the community builds roads, provides electricity, police protection, and so on. In turn, organizations are obliged to keep the community’s environment clean, to pay taxes, and to support and participate in school and community activities.

Special interest groups. Special interest groups provide a special service to the community. Whether their services seem worthy or not, organizations need to work with the special interest groups that are in keeping with the best interests of the nation.

 

Which stakeholder is most important?

I believe that it boils down to two most important stakeholders: the customer and the investor. In a for-profit organization, investors are the most important because the organization is formed using their money with a promise to give them a fair return on their investment. The best way to do that is to have very satisfied customers. If you can’t take good care of your investors, then you are either selling the wrong product/service or you are approaching the wrong customers.

The internal-customer chain that supports this looks something like the following: The employees’ primary customer is management because management pays the employees to do their jobs. Management’s primary customer is the board of directors because the board gives management its assignments. The board of directors’ primary customers are the investors because they provide the money to develop the organization and, as such, they are the true owners of the organization.

An excellent organization is one that is profitable and pays high dividends. It provides output that is higher in quality, less costly, and provides more value than the customers can get from any other source. It provides enough pay and benefits so that its employees can live comfortably on one paycheck. It provides its suppliers with orders far enough in advance so that they can do proper planning, and it pays them a fair price for their output. The excellent organization adopts standards such as ISO 14001, not because it’s forced to but because the standard is good for the fragile environment in which we live. An excellent organization encourages its employees to participate in community and professional activities and subsidizes the costs.

Yes, excellent organizations care about all of the stakeholders and develop measurement systems that highlight to their management and stakeholders how well they are doing in meeting all of the stakeholders’ needs.

Discuss

About The Author

H. James Harrington’s picture

H. James Harrington

H. James Harrington is CEO of the Harrington Institute Inc. and chairman of the board of e-TQM College Advisory Board. Harrington is a prolific author, having written hundreds of technical reports, magazine articles, and more than 35 books. He has more than 55 years of experience as a quality professional. Harrington is a past president of the American Society for Quality (ASQ) and the International Academy for Quality (IAQ). Visit his web site at www.harrington-institute.com.