Q&A - What power do stakeholders have over what a business does?

Stakeholder power is an important factor to consider whenever you are asked to write about the relationship between a business and its stakeholders. In the context of strategy, what is important is the power and influence that a stakeholder has over the business objectives.

For stakeholders to have power and influence, their desire to exert influence must be combined with their ability to exert influence on the business. The power a stakeholder can exert will reflect the extent to which:

• The stakeholder can disrupt the business’ plans
• The stakeholder causes uncertainty in the plans
• The business needs and relies on the stakeholder

The reality is that stakeholders do not have equality in terms of their power and influence. For example:

• Senior managers have more influence than environmental activists
• A venture capitalist with 40% of the company’s share capital will have a greater influence that a small shareholder
• Banks have a considerable impact on firms facing cash flow problems but can be ignored by a cash rich firm
• A customer that provides 50% of a business’ revenues exerts significantly more influence than several smaller customer accounts
• Businesses that operate from many locations across the country will be less relevant to the local community than a business which is the dominant employer in a town or village
• Governments exercise relatively little influence on many well-established and competitive business-to-business markets. However their power is much stronger over businesses in markets which are regulated (e.g. water, gas & electricity) or where the public sector has a direct stake (e.g. retail banking)
• Employees have traditionally sought to increase their power as stakeholders by grouping together in trade unions and exercising that power through industrial action. However, in the last two decades the level of union membership has declined significantly as has the total time lost to industrial action