Stakeholders governance and performance - Stakeholder mappin...

Learning Outcomes

By studying this article, you will be able to explain the importance of stakeholders in corporate governance and performance management. You will describe stakeholder mapping using Mendelow's matrix, assess the implications of different stakeholder groups for performance decisions, and recommend strategies to manage stakeholder interests and potential conflicts in an organisational context. You will also be able to apply these concepts in ACCA Advanced Performance Management exam scenarios.

ACCA Advanced Performance Management (APM) Syllabus

For ACCA Advanced Performance Management (APM), you are required to understand stakeholder influence and governance in performance management systems. In particular, focus on:

• The ways stakeholder groups interact with, and influence, an organisation's performance management and measurement systems
• The use of stakeholder mapping models (e.g., Mendelow's matrix) to analyse power and interest
• Identification and management of conflicting stakeholder interests and their implications for organisational performance
• Methods for resolving stakeholder conflicts and aligning performance management systems with broader governance goals

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which two factors does Mendelow's matrix use to categorise stakeholder groups?
   1. Commitment and reputation
   2. Power and interest
   3. Wealth and influence
   4. Communication and reward
2. Stakeholder mapping primarily helps organisations:
   1. Allocate financial resources to managers
   2. Prioritise and manage stakeholder groups appropriately
   3. Forecast future share prices
   4. Comply with tax regulations

3. True or false? A stakeholder with high power and low interest should be kept satisfied but not necessarily closely engaged in regular decision-making.

4. Briefly explain how conflicting stakeholder objectives can affect an organisation's ability to achieve its performance targets.

Introduction

Stakeholders have a significant effect on how organisations are governed, how objectives are set, and how performance is measured and managed. Stakeholder mapping is an essential process to identify, prioritise, and manage these varied interests. Effective management of stakeholders—particularly in resolving conflicts—directly influences organisational performance and decision-making.

Key Term: stakeholder
An individual or group that has an interest in, or can affect or is affected by, the operations, decisions, and performance of an organisation.

Stakeholder Groups and Their Importance

Organisations operate within a network of diverse stakeholders, including shareholders, employees, customers, suppliers, local communities, government bodies, and others. Each group may have different—or even conflicting—objectives and expectations.

Key Term: corporate governance
The system by which organisations are directed and controlled, balancing the interests of stakeholders in decision-making and oversight.

Where stakeholders have the power to influence decisions or the pursuit of organisational strategy, management must respond appropriately. Ignoring, misunderstanding, or mis-prioritising stakeholder interests can threaten the achievement of strategic goals.

Stakeholder Mapping: Mendelow's Matrix

Stakeholder mapping classifies stakeholders according to their power (ability to influence strategy) and interest (degree of concern about the organisation’s actions).

Key Term: stakeholder mapping
The process of identifying stakeholder groups, assessing their power and interest, and positioning them on a matrix to guide engagement strategies.

Key Term: Mendelow's matrix
A tool used to analyse stakeholders by mapping them on axes of power and interest, determining the most suitable management approach for each group.

Mendelow's matrix identifies four main categories:

• Key players: High power, high interest – must be actively engaged and involved in decision-making.
• Keep satisfied: High power, low interest – maintain their satisfaction to avoid them becoming disruptive.
• Keep informed: Low power, high interest – communicate regularly, as they can gain power if they unite with others.
• Minimal effort: Low power, low interest – monitor with basic communication; no need for active management.

Worked Example 1.1

A local authority plans to build a new waste processing facility in a suburban area. Stakeholders include residents (high interest, moderate power), local businesses (moderate interest, low power), an environmental group (high interest, low power), and a major waste management contractor (high power, high interest).

Question: Using Mendelow’s matrix, how should the authority approach managing each stakeholder group?

Answer:

• Residents: Keep informed, as they have high interest but may need to organise collectively to gain more power.
• Local businesses: Minimal effort, since their interest and power in this project are low.
• Environmental group: Keep informed, but anticipate alliance with residents to increase their power.
• Contractor: Key player; involve closely in planning and decisions, as their power and interest are both high.

Performance Implications of Stakeholder Management

Management must assess how stakeholder expectations align with the organisation's mission and objectives. When expectations are aligned, performance targets are more realistic and widely supported. When expectations conflict, performance management systems may be compromised, leading to:

• Delays or additional costs (e.g., protests, legal challenges)
• Reputational risks or loss of key support
• Demotivated employees or resistance to performance initiatives

Key Term: stakeholder conflict
A situation where two or more stakeholder groups have objectives or expectations that cannot be achieved simultaneously, impacting organisational decision-making.

Worked Example 1.2

A technology firm seeks to maximise shareholder returns (profit), but employees are demanding reduced overtime and environmental groups want a reduction in data centre energy usage.

Question: What actions could management take to manage these conflicting stakeholder interests while maintaining organisational performance?

Answer:
Management could:

• Engage in negotiation and compromise (e.g., agree on mutual targets for energy efficiency that balance cost and sustainability).
• Use prioritisation based on power and interest—address demands of employees and environmental groups where justified and feasible.
• Communicate transparently the rationale behind decisions, aiming for a balanced approach that does not undermine critical success factors or jeopardise key relationships.

Strategies for Addressing Stakeholder Conflict

Organisations can use various strategies to resolve stakeholder conflicts, such as:

• Prioritisation: Using Mendelow’s matrix to focus resources on the most influential groups
• Negotiation and compromise: Finding acceptable trade-offs between stakeholder objectives
• Sequential attention: Addressing different stakeholder priorities in different periods
• Side payments: Offering alternative benefits where direct requests can’t be met
• Exercise of power: Making final decisions where compromise isn’t possible or in the overall interest of the organisation

These approaches help maintain organisational focus and reduce the risk of dysfunctional performance outcomes.

Exam Warning

In APM scenarios, always analyse which stakeholders have the real power to affect strategy and performance. Missing a key player or failing to address a potential conflict is a frequent cause of lost marks.

Summary

Stakeholder mapping through tools like Mendelow’s matrix aids in identifying which groups require the most attention in strategic planning and performance management. By analysing stakeholders’ power and interest, organisations can devise engagement strategies and manage conflicts before they impact performance. Aligned and effectively managed stakeholder relationships reduce risks, support sustainable value creation, and are tested regularly in ACCA APM exam requirements.

Key Point Checklist

This article has covered the following key knowledge points:

• Explain the roles and interests of various stakeholder groups in corporate governance
• Define and apply stakeholder mapping, with reference to Mendelow’s matrix
• Discuss the consequences of conflicting stakeholder objectives for performance management
• Recommend approaches for managing and resolving stakeholder conflicts
• Recognise how stakeholder management impacts achievement of organisational objectives and targets

Key Terms and Concepts

• stakeholder
• corporate governance
• stakeholder mapping
• Mendelow's matrix
• stakeholder conflict