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Thursday, June 23, 2011

Strategy - 24

In the earlier blog we looked at survival as a measure of performance, in today’s blog we will look at the multiple stake holder approach to performance.

Every organization has many stakeholders - the vendors, the employees, the customers, investors etc. Each of these stakeholders uses a different criterion to judge a firm's performance; is rarely possible for firms to implement strategies that completely satisfy its stakeholders. Since every stakeholder couldn't be satisfied, the interest of certain stakeholders is usually emphasized over the other stakeholders.

An implication of the multiple stakeholder theory is that different types of firms choose different criteria for evaluating their performance, even within an organization different individuals choose different criteria to judge firms performance. Let’s examine this with an example: The senior management would look at the performance of a firm with the overhead costs, number of employees (all a structural measure of organizational characteristic). Other employees probably could look at the performance in terms of the personal involvement, the job satisfaction etc.

The approach has an inherent limitation given that there are multiple stakeholders.

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