The Relation between Firm Survival and the Achievement of Balance among Its Stakeholders: An Analysis

By Lorca, Pedro; García-Diez, Julita | International Journal of Management, March 2004 | Go to article overview
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The Relation between Firm Survival and the Achievement of Balance among Its Stakeholders: An Analysis

Lorca, Pedro, García-Diez, Julita, International Journal of Management

The new environment and the strategic management it calls for have changed the relationship between the organisation and its stakeholders to the effect that companies have to take into account the interests of all the stakeholders. This will imply an adequate satisfaction for each stakeholder, and lead to the corresponding generation of value for the firm. The long term survival of the firm requires to carry out a balance between inducements and contributions of all the stakeholders.

1. The new and extended environment of the firm

Strategic performance is the essential principle that must govern a company in a highly competitive market. In the business environment, the last decades have been characterised by permanent mutation, a tendency that will continue in the future. Among the reasons for this transformation, information technology and globalisation are the most important. These constitute the essential motors of the permanent advance that is affecting the whole of society, and to face up to them business has been forced to react, because they imply a complete change in its system of government.

Traditionally, a percentage was simply added to the cost price to determine the sale price of a product. Now, however, the sale price, to a much greater extent imposed by the market, must be, more than ever, competitive. This necessitates the progressive search for and application of new and more efficient managerial techniques, and methods of planning and mensuration of business performance. These require essential information for the taking of strategic decisions. When the manager decides to act in a certain way, it is understood that he makes this decision after a reasoned calculation of the implications and repercussions that may be generated in connection with the goods for which he is responsible.

The present business scene has changed the relationship between the organisation and its stakeholders 1. Thus, all the stakeholders should be considered by the company, because shareholders will not continue investing in a firm that does not satisfy their expectations in respect of dividends or capital gains. Employees will not develop their activities and knowledge, neither will they make the required effort to design and to negotiate the different processes of the organisation, unless this gives an answer to their desires and relative demands of satisfaction in their work. Customers will not buy products that do not respond to their desires, needs or price, quality and service demands.

Suppliers will not continue providing their knowledge, abilities and resources to the company that does not facilitate them the opportunity to obtain a reasonable profit. Lastly, communities will not tolerate companies that do not satisfy their legal duties and do not guarantee a sustained development.

In consequence, it is necessary to keep in mind the relationships with all the stakeholders, because management choice is a function of stakeholders' influences (Brenner and Cochran, 1991) and favourable stakeholder relationships generate long term competitive advantages for the firm, and for society as well (Post et al., 2002). This implies to carry out a balance among the different stakeholders.

2. The Stakeholder Theory as a model of management

Unprecedented levels of environmental turbulence and change took place in the 1970's (e.g. oil crisis, hyperinflation). In this context appeared the stakeholder theory 2 as a new global vision of the company. However, the idea upon which it was based was not entirely new, since the term 'stakeholder' had already been used in the pioneering work at Stanford Research Institute in the 1960's. Nevertheless, there are authors that go back to decades previous to this; Preston (1990) understands that the theory was born during the Great Depression, when the General Electric Company identified four major stakeholder groups: shareholders, employees, customers and the general public.

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