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Stakeholder Analysis for Systems Thinking and Modeling

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Arun Abraham Elias Robert Y. Cavana

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 Stakeholder Analysis for
Systems Thinking and Modelling
Arun A. Elias and Robert Y. Cavana
School of Business and Public Management
Victoria University of Wellington
New Zealand
Email: arun.elias@vuw.ac.nz, bob.cavana@vuw.ac.nz

Abstract
The systems thinking and modelling framework involve five major phases: problem
structuring, causal loop modelling, dynamic modelling, scenario planning & modelling ,
and implementation & organisational learning. In this paper we propose that stakeholder
analysis would enrich the systems thinking and modelling process. Specifically, we
explain the importance of stakeholder analysis in the problem structuring and scenario
planning & modelling phases. We demonstrate the usefulness of stakeholder analysis by
presenting a brief New Zealand case study.

1. Introduction
The importance of stakeholder concept is growing in management literature. Since
Freeman [5] published his landmark book, ‘Strategic Management: A Stakeholder
Approach’, the concept of stakeholders has become embedded in management
scholarship and in managers’ thinking [7]. About a dozen books and more than 100
articles with primary emphasis on stakeholder concept have appeared in management
literature following Freeman’s book [3].
We begin this paper by presenting the different stages through which the stakeholder
concept developed in the management literature. Using a chronological map (Figure 1),
we explore and classify stakeholder literature for a better understanding of the
stakeholder concept.
We also examine the relevance of stakeholder analysis in systems thinking and
modelling. We suggest that a systematic analysis of stakeholders could enrich the
‘problem structuring’ and ‘scenario planning & modelling’ phases of systems thinking
and modelling framework. We demonstrate the usefulness of stakeholder analysis by
presenting a brief New Zealand case study.

2. Stakeholder Literature
The development of the stakeholder concept in the management literature can be
classified into different stages as shown in the stakeholder literature map (Figure 1).
After its origin in 1963, the concept diversified into four different fields namely,
corporate planning, systems theory, corporate social responsibility and organisation
theory. We call this stage as classical stakeholder literature.
The next landmark in the development of stakeholder literature was the book by
Freeman[5], Strategic Management: A Stakeholder Approach. After this book, this
literature developed around three different aspects namely, descriptive/empirical aspect,
instrumental aspect and normative aspect. Donaldson and Preston [3] brought these
three aspects together in their stakeholder theory of corporation.
 Further, the stakeholder literature started spreading its wings to interesting areas like
dynamics of stakeholder and stakeholder theories. Several empirical studies were also
conducted to validate the theoretical claims relating to the stakeholder concepts.
A detailed description of this literature map is available in the paper by Elias, Cavana
& Jackson [4]. But for the scope of this paper we discuss three important stages in the
development of this literature, namely, classical stakeholder literature, strategic
management: a stakeholder approach and dynamics of stakeholders.

Stakeholder concept at
Stanford Research Institute
(1963)

Corporate Systems Corporate Social Organisation

Planning Theory Responsibility Theory

Strategic Management: A
Stakeholder Approach
by Freeman (1984)

Descriptive/ Instrumental Normative

Empirical Aspect Aspect Aspect

Stakeholder theory
of Corporation by
Donaldson & Preston (1995)

Dynamics of
Stakeholders

More Stakeholder
Theories

Empirical Studies

Figure 1: Stakeholder Literature Map

2.1 Classical Stakeholder Literature 1

The origin of ‘stakeholder’ in management literature can be traced back to 1963, when
the word appeared in an international memorandum at the Stanford Research Institute
(cited in Freeman [5]). Stakeholders were defined as ‘those groups without whose
support the organisation would cease to exist’. The core concept, in other words was
‘survival’; without the support of these key groups, the firm will not survive.
During its formative stage, stakeholder theory itself had to fight for survival, when
Ansoff (1965) in his classic book ‘Corporate Strategy’ argued for the rejection of
stakeholder theory. According to him ‘responsibilities’ and ‘objectives’ were not
synonymous but were made one in stakeholder theory.
By the 1970’s stakeholder concepts began to surface in the strategic planning
literature. Taylor (1971) predicted that the importance of stockholders would diminish
and that, in the 1970’s, businesses would be run for the benefit of other stakeholders
too. King and Cleland (1978) came up with a method of analysing stakeholders in
project management. Hussey and Langham (1978) developed a model of the
organisation and its environment with stakeholders and used it in the corporate planning
process.
Systems theorists also contributed to the development of the stakeholder literature in
the 1970’s. Ackoff (1974) developed a methodology for stakeholder analysis of
organisational systems. He argued that stakeholder participation is essential for system
design and the support and interaction of stakeholders would help in solving many
societal problems. Churchman (1968) also contributed by developing systems theory to
address social issues in an open systems point of view. The systems model of
stakeholders emphasised participation and argued that problems should not be defined
by focussing or analysis, but by enlarging or synthesising.
Many researchers were also concerned with the social responsibility of business
firms. Post (1981) categorised the main lines of research in this area, covering many
ideas, concepts and techniques (Sethi, 1971; Votaw & Sethi, 1974, Preston, 1979). The
distinguishing feature of this literature is that the concept was used to include non-
traditional stakeholders who were having adversarial relationships with the firm. The
sub discipline of management called ‘business and society’ developed by researchers at
the School of Management at Berkley (Votaw, 1964; Epstein, 1969) and Harvard
Business School (Ackerman, 1975; Murray, 1976) argued for responsiveness instead of
responsibility.
In the organisation theory literature, Rhenman (1968) used the term stakeholders
explicitly to designate the individuals or groups which depend on the company for the
realisation of their personal goals and on whom the company is dependant. Pfeffer and
Salancik (1978) constructed a model of organisation -environment interaction and
claimed that the effectiveness of an organisation derives from the management of
demands, particularly the demands of interest groups.
Thus, classic stakeholder theory originated on the concept of survival, falls into four
groups namely, corporate planning, systems theory, corporate social responsibility and
organisational theory [5].

2.2 Strategic Management: A Stakeholder Approach

Researchers in the stakeholder field differ in their worldview on stakeholder concepts,

but most of them acknowledge Freeman’s [5] book ‘Strategic Management: A

1
All references in Classical Stakeholder literature section can be obtained from Freeman [5].
Stakeholder Approach’ as a landmark in stakeholder literature. In his book, Freeman
defines stakeholders as ‘any group or individual who can affect or is affected by the
achievement of the firm’s objectives’.
He proposed a framework, which fits three levels of stakeholder analysis - rational,
process and transactional. At the rational level, an understanding of ‘who are the
stakeholders of the organisation’ and ‘what are their perceived stakes’ is necessary. As a
technique, Freeman uses a generic stakeholder map as a starting point. It is also possible
to prepare a stakeholder map around one major strategic issue. As the next step, a
stakeholder chart is prepared by identifying specific stakeholders based on the
stakeholder map. Further, the stakes of the specific stakeholder groups is identified and
analysed. He also uses a two dimensional grid as an analytical device to depict an
organisation’s stakeholders. The first dimension categorises stakeholders by interest or
stake and the second dimension is in terms of power. He makes the grid more realistic
by improving on the classical stakeholder grid to prepare a real world stakeholder grid.
At the process level, it is necessary to understand how the organisation either
implicitly or explicitly manages its relationships with its stakeholders, and whether
these processes fit with the rational stakeholder map of the organisation. According to
Freeman, existing strategic processes that work reasonably well could be enriched with
a concern for multiple stakeholders. For this purpose, he uses a revised version of
Lorange’s schema for strategic management processes.
At the transactional level, we must understand the set of transactions or bargains
among the organisation and its stakeholders and deduce whether these negotiations fit
with the stakeholder map and the organisational processes for stakeholders. According
to Freeman successful transactions with stakeholders are built on understanding the
legitimacy of the stakeholder and having processes to routinely surface their concerns.
Broadly, the emphasis of Freeman’s book is to construct an approach to management
that takes the external environment into account in a systematic way. He provides a
solid theoretical basis for the understanding of the stakeholder concept and paved the
way for extensive future research in the field.

2.3 Dynamics of Stakeholders

Another interesting characteristic of the stakeholder concept is the dynamics of

stakeholders. Over time, the mix of stakeholders may change. New stakeholders may
join and wish to be included in any considerations, while others may drop out, through
no longer being involved in the process.
The concept of the dynamics of stakeholders was acknowledged by Freeman [5], and
according to him, in reality stakeholders change over time, and their stakes change
depending on the strategic issue under consideration. Alkhafaji [2] also contributed to
the understanding of this concept. To explain the dynamics, he defined stakeholders as
the ‘groups to whom the corporation is responsible’.
Another notable work on this concept was by Mitchell, et al [7]. They proposed that
classes of stakeholders can be identified by the possession or attributed possession of
one or more of three relationship attributes: power, legitimacy and urgency. By
including urgency as an attribute, a dynamic component was added to the process
whereby stakeholders attain salience in the minds of managers. By combining these
attributes they generated a typology of stakeholders.
 POWER
LEGITIMACY

1
Dormant
Stakeholder 4
Dominant
Stakeholder
2
7 Discretionary
5 Definitive Stakeholder
Dangerous
Stakeholder
Stakeholder
6
Dependant
Stakeholder

3
Demanding 8
Nonstakeholder
Stakeholder

URGENCY

Source: Mitchell, et al. [7], Figure 2, p874.

Figure 2: Stakeholder Typology

According to their typology (Figure 2), if a stakeholder possesses only one of the
three attributes, they are termed Latent stakeholders and have low stakeholder salience.
If the only attribute present is power, such stakeholders are called Dormant
stakeholders; if it is only legitimacy, they are called Discretionary stakeholders and if
only urgency, they are called Demanding stakeholders. Stakeholder salience will be
moderate, if two attributes are present and such stakeholders are called Expectant
stakeholders. Among the expectant stakeholders, those having power and legitimacy
only are called dominant stakeholders; those having legitimacy and urgency only are
called Dependent stakeholders and those having power and urgency only are called
Dangerous stakeholders. Stakeholder salience will be high where all the three attributes
are perceived by managers to be present in a stakeholder and they are called Definitive
stakeholders. Further the dynamic qualities were illustrated by showing how
stakeholders can shift from one class to another, when the salience of stakeholders
increase/decrease by attaining/loosing one or more of the attributes. Later, Agle et al [1]
confirmed the model by empirically testing Mitchell et al [7] theoretical model.
The dynamics of stakeholders is a very interesting and important aspect of the
stakeholder concept. Further research and empirical studies are required to get a better
understanding and to gain deeper insight of this area.

3. Systems Thinking And Modelling

Systems methodology or the systems approach refers to a set of conceptual and
analytical methods used in systems thinking and modelling. The development of a
systems thinking and modelling intervention involves five major phases (Maani and
Cavana, [6], p16) as shown in Figure 3.
 Phases
1 Problem Structuring
2 Causal Loop Modelling
3 Dynamic Modelling
4 Scenario Planning and Modelling
5 Implementation and Organisational Learning

Figure 3: Framework for Systems Thinking and Modelling

We would like to propose that a well structured stakeholder analysis along with the
active interaction of stakeholders would enrich the different phases of the systems
thinking and modelling process. However in this paper, we would like to draw attention
to the usefulness of stakeholder analysis in the ‘problem structuring’ and ‘scenario
planning & modelling’ phases.

3.1 Problem Structuring

In the problem structuring phase, the situation or issue at hand is defined and the scope
and boundaries of the study are identified. This is the common first step in problem
solving approaches. The problem-structuring step consists of the following steps (Maani
and Cavana, [6], p17).

1. “Identification of the problem area or policy issues of concern to management. This

step requires that we clearly establish the objectives, taking into account multiple
stakeholders and perspectives.
2. Collection of preliminary information and data including media reports, historical
and statistical records, policy documents, previous studies and stakeholder
interviews.”

3.2 Scenario Planning and Modelling

In this phase, policies and strategies are tested under varying external conditions. This
is referred to as scenario modelling. In Maani and Cavana [6], the method used to
construct scenarios is based on the approach outlined by Schoemaker [8]. Schoemaker
provides a 10 step method, which explicitly refers to stakeholders in steps 2 and 8:

“Step 2: Identify the major stakeholders or actors who would have an interest in these
issues, both those who may be affected by it and those who could influence matters
appreciably. Identify their current roles, interests and power positions.

Step 8: Assess the revised scenarios in terms of how the key stakeholders would behave
in them. Where appropriate, identify topics for further study that would provide
stronger support for your scenarios, or might lead to revisions of these learning
scenarios.”

4. A New Zealand Case Study

In this case study we will explain how a systematic stakeholder analysis could be
conducted for a supermarket. This supermarket, located in Wellington was facing an
issue of declining market share during the last couple of years.
 Based on this strategic issue, it is possible to develop a stakeholder map of the
organisation. The stakeholder map of this Wellington supermarket with respect to the
strategic issue is shown in Figure 4.

Owners
Community
Suppliers

SIG Unions

Customers Wellington Super Market Employees

Media Government

Financial Consumer
Community Advocates
Competitors

Figure 4: Stakeholder Map of Wellington Supermarket

As the next step, a stakeholder chart for the Wellington supermarket was prepared by
identifying specific stakeholders based on the stakeholder map. This is shown in Fig. 5.
Owners Community Unions
Private shareholders Local community NZ store & warehouse employees union
Wider community Central amalgamated workers union
National distributors union
Employees Government Competitors
Managers Ministry of Economic Countdown food markets
Office staff Development Big K supermarket
Counter staff Labour Department Big Fresh supermarket
Shelf fillers Inland Revenue New World supermarket
Other staff ACC Pak ‘N Save supermarket
Regional Council Woolworth supermarket
City Council The Warehouse
Consumer Financial Community Media
Advocates Commercial banks TV Channels
Consumers Institute Radio stations
Wellington and local newspapers
Customers Special Interest Groups Suppliers
Local community Neighbourhood protection Large producer companies
Wider community groups Distributor companies
Other businesses Environmental groups Direct vendors
(e.g. dairies) Contractors
Figure 5: Specific stakeholders of Wellington Supermarket
Further, the stakes of the specific stakeholder groups is identified and analysed. In
Figure 6 we have shown the stakes of some selected stakeholders of this Wellington
supermarket.

Private shareholders Local Community New world supermarket

Growth and income High users of product Market Share

Profit Product quality Price
Product variety Product variety
Price
Monthly budget
Managers Shelf fillers Consumers Institute

Salaries Wages Safety of products

Jobs and Job security Jobs and Job security Quality of products
Discounts, benefits and Staff discounts Price
bonuses Misleading advertisements
Career

Figure 6: Stakes of Selected Stakeholders in Wellington Supermarket

A two dimensional grid as an analytical device could be developed to depict an

organisation’s stakeholders. The first dimension categorises stakeholders by interest or
stake and the second dimension is in terms of power. In Figure 7 we present the power
versus stake grid for some selected stakeholders of the Wellington Supermarket.

Power Formal
Or Economic Political
Voting

Stake

Equity Private shareholders

Economic Commercial bank Inland Revenue Dept.

Influencers Consumers institute

Figure 7: Stakeholder Grid for selected stakeholders of Wellington Supermarket

After analysing the stakeholders systematically, as explained above, it is also possible to

understand the dynamics of stakeholders using the stakeholder typology model as
shown in Figure 3.
 5. Conclusions
In this paper we have presented a review of the stakeholder literature. In particular we
have considered developments in classical stakeholder analysis, the stakeholder
approach to strategic management and the dynamics of stakeholders. We have then
provided an overview of the main phases of the systems thinking and modelling
approach to systems interventions and highlighted the phases which we believe would
benefit from the rigorous approach to stakeholder analysis outlined in this paper. These
include the ‘problem structuring’ and ‘scenario planning and modelling’ phases in
particular. Finally we have presented a brief New Zealand case demonstrating the
relevant steps of the type of stakeholder analysis that would be appropriate in systems
thinking and modelling interventions.

References
[1] B. R.Agle, R. K. Mitchell, and J. A. Sonnenfield, Who matters to CEOs? An
investigation into stakeholder attributes and salience, corporate performance and
CEO values. Academy of Management Journal, 42(5) (1999):507-525.
[2] A. F. Alkhafaji, A stakeholder approach to corporate governance. Managing in a
dynamic environment. Westport, CT: Quorum books (1989)
[3] T. Donaldson, and L. Preston, The Stakeholder theory of the corporation: concepts,
evidence and implications. Academy of Management Review, 20(1) (1995): 65-91.
[4] A.A. Elias, R.Y. Cavana and L.S. Jackson, Linking stakeholder literature and system
dynamics: Opportunities for research, Proceedings of the international conference on
systems thinking in management, Geelong, Australia (2000), pp 174-179
[5] R.E. Freeman, Strategic Management: A Stakeholder Approach. Boston: Pitman
(1984)
[6] K.E.Maani and R.Y.Cavana Systems Thinking and Modelling: Understanding
Change and Complexity, Auckland: Prentice Hall. (2000)
[7] R. Mitchell, B. Agle, and D. Wood Towards a theory of stakeholder identification
and salience: defining the principle of who and what really counts. Academy of
Management Review, 22(4) (1997), pp 853-886.
[8] P.J.H. Schoemaker, Multiple scenario development: its conceptual and behavioural
foundation. Strategic Management Journal, 14 (1993), p197.

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