Impact Of Stakeholder Analysis On Organizational Performance (A Case Study Of Dangote Group Of Companies)

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Impact Of Stakeholder Analysis On Organizational Performance (A Case Study Of Dangote Group Of Companies)

Chapter One


1.1 Background to the Study

Businesses can only strive to compete in this ever changing environment through establishing various means of survival. The concept of business strategy, whose essence is to achieve a sustainable organizational performance, is today widely practiced among organisations to outwit competitors. Aosa (2000) observed that increased environmental competition has made organisations to embrace the concept of strategic management by involving various stakeholders in organisation in order to remain profitable. Through this process stakeholders often develop detailed strategic plans for achieving success in business and to maintain a competitive edge over their competitors. Stakeholders analysis demands a higher involvement in the strategy formulation and implementation process by these actors. This will increase the degree of ownership and commitment to that strategy thereby increasing the quality of output and its success rate. The management must therefore identify the key stakeholders with vested interest in the success of the organisation and involve them in the organisation’s strategic management process in order to enhance organizational performance.

This research is based on Stakeholder Theory and Resource Based View. Freeman (1984) fronted the concept of stakeholder theory in which he defined stakeholder as “any group or individual who can affect or is affected by the achievement of the organisation’s objectives”. Friedman (2006) views an organisation as a grouping of stakeholders whose interests, needs and viewpoints are managed by the same organisation. The managers therefore manage the company on behalf of the stakeholders in order to ensure their rights and participation in decision making while acting as the stockholder’s agent to ensure good performance of the firm.

Resource Based View (RBV) was introduced by Warnerfelt (1984). The theory explains how firms should exploit internal resources for sustainable competitive advantage. RBV is crucial in stakeholder analysis in the organisation and demands that, as the management formulates strategy, they must take cognisant of both tangible and intangible resources in the organisation. Stakeholder theory and RBV are therefore fundamental for this study because they recognise the management’s role in building consensus in the organisation and exploiting the internal resources in strategic management. It is no doubt that a company’s management must be in the forefront in ensuring that the company’s strategy is formulated and implemented while involving key stakeholders and building on the available internal resources in order to enhance business performance.

In Nigeria, Dangote Group still remains one of the main economic drivers in the country, with great contribution to sugar, cement, rice, fisheries and other consumer goods for distribution in the Nigeria market. Therefore, a company as big as this must involve its various stakeholders on some decisions taken in a bid to achieve a better growth and development to help move the organisation forward and remain relevant for a long period of time.

According to Possey, participation in decision-making by those that are affected by it results to them having a higher degree of ownership and commitment to the achievement of its objective. Further, the quality of output will also increase as more and more people get involved in the joint process of common interest. A sense of ownership that culminates to better outcome of a strategy may therefore be built in the organization as more stakeholders are included in decision making.

There are many stakeholders who depend on and/or serve the organisation and are hence interested in the organisation’s success. These stakeholders can be broadly grouped into primary and secondary stakeholders, with the primary wielding more power and interests in the company success than the secondary stakeholders. According to Lozano (2005), primary stakeholders such as employees and customers determine the survival of the company because they understand the strengths, weaknesses, opportunities and threats that the organisation faces and they can convert weaknesses and threats to strengths and opportunities due to their first-hand knowledge of the organisation. Pfeffer and Salancik, (1978) adds that employees and customers provide the organisation with essential resources needed for organisation’s success. Ansoff (1965) portends that strategic vision can only be achieved by the commitment and involvement of organisational members.

According to Floyd and Wooldridge (2000), a lack of stakeholder participation will lead to poorly developed strategies. Similar position is taken by Knights and Morgan (1991) who added that the lack of inclusion is a sign of organisational inequality which leads to dissatisfaction among those excluded as stated by Westley (1990). Nonetheless, no consensus has been reached as to the degree to which organisational members should participate in strategy formulation, but difficulties in implementation are immensely reduced when several stakeholders are involved in the strategy formulation (Mintzberg, 1994).

1.2 Statement of the Problem

As strategic management concept matures, new approaches to strategy formulation and implementation arise: from rational strategy making process to incrementalism; Top-down management style to Bottom-up management style; and above all, the ever increasing stakeholder involvement and the resource based view concepts, with the bottom line being to successfully formulate and implement the organisational strategy for improved and sustainable organisational performance. There are variety of stakeholders within and outside the organisation with varied interest and power in the success of the organisation. The roles of each stakeholder on strategic management vary; some play a pivotal role while others remain at the periphery. Primary stakeholders wield a lot of power and interest in the success of the organisation’s strategy and can influence the degree of success of a strategy in that organisation hence affect organisational performance.

The continuous growth of Dangote Group can be attributed to having the right stakeholders helping in the formulation and implementation of policies that is aimed at moving the organisation forward. The study by Dandira (2011), concluded that managers will always strive to sell the strategic plan to employees who never participated in their formulation but are expected to implement them, resulting to resistance or poorly implemented strategy. Wessel (1993) identified the main obstacles to strategy implementation to include; conflicting priorities; poor functioning of the top management; top-down management style; conflicts between different functions; and lack of management development in the organisation. A study by O’Regan and Ghobadian (2002) identified the barriers to strategy implementation in the small and medium sized companies in the UK to include; implementation taking longer than anticipated followed by unanticipated problems and external factors.

Allio (2005) outlined five main reasons why strategy implementation stumbles in organizations; need to get back to real job; inability to translate ideas into action; lack of reward for sticking with the strategy; loss of track due to inability to monitor; ‘it is everyone’s responsibility and nobody’s responsibility’ notion and; when reality intrudes, plans lose relevance. According to Ayuso et al. (2006), a firm’s sustainable innovation is obtained from knowledge that is sourced from engagement with internal and external stakeholder. VanBuul, (2010) asserts that strategic management may result to poor implementation by the officers who do not understand the strategy well or are unwilling to commit fully in to the strategy they did not make.

Several studies have looked at stakeholder participation in strategy formulation; stakeholder participation in strategy implementation; the impact of strategy on organisational performance; and the relationship between strategy and business performance. While these studies have touched upon stakeholder participation in strategic management, more information is still required about the extent of stakeholder involvement in strategy work. Despite Dangote group being the largest conglomerate in West Africa and one of the largest on the African continent with the employment of more than 30,000 people, little is known about the extent of stakeholder analysis and involvement in strategy formulation and implementation, more so in Dangote group, and how the strategy making process link to their organizational performance. This therefore is a researchable area which formed the basis of this study.

1.3 Research Objectives

The general objective of this study is to examine the impact of stakeholder analysis on organisational performance by using Dangote Group of Companies as a case study.

The specific objectives are:

  1. To investigate the effect of stakeholders’ involvement in strategic management.
  2. To determine the impacts of stakeholders’ analysis on organisational performance.
  3. To examine the reasons for stakeholders’ analysis on organisational performance.

1.4 Research Questions

The following are some of the questions which this study intends to answer:

  1. What are the effects of stakeholders’ involvement in strategic management?
  2. What are the impacts of stakeholders’ analysis on organisational performance?
  3. What are the reasons for stakeholders’ analysis on organisational performance?

1.5 Research Hypotheses

The following will be the research hypotheses to be tested for this study:

  1. There is a significant relationship between stakeholders’ analysis and organisational performance.
  2. There is no significant correlation between stakeholders’ analysis and organisational growth.

1.6 Significance of the Study

The research will provide information about stakeholder analysis and involvement in strategy formulation and implementation in the organisation. This study sought to understand the pitfalls that organisations experience at the strategy formulation stage and act as the watchdog for successful strategy implementation hence improved organisation performance. The study may help the organisations formulate policies for strategic management process and decide on the stakeholder to be involved in strategy making process while considering the successful implementation of that strategy. This will enable the firms improve their performance through effective strategy formulation and implementation.

From the findings and recommendations of this research, the organisations will be able to appreciate the holistic approach to stakeholder analysis process and how the strategy can be successfully formulated and implemented in the organisation taking cognizant of the stakeholders’ power and interest. This will definitely enhance their performance in terms of competitiveness to the benefits of their clients and society.

1.7 Scope of the Study

The study investigates the impact of stakeholder analysis on organisational performance by using Dangote Group of Companies as a case study. Therefore, the research will be carried out among the various stakeholders and the staff of Dangote Group in Lagos, Nigeria.

1.8 Limitations of the Study

Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 Definition of Terms

The following terms were used in the course of this study

Organizational Performance:

Comprises the actual output or results of an organization as measured against its intended outputs. According to Richard et al. organizational performance encompasses three specific areas of firm outcomes: financial performance; product market performance; and shareholder return.

Stakeholders Analysis:

Is the process of assessing a system and potential changes to it as they relate to relevant and interested parties. This information is used to assess how the interests of those stakeholders should be addressed in a project plan, policy, program, or other action.

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