The Ultimate Guide To External Stakeholders
Why External Stakeholders? And Why Now?
The answer is simple: because we live in a world with historically-low levels of trust and we face a world rife with disruption—the exact situations where we lean on trust.
Edelmen publishes an annual global trust index. Here is why:
Trust defines an organization’s license to operate, lead and succeed. Trust is the foundation that allows an organization to take responsible risk, and, if it makes mistakes, to rebound from them. For a business, especially, lasting trust is the strongest insurance against competitive disruption, the antidote to consumer indifference, and the best path to continued growth. Without trust, credibility is lost and reputation can be threatened.
External Stakeholder Relationships: To Thrive, Not Just Survive
John Kotter and James Heskett, Harvard Business School professors and authors of Corporate Culture and Performance, found that company cultures which valued employees, customers, and investors (ie: external and internal stakeholders) outperformed companies that did not have such cultures in terms of revenue, stock price and profitability growth. Compared to less value-driven companies, the impact on net income growth was more than seven times by such stakeholder-focused businesses.
Benefits of Relationship with External Stakeholders
By following these steps, you should be able to identify and understand the company's external stakeholders, enabling you to develop effective strategies for engagement, communication, and managing stakeholder relationships.
This information can provide the basis for important discussions with business owners and their boards of directors to establish a program to reach stakeholders externally and internally (covered in this guide).
Building strong relationships with stakeholders can bring several benefits to an organization. Here are some key benefits of establishing and maintaining strong relationships with external stakeholders:
Increased Trust and Credibility: Strong external stakeholder relationships foster trust and credibility. When stakeholders perceive an organization as reliable, transparent, and responsive, they are more likely to trust its actions, decisions, and commitments. Trust is essential for long-term partnerships and can enhance the organization's reputation. (Read here to see how Accenture research shows how community relevance is vital in a disconnected world).
Enhanced Collaboration and Cooperation: Strong external stakeholder relationships create a foundation for collaboration and cooperation. When stakeholders feel valued and engaged, they are more willing to work together towards common goals. Collaboration can lead to shared knowledge, innovative solutions, and joint initiatives that benefit all parties involved. (Indeed, research shows that strong external communications reduce costs in an organization.)
Improved Decision-Making: Engaging external stakeholders in the decision-making process allows organizations to gain diverse perspectives and insights. Stakeholders can provide valuable input based on their expertise, experiences, and interests. By considering different viewpoints, organizations can make more informed and inclusive decisions.
Mitigation of Risks: Effective external stakeholder relationships help organizations identify and address potential risks and challenges early on. Stakeholders can provide valuable insights into emerging issues, market trends, and regulatory changes. By maintaining open lines of communication, organizations can proactively manage risks and adapt to external factors. (see here for more about how brand management is risk management).
Increased Adaptability and Resilience: Strong external stakeholder relationships enable organizations to be more adaptable and resilient in the face of change. When organizations have established relationships with stakeholders, they can better navigate crises, industry disruptions, and economic shifts by leveraging the collective knowledge, resources, and support of their stakeholders. (This article draws on research from Forrester concerning external stakeholders, innovation and uncertain times.)
Competitive Advantage: A positive reputation and strong external stakeholder relationships can provide a competitive advantage in the market. Customers, investors, and partners are more likely to choose organizations with strong stakeholder relationships, as they are perceived as responsible, ethical, and committed to long-term sustainability.
Stakeholder Support and Advocacy: Engaged external stakeholders can become advocates for the organization, supporting its initiatives, products, and services. Positive word-of-mouth and endorsements from stakeholders can lead to increased customer loyalty, brand affinity, and market growth.
Access to Resources and Opportunities: Strong external stakeholder relationships can open doors to new opportunities, resources, and networks. Stakeholders may offer access to funding, expertise, market insights, partnerships, and other valuable resources that can contribute to the organization's success and growth.
Overall, strong relationships with stakeholders contribute to a more sustainable and resilient organization, enabling it to navigate challenges, seize opportunities, and create long-term value for all stakeholders involved.
Best Practices for Identifying External Stakeholders:
Identifying a company's external stakeholders involves a systematic process of gathering information and analyzing the various groups or individuals who have a vested interest or are affected by the company's activities.
While many identification efforts codify stakeholders into primary and secondary stakeholders, the current best practice is to view all your stakeholders as part of an overall system. Therefore, each of them plays a role in the health of the system.
Here's a step-by-step process to help you identify a company's external stakeholders:
Define the Purpose: Clarify the purpose of identifying the external stakeholders. Are you looking to engage with them, assess their impact, or improve stakeholder relationships? Having a clear objective will guide the process.
Internal Analysis: Begin by conducting an internal analysis of the company to identify key areas of operation, functions, and activities. This will help you understand the company's operations and the potential stakeholders associated with each area.
Brainstorm Potential External Stakeholders: Gather a team of individuals from different departments or levels within the company to brainstorm and create a list of potential external stakeholders. Consider different categories such as customers, suppliers, competitors, government agencies, regulatory bodies, local communities, industry associations, NGOs, shareholders, investors, employees, and media.
Categorize External Stakeholders: Once you have a comprehensive list of potential stakeholders, categorize them based on their level of influence and interest in the company's activities. Use a stakeholder matrix or similar tool to classify them into groups such as high power/high interest, high power/low interest, low power/high interest, and low power/low interest.
Prioritize External Stakeholders: Prioritize the stakeholders based on their importance to the company's operations, potential impact, and influence. Consider their level of dependence on the company, potential risks they pose, and the benefits they offer.
Research and Analysis: Conduct thorough research on each stakeholder group to gather information about their needs, expectations, concerns, and influence. Utilize public information, industry reports, social media, surveys, interviews, and other relevant sources to gather data. Analyze the information to gain insights into the stakeholders' perspectives and potential impact on the company.
Map External Stakeholder Relationships: Create a stakeholder map or diagram to visualize the relationships between the company and its stakeholders. This will help you understand the dynamics and interdependencies between different stakeholder groups and identify potential conflicts or areas of collaboration.
Validate Findings: Validate your stakeholder analysis by seeking input from key individuals within the company who have direct interactions with external stakeholders. Their insights and feedback can help refine and update the stakeholder identification process.
Review and Update Regularly: Stakeholder identification is an ongoing process, as stakeholder groups can change over time. Regularly review and update the stakeholder analysis to ensure it remains relevant and aligned with the company's evolving goals and activities.
Best Practices for External Stakeholder Communication
Identify and Prioritize Stakeholders: Begin by identifying your key stakeholders, including customers, employees, suppliers, investors, community members, and regulatory bodies. Understand their interests, needs, and expectations to tailor your communication approach accordingly. Prioritize stakeholders based on their level of influence and impact on your organization.
Develop a Communication Strategy: Create a comprehensive communication strategy that outlines your objectives, key messages, channels, and frequency of communication. Align your strategy with your organizational goals and values. Ensure consistency in messaging across different channels and departments. Lastly, ensure you are using master-level storytelling, as seen in this post including the obituary writer for The Economist.
Be Transparent and Authentic: Transparency builds trust and credibility. (Read more here about how to take control of your own story before someone else does). Be open and honest in your communication, sharing both good news and challenges. Avoid withholding or manipulating information, as it can damage stakeholder relationships. Authenticity is also crucial, so ensure that your communication reflects your organization's true values and intentions. (In today’s distrustful world, stakeholders look to actions over words).
Tailor Messages to Stakeholders: Customize your messages to resonate with different stakeholder groups. Understand their unique needs, concerns, and communication preferences. Use language and examples that are relevant and relatable to each group. Consider using different channels such as newsletters, emails, social media, and face-to-face meetings to reach diverse stakeholders effectively.
Listen and Seek Feedback: Communication is a two-way process. Actively listen to your stakeholders' perspectives and seek their feedback. Encourage open dialogue, ask for suggestions, and respond promptly to inquiries. Demonstrate that you value their input and are willing to address their concerns. Regularly conduct surveys, focus groups, and feedback sessions to gather insights and improve your communication strategies.
Be Proactive During Crises: In times of crisis or challenging situations, timely and transparent communication becomes even more critical. Develop a crisis communication plan that outlines roles, responsibilities, and communication channels. Communicate proactively, providing accurate and consistent updates to address concerns, minimize rumors, and demonstrate your commitment to resolving the situation. (Read here for how Johnson & Johnson proactively addressed a lack of understanding about vaccines during COVID-19).
Utilize Digital Channels Effectively: Leverage digital platforms to reach and engage stakeholders efficiently. Maintain an active online presence through your website, social media accounts, and email newsletters. Regularly share updates, relevant content, and respond to comments or messages promptly. Use analytics tools to measure the impact of your digital communication efforts and make data-driven improvements.
Train and Empower Employees: Ensure that your employees are equipped with effective communication skills. Train them to represent your organization professionally and consistently. Provide guidelines and resources to support their communication efforts. Encourage employees to be proactive communicators and ambassadors of your brand.
Measure and Evaluate: Establish metrics and key performance indicators (KPIs) to measure the effectiveness of your stakeholder communication initiatives. Monitor engagement levels, feedback, and sentiment. Regularly evaluate your communication strategy's impact and make adjustments as necessary to continuously improve.
Continuously Improve: Stakeholder communication is an ongoing process. Actively seek opportunities to learn and improve your communication practices. Stay updated on emerging trends, technologies, and best practices in the field. Regularly review and refine your communication strategy to adapt to changing stakeholder needs and expectations.
By adopting these best practices, organizations can cultivate strong relationships, build trust, and enhance the overall effectiveness of their stakeholder communication efforts. These changes often start with business owners and their boards of directors.
More Reading on External Stakeholder Relations
The pivotal factors for effective external engagement (McKinsey)
Survey results show that senior leaders have increasingly prioritized external stakeholder engagement, which remains a challenge for many companies. Certain capabilities distinguish companies that have met the challenge.
Business Roundtable today announced the release of a new Statement on the Purpose of a Corporation signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.
For Long-Term Success, Companies Must Deliver for All Stakeholders (Business Roundtable)
Three years ago today, the CEOs of almost 200 of America’s leading companies released a new statement on corporate purpose.
This paper extends insights into value co-creation with stakeholders as an extension of the business model construct, whilst highlighting practical implications for family-owned SME practitioners.
Our findings inform public relations theory and practice and suggest that in times of major crises, organizations should prioritize proactive approaches to engage external stakeholders while being mindful of specific institutional contexts.
The Importance Of Stakeholder Engagement And Building Brand Loyalty Through Purpose (Forbes)
Nothing is better than to be in service of the public good, and this is an ideal time for a long-term discussion on how your business strategies are focused on the betterment of everyone. Now is a time for shared knowledge and learning, and a deep appreciation and sincere gratitude for everyone's well-being.
A New Measure to Assess Companies’ External Engagement (Wharton)
Perhaps the most prominent evidence of this trend arrived at the start of 2018, when BlackRock’s Larry Fink laid out in his annual CEO letter what he believes organisations risk when they don’t get smart on social engagement. “Without a sense of purpose, no company, either public or private, can achieve its full potential,” he wrote. “It will ultimately lose the license to operate from key stakeholders.”
The Business Case for Purpose (Harvard)
Around the world, the business environment is in a permanent state of disruption. Today more than ever, companies are searching for a new genetic code that will help them continuously evolve—to survive and to thrive.
Navigating the C-suite: Managing stakeholder relationships (Deloitte)
Among the three key resources that transitioning executives need to manage effectively—time, talent, and relationships—the last may be the most important. Addressing four critical areas of stakeholder relationship management can help avoid pitfalls and forge stronger ties with the C-suite.