Focus on Profit Or Stakeholders Needs: Company’s Strategy
Stakeholders are individuals or groups who have an effect or are affected by the activities of an organisation. The stakeholder approach means that the business focuses on the needs of its main stakeholders. These can include the local community, employees, customers and suppliers and can focus on environmental issues, regular orders and security of employment. In contrast to this the shareholders approach focuses on giving a good sized dividend to shareholders, which means the business objectives would be based on getting more profit.
When Dyson moved its manufacturing to Malaysia to be closer to suppliers, it could be said that it was adopting a shareholder approach. The costs of production in the Far East would be cheaper, as would transporting the supplies from the suppliers to the factory. Wages would be much cheaper and so as a result of all these profit margins would be higher making Dyson able to give a better dividend to its shareholders.
In addition to this the move from Wiltshire to Malaysia caused over 800 job losses which would affect both employees who would have been made redundant and the local community as along with the 800+ job losses, there would be no future jobs available in the factory. After the move Dyson’s manufacturing costs have dropped significantly and as a result his profits have increased. This would mean that Dyson has more money to put into manufacturing, research and development and marketing and has the capital to pull itself through any recessions or drops in demand which can not be predicted or forecasted.
Dyson is in a much better position after the move than it was before. James Dyson said that the company may not exist at all today if it weren’t for the move. These points all suggest that a focus on shareholder dividends and therefore profits is the best way forward for a business. However this is not necessarily true. A business must focus on the wants and needs of its stakeholders as well for it to be successful in the long term. Dyson’s strategy of moving abroad may have helped the business through a tough time but that is only short term.
If the stakeholder’s needs were ignored the company’s image may suffer and it is more likely to be the target of pressure groups. In addition to this a poor image could mean that people do not want to be a part of the company and so recruiting could be more difficult. If a business took into consideration the needs of its employees as stakeholders and gave them job security, reasonable wages, job enrichment and motivation it would increase the morale of the workforce. This would lead to less absenteeism and boost productivity.
The greater commitment of the staff should then lead to better customer service and better product quality meaning customers would be happier with the product overall and would be more likely to make repeat purchases which would boost revenue and therefore profitability. As a result of the profitability boost, shareholders would be happier as their dividends may rise as would the value of the share. This in turn would please banks and other investors making it easier to get loans or overdrafts.
In addition to this the extra profit being gained could enable a business to put money into the community and give something back which should help build trust between the business and community. This could be of help if the business wants to put forward expansion plans for example as the community are more likely to agree. All of the above would put the business in quite a good position which would mean employees have job security and the cycle begins again. Unfortunately there is also a downside to the stakeholder approach.
As it is a long term approach it does not yield benefits as soon as the shareholder approach would. This means that it may not seem to be worth all the money it costs. As with everything there is an opportunity cost and the money spent implementing this approach could be used elsewhere, for example in marketing or product development. As well as this, managers may not be able to meet all the needs of its many stakeholders. This means making tough decisions and prioritising some groups above others which could cause problems.
In conclusion, I think we should look again at Dyson’s decision to move to Malaysia. Although it seemed like James Dyson was using a shareholder approach moving from the UK and causing many job losses, his success from this move means the company has more profit to feed into the community’s needs and it has enabled him to create another 100 jobs in Britain not in manufacturing but in more rewarding areas such as developing new products. In addition to this there is another, more in-direct advantage.
As a result of the lower production costs, the company pays more corporation tax which could be fed into hospitals or schools as well as other things aiding the community in general. I think focus purely on stakeholders would be a bad idea as it is such a long term approach, unless the business had sufficient funds to keep it going until the benefits could be gained, but it can be done as shown by OneWater who focus on helping bring clean water to overseas countries.
Similarly, a focus on shareholders alone would not be the best strategy as it could give the company a bad image and cause shareholders to sell up, lowering the share price as with BP in 2005 when an explosion at their Texas oil refinery killed 15 people. Overall, I believe that a company’s strategic decision-making should focus both on profit and stakeholder needs as this will give the business a positive image and gain the trust of its stakeholders while also raising the dividend for shareholders, possibly raising the share price as a result.
