As a person with knowledge of instrumental stakeholder theory, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of this topic and at times fails to understand the reasons or logic behind certain strategic implementations imposed on it.
By delving into this project paper, the author intends to have better insights into how instrumental stakeholder theory is thought up, formulated and then imparted down into its subsidiaries of the company or organization. The author hopes to have an in-depth understanding as to how the instrumental stakeholder theory enables companies and organizations to compete effectively and profitably in this era of internationalization where competition is extremely intense.
In order to reinforce the learning objectives, two key focal issues were focused upon i.e. innovation and diversity. Innovation was discussed with regard to instrumental stakeholder theory where it was renowned for its developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better understand the issues being discussed.
This essay utilized instrumental stakeholder theory as the model business concept to review its present impacts and how it dealt with critical situations. From the analysis, key trends in the instrumental stakeholder theory were then identified, how it worked and its effectiveness in dealing with critical situations was ascertained. The paper then moved on to assess the instrumental stakeholder theory with regard to its suitability to critical situations, during which the internal capabilities of instrumental stakeholder theory in relation to the strategy being followed by most companies and organizations was determined also. An overall analysis of the performance and effectiveness of instrumental stakeholder theory was also conducted to assess and compare the capabilities of this concept with those of others. Gaps in the capabilities of instrumental stakeholder theory were then identified.
Finally, several choices of strategies to improve the application of the instrumental stakeholder theory as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.
Instrumental stakeholder theory ensures the efficient and effective implementation of the policies and tasks necessary to satisfy a corporation's customers, employees, and management. Instrumental stakeholder theory focuses on the careful execution of the processes involved in the mobilization of products and services for the establishment of wealth (1986).
More often than not, small companies and organizations don't really have the capabilities to implement instrumental stakeholder theory. Instead, these companies and organizations engage in activities that various schools of economics typically associate with the application of the instrumental stakeholder theory. These activities include the sharing of products and resource, resource development and distribution.
However, instrumental stakeholder theory deals with all operations done within companies and organizations. Activities such as the management of purchases, the control of inventories, logistics and evaluations are often related with instrumental stakeholder theory. A great deal of emphasis lies on the efficiency and effectiveness of processes. Therefore, instrumental stakeholder theory includes the analysis and management of internal processes.
The Role of Instrumental Stakeholder Theory
Instrumental stakeholder theory helps corporations aim for sustainable growth as a broad market leader in various industries as well as for segment leadership. In both cases, the stakeholders of the corporation will play a crucial part. Through the implementation of the instrumental stakeholder theory, the corporation is able to establish its broad leadership usually by acquiring other strong companies and their products, which are then combined into a new, larger corporation ( 2005). Offering training to its stakeholders, improving the corporate operations, and the introduction of new technologies then reinforces the positions of the various corporate products and services. This practically results in economies of scale that is able to create a distribution network for both the local and international corporate products and services. If a market is already in the control of other corporations, the stakeholders devote their attention towards the development of a premium segment with its various products and services.
The instrumental stakeholder theory performs an instrumental role in securing the growth of a business in a sustainable manner, while at the same time constantly improving the corporation’s profitability. The strategy to achieve this involves four elements:
- Striving in order to reach a leading position in attractive markets
- Focusing on securing a competitive share of the market segments.
- Working in order to improve the corporation’s efficiency and cut costs in operations.
- Continuous growth through selective acquisitions for as long as they are able to create shareholder value.
Benefits of Instrumental stakeholder theory
Among the competitive advantages enjoyed by corporations upon the practice of instrumental stakeholder theory include the following:
· Economies of Scale and Scope in manufacturing and research and development arising from its numerous productive stakeholders.
· Unique Quality Technology owing to heavy emphasis on research
A corporation’s commitment to research & development activities has always been one of its top strategies to remain competitive in the market.
· Differentiated Products
Through the production and marketing of differentiated products originating from their research and development activities, a corporation is able to create its own firm-specific advantages. The continuous pursuit of instrumental stakeholder theory enables a corporation to produce a steady stream of originally differentiated products which makes it difficult for competitors to find substitutes. Because of this differentiated approach, a corporation is able to market its products worldwide, which enables them in turn to maximize the returns on research and development expenditures (Amsden, 2001).
Critical Factors for Profit
A corporation or organization implementing instrumental stakeholder theory can be able to gain a significant amount of profit depending on the following factors:
· Financial Stability
Financial stability is crucial especially in the pursuit of merging and acquisition activities and overall profit. In any industry, it is important to remain updated with the latest technological developments to be able to stay competitive in the market.
· Product Performance and Price
The designing of the best products comes as a result of well-funded research and development activities. The strong performance of products in the market could also be linked to their cost-effectiveness. However, the corporation has to be aware of the positioning in terms of process so as to maintain satisfactory profits margin and remain competitive in the market.
· Marketing Strategy and Distribution
High brand awareness among the buyers has created the need for aggressive marketing, and access to strong distribution channels is critical for the introduction of new models (2001).
Planning is a necessary ingredient within the instrumental stakeholder theory in order for the corporation to gain profit. In most corporations this process is often very difficult because of the fast rate of change and the occurrences of unplanned events. Most corporations use several methodologies depending on the rate of demand of the customer and the price of the product. Nevertheless, the objectives of every corporation for every transaction do not change: profit generation and effectiveness (2001).
Planning is being implemented by companies and organizations in order for their activities and resources to be coordinated over time. This enables the companies and organizations to achieve their goals with minimal resource utilization, and thereby enhancing the chances of profit generation. Planning also enables companies and organizations to monitor the progress of their plans at regular intervals and maintain their control over operations. Planning within the instrumental stakeholder theory involves four elements: scheduling, labor planning, financial planning, and cost planning (1989).
- Scheduling involves the specification of the beginning, the length or the duration, and end of the planned corporate activities.
- Labor planning involves allocating the necessary stockholder and delegation of responsibilities and resources for the process
- Financial planning involves identifying the types and needs in terms of budget.
- Cost planning involves determining the costs and the possibility of their occurrence.
C. Supply Chain Analysis
Supply Chain analysis within the instrumental stakeholder theory involves working across multiple enterprises in an effort to limit the supply chain time in the procurement function.
The uncertainty of demands in supply chains within industries is easily solved through the implementation of faster response times. Some product supply chains have the luxury of longer lead times in terms of batch production of products in order to meet the demands. Most supply chains are moving in a position to support faster changes of demand by the consumers (2002).
Because of the agile supply chain of most companies and organizations, they are able to enjoy so many advantages. As mentioned above, the supply chain analysis tends to shorten the supply chain itself. Also, this will significantly reduce company inventories. Forecasting, scheduling and planning, on the other hand, will significantly improve.
D. Research Analysis
The occurrence of research within the instrumental stakeholder theory reflects the growing difficulty in the management of the stakeholders within a corporation that requires the effective use of valuable resources such as money, materials, equipments, and people. And even reputable organizations and companies are no exception to these. This is the reason why research analysis is a critical part of the instrumental stakeholder theory and is being done by organizations and companies in order to determine the most effective ways to coordinate these resources in an effort to obtain significant profit gains through the application of analytical methods derived from fields of studies such as mathematics, science, and engineering (2002).
Through this process, problems pertaining to gaining profit are solved in different ways and alternative solutions are then relayed to the management of corporations and companies. The management then selects the appropriate course of action in line with the profit goals. More often than not, research analysis in the instrumental stakeholder theory is concerned with complicated issues such as top-level strategy, resource allocation, designing of production facilities and systems, pricing and the analysis of large databases.
The results of the analysis carried out on the instrumental stakeholder theory indicated very significant effects, even amidst the threats of unrest. Therefore, we could conclude that the implementation of the instrumental stakeholder theory could still be expected to improve faster than average.
The review of the instrumental stakeholder theory’s capabilities and resources revealed very little inconsistencies regarding its strategies for profit generation. This is coherent with its traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for the stakeholders.
The analysis among the environment as well as the capabilities of the stakeholders revealed certain gaps, most of which are biased towards the environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure the competitiveness of a corporation.
Also, the stakeholders have to find a balance between adherence to internal forces within the corporate management and to the changing forces of the environment in order to implement such strategic options.
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