Question

Identifying the criteria that each stakeholder is likely to use to judge the organisation’s performance.

Answer 1

Let us first understand who the stakeholders are. Stakeholders are the people who are interested in the workings of the organization and who are affected by the decisions taken, policies framed by the organization.

Every organization works in an open environment where it needs to interact with number of parties to make the transaction possible. There are number of stakeholders that are attached with the organization and directly indirectly affected by the performance of the organization.

The stakeholders are often concerned about how well the organization is performing and how is it benefitting the stakeholders. Following are the number of stakeholders and the criteria used by them to judge the performance of the organization:

(1) Creditors: these are the ones who lend money to the organization and in turn organizations promise to it back the amount in later years. Before lending money, the creditors check the performance of the organization using the following criteria:

• Checking the creditworthiness by looking into the past financial records.
• Checking for the financial performance of the company in past few years to make sure that they will be able to repay.
• By checking the scores which help in identifying the repaying power of the organization.

(2) Directors: they are the ones who run the management of the company are concerned about its working. In order to ensure smooth functioning of the organization the directors check the performance of the organization using the following criteria:

• Checking the financial reports of the organization on quarterly basis and analyzing any kind of shortfalls.
• By looking at the results of ratio analysis and analyzing if the work is been done effectively.

(3) Employees: are hired by the management to work for the organization and make efforts to bring an organization to new heights by implementing the plans framed by higher level authorities. The employees check the performance of the organization using the following criteria:

• By judging the profitability of the organization over the past few years.
• By finding any hike in the monetary benefits provided or addition in some incentives.
• By analyzing the number of new customers added with the business on yearly basis.

(4) Shareholders: are the ones who invest their money in the organization and in turn expect rise in their value of money and better return. Before investing their money, the stakeholders check the performance of the organization using the following criteria:

• By studying financial reports and figuring out various ratio analysis to check for different performance basis.
• By studying the past years dividend policy of the company and understanding what rise is given over years.

(5) Suppliers: are the ones who are responsible to supply raw materials to the company so that they are able to produce the goods without any hurdle. The suppliers check the performance of the organization using the following criteria:

• By seeing if the company is able to pay the expenses to the suppliers on time and do not convert into bad payers.
• If the company is capable to negotiate on the terms of the suppliers and not being rigid towards paying less.

(6) Government: government is worried about the performance of the organization because it works under their set rules and regulations. The government check the performance of the organization using the following criteria:

• By checking if the company is abiding by all the legal regulations properly without any fault being done intentionally.
• By seeing if the company is able to generate sufficient amount of profits in the said financial year as pre decided.

(7) Customers: customers are concerned about the performance because they are the ones who buy the products on regular basis and demand high quality products within their budgets. The customers check the performance of the organization using the following criteria:

• By analyzing if the products are sold at every outlet at affordable prices at every time.
• By analyzing if the company is involved in some additional social causes for the benefit of the society.

It should be noted that there are number of stakeholders that are attached to the organization. Some are internal and some are external. And it is up to the stakeholder how he perceives the company to be and on what criteria he decides about the performance of the organization.