Know Your Stakeholders - Mendelow's Matrix

Mendelow's Matrix is one of the most frequently used matrices in the business world. The only purpose of using Mendelow's Matrix is to evaluate the stakeholders of a business. More specifically, what stakeholders have more or less power to influence the business and what stakeholders have more or less interest in the business and any combinations of the two. 

Following is the Mendelow's Matrix.

As the diagram above displays, there are basically four types of stakeholders that a business has to be aware of. 

01) High Power & High Interest stakeholders

This is shown at the top, right hand corner square of the matrix. These stakeholders have a high influence over the business and also they are very much concerned about the business and it's activities. 

The business should pay a very close attention to the needs of these stakeholders because their withdrawal from the business could mean trouble. 

High Power & High Interest stakeholders are usually main shareholders of the company, main investors of the company, government environmental authorities etc. 

NOTE:

The examples for stakeholders for each category will vary vastly depending on the type of business you are in. For a business that deals with chemicals, environmental authorities will be a high power-high interest stakeholder. For a company dealing with medicine, health authorities will be a high power-high interest stakeholder. 

02) High Power & Low Interest stakeholders

These stakeholders possess a high power to influence the business but are not much interested to do so. They will involve only when they need to. They are not much worried about the sustenance of the business. The Government towards a normal business organization may have this kind of relationship. A government will only meddle with the business activities only when necessary. 

03) Low Power & High Interest stakeholders

Employees of an organization can be fit into this description. Employees will be constantly worried about their job security, their pay, promotions etc. So that means they have a high interest towards the business. But being employees, they possess low power to influence any business activity of the organization. 

04) Low Power & Low Interest stakeholders

For most general organizations, customers can be identified as low power, low interest stakeholders. Customers anyway have a low power against a company, unless and otherwise they are organized against the company. Also customers will be rather less interested in the activities of the company as long as they receive their good or service from the company. 

As I have mentioned above the role each stakeholder performs will vastly depend on the type of the organization. So there are no standards set in stone that this stakeholder should possess this much power and interest. It will vary from one business to another, even in the same industry. So you will have to identify the type of business the organization does and think on that who and who will be more or less interested in the activities of the business and who and who will or will not possess a high or a low influence on the activities of the business. 

Rational Planning Model – Part III – Strategic Option Generation (Part 05)

So far four other strategies for businesses have been discussed in the previous articles. This will be the fifth and the last of the third area of the Rational Planning Model. Another matrix will be discussed under this final part.

Need-Provision Matrix

This matrix is specifically designed for the public sector organizations, which are rather into social welfare than profit maximization. However in the allocation of resources towards the best interests of the society, public sector organizations too do have to develop strategies, to ensure the effectiveness and the efficiency of the process.

The matrix consists of the need for a product (high and low) and provision of resources by the private sector (high and low).

                                     Need

               Low                             High

No Provision	Selected Provision
Encourage Others	Extensive Provision

High

                Provision By Others

Low

No Provision

This is where the need for the product is low yet the private sector is providing for the product highly. Entertainment industry can be taken as a close example. The ‘need’ for entertainment is low (the ‘want’ for entertainment is high), but the private sector is generating wants out of entertainment industry.

Selected Provision

This is where the need for the product is high and the private sector provision is high too. In such cases the public sector will only intervene if necessary. Health industry shows these characteristics. Public sector will only intervene when there is some massive capital expenditure.

Encourage Others

This is a situation where the need for the product and the provision by the private sector are both low. Public Sector will motivate the private sector to provide for any low demand for the product.

Extensive Provision

This is where the need for the product is high and for some reason the private sector provision is low. Mostly very expensive provisions fall into this category or completely social welfare motive businesses are found in this category. Examples include maintaining law and order, national security and infrastructure facilities. 

Rational Planning Model – Part III: Strategic Option Generation (Part 04)

After a series of Michael Porter’s theories on strategy generations, this article focuses on Igor Ansoff’s ‘Ansoff Matrix’.

Ansoff Matrix – Igor Ansoff

This is also known as ‘Product-Market Matrix’ due to the fact that this theory focuses on the development of strategies based on products and the markets. The matrix focuses on existing products and markets and new products and markets and how strategies should be developed to face each situation appropriately.

Market Penetration

This is the strategy that should be adopted by a business when an existing product is introduced to an existing market. The market is already occupied with the same product and hence the business will have to adopt some pricing strategy to penetrate the market, preferably a cost leader approach.

Diversification

This strategy should be adopted when a business enters into a new market with a new product. A new product naturally signifies ‘differentiation’ from the existing products. However diversification is a broader concept. 

Two major aspects of diversification are horizontal diversification and vertical diversification. Horizontal Diversification signifies entering into different businesses that are related or close to the products of the current business (Eg: A soap company entering into shampoo industry). Vertical Diversification signifies a business entering into the different levels of the supply chain of the same business. (Eg: A cereal producing company purchasing a corn field – Upward Integration or the same cereal company purchasing a cereal distribution company – Downward Integration).

Product Development

This strategy deals with a business introducing a new product to the existing market. Hence strategies to develop the ‘product’ have to be initiated. Marketing, advertising, product promotions, discounts are a few strategies to be adopted.

Market Development

This is where a business introduces an existing product to a new market. So strategies to develop the market have to be adopted. Having a proper distribution channel, having convenient outlets to facilitate easy access for customers are some strategies that could be adopted. 

Rational Planning Model – Part III: Strategic Option Generation (Part 03)

The previous article discussed about the Diamond Theory introduced by the famous strategist Michael Porter. In this article too yet another theory put forward by him will be discussed. This strategy is known as the Five Forces Theory.

Five Forces Theory – Michael Porter

Unlike Generic Strategy and Diamond Theory, this model focuses on industry competition and developing business strategy on an industry level. This theory talks about five aspects of the industry which the business should be aware of and take into account when developing business strategy.

1. Bargaining Power of Customers
2. Bargaining Power of Suppliers
3. Threat of New Entrants
4. Threat of Substitutes
5. Rivalry

Bargaining Power of Customers

This focuses on the bargaining power of customers within the industry as a whole. Bargaining power means the ability to influence the price of a product. Higher the bargaining power, the higher the influence of the customers will be and hence the lower the prices will get. A single customer cannot affect the market price in a general industry. However when customers get organized, unionized or when customers are backed up by government institutions, their bargaining power becomes much more intense. Hence businesses will have to be aware of the nature of the influence of the customers when setting strategy.

Bargaining Power of Suppliers

This means the bargaining power of suppliers. Bargaining power is the same concept as mentioned above and the only difference is that in this aspect, the influence of suppliers is considered. Naturally one supplier cannot influence the market price but when they are organized their power is more. They can organize and create artificial shortages of products and drive the prices up. Hence the business has to strategize to face such situations.

Threat of New Entrants

This is where the business has to focus on the new competition that generated through new businesses entering the industry. The more businesses are in one industry, the more competition will occur. A considerable level of competition is good for both the businesses and the customers. Customers will be able to enjoy competitive prices whereas businesses will be forced to be innovative and implement cost reduction practices. However very strong competition is not beneficial. Businesses will lower their prices further and further in order to attract customers and will come to a level where the business cannot cover its daily expenses. That will force the business to liquidate.

Threat of Substitutes

This is where the business has to focus on the substitute products available beyond the industry. All products can be considered to be substitutes within and industry, and that’s what makes it an industry. However this aspect focuses on the likely substitutable products outside of the industry. For an example rice could be identified as a substitute for bread, although paddy cultivation and bakery industry are entirely two different industries.

Rivalry

This merely focuses on the competition within the industry. Higher the competition the more strategic businesses will have to be, the more innovative and more differentiated.

Rational Planning Model – Part III: Strategic Option Generation (Part 02)

The previous article discussed about the Porter’s Generic Strategy model and this article will discuss about another strategy that’s important for any business. This strategy too was implemented by Michael Porter and is named as ‘Diamond Theory’.

02) Diamond Theory – Michael Porter

This theory specifically discusses about the factors/conditions that affect a business to develop a competitive advantage over another business and come to be ‘global businesses’. Michael Porter put forward this theory in his publication ‘The Competitive Advantage of Nations’.

The theory focuses on four aspects that make the businesses globally competitive.

1.        Demand Conditions 
2.        Factor Conditions
3.        Firm Structure, Strategy and Rivalry
4.        Related and Supportive Industries

Demand Conditions

This represents the home demand for a company. In simple, the demand for the product by the country in which the business originated affects the development of the business largely. A good and strong demand from the home country will tempt and challenge the business to innovate and evolve.

Eg: The local demand for chocolates and wrist watches made Switzerland the global leader in chocolate products and wrist watch industry.

The demand for fashion within Italy made it to be the hub of world fashion.

Factor Conditions

This represents the availability and the usage of factors/resources by a business to develop a competitive advantage. According to Porter natural availability of factors is not good for the business, since then the businesses are not motivated to innovate and crate factors. These factors can include human resources, capital resources, natural resources and intellectual resources.

Eg: Availability of natural oil has given the countries in the Middle East a natural competitive advantage; however this has lead such countries to innovate less.

Firm Structure, Strategy and Rivalry

This represents how the structure (flow of decision making), strategy (the business’s course of action to achieve objectives) and rivalry (competition) help the business in gaining a competitive advantage.

Firm structure that aids fast and flexible decision making, strategy that allows achievement of objectives and rivalry which pushes the businesses beyond the limits are vital for the growth and development of a business.

Related and Supportive Industries

Diamond theory shows that a business cannot function on its own. It needs aid from a variety o other businesses, which are also known as auxiliary services. These supportive industries could be transportation, communication, warehousing, financial etc.

A strong integration between these industries will help a business to develop long term relationships, gain cost benefits and gain a competitive advantage in the long run.

Rational Planning Model – Part III: Strategic Option Generation (Part 01)

There are several options when it comes to business strategy. Different strategists have come up with their own versions and methods of developing strategies that best suit businesses in different business conditions. One of the most prominent and highly regarded such strategy is the ‘Generic Strategy’ model put forward by famous strategist Michael Porter.

01) Generic Strategy – Michael Porter

In this model, Porter has put forward very basic two strategies that businesses could adopt. Although the strategy seems simple and harmless, almost every business needs to decide on one of the strategies put forward in this model. The two strategies are;

1. Cost Leadership
2. Differentiation

Cost Leadership

This is the strategy where businesses try to be the lowest cost/price option in the market thus attracting more customers who are more focused on cost rather than uniqueness of a product.

A cost leader is the business that provides products at the lowest in the market or at very competitive low prices; hence this gives them a competitive advantage over other businesses that have higher prices. Customers are rational, meaning they will always try to maximize personal satisfaction and in this case personal satisfaction means best product at the lowest price possible. So as rationale customers, the market will prefer the low cost option most of the time (because this option will not work with products where the price is associated with prestige and a certain higher standard of living).

Businesses that are into selling essential commodities can adopt this strategy better than any other industry.

A cost leader will always have the generic product (basic product), no improvements, nothing additional, so as to keep the cost and thus the price to a minimum level. A cost leader will have only a smaller margin (profit) over a product, however it is compensated with the higher volume of products sold.

Differentiation

This is a strategy where the business focuses on providing a unique product rather than the same product provided by the competitors.

This will set aside the company from the competition and provide a competitive advantage.

These businesses can either, innovate a new product, improve the existing product or provide additional benefits/features with an existing product, thus differentiating them from the rest. This will require further spending and hence the price will be naturally higher, but customers who like something new, innovative and fresh will always go for these products rather than the same old product.

Due to the unique nature of the product, differentiators will be able to charge a higher price and earn higher margins, but the sales volumes will be relatively low, since not all customers are lavish spenders.

Eg: Apple products deliver a unique experience than any products of its nature. Hence the price is very high, yet there is a huge demand for the products.