DIFFERENCE BETWEEN CLIENTS VERSUS STAKEHOLDERS
By Dr. Ichak Adizes
A well-managed organization is effective.
What does it mean to be effective?
An organization is effective when it fulfills the purpose of its existence. In other words, it is functioning as desired.
What is the purpose of existence of a business organization?
An economist will tell you, it is profits. A sociologist will tell you, it is survival.
My answer to this question is that for an organization to be effective, its purpose should be to satisfy its clients’ needs. If it does it efficiently, then it is profitable. Thus, profit, the outcome of a well-managed company, is a measurement of how well the organization manages its purpose of existence. For organizational survival, the organization needs to constantly reinvent itself, to reengineer itself, because the needs of its clients and thus the purpose of its existence changes.
The focal point – whether it is to produce profits or to survive – is to satisfy client’s needs. Without it profitability is exploitation of some monopolistic opportunity or a result of short term maneuvers to cut costs at the expense of satisfying client needs. In the long run it cannot work. Also, surviving for the short run by avoiding costs of reengineering will not enable the organization to survive in the long run either.
Every organization exists or should exist to satisfy its clients’ needs first and above all. It is the necessary although not the sufficient condition for being profitable or for surviving in the long run.
But who are those clients whose needs an organization should satisfy?
I am using the word client in a generic sense. Those for whose needs satisfaction the organization exists. Or as I say, half-jokingly, to the organizations where I lecture: ”If you die, who will cry?” In other words, whose needs will not be satisfied if you perish?
This distinction of who needs you, i.e., clients, can easily be confused with the word stakeholders, as stakeholders will also cry if an organization perishes.
How do we distinguish between stakeholders and clients?
Stakeholders are all those who have a stake in the organization, i.e., who have a certain interest in the existence of the organization, but the organization does not EXIST for the stakeholder. It tries to satisfy the needs of stakeholders by satisfying the needs of its clients. Stakeholders are the driven force. Not the driving force. Clients are the purpose for which the organization exists and stakeholders are all those interests, internal and external, that came together for the purpose of satisfying client needs and in doing so expect some return for their effort.
This is quite confusing, is it not? But the distinction is significant because not understanding the difference causes organizations to be ineffective; they simply do not know who their clients really are.
Let me give you an example from my professional experience. Many years ago, I was working with the Department of Children Services of Los Angeles. This is one of the largest organizations of social workers that specialize in the needs of children who are abused psychologically, economically, emotionally or physically. And I asked them, “Who are your clients,” I got a wall full of definitions. It included:
- The newspapers who write about them, and they care a lot what the media says
- The court system that decides what to do with the endangered child
- Foster families
- The politicians in Sacramento and the bureaucrats in Washington who allocate money
It was a long, long list of stakeholders. Somewhere on that list was the word “children.” It took some time to make it clear and to get them to focus on the fact that all of the others are interested in what we do for children, but the purpose of our existence is the children.
It is not easy to define the client versus a stakeholder. Very often what we do, especially in not for profit organizations, is that we confuse the two. Why? In a business organization, clients are more easily identified because they are the source of your revenue. That is the only way that money will come into the organization so it will survive and flourish in the future. Thus, they have a higher rank in the list of stakeholders and are more easily identified, because without them the organization will perish. They provide the blood the organization needs, which is money.
When we look at non-profit organizations, the financial resources come from a totally different source than the client base. The funds come from the state capital, a federal department or from donors. Thus it is quite easy for a not for profit organization to focus on the source of money as the group that needs to be satisfied the most rather than the purpose of its existence.
Take some classical music orchestras. It is easier for them to play what major donors want because they don’t want to alienate them than it is to play what the inner city youth might want to hear. This approach may hinder audience development, which may be more important for long-term success as an agent of social change, education, and social enrichment.
In order to not confuse stakeholders and clients, each leader of an organization should elevate him or herself spiritually and ask the question, “Who really needs my services?” or, even better, “Who should need my services?” and focus on that first. The second question will be: ”Whom do I need in order to satisfy client needs?” These are the stakeholders. “What do they want in order for them to cooperate?” These could be the workers, artists, professionals, or those who contribute financial resources etc. “How can I satisfy their needs without sacrificing the needs of my clients?” This last question is the most difficult one. There could be a conflict of interest between stakeholders and clients’ needs. For instance, in order to give higher returns on investment to our investors, we cut client services drastically, or perform those social services that are least politically controversial, even though they are the most critical for the clients we serve.
Let’s take my own organization, the Adizes Institute, as an example. Who is our client? It is not the CEO, because sometimes we have to tell the CEO that he is dysfunctional according to the needs of the organization. It is the organization. But what does this mean? Who is the organization? Is it the customers of the organization? Is it the investors of the organization? Is it the employees of the organization? Who? The answer is, none of them alone, but all of them together, but what does that mean? We are like an obstetrician. I am worrying about the health of the mother so the healthy baby will be born. Who is my client? The baby that is not born yet that I want to try and ensure is born healthy. It is the same thing with an organization. We are worrying about the capabilities of the organization to satisfy the future needs of its future clients that don’t exist yet. We want to insure that the organization is proactively capable of changing and adapting to satisfy the needs of its client in the present and in the future.
Please realize that it isn’t the employees that we are serving, because sometimes the employees are destructive to the organization. They may be asking for concessions the organization cannot afford. It is not management, because sometimes management actually robs the organization of its resources for its own self-gratification. It is not the investors, because sometimes short-term returns can destroy a company. It is not even the present customers, who ask for all kinds of benefits, concessions and discounts that can destroy the organization as well. It is all the ingredients that can satisfy the needs of the clients, but with the most focus on the future clients.
We have to ask an almost spiritual question, “Why do I exist? For whom do I really care?” I have to watch all the others, the stakeholders, so they don’t violate that group. The organization doesn’t exist for the stakeholders. I have to watch them; they are more of a constraint. The question is not “Whom am I trying to please so they don’t hurt me?” That is not the question. “Whom am I trying to serve?” That is the purpose of my business.
That is the role of every leader, every manager, and every parent. Stop for a second and ask yourself, why am I on this earth? Who needs me? If I die, who will cry? And what needs am I here to satisfy so I can fulfill the purpose of my existence? When you fulfill the purpose of your existence, you will feel elated and happy. As a matter of fact, hard work does not kill us. It is abusing our time that kills us when we are not doing that for which we exist.