The definition and types of stakeholders

Stakeholders are individuals or groups with an interest in a business's activities because they are affected by its decisions and operations.

Categories of stakeholders

Stakeholders fall into two main categories based on their relationship to the business:

• Internal stakeholders - These are people within the organisation, such as owners, shareholders, employees, and managers.
• External stakeholders - These are groups outside the organisation, including customers, suppliers, the local community, government, and creditors.

Internal and external stakeholders and their objectives

Different stakeholders have specific goals that reflect their position relative to the business.

Objectives of internal stakeholders

• Owners - As key decision-makers, owners aim for business success to generate profits.
• Shareholders - These investors seek high dividends from profits and an increase in share prices.
• Employees - Workers focus on job security, opportunities for promotion, fair wages, and pleasant working conditions.
• Managers - Responsible for performance, managers want recognition for successes but may face criticism if the business underperforms.

Objectives of external stakeholders

• Customers - They desire high-quality products or services at affordable prices.
• Suppliers - Providers of materials or services expect fair prices for their goods and prompt payments.
• Local community - Residents benefit from job creation and community support, but they may suffer from issues such as noise, pollution, or employment reductions.
• Government - Authorities collect taxes from profitable businesses.
• Creditors - Lenders, such as banks, require timely repayment of loans.

Conflicts between stakeholders and the role of profit in balancing needs

Stakeholder objectives often clash, creating challenges for businesses. For instance, a decision to outsource work might boost profits for shareholders but lead to job losses for employees and negative effects on the local community. Businesses must prioritise and balance these needs, sometimes focusing on short-term gains like immediate profits versus long-term considerations such as social responsibility.

How profit helps satisfy stakeholder groups

• It allows businesses to offer competitive wages to employees.
• Suppliers benefit from reliable payments when the business is profitable.
• Shareholders receive dividends, encouraging further investment.

Prioritising stakeholders during conflicts

When not all groups can be fully satisfied, businesses decide which stakeholders to prioritise. In some cases, interests align—for example, better employee satisfaction can lead to higher productivity, which ultimately increases profits for owners.

Stakeholder mapping and management strategies

Stakeholder mapping is a tool that helps businesses assess and categorise groups based on their level of power (influence over decisions) and interest (how much they care about the business's actions).

The stakeholder mapping matrix

The stakeholder map divides groups into four quadrants based on their power and interest levels:

Understanding each quadrant

• High power, high interest (top left) - These stakeholders, such as major shareholders or key customers, require the most attention because they can significantly impact the business and are highly engaged with its outcomes.
• High power, low interest (top right) - These groups have significant influence but limited engagement. The goal is to maintain their satisfaction without overwhelming them with unnecessary detail.
• Low power, high interest (bottom left) - These stakeholders care deeply about the business but have limited influence. Keep them informed to maintain their support and advocacy.
• Low power, low interest (bottom right) - These groups require minimal attention but should be monitored in case their position changes.

Ways to manage stakeholder relationships

Effective management of stakeholders prevents dissatisfaction that could harm the business. Building positive relationships involves proactive strategies.

Strategies for effective stakeholder management

• Consultation before decisions - Involving key stakeholders in major changes makes them feel valued and can provide useful insights from their specialist knowledge.
• Strong communication - Keeping groups informed about developments, such as through regular updates, helps build trust. For employees, this might mean clear information on organisational changes.
• Use of communication tools - Businesses can engage customers via social media and websites.