Welcome to the World of Stakeholders!
Hello future business experts! Don't worry if the term "stakeholder" sounds a bit formal—it's actually one of the most practical and interesting concepts in Business Studies.
In this chapter, part of the "Business in the real world" section, we will learn about all the different people and groups who care about a business and how their interests often clash. Understanding this is key to figuring out why businesses make certain decisions!
Quick Goal: By the end of this chapter, you will be able to identify key stakeholders, explain what they want, and analyse conflicts between them.
Section 1: Defining a Stakeholder
What Exactly Is a Stakeholder?
A stakeholder is any individual, group, or organisation that has an interest in or is affected by the activities and decisions of a business.
Think of a business as a giant stage play. The owners are the directors, and the employees are the actors. But the play also needs an audience (customers), sponsors (suppliers), and local critics (the community). All these groups are stakeholders!
Memory Aid: The 3 A's of Stakeholders
- Affected
- Altered by
- Anyone who cares
The Difference Between Shareholders and Stakeholders
This is a common point of confusion for students, so let’s make it crystal clear!
A shareholder is always a stakeholder, but a stakeholder is not always a shareholder.
- Shareholder (Owner): A person who owns a share (piece) of the company. Their main interest is the financial performance (profit).
- Stakeholder: A much wider group that includes shareholders, but also customers, employees, the government, and the community.
Quick Review: Key Term
Stakeholder: A person or group that has an interest in, or is affected by, a business's operations.
Section 2: Internal vs. External Stakeholders
To make things easier, we often divide stakeholders into two main groups based on their relationship with the business.
1. Internal Stakeholders
These groups are inside the business and are directly involved in its operations or ownership.
Key Internal Groups and Their Primary Interests:
-
Owners/Shareholders:
What they want: High profit, business growth, receiving dividends (payouts from profit). -
Managers:
What they want: High salaries, status/power, making successful decisions, career progression. -
Employees/Workers:
What they want: High wages, job security, good working conditions, opportunities for training and promotion.
2. External Stakeholders
These groups are outside the business but are still affected by it. Businesses cannot control these groups directly, but they must respond to their demands.
Key External Groups and Their Primary Interests:
-
Customers:
What they want: High quality products, fair/low prices, good customer service, ethical production methods. -
Suppliers:
What they want: To be paid on time, regular and consistent orders, long-term contracts. -
The Government:
What they want: The business to pay taxes correctly, to create jobs, to follow all laws (environmental, health and safety). -
Local Community:
What they want: Job creation for local residents, minimal pollution or noise, supporting local projects, maintaining a safe area.
Did you know? Businesses that try to meet the needs of their local community often benefit from a better public reputation, which can help them attract customers and employees!
Section 3: Conflict Between Stakeholders
This is where things get complicated (and interesting!). Because different stakeholders want different things, their interests often clash. This is called stakeholder conflict.
Why Does Conflict Happen?
Businesses have limited resources (money, time, space). If you give more resources to one stakeholder group, you usually have to take them away from another.
Common Examples of Stakeholder Conflict
-
Owners vs. Employees (Wages vs. Profit)
The Owners want to maximise profit (high profit = high dividends for them). To do this, they want to keep costs low, which means keeping employee wages low.
The Employees want high wages and benefits.
Conflict Result: If the business raises wages, profit falls, upsetting the owners. If the business keeps wages low, employees may go on strike or work poorly. -
Owners vs. Customers (Price vs. Cost)
The Owners want a high profit margin, meaning they want to charge high prices.
The Customers want the lowest possible prices and the highest quality product.
Conflict Result: If the business raises prices too much, customers will stop buying. If the business lowers prices, profit falls. -
Managers vs. Local Community (Expansion vs. Environment)
The Managers want to expand the factory quickly to increase production and sales.
The Local Community worries that factory expansion will increase traffic congestion, noise, and air pollution.
Conflict Result: The business may face protests or legal challenges from the community, delaying the expansion project.
Dealing with Conflict: Making Trade-offs
A business cannot satisfy every single stakeholder all the time. Instead, they must make trade-offs, which involves accepting less of one thing in exchange for more of another.
Step-by-Step: How Businesses Try to Manage Conflict
When conflicts occur, businesses usually try to find a compromise (a middle ground) or decide which stakeholder group is most important for their survival.
- Prioritise: Decide which stakeholder has the most power or influence over the business's immediate survival (e.g., if the government closes you down, you can't operate, so the government is very powerful).
- Consult: Talk to the stakeholders (e.g., meeting with community leaders or holding employee union discussions) to understand their concerns.
- Compromise: Find a middle solution. Example: Instead of raising wages by 10% (employee demand) or 0% (owner demand), the business compromises on 5% and offers extra training.
Remember: Strong businesses try to create long-term value for many stakeholders, not just short-term profit for the owners.
Summary Review: Stakeholders
Key Takeaways for Exam Success:
- Definition: A stakeholder is affected by, or interested in, the business.
- Internal: Owners, Employees, Managers. They are inside the organisation.
- External: Customers, Suppliers, Government, Community. They are outside the organisation.
- Interests: Owners want profit; Employees want pay; Customers want quality; Government wants tax.
- Conflict: Interests clash because resources are limited (e.g., paying higher wages reduces profit).
- Solution: Businesses must compromise and prioritise stakeholders based on their influence.
Great job! You now understand the human side of business and the complex balancing act every manager must perform. Keep practicing your examples of conflict, as they are crucial for evaluation questions!