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Unlock This CourseEvery business organisation is surrounded by people and groups who have an interest in what it does. These are called stakeholders. Understanding who they are and what they want is crucial for business success. Many people confuse stakeholders with shareholders, but they're quite different!
Key Definitions:
Think of it this way: all shareholders are stakeholders, but not all stakeholders are shareholders. A shareholder owns part of the company, whilst a stakeholder simply has an interest in what the company does. For example, local residents near a factory are stakeholders because they're affected by noise and pollution, but they don't own any shares.
Internal stakeholders are the people who work inside the organisation. They have a direct role in making the business successful and are most affected by its day-to-day operations.
Let's look at the main groups of people who work within organisations and what they want from the business.
They want maximum profit, good return on investment and the business to grow in value. In private limited companies, these are often the same people who started the business.
They want job security, good salaries, bonuses for performance and the authority to make decisions. They're responsible for achieving the business objectives.
They want fair wages, job security, good working conditions, training opportunities and recognition for their work. Happy employees are more productive!
John Lewis is famous for treating employees as "partners" who share in the company's profits. Every employee receives an annual bonus based on company performance. This approach recognises that employees are key stakeholders whose interests should be aligned with business success. In 2023, partners received a 5% bonus, showing how employee stakeholders can benefit directly from company performance.
External stakeholders don't work for the organisation but are still affected by what it does. Their needs and opinions can significantly impact business success, so smart companies pay close attention to them.
External stakeholders come from many different areas of society. Each group has different interests and concerns about the business.
They want quality products at fair prices, good customer service and reliable delivery. Without satisfied customers, no business can survive long-term.
They want regular orders, prompt payment and long-term contracts. Good supplier relationships ensure steady supply of materials and services.
They want local employment, minimal environmental impact and businesses that contribute positively to the area. They're concerned about noise, traffic and pollution.
The government has a special role as a stakeholder because it creates the rules that businesses must follow. Different government levels have different interests in business activities.
Local councils want businesses to follow planning laws and contribute to the local economy. The national government wants businesses to pay taxes, create jobs and follow employment laws. They also want businesses to compete fairly and treat consumers properly.
One of the biggest challenges in business is that different stakeholders often want different things. These conflicts are normal, but they need to be managed carefully.
Understanding these conflicts helps explain many business decisions and why companies sometimes struggle to keep everyone happy.
Shareholders want maximum profit, but employees want higher wages. More money for wages means less profit for shareholders. This is why pay negotiations can be difficult.
Businesses may want to expand operations, but local communities worry about increased traffic, noise and environmental damage. Balancing growth with environmental responsibility is challenging.
Shareholders might want quick profits through cost-cutting, but this could damage customer service or employee morale, hurting long-term success.
Amazon faces constant stakeholder conflicts. Customers love fast, cheap delivery, but this puts pressure on warehouse workers who face demanding targets. Local communities benefit from jobs but worry about traffic from delivery vans. Shareholders enjoy strong profits, but critics argue workers' rights are sometimes compromised. Amazon has responded by raising minimum wages and investing in worker safety, showing how companies must balance different stakeholder needs.
Successful businesses understand that managing stakeholder relationships isn't just about being nice – it's essential for long-term success. Companies that ignore stakeholder needs often face serious problems.
Good stakeholder management brings real business benefits, whilst poor management can lead to serious consequences.
Better reputation, customer loyalty, employee motivation, community support, easier planning permission and reduced risk of protests or boycotts. Companies like Patagonia have built strong brands by focusing on environmental stakeholders.
Bad publicity, customer boycotts, employee strikes, planning permission refusals and government investigations. Companies like Sports Direct have faced criticism for poor treatment of employee stakeholders.
Smart businesses create stakeholder maps to identify who their stakeholders are and how important each group is. This helps them decide where to focus their attention and resources.
Different stakeholders need different types of communication. What works for shareholders might not work for local communities.
Annual reports, profit announcements, AGMs and investor presentations. Focus on financial performance and future prospects.
Team meetings, newsletters, training sessions and performance reviews. Focus on job security, development opportunities and company direction.
Local newspapers, community meetings, open days and sponsorship of local events. Focus on community benefits and environmental responsibility.
When Tesco wants to open a new store, it must carefully manage community stakeholders. The company holds public consultations, meets with local councils and addresses concerns about traffic and competition with local shops. In 2018, Tesco cancelled plans for a store in Sherborne after strong community opposition, showing how powerful community stakeholders can be when they unite against business plans.
Different types of organisations have different stakeholder priorities. A charity has different stakeholders compared to a multinational corporation and this affects how they operate.
The type of organisation affects which stakeholders are most important and what they expect from the business.
NHS trusts, schools and councils prioritise taxpayers, service users and government. Profit isn't the main goal – providing good public services is. Stakeholders expect value for money and high-quality services.
Charities focus on donors, beneficiaries and volunteers. They must balance spending money on their cause with keeping donors happy. Transparency about how donations are used is crucial for maintaining trust.
Successful organisations understand that they can't please all stakeholders all the time, but they must try to balance different needs fairly. This requires clear communication, honest decision-making and sometimes difficult choices about priorities.
The key is to identify which stakeholders are most important for long-term success and ensure their needs are met, whilst not completely ignoring other groups. Companies that master this balance tend to be more successful and sustainable in the long run.