Understanding the Role and Importance of Stakeholders
The Need to Consider Stakeholder Needs When Making Decisions
Stakeholders are any person, business or government agency that is affected by the business.
Stakeholders can be:
- Internal: like employees, shareholders and managers.
- External: like customers, banks or suppliers.
All decisions taken by the business will impact on one or more of the stakeholders. Ignoring this impact might have short-term or long-term consequences. For example, if the workforce is unhappy about a change in work practices, though it might reduce costs in the short run, it may be detrimental if a demotivated workforce affects the quality of production.
The business can reduce the impact by taking into account the views of the stakeholders and also the possible size of the impact. Also, they need to understand which stakeholders have the most influence on the business.
One method or model is to use stakeholder mapping__. Identifying the point where a stakeholder sits in the grid indicates the relative power of each group and the interest they have in the business.
Good managers can use this to know which stakeholders to listen to most carefully, and which to convince.
Stakeholders who have a large interest in the business, which is normally financial, will look to increase their power. Employees can do this with trade union membership, shareholders by increasing their stake in the business.
Stakeholders can also aid the business in its development, providing support, ideas and resources, because they have a common interest in the businesses success. It’s good for a business to acknowledge this value and to listen to their input.
Stakeholder Needs and the Possible Overlap and Conflict of These Needs
Stakeholders have different needs, which sometimes are similar and sometimes different.
In general, most stakeholders want the business to prosper, yet will want different rewards for that prosperity.
- Employees, including management, seek fair pay and good working conditions.
- Customers, who are currently buying the product, have bought or are going to buy – they expect fit for purpose, quality products at a fair price.
- Banks/financiers who have or will put money into the business. They should be paid back on time.
- Suppliers from whom the business buys machines, materials to operate the business or services. Again, they should be paid on time. They should also be treated fairly in terms of the contracts they have with the business.
- Creditors to whom the business owes money. They should be paid when the debts are due.
- Shareholders or owners of the business who expect dividends and capital growth (their shares to go up in value). The business has a duty to protect their investment and produce a good return.
- The local community, who are the householders, shop owners and other businesses that live and operate in the vicinity of the business who, for example, need to be reassured about safety.
The main conflict is between profit to the shareholders and rewards to other stakeholders. Every business needs to balance this conflict.
It can also be said that the stakeholder interest includes the business’s approach to corporate social responsibility. That is its role in providing for the wider society. For example, how it may support local charities or choose which products to produce and where to source their materials.
Influences on the Relationship with Stakeholders
The main influences on the relationships with stakeholders come down to the expertise and experience of the management team, the need to understand what the stakeholders want, and then how to approach them. It can take time to build up trust. Trust is quickly lost through poor communication.
Definitions
| Stakeholder | A person or another business who has an interest in a business. |
| Stakeholder mapping | This shows the relative power and influence of each stakeholder in a business. |
| Consultation | Asking others for their opinions. |
| Pressure groups | Organisations set up to attempt to influence the behaviour of a business. |
- Name the three most important internal stakeholders.
- Your answer should include: employees / owners / managers
- What goes on the vertical and horizontal axis of the stakeholder map?
- Your answer should include: power / interest
- When a business decides to cut costs, which stakeholders will not be keen to see this happen? Choose from this list: Employees, customers, suppliers, shareholders, competitors.
- Your answer should include: employees / suppliers / competitors
- Effective what improves the relationship between stakeholders?
- communication
- Exam Style QuestionSpecimen AS Paper 1Analyse how transferring ownership of Royal Mail from the public to the private sector might affect its stakeholders. [9 marks]
- Your answer should include: profit / because / therefore / prices / costs
Explanation: This is a 9 mark question, so you should be spending at least 9 minutes on it. You need to think about the key stakeholders in this business, and then the impact of the transfer of ownership would have on them. In this case, it goes from being a government-run business to one owned by the shareholders. Consider, for example, why the owners now have different aims. Also, consider at least one other stakeholder. For these questions, make a point, explain why it's relevant to this question, then explain the business studies behind it.
How to Manage the Relationship with Different Stakeholders
The key to any relationship is excellent communication. Even the most difficult decisions, which might mean bad news for a stakeholder group, can be made more acceptable with the right approach.
Effective communication is: clear, on time, honest.
Business can also use consultation, where the business listens to the views of the stakeholders before taking a decision. Though the decision still rests with the management team, they might offer alternative scenarios. Also, by listening they enable the stakeholders to at least feel they have been able to have some influence on the final decision.
Sometimes stakeholders form pressure or interest groups. These aim to use the weight of opinion to persuade a business to change a decision.
The best management teams listen to all their stakeholder concerns. They then communicate clearly their decisions.
Many longer answer questions on setting objectives or carrying out strategies will require a student to consider the consequences for stakeholders.