Unit 2: The Business Environment — Stakeholders
Welcome to your study guide on Stakeholders! Every business, whether it is a small local bakery in Northern Ireland or a massive global tech company, affects many different people. In this chapter, we will explore who these people are, why they care about how a business performs, and what happens when their goals clash. Let's get started!
---1. What is a Stakeholder?
A stakeholder is defined as an individual, group, or organisation that has a direct or indirect interest, stake, or concern in the operations, performance, and success or failure of a business.
Think of a school: you (the student), your teachers, your parents, the local council, and school bus companies are all stakeholders because what happens at the school affects every single one of you in different ways.
Important Distinction: Stakeholder vs. Shareholder
Don't worry if this seems tricky at first, but examiners love to test this difference:
- Shareholder: A person or organisation that owns shares (equity) in a business. They have invested money and are partial owners.
- Stakeholder: Anyone who has an interest in the business (this includes customers, workers, the local town, suppliers, and shareholders too!).
Golden Rule to Remember: "All shareholders are stakeholders, but not all stakeholders are shareholders."
Key Takeaway: If a business decision impacts you, or if you can impact the business, you are a stakeholder.
---2. Internal vs. External Stakeholders
To make studying easier, we split stakeholders into two main camps: Internal (inside the business) and External (outside the business).
A. Internal Stakeholders
These are individuals or groups who operate directly within or own the business structure.
- 1. Owners / Shareholders:
• Who they are: People who have invested capital into the business.
• What they want (Objectives): Capital growth, high returns on investment (profits and dividends), business survival, and long-term business expansion. - 2. Managers / Directors:
• Who they are: Leaders who run departments, manage staff, and carry out business strategies.
• What they want (Objectives): Career progression, bonuses and remuneration, job security, achieving departmental targets, and status within the business. - 3. Employees / Workers:
• Who they are: The staff who provide the labour to make goods or deliver services.
• What they want (Objectives): Fair wages/salaries, safe working conditions, job security, opportunities for training, fair treatment, and fringe benefits (like discounts or pensions).
B. External Stakeholders
These are individuals, groups, or organisations outside the business that are affected by its activities or have the power to influence it.
- 1. Customers / Consumers:
• What they want: Good quality products, fair prices, value for money, reliable customer service, product safety, and prompt delivery. - 2. Suppliers:
• What they want: Regular and repeat orders, prompt payment of invoices on time, fair contract terms, and a stable, long-term business relationship. - 3. Lenders / Banks / Financial Institutions:
• What they want: Timely loan repayments, full interest payments, and proof that the business maintains healthy liquidity and solvency (having enough cash to pay debts). - 4. The Local Community:
• What they want: Local job opportunities, minimal pollution, reduced traffic and noise disruption, and strong corporate social responsibility (CSR) from the business. - 5. Government & Regulatory Agencies:
• What they want: Full compliance with laws and regulations, including correct and prompt tax payments (Corporation Tax, VAT, PAYE), statutory employment law, health and safety rules, and consumer protection laws. - 6. Pressure Groups / Environmental Groups:
• What they want: Ethical business conduct, green business practices, fair trade, animal welfare, and environmental sustainability.
Memory Trick:
• Internal = O-M-E (Owners, Managers, Employees). If they work inside the walls or own the company, they are internal!
• External = Everyone else interacting from the outside.
Key Takeaway: Internal stakeholders are directly part of the business's daily operations or ownership; external stakeholders interact with the business from the outside.
---3. Stakeholder Objectives and Conflicts
Because different stakeholders want different things, they often disagree. A stakeholder conflict happens when the goals of one stakeholder group directly oppose the goals of another group.
Common Stakeholder Conflicts
- Owners vs. Employees:
• The Conflict: Owners want to keep operational costs low to maximise profit, while employees want higher wages, overtime pay, and better working conditions. - Owners/Managers vs. Customers:
• The Conflict: Managers might raise selling prices or use cheaper raw materials to increase profit margins, whereas customers want low prices and top-quality goods. - Business Expansion vs. Local Community:
• The Conflict: Building a larger factory or distribution centre creates jobs, but it also creates heavy traffic congestion, noise, air emissions, and a loss of green space for local residents. - Managers vs. Suppliers:
• The Conflict: Managers want extended credit terms (e.g., waiting 60 or 90 days to pay) and bulk discounts to protect cash flow, but suppliers need prompt cash settlements to pay their own bills.
Key Takeaway: A business rarely pleases everyone at the same time. Management must balance competing stakeholder needs to avoid disputes.
---4. Stakeholder Power, Influence, and Communication
Not all stakeholders have the same amount of power. Stakeholders can use their power to influence how a business behaves:
- Customers can organise boycotts, post negative online reviews, or switch to competitors.
- Employees can take industrial action (strikes), reduce their productivity, or leave the company (leading to high staff turnover).
- The Government can issue heavy fines, change laws, or take legal action against non-compliant businesses.
- Banks/Lenders can demand immediate loan repayment, charge higher interest rates, or refuse to grant future credit.
Managing and Communicating with Stakeholders
To avoid conflict and maintain strong relationships, businesses must use effective communication methods:
- Notices and Staff Meetings: To consult with and reassure employees about business changes.
- Financial Reports & Annual General Meetings: To keep shareholders and lenders informed of profit and performance.
- Websites and Social Media: To share updates, ethical commitments, and product information with customers and the local community.
- Formal Written Contracts & Emails: To negotiate clearly with suppliers and avoid payment disputes.
Key Takeaway: Clear communication is vital for resolving conflict and keeping powerful stakeholders supportive of the business.
---5. Exam Tips & Common Pitfalls to Avoid
- Avoid Vague Answers: Never write that a stakeholder "just wants the business to do well." Be specific! For example, write: "Suppliers want prompt invoice payments and repeat orders," or "Lenders want the business to repay loan interest on time."
- Watch Out for Classification Errors: Remember that suppliers and banks are external stakeholders, not internal.
- Use the Case Study: In the CCEA Unit 2 exam, questions are based on specific business scenarios. If a question asks how moving to an e-commerce website affects stakeholders, explain the impact on that specific business's customers, shop staff, and delivery suppliers—do not just write general textbook definitions.
Quick Revision Checklist
Can you answer these without looking at your notes?
- What is the definition of a stakeholder?
- What is the difference between a shareholder and a stakeholder?
- Name three internal stakeholders and state one objective for each.
- Name four external stakeholders and state one objective for each.
- Explain one common conflict between business owners and local residents.
- How can unhappy customers exert influence over a business?