Understanding the role and importance of stakeholders

Welcome to the World of Stakeholders!

In this chapter, we are going to explore one of the most important parts of being a manager: understanding the people who care about the business. No business is an island! Every decision a manager makes—like raising prices or opening a new store—affects a lot of different people. We call these people stakeholders.

By the end of these notes, you’ll understand who these people are, why they sometimes argue with each other, and how managers use "mapping" to keep everyone as happy as possible. Let’s dive in!

1. What is a Stakeholder?

A stakeholder is any person, group, or organization that has an interest in or is affected by the activities of a business.

Don't worry if this seems tricky at first: Just remember the word "stake." If you have a "stake" in something, it means you have something to gain or lose depending on what happens.

Internal vs. External Stakeholders

We can split stakeholders into two main groups:
• Internal Stakeholders: People who are inside the business. Examples include owners (shareholders), managers, and employees.
• External Stakeholders: People or groups outside the business. Examples include customers, suppliers, the local community, the government, and banks.

Analogy: Think of your school. You (the student), the teachers, and the headteacher are internal stakeholders. Your parents, the local shops nearby, and the government are external stakeholders. Everyone wants the school to do well, but for different reasons!

Quick Review: Common Stakeholders and What They Want

• Shareholders: High profits and dividends (a share of the profit).
• Employees: High wages and job security.
• Customers: Low prices and high-quality products.
• Suppliers: To be paid on time and receive regular orders.
• Local Community: Jobs for local people and low pollution.

Key Takeaway: Stakeholders are anyone with an interest in the business. They can be inside (internal) or outside (external) the organization.

2. Stakeholder Needs: Overlap and Conflict

Because different stakeholders want different things, they don't always get along. This is called stakeholder conflict.

When Interests Overlap

Sometimes, everyone wants the same thing. For example, if a business is growing and making more money, the owners are happy (more profit), the employees are happy (more job security), and the government is happy (more tax paid). This is an overlap of interests.

When Interests Conflict

This is where it gets tough for managers. A decision that makes one group happy might make another group angry.
Example: A manager decides to move production to a cheaper factory abroad.
• Shareholders are happy because costs go down and profits go up.
• Local Community and Employees are angry because local jobs are lost.

Common Mistake to Avoid: Students often think that "Shareholders" and "Stakeholders" are the same thing. They aren't! Shareholders are just one type of stakeholder (the owners). All shareholders are stakeholders, but not all stakeholders are shareholders!

Key Takeaway: Managers must balance different needs. While stakeholders sometimes want the same things, their goals often clash, forcing managers to make difficult choices.

3. Stakeholder Mapping: Power and Interest

Since a manager can't please everyone all the time, they use a tool called Stakeholder Mapping (often called Mendelow’s Matrix). This helps them decide which stakeholders are the most important to listen to when making a decision.

The map looks at two things:
1. Power: How much can the stakeholder influence the business? (e.g., The Government has high power because they make laws).
2. Interest: How much does the stakeholder actually care about this specific decision? (e.g., A local resident might have high interest in a new noisy factory being built next door).

The Four Quadrants of the Map

• High Power / High Interest (Key Players): These are the most important people. Managers must involve them in decisions. Example: Major shareholders or big customers.
• High Power / Low Interest (Keep Satisfied): These people are powerful but don't care about every little detail. Managers should keep them happy so they don't use their power against the business. Example: The Government.
• Low Power / High Interest (Keep Informed): These people care a lot but can't do much. Managers should talk to them and explain decisions to stop them from getting upset. Example: The local community.
• Low Power / Low Interest (Minimal Effort): Managers don't need to spend much time on these people. Example: Casual individual customers.

Did you know? A stakeholder's position on the map can change! A "Low Power" local community can suddenly become "High Power" if they start a massive social media campaign that goes viral.

Key Takeaway: Stakeholder mapping helps managers prioritize. The "Key Players" (High Power/High Interest) usually get the most attention in decision-making.

4. Managing Relationships: Communication and Consultation

Once a manager knows who the stakeholders are, they need to manage the relationship. This is usually done through two methods:

1. Communication

This is simply telling stakeholders what is happening. This might be through a newsletter, a website update, or a press release. It is a one-way street: the business talks, the stakeholder listens.

2. Consultation

This is a two-way street. The manager asks for the stakeholders' opinions before making the final decision.
Example: A supermarket wants to stay open 24 hours. They might hold a meeting with local residents to hear their concerns about noise.

Why bother with this?

If stakeholders feel ignored, they might strike (employees), stop buying (customers), or sue the business (government). Good communication and consultation reduce the uncertainty and risk of a decision failing.

Memory Aid: Think of C.C.—Communication (Telling) and Consultation (Asking). A good leader uses both!

Key Takeaway: Managing relationships through talking (communication) and listening (consultation) helps a business run smoothly and avoids expensive arguments or bad publicity.

Final Quick Check!

Can you answer these three questions?
1. Can you name two internal and two external stakeholders?
2. Why might an employee and a shareholder disagree about a pay rise?
3. If a stakeholder has "High Power" but "Low Interest," how should a manager treat them?

(Answers: 1. Internal: Managers/Owners; External: Customers/Suppliers. 2. Higher pay means lower profits for the owner. 3. Keep them satisfied!)