Stakeholders

Welcome to the World of Stakeholders!

In this chapter, we are diving into one of the most important parts of the Business objectives and strategy section. You’ll learn that a business isn't just about the person who owns it; it’s like a giant web involving many different people and groups. By the end of these notes, you’ll understand who these people are, what they want, and why they sometimes argue! Don't worry if it seems like a lot to remember—we’ll break it down step-by-step.

1. What is a Stakeholder?

A stakeholder is any individual or group that has an interest in or is affected by the activities and decisions of a business.

The "Pizza Shop" Analogy:
Imagine you open a local pizza shop. You are the owner, but you aren't the only one involved. Your customers want tasty food; your employees want fair pay; the neighbors want you to keep the noise down; and the council wants you to follow health and safety rules. All of these people are your stakeholders!

Quick Review: Stakeholder vs. Shareholder

A common mistake is thinking these are the same. They aren't!
- A shareholder owns part of a limited company (they own "shares").
- A stakeholder is a much broader term that includes anyone affected by the business (including shareholders, but also many others).

2. Internal and External Stakeholders

We can split stakeholders into two main camps based on where they sit in relation to the business.

Internal Stakeholders

These people are inside the business day-to-day.

• Owners / Shareholders: They want the business to grow and make a profit so they get a return on their investment.
• Managers: They want to hit targets, get bonuses, and progress in their careers.
• Employees: They want job security, good working conditions, and high wages.

External Stakeholders

These people are outside the business but are still affected by it.

• Customers: They want high-quality products at fair prices and good customer service.
• Suppliers: They want to be paid on time and receive regular orders.
• The Government: They want the business to pay the correct amount of tax and follow the law.
• The Local Community: They want the business to provide jobs and not cause too much traffic or pollution.
• Lenders (Banks): They want the business to be able to pay back its loans with interest.

Memory Aid: Use the acronym "C.E.S.O.G" to remember the main groups: Customers, Employees, Suppliers, Owners, Government.

Key Takeaway: Stakeholders are either internal (working inside) or external (linked from the outside). Each group has its own specific objectives (what they want from the business).

3. Stakeholder Conflicts

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

Common Conflict Examples:

1. Employees vs. Owners: Employees want higher wages (which increases costs). Owners want higher profits (which usually means keeping costs like wages low).
2. Customers vs. Owners: Customers want the lowest price possible. Owners want to charge higher prices to increase profit margins.
3. Local Community vs. Managers: Managers might want to expand the factory to increase production. The local community might hate this because of the extra noise and construction traffic.

Why manage these conflicts?

A business cannot ignore these arguments. If employees are unhappy, they might go on strike. If customers are unhappy, they will buy from a competitor. If the local community is angry, they might protest and damage the business’s reputation.

Did you know? Many modern businesses use "Stakeholder Mapping" to decide which group's needs are the most urgent to address first!

Key Takeaway: Conflict happens because stakeholders have different objectives. Managing these conflicts is essential for a business to run smoothly and stay successful.

4. Stakeholder Influence and Impact

It is a two-way street: stakeholders influence the business, and the business impacts the stakeholders.

How Stakeholders Influence the Business:

• On Aims and Objectives: A business might change its goal to be "greener" because customers and pressure groups demand it.
• On Decision Making: Shareholders can vote to remove a CEO if they aren't happy with the profit levels.
• On Behaviour and Performance: If suppliers increase their prices, the business might have to find ways to be more efficient to keep its own prices stable.

How Business Decisions Impact Stakeholders:

When a business makes a big move, it sends ripples out to everyone else.
Example: A business decides to close a local branch to save money.
- Impact on Employees: They lose their jobs (redundancy).
- Impact on Customers: They have to travel further to find a store.
- Impact on Local Community: Less money is spent in the local area, hurting other nearby shops.

How should a business deal with conflicting objectives?

There is no "perfect" answer, but a business can try:
- Compromise: Giving employees a small pay rise that doesn't hurt profits too much.
- Communication: Explaining to the local community why an expansion is necessary and how it will create new jobs for them.
- Prioritising: Deciding which stakeholder is most "powerful" at that moment (e.g., if the bank is about to close the business, the bank’s needs come first!).

Key Takeaway: Businesses must balance the power of different stakeholders. Decisions made to please one group will almost always have a positive or negative impact on another.

Quick Review Box

1. Who is a stakeholder? Anyone with an interest in or affected by a business.
2. Name two internal stakeholders. Employees and Managers.
3. Why do employees and owners often conflict? Because of wages vs. profit levels.
4. How can the government influence a business? By changing laws or tax rates.
5. What is the difference between a stakeholder and a shareholder? A shareholder is an owner; a stakeholder is anyone affected (including the owner).