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Business Stakeholders
A business stakeholder is any group or individual, who has an interest in what organization does, or an expectation of the organization.
Stakeholders
Any group or individual who can affect or be affected by the achievement of an organization's objectives
Internal External Connected
Internal stakeholders
These are from within the organisation and usually have a strong influence on how the organisation operates. Affect the day-to-day running of the organisation
Connected stakeholders
These are outside the organisation but regularly interact with the organisation and are considered to be connected to it through a contractual relationship (Financial) Parties which invest or have dealings with the firm For example, a supplier who may have a contract to provide the organisation with raw materials for its manufacturing activities
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External stakeholders
These are outside the organisation Do not directly involve in the running of the business
Types of Stakeholder
Shareholders (C) Directors (I) Employees (I) Regulators (E) Trade Unions (E) Government (E) Company secretary Customers (C) Community (E)
(I)
Suppliers (C) Managers (I) Creditors (C) The press (E) Competitors (E) Auditors (E)
Stakeholder Claims/Interest/Objectives
Some stakeholder claims are direct while other stakeholder cannot have their say directly Such indirect claims are often difficult to have a huge impact Why would stakeholders be interested in business?
Stakeholders and their objectives
Stakeholder Main objectives
To direct the strategies and major decision making of the business To retain control To increase their own power and status from business growth Steady dividends Capital growth Continuation of the business and its reputation Regular and fair pay Pleasant working conditions Job security Interesting work Career progression
Directors
Shareholders
Employees
Stakeholder
Main objectives
To obtain good value for money from the goods and services purchased To receive high levels of customer service and after sale service Length of credit terms To continue to sell profitably to the business To be paid promptly and fully for the goods To be paid back in full when repayments are due To receive interest on loans when due Security of investment
Stakeholder
Main objectives
To benefit from employment the business creates To be free from environmental disadvantages the firm might create To receive tax revenues from profitable firms To direct the operations of the business for the benefit of the community/nation To control business operations and performance to ensure it remains within national laws Provision of jobs Compliance with ethical codes To be consulted and involved in decisions which affect their members
Community
Customers
Suppliers
Government
Finance providers
Pressure groups Trade Unions
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Why there is growing interest in other stakeholders?
Changing how society operates
Mobile phones Face book
Stakeholder view vs. shareholder view
Shareholder Concept - Maximizing Shareholder Wealth The objective of the business is to maximize the value of a company. This means that the managers of a business should create as much wealth as possible for the shareholders. Given this objective, any financing or investment decision that is expected to improve the value of the shareholder's stake in the business is acceptable. In short, the objective for managers running a business should be profit maximization. both in the short and long-term.
Environmental impact Local community
Stakeholder view
A major reason for increasing adoption of a Stakeholder Concept in setting business objectives is the recognition that businesses are affected by the "environment" in which they operate. Businesses come into regular contact with customers, suppliers, government agencies, families of employees, special interest groups. Decisions made by a business are likely to affect one or more of these "stakeholder groups
Businesses, like people, are part of the world community and as such have responsibility for the activities carried out in their name. Businesses are also responsible to a range of stakeholders with often differing and conflicting aims.
Conflicting interests
Stakeholder Conflicts
Since each group of stakeholder has different interest in the business, it could easily result in conflicts
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Conflict of interest
Stakeholders
Employees vs. Managers Shareholders vs. Managers
Conflict of interest
Stakeholders
Shareholders versus finance providers Customers versus management
Conflicts
Wage rises might be at the expense of dividend Managers have an interest in organizational growth but this might be at the expense of short term profits (dividends)
Conflicts
Higher risk (to achieve higher returns) versus security Product quality and enhancement versus cost efficiency/profit Improvement of cash flow (by paying later or requesting longer credit terms) versus prompt payment
General public vs. Shareholders Growth of the organisation might be at the expense of the local community and the environment.
Management versus suppliers
Who do we have to listen most?
There are different ways to prioritize stakeholders There are number of stakeholder theories
Internal vs. External Primary vs. Secondary Narrow vs. Wide Active vs. Passive Voluntary vs. Involuntary
How to make stakeholders happy?
Mendelow (1991)
Power the stakeholders ability to influence strategic objectives (how much they can). How much power (influence) they have got? Interest the stakeholders willingness (how much they care) to influence. How interested are they in the activities of the organization?
Mendelow Matrix
The matrix can be used to:
(i) Track the changing influences between different stakeholder groups over time. This can act as a trigger to change strategy as necessary; and (ii) Assess the likely impact that a strategy will have on different stakeholder groups.
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Level of Interest
High High
A KEY PLAYERS e.g. Main suppliers
Low
B KEEP SATISFIED e.g. Institutional shareholders
Low
C KEEP INFORMED e.g. Core employees
D MINIMUM EFFORT e.g. Casual labors
Box D - Minimum effort Their lack of interest and power makes them open to influence. They are more likely than others to accept what they are told and follow instructions. Box C - Keep informed These stakeholders are interested in the strategy but lack the power to do anything. Management needs to convince opponents to the strategy that the plans are justified; otherwise they will try to gain power by joining with parties in boxes A and B.
Power
Box B - Keep satisfied The key here is to keep these stakeholders satisfied to avoid them gaining interest and moving to box A. This could involve reassuring them of the outcomes of the strategy well in advance. Box A - Key players / participation These stakeholders are the major drivers of change and could stop management plans if not satisfied. Management, therefore, needs to communicate plans to them and then discuss implementation issues.
Mendelow and stakeholder conflict
Understand if their current strategy is still in line with stakeholders interests and power. Identify who will provide support to a strategic project. Identify who has the ability and aim to stop it. Try to reposition stakeholders to increase support or reduce threats to a strategic objective. Try to minimize the risk of stakeholder conflict.
Encourage stakeholders to stay in their appropriate category, or to avoid them moving across to another category. Identify change within stakeholders that may imply that the current strategy needs to be rethought with the possibility of a new strategy being developed. Develop an appropriate strategy to manage stakeholder groups.
