Chapter 4 –

Stakeholders
 Chapter 1.4 STAKEHOLDERS (and their interests/objectives)

LEARNING OBJECTIVES:

1. Be able to define stakeholders

2. Identify the different stakeholder (internal & external)
groups involved in business activity
3. Explain the role and influence of the differing groups of
Stakeholders
4. Distinguish between the different objectives & interests of
each group
5. Understand how stakeholder objectives/interests may
conflict or be aligned in terms of mutual benefit
Conceptual Understandings
Change is essential for businesses to achieve their desired aims. For example,
stakeholders often want to be more informed these days on what the business is doing.
Creative business planning can lead to organizational success. For example, businesses
have had to be very creative during the pandemic but some have done this very well,
changing how they operate very significantly to ensure success.
Ethical business behaviour improves a business's image as well as customer loyalty. For
example, social media companies that take action to limit the damage that false information
can have may win the support of governments and customers.
Sustainable business practices can enhance a business's existence. For example, close
working with suppliers to reduce waste can increase profits.
STARTER: Why do Businesses exist?

Fill in the Gap: All businesses in the private sector exist to

____ _ ______

Other (possible) objectives

 To maximise Sales Revenue
 Survival
 To increase value added
 Growth
 Stakeholders
 Groups of people who have a direct interest in the business, as they will be affected
by actions of the business, they include:

 Owners
 Workers
 Managers & Directors
 Customers & Consumers
 Government
 The Community as a whole
 Financiers / Banks
 Competitors
 Suppliers
 Pressure Groups

Stakeholders are either Internal or External to the business.

 The Roles of Internal stakeholders
Owners (Employers)
 Shareholders, Partners & Sole Traders - invest their personal funds and focus on
returns on their investments.
Employees/Staff:
 Senior Directors - focuses on making strategic decisions and delivering profits and
returns that satisfy the shareholders.
 Senior Managers focus on the implementing strategic decisions, making tactical
decisions and hitting objectives for their functional areas.
 Middle Managers focus on reaching tactical objectives and making operational
decision for their functional areas.
 Employees and Trade Unions focus on protecting their rights and working conditions
All employees are obliged to work according to the terms of their employment contracts
and entitled to be rewarded accordingly
Generally, Employers will seek to gain the maximum benefit (work) from their staff for
the lowest possible cost (wages/salaries)
 The interests of external stakeholders

 Government – needs to ensure that businesses are operating legally, paying

taxes and not having a negative effect on society
 Suppliers focus on maintaining a stable relationship, ongoing business &
timely payment
 Customers and Consumers focus on the best product that meets their needs
– they seek good value.
 People in the Local Community focus on the business having a net positive
effect in the local area.
 Banks & other Creditors focus on being repaid their debts in full and on time
 Pressure Groups focus on how the business has impact on their area of
concern.
 The Media focuses on the impact of the business in terms of news stories.
INQUIRY TASK:
 Go to BBC News or The Guardian. Select a recent news story about a
business decision.

 Decide which stakeholders will be most affected by the decision and

analyse the ways in which those stakeholders will be affected.

 Make a judgement as to whether each stakeholder will benefit or not in a)

the short run and b) the long run
 The Shareholder Concept Vs. the
Stakeholder Concept
 The shareholder concept = it is  The stakeholder concept argues
responsibility of businesses to act in that the purpose of a business is to
the interest of its owners - the create value for ALL stakeholders
shareholders. not just shareholders.
 Decisions should be taken based on  Business needs to consider
the effect of those decisions on customers, suppliers, employees,
shareholders rather than other communities as well as
stakeholder groups. (Tutor2u)
shareholders.
 This concept places shareholder  To succeed and be sustainable over
needs(Profit Maximisation & ROI)
above the needs of all other time, business management must
stakeholders. keep the interests of customers,
suppliers, employees, communities
and shareholders aligned and going
 ROI : Return on Investment in the same direction. (Tutor2u)
 Conflict of business
 objectives
Most businesses are trying to satisfy the objectives of more than one group of stakeholders.
 This is an issue because often a business decision to ‘reward’ one stakeholder group
normally means that another stakeholder group must ‘pay’, for example:
 TASK 1: Identify one thing a business might do to satisfy each stakeholder group

 Raising wages may require increasing prices (Staff v Customers)

 Shorter working hours may lead to less convenience for customers (Staff v Customers)
 Cutting costs to raise profits may lead to lower quality for customer (Shareholders V
Customers)
 Actions to cut pollution may increase costs leading to lower profits (Community V
Shareholders

 Exam Tip: When analysing/evaluating a business decision it is often advisable to consider

short & long term effects. Oftentimes a business decision may incur short term costs which
are outweighed by long term benefits.
 Types of Stakeholders
 Primary Stakeholders are the most important stakeholders to the
business (typically Customers & Staff)

 Secondary Stakeholders all less influential stakeholders (e.g.

Local Community, Suppliers)
 The importance of any stakeholder group to an individual firm is
dependent ona variety of situation-specific factors

 TASK: The importance of different stakeholder groups depends very much on the
particular situation of the business – Explain why this is the case?
 Stakeholder Mapping
A stakeholder ap plots the stakeholders of a business according to the level of
interest they have in the business combined with the relative power/influence
they have in terms of business decisions

Staff Customers
Competitors Suppliers

Neighbours/Community Staff & Customers

Government
 TASK SLIDE: Stakeholder Power
 Stakeholder Power is probably best measured in terms of their ability to influence
the decision making of a business. It should be noted that the relative power of
stakeholders varies from one firm to the next
 The power of any stakeholder is often a reflection of the amount of competitions
which is being faced by either the business – or the stakeholder.

TASK: Who holds the power in these scenarios, complete the sentence “Has lots of
power/limited power”
 A worker who has Highly unique & specialist skills
 Workers who do not have unique or specialist skills
 A customer who can choose from many competing firms
 Customers who have only one supplier to choose from

 Can you think of any other scenarios which would hand power to a particular
stakeholder?
 Conflict of objectives
 Very Often, satisfying one stakeholder involves
‘taking from’ another stakeholder
 Inreality, the stakeholders with the most ‘power’
will be able to take more than others
 There is an Ethical element too, for example how
much a firm pays suppliers & staff and how well it
treats workers – the approach will depend on
whether decision makers adopt a shareholder or
stakeholder concept
How changing business objectives
might affect stakeholders
As the objectives of a business change, this may well affect the way it treats its stakeholders. For example, a
greater emphasis on environmental issues may lead to more concern for society as a whole and future
generations, and a focus on recycling, reusing and less waste and pollution.
A demand for higher profits may lead to a drive to reduce costs and less investment in training, welfare and
career development.
A focus on better quality might lead to better treatment of suppliers.
On the other hand, greater pressure for profits may mean managers start to cut lick on training and career
development and freeze wages; they might also bargain hard to push down prices to suppliers.
It is very difficult for managers to take decisions to satisfy all stakeholders simultaneously, especially at a time of
change when major strategic decisions may be forced upon them. It may be that the best they can do is to satisfy
as many stakeholders as possible, and certainly focus on the more powerful ones. The degree of power that any
stakeholder group holds, depends on many factors
 Inquiry Task:

 Why might change lead to conflict among stakeholders?

 As we have seen, business decisions will affect different stakeholders in different ways; some
may gain and some may lose. It will be interesting to explore how change might lead to conflict
between stakeholders.
 Managers implementing and managing change will often demonstrate several of the features of
the IB Learner Profile. For example, they will be 'reflective' because they will reflect on how best
to bring about change, why people may resist it and how best to overcome such resistance.
They will be 'caring' because they will care about the impact of change and consider how best to
limit any negatives consequences. They will be 'risk takers' because change involves risk. They
will need to be 'communicators' to effectively communicate the reasons for and how best to bring
about change.
 What other features of the IB Learner Profile might be demonstrated by managers making
changes?
TOK:

 How important is “Knowing who you are” in determining the

success of an organization
 Do CEO’s have different ethical obligations & responsibilities
compared to their employees?
Chapter Summary

 A stakeholder is an individual or group affected by the activities of an organization.

• Internal stakeholders are stakeholders who are within the business, for example
employees.
• External stakeholders are stakeholders who are outside of the business, for example
suppliers and governments.
Stakeholders will have their own objectives; some may gain and some may lose from a
particular business decision. The objectives of some stakeholders may support each
other;
others may conflict.
• The relative power and level of interest of stakeholders can be shown on a stakeholder
map
Top tips!
 When responding to questions about stakeholders, do not be too ambitious
and write about too many stakeholders. This will make it difficult to develop
arguments fully and to write analytically. Instead, you should select the two
or three stakeholder groups that are most relevant in the circumstances and
focus exclusively upon these. You might, for example, select an internal and
an external stakeholder to show your understanding of these different
groups if the question allows this.
 Do NOT confuse Stakeholders & Shareholders!
Chapter Review Questions
1. Define the term stakeholder. (2)
2. Explain one possible objective of employees. (2)
3. Explain one possible objective of shareholders. (2)
4. Explain one possible objective of suppliers. (2)
5. Explain one possible objective of customers. (2)
6. Explain one possible objective of the community where a business is based. (2)
7. Analyse two actions employees can take to show their power to managers if they disagree with
a decision made by the business. (4)
8. Explain two actions suppliers can take to show their power to managers if they disagree with a
decision made by the business. (4)
9. Analyse how stakeholder mapping can benefit a business. (6)
10. Discuss whether the objectives of stakeholders necessarily conflict. (10)
https://www.youtube.com/watch?v=gc55hPIFW8w
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https://www.youtube.com/watch?v=igoYC9yWxSE