1.4 Stakeholders

Full video class on YouTube, summary and notes on Instagram, class extracts on TikTok, text below. Have fun!

Really simple and really important class. Stakeholder is another term that is crucial to Business Management.

Stakeholders are people or organisations who affect or are affected by business decisions and/or have an interest (stake) in the operation of a particular business. “Stake” in “stakeholders” does not necessarily refer to a portion of shares in a particular company, that we learnt earlier in 1.2 Types of business entities. Here it refers to interest in operations of a particular business. If I had to coin this term, I would call stakeholders “interest-holders”. Stakeholders can be internal and external.

Internal stakeholders are the ones that are inside the business. Let’s see some example of internal stakeholders and examples of their common interests and objectives.

• Shareholders usually want to maximise shareholder value (more on that in 1.3 Business objectives).
• Managers usually want to achieve their objectives in the shortest time and at the lowest possible costs.
• Employees usually want good working conditions, meaningful work and maximum pay for minimum effort.
• CEO usually wants to keep shareholders and BOD happy.

External stakeholders are the ones that are outside the business. Let’s see some examples of external stakeholders and some examples of their common interests and objectives.

• Government usually wants stable tax revenues, compliance with law and voters’ support.
• Media usually wants good stories that readers/viewers will like, regardless of whether the stories are positive or negative.
• Local community wants good employment opportunities in their area and safe environment.
• Suppliers usually want constant orders and short credit period (more about that in Unit 3 Finance & accounts).

In addition to internal and external stakeholders, there are also some groups that are hard to categorise. For example, there is no agreement that competitors should be considered stakeholders at all… They are affected by the business, but do they really have an interest in operations of the business they compete with? In addition to that, employees who live in the local community are internal and external at the same time. So, from this perspective, stakeholder, as a business management term, is not entirely clear.

I also have to remind you that stakeholder and shareholder is not the same thing and please beware of spelling. In my experience, some students use these words interchangeably sometimes and it might cause some misunderstandings. So, shareholders are stakeholders, but there are also other stakeholders, in addition to shareholders. If it doesn’t make sense, please read this chapter again or talk to your teacher.

As you learnt from the previous section of this class, stakeholders have different interests and they might pursue different objectives. Stakeholder conflict happens when there is a clash of stakeholder interests, i.e. when different stakeholder groups want different, sometimes opposite, things. For example, employees usually demand higher wages and lower working hours, but managers demand the exact opposite: a lot of work for little payment.

It is important for businesses to keep all stakeholders satisfied and to resolve conflicts. If conflicts occur, there are two visual tools (not included in IB BM Toolkit), that can help managers to resolve stakeholder conflicts: power-interest matrix and stakeholder mapping. Let’s discover each of them in more detail.

Power-interest matrix (or power-interest model, or stakeholder mapping) is a visual tool that helps to break down all stakeholders into 4 groups and prioritise the resolution of conflicts. There are two axes in this matrix — power and interest — hence the name.

Power of decision-making and interest in business can be high and low, which gives us four stakeholder groups:

A. Low interest, low power. This group requires minimum effort. Usually local community is in this group. They don’t really care about businesses as long as there are employment opportunities and the environment is safe.

B. High interest, low power. This group should be keep informed. Usually customers are in this group. They do care a lot about the products but they don’t have much direct influence on business decision-making. Keeping them informed of the business practices and decisions usually prevents stakeholder conflicts.

C. Low interest, high power. This group should be kept satisfied. Usually government is in this group. Individual businesses are not really in their sphere of interest but they do have a lot of power that impacts business decision-making.

D. High interest, high power. This group requires maximum effort. Usually shareholders are in this group. They have direct interest in business and they are the key decision-makers on strategic level.

Please keep in mind that examples that of stakeholders in groups A, B, C and D that I provided above are examples! It doesn’t mean that it’s always like this. It all depends on a particular conflict. In my class, I usually ask students to divide into groups and role-play a stakeholder conflict using power-interest matrix and sign a binding contract by all involved parties in the end.

The second visual tool is called stakeholder analysis — a visual representation of the proximity to decision-making in a particular stakeholder conflict.

The main advantage of this tool is that it can help you (manager) see easily who the key decision-makers are. However, this analysis is usually subjective and one analysis cannot be applied for two different conflicts. Again, stakeholder groups that I mentioned in the picture above are just for reference. It doesn’t mean that it’s like this in all stakeholder conflicts.

That’s it. You know who stakeholders are, you know that they can be internal and external, you know what they usually want, you know what causes conflicts between them and you know some ways that can help resolve them.

Make sure you can define all of these:

1. Stakeholders
2. Stake
3. Internal stakeholders
4. Shareholders
5. Managers
6. Employees
7. CEO
8. External stakeholders
9. Government
10. Local community
11. Media
12. Suppliers
13. Competitors
14. Stakeholder conflict
15. Power-interest matrix/model (stakeholder mapping)
16. Stakeholder analysis