What a stakeholder is

A stakeholder is an individual or group with an interest in a business. The business’s decisions, actions or performance may affect them; equally, they may affect the business. So stakeholders aren’t simply “people who care”. Their connection to the organization gives them a stake in what happens.

Sometimes the stakeholder is one person, such as a founder, chief executive or major investor. It can also be a group: employees, customers, suppliers, the local community or government. In Business Management, stakeholders are usually sorted into internal and external groups first. This helps us analyse whose interests are closest to day-to-day decision-making.

Internal stakeholders

An internal stakeholder is a stakeholder who belongs to the organization through ownership, management or employment. They’re usually close to decision-making and often have access to information unavailable to outsiders.

Typical internal stakeholders include:

A shareholder is an owner of a company who holds one or more shares, giving them a financial interest in the company’s performance. In a small private company, the owners may manage the business themselves. Shareholders in a large public company may have little involvement in daily operations. Even so, they remain internal stakeholders because they own part of the company.

External stakeholders

An external stakeholder is a stakeholder who isn’t part of the organization’s ownership, management or workforce, but who is affected by—or can affect—the business’s activities. External stakeholders sit outside the formal business structure. That doesn’t make them unimportant. Some have considerable power.

Typical external stakeholders include:

A supplier is an external business or individual that provides goods or services another business needs. A customer is an individual or organization that buys goods or services from a business. A pressure group is an organization that campaigns to influence business or government decisions on a particular issue.

The diagram below shows a simple idea: some stakeholders are closer to decision-making than others. Founders, owners, managers and shareholders are usually nearest the centre. Customers, suppliers and employees remain very important, although they normally have less direct control. Pressure groups, media, government and the local community may be further from the boardroom, but they can still influence what the business can realistically do.

Stakeholder interests are not all the same

A stakeholder interest is an outcome that a stakeholder wants from the business relationship. Employees may seek higher wages and secure jobs, while customers may prefer low prices and reliable quality. Owners may want profit and growth. Government may look for tax revenue and legal compliance. The local community may welcome employment opportunities but still want low pollution and limited traffic.

Stakeholder analysis must therefore fit the specific business in the question. Don’t automatically discuss every possible stakeholder. A sole trader with no employees won’t have trade unions as a major stakeholder. A mining company will probably have serious local community and environmental pressure group stakeholders. The stakeholder maps of a school, hospital, coffee shop and airline will all differ.

Some cases fall into a grey area. A consultant, for example, is normally external because they aren’t employed by the business. But the boundary is less clear if that consultant works inside the business on a long-term contract and plays a major role in decision-making. For clear analysis, especially when classifying stakeholders, use straightforward examples unless the context gives you a reason to discuss the ambiguity.

Mutual benefit between stakeholders

A mutual benefit is an outcome from a business decision that helps two or more stakeholder groups at the same time. Investing in better staff training, for instance, may give employees improved skills and customers better service. If that improved service raises sales, owners may benefit as well.

Remember that stakeholder interests don’t automatically conflict. Treating suppliers fairly may lead to more reliable deliveries. Listening to customers can help a business improve its products and increase revenue. Reducing waste may cut costs while meeting environmental expectations. Good management often involves finding these overlaps before conflict becomes expensive.

Why stakeholder conflict happens

Stakeholder conflict occurs when the objectives or interests of two or more stakeholder groups are incompatible. Meeting the needs of one group then makes it harder to satisfy another. Such conflict is common because businesses face limits on money, time, resources and space. Public trust may also be limited.

Take a business that wants to cut costs. Owners may support the decision because profits could rise, while managers may find their financial targets easier to meet. Employees could oppose it if the cuts lead to redundancies, less overtime or heavier workloads. Customers might benefit from lower prices, but not if product quality falls. One decision can seem sensible to one stakeholder and unfair to another.

How different business decisions can create conflict between stakeholder groups.

Common areas of conflict

Avoid vague points such as “they disagree”. A useful answer links the disagreement to a specific business decision.

A trade union is an organization that represents employees collectively when negotiating with employers about issues such as pay, working conditions and job security. In a stakeholder conflict, a trade union can turn the concerns of individual employees into organized pressure on management.

Change often creates conflict

The inquiry question here asks: why could change bring conflict among stakeholders? Change redistributes benefits and costs. Decisions to grow, restructure, relocate, automate or switch suppliers rarely affect every stakeholder in the same way.

Growth can create jobs, increase sales and generate more tax revenue. At the same time, it may put greater pressure on local roads, produce waste or alter the character of a local area. Automation could improve efficiency and consistency for customers, yet threaten jobs. A new ethical sourcing policy may satisfy customers and pressure groups, but it could increase costs and reduce short-term profits. The conflict is therefore rarely about “change” as an abstract idea. It centres on who gains, who loses, how quickly the change takes place and whether stakeholders have been consulted.

Ethics, sustainability and stakeholder expectations

Ethics is a set of moral principles that guides judgements about right and wrong behaviour. Sustainability is the capacity of a business activity to continue over the long term without causing unacceptable damage to people, communities or the natural environment.

Some stakeholders assess a business on more than its prices and profits. Employees may want to work for an organization whose values they respect. Customers might avoid firms associated with unsafe labour practices, while pressure groups may challenge businesses that cause environmental damage. If voluntary action isn’t enough, government may introduce regulation.

The theory of knowledge angle fits naturally here. A chief executive has legal duties, though many people would argue that senior leaders carry stronger ethical responsibilities because they hold more power and their decisions affect more stakeholders. Others may argue that every employee has ethical responsibilities within their own role. These judgements aren’t always easy to measure in business, but they still influence reputation, trust and long-term decision-making.

Managing stakeholder conflict

Stakeholder management is the process of identifying stakeholder groups, understanding their interests and influence, and responding to them in a way that supports business objectives. It doesn’t mean keeping everyone happy all the time; that’s usually impossible. Instead, businesses need to make informed choices and communicate those choices properly.

Businesses may manage conflict by:

• consulting stakeholders before finalizing major decisions
• giving clear and honest reasons for a decision
• negotiating with employees, suppliers or local authorities
• providing compensation, retraining or transition support when harm is likely
• adjusting decisions to reduce negative effects, perhaps by using cleaner technology or changing delivery times
• prioritizing stakeholders when all interests cannot be satisfied

This can be a rich area for your IA. Once you choose an organization, identify its main internal and external stakeholders. Then ask where their interests overlap and where they clash. This gives you a range of perspectives instead of a one-sided picture of the business.