Business stakeholders

A stakeholder is a person, group or organisation with an interest in a business. What the business does affects them, and they can influence it in return — which is why businesses consider their views when making decisions.

Internal and external stakeholders

Stakeholders sit either inside the business or outside it.

Why stakeholders matter

Each group has its own objectives — what it wants from the business. Owners usually want profit, employees want fair pay and secure work, customers want low prices and good quality, and the local community wants jobs without nuisance such as traffic or noise. Because these aims are different, a business has to work out which groups a decision will affect and how they are likely to react.

For example, a chain of indoor climbing centres plans to open a new site. The owners want a good return on their investment, managers want the site to run smoothly, and instructors want safe conditions and reliable hours. Local residents care about traffic and noise, and the council applies planning rules. The business weighs up these interests because stakeholders can back a decision — by investing, working hard or buying — or resist it, for example by complaining, campaigning or taking their money elsewhere.

Each stakeholder group wants something different from a business. These aims, or objectives, explain why a group supports some decisions and opposes others.

Shareholders put money in and expect a return, so they watch profit and dividends. Managers coordinate people and resources, so business success and hitting targets bring them bonuses, status and security. Employees depend on the business for pay and security. Customers want their money to buy something useful and dependable. Suppliers need steady trade and prompt payment. The local community lives with the jobs, income, traffic, noise and pollution a business creates.

The government also wants businesses to succeed, because success can create jobs, tax revenue and economic growth. It still expects legal compliance and protection for consumers and the environment.

Objectives are not fixed. A group's aims can change with the situation, and members of one group do not always agree. If an indoor climbing centre plans a second site, the owner wants growth, managers want the new site to hit its sales target, employees want secure hours and customers want reliable quality. If sales fall, the owner may care more about survival than expansion, while one shareholder may want to sell their shares quickly and another may prefer to wait for long-term growth.

Stakeholders are affected by business activity in different ways, so one decision can benefit some groups while harming others. Working out what changes for each named group, and why, is what shows how big an effect a decision really has.

How each stakeholder group is affected

One decision, many effects

For example, a workwear brand opens a second factory and raises its prices to help pay for it. Shareholders may gain if the extra capacity lifts sales and profit, though the investment carries risk, and suppliers gain larger orders for fabric and thread. Managers take on more responsibility across two sites, while employees may earn extra overtime but carry a heavier workload. Customers pay more for their jackets, and people living nearby get new jobs and more spending in local shops but more lorries on the roads. The government collects more tax and sees more people in work. That is one decision with seven different effects.

Stakeholders can change what a business does, not just react to it. Shareholders invest more or sell their shares, employees work productively or take industrial action, customers buy or boycott, and suppliers supply or withhold supply. Pressure groups campaign and lobby, while government regulates, taxes and decides planning applications. This pressure can encourage a business to improve quality, customer service, ethical behaviour or environmental impact.

What gives a stakeholder power

Having a strong opinion is not the same as having power, the ability to make a business change its decision. A single shopper refusing to buy from a supermarket is unlikely to alter its prices, but a large investor threatening to sell shares can. Power comes from:

Analysing stakeholder impact

To judge impact, first identify the stakeholders, then explain how each is affected, then decide who has most power. Imagine a café chain plans to swap single-use plastic cups for paper ones. Customers may dislike the new cups, the plastic cup supplier loses a contract, staff have to explain the change at the counter, and the environmental pressure group that campaigned for the switch gains a win. Power does not always sit with the loudest group: the pressure group has public sympathy, but a major customer such as a university that buys thousands of drinks a week can have more influence, because losing its contract would cost the café chain far more. A business thinks this through before deciding because stakeholders can support a plan or resist it, changing costs, reputation and whether the change succeeds.

Stakeholder conflict happens when the objectives of two groups clash, so satisfying one group makes another less satisfied. Money, time and profit are limited, so a business cannot give every group everything it wants: it has to balance competing interests, and a decision that suits one group can leave another worse off.

Employees often want higher pay and secure jobs, but shareholders want lower costs, higher profit, dividends or retained profit for growth. At a garden centre, the manager wants to keep six seasonal workers on through the quiet winter months, costing about £8,400 in wages, but that money would otherwise fund a dividend or a new glasshouse. Shareholders may accept the cost if trained, loyal staff give better service in spring, but the conflict remains.

Customers want low prices and high quality, while shareholders want higher profit, which can mean higher prices; cutting prices can win sales but shrink margins, and improving quality adds cost. Suppliers want higher prices and prompt payment, which conflicts with a business trying to keep costs down. Paying suppliers later helps cash flow but can damage supply.

The local community or pressure groups may want less noise, pollution, disruption or environmental damage, while shareholders want expansion. A parcel depot running a third shift through the night adds profit but means lorries arriving past midnight beside a housing estate. Managers may want bigger budgets or higher pay, which conflicts with shareholders' cost control. Government demands for tax and regulation can also reduce owners' profit.

Not all conflict can be resolved. If a business must cut jobs to survive, it cannot fully protect employees and keep costs low at the same time; it can only choose the least damaging balance.

Stakeholder conflict costs a business money and momentum. A disagreement over pay, prices or expansion can spread from one decision into everyday operations, so even groups that were not involved begin to feel the effects.

Higher costs and lost output

Industrial action, such as a strike or an overtime ban, can halt or slow production, reduce productivity and delay orders. Staff who feel ignored leave, pushing up staff turnover; replacing them means recruitment advertising, interviews and training, while new workers take time to reach full speed. Managers also spend hours settling disputes instead of running the business, and higher wage bills or agency cover cut into profit margins.

For example, a family-run hotel in a seaside town facing a dispute over weekend pay rates might find its housekeeping team refusing extra shifts just as the wedding season begins. Rooms are not ready on time, guests complain at check-in and the manager spends days in meetings instead of running the hotel. To protect its bookings the hotel brings in an agency cleaning team, which costs more per room and so cuts the profit made on each stay.

Damage to relationships and reputation

Poor service or bad publicity can damage the brand. Customers who face late deliveries may switch to a rival, cutting sales, and suppliers may become cautious about offering credit or priority if they doubt they will be paid on time. Serious problems, such as unsafe working conditions exposed during a dispute, may attract regulatory or government action, adding fines or compliance costs.

Conflict left unresolved can disrupt performance for months and damage relationships that took years to build. A business may keep trading, but it does so with higher costs, lower sales and a weaker competitive position.

Stakeholder conflict happens when groups want different things, so pleasing one means another loses out. Because money, time and resources are limited, a business cannot give every group everything it wants, so it tries to settle disagreements before they damage performance.

Approaches a business can use

• Negotiation — talking a disagreement through with employee representatives, such as a union rep, until both sides agree. This is usually far cheaper than a strike that stops production.
• Consultation — asking stakeholders for their views before a big decision is made, so people feel involved rather than simply told what is happening.
• Clear communication — explaining why a change is needed. Staff who understand the reason for a new shift pattern or a price rise are less likely to resist it.
• Compromise — each side gives something up so that a workable middle position is reached.
• Changing policies, pay or working conditions — for example raising pay or improving conditions to keep employees on side.
• Engaging regularly — meeting stakeholders, listening and taking their views seriously rather than ignoring them.

Turning opposition into support

A chain of garden centres wants to open on Sundays to catch weekend shoppers, but its staff oppose losing their day off. The manager meets the staff representative, explains the extra sales that protect jobs, and agrees a rota where each person works one Sunday in four with extra pay. Employees accept the plan, the centres trade seven days a week and customers get the opening hours they wanted. Handling the disagreement well turned opposition into support. Listening in the same way to a pressure group worried about packaging can cut waste and improve environmental impact.

What it cannot always fix

Some conflict has no answer. A coach company that loses a school contract may have to cut drivers' hours to survive, and those drivers still lose out whatever is discussed. Reducing conflict also uses management time and money — meetings, higher pay, new equipment — so a business has to weigh up what it can afford to give up. Conflict left unresolved can disrupt performance and damage stakeholder relationships for a long time.