Stakeholders are individuals or groups that are affected by the activities and decisions of a business, or that can influence those activities and decisions. The main stakeholders studied at A-Level Business are employees, owners and shareholders, customers, suppliers, creditors, the community and the government. Each stakeholder has different objectives, and these objectives can sometimes conflict. Understanding stakeholders is important because business decisions can have positive or negative effects on different groups, meaning businesses often need to balance competing interests.
This topic can be found in:
- AQA A-Level Business | Component 1: What is Business? Managing Marketing and Finance | Topic 2: Forms of Business and Stakeholders
Definitions
- Stakeholder: An individual or group that is affected by a business's activities and decisions or can influence them.
- Internal stakeholder: An individual or group within a business who is directly involved in its operations and decision-making.
- External stakeholder: An individual or group outside a business who is affected by or can influence its activities and decisions.
- Stakeholder conflict: A situation where the objectives of different stakeholder groups are incompatible.
- Business ethics: The moral principles and values that guide how a business behaves and makes decisions, going beyond what is required by law.
Key Features
Internal Stakeholders
Internal stakeholders are groups within a business that are directly involved in its operations and decision-making. The main internal stakeholders are employees and owners or shareholders. Employees generally want fair pay, job security, good working conditions, training and career progression. Owners and shareholders generally want profits, dividends, business growth, rising share prices and long-term success. Business decisions such as expansion, redundancies, wage changes and investment can therefore have significant effects on internal stakeholders.
External Stakeholders
External stakeholders are individuals or groups outside the business who can influence or are affected by business activities. The main external stakeholders are customers, suppliers, creditors, the community and the government. Customers generally want high-quality products, fair prices and reliable service. Suppliers want prompt payment, stable demand and fair relationships. Creditors want businesses to repay loans and interest on time. Communities may want employment, investment and environmental protection, while the government wants tax revenue, employment, economic growth and compliance with laws and regulations.
Stakeholder Conflict and Business Activity
Stakeholders can be affected positively or negatively by business activity, and their objectives may conflict. For example, employees may want higher wages while shareholders want higher dividends. Higher wages increase business costs, potentially reducing profits available to shareholders. Customers may want lower prices while shareholders may want higher profit margins, while suppliers may want higher prices and the business may want lower costs. Business activity can create benefits such as employment, higher incomes and economic growth, but can also cause job losses, pollution and financial risk. Businesses therefore need to balance competing stakeholder interests when making decisions.
Evaluation
Advantages
- Considering stakeholders can improve business relationships: Meeting the needs of employees, customers and suppliers can increase loyalty, motivation and long-term cooperation.
- Stakeholder-focused decisions can improve reputation: Acting responsibly towards customers, employees and communities can strengthen the business's reputation and support customer loyalty.
- Balancing stakeholder interests can support long-term success: Considering the wider consequences of decisions can help businesses avoid excessive conflict and maintain support from important stakeholder groups.
Disadvantages
- Stakeholder objectives can conflict: Improving outcomes for one group can make another group worse off, such as increasing employee wages reducing profits available to shareholders.
- Ethical decisions can increase costs: Paying fair wages, using ethically sourced materials and protecting the environment may increase costs and potentially result in higher prices for customers.
- Businesses cannot always satisfy every stakeholder: Limited resources and competing objectives mean that businesses may have to prioritise some stakeholder groups over others depending on their circumstances.
Summary
- Stakeholders are groups affected by or able to influence a business.
- Internal stakeholders include employees and owners or shareholders.
- External stakeholders include customers, suppliers, creditors, communities and government.
- Stakeholder conflict occurs when different groups have incompatible objectives.
- Ethical businesses consider the wider consequences of their decisions and their responsibilities to stakeholders.
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