Stakeholders (AQA GCSE Business): Revision Notes
Stakeholders
What are stakeholders?
Understanding stakeholders is crucial for any business operating in the real world. A stakeholder refers to any individual or group who has a genuine interest in what a business does and how it makes decisions. These interested parties can significantly influence how a company operates and what choices it makes.
Think of stakeholders as everyone who is affected by or can affect a business in some way. This creates a web of relationships that businesses must carefully manage to succeed.
The concept of stakeholders extends beyond just customers and employees. It includes anyone who has a stake in the business's success or failure, making stakeholder management a complex but essential business skill.
Main stakeholder groups
Businesses interact with many different groups of people, each with their own interests and concerns. The primary stakeholder groups include:
- Shareholders or business owners - Those who have invested money in the business
- Managers and employees - People who work for the organisation
- Customers - Those who buy the products or services
- Suppliers - Companies that provide materials or services to the business
- Banks and other finance providers - Organisations that lend money or provide financial services
- Government - Local and national authorities that regulate business activities
- Local community - People living and working in the area where the business operates
- Competitors - Other businesses operating in the same market
- Pressure groups - Organisations that campaign for specific causes or interests
The diversity of stakeholder groups means businesses must develop different communication strategies and relationship management approaches for each group. What works for shareholders may not be effective for local communities or pressure groups.
Factors affecting stakeholder influence
The number of stakeholders a business has and how much influence they can exert depends on several important factors:
Size and scale of the business: Smaller businesses, such as a sole trader providing local services, typically have fewer stakeholders to consider. However, large corporations like national supermarket chains must manage relationships with thousands of employees across multiple locations and hundreds of suppliers. This complexity means more stakeholders have a say in how the business operates.
Nature of the product or service: Some business activities naturally attract more stakeholder attention than others. For example, a manufacturing company that produces significant carbon emissions or uses excessive packaging will face much closer scrutiny from environmental groups and the local community. In contrast, a simple service business might operate with less external pressure. Similarly, a business that employs many local people will have the community more interested in its success than a small operation with just one or two employees.
The level of stakeholder influence is not fixed - it changes based on business circumstances, public opinion, and the stakeholders' ability to organise and apply pressure effectively.
Objectives of business stakeholders
Each stakeholder group has different priorities and expectations from the business. Understanding these objectives helps explain why conflicts can arise and how businesses need to balance competing demands.
| Stakeholder | Main Interests |
|---|---|
| Shareholders / Owners | - Profit and dividends - Business growth and success - Good management |
| Managers and Employees | - Good pay and rewards - Job security and working conditions - Promotion and motivation |
| Customers | - Value for money - Good quality products - Good customer service |
| Suppliers | - Fair prices and quick payments - Long-term business relationship - Buyers that can pay |
| Banks / Finance Providers | - Repayment of loans - Low risk - Business growth |
| Government | - Payment of taxes - Job creation - Following laws and regulations |
| Local Community | - Local jobs and economic success - No disruption (e.g. noise, pollution) |
| Competitors | - Their own profits and market share |
| Pressure Groups | - Best deal for members (e.g. fair pay) - Environmental or ethical concerns |
As you can see from the table, different stakeholder groups want very different things from the same business. Shareholders focus on financial returns, employees want job security and fair compensation, while customers seek value for money and quality products.
The fundamental challenge for businesses is that stakeholder objectives often directly conflict with each other. What satisfies one group may disappoint another, requiring careful balancing and compromise.
Impact and influence of stakeholders
The objectives that stakeholders have directly shape how they behave towards the business. For instance, employees might organise regular meetings with management to push for better pay and working conditions. However, the actual impact they can have depends on their level of power and the business circumstances.
Real-World Example: Worker Influence on Business Decisions
Consider this scenario: workers might not be happy about a business increasing production to operate 24 hours a day, seven days a week. The local community might also object to this change. However, if these workers are easily replaceable and the community has little formal power to stop the business, their ability to influence the decision is limited.
Therefore, the real impact and influence that stakeholders can have on business decisions depends on two key factors: the power the stakeholders possess and the specific circumstances the business finds itself in.
Why stakeholder objectives conflict
While many business goals are supported by most stakeholders (such as basic survival and success), conflicts inevitably arise as businesses grow and develop. These conflicts occur because what benefits one group might disadvantage another.
Business Expansion vs Short-term Profits
When a business considers expanding, this decision might receive support from managers, employees, suppliers, and the local community because expansion typically brings additional jobs and increased sales opportunities. However, expansion usually requires significant upfront investment in marketing, new locations, and increased production capacity. This investment reduces short-term profits, which may concern shareholders who want immediate returns on their investment. While most business owners will eventually support expansion if it increases the overall value of their business, the timing can create tension.
Job Losses vs Maintaining Employment
During economic difficulties, businesses often face pressure to reduce costs without spending cash reserves. This might lead management to make redundancies or introduce measures like reduced working hours to cut wage costs. Business owners and managers typically support these decisions as necessary for survival. However, this creates direct conflict with employees (who lose jobs), the local community (which suffers from increased unemployment), and suppliers (who experience reduced business from their customers).
Common causes of stakeholder conflicts
Several recurring issues tend to create tension between different stakeholder groups:
Short-term thinking versus long-term investment: Managers focused on maximising immediate profits might avoid important long-term investments that would benefit the business and its owners in the future. This creates conflict between different time horizons and priorities.
Efficiency improvements through automation: While investing in new machinery can improve efficiency and increase profits for owners, it often results in job losses for employees. This creates a direct conflict between profit maximisation and employment protection.
Market expansion and quality trade-offs: Extending products into mass markets can increase sales and profits for shareholders, but it might require reducing quality standards to keep costs competitive. This potentially conflicts with customer expectations and employee pride in their work.
Key Points to Remember:
- Stakeholders are anyone with an interest in a business's activities and decisions
- The size and nature of a business affects how many stakeholders it has and their level of influence
- Different stakeholder groups have different objectives that often conflict with each other
- Stakeholder power and business circumstances determine how much influence they can actually have
- Common conflicts arise around short-term profits versus long-term investment, job security versus efficiency, and quality versus mass market expansion