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1.4

Stakeholders

Unit 1 · Introduction to business management · SL and HL

A stakeholder is anyone with an interest in what a business does. Almost every case study question involves stakeholders, because almost every decision helps some and hurts others. This page covers who they are, what each wants, and why their interests conflict, with a method for analysing a conflict and suggesting how to manage it.

🎯What you need to be able to do

  • Explain the interests of internal and external stakeholders.
  • Explain the possible conflicts between stakeholders and how they might be resolved.

📚The business management

Internal and external stakeholders

A stakeholder is an individual or group with an interest in, or affected by, the activities of a business.

The business at the centre. Above it, internal stakeholders: employees, managers, and shareholders or owners. Below it, external stakeholders: customers, suppliers, government, local community, competitors, lenders or banks, pressure groups and the media.
Internal stakeholders are inside the organization; external stakeholders are outside it.
Internal stakeholders
Employees: fair pay, job security, safe conditions, training, recognition.
Managers: salary and bonuses, power, career progression, achieving targets.
Shareholders / owners: profit, dividends, rising share value, and a say in major decisions.
External stakeholders
Customers: quality, low prices, choice, good service.
Suppliers: regular orders, fair prices, prompt payment.
Government: tax revenue, jobs, compliance with the law.
Local community: jobs, low pollution, support for local causes.
Lenders: repayment with interest on time.
Pressure groups: ethical and environmental behaviour.
Competitors: fair competition, and information about rivals.
Media: newsworthy stories, and access to information.

Some people are in more than one group: an employee who owns shares; a customer who lives next to the factory.

Conflict between stakeholders

Because interests differ, a decision that benefits one group often costs another:

  • Shareholders vs employees: cutting jobs or automating raises profit but reduces job security.
  • Shareholders vs customers: higher prices raise profit; customers want lower prices.
  • Business vs local community: expanding a factory creates jobs but increases traffic and pollution.
  • Managers vs shareholders: managers may prefer growth and high salaries; shareholders want dividends.
  • Business vs suppliers: paying suppliers later improves the firm’s cash flow but hurts the suppliers’.

Stakeholders can also share interests: a successful business benefits employees (security), government (tax) and suppliers (orders).

Managing conflict

  • Prioritize using stakeholder mapping (Mendelow’s matrix): stakeholders with high power and high interest must be managed closely; high power, low interest kept satisfied; low power, high interest kept informed; low power, low interest monitored.
  • Communicate and consult early, explaining the reasons for decisions.
  • Compromise: phase in changes, offer retraining or redeployment rather than redundancies, share gains (profit-related pay).
  • Align objectives through the mission and CSR, so stakeholders see a shared long-term interest.

A useful exam habit: for any decision in a case study, name the stakeholders affected, state how each is affected and why, identify who has most power, and suggest how the conflict could be reduced.

✏️Worked example

A garment manufacturer in Central Java plans to replace 200 sewing jobs with automated cutting and sewing machines, cutting costs by 15%. Analyse the impact on three stakeholders and suggest how the business could reduce conflict.

Shareholders gain: lower costs raise profit margins and the firm becomes more competitive against imports, protecting the share value. Employees lose: 200 people face redundancy and remaining workers may fear further cuts, lowering morale; if unionized, they may resist (2.7, HL). The local community loses income and spending in local shops; local government may object because of lost jobs. Customers may gain from lower prices or more consistent quality.

Reducing conflict: consult workers and their representatives early; phase the change in over time through natural wastage (not replacing leavers) and voluntary redundancy; retrain some workers to operate and maintain the machines; offer fair severance pay and help with finding new jobs. This costs money but protects reputation and relations with the remaining workforce and the community.

Check it. For each stakeholder, answer how and why they are affected, not just “positively” or “negatively”.
Treating stakeholders as one group. “Stakeholders will be unhappy” earns nothing. Name the specific group and link their interest to the decision.

📝Practise

Work through these on paper, then reveal the answer.

1. [2 marks] Define the term stakeholder.
An individual or group that has an interest in, or is affected by, the activities and decisions of an organization.
2. [2 marks] Distinguish between an internal and an external stakeholder, with an example of each.
An internal stakeholder is part of the organization (employees, managers, owners); an external stakeholder is outside it but affected by or affecting it (customers, suppliers, the government).
3. [4 marks] Explain one possible conflict between a hotel’s shareholders and its local community.
Shareholders want higher profit, which could mean building an extension close to the beach and drawing more groundwater for guests. The local community may lose access to the beach, face water shortages for farming, and experience more traffic and waste. The same decision raises returns for one group and costs for the other.
4. [4 marks] Explain how stakeholder mapping could help a business manage conflict.
Mapping stakeholders by power and interest shows whom the decision affects and whose reaction matters most. The business can manage high-power, high-interest stakeholders closely (involve them in decisions), keep powerful but less interested ones satisfied, and keep interested but less powerful groups informed, so its effort goes where conflict would be most damaging.
5. [4 marks] Explain why the interests of stakeholders may sometimes be the same.
If the business is successful and growing, shareholders receive higher profits, employees gain job security and possibly higher pay, suppliers receive more orders, the government collects more tax and the community gains jobs. So a decision that improves long-term success can benefit several groups together.
6. [10 marks] A food company plans to reduce the sugar content of its best-selling drink by 40%. Discuss the likely impact on its stakeholders.

Customers: health-conscious buyers gain; others may dislike the taste and switch brands. Shareholders: reformulation costs and possible lost sales vs better reputation, avoiding a sugar tax and future regulation. Employees: may need retraining for new processes; job security depends on sales. Government and health groups: support the change (public health). Suppliers: sugar suppliers lose orders; sweetener suppliers gain. Media: positive coverage.

Judgment: most powerful stakeholders (government, many customers) favour it, and the long-term brand benefit likely outweighs short-term costs if the taste is maintained; a gradual change with marketing would reduce conflict.

🔗Go deeper — other people’s work

These are external resources, not mine. If one stops working, tell me and everything above it on this page still stands.

  • Mind Tools — Stakeholder analysis and the power/interest grid, explained step by step.
  • Business Roundtable’s 2019 statement on the purpose of a corporation — a debate about shareholder versus stakeholder priorities.
  • Company sustainability reports — see how large firms describe their stakeholder engagement.