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Understanding Stakeholders in Business: A Comprehensive Guide

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Stakeholders: The Backbone of Business Decisions

What is a Stakeholder?

A stakeholder is anyone with an interest in a business, be it through direct involvement or external influence. Stakeholders are pivotal as they can significantly impact the business's operations and strategies. They range from individuals and groups to organizations.

Internal vs. External Stakeholders

Stakeholders are categorized into two main types: internal and external.

  • Internal Stakeholders include shareholders, employees, and managers. Shareholders, owning a part of the business, are invested in its success for potential profit returns. Employees, through their day-to-day tasks, and managers, by implementing business strategies, directly influence business operations.

  • External Stakeholders are not directly part of the business but are affected by its activities. This group includes customers, suppliers, the local community, pressure groups, and government entities. Each has distinct interests in the business's operations and outcomes.

Stakeholder Objectives

Each stakeholder group has unique objectives. Shareholders seek profit maximization and growth, while managers and employees look for satisfactory compensation and job security. Customers demand quality products at reasonable prices, and suppliers want timely payments and consistent orders. Local communities and governments expect businesses to contribute positively to employment and economic development.

The Impact of Business Decisions on Stakeholders

Business decisions can have varied effects on stakeholders, often leading to conflicts of interest. For instance, a decision to increase employee wages can negatively impact shareholders due to increased operational costs, which might reduce profits and dividends. Conversely, such a decision can positively affect employees by improving their financial standing but may lead to higher product prices for customers or cost-cutting measures affecting suppliers.

Case Study: Wage Increase at McDonald's

A scenario at McDonald's illustrates the complexity of stakeholder interests. The company's success led employees to demand higher wages, specifically £15 an hour, known as the Fight for 15. This demand put McDonald's in a position to prioritize stakeholder interests, as the wage increase would affect shareholders, managers, customers, suppliers, and the local community in different ways.

Conflicts Between Stakeholders

Stakeholder conflicts are inevitable in business. The McDonald's wage increase debate showcases potential conflicts, such as employees versus shareholders and employees versus customers. These conflicts stem from differing objectives, with employees seeking higher wages and shareholders and customers desiring lower costs for different reasons.

Navigating these conflicts requires businesses to find a balance that satisfies the diverse objectives of stakeholders. Compromises, such as gradual wage increases, can be a solution that acknowledges the interests of both employees and shareholders while maintaining customer satisfaction.

Conclusion

Understanding and managing stakeholder relationships are critical for business success. Stakeholders' diverse and often conflicting interests require businesses to make informed decisions that consider the broader impact on all involved. By effectively navigating these relationships, businesses can ensure long-term growth and stability.

For more insights into stakeholder management and business strategies, remember to watch the full video.

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