internal stakeholders and external stakeholders

Resources → Subject Notes → Business → Lesson Plan

1.5 Stakeholders – Business Stakeholders (Cambridge IGCSE/A‑Level 9609)

Learning Objective

Identify and differentiate internal and external stakeholders, describe their rights, responsibilities and typical influence on decisions, and evaluate how stakeholder aims affect business choices.

What is a Stakeholder?

A stakeholder is any individual or group that can affect, or be affected by, the activities and performance of a business. The term covers both internal and external parties.

Internal Stakeholders

People or groups directly involved in the day‑to‑day running of the business and linked to it by a contractual or ownership relationship.

  • Owners / Shareholders – provide capital; expect a return on investment and have voting rights.
  • Board of Directors – set strategic direction; fiduciary duty to act in shareholders’ best interests.
  • Managers – plan, organise, lead and control resources; accountable for achieving organisational goals.
  • Employees – perform the work needed to produce goods or services; expect wages, job security, safe conditions and career development.
  • Internal Auditors – monitor compliance and risk; provide independent assurance to the board.

External Stakeholders

People or groups outside the organisation who are affected by its actions or can influence its success.

  • Customers – buy the products/services; expect quality, value for money and good service.
  • Suppliers – provide inputs; seek reliable orders, fair terms and timely payment.
  • Creditors / Banks – lend money; expect repayment with interest and information on financial health.
  • Government & Local Authorities – regulate activity, collect taxes and enforce health, safety and environmental laws.
  • Trade Unions – represent employees in negotiations over wages, conditions and rights.
  • Media – shape public perception; can influence consumer confidence and regulatory scrutiny.
  • NGOs & Trade Associations – advocate on social, environmental or industry issues.
  • Local Community – lives near the business; concerned with employment opportunities, environmental impact and community support.
  • Competitors – monitor each other’s strategies; can be stakeholders when industry standards or regulations change.

Roles, Rights, Responsibilities & Typical Influence

Stakeholder Group Key Rights Key Responsibilities Typical Influence on Decisions
Shareholders Vote at AGM, receive dividends, access information Provide capital, monitor directors, act in long‑term interest of the company High – can pressure the board on profit targets, dividend policy and major investments
Board of Directors Set strategic direction, approve major projects Act in shareholders’ best interests, ensure good governance Very high – ultimate decision‑making authority
Managers Authority to make operational decisions Achieve targets, obey legal & ethical standards, report to board High – translate strategy into day‑to‑day actions
Employees Contractual pay, health & safety, anti‑discrimination protection Perform duties competently, follow policies, contribute to improvement Medium – influence through performance, morale and, where organised, collective bargaining
Customers Right to safe, fit‑for‑purpose goods; consumer‑protection laws Pay for products, give feedback, act responsibly (e.g., return defective goods) Medium – affect sales volume, brand reputation and product development
Suppliers Contractual terms, timely payment Provide quality inputs on agreed schedule Low‑Medium – can affect cost structure and reliability of supply
Creditors / Banks Right to interest, repayment schedule, financial information Lend responsibly, monitor borrower’s financial health Medium – can restrict borrowing and influence capital structure
Government Power to legislate, tax, enforce compliance Create clear regulations, provide public services, ensure fair competition High – can compel changes through law, tax policy or licensing
Local Community Right to a healthy environment, to be consulted on major projects Support local employment, engage in community initiatives Low‑Medium – influence through public opinion, local permits and social licence
Media Freedom of expression, access to public information Report accurately, avoid defamation, provide balanced coverage Low‑Medium – shape reputation and can trigger regulatory scrutiny
NGOs / Trade Associations Right to campaign, access information for advocacy Promote social, environmental or industry standards Low‑Medium – can affect brand image and lead to voluntary or regulatory change
Trade Unions Collective bargaining, right to organise Represent members, negotiate wages and conditions Medium – can affect labour costs and working practices
Competitors Right to compete fairly under competition law Innovate, price competitively, adhere to legal standards Low – indirect influence via market pressure and industry standards

How Stakeholder Aims Influence Business Decisions

  • Government environmental regulations → businesses invest in cleaner technology or modify production processes.
  • Shareholder demand for higher returns → pressure to increase efficiency, cut costs or expand into new markets.
  • Customer demand for ethical products → adoption of fair‑trade sourcing or sustainable packaging.
  • Trade‑union wage claims → may lead to revised pay structures or changes in work‑time arrangements.
  • Community concern over a new plant → company may undertake impact assessments, provide community benefits or relocate the project.
  • NGO campaign against single‑use plastics → firm may redesign packaging to avoid reputational damage.

Stakeholder Impact Matrix

How typical business decisions affect different stakeholder groups.

Decision Stakeholder(s) Affected Likely Reaction
Increase selling price by 10 % Customers, Shareholders, Employees Customers – possible dissatisfaction; Shareholders – higher profit margin; Employees – risk of reduced sales volume.
Introduce a four‑day work week Employees, Customers, Suppliers Employees – increased morale; Customers – possible change in service hours; Suppliers – need to adjust delivery schedules.
Close an under‑performing factory Employees, Local Community, Creditors Employees – job losses; Community – loss of local jobs; Creditors – reduced risk of default.

Accountability to Stakeholders

  • Annual reports and financial statements – provide shareholders with performance data, dividend information and governance details.
  • Corporate Social Responsibility (CSR) reports – demonstrate environmental and community commitments to NGOs, local communities and ethically‑focused customers.
  • Stakeholder meetings, surveys and focus groups – give customers, employees and community members a direct voice in shaping policies.
  • Regulatory filings and compliance audits – satisfy government requirements and reassure creditors of legal conformity.

Conflict Between Stakeholder Aims

Conflicts arise when two or more stakeholder groups pursue divergent objectives.

  • Example 1 – Profit vs. Environment: Shareholders push for cost‑cutting, while local residents and NGOs demand reduced emissions. The firm may adopt greener technology that initially raises costs but protects its social licence.
  • Example 2 – Wage Levels vs. Price Competitiveness: Trade unions seek higher wages, whereas customers expect low prices. A possible compromise is performance‑linked bonuses that reward productivity without permanently raising unit costs.

Effect of Changing Business Objectives on Stakeholders

When a company shifts strategy, stakeholder priorities change accordingly.

  • Shareholders – may expect higher growth and accept greater risk.
  • Employees – may need new skills, face relocation or altered working patterns.
  • Suppliers – could be asked to meet different standards, larger volumes or new delivery schedules.
  • Local community – might lose jobs but gain reputational benefits from a more global brand.

Stakeholder Mapping Tools

  1. Power‑Interest Grid – places each stakeholder on a two‑dimensional matrix (Power vs. Interest). Typical positions:
    • High Power, High Interest – Manage closely (e.g., shareholders, senior management).
    • High Power, Low Interest – Keep satisfied (e.g., government regulators).
    • Low Power, High Interest – Keep informed (e.g., customers, local community).
    • Low Power, Low Interest – Monitor (e.g., distant competitors).
  2. Salience Model – categorises stakeholders by three attributes: Power, Legitimacy, Urgency. Those possessing all three are “definitive” stakeholders and demand immediate attention.

Communication & Engagement Strategies

  • Consultation – surveys, public hearings, focus groups (used with customers, community).
  • Partnership – joint ventures, co‑development projects (common with suppliers, NGOs).
  • Negotiation – collective bargaining with trade unions, price negotiations with major customers.
  • Information Disclosure – annual reports, sustainability reports, press releases (targets shareholders, media, regulators).

Why Stakeholder Analysis Matters

  1. Identifies who can influence strategic decisions.
  2. Helps anticipate and manage potential conflicts.
  3. Supports the development of policies that balance competing interests.
  4. Improves reputation, ethical standing and long‑term sustainability.

Comparison of Internal and External Stakeholders

Aspect Internal Stakeholders External Stakeholders
Relationship with Business Direct contractual or ownership link (e.g., employees, directors) Indirect – based on transactions, societal impact or regulation (e.g., customers, regulators)
Primary Interests Profitability, job security, career progression, compliance Product quality, price, ethical behaviour, community welfare, legal compliance
Degree of Influence High – involved in decision‑making and implementation Variable – can be high (government, major suppliers) or low (individual consumers)
Typical Power/Interest Grid Position High power, high interest Mixed – high power/low interest (regulators), low power/high interest (customers, community), etc.

Suggested Diagram

Stakeholder map showing each group’s relative power and interest (Power‑Interest Grid). Use it for strategic planning and communication planning.

Key Points to Remember

  • Stakeholders can be individuals or groups; the term covers both internal and external contexts.
  • Each stakeholder group has specific rights, responsibilities and a typical level of influence on decisions.
  • Business decisions inevitably affect multiple stakeholders; understanding these impacts helps avoid conflict and exploit opportunities.
  • Effective stakeholder analysis (Power‑Interest Grid, Salience Model) is essential for strategic planning, accountability and sustainable success.
  • Regular communication, consultation and transparent reporting maintain good relationships and can create a competitive advantage.

Create an account or Login to take a Quiz

26 views
0 improvement suggestions

Log in to suggest improvements to this note.