the impact of business decisions on stakeholders and their reactions

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Stakeholders – Relative Importance and Influence (Cambridge AS/A‑Level Business 1.5)

Learning Objective (1.5.2)

  • Identify all internal and external stakeholder groups and distinguish public‑sector from private‑sector stakeholders.
  • Explain the rights, responsibilities and typical reactions of each group to a major business decision (1.5.2 a‑c).
  • Analyse the relative power and interest of each stakeholder, using the Power/Interest grid (1.5.2 d).
  • Evaluate conflicts of interest and the ways businesses remain accountable when objectives change (1.5.2 e).
  • Use primary or secondary data (e.g., annual reports, surveys) to support the analysis.

Definition of “Stakeholder” (1.5.1)

A stakeholder is any individual or group that can affect the business or be affected by the business. This definition is used throughout the syllabus and underpins all subsequent analysis.

1. Identifying Stakeholder Groups

Category Stakeholder Groups (private sector) Stakeholder Groups (public sector)
Internal Shareholders / Owners, Senior Management, Employees (incl. trade unions) Taxpayers (as owners of public enterprises), Public‑sector employees
External Customers, Suppliers, Creditors / Banks, Local Community, Government / Regulators, NGOs / Interest Groups Local Authorities, Public‑sector suppliers, Regulatory bodies, Citizens groups

2. Rights, Responsibilities & Typical Reactions

The table below aligns each stakeholder with the syllabus sub‑points (1.5.2 a‑c) and provides a brief justification for the power and interest scores (based on the five rating criteria).

Stakeholder Group Internal / External Rights & Responsibilities (1.5.2 c) Power (1‑5)
Justification		 Interest (1‑5)
Justification		 Relative Importance Typical Reaction to a Major Decision (1.5.2 b)
Shareholders / Owners Internal Vote at AGMs, receive dividends; must provide capital and monitor directors. 5
Legal/contractual rights, financial impact, strategic relevance.		 4
High financial interest, moderate strategic involvement.		 High Demand profitability; support change that promises higher returns, oppose risky moves.
Senior Management Internal Fiduciary duty to act in the company’s best interest; implement strategy. 5
Strategic relevance, legal authority, control over resources.		 5
Direct responsibility for outcomes.		 Very High Drive implementation; may resist decisions that threaten personal performance targets.
Employees (incl. trade unions) Internal Safe conditions, fair pay; must perform duties and obey lawful instructions. 3
Collective bargaining power, ethical leverage.		 5
Personal livelihood and job security.		 High Seek job security, wage protection; may strike or increase turnover.
Customers External Right to receive products/services as described; must pay for purchases. 4
Revenue driver, brand reputation.		 4
Direct impact on sales and market share.		 High Switch brands, lodge complaints, or reward quality improvements.
Suppliers External Right to timely payment; must meet specifications and delivery dates. 3
Contractual dependence, potential for forward‑integration.		 3
Impact on cost structure and product quality.		 Medium Renegotiate terms, seek alternative buyers if margins fall.
Creditors / Banks External Right to repayment with interest; monitor covenants. 4
Legal claim on assets, ability to restrict finance.		 2
Interest is financial stability, not day‑to‑day operations.		 Medium Tighten lending conditions, call in loans if risk rises.
Local Community External Safe environment, employment opportunities; must respect local regulations. 2
Limited formal authority, but can affect licence renewals.		 3
Social licence to operate.		 Low‑Medium Protest or support projects; influence reputation.
Government / Regulators External Enforce legislation, issue licences, collect taxes; create stable business environment. 5
Statutory power, ability to impose fines or incentives.		 2
Interest is regulatory compliance rather than profit.		 High Impose compliance requirements, grant subsidies, or withdraw licences.
NGOs / Interest Groups External Campaign on ethical, environmental, or social issues; must act within the law. 2
Limited formal power, but high media influence.		 4
Strong interest in corporate conduct.		 Low‑Medium Run campaigns, affect brand image, pressure for policy change.

3. Power/Interest Grid (1.5.2 d)

The grid visualises each stakeholder’s influence (Power) against their concern (Interest). Place the groups in the appropriate quadrant:

  • High Power / High Interest (Manage Closely) – Shareholders, Senior Management, Government.
  • High Power / Low Interest (Keep Satisfied) – Creditors, Regulators.
  • Low Power / High Interest (Keep Informed) – Employees, NGOs, Local Community.
  • Low Power / Low Interest (Monitor) – Some suppliers, distant media.
Insert diagram: four‑quadrant Power/Interest matrix (Power on Y‑axis, Interest on X‑axis).

4. Rating Criteria (How to Justify Power & Interest Scores)

When assigning a 1‑5 rating, consider the following five syllabus criteria:

  1. Legal / contractual obligations – e.g., shareholders (5), creditors (4).
  2. Financial impact – customers (4), suppliers (3).
  3. Strategic relevance – government (5) for market entry, senior management (5) for strategy.
  4. Reputation / public perception – NGOs (2) and community (2) can sway brand image.
  5. Ethical / moral leverage – employees (3) and trade unions (3) may mobilise action.

5. Structured Approach to Assessing Impact (1.5.2 a)

  1. Identify directly affected stakeholder groups.
  2. Measure the magnitude of impact – financial (costs/revenues), social (jobs), environmental (emissions).
  3. Rate power and interest using the criteria above and plot on the grid.
  4. Predict likely reactions (rights, responsibilities, past behaviour).
  5. Design a communication & engagement plan appropriate to each quadrant.

6. Typical Stakeholder Reactions – Expanded Scenarios (1.5.2 b)

Decision Primary Affected Stakeholders External Reactions Internal Reactions Management Response
Launch a premium, higher‑priced product line Customers, Shareholders, Competitors Customers may delay purchase or switch brands; media may comment on price. Senior management must justify pricing; sales staff need product training. Value‑focused marketing, clear USP communication, monitor sales & profit margins.
Relocate a plant to a lower‑cost region Employees, Local Community, Government (old & new region) Redundancy concerns, community protest, possible tax incentives in new area. Management gains cost advantage; unions may organise industrial action. Offer severance, retraining, early consultation with unions; liaise with both local authorities.
Introduce a sustainability programme (e.g., eliminate single‑use plastic) Customers, NGOs, Suppliers Positive consumer response; NGOs may endorse; suppliers may need new materials. Employees adopt new processes; senior management aligns with CSR objectives. Publicise environmental benefits, work with suppliers on alternatives, train staff, report progress in CSR statements.

7. Conflict Between Stakeholder Aims (1.5.2 d)

Conflict Stakeholders Involved Root Cause (Syllabus Criteria) Mitigation Strategies
Profit maximisation vs. employee job security Shareholders ↔ Employees (and unions) Financial impact vs. ethical/legislative responsibilities. Profit‑sharing, negotiated wage agreements, CSR programmes, transparent communication.
Cost cutting vs. supplier quality standards Senior Management ↔ Suppliers Strategic relevance vs. financial impact. Long‑term contracts, joint process‑improvement, supplier audits.
Environmental sustainability vs. short‑term profitability NGOs / Community ↔ Shareholders Reputation/ethics vs. financial impact. Invest in eco‑innovation, green marketing, publish sustainability reports, develop new revenue streams.

8. Accountability & Changing Objectives (1.5.2 e)

  • Why accountability matters – Stakeholders must be able to assess how resources are used, whether ethical standards are met, and if agreed objectives are achieved.
  • Changing objectives – Market shifts, new technology, legislation or stakeholder expectations can move a firm from pure profit‑maximisation to a triple‑bottom‑line (profit, people, planet) focus.
  • Demonstrating accountability
    • Annual reports & financial statements (shareholder accountability).
    • CSR / sustainability reports (community, NGO accountability).
    • Compliance audits & regulatory filings (government accountability).
    • Employee surveys & trade‑union negotiations (internal accountability).
  • Managing change – Re‑run the stakeholder analysis, re‑prioritise groups, adjust communication plans and, where needed, renegotiate rights and responsibilities.

9. CSR Link (Connecting Stakeholder Power to Business Objectives)

When a firm adopts CSR as a strategic aim, the power/interest of NGOs, local communities and ethically‑aware customers often rises. This shift should be reflected in the grid and can alter the relative importance of other groups.

10. Case Study: XYZ Electronics – Decision to Outsource Production

Decision

Outsource 60 % of manufacturing to a lower‑cost overseas contractor.

Stakeholder Analysis (Power/Interest with Justification)

Stakeholder Power (1‑5)
Justification		 Interest (1‑5)
Justification		 Relative Importance Key Rights & Responsibilities Predicted Reaction
Shareholders 5
Legal voting rights, control of capital.		 4
High financial interest in returns.		 High Dividends; monitor directors. Positive – expect cost savings and higher dividends.
Senior Management 5
Strategic authority, decision‑making power.		 5
Direct responsibility for performance.		 Very High Duty to maximise long‑term value. Supportive – see margin improvement.
Employees (UK plant) 3
Collective bargaining, union influence.		 5
Job security & livelihood.		 High Safe working conditions, fair treatment. Fear of redundancy → turnover, possible union action.
Customers 4
Revenue source, can switch brands.		 4
Concern for quality & ethical sourcing.		 High Quality, reliability; pay for goods. Worry about product quality and ethical implications.
Suppliers (local components) 3
Contractual dependence, possible forward‑integration.		 3
Loss of volume affects revenue.		 Medium Timely payment; meet specs. Concern over reduced orders; may seek new clients.
Government / Regulators 5
Statutory power to enforce employment & trade laws.		 2
Interest mainly in compliance.		 High Enforce legislation, collect taxes. Scrutinise off‑shoring incentives; may review tax relief.

Management Response (aligned with the structured approach)

  1. Stakeholder identification – Employees, community, government, shareholders, customers.
  2. Impact measurement – Cost reduction (£15 m/yr), 200 job losses, potential brand risk.
  3. Power/Interest mapping – Plotted on grid; employees in “High Interest/Low Power” quadrant.
  4. Predict reactions – Union negotiations, media scrutiny, shareholder approval.
  5. Engagement plan
    • Early consultation with unions; offer voluntary severance, retraining, and redeployment.
    • Publicise rigorous overseas quality‑assurance procedures to reassure customers.
    • Brief local MPs and the Department for Business on economic rationale; seek continued tax incentives for remaining UK activities.
    • Present cost‑saving forecast to shareholders and earmark part of the savings for R&D (demonstrating reinvestment).

11. Summary

  • Stakeholder groups are split into internal vs. external and private vs. public sectors; each has distinct rights, responsibilities and power.
  • The Power/Interest grid, underpinned by five rating criteria, provides a transparent method to assess influence and interest.
  • Business decisions generate predictable reactions; anticipating them enables targeted communication and mitigation.
  • Conflicts are inevitable; they are managed through negotiation, CSR initiatives, or strategic re‑allocation of resources.
  • Accountability is demonstrated through financial reports, CSR statements, regulatory filings and internal dialogue, especially when objectives evolve.

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