What Is a Stakeholder?
A stakeholder is an individual or group that has a legitimate interest in a company, organization, or business; the Stanford Research Institute defines stakeholders as “those groups without whose support the organization would cease to exist. Stakeholders can affect or be affected by the actions [or inactions] of a business, and they can exist both within and outside of a business.
The impact of a business on its stakeholders is a bit like the effect of dropping a stone into a pond. The decisions and actions of the business have a ripple effect that can extend beyond the pond and even reach those who are standing far away on the shore.
Internal Stakeholders
Internal stakeholders are groups or people who work directly within the business, such as managers, employees, and owners. Managers and employees want to earn high wages and keep their jobs, so they have a vested interest in the financial health and success of the business. Owners want to maximize the profit the business makes as compensation for the risks they take in owning or running a business.
Figure 1. The picture shows the typical stakeholders of a company. The stakeholders are divided into internal and external stakeholders.
External Stakeholders
External stakeholders are groups outside a business or people who don’t work inside the business but are affected in some way by the decisions and actions of the business. Examples of external stakeholders are customers, suppliers, creditors, the local community, society, and the government. Customers want the business to produce quality products at reasonable prices. Shareholders have an interest in business operations since they are counting on the business to remain profitable and provide a return on their investment in the business. Creditors that supply financial capital, raw materials, and services to the business want to be paid on time and in full. Federal, state, and local governments need businesses to thrive in order to pay taxes that support government services such as education, police, and fire protection. The local community has a stake in the business because it provides jobs, which generate economic activity within the community. Society as a whole [as well as the local community] is concerned about the impact that business operations have on the environment in terms of noise, air, and water pollution. Society also has an interest in the business with regard to the safety of the goods and services produced by the business. Suppliers need the business to continue to buy their products in order to maintain their own profitability and long-term financial health.
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Find the appropriate balance of competing claims by various groups of stakeholders."
- Warren G. Bennis
All businesses have a variety of stakeholders. As a result, it is important to understand how the organisation impacts stakeholders and how stakeholders may impact the organisation. This can be understood through stakeholder analysis. Let's take a look.
Stakeholder Definition
Stakeholders are parties that have an interest in the organisation. These parties can be either affected by or affect the organisation. The group of stakeholders generally include employees, owners, governments, customers, investors and suppliers communities
Stakeholders do not all have the same interest, therefore it is important to understand each of them individually.
Customers' interests may be to buy good quality products at affordable prices. While the interest of employees is to get a higher salary and sustain their employment.
What are the types of stakeholders?
There are two main types of stakeholders which are either internal or external. It is important to understand each of the stakeholder groups to be aware of their interests and the effect they may have on the organisation.
Internal stakeholders
Internal stakeholders are those who have a direct relationship with the company. As they are a party working inside the organisation or are the company executives. Their key role is to perform in the organisation effectively so that the company or a project gains value. The internal stakeholders' interests are usually to gain benefits from the project or a company.
Employees - The main interest comes from employment income, security and safety. These stakeholders affect the company or a project through their quality of work.
Owners - The main interest of this stakeholder party is to reach the organizational goals most effectively and efficiently and maximise the company's profits. Executives affect the company or a project in regards to how well they're managing the company or a project.
External stakeholders
External stakeholders do not work with the company directly but are affected or have an effect on the organisation or a project. These stakeholders are interested in the company or a project.
Governments - These stakeholders' best interest is to collect taxes and benefit from the increased GDP. Governments can affect the company by implementing new regulations and imposing taxes on products or services that the company produces.
Customers - The main interest for customers is to buy the best quality product or service at the lowest price. If customers are satisfied with the service they might have a positive impact on the company by leaving a positive review, for example. On the other hand, negative reviews can damage a company's reputation.
Investors - Investors are interested in a company or a project that can grow and bring more value in the future. Investors have an impact on the company as their investments can give the company more finances to grow.
Suppliers - This external stakeholder party is crucial to the company as they supply products or essential parts that the company needs. They have the interest to gain profit from the company by supplying goods. They can positively impact the company if they supply resources of good quality and affordable price. On the other hand, if organizations if suppliers produce goods at a bad quality and high price it can have a negative impact on the company.
Communities - This party is interested in the organization that creates employment, community spirit does not pollute the environment. Communities can have a positive effect on the organization if they positively talk about the business. However, if this stakeholder party does the opposite it may damage the company's image.
What is the stakeholder analysis?
Stakeholder analysis is an important aspect a company should undertake before the beginning of any project as it helps to understand stakeholders. This analysis is often used in project management. The stakeholders are grouping them based on their levels, participation, interest and influence on the project. This analysis is usually presented in the stakeholder's analysis matrix.
Why is stakeholder analysis important?
Stakeholders usually have different needs which might overlap or contradict one another. Stakeholder analysis helps managers identify and manage potential conflicts of interest to make the best decisions. They group stakeholders according to the level of influence [power] and interest using analysis matrices.
What is a stakeholder matrix example?
The stakeholder matrix is the representation of stakeholders analysis in the visual format [see Figure 1 below]. This matrix allocates stakeholders in terms of their level of power and interest that they have in the organization or a project. These assist business managers to be aware of the level of importance of each stakeholder group.
This is the example:
The stakeholder matrix will assist the business managers in deciding to which stakeholders they should invest the most time and effort. Organizations should put the most time and effort into the stakeholders who have high power and interest [also called key players] in the organization or a project. For instance, this can include managers ensuring that all main stakeholders such as customers needs are met and that they are satisfied with the project or the organization.
What is the stakeholder management process?
The stakeholder management process [see Figure 2 below] is aimed to improve the organization's relationships with stakeholders. As well as organize, monitor and manage stakeholders in an effective way.
The stakeholder management process follows five steps. Which are:
1. Identify
At this step, the stakeholders that have an interest in the company or a particular project are identified. Stakeholders can be internal and external, they can have positive or negative interest in the company or a project. Additionally, its crucial to identify each stakeholder's needs and expectations in regards to a company or a project.
2. Analysis
At this stage, the stakeholders are analyzed in great detail. The analysis may include:
How stakeholders point of interest aligns with organizational goals
Their power and level of interest in the organization or a project
Stakeholders expectations and needs of the company or its project
How stakeholders will positively impact a company or a project.
How the project or a company will meet stakeholders needs and expectations
3. Plan
At this stage business managers should plan how to effectively manage and engage with the stakeholders so that they add value to the project or a company and fulfill their expectations.
4. Engage
To get the most value from the stakeholders business managers should keep them engaged throughout the project. This can be done by motivating them by stating how the outcomes of the project successfully will fulfill stakeholders' needs and expectations. Additionally, trust between stakeholders and the organization must be built to get the most value from the stakeholders.
5. Monitor
During the execution stage, stakeholders' engagement and level of participation in the project or organization should be monitored. This way business managers will be aware if stakeholders need additional assistance. As well as if stakeholders are on target reaching set goals.
Stakeholder - Key takeaways
- Stakeholders are a party that has an interest in the organization or its project. Stakeholders can either have an effect or are affected by the organization or a specific project.
- Two types of stakeholders include 1] internal: employees and owners. 2] External: Governments, customers, investors, suppliers and communities.
- In business, the key stakeholders usually involve: governments, customers, employees, investors, suppliers, communities.
- The stakeholder analysis is important for the company and to begging of any project. As the analysis can communicate the level of power and interest of stakeholders. This will help managers to adjust the plan on which stakeholders they should put the most time and effort towards.
- The stakeholder matrix example is the visual presentation of stakeholders analysis. The matrix includes stakeholders' level of power and interest in the company or a project.
- There are five phases of the stakeholder management process. They are identified as 1] Identity 2] Analysis 3] Plan 4] Engage 5] Monitor.
Frequently Asked Questions about Stakeholder
A company understand the needs of stakeholders by performing stakeholders analysis before the beginning of the project.
Stakeholders usually have different needs which might overlap or contradict one another. Stakeholder analysis helps managers identify and manage potential conflicts of interest to make the best decisions. They group stakeholders according to the level of influence [power] and interest using analysis matrices.
To get the most value from the stakeholders business managers should keep them engaged throughout the project. This can be done by motivating them by stating how the outcomes of the project successfully will fulfill stakeholders' needs and expectations. Additionally, trust between stakeholders and the organization must be built to get the most value from the stakeholders.
Two types of stakeholders include 1] internal: employees and owners. 2] External: Governments, customers, investors, suppliers and communities.
There are five phases of the stakeholder management process. They are identified as 1] Identity 2] Analysis 3] Plan 4] Engage 5] Monitor.
Final Stakeholder Quiz
Question
What are the stakeholders?
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Answer
Stakeholders are parties that have an interest in the company. This party can be either affected or affect the organisation.
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Question
Why is it important to understand each stakeholder?
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Answer
It is crucial to understand each stakeholder individually. Because each stakeholder has different interests, expectations and involvement in the organisation. Therefore,
by understanding each stakeholder organisations can adjust their management process and the level of time and effort they invest in each stakeholder.
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Question
What are the types of stakeholders?
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Answer
Two types of stakeholders include 1] internal: employees and owners. 2] External: Governments, customers, investors, suppliers and communities.
Show question
Question
What are the key differences between external and internal stakeholders?
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Answer
The key differences between these two stakeholder types are that internal stakeholders are directly involved in the organisation or its project. While the
external stakeholders are outside of the organisation but are affected or have an effect on the organisation or a project. As well as have some level of interest in the company.
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Question
What effect do governments have on the organisation or a project?
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Answer
Governments can have a significant impact on the organisation as they have the power to set rules and regulations. For example, governments can set a high tax
on products that the company produces which results in the spending more of the company's budget.
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Question
What is the stakeholder analysis?
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Answer
Stakeholder analysis examines and groups stakeholders based on their key features. That includes stakeholders levels of participation, interest and influence they have on the project or a
company.
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Question
In what format the stakeholder analysis is presented best?
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Answer
The stakeholder analysis can be presented best in the stakeholder’s matrix that groups each stakeholder based on their levels of power and interest they have in the
company or a project.
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Question
Why stakeholder analysis is important?
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Answer
The stakeholder analysis is important because it helps to identify stakeholders needs and adjust the management process to get the most value out of them. The analysis presented in
the matrix will help business managers to determine to what stakeholders they should allocate the most time and resources.
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Question
How are the most important stakeholders named on the stakeholder matrix?
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Answer
On the matrix grid, the key stakeholders are identified as the ones who have a lot of power and interest in the company or a project. They are called
Players.
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Question
What is the stakeholder management process?
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Answer
The stakeholder management process is the step by step guidance that aims to improve the organisation’s relationships with Stakeholders. As well as organise, monitor and manage
stakeholders in an effective way.
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Question
What are the key steps of the stakeholder management process?
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Answer
There are five key steps of the stakeholder management process. identified as 1] Identity 2] Analyse 3] Plan 4] Engage 5] Monitor.
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What is the role of the step called ‘Engage’ in the stakeholder’s management process?
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Answer
The key role of the ‘Engage’ step is to get the most value from the stakeholders by keeping them engaged throughout the project. This can be
done by communicating to stakeholders how the outcomes of the successful project will fulfil their expectations.
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Question
Which of these are internal stakeholder?
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Which of these are internal stakeholders?
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Internal stakeholders do not work with the company directly but are affected or have an effect on the organisation or a project.
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They have a direct relationship with the company. As they are a party working inside the organisation or are the company executives. Who are they?
Show answer
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Which of these are external stakeholders?
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Which of these are external stakeholders?
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Which of these are external stakeholders?
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What is the first step of the stakeholder management process?
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What is the last step of the stakeholder management process?
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This external stakeholder party is crucial to the company as they supply products or essential parts that the company needs. Who is it?
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This party is interested in the organization that creates employment, community spirit does not pollute the environment. Who is it?
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The main interest for this party is to buy the best quality product or service at the lowest price. Who is it?
Show answer
Question
This stakeholder's best interest is to collect taxes and benefit from the increased GDP. Who is it?
Show answer
Question
The main interest of this stakeholder party is to reach the organizational goals most effectively and efficiently and maximise the company's profits. Who it is?
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Question
Stakeholder analysis helps managers identify and manage potential conflicts of interest to make the best ___.
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Question
This stakeholder is interested in a company or a project that can grow and bring more value in the future. Who is it?
Show answer
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