The internal and external stakeholders of an organisation, their interest in and influence over it, their interdependence, and the conflicts that arise between them.

What this key area is asking

A stakeholder is anyone with an interest in an organisation, and the SQA wants you to identify them, distinguish internal from external stakeholders, explain their interest (what they want) and their influence (the power they have to affect the firm), and recognise that stakeholders are interdependent and that their aims often conflict. Higher rewards you for going beyond a list to explain interest, influence and conflict.

Internal and external stakeholders

Internal stakeholders

• Owners or shareholders: provide the capital; want profit, dividends and a rising value.
• Managers: run the firm; want a successful business, job security, status and bonuses.
• Employees: do the work; want secure jobs, fair pay, good conditions and training.

External stakeholders

• Customers: buy the products; want good quality, fair prices and reliable supply and service.
• Suppliers: provide materials; want regular orders and prompt payment.
• Banks and lenders: provide finance; want the loan repaid with interest and a financially sound business.
• Government: wants the firm to obey the law, pay taxes and provide employment.
• Local community: wants jobs and local investment, but also minimal pollution, noise and disruption.
• Pressure groups: campaign on issues such as the environment or workers' rights and want the firm to change its behaviour.

Interest and influence

For each stakeholder the SQA separates two ideas:

• Interest is what the stakeholder wants from the organisation (their aim or stake).
• Influence is the power they have to affect the organisation if their interest is not met.

Interdependence

Stakeholders are interdependent: the firm depends on them and they depend on the firm. Employees need wages, but the firm needs their labour; suppliers need orders, but the firm needs their materials; the community needs jobs, but the firm needs local goodwill and workers. Because everyone is connected, a problem with one group can harm the others (a strike stops production, so customers go unserved and suppliers lose orders).

Conflict between stakeholders

Because stakeholders want different things, their aims often conflict, and management must balance them.

Examples in context

Example 1. A factory closure. When a firm closes a factory to cut costs, the owners may benefit from higher profit, but employees lose their jobs (and can take industrial action), the local community loses spending and jobs (and may protest), suppliers lose orders, and the local council loses business rates. One decision affects many interdependent stakeholders with conflicting interests, the classic SQA scenario.

Example 2. Higher dividends versus reinvestment. Shareholders may pressure a company to pay larger dividends now, but managers and employees may prefer to reinvest the profit to secure the firm's future and protect jobs. Customers benefit from reinvestment in quality. This is a conflict over the use of profit, with shareholders' short-term interest clashing with the long-term interests of other stakeholders.

Try this

Q1. Distinguish between an internal and an external stakeholder, giving an example of each. [2 marks]

• Cue. An internal stakeholder is part of the organisation (an employee, manager or owner); an external stakeholder is outside it but affected by it (a customer, supplier, the government or the local community).

Q2. Explain two ways stakeholders can influence a business. [4 marks]

• Cue. Shareholders can vote at the AGM or sell their shares; employees can strike or leave; customers can buy from rivals, cutting sales; banks can refuse finance; the government can fine the firm or change the law; pressure groups can organise boycotts (any two, developed).