0264 · 1.5.2The role of stakeholder groups

Stakeholders and internal groups

0:00Forge Parts plans to extend its factory and operate at night. Its managers expect more sales, while nearby residents worry about noise during their sleep. Employees welcome the extra jobs, but some dislike the proposed night shifts. By the end of this video, you will understand these different interests and explain why a business decision can create conflict. A stakeholder is any person or group with a direct interest in the activities and performance of a business.

0:23That interest might involve income, purchases, repayments or the condition of a neighbourhood. Each group has something to gain or lose from business decisions. This connection explains why several groups care about the same factory extension. An objective is a target that a person or organisation aims to achieve. A business might aim to increase profit, which is total revenue minus total costs. However, the people connected to that organisation have their own targets.

0:49Understanding stakeholders means connecting what each group contributes or experiences with what it wants in return. Internal stakeholder groups are people or groups within a business: owners, managers and employees. Outside the business, external stakeholder groups also have a direct interest in its activities and performance. They are customers, suppliers, lenders and banks, government, and the local community. Each group is classified by its relationship with the business. Owners provide capital, which is money invested in a business.

1:17Ownership may belong to a sole trader, the partners in a partnership, or shareholders in a company. Shareholders are people or organisations that own shares in a company. Because owners risk their investment, they usually want profit and a business that survives and grows. A dividend is a payment to shareholders from a company’s profits. Shareholders often want dividends and a rising share price as well. A higher share price increases what their investment is worth.

1:42Owners’ priorities can vary, so someone seeking income today may prefer a dividend to further expansion. Managers are employees responsible for directing resources and making decisions within a business. They often want high salaries, status and opportunities to manage a growing organisation. Expansion can give them greater responsibility and improve their career prospects. Their decisions affect other stakeholders because managers organise activities such as production, purchasing and employee schedules. Employees are people who work for a business in return for payment.

2:12Their objectives include fair pay, job security, good working conditions and job satisfaction. A café employee may value predictable hours because these help them organise family commitments. Job security matters because continued employment protects the income they rely on. Employees provide the work needed to make products or deliver services. Their experience can help managers spot practical problems with a proposed change. At Forge Parts, employees may know whether a night schedule creates difficulties with transport home.

2:39Listening to them can help the business design arrangements that support reliable production.

External stakeholder groups

2:45Customers are people or organisations that buy a business’s goods or services. They want good quality, safe products, reasonable prices and good service. At Sunrise Bakery, this could mean fresh bread, clear information about ingredients and helpful employees. Customers influence performance through their purchases, so meeting these objectives helps the bakery attract repeat sales. Suppliers are businesses that provide goods or services to another organisation. They want regular orders and payment on time.

3:12A flour supplier values predictable purchases because these help it plan deliveries and its own spending. Prompt payment provides the money needed to pay its employees and meet other commitments. Lenders, such as banks, provide money that a business must repay. Interest is the payment made for borrowing money. Banks and other lenders want each repayment and its interest paid on time. Before lending to Forge Parts, a bank considers whether the factory can generate enough money to meet those commitments.

3:37The government wants businesses to provide jobs, pay taxes and obey the law. Employment gives people income, while taxes help finance public services. Compliance with laws helps protect employees, customers and others affected by business activity. Government influences decisions through legal requirements, so managers must consider these obligations when planning changes. The local community consists of the residents and workers in the area around a business. Its objectives include employment opportunities, little pollution or traffic, and responsible behaviour.

4:07A farm may provide useful local jobs, while frequent delivery vehicles create concerns for nearby residents. Members of the community can express those concerns directly to the business. One person can belong to several stakeholder groups at the same time. An employee at Forge Parts might own shares and have a home beside the factory. That person could welcome a dividend, value job security and want quiet evenings. Their response depends on how the decision affects each of those interests.

Stakeholder conflict and shared interests

4:34Stakeholder conflict occurs when pursuing one group’s objective makes another group’s objective harder to achieve. Suppose employees seek higher pay while owners want higher profit. A pay rise increases costs if the number of employees and hours worked stay unchanged. With revenue also unchanged, profit falls, so the owners receive a smaller financial return. Customers’ desire for lower prices can create a similar conflict with owners. If prices fall while sales quantities and costs remain unchanged, revenue falls.

5:02Profit then decreases, which works against the owners’ objective. A lower price could attract additional sales, so the final effect depends on the information about demand and costs. Managers may favour expansion because a larger business offers greater responsibility and status. Some shareholders may prefer dividends now because they want income from their investment. Using profit to finance expansion leaves less available for immediate dividend payments. The conflict concerns how the company uses its available money and when shareholders receive a return.

5:32Other objectives support each other. Owners, employees, suppliers and lenders all benefit when a business remains successful enough to meet its commitments. Reliable sales help protect jobs, support regular orders and provide money for repayments. Shared interests explain why stakeholders can cooperate even when they disagree about a particular decision.

Forge Parts stakeholder analysis

5:50Consider Forge Parts, a car parts factory with forty employees and sixty thousand dollars available for expansion. Its aim is to meet additional customer orders and increase profit. Managers propose a factory extension and night production, with some employees assigned to night shifts. The extension would be paid for with that money and a bank loan. Nearby homes face the factory’s loading area, where extra deliveries would create noise and traffic.

6:13Start by identifying what changes. The extension creates additional space, and night production allows machinery to operate for longer. Managers expect these changes to help fulfil the extra orders. We can then connect each consequence to the objective of each stakeholder group, because the plan affects groups in different ways. Owners gain if the extra sales revenue exceeds the additional costs, because profit increases. A larger operation gives managers more responsibility and status.

6:39For the materials supplier, the new orders mean regular sales. If the additional production gets their goods delivered on time, customers gain as well. Employees have mixed interests in this case. Additional jobs benefit people seeking employment, while existing employees may welcome greater security from the new orders. Those assigned to night shifts could face less convenient working hours. The local community also experiences a trade-off because employment opportunities increase alongside disturbance from overnight deliveries.

7:06The bank’s priority remains timely repayment with interest, even if managers are enthusiastic about growth. Expansion costs create a concern if the factory has insufficient money available for its commitments. Government welcomes employment but still expects taxes to be paid and laws obeyed. Each response follows from the group’s own objective. A compromise is an arrangement in which different groups accept adjustments to help resolve disagreement. Forge Parts could restrict deliveries to daytime and install sound insulation around noisy equipment.

7:34These changes reduce disturbance for residents while allowing some production at night. Managers could also seek volunteers for night shifts where staffing requirements allow. The compromise has costs and limits. Sound insulation uses money that could otherwise support expansion or dividends. Daytime deliveries require careful planning so materials remain available overnight. Even so, less disturbance and fewer employee concerns make the proposal more acceptable to affected groups. That acceptance can help the factory put its plan into practice.

Exam technique and recap

8:02For accurate classification, focus on each group’s connection to the business. Shareholders belong to the owners, while stakeholders include all the groups with a direct interest. Customers and suppliers are external even when they visit the premises frequently. Also keep different interests within a group visible, such as employees who prefer different working hours. In Paper One Short Answer and Data Response and Paper Two Case Study, use the information about the particular business.

8:27To identify, name or select the requested group. An explain answer must set out purposes or reasons, say why and how, supported with relevant evidence. When asked to justify, support a case with evidence or argument. An exam-style question could ask you to explain how the proposed night production could create conflict between Forge Parts and the local community. Start with the factory’s objective of meeting additional orders. Use the nearby homes and noisy loading area as evidence.

8:53Then explain how overnight disturbance works against residents’ wish for a quiet neighbourhood. Forge Parts wants night production to help fulfil additional customer orders. Extra deliveries would create noise at the loading area beside nearby homes. This disturbance would reduce residents’ quality of life because it interrupts their sleep. The objectives conflict because meeting the factory’s production needs creates conditions the local community wants to avoid. A stakeholder is any person or group with a direct interest in the activities and performance of a business.

9:22An objective is a target that a person or organisation aims to achieve. Stakeholder conflict occurs when pursuing one group’s objective makes another group’s objective harder to achieve. Follow the decision, explain its consequences, and connect those consequences to the people affected.