Stakeholders: Types, Importance & Issues [PDF included]

Stakeholders can be domestic or extraneous to an organisation. Internal or domestic stakeholders are people whose involvement in a company comes through a direct relationship, such as employment, ownership, or investment. External or extraneous stakeholders are the persons who do not directly work with a company but are affected anyway by the activities and outcomes of the business. Suppliers, creditors, and public groups are all recognised as external stakeholders.

Understanding and managing the interests of both internal and external stakeholders is crucial for the success and sustainability of any organization. By identifying and addressing the needs and concerns of all stakeholders, companies can build strong relationships, enhance their reputation, and ultimately achieve their goals. It is essential for businesses to consider the impact of their actions on all stakeholders and strive to create value for everyone involved.

Definition of Stakeholder

A stakeholder is a party that has an influence on a company and can either affect or be affected by the organisation. The primary stakeholders in a typical corporation are its investors, employees, consumers, and suppliers. However, with the increasing attention on collective social responsibility, the perception has been extended to include people, governments, and trade unions.

Types of Stakeholders

In this section, I will discuss the most common types of stakeholders.

1. Customers:

Stake: Service quality and value.

Many would claim that businesses stand to serve their customers. Customers are the stakeholders of a business, in that the quality of service impacts them and their value. For example, passengers travelling on an aeroplane simply have their lives in the company’s hands when flying with the airline.

A business doesn’t go on without customers. Customers receive products from the businesses, they are interested in how a business represents. Businesses need to prioritize the needs and satisfaction of their customers in order to thrive and build a loyal customer base. By focusing on providing high-quality products and services at a fair price, businesses can ensure that they are meeting the expectations of their customers and delivering value. The success of a business ultimately depends on the satisfaction of its customers, making them a critical stakeholder in the overall operations of the company.

• Customers are the primary stakeholders.
• Customers are the external stakeholders.
• Customers are the direct stakeholders.

2. Employees:

Stake: Employment, safety and income.

Employees have a direct stake in the enterprise. They connect directly with customers, earn money to uphold themselves, and give support to the business activities as well. Depending on the business, employees may also have health and safety concern (for example: in the industries of oil and gas, construction, mining, transportation etc.).

They play a critical role in the success of the organization and have a significant impact on its reputation and overall performance. It is important for businesses to prioritize the well-being and development of their employees to ensure a positive work environment and encourage loyalty and dedication. By investing in their employees, businesses can foster a strong team dynamic and promote productivity and growth.

Additionally, providing employees with fair wages, benefits, and opportunities for advancement can help attract top talent and retain valuable staff members. Overall, employees are essential stakeholders in any business and their interests should be considered and prioritized in decision-making processes.

Employees can carry out supervisory functions. They generally take benefits like incentives, career improvement and job satisfaction.

• Employees are the internal stakeholders.
• Employees are the primary stakeholders.
• Employees are the direct stakeholders.

3. Investors:

Stake: Financial returns.

Investors include both shareholders and debt holders. Shareholders invest money in the business and hope to earn a certain rate as a return on that invested money. Investors are generally regarded with the conception of stakeholder value. Investors can also approve or reject major decisions like mergers and purchases.

An investor can more than just bring you funding to engage in projects that help your business expand. They also can contribute ideas and give you advice, bring connections, motivate you, and help publicise and improve your business.

Investors play a crucial role in the success and growth of a business. Their financial contributions provide the necessary resources for companies to pursue new opportunities and overcome challenges. Beyond just the capital they provide, investors bring valuable expertise, networks, and perspectives that can help entrepreneurs navigate complex business landscapes. By aligning their interests with the long-term success of the company, investors can act as trusted partners in driving strategic decisions and fostering sustainable growth.

• Investors are the external stakeholders.
• investors are the primary stakeholders.
• investors are the direct stakeholder.

4. Suppliers and Vendors

Stake: Safety and revenues.

Suppliers and vendors sell goods and services for a business and depend on it for revenue generation and ongoing income. In many industries, suppliers also have their safety and health on the line, as they may be directly engaged in the company’s affairs.

• Suppliers are the external stakeholders.
• Suppliers are the secondary stakeholders.
• Suppliers are the indirect stakeholders.

5. Communities

Communities are significant stakeholders in large businesses. A wide range of things affects them, including job creation, economic development, health, and safety. When a big company enters or quits a small community, there is a sudden and serious impact on employment, earnings, and spending in the locality. With some industries, there is a possible health impact, too, as companies may change the environment positively or negatively.

Communities are major stakeholders in businesses because each party is mutually beneficial in different ways than, say, suppliers and your industry.

• Communities are the external stakeholders.
• Communities are the secondary stakeholders.
• Communities are the indirect stakeholders.

6. Governments:

We can also consider governments a major stakeholder in a business, as they collect corporate and income taxes from the company, as well as from all the people it employs and from another spending the company incurs. Governments benefit from the overall Gross Domestic Product that companies supply to.

Governments also regulate businesses through laws and regulations, ensuring they operate ethically and in compliance with labor and environmental standards. They may also provide incentives or subsidies to certain industries to promote economic growth and job creation. In times of crisis, governments may step in to provide financial assistance or bailouts to keep businesses afloat, ultimately aiming to maintain stability and growth in the economy.

Taxes:

• Company- corporate income taxes
• Employees – payroll taxes
• The company incurs – sales taxes

Other Stakeholders

Other important stakeholders are:

1. Owners as stakeholders:

Owner stakeholders are the proprietors of an organisation. They supply investment or capital to the business and have a say in how everything runs. There can be multiple owners in a business, and each owner would have an investment in the business.

Owner stakeholders typically have a vested interest in the success of the business as their financial well-being is directly tied to its performance. They may play a role in setting strategic goals, making key decisions, and monitoring the overall progress of the organisation.

In some cases, owners may also be involved in the day-to-day operations of the business to ensure that their investment is being managed effectively. In essence, owner stakeholders have a significant influence on the direction and outcomes of the business.

2. Creditors as stakeholders:

Creditors contribute money to businesses, and they could also have an assured interest in the company’s worth. Creditors get paid back from the trade of products or services at your business. In the event of business closure, they get paid before stockholders.

If a company cannot repay its debts, creditors may take legal action to claim assets or force the business into bankruptcy. It is important for businesses to maintain positive relationships with creditors by managing debt responsibly and making timely payments. By prioritizing creditor relationships, businesses can ensure access to vital funding and support for future growth and success.

3. Trade Union as stakeholders:

The trade union is an organisation of workers in a particular industry that stand to secure moral improvements in pay, benefits and safe working conditions or social and political position through collective negotiation.

Trade unions also play a significant role as stakeholders in the decision-making process of a company, representing the interests of the workers and ensuring that their voices are heard. They advocate for fair treatment of employees, job security, and opportunities for career advancement.

Additionally, trade unions often participate in discussions related to workplace policies, training programs, and organizational changes, ensuring that the employees’ perspectives are taken into consideration. Overall, trade unions serve as critical stakeholders in promoting a harmonious and productive work environment for all parties involved.

Why Stakeholders are Important?

Stakeholders are necessary for several reasons. For internal stakeholders, they are significant because the business’s activities rely on their ability to work together toward the business’s goals. External stakeholders can affect the business indirectly. For example, customers can change their buying habits, suppliers can change their manufacturing and trade practices, and governments can change laws and regulations. Ultimately, managing relationships with internal and external stakeholders is key to a business’s long-term prosperity.

Building strong relationships with stakeholders can lead to increased trust, collaboration, and support for the business. In times of crisis or change, having the trust and support of stakeholders can make a significant difference in how the business navigates challenges and opportunities. By understanding the needs and concerns of stakeholders, businesses can make more informed decisions that benefit not only the bottom line but also the broader community and environment. In essence, stakeholders are important because they hold the key to the success and sustainability of a business in the long run.

here are some key points;

• Getting stakeholders involved in the decision-making process empowers people.
•  Engaged stakeholders help inform decisions and give the support you need for long-term sustainability. 
• Stakeholders create mutually beneficial relationships.
• Engaging with stakeholders can bring significant issues to light and improve your organisation to develop joint social responsibility.
• Stakeholders are actually the influential groups, engaging them and turning them into advocate and supporters can boost your chance of success.
• Stakeholders can teach you something and also learn from you as well. Overall, they help an organisation educate. This collaboration fosters mutual growth and understanding, enabling the organisation to thrive in a dynamic environment. As stakeholders share their insights and knowledge, they contribute to the collective learning process, leading to innovation and progress.
• By recognizing the value that each stakeholder brings to the table, an organisation can harness diverse perspectives to shape its strategies and achieve its goals effectively.

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Common Stakeholders Problems and Solutions

1. stakeholders Resistance to Share Information

Sadly, a business may encounter a stakeholder/s who’s not coming forward to provide information. The stakeholder might visit your workshop, but it takes enormous effort to get any information from them or they won’t commit to meeting after several attempts, which causes problems.

There could be several reasons a stakeholder isn’t forthcoming with information:

• Resistance to change: they prefer the way they’re working and don’t see the benefit in changing.
• Issues in office politics the Business Analyst may be unaware of
• Experience of past projects failing to result in stakeholders not wishing to invest more effort in another project that may also fail.
• Fear of being replaced.

Solution

A business analyst needs to plan a workshop by undertaking a stakeholder analysis and communicating a simple plan for the workshop, outlining the purpose, desired results and the value behind what’s being done. An excellent technique to use for a workshop is the power of technique (Purpose, Outcomes, What’s in it for them, Engagement, Responsibilities). Think about changing your usual manner with difficult stakeholders. Gain their trust by pointing to something you have in common, showing the value of the project, or sharing success stories from previous projects.

 2: Stakeholders Have the Urge to Design the End System

If a stakeholder is very convenient to a process or how a system works, they have probably figured out the inefficiencies and created workarounds to the problem. When a Business Analyst tries to extract requirements from these stakeholders, these stakeholders will tell them about the solution (s) rather than actual needs. Sometimes, the solution they give is the perceived problem, but not the root cause of the problem. A Business Analyst has the authority to solve the right problem.

Solution

A Business Analyst wants to assure that the right problem is fixed and not the perceived problem. They can apply the ‘The 5 ‘W’s technique – Who, What, Where, When and Why’ to identify the root problem. Once the problem is spotted, create a problem report.

A good problem statement will:

• Recognise the problem, opportunity, or challenge.
• Identify who is affected by the difficulty and what the effects are.
• Define what a strong solution would be, do or allow.

3: Stakeholders Mis-Define Their Real Needs

Stakeholders mis-defining their actual needs is one of the major challenges a business faces. If the business manager cannot successfully spell out and specify the requirements on behalf of stakeholders, then any poorly mentioned requirements may lead to projects failing. Some points where stakeholders may mis-define their requirements are:

• Stakeholders run the project as an opportunity to determine their ‘wish list’. This may lead to requirements being misplaced or poorly prioritised.
• Stakeholders with a technical background define the requirements as a technical blueprint to deal with the problem.
• Stakeholders provide requirements on fields they are not professionals in.

Solution

Business Analysts have to evaluate seriously the requirements received from stakeholders and assure that quality requirements are documented and proper stakeholder inquiry has been done. Define the ‘as-is’ and the ‘to-be’ models to understand the elements to be delivered. A suitable method to evaluate the quality of a requirement is to use the acronym ‘SMART’ (Specific, Measurable, Achievable, Relevant, Time-boxed).

4: Accept or Ignore Requirements When Over One Stakeholder is Involved With Different Views

Another challenge encountered by any business is when conflicting requirements are received from different stakeholders. The challenge for the Business Analyst is to identify what requirements need to be accepted without building conflict between the stakeholders. A decision has to be reached where both parties admit to what needs to be delivered.

Solution

The Business Analyst can provide a face-to-face meeting with both stakeholders to understand the viewpoint underpinning each requirement. It’s useful to make the process as transparent as possible for clarity and also so that complex requirements can be understood easily. The best result will be mutual agreement on how to go forward on the differing requirements.

Conclusion

The concept of stakeholders paints a vivid picture – a complex web of individuals and groups whose interests are intricately intertwined with the organization’s fate. Recognizing and understanding these stakeholders is no longer a nicety, but a fundamental principle for sustainable success.

By engaging stakeholders effectively, organizations unlock a treasure trove of benefits. From valuable insights that inform strategic decision-making to fostering brand loyalty and navigating potential risks, a well-defined stakeholder management approach creates a win-win situation. However, navigating this intricate dance requires constant communication, transparency, and a genuine commitment to addressing stakeholder concerns.

The future belongs to organizations that can orchestrate this stakeholder symphony. By recognizing the legitimacy of diverse interests and fostering a collaborative environment, businesses can not only ensure their own longevity but also contribute to a more responsible and equitable ecosystem. Remember, successful stakeholder management isn’t a destination, it’s a continuous journey of dialogue, adaptation, and shared value creation.