A Simple Guide to Understanding the Stakeholders in Your Business
7 minute read
As a business owner, you might be wondering, who are your stakeholders or even, what is the definition of a stakeholder in your company? In this article, we will answer these burning questions, identify the role of stakeholders in your business, and the difference between stakeholders and shareholders.
For starters, stakeholders are those who have a vested interest in the success of a company or organization. In essence, stakeholders provide different perspectives in the decision-making process.
Read on as we give a stakeholder analysis and examine the different types of stakeholders you may encounter in your company.
Who are your stakeholders?
All individuals, as well as various groups or parties with a legitimate interest in an organization and the effects of its actions, are referred to as a stakeholder in the business.
Employees, customers, shareholders, suppliers, communities, and governments are all examples of stakeholders. Each stakeholder has different interests, and companies frequently have to make trade-offs in order to please everyone.
Internal stakeholders are crucial since the business’s operations rely on their capacity to collaborate and achieve the company’s objectives. External, on the other hand, can have an indirect impact on the company.
Customers, for example, can alter their purchasing habits, suppliers can change their manufacturing and distribution methods, and governments can change laws and regulations.
Business stakeholders can be categorized into the following three buckets:
- Internal and external
- Primary and secondary
- Direct and indirect
Internal and external stakeholders
Both internal and external stakeholders are very important for a company.
Internal stakeholders are directly affected by the related company and its performance. They are also known as investors.
If a venture capital firm invests $5 million in your tech startup in exchange for 10% ownership and high influence, the firm becomes an internal stakeholder of your company.
External stakeholders, on the other hand, don’t have a direct relationship with the company. An external stakeholder is typically a person or organization that is affected by business operations.
When corporation XYZ exceeds its carbon emission limit, the town where it is located is an external stakeholder because it is affected by the pollution.
Primary vs. secondary stakeholders
Primary stakeholders (key stakeholders) obtain the highest degree of interest in the project’s outcome since they are directly impacted by it. These individuals actively contribute to a company.
On the other hand, secondary stakeholders also help with a project.
However, they do so on a lower, more general level, helping with administrative processes.
Direct vs. indirect stakeholders
Direct stakeholders deal with daily project tasks. Workers, for instance, can be seen as direct stakeholders since their daily activities revolve around the organization’s projects.
On the other hand, indirect stakeholders focus on the successful project result instead of the process of finishing it. These include pricing, packaging, availability, and similar things. For example, a customer is an indirect stakeholder.
Now that you know the different categories of these stakeholders, let’s look at the types of stakeholders.
The 10 different types of stakeholders
Keep in mind that each of the following types belongs to the categories we have listed above. They include owners, investors, creditors, communities, employees, government agencies, customers, and more.
1. Suppliers (external, secondary, and indirect)
A supplier is an individual or organization involved in selling products to your company. They rely on you to generate revenue from those sales.
Suppliers are generally concerned with safety, in addition to looking out for their own revenue development, because their products can have a direct impact on your company’s operations.
2. Owners (internal stakeholders, primary, and direct)
The proprietors of a company are called owner stakeholders. They provide funds or equity to the company and have a say in how it operates. An organization can have numerous owners, and each owner will have stock in the company.
3. Investors (external, primary, and direct)
Owners and outside suppliers are both examples of investors who have a right to accurate and timely information, such as regular financial statements. Major choices such as mergers and acquisitions may also be approved or rejected by investors.
An investor does more than provide financing for projects that will help your company expand. For instance, investors can give you advice, present ideas, broaden your network, motivate you, and so on.
4. Creditors (external, secondary, and indirect)
Creditors lend money to businesses and may have a secured interest in the value of the company. They are reimbursed through the sale of goods or services at your company.
Creditors are compensated before investors in the event of a corporate failure. Banks and bondholders are examples of creditors.
5. Communities (external, secondary, and indirect)
Another stakeholder group to consider is the community in which a firm operates. A good business is regarded as a valuable asset in every society.
Because each partner (your business and the community) is mutually beneficial in different ways than, for example, a supplier and your firm, communities are key stakeholders involved in businesses.
The way a business impacts a local community is seen in new jobs, safety, economic development, and health.
6. Trade unions (external stakeholders, secondary, and indirect)
A trade union (also known as a labor union) is a group of workers in a particular industry that band together to bargain for better pay, benefits, safe working conditions, and social and political status.
In most cases, a company has a partnership with a trade union in order to protect the interests of other stakeholders such as employees.
7. Employees (internal stakeholders, primary, and direct)
Employees have a direct stake in the business. They contact clients directly, make money to sustain themselves, and assist with business operations.
Employees can take on management, supervisory, and other responsibilities. Benefits like rewards, professional advancement, and job satisfaction are their common expectations.
8. Government agencies (external stakeholders, secondary, and indirect)
A government agency might be considered a substantial stakeholder in a company. They collect taxes from the business, its employees, and any other expenditures the business makes.
9. Customers (external, primary, and direct)
Customers are those who purchase a company’s goods, so they’re key stakeholders. They expect the company to provide the highest quality products at a reasonable price.
Customers are the lifeblood of any company. They purchase goods from businesses, and as a result, they are interested in how the company operates. As a result, businesses must make a concerted effort to connect with customers and meet their needs.
10. Media (external, secondary, and indirect)
To get the word out about their brand, every company needs media publishing ties. Businesses frequently need to communicate with the press when making a major announcement or promoting a product.
Stakeholders vs. shareholders
Stakeholders are obligated to a firm because they have a vested interest in it, usually for the long term and for practical reasons.
Meanwhile, a shareholder has a financial stake in the company, but he or she can sell a stock and purchase another or keep the proceeds in cash. They have no long-term need for the company and can exit at any time.
If a company is having financial difficulties, for example, the vendors in its supply chain may suffer if the company reduces production and no longer employs its services. Shareholders of the corporation, on the other hand, can sell their stock to reduce their losses.
Prioritizing your stakeholders in managing your business
As a company owner or co-founder, it is sometimes a struggle to properly identify stakeholders and balance competing stakeholder interests. The procedure is simple when all parties are on the same page. However, they don’t always share the same leverage.
If your corporation is under pressure from shareholders to cut costs, for example, your might face the prospect of laying off employees or reducing compensation, which is a difficult tradeoff.
Moreover, keep in mind that customers and employees are likely to be the most important stakeholders of your startup or early-stage business.
Hopefully, this stakeholder analysis has taught you many things, including how they are different from shareholders and the role they play in your organization.
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If you need any help with managing stakeholders at your own company or another related issue, do not hesitate to contact Sleek. We have helped thousands of happy clients to register their companies, and manage your governance, accounting and tax compliance online.
We can help you prioritize and rank every significant party at your own company. Moreover, our experts can also help you start, run, and maintain everything related to your business.