1 4 Stakeholders Stakeholders are individuals groups or

1. 4 Stakeholders • Stakeholders are individuals, groups or organizations that are directly interested in the performance or can be affected by a firm’s activities. • Stakeholders can be divided into two groups • Internal stakeholders • External stakeholders

Internal stakeholders and their interest • Shareholders: higher profits, dividend payments, share price increase, . . • Senior managers: profits, higher salaries, career development, strategic objectives, . . • Middle managers: …… tactical objectives, . . • Employees: job security, pay rise, career opportunities, . .

External stakeholders and their interest Creditors: liquidity (ability to pay) Customers: low price, quality products, constant supply of goods Pressure groups: protecting the environment Suppliers: high prices, assured demand Competitors: new products, prices Government: tax revenue, how businesses complies with Law Public: job creation, environment protection, …

Shareholder concept Traditionally, business organisations have been run to further the interests of shareholders. This involves maximising shareholder value by raising profits and share price. This is known as the Shareholder or stockholder concept. Stakeholder concept In recent years, some businesses have realized the benefits from meeting the needs of a wider range of stakeholders. This is known as the stakeholder concept.

Benefits of Stakeholder approach/concept If the needs of employees are taken into account, they may be better motivated, more productive, more loyal and less likely to leave. If a firm has a higher regard for the local community, it might win their support for new projects, new products and it is also likely to improve the image of the company. Looking for the needs of suppliers (e. g. pay them more promptly) can make them become more flexible (e. g. give More credit facilities). Caring for customers can lead to more customer loyalty, less complaints, more customers, etc.

Stakeholders’ conflict • Since different stakeholders have different interest or views on the same issue in an organization, conflict is likely to arise. • Conflict arises because the organization cannot meet the needs of all stakeholders simultaneously

Areas of conflict ? : Examples Shareholders want higher profits, employees want higher salaries. Customers want 24/7 service, employees want 9 -5 daily and 5 days a week job. Suppliers want prompt payment from the firm, managers want more credit facilities from the suppliers. Customers want lower prices, shareholders want more Profits.

How to deal with stakeholders’ conflict? • It is argued that all stakeholders are not equal. Some have more importance or influence over others. • One way to deal with stakeholders’ conflicts is to prioritize the importance of different stakeholders and to deal with them accordingly, i. e, give priority to those who have higher level of importance.

How to identify stakeholders’ importance/influence The process involves making decisions on 2 issues: To what extent the stakeholder has power to impose its wants? Power is the ability to influence objectives (how much they can). How likely the stakeholder is to show his interest in the Company. Interest is the willingness to influence (how much they care) Influence = power x interest

How much influence? The Mendelow framework (stakeholder mapping/analusis) is often used to deal with stakeholders’conflicting demands. It identifies the influence each stakeholder has over a firm’s objectives and activities and helps in establishing priorities. low Power high Interest high Minimal effort Keep informed Keep satisfied Key players allowed participation

Where should the following be mapped on the Mendelow matrix? 1. Nurses in a hospital 2. An airline’s check-in-staff in an airline company 3. Small value customersin a business 4. Pilots in airline company

Low Power High Interest High Small value customers Minimum effort Airline checkin staff Keep them informed Nurses Satisfy them Pilots Allow participation in decision making

Nurses have a lot of power. If they stop working, the hospital can collapse. However, because of their ethical standards, they rarely go on strike. Airline check-in staff, have in the past very willing to strike but they have not been very successful in the past. The action of small customers have little effect on any business. Pilots have lots of power and are very interested in the policies of airlines

M 11 H 1 Q 1 a • Identify two external stakeholders of Reach Out. [2 marks] • (ii) Outline a possible interest of one of Reach Out’s external stakeholders identified in part (i).

M 10 S 2 Q 3 d • Discuss two possible areas of conflict between stakeholders in the Alumbre Project. [7 marks]

M 11 H 2 Q 6 • Evaluate solutions to two possible stakeholder conflicts present at Enigma. [9 marks]