Chapter 5 Stakeholders Flashcards
Explain what is meant by the term stakeholder
-A stakeholders is a person or party with an interest in the success of a business, they want to see a business succeed as they will benefit from this success.
-They can be classified as internal or external
Identify the internal and external stakeholders of a business
- internal stakeholders are found within the business such as…
1. Owners
2. Employees
3. Managers - external stakeholders are found outside of the business such as…
1. Customers
2. Suppliers
3. Local community
Analyse the objectives of each stakeholder of a business owners
All stakeholders will benefit from a businesses success but in reality they don’t. Even if they do they may not equally.
Owners
- no matter if its a single owner, or several or thousands they will still want the best possible return on the money they’ve invested in the business
- they are likely to want to see the businesss grow so that these returns increase
- a high rate of return is likely to be a long run objective in the short run the business may pursue the objective of growth via low prices
- hopefully meaning it will capture more of the market and customers will stay loyal in the long run if the business increases prices
Analyse the objectives of each stakeholder of a business customers
Customers
- they want the best quality products at the lowest price
- they also want product innovation (this year product better than the last)
- they want good customer service and well trained customer representatives
- may want credit facilities if product is too expensive
- they are increasingly aware of ethical issues
- if their fundamentally dissatisfied they will stop buying, if sufficient numbers of people are doing this it can have a significant effect
- they may form pressure groups that try influence the business by generating bad publicity
Analyse the objectives of each stakeholder of a business employees
Employees
- as their livelihood depends on the business its not surprising they want the highest wage they can get, bonus if possible and job security
- want the business to offer more than a legal entitlement for holidays, sick pay
- most employees would like managers to organize their work so its interesting, challenging and provides job satisfaction
- many want to attend training courses to improve skills and therefore there pay and promotion will prospect
Analyse the objectives of each stakeholder of a business suppliers
Suppliers
- if a business cease training they lose an income
- suppliers like to see the customers prosper so it has regular profits
- they hope customers grow larger so in return it increases sales for them
- they want to be paid as promptly as possible
Analyse the objectives of each stakeholder of a business lenders
Lenders
- bank wants the agreed amount owed to it to be paid at the agreed time , they don’t want to receive less
Analyse the objectives of each stakeholder of a business local community
Community
- the community is affected by business activity
- businesses bring jobs and greater spending power
- may cause proper prices to rise but crime levels to fall
- businesses are actively involved in community projects e,g. As more businesses move in the area the local authority may improve the roads making it easier for residents to drive around
- business activities creates external costs which aren’t paid by the business itself they are paid by society
- social benefits- private benefits + external benefits
- social costs- private costs + external costs
- private costs- costs business pays
- social costs- overall or true costs of a business’s activities
Analyse the objectives of each stakeholder of a business government
Government
-if more people are employed as a result of a businesses activities the government will pay out less social security benefits and receive increased tax revenue
- as a business grows larger it may start to export improving the uk trading position with other countries
Explain the reasons for conflicts between different stakeholders groups
- Differing objectives and priorities
- Globalization and external factors
- Market competition
- Short term vs long term goals
- Power inbalance
- Resource allocation
Explain why a business needs to manage the conflicting objectives of its stakeholders
1.balancing competing interests
2. Managing risk
3.creating shared value
4. Achieving long term profitability
5.sustaining business reputation
6. Maintaining positive relationships
Evaluate the impact on a business of different stakeholders having conflicting objectives
- Shareholders vs employees
Shareholders typically focus on maximizing profits on the other hand, employees seek fair wages, job security, and good working conditions, which may not always align with shareholders’ profit-maximization goals.
Negative Impact: If the company prioritizes shareholder interests and reduces wages or cuts jobs to increase short-term profits, it may lead to low employee morale, increased turnover, and a reduction in productivity. This can result in higher recruitment and training costs and a loss of talent. Additionally, employees who feel undervalued may become less motivated, impacting the overall performance of the business.
Positive Impact: On the other hand, if a balance can be struck where both shareholders and employees’ interests are addressed, it may lead to a motivated workforce, enhanced productivity, and long-term business success.
- Customers vs shareholders
Customers often demand high-quality products at competitive prices, while shareholders may prioritize cost-cutting and short-term profits, which could lead to reduced investment in product quality or price increases.
Negative Impact: If a business focuses on maximizing shareholder returns at the expense of customer satisfaction — for example, by cutting product quality or increasing prices — it may face customer dissatisfaction and loss of brand loyalty. In the long term, this can lead to decreased sales, negative publicity, and a tarnished reputation, which could harm profitability and market share.
Positive Impact: However, if a business manages to balance shareholder demands for profitability with high-quality products and competitive prices for customers, it may foster customer loyalty, brand strength, and long-term sales growth. Satisfied customers are more likely to become repeat buyers and recommend the product to others, which ultimately benefits the business and shareholders alike.
- Local communities vs business
Local communities often want businesses to contribute to the local economy, provide jobs, and minimize environmental damage. At the same time, businesses might prioritize cost-efficiency, often at the expense of environmental concerns or social responsibility.
Negative Impact: If a business neglects the interests of local communities it may face public backlash, boycotts, and protests. This can damage the business’s public image, harm employee morale, and even result in government action
Positive Impact: By managing conflicts with local communities through community engagement, environmental sustainability programs, or local hiring initiatives, a business can build goodwill and avoid potential conflicts. A positive relationship with local communities can enhance the business’s reputation
4.employees vs customers
Employees may seek better wages, benefits, and working conditions, which could increase the company’s costs. Customers, on the other hand, may demand low prices for goods and services.
Negative Impact: If the business cannot balance these demands, it might have to choose between cost-cutting and higher prices for customers, which could reduce sales volume. Poor employee satisfaction might also lead to a lack of motivation, impacting customer service and the quality of the product.
Positive Impact: By recognizing the value of investing in employees a business can ensure that employees are motivated, engaged, and provide excellent service to customers. Satisfied employees lead to improved customer service, which can drive customer satisfaction and long-term sales growth.
Recommend and justify how a business should deal with the conflicting objectives of stakeholders
Focus on flexibility and adaptability
Recommendation- Stay flexible and be willing to adapt business strategies based on the changing needs of different stakeholder groups.
Justification: The interests of stakeholders may evolve over time due to market conditions, social expectations, or economic factors. A business that is adaptable can respond to these changes in a way that addresses conflicting interests. For example, if customers demand higher quality, the business can improve its product line, even if it means higher production costs. Similarly, if employees seek more benefits, the business can consider offering non-monetary incentives, such as flexible working hours or professional development opportunities. A flexible approach ensures that the business can continuously align with the changing demands of its stakeholders while maintaining operational efficiency.
Involve stakeholders in decision making
Recommendation: Involve stakeholders in key decision-making processes, especially when major changes are being planned
Justification: Involving key stakeholders in the decision-making process can help manage and even preempt conflicts. For instance, before implementing major changes like reducing costs, businesses can consult with employees to explain the rationale and involve them in brainstorming cost-saving initiatives.
Engage in stakeholder communication
Recommendation: Establish open and transparent communication channels with stakeholders to understand their concerns, needs, and priorities.
Justification: Communication is key to managing conflicting objectives. By regularly engaging with stakeholders through meetings, surveys, and feedback mechanisms, businesses can gain a better understanding of the specific concerns of each group. This can help in finding common ground and developing solutions that address the needs of multiple stakeholders. For instance, businesses can hold meetings with employees to discuss concerns about working conditions while explaining the need for cost-efficiency in the face of shareholder demands. Additionally, engaging with customers about product pricing and quality can help businesses understand expectations and build customer loyalty.
Evaluate the influence of different stakeholders have on a business including its aims and objectives, decision making, behavior and performance
Local community
Influence on Aims and Objectives
• Businesses often have objectives that include community engagement, local job creation, and environmental sustainability
Influence on Decision-Making
• Companies may decide to support local causes, provide jobs to local residents, or donate to charities to gain community support.
Influence on Behavior
• A business will often change its behavior to align with local community expectations. This might involve investing in local infrastructure, supporting community initiatives, or adopting sustainable practices to reduce environmental harm.
Influence on Performance
• A good relationship with the local community can lead to brand loyalty, positive publicity, and local support for the business. Conversely, ignoring community concerns can lead to protests, boycotts, and damage to the business’s reputation, all of which can harm performance.
Government
Influence on Aims and Objectives
• Government regulations and policies, such as taxation, labor laws, environmental standards, and trade regulations, often shape business objectives related to compliance, corporate social responsibility (CSR), and environmental sustainability.
Influence on Decision-Making
• Government regulations force businesses to make decisions around tax strategies, employee benefits, or environmental practices. A business may have to decide whether to adopt new technologies to meet environmental regulations or invest in training programs to comply with labor laws.
Influence on Behavior
• Compliance with government regulations forces businesses to behave in ways that are legally and ethically responsible. This includes meeting health and safety standards, paying taxes, and upholding fair labor practices.
Influence on Performance
• Government policies can either enhance or hinder business performance. For example, subsidies or grants can boost business performance by providing financial support, while strict regulations or high taxes. can increase operational costs and reduce profitability.
Customers
Influence on Aims and Objectives
• Customers drive a business’s marketing and product development objectives. A business must adapt its objectives to meet customer demands for quality, price, and innovation. • For example, a company might set objectives focused on customer satisfaction, loyalty, or brand development to ensure continued demand for its products or services.
Influence on Decision-Making
• Customer feedback and preferences directly influence product development, pricing strategies, and even marketing campaigns. Businesses may use market research and customer surveys to guide decisions about what products to offer, where to market them, and at what price.
Influence on Behavior
• Businesses will often adjust their behavior to respond to customer needs.
Influence on Performance
• Customer satisfaction is a key determinant of business performance. High customer loyalty and positive word-of-mouth lead to increased sales, brand loyalty, and market growth. • Poor customer service, product quality, or pricing can lead to customer churn, negative reviews, and lost revenue, which negatively impacts business performance.
Shareholders
Influence on Aims and Objectives
• Shareholders are often the primary stakeholders and have a direct influence on the business’s financial goals and profitability objectives. They typically want to see a high return on investment (ROI) through increasing profits, rising share prices, and dividends. • Therefore, businesses often set objectives focused on maximizing profits, expanding market share, or increasing the business’s capital value to satisfy shareholder expectations.
Influence on Decision-Making
• Shareholders, particularly major investors or those with significant voting power, influence major business decisions, such as mergers and acquisitions, capital investment, or changes in corporate governance.
Influence on Behavior
• The focus on short-term financial returns may encourage behaviors such as cost-cutting, focusing on immediate profits rather than long-term sustainability, or a shift in the business’s strategic priorities to meet quarterly performance targets.
Influence on Performance
• The business’s performance is often directly linked to shareholder expectations. If shareholders are satisfied with the performance (e.g., profit growth or share price increase), it can lead to greater investor confidence, resulting in easier access to capital and potentially higher stock prices. • Conversely, if shareholder expectations are not met, it can lead to unrest, reduced stock value, or even a hostile takeover attempt.
Employees
Influence on Aims and Objectives
• Employees have a critical influence on the business’s operational objectives. They contribute to productivity, innovation, and customer satisfaction, which are key components of a company’s success.
Influence on Decision-Making
• Employee input can impact decision-making, particularly in relation to working conditions, wages, or changes in business processes. Many companies consult with employees or trade unions on major operational decisions, especially in areas affecting labor relations or health and safety.
Influence on Behavior
• Employee behavior is shaped by business policies and management practices. If employees are satisfied and motivated, they will demonstrate higher productivity, commitment, and loyalty. • Poor working conditions, inadequate compensation, or lack of job security can lead to negative behaviors, such as disengagement, high turnover, and low morale.
Influence on Performance
• Employee performance has a direct impact on the overall performance of the business. A motivated workforce tends to be more productive, which leads to higher-quality products, better customer service, and improved profitability. • Poor employee performance or high turnover can result in increased costs (recruitment, training, etc.), lower productivity, and ultimately lower performance.
