Module 1, Chapter 2 - The Wider Organisational Context Flashcards
Define ‘stakeholder’.
Stakeholders are individuals, groups or organisations that have an interest or ‘stake’ in a business. They are affected by the activities and policies of a business and, in turn, can influence decision making within the business.
Provide three examples of external stakeholders.
Customers, companies, suppliers, competitors and partners.
What are the differences between an external stakeholder vs an internal stakeholder?
The external environment concerns factors outside of the organisation that may affect the way it operates.
The internal environment concerns the factors inside the organisation (e.g. how it is structured and the resources it has available to carry out its activities).
Provide three examples of internal stakeholders.
Employees, workers, and shareholders.
Stakeholders can also be grouped according to their interest in the business and its success. Define a primary stakeholder - who are they?
Primary stakeholders can be defined as anyone who has a functional or financial interest in the business (e.g. customers, employees, shareholders and suppliers). The primary responsibility of the business is towards these stakeholders as its actions have a direct impact on them.
Define what is meant by an internal stakeholder.
Internal stakeholders are individuals or groups within a business (e.g. owners, employees and shareholders). They actively participate in the management of the business and are directly affected by its activities. For example:
- shareholders invest money in the business and are directly affected by how much profit it makes
- workers/employees invest their labour in the business and are impacted by decisions that affect their salaries and job security.
Define what is meant by an external stakeholder.
External stakeholders are individuals or groups outside of the business and even though they are not employed by the business, they are still affected by its activities. It is useful to note that while internal stakeholders are aware of and involved in internal matters of the business, external stakeholders will not be.
Customers are a type of external stakeholder. What is the primary concern of most customers, and how can businesses ensure customers are retained?
Whether it’s consumers buying products/services from the business or another business buying products/services for business use, the provision of quality products and services at reasonable prices is the primary concern of most customers. Effective management of customer expectations is crucial to the financial success of a business and careful thought should be made to the impact of business decisions on attracting and retaining customers.
Suppliers are an example of an external stakeholder. Why might a supplier be interested in the financial success of a business?
Suppliers have an interest in the financial success of a business as they expect to be paid what they are owed and want the business to keep buying their products or services.
Creditors are an example of an external stakeholder. They provide a source of finance for business ventures. This could involve banks or mortgage lenders providing capital for the business to buy a new factory, or a supplier providing products on account for the business to sell. Why might they have a financial interest in the performance of the business?
These stakeholders have a financial interest in the performance of the business as poor decision making or other activities (e.g. excessive borrowing) may result in the capital they have lent to the business not being paid back on schedule or in some circumstances, not at all.
Debtors are an example of an external stakeholder. What impact could they have on the financial success of a business?
Debtors are individuals or other businesses who owe money to the business (e.g. if they have bought products on account from the business). Ineffective management of collection of monies owed by debtors on schedule could have a serious impact on the financial success of the business.
The Government is an external stakeholder for companies. How do they affect businesses?
Businesses must comply with government rules and regulations, such as paying taxes or applying for permits which will have cost implications for the business. Changes in government and government policy (e.g. increasing taxes) directly affect businesses by increasing costs and limiting investment opportunities.
Local and national communities are external stakeholders. What interest do communities have on local companies? How might communities be affected by a local business?
Communities often rely on the goods and services provided by large businesses and can be affected by decisions the business makes (e.g. utility companies providing a constant supply of gas, electricity or water or a rail organisation providing transport for commuters). Local communities also rely on businesses to provide jobs for members of their community
Trade unions are external stakeholders. What interests do they hold within businesses?
Employees of a business may be members of a trade union. Trade unions will often attempt to develop working relationships with businesses to help protect (e.g. through representing members during a disciplinary action) and advance the interests (e.g. through negotiating higher salaries) of its members in the workplace.
Pressure groups are external stakeholders. What interests do they hold within businesses?
Pressure groups seek to secure the interests of their members and supporters in businesses by attempting to influence government policy through activities such as protests and demonstrations. Examples of pressure groups affecting businesses are trade unions, consumer rights groups and animal welfare groups.
