Understanding the role and importance of stakeholders

Question 1

What are stakeholders?

Answer 1

Stakeholders are groups or individuals who have an interest in a business

Question 2

There are two types of stakeholders primary and secondary. Define them

Answer 2

Primary are affected by a particular business activity - increase production - employees
Secondary does not have a direct functional or financial relationship with the business but are affected and can influence its actions - local community

Question 3

Shareholder’s possible nature of stakeholder needs

Answer 3

Steady return on investment (dividends). Investment that does not lose value. Preferential treatment as customers- for example, lower prices.

Question 4

Employees’ possible nature of stakeholder needs

Answer 4

Steady and regular income. Safe working conditions. Job security

Question 5

Customer’s possible nature of stakeholder needs

Answer 5

Reliable supply of goods. Clear pricing policies. Safe products. After-sales service and technical support.

Question 6

Supplier’s possible nature of stakeholder needs

Answer 6

Frequent and regular orders. A sole-supplier agreement. Fair prices.

Question 7

Creditor’s possible nature of stakeholder needs

Answer 7

Repayment of money owed at an agreed date. Profitable returns on investments. Minimal risk of failure to repay money owed.

Question 8

Local community’s possible nature of stakeholder needs

Answer 8

Steady employment. Avoidance of pollution and noise. Provision of facilities for the local community.

Question 9

A business has a social responsibility what does this mean?

Answer 9

A term describing the duties a business has towards stakeholder groups such as employees, customers and the government.

Question 10

How should you treat stakeholders that have:

High stakeholder power, Low stakeholder interest.

Answer 10

Keep satisfied
Powerful groups who have little interest in the company’s activities. Eg. investors who want high financial returns.
Managers need to engage and consult with this group to increase their level of interest.

Question 11

How should you treat stakeholders that have:

Low stakeholder power, Low stakeholder interest.

Answer 11

Not a powerful group. Might supply small quantities of low-value materials or a customer that purchases small and declining amounts of the businesses products. Managers don’t worry too much about this group and minimal effort is required.

Question 12

How should you treat stakeholders that have:

Low stakeholder power, High stakeholder interest.

Answer 12

Keep informed
Do not have a lot of power but have a lot of interest. Could be a group of residents near the manufacturing business- concerned how production affects their lives. Manager can keep them informed on low-risk matters and careful management can enhance the company’s reputation.

Question 13

How should you treat stakeholders that have:

High stakeholder power, High stakeholder interest.

Answer 13

The most powerful and interested in business. Likely to have a major influence on management decisions. For example, could include a customer who wants to buy a lot of the businesses products. Managers need to keep this group happy by possibly involving them in decision making.

Question 14

Why would stakeholder mapping be important?

Answer 14

Analysing the position of stakeholders is important and mapping their power vs interest can help a business make decisions in relation to stakeholders needs and their ability to influence it.

Question 15

Influences on the relationships with stakeholders: External factors

Answer 15

Market conditions (level of sales, the strength of competitors)
The power of stakeholder groups
Government policies (laws and codes of conduct)

Question 16

Influences on the relationships with stakeholders: Market conditions

Answer 16

Refers to the number of features of a market, such as the level of sales, the rate at which they are changing and the number and strength of competitors

Question 17

Why might a business’s objective have the strongest influence on its relationship with the stakeholder?

Answer 17

The objective can be something like being ethical which obviously would have a high priority with meeting stakeholders needs

Question 18

Why might a business that is focussed on maximising profits or achieving rapid rates of growth have a very different relationship with its stakeholders?

Answer 18

Such businesses seek to minimise costs to make lots of profit which means that decisions don’t meet the needs and objectives of many stakeholders

Question 19

What is Stakeholder engagement

Answer 19

A process by which managers involve individuals and groups who may be affected by their decisions in those decisions