IB Business Management

By the end of this chapter, you should be able to:

 Outline the interests of internal stakeholders.

 Outline the interests of external stakeholders.

 Discuss possible areas of mutual benefit and conflict

between stakeholders’ interests.
 A party that has an interest or concern (a stake) in
a company’s performance.
 People, groups of people, and organizations who
affect or can be affected, directly or indirectly, by
an organization’s actions.
 The stake can be financial (profit) or non-financial
(safety).
 Do not confuse the terms ‘stakeholder’ and
‘shareholder’.
 Stakeholder is a much broader term that covers many
groups, including shareholders.
Individuals or groups that work within the
business
 Shareholders
 Employees
 Unions
Individuals, groups, and organizations that
are outside the business.
 Government
 Financiers
 Suppliers
 Customers
 Community
 Pressure groups
 The media
 Shareholders: focus on returns on their investments.
 CEO: focuses on coordinating the business strategy and
delivering profits and returns that satisfy the
shareholders.
 Senior managers: focus on the strategic objectives for
their functional areas.
 Middle managers: focus on the tactical objectives for
their functional areas.
 Supervisors: focus on organizing tactical objectives and
formulating operational objectives.
 Employees and unions: focus on protecting their rights
and working conditions.
 Government: focuses on how the business operates in
the business environment.
 Suppliers: focus on maintaining a stable relationship.
 Customers and consumers: focus on the best product
that meets their needs.
 Community: focuses on the impact of the business in
the local area.
 Financiers: focus on returns on their investments.
 Pressure groups: focus on how the business impacts on
their area of concern.
 The media: focuses on the impact of the business in
terms of news stories.
 In practice, grey areas exist between internal and external
stakeholders.
 Employees of a business live in the community where the
business is located. As employees, they are internal
stakeholders; as residents of the community, they are
external stakeholders.
 Small shareholders in large publicly traded companies, like all
shareholders, are considered internal stakeholders. However,
usually is considered external to the business as it has
virtually no ability to influence on the organization.
 Therefore, individuals might have multiple stakeholder
interests.
 Groups of people with a common interest, such as a business,
may also have differences of opinion.
 Although all stakeholders have a ‘stake’ in the business, their
focuses are different.
 Consider the example of a pay rise for employees.
Shareholders may object to the idea, as it could decrease
profits and, therefore, their return on investment. At the
other end of the spectrum, employees would favour pay rises,
which would give them a higher standard of living.
 Thus, any decision of importance will elicit different reactions
from different stakeholders.
 In successful businesses, the interests of stakeholders are
sufficiently satisfied most the time.
 Stake & Chips

The day of the relocation was hectic. Staff were carrying boxes to the various vans
hired to move the company to its new offices 50 miles away.
The move had been agreed six months ago. Paragon plc, a pottery manufacturer,
under pressure from shareholders to cut costs and improve profit margins, had
been faced with some tough decisions. Competition in the market was fierce; most
businesses in the industry had already moved production facilities to South East
Asia and now had significant cost advantages over Paragon. Paragon’s Managing
Director had avoided the inevitable for as long as possible, ‘we have a duty to our
staff, the local community and to the UK to remain here’, she argued 12 months
ago. But, under increasing pressure from shareholders the company moved
production to Vietnam and the factory and offices were sold to a housing
developer.
The majority of staff were made redundant; a small number would manage the
company from offices 50 miles from the original factory. The local newsagent and
shop owner, who had supplied the staff with refreshments for over 20 years,
although obviously upset by the move came out to wish everybody well.

 Identify as many external stakeholders from this case study as possible.

 Identify two internal stakeholders.
 Using the information in this case study, highlight why
managers’ responsibilities to different stakeholders are
often in conflict.
 Many examination questions involve the conflict of
stakeholders’ objectives.
 Remember that it is difficult for a business to meet all
its responsibilities to all stakeholders at any one time.
 Compromise might be necessary – meeting as many
stakeholders’ objectives as possible or meeting the
needs of the most important group in each situation.
 Large businesses with complicated stakeholder interests
often perform a stakeholder analysis.
 The first step is to prioritize or rank the interests of various
stakeholders.
 One conceptual approach to this step is to determine how
“close” each stakeholder is to decision making in the
business.
 Under this approach, owners and managers are central to
decision making, while suppliers, employees, financiers, and
consumers are further removed.
 Most distant are government, pressure groups, the media and
the local community.
 Decision makers try to satisfy those stakeholders closest to
the centre.
 government

employees

suppliers owners

pressure media
groups
managers
financiers

consumers

local community
 Another conceptual approach for mapping stakeholders.
 Stakeholders are placed in groups in a matrix based on the level
of interest and the degree of power towards the organization.
 Based on this matrix, the company can decide on likely strategies
to manage potential conflicts.
 Group A: Stakeholders with minimal interest in the business and
have limited power over it. They are rarely a problem for the
business. Owners and managers fairly ignore them, or at least
devote limited energy and attention to satisfy their interests.
(Minimal effort)
 Group B: Stakeholders with a high interest in the business and a
low degree of power over it. For owners and managers, making
this group feel included is important. Newsletters, events, and
other ways of conveying a sense of belonging are important.
(Keep informed)
 Group C: Stakeholders with low interest in the business and a
high degree of power over it. They have the power to
influence other groups. The business must find ways to
flatter the self-esteem of members of this group to make
them feel important. (Keep satisfied)
 Group D: Stakeholders with a high interest in the business
and high degree of power over it. This group is the most
important. The business must not merely communicate with
them but also consult with them before any major decisions
are made. The business should focus on their needs in
preference to the others. Failure to involve and satisfy these
stakeholders can have very negative consequences for the
business. (Key players)
 Level of interest

Low High

Low Group A: minimal effort Group B: keep informed

Degree of
power

High Group C: keep satisfied Group D: key players

Be a thinker
 State four internal and four external stakeholders for
your school and identify two areas of mutual benefit
and two areas of mutual conflict.
 Carry out a stakeholder analysis to determine the
importance of these stakeholders.
 Use the power-interest model to place these
stakeholders.
 Innovations such as ‘the world’s cheapest car’ can have
multiple impacts on stakeholder groups. Not all
innovative products are commercially successful and the
strategy of introducing the Tata Nano to the Indian
market as a very cheap car seems to have failed.
 Some organizations apply unethical strategies towards
their suppliers or employees to satisfy the needs of
their key stakeholders.
 Stimpson, P., Smith, A. (2015) Business Management for
the IB Diploma. Cambridge
 Lominé, L., Muchena, M., and Pierce, R. (2014) Business
Management. Oxford
 Clark, P. and Golden, P. (2009) Business and
management Course Companion
 Gutteridge, L. (2009) Business and management for the
IB Diploma
 Thompson, R. and Machin, D. (2003) AS Business
Studies