IB Business Management

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

 Define the term stakeholders and identify internal and
external stakeholders for a given organization.
 Outline the main interests of internal and external
stakeholders.
 Explain possible areas of benefit and conflict between
stakeholders.
 Apply the power-interest model for stakeholder
analysis.
 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).
Individuals or groups that work within the business
 Shareholders

 Employees

 Unions
 Do not confuse the terms ‘stakeholder’ and
‘shareholder’.
 Stakeholder is a much broader term that covers many
groups, including shareholders.
Individuals, groups, and organizations that are
outside the business.
 Government

 Financiers

 Suppliers

 Customers

 Community

 Pressure groups

 The media
 Shareholders: focus on returns over 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 over 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 might 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 internal stakeholders. However, they are
usually considered external to the business as they have
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 different opinions.
 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, 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 the same time.
 Compromise might be necessary – meeting as many
stakeholders’ objectives as possible or meeting the
needs of the most important groups in each situation.
 Large businesses with many stakeholder interests often
perform a stakeholder analysis.
 The purpose is to prioritize or rank the interests of the
various stakeholders.
 One simple approach 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
 Identify four internal and four external stakeholders for
your school and outline two possible areas of mutual
benefit and two possible areas of mutual conflict.
 Applying the power-interest model, carry out a
stakeholder analysis to determine the importance of
these stakeholders.
 A positive culture in business today is unfortunately the
exception rather than the norm, but a strong organizational
culture can clearly differentiate a business from its
competitors in the mind of its stakeholders.
 Business ethics are the guidelines a company uses when
interacting with entities inside and outside the company. It is
a conscious effort to treat people and companies with respect
and establish a positive working environment.
 The effects of ethical practices in business can benefit a
company financially and they can also help a company gain
the elements it needs to grow.
 However, some organizations apply unethical practices
towards their suppliers or employees to satisfy the needs of
their key stakeholders.
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University Press
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Press
 Clark, P. and Golden, P. (2009). Business and management
Course Companion. Oxford, United Kingdom: Oxford
University Press
 Gutteridge, L. (2009). Business and Management for the IB
Diploma. Oxford, United Kingdom: Oxford University Press
 Thompson, R. and Machin, D. (2003). AS Business Studies.
London, United Kingdom: Harper Collins Publishers