2.3 Understanding the role and importance of stakeholders.

Question 1

What is a stakeholder?

Answer 1

Any individual or group who has an interest in the activities and performance of a business!

Question 2

What are the two types of stakeholders?

Answer 2

• Primary stakeholders
• Secondary stakeholders

Question 3

What are primary stakeholders?

What stakeholder categories do these include?

Answer 3

Primary stakeholders

• They are individuals/ groups that are affected by a particular business activity- such as a decision to increase production.
• Include customers, employees, creditors or anyone else with a functional or financial interest in the business.

Question 4

What are secondary stakeholders?

Give examples of some of the stakeholder categories.

Answer 4

• Stakeholders who do not have a direct functional or financial relationship with the business but are affected by and can influence its actions, e.g. the local community.
• General public, local communities, activist groups and the media.

Question 5

Give examples of some stakeholder groups.

Answer 5

• Employees
• Government
• Local Community
• Customers
• Suppliers
• Shareholders
• Creditors

Question 6

What are employees interested in ?

Answer 6

• Job security
• Safe working conditions
• Steady and regular income
• Job satisfaction and motivation

Question 7

What are customers interested in?

Answer 7

• Reliable supply of goods
• Clear pricing policies
• Safe products
• Good customer service
• Good value for money
• After sales service and technical support

Question 8

What are shareholders interested in?

Answer 8

• Share price growth
• Steady return on investment that does not lose value.
• Preferential treatment as customers- e.g. lower prices.
• Investment that doesn’t lose value.

Question 9

What are suppliers interested in?

Answer 9

• Frequent and regular orders.
• Prompt payment- on time payment.
• Fair prices.
• A sole-supplier agreement.
• Long term contracts.

Question 10

What are the local community interested in?

Answer 10

• Steady employment- local jobs and local impact!
• Avoidance of pollution/ noise and congestion
• Provision of facilities for the local community, (e.g. parks or art centres.)

Question 11

What are the government interested in?

Answer 11

Employment

Payment of taxes

Question 12

What are internal stakeholders & what are some examples?

Answer 12

Those that are considered to be a part of the organisation such as employees, shareholders and managers.

Question 13

What are external stakeholders & what are some examples?

Answer 13

Stakeholders which exist outside the business.

Examples are governments and suppliers.

Question 14

What is social responsibilty?

Answer 14

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

Question 15

What are creditors interested in?

Answer 15

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

Question 16

What is social responsibility?

Answer 16

Its a businesses philosophy proposing that firms should behave as good citizens.

Question 17

What should socially responsible businesses do?

Why do they act in this way?

Answer 17

• Operate within the law.
• Avoid pollution.
• Avoid the reckless use of limited resources or the mistreatment of employees or consumers.

Their managers want them to do so and they want to avoid a negative public image.

Question 18

What does the diagram of stakeholder mapping look like and what is in each section?

Answer 18

Vertical line, left - POWER

Top= HIGH, Bottom= LOW

Horizontal line- top= LEVEL OF INTEREST

Left=LOW, Right= HIGH

Top left box- Keep Satisifed

Top right box- Key players

Bottom left box- Minimal Effort

Bottom Right box- Keep informed.

Question 19

Stakeholder mapping

Minimal Effort?

Answer 19

A= MINIMAL EFFORT

• Not a powerful group of shareholders.
• They could be businesses that supply small quantities of low-value materials or a customer group that purchase small and declining amounts of the business’s products.
• Managers- don’t need to worry too much about this group & may only update them using general communications such as newsletters and the business’s website.
• Minimal effort is required.

Question 20

Stakeholder mapping

Keep informed?

Answer 20

Quadrant B= Keep informed

• Stakeholders- don’t have a huge amount of power but are interested in the businesses activities.
• Could be a group of residents close to a manufacturing business, who are concerned about the impact of the business’s operations on their lives.
• Managers- should keep this group informed on its interest area and may choose to consult on specific low-risk matters with the group.
• Careful management- enhance the business’s reputation and generate goodwill.

Question 21

Stakeholder mapping

Keep satisfied?

Answer 21

• Powerful groups who do not have a great interest in the company’s activities.
• Could include investors who are only interested in high financial returns.
• Important for managers to engage and consult with this group and possibly aim to increase their level of interest.
• Benefit from different perspectives and expertise as well as receiving favourable publicity for encouraging their involvement.

Question 22

Stakeholder mapping- Quadrant D

Manage closely?

Answer 22

• The most powerful and interested stakeholder groups and are likely to have a major influence on management decisions.
• It could be a customer who purchases a high proportion of the business’s products and only wants to deal with reliable and ethical suppliers.
• Managers need to keep this group happy, possibly involving them in the decision- making process.

Question 23

Stakeholder mapping

What is the level of interest & power for Quadrant C (keep satisfied) ?

Answer 23

• High power
• Low level of interest

Question 24

Stakeholder mapping

What is the level of interest & power for Quadrant D (key players) ?

Answer 24

Level of interest = high

Power = high

Question 25

Stakeholder mapping

What is the level of interest & power for (Minimal Effort) ?

Answer 25

Power = low

Level of interest = low

Question 26

Stakeholder mapping

What is the level of interest & power for Quadrant B (keep informed) ?

Answer 26

Power = low

Level of interest = high

Question 27

As stakeholders have different objectives, what may this cause?

Can you give an example of a possible conflict between customers and shareholders?

Answer 27

• It may cause conflict at times! This is due to decisions being in favour for certain stakeholder groups and creating disadvantages for other groups.
• A decision to raise prices would not be beneficial to the customer however it could offer shareholders the very appealing possibility of profits, dividends and share prices.

Question 28

Expanding production.

What would be the possible benefits for:

• Employees
• Customers
• Shareholders
• Suppliers
• Creditors

Answer 28

Employees: More jobs available, possibility of higher promotion and higher pay.

Customers: New products available, increased production may reduce prices.

Shareholders: Share price and long-term profits could increase.

Suppliers: Possibility of larger and more regular orders.

Creditors: Increased profitability.

Question 29

Expanding production

What would be the disadvantages for shareholders, suppliers and creditors?

Answer 29

Shareholders: Investment needed may cut short term profits.

Suppliers: Expectation of reduced prices.

Creditors: Borrowing increases, making repayment more difficult.

Question 30

What are the advantages of cutting costs for employees, customers, shareholders and creditors?

Answer 30

Employees: More jobs may result if successful.

Customers: Lower prices possible.

Shareholders: May increase profits, dividends and share price.

Creditors: Need to borrow short term to finance cost-cutting programme.

Question 31

What are the disadvantages of cutting costs to employees, customers, shareholders, suppliers and creditors?

Answer 31

• Employees: Pressure to reduce wages. Longer working hours and less favourable conditions. Jobs may become less secure.
• Customers: Quality of goods or services may be reduced.
• Shareholders: Customers may dislike job losses and reduced quality, reducing sales, revenue and profits.
• Suppliers: Expectation of reduced prices. May seek alternative low cost supplier.
• Creditors: Reduced need for borrowing from creditors.

Question 32

What are the advantages of raising prices for employees, shareholders, suppliers and creditors?

Answer 32

Employees: Possibility of increased wages or improved working conditions.

Shareholders: Profits, dividends and share prices may increase.

Suppliers: Possibility of receiving higher prices.

Creditors: Increased profits may support prompt repayment of debt.

Question 33

What are the disadvantages of raising prices for employees, customers, shareholders, suppliers and creditors?

Answer 33

Employees: Sales decline- resulting in job losses.

Customers: Less value received. Products no longer affordable. Competitors raise prices too.

Shareholders: Sales may decline. Adverse publicity if this is an essential product, reducing share price.

Suppliers: Orders may fall if price rises reduce demand significantly.

Creditors: Falling sales may threaten repayments.

Question 34

What are the advantages of launching new products for employees, customers, shareholders, suppliers and creditors?

Answer 34

Employees: More jobs may result. Higher pay and better working conditions, if launch successful.

Customers: Greater choice of products. Improved products bringing greater benefits.

Shareholders: Increased sales, prices and profits could boost medium-term profits and dividends.

Suppliers: Increased orders if product successful.

Creditors: Increased need to borrow funds to finance launch. Rising long-term profits enhances ability to repay loans. May lead to further product launches, creating further need for borrowing.

Question 35

What are the disadvantages of launching new products for customers, shareholders and suppliers?

Answer 35

Customers: Prices may increase to cover the development costs.

Shareholders: Initial costs of launch may reduce profits. Risk of unsuccessful product may damage profits and share price.

Suppliers: New product may require different supplies resulting in loss of contract.

Question 36

What are the advantages of using more technology in production for employees, customers, shareholders, suppliers and creditors?

Answer 36

Employees: New higher-paid jobs created to manage technology.

Customers: Lower prices as technology more efficient. Services available for longer hours.

Shareholders: May lead to higher long-term profits and rising share prices.

Suppliers: Orders received for new supplies or for the technology. Increased sales may result in larger orders. Lower production costs may reduce pressure to find cheaper supplies.

Creditors: Increased need for borrowing to finance purchase of technology. If successful, enhanced ability to repay borrowing.

Question 37

What are the disadvantages of using more technology in production for employees, customers and shareholders?

Answer 37

Employees: Job lost as technology plays a larger role.

Customers: Standardised products may be less likely to meet individual needs.

Shareholders: Initial investment may reduce profits and dividends. Business’s image may suffer due to job losses damaging share price.