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What is a Stakeholder in Business? A Complete Guide

Author: 
The Broke Business
Last Updated: 
September 22, 2021

What Is A Stakeholder In Business And How This Can Impact Me

In this article, we explore what is a stakeholder in business? And how each of your stakeholders can and should influence your operations.

The term stakeholder is often used to imply that the stakeholders are not just interested observers but have some power over the business; however, this is not entirely the case.

Below, we will explore the different types of stakeholders and their relationship with your business and each other.

A stakeholder is a person, group, or organisation with a degree of interest in a business, its operations, or its products and services.

What Is A Stakeholder In Business?

A stakeholder in a business is an individual, group or entity interested in an organisation and the result of its activities.

Employees, consumers, shareholders, suppliers, communities, and governments are all examples of stakeholders.

Various stakeholders have different interests; for example, the government may be interested in your operations within the market, whereas a customer is only interested in your end product.

It is also common for different stakeholder groups to have overlapping interests, and businesses frequently must make trade-offs to please everyone as much as possible.

How Do You Define What Is A Stakeholder?

The relationship of stakeholders can be confusing, and there are six general categories a stakeholder may belong to; however, you should note that they may also fall into more than one category.

Stakeholders can generally be categorised as:

  • Internal stakeholders
  • External stakeholders
  • Primary stakeholders
  • Secondary stakeholders
  • Direct stakeholders
  • Indirect stakeholders

Below we will expand on each of these categories and hopefully shed some light on what a stakeholder is in each of them.

Internal stakeholders. These are the stakeholders that exist within the business itself.

Employees, who are essentially the flesh and blood of your business, are prime examples of internal stakeholders directly affected by any internal operations.

External stakeholders. They care about your company's success but are not directly involved in its projects.

Suppliers could be an example, as their interests are also linked to the success of the business. 

Another example might also be a shareholder who cares what your business is doing because it affects the value of the stock they hold in your business.

Internal and external stakeholders
A Visual representation of external/internal stakeholders

Primary stakeholders. These stakeholders have the highest level of concern in the business because they are directly affected by the outcome of its operations. 

You may hear these stakeholders referred to as 'key stakeholders' and may also include stakeholders from other groups such as employees.

Secondary stakeholders. Secondary stakeholders contribute to the business as well, but on a more general level. Stakeholders like this could assist with administrative, financial, and legal issues.

Think, for example, of your go-to accountant or your go-to lawyer employed by a third-party firm. They may be secondary stakeholders because if your business fails, they might lose you as a client!

Direct stakeholders. These are involved in the day-to-day operations. Because their everyday responsibilities depend upon the business, employees are considered direct stakeholders.

Indirect stakeholders. They are more concerned with the business outcome than with the process of executing it. In other words, they care about your finished product but not so much how you got there.

Customers, for example, are indirect stakeholders who are concerned with pricing, packaging, and availability.

Types Of Stakeholders In A business

Now that we have explored the main categories a stakeholder may belong to, we can dissect this and uncover what is a stakeholder in each of these.

In this section, we will identify "who" is a stakeholder.

There are, broadly, ten types of stakeholders in a business environment, including:

Owners. The owners of a company are the owner stakeholders. The business' fate may very well be tied to their own.
A business can have several owners, and as internal, primary and direct stakeholders, they provide cash or equity to the company in exchange for having a voice in how it operates.

Investors. Investors might be owners, but they can also be third-party suppliers who regularly have a right to accurate and timely information, such as financial statements.

As external, primary and direct stakeholders, investors may be involved in meaningful choices like mergers and acquisitions; however, this will depend on the nature agreement made at the time of investment.

Investors can also contribute ideas, provide advice, bring business connections, and help promote the business' image.

Suppliers. Suppliers are individuals or businesses who sell products or services to your company and rely on you to generate income from those sales.

Suppliers are external, secondary, and indirect stakeholders since they are concerned with their revenue creation outside of the company.

Creditors. Creditors such as banks, suppliers and bondholders lend money to businesses.

They may be owed an unsecured debt by a business or have been granted security (such as a mortgage) upon lending the business money.

As external, secondary, and indirect stakeholders, creditors are reimbursed through the sale of goods or services at your company and are compensated before investors in the case of a company failure.

The Community. Another group of stakeholders to consider is the community in which a business operates.

A well-functioning business is regarded as an asset in any society, and communities are significant stakeholders in businesses. Both parties are mutually beneficial in many ways, such as economic development and job creation.

A business may also develop a negative reputation and receive backlash from the community. This may be critical for businesses that rely on community reviews for their success.

Trade Unions. A trade union is a group of employees in a certain industry that band together to bargain for better pay, benefits, safe working conditions, or social and political standing.

Every business, in most cases, has a connection with a trade union to protect the interests of other stakeholders, such as employees.

Trade unions may be contacted and informed about issues such as worker safety. This stakeholder may be less critical in industries that are not unionised.

Employees. Employees have a direct financial stake in the business as they engage with consumers directly, make money to sustain themselves, and assist with business operations.

Directly influencing the business as primary stakeholders, employees can take on the management, supervisory, and other responsibilities.

Benefits like rewards, professional advancement, and work satisfaction are standard expectations.

Government. Government agencies can be considered external, secondary, and indirect stakeholders in a company as they collect taxes from the company and its employees.

Governments can also benefit from the overall Gross Domestic Product (GDP) that companies contribute to.

Customers. Customers and clients are those who purchase a company's goods or services and expect to be provided with the highest quality product or service at a reasonable price.

As external, primary, and direct stakeholders, customers or clients purchase goods/services from businesses and are interested in how the company operates.

Problems With Stakeholder Management

Managing stakeholders in business is a difficult task. This is because each stakeholder has their own needs and demands.

Because of these differences in needs, stakeholder requirements may clash, causing conflict within a business.

Even stakeholders with the exact requirements may have different time scales for achieving business goals.

Therefore, you need to balance all of these demands while still working towards the company's long-term mission.

This can be achieved through an effective stakeholder management plan and should be part of any business plan.

It is also essential in this case to have adequate time management skills, specifically if you have a large number of stakeholders.

Other Important Questions

Should all stakeholders be involved in business decisions?
Answer: No, although there should consideration of the impact a decision may have on each group. 
I have no employees and work for myself, do I have stakeholders?
Answer: Yes, you are a stakeholder, along with external stakeholders such as customers and the government.
Can a stakeholder be both internal and external?
Answer: Yes, they can also belong to multiple groups of stakeholder classification.
Do I need stakeholder engagement?
Answer: No, but it is highly recommended that you have an engagement plan in place.

Final Words

Now that you understand what is a stakeholder in the business and how this may affect you personally, you should get started on a stakeholder engagement plan.

We recommend to re-visit your business plan and include a map of your potential stakeholders.

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The broke business is a central hub of tools, resources, and advice for Australian small businesses. Owner-operators and Startups.
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