Internal stakeholders, primarily employees, owners and managers, are directly involved in the operations and strategy of the organization.
Differentiate between internal and external stakeholders.
- Internal stakeholders are individuals or groups who are directly and/or financially involved in the operational process.
- External stakeholders are indirectly influenced by the organization ‘s operations.
- Employees and managers are internal stakeholders impacted by organizational strategy and success, with some influence on the organization’s decisions.
- Owners have a larger impact on organizational management, and take a larger amount of accountability compared to managers and employees.
- stakeholders: People or organizations with a legitimate interest in a given situation, action, or enterprise.
Organizational management is largely influenced by the opinions and perspectives of internal and external stakeholders. A stakeholder is any group, individual, or community that is impacted by the operations of the organization, and therefore must be granted a voice in how the organization functions. External stakeholders have no financial stake in the organization, but are indirectly influenced by the organization’s operations.
Internal stakeholders are individuals or groups who are directly and/or financially involved in the operational process. This includes employees, owners, and managers. Each of these groups is potentially rewarded directly for the success of the firm.
Employees are primary internal stakeholders. Employees have significant financial and time investments in the organization, and play a defining role in the strategy, tactics, and operations the organization carries out. Well run organizations take into account employee opinions, concerns, and values in shaping the strategy, vision, and mission of the firm.
Managers play a substantial role in determining the strategy of the organization, and a significant voice in operational decisions. Managers are also accountable for the decisions made, and act as a point of contact between shareholders, the board of directors, and the organization itself.
Owners (who in publicly traded organizations can include shareholders) are the individuals who hold significant shares of the firm. Owners are liable for the impacts the organization has, and have a significant role in strategy. Owners often make substantial decisions regarding both internal and external stakeholders.
Integrating businesses into society results in a wide variety of interactions with a number of different external stakeholder groups.
Identify the various external stakeholders that may be impacted by business operations
- Understanding the impacts (positive or negative) of the organization upon the broader external environment is more easily accomplished when different groups of stakeholders are identified.
- Customers, suppliers, and governments are all directly impacted by the operations carried out in a financial way. As a result, these stakeholder groups tend to be quite closely in tune with business operations.
- Local and global communities are less directly impacted (financially) by business, but no less relevant when it comes to stakeholder-based decision -making.
- Businesses can have severely negative impacts on the local and global environment, and so must carefully consider how operational functioning can affect the well-being of the individuals in these communities.
- stakeholder theory: A theory of organizational management and business ethics that addresses morals and values in managing an organization.
Business are complex pieces in the social ecosystem, both impacted by and impacting a wide variety of groups in the external environment. As a leader or manager at an organization, understanding both internal and external stakeholder needs is a central responsibility. Decisions should be made in a way that ensures all stakeholders are considered.
There are quite a few external stakeholders for businesses to keep in mind when making decisions and carrying out operations. These include but are not limited to customers, suppliers, creditors, communities, governments, and society at large:
The primary purpose of providing goods and services is to fill needs. Understanding the needs of an organization’s core customer base, and optimizing operations to best fill those needs, is therefore a significant part of managing a business. Interacting with customers through social media, emails, storefronts, user testing groups, and the delivery of services and goods is an important aspect of maintaining a strong community (and a strong sense of what customers want from the organization).
Nowadays, big data plays a significant role in determining what users want. By understanding trends, habits, and trajectories in user data, organizations can anticipate the needs of users and refine their value proposition.
Suppliers and other strategic alliances are interdependent, where the success of one will impact the success of another. As a result, suppliers are closely related to organizations as key external stakeholders. Timely payments, shipments, communication, and operational processes are key to maintaining a strong relationship with this stakeholder group.
A business can be a great benefit to a community, providing tax money, local access to unique goods and services, jobs, and community development programs. However, a business can also be a drain on a community by increasing traffic, creating pollution, hurting small businesses, and altering real estate prices. As a result, businesses must look at the needs of the community, and ensure that negative repercussions are minimized while community engagement is maximized.
Governments tax businesses, and therefore have a firm stake in their success. Governments can in fact be considered primary stakeholders, considering the profit motive involved. Governments also provide regulatory oversight, ensuring that accounting procedures, ethical practices, and legal concerns are being handled responsibly by business representatives.
As a result of the digital and global economy, a business can have a significant impact on society at large. Companies such as Airbnb and Uber have transformed entire industries, creating dynamically different economies with a wider variety of participants than ever. Walmart has substantially impacted the viability of small businesses in many regions. The food that is sold at fast food chains has huge impacts on global health. Manufacturing facilities in developing nations are transforming entire ecosystems. Social networks are collecting vast amounts of data. All of these concepts aren’t intrinsically good or bad, but managing them to ensure outcomes are positive for society as a whole is a critical responsibility.
While other stakeholder groups could be discussed at length, these are a few of the key pillars in stakeholder theory.