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1.4 Stakeholders 2014

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Deborah Kelly

on 2 October 2016

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Transcript of 1.4 Stakeholders 2014

1.4 Stakeholders
Learning outcomes:

explain the interests of internal and external stakeholders
discuss possible areas of mutual benefit and conflict between stakeholders
stakeholder mapping

The role of stakeholders
A
stakeholder
is a person, group or organization that can affect or be affected by an organization's actions, objectives and policies. They therefore have an interest or concern in any action taken by an organization.

Stakeholder Concept
- the view that businesses and their managers have responsibilities to a wide range of groups not just shareholders is known as the stakeholder concept. This is a more ethical view of management. The traditional view of business is referred to as the
shareholder concept
. As shareholders are the owners of the company it is important to keep them satisfied which generally means to increase shareholder value.
Internal and External Stakeholders
Internal Stakeholders include:
employees
shareholders
managers

External stakeholders include:
suppliers
customers
government
banks and other creditors
special interest groups such as
pressure groups
that want to change a business's policy towards pollution or testing of chemicals on animals or
community action group
s concerned about the local impact of business activity
competitors
All of the above stakeholders could have a potential interest in a company's performance for a variety of reasons.
Stakeholder

Owners/Shareholders

Government

Senior Management

Employees

Customers

Creditors

Local Community

Suppliers

Pressure Groups
Example of
interest
towards company

= profit, vision, liquidity, efficiency

= taxation, compliance with legislation such as health and safety, jobs created
= financial performance, customer perception, profits and sales targets
= pay, conditions, job security

= value, service, quality, ethical considerations

= liquidity, gearing (can they pay bills?)

= social responsibility, jobs, environment

= speed of payment, level and regularity of orders, fairness of treatment
= change a business's policy towards pollution...
Clearly, it would be very difficult for any company to be
able to satisfy all of these interests at the same time.
Stakeholder Conflict Example
Scenario:

Fisher & Paykel (F&P) today announced plans to move more of its manufacturing of quality whiteware such as fridges and cookers overseas. Local suppliers to F&P and employees were very concerned. The CEO announced however that the move was essential for the company to remain competitive in global markets as many of F&P's competitors have moved to Thailand and Mexico already with much lower labour costs. Stakeholders and the financial markets seem delighted with the news with shares rising 34c on the day to $2.54.

Source: New Zealand Herald, 2007

Analyse areas of potential conflict.
DO:
Kellogg's short case study about stakeholder engagement
Stakeholder Conflict Activity
Stakeholder Mind Map
It is important for a business to balance the interest of its various stakeholders. Different stakeholder groups have different priorities, for example:
Shareholders expect the business to make a profit and receive a return on their investment.
Employees require good working conditions if they are to be retained.
Investors may want to see evidence of how a company responds to environmental issues before committing money to the business.

Stakeholder
conflict
arises when the needs of some stakeholder groups compromise the expectations of others. A business has to make choices which some stakeholders might not like.

For example, the cheapest supplier goods, which can help keep prices down for customers, must not come at the expense of ethical practice by suppliers.
Some activities may not give immediate financial return on investment but support the business’ ethical standards. Such policies need to be communicated and explained to all stakeholders involved, so they understand the longer-term value they provide. For example, investment in ‘green’ energy (such as from solar or wind farms) may be more expensive but can help the company reduce its environmental footprint.

Stakeholder Conflict
Match the stakeholder group with what they may expect from the business
Shareholders

Customers

Employees

Suppliers

Local Community

Government

Financiers
To be given safe working conditions

To be paid corporation tax

To receive regular loan repayments

To get value for money

To be paid regular dividends

to improve the surrounding environment

To receive regular orders
Exam Tip:
Many examination questions involve the conflict of stakeholder's 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 stakeholder's objectives as possible or meeting the needs of the most important group in each situation.
:
Theory of Knowledge
Imperial Tobacco to close factories in UK and France

Despite recently announcing a 16.7% rise in annual profit to 1.26 billion, Imperial Tobacco is closing two of its last cigarette-making factories in Western Europe - in the UK and France. Up to 1000 jobs will be lost at the two factories and trade unions have promised to oppose the closures. Union leaders accuse Imperial Tobacco management of putting shareholders first by relocating production to low-labour cost countries in Eastern Europe. An Imperial Tobacco spokesperson said that these decisions had been partly driven by falling cigarette sales in high-income countries as a result of government and pressure group's campaigns against smoking which highlight the serious health risks. The lack of this kind of bad publicity in countries such as Turkey, Greece and Russia means that these are markets Imperial Tobacco is targeting - and these are the countries in which cigarettes will, increasingly, be produced.
Comment on the c
onflict in stakeholder's interests
that arises from the article.
Discuss the
ethical
questions businesses face when they make job cuts.
Conflicting stakeholders' interests
Business decisions and activities can have both positive and negative effects on stakeholders, but it is rare for all stakeholders to be either positively or negatively affected by one business activity.

It is also possible for any one stakeholder group to experience both negative and positive effects from the same business decision. This is why conflicts of interest between stakeholder groups, with different objectives and interests can arise.

Pressure groups
- consist of individuals with a common interest who seek to place demands on organizations to act in a particular way or to influence a change in their behaviour
Stakeholder mapping/ stakeholder analysis
Stakeholder mapping is a management tool used to determine the key stakeholders of an organization based on the varying degrees of
power
and
interest
of the various stakeholder groups.

The stakeholder groups with a high degree of power and interest are known as the
key stakeholders
. Successful businesses strive to fulfill as many of the needs and interests of various stakeholder groups as possible, but give priority to satisfying the needs and interests of their key stakeholders.

The power-interest model can be used to do stakeholder mapping. It was formulated in 1999 by Johnson and Scholes in their book
Exploring Corporate Strategy.

By placing each stakeholder group in the matrix a business can decide on likely strategies.

Group A - Minimal effort.
Businesses can devote little energy and attention to satisfying their interest.

Group B - Keep informed.
Making this group feel included is important.

Group C - Keep satisfied.

This group must be kept satisfied as they have the power to influence other groups. They must be made to feel important.

Group D - Key Players (Maximum effort).
Not only do the stakeholders need to be communicated with but also consulted before major decisions are made. Businesses need to focus on their needs over the others. Failure to involve these stakeholders can be detrimental to the business.
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