Customers, suppliers, and employees are examples of stakeholders. Other examples are shareholders, creditors, local communities, and governments. They play an important role because they are interested in the company and, at the same time, are influenced by it.
Let’s break down how stakeholders are strategic for a company. I will outline what interests each has in the business and how the company affects them.
Customers need products to meet their needs. They can be individual customers, business customers, or other organizations. They buy products for final consumption or for further processing.
Customers are critical stakeholders besides employees, shareholders, government, and suppliers. They bring money to the company by buying products, which the company can use to pay suppliers, employees, and creditors. So, without them, the company cannot make money.
On the other hand, customers want the money they give up in proportion to the value they get from consuming the product. They are concerned with price and quality.
Customers also like to get good customer service, such as related to after-sales service and customer complaints. Another aspect is ethical products and practices as they become more environmentally and socially conscious.
Suppliers sell inputs to companies. It can be raw materials, capital goods, semi-finished goods, and goods and services for day-to-day operations. They can affect a company’s operations through price, quality, and delivery schedules of inputs.
On the other hand, they want the company to pay on time, as agreed. They also like companies to order more frequently and in large volumes. In addition, they also try to maintain good long-term relationships with companies to secure future demand.
Furthermore, suppliers affect the company’s profits. If they have strong bargaining power, they can negotiate favorable terms for themselves, which can harm the company.
For example, a supplier sells inputs of lower quality but at a higher price. The company may be forced to buy it due to weak bargaining power and may not have alternative suppliers.
Owners or shareholders may refer to founders if they were involved in starting the company for the first time and still retain ownership. In other cases, they may not be founders having acquired ownership through acquisition and were not involved in setting up the business the first time.
When a company offers shares on a stock exchange, the stock investors are also shareholders. However, their holdings may often be relatively small compared to the total outstanding shares. They can be individuals or institutions. So, for example, when you buy stock in a company, you are the shareholder.
Shareholders provide risk capital to the company. If they are founders, they take a risk by starting a business, expecting to make a profit as compensation. They may also have to spend their own money as business start-up capital.
Likewise, shareholders face risks when buying company shares through the stock exchange, namely the company’s share price decline. As a result, they do not make a profit or even find it challenging to break even.
Shareholders expect to get a return on the capital they invest. And they want the company to maximize it.
Where do shareholders get their income from? There are two sources: dividends and capital gains.
The company may not retain all profits as internal capital. Instead, the company distributes a portion as dividends.
Meanwhile, capital gains are profits if shareholders sell the company’s shares at a higher price than the purchase price.
Shareholders are interested in the company’s operating and financial performance because it affects the dividends and capital gains they can earn.
For this reason, they may intervene in business using voting rights to influence corporate decision-making. For example, they can replace the less well-performing directors with others they perceive to be more likely to improve company performance.
Creditors refer to parties who provide loans to companies. They could be banks or debt investors. They are willing to lend money if the company can pay the principal plus interest on time.
On the other hand, if the company fails to pay, creditors may file bankruptcy against the company in court. Therefore, companies need adequate cash flow available to pay debts.
On the other hand, companies need loans to operate and grow their business. Some loans are for working capital and to finance daily operations. Others are as investment capital to support business expansion.
Because they are interested in getting their money back, creditors pay attention to the company’s financial condition, including its liquidity and solvency. They also usually use credit ratings to determine a company’s default rate.
On the other hand, creditors are also interested in maintaining good relations with the company. They are pleased if companies apply for new loans as long as they can repay them.
In this discussion, I refer employees to staff and those occupying positions within the management ladder. In general, they pay attention to aspects such as salary levels, benefits, job security, respect, recognition, and a supportive work environment.
The staff works as subordinates to the manager. They are not in a position to make decisions. They also do not have the authority to rule.
Management has the power to make decisions. It is responsible for planning, leading, organizing, and controlling company resources. And it includes multiple layers, starting from directors, middle-level and lower-level managers.
Employees provide time, effort, knowledge, and skills. As compensation, they want a commensurate salary and benefits. In addition, they also demand job satisfaction, job security, and good working conditions. Promotions and training and development programs are their other interests.
Employees and shareholders often have conflicts of interest. For example, employees have an interest in high salaries. Conversely, shareholders also dislike it because it increases operating costs, reducing the money they can potentially receive from dividends.
Likewise, high labor costs also reduce the money available to service debt. It can affect the company’s ability to pay. Thus, creditors also do not like it.
Unlike staff, managers have significant influence over the company. They set goals, devise strategies and tactics, create action plans, and allocate company resources. Thus, the company’s performance depends on the quality of their work and their decisions.
The government is interested in the business because it contributes to tax revenues, societal welfare, and environmental sustainability.
The government also wants businesses to comply with laws and regulations, adopt justified employment practices, honest reporting, legality, generate no negative externalities, and practice fair competition.
In addition, the government pays attention to community welfare work. They encourage companies to create more jobs and income for households.
On the other hand, the government influences the company through the regulations and policies it makes. Examples are labor regulations, product safety, antitrust laws, and environmental requirements.
Economic policies, minimum wages, subsidies, and taxation also affect business activity. In addition, government bureaucracy also has an impact on the ease of doing business and regulatory costs.
Non-compliance with government regulations and policies can hurt companies, including fines and other legal consequences. In fact, the government can revoke their license to operate.
We can also see the government’s influence from how companies need several services from the government, for example, infrastructure and education.
For example, companies use highways to ship goods and raw materials. Smoother logistics allow for lower transportation costs.
Furthermore, through a sound education system, companies can recruit qualified workers. Education is essential to build quality human resources.
Qualified human resources are not only vital to carry out daily work. But they also significantly contribute to a company’s innovation and competitive advantage.
Labor unions may support companies to access the required qualified workforce more easily. Their members may be a productive workforce.
Conversely, labor unions want their members to be compensated according to their contribution to the company. Labor unions exist to strengthen the bargaining position of workers when negotiating with companies, for example, regarding wages. They protect workers’ interests, negotiate job security, protect workers from unfair dismissal, and provide members with legal support and services.
Competitors aim to beat the company to make more money. They serve the same customer needs as the company. Thus, they are happy or prosperous if the company fails.
Competitor strategies affect the success of the company. For example, potential customers switch from a company if they lower their prices.
The company and competitors pay attention to competition fairly and lawfully. They try to avoid legal consequences when engaging in anti-competitive practices. So, in some cases, they may also work together – called coopetition – as long as they don’t break the law.
Companies cannot operate entirely through automation, relying on robots and computers. They need humans as input.
How significantly a business depends on labor rather than machines varies between companies. Labor-intensive businesses rely on more human labor than capital-intensive businesses.
The public and local communities supply labor to companies. People with high education and skills supply a quality workforce, contributing to productivity, efficiency, and innovation.
On the other hand, the public and local communities are interested in employment. In addition, they pay attention to environmental protection, privacy protection, product safety, and product price, quality, and variety.
Pressure groups try to influence company policies and practices for specific purposes. For example, they want companies to be socially and environmentally responsible.
Pressure groups may lobby governments to push for changes in policy or business practices, for example, by issuing petitions or lobbying members of parliament.