There are various ways to classify business stakeholders. This article will show you three classifications. Before getting there, let’s briefly review who the stakeholders are.
Businesses have stakeholders who, if they handle them well, can contribute to their success. Stakeholders influence the company in several ways.
For example, customers influence companies with their purchasing decisions. Likewise, their brand loyalty and preference contribute to the company’s profitability.
On the other hand, stakeholders also have interests they demand companies fulfill. For example, customers have an interest in price and quality. They want companies to produce quality products at low prices. Or at least, the quality is worth the price they pay.
Who are the stakeholders? Customers are an example. In addition, there are suppliers, shareholders, government, creditors, and the community. They can be grouped in several ways, including:
- Internal vs. external stakeholders – whether inside or outside the company organization.
- Primary vs. secondary stakeholders – how they affect the company, whether directly or indirectly, and how strategic they are.
- Product market vs. capital market vs. organization stakeholders – in which aspects they influence and are interested in the company.
Internal vs. external stakeholders
Internal and external stakeholders can refer to individuals or organizations. Employees and management are individuals. Meanwhile, customers can be individuals or businesses, depending on the market targeted by the company.
Internal stakeholders are within the organization. Their interest in and influence in the company comes through direct relationships, such as ownership and employment. They include:
- Lower-level manager
- Middle-level manager
- Corporate executive
Internal stakeholders are generally interested in salary, career position, job security, and work environment. Their income or employment depends on the company’s performance. Thus, the company’s success brings them more prosperity and job security.
Likewise, corporate success contributes to shareholder prosperity. Unlike employees or management, the shareholder relationship with the company comes through ownership. If the company successfully generates high profits, shareholder wealth increases through more enormous dividends and an increase in share price.
On the other hand, stakeholders influence company performance because they work and influence company decisions. For example, staff carry out daily tasks. Meanwhile, managers are involved in making decisions and have the authority to organize, control, plan, design strategies, and lead the organization and its people.
Then, shareholders influence decisions at the corporate level. They delegate business operations to management. Thus, they hold the voting right to change directors to meet their expectations.
External stakeholders are outside the organization. Those who do not directly work in or own stock in the company. However, they affect and are affected by the actions and performance of the company. Examples of external stakeholders are:
- Labor union
- Local community
- General public
- Pressure group
- Non-government regulators
- Self-Regulatory Organizations such as stock exchanges
- Insurance company
- Research center
- Business association
External stakeholders are related to the company in several ways. Their relationship is harder to identify because it’s more complex.
For example, customers influence companies through their purchases. They have an interest in the products they buy.
Meanwhile, suppliers have an interest in payments and orders by the company. They influence firms through the prices and quality of the inputs they supply. In addition, shipping, credit sales, and discounts can also affect the company.
Apart from having different interests, the relationship between external stakeholders and companies is complex because it involves many parties. Take the government as an example. It refers not only to the national government but also to local governments, central banks, and many agencies under the government.
Likewise, society can refer to the broader community (public) and local communities. They have different interests. For example, local communities may have a strong interest in a manufacturer’s environmentally friendly practices because they are directly affected by the manufacturing operation. However, it may not be with the public.
Primary vs. secondary stakeholders
Primary stakeholders are more strategic for the company than secondary stakeholders. Thus, companies will put more weight on primary stakeholders when making decisions without ignoring secondary stakeholders.
Primary stakeholders are affected by and affect the company, for example, through employment and ownership. Or they engage in economic transactions with companies.
Typical primary stakeholders are:
- Other business partners, such as insurance
Companies generally place primary stakeholders at the highest priority. They are strategic and have significant influence. Therefore, companies want to build their relationship in the long term because it directly impacts the company’s success.
Secondary stakeholders do not have an economic exchange relationship with the company but have influence and are influenced by the company. Companies place them at a lower priority than primary stakeholders.
Examples of secondary stakeholders are:
- Pressure group
- General public
- Central Bank
- Political group
Classifying stakeholders as primary and secondary can differ between industries. There are several examples explaining that. And for this reason, what I exemplify in this article may be different from other literature.
Take banking as an example. Banks classify the central bank as their primary stakeholder because their activities are heavily regulated by it. Their non-compliance with the rules can have serious consequences.
Meanwhile, manufacturers regard the central bank as a secondary stakeholder. The central bank does not directly influence them. Instead, they are indirectly affected, for example, through the interest on the loan they get from the bank. The central bank’s monetary policy heavily influences loan interest.
Product market vs. capital market vs. organizational stakeholders
This classification looks at the aspects in which stakeholders contribute, have an interest, or influence the company. Unlike the two previous classifications, in this case, we cannot distinguish which is strategic for the company and which is not.
Product market stakeholders
Product market stakeholders influence or are affected by the company’s offerings. They include customers and suppliers.
Customers influence a company by buying for the first time, repeat purchases, or promoting the product to others. They are interested in – and are influenced – by the product’s quality and price.
Meanwhile, suppliers influence firms through prices and their raw material inputs. In addition, their reliability to deliver on time is also crucial for companies.
Suppliers are also affected by company offerings. For example, if a company successfully sells a product, they expect more orders.
Organizational stakeholders are interested in company performance and are directly influenced by company operations, practices, and policies. Examples are employees and managers.
If the company is successful, employees and managers expect bonuses. Besides the financial aspect, they are also concerned about their career and work environment. In addition, company policies such as those related to promotion, training, and development are also vital to them.
On the other hand, employees and managers influence the company through their labor, knowledge, and skills. For example, the firm can produce more output if they are productive.
Capital market stakeholders
Capital market stakeholders provide funds or access to the capital market. They include stock investors (shareholders), bond investors, banks, and venture capitalists.
Capital market stakeholders influence the financial costs of operating and growing a business. For example, a company takes out a bank loan to expand. The high loan interest makes expansion costs more expensive. As a result, the firm must achieve a higher break-even point, which requires it to make up for it with greater output, higher prices, or a combination of both.