Stakeholder management is key to business success. But achieving good stakeholder management starts with a comprehensive understanding of stakeholders. Every business operation has different types of stakeholders that differ in their roles and importance. As such, in this article, we’ll explore the different types of stakeholders, their varying degrees of influence and their impact on the company’s success.
What is a Stakeholder?
Stakeholders are groups or individuals who have a vested interest in a business. Stakeholder interests vary from business operation to financial interest, project management, project success, and so on. Hence, a stakeholder can affect/impact or is affected/impacted by an organization’s project or strategy.
In any business venture, stakeholders’ engagement is important as they can positively or negatively impact the business. So, determining who you define as a stakeholder is vital in driving your entire stakeholder management strategy. To help you decide, you need to know the different types of stakeholders, which we will discuss below.
Type of Stakeholder: A Quick Classification
There are different types of stakeholders, and they vary based on the company and the role they play in the company. It is a broad term, so to better identify your stakeholders, we will be breaking down the different types of stakeholders into classes, as seen below.
Internal Stakeholders vs. External Stakeholders
Internal stakeholders refer to inside parties that affect or are affected by business activity. Internal stakeholder interest in a business comes through a direct relationship, such as ownership, employment, or investment. In the absence of an internal stakeholder, a business will not be able to survive in the long run.
On the other hand, external stakeholders refer to outside parties that affect or are affected by business activities. An external stakeholder is not a part of the management of a business but can be indirectly affected by the company’s success. Suppliers, customers, clients, and intermediaries are considered external stakeholders.
Primary Stakeholders vs. Secondary Stakeholders.
Primary stakeholders are those entities, groups or individuals involved with the monetary transaction of a business. This stakeholder directly participates in the daily operation of a business. Hence, a primary stakeholder depends on a business for future security and income. Examples of primary stakeholders include customers, employees, owners, suppliers, vendors, and so on.
In contrast, a secondary stakeholder is an entity, group or individual invested in a business’s social transaction. Secondary stakeholders are not directly involved in the day-to-day operations of a business. While secondary stakeholders are more passive than primary stakeholders, that doesn’t mean they are less important. Competitors, communities, special interest groups like charity associations, environmental groups and so on are examples of secondary stakeholders.
Direct Stakeholders vs. Indirect Stakeholders
Direct stakeholders are individuals that are involved in a business’s day-to-day activities. These individuals carry out daily tasks, such as the employees. Direct stakeholders revolve around projects at a business.
Indirect stakeholders focus more on the finished project or outcome than the completion process. An indirect stakeholder is more interested in availability, packaging, and pricing. For example, customers are a typical example of an indirect stakeholder.
Types of Key Stakeholders
Based on the classification above, we can see many stakeholders. Whether it is a stakeholder who influences or can be influenced by business activities, we elaborate on the roles key stakeholders play in businesses below.
Every business needs customers as they are the ones who buy the business products or services. Hence, a business does not exist without customers. This key type of stakeholder is more concerned about the quality of a project and the price. As such, customers expect to get the best quality from your business but at a fair price.
Customers are interested in how a business performs because they get its products or services. Businesses must strategically relate to their customers and meet their needs. Meeting customers’ need is an extremely important area of concern for ensuring the success of any business. Customers are a typical example of external, primary and direct stakeholders.
Employees are a type of direct stakeholder in a company as they create, manufacture, sell and deliver the product or service of a business. Hence, employees interact directly with customers making them a crucial part of a business’s success or failure. Employees carry out several tasks for a business, such as managerial, supervisory, or other functions.
In return for their services, employees expect benefits like incentives. Note that employees’ interests are stakeholders in a business and are not tied to a compensation package, but job security, career growth, and job satisfaction are also important factors. A happy and fulfilled worker will perform better and interact with each other more positively. Employees are a typical example of primary and internal stakeholders.
Investors are a typical example of an external stakeholder as they do not directly participate in the daily activities of a business. Rather investors have a financial stake in a business. Buying equity in a business makes an individual, group or entity an investor. An investor does more than bring funds to pursue projects to help a business grow.
An investor also has the right to approve or reject major decisions in a business such as mergers and acquisitions. Investors can also contribute ideas and advice, motivate business leadership, bring connections, and help promote or improve the business image. Unfortunately, the interest of investors might not always align with customers or employees. Generally, investors’ main interest in a business is to achieve a high return on equity. Investors can also be primary and direct stakeholders.
Owner stakeholders can be an individual, group or entity that owns a business. This type of stakeholder supplies the equity or capital to the business and has a say in how the business is run. Generally, owner stakeholders have several responsibilities and rights in a business, depending on the type of ownership interest they hold.
Some owner stakeholders might have the right to vote on vital business decisions like making a major investment or electing directors. Another owner stakeholder might be entitled to share the profits the business generates and contribute to the capital or assets of the business. Note that the owner stakeholder is an internal, primary and direct type of stakeholder.
Suppliers and Vendors
Suppliers and vendors are individuals or businesses who sell goods to your business. This type of stakeholder relies on your business for revenue from the sales of those goods. If your business were to alter its purchasing practices with a supplier or vendor, its impact on the supplier would be severe.
Suppliers and vendors exist outside a business, making them external and indirect stakeholders. We can also consider them secondary stakeholders because they provide resources, materials, and in many cases, expertise that does not exist in-house with a business, which improves the business’s ability to meet its customers’ and stakeholders’ needs.
The community where a business is based is another type of stakeholder, particularly a secondary stakeholder. A good business is an asset to the community as it benefits from the company’s economic investment through job creation. Also, locally-based employees can return their income to the community, further improving their financial state.
Furthermore, communities as indirect stakeholder stand to lose a lot if a business fails because its employees from the community will lose their jobs and source of income. As a type of external stakeholder, communities can also impact the safety of a business.
Trade unions or labor unions is an organization of workers in a particular industry that exists to secure good improvement in pay, safe working conditions, benefits, and social and political status through collective bargaining. This stakeholder is a type of secondary stakeholder because they have the interest of other stakeholders like employees in mind.
We can also consider trade unions as a type of indirect stakeholder because they may be informed and consulted about things like worker safety. And as an external stakeholder, trade unions can influence the restructuring process of a business.
Government is a type of external stakeholder in businesses within its jurisdiction. Major stakeholders perform several functions, such as collecting taxes, issuing licenses or certifications for businesses, ensuring minimum wage laws, workplace safety regulations, and so on. And as an indirect stakeholder, government agencies can benefit from a business’s success by contributing to the gross domestic product (GDP).
Government stakeholders are also secondary stakeholders as they regulate the impact a business may have on communities within its jurisdiction. For example, government agencies may regularly a business’s environmental impact such as what they put into the water and air.
Media is another type of external stakeholder every business needs. Media publication helps a business spread the word about its brand, which facilitates building a stronger relationship with its customers. Businesses must interact with presses to make important announcements or advertise their products or services.
Media houses can also be a type of indirect stakeholder as they get financial benefits when businesses choose to advertise their products or services through their platform. Also, the media can be seen as a secondary stakeholder because they interact directly and bring valuable information to the community.
Stakeholder vs. Shareholder
The terms stakeholder and shareholder are often used interchangeably, but they don’t mean the same thing. While they are closely related, a stakeholder is an individual that has a vested interest in a business or its project. In comparison, a shareholder has financial interests in a business or is a partial business owner.
We can say that shareholders are a subcategory of stakeholders because shareholders invest money in a business making them stakeholders. Similarly, a stakeholder like employees can become a shareholder if they invest their money to buy equity in the business. Note that stakeholders will likely sustain significant financial loss if the business shutdown.
Who Is The Most Important Stakeholder Of All?
Identifying and organizing your stakeholders on a consequential scale is vital to a business’s success. One stakeholder will always have a greater impact on a business’s success than others. And for most businesses, the customers are the most important stakeholder.
Come to think of it, what’s a business without customers? Customers are the ones buying the products and services of a business. Without the customers, each stakeholder in a business is impacted, from employees to investors and so on. Pleasing every stakeholder is challenging, considering there may be conflicting interests. But if one stakeholder deserves the most attention, it is the customer; after all, they are the source of the business’s success!