Whether you run a brick-and-mortar store, non-profit or a huge e-commerce website or social enterprise, you will always have stakeholders around your business. Knowing who these stakeholders are and how they influence your business process is critical for success.
The most important stakeholders for most businesses are:
- Creditors or lenders
- Local community
These are all the external forces influencing a firm’s progress and how it responds to business or economic situations.
Business stakeholders are internal and external, for example project stakeholders or key suppliers. However, while internal stakeholders are easier to control within the company, external stakeholders have greater control over corporate affairs.
This article will discuss the most important external stakeholders in a business.
The Most Important External Stakeholders of a Business and Their Roles
External stakeholders in business are also outside stakeholders. They are organizations, institutions, or situations having an interest or influence over your business and do not originate within the enterprise. They are also affected by the decisions or actions of the business in a give-and-take manner.
As a result, each stakeholder represents different interests for the firm. Sometimes, their interests may conflict with one another, creating some instability in the decision-making process of the business. So understanding the most important external business stakeholders, their differences and roles or influence in the company is vital.
Here is a rundown of these critical external stakeholders and how they affect a corporate entity, including their rights and responsibilities for a seamless business process.
As cliche as it sounds, the customer is always right. This statement explains how important customers are to the survival of a business. Essentially, without the customers, a business may not see the light of day.
Therefore customers are among the most important external stakeholders of any business as they contribute to the revenue generation through their purchases and demands. In return, they expect high-quality products and services for their sustained patronage and loyalty to the brand.
Additionally, customers do not want to be overcharged for the products and services they purchase. At the same time, businesses expect direct payment from their customers without an intention to steal from the company.
The wants of customers may clash with an internal key stakeholder such as the Chief Financial Officer, the CFO may want to adjust pricing up, but customers want it adjusting down.
Shareholders/Suppliers and Other Business Partners
Shareholders are legal owners of the business through purchasing shares within the company. They can also be investors contributing to the business’s success through increased funding.
These business partners can contribute to the strategic management of the business through ideas and insights to drive the company toward its long-term goals.
Additionally, suppliers provide raw materials for production. Other business partners like creditors provide loans to businesses to help increase their funding, especially during hard economic times. However, higher interest rates can affect a firm’s ability to repay the loans.
The local community consists of residents within the business’s locality. They sometimes form a great percentage of employees or customers and, as such, potentially constitute a significant proportion of both important internal and external stakeholders.
The local community also provides local services and infrastructure for the company in exchange for the development and employment opportunities that the business creates for the local population.
However, businesses owe it to the locals to keep their environment in good condition and carry out business activities that will not result in a debilitating environmental crisis like oil spillage, contributing to climate change, etc.
Essentially, the local community can contribute to the downfall of an enterprise if they perceive their business activities as detrimental to the community through protests, demonstrations and even lawsuits.
Government and Appointed Regulators
They constitute the lawmakers of the state or nation and establish favorable business laws that allow businesses to thrive. As a result, the government is a major external stakeholder in any business.
Governments are responsible for collecting taxes from businesses like the IRS in the United States and other nations. Essentially, the government establishes legal frameworks that affect businesses generally, including consumer behavior.
In the UK there are a wide range of regulatory organisations, such as Ofcom, Ofwat, Ofgem, who set industry specific regulations. They take an active interest in service providers and will often have regular meetings to discuss changes or problems that have been discovered.
As can be seen in the UK at the moment, trade unions are an underestimated external stakeholder affecting a business’s survival. They are responsible for seeking favorable conditions from the government and can also influence government actions through industrial actions, strikes, etc.
At the time of writing, the UK is facing disruption from a wide range of trade unions organising strikes. This action not only disrupts the company they work for, but also has a knock on to the company customers, and may ripple out further to local businesses.
Business rivals in the industry or market responsible for maintaining competition for customers and quality assurance. They encourage business quality development, including how companies treat their workers.
For instance, a company with better employee conditions will attract more talents and workers to boost production and revenue generation compared to companies with unfavorable employee policies. On the contrary, companies with harsh employee policies will lose their workers to those offering better work conditions and eventually run down on return on investment.
Are External Stakeholders More Important Than Internal Stakeholders?
Both external and internal stakeholders play active and critical roles in business. They are like two sides of a coin, and the best way to harness their respective benefits for your enterprise is to understand the difference between them. Here is a table showing the key dissenting areas.
|Internal Stakeholders||External Stakeholders|
|They are considered primary stakeholders in any business and exert a direct influence.||They are considered secondary stakeholders in any business and exert an indirect influence.|
|They constitute entities with a direct interest and directly affect the business activities.||They constitute entities not directly affected by the success or failure of the business.|
|The firm easily controls them.||The firm does not easily control them.|
|They deal with human elements affecting the functionality of the business.||They deal with material and nonliving elements affecting the functionality of the firm.|
|They offer services to the organization from the inside.||They deal with and interact with the organization from the outside.|
|They have access to firsthand information about what happens within the firm and do not depend on external speculations.||They may not have firsthand information about the happenings within the organization and may have to base their judgments on external speculations.|
|They mostly include the business owners, managers, employees, and shareholders.||They mostly include customers, competitors, suppliers, creditors, government and the general public.|
Importance of External Stakeholders
Although external stakeholders do not directly influence the day-to-day business operations, they remain significant. As a result, their importance cannot be neglected. Essentially, they are responsible for creating and maintaining the stability of the business ecosystem necessary for an enterprise to thrive.
They influence business activities through the forces of demand and supply to create realistic expectations from both ends of the entrepreneurial spectrum. This way, they can ensure a safe and fair free market economy for all participants.
Additionally, external stakeholders are responsible for the heterogeneity of the business ecosystem through their various demands and expectations in any business transaction.
For example, the needs of a customer, vendor, or government will never be the same. While the customer seeks consumables, the vendor seeks supplies for retail purposes, and the government may need accurate business reports for proper taxation.
Therefore external stakeholders help in maintaining diversity at work in business relationships. The customer influence on a company’s profit and loss margin through their demand volume is an excellent example of how external stakeholders influence business operations.
So, here is a table explaining how they influence a business.
|External Stakeholders||Business Influence|
|Customers: Those who demand and purchase products and services.||Increased product or service demands lead to business profits.|
Decreased product or service demands lead to business losses.
|Banks: They lend funds to support businesses.||They encourage business growth through loans.|
Higher interest rates can affect the profitability of a business.
|Government: They include politicians who run the affairs of the country or state within which organizations exist.||They can help businesses grow through grants and lenient policies.|
They can impose harsh tax laws leading to unfavorable external business environments.
|Suppliers: They provide raw materials most businesses need for production||Higher cost of raw materials will lead to higher cost of production, making products more expensive for customers.|
Lower cost of raw materials reduces production costs, yields more profit for businesses and makes products more affordable.
|Local Community: They comprise people living in the business location area.||Residents influence a business’s reputation through word of mouth and by forming preconceived notions that could make or mar a firm’s operations.|
Are Stakeholders the Same As Shareholders?
Business stakeholders and shareholders are two terms that sound similar and are sometimes misconstrued. However, they are significantly different as it affects business relationships. The shareholders of a business are legal owners through their ability to purchase shares within the company.
In contrast, stakeholders is a term to describe all factors, internal and external, that significantly influence a business. As a result, all business shareholders are stakeholders, but not all stakeholders are shareholders of a business.
Here is a table of shareholders vs. stakeholders.
|They have legal ownership of the business.||They may not own the business but have significant interests.|
|They form subsets of the business.||They form supersets of the business.|
|Not all companies have shareholders except those limited by shares.||Every company or organization has stakeholders, whether internal or external.|
|They are more concerned with the company’s return on investment.||They are more concerned with the company’s performance.|
|All shareholders are company stakeholders.||Not all stakeholders are shareholders.|
|They occupy a narrower scope within the company.||They occupy a wider scope within the company.|
Frequently Asked Questions
Who Are the Most Important External Stakeholders in Project Management?
The most important external stakeholders in project management are those external factors that directly relate to the project manager’s job description. They include customers, government policymakers, contractors, subcontractors and suppliers.
Who Are the Most Important Stakeholders in Business?
In business, shareholders or business owners are usually seen as the most important stakeholders because they control the business from the inside out. Their decisions influence the overall business activity towards retaining more customers.
Who Are the External Stakeholders in Education?
The external stakeholders in education include but are not limited to school authorities, parents and guardians, school patrons, donors, and sponsors.
Essential stakeholders can make or mar the success of any organization. So, now that you know the most important external stakeholders in business, it is easier to plan your business operations knowing their respective roles.