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What are the impacts of stakeholders on a business?

What are the impacts of stakeholders on a business?

In an era when stakeholders wield more power over business outcomes than ever before, every organisation needs to understand the impacts different stakeholder groups can have on its operations


Why stakeholders are having a greater impact than ever

Stakeholders are individuals, groups or organisations directly involved with, or indirectly affected by, a project, product, service or enterprise. As such, stakeholders likewise impact why and how a company does business. Both internal and external stakeholders, from the deeply invested to the mildly interested, at no time have stakeholders been more visible, prominent or vocal than they are today. 

The events of recent years have enhanced the influence of stakeholders, with businesses being held accountable for their actions in ways that would have been inconceivable two decades ago. The resurgence of stakeholder capitalism as a primary business ethos is driving this change. The remit of creating sustainable value for wider society, rather than merely generating profits for shareholders, has a firmer footing now than at any time since the 1960s. Corporate social responsibility and its next generation descendants are headline news and interest in stakeholder management as a discipline is on the rise.

The fallout from the 2008 financial crisis revealed how businesses needed to renew their contract with society if they were to have a sustainable future. Short-termism was no longer viable, and a broader set of stakeholders, including employees, customers, suppliers and communities, had to benefit from business decisions. Now popular movements sparked by social inequality and the climate crisis such as Black Lives Matter and Extinction Rebellion are exposing the actions of corporations. Covid-19 is also playing its part, reforming the business and social landscape. 

The new normal also features a degree of interconnectivity that allows everyone to be a citizen journalist or whistleblower. And as the pandemic has played out, the requirement to understand and respond to the needs of all stakeholders has become paramount to the long-term success of a business. 

How different stakeholders impact a business

A business cannot function without its stakeholders. Each stakeholder group has a role to play, and different levels of influence on business operations. But not all stakeholders are created equal. 

Primary stakeholders are central to the organisation’s purpose. These major players make a direct contribution to the success of the business. They can be both internal – shareholders, employees, the chief executive and board of directors – and external – customers. 

Secondary stakeholders have an indirect influence – government agencies, suppliers, local communities. From publicly traded corporations to small businesses, every organisation has a complex ecosystem of stakeholders, and all of them can have a tangible impact.

  • Shareholders: Despite the rise in stakeholder capitalism, shareholders still hold significant sway. They have a vote on business objectives, can directly influence its stock market value, and provide or withhold investment.  
  • Employees: Despite being key primary internal stakeholders, most employees lack direct control over business decisions. They can nonetheless influence strategy and corporate governance, or even have an immediate impact on output by refusing to work. Employee opinion websites rating employers affect the ability of the organisation to attract and retain top talent. 
  • Customers: The needs and opinions of customers dictate whether a business is able to sell its products and services. Consumer trends, habits and vagaries have an immense impact on brand success. Social media platforms give customers the power to recommend, or denigrate, businesses to a wider audience of contacts.
  • Suppliers: The supply chain is interdependent with the business being supplied: the sustainability of one part affects all the others. The efficiency of communications, operational processes, transport and payments throughout the chain determines the ability of each link to fulfil its purpose.
  • Regulators: The need for organisations to operate within a regulatory framework gives regulators and government agencies the power to hold them accountable, tax them, and even prevent them from trading if they overstep legal and ethical bounds. New laws can restrict operations, while access to funding can boost them.
  • NGOs: By raising public awareness, NGOs can pressure businesses to improve working conditions for employees, reduce their environmental impact, or conciliate the local community. Their influence is oblique, but the impact of a negative campaign can be long-lasting.
  • Local communities: The goodwill of the local community is a valuable business asset, supplying customers and staff, and supporting expansion. But if business activity has negative consequences for the community, their opposition can present significant challenges. 

How to measure the impact of stakeholders

In order to understand the impacts that different types of stakeholders have on its business, an organisation requires access to leading indicators of any potential change in the attitudes those stakeholders have towards the organisation. This information needs to be delivered in a timely manner, before any shift in sentiment has an effect on sales, share value, employee satisfaction and so on. Reports need to be comprehensive, broad reaching, and encompass all shareholder groups.

Sufficient information exists in the public domain to understand the attitudes of stakeholders towards an organisation. In our hyper-transparent reality, in which social platforms give everyone a voice, and the 24-hour media cycle continually updates content, stakeholders willingly share their views. The challenge, when everyone is an author, is to be able to collect the relevant content, analyse it, and extract useable intelligence. 

Advanced stakeholder intelligence solutions use real time data analytics to collate, analyse and report on stakeholder activity, and surface the issues that will have the greatest impact. alva employs a proprietary combination of machine learning models and natural language programming (NLP) semantic analysis to analyse huge volumes of data. Sourcing content from all forms of media, in multiple languages, alva’s stakeholder intelligence can identify specific organisations, topics, sectors, locations and stakeholders. 

The result of this type of stakeholder analysis is an accurate understanding, in real time, of the level of influence, positive or negative power, and legitimacy wielded by each stakeholder, and the urgency with which the business needs to respond. In the new era of stakeholder capitalism businesses need to employ these sophisticated tools to understand the impacts stakeholders are having, and will have, on their success.