Unit 2.3 business

 Unit 2.3 - Understanding the role and importance of stakeholders

Overview of key concepts -

Stakeholders can be internal or external to an organisation

Stakeholders have varying amounts of power to influence decisions within an organisation

Stakeholders can have varying amounts of interest in an organisation

Corporate social responsibility allows organisations to take a holistic approach to the stakeholder concept

Effective communication and consultation is vital to maintain and improve stakeholder relationships

Stakeholder concept-

External stakeholders:

Government, local and national 

Local community

Creditor

Customers

Suppliers

Internal stakeholders:

Employees 

Shareholders

Management team

Stakeholder expectations - 

Government, local and national - Taxes, employment, local or regional investment/development

Local community - Jobs, consideration (noise etc), community involvement and responsible attitude

Creditors - Payments on time and fulfilled satisfactorily

Consumers - safe products, low prices and convenience

Suppliers - prompt, payments and regular orders

Employee -Good working condition, job security and promotional prospects

Shareholders - Satisfactory return on investment

Management team - Bonuses, privileges and share options

Sometimes what the stakeholder expects and what the business expects come into conflict - but not always

Occasionally what the stakeholder expects and what the business expects match - this makes things easier

Employees want rewards for working hard for shareholders 

Shareholders want a high return on their investment

If money is directed to shareholders to keep them satisfied then there is less for employees and visa versa. This creates conflict between the two.

This is known as a 'win lose' situation - one stakeholder wins while one loses.

If employees are treated fairly with good working conditions and rewards then they work harder and therefore increase the value of the business. However to do this the shareholders rewards may need to be reduced for the short term but ultimately it should increase the return on capital employed (ROCE) for shareholders.

This is known as a 'win - win' situation - all stakeholders ultimately win, linked to social responsibility being good for businesses

Stakeholder common interests -

Employees:

Job security, good wage and bonuses

Managers:

Jo security, privileges, bonuses and share allocation

Local government:

employment in area, taxes paid and investment area

Corporate social responsibility - 

The commitment by business to contribute to the community and environment (both ecological and social) This is done through:

Reducing waste pollution

Contributing to educational and social problems

Improving the quality of life of the workforce and their families

Earning adequate returns on employed resources

Cooperating with suppliers to improve their ecological and social commitment

CSR -

Its a way in which businesses can meet their responsibilities to their stakeholders in general. This should bring about:

More efficient use of resources (human and physical)

Positive publicity (especially PR)

Increased interest by potential shareholders

Managing the relationship with stakeholders -

To manage the relationship with either internal or external stakeholders, managers need to use a combination of:

communication

consultation

Communication - 

The concept is so important it is returned to several times through the A level.

Defined as 'the transfer of information between people'

It does however have several elements

Communication process -

The sender - initiates communication 

Message - the information

Medium - how the information is passed on

Receiver - targeted audience

Feedback - was the information received and understood

Communication types can be generated and received

Benefits of effective communication - 

Business manager:

Good quality decisions

Using information as basis for decisions

Employees:

Positive communication (praises etc) should improve performance of workforce

Motivational as employees can feel part of decision making

Customers:

Can discover customers needs and help to fulfil them 

Increase sales and profits

Suppliers:

Supplies arrive on time, important for just in time

Quality of goods assured

Public:

Increased awareness of business which is useful for marketing and recruitment

Increase in profitability and sales

Consultation -

Communication can be formal and informal. Consultation tends too be more formal.

'Talking to interested parties to explain developments and issues; this is done to gather views and ideas which can contribute to the communication process'

Different stakeholders will be consulted with for different reasons. It is not always necessary to consult with the local community for internal changes but important if you want to build a new factory.

Internal consultations -

It will happen when a major change is occurring

Internal stakeholders (employee, managers or shareholders) will be consulted with for major strategic changes to improve the chances of change being successful.

External consultations - 

The notion of pressure groups and interest groups comes in here

These are groups of stakeholders who apply pressure to organisation so that they can influence them

It is these external groups who may be involved in consultations

Summary - 

The stakeholder concept allows businesses to take into consideration the views of internal and eternal groups to improve their business

Listening to stakeholders can make businesses more efficient and improve motivation

Corporate social responsibility is a form of the stakeholder concept in action

However, there can be a conflict between different stakeholders expectations

This conflict can be reduced through effective communication

Consultation is amore formal form of communication to enable effective change to occur

Sometimes stakeholders who hold opposing views are called pressure or interest groups and are normally external




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