What is a Stakeholder in Business? – Video & Lesson Transcript | Study.com

Stakeholder Meaning and Etymology

The word “stakeholder” dates back to the 1700s. Around that time, it meant a person who holds a wager (a bet made for a particular amount of money). This person had an interest in the outcome of the bet or situation. The word evolved in later years to not only include bets but also financial practices in business dealings.

The Function of Stakeholders

So, what does a stakeholder do? Stakeholders provide services and resources for the company and for each other. Continuing with our print shop example, the employees provide the services like stocking shelves and checking out customers at the cash register. The customers provide the resources or money for the company by purchasing products so the print shop can operate successfully. Both parties work together for the greater good of the business as a whole.

When both groups are doing their jobs, the business is positively impacted and so are the stakeholders. The customers get great service and products, while the employees get a paycheck to pay their bills and take care of other obligations.

The Types of Stakeholders

Because stakeholders are so important to the life of a business, they can’t be grouped together. There are several different individuals and groups that can positively or negatively impact growth. Here are some of the interest bearers whose function is to serve:

• Customer service representatives
• Cashiers
• Custodians
• Stockers

Here are some of the interest bearers who provide resources:

• Customers
• Social media influencers
• Sponsors
• Affiliate marketers

There are too many different types of stakeholders to mention. However, regardless of their function, most fall into two main categories: internal and external.

Internal Stakeholders

The internal stakeholders serve within the organization or company. These are the managers, cashiers, and the folks who help to print the business cards and flyers at the print shop.

External Stakeholders

The difference between internal and external stakeholders is that the external stakeholders do not have ownership in the business while the internal stakeholders do. The external stakeholders are outside of the company. Oddly enough, this includes customers as well as competitors. The other print shop down the street (let’s call it Printing World) is a competitor. The cashiers at Printing World are probably not going to send consumers to Staples when they realize that Printing World is out of ink toner; but since competitors are close by, the consumer will more than likely visit other printing shops to see if those shops have the product they need.

Prioritizing Stakeholders

Since there are multiple internal and external stakeholders, companies often need to determine who has the higher priority in a given situation. Who and what should be addressed first? This question is answered by considering additional questions, such as:

• Whose power and influence will positively or negatively affect the company?
• What does the company need to execute immediately to ensure growth or prohibit decline?
• Which group has the greatest vested interest in the organization?

Power

Prioritization can be determined by the power that a particular person or group possesses within the company. This means that when owners and managers have to address significant challenges, they usually give higher priority to the people with power and authority in the company. For example, the custodians may be threatening to go on strike, but if three of the general managers are threatening to quit if they don’t get a raise, the issue with the managers will be dealt with first. No one wants an unclean store, but the concerns of the managers will be the top priority.

Interest

Another way of prioritizing concerns is by looking at the interests of the stakeholders and how those interests connect with the interests of the company. When different situations occur at Print R Us, rather than considering the power of the parties involved, the managers may shift the focus to the interest of the company itself and what would be best to execute first. This could involve deciding between utilizing funds for remodeling the brick and mortar (physical) store or allotting those funds to expand the online and digital service center to better serve the global market. Which is in the best interest of Print R Us right now? In the current market, the second option would likely be in the company’s best interest.

Stakeholders vs. Shareholders

Stakeholders vs. Shareholders

Although these two terms are very similar, there is one primary difference between the two. Stakeholders, as we’ve discussed, have an interest in the company and can impact or be impacted by company operations. Shareholders, on the other hand, own at least one share of stock in the organization. The difference is that the shareholders put their money into the company and expect a return on their investment.

The Problems of Stakeholders

It may seem easy to provide services and resources in exchange for financial compensation and goods, but this arrangement can come with problems. Stakeholders may be concerned with several items, including:

• Whose interest is being held in higher regard?
• What are the requirements for being a priority stakeholder?
• Why is the company changing?
• Are the changes necessary?

In many cases, stakeholders are concerned about change and how their grievances are being dealt with.

Lesson Summary

Let’s recap what we know about stakeholders.

• A stakeholder is a person or group who has a vested interest in a business and can impact or be impacted by the company’s operations.
• Customers and employees are stakeholders.
• Employees provide services, while customers provide resources.
• Stakeholders have a large role in ensuring the success (or failure) of a company.

Although there are several different types of stakeholders, most fall under two categories: internal and external. Internal stakeholders operate within the business or organization (managers and employees), while external stakeholders operate on the outside (customers and competitors). In addition, shareholders are the actual people who invest in the business. Stakeholders form a powerful group, able to make or break any business.