Chapter 5- Stakeholders

Question 1

Stakeholder

Answer 1

• A person or party with an interest in the success of a business

Question 2

Internal stakeholders

Answer 2

• They are found within the business
• They are the owners and employees including managers

Question 3

External stakeholders

Answer 3

• They are suppliers, lenders, customers and the local community

Question 4

Why is the business stakeholder relationship extremely important?

Answer 4

• The relationship is two way
• The business affects the stakeholders and the stakeholders affect the business

Question 5

What are the sort of issues involved?

Answer 5

• Which stakeholders are the most important and/ all powerful?
• The objectives of the different stakeholder groups could affect the strategic decisions of the business?
• How are the different stakeholder groups may change?
• The extent to which the stakeholders regard the business as a success

Question 6

Owners

Answer 6

• A business may have a single owner if it is a sole trader, several if it is a partnership, or thousands of shareholders if it is a public limited company
• The owners will want the best possible return on the money they have invested in the business
• they are also likely to want to see the business grow so that these returns increase
• in the short run a business may pursue the objective of growth via low prices
• This will hopefully mean that it captures more of the market and that customers will stay loyal in the long term if the business increases prices
• in Immediate future however this tactic may reduce profits and will have implications for the other stakeholders

Question 7

Employees

Answer 7

• As their livelihood depends on the business, they want the highest wage they can get, a bonus if possible and job security
• Employees also are likely to want the business to offer more than the legal entitlement to holidays, sick pay
• Most employees would like manages to organise their work so that it is interesting challenging and provide some job satisfaction
• Many will want to attend training courses to improve their skills and therefore their pay and promotion prospects

Question 8

Customers

Answer 8

• They want the best quality product at the lowest possible price
• They also want product innovation (each year’s product should be better than the last)
• Of requirements are good customer service such as helpful and polite staff/ easily accessible call centre with well trained customer service representatives to answer any queries
• If consumers are fundamentally dissatisfied with quality, price, service or ethical behaviour they will eventually stop buying from the business which will have significant effect if a sufficient number of people do this
• Consumers may form pressure groups that try to influence the business by generating bad publicity

Question 9

Suppliers

Answer 9

• If a business ceases trading it suppliers lose a source of income
• a supplier would like to see its customers prosper so that it has a regular profit
• It would rather like repeat orders rather than one offs
• It hopes it customers will grow larger so that intern it can increase its own sales to them
• Supplier would also like to be paid as promptly as possible
• a business will try to build up a long-term relationship with its suppliers
• This means using them regularly paying them on time and involving them in any plans for expansion
• Suppliers who are treated as stakeholders are more likely to be loyal and committed because they have a stake in the business in the true sense of the word
• A business that changes suppliers continually and tries to delay payment whenever possible may well be able to lower costs in the short term
• A business shouldn’t be surprised if it needs supplies of a particular kind at short notice, The firms that it has treated as suppliers rather than stakeholders are not prepared to drop everything in order to help out if they are already busy
• While it is sensible for any business to try to drive it cost down this has to be balanced against the benefits of developing a long-term commitment with reliable suppliers who may be crucial to success in the future

Question 10

lenders

Answer 10

• The objective of a lender such as a bank is therefore to get its money back at the agreed time

Question 11

The community

Answer 11

• The people living in the area around the business
• While most people would welcome an increase in their quality of life, they may not all agree that business activity necessarily brings it about
• But businesses bring jobs and great spending power and may also cause property prices to rise and crime levels to fall
• Business activity can also create external costs (these are costs which are not paid by the business itself in the same way that labour and material costs are
• They are paid by society
• Social benefits and social costs refer to the overall benefits and/or costs to society that are involved

Question 12

Social benefits

Answer 12

Private costs(to the firm)+ external costs (to society)

Question 13

Social costs

Answer 13

Private costs (to the firm) + external costs (to society)

Question 14

Private costs and benefits

Answer 14

• Costs that a business pays (e.g. Labour costs.) and the benefits it gets from its activities. (E.g. profit)

Question 15

Social costs and benefits

Answer 15

• The overall or true cost of a businesses activities taking into account external costs and benefits as well as private ones

Question 16

The government

Answer 16

• Not a direct stakeholder in the same way as the others
• It has an interest in any business’s success
• This is because if more people are employed as a result of a businesses activities, the government will pay out less social security benefits and receive increased tax revenue from the business and its employees
• Also as a business grows larger, it may start to export (sell goods abroad)- it helps to improve the UK’s trading position with other countries

Question 17

Summary of a businesses stakeholders and their objectives

Answer 17

Owners
- A satisfactory return on their investment
Customers
- Good quality
- Low prices
- Safe products
- Innovation
- Good customer service
Lenders
- Repayment of the debt at the agreed time
Local community
- Jobs
- Community involvement
- Responsible attitude
Suppliers
- Regular orders
- Prompt payment
Employees
- Good wages and conditions
- Job security
- Job satisfaction
- Promotion prospects