What Is an Internal Stakeholder?

by Lynne MacDonald; Updated September 26, 2017

Companies do not conduct business in isolation. Without employees to perform the work, customers to purchase the products and suppliers to provide raw materials, a company would not survive for long. The groups that companies rely on or to whom they owe a duty of care are referred to as stakeholders.

Stakeholders

While the idea that companies owe a duty to groups other than shareholders can be traced back to the 1930s, the term stakeholder was first used by researchers from Stanford Research Institute in 1963. Initially, stakeholders included people and companies necessary for an organization's survival: shareholders, employees, customers, suppliers, lenders and society. The definition has expanded over the years and incorporated into management theories, such as corporate social responsibility. The current definition of stakeholders includes everyone who contributes to or is affected by the actions of an organization.

Internal Stakeholders

Internal stakeholders are closest to the company and have a direct monetary stake in the success of the business. Internal stakeholders include employees, managers, customers and shareholders. External stakeholders have a less direct interest in the company and include regulatory bodies and society. The list of stakeholders for each organization will vary depending on its structure and the work it carries out. For academic institutions, internal stakeholders include faculty and students, while doctors, nurses and patients are internal stakeholders for health care providers.

Internal Stakeholder Relationships

The concept of internal stakeholders assists in developing positive working relationships between functional departments. Company departments cannot operate in isolation or pursue conflicting objectives to the detriment of the company's strategic goals and targets. The development of positive working relationships between functional departments allows the company to operate efficiently and effectively. Departments rely on each other to provide goods and services of an acceptable quality and to communicate relevant information openly, honestly and in a timely manner.

Organizational Examples

In a manufacturing organization, the maintenance function and the production department have a supplier/customer relationship. Each can be regarded as a stakeholder of the other as they have an interest in the success of both departments. If the equipment is not adequately maintained, production efficiency will be reduced. If production do not clearly communicate their requirements, maintenance cannot plan and execute the work effectively. In the same way, the planning function can be seen as stakeholder of every department as it requires to co-ordinate company-wide activities.

About the Author

Lynne MacDonald has experience in the fields of human resource management, training, organizational development and law. MacDonald received a law degree from the University of Dundee in 1990 and holds diplomas in personnel management and legal practice. She is a Fellow of the Chartered Institute of Personnel & Development.