No business operates in a vacuum. Investors and employees have a stake in what your company does, as do customers. Primary stakeholders are the people or groups directly affected by company policies and decisions. Secondary stakeholders are those who are affected indirectly.
Stakeholders in Business
A standard stakeholder definition is that stakeholders are anyone who has something at risk in your business's behavior, performance and outcomes. The stakes aren't necessarily financial. If, for example, you run a program to reduce domestic violence, abused spouses have a stake in your success. Anyone who has something to gain or lose can be a stakeholder.
Your company can affect stakeholders positively or negatively. Different groups of stakeholders are often found on both the positive or negative side. If your law firm does pro bono work for tenants, for example, that's positive for the renters but possibly negative for landlords.
Examples of Stakeholders
Within the overall stakeholder definition, there are multiple ways to classify stakeholders. If your company launches a new project, the stakeholders in the project are found both inside and outside your business.
- Internal stakeholders are the people inside your company affected by the project, such as employees and managers. These aren't just the people assigned to the project. Higher-level managers who authorize the project are stakeholders; so are employees who shoulder more work when their colleagues prioritize the new assignment.
- External stakeholders are people outside the company who are going to feel an impact. Suppliers, subcontractors, customers and competitors can all be external stakeholders.
- The primary stakeholders of an organization include the people directly affected by a project or policy. If your new project streamlines your manufacturing process so you need half the raw materials, your suppliers are directly affected. If it cuts your factory staff by a third, so are your employees.
- Secondary stakeholders in business feel the effects of your business's actions, but not directly. If you run a successful crime-prevention program for local government, ordinary citizens at risk of being victims are primary stakeholders. Police and emergency room staffs who don't see as many victims of violence would count as secondary stakeholders. Spouses and children of employees putting in extra hours on a project are secondary stakeholders too.
- Key stakeholders have a major influence on the success of the project. They may not fall into either the primary or secondary classes. Government officials who aren't affected by your project but have to authorize permits or building plans can play a key role, for instance.
- Voluntary stakeholders include people who engage with your company or project by choice, such as employees, customers and investors. Involuntary stakeholders don't have a choice. If you open a factory in a new location, people who own homes there have an involuntary stake in what happens.
- Active stakeholders make an effort to influence the outcome of the company's projects. Employees and managers fit in this category, but so do regulators and large investors who demand a say. Passive stakeholders don't normally get involved in policy. Most shareholders have a stake in the company's success, but they don't play a management role.
- Legitimate stakeholders are the ones you acknowledge have a place at the table, such as your staff and customers. If someone claims a stake in your company that you don't think they're entitled to, that makes them illegitimate stakeholders. That could include government officials demanding bribes or lobbying groups wanting to dictate to you.
A given project or business venture may not include all these examples of stakeholders. A reorganization that doesn't affect anyone outside your company might only have internal stakeholders, for instance. You may also have to decide how to classify stakeholders. For example, is a group fighting your plan to clearcut a patch of forest legitimate, illegitimate or a secondary stakeholder speaking for the affected forest?
Why Stakeholders Matter
Dealing with stakeholders is both practical and ethical. It's practical because stakeholders can derail your business plans. If employees think a new project is a waste of time, they may not commit to it; if a community objects to your construction plans, they may demand that local government refuse you the necessary permits. Winning stakeholders over allows you to keep moving towards your goals.
It's ethical because it's not all about you: It's only fair to give people some input into a decision that's going to affect them. Suppose you're building a new store and neighbors are worried about the noise of unloading late-night shipments. Setting up noise-reducing walls or baffles may reduce their opposition. It's also ethical and considerate not to wake people up in the dead of night.
Listening to stakeholders may even improve the project. Perhaps your business always does things a certain way; dealing with external stakeholders can show you newer, better ideas. Talking to secondary stakeholders can make you aware of issues you hadn't even considered. Even if you can't resolve them, you won't be blindsided if the stakeholders go to the media or the local government.
- The more stakeholders you can win over, the better your position when you have to say no to someone.
- If you satisfy stakeholders' concerns, you turn them into allies who want the project to succeed.
- It improves your brand. Showing you can listen to and compromise with external stakeholders demonstrates your company is fair, ethical and honest. That's a big plus when you launch the next project.
- If you need government or legal approval for what you're doing, the more support you can build in the community, the better the chances of winning approval.
Identify Your Stakeholders
Different projects have different stakeholders. Before you can talk to primary and secondary stakeholders, you have to identify them. Then you have to assess how important each stakeholder is.
If, say, you're launching a new product line, you can list some of the stakeholders off the top of your head. The employees and managers who work on the new line obviously have a stake. So do the vendors you'll be paying for more material and the salespeople who have to introduce the line to their customers.
If your plans for the product involve a new factory, the people living nearby may be affected by noise or pollution. A few hundred employees driving to and from the factory at the start of each shift affects traffic on the nearby roads, so you might list other drivers as secondary stakeholders. When you hunt for financing, investors and bankers become key stakeholders.
Identifying secondary stakeholders may take extra work as they're not as immediately obvious. You can start by talking to primary stakeholders about who might be indirectly affected. Brainstorm with your project team about who might need to be added to the stakeholder list. Local regulations may require you to make an extra effort; for example, advertising your proposed development project to anyone who might be affected.
Analyzing and Mapping
After you have your list of stakeholders, analyze their motivations and interests. This may be as simple as talking to them about what they want or don't want from your project. You may find they're concerned about the environment, hopeful for jobs at the new factory, anxious about the value of their property or object to your project on moral grounds.
The next step is to map out the various stakeholder blocks. This gives you a sense of which stakeholders require the most attention. The typical approach requires mapping them onto a quadrant grid:
- High influence, high interest. These are the most important stakeholders, the ones who can determine whether a project succeeds or fails. They're also interested in getting the outcome they want. If you have more than one stakeholder in this section and they don't agree on what you should do, satisfying them all will be difficult.
- High influence, low interest. These stakeholders have power, but as long as you keep them satisfied and informed, they won't feel much need to exercise it.
- Low influence, high interest. An individual homeowner may care what's built in their neighborhood but have very little power to affect it. However, by networking with other homeowners, they can gain enough clout to move into "high influence, high interest."
- Low influence, low interest. As a practical matter, you can ignore people who have neither power nor interest in how your company affects them. You may, however, feel an ethical obligation to consult with them.
Don't assume secondary stakeholders automatically fall into the "low influence, low interest" quadrant. Drivers affected by traffic from a proposed new construction project can complain to local government and argue against putting more cars on the road. Elected officials may listen to them. That can give the objections enough weight that you'll have to pay for road improvements or make other compromises.
Likewise, a prominent community leader, such as a priest, a college president or a banker, can have outside influence even if they're only a secondary stakeholder. The largest employer in town may exert a lot of influence on employees or local government.
Once you know who your stakeholders are, you have to decide on a management strategy. You can't simply manage by manipulation or barking orders. You need to build a positive relationship with stakeholders, at least the ones with enough influence to affect your project.
Communication is essential. In some cases, that may be all you need. The stakeholders objecting to your project may have inaccurate, outdated information. Giving them the facts may resolve their issues. In other cases, you may have to work to persuade people.
It can help to make the stakeholder process formal. The project plan should document your stakeholders and keep a running record of your interactions with them. Let the stakeholders know how you handle questions or requests and get them in writing when possible. A transparent, open process works best for winning allies.
- Treat primary and secondary stakeholders with respect, even if they're not key stakeholders.
- Provide the information they want.
- If you want stakeholders' active participation, find tasks for them to do.
- Show appreciation when stakeholders help you advance toward the finish line.
- Bring stakeholders in as early as possible. If you get their feedback early, it'll be easier to make changes.
- If your project is going to hurt some of your stakeholders, take steps to minimize the damage. If you can't minimize, consider compensating them financially.
None of this guarantees that every stakeholder will end up supporting you. However, the more key people and community leaders you can win over, the better your chances of success become. At the end of the process, make a review of how well everything went. If you see problems in how you dealt with the stakeholders, correct them on the next project.
- Community Tool Box: Identifying and Analyzing Stakeholders and Their Interests
- SpringerLink: Primary Stakeholders
- Health Knowledge: Identifying and managing internal and external stakeholder interests
- Project Manager: What is a Stakeholder?
- ACCA Global: All About Stakeholders
- Stakeholder Map: Primary Stakeholders
Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com