In general, stakeholders are people or entities that have an interest in a company; they affect the business or are affected by the operations of the business. Stakeholders are classified as primary stakeholders and secondary stakeholders. Primary stakeholders are people or entities that participate in direct economic transactions with an organization. Examples of primary stakeholders are employees, customers and suppliers.
Secondary stakeholders are people or entities that do not engage in direct economic transactions with the company. According to the American Society for Quality, secondary stakeholders are indirectly affected by an organization's operational activities. Secondary stakeholders examples are local communities, local workforce boards, activist groups, business support groups and media.
Secondary Stakeholders' Importance
Secondary stakeholders are important to a company because they affect the company's reputation. Secondary stakeholders tend to be more vocal than primary stakeholders. Primary stakeholders are small groups compared to secondary stakeholders. The concerns raised by primary stakeholders, such as suppliers, stay well within that supplier’s group and the business owners. The public perception toward the organization might not be affected even if the organization takes its time in addressing the supplier's issue.
The concerns raised by secondary stakeholders, such as local communities, receive wide media coverage and disseminate to the general public quickly. Any delay in addressing their concerns could damage the company's reputation.
Secondary Stakeholders Effects on Businesses
If a company's production activities damage the air and underground water, local communities and activist groups will likely speak out. For example, In 2018, Sterlite Copper, a subsidiary of Vedanta Group of India, was forced to shut down its operations after continuous protests from residents claiming that the company caused severe damage to air and water.
Secondary stakeholders can also create positive word-of-mouth about an organization in the market. For example, participating in community fundraisers or offering tuition for children of employees can motivate local communities, activist groups and the media to speak in glowing terms about a company.
How to Deal With Secondary Stakeholders
A company should treat secondary stakeholders with dignity and respect. If they voice a genuine concern, the organization should take appropriate steps to address it. If a local workforce board claims that outsourcing activities are increasing layoffs and the company feels the concern is genuine, it should negotiate with the board to arrive at a win-win situation. Organizations that act aggressively toward secondary stakeholders and try to impose their will on them may face severe criticism and negative publicity. The company should show in its actions that it cares for the well-being of secondary stakeholders and values their opinions.
Primary and Secondary Stakeholders in Project Management
Managing stakeholders is an important principle of project management. While planning a project, the project manager should draw a stakeholder matrix to prioritize stakeholders based on their ability to influence the project and the interest they have in the project. According to the Food and Agricultural Organization of the United Nations, projects with a complex set of overlapping stakeholders must have a clear framework for identifying and ranking them. The stakeholder matrix states that powerful stakeholders in a project should be managed carefully. Secondary stakeholders such as local communities, activist groups and media are influential and can affect the success of projects.
Imagine you’re Charlie in Willy Wonka and the Chocolate Factory.
This whole business is all yours! Run around it, eat all the free snacks, enjoy all of the delicious, owning-your-own-business feelings. And then get into work the next day and realize…
Who actually does all of the stuff here? Who’s actually running this place?
Well you, of course. But not just you. Many people have personal and financial interests in your business, and those people are called stakeholders.
What types of stakeholders do you need in business? In this post you get to learn:
- The 10 types of stakeholders you meet in business
- Stakeholder vs. shareholder – have you been referencing the wrong one?
What types of stakeholders are there?
No, that’s not a typo. Each of the types of stakeholders in a business are categorized in 3 ways:
- Internal or external
- Primary or secondary
- Direct or indirect
Internal stakeholders are, as the name suggests, stakeholders that exist inside a business. These are stakeholders who are directly affected by a project, such as employees.
External stakeholders are those who have an interest in the success of a business but do not have a direct affiliation with the projects at an organization. A supplier is an example of an external stakeholder.
Primary stakeholders (also known as key stakeholders) have the highest level of interest in the outcome of a project because they are directly affected by the outcome. They actively contribute to a project. These types of stakeholders include customers and team leaders.
Secondary stakeholders also help to complete projects, but on a lower, general level. These types of stakeholders help with administrative processes, financial, and legal matters.
Direct stakeholders are involved with the day-to-day activities with a project. Employees can be considered direct stakeholders as their daily tasks revolve around projects at a business.
Indirect stakeholders pay attention to the finished project outcome rather than the process of completing it. Indirect stakeholders concern themselves with things like pricing, packaging, and availability. Customers are a type of indirect stakeholder.
- Suppliers
- Owners
- Investors
- Creditors
- Communities
- Trade unions
- Employees
- Government agencies
- Customers
- Media
1. Suppliers
Suppliers are people or businesses who sell goods to your business and rely on you for revenue from the sale of those goods.
In addition to looking out for their own revenue-generation, suppliers are also often concerned with safety, since their products can directly impact your business’ operations.
Is a supplier…
- An internal or external stakeholder? External.
- A primary or secondary stakeholder? Secondary.
- A direct or indirect stakeholder? Indirect.
2. Owners
Owner stakeholders are the owners of an organization. They supply capital or equity to the business and have a say in how everything runs. There can be multiple owners at a business, and each owner would have equity in the business.
Is an owner…
- An internal or external stakeholder? Internal.
- A primary or secondary stakeholder? Primary.
- A direct or indirect stakeholder? Direct.
3. Investors
Investors can include owners but they can also be outside vendors who typically have a right to accurate and timely information such as regular financial statements. Investors may also have the right to approve or reject major decisions like mergers and acquisitions.
An investor does more than just bring you funding to pursue projects that help your business grow. They also can:
- Contribute ideas and give you advice
- Bring connections
- Motivate you
- Help promote and improve your business image
Is an investor…
- An internal or external stakeholder? External.
- A primary or secondary stakeholder? Primary.
- A direct or indirect stakeholder? Direct.
4. Creditors
Creditors lend money to businesses, and they couls also have a secured interest in the company’s worth. Creditors get paid back from the sale of products or services at your business. In the event of a business shutdown, creditors get paid before stockholders.
Creditors can include banks, suppliers, and bondholders.
Is a creditor…
- An internal or external stakeholder? External.
- A primary or secondary stakeholder? Secondary.
- A direct or indirect stakeholder? Indirect.
5. Communities
The community in which a business functions can be considered as another set of stakeholders. Good businesses are considered an asset to any community.
Communities are major stakeholders in businesses because each party (your business and the community) are mutually beneficial in different ways than, say, a supplier and your business.
Communities are impacted by things like
- Job creation
- Safety
- Economic development
- Health (from environmental development)
Is a community…
- An internal or external stakeholder? External.
- A primary or secondary stakeholder? Secondary.
- A direct or indirect stakeholder? Indirect.
6. Trade unions
A trade union (also called labor union) is an organization of workers in a particular industry that exists to secure good improvements in pay, benefits, safe working conditions, or social and political status through collective bargaining.
Every business generally has a relationship with a trade union to keep the interests of other stakeholders, like employees, in mind. Trade unions may be informed and consulted about things like worker safety.
Is a trade union…
- An Internal or external stakeholder? External.
- A primary or secondary stakeholder? Secondary.
- A direct or indirect stakeholder? Indirect.
7. Employees
Employees have a direct stake in the company. They interact directly with customers, earn money to support themselves, and give support to the business operations as well.
Employees can carry out managerial, supervisory or other functions. They typically expect benefits like incentives, career growth and job satisfaction.
Is an employee…
- An internal or external stakeholder? Internal.
- A primary or secondary stakeholder? Primary.
- A direct or indirect stakeholder? Direct.
8. Government agencies
Government agencies can also be thought of as a major stakeholder in a business. They collect taxes from the company, its employees, and from other spending the company does.
Is a government agency…
- An internal or external stakeholder? External.
- A primary or secondary stakeholder? Secondary.
- A direct or indirect stakeholder? Indirect.
9. Customers
Customers are the people who buy business products. Customers expect to buy the best quality from that business but at a fair price.
A business doesn’t exist without customers. Customers get products from businesses, and because of that, they are interested in how a business performs. In turn, businesses need to make conscious efforts to relate to customers and meet their needs.
Customers expect the business to provide efficient and high-quality products and services. In general, meeting the customers’ needs is an extremely important area of concern for ensuring the success of any business.
Customers are directly impacted by the product quality a business gives.
Are customers…
- An internal or external stakeholder? External.
- A primary or secondary stakeholder? Primary.
- A direct or indirect stakeholder? Direct.
10. Media
Every business needs media publication relationships to spread the word about their brand. Businesses often need to interact with press to make an important announcement or advertise their product.
Is the media…
- An internal or external stakeholder? External.
- A primary or secondary stakeholder? Secondary.
- A direct or indirect stakeholder? Indirect.
A quick note on stakeholder management
Understanding the ten types of key stakeholders is only helpful if we put it into action.
How? Stakeholder management.
All of the analysis you’ve done can now be used to gain support and get buy-in for your project.
The key in stakeholder management is to make sure that every stakeholder is heard, without manipulating the process.
Stakeholders vs shareholders: is there a difference?
You might have heard these terms used interchangeably in the past, and we are here to tell you that you shouldn’t.
Yes. and here’s the difference:
- A stakeholder has a vested interest in your business or a project. This type of stakeholder does not typically have a financial stake in your business.
- A shareholder has a financial interest in a business or project. Often a shareholder is a partial owner.
Does it still sound the same to you? That’s ok, because even though they have differences, they are technically still different types of stakeholders.
Shareholdersare a subcategory of stakeholders because shareholders invest money in the business, and so are automatically stakeholders.
However, since groups like employees and local communities do not necessarily invest in the business, they are stakeholders but not shareholders.
This is an important distinction to make because it tells you how best to prioritize your stakeholders when you make decisions that impact each one.
Who is the most important stakeholder of all?
The customer is the //www.destination-innovation.com/who-are-a-companys-most-important-stakeholders/most important stakeholder of all.
Why?
What’s a business without customers? Peter Drucker makes this point in his book, The Practice of Management.
Peter Drucker says the purpose of a company is to create customers.
Without paying customers, each stakeholder in your business is impacted one-by-one, like a trail of falling dominos. A customer can always choose to walk his business over to a competitor. To avoid that, you need to be innovative and offer good products.
“A business enterprise has two basic functions: marketing and innovation.
If we want to know what a business is, we have to start with its purpose. And the purpose must lie outside the business itself. In fact, it must lie in society, since a business enterprise is an organ of society. There is only one valid definition of business purpose: to create a customer.The customer is a foundation of a business and keeps it in existence. The customer alone gives employment. And it is to supply the customer that society entrusts wealth-producing resources to the business enterprise.
Because it is the purpose to create a customer, any business enterprise has two – and only two – basic functions: marketing and innovation. These are the entrepreneurial functions. Marketing is the distinguishing, the unique function of the business.
ACTION POINT: Find out what needs your customers want fulfilled today. Determine how well your products are meeting the needs of your customers. That is the purpose of business.” – Peter F. Drucker
You can’t please every single type of stakeholder involved in your business – and you won’t grow your business by trying to. But if there’s one stakeholder who deserves the most attention, it’s your customers.
Every stakeholder’s primary interest in your business should be the customer. After all, they are the source of your success.