Key Takeaways
- ✓ A stakeholder is any individual or group that affects or is affected by an organisation's activities, including employees, customers, suppliers, investors, regulators and local communities.
- ✓ Internal stakeholders operate within the organisation and shape its culture and capability; external stakeholders operate outside it but can significantly constrain or enable its operations.
- ✓ The Mendelow power-interest matrix prioritises stakeholders by mapping power and interest levels: high-power, high-interest stakeholders require close management; low-power, low-interest stakeholders need only monitoring.
- ✓ Conflicting stakeholder interests - such as shareholders seeking cost reductions while employees seek better pay - are a normal feature of organisational life that managers must actively balance.
- ✓ Sustained stakeholder engagement builds trust, reduces reputational risk and creates the social licence to operate that organisations increasingly need in a scrutinised business environment.
Full Transcript
Who are stakeholders in a business context?
Alex: Welcome to the Leadership and Management podcast. I'm Alex, and today Sam and I are getting into stakeholders: who they are, what they want, and how effective managers navigate the reality that different groups often want very different things from the same organisation.
Sam: Thanks, Alex. Stakeholder management is one of those skills that sounds straightforward in theory but is genuinely challenging in practice. The difficulty is that stakeholders don't just have interests; they have power. And managing that combination is central to any leadership role.
What is the difference between internal and external stakeholders?
Alex: Let's define the term first. What exactly is a stakeholder?
Sam: A stakeholder is any individual, group, or organisation that has an interest in or is affected by what a business does. The word 'affected' is important here. It's not just people who choose to engage with the organisation. It includes people who are impacted whether they like it or not. So when Tesco decides to close a store, the stakeholders include the shareholders who might welcome the cost saving, the employees who face redundancy, the local community that loses both jobs and a convenient source of food, and the local council that loses business rates income. All of them are legitimate stakeholders with real interests at stake.
Alex: And you can divide stakeholders into internal and external.
Why do different stakeholders have conflicting interests?
Sam: Yes. Internal stakeholders are within the organisation: employees, managers, and in larger organisations, shareholders or board members. They have a direct, day-to-day stake in the organisation's success. UK employees, for example, are protected by a range of legislation including the Employment Rights Act 1996 and the Equality Act 2010, which reflects society's recognition that employees are a critical stakeholder group.
Alex: The important caveat is that stakeholders don't stay in the same quadrant.
Sam: That's critical. Power and interest levels shift with events. A local community group might have low power in normal times, but if a planning dispute or an environmental issue emerges, they can mobilise, attract media attention, and suddenly become a high-power, high-interest stakeholder that the organisation needs to manage very carefully. Stakeholder mapping isn't a one-time exercise; it's something you need to revisit regularly.
How do organisations manage stakeholder expectations?
Alex: And this plays out differently across sectors. The stakeholder landscape for an NHS trust is very different from that of a retailer.
Sam: Completely. In the NHS, patients are the primary service user, but clinical staff, NHS England, government ministers, unions, and local health boards all have significant power and interest. In a private retailer like Tesco, shareholders and customers are central, but employees, suppliers, and increasingly ESG-focused investors are all exerting pressure. The framework is the same; the specific stakeholders and their relative power vary enormously by sector.
Alex: Here's a question to reflect on. Think about a decision you've been involved in, or observed, where stakeholder interests clearly conflicted. How was that conflict managed, and looking back, was the right balance struck?