External Stakeholder Definition
An external stakeholder is someone who has an interest in the success, failure or direction of a company because it directly affects their own interests.
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Identifying Stakeholders
Stakeholders can be categorized as internal or external to an organization. Internal stakeholders are individuals who have a relationship with the company, such as employees, owners or investors.
External stakeholders are those who do not work directly with the company but are influenced in some way by its actions and outcomes. Suppliers, creditors and the general public are commonly considered stakeholders.
Example of an External Stakeholder
Unlike internal stakeholders, external stakeholders do not have a relationship with the company.
Instead, an external stakeholder is often an individual or organization that is impacted by the operations of the business.
For instance, when a company exceeds limits for fossil fuel emissions, the town where the company is located becomes a stakeholder as it is affected by increased pollution.
Conversely external stakeholders may also sometimes have an impact on a company without a connection to it. The government, for example, serves as a stakeholder.
When the government initiates policy changes regarding emissions from fuels it has an impact on the business operations of any entity that has levels of carbon.
A problem that arises for companies with stakeholders is that the interests of these stakeholders may not align. The interests may actually clash with each other.
For example, a company’s main goal from the perspective of its investors and is often seen as maximizing profits and enhancing shareholder value.
As labor costs are a factor for businesses, they may try to keep these costs tightly controlled.
However, this can potentially create challenges for another group of stakeholders. The employees. Successful companies effectively manage the interests and expectations of all their stakeholders.
What Are the Different Types of Stakeholders?
Key stakeholders for a business include shareholders, customers, suppliers and employees.
Some of these stakeholders such as shareholders and employees are internal to the business. Others, like customers and suppliers, are external to the business. Still influenced by its actions.
Nowadays it has become more common to consider a range of stakeholders like governmental bodies, in countries where the business operates or even the general public.
Needs of External Stakeholders
Stakeholders have their concerns related to their finances and economic wellbeing.
Not all external partners have a level of involvement or investment in any business. The school district, when it comes to dispensaries, is not driven by considerations.
When the school district and its community advocate for their cause with city officials and representatives, the lawmakers have an interest.
They should prioritize addressing the concerns and requests of their constituents while also fostering a business community. This means that local representatives are stakeholders in the government who may have interests due to their own stakeholders.
Other external stakeholder needs include promoting business growth, which stimulates the city’s economy by creating jobs, generating income and supporting industries.
Businesses competing with an organization are stakeholders seeking fairness in trade and pricing.
Organization Culture and External Stakeholders
Typically, high level management individuals take into consideration when dealing with stakeholders. In fact, the CEO often meets with city officials, other business leaders and key leaders of stakeholder groups.
However, an organization can greatly benefit from building relationships with stakeholders through fostering a supportive company culture.
When employees are motivated to come to work every day it does not go unnoticed. It serves as proof. Acts as a PR campaign that carries significant weight with external stakeholders.
All employees are often members of the community who send their children to school to vote in elections and contribute through local taxes.
They hold influence over external stakeholder groups. If they are satisfied and successful it leads to community growth.
One way a large partnership can build relationships with partners is by organizing community campaigns where employees have the opportunity to volunteer for local organizations supported by the company.
This approach helps individuals in the community build connections right from the start. It’s advantageous for a CEO to enter a meeting with a partner who’s already enthusiastic about all the great things the company does locally.
Are Partners and Investors the Same?
While investors are a type of partner, they are not the ones. Other examples of partners include employees, customers, suppliers, governments and the general public. Lately there has been a trend towards studying who constitutes a business partner.
The Bottom Line
Partners are individuals or groups that have an interest in the outcomes of an organization. Partners can be internal or external and range from customers and investors to communities and even states.
FAQs
What are the three categories of partners?
Answer: All types of partners in a business can be classified into three categories:
- Internal or external.
- Secondary.
- Indirect.
What are the different levels of partner engagement?
Answer: There are essentially four levels of engagement with partners; informing, consulting, involving and collaborating. Your strategy for engaging with partners should encompass all these levels at a pace and scale.
Is competitor considered a stakeholder?
Answer: Competitors are external stakeholders who compete with organizations for similar opportunities in the same market. Healthy competition fosters improvement of products and services. Offering high quality products and services attracts and retains customers thereby increasing business revenue.