What is a Stakeholder? Understanding Their Importance and Role

Stakeholders serve as the invaluable pillar to any business's success. Without Stakeholders, the companies would be incapable of sustaining for a long time. Understanding “What Is a Stakeholder” and how they impact businesses can help you prepare efficient strategies to scale up your businesses. 

It won’t be wrong to term them as ‘Mascot’ in an organization because no organization is complete without these authorities and departments’ involvement. In this blog, we will walk you through the definition of What Is a Stakeholder, how they impact businesses, their crucial roles, key examples, types, strategies, and more. 

Table of Contents

1) Understanding Stakeholders

2) Importance of Stakeholders

3) Types of Stakeholders

4) Examples of Stakeholders

5) Strategies for Managing Project Stakeholders

6) ) Best Practices for Effective Stakeholder Engagement

7) Conclusion

Understanding Stakeholders

Stakeholders are the concerned persons, groups, authorities, or organizations that have a stake (direct or indirect influence) in a specific project and decision-making. This can be Customers, Employers, Investors, or Suppliers.
 

The term was derived during the ancient horse races. The winner of that horse race was awarded the money collected from the candidates who participated in that race. The entry fee is called a Stake. The person or entity who took care of that money until it was awarded was called a Stakeholder. As a result, the term came into existence!

Importance of Stakeholders

Stakeholders carry an abundance of importance to businesses. Below, we have highlighted that in detail: 

1) Aligning Objectives for Success

The involvement of Stakeholders helps the organization to align project goals efficiently with the people and organization that matters. This helps ensure cooperation and conflict reduction, leading to smoother project execution. 

2) Managing Risks Effectively

No organization thrives without risks, serving as their unavoidable component. However, by involving multiple Stakeholders in the process, you can derive diverse perspectives, leading to minimal risks and better opportunities. Moreover, involving Stakeholders in Risk Management enhances the decision-making operation. 

3) Mobilizing Resources Efficiently

Stakeholders contribute to resource allocation through financial investment, bringing expertise, and supporting networks. Engaging with Stakeholders ensures resources are mobilized effectively, making it easy for businesses to secure funds and partnerships. 

4) Enhancing Legitimacy and Accountability

By involving Stakeholders, you can ensure credibility, accountability, and transparency in your business operations. This approach bestows a genuine level of trust and reputation among those involved in the process. 

Types of Stakeholders

Although Stakeholder types are broader terms, if we group them comprehensively, they can be categorized as Internal and External Stakeholders. Below, we have detailed their definition and key examples: 

1) Internal Stakeholders

Internal Stakeholders are ones that are employed by the organization and directly involved in critical decision-making and business profitability. These include employees, Managing Directors, investors, and business owners.

2) External Stakeholders

In contrast, External Stakeholders aren’t employed by the organization but indirectly influence the smooth running of the business. These include suppliers, vendors, customers, competitors, society, and government.   

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Examples of Stakeholders

There is an abundance of examples of Stakeholders. Almost whatever we perceive pertaining to businesses can be considered as Stakeholders. Here are a few of these examples: 

1) Customers

Involving Customers in this category is a debatable aspect where many argue about their involvement. However, technically, if we analyze, the organization works to serve customers. 

Therefore, customers' reviews profoundly impact their product quality and that product’s quality can affect their health and safety. As such, they can be termed as Stakeholders for their indirect involvement in the brand's profitability.

2) Employees

Employees earn money from the profit earned by the organization. Therefore, depending on the organizational type, the employees may expect lower increments after a year if the profit earned is less. Moreover, they may also have a health and safety interest. 

3) Investors

Investors comprise both Shareholders and Debtholders. Shareholders invest a certain portion of Capital and earn fluctuation returns based on the profits earned by the organization. Consequently, a Debtholder is an owner of a financial obligation of another party. 

4) Suppliers and Vendors

Suppliers and Vendors sell their products or services to the organization and expect returns based on those earned profits. They can also be impacted by health and safety as many Suppliers are directly involved in the process. 

5) Communities

The organizations also have indirect involvement in the communities where they are located. Through these firms, employment opportunities are generated, further enhancing communal living standards. When these organizations shift their plants from that community, it profoundly impacts spending and income in that area. 

6) Governments

The government may also be considered a Stakeholder as it collects taxes from the organization and their employees through corporate and income taxes. The profit earned also contributes to the government's regional GDP. 

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Strategies for Managing Project Stakeholders

Managing project Stakeholders involves numerous strategies that streamline business performance. Here are those key strategies listed: 

1) Identifying Key Stakeholders

The first step to Project Stakeholder Management is identifying who your Stakeholders are. This you can analyze through Project Charter. A Project Charter is a formal document that displays everything related to projects, objectives, key goals, budgets, timelines, and their impact on the regional environment and employment rate. 

You can even find direct mention of Stakeholders in that document, such as customers, project managers, and investors. It's necessary to take this step right after you have created the Project Charter to avoid unnecessary delays at the last moment. 

2) Conducting Stakeholder Analysis

Once you have identified your Stakeholders, you need to perform the analysis of their involvement and details, so you can frame effective communication strategies inclined with their interests. 

3) Prioritizing Stakeholder Needs

Prioritizing Stakeholder needs is as important as any other priority to-do list for the organization. It's important to remember that the Stakeholder value and involvement fluctuate based on the organizational stages and processes. 

For instance, the budget stage might require the participation of the Investors and Creditors. 

4) Engaging Stakeholders Effectively

Every Stakeholder should be equally engaged in the business process. You must listen to their expectations and interests about the organization. For this, you can interview one of those Stakeholders as an expert and get their valuable feedback. 

Accordingly, try fulfilling those expectations. It's important to remember that expectation is not a one-night achievement but rather a continuous earned effort. 

Best Practices for Effective Stakeholder Engagement

You may be familiar with the strategies for effective Stakeholder engagement, but to be competitive, you should be aware of their best practices. These practices will provide you with the edge and also develop better Stakeholder’s satisfaction and trust. Here are those practices listed: 

1) Clear Communication and Message Delivery: Stakeholders might come from diverse backgrounds and cultures. It's important to tailor your message to communicate clearly. Try incorporating solutions to their issues concerned and provide them in a format that is easily accessible to them. 

2) Active Listening: The key to effective Stakeholder engagement is listening to their concerns effectively, especially when dealing with sensitive issues. This will help develop better collaboration and personal bonds on a broader professional scale.  

3) Quick Response and Follow-Up: You might often be surrounded by numerous tasks, which delays your response to the Stakeholder's queries or issues. These Stakeholders could be most commonly Customers and the Community. It's important to plan your schedule accordingly so that you can quickly respond to them, acquiring their invaluable trust.

4) Flexibility and Adaptability: For the organization to thrive, you must remember that Stakeholders aren’t controlled puppets. Rather, they are the critical decision influencers in the process, impacting your overall decision-making. Even if you can’t rectify their prevailing issue, you must acknowledge their constructive feedback and promise to implement them in the future. This will foster a genuine interest in their staked business.

5) Leverage Stakeholder Engagement Tools: You cannot put technology out of the equation when considering the best Stakeholder engagement practice. For this, you can utilize various Stakeholder Engagement Tools such as Stakeholder mapping, Register, Communication Plans, and Matrics. These tools can serve as a framework to enhance your efficiency in the process. 

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Conclusion

Understanding ‘What is a Stakeholder’ acts as a critical parameter for a thriving business. You must be aware of who your Stakeholders are and how they are actively involved in the business operations. This comprehensive overview provides all the required information, helping you profoundly level up your business effectively.