Stakeholder Definition & Concepts PDF

1 Stakeholder definition: Stakeholder concept definition: People or groups of people who can be affected by, and therefore The view that businesses and their managers have have an interest in, any action by an organisation e.g. owners, res...

1 Stakeholder definition: Stakeholder concept definition: People or groups of people who can be affected by, and therefore The view that businesses and their managers have have an interest in, any action by an organisation e.g. owners, responsibilities to a wide range of groups, not just employees, suppliers, customers, local community, government. shareholders (closely tied to CSR) Internal stakeholders Employees interests: Employees 1. Better pay and working conditions Managers 2. Wider opportunities for career progression Directors 3. Improved job security and satisfaction Shareholders 4. Equal opportunities Managers interests Directors interests 1. Improve customer relations in order to maintain or 1. Organization’s return on investment for their improve the organization’s competitiveness. shareholders 2. Improve their own salaries, bonuses and other fringe 2. Improve their share ownership rights and benefits - just like all employees of the organization performance related bonuses. 3. Improve operational efficiency, labour productivity and 3. Improve the competitiveness of the profits organization as measured by market share and market growth Shareholders interests External stakeholders 1. Share price growth Customers 2. Profits as it means greater dividend Competitors Financiers Trade unions Pressure groups Suppliers The government The local community Customers interests Competitors interests 1. Good quality/safe 1. Operations, such as its product range and 2. Low price/good value pricing strategies. 3. Good customer service 2. Finances of the business e.g. are they a strong rival 3. Benchmark data to measure their own performance, such as sales turnover, market share, and financial ratio analysis.  2 Financiers interests Trade unions interests 1. Financial health of an organization in order to judge the 1. Pay and conditions (safety etc) given to ability of the business to repay its debts and to generate employees profits. 2. Regular and prompt repayment of the money lent to the business. Pressure groups interests Suppliers interests 1. Whether organizations to operate in a socially responsible 1. Secure long term contracts at a fair price and ethical way 2. Prompt payment The government interests The local community interests 1. Laws such as consumer protection, employment, 1. No/limited pollution environmental, equal opportunities, health and safety are 2. Good quality, well paid jobs are given out not broken locally 2. Taxes are paid Conflicts between stakeholders Possible areas of mutual benefits between Employees demand higher wages, which raises production stakeholders’ interests. For example: costs so they can reduce the amount of profits which Improved pay for employees will cost more, conflicts with shareholders desire to receive higher but can result in a more motivated, loyal and dividend payments. productive workforce; resolving the potential conflict in interest between employees and Similarly, senior managers and directors may demand employers can lead to improved efficiency large bonuses for their work, but this may also reduce and higher profits. dividends to the company’s shareholders. Business expansion can generate: Shareholders may demand regular and higher dividend - more profits for shareholders, payments, but this may result in less retained profits - more jobs in the local community, available for production and marketing managers to - more tax revenues for the government, improve their functional roles. - more orders for suppliers. Customers may want lower prices, but this reduces the Customers want value for money, with firm’s profit margin so can upset the company’s competitive prices and good quality products. shareholders. This does not necessarily cause a conflict with managers and directors as businesses that Shareholders/directors want greater efficiency and create value for money are most likely to productivity gains by investing in new technologies, but sustain profits in the long term, generating a this might create job losses for employees. healthy return on investment for shareholders.  3 Economies of scale (E of S) Types of E of S: The factors that lead to a decrease in unit cost as more is 1. Managerial E of S. produced. 2. Marketing E of S. 3. Technical E of S 4. Bulk buying E of S. 5. Financial E of S. 6. Diversification 1.Managerial: When firms grow they can hire specialised 4.Bulk buying: bigger firms can buy in bulk and managers who will do their job more efficiently therefore reducing therefore reduce the costs of their inputs which will unit costs reduce their unit cost 2.Marketing: the cost of advertising is divided by the amount of 5.Financial: Bigger firms have more collateral; units produced, therefore the more units produced the lower the therefore, banks see them as less of a risk to lend marketing cost per unit money to. Therefore they charge them a lower 3.Technical: Bigger firms can use their capital equipment all the interest rate which reduces their cost of borrowing. time because they produce more. Therefore the cost of the capital 6.Diversification: Larger firms are more likely to have equipment is divided by a larger amount of output therefore many products in many markets. Therefore if one reducing the cost of machinery per unit of output. product in a particular market fails it will not cause the firm to go bankrupt because they will have many more products to fall back on “not all your eggs in one basket”. Internal diseconomies of scale Bureaucracy: Paperwork and policies that often get in The factors that lead to an increase in the unit cost of production the way of doing things efficiently and therefore as output increases past a certain point. increase average cost. Types of diseconomies of scale: Control & coordination: The larger the business the 1. Bureaucracy more difficult it is to coordinate the activities of all 2. Control and co-ordination employees efficiently (i.e. ensuring that they’re all doing what they’re supposed to do) External economies of scale: occur when a firm’s average cost of 1. Skilled labour production falls as the industry grows. This means that all firms in Some industries tend to concentrate in the same area. the industry benefit. If one firm trains its workers and some of these Types of external economies of scale: workers leave they will become skilled workers for 1. Skilled labour their new employer, decreasing their need to train 2. Infrastructure them and therefore lowering their costs and 3. Ancillary firms. therefore unit cost. 2. Infrastructure If a particular industry dominates a region then roads, rail and ports etc will be built to accommodate this industry. This will decrease the transport costs for the  4 firms in that industry and therefore decrease their unit cost. 3. Ancillary firms. When firms cluster together, then firms that support these firms will also move nearby. This increases efficiency. External diseconomies of scale: occur when a firm’s average cost 1. Congestion of production increases as the industry grows. This means that all As an industry gets bigger within a country it will firms in the industry benefit. Examples: cause more congestion on roads etc. This will increase 1. Congestion journey time for firms’ deliveries and other 2. Increased competition for resources inefficiencies, increasing their unit cost. 2. Increased competition for resources As an industry grows there will be more competition for the resources that industry needs e.g. specialist raw materials and labour. Due to the increased demand for these scarce resources their price will rise and this will add to a businesses’ cost increasing their unit cost. Businesses grow in one of the following ways: 1. Internal growth (organic) 1. Internal growth (organic) This is when businesses grow due to increased 2. External growth (mergers or takeovers) demand for their goods or services, as businesses need to produce more they will build more factories, move into new territories/countries etc. This is a natural process – that’s why it’s called organic. Why businesses pursue internal growth: - To increase market share & profit - To retain ownership and control of the organization - To maintain its corporate culture - It’s cheaper and less risky than external growth 2. External growth 1. Mergers and acquisitions (M&As) External growth (also known as inorganic growth) takes place when Merger definition: an organization needs the support of a partner organizations for Two or more companies agree to form a single, larger growth. Types of external growth: company. (Cadbury merged with Schweppes and 1. Mergers and acquisitions (M&As) became Cadbury Schweppes). 2. Takeovers Acquisition definition: 3. Joint ventures One company buying a controlling interest (majority 4. Strategic alliances stake) in another company with the agreement of the  5 5. Franchising directors and shareholders in the company being Why businesses pursue external growth? acquired. - To grow at a faster pace than internal growth 2. Takeovers - To increase market share & profit Takeover definition: - To reduce competition One company buying a controlling interest (majority - To diversify product portfolio stake) in another company usually without the agreement of the directors and shareholders in the company being acquired. M&As share similar advantages and disadvantages as takeovers. 1. Joint venture Advantages of M&As and takeovers Definition: These are relatively quick growth methods. A joint venture is an external growth method that Increased economies of scale, especially if the involves two or more organizations agreeing to create merger/acquisition/takeover was horizontal a new business entity, usually for a finite period of Greater profits and market share. time. The newly created business is funded by its Provide opportunities for businesses to diversify, which parent companies. enables them to enter new markets as well as to spread Advantages of a joint venture risks. -Risks are shared by both organisations. -Expertise can be offered by both orgs. Disadvantages of M&As and takeovers -Capital is normally invested by both orgs. Acquisitions/takeover are typically very expensive. For a Disadvantages of a joint venture company to buy out a rival firm is often unaffordable. -Profits have to be split between both of the parties M&As/takeovers often cause redundancies of senior involved in the joint venture managers e.g. no need to have two separate marketing -There can often be a conflict of interest between the directors for an integrated company. two organisations involved Possible diseconomies of scale, due to culture clashes, -Decisions have to be made by both parties, which resistance to change etc slows down the decision-making process M&As/takeovers do not always work, especially in the case of organizational culture clashes. 1. Strategic alliances 1. Franchising definition Definition: A business is a franchise when a person (the Created when two or more organizations join together to benefit franchisee) pays a company (the franchisor e.g. from external growth without having to set up a new separate McDonalds, Pizza Hut etc.) money so that they can entity or to make major changes to their own business models. use its name to trade under. The franchisee will also Advantages of strategic alliances be given help and advice to set up the business by the Same as for Joint Ventures franchisor and is responsible for the day to day Disadvantages of strategic alliances running of the business, e.g. they are responsible for Same as JV, plus: recruitment and training Short-term agreements. This can limit its usefulness as an external growth strategies  6 Advantages of being a franchisee Disadvantages of being a franchisee 1.Operating under a well known name should increase the chances 1.Some of the profits have to be paid to the that the business will be successful. Which is more likely to be franchisor. successful, a McDonald’s or a burger joint called Shine’s Taste 2.The franchisee is not free to make all their own Burger Bar? decisions as the franchisor will want things done in a 2.Advice and guidance is provided by the franchisor to the certain way. For example it may be difficult to be able franchisee. This helps the business to set up and be successful. For to sell items that would be very popular locally but example: menus, décor, uniforms, accounting procedures, not globally. marketing etc Advantages of being a franchisor Disadvantages of being a franchisor 1.Franchisees give them (franchisors) money so that they can trade 1.Difficult to control a large organisation which can under their name. Franchisors have to do relatively little but have outlets across the world. collect a certain amount of money from each franchisee each year. 2.If an outlet is run badly the whole chain can get a 2.When franchisees start up businesses under the franchisor's bad name. name it means that the franchisor is expanding faster than it otherwise would be able to. Think of how Burger King, KFC or McDonald's have expanded so quickly. Chain of production: Methods of Integration The stages a product goes through from raw material Horizontal integration – A merger or takeover to finished good ready for sale. between 2 firms from the same stage of the same Vertical integration chain of production. Backward vertical integration – A merger or takeover between one Conglomerate Integration firm and another firm from further back in the same chain of Merger or takeover between 2 firms in completely production different chains of production. Forward vertical integration – A merger or takeover between one firm and another firm from further forward in the same chain of production Horizontal/Lateral Integration Backwards Vertical Integration Advantages Advantages: Economies of Scale (bulk buying) Secures supplies (at a reasonable cost) Reduced competition as a competitor is merged with or Can restrict competitors access to raw taken over materials Firm knows the industry Disadvantages: Disadvantages No real diversification (still only in one chain No diversification of production) Diseconomies of scale (possibly) Firm may not know the industry very well, leading to inefficiencies  7 Forwards Vertical Integration Conglomerate Integration Advantages: Advantages: Greater access to customers Diversification Ensures products are well displayed and promoted by retail Disadvantages: outlet Firm may not know the industry very well, Disadvantages: leading to inefficiencies No real diversification (still only in one chain of production) Firm may not know the industry very well, leading to inefficiencies Advantages of large firms - why businesses grow Disadvantages of large firms *Large firms get economies of scale and these costs savings allow it *Can acquire monopoly power (restrict supply and to compete internationally which improve a country’s Current raise price), this is bad for consumers and Account international competitiveness *Get economies of scale and therefore if the market is competitive *May suffer from diseconomies of scale and become these cost savings will be passed onto the customer in the form of too bureaucratic lower prices *Workers may become alienated and suffer from poor *Provide more employment motivation *Ability to manage large contracts Advantages of small firms - why businesses stay small Disadvantages of small firms *Personalized service *Difficulties attracting and retaining workers *React quicker to changes in demand *Difficulties raising finance *Convenient locations (small shop compared to supermarket) *Vulnerable to recession due to lack of resources *Good communication and relationships with workers and *No economies of scale and therefore small customers businesses’ prices are usually higher Ansoff’s Matrix definition Market penetration (existing market/product) A decision-making tool, used to devise 4 generic product and Low risk - concentrates on what the firm market growth strategies (Market penetration, Market knows well. development, Product development and Diversification) Focuses on using strategies to increase the usage rate of existing customers. There is little, if any, need for investment expenditure or further market research. It is used to gain market dominance in growing markets and to reduce competition in mature markets. Examples include: charging more competitive prices, using customer loyalty schemes, broadening channels of distribution (e.g. delivery services) and improved advertising campaigns.  8 Market development (existing product/new market) Product development (new product/existing market) Medium risk - might not succeed in unexplored markets. Medium-risk - product development can After all, consumer habits and tastes vary in different parts incur substantial investment costs, such as of the world. the expenditure on market research, It also relies on a greater distribution network, to get the prototyping and test marketing. product to customers spread around the world. Typically, products are developed to replace It can also be expensive for a business to invest and their existing ones (e.g. iPhone 13) or to establish itself in new markets, especially if these are in extend the product range (e.g. iTunes, iPads overseas locations. and Apple Watch) and marketed at current customers Diversification (new product/new market) SWOT analysis definition: High risk - no experience with product or market Maps a firm’s internal (strengths/weakness), external (opportunities/threats) in order to lay out where a company is now in order to develop a strategy to reach an objective. Strengths: Boston Matrix definition: - The things that the organization does well or better in A visual marketing management tool used to analyse comparison to its competitors. a firm’s product portfolio by market growth and - Unique resources etc market share (Star = high MS, high growth, Cash Cow Weaknesses: = high MS, low market growth, ? = low MS, high - Where things could be improved in comparison to market growth, Dog = low MS, low market growth) in competitors. order to maintain a balanced portfolio. - Lack of resources etc. Opportunities:. Benefits of a balanced product portfolio - What opportunities/trends can be taken advantage of? Having a blanched portfolio allows a business - How can you turn your strengths into opportunities? to ensure it has a successful product in the Threats: present and in the future. - External factors that hold back the business, preventing it It also reduces the risks and exposure achieving its organizational goals associated with having just a single product, - How can you stop your weaknesses from becoming e.g. seasonal fluctuations in demand. threats? Boston Matrix Product life cycle  9 Stars Cash cows Successful products with high market share in industries Products with high market share, in mature with high market growth. markets with low market growth. Stars are at the growth stage in their product life cycle. Cash cows are the most profitable in a firm’s Marketers aim to invest in these products in order to turn product portfolio as they are at the maturity them into cash cows. stage in their PLC. Profits are used to invest in ? so that a Question marks (also called problem children or wild cards) production line of future Cash Cows is put in Products with low market share but in a high growth place market. The product is at the introduction stage in the product life Dogs cycle. Dogs are products with low market share in These products use up the firm’s finances (negative cash markets with low or declining growth. flow) but are yet to be profitable. These products are at the decline phase of Marketers may attempt to convert question marks into the PLC. stars, although this needs investment. Firms with too many dogs in their product portfolio will suffer from poor cash flow. Firms need to decide whether to spend money on extending the life of such products, or to divest in order to prevent further losses since they drain cash from the business. Product portfolio strategy Definitions: For question marks, a building strategy is used in order to Globalisation turn question marks into stars. The integration of local markets into a single global For stars, the firm uses a holding strategy – some market investment is needed to maintain high market share and Multinational corporations (MNCs) to sustain consumer demand for the product. Assuming A business that operates (produces/sells goods and/or that stars maintain their relative market share (with or provides services) in more than one country Home country  10 without additional financial support) they will eventually The country in which a multinational company was become cash cows for the business. originally established and where its headquarters are For cash cows, a harvesting strategy is used to milk the based cash from its best-selling products. The funds can be used Host country to finance the investments in stars and question marks. Any country in which a multinational company For dogs, a divesting strategy is used, whereby poor produces that isn’t its home country performing dogs are phased out of the market as they reach the last stage in their product life cycle. Benefits of MNCs to the host country Costs of MNCs to the host country 1. Lower unemployment as MNCs will need workers in the 1.Low skilled jobs may be the only ones created for host country local workers as expats will fill the high skilled jobs 2. Lower prices for consumers as MNC will gain Economies of 2.Local firms may close as they cannot compete with Scale MNCs leading to unemployment 3. Inflow of capital investment (FDI) 3.Depletion of natural resources as MNC usually need 4. Increased economic growth as the goods and services non-renewable resources produced by MNCs contribute to GDP 4.Exploitation of labour if MNC provide low wage 5. Transfer of knowledge and skills from MNC to host employment with poor working conditions (sweat country workers, which should lead to productivity of shops) domestic in longer term 4.Increased pollution as production by NMC's will 6. Improved reputation overseas of MNCs’ country as they lead to higher levels of air, water and soil pollution produce high quality products, leading to greater sales of 5.Limited tax revenue if host government offers products for other firms from the country generous tax breaks for MNC set up in host country 7. Increase in tax revenue - Corporation tax on MNCs’ profits, 6.Loss of cultural diversity – The growing presence of Income tax on MNCs’ workers multinational companies, and the convergence of 8. Improved Current Account as MNC will usually increase habits and tastes brought about by globalization, can exports cause a depletion of local cultures. MNCs and 9. Local suppliers to MNCs will increase their profits globalization have been blamed for causing a cultural shift in how people live, especially for the younger generation.  11 Disadvantages being a partnership (4) Advantages of being a franchisor (2)  12 Stakeholder definition: Types of E of S: (6) Internal diseconomies of scale (def and 2 examples)