Stakeholder Conflict

Many business objectives complement each other and are acceptable to a broad range of stakeholders. For example, an objective for a business start-up of achieving survival would be supported by nearly all the stakeholders.  It is in no-one’s interest for a business to fail! However, once a business becomes better established and larger, then potential conflicts begin to arise.  Let’s look at two examples in a little detail:

Business expansion versus higher short-term profit:

An objective of increasing the size and scale of a business might be supported by managers, employees, suppliers and the local community – largely for the extra jobs and sales that expansion would bring. 

However, an expansion is often associated with increased costs in the short-term (e.g. extra marketing spending, new locations opened, more production capacity added).  This might result in lower overall profits in the short-term, which may cause conflict with the business shareholders or owners.  In the longer-term, however, most business owners would be pleased to support an expansion if it increases the overall value of the business.

Job losses versus keeping jobs

This has been a big issue for many businesses during the economic downturn in 2008-2010.  In order to reduce costs and conserve cash, business managers have often made redundancies amongst the workforce or introduced other measures like short-time working to reduce wage costs.  This will have been supported by business owners and managers. 

However, it creates a potential conflict with stakeholders such as employees (who are directly affected), the local community (affected by local job losses) and suppliers (who suffer from a reduction in business).

Here are some other potential causes of conflicts between stakeholders:

• “Short-term” thinking by managers may discourage important long-term investment in the business
• New developments in the business such as a major product launch or new factory may require extra finance to be raised, which reduces the control of existing investors
• Investing in new machinery to achieve better efficiency may result in job losses
• Extending products into mass markets may result in lower quality standards

Source: tutor2u

Influence of stakeholders on business objectives

Owners/stakeholders have a big say in how the aims of the business are decided, but other groups also have an influence over decision making. For example, the directors who manage the day-to-day affairs of a company may decide to make make higher sales a top priority rather than profits.
Managers influence a business everyday by the decisions they make. This could include what products and services to offer and who to hire or fire. Managers implement company policy and formulate strategy which affects the running and profit-making ability of a business.
Employees can influence the success of an organisation by their productivity and efficiency in the job, duties and tasks they do everyday. They can also resort to industrial action if they disagree with working conditions, pay or company policies. This could take the form of work to rule, bans on overtime, sit-ins or in extreme cases withdrawal of labour (a strike).
Suppliers can decide whether to raise prices for orders which can obviously affect a firm's profits. Also a supplier's reliability could affect production. If orders do not arrive on time finished goods may not be ready for shipping to customers. Suppliers can also change credit terms which may have cash flow issues for a company and they could decide whether or not to allow discounts for bulk orders or loyal customers.
Government can influence a firm by introducing new laws that can affect operations such as the National Minimum Wage, or they can raise Corporation Tax which would eat into a firm's profits.
Customers can influence a business by deciding to continue to purchase goods and services from the organisation. They can choose to take their custom elsewhere.
Banks influence a firm by permitting or denying loans or overdrafts to companies. They can also charge different interest rates on borrowings.
Local Community can influence a business by petitioning against building or planning permissions for new developments.

Conflicting stakeholder objectives

Different stakeholders have different objectives. The interests of different stakeholder groups can conflict. For example

• Owners generally seek high profits and so may be reluctant to see the business pay high wages to staff.
• A business decision to move production overseas may reduce staff costs. It will therefore benefit owners but work against the interests of existing staff who will lose their jobs. Customers also suffer if they receive a poorer service.
• Managers may decide to open a new factory on a greenfield site but this may upset the local community who want to conserve the natural environment.

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