Stakeholders and power interest - Internal vs external stake...

Learning Outcomes

After reading this article, you will be able to define what a stakeholder is and differentiate between internal and external stakeholder groups. You will recognise the main objectives and sources of influence for different stakeholders, and assess how their power and interest affect organisational decision-making. You will also explain the use of stakeholder power-interest grids for analysis, particularly Mendelow's matrix, and identify appropriate strategies for engaging with various groups, as required in the ACCA BT exam.

ACCA Business and Technology (BT) Syllabus

For ACCA Business and Technology (BT), you are required to understand stakeholder identification and analysis in organisational contexts. Focus your revision on:

• The definition of stakeholders and the purpose of stakeholder analysis
• The distinction between internal, connected, and external stakeholder groups
• The identification of objectives for each main stakeholder group
• Assessing stakeholder power and interest in influencing organisational decisions
• Use of power-interest matrices (e.g. Mendelow's matrix) to prioritise and manage stakeholders
• How conflicting objectives across groups can affect management decisions

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is typically an internal stakeholder?
   1. Employees
   2. Customers
   3. Suppliers
   4. Local community

2. Give one objective of an external stakeholder group and one of an internal stakeholder group.

3. What does "power" and "interest" mean in stakeholder analysis, and why are these important?

4. According to Mendelow’s matrix, what is the recommended approach for stakeholders with high power and low interest?

Introduction

Stakeholders are central to organisational management and decision-making. Organisations must identify all individuals or groups affected by, or able to influence, their actions. Understanding stakeholder groups—particularly the distinction between internal and external stakeholders—is essential for assessing their influence, predicting potential conflicts, and selecting strategies for stakeholder management.

Key Term: stakeholder
Any individual, group, or organisation with an interest in, or that can affect or be affected by, an organisation’s actions, objectives, or policies.

Types of Stakeholders

Organisations commonly classify stakeholder groups to simplify analysis:

• Internal stakeholders are those within the organisation, such as employees, managers, or owners.
• External stakeholders are outside the organisation but still affected by or able to influence it, such as regulators, community groups, and government.
• Connected stakeholders (sometimes called linked stakeholders) have a direct contractual or transactional relationship, including shareholders, customers, suppliers, and lenders.

Key Term: internal stakeholder
An individual or group located within the organisation, directly involved in its operations or governance, e.g. employees and management.

Key Term: external stakeholder
An individual or group outside the organisation, affected by its actions or able to influence it, without direct involvement in its management or operations.

Main Stakeholder Groups and Objectives

Internal stakeholders

• Employees: seek job security, fair pay, good working conditions, and opportunities for development.
• Managers: want organisational success, career advancement, and sometimes bonuses linked to performance.
• Owners (in small businesses): aim for profitability and business stability.

Connected stakeholders

• Shareholders: interested in financial returns, dividend growth, and long-term value appreciation.
• Suppliers: desire prompt payment, regular orders, and strong business relations.
• Customers: want quality goods or services, value for money, and reliable delivery.
• Finance providers: seek regular repayments, security, and low risk.

External stakeholders

• Government: expects legal compliance, tax payments, and social contributions.
• Local community: interested in employment opportunities and minimal negative impact (e.g. pollution or noise).
• Regulators/pressure groups: advocate for legal, social, or environmental standards.
• Media: may influence public perception through reporting.

Stakeholder Power and Interest

Assessing stakeholder influence is critical for effective management. Two main factors are considered:

• Power: The extent to which a stakeholder can influence organisational decisions, either by formal authority, ability to provide or withdraw resources, or by rallying public support.
• Interest: The degree of concern or stake a stakeholder has in specific organisational outcomes.

Key Term: power-interest grid (Mendelow’s matrix)
A tool for mapping stakeholders according to their level of power and interest in organisational activities, used to determine management strategies for different groups.

Worked Example 1.1

An electronics manufacturer plans to close one of its factories. Internal stakeholders (employees, managers) have a strong interest in maintaining jobs but limited power over the closure decision. Shareholders have high power due to voting rights, and may have varying interest depending on profitability impact. Local government (external) could influence by granting or refusing permits (power) but may have only moderate interest unless jobs are lost.

Answer:
The manufacturer should closely manage high-power, high-interest stakeholders (large shareholders), keep local government satisfied, and inform employees even though their direct power may be limited.

Mendelow’s Matrix: Stakeholder Mapping

Mendelow’s matrix is widely used in analysing and managing stakeholders based on their power (ability to influence) and interest (level of concern).

• Key Players (High Power, High Interest): Involve fully, consult on major decisions, prioritise their needs.
• Keep Satisfied (High Power, Low Interest): Update regularly, address concerns if they arise.
• Keep Informed (Low Power, High Interest): Communicate changes, consult on issues affecting them.
• Minimal Effort (Low Power, Low Interest): Monitor with limited information flow.

Worked Example 1.2

A business is expanding into a new city:

• The city council (high power, low interest) must grant permits.
• Residents (low power, high interest) may have concerns about noise.
• Investors (high power, high interest) are funding the project.

Question: How should management approach each stakeholder group according to Mendelow’s matrix? Answer:
Prioritise investors with ongoing engagement (key players), keep the council satisfied with compliance and updates, inform residents of plans and mitigation steps.

Exam Warning

When analysing a scenario, do not assume all external stakeholders have low power or interest. A government agency can sometimes halt operations (high power), particularly in regulated sectors.

Stakeholder Conflict

Stakeholders frequently have conflicting objectives (e.g. employees want higher pay, shareholders want cost control). Management must balance these interests to avoid disruption, reputational damage, or legal issues.

Worked Example 1.3

An employer proposes efficiency-driven redundancies to improve profitability (shareholder objective). Employees and unions object. The local media increases scrutiny (influencing public opinion).

Answer:
Management must weigh the risk of industrial action (employee power and interest), potential negative publicity, and the importance of retaining shareholder trust.

Summary

Understanding internal and external stakeholder groups, their objectives, and influence is essential for effective management. Power-interest analysis—particularly using frameworks like Mendelow’s matrix—enables organisations to set priorities, minimise conflict, and manage communications according to each stakeholder’s relative importance. Recognising potential conflicts ensures managers can address them proactively.

Key Point Checklist

This article has covered the following key knowledge points:

• Define stakeholders and their categorisation (internal, external, connected)
• Recognise the main objectives of different stakeholder groups
• Explain the concepts of power and interest in stakeholder analysis
• Apply Mendelow’s matrix to assess and prioritise stakeholders
• Identify stakeholder conflicts and recommend management strategies
• Understand why accurate stakeholder mapping is essential for ACCA BT

Key Terms and Concepts

• stakeholder
• internal stakeholder
• external stakeholder
• power-interest grid (Mendelow’s matrix)