Business

Stakeholder Theory: What Is It, Working, Benefits, Challenges, And More

Soumava Goswami

Business Nov 27, 2023

Stakeholder theory is an ethical concept that stakeholders of a business need to follow to address outcomes of business, profits, trends, and more. The concept also includes the collective impact of the factors above on all stakeholders of the business. The stakeholders of a business include its shareholders, employees, customers, suppliers, financers, government, as well as other individuals and groups.

In this article, you will learn about the general details of stakeholder theory. Apart from that, you will also learn about how this theory works for businesses and their stakeholders. Furthermore, you will also learn about the major benefits and challenges of the stakeholder theory. We will describe each of the benefits and challenges for your better understanding. Hence, to learn more, read on through to the end of the article.

What Is Stakeholder Theory?

According to Investopedia,

“Stakeholder theory describes the composition of organizations as a collection of various individual groups with different interests. These interests, taken together, represent the will of the organization. As much as possible, business decisions should consider the interests of this collective group and advance overall cooperation.”

The stakeholder theory shows the importance of relationships between various stakeholders of a business entity. It also shows how the management of a business must view and manage stakeholders. It describes how the business must treat its stakeholders to make the most economic and social impact to achieving the best results. The target is to maximize the profit of the business and make a strong overall impact.

A business needs to consider the various differences in the priorities of stakeholders. This applies to stakeholders – both internal and external. Internal stakeholders include investors, employees, and owners. On the other hand, external stakeholders include the individuals and groups that are affected by the decisions of the company. These include creditors and suppliers.

An Example

Let’s take the help of an example to explain stakeholder theory. Consider a company where the management and shareholders are in a conflict. Here, the management might make a decision that might not necessarily enhance the value of a shareholder. This can create conflict with the interests of the shareholders.

In this case, the organization can choose performance-based compensation. This helps the organization to tie management incentives to the value of the shareholder. This is one way of addressing stakeholder theory. However, there are various other issues that the company might face. In this case, performance-based compensation will help in boosting short-term performance. This will lead to a negative effect in the company’s long-term growth.

How Does Stakeholder Theory Work?

R. Edward Freeman came up with the stakeholder theory in the year 1984. As per the theory, a business firm must create value for all stakeholders of the organization. Only thinking about the shareholders will not help a business in its growth.

According to Nerdwallet.com,

“When the concept matured, more people understood people’s relationships beyond, within, and outside the entity. The stakeholder theory of the firm brings together the concepts of market and resource utilization and its socio-political impact of it. It defines how managers should understand and treat the stakeholders so that stakeholders’ interests come above all other interests.”

Principles of Stakeholder Theory

There are mainly six main principles of the stakeholder theory:

Principle of Entry & Exit:
Principle of Externalities
Principle of Agency
Principle of Governance
Principle of Contract Cost
Principle of Limited Immortality

What Are The Major Benefits And Challenges Of Stakeholder Theory?

This theory works since it considers all the interests of the (business, project, and/or organization).

According to Indeed.com,

“This theory understands that motivated and invested stakeholders may produce better results for the business and help the organization achieve more ambitious goals. Occasionally, you can apply the theory to ethical concepts, such as responsibility to society, nature, and the future, besides profit maximization and shareholder value creation.”

The following are the major benefits and challenges of stakeholder theory:

Benefits

Here are the major benefits of stakeholder theory that will be advantageous for you:

All the employees of your organization will benefit from it. As a result, you will see an increase in productivity, lower employee turnover, employee satisfaction, and improved mental health of employees. These factors will help the business in further talents for the company.
You will have happier customers, which is essential for a business. If the business gets positive feedback from regular customers, they will become unpaid marketers for the products of the company. This helps in increasing the overall sales of the company.
As the business’s cash flow grows, the finance providers of the company are assured of the company’s repaying capacity.
Often, governments provide help to businesses that expand their operations to new areas of the country. Apart from that, it also helps the business to manage its cash flows in a better manner.

Challenges

Here are a few challenges of stakeholder theory that you need to be aware of:

If a business follows stakeholder theory, it needs to care about all people who are affected by the business’s decisions. Often, a business puts less focus on the company’s shareholders.
Since the shareholders have invested their money to maximize returns, the management has an obligation to keep the former’s interests as the main focus.
It is hard (impossible) to fulfill the interests of everyone associated with the organization.

Bottom Line

Hope this article was helpful for you in getting a better understanding of stakeholder theory. This is an ethical concept where the business considers the interests of all its stakeholders. The business addresses the outcome, trends, profits, etc., associated with a business decision. The collective impact falls on the employees, shareholders, and all other stakeholders.

The stakeholder theory works as per its six principles. R. Edward Freeman was the first person to coin the term stakeholder theory and conceptualize it in his 1983 article. Do you have more information to add regarding this ethical theory in business management? Share your thoughts and opinions with us in the comments section below.

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Soumava Goswami

Inspired by The Social Network, Soumava loves to find ways to make small businesses successful – he spends most of his time analyzing case studies of successful small businesses. With 5+ years of experience in flourishing with a small MarTech company, he knows countless tricks that work in favor of small businesses. His keen interest in finance is what fuels his passion for giving the best advice for small business operations. He loves to invest his time familiarizing himself with the latest business trends and brainstorming ways to apply them. From handling customer feedback to making the right business decisions, you’ll find all the answers with him!

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Main Types Of Logos: Why Is It Needed?

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However, the rule is to keep everything simple and appealing. The use of creativity and different elements can be very refreshing and unique for the creation of the logo. Read More: How To Create A Powerful Business Continuity Plan?How To Build A Personal Brand For Your Business? – 7 Rules To FollowHow To Create A Powerful Strategic Marketing Plan – Step By Step Guide

How To Run A Social Media Campaign At A Low Budget For An Aspiring Entrepreneur?

Do you want to run a social media campaign on a low budget? If yes, you have to identify some of the essential facts that can work well in your favor. The application of the social media campaign can work well for an aspiring entrepreneur. Young Entrepreneurs need to think out of the box and deliver their best effort for fainting the momentum in a competitive business world. Proper and effective use of social media campaigns can boost your business growth in a short time frame. Before knowing the details of the campaigns, tips, and tricks, you have to understand some essential facts that can work well for you. What Is Social Media Marketing? Social media marketing simply means using social media platforms and the networks that can help you market the company’s products and services to reach out to the prospects and the customers for steadily developing your business. Many customers are interacting with the brands using social media platforms. Therefore, social media campaigns can help your business to multiply at a rapid pace. Which Social Media Channels Can Bring In More Revenue In 2021-2022? The scope of earning from the social media campaigns is huge in 2021-2022. So let’s find out the channels that can provide you this opportunity to become the next Social media business tycoon. Facebook. Instagram. LinkedIn. YouTube. Twitter. Snapchat. In my next article, I will talk about the daily subscribers of these channels. Stay tuned to get more exciting news about the social media revolution that is dominating the digital world. Benefits Of A Social Media Campaign There are several benefits of running a social media campaign at a low budget for your business. Let’s explore the facts to understand the importance of it. 1. Creates A Brand Recognition Creating brand recognition is one of the essential marketing goals for any company. Social media platforms can help you build brand recognition that will help your business grow at a rapid pace. In addition, social media platforms can help your business grow at a fast rate in a short time frame. It makes brand-building simple and effective. The chances of brand recognition will increase due to it. It draws the audience's attention even when you are not thinking about it. 2. Increases The Sales Digital marketing professionals are of the opinion that they must allow the increase of sales for your business. With more visibility in place, your company gets more opportunities for converting potential customers to actual customers. It is the reason why social media marketing can help your business to increase its level of sales. Therefore, the proper execution of social media marketing plans can prove very beneficial for your business. Sales figures for your business will boost when you can build your business awareness in the best possible manner. Compare the metrics of the social media platforms to understand the current market scenario. 3. Measuring The Success With Analytics Without tracking the data, you cannot follow the performance of the social media marketing metrics. Google Analytics is one of the most advanced social media data that allows you to track the current market trend. It can help your business to grow at a rapid pace in a short time frame. Proper execution of the plans can help you properly achieve your goals. Your conversion rate determines which social media campaign will help you to get more profit. 4. Discover How To Connect With Your Audience When you monitor the social conversation about some of the specific topics then it can increase the level of social listening. In addition, it will help you to identify the trends that can work well for you when you want to engage in social media campaigns. You will know about the problems which will help you to create different types of content and will address those issues. It will help you to understand the tone and the language of your target audience. Once you know that accurately you can make your decisions for business development. 5. Cost-Effective Your customer’s queries can be resolved in a short time using social media campaigns. Moreover, it provides you maximum market exposure at a minimum cost. As a result, you can grow rapidly well in all aspects. It is the most inexpensive compared to other types of marketing tactics. Today 80% of the world’s medium and small-scale businesses are dependent on social media platforms. Always start with a small approach to achieve your big goals. 6. Helps You To Get Marketplace Insights Gaining the insights of market social media campaigns can prove to be an effective tool in your hand. It can help you to multiply your business rapidly. For that, you need to stay active in social media platforms for knowing the customer’s interest and opinion. It is one of the best research tools available to you. For developing your market intelligence, social media platforms can work well for you. Create marketplace insights that can work well for you. 7. Higher Conversion Rate The best part of social media platforms is that it can increase your conversion rate in a short period. The conversion rate of your business will increase when you make use of the best social media campaigns. Thus, it will help you to grow your business at a faster pace. It can help you personify your brand when sharing your content, commenting, and updating your social media status. When you compare the two aspects of social media marketing and traditional marketing, the success rate of social media campaigns is 100% compared to that of the other branding websites. 8. Better Customer Satisfaction Social Media Campaigns will help you to increase the level of your customer satisfaction. The reason is that you can instantly solve your customers’ queries through chat box messages, which will help you improve your brand loyalty. Proper application of the brand strategy can help your business multiply in a short time frame. In addition, a social media campaign can make things easier for you to achieve your business goals in the best possible ways. Ensuring customer satisfaction is one of the primary goals of your business that can work well for you. From the information above, we have got a clear idea about the benefits of social media marketing. Now it’s time to understand how you can implement those strategies for upgrading your business. Essential Social Media Tips For Your Business Are you not feeling excited to know the tips for earning money from Social Media Campaigns? I don’t think that you are feeling bored about it. So now, let’s get started on the most exciting journey about social media campaigns to earn revenue. 1. Start With A Plan It is easier to get started with a social media campaign, but you need to set a clear idea in your mind from where you will begin your business. Then, you can make use of social media platforms to increase the reach of your business awareness. Without a plan, you cannot achieve your business goals in the long run. First, identify the social media platform that can suit your requirement. It can be Facebook, Twitter, Instagram, Pinterest. Select any one of them that suits your needs. 2. Set Social Media Goals Create a business goal that possesses a SMART framework ( Specific, Measurable, Achievable, Result Oriented, Time Framed). It can help you to set the perfect social media marketing strategy to attain your business goals. You can set the metrics that can bring actual business profitability for your organization. For example, aim to acquire customers to raise your conversion rate, rather than simply racking the likes. It can help you to achieve your business objectives in a better way. 3. Competition And Research Make a comparative analysis of how your competitors are using the social media campaigns for multiplying their business. Proper competitive research can make things easier for you to know the market trends. Competitive analysis can help you learn what is working for you and what is not working for you. It is the fundamental aspect of a social media fundraising campaign. In addition, it is a great way to reduce your learning curve. You will get a clear idea of how you have to make your effort to understand the market trend. First, clear up your statement where your social media strategy is lacking. 4. Conduct A Social Media Audit Conduct a social media audit to understand where you are lacking and where you need to improve. What ways you can implement to increase the level of your social media audit. Time to time reviews can work well in your favor. It will provide you with a fair idea of where you stand and where you need to improve. A social media audit can work well for you if you want to increase your business output. Prepare your business plans that can work well in the correct order. 5. Get Inspired You need to look at what your competitors are doing online and where you need to improve. Take inspiration from the success of your business from other industries. You can go through the success stories of many business heads. Pay attention to what you are doing. You need to understand where you need to click, buy or follow. 6. Create A Social Media Calendar You can create a social media calendar that allows you to post consistently. It will enable you to get the most consistent results for your business. You can get the most consistent results for your business once you post relevant and engaging content regularly. It will help you identify which ideas you can automate and which to assign whether you are a contractor or an employee. It will help your business to move in the right way in a short time frame. 7. Decide The Platform That Is Right For You There are various social media platforms from where you can make your business promotion. First, you have to select the best social media platforms that suit your business domain. Here, the correct selection of the business domain matters a lot. It can help your business to grow at a rapid pace. You can create a strategy where it can help you to achieve better results for your business. For example, start a better work process that increases your conversion rate. It can make things easier and effective for your business. Likewise, social Media Campaign can make something practical and easier for you. 8. Be Visual Attention seeking is one of the essential parts of the social media campaign. It can increase your conversion rate, and Social media fundraising campaigns can become easier for you. First, however, you have to prepare your business plans correctly to achieve your objectives in the best possible ways. You need to design the correct strategy that can work well for you from all aspects. For example, visually-oriented platforms like Pinterest and Instagram can work well for you. What Is The Job Role Of A Social Media Campaign Manager? There are several essential job roles of the social media campaign manager. In this article, you will get the complete details of it. They can develop the campaigns all across the social channels. You can monitor the hashtags and trends. To make a detailed analytics report. A social media manager has to interact with customers and prospects. They can find and save online customers’ reviews. They can help you analyze the company’s long-term needs for framing the company’s social media strategy. These are some practical ways that can work well in your favor to achieve your business objectives in the correct forms. What Is The Average Salary Of A Social Media Manager? The average salary of the social media manager is between $71,067, and the additional compensation you will get is $5,440. These are some of the precise metrics that show the growth prospects in this profession. Final Words Hence, these are some crucial facts that you have to ensure while you want to develop your business correctly. Several factors can work well in your favor at the correct point in time. But, first, pick out the best solutions that can work well for your business in the long run. You have to follow some of the simple steps that can work well in your favor at the correct point in time. Then, if you want, you can share your ideas and opinions to develop a perfect business plan for your future and make things more accessible and practical. Read Also: Why Create A Powerful Business Continuity Plan? What Is Network Marketing And How To Do It In 2021 How To Start A Business In 2021 – Best Business Strategies

How To Retire As A Small-Business Owner

Retirement might be the last thing on your mind as a small-business owner but don't neglect to plan for it. After all your hard work, you deserve to enjoy your retirement to the fullest. Learn how you can plan for retirement as a small business owner and what factors to consider as you look to the next chapter. Retirement Factors To Consider As A Small-Business Owner Retirement for small-business owners usually looks a little different than retirement for traditional employees. Some factors to consider before you retire include: Income in retirement: How will you get income during retirement? You might decide to sell the business to cover expenses after you retire, or you might choose to make investments you can use for income in your later years. Your employees: If you have employees, what will they do once you've retired? You may feel responsible for their livelihoods and their future retirement plans. Your retirement lifestyle: After pouring your heart and soul into your business, you may find it tough to walk away. Think about what you can do in retirement that will make you feel the same excitement and passion, whether it's traveling, learning a new skill, or spending more time with grandkids. Set Your Retirement Goals Similar to how you set goals for your business, you should establish goals for your retirement, too. Consider factors like where you plan to live, the expenses you will have, and the income you will need to afford your desired lifestyle. Additionally, ask yourself how old you want to be when you retire and how much money you need to save by then. Make A Retirement Plan Compared to traditional employees, small-business owners have different retirement plans they can pursue. Do your research to choose the right plan for you. Some common retirement plans for small-business owners include: IRA plans: Depending on your business structure, you can open a simplified employee pension (SEP) IRA or a savings incentive match plan for employees (SIMPLE) IRA. A SEP IRA is designed for business owners with at least one employee, while a SIMPLE IRA is for self-employed individuals with 100 or fewer employees. Both plans allow you to contribute to retirement accounts for you and your employees. Self-employed 401(k): If you have no employees, you might consider a self-employed 401(k). Similar to a traditional 401(k), you contribute money to the account, but you act as both the employer and the employee. You can contribute earned income up to a certain contribution limit, in addition to nonelective contributions. Consider Your Investments Before retirement, evaluate the value of your investments, such as stocks and bonds. If you're concerned that your investments won't provide enough financial security, take steps to expand your portfolio. Work with a financial adviser to determine the investments you can make to reach your retirement goals. For example, an annuity can be a great way to invest for retirement. You purchase an annuity from an investment company by paying a lump sum or making payments to an annuity fund. Once you've retired, you'll receive monthly payments from the fund that you can use as a steady source of income. Have An Exit Strategy Once you know your retirement and investment plans, it's also essential to consider your exit strategy for retirement. For example, you may want to sell the business before you retire, or you may prefer to find someone who can take it over. If you want to sell the business, have a flexible strategy in place. That way, you're prepared in case the economy or market conditions experience a downswing. Know The Future Value Of The Business You've undoubtedly invested significant time and money into your small business. When it comes time to determine its value, you need to remain objective so you have an accurate idea of its worth. That's especially true if you plan to use the sale of your business to fund your retirement. It's helpful to conduct a business valuation as you estimate the future value of your business. Typically, this valuation considers the market value of your business's assets and calculates future revenue projections based on historical data. This valuation can also be helpful to determine factors that may impact your business's future value, so you can make adjustments as needed. With some planning and preparation, you can retire from your business successfully — when you're ready, of course. For more help, consider working with a financial or business adviser who can guide the retirement plans and investments that are right for you and your business. Read Also: Top 5 Types Of Business That Are Giving More Profits To The Sellers Top 5 Best B2B Marketing Strategies For The Entrepreneurs In 2021 How To Create A Powerful Business Models For Your Business In 2021

Stakeholder Theory: What Is It, Working, Benefits, Challenges, And More