Business Decision and Impacts on Stakeholders

Owners, shareholders, workers, customers, government, suppliers and community are basic stakeholders of a business. Whenever a business takes a decision, these stakeholders will have impacts either positive or negative; however, sometimes stakeholders might have positive as well as negative impacts.

Let’s see how various stakeholders of a business are affected by its decision.

Figure: Business and Its Stakeholders 

Think a Case:

ABC Food is a private limited company that has been manufacturing potato chips branded as ‘AALUZ’ employing 50 staffs. ‘AALUZ’ has been highly demanded in the market for its unique taste. ABC Food has been using local potatoes for its production. Now, it has decided to bring automated machine for producing ‘AALUZ’. Using automated machine, it can double its production and ‘AALUZ’ can be produced easily with consistent quality using 5 skilled staffs only. Now let’

s analyse what might be the impacts on various stakeholders for such decision of ABC Food.

Shareholders are interested in earning divided as a return for their investment. They are also interested to have increased value of their investment. Some are also interested to have control over the business for their investment. In the case of ABC Food, shareholders might be very happy as their interest of gaining higher return will be easily satisfied. Even shareholders might be benefited for increased value of investment. With new machines and few workers, ABC Food can lower its operating cost and can earn higher profit. Higher demand can be easily covered so sales increase which in turn provides higher profit to the business. But, the shareholders’ control might be diluted if new shareholders are added for extra capital investment to bring machinery. If loan is taken, shareholders might have less return for interest to be paid back from prospective profit.

Workers are interested in getting job security. Workers of ABC Food might be worried for the decision as the decision will not secure their jobs. The case of redundancy will be the big concern for them. Surely, 45 staffs will be no longer needed as they will be replaced by automated machine. Remaining staffs either have to go for further training or will be replaced by skilled manpower. Whoever will be fortunate enough to remain, they will also be demotivated for having no job security in the future.

Customers are interested in product’s availability. They might be interested in quality to secure good value from products against their pay. Customers of ABC Food might be benefited for the decision. They will have enough supply of ‘AALUZ’ in the future with consistent quality. They might have low price for the same product if ABC Food transfer their cost saving to customers so as to lead the snacks market.

Community is interested in social welfare. They are interested to have benefit to the society but not to have any harm or disturbance to the society or the surroundings. Their interest in business is also employment. They prefer business to hire at least some local people. Community might be frustrated against ABC Food decision for their people will be out of job and unemployment increases in the society. Further, the machine might be noisy creating noise pollution to the surroundings. However, Community might be happy for more of their potatoes will be purchased by ABC Food.

Government is interested in revenue generation from tax collection, economic growth, lower unemployment level etc.  Government might be happy for higher tax collection from higher profit of ABC Food. ABC food will be supporting economic growth contributing to generate higher GDP of the country producing more ‘AALUZ’. However, replacing men with machine might worry government as the decision will make 45 people unemployed.

Suppliers are interested in long term supply, get proper order, earn profit from supply etc. Suppliers of ABC Food are the local farmers and local warehouses. They will be happy for the decision of ABC Food. They will be supplying more potatoes to ABC Food. With automated machines, ABC might be able to calculate future periodic production and can easily outline exact requirement of potatoes. Thus, they might be providing proper supply order and might also be making long term contract with local farmers as suppliers.    

Note that: CIE A-level Business has frequently asked impacts of business decision on stakeholders. Normally, it asks impact of business decision (in specific case given) on any two stakeholders. A-level candidates are required to select any two stakeholders that can be properly explained. They have to explain impacts on those two selected stakeholder based on given case properly; no matter, the impacts are positive, negative or both.