Knowing who your stakeholders are and how to engage with them can make or break your success. Internal and external stakeholders play very different roles in your company, and understanding these differences is crucial for effective communication and decision-making.
In this article, I’ll explore the key differences between internal and external stakeholders and how they impact your business. You’ll also learn the importance of developing strong relationships with them and how to manage their expectations.
By the end of this article, you’ll have a clear understanding of who your stakeholders are, what they want, and how to effectively engage with them.
Definition of Internal and External Stakeholders
Understanding the differences between internal and external stakeholders is crucial in the success of a project. Here are the key differences between them:
- Definition: Internal stakeholders are individuals or groups within the organisation that have a direct interest in the project or are affected by its outcome.
- Examples: Employees, managers, project team members, company owners, and shareholders.
- Influence on project: Internal stakeholders generally have a high level of influence and control over the project since they are responsible for making decisions and executing tasks.
- Communication: Communication with internal stakeholders is usually more frequent and informal as they work closely together during the project.
- Responsibilities: Internal stakeholders are responsible for project planning, execution, monitoring, and closing.
- Definition: External stakeholders are individuals or groups outside the organisation who are also interested in the project or are affected by its outcome.
- Examples: Customers, suppliers, partners, regulators, competitors, and the community.
- Influence on project: External stakeholders may not have direct control over the project but can still have a significant impact on its success through their expectations, requirements, and feedback.
- Communication: Communication with external stakeholders is typically more formal and less frequent, often involving periodic updates and reports.
- Responsibilities: External stakeholders provide input, resources, or expertise to support the project, and their satisfaction is critical for the project’s success.
|Within the organization
|Outside the organization
|Employees, managers, owners
|Customers, suppliers, partners
|Influence on project
|High level of influence
|Significant but indirect impact
|Frequent and informal
|Formal and less frequent
|Project planning and execution
|Input, resources, satisfaction
Benefits of Understanding the Differences between Internal and External Stakeholders
One of the key benefits of understanding the differences between internal and external stakeholders is the ability to identify the groups that are interested in the business activities of an organisation and how they are influenced by the decisions and activities of the company.
By recognising these stakeholders, businesses can better understand their needs, priorities, and concerns.
This understanding can then assist organisations in making informed decisions, allocating resources, identifying risks, and creating stakeholder value.
For instance, by identifying the concerns and needs of internal stakeholders such as managers and employees, companies can allocate resources to areas that improve morale, job satisfaction, and productivity.
Similarly, by identifying the needs of external stakeholders such as customers and suppliers, businesses can make informed decisions about product development, marketing, and supply chain management.
Businesses that understand the differences between internal and external stakeholders are better equipped to engage with and maintain relationships with these groups. For example, they can create targeted strategies that take into account the respective concerns and needs of each stakeholder group. This can help cultivate trust and strengthen relationships, creating a more positive image of the company and facilitating long-term business success.
By considering potential stakeholder reactions to decisions and activities, companies can take steps to mitigate the risks that arise and respond promptly if issues do arise.
Being able to identify and respond to the needs of different stakeholders is imperative for businesses looking to achieve sustainable success.
10 ways to manage internal stakeholders
Managing internal stakeholders is an essential aspect of successful project management. Here are some steps to effectively manage internal stakeholders:
- Identify stakeholders: Begin by identifying all relevant internal stakeholders, such as project team members, managers, executives, and other departments involved in the project.
- Analyse stakeholder needs and expectations: Assess the needs, expectations, and priorities of each stakeholder to understand their perspective and what they expect from the project.
- Establish clear communication channels: Develop and maintain open and transparent communication channels with all internal stakeholders. Determine the best method of communication for each stakeholder, whether it’s through meetings, emails, or phone calls.
- Develop a communication plan: Create a communication plan that outlines how often you will provide updates, what information will be shared, and the format in which it will be presented. This ensures that everyone remains informed about the project’s progress and any changes that occur.
Learn how to create a stakeholder engagement plan that resonates with both internal and external stakeholders.
- Engage stakeholders in decision-making: Involve internal stakeholders in the decision-making process to encourage their buy-in and support for the project. This can help to address concerns and ensure that everyone’s needs are considered.
- Manage conflicts and resolve issues: Address conflicts and issues promptly to maintain a positive working environment. Encourage open discussions and work towards mutually agreeable solutions.
- Monitor stakeholder satisfaction: Regularly assess stakeholder satisfaction throughout the project to ensure that their expectations are being met. Make adjustments as needed to keep stakeholders engaged and supportive.
- Provide training and support: Offer training and support to internal stakeholders, as necessary, to help them fulfill their roles in the project effectively.
- Celebrate successes: Recognize and celebrate milestones and achievements to maintain motivation and foster a sense of team spirit among internal stakeholders.
- Post-project evaluation: After the project is completed, conduct a post-project evaluation to gather feedback from internal stakeholders. This can help identify areas for improvement and strengthen stakeholder relationships for future projects.
10 steps you can take to manage external stakeholders
Managing external stakeholders is crucial for a project’s success and maintaining a positive relationship with those outside your organisation. Here are some steps to effectively manage external stakeholders:
- Identify stakeholders: Start by identifying all relevant external stakeholders, such as customers, suppliers, partners, regulators, and the community.
- Analyse stakeholder needs and expectations: Understand the needs, expectations, and priorities of each external stakeholder to determine how the project may impact them and what they expect from it.
- Establish clear communication channels: Develop and maintain open and transparent communication channels with external stakeholders. Determine the best method of communication for each stakeholder, such as meetings, emails, or phone calls.
- Develop a communication plan: Create a communication plan that outlines how often you will provide updates, what information will be shared, and the format in which it will be presented. This ensures external stakeholders remain informed about the project’s progress and any changes that occur.
- Engage stakeholders in decision-making (when appropriate): Involve external stakeholders in the decision-making process when it is relevant to their interests or when their input could add value to the project. This can help address concerns and ensure their needs are considered.
- Manage conflicts and resolve issues: Address conflicts and issues promptly to maintain a positive relationship with external stakeholders. Encourage open discussions and work towards mutually agreeable solutions.
- Monitor stakeholder satisfaction: Regularly assess stakeholder satisfaction throughout the project to ensure that their expectations are being met. Make adjustments as needed to keep stakeholders engaged and supportive. Discover why engaging stakeholders is the key to successful projects.
- Build and maintain trust: Establish credibility and trust with external stakeholders by being responsive, reliable, and transparent in all communications and interactions.
- Adapt to changing circumstances: Be prepared to adapt your project and communication strategy to accommodate changes in the external environment, such as new regulations, market shifts, or stakeholder priorities.
- Post-project evaluation: After the project is completed, conduct a post-project evaluation to gather feedback from external stakeholders. This can help identify areas for improvement and strengthen stakeholder relationships for future projects.
Related: Discover how to set KPIs and objectives that align with the interests of different stakeholders.
Types of Internal Stakeholders
Internal stakeholders are individuals or groups that are directly involved and have a direct relationship with a business. They have a direct impact on the business, and in turn, the business has an impact on them. The types of internal stakeholders vary and can include employees, management teams, board of directors, shareholders, vendors or suppliers, and business owners, partners, or founders.
Understanding the needs and concerns of these stakeholders is important for businesses to effectively manage their affairs, allocate resources, and make informed decisions. In this section, I’ll explore each type of internal stakeholder in more detail.
Employees are an integral part of any business and as such, they are considered internal stakeholders. Their role within the organisation is to contribute to the overall success of the business by completing assigned tasks and carrying out necessary operations.
As internal stakeholders, employees have a direct interest in the success or failure of the business. If the business is performing well, employees have a greater sense of job security, whereas if the business is struggling, there may be concerns about job stability.
One of the key interests of employees is job stability. They want to know that their jobs are secure and that they can rely on their positions to provide for themselves and their families. This interest is directly tied to the success of the business. If the business is performing well, employees tend to feel more reassured about job stability. Conversely, if the business is struggling, there may be concerns about layoffs and job insecurity.
In addition to job stability, employees are also interested in receiving decent wages and bonuses for their efforts. They want to feel like their hard work is being recognized and valued by the employer. This can include regular pay increases, profit sharing, or other special bonuses and incentives.
Employees can also have a direct influence on the tasks they perform. They have the ability to contribute new ideas or suggest improvements to existing processes. This can help to increase productivity and improve the overall success of the business. For this reason, employees need to have confidence in their employer. They want to know that their input is valued and will be seriously considered.
For these reasons, it’s important for businesses to prioritise the needs and concerns of their employees.
The management team refers to those individuals responsible for overseeing and directing the company’s business activities and decisions. Unlike employees, who are typically lower-level stakeholders, the management team wields a significant amount of authority and control over the company’s operations.
The role and responsibilities of the management team are varied and complex, but ultimately centre around the goal of ensuring the success of the business. This involves making strategic decisions about product development, marketing, financial management, and other critical areas of the company’s operations. The management team must have a clear understanding of the company’s goals and mission in order to effectively steer the ship.
A major concern for the management team is the company’s business performance, as it directly impacts their personal incentives and interests. The performance of a company is often reflected in its stock prices, making it a key area of focus for the management team. A strong performance can attract investors and keep shareholders happy, whereas a weak performance can lead to decreased investor confidence and financial instability.
To aid in their responsibilities, the management team often relies heavily on management accounting. This discipline involves analysing financial data and providing insights that can help inform business decisions.
By providing accurate and timely information about the company’s financial performance, management accounting enables the management team to make informed decisions that can help steer the company towards success.
Learn how digital leaders manage digital transformation while balancing the interests of different stakeholders.
Board of Directors
The Board of Directors is a group of individuals who are responsible for overseeing the management team and making strategic decisions that affect the operational aspects of the company. One of their key responsibilities is to ensure the company’s success and profitability, which includes managing the financial health and market capitalisation of the company.
Their role extends beyond just the company’s financial health, as they also have a responsibility to ensure that the company’s activities align with the interests of its stakeholders, including investors, employees, customers, and the wider community. As such, the Board of Directors must adopt a stakeholder-oriented perspective, balancing the interests of various stakeholders and ensuring that their actions do not cause harm to these parties.
The Board’s main interests lie in satisfying shareholders and owners, expanding the company’s products and services, and maintaining the satisfaction of the management who have taken over the company’s operations. To achieve these goals, they must make strategic decisions that consider the long-term impact of their actions on the company’s stakeholders and their interests.
It is important to understand the Board’s influence on stakeholders, including the potential impact of their decisions on various groups. For example, decisions related to company expansion can affect employees, customers, and other stakeholders, necessitating collaboration and consultation with these parties to minimise any negative effects.
Their interests lie in satisfying investors and owners, expanding the company’s offerings, and maintaining management satisfaction. It is important to understand the Board’s influence on stakeholders and how they can work collaboratively to achieve mutually beneficial outcomes.
Shareholders own a portion of a company, and their primary role is to provide financial support to the business in exchange for a share of its profits. Unlike other internal stakeholders such as employees and management, shareholders do not participate in the day-to-day operations of the company. However, their investment in the company gives them the right to vote on important business decisions, such as board appointments and major mergers or acquisitions.
When it comes to making business decisions, it’s important to prioritise the interests of shareholders. Companies that fail to do so risk alienating their investors, damaging their reputation, and losing out on future investments. This means that business decisions often prioritise profits and growth over other considerations, such as employee welfare or environmental impact.
Having shareholders in a company can bring a range of potential benefits, such as increased access to capital, the ability to offer stock options as a form of compensation, and the ability to leverage voting rights to advocate for beneficial changes within the company. Shareholders can also help to stabilise a company’s finances through their purchase and ownership of stocks, which increases the company’s capitalisation and overall financial health.
Vendors or suppliers play an important role in the success of a business. They provide the raw materials, logistics, and professional services that are essential for a company to operate effectively. Maintaining good relationships with vendors or suppliers is necessary to ensure that the company receives the necessary products and services on time and of good quality.
Good relationships with vendors or suppliers are built on mutual interests. For a business, maintaining a reliable supply chain is essential to delivering its products or services to its customers on time and at a competitive price. Vendors or suppliers, on the other hand, require consistent business from the company to maintain their own operations and financial stability. Both parties benefit from a well-executed partnership that is based on trust and mutual benefits.
However, there are also risks involved when dealing with vendors or suppliers. Late deliveries or inferior quality products can have a negative impact on the company’s reputation and bottom line. It is important to address these risks by maintaining open lines of communication with vendors or suppliers, setting clear expectations for delivery and quality, and having contingency plans in place in case of issues.
Maintaining good relationships with them is essential for a company’s success and requires mutual interests and trust. Different types of vendors or suppliers contribute to various aspects of a company’s operations, and risks associated with them should be addressed proactively to ensure the best possible outcomes.
Business owners, partners, and founders are important internal stakeholders in a company. They are directly involved in making important decisions that affect the overall direction of the business. Their decisions may have a direct impact on the business environment, as well as on other stakeholders, such as employees, customers, and creditors.
One of the primary responsibilities of business owners, partners, and founders is to ensure the success of the business. This involves setting goals, developing strategies, and overseeing the day-to-day operations of the company. They have a moral obligation to act in the best interest of the business and to ensure that all of its activities are conducted ethically and responsibly.
Business owners, partners, and founders are interdependent with other stakeholders, such as the management team and the board of directors. They work closely with these groups to ensure that all decisions are made with a comprehensive understanding of the business’s goals and objectives. The management team may handle the day-to-day aspects of the business, while the board of directors provides guidance and advice on long-term strategic planning.
In general, the roles and responsibilities of business owners, partners, and founders can vary depending on the specific circumstances of each situation. However, their impact on the success of the business cannot be overstated. They play an integral role in the decision-making processes of a company and have a direct influence on its overall direction and success.
Types of External Stakeholders
External stakeholders are individuals or groups who have an interest in the business affairs of a company but are not directly involved in its daily operations. These stakeholders may have a direct or indirect relationship with the company and may have a direct or indirect impact on its success.
There are various types of external stakeholders, including customers/clients, creditors/lenders, competitors, intermediaries, and government agencies. In the following paragraphs, I will discuss each type of external stakeholder in more detail.
Customers and clients are some of the most important external stakeholders for a business. As the primary beneficiaries of a company’s goods or services, they have a vested interest in the quality, quantity, and price of the products offered by the company.
Due to their direct interaction with the company, customers are often the most vocal and visible external stakeholders. Their feedback and opinions can be powerful drivers of a business’ success or failure. This makes it especially important for businesses to consider their customers’ needs and desires when making important business decisions.
The choices a company makes with regards to product quality, quantity, and price can have a direct impact on their customers. For example, if a company decides to lower the quality of their products, it could lead to a decrease in customer satisfaction and loyalty. On the other hand, if a company decides to increase the quantity of their products, it could lead to an increase in customer satisfaction and loyalty.
Their direct involvement in a business’ daily operations and strong influence on product development and delivery make it imperative for businesses to carefully consider their preferences and needs when making important decisions.
Creditors and lenders play an important role in the financial well-being of a business. They provide necessary funding to help the business grow and expand. Their interest in the organisation lies in the repayment of the debt, along with the interest charged for providing the funds. They are considered external stakeholders because they do not directly work for the business but have a vested interest in its financial performance.
There are different types of creditors and lenders ranging from family and friends to big banks. Family and friend creditors offer loans to help a business get started, while banks and financial institutions offer commercial loans, lines of credit, and other types of financing. Trade credit is also a form of debt financing where the business procures raw materials, supplies, and goods on credit from suppliers. Creditors and lenders typically require collateral or a personal guarantee to secure the repayment of their debt.
Financial accounting provides reports that are beneficial to external stakeholders, especially creditors. Financial reports such as the balance sheet and income statement provide a snapshot of the financial health of a business. Creditors can use this information to assess the ability of the business to repay its debt, the level of risk involved, and to make informed decisions about lending to the business.
With the help of financial accounting, businesses can provide accurate and reliable information to their creditors, which in turn helps to maintain a healthy relationship between the two parties.
Competitors are a crucial external stakeholder for any business. They influence the industry, and their actions can have a tremendous impact on a company’s decision making. As such, businesses must monitor their competition closely to stay informed of the latest trends, understand consumer behaviour, and gain a comparative advantage.
There are two main types of competitors: direct and indirect. Direct competitors offer a similar product or service and target the same customer-base. Indirect competitors, on the other hand, provide substitutes or alternatives that have the potential to sway consumer decision making. Ignoring both types of competition can pose significant risks to a business, including loss of market share and decreased revenue.
It is essential for businesses to create a competitive analysis to gain insights and effectively manage risks. Competitor analysis allows companies to Analyse their competitors’ strengths and weaknesses, identify market trends, and assess potential risks. With a comprehensive analysis, businesses can determine their competitive advantage and make informed decisions to stay ahead of their competitors.
By conducting a competitive analysis, businesses can gain valuable information on emerging market trends, new technologies, and changes in consumer behaviour. Armed with this knowledge, companies can develop and implement effective marketing strategies, differentiate their products and services from the competition, and ultimately gain a competitive advantage.
Failing to monitor the competition can lead to a loss of market share and decreased revenue. By conducting a competitive analysis, businesses can gain valuable insights, manage risks, and stay ahead of the competition.
Intermediaries are important external stakeholders in the business ecosystem, and they play a vital role in facilitating transactions between businesses and customers or suppliers. A middleman acts as an intermediary between two or more parties, promoting smooth negotiations and helping to build and maintain positive relationships.
Intermediaries can be individuals or organisations, such as agents, brokers, or distributors, who serve as the go-between, connecting businesses with their customers or suppliers, respectively. This not only helps businesses to reach a wider audience but also enables them to obtain the necessary raw materials and secure the products and services required for their operations.
To describe intermediaries effectively, it is essential to identify the different types of intermediaries that exist and their respective roles. For example, agents typically represent and negotiate on behalf of a business to its suppliers or clients. Brokers, on the other hand, facilitate transactions by finding buyers and sellers and arranging deals between them. Distributors serve as middlemen between a business and its customers, ensuring that products and services reach the market.
In conclusion, understanding the differences between internal and external stakeholders is crucial for any business or organisation. Internal stakeholders have a direct interest and involvement in the company, while external stakeholders have an indirect interest but can still have a significant impact on the business.
By identifying and prioritising the needs and concerns of both types of stakeholders, businesses can create a more effective communication and decision-making process. Remember, both internal and external stakeholders are essential to the success of any organisation, so it’s important to value their input and work towards creating a positive relationship with them.
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Stakeholder management – how it can lead to successful project outcomes
The secret to achieving successful project outcomes lies in the art of stakeholder management. It’s not just about managing stakeholders, it’s about orchestrating a symphony of collaboration and communication. It’s about building relationships and fostering trust with those who have a vested interest in your project.
To truly excel at stakeholder management, you must be a master of influence and persuasion. You need to understand the motivations and needs of each stakeholder and tailor your approach accordingly. It’s about finding common ground and aligning everyone’s interests towards a shared vision.
But it’s not just about managing expectations, it’s about exceeding them. It’s about going above and beyond to deliver exceptional results. It’s about being proactive and anticipating the needs of your stakeholders before they even realize it.
In the world of stakeholder management, there are no shortcuts. It requires dedication, perseverance, and a relentless focus on building strong relationships. It’s about being a strategic thinker and a skilled communicator.
When you master the art of stakeholder management, you unlock the key to successful project outcomes. You create an environment where collaboration thrives and everyone is invested in the project’s success. It’s a recipe for achieving greatness and leaving a lasting impact.
So, if you’re looking to take your project to the next level, look no further than our stakeholder management services. We’ll make sure your project is a resounding success, with all stakeholders aligned and working towards a common goal.