External Stakeholder Definition

A stakeholder who is outside of the company, but has an interest in the company''s success, failure or direction because it impacts their own interests is called an external stakeholder.

Table of Content

• External Stakeholder Definition
• Identifying Stakeholders
• Example of an External Stakeholder
• Challenges Related to Stakeholders
• What Are the Different Types of Stakeholders?
• Needs of External Stakeholders
• Organization Culture and External Stakeholders
• Are Partners and Investors the Same?
• The Bottom Line

Identifying Stakeholders

Stakeholders can be classified as internal or external to an organization. Internal stakeholders are those who have some relationship with the company; for example, employees, owners, or investors.

External stakeholders are individuals or groups who may not have direct transactions with the organization but are impacted in one way or another by its activities and results. Examples of commonly considered stakeholders include suppliers, creditors, and the public.

Example of an External Stakeholder

External stakeholders are stakeholders who do not have a relationship with the organization unlike internal stakeholders.

As such, an external stakeholder is usually the individual or entity affected by the operations of the business.

For instance, when a company exceeds set limits for fossil fuel emissions, the town in which the company is situated becomes a stakeholder because it has to suffer additional pollution.

On the contrary, sometimes external stakeholders affect a company even without relation to it. For example, the government is a stakeholder.

When the government initiates policy change concerning emissions from fuels, it affects the business operations of any entity with levels of carbon.

A challenge for companies with stakeholders is that these interests of the stakeholders can conflict. Opposites are interests that may, in fact, stand against each other in their bare form.

For example, the primary interest of a company from the investors'' and shareholders'' perspective is often the maximization of profits and augmentation of shareholder value.

Since labor comes as a cost to the business, they may like to regulate them as much as possible.

However, doing so may ideally bring challenges for another stakeholder group: the employees. Effective organizations navigate the interests and expectations of all its stakeholders.

What Are the Different Types of Stakeholders?

The primary stakeholders to a business are the shareholders, customers, suppliers, and employees.

Some of these stakeholders, like shareholders and employees, are internal to the business. Others, like customers and suppliers, are external to the business. Still influenced by its actions.

These days it has become more common to include in this list a range of stakeholders like governmental bodies, in countries where the business operates, or even the general public.

Needs of External Stakeholders

The stakeholders have their concerns related to their finances and economic wellbeing.

Not all external partners have a level of involvement or investment in any business. The school district, when it comes to dispensaries, is not driven by considerations.

When the school district and its community advocate for their cause with city officials and representatives, the lawmakers have an interest.

They should ensure that they address the concerns and requests of their constituents, while at the same time creating a business community. That indicates that the local representatives are stakeholders in the government, and they may have interests due to their own stakeholders.

The other external stakeholder needs include promoting business growth. The growth of businesses stimulates the economy of the city through job creation and generation of income as well as supports industry.

Businesses that compete with an organization are stakeholders seeking equity in trade and pricing.

Organization Culture and External Stakeholders

Typically, stakeholder engagement is something considered by high-level management individuals. Actually, the CEO normally meets with city officials, other business leaders, and key leaders of stakeholder groups.

However, building relationships with stakeholders can benefit an organization greatly by simply cultivating a supportive company culture.

When employees are motivated to come to work every day, it does not go unnoticed. It serves as proof. Acts as a PR campaign that carries significant weight with external stakeholders.

All employees are often members of the community who send their children to school, vote in elections, and contribute through local taxes.

They hold influence over external stakeholder groups. If they are satisfied and successful it leads to community growth.

One way in which a large partnership can build relationships with its partners is by organizing community campaigns whereby employees have the opportunity to volunteer for local organizations supported by the company.

This helps the community persons to draw connections right from the beginning. It''s good for a CEO to walk into a meeting with a partner who''s already excited about all the wonderful things the company does locally.

Are Partners and Investors the Same?

While investors are a type of partner, they are not the only ones. Other examples of partners include employees, customers, suppliers, governments, and the general public. Lately, there has been a trend towards studying who constitutes a business partner.

The Bottom Line

A partner may be defined as anyone or any group having some interest in the outcome of an organization. The partners can either be internal or external and may involve customers, investors, communities, states, or any other party.

FAQs

What are the three classifications of partners?

Answer: All kinds of partners in a business can be put into the following three categories:

• Internal or external
• Secondary
• Indirect

What are the different levels of partner''s engagement?

Response: There are essentially four levels of engagement with partners; informing, consulting, involving, and collaborating. Your strategy for engaging with partners should include all these levels at a pace and scale.

Is a competitor considered as a stakeholder?

Question: Who are external stakeholders? Competitors are those organizations that compete with other organizations for the same opportunities available in the marketplace. Healthy competition supports better product and service offerings. Companies offering quality products and services retain more customers, hence an increase in business revenue.