Stakeholders refer to the people, groups of people or entities that are connected to an organization in some or other way. They influence or may be influenced by the policies, procedures and activities carried out by the organization. There are two major groups of stakeholders – internal stakeholders and external stakeholders.
Internal stakeholders are those people who are actively involved in the activities of a business or own shares in the company. These include owners, employees and investors of a company. External stakeholders are those outside parties that are connected to a company due to their shared interests. Examples of these stakeholders include customers, suppliers, competitors, government, etc.
In this article, we will present a description of the internal and external stakeholders and explain the differences between them.
Internal stakeholders
Internal stakeholders are the individuals or parties that are directly involved in the management of the business. These stakeholders have a vested interest in the business and hence, they can directly affect or be affected by the successes or failures experienced by the business.
Internal stakeholders are also known as primary stakeholders. These stakeholders offer services to the organization and are significantly influenced by the outcomes, decisions, and performance of the company. In addition, they are aware of all the internal issues of the company. Internal stakeholders consist of all those who work for the organization, i.e. the employees, the individual or groups who have the ownership of the organization, all those who are involved in the management of the organization, the board of directors and the investors. All of these have a direct stake in the activities in the organization and are critical for the survival of a company.
Internal stakeholders usually have a significant impact on the operations of an organization. For instance, owners are the ones who take critical business decisions. In addition, the managers and employees are actively involved in the routine operations of a company and make various decisions on a daily basis regarding various business activities.
External stakeholders
External stakeholders are all those individuals, groups, firms and organizations that are not directly influenced by the performance of the business. These stakeholders might be interested in the performance and success of the organization, but they are not directly affected by it. They are also known as the secondary stakeholders of an organization.
These external parties constitute the business environment of the organization. They use the financial information and other publicly available information about the company to become aware of its profitability and performance.
External stakeholders are not involved in the everyday operations of an organization; however, the organizational activities do have an impact on them. They are not aware of the internal issues of the company and deal with it from the outside. Some of the external stakeholders are the customers, the suppliers who provide raw materials, clients, creditors, competitors, intermediaries, the general public as well as the government.
Difference between internal stakeholders and external stakeholders
The key points of difference between internal stakeholders and external stakeholders are listed below:
1. Meaning
Internal stakeholders are the people or entities that have a vested interest in the organization and are directly affected by its activities. External stakeholders, in contrast, are those people, groups or parties that are not directly affected by the success or failure of an organization.
2. Kind of influence
There is a direct impact of organizational activities on the internal stakeholders. However, external stakeholders are not directly influenced by organizational activities.
3. What do they do?
Internal stakeholders offer their services to the organization, whereas external stakeholders deal with the organization from the outside.
4. Information available
Internal stakeholders are aware of the internal problems and matters of the organization. In contrast, external stakeholders are not aware of the internal issues. Rather, they use financial information and any other information that is publicly available for different objectives.
5. Kind of stakeholders
Internal stakeholders are considered as the primary stakeholders whereas external stakeholders are considered as the secondary stakeholders.
6. Parties included
Internal stakeholders include the owners, managers, employees and investors of a company. External stakeholders comprise of the customers, competitors, suppliers, creditors, public and the government.
Internal stakeholders vs external stakeholders – tabular comparison
A comparison of internal stakeholders and external stakeholders in tabular form is given below:
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| Meaning | ||||
| Those individuals or groups that are directly influenced by the performance of an organization | Those individuals or groups that are not directly involved in organizational activities, but do have an interest in its success/failure | |||
| Kind of influence | ||||
| Direct | Indirect | |||
| What do they do? | ||||
| Serve the organization | Deal with the organization externally | |||
| Information available | ||||
| Internal matters | Publicly available information | |||
| Kind of stakeholders | ||||
| Primary stakeholders | Secondary stakeholders | |||
| Parties included | ||||
| Owners, managers, employees, investors, etc | Customers, suppliers, competitors, society, government, etc. | |||
Conclusion – internal stakeholders vs external stakeholders
Stakeholders are all those individuals, groups or entities that are interested in the performance of a company. There is direct involvement of internal stakeholders in the operations of a company, and they are directly affected by the way the organization performs. External stakeholders are, however, indirectly affected by the organizational operations and performance.
Both types of stakeholders are important part of the organization. Internal stakeholders are critical for the functioning of an organization. For example, in the absence of employees and managers, an organization cannot carry out its day to day functions. In a similar way, external stakeholders are also very important. Customers are very important external stakeholders as they are the ones who will buy and use the product/service. Similarly, creditors are important as they offer companies the finances they need to carry out their operations. In addition, a company is supposed to adhere to the rules and laws put forward by the government and to pay taxes. Therefore, it is evident that like internal stakeholders, external stakeholders are also very significant. Companies, hence, need to establish good relationships with all of their stakeholders. This can be done when they align their objectives with those of their stakeholders.
