The world of business is truly fascinating. Businesses provide a livelihood to the majority of the human race. Even farmers also depend on businesses to sell their products and get inputs for farming.
However, to most of us, the world of business remains a mystery. In this series of blogs, we try to unravel the mysteries of the business.
In this blog, we will learn about the ‘Purpose of managing external relationships.’
Every organization is concerned with maintaining a healthy relationship with suppliers and customers, with whom they interact daily. However, for an organization to be successful, it has to maintain healthy and fruitful relations with all the stakeholders.
There are two primary categories of stakeholders for any company: internal and external. Both have a reason, some “stake” in the success and direction of the company. Internal stakeholders generally have a financial stake and a direct relationship with the company.
Internal stakeholders include owners, investors, stockholders, and employees who have a direct or indirect financial risk tied to the company’s success.
While employees may or may not have a profitability stake or financial risk stake, they do have their financial livelihood at stake
External stakeholders are those who do not have a direct tie to the company. They are not employees and do not have any direct financial interest in the profit or loss of the company. Instead, they have an interest in how the company affects the community or a part of the community.
External stakeholders include government entities such as city councils, local schools, other businesses, and residents in the area where the company conducts business.
Why external relationships are important?
- All stakeholders can impact your organization or project. Internal stakeholders may appear more important because of their proximity to a project or initiative.
- Internal stakeholders may well be ‘close’ and may well be more immediately influential, but their influence may only be key in the short term.
- Arguably external stakeholders wield the most influence on the long-term success of a business or project because external stakeholders will often be the end users/customers.
- That said, during a project external stakeholders should still be identified and managed. While external stakeholders may feel like a distraction or distant from the task at hand it would be a mistake to exclude them from your stakeholder analysis.
Needs of External Stakeholders
The external stakeholder is looking to protect his personal, financial, and business interests. Not every external stakeholder has the same type of stake or interest in any one particular business. The school district concerned about dispensaries has no financial concern.
When the school district and its people lobby the city lawmakers and representatives, the politicians have a two-fold stake.
They must meet their voters’ needs and demands while fostering a business community for success. So the local representatives are external stakeholders in the company who may have conflicting interests based on their own stakeholders.
Other external stakeholder needs include local business development that stimulates a city economy with jobs, revenues, and bigger industries. Businesses in competition with a company are external stakeholders seeking fairness in trade and pricing.
This need is widely seen when a company like Walmart moves into a community and small businesses start to close because they cannot compete with the prices of Walmart.
Roles of External Stakeholders
- The role of external stakeholders starts with voicing opinions on the direction a company is taking.
- External stakeholders will feel that a company is doing something positive or negative in relation to their own personal issues. That opinion serves an advisory role for companies. The external stakeholder has no control over whether the business follows the advice.
- While external stakeholders have no direct control in a company, their indirect control has a great impact on major business development decisions.
Issues with External Stakeholders
It is important that business leaders understand the impact of their company on the community. Consider external stakeholders as partners rather than adversaries.
- Managing external stakeholder input and expectations is important when a business is growing and needs the support of the surrounding power players.
- One of the best ways to manage issues external stakeholders have with your business is to prepare ahead of time for them.
- Plan growth strategies and consult with external stakeholders while in the planning process to get input and develop strategies where everyone wins.
- External stakeholders appreciate being part of the process; it gives the appearance of some level of control.
The external stakeholders are a large and diverse group. They include
- Government and other legal bodies
- Financial Institutions and Creditors
- Consumers Rights Organization and Environmentalist
- Industry Associations
All organizations are affected in some way or the other by the government and legal bodies for legislation, act, or tax policy. These bodies could be operating at the national level (e.g. Central Board of Taxes) or at the local level (e.g. Municipality) or at the international level (e.g. World Trade Organization).
The amount of impact of these bodies on the organization is dependent on the sphere in which it operates i.e. local market, national market, and the international market.
Any government’s economic policy or central bank’s monetary policy has an indirect or direct impact on the organization. A direct impact would be passing legislation to break cartels or monopoly or price regulation.
Financial Institutions and Creditors
Financial institutions, banks, creditors, lenders do not serve as a direct customer for an organization, thereby not really forming the inside core of relationship marketing.
For an organization, it is important to have loyal and long term customer, but it is equally important to have loyal and long term investor who will stay invested in the company. Long term investors provide financial stability to the organization and help companies avoid hostile takeover bids.
Consumer Groups and External Pressure Group
Another extension of external stakeholders is public pressure groups like consumer activists, environmentalists, human and animal activists, ideological groups, local leaders, etc.
Environmentalist groups like Greenpeace, World Wildlife Fund, PETA raise issue against companies which they believe are hurting the environment. Some of the issues raised by this group are illegal dumping of industrial waste in rivers, water wastage, plastic usage, pesticide usage.
Some ideological and animal rights groups are difficult to deal with and negotiated with. It requires a different PR strategy from the company to protect its interest.
Public opinion leaders, civil rights leaders, TV Hosts are high profile individuals who command substantial public support. Any opinion expressed by them against any company can generate a negative environment for the company.
In the current world with 24×7 media and the flow of information, it is very important to pay particular attention to strategies to deal with mass media. Typically, organizations need to develop strategies to tackle news reporters and editors, investigative journalists, and sectoral analysts.
Organizations need to develop a proactive approach in dealing with mass media. By creating open channels of communication with them. This could be achieved through providing them with the actual and crucial business information from the senior management interview or product testing etc.
Sometimes companies join hands in delivering value to customers. This so-called alliance and collaborations have their own set of challenges. These collaborations can be divided into four categories internal (within the industry), external (outside the industry), informal (business network), and formal (trade associations and alliances)
The importance of establishing strong business relationships with investors is enormous, mostly because these relationships determine the success of the company. Many investors participate actively in the decision-making process and endorse the growth of the company by giving advice and using their expertise and connections
Trustworthy entrepreneurs are able to easily establish better relationships with customers and investors. But gaining someone’s trust is a long process, which requires a lot of time and effort. Trust should be earned and, most importantly, deserved.
One of the most significant traits of trustworthy business owners is their ability to fully commit to their venture. Investors trust entrepreneurs who don’t hesitate to put all of their time and money into the business, proving that they are highly committed to succeeding.
Board of directors and the management
The relationship between the board of directors and the management cannot be described as just being that of a relationship between an employee and his or her manager.
Another aspect of the relationship between the board and the management is that more often than not, there is a significant representation of the management in the board.
About Adaptive US
Adaptive US is the world’s #1 leading IIBA EEP. It is the only training organization that provides IIBA certification training with Success Guarantee. Adaptive is a World Leader in IIBA CBAP training, IIBA ECBA training, IIBA CCBA training, IIBA CBDA training, IIBA CCA training, and IIBA AAC training.
Adaptive is a global leader in business analysis certification training with 800+ internationally certified professional. It also conducts BA skill training on Jira, BPM, MS Visio, Balsamiq, UML, Interview Preparation as well as Resume Preparation.
Adaptive has published the following books on business analysis-
- The Handbook of Business,
- 1000 BA Interview Questions,
- Business Consulting 101,
- Practical Requirements Engineering,
- Agile Business Analysis,
- Big Book Of Corporate Jargons,
- Giant Book of BA Techniques,
- Stories for Trainers,
- Practice BA Techniques with Lucidchart,
- Mastering CPRE-FL,
- CPRE-FL Question Bank,
- A Beginner’s Guide to IT Business Analysis.