Learning Outcomes
On completion of this article, you will be able to explain the different types of stakeholders in business, assess their power and interest, and apply the Mendelow matrix to stakeholder management. You will identify sources of expectation and conflict, describe strategies to manage stakeholder needs, and outline practical approaches for resolving stakeholder disputes. This will equip you to analyse stakeholder situations and recommend appropriate engagement and conflict management tactics for the ACCA exam.
ACCA Business and Technology (BT) Syllabus
For ACCA Business and Technology (BT), you are required to understand the classification and management of stakeholders, including tools for analysing power and interest and methods for dealing with conflicts and expectations. Ensure you cover:
- Definitions and types of stakeholders: internal, connected, external
- Stakeholder objectives and the possibility of conflict between them
- Assessment of stakeholder power and interest (e.g. Mendelow matrix)
- How management should respond to stakeholders with varying levels of power and interest
- Common sources of stakeholder conflict and methods for resolution
- Techniques for effective stakeholder communication and expectation management
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- According to Mendelow’s matrix, how should an organisation respond to a stakeholder with high interest but low power?
- List two examples of potential sources of conflict between stakeholders in a business.
- Name one strategy for managing a stakeholder identified as a “key player” in the Mendelow matrix.
- True or false? Internal and connected stakeholders always have aligned objectives.
- Give one method for resolving a conflict arising between management and a major supplier.
Introduction
Businesses depend on relationships with a range of stakeholders, each with their own objectives, expectations, and influence. How an organisation manages the needs of these groups—especially when interests compete—is critical for success. Identifying which stakeholders have the most power and interest, and applying structured tools to manage their expectations and conflict, is a core skill for ACCA candidates.
Key Term: stakeholder
An individual or group who can affect or is affected by an organisation’s actions, objectives, or policies.
Stakeholder Categories
Different stakeholders have varying relationships and levels of influence on the business.
- Internal stakeholders: Those inside the organisation, e.g. employees and managers.
- Connected stakeholders: Those with close, direct relationships, e.g. shareholders, suppliers, customers.
- External stakeholders: Those outside, but still affected by, the business, e.g. regulators, the public, government, pressure groups.
Key Term: internal stakeholder
A member of the organisation with a direct role in its operations.Key Term: connected stakeholder
An individual or organisation with contractual or economic links to the business.Key Term: external stakeholder
A party with no formal connections but who is impacted by or can impact the business.
Stakeholder Objectives and Potential Conflicts
Each group seeks to achieve different aims:
- Employees often value job security and fair pay.
- Shareholders typically seek profit and dividends.
- Customers prioritise quality, price, or service.
- Suppliers may want predictable payments or long-term relationships.
- The general public might expect environmental responsibility or ethical behaviour.
Where objectives differ, conflict can arise. For instance, higher dividends for shareholders might mean less reinvestment, affecting job security for employees.
Worked Example 1.1
A manufacturing firm's management proposes to automate a production line, increasing profits but reducing jobs. Which stakeholders might oppose this, and why?
Answer:
Employees may object due to job losses and reduced security. Shareholders may support automation for higher dividends. The local community could also be concerned about unemployment and economic effects.
Assessing Stakeholder Power and Interest
The importance of a stakeholder depends on both their power (ability to influence business decisions) and interest (level of concern in the organisation's activities). Managing stakeholders systematically requires an assessment of both.
Key Term: power
The degree to which a stakeholder can influence organisational outcomes.Key Term: interest
The extent to which a stakeholder cares about or is affected by organisational activities.
Organisations frequently use the Mendelow matrix to map stakeholders:
- High power, high interest (Key players): Must be closely engaged and involved in making decisions.
- High power, low interest (Keep satisfied): Treat carefully to maintain goodwill and prevent them becoming disruptive.
- Low power, high interest (Keep informed): Regularly update, consult, and listen to their feedback.
- Low power, low interest (Minimal effort): Monitor but require minimal engagement.
Key Term: Mendelow matrix
A two-dimensional tool that categorises stakeholders based on power and interest to prioritise management actions.
Worked Example 1.2
A large pension fund owns 38% of a company's shares but rarely votes at meetings. Where does it fall in Mendelow’s matrix, and how should management act?
Answer:
High power, low interest (“Keep satisfied”). Management should maintain good communication, ensure adequate returns, and avoid actions that could trigger intervention.
Exam Warning
Do not assume that high interest alone means a stakeholder will influence decisions. Only those with sufficient power require direct engagement—some high-interest stakeholders lack any influence.
Strategies for Managing Stakeholder Expectations
A stakeholder engagement approach should be based on both the matrix and the specifics of each situation. Techniques may include:
- Regular communication: newsletters, meetings, reports
- Consultation: surveys, focus groups, representative panels
- Involvement in decision-making (for key players)
- Clear explanations for decisions and their rationale
- Mechanisms for stakeholders to provide feedback or lodge concerns
Proactive expectation management reduces the chance of escalation and maintains trust.
Managing Conflict Between Stakeholders
Conflicts are inevitable and may arise due to:
- Resource allocation decisions (who gets what, when, and how)
- Differing priorities (short-term profits vs. long-term sustainability)
- Policy changes affecting some groups negatively
Common sources include:
- Management vs. employees (e.g. pay awards, restructuring)
- Shareholders vs. wider community (e.g. environmental issues)
- Customers vs. suppliers (e.g. late payments, quality disputes)
Conflict Resolution Techniques
Conflicts may be dealt with by:
- Negotiation and compromise—finding mutually acceptable solutions
- Mediation—using an independent third party to facilitate agreement
- Arbitration—formal, binding decisions by an impartial adjudicator
- Strong internal channels for whistleblowing or complaint resolution
Early and fair conflict resolution keeps stakeholder relationships positive.
Worked Example 1.3
A company’s main supplier threatens to stop deliveries over prolonged late payments. What are the risks, and what should management do?
Answer:
Risk of supply disruption and business interruption. As the supplier is a high-power, high-interest stakeholder, management should open direct negotiation to seek a payment agreement and restore trust.
Revision Tip
Practise categorising real-life stakeholders—determine their position on the matrix and propose one communication or management strategy for each.
Summary
Stakeholder management involves recognising varied stakeholder groups, analysing the power and interest of each, and planning appropriate communication and conflict management strategies. Tools like the Mendelow matrix systematise stakeholder analysis. Effective management of expectations and timely conflict resolution support business objectives and ethical obligations.
Key Point Checklist
This article has covered the following key knowledge points:
- Definition and categories of stakeholders: internal, connected, external
- Typical stakeholder objectives and identifying sources of conflict
- Application of the Mendelow matrix to analyse stakeholder power and interest
- Strategies for managing different stakeholder types based on their matrix position
- Recognition and handling of stakeholder expectation and conflict
- Communication and resolution methods for stakeholder disputes
Key Terms and Concepts
- stakeholder
- internal stakeholder
- connected stakeholder
- external stakeholder
- power
- interest
- Mendelow matrix