Successfully working with external stakeholders can clinch a deal, get your project across the finish line, enhance your product build and so much more. Despite this critical component to leadership, management, consultancy, freelancing and overall professionalism, explicit steps on truly effective external stakeholder management, how to group external stakeholders and important tips to remember when dealing with external stakeholders isn’t as commonly discussed as you’d think.

This guide is designed to be a deep dive on external stakeholder management, from how to identify who’s who, from how to deal with the different types of external stakeholders in typical day-to-day activities, projects, and circumstances. We’ve already described who a stakeholder is right here so this piece will be exclusively on external stakeholders.

Stakeholder management boils down to three key aspects:

1. Identifying who your stakeholder is
2. Understanding what they want
3. Understanding their influence and attention on the expected outcome

External Stakeholder Groups

External stakeholders can be conveniently placed into four distinct groups:

1. Economic
2. Socio-political
3. Technological
4. Community & Society

Economic Stakeholders

This category includes suppliers, customers, distributors, banks, and shareholders; associates with a financial/monetary stake in the project/business outcome.

Socio-Political Stakeholders

External stakeholders in this category include policymakers, local councils, regulators, and government agencies that may implicitly or explicitly affect a company’s strategic direction or the environment a company operates in.

Technological Stakeholders

Stakeholders in this group include key adopters, standards agencies and ecosystem members supplying complementary products or services (e.g., iPhone and iPhone case manufacturers or iOS developers).

Community and Society Stakeholders

This category includes those who are affected by what an organisation does, i.e., those who live near a factory or an airport and are indirectly affected by its business practices. These stakeholders typically lack formal powers of socio-political groups like local councils but may form activism groups or galvanize the power of social media to their advantage; a growing group in terms of ESG considerations.

Blurred Lines

Individuals may belong to more than one stakeholder group, so these categories are not fixed necessarily. For example, technological stakeholders will be critical for strategies of new product development, whilst socio-political external stakeholders will be crucial for public-sector, multinational, legal and other public initiatives, there are no fixed rules to where external stakeholders may fit.

Remember…

A professional operating at this make-or-break intersection, understanding where external stakeholders fit provides an excellent foundation for the rest of the project/endeavour.

Now we have a broad understanding of where our external stakeholders can fit into, we will break them down even further for granular consideration.

Stakeholder Types

Both internal and external stakeholders fit into the following categories:

• Customers
• Partners
• Suppliers
• Regulators
• Employees
• Managers
• Owners
• Competitors

Of the eight listed five are considered external stakeholders. All stakeholder types require their own considerations and details because you deal with a regulator very differently from a customer, yet both must be considered as you produce your good or service.

Customers

Customers are external stakeholders because changes to the good or service provided has the potential to effect on them. For example, Apple’s touch bar feature featured on MacBooks from 2016-2020, yet poor customer reactions reverberated to Apple.

The company made the decision to discontinue the touch bar, likely to have been influenced by poor customer feedback; a candid example of where external stakeholders’ considerations directly influenced product strategy and the direction the manufacturer made.

Customers can usually be categorised into these groups:

• Large or small
• Regular or occasional
• Wholesale or retail
• Corporate or private
• Commercial, non-profit, or public sector
• Civilian or military
• Domestic or export

All project or product development teams must consider effective change management that brings the customer along or changes once implemented don’t alienate or negatively affect existing or proposed customers.

According to Mons Freng Svendsen, Sven A. Haugland, Kjell Grønhaug and Trond Hammervoll writing in Marketing Strategy and Customer Involvement (2011):

"Drawing on customer knowledge in product development should enable the supplier to develop products and services that provide more value and are superior in solving customer problems."

Just being aware of these distinctions already creates a new perception and ensures a more in-depth consideration when dealing with external stakeholders. Knowing this should equip you with more empathy, pragmatism, and the ability to be nimble in response to customer needs.

Partners

From an external stakeholder perspective partners would be agents such as consulting services or any specialist(s) that provide bespoke/expert services. Examples include resellers of products or an outsourcing company. Any product changes made will likely affect them, so keeping them in the loop/onboard is important.

Suppliers

Suppliers provide the organisation with goods and services the organisation uses. Suppliers can fit into these categories:

• Major or minor
• Regular or occasional
• Domestic or overseas

Suppliers are interested in the way the organisation conducts its business with them, what it wishes or usually buys, how it wants to pay (instalments, credit options etc) and so on. In Mergers & Acquisitions for example, long standing relationships with suppliers must be considered during negotiations.

Also, supplier costs may fluctuate for a plethora of reasons, (cost of raw materials, natural disasters etc.) so keeping an eye out on how suppliers affect finances is also something one should be cognizant of.

Regulators

Regulation ensures certain standards are maintained, customers are safeguarded from irregular activity and there is some form of homogeneity at an industry level. Regulators and regulatory compliance are an ongoing essential consideration when producing goods and services for your clientele. Act within the law and you’ll be fine, violate the regulator and the repercussions could be severe, both financially and reputationally; these external stakeholders must always be considered carefully.

Competitors

In classic economic theory it is said that ‘competition ensures efficiency,’ and competitors as external stakeholders might seem odd, but here’s why they are.

Competitors vie with the organisation for the business of its customers and therefore have a keen interest in any changes made. Their reactions to changes are usually considered, think the Sony PlayStation releasing the PS5 and Xbox’s reaction by releasing Xbox Series X, or car manufacturer Tesla and Nikola’s reaction; competitor analysis is essential to any marketing campaign or product launch.

Competition can be tacit and not explicit depending on the market structure, i.e., a few large players or several small to medium players: competitors are external stakeholders. Even if you get a lead within your industry, the folly of not understanding your competitors could come back to bite you, so keeping an eye out on these external stakeholders is crucial to market share.

Here’s Why External Stakeholders Important

All stakeholders whether external or internal will impact the outcome of project success; effective stakeholder management is part of an astute and effective Target Operating Modelling (TOM) strategy.

Influence Outcome

Whilst there’s no fixed rule between internal and external stakeholders, external stakeholder management and external management strategies remain critical for success. When you realise who you’re dealing with in terms of stakeholders plotting the variance between power and attention carefully arranges who’s who and helps keep you organised and coherent.

Mapping Influence

Given that there are often many stakeholders, all with a viable ‘stake’ in the outcome you’re managing, it is useful to arrange them according to their influence on strategic decisions. Effective stakeholder mapping is a simple yet powerful way for this to be done as it identifies power and attention, with the view of understanding strategic priorities.

Power

External stakeholders with high interest and high power are both interested in the project and have the power to make it work or not. An example of an external stakeholder with high power and high influence would be a supplier of a key component needed for a company to produce a key good or service. This explains why large companies sometimes assimilate smaller but crucial suppliers into their ecosystem.

When WeWork bought Welkio, WeWork needed a seamless sign-in process on a scale. Rather than create a key supplier dependency, which would then devolve into a bottleneck, WeWork bought the company. This meant WeWork had control of what was a critical feature for their business. As an external stakeholder, before their purchase Welkio were ‘High’ level in terms ‘Power’ and had a ‘High’ level of ‘Attention,’ and would fit into quadrant ‘A’ on the diagram above.

Another example could be a market regulator implementing market-wide change such as IFRS 17 or GDPR or Solvency II changes, where external stakeholder standards were to be implemented for mass standardisation and harmonisation purposes.

The penalty of not complying was severe, so these external stakeholders would maybe have a lot of power, but wouldn’t necessarily have high levels in day-to-day interest, so they’d be in quadrant ‘B’ as opposed to ‘A.’

External Stakeholders Sources of Power

External stakeholders could derive power over the project outcome from the following sources:

• Control of strategic resources, e.g., materials, labour, money
• Involvement in strategy implementation, e.g., distribution outlets, suppliers
• Possession of knowledge or skills, e.g., subcontractors, partners
• Through internal links, e.g., informal relationships

When you deal with powerful external stakeholders using the matrix above is a small yet highly effective way of keeping expectations in check, which could result in better decision making and a more astute and measured approach in how you deal with your external stakeholder(s).

Attention

Having high power influence doesn’t automatically equate to having high attention, so knowing how to deal with the different levels of attention from external stakeholders equips you to manage your project more effectively.

External Stakeholder Management

A careful and considered categorisation of external stakeholders can act as a foundation for a project/desired business outcome. This is usually because careful identification of key personnel can provide benefits and enable better and more efficient decision making over the duration of the project.

According to studies by Nilson & Fagerström (2006) and Bourne & Walker (2005) the process of managing stakeholders is as follows:

1. Identification of relevant and appropriate stakeholders and their relation to the system
2. Determination of stakeholders’ needs and specifying the nature of their interests
3. Measuring the stakeholder’s interest by establishing the stakeholder and requirement matrix
4. Balancing of the stakeholder requirement by predicting the future behaviour to satisfy the stake
5. Evaluating the impact of stakeholder’s behaviour on project teams’ latitude in managing project.

The empirical suggestions confirm the stance in the article; identify who’s who and where they fit and proceed with arranging them in terms of power/attention. Once this is done pivot where applicable remembering that external stakeholders can change, and their stance isn’t fixed.

Issues in Stakeholder Management

The stakeholder management approach can provide cohesion in usually disparate teams, marketing, HR, strategy & operations and so on. Thus, stakeholder management enables important (and disjointed) issues to be synthesised, providing a joint-up approach instead.

According to Karim, Rahman et al,

In stakeholder management, issues such as relationship, communications, leadership, commitment, interests and influences, incentives and motivations should be identified and addressed earlier by the firm or organisation for better cooperation among stakeholders and mutually defined understanding towards successfulness.

The “mutually define understanding” is exactly why stakeholder management, especially when dealing with external stakeholders for the medium to large companies must be harmonised and in sync and this is all predicated on granular and meticulous identification of who is who then dealing with them according to their power and interest.

Conclusion

External stakeholder management is essential to outcome success whether you’re a freelancer or a multinational conglomerate, the essential principals are the same.

When managing those outside of your organisation it bodes well to remember that spending the appropriate time with those who wield most power and have high attention/interest will serve you well. This does not automatically convey and attitude of neglect the others, but one should approach external stakeholders in a measured, methodological, and efficient way.

Moreover, without knowing how to work with external stakeholders your desired and favourable outcome will most likely allude you, so this is critical to any professional at any level; use the tools explained here today to make better decisions and operate in a better way.

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