Stakeholder Management

Revision as of 15:10, 30 November 2014

Summary

In any case it is important to identify all the key stakeholders and define which interest they have in the project and how important they are for the completion of the project. A plan for handling and communication with the different stakeholders can then be created, when the stakeholder analysis has been performed. When managing stakeholders, both internal and external, it is important to always find solutions that are mutually beneficial. The growing focus on stakeholder analysis is a clear reflection of the general tendency to recognise how stakeholders can influence decision-making processes. This article will attempt to create an overview of the importance of managing different types of stakeholders in order to create stakeholder involvement.

What is a stakeholder and why are they important?

The purpose of identifying and classifying stakeholders is to make the identification of stakeholder concerns easier and consequently making issue solving a smoother task. The prioritisation of the stakeholders is a key outcome of a stakeholder analysis, as it will allow the project manager to acquire the knowledge necessary to get the maximum advantage of the stakeholders’ contribution to the project. Stakeholder management was first observed in Scandinavian management ^[1] and they started differentiating between shareholder theory and stakeholder theory. Freeman ^[2] has defined that stakeholders with similar interests or rights will move towards forming a group. The model that followed this definition was then a stakeholder map, placing the company at the centre interacting with its surrounding stakeholders. Freeman also defines a stakeholder with the following sentence ‘‘a stakeholder in an organization is any group or individual who can affect or is affected by the achievement of the organization’s objectives’’^[2]

Over the years more focus has been given to developing corporate social responsibility, in which understanding stakeholders plays an important role. This contributes to the growing focus on stakeholder management^[3].

PRINCE2 ^[4] mentions that in order to run a successful project, the project management team should have an effective strategy to manage communication flows to and from stakeholders. It also puts an emphasis on the importance of analysing the involved stakeholders with the purpose of being able to engage properly with them. Furthermore, it underlines the importance of stakeholder involvement, especially in projects that are not a part of a programme.

Identifying your stakeholders and classifying them

The process of identifying and classifying stakeholders is the preliminary part of managing stakeholders in an organisation. This can be made by the use of different classifications methods. These will be briefly introduced in the following segment.

Illustration of the three overal classification categories^[5]

Firstly they can be categorised into the following three overall categories:^[5]

• Downward stakeholders

Here you find the project group itself – they hold a critical role in the completion of the project and their effort is crucial. In order to manage the project group it is important to clarify what the members wish to obtain or accomplish by participating in the project. Moreover it is important for each member to state what his/her contribution will be depending on the set of skills each member possesses.

• Upward stakeholders

Here you find the stakeholder financing the project, amongst them you will also find the project owner. In order to manage the expectations of the project owner, it is important that these be discussed at the beginning of the project in order for the expectations to be in compliance with the reality.

The role of the project owner is to give visible support to the project and to use his formal power to help the project move along.

• Outward stakeholders

These stakeholders can both be internal and external to the organisation where the project is taking place.

The external outward stakeholders could be the clients, suppliers, authorities and competitors amongst others.

The internal outward stakeholders could be the other project managers for projects run in parallel, other employees not directly involved in the project at hand, line managers, etc.…

Furthermore, the client/end-user of the project outcome is also and important stakeholder, because the outcome of the project can become an utter failure if the accept of the client/end-user is taken for granted. Which is why it is crucial to maintain a continuous dialogue with the client to constantly manage expectations.

Stakeholders can also be classified into further specific types:^[2]

• Dormant

Groups and individuals with the power to impose their wills on the organization but lack either legitimacy or urgency. Consequently, their power is of no use when there is little or no ongoing interaction with the company. However, this should not be misinterpreted by the organisation, because they stille need to monitor this stakeholder type.

• Discretionary

Groups and individuals with legitimacy but a that of both the power and urgency. With these stakeholders, attention should be paid to them under the framework of corporate social responsibility as they tend to be more receptive.

• Demanding

When the most important attribute is urgency. Without power or legitimacy, they will not have great demands to the company, however, they do require monitoring as regards their potential to gain a second attribute.

• Dominant

Groups and individuals that hold influence over the company guaranteed by power and legitimacy. This types of stakeholder will expect and receive a lot of attention from the company, as they should.

• Dangerous

Groups and individuals that holde attributes of power as well as urgency but who are lacking legitimacy. The coercive stakeholder may represent a threat to the organization and should therefore be managed closely.

• Dependent

Groups and individuals that hold attributes of urgency and legitimacy but who are also dependent on another stakeholder in order to draw attention to their claims.

Another possibility is to classify stakeholder according to the following three categories:^[2]

• Power
• Legitimacy
• Urgency

These will be discussed further in the upcoming paragraph - Stakeholder theories .

Differences in stakeholder influence

Why do some stakeholders have more influence over organizations than others? Some literature ^[6] suggests that this is influenced by:

• The structural nature of the organization/ stakeholder relation
• The contractual forms existing
• The institutional supports available.

These influences are strongly linked to the stakeholder configurations and the associated stakeholder types. The same article ^[6] suggests that there are the following four stakeholder configurations:

• Necessary compatible

This category represents the relation between shareholders and corporations and would typically be bound by a contract. These contracts would of course differ based on the type of stakeholders.

A stakeholders matrix showing what overall strategy should chosed for each of the four categories

• Contingent incompatible

This category represents non-contractual relations. These can be both implicit or explicit and recognised or unrecognised.

• Necessary incompatible

This category typically involves recognised explicit or implicit contracts, however, there are differences in interests among the parties involved.

• Contingent compatible

This represents relations with no formal contract and no direct relationship between the parties.

Stakeholders need to be involved along the whole process of a project no matter the type. This is where the identification and categorisation shows its crucial importance. Based on the analysis of the stakeholders these can be mapped into some overall categories, which allows the managers at an organisation to take action. The most commonly used stakeholder map is the power/interest matrix, which gives an easy and simple overview of what the different categories require in regards to what their needs are and how much they are able to influence the project.

How and when should you create stakeholder engagement?

After having defined and classified the stakeholders it is important to generate engagement and keep the stakeholders interested in the project at hand. Donaldson & Preston explained the need for stakeholder engagement very well with this simple quote "The view that stakeholder management and beneficial corporate performance go hand in hand has now become commonplace in the management literature." ^[7]. Freeman brings a nice addition to underline the importance of stakeholder engagement by the following quote “If organizations want to be effective, they will pay attention to all and only those relationships that can affect or be affected by the achievement of the organization’s purposes” ^[8]

There are four different overall types of stakeholder integration as described by the article "Stakeholder Integration - Building Mutually Enforcing Relationships" ^[9]

The typology of Stakeholder Integration Mechanisms ^[9]

• Buffering: Buffering strategies are adopted by many organisations in order to cope with the need for certainty. The aim is to seal of the core transformation processes from external influences in the environment. Buffering can also be used as a tool for stakeholder integration, and attempts to create close relations with representative organisations. The main purpose is to avaid the many problems associated with having many indirect stakeholder, who are thereby less controllable. Having many indirect stakeholders puts organisations in a vulnerable position in regards to influencing the information exchange processes in the stakeholder network ^[9].
• Co-optation: Organisations will always have to deal with direct stakeholders, who differ in their degree of perceived salience. Buffering is not always an option due to the fact that some of the most important stakeholders provide direct contributions to the organisation's technical core through investments in co-specialised assets. As a tool for handling the challenges and uncertainties linked with these types of stakeholder bonds, the organisation may choose to create co-optation. Co-optation has been defined by Selznick as “the process of absorbing new elements into the leadership or policy-determining structure of an organization as a means of averting threats to its stability or existence” ^[10]. Co-optation is thereby a partial absorption technique used in cases where total absorption is not possible. In regards to stakeholder integration, co-optation is a dyadic technique. By using this technique the organisation adapts to a firm's leadership stucture with the purpose of obtaining external stakeholders' consent or to communicate mutually beneficial information^[9].
• Mutual learning: The purpose is to redefine the interdependencies between organisations and stakeholders ^[11]. Individual organizations will most likely bring their own feasibility preoccupations to the table, which consequently puts a restriction on the range of cooperative options. However, by using dyadic collaboration processes, interdependent organisations and stakeholders will be able to discover each other’s feasibility preoccupations and find a solution that satisfies some, if not all, of the interests of each of the stakeholders involved ^[12].
• Meta-problem solving: "Symbiotic interdependencies are not necessarily restricted to the dyadic level but may extend to the network level" ^[13]. An example of these interdependencies is when many organisations are facing the same ill defined problem domain. This could be a domain in which the key stakeholders are not yet defined ^[11]. Meta-problems exceed the boundaries of the majority of individual organisations, therefore, they must be addressed by combining multiple perspectives and resources in order to find a resolution.

Consequently, effective meta-problem solving consists of collaborative processes operated at the network level in order to help with the integration of organisations “that may be widely disparate in wealth, power, culture, language, values, interests, and structural characteristics” ^[9].

Defining how the project can effectively engage with the stakeholders, including defining the responsibilities for communication and the key messages that need to be conveyed ^[4]. For each interested party, agree the:

• Information the party needs from the project
• Method, format and frequency of communication
• Sender and recipient of the communication

Defining the methods and timings of the communications. These are best planned after defining how the project will engage with the different stakeholders. When selecting the senders of information, it is important to select communicators who have the respect and trust of the audience. Their position in the corporate organization and expertise in the subject matter will greatly influence their credibility. Many projects have a formal commencement meeting to introduce the project and its aims to the corporate organization. If this type of meeting is used, it is important that the members of the Project Board attend to show their support and commitment to the project.

Another matrix has been developped called the participation matrix ^[14]. It has been designed with the specific purpose of planning for stakeholder participation. It has been adapted from the original made by the Association for Public Participation focusing especially on the spectrum og levels of public participation as well as the strategic management functions ^[15] The matrix prompts planners to think about responding to or engaging different stakeholders in different ways over the course of a policy or strategy changeeffort. As a result, the benefits of taking stakeholders seriously may be gained while avoiding the perils of inappropriately responding to or engaging stakeholders ^[14]

Stakeholder theories

Stakeholder salience ^[2] is a model which includes stakeholder powers of negotiation, their relational legitimacy and the urgency in attending to stakeholder requirements. This model is strongly related to the last classification model described in the earlier paragraph. It is a dynamic model, displaying three main advantages:

• It is political in the sense that it considers the organisation as the result of conflicting and unequal interests
• It is operationally practical because it qualifies the stakeholders
• It is dynamic because it considers changes in interests over social space and time

Furthermore the model proposed by Mitchell et al. ^[16] suggests that strategic behaviour is subject to various groups located in the surrounding environment with organisational strategies needing to meet the needs of these groups in accordance with their respective importance. This is defined by the three aforementioned factors varying in accordance with the situation. The proposed model is therefore dynamic for the following three reasons:

• The three attributes are variables - neither static nor stationary
• The attributes are socially constructed - not objective
• Stakeholders do not always know that they are in possession of one or more attributes

However, there are some suggested limitations to this model following empirical work. Mitchell et al. ^[16] suggests that the attributes are binary, however when looking further in to the characteristics of each attribute, doubt arises as to whether it be accurate to only measure them in binary terms.

Discussion and conclusion

The aforementioned classification of stakeholder importance is not in itself enough, no matter what classification is chosen. As mentioned by much of the literature, there is a need for understanding the relationships between the organisation and the different stakeholders. Furthermore, there is a need to have a broader look at stakeholder management in order to incorporate the relations between the key stakeholders themselves since this may very well end up having an impact on the organisation at hand. In addition to analysing stakeholders it is crucial to make the connection between stakeholder management and communication strategies because each category of stakeholders will have different needs that should be addressed accordingly. Most of these needs will be satisfies by communicating the right information at the right time. The need for a good communication plan is consequently of the utmost importance when looking at stakeholder involvement, which is, as discussed, a critical factor in the success of any project. Managing the relationships with each stakeholder should furthermore pay attention to how these are guided by organisational actions and initiatives established with the purpose of creating, building and strengthening the organisation’s bonds with each respective stakeholder ^[2]. In sum, a variety of stakeholder analyses appear to be very useful tools for improving public and non-profit management, creating public value and advancing the common good, but there is a great deal of work to be done in terms of research and education before that promise is fully understood and realized in practice. ^[14]

References

1. ↑ Scandinavian Cooperative Advantage: The Theory and Practice of Stakeholder Engagement in Scandinavia, Robert Strand and R. Edward Freeman, 2013, Springer
2. ↑ ^{2.0 2.1 2.2 2.3 2.4 2.5} A model for stakeholder classification and stakeholder relationships, E. Mainardes, H. Alves, M.Raposo, 2012
3. ↑ The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders, Carroll, A. B. (1991), Business Horizons, 34(4), 39–48
4. ↑ ^{4.0 4.1} Managing successful projects with PRINCE2, TSO, 2009
5. ↑ ^{5.0 5.1} Power i projekter & portefølje, Attrup L., M. and Olsson R., M., Jurist-og Økonomforbundets forlag 2008
6. ↑ ^{6.0 6.1} Developing Stakeholder Theory, Andrew L. Friedman and Samantha Miles, Journal of Management Studies 39, January 2002
7. ↑ The stakeholder theory of the corporation: Concepts, evidence, and implications. Donaldson, T., & Preston, L. E., 1995, Academy of Management Review, 20, 65-91.
8. ↑ Divergent stakeholder theory, Freeman, R. E., 1999, Academy of Management Review, 24, page 234.
9. ↑ ^{9.0 9.1 9.2 9.3 9.4} Stakeholder Integration - Building Mutually Enforcing Relationships, Pursey P.M.A.R. Hugeness, Frans A.J. Van den Bosch and Cees B. M. Van Riel, Business Society 202, 41:36
10. ↑ TVA and the grass roots, P. Selznick, 1949, Berkeley: University of California Press.
11. ↑ ^{11.0 11.1} Collaborating: Finding common ground for multiparty problems, B. Gray, 1989, San Francisco: Jossey-Bass
12. ↑ Toward a comprehensive theory of collaboration, D.J. Wood & B. Gray, 1991, Journal of Applied Behavioral Science, 27, 139-162.
13. ↑ Interorganizational collaboration and the preservation of global biodiversity, F. Westley & H. Vredenburg, 1997, Organization Science, 8, 381-403.
14. ↑ ^{14.0 14.1 14.2} What to do when stakeholders matter, John M. Bryson, Public Management Review, Vol. 6 Issue 1 2004 21-53
15. ↑ [1], IAP2 Spectrum of Public Participation, 2007, International Association for Public Participation
16. ↑ ^{16.0 16.1} “Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts”, R. Mitchell, B. Agle, and D. Wood, 1997, Academy of Management Review, Vol. 22 No. 4, pp. 853-8.