Stakeholder Management

Summary

The ISO 21500 standard defines a stakeholder as "a person, group or organisation that has interests in, or can affect, be affected by, or perceive itself to be affected by, any aspect of the project . Consequently, in any project it is important to analyse and 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. When the stakeholder analysis has been performed a plan for handling and communicating with the different stakeholders can then be created. 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 contains an overview of the importance of managing different types of stakeholders in order to ensure a suitable stakeholder involvement.

What are stakeholders and why are they important?

Stakeholders are organisations and persons (customers, sponsors, public, the organisation) actively involved in the project or affected by the project at some stage during excecution or completion. 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 and they started differentiating between shareholder theory and stakeholder theory. The major differences between these two terminologies is that a shareholder owns a share in the organisation typically through stocks, whereas a stakeholder has interests in the organisation's overall performance for other reasons than the stock value.

Freeman, who is particularly well-known for his work on stakeholder theory originally published in his book , has defined that stakeholders with similar interests or rights will move towards forming a group. The model that followed this definition is 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 organisation is any group or individual who can affect or is affected by the achievement of the organisation’s objectives’’. 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 .

PRINCE2, a well respected generic project management method, 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.

PMBOK Guide edition 4 had stakeholder identification and management of stakeholder expectations in the communication management knowledge area. However with edition 5 the PMI has recognised the importance of stakeholder management and given it its own knowledge area - Project Stakeholder Management.

Identifying and classifying stakeholders

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.

Classification according to "direction"

Illustration of the three overal classification categories

Firstly they can be categorised into the following three overall categories:

• 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 stakeholders 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 are discussed at the beginning of the project in order for the expectations to be achievable and 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 an 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. This is why it is crucial to maintain a continuous dialogue with the client to constantly manage expectations.

Power, legitimacy, and urgency classification

A common method is to classify the stakeholders according to the following three categories:

• Power
• Legitimacy
• Urgency

With the use of this classification method, the stakeholders can either hold a combination of the categories or only one of them.

Stakeholder salience is, according to Friedman and Miles , a model which includes stakeholder powers of negotiation, their relational legitimacy and the urgency in attending to stakeholder requirements. Mitchell et al. view this model as being a dynamic model, displaying three main advantages:

• It is political because 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. 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. 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 . These limitations are strongly related to following classification method, where specific categories have been made for each of the combinations.

Detailed stakeholder classification

Stakeholders can also be classified into further specific types:

• Dormant

Groups and individuals with the power to impose their wills on the organisation 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 still need to monitor this stakeholder type.

• Discretionary

Groups and individuals with legitimacy but a lack 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. These types of stakeholder will expect and receive a lot of attention from the company, as they should.

• Dangerous

Groups and individuals that hold attributes of power as well as urgency but who are lacking legitimacy. The coercive stakeholder may represent a threat to the organisation 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.

Differences in stakeholder influence

Stakeholder compatibility

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

• The structural nature of the organisation / stakeholder relation
• The contractual forms existing
• The institutional support that is available.

These influences are strongly linked to the stakeholder configurations and the associated stakeholder types. The same article 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.

• 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.

The classic stakeholder matrix

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

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 overall categories, which allows the managers in 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 with regards to what their needs are and how much they are able to influence the project.

Creating 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." . Freeman brings a nice addition to underline the importance of stakeholder engagement by the following quote “If organisations 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 organisation’s purposes”.

Stakeholder engagement methods

After having mapped out the key stakeholder in accordance to the most basic factors, influence and interest, an initial stakeholder engagement approach could be to follow the following table. For each on the combinations of influence and interest there is a suggestion to how the engagement as well as communications should be handled. The importance of targeting each stakeholder group individually cannot be stressed enough.

Stakeholder Engagement approaches

Engagement approach	Description
Partnership	Shared accountability and responsibility. Two-way engagement joint learning, decision making and actions.
Participation	Part of the team, engaged in delivering tasks or with responsibility for a particular area/activity. Two-way engagement within limits of responsibility.
Consultation	Involved, but not responsible and not necessarily able to influence outside of consultation boundaries. Limited two-way engagement: organisation asks questions, stakeholders answer.
Push communications	One-way engagement. Organisation may broadcast information to all stakeholders or target particular stakeholder groups using various channels e.g. email, letter, webcasts, podcasts, videos, leaflets.
Pull communications	One-way engagement. Information is made available stakeholder choose whether to engage with it.

The mentioned approaches from the table are very overall stakeholder engagement methods.

Another matrix has been developed called the participation matrix . 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 of levels of public participation as well as the strategic management functions The matrix prompts planners to think about responding to or engaging different stakeholders in different ways over the course of a policy or strategy change effort. As a result, the benefits of taking stakeholders seriously may be gained while avoiding the perils of inappropriately responding to or engaging stakeholders

In the following some more detailed ways of integrating stakeholders to the project will be discribed.

Stakeholder integration methods

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

The typology of Stakeholder Integration Mechanisms

• 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 avoid the many problems associated with having many indirect stakeholder, who are thereby less controllable. Having many indirect stakeholders puts organisations in a vulnerable position with regards to influencing the information exchange processes in the stakeholder network.
• 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 organisation as a means of averting threats to its stability or existence” . 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 structure with the purpose of obtaining external stakeholders' consent or to communicate mutually beneficial information .
• Mutual learning: The purpose is to redefine the interdependencies between organisations and stakeholders . Individual organisations 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 .
• Meta-problem solving: "Symbiotic interdependencies are not necessarily restricted to the dyadic level but may extend to the network level" . 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 . 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” .

Discussion

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 .

An interesting note to add, specifically in regards to the focus on stakeholder involvement this article has, is that the newest addition to the PMBOK 5 is a tenth Knowledge Area, Project Stakeholder Management. However, stakeholder management is of course not new to this standard, it has merely been given its own area instead of being a part of the Communications Knowledge Area. PMI has done this in order to emphasise the importance of this area. This helps raise the level of importance of stakeholder management to an equal level with the other Knowledge Areas. Stakeholder management is in fact one of the hardest things a project manager has to deal with and a major aspect of this is equal parts stakeholder involvement and communication. In compliance with the main message of this article, PMBOK 5 is putting a strong emphasis on the fast that the project manager must keep the stakeholders engaged throughout the project, not just informed.

In the spirit of looking at standards it should be mentioned that stakeholder management and involvement is only very briefly described in the ISO standard 21500 and has yet to be described in a matter which underlines its importance.

In sum, a variety of stakeholder analyses appear to be very useful tools for, but there is a great deal of work to be done in terms of research and education before the true value of stakeholder management obtains the level of importance and recognition it deserves within the project management field.