Tag Archives: Stakeholder Analysis

The Elements of Stakeholder Engagement

Effective stakeholder engagement is a two-way interactive relationship that encourages stakeholder involvement in the organisation for the benefit of both the stakeholders and the organisation.  The trend is increasingly clear; organisations that effectively serve the needs of their stakeholders outperform those that do not.

However, what is also apparent is confusion on the part of many managers as to precisely what stakeholder engagement is, and what systems facilitate effective stakeholder engagement.  This post suggests there are three basic systems that together form the foundation for effective stakeholder engagement in most organisations, but the foundations are just that, necessary underpinnings, stakeholder engagement itself rises above the foundations to create an entirely new way of engaging with stakeholders. Let’s start with a look at the three basic components:

Stakeholder Engagement

PR = Public Relations

PR is probably the oldest of the three foundations (particularly if you include advertising within the overall ambit of PR).  For thousands of years people and organisations with something to sell to ‘the public’ have recognised the need to tell potential customers about their offering and suggest there is a good reason for the potential customer to become an actual customer or client.

Camel Market

Smart merchants realised they needed to give potential customers a reason for doing business with them (rather than someone else) and that competing on price alone was not a good move in a crowded market place.

The role of advertising is in part to make potential customers aware of your offering and in part to create a desire for the type of goods or services you are providing. Effective advertising creates a ‘call to action’ which the customer heeds.

Public Relations (PR) has a different focus.  Good PR is built around creating a positive image of the organisation in the minds of its wider stakeholder community. PR is not directly aligned to sales in the way advertising is, but does seek to make the organisation appear to be one that most stakeholders in its target audience will want to be associated with.  This may be because of exclusivity, or status, because the organisation is seen to be ‘good’, or for any one of a dozen other reasons.  Effective PR has many purposes including:

  • Underpinning its advertising by creating a ‘good first impression’ of the organisation, thereby allowing the stakeholder to take note of its advertising.
  • Explaining the value of the organisation to a wider community minimising resistance to the functioning of the organisation and facilitating its operations.
  • Making the organisation appear to be a desirable ‘citizen’ within its community; etc.

Good PR is of course authentic and reflective of the true nature of the organisation, in the modern age ‘spin’ is easily uncovered and can be very damaging.

The fundamental nature of both PR and advertising is ‘push’ communication – the organisation pushes its message out to the wider community, hopes someone listens, and then measures its impact after the event with a view to improving the ‘message’ and the effect.

 

CRM = Customer Relationship Management

CRM is focused on providing a great experience to every customer.  The commercial driver for CRM is in part the generally accepted fact that it is far cheaper to retain an existing customer then to attract a new one and in part from a win-win view that the ability to quickly and efficiently service the unique needs of each customer reduces the transaction costs for the organisation.

Customers or clients are clearly stakeholders with a significant interest in the organisation, so focusing effort on providing them with the best possible level of service, delivered quickly and efficiently is a win-win outcome. Happy customers are more likely to recommend an organisation to their friends and colleagues as well as becoming regular clients of the organisation.

Unfortunately the concept of CRM seems to have been hijacked by software systems, overseas call centres and ‘big data’; bought with a view to ‘reducing costs’.  There’s nothing wrong with any of these concepts provided the outcome is improved customer service. Where the outcome is a reduction in service, any cost savings are likely to be offset by reduced business and the cost of attracting new customers to replace the ones lost by poor service.

Whilst CRM at its best is interactive and focused on a win-win outcome for both the organisation and its stakeholders, the stakeholders directly affected by CRM are limited to the organisations customers and clients.

 

Stakeholder Management

Stakeholder management is process focused; it involves planned interaction with a wider stakeholder community, both to manage the consequences of any crisis as well as providing information and facilitating two-way communication with key stakeholders.

Good stakeholder management is a proactive process, focused on facilitating regular communication and anticipating needs, issues and problems that are likely to arise within the stakeholder community. Tools and methodologies such as the Stakeholder Circle® are designed to facilitate efficient stakeholder management. Stakeholders are identified, there needs assesses and their relative importance determined. Based on this assessment, communication and other interactions are initiated to gather the support and assistance needed by the organisation and to head off or minimise any threats or problems.

The focus of stakeholder management tends to be ‘defensive’, and is aimed at creating the best possible stakeholder environment to allow the organisation to do its work efficiently   The process is interactive, seeking to engage constructively with the organisations stakeholders and looking for win-win outcomes that benefit the organisation and the stakeholder, but is driven by the organisation, from the perspective of the organisation.

 

Stakeholder Engagement

Stakeholder engagement builds on these three foundations (particularly ‘stakeholder management’) to create a different paradigm.  Stakeholders are encouraged to actively engage with the organisation and contribute to its growth and development whilst at the same time the organisation and its staff engage with their community through Corporate Social Responsibility (CSR) initiatives and the like. These engagement processes build a strong, two-way relationship in which the stakeholders and the organisation work together to build a common future that is both mutually desirable and beneficial.  I will be writing about stakeholder engagement in a future post.

 

Conclusion

The three foundations of Stakeholder Engagement: ‘Stakeholder Management’, CRM and PR are quite different processes focused on achieving different outcomes.  In a well managed organisation all three functions work together to crate a supportive stakeholder environment and a successful organisation. However, whilst the systems need to be aligned and compatible they are very different and should not be confused.

In particular CRM and Stakeholder Management systems have very different objectives, focus on quite different stakeholder groupings, need significantly different information sets, and have very different measures of success:

  • CRM focuses on customers (or clients). Whilst customers as a ‘class’ of stakeholder are important, generally an individual customer is not. The focus of a CRM system is managing large amounts of data to provide ‘all customers’ with a generically ‘good’, potentially ‘tailored’ experience.
  • Stakeholder Management focuses on indentifying the key stakeholders ‘at this point in time’ that require specific management focus as well as the wider group of stakeholders that need to be engaged (or at least watched). In most situations very few individual clients or customers would be sufficiently important to feature in this list, but there will be lots of stakeholders who are highly unlikely to ever become ‘customers’, for example suppliers and competitors.

The shift to ‘stakeholder engagement’ does not add new systems but does require a paradigm shift in thinking. The key element of stakeholder engagement is opening up to the ‘right stakeholders’ and either inviting them into the organisation, or reaching out to them, to help create a mutually beneficial future – more on this later.

Understanding stakeholder theory

meetings2I have used the term ‘stakeholder theory’ in a couple of recent posts on this blog without taking the time to explain what it is.

‘Stakeholder theory’ is a particular approach to recognising and dealing with stakeholders, based on the concept of stakeholder developed by Ed Freeman in his 1984 books Strategic Management: a Stakeholder Approach (1984), and Stakeholder Theory: The State of the Art (2010).  These ideas a central to the stakeholder management approach embedded in the Stakeholder Circle methodology.

The way in which organisations approach stakeholders, the tools and techniques used to engage stakeholders and at a philosophical level, the purpose of the organisation are all built on the view of stakeholders accepted by the organisation’s governing body. The traditionalist / Friedman view of stakeholders focused on the ‘owners’ of the organisation (in the commercial world shareholders) and a narrow focus on maximising profits. A range of public relations and physical disasters highlight the short term, self-defeating outcomes from this approach.

Stakeholder theory poses the deeper philosophical question: ‘can business leaders make decisions about the conduct of the business without considering the impact of these decisions on (all) those who will be affected by the decisions? Is it possible to separate ‘business’ decisions from the ethical considerations of their impact? I suggest ‘not’. It is not possible to build a sustainable organisation of any type, including a profitable business, if the organisation fails to meet the needs of most (if not all) of its stakeholders.

ed freemanR Edward (Ed) Freeman is considered to be one of the early proponents of this wider view of organisational stakeholders, writing that they could be defined as “any group or individual who can affect or is affected by the achievement of the organisation’s objectives”.  This broad view has been accepted by many other institutions, for example, the current PMBOK® Guide glossary defines stakeholders as: “Stakeholders are individuals, groups, or organisations who may affect, be affected by, or perceive themselves to be affected by a decision, activity, or outcome of a project, program, or portfolio”.

Freeman, Harrison, Wicks, Parmar, & deColle, in their 2010 book trace the evolution of stakeholder theory from 1984 when was originally associated with the idea of business as being concerned with value creation and trade to the current times.

In 1984, economics assumed that ‘values and ethics’ did not need to be considered in economic theory. The limitations of this approach can be questions in a number of ways:

  • Can we really divide the world into ‘business realm’ and ‘ethical realm’?
  • Can business executives ‘do the right thing’: can they separate the ‘business’ decisions they make from the impacts of these decisions on everyone else (stakeholders)?
  • How can we combine ‘business’ and ‘ethics’ conceptually and practically?

Freeman et al. describe the artificial separation of business decisions and considerations of their impact as the ‘separation fallacy’, rejecting it by stating there can be no such thing as ‘value free economics’: “it makes no sense to talk about business or ethics without talking about human beings. Business is conducted by human beings, decisions are made by human beings, the purpose of the value creation and trade is for the benefit of human beings”. If business is separated from ethics there can be no moral responsibility for business decisions.

The starting point for a better approach to stakeholders is that “most people, most of the time, want to, and do, accept responsibility for the effects of their actions on others”. What this means is that:

  • People engaged in value creation and trade (in business) are responsible precisely to “those groups and individuals who can affect or be affected by their actions”.
  • This means at least: customers, employees, suppliers, communities and financiers (shareholders). And importantly, no one group can expect to profit at the expense of others over a sustained period – everyone benefits or ultimately no one benefits.

Stakeholder theory, then, is fundamentally a theory about how business can work at its best. It is descriptive, prescriptive and instrumental at the same time. Stakeholder theory is more than just considering value for shareholders – it is more complex, because there are many relationships involved. For any organisational activity there will be a complex web of human beings with their needs and wants (stakes).

In answering the question ‘what makes business successful’? Freeman refutes Milton Friedman’s article in the New York Times (1970) which stated that for businesses to become successful they must focus on maximizing profits – a focus on shareholders and ‘shareholder value’.  However, to maximize profits there must also exist:

  • Products and services that customers want,
  • Good relationships with suppliers to keep operations at cutting edge,
  • Inspired employees to stand for the company’s mission and push it to become better,
  • Supportive communities to allow the company to flourish.

A focus on shareholders is counterproductive because it takes away focus on fundamental driver to value – stakeholder relationships. The only way to maximize profits sustainably it to satisfy all stakeholders.

Instead of the flawed shareholder value paradigm, developing a ‘stakeholder mindset’ in organisations and by extension in projects and programs is a better way to maximize profits, where:

  • Business is a set of relationships among groups which have a stake in the activities that make up the business.
  • Business is about how customers, suppliers, employees, financiers (stockholders, bondholders and banks), communities and managers interact and create value.
  • To understand business is to know how these relationships work.
  • The executive’s job is to manage and shape these relationships.

Within this framework the stakes that stakeholders have will include:

  • Owners or financiers (shareholders) have a financial stake in the business in the form of stocks, bonds – they expect a financial return.
  • Employees have their jobs and their livelihood at stake: They may have specialised skills for which there is only a small market – in return for their labour they expect security, wages and benefits and meaningful work.
  • Customers and suppliers exchange resources for the products and services of the firm. They expect to receive in return the benefits of the products and services – these relationships are enmeshed in the practice of ethics in business.
  • The local community grants the organisation the right to build facilities within its boundaries. The community benefits from taxes and the economic and social contributions of the organisation back into the community.

These relationships are interdependent and require balanced decision making:

  • The organisation will not be profitable unless is employees and suppliers work constructively to make goods or services the customers are prepared to buy.
  • The organisation has to pay sufficient money and create a culture that attracts the right type of employee, but if employees take too much out of the organisation in the form of excessive pay, the organisation becomes uncompetitive and the employees lose their jobs.
  • Organisations are expected to be good citizens – not to expose the community to unreasonable hazards in the form of pollution, toxic waste or substandard goods or services. But the community benefits from consuming the goods and services and it is impossibly to create things without some pollution.

The art of managing within stakeholder theory is to find ways to minimise the damage and maximise the benefits accrued by each of the stakeholder groups. This is a creative process and management teams that do it best create the most successful organisations.

There is great value to be gained in examining how the stakes of each stakeholder or stakeholder group contribute, positively or negatively, to the value creation process of a business; and what the role of the executive is in stakeholder relationship management. In this context stakeholders are defined:

  • Narrow: those groups without whose support the business would cease to be viable: categorized as ‘primary’ by Freeman and ‘Key stakeholders’ in mine.  Such thinking was also the basis of the categorization of stakeholders as ‘legitimate’ and ‘salient’ (Mitchell, Agle, & Wood, 1997), leading to a risky viewpoint that only the ‘important primary’ stakeholders matter.
  • Wider: those who can affect the business, or be affected by its activities categorized as secondary or instrumental (a means to an end).

The stakeholder approach preferred by Freeman is this: Executives need to understand that business is fully situated in the realms of human beings; stakeholders have names and faces and children AND they are not placeholders for social roles.

Stakeholder theory must address:

  • Understanding and managing a business in the 21st century – the problem of an organisation’s value creation and profitable trade.
  • Combining thinking about ethics, responsibility, and sustainability with the current economic view that the organisations that operate within a capitalist framework must ‘maximise shareholder value’ – the problem of the ethics of capitalism.
  • Dealing with the paradox that an over emphasis on creating shareholder value will destroy shareholder value.

Shareholder value is a component of stakeholder value, organisations that innovate and create great stakeholder value, will also drive shareholder value.  And the first step in creating stakeholder value is understanding your stakeholders, their attitudes and their expectations.  The Stakeholder circle® tools have been designed to help you resolving this problem!

Stakeholder theory – is there a place for legitimacy?

ed freemanEd Freeman, one of the people whose work had a significant influence on the development of the Stakeholder Circle® will be speaking in Melbourne tomorrow at an ACCSR event hosted by Deakin University, an event I am really looking forward to attending!

R. Edward Freeman is described as the ‘father’ of Stakeholder theory. In his 1994 book Strategic Management: A Stakeholder Approach, Freeman identifies and models the groups which are the stakeholders of a corporation, and recommends methods by which management can give due regard to the interests of those groups. In short, Stakeholder theory addresses the key question of who really matters and the morals and values associated with managing an organisation.

The traditional view of the firm is the shareholder view.  This theory states that the shareholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them. Stakeholder theory argues that there are other parties involved, including employees, customers, suppliers, financiers, communities, governmental bodies, political groups, trade associations, and trade unions. Even competitors are sometimes counted as stakeholders – their status being derived from their capacity to affect the firm and its other stakeholders.

This wider view is central to the definition of ‘stakeholder’ included in the PMBOK® Guide and the Stakeholder Circle® methodology.  The PMBOK® Guide’s definition of stakeholders is: ‘Individuals, groups or organisations who may affect, or be affected by a decision, activity or outcome of a project or perceive this to be the case’.

Whilst this definition would seem sensible, the nature of what is a stakeholder is highly contested with hundreds of definitions existing in the academic literature.  Probably the most widely accepted ‘contrary view’ is built on Mitchell’s[1] theory of stakeholder salience.  This theory derives a typology of stakeholders based on the attributes of power (the extent a party has means to impose its will in a relationship), legitimacy (socially accepted and expected structures or behaviours), and urgency (time sensitivity or criticality of the stakeholder’s claims).

Legitimacy and the traditional view that stakeholders are ‘the owners’ of an organisation are closely aligned. The implication is that some stakeholders can be ignored because they do not have a ‘legitimate right’ to be considered.  I disagree with this view and support Freeman’s wider concept.  As he point out in some of his on-line talks:

  • Do you want employees that are not committed to the success of the organisation?
  • Do you want customers who do not value your offerings?
  • Can you afford to alienate the society in which you operate?

Add to Freeman’s questions the fact that ‘non-legitimate’ stakeholders can still create major problems for an organisation through social media and other channels makes taking a wider view of stakeholders seem inevitable. Ultimately the success of an organisation depends on finding ways to align and fulfil the needs of all of its stakeholders – those that do this best are most successful.

The paradox is that investing in successful stakeholder engagement ultimately benefits the organisation’s owners. Numerous surveys have demonstrated that corporations that actively embrace ‘corporate social responsibility’ consistently out perform those that focus on profits first. To quote Freeman: “Every business creates, and sometimes destroys, value for customers, suppliers, employees, communities and financiers. The idea that business is about maximizing profits for shareholders is outdated and doesn’t work very well, as the recent global financial crisis has taught us. The 21st Century is one of ‘Managing for Stakeholders’. The task of executives is to create as much value as possible for stakeholders without resorting to tradeoffs. Great companies endure because they manage to get stakeholder interests aligned.”

Stakeholder_Freeman

The problem with adopting the wider definition of stakeholders implicit in stakeholder theory is managing the large number of potential stakeholders it embraces. Some will be supportive, others neutral or antagonistic; some will be more important than others.  Determining who is important at this point in time (and what to do about them) requires a pragmatic methodology focused on:

  • Identifying, understanding and prioritising the current stakeholder community.
  • Determining a communication plan to affect desired changes in the attitude of important stakeholders and to maintain or enhance the attitude of the general stakeholder community (usually segmented).
  • Implementing the communication plan.
  • Regular reviews to assess the effectiveness of the communication process, update the stakeholder community, and refocus your stakeholder engagement efforts.

Dealing with the amount of data needed to implement these processes requires a rigorous methodology supported by robust tools! The Stakeholder Circle® has been designed for this purpose, the methodology is freely available.

[1]Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts, 1997 Mitchell, Agle, and Wood.

Stakeholder Circle in the ‘cloud’

The Stakeholder Circle® methodology and tools have been in use for several years. However, many potential business users found accessing the system difficult, with company policies preventing the installation of the necessary software.

By moving to ‘the cloud’ and transitioning to a standard Microsoft operating environment these issues should be in the past. Anyone on any computer platform can access the tool running on our secure servers and larger corporations can elect to install the system on their own intranets. The flexibility of ‘the cloud’ has also allowed us to offer an increased range of options to suite organisations of all sizes.

As part of the overall system upgrade, we have also enhanced our websites:

  • Our Stakeholder Relationship Management website has been overhauled and is being progressively developed into the world’s leading resource for stakeholder management information. See: http://www.stakeholdermapping.com 
     
  • The Stakeholder Circle website has been simplified and now focuses on the Stakeholder Circle® tools, methodology and a comprehensive help system, see: http://www.stakeholder-management.com

We have set up a separate server to allow interested people to try out the new ‘cloud’ version of the Stakeholder Circle® register on-line at http://www.stakeholdermapping.com/free-trial and your access information will be emailed to you within a few minutes.

The rise of Stakeholders

Google have released a fascinating tool to analyse the data in some 5 million books scanned as part of their ‘Google Books’ project.

There have been some 129 million books published since the invention of printing, so-far Google have scanned 15 million of these and the researchers have selected 5 million books that have a sufficient level of quality to be useful. The information in these books has been digitised and the contents made accessible as data through the Google Ngram Viewer (see: http://books.google.com/ngrams/). The tool effectively maps the rise of social phenomena by plotting the number of times a work or phrase is used in books published in any particular year. To compensate for the growth in the number of books published year-on-year, the data is normalised. For more on this see: http://www.ted.com/talks/what_we_learned_from_5_million_books.html

Using the Ngram Viewer, the rise of ‘Stakeholders’ from a pure legal/gambling term (the neutral party who holds the ‘stakes’ during a game of chance or similar) to its current status is amazing. Pre 1970 there is a continual low-level reference primarily in legal books dealing with disputes over various ‘stakes’. Through the 1980s the focus shifted to corporate stakeholders (ie, shareholders and others). From the 1990s on the term has had an increasingly wider use.

The Ngram for 'stakeholder'

It is fascinating to see this data supporting the analysis of the history of stakeholders contained in my first book Stakeholder Relationship Management: A Maturity Model for Organisational Implementation (soon to be in its 2nd Edition – see: http://www.mosaicprojects.com.au/Book_Sales.html#Book_Bourne)

I have a feeling the Google Ngram Viewer will become an increasingly useful research tool, particularly as the raw data can be downloaded for independent analysis.

Stakeholder Analysis is key for project success!!

The September edition of All PM Today, the IIL Newsletter (see: www.allpm.com) in its monthly poll posed the question “Stakeholder analysis is a key factor for project success?” The answer was an overwhelming ‘yes’. The results published today (October edition) are:

Stakeholder analysis is a key factor for project success
a) For all projects regardless of size – 95.41 %
b) Only for mission critical projects – 0 %
c) Only for projects that are politically sensitive – 3.67 %
d) Stakeholder analysis is minimally important – 0.92 %

Compared to the level of interest a year or so back, we are seeing similar trends in enquiries about the Stakeholder Circle® – maybe at last the vast majority of PMs are recognising that project success is directly associated with fulfilling stakeholder expectations. The 1% who voted ‘no’ may find my paper Avoiding the successful failure! helpful.

Defining Project Management Terminology

This is the end of a busy week in Rio de Janeiro working with the ISO PC236 committee drafting ISO21500 – Guide to Project Management. My particular area of interest is terminology and one of the more interesting debates was around what’s produced and created by a project. The Dutch delegation started the ball rolling with a very well thought out proposal, this is my personal views on what makes sense at the end of a long week discussing this and a wide range of other comments and issues on the standard.

The first line of discussion was around the creation of the projects ‘outputs’, both deliverables and project management outputs.

  • Processes transform one or more inputs into one or more outputs by applying tools of techniques. This applies to production processes used to create deliverables and project management processes used to manage the work of the project. Therefore:
  • Outputs are created by a process. Most outputs are inputs to other processes; many project management outputs are used within the project to manage the work.
  • Deliverables are the final outputs that are transferred to a third party outside of the project, usually either the customer or the performing organisation.

The second, more important line of discussion focused on understanding the project’s goals and objectives. The way these elements interact are:

  • Project Goals describe the overarching purposes for which the project was created. They tend to be wide reaching and related to the expectations of senior managers and clients. The ultimate success of the project is dependent on achieving its goals. There are two broad types of goals:
    • Goals focused around the realisation of the benefits the project was created to enable. Projects rarely deliver benefits directly, see: Value is in the eye of the stakeholder
    • Goals linked to the project achieving is stated objectives.
  • Project Objectives are the direct responsibility of the project manager. He or she should be assigned the authority, responsibility and necessary resources to achieve the defined project objectives. Objectives fall into two broad categories:
    • Objectives that are achieved by undertaking the project work in an appropriate way. These include objectives such as safety, sustainability, workforce development and stakeholder management.
    • Objectives that are achieved as a consequence of successfully completing the project, the deliverables. These include enhancements to the Organisational Process Assets (OPA) of the performing organisation and the assets transferred to the customer.

The successful delivery of ‘deliverables’ includes achieving technical requirements such as time, cost and scope; plus stakeholder requirements such as value and usefulness (see more on stakeholder management).

Whilst benefits realisation it is usually outside of the objectives that can reasonably be assigned to the Project Manager, the project team are responsible for making sure what they deliver is what is needed to facilitate the organisation (or client) in achieving the overall goals the work of the project is central to achieving; see: Avoiding the Successful Failure!.

The question is, does this structure work in for you? Your comments will be appreciated.