Tag Archives: Stakeholder Management

Opportunity Lost

RICSThe first edition of the RICS / APM guidance note on Stakeholder Engagement is a missed opportunity. Hopefully the second edition will plug many of the glaring gaps.

The guide is built around ten principles:

  • Principle 1: Communicate
  • Principle 2: Consult early and often
  • Principle 3: Remember they’re only human
  • Principle 4: Plan it
  • Principle 5: Relationships are key
  • Principle 6: Simple, but not easy
  • Principle 7: Just part of managing risk
  • Principle 8: Compromise
  • Principle 9: Understand what success is
  • Principle 10: Take responsibility

All sound principles but in a strange order

Any complex endeavour needs a clear understanding of its objectives and then a plan to achieve the objectives before starting work, but ‘Understand what success is’, is at #9 and ‘Plan it’ at #4.  Surly the whole point of engaging stakeholder is to enhance the probability of success. Which means #1 understand what success is, #2 plan how to achieve success and then move into implementation.

But implementation needs focus, completely missing from the guide is any practical guidance on ways to understand the stakeholder community, prioritising the stakeholders so the communication effort is focused where needed and then managing the overall engagement effort for maximum effect. The best the guide can offer is a simplistic 2×2 matrix. My methodology, the Stakeholder Circle® is one of several that recognise the multiplicity of dimensions needed to understand a stakeholder, the outline is available free of charge from http://www.stakeholdermapping.com/stakeholder-circle-methodology/

The last omission is considering the path to stakeholder management maturity. The path to maturity is mapped at: http://www.stakeholdermapping.com/srmm-maturity-model/

I had hoped stakeholder engagement was moving beyond the soft ‘fluffy’ platitudes of the past into a pragmatic management process, allied to risk management, focused on maximising the aggregate benefit from a project to all of its stakeholders.  These ideas are in the RICS Stakeholder Engagement guide but unfortunately the guide lacks any guidance on how to achieve these objectives, with the exception of the CASE model in Appendix 3.

Hopefully the 2nd Edition will not be too far away.

The 1st Edition is available from http://www.rics.org/shop

Mind your language

Communicating ideas effectively to another person needs a common language, and a common understanding of the meaning of the symbols used in the language. While this sounds simple, language can take many forms including images, sounds and writing. This post is going to focus on the design and use of images as the language for communication.

The use of images as a language stretches back to the Ancient Egyptians. They developed a written language based on stylised pictures whereas the civilisations in the ‘fertile crescent’ developed cuneiform text.

1.hieroglyphics

Whist we may not be able to read the Egyptian script, many of these hieroglyphs are easily understandable.

2.cuneiform_script

Whereas the cuneiform script is completely indecipherable. However, just because we can identify a goose at the top of the third column of the hieroglyphs, it does not mean we understand its meaning!

A simplified graphical language can provide a really useful way of communicating complex information but when you use the language, you need to be sure the people you are communicating with have the same level of understanding you do and ‘see’ the same message.

One of the first attempts to stylise complex information and to make it accessible and easy to understand was the development of the London Underground map.

The London Underground Map

The London Underground is one of the most complicated systems in the world.  By the middle of the 20th century the map was becoming too complicated for easy use.

1930 Underground Map.

1930 Underground Map.

The concept of the topological map we all know and use was developed by Henry Charles Beck. ‘Harry’ Beck was an English engineering draftsman at the London Underground Signals Office. He developed the first ‘topological map’ in his spare time, based on an electrical wiring diagram.

London Underground was initially sceptical of Beck’s radical proposal and tentatively introduced to the public in a small pamphlet in 1933. It immediately became popular, and the Underground has used topological maps to illustrate the network ever since. There is even a book on the map: Ken Garland’s, Mr Beck’s Underground Map (Capital Transport Publishing 1994). The book describes the enormous care, craft, thought, and hard work of Harry Beck that went on for decades (exactly what it takes to do great information design).

4.underground_london_Beck original-drawing1

Beck’s version of the 1930 Map.

This style of communication has carried through to modern times but is not without its problems – you can easily get to the station you want, but there is no indication of how close or how far apart different stations are ‘on the surface’ – particularly if the stations are on different lines.

The current London Underground Map.

The current London Underground Map.

Success is contagious; most transport maps world-wide follow Henry Beck’s lead and a new universal language has been created.

Part of the new Melbourne Tram Map, using a version of Beck’s language.

Part of the new Melbourne Tram Map, using a version of Beck’s language.

The Melbourne map uses the same style as the underground map – lines are vertical horizontal or at 45 degrees, but unlike the underground stations, tram stops are not shown; the designers believe the street names and route numbers are more important.

Part of the Stuttgart Metro map.

Part of the Stuttgart Metro map.

Based on your knowledge of the London or Melbourne maps, you do not need to be able to read German to have a good idea how to navigate the Stuttgart metro from the Hauptbahnhof to the Zoo. The language of transport maps has become fairly standard world-wide.

However, design of the communication is still important; the designers of each map need to decide what is important (eg, the route numbers on the tram map), what is emphasised, what is suppressed, and what is left out – bad design can reduce the elegance of the communication and block understanding. Whereas innovation can enhance it – the Tokyo train system has its trains painted the same colour as the line used on the transport map – the orange trains follow the orange route and you get to the right platform by following the orange signs!

A similar convergence of communication style has occurred with in-car road maps. Most books and electronic sat-nav systems use a stylised language similar to the map of North Sydney (below) – another language designed for a specific purpose.

North Sydney

North Sydney

For the purpose of navigating a car to the ‘Aiki Kunren Dojo’, this ‘simplified road map’ is far more useful than the 100% accurate photograph of the same location!

North Sydney

North Sydney

The style of the road map above has been taken ‘virtual’ and global by several organisations including Tomtom. You do not need to be able to read the street names or understand the spoken advice ‘turn left in ……’ to follow the map – the pictures say it all and are just as effective in Shanghai and Munich as Sydney or Melbourne.

10.TomTom

When designing a graphical communication language, useful, accurate and fully detailed are not synonymous! Both of the mapping languages discussed so far are really simple to use provided you have learned to ‘read the language’ and interpret them correctly. But as we all know North Sydney looks like the Google Earth photograph (not the map) and Melbourne’s geography only has a passing resemblance to the tram map – but we have learned how to read the ‘language’ and can then use that knowledge of the language to understand similar maps in different cities.

Project Maps

The same challenge applies to project dashboards, reports, and artefacts such as bar charts and CPM diagrams. Creating an appropriate level of understanding in a person’s mind about the true situation of the project and your intended work plans requires appropriate information to be communicated in a language that is understandable to the stakeholder. In this context, ‘appropriate’ does not mean complete or fully detailed; selecting the right level of detail is in itself an art form.  The bar chart below may be fully detailed and precise but it is not a good communication tool!

11.CPM

And while preferred by many project controls professionals, the CPM logic diagram below is even less likely to work as a communication tool for stakeholders.

12.cpm

These specialist languages are useful to trained project controls professionals and some experienced project management professionals but are too complex for most communication needs.

As suggested above, effective communication does not need fully detailed or accurate representation. What is needed is ‘useful’ information that can be used!  You do not need to be an expert in directional boring to understand the plan for this project (all that is missing is the timing for each stage):

13.storyline

Simple is good, simplistic is dangerous! One of the popular options for reporting project status is using simplistic ‘red-amber-green’ (RAG) traffic lights such as these:

14.RAG health_image

We know there is a scope problem but there is no real indication of the seriousness of the situation or how far into the ‘red zone’ the project actually is.  Rather than the simplistic 3 point RAG scale, the same information can be displayed using more insightful tools:

15.Beter option

Any of the ‘gauges’ will tell you where within each band the project is situated, add in a simple ‘change’ report and the trend becomes apparent as well. The art is knowing how much information is enough.

Conclusion

From the hieroglyphs of the Ancient Egyptians to the Tomtom road map, the art of using pictures for effective communication is creating a set of symbols that communicate your ideas and information simply and accurately, and then taking the time to teach your stakeholders how to read the language.

Effective communication, focused on obtaining the understanding and buy-in from a stakeholder needed to deliver a successful project requires:

  • Understanding who are the key stakeholders at ‘this point in time’ that you need to influence;
  • Understanding their needs and the best way to communicate with them (the Stakeholder Circle® methodology is designed for this purpose);
  • Communicating the appropriate amount of information in a way that can be understood by the stakeholder; and then,
  • Taking the time to help the person reach a proper understanding.

The communication challenge is recognising that some concepts will be easy to communicate in some communities of stakeholders, others will be more difficult; and people are frightened of things they don’t understand.

Designing an effective communication strategy requires the project team and project leaders to firstly derive a common understanding between themselves, then determine what the key stakeholders actually understand, then determine how to communicate effectively with the key stakeholders to build their understanding to the level needed to get the ‘buy-in’ required to make the project successful.

Effective communication is the tool that builds understanding, reduces opposition based in ‘fear of the unknown’ and generates a framework for success – for more on effective communication see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#PPM07

Designing effective KPIs

KPI1In a couple of posts I highlighted the damage that poorly considered KPIs and incentive payments can cause either to the organisation or its customers:

This post fills the missing link and discusses the practical challenges of creating effective KPIs.

Key Performance Indicators (KPIs) exist to influence decisions and actions; effective KPIs motivate people towards taking valuable, and useful, actions and decisions. Each KPI is a measure of how well a fundamental part of the project (or organisation) is progressing towards achieving its goals. The elements of a KPI are:

  • Key = something that is important, essential, fundamental.
  • Performance = the execution or accomplishment of work
  • Indicator = a measure, and record of variations

The specific purpose for each KPI is to communicate a relevant summary of the current situation to a particular person, or group; giving an indication of how effectively a particular element of the project (or work) is achieving its objectives. Because the KPI is an ‘indicator’ it does not have to be all encompassing, or provide all of the information about the activity. The purpose of a KPI is to highlight if and when more investigation is needed; they do not replace everyday ‘project controls data’ and other management information.

The challenge with KPIs is to set measures that provide indicators of potential problems in sufficient time to allow investigating and action. The purpose of most projects is to create value through the realisation of benefits; unfortunately this ‘real measure’ only happens after the project is finished. So whilst tracking benefits realised is important, the information lags behind the actions that affect the outcome. Other leading indicators are needed that focus on the probability of generating value during the course of the work (which is more complex than simply measuring time and cost performance).

kpi3

The way to design effective KPIs involves six simple steps:

  1. Understand your audience and tailor specific KPIs for different levels and groups within the project and the project’s stakeholder community. Detail should decrease as you move up that structure, what’s useful to a team leader is information overload for a sponsor.
  2. Be clear and concise. Each KPI should be designed to deliver a message that will instigate one of two decisions; either ‘do nothing’ or ‘investigate’! The KPI’s job is to tell you one of these three things (any more information and it is not an ‘indecator’):
    1. Things are looking bad – investigate and fix
    2. Things are looking good – investigate and learn
    3. Things are OK – do nothing.
  3. Make the KPI understandable. The KPI is an indicator of how well specific work is being done, or accomplished; being clear about precisely what work and what goals is critical. This means the KPI has to:
    1. Be well written;
    2. Contain one clear measure;
    3. Set realistic targets;
    4. Be time framed;
    5. Define how the data will be tracked.
  4. Balance the KPIs across the performance window:
    1. Input KPIs – measure the quantity and sometimes quality of inputs to the project.
    2. Process KPIs – measure the quantity and sometimes quality of the work required to produce certain expected outputs.
    3. Output KPIs – measure the quantity and sometimes quality of the goods or services created.
    4. Value KPIs – measure the quantity and sometimes quality of the results achieved through the delivery of the goods and services eg, benefits realised.
  5. Use both types of KPI:
    1. Target KPIs focus on achieving a specific measure (pass / fail), usually within a time frame, eg, units delivered per week.
    2. Directional KPIs measure tends. With many KPIs the precise number is less important than the trend. For example, “Number of days lost to staff sickness” [per month]. Here the exact number of days is not that useful as we can’t control this, however if the trend is rising we can investigate and take action accordingly.
  6. Test and fine tune the KPIs, make sure you are getting the results you want. As both of the referenced posts have demonstrated, it can lead to disaster if you simply design, then implement, a KPI as a way to allocate bonuses without fully understanding if and how it can be ‘gamed’ or how it will affect morale, or any other unforeseen outcomes. Therefore:
    1. Allow some lead time to check that everyone understands the KPIs, if the outcomes being measured are reasonable and the data is easy to collects and accurate.
    2. Trial the KPI to make sure it is driving the behaviours you desire.

Finally, the characteristics of good KPIs are:

  • Simplicity. The metric name should be less than 5 words and the calculation is easily described in under 10 words.
  • Comparability. The measure is comparable to other time periods, sites, or segments.
  • Incremental. A rate or ratio is better than an absolute or cumulative value.

Some good KPIs include:

  • The accident (and ‘near miss’) rate on engineering and other ‘hard hat’ projects, a low rate indicates a safe environment which means a clean, well managed and well planned workplace.
  • Performance measures such as the number of activities completed within 5% of the estimated time (the workers cannot control the start but can control the flow of work once started).
  • The number of open issues (and the trend), or the number of issues that remain open after a ‘reasonable period (say 2 weeks).
  • Quality measures.

A final thing is to remember setting two or three effective KPIs and using them effectively across all projects is better than a scattergun approach. You know you have too many KPIs when you hear people saying things such as the “top KPIs” or “most important KPIs”. Keep them simple, consistent and rigorous for the maximum benefit.

Dealing with client delay

DelayPreventing or minimising client induced delay is a common issue from small ‘agile’ IT developments through to multi-$billion mega projects.  Whilst this type of delay can never be completely eliminated, they can be reduced by applying a pragmatic six stage approach.

 

Stage 1:  Make sure your needs are known and understood by the client.

The best way to minimise delays is to ensure the client understands not only ‘what’ they are expected to contribute but also ‘why’ it is needed – don’t make the mistake of believing ‘they understand’, just because it is their project. Proactive communications is the key to helping your client better understand their role and the consequences of a delay on their part. Some of the questions you need to answer are:

  • Does the client understand the importance of their involvement?
  • Does the client really understand the need for timely feedback?
  • Do they appreciate the impact to the project if they are late / slow?
  • Do they know the dates that they will need to undertake actions so they can plan their work?

You will be surprised how valuable communicating proactively and raising visibility of the potential problems can be; the key is making sure the client develops an understanding of the requirements and the amount of effort needed for them to meet their obligations. This is a form of ‘directed communication’; see: The three types of stakeholder communication.

Stage 2:  Schedule the activity and code it up to make extracting focused reports easy.

A vital tool on the communication lexicon is clearly presented schedule information that is relevant to the client. Make sure their work is defied by activities that can be easily pulled into a focused report. Do not use lags on links to allow time for this work – no one is responsible for the ‘lag’.

Stage 3: Regularly status the schedule and communicate the changes to the client.

Having a plan is only part of the power of scheduling.  Create a baseline and show the slippage between any current ‘client owned’ activities and the plan. Using unbiased data to highlight issues will change behaviours – no one likes to be seen to be causing delays, particularly the project’s beneficiaries.

Stage 4: Raise a risk for anticipated future delays – manage the risk.

When you have a sense that the client is not going to meet their deadlines raise a risk and look for ways to manage the risk. If possible ask the client to help with the risk mitigation plan, which will give them some buy-in to help you be successful. This type of engagement also helps from a communication standpoint to better manage expectations. See more on risk management.

Stage 5: Raise an issue for an actual delay – manage the issue.

If the client ends up not meeting their dates, you have an issue that needs to be effectively managed. Issues management (problem identification and resolution) needs to be performed. Get your team, management, and stakeholders involved. Ask your manager for their input in resolving the problem that is now impacting your completion date. Get more accountability from your managers and the client’s managers to help resolve project deadline concerns. Your managers and sponsors are also the ones in a position to manage priorities to get the work done. If the problem cannot be resolved perfectly, at least you are continuing to manage expectations. See more on issue management.

Stage 6: Deal with contract issues contemporaneously.

If there is a need to make a contractual claim for the delay, make the claim immediately whilst the cause and effect are easily defined and keep the claim factual If the earlier steps in the process have been followed there will be no surprises and resolution of the issue can be achieved with the minimum of fuss or delay. See more on contractual dispute management.

Summary

Client induced delays are best avoided:

  • In commercial contracts, the ‘excusable delay’ (EOT) claim will inevitably damage the relationship and cause ill will – the effect of which can outweigh the benefits of the ‘claim’.
  • Internal projects don’t have the ‘claims’ option and may appear to be unreasonably held accountable for events and circumstances that are not within their control, but they do have control over the processes used to manage the project.

By utilising disciplined and proactive project management processes, you are more likely to avoid these problems and encourage the client to help you be successful by managing expectations and getting the client to be a part of the solution – not just the problem. It’s really just a case of applied stakeholder management!

What is your personal brand?

BrandingIf you want a stakeholder to ‘buy into’ your ideas, believe your communication or take action on your recommendations they need to recognise you as a credible messenger. Whilst you can build credibility over time, you only ever get one chance to make a good first impression and your personal brand will be a major contributor to the impression created in the mind of the person you are interacting with.

Credibility is a vital element in communication, particularly when delivering bad news, and your credibility is closely linked to a person’s perception of you, which is in part driven by your ‘personal branding’, reinforced by your actions and behaviour. So what is personal branding? And how do you create yours??

The concept of a personal brand was first raised by Tom Peters in 1997, and is defined as the process by which we market or position ourselves to others. As with commercial brands, it defines and creates a perception of who we are in the minds of anyone exposed to the ‘branding’.

In the past, ‘personal brands’ were reserved for celebrities and ‘important people’. However, the rise of social media has levelled the playing field and made branding not only more available, but also a key to achieving your objectives. If your next meeting is important, most people will ‘Google’ you before they meet with you, and develop their vital ‘first impression’ of who you are before you even get a chance to speak with them.

From corporate brands to product brands and down to your personal brand, branding is a critical component in a customer’s buying decision – will they ‘buy’ what you have to say or ignore you; will they agree to meet with you or refuse; this decision will be influenced in part by their perception of your ‘brand’. The question is what sort of brand do you want to create and is it authentic?

Fundamentally, as with every successful brand, your brand needs to be focused on value as opposed to features (previous roles, education, etc) and reflect your credibility, your value proposition and what differentiates you from others. This means:

  • Making sure your digital footprint is integrated. For example, your Twitter and LinkedIn persona should reflect each other. While you may choose to use Facebook for personal connections, you still need to ensure there’s nothing that could damage your professional profile.
  • Use sites like LinkedIn to stay in touch with colleagues, alumni, suppliers and other contacts, but avoid requesting contacts with people you don’t know. In such cases, a personal introduction from a shared contact (which you can find on LinkedIn) is better. You can also ask them to provide a “recommendation” for you on your profile.
  • Include your career summary (short and sweet) in all of your online bios.
  • You may not be ready to start blogging yourself, but you can still add comments and feedback to other commentators in your field of interest. This is the first step in understanding and engaging with your audience.
  • Keep your online profiles up-to-date. This includes job moves, but you can also share content, such as interesting articles and links, to keep your online profile fresh and dynamic. These “shares” should reflect your fields of interest and expertise, and help build a picture of your brand.
  • Blogs, posts and tweets should be professional, interesting and add value to the reader. Don’t use social media to simply advertise your business. For longer posts, ensure someone else proofs your work; otherwise poor expression could make it counter-productive.
  • If you are employed by an organisation, ensure you are familiar with its social media policy and follow it. If it doesn’t have one, it’s something you should suggest as a risk-management tool.
  • Remember, once something is online, it’s often there forever. So be sensible about your personal information, monitor your privacy settings and use common sense about what you do and don’t post. And if in doubt, don’t post it!

Whilst your on-line presence should emphasise your strengths and values, it needs to be ‘you’ or your hard work will come undone as soon as someone meets you face-to-face; authenticity is critical.

The next step in building your brand is meeting an important ‘contact’ for the first time. You need to either make a good ‘first impression’, or if the other person has done their homework, support the brand image created by your on-line presence. The common sense things to do before any initial meeting with an important person is some simple research, this may include:

  • Starting with their company’s website, Google the person you are meeting; look up the person’s bio and also Google the person to get other bios or profiles. With the person’s bio in hand, you should lock in your mind the following facts: where they grew up, where they last worked, and where they went to school. Make sure it is the bio of the person you are meeting; there are a lot of Chris Smith’s out there and sometimes they even work within the same company!
  • Find an online image of the person. It is always more comfortable (not to mention easier to spot the person) when you know what he or she looks like before the meeting. Having seen the person’s face lets you go into a meeting feeling like you have met the person before and be more at ease. This is also helpful to do for phone calls.
  • Get the latest news or analysis on the company.
  • Find out who is connected to the person or firm you are meeting and ask him or her to share as much background as possible.
  • Know your top objectives for the meeting and the top one to two questions you would like answered.

Knowing this information is important, but don’t show off. Be armed with the data so that you can answer or direct the conversation appropriately; your goal is not to demonstrate what you know of the person or company but to achieve what you had in mind when you first set up the meeting.

The last element in building your brand is your appearance – you need to look the part and dress appropriately. There is no ‘one right answer’ here, but it never hurts to be a little conservative in both dress and demeanour (unless you are selling wild creativity). Do your research and balance conforming to the other person’s norms of dress and behaviour and staying true to your ‘brand’.

Putting it all together.
In any sales situation you have to sell yourself first and then you can sell your time (work of consulting), product, or ideas (communication). But remember the ‘sale’ only occurs when the other person decides to buy. The objective of ‘branding’ is to make the process easier.

Once the other person has decided you are someone they can ‘do business with’, the quality of the message you are communicating cuts in, effective writing skills and presentation skills are still critically important, but they cannot come into play until the ‘other person’ has decided to take the time to read or listen to your message.

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!

Happiness = Fun

PM-SmiledA couple of weeks ago I uploaded an article on The power of Happiness and how a change in attitude lifted the performance of the Australian cricked team. Now the well known ‘Lazy Project Manager’, Peter Taylor has taken this idea one step further.

Building on from the ideas of Richard Branson, of the Virgin Group, who said ‘Have fun, success will follow. If you aren’t having fun, you are doing it wrong. If you feel like getting up in the morning to work on your business is a chore, then it’s time to try something else. If you are having a good time, there is a far greater chance a positive, innovative atmosphere will be nurtured… A smile and a joke can go a long way, so be quick to see the lighter side of life’. Peter has just published a new book dedicated to project management fun (jokes, stories and case studies) called ‘The Project Manager Who Smiled’ and for 5 days from 30th June you can get it free in eBook form from Amazon!

Being in a good mood (ie, happy) doesn’t just feel good, it stimulates your efficiency at work; ‘being responsible’ ranked first, ‘happiness’ second in a survey of 2000 project people asked to vote on what encourages efficiency.  To read more of Peter’s thoughts on this subject see his latest post: Project Management Fun.

Then to download his free e-Book visit Amazon.com before the 5th July and grab your copy of The Project Manager Who Smiled (The Lazy Project Manager). It may take your Productive Laziness to a whole new level.