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The Rational Behind the Approach
Stakeholder analysis is an exercise that may seem like an easy task to perform. Yet a project manager who is not well-versed with the reasoning behind the concept, will find the approach quite complex and laden with critical issues .The project manager has to make decisions and take courses of action that could significantly affect or be significantly affected by the influence or needs of individuals or groups of individuals. They could be entities that have the capacity to order or oppose a proposition or influence the others to do the same. However, the concept of interest pertains not only to financial gains but also includes the shared responsibilities for upholding moral and ethical standards.
A stakeholder can be anyone or any organization who has a vested interest in a particular venture whether as a shareholder, investor or owner, or as a director, backer, patron, customer, supporter, financier, sponsor, regulator, participant, employee, overseer, contributor, creditor, co-signor and even the community that plays host to the business. The list could be endless because their interests could be direct or indirect while their inclusions are based on varying considerations.
The ultimate goal in analyzing the different interests of individuals and organizations is to develop a plan that can gather the largest support possible. This would mean minimizing if not eliminating the obstacles that could impede the plans of actions that the project team intends to undertake.
However, a fundamental tenet to always adhere to, is the creation of value for “the common good”, in which everyone’s interests are met to a certain extent. To best understand this principle, let us first look into its origins and how stakeholder management and its analysis became essential for reducing the complexities of project management planning.
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The Evolution of the Stakeholder Theory
Accordingly, this theory was initially held as a business strategy during the early introduction of industrialism. The objective was basically the same --- to embrace the “interest groups” existing within the society as a means to enhance business relationships. Doing so increases a business entity’s chances of gaining financial success.
However, during the 1980s through the 1990s, consumer advocacy groups, community advisory committees and other concerned blocs, pushed for the restatement of the stakeholder definition. The movement was spurred by the growing number of business organizations that disregarded business ethics, by deliberately misleading those who relied on corporate decisions and actions.
These resulted to corporate excesses, which were manifested in the forms of industrial accidents, and other untoward incidents that resulted to environmental damages (e.g. illegal discharge of toxic wastes, forest fires, forest denudation, groundwater contamination, etc.), stock manipulations, white-collar frauds and business scandals involving political collusions.
Thus, stakeholder theory came to broach more than just the financial rewards of capitalism but has to encompass the interest of those affected by business policies and activities. These are the employees, consumers, suppliers, creditors and all others that have significant contributions or circumstantial relevance to capitalistic ventures.
Hence, the concept of embracing the needs of interest groups became a formal study of its discipline and the need to acquire adequate knowledge of new and existing federal, state or local laws, regulations and initiatives as well as business ethics. The matter of ownership came to include taking responsibility for and becoming answerable to the consequences of any moral turpitude.
These are the premises on which the practice of stakeholder analysis works-on.
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Identifying the Actors and Their Interests
The initial step to undertake is to identify and differentiate the types of interest groups involved by categorizing them as:
Key Actors or Core Groups – These are the individuals or organizations that may be internal or external to the business entity, but have the influence or power to steer the directions of the project plans based on their views and objectives. The degree of their influence is heightened by their ability to persuade others to take the same stance.
Primary Actors - The degree of their importance is based on their needs as the recipient of the value created by a project undertaking. Value here may refer to the product improvements, profit increments, salary increases, additional benefits, fund raising proceeds and the like.
Secondary Actors or Intermediaries – These are often represented by groups who may not have a direct relationship or legal association with the business organization; hence they are classified as secondary. However, their objectives or goals are directly affected by the projected venture, plans of actions or proposed policy. Their role as intermediary is to make a request or make a move, to bring about changes or oppose initiatives, particularly if the value to be created is deemed as not entirely for the common good.
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Determining Influences and Needs
Analyzing the significance of interest groups involves an assessment of how each individual or group affects or is affected by the project or policy. Doing so provides the team with bases for determining the point at which a compromise or mutual benefit can be met. Consider the following points of consideration for this approach:
The Economic Gains and Their Distribution – the value created by the project or policy entails the creation of financial benefits for every key stakeholder.
- At the least, the owners, stockholders and other investors are bound to receive a fair share of return on their investments while the employees, creditors and suppliers will continue to receive the remunerations or payments due them.
- The government regulators are satisfied that the appropriate taxes are paid to ensure equal distribution of wealth.
- Consumers are satisfied that the product provides improvement in carrying out their day-to-day activities, or in improving their health and well-being.
- Consumer groups and community advisers are contented that the value created does not present any harm or adverse impact in the livelihood or economic resources of the non-competing sectors.
The Ecological or Environmental Impact – The value created by the plan or policy harnesses methods or resources that do not pose any danger to all the actors involved:
- The owners and the decisions makers will not be exposed to consequences for which they will be largely held responsible.
- Creditors, suppliers and insurance providers who assume risks in giving support to the business entity will not be exposed to latent threats, which could result to shut-downs or substantial payments of liabilities for environmental damages.
- The employees’ safety in the workplace, as well as their ability to provide continuously for their family will not be jeopardized by any form of hazard or illegal practices.
- The methods and raw materials to be used meet the federal, state or local regulations regarding the region’s natural resources and the environment as a whole.
- The benefits derived by the consumer from the product, do not carry with it any known hazards against their health and well-being, regardless if they are only perceived as possible risks.
- The lives and livelihood of the entire community or region will not be threatened by any form of ecological imbalance or threat to public health and safety.
The Moral Values Promoted – Inasmuch as business decisions or activities mirror the ethical and moral values upheld by the organization, the positivity of the strategies used to create value or promote a product is often widely received by all sectors. However, there may be certain interrelations between stakeholders that are not readily perceived; hence, a careful analysis of what may be economically convenient for one sector may indirectly result to a moral degradation of another, e.g. loss of family-centered traditions, poor school performance, lack of interest in physical activities, impatience, lack of discipline, teenage pregnancies and / or violent or suicidal tendencies.
The Contributions Gained or Lost- Interest groups form influences over projects or initiatives by the significance of their contributions. Their relationship in a specific undertaking is to perform or contribute for a shared purpose; hence, gaining support from all sectors would equate to gaining different kinds of contribution, i.e. financial, legal, judicial, intellectual, technical, physical and moral.
The Methods Used to Impose Their Power or Influence- There is also the need to consider the consequences if the rights or the request of one sector is ignored or disregarded.
- The government is capable of imposing sanctions;
- Stockholders withdraw their investments;
- Creditors call for the immediate settlement of the obligation,
- Insurance providers will not renew policies;
- Clients will not renew contracts or consumers will stop buying the product
- Suppliers refuse to grant credit privileges;
- Employees file collective lawsuits, or call for work-stoppage;
- Consumer advocates and civic groups call for boycotts;
- Local or state governments refuse to grant licenses.
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Conducting the Analysis
Performing an analysis of the different actors’ influences and needs forms part of the project planning tasks although best practices recommend that this should not be a one-man act. Relevant and useful information are gathered by way of brainstorming sessions and engaging the stakeholders themselves. This could be done by way of consultations, holding dialogues or interviews. Getting direct feedback facilitates the process of coming-up with a workable solution that could possibly meet the need of all sectors considered.
The actual steps and the tools used in performing this exercise are explained in full in a separate article entitled “Performing a Stakeholder Analysis” This particular article furnishes readers with instructions on how to create the matrices used as tools for analyzing influences and interests.
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Reference Material and Image Credit Section:
- ICRA Learning Modules "Stakeholder-Key Concepts"
- Operations management: a strategic approach: "Stakeholder Capitalism and the Value Chain"
Images are all courtesy of Wikimedia Commons:
Stakeholder Analysis: Overviews of its Theory and Practices
In this three-part article series, we examine the stakeholder analysis. In part one, we define the term. Part two explains the importance of a stakeholder analysis in project management, and in the third article we give real-life examples of stakeholder analysis