Stakeholder management in complex projects: What it is, why it matters and how to do it

Who are stakeholders? Shareholders and beyond

Stakeholders, simply defined, are any entities, individuals, groups, or organizations, that have a stake in an issue, process, or organization. Friedman (1962) extended the shareholder theory which famously stressed that the business of business is profits so long as no deception or fraud are practised. This meant that business owners needed to only focus on the interests of their shareholders and the profit motive.

However, this belief was challenged by Freeman (1984) who asserted that stakeholders are much more than the shareholders and include all such people who have a stake in the organization whether through social, ethical, or business procedural perspectives.

Shareholder versus stakeholder theory: There is more than profits

In Friedman (1962)’s opinion, businesses are ill-equipped to handle any demands which do not tie to their own expertise. His narrow focus on shareholders as the only stakeholders drew criticism as the interests of other important entities were neglected and encouraged uncontrolled exploitation of resources.

For instance, the systems theory stresses that no part of a business remains disconnected from its internal or external environment. Therefore, if a business focused only on its profits, it would be impossible for it to do so without considering the interests of

• its employees whose performance directly affects efficiency of operations,
• its suppliers and distributors whose products and services impact operations and service delivery, and
• the local community who form the customers, investors, and even the source of recruitment for its workforce.

The interconnected and technology driven global economy of the modern age can, in fact, claim the entire world to be its “local community” as the web of operations for a business extends much beyond local boundaries today. 

What is stakeholder management?

Stakeholders have direct or indirect influence in the organization which can impact its outcomes, therefore, it is important that they are managed well.

Stakeholder management is the process of identifying, prioritising, and strategizing on how to engage each segment of stakeholders for an entity (Francisco de Oliveira and Rabechini, 2019). This entity may be the team, department, or organization, or the entire conglomerate.

Stakeholder management is approached in various ways

There are various approaches for managing stakeholders but most begin with their identification and prioritisation.

Mendelow (1981)’s stakeholder matrix is the most popular where the power and level of interest of the stakeholders determine whether they should be minimally engaged, kept satisfied, kept informed, or need key inputs for engagement.

De Schepper, Dooms and Haezendonck (2014) have devised a similar mechanism which classifies stakeholders based on their power and urgency of requirements into four categories:

• inform,
• involve,
• collaborate or
• ignore.  

Frooman (1999) has classified stakeholders according to their dependency on the firm and the firm’s dependency on them. Based on these considerations, he classifies resource relationships between the firm and the stakeholder into four categories:

• low interdependence,
• firm power,
• stakeholder power, and
• high interdependence.

Stakeholders who are considered to be low interdependence are believed to not need any influence strategy from the firm. The other categories are recommended withholding and usage strategies depending on the degree of interdependence. Withholding strategies are successful if the stakeholder is in a position to walk away and is, hence, low on interdependence, 

The high-interdependence category, as the name suggests, are recommended the direct usage of an influence strategy. Modern project managers may find that most of their stakeholders need direct usage of influence strategies.

Stakeholder management with social network analysis

Project management requires the interplay of complex factors including multitude of stakeholders, variations in regulatory policy, and changing customer demands. Social network analysis (Nguyen, Mohamed and Panuwatwanich, 2018) is a tool project managers can utilize to manage stakeholder expectations and relationships. This is extremely relevant to virtual teams in today’s environment where members connect through digital media and has gained a critical importance in the COVID-19 pandemic world.

Breaking down stakeholder engagement for project managers

Chung, Kumaraswamy and Palaneeswaran (2009) have suggested that project managers should approach stakeholder management in a stepwise manner. They should first create an integrated team following all processes of team formation. They should then collaborate with members to translate team goals into a job plan using software to form a platform where team members can continue to engage. Project leaders can make use of models to process requirements and to facilitate the realisation of tasks towards objectives.

Stakeholder management with participatory tools

Luyet et al. (2012) have also proposed a framework for projects in the environment field which states that stakeholders should be first identified, characterized, their degree of involvement the project should be estimated, to select the right participatory tools that should then be implemented and evaluated for effective stakeholder management.

The future of stakeholder management: New ways of engagement and influencing

Pedrini and Ferri (2019) have reported that the internet, social networks, and big data analysis have changed the way stakeholders are managed.  Aaltonen and Kujala (2016) have also commented on the increasing complexity in project stakeholder management both in terms of elements and in relationships. This uncertainty can be attributed to the lack of information and its ambiguity. Moreover, managers’ experiences with stakeholders, and the environment also contributes to the dynamism in the stakeholders’ attributes, positions, and relationships. Accordingly the engagement techniques and influencing strategies need to adapt and respond to the institutional context. 

As a result, stakeholder management has to evolve.

With changes in the external environment, an effective stakeholder management approach has to provide answers to the following three key questions (Parmar et al., 2010):

• How to create value for each stakeholder?
• How to ensure ethical discourse in stakeholder engagement?
• How can managers connect value with ethics?

These considerations are possible only if all managerial decision-making places value creation for all stakeholders, or at least the key ones as a priority while also ensuring that this value is delivered in an ethically sound manner. 

Davis (2014) has identified that project success parameters have to be common for allstakeholders and include the following five key factors:

• communication,
• time,
• stakeholder satisfaction,
• quality of final output, and
• cost.

This perspective extends the more traditional project management performance dimensions time, cost and quality with communication and stakeholder satisfaction. As those dimensions vary depending on which stakeholders are involved in the projects, it stresses that there is no one size fits all approach to successfully manage complex projects when different types of stakeholders are involved.

A new model of stakeholder management for projects

A recently introduced stakeholder management models (Nguyen, Mohamed and Panuwatwanich, 2018) recognizes the growing complexity and interdependence of factors involved in managing complex projects and their stakeholders. It, therefore, prescribes that stakeholder analysis, influence, engagement, and management strategies have to work together in tandem. Without this coordination, it is difficult to do justice to each phase of the project and its complexity with regard to technique, goals, structure, and culture

The most important learning from this model is that no influence or engagement strategy can be considered to be superior over others and it is the context which determines their suitability.