What is Stakeholder Theory and Why It Matters
Continuing on with our series of nurturing stakeholder relationship for project managers, let’s look at stakeholder theory and why it matters. Stakeholders can influence everything and everyone in a project or organization, including senior management, project leaders, team members, customers, users and many others. With so many ways to sway a project, as a manager it’s critical to prioritize and focus on only the most important stakeholders, those with power, proximity and urgency.
This is the beginning of stakeholder theory. Stakeholder theory addresses business ethics, morals and values when managing stakeholders involved with a project or organization. It seeks to optimize relations with stakeholders, thereby improving efficiencies throughout the project or organization.
Stakeholder theory states that a company is only successful when it delivers value to its stakeholders, and those values can come in many forms beyond financial benefits. Such as the impact on employees and customers, one of the values produced by stakeholder theory includes greater productivity across the organization. If employees, who are considered stakeholders, feel as if they’re being valued, then they’re going to work harder and be more productive.
This also means that companies will have greater retention of their employees, but also of customers. If the productivity is up, then the product or service delivered to the customer is improved. With that improvement comes more customer loyalty, especially as they are one of the many stakeholders the company is considering when making decisions. Customers are also more likely to then refer other customers to the company.
All this is leading to more investment from financiers. They too, of course, are stakeholders. While sometimes they are thought of as the only stakeholders or the most important to a company as they hold their hands on the level of capital, they’re really connected to other stakeholders. As other stakeholders are valued, the value of the company grows, and investors are more likely to add money to production to take advantage of this increased market share.
From there, it’s not only capital that is infused into the company, but talent. Everyone loves a winner, and as the company grows and dominates because of its care for stakeholders, it will inevitably attract new talent to its doors.
Stakeholder theory drives more than profits and productivity. There are ethical benefits of practicing it as well. Companies find that the mental health of the workforce is greatly improved as their job satisfaction increases. It also will elevate the status of the company’s social-economic status in the local community. When one company practices stakeholder theory, it creates healthy competition among other companies, where all can thrive and help benefit their stakeholders.
Some critics, such as political philosopher Charles Blattberg, say stakeholder theory is problematic. They claim that the interests of various stakeholders cannot be balanced against each other.
This is because stakeholders represent such a large and diverse group. You can’t please every stakeholder. One or more stakeholders will have to take a backseat to other, more dominant ones, which is likely to create discord. This will disrupt the benefits associated with stakeholder theory.
Also, who will wield the most influence? Some stakeholders might find that they’re not impacting decisions as much as another group. The different power levels and spheres of influence can be a problem. Even those with seemingly more influence might not feel that they’re getting what they want.
The key principle of stakeholder engagement is communication. Here are some key tips for making sure that stakeholder communication stays strong and efficient:
- Make sure messages are targeted and delivered timely
- Consult early and often
- Know that stakeholders are people with feelings and need to be treated as such to build trust
- Consider potential risks and opportunities with each stakeholder
- Know how success is defined
- Take responsibility
It’s clear that stakeholders are important to the success of the project and that means you have to manage them and their expectations to keep things moving smoothly. This is achieved by using the available tools in the project manager’s armory, especially communication both written and verbal format. Let us know your thoughts on Stakeholder management, all the very best on your project management journey.