What is stakeholder theory?

Definition of stakeholder theory

Stakeholder theory, introduced by R. Edward Freedman in 1984, is a conceptual framework merging business ethics and operations. It argues that companies should not focus entirely on shareholders but instead balance the needs of all stakeholders affected by their work.

These stakeholders may include shareholders, employees, customers, suppliers, and the community. Stakeholder-focused environments are focused on sustainability, employee satisfaction, customer relationships, and community engagement.

In contrast, followers of economist Milton Friedman might say that a company’s sole purpose is to satisfy its shareholders. Actions that create shareholder value are good, and those that don't are outside the project scope. Friedman’s shareholder theory, also known as the Friedman Doctrine, was once popular, but in 1984, R. Edward Freeman published the book “Strategic Management: A Stakeholder Approach,” which contradicted that theory.

This book emphasized the idea of a stakeholder ecosystem and the importance of balancing the needs and interests of various groups, including employees, customers, and the broader community, in decision-making processes. The idea spread to influential business leaders and continues to resonate.

How does stakeholder theory apply to project management?

A business owner who believes in stakeholder theory must consider stakeholders' wants during project planning.

Here’s how stakeholder interests might affect the following project management stages, using the example of a grocery store:

• Project initiation: Who are the stakeholders? What are their concerns? Project managers who believe in stakeholder primacy should know the answers to these questions before outlining the project roadmap. For instance, local traffic worries might influence the design of the grocery store’s parking lot.
• Communication strategies: Explaining stakeholder theory requires good communication. For example, the grocery store should create communication strategies that invite all stakeholders to give feedback, regardless of whether those stakeholders care about the price of groceries or the latest stock options.
• Risk management: When all stakeholders matter, risks multiply. For example, the grocery store might have to consider risks to the neighborhood's health, such as noise pollution or heavy foot traffic.

Benefits of utilizing stakeholder theory

Reorienting the focus of your business to include a broader set of stakeholders may not seem profitable at first. It may seem like you’re moving away from ideologies prioritizing profits and putting shareholders above everything else.

But letting stakeholder-first principles guide your actions can improve productivity in many ways, including:

• Enhanced project success rates: Focusing exclusively on shareholders might prevent you from recognizing potential risks unrelated to profit. Widening your perspective lets you anticipate problems and take corrective action early, leading to greater project success rates.
• Improved decision-making: Sticking to stakeholder theory leads to a more thorough vetting process, offering diverse perspectives. This may affect the project timeline, but the company will likely make better decisions overall.
• Better trust and more long-term relationships: Business relationships thrive or fail based on trust. Do stakeholders believe that you’re taking their interests into account? If so, you have the foundation for long-term relationships. Considering all stakeholders naturally leads to a more trusting environment.

How to implement stakeholder theory

Here’s a breakdown of how to take a stakeholder-first approach to project management:

Stakeholder identification

There is no standard set of stakeholders. The first step in implementation is to identify each group with a stake in your business. Using the grocery store example from above, stakeholders may include:

• Shareholders
• Hourly and salaried employees
• Food suppliers
• Residents and community groups
• Government agencies

Rank stakeholders according to impact. For example, shareholders and employees might be the most influential voices in a publicly traded company.

Stakeholder analysis

Analyze your stakeholders’ primary interests and concerns. What motivates their actions? Can you meet their expectations?

The answers will vary for each stakeholder group. Grocery store customers care about food quality and costs, while government agencies want to maintain order and uphold regulations.

Developing an engagement strategy

Continuously engage with your stakeholders. Establish clear and constant communication and use a variety of channels to keep them in the loop. This will also boost your brand’s reputation for transparency.

Create tailored engagement plans for each stakeholder category. Utilize emails, store notices, and community meetings.

Establish regular feedback loops

Stakeholder interests can change quickly. Customers who complain about high prices one week might have concerns about the store’s cleanliness the next. Stay informed with regular feedback loops.

Ensure stakeholders have a simple way to connect with you and share their thoughts. You can use surveys, meetings, and forums. Even a Gantt chart could help you map stakeholder requests to project timelines.

Continuously monitor stakeholder relationships

Stakeholder management doesn’t end with feedback. Your business needs to monitor stakeholder relationships as well.

Pay attention to what your stakeholders express, and act immediately if you sense unhappiness. Are shareholders complaining about declining profits? If so, your accounting team might need to prepare a new outlook. Are shoppers worried about security at night? Hire a guard and let people know about the change.

Evaluate your engagement strategies as well. You may need to make constant improvements.

Tools for stakeholder analysis

Some stakeholders, such as employees, are easy to spot. Others might be more challenging to identify. Know how to analyze and compare stakeholder desires appropriately using these tools:

Power-interest grid

A power-interest grid organizes stakeholders by their level of power and interest in your business. Most of your attention should flow to those at the top of the grid. These are the stakeholders who can seriously disrupt your day-to-day operations.

The stakeholders at the bottom of the grid have the least power. You can monitor them more passively.

Stakeholder mapping

Stakeholder mapping plots each stakeholder on a visual map based on their support and influence. It’s like a flowchart for stakeholders. Use this document to understand how your stakeholders react to your project.

SWOT 분석

Conducting a SWOT analysis lets you assess strengths, weaknesses, opportunities, and threats in your stakeholder plan. This analysis shows whether stakeholders are happy right now and models future outcomes. You may discover unaddressed stakeholder concerns or ways you could enhance communication.

RACI 행렬

RACI는 담당자(Responsible), 책임자(Accountable), 조언자(Consulted) 및 정보 수신자(Informed)를 의미합니다. 이 차트는 프로젝트의 모든 내부 및 외부 관계자에게 역할을 할당합니다. RACI 행렬이 완료되면 의사 결정을 내리는 사람과 정기적인 업데이트가 필요한 사람을 알 수 있습니다.

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