Chapter 2b project stakeholder management process

Week 2 & 3

PROJECT STAKEHOLDER MANAGEMENT PROCESS

PART 2: ANALYTIC STAKEHOLDER THEORY

JK Cheng (2012/2013)

Lecture Outcome

2.1 Stakeholder Theories 2.2 Principles of Stakeholder Management

2.3 Identifying Stakeholders2.3.1Primary Stakeholders2.3.2Secondary Stakeholders2.3.3Internal Stakeholders2.3.4External Stakeholders

2.4 Approaches in Stakeholder Management

2.5 Examples: Implementing Practical Strategies in Managing Stakeholders

Analytic Stakeholder Theory

All stakeholder theory that is not strictly normative.

Types:1. 1st: Primarily organization-centric,

stakeholder-centric or focus on organization-stakeholder relation

2. 2nd: Within the above categories, they are strategic/instrumental or descriptive/positive.Descriptive

• Stakeholders are defined as to whether they are affected by the firm and/or can potentially affect the firm.

Instrumental • Stakeholders are defined by the need of management to take them

into consideration when trying to achieve their goals.

Analytic Stakeholder Theories

Focus along the organization-stakeholder continuum

Organization -centric

Focusing on the organization-stakeholder

relation

Stakeholder-Centric

AnalyticCategory

Strategic/ Instrumental

• Freeman (1984)• Savage et al. (1991)• Clarkson (1995)• Jones (1995)• Mitchell, Agle, and

Wood (1997)• Rowley (1997)

• Friedman and Miles (2002)

• Frooman (1999)• Rowley and

Moldoveanu (2003)

Descriptive /Positive

• Hill and Jones (1992)

PART 1

PART 2

PART 3

Part 1

Organizational-centric

Strategic / Instrumental


Organization–stakeholder relation, in which the corporation occupies a central position and has direct connections to all stakeholders

Freeman (1984)

Savage et al. (1991)

Clarkson (1995)

Jones (1995)

Mitchell, Agle & Wood (1997)

Rowley (1997)

Strategic Management: Freeman (1984)

Focuses on the relative power of stakeholders and their potential to cooperate or threaten corporate strategy.

Suggests that the success of particular strategic programs can be affected by a stakeholder’s potential for change and its relative power.

Management can seek strategic guidance by examining the relative competitive threat and relative cooperative potential of each stakeholder and classifying the stakeholder accordingly.

4 strategies are distinguished:

Strategic/ instrument

al

Organization-centric1

LowHigh

High

Low

Relative competitive threat

Relative cooperatio

n potential

Swing (Change the rules)

Offensive (Exploit)

Defensive(Defend)

Hold (Hold current

position)

Generic Stakeholder Strategy (Freeman, 1984)



al


Should be adopted if a stakeholder group has relatively high cooperative potential and relatively low competitive threat in order to bring about stakeholder’s cooperative potential.

Examples: Attempts to change stakeholder objectives or perceptions, or to link the program to others that the stakeholder views more favorable.

Should be adopted if a stakeholder group has a relatively high competitive threat and relatively low cooperative potential to prevent competitive threat on the part of these stakeholder.

Example: Reinforcing current beliefs about the firm, maintaining existing programs, letting the stakeholder drive the transformation process.

Offensive Strategies Defensive Strategies



al


Should be adopted if a stakeholder group has relatively high cooperative potential and competitive threat.

Examples: Changing some of the following - the rules, the decision forum, transaction process.

Should be adopted if a stakeholder group has a relatively low competitive threat and cooperative potential to continue current strategic programs and maintain the current stakeholder position.

Example: Doing nothing and monitoring existing programs

Swing Strategies Hold Strategies



al


Savage et al. (1991) build on Freeman’s model using the same constructs: stakeholder capacity and willingness to threaten or cooperate with the corporation.

Strategies for Assessing and Managing Stakeholders: Savage et al. (1991)

Stakeholder Type 4

Mixed blessingStrategy:

Collaborate

Stakeholder Type 1

SupportiveStrategy: involve

Stakeholder Type 3

Non-supportiveStrategy: Defend

Stakeholder Type 2

MarginalStrategy: Monitor

HighHig

h

Low

LowPotential for threat

Potential for

cooperation


al


Type 1 Stakeholders: Low potential for threat and a high potential for

cooperation. Corresponds to Freeman’s ‘offensive’ category and

associated strategy of exploitation. Consider ‘supportive’ stakeholders as the ‘ideal type’

and include the board of trustees, managers, employees, and parent companies.

This category can include suppliers, service providers, and non-profit organizations.

Both models agree on a strategy of involvement, although Freeman explicitly states ‘exploitation’, indicating a greater power distribution in favor of the organization.



al


Type 2 stakeholders: Low potential for threat and a low potential for

cooperation. Are marginal: They are unconcerned about their

stake in the business as they have a low potential for threat or cooperation.

This corresponds to Freeman’s ‘hold’ quadrant. Examples: Consumer interest groups, professional

associations for employees, and shareholders. Both models suggest a monitoring strategy as

certain issues could cause these stakeholders to change category, increasing their potential threat.



al


Type 3 stakeholders: Non-supportive, with a high potential for threat

and a low potential for cooperation. These stakeholders are the most distressing for

corporations, such as competitors, unions, the media, and government.



al


Type 4 stakeholders: Mixed blessing, with high potential for threat and

high potential for cooperation. This includes employees in short supply, clients,

and organizations with complimentary products and services.

Both models suggest a defensive strategy. However, the strategic advice differs:

Savage et al. suggest collaboration whereas Freeman suggests changing the rules

Both approaches have the same end in sight: To enhance the potential for cooperation and

reduce the potential for threat.



al


The power of threat is determined by resource dependence, the stakeholder’s ability to form coalitions, and relevance of the threat to a particular issue.

Examining the quality and durability of the organization–stakeholder relationship can help in assessing the potential for threat.

The potential to cooperate is partially determined by the stakeholder’s capacity to expand its interdependence with the organization: the greater the dependence, the greater the willingness to cooperate.



al


Willingness to cooperate can also be affected by the business environment.

Managers need to continually assess stakeholder interests, capabilities and needs, as stakeholder engagement tends to be issue-specific.

Consequently, managers cannot expect a previously supportive stakeholder to be cooperative on future issues.



al


Clarkson concluded that analyzing CSP based on categories of social responsibility, social issues, and philosophies or strategies of corporate responsiveness did not lead to satisfactory results.

The term social responsiveness carried no clear meaning.

They have normative elements where lacking clarity and specificity and the disadvantage of sounding like jargon. ‘Socially responsible to whom?’ ‘Socially responsive about what?’ ‘Social performance judged by whom and by what

standards?’

A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance: Clarkson (1995)


al


Rating Strategy Performance

Proactive Anticipate responsibility Doing more than is required

Accommodating Accept responsibility Doing all that is required

Defensive Admit responsibility but fight it

Doing the least that is required

Reactive Deny responsibility Doing less than requiredThe reactive-accommodative-defensive-proactive scale (Clarkson,

1995)

A framework based on managing relations with stakeholders would allow more effective analysis and evaluation of CSP.

A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance: Clarkson (1995)


al


Stresses on the reason why acting ethically should (or least likely to) lead to competitively advantages.

Jones begins with three assumptions about the firm–stakeholder relationship.1. Firms have relationships, called contracts, with

many stakeholders and can therefore be seen as a ‘nexus of contracts’.

2. Firms are run by professional managers who are their contracting agents.

3. Firms exist in markets in which competitive pressures do influence behavior but do not necessarily penalize moderately inefficient behavior.

Instrumental Stakeholder Theory: Jones (1995)


al


From the assumption, Jones formulate: If a firm has good relationship through their

managers with their stakeholders on the basis of mutual trust and cooperation, then these firms will have a competitive advantage over firms that do not.

Instrumental Stakeholder Theory: Jones (1995)


al


Suggest that stakeholders become salient to managers to the extend that those managers perceive stakeholders as possessing 3 attributes: 1. The stakeholder’s power to influence the firm.2. The legitimacy of the stakeholder’s

relationship with the firm. 3. The urgency of the stakeholder’s claim on the

firm. The concept of power, legitimacy & urgency are

used to create 7 stakeholder categories and 1 non-stakeholder categories.

Stakeholder Identification and Salience: Mitchell, Agle and Wood (1997)

Salient: Most important


al


Legitimacy

Urgency

Power

1 2

3

4

5 67

8

Low salient classes (Latent stakeholders)

1. Dormant

2. Discretionary

3. Demanding

Moderately salient classes (Expectant stakeholders)

4. Dominant

5. Dangerous

6. Dependent

Highly salient stakeholder

7. Definitive

8. Non-stakeholder

Stakeholder Type



al


Power alone is insufficient for classifying a stakeholder as high priority. Legitimacy is required to provide authority. Urgency is necessary for execution, hence stakeholder must be aware of its power and be willing to exercise it.

If only 1 attribute is recognized the stakeholder is view as low priority. Stakeholders become moderate priority if 2 attributes are held and high priority if all 3 are perceived.

Legitimacy: Lawfulness by virtue of being authorized or in accordance with law



al


A Network Theory of Stakeholder Influences: Rowley (1997)

Consider multiple and interdependent interactions that simultaneously exist in stakeholder environments, leading to more complex field. How the stakeholders affect the firm and how firms respond to these influences will depend on the network of stakeholders surrounding the relationship. Density (interconnectedness between stakeholders) and centrality (position in the network relative to others) are key factors for analysis.


al


Density

As density increases, coordination and

communication between participants grows and the

promotion of shared behaviors and behavioral

expectations increases the chance of stakeholders

forming coalitions.

Centrality

The higher the centrality, the greater the power obtained

through the network’s structure.

A 4 way typology is presented:



al


Density: The degree to which something is filled, crowded, or occupied (Kepadatan)Centrality: A tendency to be or remain at the center (Berpusat)Coalitions: An alliance

Low

Compromise

Subordinate

Commander Solitarian

High

High

Low

Centrality of the focal organization

Density of the

stakeholder

network



al


When a centrally located organization operates within a densely connected set of stakeholders, all parties have a degree of power to influence each other.

Proposed strategy: to balance, pacify and negotiate with stakeholders

High centrality, Low density of network.

If an organization has a central position among uncoordinated stakeholders, it will achieve high levels of discretion, face few constraints and be able to adopt the commander role.

Compromise Commander



al


If an organization has a high-density stakeholder network and low centrality, it will have power disadvantage, with limited access to information flows.

If an organization has a low-density network and low centrality, the stakeholders are lack of influence.

In a loosely connected network, information flow is delayed and the organization will adopt withdrawal strategy (avoid stakeholder attention).

Subordinate Solitarian



al






relation

Stakeholder-Centric

AnalyticCategory



Wood (1997)• Rowley (1997)



Moldoveanu (2003)



PART 2

Part 2

Organizational-Stakeholder relationship


Descriptive / Positive


Friedman and Miles (2002)

Hill and Jones (1992)

Present a stakeholder model based on a critical realist theory of social change and differentiation.

View organization-stakeholder relation as a combination of further elaboration of ideas, materials interests and institutional supports emerge.

Their typology is based on 2 distinction:1. Whether the relationships are compatible or

incompatible in terms of sets of ideas and material interests.

2. Whether the relationship between groups are necessary or contingent. (Necessary: Internal to a social structure, Contingent: External or not integrally connected).

Critical Realist Stakeholder Theory: Friedman and Miles (2002)


al

Relationship-focused1

AExplicit/implicit

recognizedProtectionist/defensive

ShareholdersTop management

Partners

BImplicit unrecognized

Opportunism/opportunistic

The general publicCompanies connected through common trade associations/initiatives

DExplicit/implicit

recognizedConcessionary/compromiseTrade unions

Low-level employeesGovernment and their

agenciesCustomers, Creditors

Some NGOs

CNo contract

Competition/eliminationAggrieved or criminal members of the public

Some NGOs

Compatible

Incompatible

Necessary

Contingent



al


This relationship are created whereby all parties have something to lose by disrupting to the relationships.

The associated situational logic is protectionist – all interests are served by the continuation of the relationship.

Example: Shareholder-corporate relationship

Stakeholder & corporation have separate, opposed and unconnected sets of ideas, which only come into conflict if someone insists on counterpoising them.

No contractual relationship & normal social rules is suspended.

Example: NGOs.

Necessary Compatible (A)

Contingent Incompatible (C)



al


Occurs when material interests or set of ideas are related to each other but their operations will threatened the relationship.

This situation leads to compromise as if the interest one party is advance, the other party will be threaten.

Example: long-term contracts that cover relations such as the employment relation and long-term financing or supplier relations.

This covers relation where there is no formal contract and no direct relationship between the parties.

Example: Organizations connected through common trade associations or joined by national initiatives

Forming other relationship may further compatible interests.

Necessary Incompatible (D)

Contingent Compatible (B)



al


Stakeholder-Agency Theory: Hill and Jones (1992)

In perfectly efficiently markets, principals and agents are free to enter and exit contracts – Assuming infinite number of potential contractors and all are assumed to have perfect information about all possible contractual conditions.

Inefficient markets surround firms because agents cannot exit contractual relations without losses. This leads to power differentials between principles and agents, due to unequal dependence between both parties.

If oversupply of agents, power shifts towards principles while if there is a shortage of agents or if principles cannot easily exit the contractual relations, power shifts towards agents.

Descriptive/ positive


Agent: Managers, Principles: Stakeholders

Consider markets to be slow to adjust and there will be a prolonged periods of disequilibrium (shortages of resources and people in different markets and adjustments will be taking place in response to those situation)

Although market are slow to adjust, it will work in long run by eliminating the most inefficient organizational forms.

The market force will work towards equilibrium and therefore generates innovations that will continually shift the equilibrium to which the market forces are tending.

Stakeholder-Agency Theory: Hill and Jones (1992)

Descriptive/ positive






relation

Stakeholder-Centric

AnalyticCategory



Wood (1997)• Rowley (1997)



Moldoveanu (2003)



PART 3

Part 3

Stakeholder centric


Frooman (1999)


Rowley and Moldoveanu (2003)

Models stakeholder influencing strategies to help management understand and manage stakeholder relations.

Developed a four-way model that identifies stakeholder-influencing strategies:

Stakeholder Influencing Strategies: Frooman (1999)

No Yes

No Low interdependence

Indirect/withholding

Firm powerIndirect/usage

Yes Stakeholder powerDirect/withholding

High interdependence

Direct/usage

Is the stakeholder dependent on the firm?

Is the firm dependent on

the stakeholder?


al

Stakeholder-centric1

Strategies are classified as withholding or usage, which can be executed directly or indirectly.

Withholding

Strategies

• Depend on credible threat of withdrawal. Includes – Employee strikes, consumer boycotts or withdrawal of funds by shareholders or creditors.

Usage Strategies

• Occur when a stakeholder continues to provide a resource but with condition attached that if behavior is not altered, resources will ultimately be withdrawn.

Indirectly Strategies

• Stakeholders acting through agents or intermediaries.

Stakeholder Influencing Strategies: Frooman (1999)


al


Propose an identity-based perspective to challenge the interest-based perspective.

In order to explain why some stakeholders pursue an action, knowing that it will give a negative impact to the corporate and why some stakeholders with a high degree of discontent prefer not to mobilize.

2 types of critical resources for mobilization:1. Material resources – Money, labor, telephone,

computers.2. Non-material – leadership, moral engagement.

A stakeholder group will mobilize depend on both interest overlap & identity overlap.

An Interest- and Identity-Based Model of Stakeholder Group Mobilization: Rowley and Moldoveanu (2003)


al


Mobilization: Capable of movement (pergerakan), Discontent: Dissatisfaction

Interest Overlap• Relates to the level of interest similarity across

stakeholders that belong to multiple stakeholder group.• Example: If a stakeholder group has an urgent claim,

the individual members may have diverse and conflicting interests. Therefore, the group will not act despite having sufficient resources for mobilization.

Identity Overlap• Group members who define themselves in terms of

their uniqueness are likely to feel greater animosity towards groups with similar identities than towards dissimilar identity group.

• Example – Taking action when a rival group already mobilized on a similar issue will impede identity building thereby decreasing the value of mobilization for that particular group.



al


Animosity: Dislike, Impede: To obstruct

1. HIGH interest overlap & LOW identity overlap – Most likely of mobilization.

2. HIGH interest overlap & HIGH identity overlap – Likelihood of mobilization will diminish.

3. LOW interest overlap & LOW identity overlap – Any activity will enhance the identity of the group but the motivation to act will be hampered by the presence of conflicts of interest.

4. LOW interest overlap & HIGH Identity overlap – No mobilization will take place.

High Low

High Low probability of mobilization

Unlikely probability of mobilization

Low High probability of mobilization

Low probability of mobilization

Interest Overlap

Identity Overlap



al


END

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Chapter 2b project stakeholder management process