Chapter 2b project stakeholder management process

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  • 1. JK Cheng (2012/2013)PROJECT STAKEHOLDERMANAGEMENT PROCESSPART 2: ANALYTIC STAKEHOLDER THEORY Week 2 & 3
  • 2. Lecture Outcome 2.1 Stakeholder Theories 2.2 Principles of Stakeholder Management 2.3 Identifying Stakeholders 2.3.1 Primary Stakeholders 2.3.2 Secondary Stakeholders 2.3.3 Internal Stakeholders 2.3.4 External Stakeholders 2.4 Approaches in Stakeholder Management 2.5 Examples: Implementing Practical Strategies in Managing Stakeholders
  • 3. 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.
  • 4. Analytic Stakeholder Theories Focus along the organization-stakeholder continuum Focusing on the organization- Stakeholder- Organization -centric stakeholder Centric relation • Friedman and • Frooman (1999) • Freeman (1984) Strategic/ • Miles (2002) • Rowley and Savage et al. (1991) Instrumental • Moldoveanu Clarkson (1995) (2003) • Jones (1995)Analytic • Mitchell, Agle, andCategory Wood (1997) • Rowley (1997) Descriptive • Hill and Jones /Positive (1992) PART 1 PART 2 PART 3
  • 5. Analytic Stakeholder Theories Part 1 Freeman (1984) Savage et al. (1991)Organizational- Strategic / Clarkson (1995) centric Instrumental Jones (1995) Mitchell, Agle & Wood (1997) Rowley (1997) Organization–stakeholder relation, in which the corporation occupies a central position and has direct connections to all stakeholders
  • 6. Organization- Strategic/1 centric instrumental 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:
  • 7. Organization- Strategic/1 centric instrumental Strategic Management: Freeman (1984) High Low High Swing Offensive Relative (Change the rules) (Exploit)cooperation potential Defensive Hold (Defend) (Hold current position) Low Relative competitive threat Generic Stakeholder Strategy (Freeman, 1984)
  • 8. Organization- Strategic/1 centric instrumental Strategic Management: Freeman (1984) Offensive Strategies Defensive Strategies  Should be adopted if a  Should be adopted if a stakeholder group has stakeholder group has a relatively high cooperative relatively high competitive potential and relatively low threat and relatively low competitive threat in order cooperative potential to to bring about prevent competitive threat stakeholder’s cooperative on the part of these potential. stakeholder.  Examples: Attempts to  Example: Reinforcing change stakeholder current beliefs about the objectives or firm, maintaining existing perceptions, or to link the programs, letting the program to others that the stakeholder drive the stakeholder views more transformation process. favorable.
  • 9. Organization- Strategic/1 centric instrumental Strategic Management: Freeman (1984) Swing Strategies Hold Strategies  Should be adopted if a  Should be adopted if a stakeholder group has stakeholder group has a relatively low competitive relatively high threat and cooperative cooperative potential potential to continue and competitive threat. current strategic programs and maintain  Examples: Changing the current stakeholder some of the following - position. the rules, the decision  Example: Doing nothing forum, transaction and monitoring existing process. programs
  • 10. Organization- Strategic/ Strategies for Assessing and2 centric instrumental Managing Stakeholders: Savage et al. (1991)  Savage et al. (1991) build on Freeman’s model using the same constructs: stakeholder capacity and willingness to threaten or cooperate with the corporation. Potential for threat High Low High Stakeholder Type 4 Stakeholder Type 1 Mixed blessing Supportive Strategy: Collaborate Strategy: involve Potential for cooperation Stakeholder Type 3 Stakeholder Type 2 Non-supportive Marginal Strategy: Defend Strategy: Monitor Low
  • 11. Organization- Strategic/ Strategies for Assessing and2 centric instrumental Managing Stakeholders: Savage et al. (1991)  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.
  • 12. Organization- Strategic/ Strategies for Assessing and2 centric instrumental Managing Stakeholders: Savage et al. (1991)  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.
  • 13. Organization- Strategic/ Strategies for Assessing and2 centric instrumental Managing Stakeholders: Savage et al. (1991)  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.
  • 14. Organization- Strategic/ Strategies for Assessing and2 centric instrumental Managing Stakeholders: Savage et al. (1991)  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.
  • 15. Organization- Strategic/ Strategies for Assessing and2 centric instrumental Managing Stakeholders: Savage et al. (1991)  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.
  • 16. Organization- Strategic/ Strategies for Assessing and2 centric instrumental Managing Stakeholders: Savage et al. (1991)  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.
  • 17. Organization- Strategic/ A Stakeholder Framework for3 centric instrumental Analyzing and Evaluating Corporate Social Performance: Clarkson (1995)  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?’
  • 18. Organization- Strategic/ A Stakeholder Framework for3 centric instrumental Analyzing and Evaluating Corporate Social Performance: Clarkson (1995)  A framework based on managing relations with stakeholders would allow more effective analysis and evaluation of CSP. Rating Strategy Performance Proactive Anticipate responsibility Doing more than is required Accommodating Accept responsibility Doing all that is required Defensive Admit responsibility but Doing the least that is fight it required Reactive Deny responsibility Doing less than required The reactive-accommodative-defensive-proactive scale (Clarkson, 1995)
  • 19. Organization- Strategic/ Instrumental Stakeholder4 centric instrumental Theory: Jones (1995)  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.
  • 20. Organization- Strategic/ Instrumental Stakeholder4 centric instrumental Theory: Jones (1995)  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.
  • 21. Organization- Strategic/ Stakeholder Identification and5 centric instrumental Salience: Mitchell, Agle and Wood (1997)  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.Salient: Most important
  • 22. Organization- Strategic/ Stakeholder Identification and5 centric instrumental Salience: Mitchell, Agle and Wood (1997) Stakeholder Type Low salient classes Power Legitimacy (Latent stakeholders) 1. Dormant 2. Discretionary 1 4 2 3. Demanding Moderately salient classes (Expectant stakeholders) 7 4. Dominant 5 6 5. Dangerous 6. Dependent Highly salient stakeholder Definitive 3 8 7. Urgency 8. Non-stakeholder
  • 23. Organization- Strategic/ Stakeholder Identification and5 centric instrumental Salience: Mitchell, Agle and Wood (1997)  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
  • 24. Organization- Strategic/ A Network Theory of6 centric instrumental 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.
  • 25. Organization- Strategic/ A Network Theory of6 centric instrumental Stakeholder Influences: Rowley (1997) Density Centrality As density increases, coordination and communication between The higher the participants grows and the centrality, the greater the promotion of shared behaviors power obtained through and behavioral expectations the network’s structure. increases the chance of stakeholders forming coalitions.  A 4 way typology is presented: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
  • 26. Organization- Strategic/ A Network Theory of6 centric instrumental Stakeholder Influences: Rowley (1997) Centrality of the focal organization High Low High Compromise Subordinate Density of the stakeholder network Commander Solitarian Low
  • 27. Organization- Strategic/ A Network Theory of6 centric instrumental Stakeholder Influences: Rowley (1997) Compromise Commander  When a centrally located  High centrality, Low organization operates density of network. within a densely connected  If an organization has a set of stakeholders, all central position among parties have a degree of uncoordinated power to influence each stakeholders, it will achieve high levels of other. discretion, face few  Proposed strategy: to constraints and be able to balance, pacify and adopt the commander negotiate with role. stakeholders
  • 28. Organization- Strategic/ A Network Theory of6 centric instrumental Stakeholder Influences: Rowley (1997) Subordinate Solitarian  If an organization has a  If an organization has a high-density stakeholder low-density network and network and low low centrality, the centrality, it will have stakeholders are lack of power influence. disadvantage, with  In a loosely connected limited access to network, information flow information flows. is delayed and the organization will adopt withdrawal strategy (avoid stakeholder attention).
  • 29. Analytic Stakeholder Theories Focus along the organization-stakeholder continuum Focusing on the organization- Stakeholder- Organization -centric stakeholder Centric relation • Friedman and • Frooman (1999) • Freeman (1984) Strategic/ • Miles (2002) • Rowley and Savage et al. (1991) Instrumental • Moldoveanu Clarkson (1995) (2003) • Jones (1995)Analytic • Mitchell, Agle, andCategory Wood (1997) • Rowley (1997) Descriptive • Hill and Jones /Positive (1992) PART 2
  • 30. Analytic Stakeholder Theories Part 2 Strategic / Friedman and Miles (2002) InstrumentalOrganizational- Stakeholder relationship Descriptive / Hill and Jones (1992) Positive
  • 31. Relationship- Strategic/ Critical Realist Stakeholder1 focused instrumental Theory: Friedman and Miles (2002)  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).
  • 32. Relationship- Strategic/ Critical Realist Stakeholder1 focused instrumental Theory: Friedman and Miles (2002) Necessary Contingent A B Explicit/implicit recognized Implicit unrecognized Protectionist/defensive Opportunism/opportunisticCompatible Shareholders The general public Top management Companies connected through Partners common trade associations/initiatives D C Explicit/implicit recognized No contract Concessionary/compromise Competition/elimination Trade unions Aggrieved or criminal membersIncompatible Low-level employees of the public Government and their agencies Some NGOs Customers, Creditors Some NGOs
  • 33. Relationship- Strategic/ Critical Realist1 focused instrumental Stakeholder Theory: Friedman and Miles (2002) Necessary Compatible (A) Contingent Incompatible (C)  This relationship are created  Stakeholder & corporation whereby all parties have have separate, opposed and something to lose by unconnected sets of disrupting to the ideas, which only come into relationships. conflict if someone insists on counterpoising them.  The associated situational logic is protectionist – all  No contractual relationship & interests are served by the normal social rules is continuation of the suspended. relationship.  Example: NGOs.  Example: Shareholder- corporate relationship
  • 34. Relationship- Strategic/ Critical Realist1 focused instrumental Stakeholder Theory: Friedman and Miles (2002) Necessary Incompatible (D) Contingent Compatible (B)  Occurs when material interests  This covers relation where or set of ideas are related to there is no formal contract and each other but their operations no direct relationship between will threatened the relationship. the parties.  This situation leads to  Example: Organizations compromise as if the interest connected through common one party is advance, the other trade associations or joined by party will be threaten. national initiatives  Example: long-term contracts  Forming other relationship may that cover relations such as the further compatible interests. employment relation and long- term financing or supplier relations.
  • 35. Relationship- Descriptive/2 focused positive 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.Agent: Managers, Principles: Stakeholders
  • 36. Relationship- Descriptive/2 focused positive Stakeholder-Agency Theory: Hill and Jones (1992) 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.
  • 37. Analytic Stakeholder Theories Focus along the organization-stakeholder continuum Focusing on the organization- Stakeholder- Organization -centric stakeholder Centric relation • Friedman and • Frooman (1999) • Freeman (1984) Strategic/ • Miles (2002) • Rowley and Savage et al. (1991) Instrumental • Moldoveanu Clarkson (1995) (2003) • Jones (1995)Analytic • Mitchell, Agle, andCategory Wood (1997) • Rowley (1997) Descriptive • Hill and Jones /Positive (1992) PART 3
  • 38. Analytic Stakeholder Theories Part 3 Frooman (1999)Stakeholder Strategic / centric Instrumental Rowley and Moldoveanu (2003)
  • 39. Stakeholder- Strategic/1 centric instrumental Stakeholder Influencing Strategies: Frooman (1999)  Models stakeholder influencing strategies to help management understand and manage stakeholder relations.  Developed a four-way model that identifies stakeholder-influencing strategies: Is the stakeholder dependent on the firm? No Yes Is the firm No Low interdependence Firm power dependent on Indirect/withholding Indirect/usagethe stakeholder? Yes Stakeholder power High interdependence Direct/withholding Direct/usage
  • 40. Stakeholder- Strategic/1 centric instrumental Stakeholder Influencing Strategies: Frooman (1999)  Strategies are classified as withholding or usage, which can be executed directly or indirectly. • Depend on credible threat of withdrawal. Withholding Includes – Employee strikes, consumer Strategies boycotts or withdrawal of funds by shareholders or creditors. • Occur when a stakeholder continues to Usage provide a resource but with condition attached that if behavior is not Strategies altered, resources will ultimately be withdrawn. Indirectly • Stakeholders acting through agents or Strategies intermediaries.
  • 41. Stakeholder- Strategic/ An Interest- and Identity-Based Model2 centric instrumental of Stakeholder Group Mobilization: Rowley and Moldoveanu (2003)  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.Mobilization: Capable of movement (pergerakan), Discontent: Dissatisfaction
  • 42. Stakeholder- Strategic/ An Interest- and Identity-Based Model2 centric instrumental of Stakeholder Group Mobilization: Rowley and Moldoveanu (2003) 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.Animosity: Dislike, Impede: To obstruct
  • 43. Stakeholder- Strategic/ An Interest- and Identity-Based Model2 centric instrumental of Stakeholder Group Mobilization: Rowley and Moldoveanu (2003) Interest Overlap High Low Identity High Low probability of Unlikely probability of Overlap mobilization mobilization Low High probability of Low probability of mobilization mobilization1. 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.
  • 44. END