What is Stakeholder Management? Types, Principles, Pros, Cons, and Differences

Engaging with stakeholders through systematic analysis, planning, and implementation of pre-designed actions is known as stakeholder management. This crucial aspect of project delivery involves both management and engagement to ensure success. In order to achieve the desired benefits, project managers must rely on stakeholder responses, which can only be achieved through effective engagement. Depending on the project's nature, stakeholders can be individuals, groups, or organizations.

Overview and Need

The success of stakeholder management lies in obtaining the support of stakeholders. A well-planned stakeholder management strategy can effectively minimize any negative impact. The difference between having negative and positive stakeholders can only be achieved through a proper plan. Implementing a successful strategy ensures the efficient completion of the project.

For some projects, a formal approach with well-documented strategies is essential, while others may require a simpler approach. In any case, it's crucial to prioritize negative stakeholders over positive ones since they pose the greatest risk to the project's success. By proactively and effectively managing negative stakeholders, their impact can turn positive, leading to project success. It's essential to include this aspect in project planning to anticipate and address potential issues that may arise.

Steps

Effective project management involves paying special attention to stakeholders, who have the power to influence a project's outcome. Managing stakeholders is essential to ensure their positive impact on the project. There are five common ways to manage stakeholders, as outlined below:

1. Creating an OBS – Organizational Breakdown Structure

An organizational breakdown structure is a diagram that represents the stakeholder organization in the form of a tree structure using Excel. It is recommended to generate a breakdown structure for each group when a project involves multiple departments or organizations. If necessary, color coding can be used to enhance the structure.

One of the primary advantages of having an organizational breakdown structure is, it considers the stakeholders who may not have been discussed previously.

2. Stakeholder categorization

Responsible stakeholder management involves categorizing stakeholders into three groups: those with direct involvement, those with indirect involvement, and those who are regulatory bodies. If necessary, stakeholders may be further segmented into separate groups.

3. Understanding stakeholders impact and capability

The users may be categorized as high power or high interest and low interest and low power based on the importance and the ability of the stakeholders.

4. Complete the grid of Significance

Stakeholders can be categorized based on their level of interest and power into different quadrants of power interest grade. The stakeholder with high interest and high power falls under the top right-hand quadrant and requires careful management due to their significant impact on the project. On the other hand, stakeholders with low interest and low power would be positioned in the lower-left corner and require regular monitoring.

5. Completion of the communication plan and management

After completing all necessary steps, you may proceed to the next level. In the first column, list the job title and names of stakeholders. In the second column, outline the communication approach and consistently monitor and inform stakeholders to ensure their satisfaction. Stakeholders may fall under the categories of supporter, advocate, blocker, or neutral. Record any necessary actions in the management activity column.

Basic Principles

The basic principles of stakeholder management are:

1. Communication

Understanding their interests, needs, and concerns will enable you to tailor your approach and communication style to effectively engage and influence them. This will not only help you build trust and rapport but also ensure that their expectations are met, and the project progresses smoothly.

2. Frequent consultation

In the initial stages of a project, stakeholders may lack a clear understanding of its scope, purpose, risks, or approach. To ensure that everyone's needs are met and that solutions are agreed upon, regular meetings are essential. These meetings allow for negotiation and collaboration among stakeholders, resulting in solutions that are acceptable to the majority involved in the project.

3. Humanization

Dealing with stakeholders can be challenging, especially when their behavior seems irrational or inconsistent. However, it's important to recognize that humans are not always predictable and may have underlying reasons for their actions. By taking the time to understand and address the root cause of stakeholder behavior, you may be able to find alternative ways to maintain a productive relationship.

4. Planning

Thorough planning is a key factor in achieving successful stakeholder engagement. By investing significant time in both management and stakeholder training, organizations can reap substantial benefits.

5. Relationships are important

Building strong connections and establishing trust between stakeholders is crucial for effective collaboration. With trust, individuals are more likely to work together seamlessly and efficiently. By investing time and effort into cultivating these relationships, confidence can be increased across the project environment, ultimately leading to faster problem-solving and decision-making processes while minimizing uncertainty.

6. Simplicity

Effective risk management involves anticipating potential hazards through foresight and proactive planning. Acknowledging and preparing for potential dangers allows for timely action with stakeholders, ultimately leading to the improvement of project delivery. While this principle has demonstrated great success, it remains a challenge to implement effectively in practice.

7. Risk management

Stakeholders are considered to be influential and vital resources, which is why they are treated as a potential source of opportunity and risk within the same project.

8. Compromise

The initial phase involves setting the baseline that satisfies the varying expectations of diverse stakeholders and their priorities. It is crucial to assess the relative significance of each stakeholder's needs against the project requirements, as approved by the project sponsor.

9. Understand success

Defining project success is crucial, as it can have varying interpretations among stakeholders. To ensure alignment and avoid potential conflicts during project delivery, it is essential to establish a clear and unified definition of success that is agreed upon by all parties involved.

10. Stakeholder commitment

Effective stakeholder engagement involves a collaborative effort from all team members. Each member must understand their role and responsibilities in the process, and employ appropriate communication strategies and engagement approaches. It is important to recognize that successful engagement requires a team effort, not just the responsibility of one individual.

Providing clarity to the customer about the stakeholder engagement responsibilities and the role is what is expected from the people who are a part of the project.

Types of Management

Depending on the nature of the organization, there are several stakeholders involved in a particular project. Following are a few of the common types of stakeholders:

1. Customers

In order to succeed in today's competitive market, it is essential for businesses to prioritize the needs and satisfaction of their customers. This means focusing on providing high-quality products or services that meet or exceed their expectations. By doing so, businesses can establish a loyal customer base and ultimately drive growth and success. As such, customers are indeed the primary stakeholders of any business, as their satisfaction and loyalty directly impact the success of the organization.

Passengers who board a train are essentially entrusting the company with all of their needs during the journey. As such, they have a vested interest in the quality of the product or service provided, and the values upheld by the company.

2. Employees

Employees are crucial to the success of any organization as they rely on their employment to provide for their personal and familial needs. Depending on the company and job position, employees may receive monetary or non-monetary benefits. Additionally, employees often have a vested interest in the health and safety practices of the organization, especially those working in hazardous environments such as manufacturing plants.

3. Investors

Investors in an organization include its shareholders, who hold a stake in the company and anticipate returns on their investment. These shareholders are focused on maximizing shareholder value and are primarily interested in the financial gains offered by the organization's performance.

4. Suppliers and vendors

Suppliers and vendors are crucial to the success of any organization as they provide goods and services that generate revenue and ensure ongoing business. In certain industries, like healthcare, the safety and health of suppliers may be at risk as they are directly involved in the organization's operations.

5. Communities

Large corporations often have a vested interest in the well-being of the communities they operate in, as these communities are important stakeholders. Factors such as economic growth, job creation, and the promotion of health and safety are all areas that can have a significant impact on these communities.

When a large corporation enters a small community, the impact can be significant. On one hand, there may be an increase in employment opportunities and a resulting boost to the local economy. However, if the corporation does not prioritize community engagement and sustainability, there can also be negative consequences such as a collapse of local businesses and a disregard for the well-being of residents.

6. Government

Governments play a crucial role as stakeholders in the corporate world due to the substantial amount of taxation generated from corporate income. This income is largely derived from the employees of these organizations. In addition, governments also benefit from the overall GDP contributed by these companies.

Advantages

The advantages of stakeholder management are:

The company aims to draw in individuals who possess exceptional relationship management skills and expertise in other business areas - commonly referred to as stakeholders. These individuals are typically found in the upper echelons of the company's management or on its board of directors. While they may not be directly involved in day-to-day operations, they play a critical role in providing a macro view and planning for the company's long-term success. By leveraging the insights of stakeholders, the company can avoid costly mistakes that could have severe economic consequences. Ultimately, stakeholders provide a crucial bridge between long-term strategic planning and immediate operational needs.

Disadvantages

The disadvantages of stakeholder management are:

Each stakeholder should receive adequate attention from the organization to ensure fairness. It's important to recognize that a low-value stakeholder today may become a high-value stakeholder in the future. Neglecting any stakeholder could lead to negative consequences down the line.