Understanding Stakeholder Management

Business environments that are constantly changing require a more dynamic and comprehensive approach to managing their relations with stakeholders. When these relations are managed effectively, it is easier to identify mechanisms that ensure the success of an organization's projects. For this reason, Stakeholder Management is becoming an increasingly important objective for companies and organizations in the 21st century.

What is Stakeholder Management?

Before we dive into the concept of Stakeholder Management, first, we need to understand what a stakeholder is. In a few words, stakeholders are any individual or group that can affect or be affected by the business's activities and decisions.

Stakeholder Management refers to the activities to promote, build, and grow the relationship between organizations and stakeholders, where the main focus is generating value for all involved. 

The Beginnings of Stakeholder Management

This theory began in 1984 when Edward Freeman (philosopher and professor of Business Administration at the University of Virginia, USA) pointed out stakeholders as a management strategy. He proposed that organizations should consider the needs and interests of investors and shareholders and the needs of other stakeholders. According to Freeman, stakeholders are the owners and directors of companies (or shareholders), the local community (and sometimes nearby communities), customers, employees, and suppliers. 

Shareholder Management vs. Stakeholder Management

The theory of stakeholder management was opposed to "Shareholder Management" a previous approach by Milton Friedman, an American economist and statistician. This author explained that the main idea of corporate social responsibility was to increase profits. The main actors in this theory are the shareholders, so the focus is placed on them. That is how the heads of organizations/companies should concentrate on their own desires to obtain the maximum possible profits. Today this profit-centered approach is criticized because it has brought many costs to society: increased economic inequality, global warming, and degradation of nature and biodiversity, among others. 

While Friedman indicated that the shareholders were the only group with moral rights over the company because they contributed with their resources, Freeman showed that the center was distributed among several groups with moral rights over the organization. This way, stakeholders become a larger group that includes all those people of vital importance for the existence and success of an organization. Those who can benefit from the company's actions and operations but whose rights might be violated or damaged by this relationship.

Creating Value through Stakeholder Management

The Stakeholder Management movement is a revolutionary strategy because it involves adding ethical considerations to every aspect of the business. It creates a strong and meaningful purpose for all parties; thus, the services or products offered help create something greater for the community in which it is inserted. It is putting the organization in service of the common good. Furthermore, it is a transformation and, at the same time, a revolution because it is a force that leads to the creation of ethically conscious organizations. 

Clarkson et al. in "Principles of Stakeholder Management," mentions that for an organization to grow sustainably, it must find a balance between its own interests and the interests of stakeholders, and this will consequently lead to meeting social needs. 

Freeman notes that "organizations are about purpose". We are part of that generation that has the possibility of embracing ethics and incorporating it into the business world. A conceptual revolution with a new narrative that includes paying attention to social responsibility. 

Knowing in depth the particularity of the stakeholders is to understand that organizational success is not about money and concrete profits but about understanding what surrounds organizations. That is the real key to success, and therefore profits will appear as a direct consequence. We must understand that total value is created only through working with all stakeholders.

Building an Effective Stakeholder Management Strategy

What should be considered for an effective stakeholder management strategy?

• Identifying individuals/stakeholders

Identifying stakeholders involves considering who are those actors or groups that directly or indirectly influence our work or organization and capturing their needs and expectations to plan tasks that promote their engagement systematically. This task will have to be carried out with as much information as possible. At this point, it is essential to distinguish that there are two types of stakeholders: internal and external. Internal stakeholders are those individuals or groups that are part of the team or the organization, and external stakeholders are those individuals or groups that are outside and receive some benefit from the company. 

Once the parties have been recognized, it is essential to understand the various scenarios in which they operate, which entails defining their roles, intentions, and responsibilities to the project. 

Another fundamental action in this step is to segment the parties appropriately based on the degree of impact each could have on the results, classifying them as high, medium, or low. This can then be mapped for better visualization to decide which stakeholders to work on first and which later, helping to define priorities. 

It is necessary to keep in mind that this must be constantly updated because the scenarios change, and this information cannot be kept out of date. This will help us to better visualize how much influence and in what way each part influences the final result. 

With all this information collected, it will be possible to perform an in-depth analysis of each part, paying attention to its particularity.

• Creating an engagement plan

The time has come to develop an engagement plan with all the information gathered from the previous step. The goal of this is to create and ensure continuous and effective communication. It involves figuring out how to communicate, collaborate and interact with key people who have a positive or negative influence and who can impact the success of your project, says Tim Mills (Director and PMO of Lahey Health in Burlington). 

Like any part of planning, it can be a bit tedious. Still, it will provide many benefits in the long run, such as managing resources effectively, reducing risks, building trust, and facilitating collaboration between the parties.

In this part, you can also clarify your objectives for this plan. This way, you can maintain a team that leads and aligns with organizational goals. 

• Ongoing communication with stakeholders

Once the engagement plan is built, it should be used to establish good relationships and new dynamics between the parties from start to finish through a communication plan that is clear and coherent.

For this, we can consider the following points:

Communication Channels: All the information previously collected when identifying and analyzing the parties must be used correctly. Through this, we can explain the forms or modes of communication that suit or require each of the parties.

Understanding: Do not judge the objectives or purposes of the stakeholders, but on the contrary, seek to understand in depth the basis that sustains them. 

Feedback: Keep stakeholders updated on how the project is progressing or it's status and gather their input on how their interests are being met or are close to being completed. 

Communication Records: Keeping a record of every interaction you've had with any of the stakeholders is a way to prevent and control how often you inform them and what importance was given to them throughout the project. 

• Generate commitment

 This final step is the one that includes and synthesizes all the others and should be the center of attention. The previous steps mentioned above respond to this and are the way to reach this final stage. 

It is necessary to know foremost that commitment comes hand in hand with the particular values of each party. When the parties understand that they play a crucial role in the success or failure of the project, they will feel they belong to something greater and committed. They will understand that they have a greater responsibility in the project beyond their assigned duties. This strategy looks forward to showing the stakeholders that their values are respected and understood beyond the economic aspect and that we (organizations) also seek to create value for them. 

Simplifying Stakeholder Management

We know how critical it is to have a solid Stakeholder Management strategy. That is why we built AKTEK iO with the flexibility to create an effective stakeholder management solution tailored to your organizational needs. Organizations can use AKTEK iO to capture, access, analyze, visualize and report information about stakeholders, their characteristics, and their relationships. 

Through our platform, you can easily map and visualize your stakeholders in a dynamic network view, highlighting their connections with others, their position on specific issues, their levels of influence or centrality, and more.

Want to know more? Here is a case study where you can see how AKTEK iO helped to conduct a stakeholder relationship analysis for security sector reform.