Literature Review: Project Stakeholder Management: Theory And Practice

Importance of Stakeholder Management Process

According to (Freeman, 1984), stakeholders constitute a group of individual influence and are affected as the organizations pursue their goals Stakeholders management requires the manager to acknowledge the diversity of the stakeholders and understand their interests in the corporations (Govender & Abratt, 2016). Many stakeholders such as investors, customers and employees are easily identified due to their contractual connections to the firms. Others identify themselves due to the negative or positive impact the firm has on their well-being (Vracheva & Mason, 2015). The specific concerns of the stakeholders vary among the various areas of managerial decision making and the interactions of the organization over time. Freeman, (1984) adds that stakeholder management is the reason for the existence of organizations. The stakeholder management is very significant to project-based firms as they have to understand the influences of the stakeholders based on the analysis of the key capabilities, skills, and contributions.

Stakeholder management process is the process by which firms involve parties who are affected by the decisions they make or those who influence the implementations of the firms’ decisions. The project managers need analytical skills to identify the stakeholders and engage them to understand their influence on the project (Freeman, 1984). This minimizes potential detrimental impact and uplifts the stakeholder’s positive input on the project. The management process follows the following stages.

Identifying the stakeholders and analyzing their interests from the information document is very important (Jensen, Kim, and Kim, 2011). The stakeholder’s involvement, influence and the possible impact on the project success are crucial. It is important to understand who the stakeholders are (Frooman, 1999). Eskerod and Jepsen (2013) also pointed out the significance of identifying stakeholders in a project. In project management, project managers need to interact and identify with key stakeholders in the project system’s environment. It is important to manage the environment of a project to determine how they’ll react to project decisions. Identification should include all stakeholders involved in the project and the potential stakeholders who might be affected by the project (Achterkamp & Vox, J2008).

It is important to develop management strategies that would enable you to engage the stakeholders throughout the project efficiently. Develop a strategy that would enable you to stay focused and keep track of the stakeholders. It will also reduce uncertainty.

Ensure communication with the stakeholders in order to meet their expectation. Ensure to address challenges that may arise and encourage appropriate engagement in project activities. Work together with the stakeholders. Determine all their interests and contributions. Keep constant communication in order to address any conflict that may arise.

Stakeholder Theory

Monitor the relationship of the stakeholders in the project and establish plans and strategies for their engagement. Ensure they do not interfere with other stakeholders. Every stakeholder involved should work within their limit.

The stakeholder theory indicates that, for firms to be successful in the long run, they must attend to stakeholders goals and needs and look beyond their shareholders (Freeman, 1984). Past studies have well documented a positive relationship between project management and stakeholder management. Vracheva and  Mason, (2015) the simplicity of the stakeholder management have offer a comprehensive and unifying framework for understanding the complex relationships between firms and their diverse stakeholders. The theory opposes the norm of capitalization of the interests of the shareholder and promotes maximization of the stakeholders (Garsia-Castro, Arino, & Canela, 2011).

Strategic theory indicates that managers should strive to satisfy all the parties that have been involved in the business. Eskerod and Jepsen, (2013) added that the project outcome is influenced by the stakeholders who have an interest in the project. The main task is to integrate and manage all the relationship and interests of the stakeholders such as suppliers, employees, shareholders, customers and the community that will ensure the long-term success of the business. The theory is concerned with the active role of the management in the business environment, promotion of shared interests and development of business strategy. The paper focused on the literature that distinguishes the normative and strategic or analytical stakeholder theory.

The stakeholder approach offers a managerial scope that provides a base for development of stakeholder theory. The theory has been widely developed over the years, and it gave rise to a theoretical development that is explained in the below literature.  

Normative stakeholder theory

The normative theory is linked to the values, philosophic and moral guidelines of the firm management. The normative theory determines the organization’s responsibilities concerning the stakeholders and also notes the importance of the stakeholders’ interests (Freeman, 1984). Donaldson and Preston (1995) point out that normative theory is the core of the stakeholders’ theory as it involves the intrinsic values. Freeman, however, disputes the idea as he argued that there is a separation between economic and ethnic spheres. For many scholars, the relationship between the stakeholders and the firm can be valuable to the organization as a reflection of their commitment, values, and principles. Each company should define their moral principles and use them as a basis for decision making. Freeman, Harrison, Wicks, Parmar, and Colle (2010) further argued that the normative theory is based on the definition of stakeholder where stakeholders are critical to the survival of the organization. The firm acts as a vehicle for coordinating the interest of the key stakeholders. They  proposed two principles:

Normative Stakeholder Theory

The principle of corporate legitimacy- It states that the stakeholders should participate in decision making that impacts their welfare. Therefore the company should act in the best interest of its stakeholders.

The fiduciary principle- To ensure the survival of the firm, managers should act in the interest of the stakeholders. Managers are considered to be the agents of firm to ensure its survival. Managers have the similar responsibilities as employees, but also they safeguard the welfare of the firm. Garsia-Castro et al., (2011) added that to make the stakeholder management practicable, a board of directors with representatives of all the stakeholder’s interest should be put in place to care for the interests of all stakeholders.

Instrumental theory

The theory considers the ethical relationships between the stakeholders and the performance of the firm (Elms, Johnson-Cramer, & d Berman, 2011). It is characterized by a high level of cooperation, trust, and sharing of information.  The instrumental theory states that managing meaningful stakeholders relationships that result in the accomplishment of the goals and objectives of business. It should enhance increased profitability, growth and sustainability. This model allows comparison of the effectiveness of the relationships between stakeholders managing and attaining the business targets (Greenwood & Buren, 2010).

Descriptive Theory

The descriptive stakeholder model uses concepts and language to describe corporations in the businesses, their mode of operations and the impact on the wider environment. It is useful in helping understand the stakeholder relationship and management of the organizations (Jawahar & McLaughlin, 2001)

The corporate social responsibility theory

The theory states that businesses involve all the stakeholders,  that is the customers, employees, customers, suppliers, non-profit organizations, government, and other stakeholders is the key issue in the corporate social responsibility concept. Barnett (2007) adds that stakeholders influence the financial and social returns of the firm. The concept of CSR involves the voluntary integration of environmental and social concerns in business operations. It emphasizes on the importance of businesses interaction with their internal and external stakeholders. (Gao & Slawinski, 2015). The interaction with the stakeholders will determine the performance of the firm.

Construction projects

Stakeholder management has been used in the construction projects. The complex nature of construction projects represents different stakeholders and the use of stakeholder management will lead to success in their projects. To analyze the impact of stakeholders on projects, it is important to assess their interests (Freeman, 2010). They do impact projects in various complex ways. Their behaviors, attitudes and potential influence on the project should be assessed (Tiwari, Pankaj, & Sunita, 2017). The prevailing conflicts among the stakeholders should be analyzed based on the available information and solutions provided in order to avoid wasting resources and for the project to be successful.

Instrumental Theory

Traditionally the projects were divided into various operations by different individuals or groups with different levels of involvement and interests in the project. The construction projects are unique and involve various stakeholders. Time is one of the critical constraints to this industry for a project to be completed in time. Therefore the process includes involvement and collaboration of the different stakeholders. The stakeholders may include the designers, contractors, client, employees, the general project environment and other bodies who feel they are affected by the construction project going on. The management of these stakeholders is important to the success of the project. Therefore, the stakeholder management theory has been recognized in the construction industry. They all have a different level of interest in the project, and their management is important to the success of the project. Conflict in the attitude and interests of a construction project among the stakeholders can lead to overruns in time, poor quality, cost and poor implementation of the project. Evaluation of stakeholders influence should be taken into consideration when implementing or managing a project. Therefore, project managers have to identify and consider all the stakeholders in a construction project.

For business project managers, lack of stakeholder engagement can be a big challenge. At some point, all the crucial stakeholders tend to drift away from the project as they may lose interests or exit due to lack of communication. It is the project manager responsibility to engage the stakeholders of a project. Below are some of the best’s practices for project stakeholder management.

Identification of stakeholders correctly

Identifying the right stakeholders in a project is important as it helps to avoid conflicts and wastage of resources such as time when agreements are made. It also helps determine the interests, attitudes and influences of the stakeholders.

Clear expectations addressed

Different interests can be affected negatively or positively throughout the course of major projects. Failing to address the concerns of the stakeholders involved can lead to ultimate failure of the project. Therefore, the expectations of all the stakeholders should be addressed in order to achieve a solution for the problems presented. Provide clear explanations of the commitments needed for the project from each of the involved stakeholders. The information should be shared throughout the project

Break barriers

Project management may bring together people who do not interact often. Project managers should ensure to engage all the stakeholders in order to determine their influence and enhance information sharing. Collaborative team can deliver benefits to the project.

Descriptive Theory

Maintain communication

The project manager needs to communicate the role and expectation at the beginning of the project. Provide continuous information throughout the project and do not assume the stakeholders are aware of their responsibility.

Many scholars and professionals have recognized the importance of stakeholder management in project management.  Different aspects of stakeholder management are discussed in the literature, though it is noted that stakeholder management has not been fully embraced in the business world. All elements of the stakeholder management need to be fully considered. It is evident that companies dealing with large number of stakeholders in their respective projects need to use the stakeholder management theory for the success of their various projects. From the literature review, it is evident that the interests, influence, and attitudes of the stakeholders are important in managing stakeholders.  Exploring their needs about projects helps increase the success of projects. Project managers therefore need to communicate constantly with the stakeholders.

From the literature, further studies need to be conducted to address the factors that influence the stakeholder’s decision on accepting the projects or not. It would be important to provide various strategies to the project manager to handle different challenges. The theory can also be put into more practice in the businesses. The theory needs to emphasize the practices of the theory.

Projects involve different stakeholders who need to be considered in project management. Therefore it is important for project managers to consider the interests of the stakeholders. They determine the success or failure of the business. The diverse nature of the stakeholders also needs to be considered when handling them. Due to the difference in the interests of the stakeholders, project managers should promote collaboration

References

Achterkamp, M. C., & Vox, J. F. J. (2008). Investigating the Use of the Stakeholder Notion in Project Management Literature, a Meta-Analysis. International Journal of Project Management, 26(7), 749 – 757.

Barnett, M. L. 2007. “Stakeholder influence capacity and the variability of financial returns to corporate social responsibility,” Academy of Management Review 32(3): 794–816

Donaldson, T. and Preston, L., 1995. The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications. The Academy of Management Review,20( 1), 65-69.
Source: Stakeholder Model – normative, descriptive, instrumental https://www.stakeholdermap.com/stakeholder-model.html

Elms, H., M. E. Johnson-Cramer, and S. L. Berman. 2011. “Bounding the World’s Miseries: Corporate Responsibility and Freeman’s Stakeholder Theory.” Stakeholder Theory 3(1):10–24

Eskerod, P., & Jepsen, A. L. (2013). Project Stakeholder Management (1 ed.). New York: Routledge Taylor and Francis Group.

Freeman, R. E„ J. S. Harrison, A. C. Wicks, B. Parmar, and S. Colle. 2010. Stakeholder Theory: The State of the Art. New York, NY: Cambridge University Press

Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Boston, MA: Pitman.

Frooman, J. (1999). Stakeholder Influence Strategies. The Academy of Management Review, 24(2), 191-205.

Garsia-Castro, R., M. A. Arino, and M. A. Canela. 2011. “Over the Long-Run? ShortRun Impact and Long-Run Consequences of Stakeholder Management.” Business and Society 50(3): 428-455.

Gao, J., & Slawinski, N. (2015). The Impact of Stakeholder Management on Corporate International Diversification. Business & Society Review (00453609), 120(3), 409–433. https://doi.org/10.1111/basr.12061

Govender, D., & Abratt, R. (2016). Multiple Stakeholder Management and Corporate Reputation in South Africa. International Studies of Management & Organization, 46(4), 235–246.

https://doi.org/10.1080/00208825.2016.1140520

Greenwood, M., and H. J. Van Buren III. 2010. “Trust and Stakeholder Theory: Trustworthiness in the Organization– Stakeholder Relationship.” Journal of Business Ethics 95(3):425–438

Jawahar, I., and G. L. McLaughlin. (2001). “Toward a Descriptive Stakeholder Theory: An Organizational Life Cycle Approach.” Academy of management Review 26(3):397–414

Jensen, M., H. Kim, and B. K. Kim. 2011. “The Importance of Reputation in Markets: Towards an Integration of Role and Reputation Theory.” Ross School of Business 1:10–25.

Tiwari, Pankaj; Panicker, Sunita (2017). Influence of Internal Stakeholders Behavior on Project Portfolio Management Success.: The International Journal of Management, 13(1), 6-12.

Vracheva, V., & Mason, R. (2015). Creating Firm Value through Stakeholder Management and Regulation. Journal of Managerial Issues, 27(1–4), 120–140. Retrieved from https://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=112699301&site=ehost-live