Chapter 2b project stakeholder management process

JK Cheng (2012/2013)

PROJECT STAKEHOLDER
MANAGEMENT PROCESS
PART 2: ANALYTIC STAKEHOLDER THEORY

Week 2 & 3

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

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
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, and
Category Wood (1997)
• Rowley (1997)

Descriptive • Hill and Jones
/Positive (1992)

PART 1 PART 2 PART 3


Part 1
Freeman (1984)


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

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:

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)

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.


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

Organization- Strategic/ Strategies for Assessing and
2 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

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.

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.

et al. (1991)

 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.

et al. (1991)

 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.

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.

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.

Organization- Strategic/ A Stakeholder Framework for
3 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?’

Organization- Strategic/ A Stakeholder Framework for
3 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)

Organization- Strategic/ Instrumental Stakeholder
4 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.

Organization- Strategic/ Instrumental Stakeholder
4 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.

Organization- Strategic/ Stakeholder Identification and
5 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

5 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

5 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

Organization- Strategic/ A Network Theory of
6 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.

(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

(1997)

Centrality of the focal organization
High Low

High

Compromise Subordinate
Density of
the
stakeholder
network

Commander Solitarian

Low

6 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

6 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).

Focusing on the
stakeholder Centric
relation
• Freeman (1984)
Clarkson (1995)
(2003)
• Jones (1995)
• Rowley (1997)

/Positive (1992)

PART 2


Part 2

Strategic / Friedman and Miles (2002)
Instrumental
Organizational-
Stakeholder
relationship
Descriptive / Hill and Jones (1992)
Positive

Relationship- Strategic/ Critical Realist Stakeholder
1 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).

Relationship- Strategic/ Critical Realist Stakeholder
1 focused instrumental Theory: Friedman and Miles
(2002)

Necessary Contingent
A B
Explicit/implicit recognized Implicit unrecognized
Protectionist/defensive Opportunism/opportunistic
Compatible
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 members
Incompatible
Low-level employees of the public
Government and their agencies Some NGOs
Customers, Creditors
Some NGOs

Relationship- Strategic/ Critical Realist
1 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

Relationship- Strategic/ Critical Realist
1 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.

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

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.

Focusing on the
stakeholder Centric
relation
• Freeman (1984)
Clarkson (1995)
(2003)
• Jones (1995)
• Rowley (1997)

/Positive (1992)

PART 3


Part 3

Frooman (1999)
Stakeholder Strategic /
centric Instrumental Rowley and Moldoveanu
(2003)

Stakeholder- Strategic/
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/usage
the stakeholder?
Yes Stakeholder power High interdependence
Direct/withholding Direct/usage

Stakeholder- Strategic/
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.

Stakeholder- Strategic/ An Interest- and Identity-Based Model
2 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


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


Interest Overlap
High Low
Identity High Low probability of Unlikely probability of
Overlap mobilization mobilization
Low High probability of Low probability of
mobilization mobilization

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.

Chapter 2b project stakeholder management process

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