Who should a company serve first? That is the central questionInterest GroupsTheory, an organizational management approach dealing with corporate morals and values. The stakeholder theory is also relevantproject management. This article explains exactly what stakeholder theory is and how to apply it to projects in your organization. We will also review the challenges and benefits of stakeholder theory from aProjectmanagement perspective.
What is stakeholder theory?
Stakeholder theory suggests that shareholders, also known as financial investors, are one of many groups that a company or organization must serve. UnderStakeholder-Theorie, everyone who is affected in any way by the organization or its operations is considered a stakeholder, including employees, customers, suppliers, local communities, environmental groups, government groups and more. Stakeholder theory states that organizations and businesses should strive to accommodate all of these stakeholders and that through this the organization will achieve truly lasting success.
The stakeholder theory is diametrically opposed to the shareholder theory. According to shareholder theory, a company's sole motivation should be to advance the interests of its shareholders. Because shareholders are primarily concerned with money growth, shareholder theory essentially translates into a “make more profit at all costs” approach to business.
From a project management perspective, stakeholder theory means considering the needs of all parties with a vested interest in a particular project. According to thatInstitute for Project ManagementStakeholders are "persons and organizations who are actively involved in the project or whose interests can be positively or negatively influenced by the project implementation or the successful completion of the project."
Example of stakeholder theory
As an example of how stakeholder theory works, consider an automotive company that recently went public. Of course, shareholders want their stock values to increase, and the company strives to keep those shareholders happy because they have invested money in the company. However, stakeholder theory holds that these investors are just one class of stakeholders that the company should serve.
Miscellaneousinterested personswould include:
Employees are important stakeholders in every company. They expect fair remuneration and work under safe conditions. If the company does not meet these basic expectations and treats its employees as cogs in a machine and not as valued team members, this can damage the business in the long term. There will be constant employee turnover and the company will gain a negative reputation among the workforce, ultimately weakening the company and its potential for higher revenue generation.
The stakeholder theory takes into account manufacturers, suppliers and other providers with whom the car company worksinterested persons. The car company should treat these vendors fairly in dealings with their employees and other stakeholders. For example, if a supplier has a reputation for treating their employees poorly and underpaying them, then stakeholder theory would state that you should find another supplier that better aligns with your business ethics.
If someone is affected by a company or its operations, aInterest Groups, then the customers of the car company are among its largest stakeholders. According to stakeholder theory, the top priority for the company should be to produce a vehicle that gets its customers safely from A to B as reliably, comfortably and efficiently as possible.
- Neighbors and community members of customers
Because cars produce emissions that can affect the environment, stakeholder theory states that anyone living near one of these vehicles can be affected and should be considered a stakeholder. With theseinterested personsIn the back of their minds, the company can adopt more fuel-efficient technologies and reduce harmful carbon emissions.
- government agencies
Automakers must also consider any city, county, or state requirements, such as: B. Emission standards or safety features. The government agencies that enforce these standards are another group of stakeholders for the automobile company.
Stakeholder Theory Template
Using the example above, let's see how this could be translated into a simple stakeholder analysis. If we use a table like the one below and label our x-axis as “interest” and our y-axis as “influence”, we can see the four quadrants that our stakeholders can fall into and therefore how much time and effort that we should do to make sure they are up to date with our project.
|Influential / Disinterested - Fulfill their wishes when asked||Influential/Interested – Key stakeholders, ensure they are regularly updated and included in all important discussions|
|Non-Influential/Disinterested – Notify only of important updates||Not Influential/ Interested – Be considerate and update regularly|
History of stakeholder theory
The stakeholder theory was developed by R. Edward Freeman in his 1984 bookStrategic management: A stakeholder approach.” The idea of treating all stakeholders as equal stakeholders arose in response to shareholder theory, which states that a company's sole responsibility is to make money for its shareholders. In his book Capitalism and Freedom, economist Milton Friedman describes the tenets of shareholder theory and states that corporations have no real "social responsibility." According to Friedman, it's up to shareholders to be socially responsible, not the company itself.
Freeman argued against this stance, stating, "If you can get all your stakeholders to swim or row in the same direction, you have a company with momentum and real power. Saying that profits are the only thing that matters to a company is like saying, 'Red blood cells are life'. You need red blood cells to have life, but you need so much more.”
What are the benefits of stakeholder theory?
In practice, stakeholder theory can foster a positive feedback loop that ultimately leads to greater returns for stakeholders and shareholders. For example, when employees are viewed and treated as valued stakeholders, they are motivated to perform better and higher.qualityWork. This can lead to an increase in production volume and quality (or both), resulting in happier and more satisfied customers. Happy customers usually help increase sales and business growth, which keeps shareholders happy.
As part of project management, the handling of all projectsinterested persons– from team members to project sponsors to executives – as valued participants can positively impact the bottom line of the project.
What are the challenges of stakeholder theory?
Critics of stakeholder theory say that the needs and interests of different stakeholder groups simply cannot be balanced fairly. According to stakeholder theory, stakeholders represent several large and diverse groups, and one or more of these groups will inevitably take a back seat at some point in the process. Similarly, certain interest groups hold more power or influence than others, which can create tension and discord.
For project managers, these challenges can largely be solved with aStakeholder-Managementplan. This plan should detail the expectations of each group of stakeholders and the rules for communicating with stakeholders. Additionally, the stakeholder management plan should prioritize stakeholders based on their impact on the project and their importance to the outcome.
How Wrike helps with stakeholder management
Perhaps the greatest key to successful stakeholder management is communication. Even if you can't meet the expectations or desires of all stakeholders, you can maintain a positive relationship if you can effectively communicate the reasons for your decisions. Fortunately, this is where Wrike shines.
With Wrike, you're armed with real-time reports and customizable dashboards that help eliminate communication delays and ensure stakeholders are in the know at all times. With centralized project management on a single, unified platform, your team members and stakeholders are always on the same page and can collaborate more efficiently to achieve business goals.
Start with afree two-week trialtoday and discover how Wrike makes stakeholder management a breeze.
What is stakeholder theory? ›
Stakeholder Theory is a view of capitalism that stresses the interconnected relationships between a business and its customers, suppliers, employees, investors, communities and others who have a stake in the organization.What is stakeholder theory and why is it important? ›
Stakeholder theory holds that company leaders must understand and account for all of their company's stakeholders — the constituencies that impact its operations and are impacted by its operations. Stakeholders include employees, shareholders, customers, suppliers, creditors, the government, and society at large.What is stakeholder theory PDF? ›
Stakeholder theory suggests that if we adopt as a unit of analysis the relationships. 4. between a business and the groups and individuals who can affect or are affected by it then we. have a better chance to deal effectively with these three problems.What is stakeholder theory essay? ›
Essay SampleCheck Writing Quality. The stakeholder theory is a theory of organizational management and business ethics that address morals and values in managing an organization. It addresses the importance of how companies and corporations should empower the stakeholders, not only the shareholders.What is stakeholder short answer? ›
A stakeholder is either an individual, group or organization that's impacted by the outcome of a project or a business venture. Stakeholders have an interest in the success of the project and can be within or outside the organization that's sponsoring the project.What is stakeholder theory example? ›
Stakeholder theory example
As an example of how stakeholder theory works, imagine an automobile company that has recently gone public. Naturally, the shareholders want to see their stock values rise, and the company is eager to please those shareholders because they have invested money into the firm.
Shareholder theory equates to an influential view on the role of business in society which pushes the idea that the only responsibility of managers is to serve in the best possible way the interests of shareholders, using the resources of the corporation to increase the wealth of the latter by seeking profits.Who introduced stakeholder theory? ›
Stakeholder theory was first described by Dr. F. Edward Freeman, a professor at the University of Virginia, in his landmark book, “Strategic Management: A Stakeholder Approach.” It suggests that shareholders are merely one of many stakeholders in a company.Is stakeholder theory a theory? ›
The stakeholder theory is a theory of organizational management and business ethics that accounts for multiple constituencies impacted by business entities like employees, suppliers, local communities, creditors, and others.What are the Big 5 of stakeholder theory? ›
Customers, employees, suppliers, communities and investors comprise the “Big Five” stakeholders.
What is stakeholder and its types? ›
Typical stakeholders are investors, employees, customers, suppliers, communities, governments, or trade associations. An entity's stakeholders can be both internal or external to the organization.What are the 4 types of stakeholders? ›
The easy way to remember these four categories of stakeholders is by the acronym UPIG: users, providers, influencers, governance.What is the full meaning of stakeholder? ›
stakeholder noun [C] (SHARE)
a person or group of people who own a share in a business. a person such as an employee, customer, or citizen who is involved with an organization, society, etc. and therefore has responsibilities towards it and an interest in its success.
The stakeholder theory of corporate governance focuses on the effect of corporate activity on all identifiable stakeholders of the corporation. This theory posits that corporate managers (officers and directors) should take into consideration the interests of each stakeholder in its governance process.How is stakeholder theory classified? ›
Kaler (2002) presented the first categorization of definitional approaches, grouping types of stakeholder definitions into three groups: “claimant” (requiring a claim on a business), “influencer” (requiring a capacity to influence business) or “combinatory” (capturing both attributes).What are the 3 main stakeholders? ›
As a general rule, stakeholder priority can be divided into three levels. The first and most important comprises employees, customers, and investors, without whom the business will not be able to operate.What is a stakeholder in writing? ›
A stakeholder is anyone who will be affected by the contents of what you write. How you choose to word your document—or even the choice to write the document—can become an ethical matter for stakeholders. It is crucial to consider your main objectives before writing.What is the original meaning of stakeholder? ›
To start, “stakeholder” has a mercenary connotation. The original meaning of the term is a person who literally held the money of bettors while the game was on. This meaning evolved into a second definition: “a person, company, etc., with a concern or (esp.How do you use stakeholders theory? ›
Applying the Stakeholder Approach to your Business
- Step 1: Define Your Stakeholders. ...
- Step 2: Analyze Your Activities. ...
- Step 3: Understand Your Gaps. ...
- Step 4: 'Do Something Different'
Why is stakeholder value important? Stakeholder value is an important factor to consider when creating a corporate strategy. Building a large, supportive group of stakeholders may be an asset to a company that can lead to competitive advantages, favorable legislation or a positive brand image.
What are the key elements of stakeholder theory? ›
Stakeholder theory refers to the ethical concept that addresses the outcome of business decisions, trends, profits, etc., and its collective impact on all stakeholders, including the shareholders, employees, financers, government, customers, suppliers, etc.What company uses stakeholder theory? ›
The Body Shop is a classic stakeholder theory case study. The natural cosmetics manufacturer and retailer became defined by the activism of its founder. The company adopted a social activist purpose, establishing recycling measures, refusing to test its products on animals and sponsoring various social-change programs.What is stakeholder theory public relations? ›
From a public relations perspective, stakeholder theory seeks to identify and manage the diverse needs, values, and interests of various stakeholders and the potential communication tensions between these groups.What is stakeholder theory in communication? ›
Stakeholder theory suggests that the greatest business opportunities lie where the interests of stakeholders are aligned, and value for multiple stakeholders can be created. Stakeholder theory has been used as a basis for many empirical studies (e.g., Bartkus and Glassman 2008; Berman et al.What are the 7 principles of stakeholder management? ›
Bucholtz and Carroll point out that the principles highlight action words that illustrate the spirit that should be used in engaging with stakeholders:
It provides a more detailed understanding of each personality trait, and can, therefore, help you to identify more accurately which jobs will likely suit you best or which candidates will best fit into your organization.What is stakeholder function? ›
A stakeholder can help bring a company's project or organization to completion by providing valuable support, insight, and resources. Understanding the role of the stakeholder can be crucial to achieving project success.What is a stakeholder process? ›
What is a stakeholder? A stakeholder in a process are individuals, groups or other organisations who are directly involved (those carrying out of the process), those who provide the inputs and those who are affected or can affect the outcome of the process either negatively or positively.What is the role of stakeholders? ›
A stakeholder is a person who has an interest in the company, IT service or its projects. They can be the employees of the company, suppliers, vendors or any partner. They all have an interest in the organization.Which stakeholder is the most important? ›
Shareholders/owners are the most important stakeholders as they control the business. If they are unhappy than they can sack its directors or managers, or even sell the business to someone else. No business can ignore its customers. If it can't sell its products, it won't make a profit and will go bankrupt.
What is another word for stakeholders? ›
- team member.
- Review your stakeholders. ...
- Understand the purpose behind identifying your key stakeholders. ...
- Determine their impact on your operations. ...
- Learn their needs in relation to your business. ...
- Prioritize your list.
A stakeholder orientation demands that organizations seek and involve risk stakeholders in the risk management process. The level of involvement will depend on both the identified risks and how stakeholders are expected to be affected by the proposed solutions and decision-making processes.What are the types of stakeholders? ›
- Customers. Customers are some of the largest stakeholders of a business because they are directly impacted by the quality and availability of a company's products or services. ...
- Investors. ...
- Employees. ...
- Local community. ...
- Suppliers and partners. ...
- Government. ...
- Consider expectations. ...
- Manage expectations.
Stakeholder theory was first described by Dr. F. Edward Freeman, a professor at the University of Virginia, in his landmark book, “Strategic Management: A Stakeholder Approach.” It suggests that shareholders are merely one of many stakeholders in a company.What companies use stakeholder theory? ›
Other successful companies that use stakeholder methods include Johnson & Johnson, Merck, Google and eBay.What is stakeholder theory moral standard? ›
Stakeholder theory is a point of view within business ethics, popularized by Edward Freeman, holding that a company's managers are ethically obligated to pursue jointly or to balance the interests of its stakeholders in the conduct of its business.