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GuidesProduct developmentAn overview of stakeholder management

An overview of stakeholder management

Last updated

13 April 2023

Reviewed by

Sophia Emifoniye

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Tens, if not hundreds, of people will have a stake in any new project you undertake, whether you are developing a new product, making improvements to an existing product or service, or rolling out a massive infrastructure project.

Successful project managers need to understand how to address these stakeholders and keep them happy or, better yet, get their full buy-in on the project. A combination of this effort and ability make up stakeholder management.

What is stakeholder management?

Stakeholder management is a key component of product development because it directs your process and increases buy-in from all relevant parties. It enables you to identify, prioritize, and engage stockholders to gain their input and trust from the earliest stages of development.

Successfully developing any project relies on the support of your most influential stakeholders. They must be informed and involved from the beginning to keep your product development on course.

Prioritizing stakeholder management from the beginning is vital. The early development phase is the time to make changes to the process or product to satisfy key stakeholders.

The stakeholder management process

The five steps of stakeholder management are:

  1. Identifying stakeholders

  2. Prioritizing stakeholders

  3. Understanding stakeholders

  4. Defining stakeholder motives

  5. Engaging stakeholders

Background and general principles

Keeping stakeholders satisfied has been an important element of product development for centuries, but stakeholder management as a formal process was developed in the 1990s through the research of Max Clarkson.

The Clarkson Center for Business Ethics & Board Effectiveness convened a series of conferences between 1993 and 1998 with researchers and project developers. It was here that guidelines were established for managing stakeholders.

The Clarkson Center’s work led to the creation of the seven Clarkson Principles of Stakeholder Management. Here they are in simple terms:

  • Principle 1: Managers should acknowledge and monitor the concerns of all legitimate stakeholders.

  • Principle 2: Managers should listen to and communicate with stakeholders about their concerns and contributions.

  • Principle 3: Managers should adopt processes and behaviors that are sensitive to each stakeholder’s concerns and capabilities.

  • Principle 4: Managers should recognize how stakeholders’ efforts and rewards are interlinked. These burdens and associated rewards should be distributed fairly among stakeholders.

  • Principle 5: Managers should work cooperatively with public and private entities to minimize risk and harm.

  • Principle 6: Managers should avoid activities that threaten inalienable human rights (i.e., the right to life).

  • Principle 7: As corporate stakeholders, managers should acknowledge the conflict between this role and their legal and moral responsibilities for other stakeholders’ interests.

Stakeholder management in practice

Imagine you are developing a new product within your company. In this scenario, key internal stakeholders might be the CEO, CFO, CSO, and CMO. In other words, the company head, the finance arm, the sales staff, and the marketing department will all have a stake in whether the new product sells and generates profit.

They all need to be kept in the loop as the product is developed. You should ensure they are aware of the product development’s associated costs and timeline, as well as the product’s potential for sales and other key pieces of information.

On the other hand, your stakeholders don’t need to know all the nuts and bolts of how the product is being developed.

You should ensure your stakeholders have an avenue for input. For example, let’s say the cost of your product is mounting and the sales team don’t believe the market will support the product price. They must be able to communicate their concerns to the product development team.

In turn, the product development team should be able to communicate their observations to the sales team. For instance, they might share data convincing the sales team that the market will bear a higher price point.

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What is the purpose of stakeholder management?

Stakeholder management allows the project manager to control project development and understanding through intentional communication with key stakeholders from the outset.

A well-reasoned stakeholder management strategy will bring extensive buy-in from all stakeholders and increase the product’s chances of success. Another benefit is avoiding setbacks, like a key stakeholder turning against a project because they were unaware of changes or hidden costs.

Benefits of stakeholder management

Stakeholder management offers four key benefits:

  • Improved communication: Adopting a communications strategy with key stakeholders from the beginning enables the project team to keep an open line of communication between both parties. The project team can inform the stakeholder of key developments and take in their feedback to improve the product.

  • Increased buy-in: Key stakeholders are more likely to support a product when their concerns are addressed and they understand the product’s benefits.

  • Risk reduction: By keeping key stakeholders in the loop from the outset, the project team reduces the risk of a key stakeholder turning against the product or suddenly demanding significant changes.

  • Increase chances of success: Stakeholders are more likely to commit resources to the project and offer insights to help the project team develop a product that will succeed in the market.

Whose role is it to manage stakeholders on a project?

The project manager is ultimately responsible for managing stakeholders, but a subset of the project team can be designated to help with stakeholder management.

Separate groups can be designated to handle internal and external stakeholders, but they need to communicate the same message and bring feedback to the project manager.

Types of stakeholders

Depending on the project’s scope, stakeholders can vary from 10–20 people to hundreds or thousands. The project team’s knowledge and estimation will determine the necessary stakeholders.

Internal and external stakeholders

Stakeholders generally fall into two categories: internal and external.

Internal stakeholders work within the company; for example, the project team, C-suite executives, and investors.

External stakeholders are those outside your organization who could have a stake. External stakeholders for a development project will range from customers and suppliers to government agencies and neighbors.

Organizational stakeholders

Organizational stakeholders include government agencies, suppliers, and environmental groups that might be affected by the project.

To work with organizational stakeholders, you will still need to identify the person or people who represent the organization. These individuals may need to report to higher authorities or governing bodies, but communication will generally funnel through one person or a small group of people.

How to identify your product’s stakeholders

The most important step in developing a successful stakeholder management strategy is identifying all your stakeholders and determining what level of communication you should maintain with them to aid in the project’s completion.

These five steps will help your project team identify stakeholders and develop a plan of action.

Step 1: Identify your stakeholders

A brainstorming session with your project team and its key leaders is the best way to identify your project’s stakeholders.

Determining internal stakeholders is usually the easiest process, while compiling a full list of external stakeholders will require your project team’s knowledge, creativity, and intuition.

Don’t forget to include those who could be negatively impacted by your product.

Step 2: Prioritize your stakeholders

Prioritize your stakeholders based on the product’s impact, the risk it might create for those stakeholders, and their authority over the project.

The primary method for prioritizing stakeholders is to place them in a grid based on their power and interest. Stakeholders generally have high or low power and high or low interest. Once you have determined their levels in each direction, you can place them on a stakeholder map.

Run a stakeholder mapping exercise

Stakeholders will fall into one of four quadrants on a grid:

  1. High power, high interest

  2. High power, low interest

  3. Low power, high interest

  4. Low power, low interest

For example, an investor who stands to lose or gain a lot of money would be classified as high interest, high power. A chief financial officer might have high power but low interest as long as you stay within budgetary guidelines. Their status could change if the cost of product development increases.

When you’re placing names on a grid, you might color-code them based on whether you expect them to be positive or negative about your product. You could designate those with a negative attitude in red, those with a positive attitude in green, and those who are neutral in black.

Step 3: Understand your stakeholders

Once you know your stakeholders and have prioritized them, you want to better understand their connection to the project as well as their motives and thought processes. For instance, if you have a primary investor, their interest will be in recouping their investment and making money from the product.

On the other hand, if you are working on a large infrastructure project affecting many people, you need to establish the project’s positive and negative elements. You’ll need to decide how to communicate that information with various subsets. For example, some people might lose their homes or property to the project, but will it allow them to get a better property and bring improvements to their community?

Step 4: Define stakeholder motives

While this step might be an extension of the previous one, defining stakeholders’ motives involves opening lines of communication and asking them about their motives. For example, with your primary investor, you might want to find out more about their risk level, their expectations, how quickly they want to see a return on their investment, etc.

To define motives for organizations, governments, and groups of people, you might need to consider surveys, questionnaires, and public meetings to gain greater insight. For a government, initially, you might need to meet with a group of people to establish guidelines. Then, preferably, you will designate a point person to reduce time spent in group meetings.

Step 5: Develop a plan for engagement

To develop a plan for engagement, it’s best to take the information you have gathered on each stakeholder and draft a form or spreadsheet to compile the information.

You need to determine the best way to communicate with each stakeholder and a communication schedule. For example, you may want to keep your CEO informed on a weekly basis, while an investor might only want to hear from you every other week, once a month, or at key milestones.

Don’t ignore your low-interest, low-power stakeholders. An occasional email or press release about a project’s development could keep them sufficiently informed. 

This would be the time to designate who will communicate with whom if you are splitting the work among other project team members.

How to develop stakeholder engagement strategies

The first step in developing stakeholder engagement strategies should be to ask the stakeholder for their preferred communication method. Some may want to meet in person, while others prefer an email or written report to read at their convenience.

Communication with stakeholders should be handled individually, even within your business. This will help prevent issues from escalating and “design by committee.” Design by committee is an effect of having multiple stakeholders contribute to a project where each contribution is valued equally, resulting in a mish-mash of ideas without any coherent or meaningful direction.

If you are dividing stakeholder communication among your project team, establish a structure for communicating the stakeholders’ input back to the team.

Easy ways to improve your stakeholder management

A project leader will learn better ways to handle stakeholder management in each project they run. Here are some tips to set you on the right path:

Collect the right information from the start

Correctly defining your stakeholders and communicating with them factually (rather than based on opinions and your own biases) will lead to better outcomes. A stakeholder will buy in if they believe that they are being given correct information and that their input is accepted and acted upon.

Regular maintenance

A regular communication schedule will ensure stakeholders feel informed and heard.

Stakeholder analysis

Besides communicating with stakeholders, you should constantly analyze their position and ensure they are being communicated with effectively.

For instance, as you get closer to the project’s completion, the sales and marketing managers may take more interest and require more communication.

Influence, interest, and/or impact

Stakeholders’ interest, influence, and/or impact could change throughout the course of the project, so your approach to them should also change.

For instance, imagine you’re running an infrastructure project. The neighbors form a protest group and approach a government agency to stop your project. Suddenly, their low power might convert to high power, so you need to ramp up communication with protestors and the government body to avoid the project being adversely affected.

Grievance management

If a stakeholder feels they are not being heard or are not impacting the project in the way that they want, you may have to pivot to grievance management.

Sometimes, grievance management just means making sure that the stakeholder is heard and factually explaining why everything is not being done exactly how they want.

Red flags that suggest a stakeholder may become difficult

Not every project will go smoothly from the perspective of stakeholder management. Here are some red flags that suggest a stakeholder may become difficult:

  • They break communication with their primary team member and ask to speak to the project manager directly.

  • They stop communicating, answering emails, taking phone calls, etc.

  • They go over the project manager to raise complaints.

  • They take their complaints to outside agencies, such as government officials or the media.

Noticing these red flags may help you take preemptive steps and adjust the way you handle communication with this individual to prevent the relationship from breaking down.

Why is stakeholder management a key part of product management?

Unless stakeholders buy into a product development project, the product team will be working blindly toward a goal that may not even exist. Not addressing key stakeholders’ goals and concerns can waste time. Eventually, the product team might need to go back and rework aspects and features that had already been addressed.

Stakeholders can influence a product for the better. A project manager and team that’s open to suggestions from stakeholders will develop a better product.

Product management cannot be considered complete or successful if it doesn’t also include stakeholder management.

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