Stakeholders are the individuals and groups affected by change plans and the organization achieving its goals. In order to make change initiatives successful, leaders must identify stakeholders who can impact the outcome.
Stakeholder management: How stakeholders react and get involved in change management can impact a business change initiative. Therefore, how companies involve and communicate with various stakeholders can determine whether or not the change initiative will be successful.
According to McKinsey, when it comes to transformations, getting stakeholders on board is an essential part of the process and dramatically increases the chances of success.
Stakeholders That Change Leaders Should Consider
It should be noted that while traditionally, stakeholders only referred to those directly involved, such as employees, shareholders, customers, suppliers, and investors, this may also sometimes include communities providing infrastructure and the government. Both internal and external shareholders are important to consider as both may influence change initiatives.
There are two major stakeholder management theories: ethical or normative theories and instrumental theories.
Ethics-Based Stakeholder Approach
Ethics-based theories posit that all stakeholders’ interests are important and should be considered when strategizing and planning change.
Those who subscribe to these theories say that managing stakeholders should be a result of moral commitment and not promote managerial interests. While many argue that ethics-based approaches don’t contribute to financial performance, they don’t consider reputational capital.
While an ethical approach may not directly benefit a corporation’s finances, it may do so indirectly through reputational gains.
Whether it is satisfied customers portraying the company positively, committed employees singing the company’s praises, or activist groups endorsing the company, this indirectly results in financial gain. Additionally, the organization may be portrayed positively by the media, and partners will be motivated to collaborate with such companies.
Instrumental Stakeholder Approach
Instrumental theories posit that managers only consider the interests of those shareholders who can benefit them and affect their interests, including bonuses or improved status.
However, in most cases, managerial interests are thought of as the company’s financial performance and their shareholder’s satisfaction. Regarding change, instrumental theories posit that change managers primarily focus on stakeholder relationships that will impact the change implementation and its success.
Instead of dealing with all stakeholders, change managers will focus on those stakeholders who have the ability to have an immediate effect or impact on their specific department or their aims.
Stakeholder Management Approaches
There are various approaches to stakeholder management, including a life cycle approach. These draw from different theories, including resource dependence theory, prospect theory, and organizational life cycle modes. Since a company faces different challenges throughout its life cycle, different stakeholders are important at these various life stages.
Resource Dependence Approach
This theory focuses on a company being dependent on resources for growth and survival. In this vein, it puts forth the idea that the most important stakeholders and those who will be most considered are those who can provide resources that are imperative to a company’s survival or a change project’s success.
Ways to manage stakeholders as per this theory include being proactive and addressing issues, accommodating stakeholder issues, defending the issues, or ignoring or refusing to address them.
Prospect Approach
Prospect theory posits that outcomes are evaluated differently when framed in terms of gains and losses. When framed as gains, people tend to be more risk-averse, whereas they are more risk-taking when outcomes are framed in terms of losses.
Thus, framing options in terms of losses makes risks more likely if this makes avoiding or minimizing the loss a possibility. When managing stakeholders, framing in terms of gains will allow for addressing all stakeholder issues and following risk-averse strategies.
However, a loss framework will result in not only pursuing riskier strategies but will also result in only addressing the concerns of some stakeholders rather than all of them.
Organizational Life Cycle Models
The organizational change goes through different cycles, as do the resources involved in making the changes a success.
According to this model, different stakeholders are more important at different times because of the resources they control and the required resources at that particular stage.
Jawahar and McLaughlin’s Approach to Stakeholders
Jawahar and McLaughlin’s theory takes all three theories into account and posits that resources differ throughout a change project’s life cycle and that change managers focus on stakeholders who control critical resources because of their loss frame mindset.
When resources are not threatened, however, change managers adopt a gain frame mindset, are more risk-averse, and consider the needs of all
stakeholders. Because of this constantly changing dynamic, it’s critical for change managers to look at and manage stakeholders based on current information.
How to Manage Stakeholders Amidst Organizational Change
The different kinds of stakeholders include blockers, who work against the change succeeding, and sponsors, who work towards the change being successful.
Knowing how to manage stakeholders is essential since the stakeholders can influence whether change initiatives will last or fail. For example, research shows that transformation is four times more likely to be a success when stakeholders such as influential employees are involved.
Identifying Stakeholder Power and Commitment
When managing stakeholders, it’s essential to identify which stakeholders hold power and can affect the outcome of the change being implemented.
However, this isn’t easy since there are individuals who may not have a lot of influence over the organization but may impact the change. Yet other stakeholders may support change initiatives but could be undermined by others or appear to support changes but may actively work against this.
Since influence keeps shifting, as does the ability of individuals to influence each other, this can be particularly difficult to put into action.
Influencing Stakeholders to Support Change Initiatives
There are a number of actions that can be taken to influence stakeholders to support change. However, the method through which stakeholders are engaged depends on the levels of their value and voice.
- Change leaders can increase the influence of those stakeholders who are supporting the change initiative by ensuring their presence in decision-making and regulating groups.
- Leaders can also decrease blockers’ influence by removing them from the decision-making process.
- By changing the minds of those who are opposed to the change, change leaders can influence other stakeholders to do the same. This may involve clarifying the change, providing additional information, bargaining with them, or involving them in the process.
- Leaders can build supporter coalitions while targeting blocker coalitions or coalitions of those against the change initiative.
- Additionally, it can be helpful to bring in new stakeholders who were previously inactive. For example, this can include publicizing the change to rally media or stakeholders the change manager was unaware of.
Managing Stakeholder Relationships
Research suggests that managing stakeholders can influence other stakeholders and their reactions to change initiatives. For example, how a company handles redundancies can influence the commitment and motivation of those who aren’t made redundant. All stakeholder groups should be considered to prevent negative effects.
Managing Stakeholder Resistance
Not all stakeholders will agree with change managers and their vision. Resistance is inevitable, but there are ways to manage such stakeholder resistance.
- Change leaders can clear up misinformation by educating stakeholders and communicating with them.
- If stakeholders are resisting change because they feel excluded, change leaders can encourage engagement and ensure they’re more involved in the change process.
- When stakeholder resistance results from uncertainty and anxiety, change managers can manage this by providing technical, physical, and emotional support to help with the change initiative.
- Another way to manage resistance is by negotiating with blockers, including by offering incentives to adopt the change.
- Although not recommended, last-resort measures may be used when stakeholder resistance threatens the organization’s survival. These include manipulation (such as limited information) and coercion.
Summary and Conclusion
It’s critical to enlist stakeholder support when enacting organizational change. Building support for the change initiative can mean the difference between success and failure in change management.
This can be done through identifying key stakeholders, managing them and their relationships, and encouraging support by keeping gain and loss frames and other engagement methods in mind.