Who Matters?! 2010

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Who Matters?!

External stakeholder analysis in projects

2010

Master Thesis

Authors:

Niklas Bothén Erik Brantås Carl Johan Stening

Supervisor:

Rian Drogendijk

Uppsala University Department of Business Studies

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Abstract Who Matters?! External stakeholder analysis in projects

Abstract

Stakeholder management is a topic that has received increased attention in later years.

Researchers have tried to answer the question of which stakeholders that really matters to organizations and developed ways for identifying and prioritizing among stakeholders. This thesis fills a void in academia by looking exclusively on external stakeholders in large and complex projects such as the construction of power plants. The thesis investigates the approach towards external stakeholders as well as the process of identifying and prioritizing external stakeholders in this specific setting. By using attributes identified in earlier research, a theoretical framework was created that was used to investigate two of Sweden’s largest companies through a qualitative case study. The thesis describe how stakeholder identification and prioritization occurs in the different case companies and ultimately contribute with a new model that can be used by managers to prioritize among external stakeholder in organizational projects.

Key words: stakeholder management, stakeholder analysis, external stakeholders, prioritization, identification

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Table of Contents Who Matters?! External stakeholder analysis in projects

1. Introduction

1.1 Background

We are almost certain that you have read about them in the media, seen them on your television, or talked about them during your coffee break. However, they are often hard to identify, especially if you do not upset them or if you do not know where to look. As you may already know, perhaps due to our title, we are talking about external stakeholders. During the last decade, the subject of stakeholders has evolved into something that has received more and more attention and it is not unusual to hear, see, or read something regarding to this subject every day.

A quick scan of some of Sweden’s most popular newspapers also confirms that this is a hot topic. For instance, Dagens Nyheter had many articles reporting that Vattenfall, one of Sweden’s leading energy providers, has been under a lot of pressure (such as protests from environmental organizations and court proceedings) from different external stakeholders due to their controversial project to move a village after coal findings under the community. The pressures from these stakeholders lead to huge delays and thereby higher costs for Vattenfall (DN, 2005, 2007a, 2007b). Another well-known example of external stakeholders’ impact on projects outcome was when Shell, in 1995, was about to dump their worn-out oil platform Brent Spar in the Atlantic Ocean. Different authorities had authorized the disposal but via a major media campaign and occupation of the platform, Greenpeace was able to engage other external stakeholders, both public and governmental organizations, as well as the general public, in a widespread boycott of Shell. Due to the severe damage the boycott had on Shell, they did not have much choice than to give in to Greenpeace demands which was to scrap Brent Spar on land (Post et al., 2002:144-147; WWF, 1995). There are, without exaggeration, thousands of articles one can read that in some way are linked to the stakeholder phenomenon. The examples above show how external stakeholder reactions can lead to controversies and impact on the way companies are doing business. However, stakeholders are not just a burden and one should not forget that organizations could also gain from stakeholders, whether it is within the relationship between two parties or by the spread of positive information to the public.

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1.2 Problem Discussion

There are clear reasons for why stakeholder management should be considered significant for organizations and their managers. Both established as well as recent research has been able to show that organizations that put stakeholders’ interests ahead of profits will deliver superior financial results (Washburn, 2009; Post et al., 2002; Bosse et al., 2009; Donaldson & Preston, 1995; Mellahi et al., 2003). Furthermore, the specific benefits of proactive external stakeholder management is exemplified by Harrison et al. (1996) as something that could lead to increased efficiency, reduced costs, as well as increased organizational flexibility.

The way organizations handle their stakeholders differs and firms can overinvest or invest unwisely in their stakeholders (Harrison et al., 2010; Shropshire & Hillman, 2007). This is further highlighted by Hillman and Keim (2001) who claim that using corporate resources for social issues not related to major stakeholders might not create value for the organization’s shareholders. Phillips (2003:131) state that ―not all stakeholders will necessarily be due equal consideration‖. In the light of the above, understanding who the stakeholders are and which of them are relevant to the organization has been one of the most important challenges in stakeholder theory.

Mitchell et al. (1997) have developed a framework where the attributes power, legitimacy and urgency are used to rank stakeholders in different groups in order to map out the stakeholders most important to a manager. The more attributes possessed by a stakeholder the more important the stakeholder will be to the manager. The model has been further developed by adding proximity to the attributes (Driscol & Starik, 2004) and it has also been empirically tested (Agle et al., 1999). A further theory of stakeholder prioritization comes from Phillips (2003) who argues that the more a stakeholder contributes to the organization, the more important it should be considered.

Stakeholder importance will change from issue to issue and from time to time (Mitchell et al., 1997; Phillips, 2003). For example, Friedman and Miles (2002) argue that it is important to be up to date when it comes to different stakeholders due to the fact that a stakeholder can, in a short period of time, move from being less important to very important to an organization’s operations. Over time organizations engage in new projects and will therefore encounter different stakeholders for different projects. Almost all firm projects of today will take place in a context where stakeholders play a key role in the accomplishment of tasks (Karlsen,

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2002), and failure to attend to the concerns of stakeholders could lead to poor performance or even disaster (Bryson, 2004). Olander (2006) and Sutterfield et al. (2006) emphasize the importance of identifying and managing all relevant stakeholders in the project environment in order to ensure the success of a project. Therefore, management of project stakeholders is one of the most important responsibilities for a project manager (Karlsen et al., 2007).

As noted above, efficient stakeholder management in projects is crucial. However, Yang el al.

(2009) state that earlier studies show that too few methods and tools are available to identify external stakeholders within a project perspective. The models for identifying and prioritizing stakeholders are developed for a more general organizational level (Mitchell et al., 1997;

Phillips, 2003) or for internal organizational projects (Karlsen et al. 2007). Hence, there is a lack of a comprehensive model to help managers identify and prioritize external stakeholders at the level of organizational projects. Furthermore, Egels-Zanden and Sandberg (2010) state that research is needed to see the extent to which firms actually adopt principals and practices of stakeholder management.

1.3 Purpose

The purpose of our research is to describe how firms identify and prioritize external stakeholders in large and complex projects and to contribute with a model for stakeholder prioritization at the level of organizational projects. The kinds of projects we intend to investigate are large and complex projects that have a pronounced effect on external stakeholders. Examples are large infrastructural projects or the building of power plants.

RQ1: How do organizations identify external stakeholders in projects?

RQ2: How do organizations prioritize among external stakeholders in projects?

RQ3: Which attributes are used to prioritize external stakeholders in projects?

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Literature Review Who Matters?! External stakeholder analysis in projects

2. Literature Review

2.1 Stakeholder identification

Among the first discussions about stakeholders was brought up in Jones (1980:59-60) research where he defined corporate social responsibility as ―the notion that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law or union contract, indicating that a stake may go beyond mere ownership‖.

Jones also asked himself the pragmatic questions stakeholder theory has been trying to answer ever since: ―What are these groups? How many of these groups must be served? Which of their interests are most important? How can their interests be balanced? How much corporate money should be allotted to serve these interests?‖

Freeman (1984:54), who is one of the pioneers in stakeholder theory, tried to answer these questions and argued that one must change the traditional picture that a firm consists of its customers, suppliers, employees, and owners to include the emergence of environmentalists, governments, media, global competitors, etc. Freeman defined stakeholders as groups and individuals who can affect, or are affected by, the achievement of an organization’s mission.

Identifying and defining stakeholders in this way is supported by a majority of the researchers within the stakeholder field (Mitchell et al., 1997; Driscoll & Starik, 2004; Friedman & Miles, 2002; Nutt & Backoff, 1992). The definition above can be seen as a rather broad definition for stakeholders. There are thus researchers that define a stakeholder in a narrower way. In 1963, Stanford Research Institute defined stakeholders as ―those groups on which the organization is dependent for its continued survival‖ (Freeman & Reed 1983:91). Clarkson (1994) cited in Mitchell et al. (1997:856) also offers one of the narrower definitions on stakeholders, as voluntary or involuntary risk-bearers: ―Voluntary stakeholders bear some form of risk as a result of having invested some form of capital, human or financial, something of value, in a firm. Involuntary stakeholders are placed at risk as a result of a firm’s activities. But without the element of risk there is no stake‖. Many efforts have been made to define what constitutes a stakeholder. The variety of definitions as they have evolved in the last two decades can be found in appendix 1.

Organizations can have a proactive or a reactive approach when identifying stakeholders.

Berman et al. (1999) argue that managers should proactively deal with stakeholder interests.

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Jawahar and Mclaughlin (2001) also have the same opinion and state that stakeholders who are critical for survival should be dealt with in a proactive manner.

The theories and models found in the academic world are mostly connected to the organization per se. There are also attempts to identify and define stakeholders for projects and the importance of this has been emphasized. For example Karlsen et al. (2007) states that it is a mistake to ignore project stakeholders and that identifying stakeholders is an important key to project success. However the focus in project management has mostly been on internal stakeholders such as project leaders, team members, employees etc. (Jepsen & Eskreod, 2009;

Bourne & Walker, 2005). There has not been much research with a focus on external stakeholders on the project level, hence the focus of our thesis.

The definition of a project stakeholder we chose to work with during this thesis is taken from the International Finance Corporation (2007) and reads: ―stakeholders are persons or groups who are directly or indirectly affected by a project, as well as those who may have interests in a project and/or the ability to influence its outcome, either positively or negatively‖. We have also narrowed it down to external stakeholders only, which according to Business Dictionary (2010) are referred to as ―entities such as customers, suppliers, and lenders, or the wider society which influence and/or are influenced by an organization but are not its internal part‖.

According to Harrsion et al. (1996), examples of external stakeholders are: customers, suppliers, competitors, government agencies/administrators, local communities/government, activists groups, non-governmental organizations, and governments.

2.2 Stakeholder prioritization

Several scholars have conducted research within stakeholder theory with a focus on identifying which stakeholders really matter to the organization and how managers should allocate their time, attention, mental capacity and other scarce resources among stakeholders (Mitchell et al., 1997; Phillips, 2003; Preble, 2005). In addressing this problem, different frameworks have been developed in order to rank and categorize stakeholders.

Mitchell et al. (1997), were among the first to address this subject more specifically and in their article they attempt to develop a theory of stakeholder salience that can explain to whom and to what a manager actually pays attention. In order to form a conceptual framework they define and elaborate on three different attributes that can be assigned to stakeholders (power,

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legitimacy, and urgency) and contribute to stakeholder salience. Salience is in the article defined as: ―the degree to which managers give priority to competing stakeholder claims‖

(Mitchell et al., 1997:2). Since then, these concepts have been further developed by Driscol &

Starik, 2004 who added the attribute of proximity to the framework. Furthermore the fairness- based view of stakeholder management advocates prioritization based on stakeholder contribution (Phillips, 2003) and in the project management literature we have found the attribute of expectations for rewards to be used for prioritization (Jepsen & Eskerod, 2009).

These are the attributes that we know of for stakeholder prioritization and will therefore be used as a theoretical framework for analyzing which ones that are used by managers to prioritize among external stakeholders. Furthermore, a manager’s values are also identified as a variable that can influence the prioritization process and will also be covered in the chapter.

Following in the chapter is a deeper description of the different attributes and frameworks.

2.3.1 Power

As mentioned above, power was an attribute that was brought into the stakeholder theory by Mitchell et al. (1997). In the article this attribute is defined as ―a relationship among social actors in which one social actor, A, can get another social actor, B, to do something that B would not have otherwise done‖ (Mitchell et al., 1997:865). The authors also state ―power gains authority through legitimacy, and it gains exercise through urgency‖ (Mitchell et al., 1997:869). Power can be coercive (based on the physical resources of force, violence, or restraint), utilitarian (based on material or financial resources), or normative (based on symbolic resources). The different types may exist independently or in combination and power is also seen as transitory which means it can be acquired as well as lost. The different types of power are something that Deephouse and Parent (2007), have investigated through a case study. They showed that having more than one type of power increased stakeholder salience. Furthermore, utilitarian power was normally more ―powerful‖ than normative which, in turn, was more ―powerful‖ than coercive power.

When it comes to defining power, Frooman (1999:192) states that one should look at power as ―an attribute of the relationship between the actors - not of the actors themselves‖. This way of defining power differs from Mitchell et al. (1997), Frooman (1999) does not distinguish power as an attribute of the individual.

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2.3.2 Urgency

Another attribute that was identified by Mitchell et al. (1997) is urgency and by adding this attribute the authors argue that it helps to move the model from static to dynamic. Mitchell et al. (1997:864) choose to define urgency as ―the degree to which stakeholder claims call for immediate attention‖. The authors argue that urgency only exists when two settings are met:

―(1) when a relationship or claim is of a time-sensitive nature and (2) when that relationship or claim is important or critical to the stakeholder‖ (Mitchell et al., 1997:867). Still, even if time sensitivity is required, it is not enough to identify a stakeholder's claim or manager relationship as urgent. Also, the stakeholder must view its claim on the organization or its relationship with the organization as highly important or critical (Mitchell et al., 1997).

Baskerville-Morley (2004) argues that, just as legitimacy and power may alter, urgency gives a chronological attribute that pins an occasion of potential interest to a particular point in time.

2.3.3 Legitimacy

Mitchell et al. (1997), use Schuman’s definition of legitimacy: ―a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values beliefs and definitions‖ (Schuman, 1995:574 cited in Mitchel et al., 1997). It is argued that legitimacy is a desirable social good that may be defined differently in different parts of an organization or society as a whole. Driscol and Starik (2004), make a distinction between strategic legitimacy, which can be achieved by a stakeholder by making resources available to a firm, and moral legitimacy which is based on normative approval and the rightness or wrongness of stakeholders’ actions.

2.3.4 Proximity

The proximity attribute was added to the Mitchell et al. (1997) framework in order to make the concept of stakeholder salience more comprehensive and realistic (Driscol & Starik, 2004). Soukhanov (1984:948), cited in Driscol and Starik (2004), defines proximity as ―the state, quality, or fact of being near or next in space, time, or order‖. Proximity can be measured by spatial distance where the greater proximity the greater the likelihood of development of stakeholder relationships. Other than being physically proximate, organizations can be said to be proximate if they share the same concept or practice as well as occupying the same field. Firms within the same industry, households that are residential

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neighbors and, firms that share the same stakeholders are all examples of stakeholders who possess the proximity characteristic (Driscol & Starik, 2004).

2.3.5 Contribution

The fairness-based view is an alternative way of prioritizing and determining to whom stakeholder obligations are due by referring to the moral obligations of the organization (Phillips, 2003). Phillips and Reichart (2000) argue that a fairness-based criterion is the only appropriate measure of stakeholder status. ―According to the principle of stakeholder fairness, stakeholders should have a slice of the organizational outputs and a voice in how value is added by the organization that is consistent with their contributions to the organization‖

(Phillips, 2003:162). The more a stakeholder contributes to the organization, the greater the voice and share of output. This is in line with Freeman (1984) and Clarkson (1995) who state that the stakeholders that are essential to the wellbeing and survival of the organization should be given more attention. Bosse et al. (2009) further emphasize the reciprocity between firm and stakeholder meaning that the more a firm distributes value to stakeholders, the more these will contribute to rent creation of the firm and vice versa.

Phillips (2003) divides stakeholders into two different categories: Normative and derivative.

Normative stakeholders are those who the organization has a moral obligation to such as financiers, communities and suppliers. Derivative stakeholders are those groups that have the ability to affect normative stakeholders such as media and activists groups. Normative stakeholders should always take precedence over derivative but at the same time Phillips argues that, in order to attend to the interests of normative stakeholders it may be necessary to spend the bulk of time and resources on derivative stakeholders. The fairness-based view provides managers with some kind of direction but it does not tell us how managers can assign relative weightings to stakeholder contributions.

2.3.6 Expectations for rewards

Project management literature has contributed with ways of categorizing and prioritizing project stakeholders within the performing organization (Bourne & Walker, 2005; Bourne &

Walker, 2007; Karlsen, 2002; Jepsen & Eskerod, 2009). These have a different history compared to the frameworks developed by Mitchell et al. (1995) and Phillips (2003) and focus mainly on personal relations within the firm and on how to identify those persons and networks within the company that will affect a project outcome. For example, Jepsen and

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Eskerod (2009) investigated renewal projects within a hospital and how to manage relations with department heads and project members. While these kinds of projects are not directly related to the purpose of our research, we believe that the attributes used when analyzing stakeholders within a project could be useful also when describing how firms identify and prioritize external stakeholders in our specific context.

Jepsen and Eskerod (2009) use a framework for analyzing project stakeholders based on characterizing them by contributions needed from them, expectations for rewards for delivering contributions and power in relation to the project. These attributes are similar to the ones that are used in the general stakeholder analysis at the level of organization. The contribution needed can be understood in terms of what Phillips (2003) among others refers to as the fairness-based view. According to Jepsen and Eskerod (2009:337) ―contribution can be in the form of specific deliverables, a positive attitude or specific behavior like making a supportive decision‖. The attribute of power, also discussed in Mitchell et al. (1997 framework, is characterized as the ability of a stakeholder to influence the project. The attribute of expectations is a new insight from the project management literature that does not have an equivalent in the general stakeholder literature. This is understood as what stakeholders expect to get out of the project, for example a salary, praise, or influence on the project objectives.

The framework provided by Jepsen and Eskerod (2009) does not provide support into how to distinguish important stakeholders from less important ones and the authors argue that there is a need to develop the framework in this context. However, they do state that stakeholders who are opposed to a project would require more attention than those that support it.

2.4 Stakeholder salience and number of attributes

Stakeholder salience will be positively related to the cumulative number of stakeholder attributes, meaning that a stakeholder with more attributes will be perceived as having more salience by the organization’s managers (Mitchell et al., 1997; Deephouse & Parent, 2007;

Agle et al., 1999). Agle et al. (1999) gave further value to the model by testing Mitchell et al.’s (1997) attributes through an extensive investigation among 80 CEOs at large U.S. firms.

The findings conclude that there is strong support for the attribute-salience relationship. It should be noted that these authors have only investigated the attributes that were present in the Mitchell et al. (1997) original framework: power, urgency and legitimacy. However, it is

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possible that the above mentioned also holds when adding other attributes as long as they can be validated as important for stakeholder salience.

Mitchell et al. (1997) argue that managers who want to achieve certain ends will pay particular kinds of attention to different categories of stakeholder. Because of limited time and energy, a manager may not do anything about a stakeholder who only possesses one of the attributes. When a stakeholder possesses two attributes there is an increase in firms’

responsiveness to the stakeholder’s interests and when a stakeholder possesses three attributes the manager has a clear and immediate mandate to attend and give priority to that stakeholder’s claim. The framework developed by Mitchell et al. (1997) depicted in figure 1 describes how stakeholder attributes could be mapped in order to place stakeholders in certain stakeholder types. Stakeholders can be classified as dormant, discretionary, demanding, dominant, dangerous, dependent, definitive, or non-stakeholder depending on which particular attributes they are perceived to possess.

Figure 1: Stakeholder typology (Mitchell et al., 1997)

Furthermore, scholars have debated how much each attribute contributes to stakeholder salience. According to Agle et al. (1999) urgency was the very best predictor of stakeholder salience in large public firms. However in later research, Deephouse and Parent (2007) noted that the most important attribute for stakeholder salience was power followed by urgency and

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legitimacy. That power should be the most important attribute is under debate, while Harrison et al. (2010) argue that too much value is distributed to stakeholders because they hold much power. Mitchell et al. (1997) also emphasize that the number of attributes and therefore the degree of salience can change from time to time and issue to issue. As explained by Friedman and Miles (2002), stakeholders can, in a short period of time, go from being less important to very important to an organization’s activities. Stakeholders can move between different categories by losing or retrieving attributes through, for example, partnerships and coalitions.

The Mitchell et al. (1997) framework can be considered very popular among scholars.

However, Driscol and Starik (2004) believe that the development of further criteria would further clarify and strengthen the model of stakeholder identification and salience.

2.5 Managers’ values

Mitchell et al. (1997) argue that a manager’s perception of different stakeholders will be critical in determining stakeholder salience and that it will be a moderator of the stakeholder- manager relationships. The argument is further strengthened by Harrison et al. (1996) who claim that organizations may raise the priority of a stakeholder because of a manager’s values.

In an attempt to follow up and test the above mentioned arguments, Agle et al. (1999) conducted a study to test if CEO’s values were related to stakeholder salience. Their results showed weak support for the argument. However, they do stress the importance to further investigate the issue. Because of this, we want to include managers’ values in our theoretical framework in order to further investigate its role during prioritization. The variable is not to be considered an attribute possessed by a specific stakeholder but as a moderating variable that effect the perception of the stakeholder and its attributes.

2.6 Summary

Project stakeholders have been defined as ―persons or groups who are directly or indirectly affected by a project, as well as those who may have interests in a project and/or the ability to influence its outcome, either positively or negatively‖. Furthermore the concept of external stakeholders has been clarified as ―entities such as customers, suppliers and lenders, or the wider society which influence and/or are influenced by an organization but are not its internal part‖. The different frameworks and attributes discussed for stakeholder prioritization in the literature review will form a framework for investigating how firms prioritize among external stakeholders in a project setting. The different attributes are summarized in table 1.

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Table 1: Summary of attributes

Attribute Definition

Power ―The degree to which a stakeholder can influence a project‖

Urgency ―The degree to which stakeholder claims call for immediate attention‖

Legitimacy ―The degree to which a stakeholder's action are desirable, proper or appropriate within some socially constructed system of norms, values beliefs and definitions‖

Proximity ‖The degree of physical or psychological closeness to the company‖

Contribution ―The degree to which the stakeholder contributes or adds anything to the project‖

Expectations ‖The degree to which the stakeholder expects a reward from the organization or project‖

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Methodology Who Matters?! External stakeholder analysis in projects

3. Methodology

Since the aim of our research is to investigate how firms identify and prioritize external stakeholders in large and complex projects, we want to explore how this is actually done which implies that our study is of the exploratory type.

3.1 Research Strategy

In order to fulfill our purpose we decided to do a qualitative case study. With this strategy, we were able to explore the stakeholder phenomenon in a real-life context. We wanted to gain greater understanding of the situation and the processes by which project managers identify and prioritize external stakeholders. This meant that a case study was the preferred research strategy. Furthermore, we have chosen to include multiple cases for this research in order to increase the validity of our findings. A multiple case study design allows us to see whether prioritization of external stakeholders is similar or whether it varies in different projects and organizations and why that is the case. It will also allow us to discover larger variations in the methods of prioritization that are used in different projects or organizations, which in turn could help provide a more valid framework. Saunders et al. (2007:147) writes: ―a well- constructed case study strategy can enable you to challenge an existing theory and also provide a source of new research questions‖. This was exactly what we wanted to do with our research. In our case we wanted to challenge the established theories of stakeholder identification and prioritization. In order to achieve this, a great research strategy was not enough; we also needed to find suitable cases.

3.1.1 Case selection

Suitable cases for our research would be companies that were engaged in large projects which affect external stakeholders and who, most importantly, work actively with stakeholder analysis. Large projects were chosen since they were more likely to have many external stakeholders. We also found it important that the companies worked actively with stakeholder analysis since it would increase the possibility of the responsible manager to be knowledgeable about the subject. Companies that fulfill these criteria were suitable for our research. We started to search for appropriate cases in the energy sector since it is an industry that consists of big companies that are involved in projects with many external stakeholders such as the building of power plants. After researching the different actors in the industry we found that Vattenfall, one of Sweden’s largest energy providers was suitable as a case

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company. Vattenfall has many external stakeholders, they invest a lot in new projects around the world; everything from building wind power farms to investing in nuclear power, and they work actively with stakeholder analysis according to their sustainability report and webpage.

Moreover, we wanted the opportunity to cross-check the validity of the stakeholder model by studying cases from different industries. For that reason we decided to expand our research to include ABB, which also fulfilled our criteria for case selection. ABB is a Swiss-Swedish multinational which mainly operates in the power and automation technology areas with large projects all over the world. We have also held preliminary interviews with other large companies, for example Skanska, Scan and SCA, but due to the kind of projects they were engaged in we concluded that these companies did not match our criteria for case selection.

However, they were all very interested in our research and confirmed the importance of the subject.

3.2 Data collection

The companies were contacted by phone or e-mail in order to explain the purpose of our research. After discussions about our research we were referred to the persons that were considered to be most knowledgeable in the area of stakeholder analysis. In order to gather rich and detailed data about how these companies identify and prioritize among their external stakeholders, we conducted semi-structured interviews. Because of the complexity of the specific area together with the exploratory purpose, it would be hard to collect data from other sources or with standardized instruments. With the help of interviews we were able to explore how these people think and act with regard to this subject. Prior to the interviews we sent information about our research and an interview guide (appendix 2) to the respondents which helped them to prepare and was designed to minimize misunderstandings. Interview guides and interviews were made in Swedish in order to facilitate the understanding for our interviewees. All interviews were recorded in order for us to be able to go back and listen when transcribing and analyzing so that no important information would be left out.

The data collection started with interviews at each company. At Vattenfall we did a preliminary interview in order to get a clearer picture of the company’s approach to external stakeholders, how stakeholder analysis was carried out on a general level and also to ensure that this company matched our criteria for case selection. After gaining a good understanding of how Vattenfall works with stakeholders on a general level, we asked the interviewee to identify suitable projects in the organization where stakeholder identification and

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prioritization occur. Interviews were set up with people responsible for stakeholder analysis for different projects in order to gather in-depth information about the process they actually use to identify and prioritize external stakeholders on a project level. Our plan was to do the same at ABB, but owing to the way in which they work we concluded that one interview covered all our questions. After transcribing the data from interviews, it became apparent that further clarifications were required since we lacked some specific information about the importance of the specific attributes. In response to this, a questionnaire (appendix 3) with clarifying questions was sent to the interviewees. They were asked to answer the questions in writing and return the questionnaire to us; this allowed them to take their time and think about the questions and answers. With this approach we could also increase our validity by comparing the answers from our prior interviews. In total we conducted five different interviews and received two answers by written form. Figure 2 shows a summary of the data collection.

Figure 2: Summary of data collection

Data have also been collected from secondary sources. Annual reports and internal documents concerning company stakeholders have been used to supplement the primary sources (ABB

Questionnaire Project

Level Interviews Organizational

Level Interviews

Fahnestock Climate policy adviser

Face to face, 1,5h

Bills Communication officer,

Vattenfall windpower Face to face, 1,5h

Bills By telephone, 40min

Nordlund Communication Officer,

Vattenfall Hydropower Telephone, 1,5h

Nordlund By email

Nordström

Head of sustainability group, ABB Face to face, 2,5h

Nordström By email

SKANSKA, SCA, SCAN

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Sustainability report 2009, Communication plan Windpower, Kommunikation och Dialog Hydropower 2008, Lillgrundsmodellen Vattenfall Windpower 2008, PROwind, and Vattnfall Annual Report 2009). These documents gave us a general insight into how the case

companies work with external stakeholders, hence new and adequate question could be formulated for upcoming interviews.

3.2.1 Operationalization

The interview guide was based on the identified attributes from theory covered in the literature review, as well as on insights stemming from internal documents provided by the companies. Furthermore, later interviews were supplemented with insights gained from earlier interviews. Because of the complexity of the subject, the first interviews were kept very open allowing the interviewees to speak freely about their organization’s approach to external stakeholders, identification and prioritization. The interviewees were here asked to elaborate on the approach to stakeholder analysis and the process of identifying and prioritizing external stakeholders in projects. In addition, more specific questions were asked regarding which attributes of those defined in table 1 were used or could be used to prioritize external stakeholders. This information was necessary due to the complexity of the subject and because we noticed that many attributes were used implicitly in their processes. The respondents were briefed about the different attributes identified from theory and then asked to explain how they affect the prioritization process in the project they worked on. The interviewees were also asked to give examples of projects and how the attributes affected prioritization in specific cases. In order to identify potential new attributes for prioritization, the interviewees were also asked to add any other attributes they perceived as valid.

3.3 Interviews

3.3.1 Vattenfall

The first interview was a face-to-face interview conducted with Vattenfall’s Climate Policy Adviser, Jesse Fahnestock, for approximately 1,5 hour, at the head office in Stockholm. The interview gave us a general understanding of Vattenfall’s approach to external stakeholders and how these are identified and prioritized on the organizational level. We also received information regarding new guidelines for stakeholder analysis in projects. Fahnestock turned out to be the right person to talk to in this initial stage of our research; he was very open- minded and showed great interest in our research. This first interview served as a basis for

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upcoming interviews. We were able to gain new insights and knowledge about Vattenfall which helped us to formulate more specific questions for use in contact with the other companies. After the interview, Fahnestock helped us to set up interviews with the right people within different business areas (Wind and Hydropower), something that was crucial in order to understand how Vattenfall actually identified and prioritized external stakeholders in different projects.

In the second step, we came in contact with Ingegärd Bills, Communication Officer, Vattenfall Windpower, and with Monica Nordlund, Communication Officer, Vattenfall Hydropower. These persons work hands-on with external stakeholders in projects: both were very knowledgeable about the subject and therefore suitable for our research. The interview with Bills was conducted face-to-face at her office while the interview with Nordlund conducted through phone since her office was located outside travel distance. With their help, we were now on our way to fulfill our purpose and to answering our research questions. The interviews lasted for approximately 1,5 hour each. To further validate our research we sent the questionnaire to Bills and Nordlund, Bills answered via a telephone interview while Nordlund answered by mail.

3.3.2 ABB

A face-to-face interview was conducted for approximately 2,5 hours with the head of sustainability group Anders Nordström. This interview gave us a lot of data about how ABB works with stakeholders on a more general level. However, ABB does not work specifically with external stakeholders at the project level and therefore we were not able to gain access to any project manager knowledgeable about the subject. Still, we did gain data that explained that ABB engages with stakeholders in a more ad-hoc way when a problem arises. To receive more specific data about the identification and prioritization process we sent the questionnaire to Nordström as well.

3.4 Sources of criticism

The validity of our research could have been further improved by adding more cases. This could be in form of more project managers at each company as well as by interviewing managers at more companies. However, because of the limited time frame of our research this was not possible.

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Because of the difference in company structure as well as physical distance, we were not able to use a consistent data collection method for all cases. This explains the fact that not as much data could be collected from ABB as from Vattenfall. However, due to ABB’s company structure and the fact that we spoke with the person that we believe was most knowledgeable about external stakeholders at the company, the data was sufficient for our analysis.

Furthermore, we do not believe that the fact that some interviews were conducted face-to-face and others over the telephone will affect the data retrieved since we noticed that all our interviewees got a good understanding of the subject.

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Results Who Matters?! External stakeholder analysis in projects

4. Results

This chapter will explain the approach to external stakeholders and how stakeholder analysis is conducted in the three different cases. The data collected is presented case by case and comes from the interviews as well as internal documents and annual reports.

4.1 Vattenfall Hydropower

4.1.1 Approach to external stakeholder analysis in projects

Stakeholder analysis in hydropower projects is of great importance and its significance has increased in recent years. During the establishment of hydropower in Sweden not much attention was given to external stakeholders’ and this gave Vattenfall a rather bad reputation in the project areas affected. Consequently Vattenfall Hydropower now has extensive external stakeholder interactions prior to and during Hydropower projects. The responsibility for stakeholder analysis is mainly the project manager’s. However when it comes to large-scale projects the communication officer assumes the biggest responsibility. In order to have a somewhat standardized method of communication with stakeholders, a handbook was developed in cooperation with an external dialogue expert. The handbook is designed to serve as guidelines for project managers rather than as strict rules. Vattenfall Hydropower works proactively with their external stakeholders and stresses the importance of having a strong dialogue with entities affected by a project. Stakeholder analysis is described as a highly complicated process where the size and scope of a project will have considerable impact on how external stakeholders are identified and prioritized.

Prior to Hydropower projects an environmental scanning is conducted. In the scanning they map out stakeholder roles, importance and interests for the particular project.

The steps for the environmental scanning are described as follows:

1. Identify stakeholders and determine their roles and interests. Think about authorities, media, politicians, associations, individuals etc.

2. Determine threats/negative effects that stakeholders experience. Group them and make a list

3. Define how to decrease threats/negative effects

4. Take stock of the internal knowledge about these areas 5. Take stock of the external knowledge about these areas

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Results Who Matters?! External stakeholder analysis in projects 6. Take stock of communication channels and methods

Most often interaction with external stakeholders includes information meetings with key stakeholders as well as sending out information. Neighbors and different associations are invited to information meetings, to create a dialogue, see how these stakeholders are affected, and enhance decision-making. One example of Vattenfall’s broad stakeholder approach is exemplified by a project in Vilhelmina where Vattenfall wanted to rebuild and expand the Hydropower plant. Prior to project start, Vattenfall created reference groups consisting of participants from the municipality, political parties, tourism, environmental groups, fishermen etc. All interested stakeholders were invited to participate in discussions with experts from Vattenfall. Whether to conduct the project or not was to be decided by a vote, which ultimately turned out not to support expansion. Hence, even though Vattenfall conducted broad proactive stakeholder interactions, they were not able to go through with the project.

4.1.2 Identification process

The process for identifying external project stakeholders can be described by asking the question: Who is affected by the project? Everyone that is affected is a stakeholder and should be regarded as such. In some projects new stakeholders can also be identified during the ongoing project. The primary external stakeholders that are usually identified during new hydro projects are: politicians, authorities, property owners, media, general public, interest groups, energy companies, and other channels, for example, information officers at authorities. An example mentioned where Vattenfall Hydropower responded to the demands of a stakeholder group consisting of the general public was when the building of a new hydroplant weakened the ice at a lake which was frequently trafficked by snowmobiles. Since these stakeholders were highly affected by the hydropower project, Vattenfall chose to build new paths for snowmobiles in other areas. Driver of snowmobiles was not a stakeholder group that was considered in the first identification phase.

4.1.3 Prioritization

Vattenfall Hydropower always has dialogue with authorities such as county administrative boards (länsstyrelsen), the environmental court (miljödomstolen), and the legal, financial, and administrative service agency (kammarkollegiet) in order to gain approval for their projects.

Because of this, authorities always have the highest priority and Vattenfall Hydropower is dependent on receiving a permit before it can move forward with a project. Furthermore,

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dialogue is always conducted with other identified stakeholders, and support from key stakeholders is most often necessary in order for a project to be successful. Because of scarce resources it is impossible to meet the demands of all stakeholders. However, Vattenfall Hydropower aims at having at least a dialogue with all stakeholder groups even though they may not give in to demands. External stakeholders are mainly prioritized by asking the question: How much are they affected by the project? The groups most affected by a particular project are given higher priority. Also, depending on how much the stakeholder is affected, Vattenfall will contribute with a proportional amount. For example, Vattenfall Hydropower helped the municipality with various recreational projects as compensation for heavy traffic during the project.

When asked specifically about the different attributes it was explained that Vattenfall Hydropower does not explicitly use any of the attributes defined in the literature when prioritizing among external stakeholders. However, the attributes are used indirectly during the stakeholder analysis and the respondent concluded that these attributes were valid for prioritizing among external stakeholders. It was also argued that it is very complicated to rank the importance of each attribute since it will differ depending on the particular project’s scope, size, issue, and situation. The three most important attributes for Vattenfall Hydropower were power, urgency and proximity. Power was mostly related to different authorities but also to smaller groups, such as anglers, that can gain power through formation of opinion and thereby spread bad-will about the company. The urgency attribute affected prioritization in such a way that when an issue required immediate attention, it was declared to have higher priority if the claims were also legitimate. One example was given on how a project affected the local reindeer paths which resulted in urgent claims. The stakeholders with close proximity to a hydro project are also the ones that are most affected, and therefore will be accorded higher priority than groups such as tourists or national organizations.

Legitimacy was also important, although Vattenfall Hydropower could consider dialogue with less legitimate groups but to a lesser extent. Contribution was important when stakeholders had knowledge to contribute with, regarding how projects affected different issues, hence these stakeholders were prioritized for dialogues. For example, important knowledge about which roads can be used, how they have worked with reindeers earlier and which paths over the ice can be used constitute important knowledge that can be provided by external stakeholders. Furthermore it was also argued that prioritization is dependent on how the stakeholder contributes to the profitability of the project. Expectations for rewards was not

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considered to have a direct effect on prioritization, although the municipality sometimes expects Vattenfall to contribute to different project for which the commune lacks resources, for example road or bridge construction.

The project manager’s values will affect the prioritization of external stakeholders. However, the values were not believed to affect the decision to the extent that the manager would ―make a wrong decision‖. A project manager’s prior relationship with stakeholders will also affect the prioritization. A manager with an established relationship could favor that specific stakeholder during the prioritization process. For example, the participants invited to information meetings are most often people that Vattenfall Hydropower has had prior relationships with. This is because after a long history of hydropower in Sweden, the company has prior knowledge about external stakeholders that are affected and to what extent.

Figure 3: Summary Vattenfall Hydropower

4.2 Vattenfall Windpower

4.2.1 Approach to external stakeholder analysis in projects

Vattenfall Windpower works actively with external stakeholders, both before and during different projects and external stakeholders play a major role in project success. This can be explained by the fact that Vattenfall Windpower often needs external stakeholders’ approval in order to acquire permission to build wind farms. The proactive stakeholder approach is hence a must in projects that Vattenfall wind power is engaged in. At Vattenfall Windpower the project communicator has the initial responsibility for identifying and prioritizing stakeholders. Later in the project phase the project communicator’s work with stakeholders is transferred to the project leader, who ultimately has the responsibility for which external stakeholders are identified and accorded priority. Before each project Vattenfall Windpower

Approach

•Proactive

•Broad dialogue

Identification

•Who is affected by the project?

Prioritization

•Authorities with coercive power

•How much are the stakeholder affected?

•Attributes are used but not explicitly

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uses a project model which every project leader follows during the whole project. The model is a process-based project framework and is designed to efficiently control and manage development projects. One step in the model clearly states when it is time to carry out a comprehensive external stakeholder analysis. This means that in all projects conducted at Vattenfall Windpower external stakeholder analysis is carried out.

4.2.2 Identification process

Before a project, an environmental analysis is made in which the people in charge identify such things as; have there been earlier projects here? What is the municipality’s attitude toward projects like this? Who are the ―neighbors‖ and what is their attitude? In this way Vattenfall identifies which of the external stakeholders that will feel affected if the project proceeds. However, if the project continues to evolve, an even deeper analysis is carried out;

all stakeholders are then identified and divided into groups and subgroups, for instance, the general public, media, county councils, authorities, NGOs, and internal stakeholders. Much of the information about different stakeholders is collected from the municipality as the municipality often has a rather comprehensive view of which local stakeholders may require special attention. In addition to this, Vattenfall Windpower also has a pre-prepared list of stakeholders, which is used to ensure that no important stakeholder is forgotten. Vattenfall Windpower has about 130 active projects around the world and these projects are very similar to each other. Consequently, the identification of external stakeholders becomes easier because the same kind of stakeholders are often involved in these projects.

Prioritization among the external stakeholders identified is based on past experiences and common sense. This is because the same stakeholders are often identified in Vattenfall Windpower projects, hence past experience and common sense turned out to be a rather fast and simple way to prioritize these stakeholders. Two stakeholders that almost always have high priority are the municipality and county council, since permits are often required from these stakeholders before a project can proceed. During the interview we noticed that the different attributes identified in the literature are used but not explicitly and after receiving answers from the questionnaire it was argued by the respondent that the attributes provide a comprehensive picture of what is important during prioritization.

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The three most important attributes identified were power, proximity and contribution. Power, because Vattenfall Windpower is dependent on certain stakeholders to get permits. It was also argued that stakeholders with great power could stop a whole project. With proximity it was argued that the closer to the wind farm, the more important the stakeholder. Vattenfall Windpower’s project team usually lack the knowledge of local conditions that they need and are dependent on help with local knowledge as well as expertise within advanced areas to be able to execute a project. Therefore contribution was considered important. It was stressed that Vattenfall was highly dependent on all these three attributes for project success.

Legitimacy and urgency were also deemed important although not to the same extent. Even though Vattenfall Windpowers’s ambition is to have a dialogue with all the stakeholders concerned and to let everybody present their standpoint, they would not be able to cooperate with less legitimate stakeholders. Urgency was not considered to be an important attribute when prioritizing among external stakeholders. The general view is explained to be that everyone should be treated equally; ―the one that screams loudest for attention will not get special treatment‖. However, the respondent felt that urgency most probably affects the prioritization subconsciously and that if there is a claim that Vattenfall Windpower also considers to be urgent then the stakeholder will get priority. The least important attribute for prioritization was expectations for rewards. It was argued that it has little or no impact on the prioritization phase. However, still compensations to some stakeholders are given. These can take the form of lease payments for land, the paving of roads, or payments to the municipality based on a percentage of the return on investment.

The responsible manager’s values were said to in all likelihood affect prioritization.

Depending on background and experiences, different external stakeholders could be prioritized. Prior relationships with external stakeholders could also affect the prioritization process because it could facilitate more effective communication. ―It is easier when you know the guys at the municipality, the work gets easier‖.

Figure 4: Summary Vattenfall Windpower

Approach

•Proactive

•Broad dialogue

Identification

•Who is affected by the project?

•Help from municipality

•Pre-prepared list

Prioritization

•Authorities with coercive power

•Experiences’ and common sense

•Attributes are used but not explicitly

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Results Who Matters?! External stakeholder analysis in projects 4.3 ABB

4.3.1 Approach

ABB does not work explicitly or in a proactive way with external stakeholders during projects. This is due to the structure of ABB’s business. ABB is a supplier of different components that are used during different projects but is not directly responsible for specific projects. Therefore, according to ABB, as long as the government has approved a certain project it is up to the specific company (customer) to handle stakeholder relations. Rather than adopting a proactive approach during projects, ABB works with external stakeholders on specific issues that are related to ABB’s business overall. ABB has dialogues with external stakeholders for different reasons: to gain knowledge about stakeholders’ perception of ABB, on specific issues (e.g. health and safety, climate change), but also for project related reasons.

During dialogues with different stakeholders, guidelines are formulated that are used throughout the whole organization, including projects.

To reduce the likelihood of anything going wrong during projects, ABB has guidelines about risk handling, a behavioral code (how to act in relation to clients and actors in the community), and stakeholder contacts. Before a project starts, an analysis is conducted when ABB believes it to be necessary. For example, it is not necessary in countries such as wealthy OECD countries where ABB trusts the governments but rather when doing business in more undeveloped counties because in these countries the authorities cannot always be trusted. At this stage they do not look at particular stakeholders. Instead they look at risks associated with the project that have mostly an economical focus but they may also take into consideration environmental factors, health and safety issues, human rights and other ―soft issues―.

4.3.2 Identification

According to ABB, stakeholders are those organizations or individuals who may be affected by ABB’s activities or whose actions may affect ABB. Also included are those ―whose experience and expertise could provide a valuable input to the issues under discussion‖. The stakeholders that are engaged in the dialogue are chosen with regard to their expertise on the specific issues. The main external stakeholders that are engaged in the bilateral dialogues are business partners, bank and creditors, central and local government in countries where ABB operates, the community at large, NGOs, academia, and media.

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However, ABB do have interactions with external stakeholders if a controversial issue arises during a project. In such a case they use a reactive approach to stakeholders. For example, in a project in Sudan, ABB was criticized by American universities, pension funds and Christian organizations. Sudan is a country where great tensions, dictatorships and corruption abound, and it is not legal for American companies to do business in Sudan. More and more complaints came in and created a controversy that resulted in a boycott. ABB handled the situation in what they call a very ambitious way. ABB hired an external consultant to investigate the project and see how it affected Sudanese society. Contacts were made with such external stakeholders as Save the children, Oxfam, local NGOs and various authorities but also with the people generating the criticism and other external stakeholders who questioned what they were doing down there.

For bilateral dialogues, external stakeholders are chosen for their knowledge of the issue.

Most commonly stakeholders are chosen from existing networks or from groups the company has had contact with before. Also stakeholder groups that have been major critics of ABB or that have had experience with similar projects are invited to participate. Prioritization among the identified stakeholders is also based on internal reasoning, evaluations and experience. It was also stated that a project manager’s values do not affect the prioritizing phase, although it was conceded that previous working relationships can affect the priority of an external stakeholder due to earlier experiences.

In the Sudan project, the external stakeholders that ABB interacted with was from their own established network that ABB in most cases had prior relationships with. The local stakeholders concerned were chosen upon the suggestion of the lawyer. The basic question was whose rights are affected by ABB’s operations and how? Also who is responsible for violating rights and who should compensate for the damage? The lawyer had a lot of experience from Sudan and suggested which external stakeholders should be contacted. With regard to attributes, power was not so important in relation to stakeholders in Sudan. They were not after pleasing the Sudanese authorities but rather the community that did not have that much power. Proximity and legitimacy in claims were the most important attributes.

However, in most of ABB’s projects the attribute of power was ranked as the most important attribute, followed by legitimacy, proximity, urgency, and contribution. Expectations for