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IMD's programs are ranked highly by the world's most influential business publications.
Stakeholder management is critical to the success of any corporate project – it’s probably something you heard on day one of your first undergraduate business class. But too many business managers only pay lip service to the concept of stakeholder management.
The classic way to integrate stakeholder management into a business project plan is fairly straightforward, typically some version of: identify, prioritize, communicate, engage, deliver, repeat. Of course, if you completely ignore all stakeholders, you face a high risk of failure (unless nobody particularly cares about your project), but you can sink your project by ignoring even a single one of these stakeholder management steps.
“One of the worst and most expensive contracting fiascos,”[i] said MP Richard Bacon, not mincing words on the British National Health Service’s National Programme for Information Technology (NPfIT). The rollout of this electronic Care Records Service was rife with stakeholder mismanagement. It was dramatic in cost ($24B in taxpayer money – more than 5 times the expected cost) and in number of stakeholders, considering that the NHS is a public health service. In other words it affected everyone in the country, both in their pockets and in their healthcare.
The NPfIT was supposed to centralize patient health records from across the UK electronically. Sounds good, right? It could create multiple benefits to healthcare provision, research and operations (appointments, bed usage, etc.). Unfortunately, somebody should have told those responsible that internal end-user groups are key stakeholders. And while they were at it, maybe that person should have mentioned that patients – i.e. every citizen – were also stakeholders who would want to know, for one thing, how record confidentiality would be handled (seriously, I do not want you to know what happened to my big toe in May 2003).
The program was launched in 2002 and the ultimate sad last stand was in 2011. The approach was top-down, and tons of money was invested from the get-go. As the mismanagement mounted, as the implementation time went up and up, good money was thrown after bad and it cost even more than tons ($24B and still counting).
Unfortunately, looking from the top down, they didn’t consider that hospitals and health trusts vary greatly in terms of size, the populations they serve and the resources they have, including IT infrastructure, financial and human resources – and therefore would have different needs at the technology use level. As stakeholders, these users needed a vehicle for two-way communication with the project leaders, in order to identify and manage their real needs.
When the government imposed this system, they forgot to talk to the internal end-users. (Or were too arrogant?) This has been identified as a major reason for the program’s failure. In “The Blunders of our Governments,”[ii] Anthony King and Ivor Crewe explain: “Largely because the intended end-users of the scheme had been so little consulted, the various IT suppliers often had no clear idea of what they were supposed to be supplying – and in some cases merely sold the NHS whatever they happened to have on hand.” (Note that this also raises the spectre of another under-managed stakeholder, the suppliers. Let’s just say things got pretty messy on that side too.)
There was little consideration about what would be involved for integration into or replacement of the existing system in hospitals. Buy-in from internal end-users was not prioritized they became clearly “hostile” to the project. [iii] Hospital systems are complex and the stakes (human life!) are high. With requirements like that, medical professionals expect their IT systems to work. When they don’t, the users just won’t use them. Not only were the users undertrained, the systems that were installed were slow, complicated, crashed constantly and often couldn’t connect with the systems they were supposed to connect with. Not a great advertisement for connected systems.[iv][v]
Data about you is everywhere. From your banking to your social interactions to your purchasing to your… health records. Today, stories of data breaches are in the news daily, growing public awareness of the costs to both individuals and society. Even in 2002, people were aware that it might not be all good to have their health information everywhere (Did I mention my big toe?).
What didn’t go well in terms of the public as a stakeholder for the NPfIT started with a lack of information. There is little evidence that the project management leaders tried to communicate the value of an IT system for health records to the general public. Without a proper explanation, it sure can look like money diverted from the real business of providing healthcare! When did the public start really hearing about the program? It was as the project was getting into cost overruns and generally failing miserably. Rather than hearing how the project could help their health, they heard how it could hurt their wallets. The public experienced this project as taxpayers, not patients.
Good news: the NPfIT did consider the possibility that “buy-in by NHS stakeholders to investment objectives” could be a problem. [vi] Bad news: their strategy for dealing with it was exactly two bullet points within the 32-page plan. They wanted:
Unfortunately, there is no mention of how to do this. Instead, when they list stakeholders (the word appears twice in the whole document), it sounds like wishful thinking at best: “Patients will be reassured to see that staff have the high quality IT systems in place.” Or, for health professionals, “continuing personal development will be supported by a process of lifelong learning via the resources of the NHS library.” The IT project leaders didn’t communicate these beneficial wishes to the stakeholders, let alone deliver.
Digital disruption expert Michael Wade, a professor at IMD Business School, says that the public sector must change and adapt to the digital imperative, every bit as much as the private sector. The question was therefore not whether the NHS should have tried to bring the benefits of digitization, but how.
Like the private sector, the public sector needs to emphasize value creation – cost value, experience value, and platform value – for its ‘customers,’ rather than focusing on digital ‘tweaks’ to its value chain.
To successfully implement digital strategies, government organizations need to develop agility, says Wade in a paper on the public sector and the digital vortex. He identifies three key elements of agility: hyperawareness, informed decision-making and fast execution to apply to people and technology resources where and how they are needed.
“Like the private sector, the public sector needs to emphasize value creation – cost value, experience value, and platform value – for its ‘customers,’ rather than focusing on digital ‘tweaks’ to its value chain,” writes Wade.
The NHS tried to run the project with old-government tactics – top-down, not agile. What if the tools of digitization were the means to implement and communicate as well as being the end-goal? Stakeholders, especially internal end-users, felt the project was thrust upon them. Communication and rapid responses to implementation problems may have promoted critical buy-in.
There’s still some stuff in the ashes of this stakeholder management fail. The UK government’s official line is that it’s not all wasted, that the technology is still in use and being managed locally in some hospitals and health trusts. However, what that means to those with the electronic health record systems on their computers is actually this: they are locked into expensive contracts, not set to expire for years, for systems that are hard to use, incomplete and basically don’t suit their needs.[vii],[viii] Seems some lessons still haven’t been learned.
Target’s quest to launch big-time in Canada, the chain’s first expansion outside of the US, should have been a cinch. The big box retailer was a successful competitor to Walmart in the US and the brand was already known to Canadians – enthusiastic cross-border shoppers.[ix] Fanfare abounded with the opening in 2013… and two years later all 133 stores were closed, 17,600 employees were out of work, and approximately $5.4B in losses racked up as they were wrapping up shop in Q4 2014.[x] What happened? They did not prioritize stakeholders, engage or – especially – deliver.
Missed stakeholder 1: Customers
Target Canada customers expected to find lots of stuff at low prices when the stores opened. This perception was based on what the brand had communicated ahead of launch – it’s even in their slogan: “Expect more. Pay less”.[xi] What was delivered was in fact the opposite of both.
On the “pay less” side of the equation, the prices were frequently not lower than competitors. Canadians who’d been shopping at Target in the US expected the same level of discount, but pretty quickly saw that this was not the case. It is different to set up shop in Canada versus the US; the currency exchange impacts the cost of business, as do supply-chain costs. Smarter retailers adapt. J. Crew for example, reduced prices and implemented flat-fee shipping for internet shopping in order to win over Canada.
The “expect more” part of the slogan went even worse. The store was truly made a laughing stock by rounds of internet photos of empty shelves[xii] (and what was there was not the basics that bring people into stores –bread, milk – it was things like a stack of fashion-backward shirts in sizes XXXL and XS only). As the Economist pointed out, when you communicate something so explicitly that it’s your slogan, you better be ready to deliver. They compare it to the Walmart slogan: “Save money. Live better.” Similar message but vague enough to be easier to deliver on.[xiii]
As for employees – those empty shelves were just as frustrating for them; they had solutions but felt not listened to. Head Office presented this as supply chain glitches that would smooth out over time, and pointed to factors seemingly out of their control, such as unfavourable exchange rates. (Seemingly – because isn’t part of the project management job to identify challenges and address them? See note above on J. Crew’s strategy in the same conditions.) But let’s look at it from the perspective of a manager or in one of those 133 stores, standing there looking at those empty shelves. Company policy, it seems, tied their hands. How to put things on shelves was dictated from on high, through a completely inflexible planogram.
Target employees were actually not allowed to make up for missing stock with something on hand (in a manager’s own words to gawker.com: “Store Leaders would catch major crap if they chose to fill a 4 foot shelf with more pillows (that were in stock) versus leave it empty…”[xiv] Stores had no way to know if stock was coming in either, because there was no system to display inventory levels in the distribution centre. The best a store manager could do in front of an empty shelf? Hope. Overall: big communications failure with employees, who should be considered priority stakeholders.
While theory and practice support the notion that competitive performance is higher with the customer-led model, Meehan and his team found that other motivators get in the way of focus on customers.Seán Meehan, Martin Hilti Professor of Marketing and Change Management at IMD, says few executives will argue that customers don’t matter. So what happened at Target then? Research by Meehan and his team suggests that Target isn’t as unusual as you might think.
Organizations follow two basic mutually exclusive approaches. One is customer-led; the other efficiency-led.
“When we delved further into our data to understand why customer-led companies are more successful,” he explains, “We found that the organizations followed two basic mutually exclusive approaches. One is customer-led; the other efficiency-led.” That was Target.
Customer-led companies focus on customers, make an effort to understand them, and develop strong propositions to satisfy them. They also encourage a high level of employee engagement to achieve the goal of reaching customers. Note the strong link between the customer and employee stakeholder groups.
Efficiency-led companies focus on the numbers and on being lean. Meehan points out that this makes them less adaptive and responsive. When Target belatedly began to understand that the Canadian customer was not behaving as they had assumed they would, they were far, far too slow to adapt. The employees and managers in Canada knew that the stores weren’t tailored correctly for the Canadian market, but Head Office would not listen until it was too late – because employees were not a priority stakeholder within their “efficient” operational model.
Target CEO Brian Cornell said that they hadn’t been “sharp on pricing”, leading to “pricing perception issues.”[xv] Cornell’s hindsight was generally focused on the problem of “too much too fast” – referring to the simultaneous rollout of the first 124 stores at once. The company saw the initial problem as being the store locations: the gobbled-up remains of a former Canadian discounter Zellers, whose many stores were indeed at the dusty ends of 1960s strip malls.
Sure the locations, like the supply chain strategy (which really was as bad as they say) weren’t great. But the issues that arose from those factors could have been dealt with if “too much too fast” didn’t include skipping the stakeholder management steps. Target didn’t use test sites that would have enabled them to get to know, adapt to, and deliver to some key stakeholders: employees and customers.
So how do you avoid becoming the next case of stakeholder management shipwreck? Nadine B. Hack, CEO of beCause Global Consulting, who served as IMD Executive in Residence in 2011, suggests a model called Highly Relational Engagement (HRE). Her approach has worked for the likes of Coca-Cola and Unilever. HRE creates meaningful engagement across the spectrum of stakeholders.
To create Highly Relational Engagement, companies must know the capabilities, conditions and processes they need.
Nadine B. Hack, Former IMD Executive in Residence
“To create HRE, companies must know the capabilities, conditions and processes they need,” explains Hack in a Tomorrow’s Challenges article for IMD. Her approach rests on building the buy-in of key people in each stakeholder group to inspire shared goals by truly listening, building trust and determining ways to align needs. Obstacles and drivers need to be clearly defined. Obstacles need then to be dealt with honestly and directly, while drivers must be mobilized. These build “persuasion networks,” enabling any change management, crisis management or business development project to become permeated with stakeholder management.
[ii] King, A. & Crewe, I.: “The Blunders of our Governments.” Oneworld Publications, 2014
At the top of the charts
IMD's programs are ranked highly by the world's most influential business publications.