Critically evaluate the potential of stakeholder theory to contribute to our understanding of large-scale public service IT projects and their implementation.
Previous studies such as Gabberty and Thomas (2007) and Debrabander and Edstrom (1977) suggest that use of information systems adds value, brings productivity, improves performance, and results in enhancing the efficiency and performance of the organisation. Goulielmos (2002) argues that the use of information systems is one of the most important factors that contributes to the success of organisations in the current competitive era. Gabberty and Thomas (2007) conclude that information systems enhance the value of the organisations to their stakeholders. The role of information systems is equally vital for enhancing the efficiency of public service organisations. However, the development and implementation of information systems projects is a multifaceted process and many have witnessed failure due to a host of factors. These factors can be relevant to information technology or organisational and human aspects (Hubbard, 2008). Factors such as lack of budget, lack of co-operation among the project team, inability to appropriately define the scope of the project and lack of competent project leadership are some of the factors linked with human or organisational aspects (Lally, 2004). The issues also arise due to an inability to identify, involve and get support from stakeholders (Hubbard, 2008). According to Pellissier (2008), most of the issues linked to the organisational aspect are the result of poor stakeholder identification and management. This essay goes some way to review the key concepts of stakeholder theory in order to understand the relevance of this theory in facilitating the identification and management of stakeholders and facilitating better management of the development and implementation of information technology projects.
2. Concept of Stakeholder Theory
Detailed research work has been conducted on the concept of stakeholders over the past two decades, but this idea is frequently defined as the opposite to the stockholder or shareholder model. Various research works on the latter concept explains that shareholders have full legal claim on the function of the corporation they own (Weiss, 2003; McAdam and Leonard, 2003). According to Harrison and Freeman (1999), researchers have not yet come to an agreement on the scope of the stakeholder theory. Yet, Hillman et al (2001) assert that although general acceptance on a unified stakeholder theory has yet to become established among researchers of stakeholders, some agreement regarding the general concepts embodied in the stakeholder theory can be traced. According to the research work of Jones and Wicks (1999), four mains statements exist as the centre of stakeholder theory. These statements are, (a) the corporation has relationships with stakeholder (constituent) groups, (b) the processes and results linked with these relationships are of interest, (c) there is some value associated with the interests of all legitimate stakeholders and (d) the focal point of the stakeholder approach is on managerial decision making (Hillman et al,. 2001).
Other researchers of stakeholders define the stakeholder approach using two basic principles, which are, according to Jones et al, (2002, p.20), that managers are required to pay attention to wide range of stakeholder to perform well, and managers have certain obligations to stakeholders that comprise, but extend beyond, shareholders. In the context of the business driven perspective, according to Simmons (2004), interest in stakeholder theory lies in three premises, which are: (1) corporations have various stakeholder groups that affect and are affected by them, (2) these interactions affect specific stakeholders and the corporation and (3) viewpoints of salient stakeholders impact the viability of strategic options.
3. Purpose(s) and practice of a Stakeholder Approach
According to Vinten (2000), stakeholder theory is often considered and argued to be not workable as it suggests the sacrifice of basic business objectives of making profits for ethically acceptable but apparently economically unstable social objectives. Nevertheless, the stakeholder approach does not decline the notion of making profit as a corporate purpose; instead it widens the shareholder model. Hummels (1998) argue that the stakeholder approach acknowledges the rightful claim of stockholders but questions the concept that stockholders should be the only claimants over the interests of other legitimate claimants. The stakeholder theory seems to have been progressed in two dissimilar ways since the work of Donaldson and Preston in 1995.
The literature has mostly explored two dimensions of stakeholder theory, though Donaldson and Preston identified four ideas at the core of this theory, which are descriptive, instrumental, normative and managerial. According to the approach of instrumental theory, stakeholder management theory is considered as an instrument to accomplish expected results, primarily profitability. Jones et al. (2002) elaborates that the normative stakeholder theory recognises the moral legitimacy of the stakeholder’s right over organisational purpose. Hummels (1998) suggests that the instrumental feature of stakeholder theory can occasionally be considered primary, but the ethical or normative aspect of stakeholder theory is mostly considered critical. Clarkson (1995) claims, through adopting an instrumental approach of stakeholder theory with restrictive view, that corporations which do not incorporate the concerns of their primary stakeholders within their strategy lose on long-term survival. According to Vinten (2000), stakeholder theory does not intend to change the focus of the organisation from success in the marketplace towards human decency, but to bring out an understanding in which these objectives are connected and mutually reinforcing. Vinten (2000) call this a ‘balanced scorecard’.
The relatively poor managerial practicality is another criticism of stakeholder theory. The stakeholder approach claims that the interests of stakeholders must be watched, does not clearly demonstrate when it comes to assist the managers who concretely handle stakeholders. Nonetheless, the theory presented by Freeman is based on an inherently managerial concept (Scholl, 2001). Weiss (2003, p.30) asserts that stakeholder theory poses a challenge for shareholder concept due to its ethical aspect which maintains that:
“Profit maximisation is constrained by justice. Also, that regard for individual rights should be extended to all constituencies that have a stake in the affairs of a business, and those organisations are not simply or only ‘economic’ by nature but can and do act in socially responsible ways as members of communities.”
According to Weiss (2003) and Vinten (2000), organisations should not follow objectives purely economic in nature if the legitimacy of functioning in a society is required and be awarded with the ‘licence to operate’ that acknowledges the responsibilities of all factions involved in the operations of organisations.
Some of the major researchers on normative stakeholder theory have based their analyses on the Kantian argument that ‘the goodness of and act is the intention which motivated it’ (Punter and Gangneux, 1998, p.199). The instrumental stakeholder theory does not address the critical and vital ethical dimension that gives the normative stakeholder concept an intrinsic value by itself. Hence, some theorists have called for the development of a ‘convergent stakeholder approach’ explained as a ‘theory that is simultaneously instrumentally viable in its economic outcomes as well as morally sound in its behavioural prescriptions’ (Jones et al,. 2002, p. 28). According to Punter and Gangneux (1998), although Freeman and some authors contested this aspect, the convergent theory ventures to satisfy and fulfil the evident gap between normative and instrumental approaches. However, Scholl (2001) asserts that many core theories have influenced and supported the development of stakeholder theory, which may suggest that it is hybrid in nature with unclear parenthood.
4. Who are stakeholders?
Punter and Gangneux (1998) highlights that defining the stakeholders is the key element to explaining stakeholder theory. According to Johnson and Scholes (2002, p.206), if the stakeholders are those groups or individuals who are dependent on the corporation to accomplish their own objectives and on whom, in turn, the corporation is dependent, then the corporation has to deal with a large number of people or groups, as many groups or people depend, either directly or indirectly, on the activities of corporations. Hummels (1998) and Vinten (2000) further state that if the corporation is answerable or accountable to all of its stakeholders (including everyone) rather than to one particular constituency (shareholders), then the concept of accountability becomes insignificant and worthless as it is too generally and broadly set and is useless from the standpoint of managers.
Certainly, if the stakeholder theory can assist the managers of corporations to comprehend the links and associations of corporations with the different constituencies involved in its functions at various levels, it does not offer them with ways to understand the quality of these links and associations such as the power and bargains of the stakeholders and the forces of influence. Various theorists assert that managers are not able to assess the potential risks stakeholders may represent to the corporation’s goals (Hummels, 1998). According to Scholl (2001), the definition of stakeholders should be sufficiently comprehensive and not too general, and it should be transparent enough to shun any misinterpretations. Various stakeholder analysis tools are developed to provide a practical framework for managers, such as stakeholder moral responsibilities matrix, interest/power matrix and stakeholder mapping. Researchers including Weiss (2003) and Vinten (2000) explain that these tools assist to identify the major stakeholders and establish strategies and tactics to achieve as much as possible a win-win results.
Post, Preston and Sachs (2002) present another concept of stakeholder theory which is a comprehensive, analytical, stakeholder-based framework that comprises of three concentric circles: the industry-structure, resource-base and socio-political dimensions of a corporation’s environment. In context of the detailed examination of three companies, the writers suggest that the corporation and stakeholder association or relationships are the basic strength and resource that managers must manage, as it is considered the ultimate source of organisational wealth. Hence, in order to secure long term and sustainable growth, it is critical to institutionalise and uphold meaningful and open dialogue with major stakeholders.
Some theorists have proposed sub-categories for stakeholders to avoid giving the term ‘stakeholder’ a too broadly inclusive scope. Some authors prefer the primary/secondary stakeholder framework (e.g., Weiss, 2003, p.34) and most widely used is the external/internal stakeholder framework (Johnson and Scholes, 2002, p.200). Some favour the social and non-social stakeholder framework (Wheeler and Sillanpaa, 1998), whilst some distinguish voluntary from involuntary stakeholders (Post e al., 2002). Jones et al (2002, p.31) present another interesting viewpoint by identifying ‘intrinsic’ or definitional’ stakeholders, and instrumental stakeholders who affect the definitional stakeholders. In this context, corporations have an ethical obligation to all stakeholders, but also specific obligations to intrinsic or definitional stakeholders only.
According to Carroll (1991), commonly identified stakeholder groups include customers, employees, shareholders (owners), interest groups (or civil societies representatives), competitors, local communities, the media, government and society-at-large. Some of the stakeholders mentioned raise substantial issues in context of the value of corporation’s accountability to stakeholders, specifically the ‘notion of community and society-at-large’. Wilson (2001) explains that environment is sometimes cited as a stakeholder, but this creates difficulties in identifying a spokesperson with which to review the stakeholders’ demands, interests and concerns. He further suggests that in such cases, a corporation’s activities do not affect the constituents’ representative, but they represent the constituents because they share their concerns.
5. Relevance of stakeholder theory for large-scale public service IT projects and their implementation.
In recent years, the LASCAD project was the most noticeable of UK information systems failures. The LASCAD project involved the design of a dispatch system for the London Ambulance Service with the help of computers. The expectations from this computer-aided dispatch (CAD) system for the London Ambulance Service were to offer efficient services to the patients.
The ‘ownership’ of the system was incomplete by the majority of its users (Beynon-Davies, 1999). There was an atmosphere of system distrust, as many problems were identified with many of the systems components over the preceding months, where staff expected the information system to fail rather than willing it to succeed (Beynon-Davies, 1999).
There is need for change in a number of existing working practices to allow the satisfactory implementation of systems (Beynon-Davies, 1999). It is believed by the senior management that deployment of the system would, in itself, bring about required changes. Many staff workers and crew, in fact, treated it like a ‘strait jacket’ within which they aimed to function and operate local flexibility, which caused further confusion in this information system. Training of ambulance crew and CAC staff was inconsistent and incomplete.
The failure of the above mentioned project shows that an inability to identify stakeholders and the management of stakeholders are among the key reasons for failure. Huge investments and, in the case of LASCAD, patient lives were in threat. The stakeholder theory in all its forms brings attention to the stakeholders and provides a fundamental step towards management of these stakeholders. Though managing stakeholders and their expectations is one of the main emphasis of an information system project (Goulielmos, 2002), most of the IT/IS failure projects witnessed the common problem of the identification and management of stakeholders. The application of stakeholder theory would have helped the LASCAS management to identify the stakeholders and manage their expectations, and the gravity of the consequences resulting from unmet needs and expectations of certain major stakeholder groups.
For example, in case of LASCAD, the users of the system showed resistance, did not accurately use it and did not show “ownership” towards the system (Beynon-Davies, 1999). Hence, the use of stakeholder theory would have brought to the fore this group of stakeholders, their needs (such as training needs), insecurities and expectations of the system. According to Page, Williams and Boyd (1993) the staff lacked training were stubborn and misused the system. The users had did not show any confidence in the system and had little motivation to use the system. The application of the theory would have brought focused the attention of management on this group. As a result management could have given them proper training to use the system, minimised any insecurities by putting in place an appropriate communication system and overcome resistance from this group. In essence, the result could have been a better management of change.
The patients were major stakeholders and faced the severe consequences. A few people lost their lives due to problems and inefficient use of the system. The application of stakeholder theory would have identified these groups, their needs, and the consequences that could arise in the face of any issues with the use of the system. Managing the needs and expectations of this group would have forced the project manager to rigorously test the system before its large scale use was implemented. However, project management did not bother to test the system which resulted in the deaths of some patients.
Another information system failure in the UK was the National Offender Management Information System project (C-NOMIS). This project was designed to establish a single database unit that allows access to relevant authorities relating to the prison system to identify, categorise and deal with offenders in jail and after their release. This C-NOMIS project was initiated in 2004 and then it was abandoned in 2007. This system, which was in development phase from 2004 to 2007, provides an interesting context to analyse the failures of information system projects (NAO, 2008). The result of the prison system could have been different.
In the context of stakeholder theory, stakeholders were not correctly identified and managed poorly. According to NAO (2008), there were many researchers who were not in favour of the system due to the massive financial costs and efforts involved in the project. This disagreement was never discussed thoroughly and remained a critical element in the failure of system (NAO, 2008). Reinforcing this point of view, Lyytnen and Robey (1999) further explain that the progress of project team abilities are hampered due to the this conflict of interest, and the power and influence of certain stakeholders also plays vital role in besieging the project team abilities.
The inferior communication plan was the reason for the loss of focus of team members in various directions. The lack of collaboration with stakeholders and lack of integration of various activities caused the system to be abandoned (NAO, 2008). Zmud (1981) explains that other than technological features, there exist many other organisational factors that lead to the failure of systems, such as lack of collaboration within the team and lack of support from top management.
In summary, the use of stakeholder theory can help to better manage the development and implementation of large public service information system projects by bringing to the fore different stakeholder groups, their needs and expectations, and driving the management efforts to manage their needs and expectations. Consequently, the risk failure of the projects or issues resulting from non-IT, human and organisational aspects, particularly from the lack of involvement and management of the stakeholders, can be minimised.
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