Stakeholders generate profits for shareholders

October 29, 2014

A few months ago I posted on the concept of Understanding stakeholder theory and suggested organisations that focus on providing value to stakeholders do better than those focused on short term rewards for shareholders and the associated benefits flowing to executive bonuses.

A new report: From the stockholder to the stakeholder by Arabseque Asset Management and Oxford University supports this contention.

From the Stockholder to the Stakeholder reviews existing research on environmental, social and governance (ESG) issues. It is a meta-study of over 190 different sources the authors have demonstrated a strong correlation between organizations that take ESG seriously and economic performance. For example:

  • 90% of relevant studies show that sound sustainability standards lower the cost of capital;
  • 88% of relevant studies show a positive correlation between sustainability and operational performance;
  • 80% of relevant studies show a positive correlation between sustainability and financial market performance.

However, to translate superior ESG quality into competitive advantage, sustainability must be deeply rooted in an organisation’s culture and values. The consequences of failing to take ESG seriously continues to be demonstrated by another of my regular topics, BP. The report contains a plot of oil company share prices from 2009 (pre the Deepwater horizon disaster) through to 2014. BP’s share price continues to suffer the consequences of the short sighted cost cutting that precipitated the Gulf of Mexico disaster:

BP-Price

The report concludes that it is in the best economic interests of corporate managers and investors to incorporate ESG considerations into decision-making processes starting at the governance level right down the organisation hierarchy.

The full report can be downloaded from  http://www.mosaicprojects.com.au/pdf/Stockholder_to_Stakeholder.pdf.

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Stakeholder theory – is there a place for legitimacy?

June 9, 2014

ed freemanEd Freeman, one of the people whose work had a significant influence on the development of the Stakeholder Circle® will be speaking in Melbourne tomorrow at an ACCSR event hosted by Deakin University,  an event I am really looking forward to attending!

R. Edward Freeman is described as the ‘father’ of Stakeholder theory. In his 1994 book Strategic Management: A Stakeholder Approach, Freeman identifies and models the groups which are the stakeholders of a corporation, and recommends methods by which management can give due regard to the interests of those groups. In short, Stakeholder theory addresses the key question of who really matters and the morals and values associated with managing an organisation.

The traditional view of the firm is the shareholder view.  This theory states that the shareholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them. Stakeholder theory argues that there are other parties involved, including employees, customers, suppliers, financiers, communities, governmental bodies, political groups, trade associations, and trade unions. Even competitors are sometimes counted as stakeholders – their status being derived from their capacity to affect the firm and its other stakeholders.

This wider view is central to the definition of ‘stakeholder’ included in the PMBOK® Guide and the Stakeholder Circle® methodology. The PMBOK® Guide’s definition of stakeholders is: ‘Individuals, groups or organisations who may affect, or be affected by a decision, activity or outcome of a project or perceive this to be the case’.

Whilst this definition would seem sensible, the nature of what is a stakeholder is highly contested with hundreds of definitions existing in the academic literature.  Probably the most widely accepted ‘contrary view’ is built on Mitchell’s[1] theory of stakeholder salience.  This theory derives a typology of stakeholders based on the attributes of power (the extent a party has means to impose its will in a relationship), legitimacy (socially accepted and expected structures or behaviours), and urgency (time sensitivity or criticality of the stakeholder’s claims).

Legitimacy and the traditional view that stakeholders are ‘the owners’ of an organisation are closely aligned. The implication is that some stakeholders can be ignored because they do not have a ‘legitimate right’ to be considered.  I disagree with this view and support Freeman’s wider concept.  As he point out in some of his on-line talks:

  • Do you want employees that are not committed to the success of the organisation?
  • Do you want customers who do not value your offerings?
  • Can you afford to alienate the society in which you operate?

Add to Freeman’s questions the fact that ‘non-legitimate’ stakeholders can still create major problems for an organisation through social media and other channels makes taking a wider view of stakeholders seem inevitable. Ultimately the success of an organisation depends on finding ways to align and fulfil the needs of all of its stakeholders – those that do this best are most successful.

The paradox is that investing in successful stakeholder engagement ultimately benefits the organisation’s owners. Numerous surveys have demonstrated that corporations that actively embrace ‘corporate social responsibility’ (CSR) consistently out perform those that focus on profits first. To quote Freeman: “Every business creates, and sometimes destroys, value for customers, suppliers, employees, communities and financiers. The idea that business is about maximizing profits for shareholders is outdated and doesn’t work very well, as the recent global financial crisis has taught us. The 21st Century is one of ‘Managing for Stakeholders’. The task of executives is to create as much value as possible for stakeholders without resorting to tradeoffs. Great companies endure because they manage to get stakeholder interests aligned.”

Stakeholder_Freeman

The problem with adopting the wider definition of stakeholders implicit in stakeholder theory is managing the large number of potential stakeholders it embraces. Some will be supportive, others neutral or antagonistic; some will be more important than others.  Determining who is important at this point in time (and what to do about them) requires a pragmatic methodology focused on:

  • Identifying, understanding and prioritising the current stakeholder community.
  • Determining a communication plan to affect desired changes in the attitude of important stakeholders and to maintain or enhance the attitude of the general stakeholder community (usually segmented).
  • Implementing the communication plan.
  • Regular reviews to assess the effectiveness of the communication process, update the stakeholder community, and refocus your stakeholder engagement efforts.

Dealing with the amount of data needed to implement these processes requires a rigorous methodology supported by robust tools! The Stakeholder Circle® has been designed for this purpose, the methodology is freely available.

 

[1]Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts, 1997 Mitchell, Agle, and Wood.


Defining Governance – What the Words Mean

April 21, 2014

Origins

Governance is the act of governing. Originally the province of ‘rulers’ over the last century or so, as power and authority has devolved to various types of organisation, and the influence of organisations within society has grown, the concept of governance has become increasingly important to the people entrusted with leading these organisations and to the stakeholders who own or intact with the organisation, corporation or department.

At the most basic level:

  • To govern is to rule with authority…; to direct and control the actions and affairs of others… and
  • Governance is the controlling, directing or regulating influence.

Therefore organisational governance can be defined as the system by which organisations are directed and controlled. It involves a set of relationships between an organisation’s management, its board, its shareholders and other stakeholders and provides the structure through which the objectives of the organisation are set, and the means of attaining those objectives and monitoring performance.

Project, program and portfolio (PPP) governance
PPP Governance is a sub-set of and integral to organisational governance. Using the two most common definitions of ‘corporate governance’ (corporations being one form of organisation) it is possible to drill down to a meaningful definition of PPP governance as follows:

Definition

The original definitions

1. Sir Adrian Cadbury (1992):
Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship.

2. OECD (2004 p.11):
Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring.

Converting the definitions to PPP governance:

3. Cadbury adapted to PPP governance:
PPP governance is the system by which an organisation directs and controls those aspects of its work that will be accomplished through the performance of projects or programs. Boards of directors (or their equivalent) are responsible for the governance of their organisation and for satisfying themselves that an appropriate PPP governance structure is in place. This includes understanding the organization’s strategic aims, providing the leadership to put them into effect, supervising the management of PPP and overseeing the stewardship of the resources used in PPP.

4. OECD adapted to PPP governance:
PPP governance involves a set of relationships between an organization’s board (or its equivalent), its executive management, its PPP management and other stakeholders. PPP governance also provides the structure through which the objectives of the organisation are refined, and the means of attaining those objectives and monitoring performance. Good PPP governance should provide proper incentives for management to pursue objectives that are in the interests of the organisation and its owners and should facilitate effective monitoring.

Distilling the essence of the definitions:

5. Combined elements of the adapted definitions:

  1. PPP governance is the system by which an organisation directs and controls those aspects of its work that will be accomplished through the performance of projects or programs. It involves a set of relationships between the organization’s board (or its equivalent), its executive management, its PPP management and other stakeholders.
  2. The board of directors (or their equivalent) are responsible for the governance of the organisation and for satisfying themselves that an appropriate PPP governance structure is in place.
  3. PPP governance provides the structure through which the strategic objectives of the organisation are refined and the means of attaining those objectives are implemented.
  4. PPP governance also includes understanding the organization’s strategic aims, providing the leadership to put them into effect, supervising the management of PPP, overseeing the stewardship of the resources used in PPP and monitoring performance.
  5. Good PPP governance should provide proper incentives for management to pursue objectives that are in the interests of the organisation and its owners and should facilitate effective monitoring.

6. Key components of the definitions:

  1. Creating the PPP management system including Portfolios / program / project management systems.
  2. Surveillance (PMOs etc., + accountability).
  3. Organisational support (HR, Finance, etc).
  4. Alignment with strategy to create value (primarily portfolio responsibility).
  5. Stewardship = the assignment and acceptance of responsibility for overseeing and protecting something considered worth caring for and preserving by shepherding and safeguarding the valuables of others (ie, the resources assigned by the organisation for use in PPP).
  6. Stakeholders and sustainability.

7. To derive a working PPP definition:

PPP Governance is the creation and implementation of the framework and principles by which the organization’s PPP activities are directed, supported, monitored and controlled.

Where:

  1. Framework = P + P + P management structures (see more on PDC).
  2. Principles = stewardship, sustainability, stakeholders, etc.
  3. Direction = alignment with strategic objectives, etc.
  4. Support = organisational systems, HR, finance, etc.
  5. Monitoring = surveillance, PMOs, etc (see more on surveillance).
  6. Control = tie back to organisational objectives.

Based on these definitions, in my next post the role of PPP Governance as a core component o organisational governance will be discussed.

For other posts on governance see: http://mosaicprojects.wordpress.com/category/governance/

For more Governance Papers see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov


The social dynamics of governance – Bullying and Pressure Projects

August 16, 2013

A number of current news items have highlighted the complexity and interconnectedness of governance in organisations. The blog post is going to draw together four elements – high pressure projects, bullying, the need for organisations to provide a safe workplace and the need to support people with mental illness; all of which have interconnected governance implications.

To lay the foundation for this post, the interconnected nature of governance has been discussed in our post Governance -v- Management: A Functional Perspective and is best displayed in this ‘petal diagram’

Petal Diagram Governance

The catalyst for this post are some recent changes in Australian workplace legislation that is forcing all types of organisations to consider how they manage the mental health of their paid and volunteer workforce.  In essence these codified requirements are no different to the pre-existing requirements to protect the physical wellbeing of the workforce and others interacting with the organisation, the only difference is mental heath and wellbeing are now overtly covered.

The new uniform national workplace health and safety laws require employers to ensure that workplaces are physically and mentally safe and healthy, and the work environment does not cause mental ill-health or aggravate existing conditions.  Under these harmonised laws ‘reckless conduct’ offences incur penalties of up to $3 million for corporations and $600,000 and/or 5 years jail for individuals.

 

These challenges cannot be avoided; it remains illegal to discriminate against individuals on the grounds of disability, including mental disability, in the same way it is illegal to discriminate on the grounds of age, sex, race, and religious and other beliefs.

These are not trivial issues as the  $230,000 penalty (fines and costs) awarded  by the Victorian Supreme Court against the former operator of a commercial laundry for ‘workplace abuse’ and the  reputations damage suffered by CSIRO (Australia’s premier scientific research organisation), over on-going bullying allegations demonstrate.

There is a growing awareness of psychological hazards in the workplace including bullying, harassment and fatigue; and the consequences of organisational failures in this area can extend well beyond the strict legal liabilities.  To avoid prosecution and reputational damage, organisations are increasingly being required to take proactive, preventative actions and implement a culture, reinforced by effectively implemented policies to manage these aspects of workplace health and safety. Attitudes are slow to change and creating a culture that properly respects and protects mental wellbeing will require a sustained focus at the governance levels of the organisation as well as in the day-to-day management of the work place.

The payback for good governance and effective management in this area is that organisations that promote good mental health in the workplace are seen as great places to work, and have higher levels of productivity, performance, creativity, and staff retention, and tend to financially outperform other less well governed organisations. These are very similar findings to organisations that actively support and embrace ‘Corporate Social Responsibility (CSR) – apparently the good guys finish first (not last)!!

However, managing this change is not going to be simple!  Organisations are under ever increasing pressure to adapt to a rapidly changing environment and to produce ‘more with less’ to survive. One of the key capabilities enabling quick and effective strategic change is the domain of project and program management. In response to these organisational pressures, project managers are increasingly being placed under stress to be faster, cheaper and better and to deliver the new capability or ‘thing’ in record time.  Couple this to the mistaken belief of some managers that setting ‘stretch targets’ is a way to motivate workers (even though sustained failure is known to be a major cause of stress and demotivation) and you end up with a classic governance dilemma.

Deciding how to best balance these competing demands require an overarching governance policy supported by a sympathetic implementation by management to achieve both a safe work environment and an effective management outcome.  In the absence of effective governance managers are left to sort out their own priorities and frequently are driven by short term KPIs focused on easy to measure cost and time performance criteria. In these circumstances concern for performance frequently outweighs concern for people.

These issues are compounded by the fact that far too many middle and project managers lack effective people skills and can easily drift from pushing for performance to micro management to outright bullying. The mental wellbeing risks include applying undue pressure to perform that induces stress leading to depression; as well as more overt acts of aggression and bullying. The Australian Fair Work Amendment Bill of 2013 defines workplace bullying as ‘repeated, unreasonable behaviour directed towards a worker or group of workers that creates a risk to health or safety’.

Unfortunately, at least in the Australian context, bullying is a major unreported problem. A recent survey by the University of Sydney (see the report summary) has found that workplace bullying tends to be peer-to-peer and occurs at all levels of organisations. Most incidents occur within the presence of one’s peers, including bullying in meetings and other managers are unlikely to intervene. The problem is insidious, nearly 50% of the survey respondents reported bullying in the last year, and only 16% organisation assisted the situation when the problem was reported. But, ignoring the issue is a high risk strategy.

All types of organisation need to develop focused strategies to reduce the opportunities for bullying to occur at every level from the board room table down to the shop floor; and to policies backed by procedures to deal with bullying effectively when it does occur, in ways that support the victims. Bullying is illegal, causing damage to a person’s mental health is illegal (and bullying is only one way this can occur) and failing to effectively manage the consequences of mental illness is illegal.

The ongoing damage being caused to CSIRO’s reputation by the publication of the report into bullying within the organisation demonstrates the way these problems can escalate into a major issue for the Board. The on-going publicity associated with potential litigation and prosecutions has a long way to run before the final wash up allows CSIRO to move forward with a clean slate. And, as the CSIRO report suggests, the consequences of breaking the law are likely to be a small part of the overall damage caused governance failures in this important area.

The reason this is primarily a governance issue is the challenge associated with developing a philosophy and culture that empowers management to resolve the dilemma associated with balancing commercial objectives against personal wellbeing objectives – there is no ‘right answer’.  It is all too easy for executives to decide the organisation needs a new capability, managers being tasked to deliver the required outcome with inadequate resources, and the project manager to be given an unreasonably short timeframe for delivery.  The pressure to ‘perform’ inevitably leading to increases in stress, conflict and potentially bulling. But whilst there are many questions, and decisions, there are few clear answers:

  • When does the need to perform and work extended hours slip into workplace fatigue and an unsafe work environment?
  • When does the project manager’s desire to push team members for maximum performance slip into bullying?
  • Who is responsible for creating the unsafe work environment:
    –  The PM operating at the tactical level?
    –  The managers that set the strategic objectives?
    –  The executives who created the overall environment?
    –  The ‘governors’ who failed to offer appropriate leadership?

Good management can certainly alleviate some of the symptoms, but good governance is needed to eliminate the root cause and promote mental wellbeing in the workplace. At least in Australia there are now effective laws to help and the data shows improving this aspect of an organisation is good for business, and of course excellent stakeholder management.


Defining Governance

April 4, 2013

In a previous post, we defined management; this post seeks to achieve a similar definition of governance.

Governance is the act of governing. It is the way rules are set and implemented, and relates to the way decisions are made that define expectations, grant power, and verify the performance of people within the entity being governed.

To distinguish the term governance from government, governance is what a governing body does. It might be the governing body of a geo-political entity (nation-state – typically referred to as the government), a corporate entity (typically the Board of Directors), or another type of organisation. When looking at organisations and corporations (Corporate Governance), the governing body may be the individual that owns an organisation, but more typically is a small group of people at the apex of the organisation’s hierarchy.

Sir Adrian Cadbury (2002) defined the aim of corporate governance as aligning as nearly as possible the interests of individuals, organisations and society. Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. It is the system by which business corporations are directed and controlled.

Stewardship is an important governance concept. It includes:
Fealty: A propensity to view the assets at ones command as trust for future generations rather than available for selfish exploitation.
Charity: A willingness to put the interests of others ahead of ones own.
Prudence: A commitment to safeguard the future even as one takes advantage of the present.

The governance framework, set by the governing body, specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and defines the means of attaining those objectives and of monitoring performance.

The Functions of Governance
The governance function has two key aspects; the first is deciding what the organisation should be and how it should function. These governance decisions are communicated to management for implementation and the primary outputs from this part of the governance system are:

  • The strategic objectives of the organisation framed within its mission, values and ethical framework.
  • The policy framework the organisation is expected to operate within.
  • The appointment of key managers to manage the organisation.

These aspects are best developed using a principle-based approach that recognises and encourages entrepreneurial responses from all levels of management.

The second aspect of the governance system is oversight and assurance. The governing body should pro-actively seek assurance from its management that the strategic objectives and policies are being correctly achieved or implemented. The assurance and oversight functions include:

  • Agreeing the organisations current strategic plan (in conjunction with executive management). The strategic plan describes how the strategic objectives will be achieved.
  • Suggesting or approving changes to the strategic plan to respond to changing circumstances.
  • Requiring effective assurance from management that the organisations policy framework is being adhered to.
  • Requiring effective assurance from management that the organisations resources are being used as efficiently as practical in pursuit of its strategic objectives.
  • Communicating the relevant elements of the assurances received from management to appropriate external stakeholders.
  • Assurance to the organisation’s owners the strategy and policies are being adhered to by management and the organisation as a whole.
  • Assurance to a wider stakeholder community (including regulatory authorities) the organisation is operating properly.

The role of management is the mirror image of governance:

  • Providing input to develop the strategic plan
  • Implementing the approved strategic plan within the policy guidelines set by the governing body.
  • Providing assurance to the governing body that the management structure is:
    • Operating ethically and accountably
    • Providing effective stewardship of the resources available to the organisation
  • Providing timely and accurate information on achievements and issues.

Managing the organisation and making the executive level and operational level decisions needed to implement the agreed strategy and run the organisation within the ethical and policy framework set by the governing body are the core skills and responsibility of management.

Governance and sustainability
The key challenge for the governing body is balancing the competing needs of the organisations stakeholders, including but not limited to its owners, employees, suppliers, customers and society at large, so as to align as nearly as possible the interests of each stakeholder, the organisation and ‘society’ in a sustainable way.

Tripple bottom line

The four elements of sustainability are the three depicted above plus time. The current governors of an organisation need to be cognisant of sustaining the organisation into the future and governing so that the organisation can continue as a valuable contributor to the needs of its stakeholders in the medium and long term, as well as the current short term.

The Governance of PPP
Within this overall framework, the governance of project, program and portfolio management (PPP) is simply an integral part of the overall governance process. Whilst there are specific skills and elements associated with governing PPP these are governance requirements, the responsibility of the governing body.

Similarly the management of the organisation’s portfolios, programs and projects at both the overall enterprise level and the operational level is an integral part of the management process. So whilst there are specific skills and elements associated with the overarching management of the PPP domain at the enterprise level, these are management skills, and are the responsibility of the management team. In short, Governors govern, Managers manage.

To access our other papers looking at different aspects of governance see: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov


ISO 26000, CSR and Stakeholders

January 22, 2013

Numerous studies have consistently shown that organisations that support overt corporate social responsibility (CSR) activities, either by allowing staff to participate in voluntary work or by donating to charities, or 100s of similar options for giving back to the wider community do better than organisations that do not. It is an established fact that organisations that embrace CSR have a better bottom line and more sustained growth, however, what has not been clear from the various studies is why!

Two options regularly canvassed are:

  • Because the organisation is doing well for other reasons it has the capacity to donate some of the surplus it is generating to the wider community whereas organisations that are not doing so well need to conserve all of their resources. Factor in the effect of taxation and great PR is generated at a relatively low net cost.
  • Because the organisation does ‘CSR’ it enhances its reputation and as a consequence becomes a more desirable place to work and therefore attracts better staff at lower costs and is also seen as a better organisation to ‘do business with’ and therefore attracts better long term partners and customers again at a lower cost than other forms of ‘public relations’ and advertising.

Both of these factors have a degree of truth about them and frankly, if an organisation does not seek to maximise any competitive advantage its management are failing in their duties. However, this post is going to suggest these are welcome collateral benefits and the reason CSR is associated with high performance organisations lays much deeper.

We suggest that observable CSR is a measurable symptom of ‘good governance’. The Chartered Institute of Internal Auditors define governance in the following terms:
Governance is about direction, structure, process and control, it also is about the behaviour of the people who own and represent the organisation and the relationship that the organisation has with society. Key elements of good corporate governance therefore include honesty and integrity, transparency and openness, responsibility and accountability.

Consequently, a well governed organisation will generally have a good reputation in the wider community; this is the result of the organisation’s stakeholders giving that organisation credibility and loyalty, trusting that the organisation makes decisions with the good of all stakeholders in mind. It can be summarised as the existence of a: a general attitude towards the organisation reflecting people’s opinions as to whether it is substantially ‘good’ or ‘bad’. And this attitude is connected to and impacts on the behaviour of stakeholders towards the organisation which affects the cost of doing business and ultimately the organisation’s financial performance.

Therefore, if one accepts the concept that the primary purpose of an organisation of any type is to create sustainable value for its stakeholders and that a favourable reputation is a key contributor to the organisation’s ability to create sustainable value. The importance of having a ‘favourable reputation’ becomes apparent, the reputation affects stakeholder perceptions which influence the way they interact with the business – and a favourable reputation reduces the cost of ‘doing business’.

However, whilst a well governed organisation needs, and should seek to nurture this favourable reputation, it is not possible to generate a reputation directly. The organisation’s reputation is created and exists solely within the minds of its stakeholders.

As the diagram below suggests, what is needed and how it is created work in opposite directions!

Governance-Stakeholder-Reputation1

What the organisation needs is a ‘favourable reputation’ because this influences stakeholder perceptions which in turn improve the stakeholder’s interaction with the organisation, particularly as customers or suppliers which has a demonstrated benefit on the cost of doing business. But an organisation cannot arbitrarily decide what its reputation will be.

An organisation’s ‘real reputation’ is not a function of advertising, it is a function of the opinions held by thousands, if not millions of individual stakeholders fed by all of the diverse interactions, communications, social media comments and other exchanges stakeholders have with other stakeholders. Through this process of communication and reflection the perception of a reputation is developed and stored in each individual’s mind. No two perceptions are likely to be exactly the same, but a valuable ‘weight of opinion’ will emerge for any organisation over time. The relevant group of stakeholders important to the business will determine for themselves if the organisation is substantially ‘good’ or ‘bad’. And because the sheer number of stakeholder-to-stakeholder interactions once an opinion is generally ‘held’, it is very difficult to change.

The art of governance is firstly to determine the reputation the organisation is seeking to establish, and then to create the framework within which management decisions and actions will facilitate the organisation’s interaction with its wider stakeholder community, consistent with the organisations communicated objectives.

Authenticity is critical and ‘actions speak louder than words’ – it does not matter how elegant the company policy is regarding its intention to be the organisation of choice, for people to work at, sacking 500 people to protect profits tells everyone:

  1. The organisation places short term profits ahead of people.
  2. The organisations communications are not to be trusted.

The way a valuable reputation is created is through the various actions of the organisation and the way the organisation engages with its wider stakeholder community. Experiencing these interactions create perceptions in the minds of the affected stakeholders about the organisation. These perceptions are reinforced by stakeholder-to-stakeholder communication (consistency helps), and the aggregate ‘weight’ of these perceptions generates the reputation.

The role of CSR within this overall framework is probably less important that the surveys suggest. Most telecommunication companies spend significant amounts on CSR but also have highly complex contracts that frequently end up costing their users substantial sums. Most people if they feel ‘ripped off’ are going to weight their personal pain well ahead of any positives from an observed CSR contribution and tell their friends about their ‘bad’ perception.

However, as already demonstrated, actions really do speak louder than words – most of an organisation’s reputation will be based on the actual experiences of a wide range of stakeholders and what they tell other stakeholders about their experiences and interactions. Starting at Board level with governance policies that focus on all of the key stakeholder constituencies including suppliers, customers, employees and the wider community is a start. Then backing up the policy with effective employment, surveillance and assurance systems to ensure the organisation generally ‘does good’ and treats all of its stakeholders well and you are well on the way. Then from within this base, CSR will tend to emerge naturally and if managed properly becomes the ‘icing on the cake’.

In short, genuine and sustained CSR is a symptom of good governance and a caring organisation that is simply ‘good to do business with’.

Unfortunately, the current focus on CSR will undoubtedly tempt organisations to treat CSR as just another form of advertising expenditure and if enough money is invested it may have a short term effect on the organisation’s reputation – but if it’s not genuine it won’t last.

One resource to help organisations start on the road to a sustainable culture of CSR is ISO 26000: 2010 – Social responsibility.  The Standard helps clarify what social responsibility is, helps businesses and organisations translate principles into effective actions and shares best practices relating to social responsibility. This is achieved by providing guidance on how businesses and organisations can operate in a socially responsible way which is defined as acting in an ethical and transparent way that contributes to the health and welfare of society. Figure 1 provides an overview of ISO 26000.

 

Interestingly, my view that understanding who the organisation’s stakeholders really are and engaging with them effectively is the key to success, is also seen as crucial by the standard developers! For more on stakeholder mapping see: http://www.stakeholdermapping.com

Conclusion

This has grown into a rather long post! But the message is simple: Effective CSR is a welcome symptom of an organisation that understands, and cares about its stakeholders and this type of organisation tends to be more successful than those that don’t!


The Management of Project Management

January 28, 2012

A significant gap in the current standardisation of project, program and portfolio management relates to the senior management functions necessary to effectively manage the projects and programs initiated by the organisation.

Project Management, as defined by PMI, ISO21500 and a range of other standards commences when the project is funded, and concludes on the delivery of the outputs the project was established to deliver.

Program Management focuses on the coordinated management of a number of projects to achieve benefits that would not be available if the projects were managed in isolation. Different types of program have been defined by GAPPS ranging from optimising annual budgets to maintain a capability (eg, the maintenance of a railway system) through to creating a major change in the way an organisation operates.

Processes for identifying the best projects and programs for an organisation to invest in through portfolio management and tracking benefits realisation are also well defined within the context of strategic management, but are generally not as well implemented by organisations.

Finally the overall governance of organisations and its key sub-set, project governance is recognised as essential for the long term wellbeing of the organisation.

Within this overall framework, the element not well defined, that is essential to achieving the optimum benefits from the ‘doing of projects and programs’, is the organisation’s ability to manage the management of its projects and programs.

At the overall organisational level, the management of project management includes developing and supporting the capabilities needed to provide executive oversight and leadership so that the organisation is able to undertake projects and programs effectively. This includes the organisations ability to develop and enhance its overall project management capabilities, develop project and program managers and project team members, implement appropriate methodologies, provide effective sponsorship, and achieve the benefits and value the projects and programs were set up to facilitate.

At the individual department level, the ability to manage multiple projects in an effective way is equally critical. Typically the role of a Project Director, multi-project management differs from program management in a number of key aspects:

  • There is limited correlation between the objectives of the various projects, eg a number of design and fabrication projects may each have a different external customer.
  • The function is relatively stable and permanent (programs close once their objectives are achieved).
  • The primary focus of this management function is resource optimisation, minimising conflicts and process clashes, and developing the project/program delivery capability of the department/facility.

A number of recognised roles such as the Project/Program Sponsor, project governance and PMOs contribute to the organisations ability to manage the management of its projects and programs and develop effective multi-project management capabilities, what is missing is an overall framework that supports the ongoing development of these functions to facilitate the effective governance of projects, programs and portfolios.

Peter Morris and Joana Geraldi have recently published a paper focused on ‘Managing the Institutional Context for Projects’ (Project Management Journal, Vol.42, No.6 p20-32), this paper defines three levels of project management:

Level 1 – Technical ‘project management’; the processes defined in standards such as the PMBOK® Guide and ISO21500.

Level 2 – Strategic ‘management of projects’; the overall management of the project from concept to benefits realisation, starting with identifying and validating concepts, through portfolio selection to delivery and the creation of the intended value.

Level 3 – Institutional context; developing an institutional context for projects and programs to enable them to succeed and enhance their effectiveness. The focus is on creating an environment that encourages improved levels of success in all of the organisation’s projects and programs.

The theoretical framework described in Morris’ paper covers the same concepts (but from a different viewpoint) to the technical framework of organisational entities and roles defined in our White Paper, a PPP Taxonomy (and the linked White Papers focused on specific elements of the structure), see: http://www.mosaicprojects.com.au/WhitePapers/WP1074_PPP_Taxonomy.pdf

What developing the PPP Taxonomy identified within our White Papers, and Morris highlights in his paper, is the critical need for organisations to develop an intrinsic capability to manage the overall management of projects and programs. Over the next few weeks I hope to complete two additional White Papers to start filling this gap:
The Management of Project Management – the institutional context.
Multi-project Management – the departmental context.

In the meantime, a PPP Taxonomy defines the overall project governance and control framework these two critically important elements fit within.

On reflection, many of the project and program failures identified in our earlier posts as generic ‘governance failures’ are likely to be shown to be directly caused by the absence of systems designed to ‘manage project management’, this is still a governance failure but now the root cause of some of these failures may be able to be specifically defined.

This is an emerging area of thinking, you are invited to download the White Papers and post any thoughts, comments or disagreements, as well as make use of the ideas to help improve your organisations. There’s a long way to go, at present there’s not even a clearly defined term for this aspect of project governance/management……