Strategic Management

Will technology take my job away?

Will the Fourth Industrial Revolution lead to large-scale unemployment?

The Steinhoff Saga Management review - University of Stellenbosch Business School

June – December 2020

Will technology take my job away?

Will the Fourth Industrial Revolution lead to large-scale unemployment?

By Prof Martin Butler and Bertus Buys

  • DEC 2020

15 minutes to read

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When the impact of modern technologies like artificial intelligence, machine learning and robotics are discussed in a business or social context the conversation inevitably turns to the impact on employment. There are justifiable concerns that technology will lead to widespread unemployment or, at the very least, a workforce not ready for the types of opportunities provided. When technology changes the structure of economic activities some employment opportunities will be lost. This raises the question: Will this only be those jobs that are repetitive and rather simplistic, or will it have a zero net effect on formal employment?

If anything, the Fourth Industrial Revolution’s significant impact on policy and strategy is intensifying the level of conversation that, up to now, has mostly been based on anecdotal evidence or historical reference. However, there are always lessons to learn from the past. In addition, we need explorative technological forecasting based on extrapolations from the past to make sense of the future.

There are justifiable concerns that technology will lead to widespread unemployment or, at the very least, a workforce not ready for the types of opportunities provided.

Therefore, this study looked at the impact of technological innovation on employment over the long term to obtain a better picture of what the future might hold. The technological unemployment debate has split the academic world into technology pessimists and technology optimists. The pessimistic view is that innovation destroys jobs; it creates structural changes in the economy that drive unemployment in the unskilled labour market, while increasing employment in the skilled market. The optimistic view is that innovation creates a myriad of possibilities in the form of new employment, and also positively influences multiple support industries and sectors that already exist, with a net positive effect.

Technological innovation and unemployment
The media and management literature warn about the perils of technological unemployment. To move beyond the sensation-seeking statistics, it is necessary to obtain a better understanding of the types of jobs gained and lost as a result of technological innovation.

Four aspects are important when looking at the effect of technological innovation on employment. Firstly, any study about economic impact could be done at product/process level, firm level and industry level. It is of course also possible to extrapolate industry level to country or larger geographical levels. Secondly, we need to take cognisance of the multiple dimensions of innovation. Thirdly, we need a long-term lens to look at high-level correlations between technological developments and economic cycles. Finally, the types of unemployment need to be analysed to try and isolate technology induced unemployment from other large employment trends that could influence the data.

The type of unemployment depends on where the economic system finds itself on the economic supercycle, also called the K-wave pattern or Kondratieff long wave.

The literature indicates four main types of unemployment:

  • Structural unemployment: This is defined as the disparity between the jobs available in the market and the skills of the workforce.
  • Frictional unemployment: This is defined as the short-term unemployment experienced while people are looking for jobs.
  • Cyclical unemployment: This is defined as loss of work due to economic downturns.
  • Seasonal unemployment: This refers to unemployment as a result of seasonal productive activities – like those typically found in the agricultural industry.

According to early 20th century Austrian political economist Joseph Schumpeter, all types of unemployment could be ascribed to the creative destruction process. He explained that unemployment is mainly frictional; unemployment as a result of technology adoption was temporary and of a cyclical nature. In contrast, the Italian economist Pasinetti believed that structural changes in the economic system generated a technology-induced loss of employment. A global analysis of the 2008 recession indicated that job polarisation – referring to a structural change from low-skilled or unskilled labour to skilled labour – was typically concentrated during recessions which coincided with technological changes.

One of the mostly widely used theories to investigate the interdependency between technological transformation and economic activity is the Kondratieff waves introduced by Russian economist Nikolai Kondratieff in his 1925 book The major economic cycles.  The type of unemployment depends on where the economic system finds itself on the economic supercycle, also called the K-wave pattern or Kondratieff long wave.

Kondratieff Wave

During the initiation of the upswing (recovery phase), the type of unemployment should be deemed structural as there was a mismatch between the skills required and the proficiency of the labour force. When the economic system entered the prosperity phase, unemployment was reduced, leaving predominantly frictional and voluntary unemployment. As the prosperity phase progressed, the type of unemployment became technological owing to the development of process improvement innovations. At the peak of the wave, the technological innovations reached their full maturity and, in conjunction with the start of the development of new inventions, initiated the recession. In the recession phase and throughout the depression phase, the main type of unemployment is cyclical.

Technologically induced loss of employment usually arose in the later stages of recessions. Fears of such losses stemmed from the labour-saving goal of most technological innovations and were typically sparked in periods characterised by radical technological innovation.

Both pessimists and optimists agree that short-term unemployment follows in the wake of technological innovation. However, the debate about the long-term impact of technological innovation on employment continues.

Empirical studies have been conducted to determine the effects of technological innovation on unemployment. Unfortunately, most studies were undertaken at individual firm level and do not take into consideration the creation of new industries and markets brought about by radical technological innovation.

Both pessimists and optimists agree that short-term unemployment follows in the wake of technological innovation. However, the debate about the long-term impact of technological innovation on employment continues.

Taking a closer look at technological innovation
Technological innovations have an impact on society, the economy and unemployment. The innovation continuum ranges from radical to incremental. Radical technological innovation typically creates new industries and markets while incremental technological innovation improves what already exists and is usually labour-saving in nature. Radical or revolutionary technological innovation has a far more significant impact on economic activity, and therefore employment, than its incremental counterpart.

Radical or revolutionary technological innovation has a far more significant impact on economic activity, and therefore employment, than its incremental counterpart.

We also need to distinguish between product innovation and process innovation. Process innovation improves the efficiency of the production process, or processes supporting the production process. Product innovation improves existing products or creates new products for the market. In general, process innovation is deemed a driver of unemployment because it can replace human workers in the course of optimisation practices. Product innovation, on the other hand, leads to employment growth owing to a growth in the market, at the firm level.

Most studies on technological unemployment have used a microeconomic framework to determine its impact on firm level. The firm-level research and development expenditure, which serves as a proxy for technological innovation, can easily be related to a firm’s employment trends. However, a firm-level analysis limits the ability to determine the net effect of radical technological innovation on, for example, another firm in another industry, since it affects multiple levels of the economy.

Seeing the bigger picture
Part of the reason why the impact of technological innovation on employment is still unclear is the fragmentation of the studies that have been undertaken. These studies cover different geographies, levels of investigation (firm, industry, sector, or country) and time frames.

In general, process innovation is deemed a driver of unemployment because it can replace human workers in the course of optimisation practices. Product innovation, on the other hand, leads to employment growth owing to a growth in the market, at the firm level.

Very few studies are performed on a macroeconomic level, partly because it is challenging to find a suitable proxy for technological innovation and to control for co-deterministic macroeconomic factors.

This is where a systematic literature review, as an academic research method, is well suited because it can integrate the results from a large number of empirical studies. This study used a longitudinal dataset – 213 data sets from 24 primary studies – to analyse the effect of technological innovation on employment. The analysis is thus done on a larger dataset gathered by multiple researchers, across various firms and industries, and in different sections of the K-wave.

While the meta-analysis did not render significant results at a macro level, analyses at firm, process, and product levels delivered significant effect sizes with interesting results.

What did the study find?
Technological innovation creates employment at firm level. This study supports a positive correlation between technological innovation and employment, but only at firm level. It provides robust scientific evidence to counter some of the negative narratives about technological unemployment. The data required to explore the question on a macro level, and over a significantly longer period, is unfortunately still lacking.

Technological innovation creates employment at firm level.

It was also found that product innovation has a generally higher positive impact on employment than process innovation. Both product and process technology innovation lead to increased employment at firm level. Despite process innovation having a small effect size, this counters the prevailing belief that technological innovation destroys jobs.

Interestingly, the negative impact of process innovation prevalent in the current discourse is not supported by the data. Arguments that this could be unique to the Fourth Industrial Revolution due to automation do not hold true. Previous large-scale technological innovations have also led to process automation, just using different technological innovations.

At a firm level, product-based technological innovation enables not only additional employment capabilities but also strategic market benefits. Having the ability to keep up, or even outpace competitors, allows for better overall performance.

It is important to invest in the training and education of employees in order for the firm to leverage new product development without having to employ external people.

It is imperative to manage the transition of the workforce. It is important to invest in the training and education of employees in order for the firm to leverage new product development without having to employ external people. It is recommended that policymakers in countries where unemployment is a concern should consider developing supportive initiatives that could help firms to expand or establish long-term product and process innovation abilities. This includes initiatives to facilitate the transition of the workforce – from an educational and skills development perspective – to coincide with shifts in technology. The combination of these two initiatives would require the collective effort of policymakers, major industry players, and academia.

Overall, the key take-outs from this study are:

  • Technology does not destroy jobs; it shifts employment opportunities.
  • Technological development leads to various types of innovation during macro-economic cycles.
  • Process innovation does NOT lead to job losses as generally believed. In fact, the data shows it small positive effect size on job creation.
  • Unemployment is also the result of the failure to upskill people for new types of employment opportunities.

Will the robots take over your job? Not likely. But you will need to acquire new skills to stay in demand in a digital world.

  • This article is based on the MBA research assignment of Bertus Buys, with Prof Martin Butler as his research supervisor. The title of the research assignment is The robot ate my job: A longitudinal literature review of the impact of technology on employment in the last 200 years.
  • Prof Butler lectures in Digital Enterprise Management and Technology Futures at USB. He is also head of Teaching and Learning at USB.

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Equal pay for equal work: How does South Africa measure up?

Equal pay for equal work: How does South Africa measure up?

The Steinhoff Saga Management review - University of Stellenbosch Business School

June – December 2020

Equal pay for equal work: How does South Africa measure up?

Equal pay for equal work: How does South Africa measure up?

By Prof Anita Bosch and Shimon Barit

  • DEC 2020

16 minutes to read

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Mind the gap
The International Labour Organization (ILO) has had conventions for equal remuneration and non-discriminatory employment practices in place for over 60 years. Despite this, there is still a gender pay gap in industrialised countries, and an even greater one in developing countries.

South Africa has various pieces of legislation aimed at preventing gender discrimination in the workplace. Yet, the country has a stagnant median gender pay gap of between 23% and 35%. According to the ILO, the average global gap is about 20%.

South Africa has various pieces of legislation aimed at preventing gender discrimination in the workplace. Yet, the country has a stagnant median gender pay gap of between 23% and 35%.

The gender pay gap – or the difference in wages between men and women for the same type of work or work of equal value – is therefore a stumbling block in achieving gender equality in South Africa. It seems to affect women in the middle and upper wage bands the most.

This is where pay transparency – making gender differences in wages known to employees, government and the public – can force employers to remunerate fairly and equally.

The gender pay gap – or the difference in wages between men and women for the same type of work or work of equal value … seems to affect women in the middle and upper wage bands the most.

How can we increase transparency in gender pay in South Africa? What do legislators, activists, board members, trade unions, academics, and organisational leaders need to know about transparency mechanisms to support efforts in this regard? What are other countries doing about this?

This article – based on the journal article titled Gender pay transparency mechanisms: Future directions for South Africa by Prof Anita Bosch and Shimon Barit – provides guidelines that can help.

The South African pay gap picture
In Africa, South Africa is ranked first on the Africa Gender Equality Index. Globally, South Africa is ranked 19 among 149 countries on the Gender Gap Index. But the details tell a different story: South African women’s economic empowerment is troubling. When we look at household composition, we start to understand why the country’s gender wage gap deserves attention as a factor in gender equality issues.

This is where pay transparency – making gender differences in wages known to employees, government and the public – can force employers to remunerate fairly and equally.

In South Africa, around 38% of households are headed by women. Female-headed households are approximately 40% poorer than those headed by men. Also, 48% of female-headed households support extended family members compared to 23% of male-headed households doing the same. In addition, women have to handle the following: supporting children, earning less than men, coping with domestic violence (which is alarmingly high in South Africa), and struggling with access to resources to improve their lives. This means power relations are skewed in favour of men.

In South Africa, the private sector labour market is largely market-driven. When there is greater reliance on the market, the impact of pay distortions may be increased as the role of transparent criteria, as enforced through regulatory rules, is reduced.

How do other countries measure up?
To find out what the bigger picture looks like in terms of wage transparency, this study started off with internet searches for ‘gender pay gap public reporting’ and ‘gender pay gap transparency’. Additional searches were also done, and various databases were consulted.

In South Africa, around 38% of households are headed by women. Female-headed households are approximately 40% poorer than those headed by men.

Over and above South Africa, 16 countries were selected to form part of this study. Employers in these 16 countries have to adhere to some form of legislated gender wage transparency. The countries are: Canada, Australia, the Scandinavian countries, the United Kingdom (UK), and countries identified by the European Commission (EC) of the European Union. Interestingly, the USA was not included in the study as no reporting mechanism has been introduced by the Trump administration.

In these countries, the implementation of the reporting mechanisms followed one of two routes: Blanket implementation by all qualifying companies, regardless of size, from the date imposed by law, or a phased implementation.

The selection of qualifying employers determines the scope of the implementation of gender pay enforcement mechanisms. This means the nature of the selection determines how much of the workforce is included in the mechanism’s ambit. This study looked at the size of the workforce (i.e. number of employees), whether it was a private or public company (most countries do not differentiate between public and private employers), and whether the company published an annual report or not

Reporting as a transparency mechanism
Wage transparency constitutes what is known to others about wages, beyond what is known to the employer. But policies and measures to reduce gender pay gaps need to be monitored and reported on so that the world has benchmarks for comparisons and proposing a way forward.

Wage transparency constitutes what is to others about wages, beyond what is known to the employer. But policies and measures to reduce gender pay gaps need to be monitored and reported on so that the world has benchmarks for comparisons and proposing a way forward.

In this study, gender pay reports were compared in terms of reporting (report, survey, audit, etc.), the reporting period, and the report’s intended audience. For example:

  • What is being reported? In France, employers only have to publish information on the size of the gender pay gap on their website. In Denmark, reporting takes the form of information submitted to Statistics Denmark; the data is then gender-segregated and returned to the employer, and employees also have access to this information. In India, companies are mandated to compile a register of employee data, including the number of men and women employed, their remuneration, and a breakdown of the components of remuneration, but there is no obligation to report this information.
  • What is the frequency of reporting? Most companies were required to provide annual reports.
  • Who was the reporting aimed at? The study also looked at the target audience of the reporting mechanism – was it meant for an internal audience (employees) or an external audience (the company website, trade unions, regulatory bodies and/or the public)? In six of the 16 countries the reporting was public facing. In four countries, it was only available to local union representatives, while in other countries it just had to be available for inspection by government authorities.
  • What indicators or measures were used? What is actually reported on is crucial to understand the nature of the gender wage gap in a particular country. The gap may be present in only certain occupational levels or industries, or within different components of a remuneration package. One common measure reported on is the employer’s gender pay equity objectives and policies. In some countries employers have to report on the actual remuneration and bonuses paid to male and female employees, as performance bonuses and variable pay may contribute to the gender wage gap to a greater extent than base pay.
  • What happens in case of non-compliance? Non-compliance can refer to not reporting or to non-compliance with the obligation to pay women the same as men for work of equal value. Penalties in the countries studied ranged from public naming and shaming to fines.

Mechanisms currently used in South Africa
Guidance on fair remuneration is provided in the Constitution, the Promotion of Equality and Prevention of Unfair Discrimination Act (PEPUDA – promoting ‘equal pay for equal work’, saying the state has a duty to intervene in the case of unfair practices), and the Employment Equity Act (EEA). There is also the King IV Report on Good Governance, which says a company’s board must approve reports on and the implementation of its remuneration policy, which should reflect that ‘the organisation remunerates fairly, responsibly and transparently’. The King Report is mandatory for  JSE-listed companies.

A way forward
The authors of this article made a number of recommendations for South Africa to find a way forward in terms of fair pay for all genders:

In some countries employers have to report on the actual remuneration and bonuses paid to male and female employees, as performance bonuses and variable pay may contribute to the gender wage gap to a greater extent than base pay.

Firstly, make it legal. Pass laws at regional and national level that place a duty on employers to give men and women equal remuneration for the same or similar work, or work of equal value. South Africa achieved this requirement with the implementation of Section 6(4) of the Employment Equity Act. Including both public and private organisations in mandatory reporting helps to identify patterns in gender wage gaps, and can be used to formulate policies aimed at closing the gap. However, the EEA addresses mainly pay discrimination at the individual job level.

While the EEA’s Income Differential Statement (IDS) serves as a preliminary mechanism to flag inconsistencies regarding a number of intersectional wage differentials at aggregated level, the format of the data only enables national comparison in certain occupational categories. Legislation specifying the duties of employers and penalties for non-compliance, as seen in Belgium and Sweden, is the preferred method to promote pay transparency and equality. This is an area in which South Africa can improve.

Secondly, penalise non-compliant employers. Penalties for non-compliance with stipulations serve as another effective transparency mechanism. It is recommended that a financial penalty be levied for unjustifiable and stagnant gender pay gaps among the employees of the same employer – one that is sufficient to act as a deterrent to non-compliance.

Penalties in the study countries ranged from public naming and shaming to fines.

The EU’s European Commission provided a benchmark of four mechanisms that South Africa could employ:

  • Make annual pay reports available: Refine the annual reporting obligation on gender-segregated average remuneration for medium and large companies already targeted by the EEA. Reporting that is too generic, as is presently the case with the IDS in South Africa, conceals structural inequalities, leaving policymakers to apply a one-size-fits-all approach instead of targeted solutions. Gender-specific reporting covering the main infliction points in the wage distribution could inform policies to close the gap in listed companies. Acknowledge an employee’s right to query another employee’s pay: The European Commission recommended that employers regularly communicate pay report information to employees or trade unions or other representatives. This is absent in South African legislation, and should be considered. Also, employees should be educated in remuneration principles and practices in order to limit misinformed queries and ungrounded discontent and disputes. A pay report that specifically provides gender-segregated pay information could be used as a precursor to an employee’s right to request pay information. However, an employee’s right to query another employee’s pay, could be problematic in South Africa due to a person’s right to privacy and confidentiality.

Implement pay audits at the level of the employer: The key differentiator between an audit and a pay report is the analysis of pay gaps found in the former. Such analyses can help to pinpoint problems and help with the development of targeted countermeasures. Ensure that companies discuss equal gender pay during collective bargaining: It is recommended that companies discuss equal gender pay, including pay audits, during collective bargaining. The effectiveness of this measure depends on the development of collective bargaining in a specific sector. The more developed the collective bargaining structures are and the more unionised the workforce is, the easier it will be to implement this measure.

… employees should be educated in remuneration principles and practices in order to limit misinformed queries and ungrounded discontent and disputes.

Conclusion
The authors found that South Africa could strengthen legislated transparency mechanisms, especially with regard to pay reporting and pay audits. Reigniting the debate on improving the country’s legislation and interpretation of existing governance codes in relation to the implementation, monitoring and enforcement of gender pay transparency mechanisms could provide the impetus to demonstrate that South Africa sees gender equality as an achievable reality, not an improbable ideology.

  • Find the journal article here: Bosch, A., & Barit, S. (2020). Gender pay transparency mechanisms: Future directions for South Africa. South African Journal of Science, 116(3-4), Art. #6772, 6 pages.
  • Prof Anita Bosch holds the Women at Work Research Chair at the business school.

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Research Alcoholic-beverage-suppliers

Alcoholic beverage suppliers: Why service matters in a crowded market place

The Steinhoff Saga Management review - University of Stellenbosch Business School

June – December 2020

Research Alcoholic-beverage-suppliers

Alcoholic beverage suppliers: Why service matters in a crowded market place

By Ernst Gouws and Tasneem Motala

  • DEC 2020

13 minutes to read

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The importance of service quality when choosing alcoholic beverage suppliers
The alcoholic beverage industry (incorporating manufacturing, wholesaling and retailing) is a significant economic player in South Africa, contributing as much as R96.5 billion to GDP in 2015. Several international alcoholic beverage businesses have a presence in South Africa, including Heineken, Pernod Ricard and Anheuser-Busch InBev (the largest beer brewer in the world), who view the country as an important launching pad into the rest of the continent.

In a highly competitive environment, where there are several alternative suppliers to choose from, service quality really matters. Put another way, the more alternatives that alcoholic beverage resellers have, the less they will be prepared to tolerate poor service. As far as South Africa’s hospitality industry is concerned, anecdotal evidence suggests that there is often a gap between the quality of service that resellers, such as restaurants and bars, expect from their suppliers and the actual level of service that they receive. This gap  could, in turn, affect the service which the resellers deliver to their patrons (that is, end consumers).

In a highly competitive environment, where there are several alternative suppliers to choose from, service quality really matters.

In the face of fierce competition, suppliers cannot afford to concentrate only on the inherent characteristics of their product offerings; the quality of the accompanying service is often the deciding factor for buyers. Service quality can be described as the relative distance between a customer’s expectation of how the service should be performed and their perception of how it was in fact performed. Service quality is crucial for a company’s standing in the market, competitiveness and financial performance, but it is difficult to measure. A service is, after all, largely intangible and the quality thereof is often in the eye of the beholder.

A number of researchers have proposed models aimed at assessing service quality according to standardised criteria, with the Gap Model being among the most highly regarded. The Gap Model recognises that service quality lies on a perceived quality continuum, where the perceived quality is a function of the discrepancy between the expected service and the perceived service. The size of the gap, or gaps, can be quantified using the SERVQUAL instrument, which measures whether a discrepancy exists on the customer’s “expectation‒perception continuum of service quality” (ranging from unacceptable quality to ideal quality), assessed according to five different dimensions: reliability, assurance, tangibles, empathy and responsiveness (RATER dimensions). The combination of the Gap Model and the SERVQUAL instrument has won much support from researchers who are interested in measuring service quality.

Service quality is crucial for a company’s standing in the market, competitiveness and financial performance, but it is difficult to measure.

While service quality has been put under the microscope in several industry-based studies, little research has been conducted on service quality in the South African alcoholic beverage industry. This article discusses a study whose main aim was to investigate whether there is a discrepancy between reselling customers’ expectations and perceptions of the service quality delivered by alcoholic beverage suppliers in South Africa.  A secondary aim of the study was to explore the different dimensions of service quality and what customers’ actual expectations and perceptions were.

Service quality in the alcoholic beverage supply chain
Because of the multiple links in the alcoholic beverage supply chain, perceptions of quality can differ up and down the chain as needs and expectations vary. This in turn can give rise to discrepancies or gaps in perceived service quality at different points in the chain. For resellers of alcoholic beverages, service quality is a bi-directional concept – that is, the service-related expectations that they have of their suppliers are somewhat influenced by the expectations of their own end consumers who frequent their establishments. For example, if a restaurant is unable to obtain a consignment from its supplier at short notice due to an unanticipated stock-out situation, its patrons will be left disappointed.

The South African hospitality industry, perhaps more than any other industry, is designed to create happiness among consumers. Therefore, those who visit restaurants, bars, nightclubs and other hospitality-type venues often expect more from these service providers than from others.

While service quality has been put under the microscope in several industry-based studies, little research has been conducted on service quality in the South African alcoholic beverage industry.

How the study was conducted
For the empirical study, the survey method was chosen. Surveys are known for their ability to capture large amounts of data, particularly if administered online, as they can be distributed to large numbers of respondents. As the target population for the study (businesses that purchased alcoholic beverages from suppliers and resold them to patrons for on-premises consumption) was dispersed throughout South Africa, the researchers felt that an online survey would be a more efficient and practical option than interviews or focus group sessions.

A two-part SERVQUAL questionnaire was used for the survey, which compared customers’ service expectations and service perceptions. Respondents were required to rate a series of statements presented in the questionnaire relating to the five RATER dimensions (reliability, assurance, tangibles, empathy and responsiveness) on a Likert scale of opinion, ranging from Strongly Disagree (1) to Strongly Agree (5). The researchers also solicited qualitative comments from respondents. This was to acquire insights into the unique service quality issues impacting the supply of alcoholic beverages in South Africa.

Results of the study

Empirical results: Interestingly, the 60 survey respondents had varying expectations regarding service quality. Across all five dimensions, though, respondents’ expectations of service quality were higher than the perceived service quality that they received from their suppliers – clearly an undesirable state of affairs. The greatest gap between expected and perceived service quality was in the reliability dimension.

Because of the multiple links in the alcoholic beverage supply chain, perceptions of quality can differ up and down the chain as needs and expectations vary.

Qualitative results: Many respondents mentioned that their suppliers did not take the time and trouble to develop and nurture relationships with them, and that they were not sufficiently caring. Some spoke about a lack of follow-through after deals were concluded via the sales reps, infrequent or no meetings to discuss how things were going and/or areas for improvement, and even uncertainty as to who the key contact people were at the supplier. Some respondents implied that suppliers’ lack of interest in their customers’ needs and expectations stemmed from arrogance and the knowledge that they (their customers) relied on them so heavily. Respondents called for better product information and training from their suppliers, which they believed would enhance their marketing efforts and boost sales to end consumers.

When asked what would influence their choice of alcoholic beverage supplier, respondents mentioned several factors: great customer service, an interest in their brand, open communication channels, skilled and professional staff, product availability, timeous deliveries, the ability to supply urgent orders and fair pricing. The general emphasis in the responses on service, delivery and flexibility highlighted the importance of reliability when it comes to supplier choice.

No place for weak links
This study has helped to lend both structure and texture to the service quality expectation‒perception dynamic in the supply of alcoholic beverages in South Africa. With these insights, suppliers will become aware of the concerns of their customers and will be in a better position to address these concerns in practical ways. Resellers, in turn, will be able to approach their suppliers from a more informed base, with a view to negotiating a more productive and cooperative business relationship.

The study also described a useful mechanism whereby suppliers can evaluate the service quality of their own suppliers further upstream. This should make suppliers more responsive to the needs of their immediate customers, while also positively impacting the efficiency and effectiveness of the supply chain as a whole.

In a business environment that is becoming increasingly crowded with similar product offerings and competing brands, superior and innovative service is fast becoming firms’ main competitive advantage.

In a business environment that is becoming increasingly crowded with similar product offerings and competing brands, superior and innovative service is fast becoming firms’ main competitive advantage. This is very evident in the case of fast-moving consumer goods ‒ and alcoholic beverages in particular. However, in their haste to keep pace with the competition and cater to the highly coveted consumer market, firms should not overlook the critical role played by other members of the supply chain. In the competitive race, there can be no weak links.

  • Find the original article here: Gouws, E. & Motala, T. (2019). Quality of service delivered by alcoholic beverage suppliers to customers in the South African hospitality industry. African Journal of Hospitality, Tourism and Leisure, 8(3). https://www.ajhtl.com/uploads/7/1/6/3/7163688/article_8_vol_8_3__2019.pdf
  • Tasneem Motala is a senior lecturer in Operations Management at USB.

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procrastinating

How a smartphone app can help employees beat procrastinating

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2020

procrastinating

How a smartphone app can help employees beat procrastinating

By Sam Orton

  • AUG 2020

20 minutes to read

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Wasted time is wasted money

Up to one in four adults think of themselves as procrastinators. Despite the increasing prevalence of procrastination in the workplace, current interventions aimed at reducing procrastination are mostly based on traditional approaches like cognitive behaviour therapy which includes time management, learned industriousness, modelling and goal setting.

A significant amount of research has been done on the use of games in psychotherapy. As more and more people use their smartphones as gaming devices, why not explore a smartphone-based app to help people manage their procrastination habits? This is exactly what this study set out to do.

Up to one in four adults think of themselves as procrastinators.

Taking a closer look at procrastination

Procrastination is a complex phenomenon. It affects 45% of adults at some point in their lives. It is even higher among students. In one study, approximately 50% of college students regarded themselves as chronic procrastinators, while 75% considered themselves typical procrastinators, and 80% to 95% of students admitted that they procrastinate to some extent. Procrastination is also a significant indicator of ADHD.

For companies, procrastination means the loss of money due to non-productive and poor performing employees. For employees, it leads to stress, anxiety and reduced employability.

Definitions of procrastination touch on the psychological distress as a result of postponing or failing to complete a task or activity, even while knowing there would be negative consequences. This delay is voluntary or intentional and yet irrational. The reasons for procrastination include task aversion, learned helplessness, irrational beliefs, low self-efficacy, lack of persistence, and fear of failure.

There is a strong correlation between poor work performance and procrastination in those people who miss deadlines more often than non-procrastinators, make more mistakes, and work slower. This negates the misconception that procrastinators work best under pressure.

As more and more people use their smartphones as gaming devices, why not explore a smartphone-based app to help people manage their procrastination habits?

Procrastination in the workplace

Very few studies have explored procrastination in the work environment. One reason for this could be the lack of an instrument designed for dealing with procrastination in the modern-day workplace.

Different types of jobs are associated with different levels of procrastination. A variety of studies found that high-status workers experience an increased prevalence of procrastination. Self-employed professionals, like lawyers and doctors, were found to procrastinate more than white-collar workers. White-collar workers procrastinate more than blue-collar workers. Tightly supervised workers in constrained environments reported higher levels of procrastination. However, when employees perceive their jobs as meaningful they tend to procrastinate less.

Procrastination in the workplace typically leads to two types of behaviours, namely soldiering and cyberslacking. Soldiering occurs when employees avoid work-related duties to indulge in more pleasurable activities like extended coffee breaks. Avoiding work-related duties leads to low self-efficacy, which in turn results in a destructive pattern of substandard work performance. When employees are cyberslacking, they may appear to be working on their desktops, laptops or mobile devices, when they are actually checking their social media, playing games or doing online shopping.

For companies, procrastination means the loss of money due to non-productive and poor performing employees. For employees, it leads to stress, anxiety and reduced employability.

Why do people procrastinate?

Here are some of the reasons why people procrastinate in the workplace:

  • Abstract goals: People tend to procrastinate when goals are not clearly defined. For example, a goal like ‘start living healthier’ is vague, while a goal like ‘exercise on Tuesday, Thursday and Saturday, between 5 pm and 6 pm’ will more likely to lead to action
  • Rewards that are far in the future: People often procrastinate on tasks with rewards that will only materialise in the future. This phenomenon is known as temporal discounting. The award becomes less significant the further it is in the future.
  • A disconnect from our future self: People often fail to see the connection between their present and future self – a phenomenon called temporal disjunction. So they delay starting the healthy diet because they see it as their future self’s problem.
  • Optimism about the future: People procrastinate because they are confident that they will be able to complete a task sometime in the future. However, they often underestimate the amount of time it will take to complete the task. This is known as planning fallacy.
  • Indecisiveness: People often postpone tasks because they cannot prioritise or make a final decision. So they over-think the situation – a phenomenon called choice paralysis or analysis paralysis. This happens when there are too many options or when the options are too similar. The greater the impact of the decision, the harder it becomes to decide.
  • Feeling overwhelmed: People often procrastinate when they feel overwhelmed by a task. This usually happens when the task is too big or too complex.
  • Anxiety: When people feel anxious about a specific task, they tend to procrastinate. For example, people who are anxious about their finances may postpone drawing up a budget, even though the postponement will not solve their financial woes.
  • Task aversion: An example of this is when a person keep on postponing an important business call because they do not enjoy speaking to the particular individual.
  • Perfectionism: Wanting to produce high-quality work is not unreasonable. However, problems arise when people fail to complete tasks because they strive for perfection.
  • Fear of negative feedback: Sometimes people procrastinate because they are scared of being evaluated. This fear is often irrational or unjustified. At the same time, fear of negative feedback can motivate people to finish on time.
  • Fear of failure: The more important the task, the bigger the risk that it could get postponed. Low self-esteem or a lack of confidence can aggravate the fear of failure and result in continued procrastination. Yet, fear of failure can also motivate people to work harder.
  • Low self-efficacy: People who do not believe in their innate ability to complete a task successfully or to reach a goal often procrastinate.
  • Lack of control: Many people procrastinate because they cannot control the outcome of an event. People also use delay tactics when believe they will receive criticism no matter how much effort they put into a task. Individuals who are internally orientated are more inclined to complete tasks while externally orientated individuals are more inclined to procrastinate.
  • Motivation: Procratinators usually lack motivation. Lack of motivation is often a problem where motivation is extrinsic (like working for money) rather than intrinsic (feeling a sense of pride in doing a good job).
  • Laziness: Idleness refers to a basic unwillingness to make the effort to complete a task, even though a person may be fully capable of doing do.
  • Prioritising of short-term satisfaction: People often procrastinate because they prioritise their emotions and do things to feel better at that moment. This kind of procrastination is known as short-term mood repair. Students neglect assignments by watching TV, playing video games or checking their social media because it is more pleasant in the short term.

When employees perceive their jobs as meaningful they tend to procrastinate less.

The use of games in psychotherapy

The use of games in psychotherapy is well researched. Also, the popularity of smartphones as gaming devices has grown exponentially. So, why not use gamification principles to improve the outcome of smartphone-based interventions aimed at treating procrastination?

Today, gamification has come to mean “the use of game design elements in non-game contexts”. When people play games, they experience enjoyment, competence, mastery, engagement and flow – all elements of intrinsic motivation in human behaviour. The fundamental concept of gamification is to use this motivational ability of games for different reasons – not only for entertainment purposes.

In gamification, games have explicit rules. The player needs to stick to the rules to achieve a specific outcome. It is not free-form playing. Gamified applications typically include game elements such as feedback, narrative, reputation, rank, competition, explicit rules, avatars, three-dimensional environments, a marketplace and economies, teams, and time pressure.

Using games to motivate people

The motivational use of gamification is underpinned by self-determination theory (SDT). SDT explains the motivational pull of gamification, and distinguishes between two forms of motivation, namely extrinsic and intrinsic behaviour. People are extrinsically motivated when they do something for an external reward like praise or money. People are intrinsically motivated when they do an activity because it is enjoyable or exciting. Although both encourage increased performance, intrinsic motivation is also linked to better mental health, increased creativity and increased effort.

Today, gamification has come to mean “the use of game design elements in non-game contexts”. When people play games, they experience enjoyment, competence, mastery, engagement and flow – all elements of intrinsic motivation in human behaviour.

Cognitive evaluation theory (CET) is a sub-theory of SDT that explains how external stimuli affects intrinsic motivation. In terms of CET, people have three basic psychological needs – autonomy, competence and social relatedness – when performing tasks or activities. When these needs are satisfied, they promote intrinsic motivation. Autonomy refers to the psychological aspect of choice and volition to choose how and when to fulfil tasks. Psychological freedom relates to the alignment of decision making with one’s interests and values, whereas volition refers to the sense of performing a task without pressure from external sources. Competence is based on perceived effectiveness and the achievement of results. Social relatedness is the need to belong, to be cared for and to be attached to another person or to a group.

It therefore follows that intrinsic motivation will flourish when the environment encourages competence, autonomy and relatedness. Gamification can modify the work environment through the addition of game elements that promote these fundamental needs, thereby encouraging intrinsic motivation.

Goal-setting theory can also help to explain the motivational power of gamification. Goal setting emphasises the entire journey of finishing a goal as opposed to focusing only on the results. Games with goals can therefore help to reduce procrastination.

What this research set out to do

This study evaluated the relationship between gamification and procrastination by determining to what extent the integration of the motivational constructs of self-determination theory, which explains the motivational pull behind gamification, can reduce procrastination.

The study was conducted in two phases. During the initial quantitative phase, retail business unit managers were asked to complete a questionnaire to determine their procrastination levels at work. The 12 managers who showed the highest propensity to procrastinate, continued to the second qualitative phase of the study. The 12 participants were asked to use the gamified productivity app Habitica on their smartphones for four weeks. After the four weeks, semi-structured interviews were conducted to find out whether the use of app reduced their procrastination.

What did the study find?

The study confirmed the link between intrinsic motivation and procrastination. The four themes that emerged from the interviews explain the impact of game elements introduced through gamification on each of the psychological needs within the self-determination and goal-setting theories.

Theme 1: Gamification and procrastination

According to the participants, they procrastinated at work because of task aversion, lack of autonomy and the absence of motivation as they were “not allowed to deviate from their daily routine”. Examples were also given of vague goals, a lack of guidance, and the inability to prioritise.

They were excited about gamification as a possible solution to their procrastination behaviour. They experienced gamification as useful in combatting procrastination and even suggested adding mini-games to improve engagement. One participant explained that the simple act of ticking off tasks and gaining levels in the gamified environment served as sufficient distraction to make her feel less overwhelmed. The gamified system increased the participants’ perceived autonomy and enabled them to move beyond indecisiveness. After the four weeks, when participants were asked if they would continue to use the app to reduce procrastination, 75% said they would.

Theme 2: Gamification helps to reduce procrastination by increasing a sense of autonomy

The self-determination theory says autonomy is one of the basic psychological needs that underlie motivation in the workplace. Understanding how gamification can create autonomy in the workplace can lead to more effective ways to create intrinsic motivation. Higher intrinsic motivation can then be leveraged to promote engagement, task enjoyment and improved performance.

It was clear that the participants valued autonomy. Yet, they felt restricted by their companies’ systems, policies and procedures – including an online diary system that maps out their daily routines.

Gamification enhances the perception of free choice by introducing autonomy-supportive game elements that allow users to customise the particular aspect of the gamified environment or to make decisions about aesthetics or activities. Of the participants, 92% believed that the gamification of their current work systems would make them more motivated and productive.

… intrinsic motivation will flourish when the environment encourages competence, autonomy and relatedness. Gamification can modify the work environment through the addition of game elements that promote these fundamental needs.

Theme 3: Gamification promotes competence, stimulates productivity and helps with goal setting

Competence in the context of the self-determination theory refers to people’s need to feel competent within their environment. Approximately 75% of the participants indicated that the introduction of gamification elements made them feel more competent.

Leaderboards, points and levels have become synonymous with gamification. As individuals finish real-world tasks and tick off the corresponding items in the app, they earn experience points that enable them to level up within the gamified environment. The participants mentioned that earning rewards and gaining experience motivated them and made them feel more competent, regardless of working in a controlled environment. This would suggest that the autonomy-supportive elements of the game are pivotal in the work environment to ensure that competency-supportive elements yield the necessary results to promote intrinsic motivation.

The participants also commented that earning points and gaining levels made them change the way they prioritise their day. Some of the participants indicated that they normally start their day with easier tasks, which often means procrastinating on the more challenging tasks. Now the app has motivated them to start with the more challenging tasks first.

Theme 4: Gamification promotes relatedness and reduces procrastination

The final component of the self-determination theory is the need for relatedness. In the workplace, the need for relatedness is satisfied when employees feel that they are respected, valued for their contribution, and are included at all levels.

The participants indicated that they often felt isolated in their jobs because they had to maintain a professional distance between them and their subordinates. This made it difficult to develop close relationships in the work context. The gaming app allowed the participants to chat with other users in a virtual chat room, join challenges or create their own challenges. Some 58% of the participants confirmed this aspect. The participants also created a WhatsApp group among them.

The participants said that they felt social pressure to perform along with other members of the chat group, alluding to the motivational power of relatedness. The more productive they became, the less they procrastinated.

Key take-outs from the study

The findings show that gamification can indeed tame procrastination by satisfying the following psychological needs identified in the self-determination theory:

  • Autonomy: Companies often restrict autonomy through their systems, policies and procedures. Gamification provides elements like avatars and customisation options to employees that create the perception of autonomy and mitigate the lack of workplace autonomy. The study found that most of the participants felt a greater sense of autonomy despite working in non-autonomous environments. Satisfying the need for autonomy promotes intrinsic motivation and makes tasks more meaningful, which could reduce procrastination in tasks perceived as meaningless or of less value.
  • Competence: Gaming elements like levels and rewards satisfy the need for competency by providing constant positive feedback, something that is often lacking in the workplace. Gamification motivated participants by providing visual confirmation of their competence which in turn reduced procrastination. Task aversion, fear of failure, low self-efficacy and feeling overwhelmed are all causes of procrastination that can be mitigated by satisfying the need for competency.
  • Relatedness: The gamification app increased the participants’ sense of relatedness. The app allowed them to connect to peers through virtual channels. Social pressure among peers to perform well resulted in increased productivity and reduced procrastination. The hierarchical structure in the retail sector places even more emphasis on the need for relatedness and the potential usefulness of gamification. The app illustrated that the need for relatedness can be satisfied through a game.

Goal setting emphasises the entire journey of finishing a goal as opposed to focusing only on the results. Games with goals can therefore help to reduce procrastination.

The study set out to determine to what extent the integration of self-determination and goal-setting theories with a smartphone-based gamified app can reduce procrastination in the workplace. Gamification can indeed modify the work environment through the addition of game elements that encourage intrinsic motivation. This is worth exploring as a viable solution to the costly and complex problem of procrastination.

  • This article is based on the MBA research assignment of USB alumnus Samuel Joseph Charles Orton. The title of his assignment is “The relationship between procrastination and gamification”.
  • His study leader was Prof Mias de Klerk who is head of Research at USB. Prof De Klerk is a professor in Leadership and Organisational Behaviour at USB, and Director of USB’s Centre for Responsible Leadership Studies (Africa).

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multisided pure-play platforms

Multisided pure-play platforms in emerging markets: Making the most of trust, familiarity and risk

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2020

multisided pure-play platforms

Multisided pure-play platforms in emerging markets: Making the most of trust, familiarity and risk

By Marelise Carstens, Prof Marius Ungerer and Prof Gert Human

  • AUG 2020

15 minutes to read

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Why multisided pure-play platforms receive mixed reviews

For many people, the internet has become an indispensable business tool – both as a source of information on products and services and as a vehicle for e-commerce. Given the vast potential of online trading, ‘multisided pure-play platforms’ have sprung up in various parts of the world. A pure-play is a business entity that does not have a conventional bricks-and-mortar presence in a specific location. Instead, it sells products or services only via the internet. A multisided platform (MSP), such as eBay, Alibaba, Uber and Gumtree, is a form of pure-play that facilitates interactions between two or more client bases. The owner of the platform does not sell the goods or services that are for sale; it only facilitates linkages between buyers and sellers.

Starting up an MSP can be challenging. First of all, an MSP needs sellers and buyers at the outset because sellers will not offer their products for sale via the platform if they are not convinced that they have a viable market. This creates the proverbial chicken-and-egg dilemma. In addition, some buyers will simply avoid a new MSP, especially if a particular supplier only offers its product via the MSP in question, which limits buyers’ freedom to shop around for the product. MSPs are also complex businesses to run because they are technologically demanding and involve juggling relationships, i.e. individual and/or corporate buyers and sellers and the platform itself.

A multisided platform (MSP), such as eBay, Alibaba, Uber and Gumtree, is a form of pure-play that facilitates interactions between two or more client bases.

Needless to say, the online commercial environment has become extremely competitive, with MSPs under pressure to lure customers with attractive product/service features and pricing, strong credentials and exemplary service. Despite the convenience of doing business online, it is often perceived to be risky. Unable to browse the inside of a store or mingle with sales staff, online buyers need other forms of assurance that they will be making sensible purchases and dealing with people with integrity.

If MSPs wish to create a competitive advantage for themselves in a crowded online market place, they need to understand what drives consumers’ buying decisions ‒ specifically, what consumers perceive to be the risks associated with online trading and the extent to which they trust the MSP to deliver on its promises.

The interplay between risk, trust and familiarity in online purchasing behaviour

According to many authors, the two main limitations of MSP-driven e-commerce are the perceived risk of online purchasing and the low level of trust in MSPs’ ability to successfully execute online orders. In a commercial context, risk and trust are intertwined. Risk (actually perceived risk) is a function of uncertainty and the seriousness of a particular outcome. It relates to people’s perceptions about their susceptibility to various threats. Trust, on the other hand, is the extent to which one party is willing to enter into a transaction with another party, considering the apparent benefits and risks involved. Where an MSP is the online facilitator, trust would manifest in the buyer expecting or believing that both the MSP service provider and the seller will fulfil their respective obligations.

A number of studies have been conducted to understand and measure the perceptions of risk and trust in MSP-driven e-commerce. Research to date confirms that where the risk is perceived to be high, a buyer will be less likely to purchase a product or service. However, little formal research has gone into studying the relationship between perceived risk and trust in relation to MSP-driven e-commerce in emerging markets, thereby leaving a research gap. The study on which this article is based set out to close that gap. The study was particularly timely because MSPs have gained in popularity in a number of emerging markets, including South Africa, where purely online businesses that supply products or services directly to customers have not gained much traction.

Unable to browse the inside of a store or mingle with sales staff, online buyers need other forms of assurance that they will be making sensible purchases and dealing with people with integrity.

What the literature says

  • Trust. Unlike in bricks-and-mortar stores where trust is largely derived from personal, face-to-face interactions, in an online environment it is primarily linked to the transactional process, which is heavily laced with technology. Everyone approaches a purchasing opportunity from a different knowledge base and frame of reference, which in turn influences their level of trust in the opportunity presented. Personality and people’s general propensity to trust also play an important part in this.The literature provides many examples of factors that influence people’s trust in an e-commerce website. These include: ease of access to, and functionality of, the website; the quality and aesthetics of the website; a well-known brand name; certificates and third-party logos; a privacy statement regarding client information usage; and credible security features.
  • Risk. Like trust, (perceived) risk is also multidimensional and has attracted considerable research attention. Much has been written about the different dimensions of risk within a commercial context, which can be applied both in online and offline contexts. These include: performance risk (the possibility of a purchased product malfunctioning); time risk (the possibility of consumers spending too much time researching different product options or learning how a purchased product works); physical risk (the possibility of a purchased product causing harm to the user); financial risk (the possibility of a high cost being incurred in purchasing and subsequently maintaining a product); and security or privacy risk (the possibility of consumers’ personal details being used without their knowledge or consent).A comparison between the factors influencing trust and the various dimensions of perceived risk suggests that trust and risk are strongly interrelated. For example, an MSP’s failure to adhere to privacy rules would diminish consumers’ trust in that MSP and its cohort of suppliers. Other actions or occurrences that would erode a user’s trust in an e-commerce website include: unwanted/spam e-mails; unreliable information on the website; inappropriate advertising; credit card fraud; and poor quality or non-arrival of purchased products.
  • Familiarity. It has been said that familiarity is a precondition of trust. As people gain a better understanding of their environment through personal experience, their feelings of certainty decline and they have comparatively safe expectations about the future. In an online environment, some view familiarity not only as a precondition of trust but also as an ongoing contributor to consumers’ trust levels as time goes by.

The evident interlinkages among trust, risk and familiarity lend themselves to three hypotheses:

  • H1: Users’ familiarity with an MSP positively influences their trust in the MSP.
  • H2: The perceived risk associated with an MSP negatively influences users’ trust in the MSP.
  • H3: The relationship between users’ familiarity with an MSP and their trust in that MSP is moderated by the perceived risk associated with the MSP.

Interestingly, research has shown that the relationship between familiarity and trust, and the moderating effect of perceived risk on that relationship, differ significantly across different demographic groups (such as men and women, and older and younger people). Culture also impacts consumers’ risk perceptions and levels of trust.

What the empirical study revealed

The empirical study involved an online survey being conducted among a sample of 380 people (all aged 18+) who had purchased a physical product online in the previous 12 months from selected South African MSPs, namely Gumtree, Junk Mail, Bid or Buy, OLX and Locanto. Participants were asked to respond to statements relating to each of these MSPs, using a five-point Likert-type scale.

If MSPs wish to create a competitive advantage for themselves in a crowded online market place, they need to understand what drives consumers’ buying decisions.

The findings from the study confirmed:

  • The hypothetical link between users’ familiarity with an MSP and their trust in the MSP (HI).
  • The hypothetical link between the perceived risk associated with an MSP and users’ trust in the MSP (H2).
  • The hypothetical moderating influence of perceived risk on users’ familiarity with and level of trust in the MSP (H3).

Interestingly, the study revealed statistically significant differences between men and women in terms of the association between familiarity and trust. In contrast, no significant differences in this regard were revealed between younger and older users. This was surprising as it was assumed that younger users would be more familiar with, and thus more trusting of, MSPs. This warrants more in-depth research.

Unlike in bricks-and-mortar stores where trust is largely derived from personal, face-to-face interactions, in an online environment it is primarily linked to the transactional process, which is heavily laced with technology.

Strategic implications of the study

The researchers’ empirical study and the work of other authors highlight that the elements of risk, trust and familiarity all play a role in whether or not users will gravitate towards and indeed continue to use various MSPs. However, how these elements relate to and influence one another can vary from one online experience to the next. This can be challenging for MSPs that are intent on consolidating their position in the market.

What is clear, though, is that users will not trust an MSP with which they are not familiar. A key task of management, therefore, is to ensure greater familiarity through an effective marketing strategy aimed at attracting and retaining clients. Another task for management is to continually manage the trust-risk dynamic. While risk can never be completely eradicated from an online business, a good dose of trust (and familiarity) can be an effective antidote. Trust is more likely to develop if an MSP offers an easy-to-navigate website, trouble-free interactivity and reliable security features. A strong brand and reputation in the market are also important.

While risk can never be completely eradicated from an online business, a good dose of trust (and familiarity) can be an effective antidote.

Building a loyal online following takes time and often considerable investment. Taking the trouble to thoroughly understand the platform’s user base is a critical success factor, one that could give an MSP an all-important competitive edge over its competitors.

  • Find the original article here: Carstens, M., Ungerer, M. & Human, G. (2019). Perceived risk, trust and familiarity of online multisided pure-play platforms selling physical offerings in an emerging market. Southern African Business Review, 23(1). https://www.ajol.info/index.php/sabr/article/view/191155
  • Prof Marius Ungerer teaches strategic management, leadership and change management on programmes such as the MBA, the MPhil in Management Coaching and the PGDip in Leadership Development at USB. He is also an annual Visiting Professor at the NUCB Graduate School, International MBA Program, Nagoya, Japan, and a visiting faculty member of the University of Johannesburg.
  • Marelise Carstens is an MBA alumnus of USB. This study formed part of her research assignment.
  • Gert Human is professor in Entrepreneurship, Innovation & Strategic Management at Stellenbosch University, Department of Business Management, Faculty Economic and Management Sciences.

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The importance of strong corporate governance in a complex world

The importance of strong corporate governance in a complex world

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2019

The importance of strong corporate governance in a complex world

The importance of strong corporate governance in a complex world

By Hendrik Steynberg

  • DEC 2019

14 minutes to read

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It is about leadership and strong corporate governance

The world is becoming increasingly complex and interconnected, with organisations under pressure to deliver value to shareholders while also remaining accountable to society as a whole – all against the backdrop of rising competition. Moreover, many organisations are part of sophisticated supply chains, which are conduits for information, goods, services and payment flows, both locally and internationally. In such a climate, inspired leadership and strong corporate governance are paramount.

Corporate governance refers to the measures introduced and the steps taken to ensure that an organisation’s management acts in the interests of shareholders and other stakeholders, using resources effectively and adhering to the principles of transparency and accountability. Corporate governance has two primary functions: driving the organisation forward (directing performance) and exercising prudent control over the operation (controlling conformance). Together these two functions help to ensure that the organisation remains progressive and forward-looking, but operates within realistic and ethical boundaries.

Many high-profile corporate failures in recent years have put the spotlight on governance issues and raised questions about whether traditional governance rules, structures and mechanisms should be overhauled.

Many high-profile corporate failures in recent years have put the spotlight on governance issues and raised questions about whether traditional governance rules, structures and mechanisms should be overhauled. Corporate governance is typically associated with financial oversight provided by an organisation’s board of directors and the agency relationship it has with management and shareholders. However, there is a growing body of opinion that corporate governance should extend beyond the boardroom – that it should be practised by managers throughout the organisation. For example, the devolution of accountability to successive levels of management would help to improve both financial and non-financial performance, evidenced in enhanced employee morale and customer satisfaction. Having more managers involved in determining the future trajectory of the organisation and continuously monitoring progress could be both empowering and energising for the people concerned.

A more focused and energised operation, in turn, should lead to better organisational performance. By extension, supply chain performance should also improve because more managers (being accountable) will be able and willing to make a positive contribution to those aspects against which supply chain performance is measured, such as cost reduction, on-time delivery, throughput, compliance and achieving a high-performance culture.

Is there a link between corporate governance and organisational performance?

Some say that the quality of corporate governance directly affects an organisation’s performance ‒ that the design of a system of governance and its enforcement are important determinants of whether the organisation will consistently meet its objectives or, alternatively, produce erratic or insipid results. If that is the case, then strong corporate governance and effective leadership go hand in hand.

There are numerous examples of corporate governance lapses in various supply chain performance areas, which contribute to organisations’ poor results or even demise. Not only do these failures deal a blow to shareholders, employees and supply chain partners, but they are also sometimes damaging to the economy as a whole. Sadly, lapses in corporate governance (both within organisations and among supply chain partners) are often the result of unethical behaviour, such as backdating contracts, offering cash inducements to secure business deals and misrepresenting financial results.

Yet, despite the apparent evidence, the link between corporate governance and organisational performance is not clear-cut. A number of studies have failed to detect a direct relationship between corporate governance measures and performance outcomes, possibly because other factors (including an organisation’s size, financial stability and position in the market) help to cloud the issue. It is possible, for example, for an organisation to be doing well financially in the absence of a sound system of governance. In contrast, the failure to implement a proper risk management strategy, which would see an organisation pursuing opportunities in an informed manner, could negatively affect performance – even with financial controls in place.

Other studies have shown that an organisation’s strategy will influence the chosen style of governance. For example, if shareholder value is the board’s chief concern, corporate governance will be geared towards maximising profits without transgressing the law. On the other hand, if a growth strategy is the board’s main focus, less importance might be attached to rigorous corporate governance.

Sadly, lapses in corporate governance … are often the result of unethical behaviour, such as backdating contracts, offering cash inducements to secure business deals and misrepresenting financial results.

It has been suggested that corporate failures are attributable not so much to the absence of corporate governance mechanisms as to the lack of clear governance processes ‒ such as how governance is exercised in an organisation and how the outcomes are acted upon. In other words, it is not only about having the right tools; it is also about using them in the most effective way.

The purpose of the study

In the light of these uncertainties, a study was undertaken to establish the relationship between the internal control aspects of corporate governance (aimed at risk mitigation) and supply chain performance.

The study comprised a literature review and a quantitative survey conducted among a sample of 196 employees in a multinational organisation whose supply chain operation was located in South Africa. The latter was responsible for procuring and supplying materials and services to the organisation’s manufacturing plants as well as organising the logistics to transport final products to customers. The questionnaire-based survey was aimed at soliciting employees’ views about the importance and impact (either positive or negative) of the internal controls that had been implemented, below board level, on supply chain performance in the organisation.

One way of ensuring an effective governance process is to implement a governance framework which sets out the rules and parameters for exercising financial and operational oversight. To this end, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published an internal control integrated framework guide in 1992, which has been regularly updated over the years. The COSO internal control framework was introduced at the multinational organisation participating in the survey with a view to ensuring that risks threatening the achievement of organisational objectives remained at acceptable levels. The COSO framework has five dimensions, each of which comprises various elements:

(1)   The control environment (e.g. promotion of integrity, ethical values and moral behaviour);

(2)   Risk assessment (e.g. identification and mitigation of risks);

(3)   Control activities (e.g. implementation of appropriate controls to minimise supply chain risks);

(4)   Information and communication (e.g. development of an effective information system and promotion of open communication among employees and stakeholders);

(5)   Monitoring activities (e.g. regular review and strengthening of controls, and acting on results of monitoring activities).

While financial controls are vital, on their own they are unlikely to deliver the well-founded and sustainable value to which a high-performance organisation aspires.

Findings from the survey

Perceived importance of internal controls

All respondents saw great value in the organisation’s internal control framework (ICF), with control activities viewed as the most important dimension and monitoring activities as the least important dimension for strong supply chain performance, although the differences in the perceived importance of the five dimensions were in most cases marginal. When comparing the responses of those working in the supply chain function and those working in the operations business units, the only significant difference was in their views about monitoring activities: the supply chain staff attached much more importance to this dimension than the operations business unit staff.

Those elements considered to be the most important for supply chain performance were: integrity, ethical values and moral behaviour; the identification and mitigation of risks; and the implementation of appropriate controls to minimise supply chain risks.

It has been suggested that corporate failures are attributable not so much to the absence of corporate governance mechanisms as to the lack of clear governance processes ‒ such as how governance is exercised in an organisation and how the outcomes are acted upon.

Perceived impact of the implementation of internal controls

About two-thirds of respondents said that the implementation of the internal control framework (ICF) had enabled supply chain performance, while one-third of respondents said that it had not. Of the five dimensions, the implementation of control activities had, according to the respondents, had the greatest enabling effect, while the implementation of information and communication had had the least enabling effect. There was little difference in the views of the supply chain staff and the operations business unit staff regarding the implementation impact of the ICF.

In terms of supply chain performance variables, the ICF was perceived to have the greatest impact on the variable of achieving a high-performance culture and the least impact on the variables of on-time delivery and cost reduction.

Key insights

Notwithstanding the mixed views found in the literature on the link between corporate governance and organisational performance, the survey confirmed that those working in different functional units and at different occupational levels in the organisation considered corporate governance to be very important for effective supply chain performance. The fact that an internal control framework (ICF) had been implemented at the organisation appears to have given structure and clarity to the governance process, although more could be done to ensure the effective implementation of controls below board level, which would positively impact supply chain performance.

It was interesting that control activities received the highest ratings both in terms of perceived importance and impact, since a high level of control can lead to bureaucracy and a loss of efficiency. However, as certain studies have revealed, it is often poor implementation of controls at different levels of the organisation and across the various stakeholder groups, rather than the inherent nature of the control mechanisms themselves, that compromises effective supply chain performance.

Clearly, collaboration and strong communication should be the cornerstones of a corporate governance strategy, with ethical leadership providing the reinforcing structure.

Clearly, collaboration and strong communication should be the cornerstones of a corporate governance strategy, with ethical leadership providing the reinforcing structure. While financial controls are vital, on their own they are unlikely to deliver the well-founded and sustainable value to which a high-performance organisation aspires.

  • This article is based on the research assignment of Hendrik Steynberg – an MBA alumnus of USB. The title of his research assignment is: An evaluation of a governance framework implemented as an enabler of supply chain performance: Evidence from a South African multinational organisation.
  • His study leader was Prof Mias de Klerk, Professor of Leadership and Organisational Behaviour, Director: Centre for Responsible Leadership Studies (Africa) and Head of Research at USB.

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Cipla-Medpro acquisition the pre- and post-merger story

Cipla-Medpro acquisition: the pre- and post-merger story

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2019

Cipla-Medpro acquisition: the pre- and post-merger story

Cipla-Medpro acquisition the pre- and post-merger story

By Nishant Saxena and Prof Marius Ungerer

  • DEC 2019

20 minutes to read

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The appeal of the pharmaceutical market in Africa

The global pharmaceutical industry is massive, with reported annual revenues in excess of US$720 billion. As costs rise and populations age, many governments are actively promoting the use of (quality) generic pharmaceutical products, which constitute a much cheaper but nevertheless worthy alternative to the patented originator products.

With its fiscal constraints and high poverty levels, Africa constitutes a very good market for generics. The pharmaceutical market in Africa – currently valued at US$6‒7 billion ‒ is predicted to grow significantly in the coming years in view of ever-expanding populations and the relatively high prevalence of HIV/Aids-linked illnesses on the continent. South Africa’s share of this market is estimated to be US$3 billion. It is against this backdrop that Cipla India Limited, a Global Top 20 generic pharmaceutical company based in Mumbai in India, made its strategic acquisition of Medpro South Africa in 2013.

The ability of a generic pharmaceutical company to grow its business is heavily dependent on the speed with which it launches a generic drug after the patent of the originator drug expires.

This paper, which was prepared in the form of a case study, traces the circumstances leading up to the Cipla-Medpro acquisition and examines what steps the new CEO and his team took to overcome many of the integration hurdles that presented themselves in the period following the acquisition. The case study is divided into two parts. Part A covers the preparation stage and early post-acquisition challenges; Part B outlines how management tackled these challenges to put the company onto a much steadier path.

Great expectations: background to Cipla India’s acquisition of Medpro South Africa

Cipla India had been looking to make the transition from an owner-driven firm to one with a more professional corporate identity and an extended reach. International expansion was a key objective as this would enable the company to scale up its operation and make its drugs available to those in need in developing countries. Making affordable drugs accessible to the masses had been the vision of the original founder of the company (who in turn had been inspired by Ghandi’s quest to make India self-reliant in medicines) and it remained a core value throughout the company’s nearly 80-year history. Management consulting firm McKinsey was brought on board to help formulate the optimal expansion and growth strategy for Cipla India. Key criteria used in evaluating different regional alternatives were the size of the pharmaceutical market and the perceived ease of integration.

Medpro had through the years operated much like a close-knit family … Decision-making largely rested with the CEO, who relied on his instincts and experience to steer the company.

South Africa offered much promise and Medpro South Africa was viewed as an excellent potential partner. In 2013, Medpro was one of South Africa’s largest pharmaceutical companies, was listed on the JSE and already had strong ties with Cipla India. Under a 20-year supply and manufacturing agreement (which was due to expire in 2025), Medpro imported generic drugs from Cipla India and sold them in South Africa. Medpro had a solid reputation in the market, buoyed by a diverse product portfolio and an excellent reputation in the trade, particularly among pharmacies. South Africa’s proximity to the rest of Africa (which Cipla had its sights on) was also a strong drawcard.

Although Medpro had seen exponential growth in revenue since it was established in 1992, by 2012 profitability was under severe strain. The South African rand had depreciated by 50 per cent (from R6.7/US$ to R10/US$) in the space of two years, leading to much more expensive imports. As 90 per cent of Medpro’s imports were dollar-based, the company’s cost of goods shot up. However, at the time, the South African government imposed price restrictions on the industry, which saw Medpro’s gross margin and after-tax profit margin decline significantly. By the end of 2012, the company’s profit figure stood at only R30 million, against revenue for the year of R2 billion. The company was also facing some governance challenges, which led to both the CEO and CFO stepping down.

The Medpro board saw the need for a strategic partner to help restore financial stability and effective governance at the company. Cipla India looked like the optimal choice because it had a long-standing relationship with Medpro and the companies’ product lines and supply chains were well established. As Cipla India largely controlled Medpro’s cost of goods through its pricing structures, it was decided that an equity partnership/acquisition would help to stabilise Medpro’s finances in the face of severe currency fluctuations. Furthermore, by acquiring Medpro, Cipla India would avert the possibility of any hostile takeover bid for the company by a competitor, which would be likely to threaten Cipla India’s ongoing sales to Medpro. After lengthy negotiations, Cipla India’s 100 per cent acquisition of Medpro was formalised in July 2013, in a deal valued at US$450 million.

The integration plan

Cipla India decided to retain most of the original management of Medpro following the acquisition, but the CEO position needed to be filled. Following a headhunting exercise, Paul Miller was appointed. Miller had extensive experience leading multinational companies in Europe, China and South Africa and also had noted skills in managing the integration process following mergers and recalibrating the operations for growth. Before joining Medpro, he had been vice-president and managing director of the South African operation of Mylan, the world’s largest generic pharmaceutical company. As a person, Miller was described as an inspiring leader and a strategic thinker who could build effective teams, while being humble and approachable at the same time.

Cipla India assembled a six-member integration team comprising experts from its own ranks to oversee the following functions for a six-month period: finance, IT, HR, manufacturing, product portfolio and legal.

Post-acquisition headaches: the early days

In the first year after acquisition, Medpro’s revenue and profit levels were lower than expected. Even its growth rate lagged behind that of the market. The company’s disappointing performance can be attributed to the following main factors:

This was Cipla India’s largest acquisition ever … To add to the challenge, Cipla India was trying to remove the remaining traces of its entrepreneurial character in favour of a more polished corporate personality.

  • Business challenges

The ability of a generic pharmaceutical company to grow its business is heavily dependent on the speed with which it launches a generic drug after the patent of the originator drug expires. For some years, Medpro had been falling behind its competitors in submitting new products to the Medicines Control Council in South Africa. As a result, its product portfolio was ageing and newer players were aggressively discounting Medpro on pricing.

Although Medpro enjoyed excellent relationships with roughly 3 000 independent pharmacies in South Africa, corporate pharmacies like Dis-Chem and Clicks had been gaining ground and together they had acquired about 30 per cent of the market. Intent on running efficient operations and expanding their networks, these entities were tough negotiators when it came to pricing. Medpro also faced competition from these large entities’ own house brands.

As much as 25 per cent of Medpro’s turnover came from government tenders, which involved much lower prices than private-sector deals. In addition, the government’s long payment lead times (90 to 120 days) and relatively short supply contracts (two to three years) put strain on the company’s cash flow and made planning difficult.

Medpro’s factory in Durban, which had cost the company R400 million since 2007, was using only 20 per cent of its capacity. Clearly, local manufacturing was not a core part of the business, possibly owing to a lack of specialised skills to turn the facility into a productive source of value.

Medpro was short of cash. The limited growth potential of an ageing product portfolio, low margins generated by its government tender business, rising costs due to inflation and a depreciating currency, and an underperforming factory all conspired to stifle revenue. Medpro’s loan of R300 million before the acquisition had ballooned to nearly twice that figure, adding to the company’s interest payment burden.

At the heart of the strategic turnaround plan was the need to align the Indian parent company and the South African subsidiary in such a way that their cultural identities would become seamlessly intertwined.

  • Regulatory challenges

In 2013, the Medicines Control Council tightened its rules for the submission of new products. An extended timeline for registrations was particularly problematic as Medpro had submitted very few products in the preceding few years (making catch-up difficult) and so the company ran the risk of being marginalised by more active industry players.

Cipla India, owing to its exposure to the US Food and Drug Administration (FDA) and World Health Organization (WHO), put a strong emphasis on quality assurance at Medpro and substantially increased the human resources component in the quality assurance department. Although this was a sensible move in the long run, there were initially some stock-out problems and product release delays.

  • Economic and political challenges

While the rand had depreciated sharply during the two years prior to the acquisition, it lost another 30 per cent of its value (for various economic and political reasons) in the year following the acquisition. This prompted serious questions about Medpro’s ongoing profitability and even the rationale for the acquisition. While the cost of goods was going up, prices needed to withstand rising competition from local (less import-dependent) suppliers.

  • Cultural challenges

Despite their evident synergies, Cipla India and Medpro turned out to have very different business cultures. Medpro had through the years operated much like a close-knit family. Loyalty and strong performance were generously rewarded by an indulgent CEO, and expensive sales conferences in far-off locations were commonplace. Decision-making largely rested with the CEO, who relied on his instincts and experience to steer the company. Everyone worked in silos and there was little cross-functional exposure or consultation. Medpro focused, much as a start-up would, on growth, but neglected to invest in streamlined processes and systems, supported by appropriate technologies. This had compromised efficiency. In keeping with Medpro’s laissez-faire business culture, employees’ performance was largely gauged through qualitative assessments. Some employees complained of a lack of fairness and equity in this regard and also that insufficient attention was given to preparing them for long-term careers.

Cipla India, in contrast, was much more structured in its business approach and more frugal in its spending habits. Sales conferences, for example, were practically non-existent. The new CEO of Medpro, Paul Miller, brought a much stronger sense of discipline to the company, stressing the importance of systematic analysis and transparent governance. He also believed firmly in consultation and well-informed, consultative decision-making. The latter proved to be alien to the Medpro employees, with some bemoaning the fact that seemingly endless round-robins and strategy sessions were slowing decision-making at the company. Cipla India added its own layer of governance requirements to the mix. In the face of sudden and sometimes dramatic change, ‘us’ and ‘them’ camps started to emerge.

This was Cipla India’s largest acquisition ever – and so it could not afford to fail. Yet there was a general lack of experience in running operations outside India. To add to the challenge, Cipla India was trying to remove the remaining traces of its entrepreneurial character in favour of a more polished corporate personality. At the end of its six-month stint, the integration team concluded that most of the ‘hard deliverables’ (such as financial and manufacturing systems alignment) were in place. However, the ‘soft deliverables’ (particularly the merging of business cultures) still needed attention. The feedback from the newly acquired entity in South Africa was less favourable, with some people claiming that the level of trust between the Indian parent and the South African operation had deteriorated.

Although the new CEO focused heavily on overhauling the operation and boosting revenues, he continued to promote the Cipla ideology of working hard and working ‘smart’ in order to make a difference in patients’ lives.

By July 2014, the problems gripping the company – both of an internal and external nature – painted a very worrying picture. In the face of Medpro’s poor financial results and dwindling market share, the global leadership even contemplated selling the asset. Could Paul Miller confront the myriad problems head on and turn the company’s fortunes around?

Fast forward to 2017: from vision to action

By April 2017, Cipla-Medpro South Africa was in a far healthier state than it had been three years earlier. Paul Miller had implemented a bold turnaround plan, tackling the many obstacles that lay strewn in the company’s path and crafting a more robust operation with strong potential for growth. Cipla-Medpro South Africa had become one of the fastest-growing and most profitable pharmaceutical companies in the country, turnover had doubled and ROIC (return on invested capital) had more than doubled since 2014. Overall, business performance was well ahead of that projected at the time of the acquisition and staff morale was high. The Cipla parent company had also given the South African team the responsibility for the whole sub-Saharan African region, thereby boosting its global turnover.

This almost unprecedented turnaround can largely be attributed to Paul Miller’s clearly articulated vision for the company and his unwavering commitment to make the company the best it could be. Although the new CEO focused heavily on overhauling the operation and boosting revenues, he continued to promote the Cipla ideology of working hard and working ‘smart’ in order to make a difference in patients’ lives. Having taken a candid look at what had gone wrong at the company, Miller and his management team formulated a new strategic plan to rejuvenate the business. The strategic plan had four focus areas:

  • Strategic focus area 1: innovation and growth

Much effort went into fixing the fundamentals in the business, which included analysing existing brands, products, pricing and customers in order to optimise their value and expose new opportunities. A number of key brands were given special attention, evidenced in new packaging, bolder promotion and keener pricing, as well as doctor education to drive awareness and acceptance. Greater emphasis was also placed on new product development and submissions to the Medicines Control Council and the forging of new alliances with pharmaceutical entities in South Africa to expand Cipla-Medpro South Africa’s marketing and sales reach.

 

  • Strategic focus area 2: operational efficiencies

Relentless cost control was one of the pillars of the rejuvenated operation. Among the strategies implemented were: a freeze in staff numbers for two years and the redeployment of selected staff members to high-growth areas; more rigorous cost control in raw material purchases and overhead structures; better inventory management; and improved payment terms from government and other key clients. A significant milestone was the dramatic increase in factory utilisation from 20 per cent to 90 per cent. The factory also became a green operation.

  • Strategic focus area 3: leadership and culture

The appointment of Paul Miller proved to be pivotal to the company’s operational and financial transformation. Another sound strategic move was the appointment of Indian expats to the key positions of heads of Finance and Manufacturing, respectively, to improve global engagement. The highly structured and consultative decision-making style was retained, with monthly governance sessions instituted, at which executives would brainstorm ways to enhance the business operation and solve problems.

The Cipla-Medpro South Africa story offers important insights into how even the most difficult international merger/acquisition can be pulled off if there is talented and committed leadership, supported by a clear vision.

Performance management was given a shot in the arm with the introduction of the DNA (Develop, Nurture, Achieve) model which set out measurable goals each year for the CEO, in consultation with Cipla India. These goals were then devolved to all levels of staff in the company. In addition, salary increases and annual bonuses were linked to performance, and career development and succession planning were prioritised.

  • Strategic focus area 4: ‘One Cipla’

At the heart of the strategic turnaround plan was the need to align the Indian parent company and the South African subsidiary in such a way that their cultural identities would become seamlessly intertwined. ‘One Cipla’ was the new mantra. What helped the process were regular interactions between the Mumbai- and South Africa-based employees, the standardisation of HR policies and the adoption of some of the most successful practices from the two legacy businesses. For example, Cipla India introduced the sales conference concept among its sales force and also adapted some of Medpro’s social responsibility initiatives for its own purposes.

Final thoughts

The Cipla-Medpro South Africa story offers important insights into how even the most difficult international merger/acquisition can be pulled off if there is talented and committed leadership, supported by a clear vision. Yet no company, least of all in South Africa, can afford to become complacent. The external environment is in constant motion, with new and unexpected pressures frequently upsetting the status quo. Vigilance and adaptability are essential for success. Cipla-Medpro South Africa would be wise, therefore, to keep its feet on the ground as it continues to reach for the stars.

  • Find the original journal article here: Saxena, N. & Ungerer, M. (2019). Cipla-Medpro acquisition: the pre- and post-merger story. Emerald Emerging Markets Case Studies, 9(1), 1-42. https://doi.org/10.1108/EEMCS-12-2017-0260
  • Nishant Saxena is the global chief strategy officer at Cipla Ltd, Mumbai, Maharashtra, India.
  • Prof Marius Ungerer teaches strategic management, leadership and change management on programmes such as the MBA, the MPhil in Management Coaching, and the PGDip in Leadership Development at USB. He is also an annual Visiting Professor at the NUCB Graduate School, International MBA Program, Nagoya, Japan, and a visiting faculty member of the University of Johannesburg.

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Structural resilience: the future of organisational structure in South Africa, 2030 and beyond

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

Structural resilience: the future of organisational structure in South Africa, 2030 and beyond

By Deidre Samson

  • JUN 2019
  • Tags Reports, Management

18 minutes to read

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The future has arrived

Organisations all over the world are under increasing pressure to adapt to a rapidly changing environment – one in which technology is the new currency and innovation is a major driver of business success. Some would like to believe that the promised upheavals associated with massive technological change are still some way off. However, the future is already here. Encroaching automation, Artificial Intelligence (AI), the Internet of Things (IoT) and other innovations are changing the business landscape, both in South Africa and in the markets with which it does business. There is no time to wait to become technologically savvy, using innovation to craft new competitive advantages. Waiting will simply increase an organisation’s chances of becoming irrelevant in the foreseeable future.

In the face of changing market expectations and surging competition, many organisations are rethinking their fundamental purpose, strategic intent and operational design, since failing to do so will threaten their very viability. Too many organisations go through painful rounds of restructuring in response to external ‘shocks’, deeply impacting employee motivation and commitment.

‘There is no time to wait to become technologically savvy, using innovation to craft new competitive advantages. Waiting will simply increase an organisation’s chances of becoming irrelevant in the foreseeable future.’

Traditional business models with hierarchical structures are giving way to flatter, more organic working arrangements which rely less on authority figures allocating work to subordinates and more on collaborative networks, with team members sharing their varied expertise in the completion of the tasks at hand. More and more people are working remotely according to flexible schedules, connected via mobile platforms. All these things are challenging conventional management theory and practice. Even employment contracts are becoming more informal and more project-based (in line with the ‘gig’ economy). However, this changing dynamic should not be at the expense of productivity and the quality of outputs at the end of the day.

The changing business environment is not only the product of exogenous factors, such as shifting power relations in the world, a country’s economic ups and downs and political orientation, the technologies the country imports or is exposed to, the spread of the mobile culture, and so on. It is also the result of endogenous factors, including the demographics of the workforce and how workers relate to an organisation’s mission and goals, to the concepts of authority and responsibility, and to their peers. In today’s climate of free expression via social media and rising populism, people at all levels of society are finding their voice. But in an organisational context, these voices need to be effectively harnessed and channelled in ways that produce rich debate and bold solutions to problems and challenges, not dissent.

The primary purpose of this study was to determine what organisations could and should look like in South Africa by 2030. It also set out a thesis that structure should be pro-actively morphed over time with ongoing learning processes mitigating the new skills challenges faced by organisations. The study – which was qualitative in nature, with much gleaned from an extensive literature review – also explored the practical steps that organisations could take in making an effective transition into the future. The year 2030 is significant because it is the time horizon given in South Africa’s National Development Plan as well as the target date featuring in a number of economic blueprints produced by international bodies such as the World Economic Forum.

‘In today’s climate of free expression via social media and rising populism, people at all levels of society are finding their voice. But in an organisational context, these voices need to be effectively harnessed and channelled in ways that produce rich debate and bold solutions to problems and challenges, not dissent.’

Disruptive technologies driving change

Clearly, the future of work and the future of organisations are intertwined with the technological revolution that the world is caught up in. While the word ‘revolution’ has a dramatic ring to it, it can be argued that the speed with which technological changes are occurring is indeed dramatic – certainly when compared with the more measured, evolutionary changes that characterised the 20th century. Building on its predecessor, the Third Industrial Revolution (which saw the emergence of information technology and mass automation, and the rise of truly global companies), the Fourth Industrial Revolution is pushing the boundaries into exciting, but nevertheless daunting, new territory.

The Fourth Industrial Revolution can be described as a melting pot of technologies which are softening the contours of the physical, digital and biological worlds. Things are happening increasingly in a networked, rather than a linear, fashion, which helps to explain today’s global connectedness and the speed with which transactions and other forms of engagement are taking place.

Artificial Intelligence (AI), robotics and the Internet of Things (IoT) are three innovation fields associated with the Fourth Industrial Revolution that need to be on companies’ radar screens. Not only are they changing the competitive environment, including what consumers expect in the way of product and service offerings, but they are creating new job opportunities while eroding more traditional ones. The fact that tasks powered by AI, robotics and other advanced applications are often more efficient and cost-effective than those performed by humans is a key factor contributing to job displacement.

Whereas robots are typically seen as replacements for humans performing routine, repetitive work, they are now moving into more sophisticated job categories which require intelligent reasoning and discretionary decision-making.’

Artificial Intelligence (AI) has been defined as ‘the broad collection of technologies such as computer vision, language processing, robotics, robotic process automation and virtual agents that are able to mimic cognitive human functions’. Drones, autonomous vehicles, facial and voice recognition and virtual reality all depend on AI. AI has the ability to process and make sense of huge quantities of data in real time, which has enormous implications for the speed and quality of organisational decision-making. Equally intriguing is its capacity for self-learning.

Whereas robots are typically seen as replacements for humans performing routine, repetitive work, they are now moving into more sophisticated job categories which require intelligent reasoning and discretionary decision-making. Using Artificial Intelligence, robots are developing an increasing capacity for self-learning, which means that more job categories could be at risk than previously thought. Stories abound of machines teaching themselves (without human intervention) how to perform certain tasks after a short period of self-tuition. Robotic chess players, for example, have been known to beat their highly experienced human opponents after simply studying the rules of the game.

The Internet of Things (IoT) is another innovation which will play an increasingly valuable role in business, notably in the areas of production, supply chains and logistics. IoT works on the basis that general items (from clothing to pharmaceuticals to palletised cargo) have on-board sensors which allow them to be monitored in real time (stock levels, position in the logistics chain, etc.) with the help of high-speed broadband networks. Decision-making in the areas of production and logistics may also be automated through predictive analytics, which could enhance accuracy and free people up to focus on other priorities.

‘In a country like South Africa, which faces record-high unemployment figures and unacceptably high levels of inequality, some (particularly in government) view the disruptive forces of the Fourth Industrial Revolution as posing a threat to social stability as it will widen the digital divide.’

Clearly, the rules of the game are changing for producers, marketers and consumers. The thought that billions of people are connected via mobile devices and have practically limitless access to information sounds like a dream come true for many companies, particularly those with limited resources. Technology can streamline business operations by automating processes, while digitalisation can filter and lend order to large quantities of otherwise unmanageable data. But many potential obstacles stand in the way of companies’ technological goals – high levels of competition from more nimble players in the marketplace, financial constraints, a lack of suitable knowledge and skills, an inflexible business model which makes adaptation difficult and costly, a poor policy environment, and other factors. Even for strong proponents of a more technology-rich and digitalised world, the impact on jobs remains a concern. A key challenge is to build a culture of adaptation with employees pro-actively open to learning new skills required by the organisation, as an alternative to displacement and retrenchment.

In a country like South Africa, which faces record-high unemployment figures and unacceptably high levels of inequality, some (particularly in government) view the disruptive forces of the Fourth Industrial Revolution as posing a threat to social stability as it will widen the digital divide and drive a deeper wedge between the ‘haves’ and the ‘have-nots’. Many traditional job categories in the manufacturing and service sectors (from machine operators to call centre staff, and even those in the financial services and legal fields) will fall away in the face of rising automation. How governments use their policy space to encourage innovation and competitiveness without sacrificing too many jobs along the way, will be of critical importance in the years ahead. Similarly, the way in which companies adapt their business models and configure work streams to attract the best talent and be more technology savvy and market responsive, will determine whether they will be able to sustainably leverage the forces of swift and unpredictable change.

How advancing technologies are impacting jobs

As the Fourth Industrial Revolution gains momentum, company strategies will need to achieve the optimal balance between efficiency and innovation, on the one hand, and job retention and/or growth, on the other. The potential for automation is of particular concern to people today because it could result in job displacement. For example, the advent of the Uber app-driven service has displaced the service provided by many conventional taxi drivers whose value offering does not measure up. In time, Uber drivers themselves could face redundancy if driverless vehicles become mainstream. Interestingly, tradespeople like electricians and plumbers are likely to keep their jobs since they involve complex analysis and problem-solving. Trying to develop the technology to replicate the diagnostics that goes into an electrician’s or plumber’s work would be excessively expensive. Structural resilience – ‘the ability of an organisation to proactively anticipate and adapt to its environment, adopt new ways of working including structural forms that would enable it to accelerate and sustain strategic execution’ –  it is posited, is a crucial capability to be developed and implemented for future success. This capability will also require support divisions such as Human Resources to rethink their role as many of the people executing an organisation’s strategy will not be found on a traditional organisation chart but will be acting from positions as independent contractors, insourced service providers or ‘gig economy’ participants.

‘Tall hierarchies (and even physical premises in some cases) are yielding to more extended relationship-driven working environments, where the ability to cope with change as well as the adoption of innovative strategies in production, marketing and talent management are the keys to long-term success and sustainability. ’

Implications of a changing world for organisational structure

Some of the questions swirling around in strategic management circles today are: How do you harness the creative power of people freed (by machines) from the enslavement created by routine, repetitive, often manual work? How do you structure an enterprise to be agile, capable and innovative, responding presciently as the world changes around it? How do you maintain and sustain competitive advantage in a world of accelerated change?

Clearly, the notion of organisational structure has become enmeshed with organisational culture and the management of human capital. Tall hierarchies (and even physical premises in some cases) are yielding to more extended relationship-driven working environments, where the ability to cope with change as well as the adoption of innovative strategies in production, marketing and talent management are the keys to long-term success and sustainability.

The gig economy, though popular among growing bands of younger professionals and freelancers who are looking for flexibility and the opportunity to be part of creative teams, is creating challenges for organisations. It can be difficult to manage people at a distance, some of whom may reside in distant locations. Forging a common sense of purpose and work culture, especially when a project has a relatively short duration, can be difficult. Yet it is the way the business environment is going. Provided workers’ needs can be catered for, the gig economy can also deliver significant cost savings (e.g. in the form of overheads) to organisations and get the best out of talented, motivated people.

‘If carefully designed, jobs in today’s technology-driven climate could give workers the wings they need to fly. This is important as competitiveness today depends as much on organisations being innovative as being efficient.’

Project management skills are becoming an essential tool in a manager’s toolkit, as is the ability to nurture talent through continual learning opportunities and steady mentorship. If carefully designed, jobs in today’s technology-driven climate could give workers the wings they need to fly. This is important as competitiveness today depends as much on organisations being innovative as being efficient.

Ultimately, an organisation needs to be resilient but also have ‘structural integrity’ which, in simple terms, means that it must be ‘fit for purpose’. Technology can be an important foundation in this regard, but achieving such integrity – being able to pull all the pieces together and put them to work in the most efficient manner – is an art, which few machines will be able to replicate. Technology and Ways of Working should be integral parts of any model of organisation design, such as the Galbraith Star. New, innovative forms of structure should be considered to address some of the challenges experienced with traditional structures such as the matrix. The role of management also needs to undergo serious change in a world of digital connection which may expand spans of control and include linkages with people who cannot be managed in a traditional ‘command and control’ sense.

  • This article is based on the research assignment of Deidre Samson – an MPhil in Futures Studies graduate from the University of Stellenbosch Business School. She was the Top Achiever in her class in 2018. Her study leader was Prof André Roux, programme head of USB’s portfolio of Futures Studies programme. Prof Roux lectures in Management Economics and Africa Country Risk Analysis at USB.

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Brand engagement: What are your employees saying about your firm on social media?

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

Brand engagement: What are your employees saying about your firm on social media?

By Christine S. Pitt, Prof Elsamari Botha, João J. Ferreira and Jan Kietzmann

  • June 2019
  • Tags Strategic Management

16 minutes to read

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What can managers learn from their employees’ comments on social media?

Brands and people are regarded as highly valuable assets of a firm. That is why brand engagement – how stakeholder groups engage with a company brand – has received so much attention lately. But what about employees who are engaging with a firm’s brand on social media, especially in the business-to-business (B2B) context?

To gain a better understanding of employees’ engagement with their company brands, this study started off by looking at what these employees are saying on social media about the firms they work for in the B2B context.

Conversations about brands happen all the time, online and offline, without the explicit permission – or even awareness … For brand managers, this poses significant challenges.

It is believed that this insight can help human resource departments and managers to become better employers and to build better brands in the eyes of the employees. In addition, it will enable these firms to benefit from positive brand engagement while reducing potential risks and negative outcomes.

Why brand engagement is important

Brand engagement is an important concept in marketing as it is strongly connected to brand equity, also referred to as the value of a brand. Brand equity is often driven by a consumer’s association with a brand’s features and attributes, and ultimate engagement with the brand. Brand awareness is not the same as brand engagement. Engagement is emotional. Therefore, brand managers should focus on real brand engagement as this will influence their customers’ behaviour toward the firm, ultimately leading to sales and profitability.

Brand engagement has changed considerably with the advent of social media platforms like Facebook, Twitter and YouTube, specialised platforms like TripAdvisor and Instagram, platforms with a more professional slant like LinkedIn, and career-related sites such as Glassdoor. Users can interact with other users and engage with brands on these social media platforms.

Traditional brand management strategies focus solely on consumers, omitting important stakeholders like employees, whose voice is often seen as “more believable”. Evidence suggests that successful employee engagement strategies will strengthen firm performance. One study has shown that 84% of highly engaged employees believe they can positively affect the quality of their organisation’s offerings, as opposed to only 31% of disengaged employees who believe this.

Traditionally, employee comments on the firm was limited to face-to-face interactions. The advent of social media has changed stakeholder engagement with brands in many ways. Some of this has been intentional, driven by strategies aimed at forming online communities – such as fan pages on Facebook and YouTube channels. In other cases, these stakeholders, rather than firms, have driven much of the engagement with brands. This is evident in the plethora of consumer-generated content on social media. Consumers post videos, share content, and offer both positive and negative commentary on the brands they love or hate.

Conversations about brands happen all the time, online and offline, without the explicit permission – or even awareness … For brand managers, this poses significant challenges.

Conversations about brands happen all the time, online and offline, without the explicit permission – or even awareness – of those in charge of managing the brands. For brand managers, this poses significant challenges.

The reflexivity of brand and human capital

It has long been asserted in management literature that “brands and human capital constitute some of the firm’s most important assets”. Some researchers are now arguing that despite the focus on these two capitals as valuable assets in separate marketing and human resources management literature, their analytical separation impedes our understanding of how they can potentially interact. Hence, it is necessary to understand both assets – brand and human capital – jointly.

Figure 1 illustrates this relationship. Strong brands influence employees; this influence emanates from employees as they experience the brand. This engagement influences employee offerings and relationships with other stakeholders, the most important of which are customers but can also include prospective employees. Employee brand engagement directly influences the firm’s performance and ultimately affects the brand.

Figure 1: The cycle of employee brand engagement
Figure 1: The cycle of employee brand engagement

This cycle can be vicious or virtuous. In a virtuous cycle, a strong brand positively influences employees for which heightened brand engagement leads to increased firm performance through their involvement in improving the firm’s offerings or relationships with key stakeholders. The increased firm performance then further strengthens the brand, and so on.

Employee brand engagement directly influences the firm’s performance and ultimately affects the brand.

On the other hand, a vicious cycle describes how a brand in trouble could negatively impact employee brand engagement, which in turn could negatively affect the firm’s offerings and other stakeholder relationships. This would impact the firm performance and brand negatively. In order for organisations to compete successfully, customers as well as employees must be engaged.

At present, most of the research on brand engagement focuses on customers rather than other stakeholder groupings such as employees, suppliers and investors. This article, however, recognises the importance of employees as stakeholders who engage with their employer brands on social media.

How the study was conducted

To gain insight into the engagement between employees and the brands of the companies for which they work, the researchers turned to social media to collect employee-generated content regarding their employment at B2B brands.

The research team used Glassdoor as the source of data on employee brand engagement via social media. Glassdoor’s main purpose is to provide an online platform for employees to share information about jobs and employers in order to help others make career decisions. On this website, employees can rate a firm on a five-star scale (1 star = very low; 5 stars = very high).

Data was gathered from Glassdoor reviews in two ways. First, an independent ranking of the top B2B brands on social media by Brandwatch was used to identify the top 30 ranked B2B brands and the bottom 30 in terms of their use of social media. The reviews of the 30 top-ranked brands were split into two groups, those with five-star ratings and those with one-star ratings, and the same was done with the 30 bottom-ranked brands. This resulted in 2,315 five-star and 1,983 one-star reviews for the highest-ranked firms, and 1,013 five-star and 1,025 one-star reviews for the lowest-ranked firms.

Social media has become a major source of market intelligence for marketing practitioners as well as marketing scholars.

  • Each review was subjected to content analysis using the DICTION tool. DICTION determines to which extent the texts expressed the following:
    • Certainty (language and words that indicate resoluteness, inflexibility, completeness, and a tendency to speak with authority)
    • Optimism (language that endorses an individual, a group, a concept or an event)
    • Activity (language that is about movement, change, and the implementation of ideas and the avoidance of inertia)
    • Realism (language that describes tangible, immediate and recognisable issues)
    • Commonality (language that communicates communitarian concepts, and specifically highlights the agreed-upon values of a group of individuals, rejects language that is idiosyncratic in terms of engagement).

    Findings

    It was found that employees of higher-ranked and higher-rated brands were significantly more optimistic about their employing firms and also significantly more likely to express commonality – communitarian concepts and the agreed-upon values of a group.

Armed with powerful software to process this data, practitioners and scholars can shed new light on how stakeholders engage with brands.

The two dimensions on which higher-ranked and higher-rated brands scored significantly higher than their lower counterparts – namely optimism and commonality – were used to construct a simple but powerful matrix that provides potentially valuable managerial insights. The optimism-commonality matrix creates four different kinds of employee brand engagement situations, offering human resources and marketing managers different strategies in each case. This is illustrated in Figure 2 below.

Figure 2: Key drivers of employee brand engagement on social media
Figure 2: Key drivers of employee brand engagement on social media

The matrix argues that there are four kinds of employees who engage with their firms’ brands on social media: Engagers, Community seekers, Here for my friends and Apathetics:

  • Engagers: Firms ideally want employees who are engagers, typically found in both highly ranked and highly rated B2B firms. These employees are highly attached to their communities and optimistic about their firms. The manager’s task here is to uphold both the optimism and the commonality in order to maintain the highest levels of brand engagement.

This study found that employees in highly ranked and highly rated firms are more optimistic about their firms, the brands they engage with, and their future careers in these environments.

  • Community seekers: In the case, there is high optimism among employees about the firm and its brand but commonality is lacking. The manager’s task here is to focus on building a sense of community, or commonality, among employees. Social media can be a powerful way of doing this.
  • Here for my friends: In this quadrant, it is very possible that the engagement that employees have is not so much with the brand, but with each other. There is high commonality, but this might actually cause employees to coalesce in negative ways rather than in ways that are beneficial to the brand. Indeed, their negative feelings toward the firm might be their reason to band together, which could have deleterious consequences for the firm and its brand. The manager’s challenge here is to find ways to inject optimism into the situation and to use the commonality that exists to foster positive brand engagement.
  • Apathetics: Employees in this quadrant are low on both optimism and commonality. Employees who are pessimistic and find no community in their firms will leave, which is undesirable if they are good and competent. Or they will stay and continue to engage with
  • the brand in a negative way, which can have an adverse impact on other stakeholders. This reinforces the thinking discussed in the virtuous/vicious brand engagement cycle in Figure 1.

Employees’ opinions matter

This article looked at brand engagement from a generally overlooked perspective: that of employees as a stakeholder group. This is important because employee brand engagement impacts the engagement of stakeholders such as customers, suppliers and investors.

When employees are negatively engaged with their employer brands on social media, or when this engagement is poorly managed, the consequences can be severe …

Employees use social media to let others – including friends, family and current and potential employees – know how they feel about their places of work. This source can be “more believable” than company communication, which can be construed by customers as marketing rhetoric.

This study found that employees in highly ranked and highly rated firms are more optimistic about their firms, the brands they engage with, and their future careers in these environments. Similarly, they see themselves as part of a community or team, and these communities or teams are built around a brand as a common identifier. The benefits to the firm created by these phenomena are profound: The positive effects of these behaviours can help to increase revenue, lower costs, improve service and enhance customer satisfaction.

It was found that when employees are positively engaged with their employer brands on social media and this engagement is well managed, this holds various benefits for an organisation’s customers, its employees and the organisation itself. When employees are negatively engaged with their employer brands on social media, or when this engagement is poorly managed, the consequences can be severe for the organisation’s customers, employees and other stakeholders.

Making the analysis of employee brand engagement part of overall corporate marketing and HR strategy will allow managers to listen and react to their employees’ opinions, to become better employers, and to build better brands in the eyes of the employees. By paying attention to their own employee brand engagement over time, and by monitoring changes that can be gleaned about the brand engagement of their own employees and those of their competitors, firms can transform into desirable places to work and gain a competitive advantage over others.

Making the analysis of employee brand engagement part of overall corporate marketing and HR strategy will allow managers to listen and react to their employees’ opinions …

  • Find the original journal article here: Pitt, C.S., Botha, E., Ferreira, J.J. & Kietzmann, J. (2018). Employee brand engagement on social media: Managing optimism and commonality. Business Horizons, 61(4), 635-642.
  • Christine Pitt is from the Division of Industrial Marketing, Royal Institute of Technology (KTH), Stockholm, Sweden.
  • Prof Elsamari Botha lectures in Digital Enterprise Management and Digital Futures at the University of Stellenbosch Business School, Stellenbosch, South Africa.
  • João J. Ferreira is from the Research Unit in Business Sciences (NECE), University of Beira Interior, Covilhã, Portugal.
  • Jan Kietzmann is from Gustavson School of Business, University of Victoria, Victoria, Canada.

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Online security: Gaining insight into poor password practices among South Africans

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

Online security: Gaining insight into poor password practices among South Africans

By Rika Butler and Martin Butler

  • June 2019
  • Tags Strategic Management

18 minutes to read

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Are we making the best use of passwords to protect our online assets?

Online security is a growing concern as the use of computers and the internet are exposing computer users to an increased number of threats. Although the South African Cyber Security Policy Framework aims to foster a cyber-security culture, it does not provide for security education, training and awareness (SETA) – which are regarded as critical components of online security.

User authentication through passwords remains a key mechanism to protect online assets. Research has highlighted the need to address human behaviour in this regard, but without indicating what these SETA initiatives should focus on. Also, varying levels of digital literacy among computer users and different behaviour by users in the online environment make it difficult to apply a uniform set of interventions to improve security behaviour.

This study analysed the password behaviour of South African online consumers to (1) understand the prevalence of poor password practices among consumers overall and (2) to identify specific password deficiencies among different demographic groups in order to serve as focus areas for tailored intervention programmes.

Online security is a growing concern as the use of computers and the internet are exposing computer users to an increased number of threats.

Online security is a growing concern as the use of computers and the internet are exposing computer users to an increased number of threats.

While technology can provide a certain level of protection, human behaviour remains a potential weak link.

Studies have shown that specific training on password-related matters improved users’ password behaviour significantly.

… many computer users simply do not know how to select usable and secure passwords, or they are unaware of their vulnerability and the consequences associated with improper password use

Although many organisations show compliance in running security awareness programmes, this does not necessarily lead to behavioural change.

… to improve computer password security in this country, password SETA programmes should be based on individual needs and not merely on generic password practices for homogeneous groups.

While technology can provide a certain level of protection, human behaviour remains a potential weak link.

But first, what does the literature say about online security?

Password practices encompass the measures that computer users apply when they choose or create passwords (which involves aspects such as the origin of the password and the characters used in its composition), as well as manage these passwords (referring to the safekeeping of passwords).

An overview of the research on password practices shows the prevalence of both proper and improper password practices by users. While some computer users are proficient in their password practices, studies show that proper security measures and guidelines are often ‘unknown, neglected, or avoided’ by other computer users. As a result, many computer users simply do not know how to select usable and secure passwords, or they are unaware of their vulnerability and the possible consequences associated with improper password use and control.

In addition, human memory limitations place a strain on computer users’ memory and their ability to remember numerous passwords. Some researchers refer to this as ‘password overload’, which often results in weak password behaviour. This leads to a conflict between two opposing principles, convenience (memorability and usability) and security.

Some researchers propose interventions focused on the educational requirements of particular target audiences. However, they do not explain how to custom-design SETA interventions.

Studies have shown that specific training on password-related matters improved users’ password behaviour significantly.

Overview of current research on demographics and password practices

An extensive part of the research on online security is descriptive, philosophical or theoretical, lacking a structured use of empirical data which makes it quite immature.

Research on computer security often focuses on ‘particular user communities’ without necessarily reporting on the effects of demographics, despite the fact that basic demographic information is often obtained in these studies.

While some researchers noted small differences in individuals’ information security awareness and their age and gender, others found that gender has no significant influence on information security behaviour. However, they found that age seems to improve secure behaviour. Some researchers found female respondents to be more susceptible to, for example, phishing attacks. It was also found that age reduces the risk perception associated with a loss of data confidentiality and increases vulnerability to threats such as spyware. Also, males seem to have a tendency to engage in more risky online behaviour.

Some researchers established that users with higher education levels are significantly more likely to learn from negative experiences. These groups also have access to more credible sources of security-related information, potentially leading to more secure behaviour online.

… many computer users simply do not know how to select usable and secure passwords, or they are unaware of their vulnerability and the consequences associated with improper password use

The literature for demographics impacting passwords is scarce. Gender as a distinguishing factor did feature in some research, determining that females are more likely to use meaningful information in the composition of their passwords while males are more likely to use similar passwords for more than one purpose. A decrease in password sharing was noted as respondents grew older.

The need to change users’ behaviour in terms of passwords

The goal of security education, training and awareness (SETA) interventions is to change and improve user behaviour. Although many organisations show compliance in running security awareness programmes, this does not necessarily lead to behavioural change. Merely complying, and not dealing with the actual deficiencies, can result in people being more averse to change than before.

The primary objective of this study was to determine the SETA needs of individuals in South Africa by analysing the following:

  • The prevalence of poor password practices – to define common SETA focus areas
  • The variance between different demographic groups – to define focus areas for tailored SETA initiatives.

The study used a quantitative research approach. An online survey was used to gather demographic data, perceptions about online security and applied password practices. A sample of 737 valid responses was analysed. The steps in the research process were the following:

  • A literature study was performed to determine best practices for passwords and to compile a list of potential deficiencies.
  • A survey was designed and pilot tested to ensure accuracy and avoid forced answers from respondents.
  • The survey was distributed online using a commercial survey site.
  • The overall password performance was analysed to determine the incidence of improper practices among the entire data set.
  • Password behaviour displayed was analysed for different demographic groups.
  • The variation, for different demographics, was analysed to identify focus areas for tailored SETA programmes based on demographics.

Although many organisations show compliance in running security awareness programmes, this does not necessarily lead to behavioural change.

The intent of the research was not to use the results to design differentiated SETA programmes for generalised demographic groups, but rather to acknowledge the potential difference and to incorporate that into a learning process design.

What did the study find in terms of overall password behaviour?

An analysis of the data revealed that respondents vary significantly in their password practice proficiency levels. Importantly, there was a significant discrepancy between users’ perceptions of their password practices, and the real practices displayed. A total of 39 respondents (5.3%) perceived that they have absolute knowledge of proper password practices. However, only one respondent (0.1%) was able to demonstrate flawless ability to apply proper password practices, while only 21 respondents (2.8%) displayed a perfect ‘security first’ aptitude when selecting and managing passwords.

The most prevalent poor practices were the simultaneous use of the same passwords (90.1%) and password reuse (77.3%).This was not unexpected because previous studies have highlighted that users have fewer passwords than the number of websites they visit, indicating password reuse.

One study found that more than 80.0% of their respondents reused or slightly altered passwords for multiple purposes. The reuse and simultaneous use of passwords is thus a crucial focus area for SETA, especially where the same passwords are used to protect valuable assets (like online banking) as well as less valuable (and often less well-protected) internet sites of a general nature.

Analysis of weak password behaviour per demographic group

The analysis for the customisation of SETA programmes followed a dual approach. Firstly, it was determined which of the weak password practices were more prevalent across the entire population to ensure that these aspects were highlighted across the board for all demographics. Secondly, the prevalence of weak password behaviour within different demographic groups was analysed. This is a summary of the findings:

  • Age group: Weak behaviour decreased for the majority of practices as respondents grew older. A possible reason for this could be that older respondents do not visit as many password-protected internet sites as younger age groups, meaning that they do not have as many passwords to manage, resulting in less password reuse and simultaneous use. A decrease was noted in the extent of password sharing as respondents grew older. While the majority of poor practices decreased with respondents’ age, the practices of using personally meaningful words and numbers, not changing passwords regularly and using unsafe storing practices increased the older the respondents were. This could indicate that although they visit fewer password-protected sites, those older than 50 years are possibly unaware of the dangers associated with the use of personally meaningful information when creating passwords. This is supported by the increased lack of risk awareness as respondents grew older, which is not unexpected because older participants are not digital natives who have benefitted from a lifelong digital experience.
  • Gender: Although both genders displayed improper password practices, the areas of deficiency for male and female respondents differed. There was no notable difference in simultaneous use and unsafe storage practices across gender. A slight variance in the prevalence of improper practices of regarding ease more important than security when creating passwords, risk not regarded as an important consideration when creating passwords, not using a proper combination of characters to create passwords and password reuse were found. Although female respondents tended to reuse their passwords less than the male respondents, they were guiltier of using personally meaningful information, shared passwords more often and did not change their passwords as often as the male respondents. When analysing the number of sites visited requiring authentication, per gender, it was found that almost a similar percentage of each gender accessed 10 to 14 sites and 15 to 19 sites. However, significantly more male respondents accessed 20 or more sites – which could explain why the males tended to reuse their passwords more.
  • Number of internet sites accessed: This study showed that the more passwords users have, the more they tend to reuse and simultaneously use their passwords. This confirms observations from the literature about human memory limitations, resulting in users suffering from ‘password overload’ when they have more passwords to remember. The results of this South African study corresponds with international studies finding a correlation between the number of passwords that users have and password reuse – or the simultaneous use of a password for more than one purpose.
  • Education: While using meaningful words was found to be the highest for graduates, using meaningful numbers increased with levels of education. Although the weak practice of regarding convenience as more important than security increased with education, the lack of risk awareness (i.e. not considering the risk associated with a password’s use) when creating passwords seems to decrease as levels of education increase. Password sharing was the highest among respondents with no formal after-school qualifications. Interesting was the increase in unsafe storage practices with increased education levels.
  • Internet experience: Years of internet experience shows significant variance within the categories. Sharing of passwords, for example, peaks for the middle category (10 to 14 years of internet experience) and is significantly lower for both fewer and more years of internet experience. It is possible that this trend could again be related to an increase in the number of sites accessed. Related poor practices of non-complex composition and meaningful numbers decreased with experience. Surprisingly, both unsafe storage and simultaneous use increased with years of internet experience.

… to improve computer password security in this country, password SETA programmes should be based on individual needs and not merely on generic password practices for homogeneous groups.

Variations within different demographic groups

The variation within each demographic group was used to determine if a particular demographic group displayed a higher, or lower, prevalence for the particular measure. The results showed areas of higher and lower focus within all the demographic groups, meaning that all demographic groups are in need of SETA. Furthermore, it shows that the various demographic groups require tailored SETA programmes with different focus areas. These results confirm that a one-size-fits-all approach toward SETA programmes is not ideal, neither for specific demographic groups.

Although it could be argued that ‘covering all bases’ would be appropriate for all SETA interventions,, care should be taken not to hide the specific knowledge required by an individual user within a sea of non-relevant information. However, there is also opportunity within this variance: the construct of social influence is well appreciated in the behavioural change and technology literature. Therefore, allowing a natural transfer of good practices within diverse groups, although challenging, could have significant impact.

Designing different password programmes for different groups

This study showed that there is a substantial incidence of poor password practices among South African computer users. At the same time, research has shown that security-related information, guidance and feedback can positively influence secure behaviour. Appropriate interventions can therefore contribute to online security, even more so because these risks are changing all the time. The challenge, given different poor practices, is defining appropriate interventions.

It is essential that those users who need to hear the message should be ‘attracted’ to the education message. This can only be achieved by using the most appropriate method of communication, which could be tailored for those using a particular common undesirable practice. Although the design of the message falls outside the scope of this research, it is important that appropriate messages form part of SETA initiatives.

The study concluded that to improve computer password security in this country, password SETA programmes should be based on individual needs and not merely on certain generic password practices for homogeneous groups with similar behavioural challenges. These findings will allow for the design of targeted SETA initiatives to help create the security culture alluded to in the South African Cyber Security Policy Framework. Hence, these results should be useful to practitioners defining appropriate SETA programmes.

This research confirms that there are significant differences between the password practices for online users. Hence, a one-size-fits-all SETA initiative will not suffice. In essence, this research provides the set of practices that should be assessed to design individualised SETA for those individuals or, if required, groups who display a particular poor password behaviour.

  • Find the original journal article here: Butler, R. & Butler, M. (2018). Some password users are more equal than others: Towards customisation of online security initiatives. South African Journal of Information Management, 20(1), a920.

https://doi.org/10.4102/sajim.v20i1.920

  • Prof Rika Butler lectures at the School of Accountancy, Stellenbosch University.
  • Martin Butler is head of the MBA programme at the University of Stellenbosch Business School.

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