January – June 2018

income inequality

The great divide: Does foreign investment influence income inequality?

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

The great divide: Does foreign investment influence income inequality?

income inequality

  • Prof Charles Adjasi and Dr Theresia Kaulihowa
  • MAY 2018
  • Tags Insights, Finance

13 minutes to read

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Article written by Prof Charles Adjasi and Dr Theresia Kaulihowa

In Africa, statistics reveal that inequality has either remained unchanged or has increased for most countries over the past 30 years with significant negative consequences for social stability and peace. The current rise in inequality offsets the poverty-reducing effects of more than a decade’s worth of growth.

Yet there is a worldwide paradigm shift towards addressing socioeconomic concerns more adequately. Income inequality negatively affects progress towards the attainment of the United Nations Millennium Declaration, signed in September 2000, which commits world leaders to combatting poverty, hunger, disease, illiteracy, environmental degradation and discrimination against women.

High income inequality can be associated with a lack of income mobility and persistent implications for macroeconomic stability and broad-based development policies. In African countries characterised by higher than usual poverty and inequality rates, foreign direct investment (FDI) has become a complementary element to other development policies in closing the income divide. When assessing the impact of FDI, the approach cannot be one-dimensional as a number of factors, including underlying economics, play a role in outcomes.

The current rise in inequality offsets the poverty-reducing effects of more than a decade’s worth of
growth.

Growing debate on foreign direct investment
With the increase in the level of FDI to finance the growth ambitions of developing countries, the question arises about how these resources have affected income distribution.

Foreign resources have been found to influence the scope and rate of economic growth significantly in developing countries, and FDI from multinational corporations, governments, international trade and private organisations has become the pathway to globalisation in aiding broad-based development in Africa.

FDI has been heralded as being complementary in closing the income divide by increasing employment and wages, resulting in a reduction of poverty and inequality. However, literature is wreathed with extensive debates and mixed arguments on the efficacy of FDI as a policy instrument.

Empirical literature is filled with conflicting predictions about the impact of FDI. Mixed evidence emanates from many different schools of thought – from those that involve studies indicating how FDI worsens income inequality to those that support its inequality-reducing effects.

Other more recent critics find that, although FDI has been beneficial in promoting economic development, there are concerns that it is also responsible for widening income inequality. And there are several reasons for these theories. For instance, despite positive externalities associated with multinational enterprises, FDI is reputed to aggravate wage differentials in host economies. Furthermore, most of the FDI firms’ profit is repatriated back to the countries of origin.

Mind the gap
Most African countries are characterised by either high or a sluggish decline in income inequality. Using the Gini ratio and index – a measure of statistical dispersion representing the income or wealth distribution of a nation’s inhabitants and the most commonly used measurement of inequality – it can be seen that countries such as South Africa, Botswana and Zambia have recorded the highest Gini coefficient of about 0.6 while Tanzania, Tunisia, Nigeria and Morocco have a Gini of about 0.4. Mauritius has the lowest Gini of about 0.2, while Cameroon, Sierra Leone, Tanzania and Kenya exhibit a downward trend.

A country’s development processes occur in stages. It has been found that income inequality will increase during the early stage of development. However, income inequality can be expected to decrease once an optimal development stage has been attained, after which spill-over gains are eventually spread throughout the entire economy. This characterises a U-shaped curve between economic development and income inequality.

High income inequality can be associated with a lack of income mobility and persistent implications for
macroeconomic stability and broad-based development policies.

By regressing the FDI ratio to GDP on income inequality, the short-run parameter FDI seems to reduce income inequality by 10%. However, this effect is diminished in the long run where FDI is associated with widening income inequality. Even if FDI reduces income inequality in the short run, it is most likely that this will be eroded in the long run such that the net effect will not support inequality reduction theory.

In capturing the non-linear hypothesis and GDP per capita for economic activity, FDI does not have a significant impact on inequality in the short run. However, even though in the long run it reduces inequality, there is a turning point after which further increases in FDI will widen income inequality. This implies that when the inward FDI stock ratio to GDP rises beyond 2,8% it will worsen income inequality. When including education, a similar U-shaped relationship between FDI and inequality is found in the long run. The turning point is estimated at a ratio of 6,91% which implies that when the inward FDI stock ratio to GDP rises beyond 6,9% it will worsen income inequality. Education will reduce income inequality while GDP worsens it. However, after controlling financial development, education no longer decreases income inequality. This is not being pro-poor. Instead, it is rather an indication of movement towards growth and technologies. It is the exacerbation of income inequality that makes the poor worse off.

Considering financial sector development, the U-shaped relationship between FDI and inequality in the long run persists. Financial development seems to decrease income inequality while both education and GDP per capita are associated with increasing inequality. While education is theoretically expected to improve the distribution in any economy, there is no evidence that this holds true for Africa.

FDI may have resulted in skill-biased employment that further increases the gap between the rich and the poor. Furthermore, FDI may be dominated by resource-seeking FDI that is exploitative in nature and that creates limited linkages with the entire economy. Income inequality may further worsen if mergers and acquisitions – as opposed to green-field investment – dominate FDI activities. Therefore the type and nature of FDI activities can also influence the distribution effect of FDI. Although FDI may be beneficial to economic development, there is great concern that FDI may also widen skill inequality and exacerbate income inequality as a result. The findings of a U-shaped effect of FDI on income inequality are contrary to these a priori expectations, which could very well contribute to Africa’s inherent issues of capacity constraints and a weak industrial base.

FDI may have resulted in skill-biased employment that further increases the gap between the rich and
the poor.

When human capital augments FDI, it has the potential to improve the distribution of income and secondary education, which has a significant impact on income inequality. FDI tends to induce employment bias towards skilled labour. This implies that the poor are less likely to benefit from the resulting increase in employment.

A minimum threshold level of human capital is therefore required to realise technological transfers and certain spill-over gains. The reality is that Africa’s skills development, which allows the labour market to make use of new technologies, is weak.

It is therefore not surprising that FDI as a development policy instrument has worsened income distribution in Africa. Inequality will increase when the development process of developing countries is driven by highly industrialised multinational corporations. This will happen as long as African countries remain dependent on these activities that engage in capital-intensive production.

Furthermore, FDI may be dominated by resource-seeking FDI that is exploitative in nature and that
creates limited linkages with the entire economy.

Policy strategies that are geared towards investment in human capital could increase the supply of skilled labour and thereby improve the distribution effects of FDI. The resulting increase has the potential to invert the current U-shaped curve. By encouraging FDI to target both ends of the labour market, skilled and unskilled, the benefit would be the greatest in diminishing the gap in income inequality.

Charles Adjasi is a professor in Development Finance at the University of Stellenbosch Business School. His areas of expertise include the development of financial markets in Africa, international trade dynamics, economics, firm productivity and foreign direct investment.
Dr Theresia Kaulihowa is head of Economics at the University of Namibia, with expertise in the field of financial economics.

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The toughest leadership challenge

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

The toughest leadership challenge – career transition

  •  width=Dr Nicky Terblanche, Dr Ruth Albertyn and Dr Salomé van Coller-Peter
  • MAY 2018
  • Tags Insights, Coaching

12 minutes to read

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Article written by Dr Nicky Terblanche, Dr Ruth Albertyn and Dr Salomé van Coller-Peter 

The fast pace of corporate expansion requires leaders in organisations to move to more senior leadership positions at an increasing speed. Previous research has already raised the alarm with its finding that 46% of incumbents in senior positions underperform in their new positions. It has further been found that 87% of human resource professionals view promotion (also termed career transition) as the most challenging event in climbing the corporate ladder.

‘46% of incumbents in senior positions underperform in their new positions.’

 

Career transition happens when a leader is promoted to a more senior position with additional and different responsibilities. Transitioning thus entails stepping out of an existing comfort zone with accustomed day-to-day commitments and into a new position with unaccustomed challenges and demands. Such transitions bring about numerous challenges – not only to the individual, but also to the organisation as a whole. The new incumbent is expected to hit the ground running and to accomplish the transition smoothly at the fastest possible pace. But, since senior positions have higher levels of task complexity, they often bring uncertainty. From an organisation’s perspective, the existing level of sure-footedness in the leader and strategist echelon needs to be preserved or improved. The assurance that new leaders will cope in their elevated positions is therefore crucial.

To empower promoted leaders, organisations draw on various support strategies – such as leadership development programmes, mentoring and coaching. However, although coaching has proved to be an effective leadership development tool, the use of transition coaching for leaders promoted to senior positions has received little attention and support to date – with only a single empirical study on record.

‘The use of transition coaching for leaders promoted to senior positions has received little attention and support to date.’

 

More research needed

Further research regarding transition effectiveness in the South African workplace was inspired by the following:

  • South Africa has a shortage of skilled senior leaders in the corporate space.
  • Coaching has been found to be an effective leadership development tool to support recently promoted leaders in making the transition to their new positions and responsibilities.
  • With only one empirical study on transition coaching done to date, more evidence is needed, particularly about the design and application of coaching programmes.
  • The well-known leadership pipeline model shows that there are different levels of leadership within an organisation, and that each level requires different skills. Recently promoted leaders must let go of certain thinking and behavioural patterns and adapt to new ones.
  • With daunting challenges associated with career progress, and evidence that coaching is a powerful support tool to deal with these challenges, it is clear that a custom-designed transition coaching intervention is needed for recently promoted senior leaders.

The purpose of the present study

Clarity was needed on this question: How should an effective coaching intervention be designed to support and empower leaders promoted to senior positions? Two research objectives were formulated to find an optimally designed transition coaching intervention:

  1. Gain an understanding of how and when coaching must be initiated during a career transition.
  2. Gain insight into which aspects must be included in the coaching processes to provide optimal support to recently promoted senior leaders.

The research method used

An interpretivist qualitative study with a constructivist-grounded theory approach was used. Many social researchers believe that an interpretivist approach is appropriate to uncover social truths. In addition, a grounded theory methodology was chosen because of the lack of existing theory on transition coaching. A grounded theory is a specific process whereby a theory evolves during the research process – it is the outcome of systematic data collection and a constant interaction between the recorded data and analysis thereof.

The 16 participants, selected from various organisations, consisted of persons who had recently been promoted as senior leaders, coaches who practised transition coaching, coaching custodians in organisations, and line managers of recently promoted senior leaders. The participants included respondents who had already displayed signs of distress in their new roles. Face-to-face and telephonic interviews were conducted with all participants.

‘Recently promoted leaders must let go of certain thinking and behaviour patterns and adapt to new ones.’

 

Findings

The findings were grouped into two themes, subdivided into sub-themes, in line with the research objectives:

  • Initiating coaching during a career transition:
    • Timing of coaching
    • Duration of coaching
    • Selecting a coach
    • Logistics
    • Contracting
  • Coaching processes to provide optimal support to promoted senior leaders:
    • Managing the coaching process
    • Using theory
    • Consulting external parties
    • Networking.

 

Table 1: Findings – initiating coaching during a career transition

 

Sub-theme Key insights
Timing of coaching Coaching starts too late.
No explicit transition coaching is visible.
Coaching is used for remedial effect.
Coaching must start before the transition.
Duration of coaching Interventions are too short (less than six months).
Coaching is expensive.
More frequent coaching is needed immediately after the transition.
Less frequent sessions are needed for up to 18 months and three years later.
Selecting a coach The incumbent must be given a choice of coaches.
A personal connection between the coach and incumbent is important.
Logistics Coaching away from the office premises is preferred.
Both the coach and incumbent must be pragmatic and flexible.
Contracting A triangular contract is needed between the incumbent, coach and organisation.
Confidentiality between the coach and incumbent is important.

 

Table 2: Findings – coaching processes to provide optimal support to promoted senior leaders

Sub-theme Key insights
Managing the coaching process It is important to set goals to keep incumbents accountable.
Goal setting must focus on the intervention.
Coaches must keep record of sessions for reflection and referencing.
Coaches must encourage incumbents to reflect and experiment with thinking and behaving differently between sessions.
The incumbent must reflect on experiments in sessions.
Using theory Coaches sharing frameworks, theory and models help incumbents to understand their new roles and themselves.
Psychometric assessments help to create self-awareness.
Consulting external parties Support from the line manager helps the incumbent.
HR must keep some distance but may intervene if coaching results are not evident.
Involving a mentor is beneficial.
Involving the incumbent’s team assists the team to understand the changes taking place.
Networking The incumbent’s network must be mapped.
Network improvements must be identified.
The incumbent’s network must be expanded, both formally and informally.

 

New insights into transition coaching design

The main aim of this research was to investigate how a transition coaching intervention must be designed to support leaders who are promoted to senior leadership positions. Two main themes came to light:

  • Key aspects to include when the coaching process is initiated
  • Issues to be considered when facilitating the transition coaching process.

This research provided empirical evidence of the need for transition coaching and the present lack thereof.

Coaching per se can provide effective support to leaders. If coaching is customised for career transition, as suggested in this research, transition coaching will provide essential support for ambitious, talented individuals when they face significant challenges on promotion to senior leadership positions.

The findings provide practical solutions for designing effective transition coaching interventions.

 

 

Dr Nicky Terblanche is Senior Lecturer in Coaching at the University of Stellenbosch Business School.

Dr Ruth Albertyn is a visiting local faculty member of UBS. She lecturers on the MPhil in Management Coaching.

Dr Salomé van Coller-Peter is Head of USB’s MPhil in Management Coaching. Her research interests include coaching, managing transformation, executive mentoring, and value alignment in executive teams.

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Project Managers

Adaptation is required as project managers find themselves between a rock and a hard place

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

Adaptation is required as project managers find themselves between a rock and a hard place

Project Managers

  • Songezo Nkukwana and Dr Nicky Terblanche
  • MAY 2018
  • Tags Insights, Coaching

13 minutes to read

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Article written by Songezo Nkukwana and Dr Nicky Terblanche

Information system development projects have a reputation for failing to stick to the budget, to meet deadlines and to fulfil expectations.  Only 29% of worldwide information system projects achieve project management success, according to The Standish Group International. This failure rate is high in comparison with other high-tech projects, and this is a reason for concern because information systems are increasingly seen as a critical strategic and operational tool in organisations. Furthermore, within the knowledge economy, software is a source of knowledge and information systems development a source of knowledge creation. By creating knowledge, organisations create the opportunities to gain and sustain competitive advantages.

‘Information system development projects have a reputation for failing to stick to the budget’

 

In an attempt to address the failure of traditional approaches to information systems delivery, organisations are turning to agile methodologies. Agile software development differs from the traditional waterfall approach where a formal, sequential process of planning, analysing, designing, implementing and maintenance is followed. Opting for agility, on the contrary, is characterised by fast and flexible results based on iterative delivery, frequent feedback loops and the constant involvement of the customer.  The widespread adoption of agile implementation methodologies is attributed to their ability to respond to fast-changing business requirements, market conditions and technology innovation.

From a project management perspective, the move to agile implementation has brought about a number of challenges. Project managers can no longer be concerned only with planning, organising and controlling.  They must also be sufficiently skilled to facilitate and coach to encourage collaboration between team members in line with the agile model. Project managers must furthermore play an active role in project knowledge management which contributes to successful projects.  

A further complication is that agile software development encourages autonomous, self-organising teams who are meant to share project management tasks and responsibilities such as estimation, planning and progress tracking. This new focus encroaches on project managers’ territory and raises questions about their roles.  To complicate matters even more, many (especially large) organisations struggle to make the transition from traditional to agile information systems implementation methodologies. In fact, it is more likely that large organisations will employ both traditional and agile information systems implementation practices in what is termed an ambidextrous approach.  This duality presents additional and complex challenges to the project manager’s role.

Given these team-related and organisational challenges faced by project managers, the question arises: How should project managers adapt to fit into an agile implementation environment within large corporates? This research explores the question from the perspectives of two important project stakeholders:  the management team and the implementation team.

Answers were needed for these research questions:

  • How do these two teams view the role of a project manager in an agile environment?
  • What do the teams require from a project manager to complete information systems implementation projects successfully?
  • Should project managers adapt their strategy to strike a balance between the old (traditional waterfall approach) and the new (agile approach) way of working?
  • Are project managers still relevant in agile delivery environments?
  • Should project managers adapt to remain relevant?

‘Only 29% of worldwide information system projects achieve project management success.’

 

Information system implementation and project management challenges go hand in hand

The global business landscape has changed dramatically in the last few decades. Access to data, disruptive technological advances and the speed of innovation are some of the key drivers fuelling this revolution.

Information systems development forms a crucial part of technology innovation, and businesses have become even more aware and critical about the success of their information systems projects.  Information systems are crucial strategic and operational pillars – institutions want to see a return on their investment in information systems and they have become more mature in their understanding of the nature of information systems and related projects.

Over the past few years, a significant amount of effort has gone into making sure that information systems implementation meets customers’ value expectations. Yet, many software projects still fail to deliver value. More resources than originally planned are being used, less functionality at a lower quality than expected gets delivered, and the completion of projects takes longer than anticipated.  

Some reasons for these failures include badly defined requirements, unrealistic expectations from businesses, poor reporting on the project status and poor management of risks.  Risks can only be managed if knowledge is managed, and project knowledge is considered as one of the most powerful tools in managing risk. Project management can play a significant role in knowledge management and therefore naturally in risk management as well.

Most information systems professionals believe that using information systems project methodologies will improve the project management success rate. However, project managers face various challenges that limit their success:

  • Unrealistic project deadlines
  • Handling multiple projects simultaneously
  • Ineffective use of project management software and a lack of knowledge about project management methodologies.

The nature of information systems projects has also changed in recent years with an increase in technical complexity, rate of technology change, importance of security, business changes involved in projects, prevalence of virtual teaming, organisational instability and interdependence between organisations. As a result, these factors contribute to information systems project management becoming increasingly challenging.

‘Organisations are moving towards agile project implementation methodologies’

 

Looking at perceptions and experience

This research followed a qualitative case study approach. The design was chosen to extract descriptions of phenomena (perceptions held by management and implementation teams) within the relevant context described by the participants (based on their experiences).

Purposive sampling was used to identify 13 participants working within the information systems department of a business unit in a large insurance company in South Africa. Five of the participants belonged to the management team while the remaining eight were part of the information systems implementation team. Members of these teams had been part of both successful and failed agile projects within the organisation.

Semi-structured interviews were conducted with all participants to elicit deep reflection about their experience during information systems implementation projects. This approach allowed participants to share their understanding of the challenges they faced and specifically the role that project managers played.

‘Are project managers still relevant in agile delivery environments?’

 

The lessons learned

With the disappointing track record of information systems implementation projects, organisations are moving towards agile project implementation methodologies, where reduced formality and increased individual autonomy and self-organising teams get preference. This shift encroaches on the territory of the traditional project manager’s role and raises questions about how project managers should adapt to remain relevant.

This case study provided insights into the desired behaviours of an agile project manager by exploring the different needs of the management and implementation teams. It looks as if project managers are stuck between a rock and hard place when it comes to fulfilling management and implementation teams’ expectations. On the one hand, they are required to fulfil the traditional project manager’s role: both the management and implementation teams require project managers to adhere to traditional project management governance functions such as project delivery, risk management, reporting and budgeting. On the other hand, when it comes to the management of the implementation team, the management team preferred a more traditional command and control style project manager. However, the implementation teams preferred a more agile approach expecting a project manager to earn their trust, refrain from micromanagement, allow the team to self-organise, and act as coach and facilitator.

The conclusion is that project managers will remain relevant if they move towards a more agile information systems implementation environment.  They must be aware of the different expectations from various stakeholders and adapt their behaviour accordingly. They have to engage openly with their stakeholders to understand their needs, acquire new skills (such as coaching and facilitation) in the agile environment and strike a balance between employing traditional and agile project management skills depending on the agile maturity of the organisation.

  • Original article: Nkukwana, S. & Terblanche, H.D. 2017. Between a rock and a hard place: Management and implementation teams’ expectations of project managers in an agile information systems delivery environment. South African Journal of Information Management, 19(1), a806.
  • Link to original article: https://sajim.co.za/index.php/sajim/article/view/806/1137.

 

Songezo Nkukwana is a former MBA student of the University of Stellenbosch Business School.

Dr Nicky Terblanche is a senior lecturer in Coaching at the University of Stellenbosch Business School.

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The link between excessive debt and multidimensional poverty can be broken

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

The link between excessive debt and multidimensional poverty can be broken

  • Lungile Ntsalaze and Prof Sylvanus Ikhide
  • MAY 2018
  • Tags Insights, Finance

12 minutes to read

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Article written by Lungile Ntsalaze and Prof Sylvanus Ikhide

Historically disadvantaged households used to be virtually debt free because, in general, they did not have access to credit. This changed in the early 1990s when financial liberalisation led to financial deregulation. However, at the time, credit legislation consisted of limited regulations and acts which did not address the credit market’s holistic dynamics.

A debate on household debt ensued between policy makers and culminated in the promulgation of the National Credit Act (No 34 of 2005). This was when the National Credit Regulator started to monitor consumer debt and the social repercussions of excessive debt.

Tremendous growth in debt has been recorded since, and currently household debt (as a percentage of disposable income) is reported at 77,8% (up from 51,0% in 1993), reaching an all-time high of 88,8% in the first quarter of 2008.

In addition, the National Credit Regulator reported that there was a consumer credit growth of 55% from the last quarter of 2007 to September 2015. In monetary value, it means that the total outstanding gross amount in the debtors’ book of consumer credit was R1,63 trillion at the end of September 2015.

During the same period the number of consumer credit applications increased to 5,8 million with the total credit value granted settling at R123,93 billion. With the consistent growth in debt, households have an increasing battle to stick to and honour their obligations. In fact, these statistics sketch a dark picture:

  • 46,1% of consumers are within their terms
  • 11,6% are one to two months in arrears
  • 21,6% are three and more months in arrears
  • The balance is at risk of facing court proceedings and judgements

South Africa’s map of poverty
Going back to the mid-90s, and particularly to the post-apartheid era, South Africa to a large extent succeeded in reducing poverty, both in monetary terms and in multidimensional forms of deprivation.

To gain insight into this theorem, it is important to understand what multidimensional deprivation refers to. The concept of multidimensional poverty uses different dimensions of deprivation based on basic capabilities to determine poverty levels. Using the Global Multidimensional Poverty Index, it was found that 10,7% of South Africans were multidimensionally poor in 2008. This statistic dropped to 9% in 2010.

In 2010, Statistics South Africa adopted this index and further developed it to include unemployment as a measure of economic activity in households. The results of the South African Multidimensional Poverty Index indicated that 17,9% of households in South Africa were poor in 2001, dropping to 8% in 2011.

The use of multiple poverty measures led to divergent views about the scale of variations in the poverty headcount, but the declining poverty trend is indisputable. Households living below the upper-bound poverty line declined substantially from 42,2% in 2006 to 32,9% in 2011 (with 94,2 % being black South Africans).

Historically disadvantaged households used to be virtually debt free.

How is household poverty determined?
Household poverty is determined by a host of factors, such as the household inhabitants’ numbers and ages, education levels, ethnicity, gender, marital status, economic activity, household income, government grants, housing tenure, settlement type (urban or rural) and location (regional or provincial).

Poverty facts in South Africa

  • There is a contradiction in respect of age in studies – some research shows that so-called older households are financially better off, while other findings indicate that households with mature ‘heads’ have a positive correlation with poverty.
  • Education levels seem to be the strongest predictor of poverty – most studies found a correlation between household heads with limited education and a high incidence of poverty, which declines as education levels rise.
  • Households headed up by women tend to have a greater susceptibility to poverty.
  • Marital status tends to raise household income.
  • An employed head of a household reduces the poverty risk.
  • Being employed in the agricultural sector or dependence on grants are poverty indicators.
  • Homeownership is associated with welfare.
  • There is strong evidence that larger households lead to higher probabilities of poverty, particularly when there is growth in the number of children per household.
  • There is a bigger concentration of poverty in rural areas as opposed to urban areas.
  • Poor households’ access to credit has a direct link to poverty.

The research approach
This study relied, among others, on the most recent data of the National Income Dynamics Study which was conducted in 2012. The National Income Dynamics Study is a nationally representative household panel survey which contains comprehensive households’ information on income, expenditure, health, the labour market and demographics. December 2012 was used as the base period, with 5 458 households making up the population of this survey.

The non-linear relationship between explanatory variables and multidimensional poverty was the focus of this investigation. A generalised additive model using a spline regression model on the National Income Dynamics Study data was used to establish threshold effects of the explanatory variables on multidimensional poverty.

The total outstanding gross amount in the debtors’ book of consumer credit was R1,63 trillion at the end of September 2015.

The findings
The findings of the investigation can be summed up as follows:

  • The tipping point at which debt is associated with improved household welfare is 42,5% (the level of debt in correlation to income).
  • Household heads younger than 60 and with multiple children in the household are associated with lower multidimensional poverty.
  • The ideal household size with a negative correlation to multidimensional poverty is fewer than four members.
  • Government grants do not seem to be an effective tool to eradicate multidimensional poverty.
  • Education is the best solution for households to escape multidimensional poverty.

Conclusions and implications
The empirical findings indicate that there is a debt threshold in the debt versus poverty nexus, and that household debt plays a crucial role in determining multidimensional poverty levels.

It is important to know that an appropriate level of debt will improve the welfare of households, but as soon as the 42,5% threshold is exceeded, it culminates in increased multidimensional poverty. Debt obligations without a healthy correlation with household income create households that are vulnerable to, for instance, unexpected changes in household income and interest rates. Households could therefore become victims of the so-called double penalty of multidimensional poverty and over-indebtedness. Being in such a position predetermines damning consequences, such as financial exclusion and the vicious long-term cycle of children living in poverty owing to the debt incurred by their parents.

Historically disadvantaged households used to be virtually debt free.

Ways of alleviating multidimensional poverty

  • If households participate in money management courses, it will help them with budgeting and other financial skills which could promote responsible borrowing behaviour and protect them from slipping into debt traps.
  • Households with excessive debt must act quickly and decisively to address their precarious situation.
  • Policymakers must strike a balance between increasing household credit access and the corresponding increased threats to financial stability.
  • A coordinated effort to promote the role of savings is essential while monitoring households with debt-service-to-income levels exceeding 42,5%.
  • Government must seriously review the retirement and old age support policies and encourage younger generations to save for retirement.

The alleviation of multidimensional poverty is therefore the joint responsibility of individuals, households, policy makers as well as government.

  • Original article: Ntsalaze, L. & Ikhide, S. 2017. The threshold effects of household indebtedness on multidimensional poverty. International Journal of Social Economics, 44(11), 1471-1488.
  • Link to original article: https://doi.org/10.1108/IJSE-03-2016-0086

Lungile Ntsalaze undertakes research at the Department of Financial Intelligence at the University of South Africa.
Prof Sylvanus Ikhide lectures at the University of Stellenbosch Business School. His research interests include economic development perspectives in Africa, public sector finance and microfinance.

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From slaves to servant leaders

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

From slaves to servant leaders

  • Dr Leon Christopher Prieto, Dr Simone Trixie Allison Phipps and Dr Babita Mathur-Helm
  • MAY 2018
  • Tags Insights, Leadership

14 minutes to read

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Article written by Dr Leon Christopher Prieto, Dr Simone Trixie Allison Phipps and Dr Babita Mathur-Helm

When the abomination of slavery was brought to an end in the United States of America in the mid-19th century, freed slaves were released into society to make their own way. The contributions of these pioneering men and women in their communities (and beyond) did not receive recognition owing to the legacy of slavery and racism in the USA. This led to African-Americans being excluded from established structures and other aspects of civil life. The total lack of awareness of their plight meant that they were regularly obscured from public consciousness.

Two former slaves, John Merrick and Alonzo Herndon, excelled against all odds to become entrepreneurs who played an important role in the African-American community. While Caucasian role players’ contributions to the business world regularly feature in historic documentation, the pioneers of African descent, who also had an impact on successful businesses and entrepreneurial ventures, received far less recognition. The contributions of John Merrick and Alonzo Herndon beg to be told through the lens of servant leadership.

The contributions of John Merrick and Alonzo Herndon beg to be told through the lens of servant leadership.

Why the servant leadership research angle?
Booker T Washington, an advocate of servant leadership, was Merrick and Herndon’s inspiration to choose the business route and the application they opted for. Washington, born a slave in 1856, became a leading voice of the ex-slaves and their descendants on education issues, career-oriented training, entrepreneurship and employment. His voice was amplified in his book, Negro in Business, which highlighted the entrepreneurial activity among African-Americans and some of the factors that were facilitating economic prosperity among people of colour. Washington encouraged black business owners to serve their communities in order to contribute to the cause of economic progress.

Merrick and Washington were good friends who shared the desire to help African-Americans to achieve success via entrepreneurship and workforce development. Washington’s influence on Herndon became visible in the early 20th century. Herndon was one of the delegates who attended Washington’s founding conference of the National Negro Business League. Herndon vocalised the importance of supporting black businesses and highlighted the opportunities for African-Americans to make money and create job opportunities for the youth.

As a servant leader, Washington guided people to an elevated economic and social standing, allowing them to share in the proverbial economic pie. He understood and served the needs of the black communities and encouraged Merrick and Herndon (as well as many other successful businessmen and businesswomen) to pursue career-oriented education and entrepreneurship as the keys to black economic progress. Following in Washington’s footsteps, Merrick and Herndon became high-profile servant leaders in the African-American community.

Merrick and Herndon became high-profile servant leaders in the African-American community.

About John Merrick
John Merrick was born a slave in North Carolina in 1859. When he was 12, his mother left the plantation in Sampson County and went to Chapel Hill to become a domestic worker. The young Merrick stayed behind to attend the local school. While still at school, he worked at the local brickyard and later became a brick mason. His ambition drove him to leave his construction job to become a shoe shiner in a barbershop. Although it might seem as if he took a step backwards, he knew that being a barber was one of the best professions for young black men at the time, particularly if they wanted to become business owners. So, while shining shoes, he learnt how to cut hair. From these humble beginnings Merrick (and a partner) opened a barber shop in Durham to cater for wealthy white men. This is where he started climbing the ladder of success to become the sole owner of a barber shop, after which he expanded his business interests to five barber shops. He also became a land owner, built houses and rented them out.

His mission was to teach African-Americans how to help themselves and to show them which opportunities existed in the world of finance and entrepreneurship. Merrick rose from nothing to become a wealthy man owning a number barber shops, a real estate investor and an entrepreneur, who cofounded the North Carolina Mutual Life Insurance Company.

The way Merrick went about his business embodied the seven dimensions of servant leadership:

  • Bringing about emotional healing
  • Creating value for the community
  • Imparting conceptual skills
  • Empowering others
  • Putting subordinates first to help them grow and succeed
  • Behaving ethically

Merrick rose from nothing to become a wealthy man.

About Alonzo Herndon
Alonzo Herndon was born a slave in Walton County in 1858. He grew up on a farm east of Atlanta. His mother was a slave and his father a white master. When slavery ended, the young Herndon, his mother, younger brother and grandparents were sent away by his father to be free and penniless. From a very young age Herndon worked as a labourer and a pedlar selling peanuts and homemade molasses.

He left home when he was 20 years old and walked to Senoia in Coweta County where he started working as a farmhand. To supplement his meagre income, he began cutting hair on Saturday afternoons in a small place which he rented. He later moved to Atlanta where his top-notch barber skills and reputation quickly spread among the white residents. As his clientele increased, he expanded his business by opening more barber shops, including the most exclusive barber shop in Atlanta (known as the Crystal Palace), which was considered as one of the finest in the USA. Herndon also invested in real estate and became the owner of an extensive real estate portfolio, owning more than 100 houses in the black area of Atlanta, commercial property and a large estate in Florida.

When he purchased Atlanta Life (formerly Atlanta Mutual), it was yet another confirmation that he was fulfilling a servant leader role in the community. Herndon also embraced the seven servant leadership dimensions.

… servant leadership was already practised by black business owners in the early 20th century as a model to create jobs.

Conclusion: Servant leadership existed in the early 20th century
The study reviewed and combined facts and insights from literature sources such as journals, newspapers and other historic documentation. What the study found was that servant leadership was already practised by black business owners in the early 20th century as a model to create jobs and transform communities. Textbooks and other historic records have often omitted the contributions of people of colour to the development of servant leadership principles.

The lives of John Merrick and Alonzo Herndon represent remarkable and real-life ‘rags to riches’ stories. Adhering to Booker T Washington’s leadership and guidance, Merrick and Herndon became servant leaders within their communities. Their businesses created thousands of jobs for African-Americans and empowered them. Business and entrepreneurial pioneers such as John Merrick and Alonzo Herndon left a lasting servant leadership legacy to the world with evidence that it worked a century ago and still works.

Black students with aspirations to use small business ownership and entrepreneurship to escape poverty and contribute to their communities can learn from Merrick, Herndon and other earlier black entrepreneurs. Merrick and Herndon earned the black community’s support because they embraced servant leadership, which contributed to the success of their enterprises.

Their businesses created thousands of jobs for African-Americans and empowered them.

Implications and recommendations
Considering the major value of servant leadership and its worldwide impact, it is recommended that additional research be conducted to explore all the factors that contribute to these constructs. A question to be examined is: How do we increase the number of black businesses that can make a difference to economic and workforce development?

Recommendations to be considered include the following:

  • Implement social entrepreneurial development programmes to equip communities with knowledge, skills and resources to start up small businesses, create jobs and contribute to economic progress.
  • Universities and other institutions should train and develop future agents of change to bring about positive social change in disadvantaged communities.
  • Universities and other institutions should think about preparing and empowering black university students with the skills and resources to make a positive impact on their communities through small business ownership.
  • Entrepreneurial ventures can serve as a platform for students to become servant leaders.
  • Universities can partner with businesses which are interested in providing internships to students geared toward servant leadership.

 

  • Original article: Prieto, L.C., Phipps, S.T.A & Mathur-Helm, B. 2018. From slaves to servant leaders: Remembering the contributions of John Merrick and Alonzo Herndon. Society and Business Review.
  • Link to article: https://doi.org/10.1108/SBR-11-2017-0104

Dr Leon Christopher Prieto is from the College of Business, Clayton State University, Morrow, Georgia, in the USA and lectures at the University of Stellenbosch Business School. His teaching focuses on Human Resources and Organisational Behaviour, Entrepreneurship and other management related topics.
Dr Simone Trixie Allison Phipps is attached to the School of Business, Middle Georgia State University, Macon, Georgia, in the USA. Her research interests include the contributions of minorities to the field of management.
Dr Babita Mathur-Helm lectures at the University of Stellenbosch Business School. Her research interests include organisational transformation and development, managing diversity and gender empowerment.

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A new way to report on health and well-being in business

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

A new way to report on health and well-being in business

  • Dr Nicolaas Pronk, Prof Daniel Malan, Dr Gillian Christie, Dr Cother Hajat and Dr Derek Yach
  • MAY 2018
  • Tags Insights, Leadership

12 minutes to read

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Article written by Dr Nicolaas Pronk, Prof Daniel Malan, Dr Gillian Christie, Dr Cother Hajat and Dr Derek Yach

The value of happy and healthy employees

It is undeniably so that happy and healthy employees play a key role in the financial health of an organisation.

The four behaviours of physical inactivity, poor diet, tobacco use and harmful use of alcohol contribute to the four non-communicable diseases of diabetes, cardiovascular disease, cancer and chronic respiratory diseases. Collectively, these diseases account for some 60% of all deaths worldwide.

When companies are recognised for their efforts to successfully create a workplace culture of health and safety, financial modelling studies indicate that they are more likely to outperform the market. One study has suggested that the cumulative output loss as a result of unhealthy and unhappy workers will amount to US$46.7 trillion for the two decades spanning 2010 to 2030 (Bloom, Cafiero, Jané-Llopis et al., 2011). But how is the health and well-being of employees reflected in the reports of organisations?

Sadly, corporate reporting largely lacks the inclusion of health and well-being (HWB) metrics on employees. USB’s Professor Daniel Malan co-wrote an article on this – titled ‘Health and Well-Being Metrics in Business: The Value of Integrated Reporting’ – in the Journal of Occupational and Environmental Medicine.

In this article, the authors said that health has long been recognised as important for sustainable development as well as sustainable business performance. However, companies fail to capture the value of HWB metrics in their reports.

The cumulative output loss as a result of unhealthy and unhappy workers will amount to US$46.7 trillion for […] 2010 to 2030

 

Enter integrated reporting

According to the authors, a wide range of reporting instruments are used by organisations to disclose sustainability-related information. In fact, the number of reporting instruments has almost doubled since 2013, from 180 to 383 instruments, and these are being used in 64 countries. These instruments are used to support corporate reporting on financial, sustainability, social responsibility, integrated, and regulatory matters.

Today, integrated reporting is used as a cohesive approach to corporate reporting. Its main aim is to improve the quality of information that allows for the efficient allocation of financial capital. The International Integrated Reporting Council introduced a framework for integrated reporting that closely aligns human capital with financial, manufactured, intellectual, social and relationship, and natural capitals. This framework successfully positions human capital alongside the other capitals. However, it does not specifically include HWB in the human capital domain.

Integrated reporting should include more information on health and well-being in order to explain to investors of financial capital how a business creates value over time.

Introducing two new tools to report on the health and well-being of employees

Corporate integrated reporting standards (defined as reporting that demonstrates how long-term value is created for shareholders) as well as sustainability reporting standards (broadly described as triple bottom line or non-financial reporting) traditionally include occupational health and safety disclosures but are devoid of HWB indicators. Also, the inclusion of HWB metrics into corporate reporting would support efforts by the United Nations Global Compact to translate the Sustainable Development Goals into action.

Malan and his co-authors have introduced two new measurement tools that allow for the inclusion of HWB metrics into existing standards for corporate reporting. They presented a Core Scorecard and a Comprehensive Scorecard, designed by a team of subject matter experts convened by the Vitality Institute, and organised around the categories of Governance, Management, and Evidence of Success.

Why the need to include these metrics in corporate integrated reporting? According to the authors, this forms part of corporate governance and ethical leadership, and the values that ultimately align with environmental, social and economic performance.

There is a clear business argument to include HWB metrics into existing standards for corporate reporting. Healthy and well employees are more productive, incur less medical care costs, have lower turnover rates, and report higher levels of job performance. Based on these observations, it stands to reason that integrated reporting should include more information on health and well-being in order to explain to investors of financial capital how a business creates value over time.

For their scorecards, the team of experts included metrics categorised into three equally weighted categories, namely Governance (based on leadership style and culture), Management (reflective of the culture through programmes, policies and practices) and Evidence of success (considering specific measurement and assessment activities within the company that reflect programmatic efforts to reduce health risks and quantify outcomes).

Both scorecards were designed to reflect what a company does or provides that generates HWB among its employees. The scorecards reflect an organisational-level set of actions and are focused corporate governance, ethical and value-driven leadership, and conditions of work.

Linking HWB to the workforce, the community, and the performance of the company itself provides an example of creating shared value in which benefits accrue to all stakeholders involved.

The business case for including HWB metrics in integrated reporting

HWB metrics – generated via the two scorecards – can now be used to report on employee health and well-being in integrated company reports. The scorecards have been designed to complement existing standards for corporate integrated reporting where HWB represents the human capital domain alongside other business capitals. The proposed metrics are unique in this way.

Strong corporate governance and a commitment to ethical leadership and values are required to align corporate reporting with environmental, social and economic performance. Linking HWB to the workforce, the community, and the performance of the company itself provides an example of creating shared value in which benefits accrue to all stakeholders involved.

At the same time, the business sector should not only look at HWB as an input to business processes, but also as an output. This requires additional research on the health impact of products and services on consumers and society at large. As an area of future work, HWB as an output of business processes should be prioritised in the context of creating shared value for all stakeholders involved, including the workplace, the marketplace and the community.

Indeed, the authors believe that using the proposed metrics across multiple sectors and in a manner coordinated and supported by leading standard-setting agencies may allow for a standardised approach that is both comparable and material to business. Reporting on HWB in an integrated manner can yield significant returns for business and society alike.

Prof Daniel Malan teaches Business Ethics and Corporate Governance at the University of Stellenbosch Business School. He is the Director of USB’s Centre for Corporate Governance in Africa and a member of the South African Institute of Chartered Accountants’ Advisory Committee on Health and Wellness.

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Bond markets – the key to unlocking South Africa’s economic growth

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

Bond markets – the key to unlocking South Africa’s economic growth

  • Dr Ashenafi Beyene Fanta and Prof Daniel Makina
  • MAY 2018
  • Tags Insights, Finance

11 minutes to read

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Article written by Dr Ashenafi Beyene Fanta and Prof Daniel Makina

Many researchers disagree on the direction of cause and effect between finance and growth, but a positive link does exist. Most examinations of the finance-growth link center around banks and stock markets, ignoring the role of non-bank financial institutions and the bond market.

While most theories predict unidirectional influence whereby finance leads to economic growth, some show that finance and growth have a bidirectional fundamental relationship. It is argued that when innovation increases, so does the demand for financial services – which in turn leads to growth in the intermediary sector. Others propose that growth enhances financial development by raising borrowers’ ability to secure a loan by using collateral net worth, and that finance promotes growth by increasing return on investment and, as a result, the rate of economic growth.

Most examinations of the finance-growth link … ignore the role of non-bank financial institutions and the bond market.

Role of intermediaries

The lack of well-developed financial intermediaries would be a particularly serious disadvantage for any economy.

Financial intermediaries – i.e. institutions such as banks, building societies and unit-trust companies that hold funds of lenders in order to make loans to borrowers – have the ability to monitor investment projects at a lower cost, which eventually increases entrepreneurs’ access to funds. In the absence of such intermediaries, monitoring costs would be too large, discouraging credit to entrepreneurs.

Intermediaries contribute to economic growth by managing the moral hazard problem (a situation in which one party gets involved in a risky event knowing that it is protected against the risk and that the other party will incur the cost) by designing incentive-compatible loan contracts to avoid diversion of funds towards other purposes.

Economic growth is expedited where intermediaries attract deposits from a large number of depositors out of which they create loans that can be used to finance long-term investment projects to promote capital formation.

South Africa is fertile ground for economic growth

South Africa has a well-developed and sophisticated banking sector comparable to those in some developed countries. A recent 2013 report by the World Economic Forum ranks South African financial sector development 28th in the world and first in Africa. The country’s financial sector is the second best in the BRICS economies, preceded only by China; and, in terms of stability, it is deemed to be one of the most stable in the developed world, ranked third in terms of financial market sophistication, preceded only by the UK and Switzerland.

The country has the largest stock market in Africa with a market capitalisation of 145% to GDP and was ranked first out of 142 economies for its effective regulation of securities exchange in 2012. With 19% market capitalisation to GDP ratio in 2011, the South African bond market is one of the biggest in emerging economies.

Having a turnover of 9% of the global bond market turnover, the country’s secondary bond market was ranked third in the world in 2011. Similarly, the country’s private credit by deposit money banks to GDP ratio of 142% in 2011 ranked first among emerging economies and was by far larger than that of China (121%), Brazil (63%) and India (47%).

Non-bank financial institutions constitute a large portion of the financial sector with total assets to GDP ratio being 95% in 2011 compared to only 78% for deposit money banks. These are financial institutions that do not accept transferable deposits but that perform financial intermediation by accepting other types of deposits or by issuing securities or other liabilities that are close substitutes for deposits as a share of GDP. This covers institutions such as savings and mortgage loan institutions, post-office savings, building and loan associations, finance companies that accept deposits or deposit substitutes, development banks and offshore banking institutions.

Although emerging markets have not had well-developed bond markets in the past, this has changed and bond markets now constitute more than 50% of the GDP in some of them.

Despite its robust financial development, South Africa is dragging its feet in terms of economic growth. During the period 1991 to 2011 growth per capita (GDP) in South Africa was lower at 5% compared to its BRICS peers Brazil (8%), India (7%) and China (15%) and only slightly better than Russia.

Financial intermediaries … such as banks … have the ability to monitor investment projects at a lower cost, which eventually increases entrepreneurs’ access to funds.

The role of bonds in economic growth

In a study considering three elements of a financial system – bond market, bank and non-bank financial institutions, and stock market development – it was found that bond markets have a significant effect on growth and are not driven by economic growth but are rather causing it.

Bond market development is found to have a negative effect on private credit issued by banks and non-financial institutions, implying interchangeableness between the two. This is due to the development of bond markets which might have slowed the growth of banks.

These findings are consistent with other research that reported markets substitute banks in sub-Saharan African countries such as Kenya, while the two complement each other in countries such as the USA. The same relationship is observed between institutional credit and stock markets, implying that market development may have slowed the development of institutions in South Africa.

In a study … it was found that bond markets have a significant effect on growth and are not driven by economic growth but are rather causing it.

It is found that there is a causal relation running from bond markets to growth, but not vice versa, and no causal relationship between either institutional debt and growth, or between stock markets and growth. In addition, economic growth is found to have no effect on the development of bank and non-bank financial institutions and stock markets.

This observation that the bond market – rather than the stock market, banks and non-bank institutions – promotes economic growth in South Africa prompts an intriguing question as to what unique roles bond markets play that intermediaries and equity markets are unable to play. An understanding of the channels through which the bond market contributes to economic growth in South Africa would be fertile ground for future research.

  • Original article: Fanta, A.B. & Makina, D. 2017. Equity, Bonds, Institutional Debt and Economic Growth: Evidence from South Africa. South African Journal of Economics, 85(1), 86-97.
  • Link to article: https://doi.org/10.1111/saje.12122.

Dr Ashenafi Beyene Fanta is a Senior Lecturer of Development Finance at the University of Stellenbosch Business School. He is also head of USB’s PhD in Development Finance. His research interests include financial markets and institutions, financial development, SME financing and financial inclusion.

Prof Daniel Makina is a Professor of Finance and Banking at the University of South Africa, with a special interest in policy and academic research in emerging financial markets, migration, international business, finance and banking.

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Why do township primary schools resist technology adoption?

The Steinhoff Saga Management review - University of Stellenbosch Business School

January –  June 2018

Why do township primary schools resist technology adoption?

  • Tasneem Motala
  • MAY 2018
  • Tags Insights, Strategic Management

13 minutes to read

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Article written by Tasneem Motala

To ensure that the South African public schooling system remains relevant and competitive in the current information society, the government has formulated policies focused on information and communications technology (ICT) integration in education. The 2004 White Paper on e-Education set a goal that every teacher and learner would be ICT-capable by 2013, and efforts are continuously being made to achieve this goal.

Technologies are, however, not always adopted uniformly by educators. Various studies have been carried out to determine the exact reasons for the resistance of teachers to technology. From the existing literature, the most common reasons for resistance are:

  • The fear of students being more competent with technology
  • Teachers’ low levels of confidence in technology usage
  • Inappropriate device training
  • Inappropriate pedagogical training
  • Unrealistic existing workload.

Most studies have been performed in a developed world context where schools are well-resourced, teacher-to-student ratios are within acceptable limits, and teachers have access to technical support when required. However, approximately 38% of the South African population reside in townships where children attend schools that range from well-resourced to severely dysfunctional. The purpose of this study was thus to determine whether teachers in the unique context of a township school have any additional reasons for resisting technology apart from the barriers already identified in the literature.

Approximately 38% of the South African population reside in townships, where children attend schools that range from well-resourced to severely dysfunctional.

Research approach

A qualitative case methodology was selected as the most appropriate research paradigm. A private company was deliberately selected as the subject of the study owing to the experience and success that it has had in technology implementation projects at over 200 (urban, township and rural) schools in South Africa. Following a purposive sampling process, a project manager, facilitation manager and facilitators from the organisation were selected for interviewing. To include the views and opinions of the teachers, the facilitators were requested to select a school from the company’s portfolio which they believed would yield rich information arising from the initial resistance experienced towards the initiative, followed by the subsequent success of the programme. This relatively narrow scope resulted in a primary school, located in a township in Gauteng, being identified as the ideal candidate from which to source interviewees. The technology champion (also a teacher) at the school and senior teachers who were involved in the programme since inception were thus selected to be interviewed. Primary data were collected via semi-structured, in-depth interviews with the nine individuals identified in the sampling process. Thematic analysis was used to deduce the findings.

 

Greater clarity on the barriers

The reasons for resistance to technology integration as identified in previous studies were common to teachers in township schools in South Africa. However, a few additional barriers to technology integration that were not present in the literature were identified following analysis of the data.

No basic infrastructure

Although all schools faced challenges on a daily basis, schools in a township environment faced particular challenges. Resistance to a technology initiative could be expected if a school did not have access to basic infrastructure and amenities such as ablution facilities, desks and electricity. As noted by an interviewee:

‘There may be a community that doesn’t have running water … and all they want is running water. If you go in with technology for the children, it comes across as your idea of their priorities is skewed.’

The resistance in this case might have come not only from the teachers, but also from the community before the project was even implemented. Because the school was part of the community, there was no separation.

The CSI dumping ground

A rural school in which the company was to deploy devices had already been exposed to two technology initiatives, as described by a facilitator:

‘The school had a room with a row of old white computers. In front of this, they had a row of black computers. The problem was that companies had dumped their old equipment at the school, with absolutely no maintenance or support. The school used the computers until they broke, and now had to carry the cost of disposing [of] them. Frankly, it was cheaper for them to let the computers just sit there.’

If a school had had a bad experience with previous technology initiatives, the likelihood of resistance to a new programme increased, especially if the school failed to understand how the proposed programme differed from past initiatives. Resistance from teachers could emerge as a result of a view that the new technology would be a burden on the school itself, much like the previous projects which had been introduced.

Losing control

Primary school teachers tried to maintain an authoritative position and often favoured parent-child relationships with learners in order to stifle unruly behaviour in the classroom. A teacher voiced some frustration with regard to discipline in classes in which the devices were used:

‘Because there are a limited number of devices, every child wants to touch or fiddle with it. They sometimes don’t want to listen because they are so excited and then they talk too much. When this happens, I lose control of the class. I definitely have to exercise extra discipline when using the devices.’

This was a significant finding in an emerging economy context, where class sizes are large and teachers face a daily struggle in trying to provide individualised attention to students.

No personal access to devices

In 2017, World Wide Worx estimated internet penetration in South Africa at 40%. In the present study it was found that some older teachers in township schools still had basic mobile phones which were limited to audio calling and SMS functionality. The teachers who were interviewed did not have access to smart devices during their personal time, and were therefore not granted an opportunity to build their confidence in using such devices.

Principals were often reluctant to allow teachers to take devices home, as the principal was usually held personally responsible and accountable for the devices. Personal access was essential to encourage utilisation in the classroom, as explained by a facilitator:

‘It’s great that the learners have access to [the devices] at school, but when does the teacher actually have time to prepare for lessons? It’s something we’re factoring into our programmes going forward … maybe try to get individual devices for teachers so that they have personal access.’

Two learners per device was proposed by a teacher as the ideal ratio of learners to devices.

Ways to achieve greater success with technology integration

Functioning but under-resourced schools are the prime candidates for technology introduction. Schools that do not have basic infrastructure should not be immediately prioritised for technology projects. The allocated funds should instead be used to address the lack of basic necessities. It is important to identify these cases at the outset to prevent resistance to the programme later on.

The school’s history with technology programmes must also be considered. If past technology programmes were viewed as a burden, the reasons for this view must first be probed to avoid similar attitudes to the proposed programme. It is also the responsibility of corporate South Africa to manage technology donations over the project life cycle, so that schools are not saddled with the responsibility of having to dispose of redundant hardware. The number of devices handed over to the school should be determined based on the number of learners per class. Two learners per device was proposed by a teacher as the ideal ratio of learners to devices. This ratio will allow teachers to maintain classroom discipline while students will learn how to share and how to work together to solve a problem. It is also possible that the assurance of personal access to a device will result in greater buy-in from teachers as they will feel that the programme benefits them not only in their professional environment, but also personally.

‘Resistance to a technology initiative could be expected if a school did not have access to basic infrastructure and amenities such as ablution facilities, desks and electricity.’

There is no doubt that technological devices are tools that can help to level the educational playing field between children from different socioeconomic backgrounds. Owing to a variety of extrinsic and intrinsic reasons, teachers sometimes resist technology initiatives. Consideration must be paid to unique circumstances, experiences and contexts to reduce the impact of the barriers to technology integration.

Tasneem Motala is a Senior Lecturer in Operations Management at the University of Stellenbosch Business School. Her research interests include Process Improvement, the Impact of Operational Interventions on Organisational Behaviour, and Service Excellence.

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The neuroscience of learning: What leaders, lecturers and learners should know

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

The neuroscience of learning: What leaders, lecturers and learners should know

  • Prof Renata Schoeman
  • MAY 2018
  • Tags Insights, Leadership

13 minutes to read

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Article written by Prof Renata Schoeman

It is a no-brainer that soft skills (often phrased as actions, or seen as interpersonal or people skills) such as emotional and social intelligence are as important as, or even more important than (depending on the context), hard skills (often phrased as nouns, or described as technical skills, outputs or deliverables). However, learning soft skills is difficult! The encouraging thing is that our brains are ‘wired’ for these skills. If we adopt the correct mindset, understand neuroplasticity and maximise the learning experience, we can master soft skills. This is how we can do this:

 

Step 1: Adopt a growth mindset

The process starts by adopting a growth mindset. A growth mindset sees mistakes as valuable opportunities to learn – for example, mistakes encourage us to innovate in new directions and view change as a welcome challenge. We compare our results with our own previous achievements. Small successes reinforce self-belief which inspires us to continue to improve.

In contrast to the growth mindset there is the fixed mindset. If we have a fixed mindset, we will avoid mistakes at all costs, see change as a major threat and rather remain stuck in our old ways of doing things. With a fixed mindset we compare our achievements with those of others, i.e. we ask ourselves if they are better or worse, rather than improving or having a ‘setback’ or ‘learning opportunity’, as with the growth mindset.

Another important principle is the adoption of system-setting as opposed to goal-setting. Although goals are important – and provide ‘direction indicators’ along the route to achieving our vision and mission – you can remain in a constant state of temporary or permanent failure. For example, if you have to write paper of 3 000 words, you will constantly fail until the paper is complete. However, if you have a growth mindset and have embraced system-setting, you will commit to writing for 30 minutes every day. Every day brings a small achievement and every day is an opportunity for improvement. Success breeds success.

Now that we understand the importance of the growth mindset, we can look at the ‘arboretum’ in our brain. Each neuron in our brain has thousands of ‘branches’ (dendrites) that are connected to other neurons. We can enhance these connections or ‘prune’ those we do not need. This neuroplasticity is the potential of the brain to reorganise and adapt by creating new neural pathways and connections in response to requirements or experiences. There are two types of neuroplasticity: functional neuroplasticity, which refers to the ability to move functions from a damaged area to an undamaged area, and structural plasticity, which refers to the ability to change physical structure as a result of learning. We are therefore able to teach an old brain new tricks!

Neuroplasticity is the potential of the brain to reorganise and adapt by creating new neural pathways and connections in response to requirements or experiences.

In order to utilise neuroplasticity to ‘re-wire’ our brains, we need to be exposed to a particular stimulus in an accurate and deliberate way, with enough intensity and repetition. Nothing is more effective than practice – we need to put in the effort. The more we struggle, the better!

Another important innate attribute we have in our brain is visuospatial neurons, which are essentially programmed to assist us with human social interactions. There are two mirror neuron networks in our brain: the social brain network which helps us to experience emotion, and the cognitive group which helps us to understand intellectually what another person is experiencing. These mirror neurons are stimulated both when we do something and when we observe the same action performed by someone else. For example, we experience pain when we fall, but we also cringe when someone else has fallen. We can therefore learn through experience, but also through observation and mental rehearsal.

‘Nothing is more effective than practice – we need to put in the effort. The more we struggle, the better!’

Although we often hear ‘Do not take an emotional decision!’ or the contrary ‘He is so unemotional!’, it is a fallacy that we are able to divide decision making artificially into ‘emotional’ and ‘rational’ or ‘cognitive’ decisions. Elizabeth Phelps highlighted this in her 2006 study (Emotion and cognition: insights from studies of the human amygdala. Annual Review of Psychology, 57, 27-53), saying:

 

Investigations into the neural systems underlying human behaviour demonstrate that the mechanisms of emotion and cognition are intertwined from early perception to reasoning. These findings suggest that the classic division between the study of emotion and cognition may be unrealistic and that an understanding of human cognition requires the consideration of emotion.

 

Although certain stimuli may be prone to soliciting an emotional reaction, how those stimuli are processed and interpreted can have a profound impact on both internal states and expressed behaviours and actions. Through conscious strategies and practice, we can change our interpretation of specific stimuli, enabling us to alter our own and other people’s emotional reactions. Changing emotional responses through reasoning and strategies emphasises the impact of cognition on emotion. This is good news, as it provides another useful ingredient for optimal learning.

So how can we integrate these innate abilities to learn the hard and soft skills we need in order to be successful students, lecturers and leaders? The first step is to pay attention: we must be deliberate in our endeavours. Do not mindlessly read or listen. Be curious. Avoid distractions. Do not multi-task.

 

Step 2: Generate questions

The second step is to generate questions. We have an innate value system in our ventral striatum and medial prefrontal cortex, which helps us to find value in new things and thoughts. But we can enhance this value system by priming our brain for the learning experience. We need to be able to find personal or social relevance in information. Is this worthwhile doing? What do we want to learn or gain from this? What are the implications (the ‘so what?’) of this? Even more important, is it worthwhile sharing? In other words, is this sufficiently valuable or interesting that we would want to tell someone about it (in person or on social media)?

 

Step 3: Tap into emotions

The third step in optimising learning is to tap into emotions. A bit of stress (such as a deadline or upcoming evaluation) can aid learning because of the increase in dopamine and noradrenaline which helps us to pay attention and to concentrate. We can also enhance this ability by introducing a reward system (work incentives or a self-reward like ‘earning’ a coffee break or dinner) or by avoiding punishment (like failing a test or experiencing social rejection). However, too much stress can paralyse us and have the opposite effect. How can we manage our stress levels? The basic principles of self-care (sleeping, exercising, pursuing educational opportunities, maintaining a healthy and balanced diet, and socialising) are crucial for optimising our mental health and enabling our brain to learn optimally.

 

Step 4: Repetition

The fourth and final important step is repetition: the spacing of our learning experiences over a period of time. Being exposed to information only once simply activates a circuit of reverberating neurons in our brain; when the flow of electricity stops, the information ‘disappears’ (this is what happens when we look up a telephone number, dial it … and five minutes later we have no idea what the number was). However, if we repeat the learning experience we activate neurotransmitters in our brain which produce longer-term chemical changes. This enables us to keep information in our heads for days to weeks. But we often want structural change – learning that facilitates long-term memory over a period of months or years – for which we need even more repetition. As a rule of thumb, if we want to remember something for a week, we should repeat it within days; if we want to remember it for months, repeat it within weeks, and if we want it to last for a lifetime, repeat it within months.

Investigations into the neural systems underlying human behaviour demonstrate that the mechanisms of emotion and cognition are intertwined from early perception to reasoning.

To be successful in life, we need to harbour (and continuously improve) hard and soft skills. Soft skills are more difficult to learn, but our brains are ‘wired’ for cognitive, emotional and social intelligence and learning. Yet we can only truly learn and improve the learning experience of others if we have a sincere desire to do so and are prepared to put in a concerted effort, including the requisite amount of practice.

Prof Renata Schoeman is an associate professor in Personal Authentic Leadership and Leadership Development at the University of Stellenbosch Business School. Her research interests include the neuroscience of leadership and learning, and ADHD. She is also a registered psychiatrist.

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Brain-based behaviours: Leading with SCARF in mind

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

Brain-based behaviours: Leading with SCARF in mind

  • Dr Dorrian Aiken
  • MAY 2018
  • Tags Insights, Leadership

16 minutes to read

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Article written by Dr Dorrian Aiken

In 2011, in preparation for the launch of the newly designed Certificate in Neuroleadership, USB-ED at the University of Stellenbosch Business School invited Dr David Rock to train a small group in the use of his SCARF model, and I was fortunate enough to attend. Rock described how he had coined the term neuroleadership in 2007 on the premise that neuroscience research was invaluable to leadership development if only lay people had access to its unfolding revelations. Indeed, neuroscience has become ‘one of the fastest growing areas of contemporary science’, according to Rock and his two colleagues, Al Ringleb and Chris Ancona, in an article they wrote for NeuroLeadership Journal in 2012 (NeuroLeadership in 2011 and 201). They added: ‘In the five years since its introduction in 2008, SCARF has become a widely discussed model in management circles, including being highlighted as one of the ‘Best Ideas of 15 Years’ by Strategy + Business magazine.’ The success of the SCARF model, an outcome of Rock’s doctoral research, is evidenced in the significant organisational following it has attracted globally.

Through our social interactions we literally change one another’s brains, for better or worse.

Rock has drawn heavily on limbic brain research data to create his SCARF model. The acronym SCARF stands for Status, Certainty, Autonomy, Relatedness and Fairness ‒ five key triggers that activate the limbic brain, either positively or negatively, in our relationship with others. The limbic brain enables us to interpret the inner world of another person, an enhanced survival strategy that would not have been part of a dinosaur’s reptilian brain skill set, for example. We are conditioned to react in the interests of survival to any perceived threat. In its imperative to ensure humans’ survival, the limbic brain defaults to fight or flight in under a fifth of a second, 24 hours a day.

A few years ago, David Rock and Christine Cox observed that: ‘People are acutely sensitive to their social status, that is, their importance relative to others, and tend to be accurate judges of where they fall on the social ladder’ (SCARF in 2012: Updating the social neuroscience of collaborating with others. NeuroLeadership Journal, 4, 129-142). Any slight to our status, for example, will initiate a flight or fight response precipitated by the release of cortisol and adrenalin into our systems. Across numerous species, status has been shown to be a critical factor in general health and survival. In the training sessions with Rock, I was surprised and dismayed to find how conscious I was of status during the course of an ordinary day: from high-status annoyance with cavalier taxis pushing in on the roads, to low-status feelings of being drably dressed in the company of chic friends at a birthday breakfast.

SCARF’s contribution to leadership development (a core theme in business school curricula) is in highlighting the link between understanding the brain and understanding people. Through our social interactions we literally change one another’s brains, for better or worse. Thomas Lewis, Fari Amini and Richard Lannon in their 2000 work, A General Theory of Love, stated: ‘… because we change one another’s brains through limbic revision, what we do inside relationships matters more than any other aspect of human life’. The implication for leadership is that for an organisation to flourish, positive relational skills are as important as technical skills.

To illustrate how SCARF can be negatively activated: I was involved in a leadership development coaching project in an organisation. Halfway through the project, I learned that the organisation was under threat of a proposed merger. The merger talks collapsed at the eleventh hour, but until that time, all of the five responses described by Rock had been negatively triggered. The status of the managing director and his executive managers was undermined by the very much bigger fish they might have had to swim with in a completely different and hostile sea; there was no certainty about either the fate of all the employees or the timelines involved; autonomy to lead the company into the future was suspended; there was little chance of being able to relate empathetically to the key players in the proposed merger; and above all, the secrecy, lack of information and sudden prospect of a possible bleak future felt very unfair. Being changed by others usually feels like a threat. The prospect of change, unless well managed and skilfully led, can push all the SCARF buttons in a negative way.

As long as we are pumping cortisol and adrenalin into our bloodstream in reaction to perceived threats, we are likely to react in the interests of self-protection – a knee-jerk reaction in response to how we are feeling.

Another example of the negative side of SCARF can be found in South Africa’s distant and more recent history. With its long colonial past transitioning into apartheid and, since 1994, ever-widening state of inequality, the country is now home to millions of people of all races who are likely to (at least at times) see all five SCARF aspects in a negative light. For example, for decades the status of black citizens has been undermined, while today white citizens may also feel that their status is threatened. The future feels uncertain. People’s sense of autonomy has been undermined, with widespread feelings of powerlessness in the face of entrenched poverty and corruption. South Africans often feel sadly adrift in their capacity to relate to one another, and for many (of all persuasions) life simply does not feel fair.

The SCARF model’s popularity as a means of creating awareness and building relational competencies in leaders and managers is no doubt its accessibility – its language is non-academic and its various tenets are easy to identify with, whether on the shop floor or in the boardroom. Most important is the fact that its five triggers are immediately recognisable through practical experience. Each of us can relate to a memory of feeling slighted ‒ perhaps we were interrupted while trying to say something at a meeting or maybe we were overlooked for a place in the team. We all know the unsettling experience of uncertainty, like not having a solution to a problem or losing our way in a strange part of town. Ask any group of employees if anyone has been micro-managed and witness the emotional response from those who have had their autonomy throttled.

As long as we are pumping cortisol and adrenalin into our bloodstream in reaction to perceived threats, we are likely to react in the interests of self-protection – a knee-jerk reaction in response to how we are feeling. The physiological consequence is restricted blood flow to the neocortex ‒ which is the brain responsible for logical sequencing, symbolic thinking, pattern-making and planning ‒ and increased blood flow to the limbic brain. So, quite literally, we cannot think clearly when we are charged with emotion. Have you ever been lost for words? When we are gripped by intense emotion – anger, shock or humiliation – the symbolic language-forming, logical, pattern-making brain is overwhelmed by the powerful limbic brain neuro-chemical response which upsets our ability to think rationally. Conversely, a positive boost to our status, like receiving a compliment and feeling valued, releases the feel-good hormones – dopamine, serotonin, oxytocin and endorphins ‒ which promote more evenly balanced activity in the brain. According to Rock, a balance of dopamine (which induces feelings of pleasure and relaxation) and norepinephrine (which induces alertness) is ideal for the kind of creative, focused thinking that drives high performance.

The research underpinning the SCARF model helps us to understand the ways in which our brains function when confronted with differences in others. This is particularly important when leaders have to manage diversity. Whether we are reacting to differences in race, gender, ethnic group, sexual orientation or personality style, the research on human brain activity indicates that our limbic brains are programmed to treat any difference as a potential threat to survival. The relationship button in the SCARF model flicks the limbic brain onto red alert, and cortisol and adrenalin pump into the blood stream. The good news is that we can choose to intervene in triggered fight or flight responses. In 1994 Jon Kabat-Zinn said: ‘Mindfulness is the awareness that emerges from paying attention in a particular way: on purpose, in the present moment and non-judgmentally.’

The concept of positive and negative triggers in relationships, which in turn are enhanced by each person’s own experiential awareness, is the reason that the SCARF model is so effective.

Being consciously aware (using the SCARF model) of our limbic brain responses gives us choices in how to intervene in a triggered response. SCARF principles suggest that nothing is more important for all levels of leadership today than self-reflection and mindfulness if leaders are to develop awareness of their own thoughts and feelings. Furthermore, cultivating mindfulness of self and others is sustainable only if it is practised daily so that it becomes an embedded skill induced by experiential learning and repeated effort.

Some years ago, research psychiatrist Jeffrey Schwartz (in conversation with Rock) challenged the notion of some neuroscientists that the complex, continuous interaction within our brain, much of which is below the level of conscious awareness, suggests that we do not have free will. Schwartz maintained, on evidence, that in fact we might not always have free will but we certainly do have free won’t – the mindful ability to contradict, in a fraction of a second, a knee-jerk reaction, which allows a more considered response. Learning to master such new behaviours is a process of neuroplasticity, which is the capacity of all of us to learn, or unlearn and relearn; with the caveat being that constant practice is necessary.

The relational skills required to engage others positively through the mindful awareness of the SCARF model are well within the capability of most normally functioning adults. Indeed, nothing could be more important for leaders to master. According to recent research conducted by Lisa Feldman Barrett, working and living in the presence of constantly belittling words and negative body language can cause irreversible damage to the functioning of our immune system. So what should we encourage leaders and managers to do?

To begin with, we can encourage them to recognise the importance of giving affirmation in social contexts. Affirm the status of all. When status is affirmed, the capacity for mindfulness and self-critical awareness is enhanced. Provide certainty by communicating frequently and inviting questions to check common understanding. Build autonomy by helping people to develop their own insights by asking good questions, by challenging and by giving affirmation. Build relationships by establishing trust that is based on consistency, timely feedback and positive engagement. Be aware that strong leadership needs to work consciously against the way the brain wants to function ‒ that is, to find solutions for others, to solve the problem! Ensure fairness. Be willing to listen without defensiveness to others’ experiences of unfairness.

The SCARF model, and the enthusiastic welcome it has received from organisations, shows that we are on a path towards new theoretical frameworks for, and new approaches in, leadership development. Given what we now know about the brain, the focus should clearly be on building positive relationship skills. To this end, the concept of positive and negative triggers in relationships, which in turn are enhanced by each person’s own experiential awareness, is the reason that the SCARF model is so effective.

The NeuroLeadership Institute, established by Rock and a number of colleagues in 2008, has made its findings accessible to the general public in many journal articles, offering insights, tools and techniques in the application of neuroscience findings to leadership and organisations.

Dr Dorrian Aiken is a visiting faculty member at the University of Stellenbosch Business School where she lectures on Leadership Development and Organisational Development. She is a Master Integral Coach™ and she consults widely in the field of coaching, organisational transformation and leadership development.

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