Strategic Management

The importance of strong corporate governance in a complex world

The importance of strong corporate governance in a complex world

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2019

The importance of strong corporate governance in a complex world

The importance of strong corporate governance in a complex world

By Hendrik Steynberg

  • DEC 2019

14 minutes to read

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It is about leadership and strong corporate governance

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

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

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

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

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

Is there a link between corporate governance and organisational performance?

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

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

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

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

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

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

The purpose of the study

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

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

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

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

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

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

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

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

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

Findings from the survey

Perceived importance of internal controls

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

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

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

Perceived impact of the implementation of internal controls

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

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

Key insights

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

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

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

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

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

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

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

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2019

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

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

By Nishant Saxena and Prof Marius Ungerer

  • DEC 2019

20 minutes to read

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The appeal of the pharmaceutical market in Africa

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

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

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

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

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

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

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

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

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

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

The integration plan

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

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

Post-acquisition headaches: the early days

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

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

  • Business challenges

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

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

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

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

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

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

  • Regulatory challenges

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

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

  • Economic and political challenges

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

  • Cultural challenges

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

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

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

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

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

Fast forward to 2017: from vision to action

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

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

  • Strategic focus area 1: innovation and growth

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

 

  • Strategic focus area 2: operational efficiencies

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

  • Strategic focus area 3: leadership and culture

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

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

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

  • Strategic focus area 4: ‘One Cipla’

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

Final thoughts

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

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

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

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

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

By Deidre Samson

  • JUN 2019
  • Tags Reports, Management

18 minutes to read

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The future has arrived

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

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

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

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

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

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

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

Disruptive technologies driving change

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

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

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

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

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

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

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

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

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

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

How advancing technologies are impacting jobs

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

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

Implications of a changing world for organisational structure

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

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

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

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

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

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

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

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

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

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

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

  • June 2019
  • Tags Strategic Management

16 minutes to read

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

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

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

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

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

Why brand engagement is important

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

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

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

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

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

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

The reflexivity of brand and human capital

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

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

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

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

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

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

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

How the study was conducted

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

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

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

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

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

    Findings

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

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

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

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

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

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

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

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

Employees’ opinions matter

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

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

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

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

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

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

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

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

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

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

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

By Rika Butler and Martin Butler

  • June 2019
  • Tags Strategic Management

18 minutes to read

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Overview of current research on demographics and password practices

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

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

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

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

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

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

The need to change users’ behaviour in terms of passwords

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

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

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

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

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

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

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

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

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

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

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

Analysis of weak password behaviour per demographic group

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

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

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

Variations within different demographic groups

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

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

Designing different password programmes for different groups

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

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

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

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

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

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

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

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How do consumers choose the wines they buy?

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

How do consumers choose the wines they buy?

By Jeandri Robertson, Caitlin Ferreira and Prof Elsamari Botha

  • June 2019
  • Tags Insights, Coaching

15 minutes to read

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Decisions, decisions: the importance of product knowledge in the evaluation and choice of wine

Recent years have seen a dramatic increase in wine consumption in many parts of the world, and this trend is likely to continue. Today consumers are faced with a bewildering selection of wines, all boasting attributes designed to catch their attention and encourage them to come back for more ‒ from an impressive quality rating and well-known brand name, to attractive labelling.

Not surprisingly, choosing a wine is becoming an increasingly daunting task for many consumers. Yet wine purchases are rarely made on a whim. Consumers assess wines on the basis of several obvious and less obvious attributes, with their choices heavily influenced by whether they are wine aficionados, complete novices or somewhere in between. Understanding what consumers look for in a wine and where a particular product is perceived to be on the value-price fulcrum lies at the heart of an effective wine marketing strategy.

Today consumers are faced with a bewildering selection of wines, all boasting attributes designed to catch their attention, stir their interest and encourage them to come back for more.’

Product knowledge is a very important, but often overlooked, factor in the evaluation of different types of wine. Such knowledge may be subjective or objective. Subjective knowledge refers to what individuals think or believe they know about a particular topic, while objective knowledge refers to what people actually know about a topic in a practical sense, which can be verified or demonstrated to be correct. One could say that subjective knowledge is imagined while objective knowledge is real. Objective knowledge is typically associated with experience and expertise, and is therefore considered more reliable than subjective knowledge which could be the result of hearsay, preconceived ideas or bias. Yet, subjective knowledge is increasingly found to influence consumer behaviour.

Both subjective knowledge and objective knowledge are equally important to wine marketers because what consumers think they know and what they actually know about wine will influence the marketing strategy. This is because the presence of perceived and actual product knowledge gives rise to different market segments whose predilection for certain wine characteristics (and the relative strength of their perceived knowledge versus actual knowledge) needs to be investigated. Often wineries target wine experts differently to the average consumer, and this study investigates whether that should in fact be the case.

The ‘intrinsic’ attributes of wine include colour and taste. The ‘extrinsic’ attributes of wine include price, age (or vintage), brand and region of origin. Extrinsic attributes appeal to consumers’ senses in more complex ways than intrinsic attributes, often making the marketing of the former more challenging. However, a wine’s extrinsic attributes cannot be divorced from its intrinsic attributes. Thus, wine production and marketing are inextricably linked.

‘Consumers assess wines on the basis of several obvious and less obvious attributes, with their choices heavily influenced by whether they are wine aficionados, complete novices or somewhere in between.’

Extrinsic attributes have been defined as those that ‘are known or can be known to the consumer before buying the bottle of wine and are separated from the actual characteristics of the wine’. The contemporary literature on wine marketing is focusing increasingly on the ‘extrinsic’ attributes of wine, but what has not been researched is how product knowledge – both subjective and objective – influences the importance that consumers attach to extrinsic attributes.

This paper examines the influence of subjective and objective product knowledge on the relative importance of four extrinsic attributes of wine ‒ price, age, brand and region of origin ‒ in the evaluation and purchase of wine by consumers. The paper first presents the findings from a literature review and then discusses the results of an online survey that the authors conducted among a sample of experienced and less experienced wine drinkers.

‘Both subject knowledge and objective knowledge are equally important to wine marketers because what a consumer thinks they know and what they actually know about wine will influence the marketing strategy.’

A typology of wine knowledge

A ‘wine knowledge typology’ was developed by Vigar-Ellis, Pitt and Caruana in 2015 to provide a useful guide to the different degrees of, and variations in, wine knowledge among consumers. The typology identifies four main categories of wine consumer:

  1. Neophyte (low objective knowledge + low subjective knowledge): A consumer who knows and also thinks they know very little about wine. A dictionary definition of a neophyte is someone who has just started learning or doing something.
  2. Snob (low objective knowledge + high subjective knowledge): A consumer who believes they know more about wine than they actually do.
  3. Modest (high objective knowledge + low subjective knowledge): A consumer who actually knows more about wine than they think they do.
  4. Expert (high objective knowledge + high subjective knowledge): A consumer who thinks they know a lot about wine, and in fact do.

While it can be dangerous to generalise, some broad characteristics have emerged from the literature on the different types of wine consumer. For example, people’s relative wine knowledge has a significant bearing on the extent to which they are motivated to look for information about a particular wine. Also, most consumers tend to be overly confident about and overestimate their wine knowledge. Furthermore, expert consumers have been found to attach more value to the origin of wine, its official ranking and château name, while novices generally base their wine choices on price, age and bottle design.

‘To a consumer, the price of a bottle of wine is not only about its affordability; it is also an important part of the wine’s perceived brand value and can add to (or detract from) its desirability.’

What the literature says: The influence of price, vintage, region and brand on wine purchases

The interaction between price and quality is a key area of interest in the economics field and has been extensively researched. In the context of wine purchasing behaviour, the general consensus is that price and perceived quality are strongly interrelated. People’s views about price can be influenced by both subjective and objective knowledge. To a consumer, the price of a bottle of wine is not only about its affordability; it is also an important part of the wine’s perceived brand value and can add to (or detract from) its desirability. Although consumers typically weigh up several attributes when selecting wine, those with less brand knowledge are inclined to attach relatively more importance to price as a quality indicator.

Although some authors see the age or vintage of a wine as an intrinsic attribute, others argue that age should be treated as an extrinsic attribute because it can be evaluated without the wine being consumed. A number of authors have discerned a strong relationship between a wine’s age and its price, saying that as a wine matures over time its price tends to increase. A wine’s age can therefore also be seen as a mark of quality. Though often price-sensitive, novice consumers may be prepared to pay premium prices for older wine if its quality can be verified through a visible quality symbol or a persuasive argument provided by a specialist wine store.

‘A wine’s brand is a powerful marketing tool because it evokes different feelings and emotions in people, which can be tapped through the interplay of words and images, and an interesting story line. ’

A wine’s brand is a powerful marketing tool because it evokes different feelings and emotions in people, which can be tapped through the interplay of words and images, and an interesting story line. Part of the story line is the region of origin, an attribute that can make a brand particularly distinctive. A wine’s brand (and where the wine was produced) tends to make a stronger impression on more knowledgeable consumers. However, having said that, wine connoisseurs do not necessarily see the brand as being a consistent mark of quality; they will also consider other attributes before arriving at a final choice. Novices, in contrast, rely more on first impressions and are generally more swayed by a country or region of origin than the actual brand name and what it stands for.

The influence of region of origin on wine purchases has been one of the most heavily researched topics in wine circles in recent years. Region of origin indicates where a wine’s grapes are grown, where vinification takes place, how the wine is classified and also sometimes where it is bottled. Like a brand name, the region of origin can trigger perceptions about a wine’s quality and character on the basis of its geographical or cultural identity. For example, ‘New World’ wine-producing countries like Australia, New Zealand and South Africa have differentiated themselves from more traditional, ‘Old World’ wine-producing countries like France, Germany, Italy and Spain.

What the online survey revealed

Using a conjoint analysis (a statistical technique used to determine how people value particular attributes that make up a product), price emerged as the most important extrinsic attribute for wine purchases – irrespective of the level of product knowledge. Furthermore, most respondents, including those in the Expert category, indicated a preference for the mid-priced range of wine. Interestingly, those in the Snob category ranked expensive wine as their least preferred attribute. This suggests that consumers generally apply risk-reduction strategies when making wine purchases.

Region of origin emerged as the second most important attribute among respondents, with those in the Expert and Modest categories preferring this particular attribute over others. Those in the Neophyte, Modest and Expert categories viewed unknown region of origin (in other words, no information on the region was available) as their least preferred attribute. This highlights the importance of a wine having a clear regional identity. The Neophyte and Snob categories of consumer attached relatively high importance to a wine’s brand, with both indicating that their highest preference was for well-known brands. Clearly, brand differentiation is an important factor when marketing to all levels of consumer.

Age of wine was shown to be of lesser importance to respondents, with wines in the mid-range generally being the preferred attribute. This mirrors the preference for mid-priced wines and suggests a risk-mitigation approach.

‘Even novice consumers, with limited practical knowledge of wine, constitute a distinct market segment because they display common tendencies when evaluating and choosing wine, which marketers should creatively tap into. ’

Conclusion

With the global wine industry becoming increasingly congested and competitive, wine producers and marketers need to appeal to consumers in ever new and innovative ways. Understanding what motivates consumers to buy particular types of wine is a critical part of this process. While the literature is replete with studies on the extrinsic attributes of wine and how these drive wine sales, the particular contribution of this study is that it delves into a neglected area of research – that is, how consumers’ knowledge of wine influences their perceptions about the relative importance of price, age, brand and region of origin. What is interesting is that even novice consumers, with limited practical knowledge of wine, constitute a distinct market segment because they display common tendencies when evaluating and choosing wine, which marketers should creatively tap into.

This study lays an important foundation for more in-depth studies into the influence of product knowledge on wine purchasing behaviour, taking additional attributes into consideration. Wine labels and bottle characteristics, for example, could be included in the product attribute mix as visual cues can steer consumers in very clear directions. In line with the global focus on terroir in wine, region did in fact have the greatest influence on wine drinkers when considering both novices and experts.

  • Find the original journal article here: Robertson, J., Ferreira, C., & Botha, E. (2018). The influence of product knowledge on the relative importance of extrinsic product attributes of wine. Journal of Wine Research, 29(3), 159-176. DOI: https://www.tandfonline.com/doi/full/10.1080/09571264.2018.1505605.
  • Jeandri Robertson is from the Department of Business Administration, Technology and Social Sciences, Luleå University of Technology, Luleå, Sweden.
  • Caitlin Ferreira is from the Department of Business Administration, Technology and Social Sciences, Luleå University of Technology, Luleå, Sweden.
  • Prof Elsamari Botha lectures in Digital Enterprise Management and Digital Futures at the University of Stellenbosch Business School.

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The ethic of care: An HR strategy to address obesity in the workplace

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

The ethic of care: An HR strategy to address obesity in the workplace

By Leon C. Prieto, Dr Babita Mathur-Helm and Kasey N. Dawson

  • OCT 2018
  • Tags Insights, Strategic Management

12 minutes to read

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Obesity in the workplace: counting the costs

Despite the importance attached to wellness and healthy eating in many countries, millions of people around the world are overweight, with obesity growing at an alarming rate. Someone is obese when their body mass index is greater than or equal to 30. According to the World Health Organization, of the 1.9 billion adults classified as overweight, 600 million (more than 30%) are obese. In the United States, one in four workers is obese, according to a Gallup study. The obesity phenomenon is not only an indictment of modern society; it is also proving to be very expensive for employers whose ability to compete in the market place is heavily dependent on a productive workforce and streamlined cost structures.

Obesity generally means a higher-than-normal rate of absenteeism, lower productivity and rising healthcare costs. A recent study put the cost of obesity among full-time employees at a staggering $73.1 billion. According to the US Center of Disease Control (CDC), the medical costs for obese individuals in 2008 were $1,429 higher than those for people of normal weight. Obese employees tend to be less productive than non-obese employees because they often perform their tasks less efficiently, require longer rest periods, are more susceptible to illness and are more likely to be injured on the job.

The obesity phenomenon is not only an indictment of modern society; it is also proving to be very expensive for employers whose ability to compete in the market place is heavily dependent on a productive workforce and streamlined cost structures.

Sectors most severely affected by obesity

In a recent study, the prevalence of obesity was found to be greatest among transportation workers. Most tasks performed in the transformation sector are sedentary and so workers are less likely to exercise during the day. Insufficient physical activity on transport routes, long hours, a lack of scheduled breaks or meals, and a paucity of healthy food options all contribute to significant weight gain. Studies have shown that bus drivers, for example, show consistently higher rates of obesity, absenteeism, morbidity and mortality than employees in other sectors.

Healthcare workers (particularly nurses) are also a high-risk group for obesity. In a study of 5000 registered nurses, 54% were found to be overweight or obese. Nurses cited insufficient physical activity, poor diet, sleep deprivation and high stress levels as contributing factors. To keep their energy levels up during lengthy shifts, nurses often consume more food, which leads to weight gain. Interestingly, the more well-paid health practitioners, such as doctors, are less likely to be obese because they can afford to eat more healthily and go to gym to stay in shape.

Worldwide discrimination against individuals with obesity

In the United States, obese people face a great deal of discrimination and prejudice because of their weight. One might ask whether the obese have any special rights that would deter such prejudice. In general, non-morbid obesity is not considered a disability under the Americans with Disabilities Act (ADA) because it is not seen to significantly limit people’s day-to-day activities. Although the Equal Employment Opportunity Commission views morbid obesity as protected under the ADA, which should theoretically shield people against discriminatory treatment, some courts have not concurred with this view when judging discrimination-related cases.

Obese employees tend to be less productive than non-obese employees because they often perform their tasks less efficiently, require longer rest periods, are more susceptible to illness and are more likely to be injured on the job.

South Africa has the dubious reputation of being among the three most overweight nations in the world. As many as 56% of women and 29% of men are overweight, while 27% of women and 10% of men are obese. This can have serious implications for people’s employment and advancement prospects. To discourage weight-based discrimination in various industries, South Africa has been adapting its labour legislation to more proactively and sensitively address the health and emotional issues that often go hand in hand with overweight and obesity. But it is early days still.

Weight-based discrimination in the workplace has been prevalent in Australia for many years. There is no national law that prohibits such discrimination. However, the state of Victoria prohibits overweight workers from being discriminated against (the only state to do so). Nearly 30% of the complaints lodged with the Victorian Equal Opportunity and Human Rights Commission pertaining to ‘physical features’ have been about weight-related discrimination.

South Africa has the dubious reputation of being among the three most overweight nations in the world.

In the UK, it is acknowledged that weight-based discrimination can be problematic in the working environment. However, the UK Equality Act does not recognise obesity as a disability requiring special consideration and/or treatment.

The ethic of care approach to tackling obesity in the workplace

What should companies be doing to tackle the obesity problem, both in the interests of their bottom line and society as a whole?

Given many countries’ policy and legislative shortcomings, it is incumbent upon the HR function in individual companies to introduce appropriate measures to mitigate the potentially adverse consequences of obesity among employees. One strategy that is gaining traction is the ‘ethic of care’ approach. In broad terms, it involves employers recognising employees’ needs and willingly shouldering the burden of meeting those needs.

The ethic of care approach is particularly appropriate when obesity poses a threat to efficiency as it emphasises the value that all employees bring to the company and encourages overweight and obese employees to make positive lifestyle changes.

The ethic of care approach is particularly appropriate when obesity poses a threat to efficiency, as it emphasises the value that all employees bring to the company and encourages overweight and obese employees to make positive lifestyle changes. Among the helpful measures that HR could take are: introducing a company policy that prohibits discrimination on the basis of weight; introducing wellness programmes for all employees, not just those who are overweight or obese; offering discounted gym memberships to employees; facilitating the formation of support groups in which employees facing similar weight-related challenges can interact and find the motivation to pursue a healthier lifestyle; and conducting a job analysis and redesign exercise to help reduce the incidence of obesity among employees.

Conclusion

Obesity and how to tackle it in an effective and sustainable manner are likely to preoccupy management teams well into the future. Although HR departments should not have to carry the responsibility for obesity management on their own, they are well-placed to conceptualise and drive initiatives that encourage unity, rather than division, among employees – regardless of their particular size or shape. This is the essence of the ethic of care approach, which involves creating a physical environment that is conducive to more healthy living while also offering support at a deeper, more emotional level. Too often, obese people find themselves isolated in a highly judgemental world. Tackling the obesity phenomenon more systematically and honestly will help to imbue companies with a healthier and more human-centred culture.

Although HR departments should not have to bear the responsibility of obesity management on their own, they are well-placed to conceptualise and drive initiatives that encourage unity, rather than division, among employees – regardless of their particular size or shape.

  • Find the original journal article here: Prieto, L. C., Mathur-Helm, B., & Dawson, K. N. (2018). The ethic of care: An HR strategy to address obesity in the workplace. Human Resource Management International Digest, 26(2), 12‒15. DOI: https://doi.org/10.1108/HRMID-07-2017-0131
  • Leon Prieto is Associate Professor of Management at the College of Business, Clayton State University, Morrow, Georgia, USA.
  • Dr Babita Mathur-Helm is Senior Lecturer at the University of Stellenbosch Business School, Bellville, Western Cape, South Africa.
  • Kasey N. Dawson is based at the Golden Key International Honour Society, Atlanta, Georgia, USA.

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Alternative fuel vehicles in South Africa: What drives green consumer behaviour?

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

Alternative fuel vehicles in South Africa: What drives green consumer behaviour?

By Brett Hamilton and Prof Marlize Terblanche-Smit

  • June 2019
  • Tags Strategic Management

16 minutes to read

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What drives green consumer behaviour?

While alternative fuel vehicles (AFVs) still account for a relatively small percentage of total vehicle sales, awareness of the impact of car usage on the environment is growing among consumers. Vehicle-emission controls are on the increase, and so too the number of AFVs available in the market.

With this increased awareness in mind, this study explored the underlying reasons that influence green consumer behaviour as this will allow retailers and marketers to develop more effective green marketing strategies.

The team explored the very factors that underlie consumer behaviour while considering the influence of attitude, subjective norm and perceived behavioural control on behavioural intention. They also looked at how a general positive attitude toward the environment results in a limited purchase of environmentally friendlier cars, often referred to as the attitude-action gap.

Concerns about pollution, limited fossil fuel reserves and climate change mean that consumers have become aware of the effect of their behaviour on the environment. This has given rise to ‘green consumerism’.

Growing environmental consciousness

Concerns about pollution, limited fossil fuel reserves and climate change mean that consumers have become aware of the effect of their behaviour on the environment. This has given rise to ‘green consumerism’. In addition, many companies are adopting green marketing strategies and environmental product attributes as a form of competitive advantage.

In the automotive industry, AFVs have been introduced as a green alternative that is less harmful to the environment. These vehicles use a conventional petroleum or diesel internal combustion engine in addition to at least one other type of propulsion system – such as an electric motor, bio-fuel, fuel-cells or compressed natural gas, or pure electric drive. The AFVs that were initially available in the South African market were hybrid electric-drive vehicles that use an internal combustion engine along with an electric motor. However, pure electric-drive vehicles have now also become available.

… many companies are adopting green marketing strategies and environmental product attributes as a form of competitive advantage

Offering green products that are less harmful for the environment, such as AFVs, holds many potential benefits as it meets the needs of environmentally concerned consumers while positively impacting on the brand image, reputation and financial performance of a company.

However, despite a significant rise in green awareness among consumers, merely offering green products does not guarantee long-term market success for companies as there remains a gap between positive attitudes and actual market data.

For example, in Belgium only 0.48% of new vehicles registered in 2013 were AFVs. In the UK, low-carbon cars (those emitting less than 100 g of CO2 per km) represented only 0.1% of car sales during 2013, while in South Africa, only 0.12% of new vehicles sold during 2013 were AFVs.

In many cases, these low figures are in spite of government incentives for the purchase or use of green vehicles, government disincentives for the use of conventional vehicles and the availability of numerous AFVs in the market.

… understanding green consumer behaviour is important as more alternative fuel vehicles become available and consumers have greater opportunities to express their environmental values and attitudes.

While technological factors (such as battery technology limitations and high costs) and situational factors (such as economic and regulatory factors) do curtail the adoption of AFVs, major barriers are found to wider adoption based on attitudinal factors. Consequently, understanding green consumer behaviour is important as more AFVs become available and consumers have greater opportunities to express their environmental values and attitudes. The development of marketing strategies for this growing demand relies greatly on understanding consumer behaviour and specifically on positive consumer attitudes as forerunners to purchase behaviour.

The theory of planned behaviour

To examine the purchase intention of South African consumers with regard to AFVs, the theory of planned behaviour (TPB) was used. Developed by Icek Ajzen in 1985, this framework can be used to define, predict and change consumer behaviour.  According to the TPB, actual behaviour is determined by the intention to perform behaviour (behavioural intention, BI), while this intention is jointly influenced by an individual’s attitude towards performing behaviour (A), perceived social influence of referent others (subjective norm, SN) and perceived behavioural control (PBC) over performing behaviour. These three determinants of intention, in turn, follow from an individual’s beliefs.

  • Attitude and behaviour: An attitude can be defined as an enduring favourable or unfavourable evaluation or feeling consumers have towards a product, behaviour, service, object or event. Individuals are more likely to perform specific behaviours if they have a positive attitude. Numerous studies support this positive relationship, including those related to purchasing environmentally responsible products or performing environmentally friendly behaviours.
  • Subjective norm and behaviour: Relating to the perceived social influence of others and the motivation to comply with the actual behaviour sought from referents, an individual may have more than one referent other, and it might also be a group known as a reference group.

The development of marketing strategies for this growing demand relies greatly on understanding consumer behaviour and specifically on positive consumer attitudes …

  • Perceived behavioural control and behaviour: It can be difficult for consumers to perform despite having a positive attitude and despite positive social pressure to perform certain behaviour. It is expected that the level of actual control that individuals have over behaviour will moderate their intention. For example, when individuals have an intention to perform behaviour and also have a high level of control over behaviour, it is likely that they will choose to perform that particular behaviour.
  • Perceived behavioural control as moderator: Research has found that despite consumers having a positive attitude towards behaviour, they may not develop an intention to perform behaviour when they perceive difficulties to do so. This might very well explain the so-called attitude-action gap.

How was the study conducted?

The data for this study was collected from a self-administered, internet-based survey of South African consumers who subscribe to the weekly CAR magazine web letter, the biggest selling automotive magazine in the country. Of the 201 responses, 196 were suitable for use in the study.

Given the demographic statistics of CAR magazine readers, and the 48.2% male population of the country, the 95.41% male and 4.59% female responses were expected. Most of the respondents (21.94%) were between 25 and 29 years, with 51.53% of them being younger than 35 years of age. The respondents were highly educated, with 82.14% having attained a qualification beyond matric or grade 12. Of the respondents, 61.73% indicated a monthly household income of more than R25 000. The group with the highest representation (20.41%) had a monthly household income of between R30 000 and R39 999. Half of the respondents indicated that their monthly household income was more than R30 000, indicating an affluent sample.

What did the study find?

The research found a significant positive relationship between attitude and behavioural intention, confirming that consumers with a more positive attitude towards AFVs will exhibit a greater intention to purchase.

In addition, the correlation between subjective norm and behavioural intention to purchase AFVs was confirmed, indicating that consumers who perceive greater social pressure will exhibit a greater intention to purchase. In general, respondents felt a positive social norm towards purchasing AFVs, and the significance is due to at least two factors: environmental behaviour and complying with social norms.

Environmental behaviour is often a new behaviour for consumers. This is certainly the case with AFVs and it often means that consumers lack the knowledge required to make an informed decision. They therefore rely on the support and guidance of friends, family or opinion leaders as well as the media to guide their behaviour. Since driving and owning a vehicle is a highly visible behaviour, the image associated with the behaviour is often also a significant determinant. This may influence the need of consumers to comply with social norms or to conduct what they perceive to be is the right behaviour.

The research found a significant positive relationship between perceived behavioural control as moderator and behavioural intention. In general, respondents feel control factors inhibit their ability to purchase an AFV. These control factors include purchase price, having access to charging facilities and the ease of using an AFV over a conventional vehicle.

Contrary to expectations, this study did not find that perceived behavioural control moderates the relationship between attitude and intention. It was expected for control factors, such as price, to impact the relationship between attitude and intention, and in some way, better explain the attitude-action gap caused by these factors, possibly preventing consumers from developing an attitude towards intention. So, while perceived behavioural control does impact the formation of the intention to purchase an AFV, it does not moderate the formation of attitude towards purchasing an AFV. This is possibly because the highly affluent sample did not consider a control factor such as price to impact their attitude towards purchasing an AFV because they can afford it, or the control factors are independent from attitude formation and the relationship between attitude and intention.

Since driving and owning a vehicle is a highly visible behaviour, the image associated with the behaviour is often also a significant determinant. This may influence the need of consumers to comply with social norms …

  1. How does this impact on green marketing strategies?
    1. Attitude was the most significant determinant of behaviour. As such, creating a positive attitude towards AFVs must be a significant consideration for developing an effective marketing strategy. Retailers and marketers should focus on direct channel factors and the fact that consumers often feel that AFVs are expensive. Marketing and advertising should focus on the benefits of AFVs, specifically on fuel cost savings and lower engine maintenance costs compared to conventional vehicles. They should therefore convince consumers that they will be able to afford AFVs.

     

    1. Since image plays an important role for purchasers of AFVs, retailers and marketers should focus on differentiating AFVs from conventional vehicles in terms of packaging – but not at the expense of price, functionality and practicality. Consumers will have a positive attitude towards AFVs if these products are perceived to offer equal or greater functionality and ease of use compared to conventional vehicles. Retailers and marketers should emphasise the recharging process, driving range, access to recharging stations, the operation of the vehicle (which is no different from the conventional) and the practicality of AFVs, with specific reference to its cabin space and luggage capacity.

     

    1. AFVs are often perceived to be more expensive to maintain and operate. Therefore, the following should be communicated: the cost benefit aspect of AFVs, its reliability, the availability of service centres, as well as a comparison between the lifetime costs of running an AFV against that of a conventional vehicle. Consumers will have a more positive attitude towards AFVs if they have the opportunity to trial a product, and therefore retailers and marketers should focus on providing test-drive opportunities to consumers. This will help consumers to draw informed conclusions about the practicality and functionality of AFVs.

     

    1. Marketers should focus on creating normative pressure and improving the knowledge of consumers regarding AFVs. To counter a possible lack of knowledge, retailers and marketers should focus on improving the channels through which consumers are informed about AFVs (thus offering multiple information search facilities). As a lack of knowledge means that consumers are influenced by their referent others, retailers and marketers should focus on developing knowledge-sharing platforms among consumers, which may also assist in delivering messages of price, image, functionality, practicality and (indirectly) trialability. This will strengthen word-of-mouth marketing. Knowledge-sharing platforms can include social media channels where consumers can share information with friends, family and colleagues.

     

    1. As consumers do rely on others to develop an intention to purchase an AFV and are influenced by them, it is important for effective marketing strategies to target end consumers as well as the reference groups of the end consumers. This can be done by considering referent others as part of the target group of the end consumers or as a separate target group.

     

    1. Consumers still believe that the ability to purchase an AFV – which is often a new behaviour for them – comes with obstacles. A positive attitude can therefore be fostered by focusing marketing efforts that provide information via advertising, test-drives, media coverage and in-store activities. Knowledge-sharing should remain a core focus of any marketing effort both by improving information search facilities and by creating social media platforms that will allow consumers to interact with referent others.

     

    • Find the original journal article here: Hamilton, B. & Terblanche-Smit, M. (2018). Consumer intention to purchase green vehicles in the South African market: A theory of planned behaviour perspective. South African Journal of Business Management, 49(1), a190.

    https://sajbm.org/index.php/sajbm/article/view/190/1128

    • Brett Hamilton is a former automotive media professional and holds extensive knowledge of the industry. He is currently a visiting lecturer in Corporate Finance at USB and is a director at First River Capital. He conducted the research via a database that he could access as a result of his contacts in the industry.
    • Prof Marlize Terblanche-Smit lectures in Strategic Marketing and Branding on the University of Stellenbosch Business School’s MBA programme. She also consults as a strategic marketing practitioner. Her consumer behaviour background guided this article from a consumer and academic perspective.
    • Reference: Ajzen, I. (1985). From intentions to actions: A theory of planned behaviour. In J. Kuhl & J. Beckmann (eds.), Action-control: From cognition to behavior, pp. 11-39, Springer, Heidelberg.

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Ways to help family businesses survive for future generations

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

Ways to help family businesses survive for future generations

By Prof Marius Ungerer and Carel Mienie

  • June 2019
  • Tags Finance

18 minutes to read

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Handing over a business from one generation to another is not easy

Family businesses struggle to be sustainable over multiple generations. In fact, most family businesses do not survive past the second generation. It has even been estimated that the average lifespan of a family business is 24 years, which more or less corresponds with the number of years the founder remains in control of the business. This is happening all over the world, and also in South Africa.

This makes the survival of family businesses vulnerable. What can be done to ensure that a family business can be sustained over multiple generations? The authors of this article developed a conceptual framework that can serve as a success map for such businesses.

But first, let us take a closer look at family-owned businesses.

What makes family businesses different?

Non-family businesses operate in two spheres: the business sphere where the operational activities take place and the ownership sphere. In family businesses, the family sphere is added to the business and ownership spheres.

Family businesses operate in a unique context that differs from that of non-family businesses. This includes complicated family dynamics (where emotions, loyalty and an inward orientation can hamper growth), risk aversion (due to high levels of ownership concentration) and business growth (which can struggle to keep up with the lifestyle demands of expanding families). Over and above this, family business also need to deal with business lifecycles, growing competition and new technologies.

… the average lifespan of a family business is 24 years, which more or less corresponds with the number of years the founder remains in control of the business.

This has created a need for advice to family business stakeholders – a need to empower the family business with a simple yet comprehensive tool to manage the business for sustained growth. That is why the core focus of this study is the distinctive challenge of guiding family businesses to be sustainable for multiple generations.

The development and validation of the family business success map

In essence, this study asked: What are the key leverages in family business practice areas that a family business should consider continuously in order to ensure multi-generational sustainability?

To answer this question, research was done in two phases. During Phase 1 (development), the researchers looked at current literature to identify success practices for multi-generational family businesses culminating in a preliminary conceptual framework. During Phase 2 (validation), they asked seven family business experts to review this framework. The outcome of this validation process is an integrated framework in the form of a one-page Family Business Success Map (FBSM).

Phase 1: Developing a preliminary framework

The initial literature review identified five key practices that successful family businesses can follow to ensure the long-term sustainability of their businesses: succession planning, the role of the board, family meetings, strategic planning, and the use of financial planning and management accounts. The intent here was to focus on an initial set of key leverages in family business practice areas that a family business should consider. These practices areas were evaluated and updated in the second phase of the research.

In essence, this study asked: What are the key leverages in family business practice areas that a family business should consider continuously in order to ensure multi-generational sustainability?

Next, the authors developed a user-friendly Family Business Success Map (FBSM) framework covering the success practices for the sustained performance of multi-generational family businesses.

The authors also simplified the theoretical concepts by likening these to a boat’s control panel – typically consisting of a steering wheel, speedometer, fuel gauge, compass and radar. These instruments need to be monitored regularly for the boat to stay on course. Therefore, in the context of this study, each “boat element” serves as a metaphor for an aspect of the family business:

  • Boat – the family business
  • Steering wheel – succession planning
  • Speedometer – board leadership
  • Fuel gage – family harmony
  • Compass – strategic plan
  • Radar – financial management.

The role of succession planning (steering wheel)

Succession planning is critical for the handing down of the family business from generation to generation. This is a complex and challenging process which arises from the different personal, business and financial objectives to be achieved. No two family businesses are the same, which makes it difficult to have one theory for understanding successions. Also, it is important to make sure that the next generation is interested in joining the family business and capable of managing it.

The metaphor used for succession planning is the steering wheel that turns the boat in the direction indicated by the rest of the instruments. However, the steering wheel can also take the boat on the wrong course. This calls for proper mentoring of and good support for the successor.

Also, it is important to make sure that the next generation is interested in joining the family business and capable of managing it.

The role of the board as leaders (speedometer)

In this study, “the Board” refers to the business governance body of a family business. This governance body can consist of family, non-family and independent members. The accountability of the board of directors is a central theme of corporate governance. In family businesses, this accountability includes not sacrificing the long-term health of the business for short-term gains. The board of directors must be able to strategically guide the business, monitor management, communicate openly and have a basic understanding of business risks and financial matters. Various authors have indicated that outside board members can contribute unbiased expertise on matters such as executive remuneration, succession planning, changes in corporate control, mergers and acquisitions, and the audit function. Every board should have a board manual outlining the company’s values, strategic plan, goals and evaluation processes.

The metaphor used for board leadership is the speedometer. The speedometer measures and displays the speed of a vehicle. Leadership in a family business plays a key role in the speed at which the business grows. Family businesses can fail when leadership fails to take action timeously.

The role of family meetings to foster family harmony (fuel gauge)

Family meetings help to unify and harmonise goals, desires and actions. It was found that family businesses holding regular family meetings expected significant growth. Family meetings, governed by a family council, serve as an important way to handle family disputes and conflicts. Family meetings can be used to develop consensus around key issues and to foster family harmony. Family highlights, family bonding and team-building activities help to promote such harmony.

In the control panel analogy, the fuel gauge measures the family harmony where a full reading represents a very high degree of harmony among family members. The more harmonious the family relationships are, the better their chances for a long-term future. Family relationship issues have been identified as a primary threat to the growth and survival of family businesses. Regular family meetings to address both business and family-related matters is an important mechanism to sustain family harmony.

The role of the strategic plan (compass)

Researchers agree that one of the things successful family businesses have in common is a formal, written strategic and/or business plan. However, non-family businesses are 2.7 times more likely to have a formal strategic or business plan than family businesses. Successful family businesses should share this plan with all their employees, not only with family members. It has also been found that family businesses with written strategic plans generate a better profit improvement than family businesses without formal plans.

Family relationship issues have been identified as a primary threat to the growth and survival of family businesses.

The metaphor used for a strategic plan is a compass because as a navigational instrument it indicates the direction. In a family business, the strategic plan provides this direction.

The role of cost management accounting practices as part of financial management (radar)

One of the reasons for the high mortality rate of family businesses is the use of fewer management accounting instruments, the lack of specialised management accounting skills, the lack of crucial information about the top-performing and underperforming areas of the business, and blind spots about business risks. The proactive use of management accounting practices is a potential cure for family business failures. Practices such as budgeting and the balanced scorecard can help family members to codify their implicit knowledge and to formalise the strategic planning process of the family firm. The three subsystems of a family business – the business system, the ownership system and the family system – can therefore benefit from using management accounting.

The radar function on the control panel represents the ability of a business to pro-actively detect cost-related and other financial information required to support management to achieve the strategic goals of the family business. Management accounting can provide this information.

Compiling the preliminary framework

The outcome of Phase 1 is the preliminary framework to enhance multi-generational sustainability for family businesses (see Figure 1). This framework represents a practical tool to aid family businesses in their quest to become sustainable.

 

 

Figure 1: Preliminary framework for multi-generational business success

 

Instrument Critical element Questions to ask
Steering wheel Succession planning practice Do we have a succession plan?

Are the ground rules for succession clear?

Does the plan include development of potential successors?

Speedometer Leadership practice Do we have a board of directors?

Does the board of directors meet regularly?

Are there non-family members on the board?

Do directors have the competencies to act responsibly, timeously and are they accountable?

Fuel gauge Family harmony practice Do we have family meetings?

Do we have transparent communication?

Do we monitor potential nepotism?

Do we foster family harmony in our family practices?

Compass Strategy practice Do we have a strategic plan?

Do we revisit our strategic plan on a regular basis?

Do we involve our trusted advisors in the process?

Radar Financial management practice Do we use cost management accounting?

Do we use cost management accounting in our strategic decision-making?

 

Phase 2: Validation of the framework

During Phase 2, the researchers interviewed seven family business experts: four expert members of successful family businesses, two expert family business advisors and one academic specialist:

  • Expert members of multi-generational family businesses: To qualify as an expert member from a successful family business, the business needed to already have third and fourth generation family members as part of its senior management. The expert member needed to be involved in the family business for more than ten years and needed to be part of the top management of the business.
  • Expert family business advisors: Family business advisors needed to be directly involved with different family businesses over more than ten years. These family businesses should have had one or more successful successions.
  • Expert family business academic specialist: The academic specialist should have been studying family businesses for more than ten years. The specialist must have published at least five academic articles on family businesses.

Although the context of this study is South Africa, the family business experts probed are internationally recognised through the global basis of their institutions. As a result, the principles identified in this study could be universally applied in family businesses aspiring to become sustainable over multiple generations.

… non-family businesses are 2.7 times more likely to have a formal strategic or business plan than family businesses.

All of the family business experts accepted the preliminary framework as a potential tool that family businesses could use to become more structured and sustainable. However, the experts also added to the following elements to the framework:

  • Ownership succession: The experts added this to the framework as every family business should have a succession plan that includes both ownership and managerial succession, and which needs to be revised regularly.
  • Governance: Two types of governance practices are important for a family business, namely family-orientated and business-orientated governance. Family-orientated governance includes the determination of shared family values, the maintenance of a financial mandate within which the business must operate, space to address unhealthy rivalry between family members, and principles for the appointment of family members in the business. This calls for a formal family council and family constitution with ground rules. Business-orientated governance relates to the application of generally accepted best practices in corporate governance, for example King IV. The experts agreed that without proper governance structures, communication will always be a problem, leading to a situation where emotions rule the business.
  • Communication: Clear communication was highlighted as important for the framework. According to these experts, ongoing feedback along with formal employee performance evaluations, for family and non-family members, is crucial for survival. Proper communication practices help to build trust and acknowledge everyone’s position.
  • Entrepreneurial orientation: The family business experts indicated that the development and maintenance of an entrepreneurial orientation and culture was critically important because without entrepreneurship and innovation it is difficult for a family business to grow and accommodate the next generation. They also believe a family business needs to be at the forefront of technology, which calls for an entrepreneurial orientation. They said successful family businesses should have the ability to transfer the entrepreneurial characteristics of the business from one generation to the next as the business environment is changing all the time.

Compiling the final one-page Family Business Success Map

The outcome of the second phase of this study is a concise one-page Family Business Success Map which shows some of the key management practices that could be leveraged to enhance the sustainability of multi-generational family businesses (see Figure 2 below).

The sequence of the critical practices was changed in order to accommodate some groupings, as suggested by the experts. The questions under succession planning, family harmony and financial planning were expanded; and the three aspects of governance, entrepreneurial orientation and communication were added. Governance and communication are the two pillars holding the FBSM together, while entrepreneurial orientation forms the foundation of any family business.

 

The revised Family Business Success Map (FBSM)
Figure 2: The revised Family Business Success Map (FBSM)

 

Using the Family Business Success Map to start a conversation

Responding to the vulnerability of family businesses over multiple generations, a user-friendly Family Business Success Map was developed using a two-phased approach. The success map depicts the eight key leverages that family business stakeholders can use to enhance the sustainability of their businesses: succession planning practices, leadership practices, strategic plan practices, family harmony practices, financial planning and monitoring practices, governance practices, communication and an entrepreneurial orientation.

 

The revised FBSM therefore serves as an integrated managerial framework on one page aimed at helping family businesses and their advisors to evaluate and benchmark their current business practices against the identified family business practice areas. These eight practice areas can be used as a starting point to identify gaps and improvement areas. However, family business success spanning multiple generations is not a once-off intervention but the continuous leveraging of key business practices.

 

In short, the intent of the FBSM is to stimulate constructive dialogue between the various stakeholders of a family business to enhance the longer-term sustainability of the business.

 

  • Find the original article here: Ungerer, M. & Mienie, C. (2018). A Family Business Success Map to enhance the sustainability of a multi-generational family business. International Journal of Family Business and Management Studies, 2(1): 1-13.
  • Prof Marius Ungerer lectures in Strategic Management and Strategic Leadership at the University of Stellenbosch Business School.
  • Carel Mienie is an MBA graduate of USB. Prof Ungerer supervised his MBA research assignment on the sustainability of family businesses.

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social media

The impact of social media on recruitment: Are you LinkedIn?

The Steinhoff Saga Management review - University of Stellenbosch Business School

July – December 2018

The impact of social media on recruitment: Are you LinkedIn?

social media

Tanja Koch, Prof Charlene Gerber and Prof Mias de Klerk

  • OCT 2018
  • Tags Reports, Management

27 minutes to read

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Tanja Koch, Prof Charlene Gerber and Prof Mias de Klerk

Where do you search for top talent?

As the competition for talent increases, organisations need to know where to focus their resources to attract the best talent. Research shows that the so-called ‘spray and pray’ recruitment methods are no longer sufficient. The main reasons are that these methods only focus on the small and limited active pool of potential candidates; they do not give organisations access to sought-after talent in the semi-passive and passive candidate pools.

In the quest to find these candidates faster and cheaper, new sourcing tools have been created through electronic and social media. With the exponential growth in social media users, specifically the social networking sites LinkedIn and Facebook and the microblogging site Twitter, strategic tools were developed to help identify, attract and recruit both active and passive potential candidates.

Many organisations use external recruiters as consultants to source potential external candidates. This is where the specialised use of appropriate processes and technologies becomes an important aspect of the recruitment plan and strategies of recruitment consultants. For this reason, it is important to find out how recruiters use social media in order to gain a better understanding of its use and value. The very nature of social media enables recruiters to lure passive or semi-passive job candidates to attractive employment positions.

It appears that South African researchers have given little attention to how social media has changed recruitment. Hence the question: Is the use of social media in this country is a significant development or is it just a hype?

Research shows that the so-called ‘spray and pray’ recruitment methods are no longer sufficient.

What does the literature say about recruitment?

Recruitment is an essential part of talent management. A failed low-level hire may cost a company double the person’s annual salary, rising to around six times the annual salary at higher levels.

Several studies have shown that organisations with better talent show better performance. An organisation’s ability to attract and retain talent is therefore a key determinant of its effectiveness.

The ‘war for talent’ is not new. The term competency deficit is used to describe one of the reasons why organisations find in difficult to source the right employees. Competency deficit refers to a situation where not enough employees have the skills needed to perform a task. This can be ascribed to, say, inadequate education and training, and a growing demand for new skills and high-level managerial talent. In addition, employees change jobs more frequently, the organisational environment is becoming more complex and the competition for talent is increasing globally. This means the gap between skilled jobs and qualified high performers is growing.

This is why the view of recruitment has shifted from an often-outsourced administrative function to a key differentiator in the competition for talent. In fact, it has become a strategic function.

Potential candidates can be classified into active, semi-passive and passive candidates. Active candidates are those who are actively seeking employment. Semi-passive candidates are those who are interested in a new position but are not actively seeking new employment. Passive candidates refer to those not seeking a different position. Both passive and semi-passive candidates would potentially consider a new job if they are lured with attractive opportunities and enticing conditions.

The act of sourcing candidates is generally performed by an internal or external recruiter. Some researchers say that organisations that excel at the sourcing stage show better recruitment results and, therefore, better financial performance than their competitors.

Still, the best method for recruitment remains debatable. Less than a decade ago, candidate sourcing was still focused on more formal practices, such as job advertisements, employers’ websites and job boards. Until recently, recruitment advertising in newspapers and trade journals and on organisations’ websites were seen as the main tools used to attract candidates. In addition, traditional sourcing activities – such as asking candidates for referrals, visiting job and trade fairs, and using organisations’ own candidate databases – were popular. Now research has shown that placing an advertisement in popular media or on an organisation’s website has a limited chance of attracting the right candidates. Advertisements in popular media usually only attract active candidates, resulting in a small and limited candidate pool.

Research shows that the so-called ‘spray and pray’ recruitment methods are no longer sufficient.

This recruitment method, aimed primarily at active candidates, was also called the ‘spray and pray’ method. It means that recruiters ‘sprayed’ job advertisements across pages of print media and on websites, and job seekers in turn ‘sprayed’ their CVs in the direction of recruiters, with both parties ‘praying’ for a positive outcome.

The impact of the internet and social media on recruitment

The growth of social media and internet capacities and capabilities has changed the recruitment game. Recruiters now have at their disposal internet job boards (internet sites that allow organisations to upload their vacancies and candidates to upload their CVs), internet data mining (the use of Boolean searches) and web crawlers (programmes that search the web for information about employees). They can also use flip searching (a process which identifies employees who link to specific internet sites to search for passive and semi-passive candidates) and social networking (leveraging connections on social media) such as LinkedIn, Facebook and Twitter.

Social media can be defined as the use of web-based conversational media among communities of people who meet online to share information, knowledge and opinions. Four key motivations drive the use of social media: connect, create, consume and control. A wide range of social media platforms are available – such as Facebook, LinkedIn, Instagram and Twitter. However, research has indicated that Facebook, LinkedIn and Twitter are mainly used in the sourcing process. LinkedIn and Facebook could be classified as social networking tools, in other words, tools that allow users to share information about themselves, often through an online profile that they have created themselves. Twitter falls under the subcategory of microblogging tools.

In 2017, Facebook witnessed an average of 1.32 billion active users per day, with more than 14 million users from South Africa. LinkedIn had 467 million members in 2017, of which 5.5 million were from South Africa. Twitter had 317 million users in 2017, with over 7.7 million from this country.

This is why recruitment has shifted from an … administrative function to a key differentiator … In fact, it has become a strategic function.

Social media and recruitment

As the number of users on social media increases, the use of social media channels in recruiting is gaining momentum. This trend is the result of organisations recognising the potential of these channels to attract active as well as passive and semi-passive candidates.

There is evidence that recruiters and organisations are realising that more and better candidates can be discovered quicker and at a lower cost by using social networks. Specifically, a strong association has been found between the use of LinkedIn and the ability to identify and attract passive candidates.

By using social networks for recruiting, access is enabled to a wide range of candidates, at an increasingly lower cost. In particular, social networks give recruiters access to the sought-after pool of highly competent but passive candidates. Social media and networks can therefore give recruiters a competitive edge in reaching their recruitment objectives when this is done effectively.

It is clear that recruiters believe social media enables them to find better quality candidates. Indeed, 93% of recruiters use social media to support their recruiting efforts. It was found that 50% of recruiters use social media in paid-for job advertising while 37% advertise vacancies via tweets or alerts or use free job advertising via targeted social media platforms like Facebook. Furthermore, 30% of recruiters develop a database of followers and/or supporters by posting regular updates while 18% use the social media platform’s job search engines to advertise vacancies or to accept CVs and application forms. Surprisingly, only 7% of recruiters use it to screen the suitability of potential recruits on their social networking pages.

But which of the social media platforms are the most effective to use? Although Facebook is globally the largest social media platform, it is not the most popular or effective for recruitment. Jobs posted on LinkedIn receive more views from potential candidates than those on Facebook and Twitter combined, and garner twice as many applications per job advertisement in general. Over 95% of recruiters who use social media in their recruitment process indicated that they use LinkedIn, compared to 66% utilising Facebook and 52% engaging with candidates on Twitter.

One of the main reasons for the higher level of use of LinkedIn relates to its being seen by the public as almost exclusively for building professional relationships. Although all three of these social media platforms are being used in the sourcing process, they tend to be used differently. LinkedIn is mostly used for posting advertisements, searching for candidates, and contacting and vetting candidates. Facebook and Twitter, on the other hand, are mostly used to showcase the employer brand, generate referrals and post advertisements.

Advertisements in popular media usually only attract active candidates, resulting in a small and limited candidate pool.

Recruiters believe that LinkedIn gives the most insight into candidates’ employment history, education, years of experience and how they present themselves. Jobvite’s annual Social Recruiting Survey is one of the most comprehensive surveys of its kind. The 2014 survey was completed by 1855 recruiting and human resources professionals. Overall, 79% of recruiters indicated that they placed a candidate through LinkedIn while 26% used Facebook and only 14% used Twitter. Although LinkedIn has one of the highest success rates of any website, it seems that it is still used less than more conventional recruitment platforms like job boards, career portals and corporate websites. One of the reasons why many recruiters still prefer conventional sourcing tools could possibly be ascribed to recruiters’ limited knowledge of how to recruit effectively on social networking sites. Also, although web-based job portals generate many applications, they do not necessarily reach all the candidates, especially passive or semi-passive candidates.

How was the research conducted?

To gain insight into the possible impact of social media on recruitment in South Africa, semi-structured interviews were conducted with 12 recruiters from a range of industries. The participants were selected by means of judgement sampling. The first group consisted of six recruiters with more than eight years of experience. This was done to include experienced recruiters who became involved in recruiting at a time before social media was used. The second group of six recruiters was selected to have less than four years of recruiting experience. This means they have only been recruiting in an age where social media was already in use. Thematic analysis was used to identify themes and subthemes.

What did the study find?

The use of social media in recruitment was found to be high among participants overall. Also, the use of LinkedIn was much higher among the participants than the use of Twitter or Facebook.

There is evidence that recruiters and organisations are realising that more and better candidates can be discovered quicker and at a lower cost by using social networks

Only one of the 12 participants (8%) used Twitter for recruitment, which is much lower than the 52% recorded by the Jobvite survey. The use of Facebook by the respondents was also lower, with only 16% (2 of 12) mentioning the use of Facebook in comparison to the 66% found in the Jobvite study. However, all of the participants used LinkedIn compared to the 94% found by Jobvite. Four main themes were identified, as discussed below.

Theme 1: Twitter has little impact on recruitment

Although Twitter is not the most popular social media platform in recruitment worldwide, a large body of research has shown that Twitter is used extensively internationally by recruiters in the sourcing process. However, participants in this study indicated that, of the three social media tools, they used Twitter the least. This is mainly because they feel they do not have sufficient knowledge of Twitter to use it effectively in recruitment. They also said time constraints, the size of their Twitter network and number of followers prevented them from adding Twitter as a tool in recruitment.

Theme 2: Facebook has little impact on recruitment

Research by Jobvite indicates that Facebook is globally used to showcase the employer’s brand, generate referrals and post advertisements. However, in this study, only 2 of the 12 respondents (17%) mentioned that they use Facebook as a tool for sourcing candidates. When asked why they do not use Facebook more actively, one participant noted that Facebook represents the personal side and not the professional side of one’s life.

… a strong association has been found between the use of LinkedIn and the ability to identify and attract passive candidates

As most of the participants do not use Facebook to source candidates, it cannot be seen as an effective recruiting tool for individual recruiters in South Africa. This is an important new finding, as this private and/or work life distinction has not attracted the attention of international research as far as could be established. Rather, this finding appears to be unique to South Africa and relates to other research which found that it is quite common that employees and organisations do not consider Facebook to be a legitimate work tool.

Theme 3: LinkedIn has an important impact on recruitment

All of the study participants indicated that they always, or often, use LinkedIn for recruitment purposes. This finding is in line with international research. However, the preference for LinkedIn is marginally even stronger for this sample than what has been reported elsewhere.

Participants in this study used LinkedIn for different sourcing activities. Of the participants, 67% (8 of 12) mentioned that they do not place advertisements on LinkedIn, but rather use it to search for potential candidates to approach. Searching LinkedIn for potential candidates is preferred over placing advertisements on LinkedIn. This finding is in line with international trends.

However, one of the limitations mentioned about LinkedIn is that it does not provide access to candidates’ contact details. This forces recruiters to search for these details elsewhere.

LinkedIn is therefore not used as a stand-alone sourcing tool, but more for the identification of potential candidates. Using LinkedIn to identify potential candidates when screening for headhunting purposes is bound to be subject to the risk of profile inflation by candidates. This risk of profile inflation was not highlighted by any of the participants as a concern and is apparently not viewed negatively by recruiters in this sample.

By using social networks for recruiting, access is enabled to a wide range of candidates, at an increasingly lower cost

International research has found that recruiters believe LinkedIn to have one of the highest success rates of any social media platform. However, it appears that LinkedIn is still used less than more conventional platforms like job boards on career portals and corporate websites, or at least in combination with them. This international trend was supported by the findings of this study for South Africa.

Theme 4: Social media forms an important part of recruitment

In the past, research has shown that placing an advertisement in popular media or on an organisation’s website has a limited chance of attracting the right candidates. However, the findings of this study suggest that traditional advertising approaches are still an important recruitment practice. For all of the participants, the first step when recruiting a candidate is to write an advertisement. The only change in this process is where the advertisement is placed. In the past, recruiters would post their jobs in print media. In this study, 33% of the participants indicated that they now post advertisements on their company websites and career portals, as well as on LinkedIn.

All the participants confirmed that they no longer place advertisements in print media. Although they still rely heavily on advertising to find candidates, the sites where they place their advertisements have shifted towards internet media, in particular career portals and social media such as LinkedIn. This finding agrees with previous research that social media is used in combination with more conventional recruitment platforms.

Research indicated that one of the reasons why recruiters often still prefer more conventional sourcing tools is their limited knowledge of how to recruit on social networking sites. The findings of this study show that this holds true only for Twitter. It would seem that the reason why some participants still prefer the more conventional sourcing tools is time constraints and their perception is that social media adds more work.

Participants felt that social media is providing everyone with access to the same candidates, whereas in the past recruiters had to pay for access to search for candidates on career portals or use their own databases. Therefore, social media does not really give them a competitive edge. Instead, it has increased competition as all recruiters now have access to the same information. This finding differs somewhat from notions in the recruitment literature that the use of social media in recruitment provides recruiters with a competitive edge. It appears that the use of social media simply levels the playing field.

In this study, 75% of the participants (9 of 12) agreed that they combine the use of social media with the more traditional recruitment methods when sourcing active candidates. Specifically, participants indicated that when they recruit for more technical, senior passive candidates, they use LinkedIn to identify candidates and then use headhunting to lure them into becoming interested in the position. This could indicate that for lower level and non-technical positions, the sourcing approach has not changed much. However, if recruiters are trying to attract more senior or technical candidates, especially those they classify as ‘passive’, they would search less on career portals and add LinkedIn and headhunting to their sourcing process.

Although Facebook is globally the largest social media platform, it is not the most popular or effective for recruitment.

The growth of the internet and social media has given rise to more ways to connect candidates and recruiters. This benefit adds a large volume of work to recruiters’ desks because of the vast number of candidates whose profiles are available to search and screen. This increase is compounded by the large number of (often unqualified) candidates who have access to job advertisements through social media. Participating recruiters felt that using social media added more strain to their already limited time.

This finding raises an interesting perspective regarding notions in the literature that social media reduces the ‘spray and pray’ approach. Social media may give better access to the passive and semi-passive candidate pool and an improved ability to attract these candidates. However, the sheer volume of work and high number of candidates that emerge from using social media may inhibit the effective use of the acquired pool of potential candidates.

Discussion

The findings of this research confirm that the use of social media for recruitment in South Africa is high among recruiters.

One of the main reasons for the higher level of use of LinkedIn relates to its being seen by the public as almost exclusively for building professional relationships

They recognise the potential of social media to attract active as well as passive and semi-passive candidates. Similar to elsewhere in the world, the use of LinkedIn in South Africa is much higher than the use of Twitter and Facebook. The use of Twitter and Facebook in South Africa was found to be substantially lower for recruitment in comparison to what was recorded elsewhere. Although one can only speculate on the reason for this difference, it appears to be related to the international nature of the Jobvite study and the South African focus of this study. As noted, South African recruiters appear to have a different approach towards the use of Twitter and Facebook for work purposes. One can thus not simply assume that international trends apply to South Africa. All the participants mentioned the use of LinkedIn as central to their respective recruitment processes. Therefore, LinkedIn as a recruiting tool focuses on finding candidates and networking while Facebook and Twitter focus on employer branding.

The size of a recruiter’s personal Twitter network also came into play. It would only work if a recruiter had many ‘followers’. This finding is similar to what was found in research elsewhere. Recruiters’ Twitter activity also relates to their knowledge of its use. The majority of participants mentioned that they do not use Twitter because they do not know how to use it properly. So, this sample of recruiters did not see Twitter as an effective sourcing tool in South Africa.

An important aspect that influences the minimal use of Facebook is its perceived image in South Africa as a communication tool on a personal and private level rather than a business tool. Local recruiters distinguish between their private lives, represented by the use of Facebook for communication; and their professional lives, which is represented by LinkedIn. It is clear that Facebook is not seen as an effective recruiting tool in South Africa for recruiters. This finding is a new perspective that holds important consequences for its use in recruitment in South Africa.

LinkedIn is clearly the most popular social media site in the sourcing process and seems to have taken over from company databases. While recruiters would have searched for candidates on their own database in the past, they now use LinkedIn. Once a candidate has been found on LinkedIn, other sites are used to find the contact details and verify information. Although LinkedIn gives recruiters better access to the passive and semi-passive candidate pool and arguably provides an improved ability to attract these candidates, it also leads to information overload. The sheer volume of candidates that comes from using it restricts the effective use of the pool.

All the participants confirmed that they no longer place advertisements in print media

It appears that social media in the recruitment process is becoming a more modern ‘spray and pray’ approach. Recruiters ‘spray’ their attention to combe through LinkedIn profiles, and job seekers in turn ‘spray’ their CVs through social media in the direction of recruiters, with both parties ‘praying’ for a positive outcome. The main difference is that the process may now be a bit easier and more elegant. This is because it is electronically automated. However, this is where the overload occurs.

Advertising on career portals and corporate websites remains a key sourcing tool for recruiters in South Africa. However, the locations where they advertise have shifted towards the internet, specifically career portals, companies’ own websites and to some extent LinkedIn. This contradicts previous research findings that placing an advertisement in popular media or on an organisation’s website seems to have only a limited chance of attracting the right candidates.

These findings confirm the view of other researchers that, while social media can be seen as opening doors and having a profound impact on the way that recruitment functions, it should not be mistaken as the full recruitment strategy. Indeed, a well-designed recruitment strategy and process, and the effective use of available information about potential candidates, may significantly assist the recruitment of employees who have the most suitable competencies.

Conclusion

By confirming the importance of social media in recruitment in South Africa, at least as a parallel process to more traditional recruitment processes, the study confirms the increasing role and importance of social media within the talent management context in this country. The study demonstrates that recruitment through the use of social media in South Africa differs from what is done elsewhere in the world – at least for this sample. One should therefore be careful not to just assume that the trends reported in international literature indiscriminately apply to South Africa.

The majority of participants mentioned that they do not use Twitter because they do not know how to use it properly

The finding that the main impact of social media on the recruitment process derives from LinkedIn is an important aspect that should be taken note of by researchers, recruiters and job seekers. It suggests that in order to be part of an effective recruitment process in South Africa, recruiters and job seekers have to be ‘LinkedIn’. However, training in the optimal use of social media is essential.

  • The original journal article – titled “The impact of social media on recruitment: Are you LinkedIn?” – appeared in the South African Journal of Human Resource Management, 16. Find the article here.
  • Tanja Koch is an alumnus of the University of Stellenbosch Business School and a recruitment consultant.
  • Prof Charlene Gerber lectures in Marketing Management and Research Methodology at USB.
  • Prof Mias de Klerk is a Professor of Leadership and Human Capital Development, and Head of Research at USB.

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