Volume 8, Issue 3

Corporate Ownership & Control / Volume 8, Issue 3, 2011, Continued - 4

КОРПОРАТИВНАЯ СОБСТВЕННОСТЬ И КОНТРОЛЬ

CORPORATE OWNERSHIP & CONTROL

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Corporate Ownership & Control

Корпоративная собственность и контроль

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CORPORATE OWNERSHIP & CONTROL Volume 8, Issue 3, 2011, Continued - 4

CONTENTS

THE COST OF COMPLIANCE: THE CASE OF SOUTH AFRICAN BANKS

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Johan Marx, Ronald H Mynhardt PROPOSED MODEL OF THE IMPACT OF STRATEGIC LEADERSHIP ON OPERATIONAL STRATEGY AND ORGANISATIONAL PERFORMANCE OF BUSINESS ORGANISATIONS IN SOUTH AFRICA 443 JJ Serfontein, J Hough FRAMEWORK FOR ADVANCED PETROCHEMICAL COMPANIES

SUPPLY

CHAIN

PLANNING:

LARGE-SCALE 452

J.J. Louw, W.J. Pienaar EMPLOYEE PERCEPTIONS OF KNOWLEDGE MANAGEMENT IN TWO SERVICE UNITS: A CASE STUDY OF MANAGEMENT SERVICES AND ORGANISATIONAL DEVELOPMENT (OD) AND SKILLS DEVELOPMENT UNITS 464 Bethuel Sibongiseni Ngcamu INCULCATING A SERVICE CULTURE AMONG HOSPITALITY MANAGEMENT STUDENTS THROUGH WORK INTEGRATED LEARNING (WIL): A CASE STUDY OF DURBAN UNIVERSITY OF TECHNOLOGY 479 Nirmala Dorasamy, Rishi Balkaran PERCEPTIONS OF KNOWLEDGE MANAGEMENT PROCESSES, IMPLEMENTATION AND IMPACT: BIOGRAPHICAL INFLUENCES Bethuel Sibongiseni Ngcamu, Sanjana Brijball Parumasur

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STRATEGIES, 487


THE COST OF COMPLIANCE: THE CASE OF SOUTH AFRICAN BANKS Johan Marx*, Ronald H Mynhardt** Abstract Compliance cost is expenditure of time or money in conforming to government requirements such as regulation or legislation. In the press it is stated that the cost of compliance is much too high in South Africa. Some South African regulatory authorities agreed with this opinion. To this end, research was conducted in South Africa to establish whether these opinions are accurate. The study found that the cost of compliance with regulations was unacceptably high for South African banks. The study concluded that banks needed assistance to reduce the cost of compliance. Following the recommendations of the study, calculations indicated that the implementation of these recommendations could reduce the cost of compliance by as much as 40 per cent. Keywords: Banking Supervision, Banks Act of 1990, as amended, Basel II, Compliance risk, Cost of compliance, Regulatory Compliance, Regulatory risk, Risk Management *Department of Finance, Risk Management and Banking, University of South Africa **Department of Finance, Risk Management and Banking, University of South Africa, PO Box 392, Unisa 0003 Tel: +27 12 429 4927 Fax: +27 86 640 0793 Email: [email protected]

Introduction In October 2003, the Basel Committee on Banking Supervision (“the Committee”) issued a discussion paper on compliance risk and the compliance function in banks (BIS, 2003:1). The purpose of this paper was to stimulate debate on the introduction of principles that could promote sound practices in banks and banking groups. In April 2005, after lengthy discussions and much debate with banks and regulators around the world, the Basel Committee issued their paper entitled “Compliance and the compliance function in banks”. The paper provided detailed compliance principles banks are expected to adhere to. The Committee‟s paper (BIS, 2005:7) stipulated specifically that the board of directors of a bank was ultimately responsible for their particular bank‟s compliance with all relevant Acts and regulations. It further stipulated that compliance should become part of the culture of a bank (BIS, 2005:7) and that the bank‟s compliance function should be adequately resourced (BIS, 2005:8). Resourcing such a function implies additional costs in the form of compliance cost. Compliance cost is an expenditure of time or money in conforming to government requirements such as regulation or legislation. In the push to meet initial compliance deadlines many banks focus on implementing the minimum technology systems needed to achieve a passing grade from regulators. Compliance, however, is an ongoing process that goes beyond the testing and

evaluation of internal controls to ensuring security and system integrity as well as managing changes. Banks are focusing their technology efforts on enhancing or implementing systems to ensure sustained compliance in the years to come. In the financial sector of the United States of America (USA), new legislation such as the SarbanesOxley (“SOX”) Act was enacted in response to the Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise. Three years after the United States Congress had passed the Sarbanes-Oxley Act public companies experienced a profound escalation in operating costs. Foley and Lardner, a law firm in the United States of America, discovered that Section 404, the internal controls provision of SOX, had the biggest impact on companies (Foley and Lardner, 2006). The results were based on responses from 147 public companies, as well as proxy statements of more than 700 public companies, obtained by Standard and Poor's. One of the more interesting findings was that the percentage increases in fees paid to outside auditors is disproportionately greater for smaller public companies than that of larger companies. These costs mainly resulted from companies' compliance with the internal control provisions of SOX. South African banks did not escape either as media reports, as far back as 2005, stated that the cost of compliance was already much too high in South Africa (Makuna, 2005:1). Some South African

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regulatory authorities agreed and acknowledged that there was a definite need to reduce the cost of compliance (Kieswetter & Gordhan, 2005:2). Makuna (2005:1), however, mentioned that, although the cost of compliance might have been too high, there was still a definite need for regulatory authorities and supervisory activities in South Africa. Makuna (2005:1) further concluded that the challenge to banks in South Africa was to ensure compliance with Acts and regulations in their organisations at an acceptable cost. The cost of compliance can be divided into two broad categories, namely the cost associated with reaching compliance, i.e. operational cost, and the cost of non-compliance. The operational cost of compliance is a cost that a bank has to incur given the specific regulatory requirements. This operational cost could differ from bank to bank, as the banks‟ activities could be different. The cost of noncompliance can be severe to a bank (Sinha, 2006). Makuna (2005:1) is, however, of the opinion that the cost of performing compliance is in most instances lower than the cost of non-compliance. As a result of media reports and the introduction of the Basel II Capital Accord in South Africa in 2008 (Nedbank, 2009:1), a study was conducted among 12 banks in South Africa with the main objective to ascertain whether the cost of compliance is in fact a problem to and a burden for the country‟s banks. The second objective was to use the specific results obtained from the research and to suggest recommendations that could possibly ease the burden of the cost of compliance to banks. Where did Compliance start for Banks in South Africa? Compliance is either a state of being in accordance with established guidelines, specifications, or legislation, or the process of becoming so. Compliance in a regulatory context is an important business concern, because of an ever-increasing number of regulations and the widespread lack of understanding about what is required of a bank to be in compliance with new legislation. The Banking Supervision Department of the South African Reserve Bank (“SARB”) expressed its dissatisfaction with the apparent culture of noncompliance by some of the banks in South Africa (SARB, 2005b:11). In order to solve this apparent problem, the SARB expanded its annual supervisory process by also focusing on the banks‟ compliance functions in terms of Regulation 49 of the Regulations relating to Banks (SARB, 2005b:43). Regulation 49(1) of the Regulations relating to the Banks Act (”the regulations”), Act 94 of 1990 (SARB, 2008:740), states that: “a bank shall establish an independent compliance function as part of its risk management framework, in order to ensure

that the bank continuously manages its regulatory risk; that is, the risk that the bank does not comply with applicable laws and regulations or supervisory requirements”. The regulations also require that a compliance officer of the bank should head the independent compliance function of that bank, and that the compliance function shall have adequate resources (SARB, 2008:740). The SARB further announced the commencement of a review process to assess compliance with corporate government principles on banking institutions in South Africa (SARB, 2004a). This review process was completed during 2005, and the results were published by the SARB (SARB, 2005a). In the report, it was specifically mentioned that the compliance function of the banks in South Africa was not fully functional yet and that adequate resources were a problem (SARB, 2005a :61). The South African regulatory environment, as that of the rest of the world, is constantly changing. Among these changes is the introduction of the new Basel II Accord for banks in 2008 (Nedbank, 2009), which created an additional burden on the banks in South Africa. Compliance costs are already estimated to be significant and it is often the case that compliance costs are more severe on the small banks as on large banks as these small banks have to comply with the same requirements as the large banks (Davie, 2004:1). Research Methodology The research on which this article is reporting was aimed at obtaining information about the cost of compliance and related information regarding compliance in South African banks. The target population included 12 banks in South Africa licensed by the SARB. The banks interviewed included South African-owned banks, foreign-owned banks and branches of foreign banks. The banks interviewed own 80 per cent of the total banking capital in the South African banking industry, making the sample representative of the banking sector in South Africa. The research focused mainly on the following:  Firstly, a review of the international perspective on regulatory compliance was performed and attention was paid to supervisory structures and current trends in regulatory compliance in the G10 countries.  Secondly, the cost of non-compliance for the relevant banks in South Africa was investigated by identifying the direct cost of non-compliance with the applicable Acts in South Africa. To achieve this goal the regulatory universe in South Africa was reviewed in order to identify the sections in the different Acts where noncompliance with that section is a criminal offence. The penalties attached to these offences

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were identified, whether they were prison sentences, fines, or a combination thereof.  Thirdly, the banks were asked how they calculated the cost of their actual compliance with all the Acts and regulations. Questionnaires were completed during personal interviews with the chief compliance officers of the relevant banks. The questionnaire was designed to obtain specific information pertaining to the cost of compliance including the different types of costs. It also tested the participants‟ views on specific aspects of regulation in South Africa. The interviews conducted were strictly confidential and, at their

request, none of the banks or compliance officers interviewed was named. The questionnaire consisted of specific questions divided into the following segments: bank demographics, compliance structure, compliance responsibilities, cost of compliance, regular submissions, other submissions, outsource agreements, and supplementary information. The table below provides more detail on the questionnaire used:

Table 1. Questions to Bank Participants Topic

Rationale

Bank demographics

-

Ascertaining the South African-regulated banks‟ geographical presence; identifying the business sectors in which the banks operate; establishing the banks‟ compliance staff complement; and identifying the different regulators.

Compliance structure

-

Identifying the compliance structures in each bank; and identifying the interaction between the role-players.

Compliance responsibilities

-

Identifying the compliance responsibilities in each bank.

Cost of compliance

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Establishing the cost of compliance in each bank in terms of staff-related costs, legal costs and out-of-pocket expenses.

Regular submissions

-

Establishing the extent of regular submissions.

Other submissions

-

Establishing the extent of other submissions.

Outsource agreements

-

Establishing the extent of outsource agreements.

Supplementary information

-

Obtaining other relevant supplementary information.

An International Perspective on the Cost of Compliance An international perspective on regulatory compliance was researched with the purpose of identifying international trends in regulatory activities and structures, which could possibly be used in South Africa. In order to achieve this goal, a high-level review of the supervisory and regulatory frameworks was conducted in each of the G10 countries as well as a review of trends in the regulatory compliance in said countries. Internationally, it was observed that regulation, on the one hand, involves providing input into developing and interpreting legislation and regulations, issuing guidelines, and approving requests from regulated financial institutions as required. Supervision, on the other hand, involves assessing the safety and soundness of regulated financial institutions, providing feedback to institutions, and using supervisory powers to intervene in a timely manner when necessary. Internationally, the responsibility for banking supervision rests with the central bank, while supervision over other financial institutions is

typically vested in other regulatory agencies. There are, however, several countries that are departing from this model, rather adopting the model of a single financial regulator. The reason for favouring this kind of model is that, since the boundaries between different kinds of financial institutions are becoming blurred, it makes sense to integrate the supervision of all financial institutions into a single agency. The management of risk in the majority of international banks consists of three elements, namely accurate measurement and monitoring of risk, controlling and pricing exposures, and holding of adequate capital and reserves to meet unexpected losses. Instead of reviewing regulatory returns, supervisors have been focusing on these risk aspects lately. The most important trend observed in the financial markets was that regulators are departing from traditional regulations regarding supervision. This constitutes a move aimed at the assessment of whether the overall management of a financial institution‟s business is being prudently conducted. There is a strong tendency towards the introduction of action plans and additional supervisory activities by

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supervisors to review and fully understand all aspects of a financial institution's business. Supervisors are paying attention to the efficiency and stability of their country‟s financial sector as it was found that any financial sector‟s efficiency and stability depend on the robustness of the financial infrastructure which consists of the legal framework, accounting standards used to value financial assets, availability of relevant statistics, payment and settlement system, and principles of corporate governance. Numerous methods used by the different banks to calculate the indirect cost of non-compliance were identified during the study. Some banks use changes in certain indicators to estimate and/or to calculate the indirect cost of non-compliance. These indicators include loss of current and future customers, loss of employees, reduction in current or future business partners, increased costs of financial funding, and increased costs due to tighter supervision by the regulator. Some banks in the study have also developed statistical and other models to predict how changes in the indicators, such as those mentioned above, will influence, among others, the bank‟s revenue streams, deposits on hand and profitability. A number of banks in the study measure reputational losses by examining the reaction of their share prices to an announcement of a major loss event. If the bank‟s market value declines by more than the announced loss amount, it is interpreted as a reputational loss. Research undertaken by some of the banks has shown that the market value of shares fall by a ratio of one for one with losses caused by external events, but fall by a ratio of more than twice the loss percentage in cases involving internal fraud. Another method identified and used by banks to calculate the impact of indirect non-compliance, is to rate the reputational damage into risk categories of high, medium and low impact on the bank. This damage can be caused by negative publicity and comments on business governance, compliance, integrity, performance or customer relationships. The effect of non-compliance on the bank‟s market share can also be categorised as being of high, medium or low impact. Impact will be high if there is a loss of a major client or group of clients or when the bank is not achieving the desired outcomes relative to those of competitors by a large margin. The effect will be of medium impact if there is a loss of any clients or if the bank is not achieving the desired outcomes relative to those of competitors. The impact will be low if there is a possible loss of a few clients. The conclusion drawn from this section of the study was that calculating the indirect cost of noncompliance was difficult but there were, nonetheless, statistical methods available to estimate such cost. There was, however, no doubt that if a bank is deliberately non-compliant it will almost certainly be forced from the market (Deffree, 2005:2).

The regulatory compliance, it was observed, also extends beyond the compliance department, and it was clear that regulatory compliance affected each employee of a bank. Carlson and Fernandez (2006:3) held the same view and stated that depending on the structure of a bank, the compliance functions could reside in several areas within the bank in addition to the compliance department. Such areas could include the risk management department, treasury department, internal audit department, the branch network and the human resources department. Calculating the Cost of Compliance The banks in the study acknowledged the various costs associated with compliance, but similarly have difficulty in calculating such costs accurately. Due to frequent changes to regulations, the distinction between start-up and ongoing costs is not clear, causing banks to incur both types of costs on a continuous basis. Staff-related costs encompass fixed and variable compensation, including salaries; bonuses, medical aid contributions and leave pay. Banks mentioned that these costs are easily quantifiable for certain functions in banks, such as the compliance and legal department. It could however be more difficult to calculate cost of compliance for business areas where staff members spend only some of their time performing compliance duties. The banks further mentioned that experienced compliance staff was in short supply and that higher salaries have to be paid in order to attract such staff. Another contributing factor mentioned was that the pace of regulatory change has necessitated a premium to be paid in terms of higher compensation. The banks in the study reported that they are experiencing difficulty in expanding internal compliance support rapidly enough to meet the sharply increasing regulatory and supervisory demand. Internal resources have become so overloaded that the use of external sources is the only way to meet the deadlines. The banks mentioned that opportunity costs are incurred whenever an employee spends additional time on compliance-related activities instead of developing business for the bank. In addition, when multiple regulators request the same information, the time spent on this duplication represents an opportunity cost. Clients are also impacted, as banks tend to spend more and more money on compliance-related activities. Clients are therefore limited regarding the choice of products on offer or in the selection of a financial advisor. An important aspect highlighted by the study that needs mentioning was that substantial portions of compliance costs are avoidable, reflecting deficiencies in the way that banks currently calculate compliance.

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Corporate Ownership & Control / Volume 8, Issue 3, 2011, Continued - 4 Additional Compliance-Related Information Obtained from the Banks The following additional compliance-related information was also obtained from banks. The majority of banks in South Africa have a presence (branch or office) in Europe, Africa and Australasia, implying that they have to meet the regulatory requirements of the different regulators in those countries. The majority of banks in South Africa are active in the country‟s economy in the commercial, investment, treasury, retail and merchant banking sectors. The result is that the banks have to meet the requirements of different regulators and not just that of the banking regulator. In South Africa, other regulators could, among others, be the Financial Services Board (“FSB”), the Johannesburg Stock Exchange and the Bond Exchange of South Africa. All banks in the study have either a centralised model or a combination of a centralised and decentralised business model for compliance, where “centralised” means that the head office of the bank is dictating compliance activities and “decentralised” means that business units manage their own other activities. The majority of banks deploy permanent compliance staff on a decentralised basis by placing them in the bank‟s different business units. The banks taking part in the study, however, indicated that this deployment of staff could and often does lead to the duplication of compliance work performed, thereby adding to the cost of compliance. The lead regulators for banks in South Africa are the South African Reserve Bank (“SARB”), through its Bank Supervision Department, and the Financial Intelligence Centre. The banks also interact with other regulators but on a less frequent basis. In the study it was established that the lead foreign regulator for South African banks is based in the United Kingdom, namely the Financial Services Authority (“FSA”), with the other regulators with whom they interact based in Africa, the United States of America, Hong Kong, Brazil and India. Compliance with the requirements of the Financial Intelligence Act (Act 38 of 2001) and the Financial Intelligence Centre Act (Act 38 of 2001) are managed by all the banks on a centralised basis whilst fewer banks manage the Banks Act (Act 94 of 1990), Financial Advisory and Intermediary Act (Act 37 of 2002) and Occupational Health and Safety Act (Act 85 of 1993) on a centralised basis. All the banks in the study indicated that they perform the basic compliance activities which include advisory duties, developing compliance/regulatory policies and procedures, education and training of compliance and other staff, monitoring the level of

compliance, performing compliance reviews, performing compliance-related investigations and liaison with the different regulators. The majority of regular submissions to local regulators are made to the SARB followed by submissions to FSB and the National Credit Regulator (NCR). In addition, the banks indicated that the SARB‟s reporting requirements were more onerous when compared to those of the other regulators in South Africa resulting in high resource allocation and costs. The majority of regular submissions to foreign regulators are made to regulators in Africa followed by the United Kingdom, the USA and Hong Kong. Despite not being able to calculate such costs accurately, the banks were unanimous that the cost of compliance has definitely increased over the past couple of years as a result of additional people who had to be employed in order to keep up with regulatory changes. The banks were divided about whether the regulatory regime in South Africa was too onerous on banks in South Africa, about the influence of the current regulatory regime on competition in the industry and whether there are too many regulators in South Africa, or not. In addition, the idea that the financial market in South Africa should regulate itself was tested. Some banks favoured self-regulation while others were totally opposed to it. The majority of the banks in the study were however of the opinion that self-regulation was currently not the answer for South Africa. Summary of Main Findings The main objective of the study being reported here was to determine whether the cost of compliance with regulations and other applicable Acts was onerous for banks in South Africa. The findings confirmed that banks are struggling to calculate the cost of regulatory compliance accurately. At best, they can estimate the cost of regulatory compliance only. The cost of compliance has increased and there are definite reasons for these increases. The Cost of Compliance The figure below provides the estimated compliance costs as furnished by the banks taking part in the study. The figure provides information on the combined total compliance cost of the banks and the highest as well as the lowest compliance costs in the banks. It must be noted that these estimates only pertain to those banks that were able to estimate costs and not the banking industry as a whole.

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Figure 1. Cost of Compliance

In analysing the information obtained in the study, it was calculated that the total cost of compliance to the banks has increased by nearly 300 per cent from 2007 to 2009 as it has risen from an estimated R28 million in 2007 to R80 million in 2009. The banks cited the main reasons for the increase in the cost of compliance as the increased complexity of the regulatory regime, larger volumes of submissions, an increased number of Acts,

increased regulatory focus and the implementation of new systems. Reasons for the Increase in the Cost of Compliance The figure below indicates the banks‟ opinion of these reasons.

Figure 2. Possible Reasons for the Increase in the Cost of Compliance

The information in this figure indicates that the banks were of the opinion that the complexity of the regulatory regime, the increased number of Acts and increased regulatory focus were the main reasons for the increase in the cost of compliance. The conclusion was that South African banks need assistance not only in calculating the cost of compliance but also in reducing the actual cost of compliance.

Recommendations In order to enable banks to possibly reduce the cost of compliance as well as the complexity of the current regulatory regime, the following changes to the current legislation in South Africa were recommended:  a single financial services regulator;  tax rebates;  capital reductions;

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Corporate Ownership & Control / Volume 8, Issue 3, 2011, Continued - 4  

outsourcing of the compliance function; and changes to Section 60 of The Banks Act (Act 94 of 1990).

A Single Financial Services Regulator South Africa requires only one financial service regulator, similar to the regulators in the UK and Australia. This regulator should be responsible for the prudential supervision of all financial institutions including banks and non-banks such as insurance companies. Such a measure could ensure the necessary consistency and uniformity of the currently fragmented South African regulatory structure. One financial service regulator is justifiable by the continued blurring of institutional and product boundaries, as well as growth in financial conglomerates. The main advantages of such a single financial regulator would be the following:  maintenance of confidence in South Africa‟s financial system;  promotion of greater public understanding of the risks, rewards and other key features of the financial system;  maintenance of adequate security and protection for consumers of financial products and services, reflecting the different levels of risks, tastes and sophistication possessed by various types of investors; and  reduction of criminal activity of a financial nature among regulated institutions. Ultimately, it should ease the complexity of the current regulatory regime in South Africa. Tax Rebates Banks should be permitted to determine their direct cost of compliance once a year, have it audited by the external auditors and then be allowed a tax rebate. The cost of non-compliance should not be taxdeductible as an expense on the bank‟s income statement. The bank shall therefore carry the full cost, penalties and fines of its non-compliance and these costs could be as high as R10 million per incident. The introduction of tax rebates could possibly ease the cost of regulatory compliance by rewarding the banks for effective compliance structures and procedures. Capital Reductions Banks should be rewarded for effective compliance risk management. It is suggested that compliance risk and the management thereof be assessed as part of the operational risk assessment under pillar two of the Basel II Accord. The external auditors should also audit a bank‟s compliance function once a year and

report the findings to both the bank‟s board and the Registrar of Banks. The result of this will be that the capital charge for operational risk could be reduced or increased according to the findings of the assessments and the external audit. Outsourcing of the Compliance Function The Registrar of Banks and auditors should allow the outsourcing of a bank‟s compliance activities subject to strict conditions and oversight. The decision as to whether to outsource compliance activities to independent third parties should be left to the bank in question. Should the bank choose to outsource its compliance activities, it was suggested that the regulations be amended to include the following conditions to allow outsourcing:  the existence of a legally binding agreement between the bank and the compliance services provider (“CSP”) detailing the exact terms of the agreement;  the CSP is only responsible for the monitoring of compliance and not for performing compliance in the bank;  the CSP shall be totally independent from the bank and appointed on an annual basis;  the appointment of the CSP shall also be subject to the Registrar of Bank‟s approval based on specific criteria set by the Registrar;  there shall be regular, formal meetings between the Registrar of Banks and the CSP;  the work of the CSP shall be subject to an audit by the bank‟s external auditors on at least an annual basis;  the CSP shall report its findings to the bank‟s board of directors and make all the reports available to the Registrar of Banks; and  the CSP shall be responsible for the training of bank staff with regard to compliance. The permission to outsource compliance activities could possibly ease the cost of regulatory compliance to the banks. Changes to Section 60A of the Banks Act It was recommended that Section 60A of the Banks Act (Act 94 of 1990) be changed to enable banks to implement the compliance framework. In the main, the changes pertaining to permission for outsourcing, to allow capital reductions and to allow tax rebates could possibly ease the cost of regulatory compliance to the banks. The implementation of the above-mentioned recommendations is estimated to reduce the cost of compliance to the banks in South Africa by as much as 40 per cent.

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Conclusion Suggestions were investigated that the cost of compliance with regulations and other applicable Acts was unacceptably high for banks in South Africa. The subsequent research findings showed that there was evidence to support these suggestions. Banks are however struggling to calculate the cost of regulatory compliance accurately. At best, the banks in South Africa can only estimate the cost of regulatory compliance. The study concluded that the banks need help not only in calculating the cost of compliance but also in reducing such cost.

In order to enable banks to possibly reduce the cost of compliance, changes to the current legislation in South Africa were recommended. These included a single financial regulator in South Africa, allowing the direct compliance cost to be a tax rebate, making provision for compliance cost as a capital reduction, and allowing the outsourcing of the compliance function by banks in South Africa under certain conditions.

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PROPOSED MODEL OF THE IMPACT OF STRATEGIC LEADERSHIP ON OPERATIONAL STRATEGY AND ORGANISATIONAL PERFORMANCE OF BUSINESS ORGANISATIONS IN SOUTH AFRICA JJ Serfontein, J Hough* Abstract Since the mid-1980’s a growing body of leadership research has focused on strategic leadership, in contrast to managerial and visionary leadership. It focused on how top leadership makes decisions in the short term that guarantees the long-term viability of the organisation. The best performing organisations are consciously strategic in their leadership planning. These top leaders also have the ability to align human resources in an effective way directly to the business strategy. This article proposes a model towards the effective implementation of strategic leadership processes which can help business and organisational leaders with the successful implementation of high performance strategic leadership practices. This research also pinpointed theoretical and substantively meaningful endogeneous organisational capabilities that mediated this relationship and exogenous organisational factors that moderated this relationship. Keywords: Strategic Leadership, Performance, South Africa *Department of Business Management, University of Stellenbosch

Introduction Wheeler, McFarland & Kleiner (2008:1) argued that: “A rapidly changing world has created a society craving for speed and action. Future leaders, therefore, face incredible pressures to deliver immediate results, to do more with less and to manage an ever-increasing personal workload. The pace and urgency of daily demands can make it difficult to be more than the step ahead into the future. But in a world of changing conditions and priorities, leaders and individual contributors alike must be able to look beyond the „now‟ and take a more strategic leadership approach to their work and responsibilities”. Without effective strategic leadership, the probability that an organisation can achieve superior, or even satisfactory, performance when confronting the challenges of the global economy will be greatly reduced (Hitt & Ireland, 1999). Great leaders are judged as much by what they leave behind as by what they achieve during their tenure. A vibrant, vital organisation that is fiercely competitive and driven to excel is, of course, an important legacy for a leader (Boal & Hooijberg, 2001). This means having in place a high-performing leadership team, a thinking organisation and managers and employees at all levels passionately committed to getting things done. In this context, this study identifies the direct and indirect pathways to strategic leadership practices from the literature, and empirical

survey the top 200 listed South African organisations of 2008 in order to ascertain how these antecedents influence the success of these organisations. In the new economy which is full of challenges and opportunities, it is very important for business and organisational leaders to consider a model towards the implementation of high performance strategic leadership practices. The problem for many leaders is that they want to be effective in their strategic leadership approach, but they do not have a model and process to follow which will help them to avoid non performance and poor results. This article will confirm that there is a direct and indirect correlation between strategic leadership and organisational performance, which will encourage business and organisational leaders to consider implementing the proposed model discussed in this article. Literature review/Background Few leaders allow themselves to think about strategy and the future. Leaders should give direction to every part of the organisation – from the corporate office to the loading dock. Strategic leadership is therefore the ability of the leaders to create and re-create reasons for the organisation‟s continued existence. The leader must have the ability to keep one eye on how the organisation is currently adding value and the other eye on changes, both inside and outside the

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organisation, that either threaten its position or present some new opportunity for adding value (Montgomery, 2008). Operational strategy and the impact of strategic leadership on the strategy of an organisation The primary task of high performance leaders is to provide strategic direction to the organisation, various departments and divisions within the organisation, and to the people who ultimately implement strategic leadership. People at „the top‟ of the organisation, normally in executive leadership positions, have tended to control over strategic processes. They have tended to make decisions, create policies, and inform people who report to them about the tasks and objectives that must be fulfilled. In essence, they have exercised „power over others‟ as the main means of getting things done. In the process they have often become alienated from the realities of operational demands and challenges. To compete, survive and perform in a highly competitive environment, an organisation's strategy must be aligned with that of its environment and at the same time the organisation must have the capabilities that fit its strategy. This is to say that „fit‟

(see Beer, Voelpel, Leibold & Tekie, 2005) must be achieved within the organisation as well as with the business environment. To accomplish this alignment, leaders have to be open to learning about how their decisions and behaviours fit the environment, strategy and organisation. This suggests that effective leaders enable their organisations to confront the tensions that prevent alignment and, through a collaborative process, reshape alignment at several levels: between environment and strategy, strategy and organisation, organisation and the leadership team, and between key people (Porter, 2008). Many organisations deploy the latest approaches to organisational efficiency in hopes of achieving fit, but too often find that they are unable to reap the full benefits from such activities (Baden-Fuller & Stopford, 1994). One of the main reasons for this is the lack of an integrated approach that changes multiple dimensions of the organisational system, particularly key organisational capabilities and leadership behaviour. By this stage all policies and procedures, as well as practices that contribute to organisational development and culture should be aligned to the shift towards good strategic leadership practices. and capabilities. Rowe (2001) identifies these capabilities in Figure 1.

Figure 1. Organisational performance and managerial, visionary and strategic leadership

HI Strategic Leader

High Organisational Performance

Visionary leader

Managerial leader Low

LO Managerial leadership capability

HI

Source: Rowe (2001:84)

Organisational performance Many organisations can appear to be high performers in the short run – by riding favourable market conditions, for example, or by being fortunate with a single product or market position – only to decline quickly when business conditions turn against them. To be a true high performer, an organisation must survive and thrive across economic and market disruptions. To measure the performance of organisations, it is important not to only use a single measurement, but to use different dimensions. Breene

and Nunes (2006) proposed that the following five dimensions (critical success factors) can be used as measurement, grading each on a curve against competitors in a carefully considered peer set:  Growth - as measured by revenue expansion.  Profitability - as measured by the spread between the return on assets and cost of capital.  Positioning for the future – as represented by the position of share price that cannot be explained by current earnings and by the position of the industry total each organisation‟s future value represents.

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Longlivity - as measured by the duration of outperformance in total return to shareholders. Consistency - as measured by the number of years out of seven the peer set median in profitability, growth and positioning for the future was beaten.

Strategic leadership models There are numerous strategic leadership models that have been designed and discussed by academics, scholars and consultants. Boal & Hooijberg (2001)

took an individual competence level focus in their proposed strategic leadership model (Figure 1). They suggested that effective strategic leaders must create and maintain absorptive and adaptive capacity in addition to obtaining managerial wisdom. Absorptive capacity involves the ability to learn by recognising new information, assimilating it and applying it. Adaptive capacity involves the ability to change due to variations and conditions. Managerial wisdom consists of discernment and intuition.

Figure 2. An integrative model of strategic leadership

Source: Boal & Hooijberg (2001:539)

As displayed in Figure 2, Boal & Hooijberg (2001:539) asserted that: “Cognitive complexity, behavioural complexity, and social intelligence form the foundation for absorptive capacity, capacity to change, and managerial wisdom, and that these in turn have an impact on leadership and organisational effectiveness”. Boal & Hooijberg (2001:539) further argued that: “Vision, charisma, and transformational leadership function as moderating variables of the

relationship between cognitive complexity, behavioural complexity, and social intelligence and absorptive capacity, capacity to change, and managerial wisdom”. Ireland, Hitt, Camp & Sexton (2001:48) made it clear that through effective strategic leadership, organisations are able to successfully use the strategic management process ( see Figure 3) to enhance the performance of the organisation.

Figure 3. Strategic leadership and the strategic management process Effective strategic leadership Strategic intent

Strategic mission

and influence Successful strategic action

Formulation of strategy

Implementation of strategy

Strategic competitiveness Source: Ireland, Hitt, Camp & Sexton (2001:48)

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As strategic leaders, top level managers must guide the organisation in ways that result in the formulation of a strategic intent and strategic mission. This guidence may lead to goals that stretch eveyone in the organisation to improve their performance. Moreover, strategic leaders must facilitate the development of appropriate strategic actions and determine how to implement them. These actions on

the part of the strategic leaders culminate in strategic competitiveness and above average returns. In determining the strategic direction of the organisation, the strategic leaders should develop a long-term vision of the organisation‟s strategic intent. A philosophy with goals, this vision consists of the image and character the organisation seeks (Hitt, Keats & Yucel, 2003)

Figure 4. Exercise of effective strategic leadership

Effective stategic leadership

Core ideology

Effectively managing the firm‟s resource portfolio

Envisioned future

Sustaining and effective organisational culture

Emphasising etical practices

Source: Hitt, Keates & Yucel (2003:693) As stated in Figure 4, the ideal long term vision has two parts: a core ideology and an envisioned future. While the core ideology motivates employees through the organisation‟s heritage, the envisioned future encourages employees to stretch beyond their expectations of accomplishment and requires significant change and progress in order to be realised.. The envisioned future serves as a guide to many aspects of the organisation‟s strategy implementation process, including motivation, leadership, employee empowerment and organisational design (Hitt, Keates & Yucel, 2003). Research methodology Hypotheses Against the backdrop of the literature review provided, it is expected that operational strategy and organisational performance will be influenced by strategic leadership practices. Strategic leadership can, therefore, be viewed as a competency that is the capability of creating capabilities within an organisation by the acquisition, recombination and renewal of these activities and resources (Eisenhardt et al., 2000; Miller, Eisenstat, & Foote, 2002). Following from the above, the following hypotheses were tested: H1: Strategic leadership is directly and positively associated with operational strategy. H2: Strategic leadership is directly and positively associated with organisational performance. The purpose of this quantitative study was to determine how strategic leadership has a direct impact

on operational strategy and organisational performance in business organisations in South Africa. Survey and sample A cross-sectional survey design consisting of two phases was used: a pilot study to test the measuring instrument and the administration of the telephone survey. The results of the pilot study determined the refinement of the questionnaire. A telephone survey was conducted by an independent organisation from January to March 2009. The sample selected for this study consisted of the top 200 performing organisations that were part of the Financial Mail survey of 2008(see Financial Mail, 2009). The organisations represent all major industry groups. Financial and industry performance information has been used from the 2008 Financial Mail survey. In this survey, the performance of these organisations was measured over a five year period to ensure consistency in their performance. The respondents in the survey have been the chief executive officers (CEOs) or a member of the senior executive group. Their responsibilities in their organisations give them a unique and comprehensive view of strategic leadership activities. All 200 top performing organisations in South Africa for 2008, as published in the Financial Mail survey, were part of the sample. A total of 118 valid responses were received with a response rate of 59 percent. Data was captured electronically during the interview.

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Corporate Ownership & Control / Volume 8, Issue 3, 2011, Continued - 4 Measurement instrument

o

A measurement instrument was developed to measure the impact of strategic leadership on operational strategy and organisational performance. Items of existing measurement instruments were combined, expanded, adapted or reduced as required to achieve the goals of the study, taking the prerequisites of validity and reliability into account. The measurement instrument needed to measure:  Strategic leadership (independent variable) o Action AND Coherence AND Discipline  Strategy orientation (dependent variable) o Strategy creation and formulation AND Strategy execution  Operational excellence (dependent variable) o Cost management AND Product differentiation AND Integration  Organisational performance (dependent variable)

ROA AND performance Results

EPS

AND

Self

reported

Descriptive analysis of the dimensions A profile of the respondents participating in the study is shown in Table 1, using mean, standard deviation and Cronbach Alpha. The respondents answered all the questions pertaining to strategic leadership, operational strategy and organisational performance. All the questions were measured on a nine-point scale. The mean of strategic leadership (action, coherence and discipline) constructs were calculated from both the operational strategy as well as organisational performance constructs. The standard deviation shows how the observations are spread around the mean.

Table 1. Descriptive statistics of constructs Dimension

N

Mean

Standard deviation

Cronbach alpha

Action

118

27.07

4.14

0.77

Coherence

118

21.72

3.42

0.76

Discipline

118

35.40

5.02

0.75

Creation and formulation of strategy

118

19.54

3.89

0.76

Execution of strategy

118

20.42

3.11

0.66

Cost management Product differentiation

118 118

21.31 28.23

3.08 4.43

0.71 0.87

Integration

118

26.74

4.11

0.72

Adaptive leadership

118

20.67

3.33

0.72

Autonomy

118

21.52

3.04

0.72

Communication

118

19.00

4.12

0.90

Process & systems

118

28.24

3.88

0.72

Values

118

22.41

3.25

0.77

Knowledge

118

21.18

2.88

0.43

Strategic leadership

Operational strategy

Organisational performance

Comparative analysis In this section of the article, the aim is to determine whether certain key variables are significantly associated, and furthermore whether certain subgroups are significantly different. Correlations among certain variables were calculated and the p-values were used to determine whether the differences among the constructs were significant. The focus is on the following specific dimensions:

 

Strategic leadership and operational strategy Strategic leadership and organisational performance Figure 5 illustrates the influence of strategic leadership re-conceptualised as three interrelated constructs of action, coherence and discipline as exogenous constructs.

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Figure 5. An illustration of the conceptual correlation model of strategic leadership, strategy orientation, operational excellence and organisational performance Action

Strategy orientation

StratCreate StratExec CostMgt

Strategic leadership Operational excellence

ProdDiff Integration

Coherence Organisational performance

ROA EPS

Discipline

SelfRep

Endogenous constructs of strategy orientation, operational excellence and organisational performance are also displayed. Strategy orientation is measured by the ability to create a strategy (StratCreat) as well as to execute the strategy effectively StratExec). Operational excellence is measured by cost management (CostMgt), product differentiation (ProdDiff) and integration (Integration). Finally, organisational performance is measured by ROA, EPS and self reported measurements (SelfRep). As discussed in this study, strategic leadership literature highlights these characteristics as having an impact on the operational strategy and performance of business organisations. The empirical research done in this study supplemented the theory surrounding strategic leadership by suggesting that if leadership in organisations formulate and execute their strategies effectively, this strategic competitiveness will give them an advantage to survive in a turbulent and uncertain economy. It also suggested that if organisations manage their costs effectively and focus on product differentiation and the integration of their people, they will perform well and yield above average returns.

An integrated model of the influence of strategic leadership on organisational performance The literature and statistical analysis in this article showed that effective strategic leadership practices are directly and indirectly positively associated with operational strategy and organisational performance. We were guided by the following principles for this proposed model, namely that: 1 the future can not be predicted and that analyses must not be based on knowledge of the future, but should focus on understanding the nature and consequences of change processes in and around the business; 2 the desired future can be “created” and therefore strategic planning processes and models should provide the link between an insight of the current future and a participatory design of realistic ideals; 3 the model is grounded in the assumption that leadership drives strategy orientation and operational excellence in the business 4 strategic competitiveness and organisational performance are core to the sustainability of high performing companies in South Africa Figure 6 display these principles and illustrate the above-memtioned relationships in an integrated model.

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Figure 6. Proposed model of the impact of strategic leadership on operational strategy and organisational performance of business organisations in South Africa Effective strategic leadership practices

Shape the formulation of

Shape the formulation of

and

Strategy orientation

Formulation strategy

of

Operational excellence

Execution strategy

of

Product differentiation

Cost management

Integration

Organisational performance

Strategic competitiveness

Yields Yields

High performing organisations and Above average returns

This model illustrates and proposes possible solutions to the research question of how strategic leadership can influence the organisational performance of business organisations. The model suggests that effective strategic leadership practices shape and formulate a strategy orientation as well as the operational excellence of the organisation. This means that strategic leaders will have the capability to shape and formulate compelling strategies and will also have the ability and drive to create a strategic orientation in the organisation where all the employees will be informed and, focused and dedicated to make the strategy work. This will further result in the formulation of compelling strategies and will also ensure the effective control measurements to execute these strategies. This will ensure the strategic competitiveness of the organisation, especially in a terbulent and chaning environment. Many organisations and leaders are normally doing well in a stable economy, but they find themselves quicly with no answers, plans and strategy in a terbulent environment where the economy is unstable and detriorating. Research has also suggested that organisations who have the discipline to implement and drive operational excellence have good cost management processes and a value orientation that will enable the organisation to produce its products and services at a much lower cost than its nearest competitor. In this model, operational excellence also suggests the

integration of all the employees and other resources in such a way that they have the willingness and ability to innovate and perform. People want to be involved with the future of the organisation as they want to know if the leaders have plans to secure there future in terbulant times. On there other hand, so do employees need to know that they have to be „excellent‟ in everyting that they do in order to support the organisations vision for organisational excellence. The last section in the model is very imprtant. The design of the strategies and implementation need to be very competitive in order to stay ahead of the organisations that are in competition for the same clients and resources. This also confirms that if effective strategic leadership practices are followed by the leadership in organisations, it will result to a high performing, new economy organisation that will yield above average returns. In essence the proposed model suggests the following:  Effective strategic leadership practices will shape the formulation of a compelling strategy orientation as well as a dedicated discipline and focus on operational excellence.  This will result in the formulation and execution of a relevant and focused strategy that will have the capability to take the organisation into the new economy.

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Operational effectiveness will also ensure a driven to a competitive cost management process, a well planned product differentiation strategy as well as full and comprehensive integration that will involve all personnel and resources at all levels. This will, inevetably, result to strategic competitaveness in the market as well as truly desrved organisational performance. The yield to strategic competitiveness and high performing organisations is a logic end result and should therefore be concedered by all organisations who are serious about the future and their survival inan terbulant environment. Discussion of results. The relationship between strategic leadership and organisational performance as a result of the proper implementation of the proposed model. The creation and formulation of a compelling strategy is extremely important for any business organisation as it determines the future direction of the organisation as well as exploits the core competencies of the employees. In this study it was also confirmed that organisations need to develop their human capital in order to perform according to the new goals and direction. The respondents in the study also confirmed the importance of establishing effective strategic controls and to sustain a corporate culture that emphasises ethical practices. Strategic controls are very important to make sure that the strategy is effectively executed. There also needs to be a corporate culture that all the employees understand the strategy and also know what their role is to make the strategy work. This study confirmed the relationship between strategic leadership and operational excellence organisations as the results of the correlation analysis showed strong positive relationships between strategic leadership and cost management as well as strategic leadership and integration (hypothesis 1). The study did, however, reveal a weak positive relationship between strategic leadership and product differentiation. The price leader position seems to be a danger as it can quickly become a commodity seller position, which leads to a lower ROA. This is consistent with Porter‟s (1996) contention that operational effectiveness is not strategy. Therefore operational excellence is best seen as a basis, and perhaps a prerequisite, for the growth orientated strategies of product leadership and integration of the functional areas of the organisation. Cost management has always been one of the major challenges in business organisations and it has a direct and indirect impact on the operational effectiveness of the organisation. Even if the organisation has an acceptable or high turnover and it does not have the ability to manage and control the

costs, the organisation will find it very difficult to survive. This is even more applicable in the current turbulent environment where the global economy is heading towards a recession. The strong positive relationship between strategic leadership and cost management was confirmed in this study. Finally, it was confirmed in this study that leadership must have the discipline to create a culture and environment where all people and departments in the organisation have the ability to integrate their competencies, initiatives and skills. The relationship between strategic leadership and organisational performance Adaptive leadership showed a strong, positive relationship with strategic leadership, which confirms the importance of leaders engaging in adaptive work by providing direction and protects the employees by managing the rate of change. The respondents also confirmed the importance of the leaders‟ ability to orient people to their new roles and responsibilities. The leader should also help the people in the organisation to maintain those norms. The data from this study confirmed the statistically significant and strong relationship between strategic leadership and effective processes and systems in the organisation. The literature in this study suggested that the business is a complex, adaptive system populated by purposeful, interdependent people. The leadership, therefore, needs to understand the whole system in the organisation as one system concept in an organisation contains the others. The study suggested that it is therefore no longer just the products that are important, it is the process that is important. Summary and conclusion The main contribution of this article was to propose an integrated model that can be used by executive, managers, business owners and heads of organisations to effective implement high performance strategic leadership practices. The assessment that strategic leadership is directly and positively associated with the performance in organisations is suggested by this model. The managerial implications of the proposed model constructed in the study are that leadership and executives in business organisations are able to implement high performing strategic leadership practices to enhance the strategy orientation and operational excellence in their organisations. This study also supplemented the theory surrounding strategic leadership by suggesting that if organisations formulate and execute their strategies effectively, this strategic competitiveness will give them an advantage to survive in an turbulent and uncertain new economy. It also suggested that if organisations manage their costs effectively and focus

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on a product differentiation and the integration of their people, they will perform well and yield above average returns. References 1. 2. 3.

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FRAMEWORK FOR ADVANCED SUPPLY CHAIN PLANNING: LARGE-SCALE PETROCHEMICAL COMPANIES J.J. Louw*, W.J. Pienaar* Abstract Most petrochemical companies are undergoing radical changes. The markets being served have expanded globally, customer service expectations have increased, and demand has become much more volatile and hence less predictable. The resulting product supply chains evolve/develop over time, with integrating decision-making processes and advanced planning practices becoming more prominent. A proactive approach with longer time horizons becomes the norm for excellence. Refinery expansion and highly integrated/sophisticated manufacturing technology have also contributed to increased interdependency within and between supply chains (upstream to feed sources, downstream to end consumer, and between logistics networks). These developments resulted in what is termed advance supply chain planning. Notwithstanding its unique differences, the petrochemical industry still has a lot of ground to cover before it can reach some of the advance supply chain planning benefits reported in other industries. This article presents what is believed to be an appropriate supply chain planning approach/framework for decision making in large-scale, integrated petrochemical companies. Keywords: petrochemical industry, strategic planning, supply chain planning, value chain *Stellenbosch University, Department of Logistics, Private Bag X1, Matieland 7602, South Africa Tel: 27 21 808 2251, Fax: 27 21 808 3406 Email: [email protected]

Introduction Supply chain approach The original value chain concept (introduced by Porter) is based on a process view of an organization. This view approaches a manufacturing (or service) organization as a system made up of subsystems, each with inputs, transformation processes and outputs (Porter, 1985:37). The value chain concept identified nine strategically relevant activities that create value and costs in a specific business. Of these nine, five activities are viewed as primary successive activities: inbound logistics, operations, outbound logistics, marketing and sales, and service. (The other four activities relate to support activities.) The scope of primary activities extends from the suppliers of raw materials to the point of finished goods consumption by the customers of an organization.

A supply chain is the physical representation of a business's value chain. A supply chain exists for each product/product family (viewed as a “product supply chain” in this article). The supply chain forms a critical part of a business‟s value chain, since it covers three of the five primary value chain activities (i.e. inbound logistics, operations and outbound logistics) (Pienaar, 2010: 448). With a broadened supply chain perspective (inter-company cooperation) the supply chain is considered as an extended enterprise and similarly suggests that all firms involved should focus their sequential but cumulative efforts on quality, dependability, flexibility, agility and, finally, cost efficiency (Chapman et al., 2002:60). The extended enterprise (as illustrated in Figure 1) forms the basis of how supply chains may pursue objectives for each of these priorities (the basis for competitiveness in the future).

452


Figure 1. The extended enterprise and the virtual supply chain Sources

Converters

Retailers

Goods and services flow Information flow Funds flow

Suppliers

Distributors

Consumers

[Source: Christopher, 1998:266]

A North American supply chain benchmarking study conducted by the Performance Measurement Group in 2002/3 (with 60 companies participating) indicated that well-developed supply chain planning processes are critical to achieve a competitive advantage (Wawszczak, 2003). Companies with mature and advanced planning practices were found to be 38% more profitable than average companies (relating to four stages of advancement). Combining mature planning processes with advanced planning systems contributes to additional supply chain performance improvements. Wawszczak (2003) concludes that: “Planning drives the supply chain. It orchestrates the flow of materials and resources, getting them to the right location at the right time, in the right sequence. Effective planning balances demand and supply, internal and external objectives, all in a constantly changing environment. Mastering supply chain planning can provide a major competitive advantage”. Petrochemical companies in context and challenges Some fundamental differences exist between the process/petrochemical manufacturing businesses and discrete manufacturing businesses. Process industries add value to materials by mixing, separating, forming, or purifying, or by chemical reaction. Discrete manufacturing uses a bill of materials (with the product supply chain convergent in nature) to make each finished product. Process industries often end up with a greater variety of products than raw materials, resulting in a bill of products (with the product supply chain divergent in nature) as opposed to a bill of materials (Rossouw, 1994:26). Other differences relate to the type of technology employed, flexibility, product volume, capital required and unit cost. Process industries typically account for half of all

manufacturing and this share/sector/component is growing (Centre for Logistics, 2005:20). The macro petrochemical value chain is characterised by a number of linked and successive interdependent transformation stages and processes. Starting with a relatively small number of raw materials, a large variety of different liquid fuel and chemical products (organic and inorganic) are produced in subsequent refining processes. Some products are made intentionally, while others are the result of the processing technology being used (coproducts). The various stages of the macro petrochemical value chain typically deal with: raw material (e.g. coal, oil, natural gas), petroleum distillates and chemical feed streams (e.g. naphtha, ethylene), liquid fuels and bulk chemicals (e.g. petrol, diesel, methanol, ammonia), fine chemicals (e.g. reagents, surfactants, explosives, polymers and resins) and speciality chemicals (e.g. adhesives, films and fibres, paints and additives). Upstream of the processing facilities relatively few organic and inorganic raw materials need to be supplied. Securing and getting access to large volumes of these relatively low-value materials is one of the key business drivers of large-scale petrochemical companies. Problem statement and objective The primary objective of this research was to extract, compare and relate the relevant available knowledge to the petrochemical industry‟s supply chain structures and conduct. Large-scale petrochemical companies in South Africa were the prime focus of this study. Although the number of these companies is relatively small, their unique challenges are significant. As petrochemical companies expand their sources and develop their markets globally, their supply chains become longer, more divergent, increasingly complex and more costly. Supply chain

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planning becomes more advanced as the supply chain scope it covers expands (number of partners, decision domains), the planning time horizon extends, the level of detail increases, more sophisticated techniques are used and decisions become more complex. Limited supply chain and supply chain planning literature is available that specifically focuses on applicable solutions for the petrochemical industry. Most supply chain literature focuses on individual supply chain solutions and not the typical interdependencies found between petrochemical supply chains. Since the nature, dynamics, business drivers, competitive pressures and challenges applicable to supply chains in the petrochemical industry differ substantially from those of other industries, a tailored approach needed to be developed to cope with new knowledge in this field of study. Research methodology An extensive literature survey was conducted, including more than 280 sources, to capture knowledge gained through relevant studies and appropriate publications. The literature study aims to lay the theoretical foundation for an appropriate supply chain planning management approach. The literature survey was supplemented by empirical research to obtain more information. Because of the small population size in South Africa related to this research, key stakeholders in the industry were identified and used as a mechanism to support the findings and recommendations. The empirical research consisted of the following: - Semi-structured one-to-one interviews were conducted with 21 stakeholders to clarify the best practice, concepts and approaches adopted by key academics, consulting practices, industry leaders and technology providers; - A questionnaire was used (and completed during the interviews) to assess the level of advancement in the identified planning business processes within the relevant different supply chain dimensions. The literature study and first portion of the empirical research (interviews) formed the basis for developing a generic framework for relevant planning processes within the identified supply chain dimensions. Subsequently, a generic framework for advanced supply chain planning was developed for the applicable supply chain interdependency dimensions found in large-scale petrochemical companies. These dimensions relate to the potential value that can be unlocked through advancement in supply chain planning process integration.

Synthesis from the literature study and empirical research From the literature reviewed and empirical research conducted, it became evident that abundant research studies are available and many approaches have been developed/followed on how to plan and manage supply chains for individual products or product families. Although these approaches provide a sound basis for managing individual supply chains, they cannot provide appropriate solutions for the supply chain challenges faced by large-scale integrated petrochemical companies for two reasons. Firstly, supply chain processes utilized for liquid and discrete products differ with respect to the supply chain practices applicable (e.g. continuous vs. discrete flow dynamics) (Klatch & Walker, 2005:90). Secondly, interdependencies exist within and across supply chains for petrochemical manufacturing companies which are not always found in discrete manufacturing processes. These interdependencies relate to upstream feed clusters (sequential, pooled and reciprocal), logistics networks (infrastructure, facilities and corridors) and downstream product clusters (related to regions, markets and customers). There is an opportunity to expand the chemical supply chain scope and planning horizon (to support supply chain decisions). A well-established supply chain principle followed is that long-term supply chain decisions will guide medium- and short-term decisions and ultimately actual operations (Fleischmann, Meyr & Wagner, 2000:58, 63). There are, however, few petrochemical companies that have expanded their supply chain thinking to include additional value-adding dimensions of supply chain planning in their interdependent chemical supply chains and logistics networks. The supply chain focus and planning can extend its reach/span across any of the following seven domains (categorized into intra- and inter-supply chain scope): Intra-supply chain scope (for an individual supply chain): -

Across activities within a function/department (internally focused); Across functions within a business unit (internally focused); Across a complete supply chain: backward integration with suppliers, forward integration with customers and other supply chain partners (externally focused).

Inter-supply chain scope (for multiple supply chains or cross-segments): - Across business units in a division (internally and externally focused); - Across divisions in an enterprise (internally and externally focused);

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Across enterprises in the same industry (internally and externally focused); - Across enterprises in different industries (internally and externally focused). Organizationally most supply chain planning processes are structured within business units and focus on the intra-supply chain scope (extending to their own suppliers and customers). There are, however, still some major challenges to overcome that are related to cross-functional integration (largely due to silo-oriented functional approaches within business units). Not many enterprises have properly structured themselves to cater for the planning processes required for the inter-supply chain scope. The competencies required for people responsible for supply chain planning are also not fully appreciated and are constantly underestimated/underappreciated. With the globalization of businesses and global competitive pressures, supply chain complexity has increased dramatically (Cecere, 2006). Companies are now starting to realize the major role that supply chain planning can play in dealing with these increased complexities. The use of Operations Research (OR) techniques within appropriate supply chain planning processes to support sound decision making still leaves major room for improvement. OR techniques can provide the proper analytical basis to ensure sound decision making for complex supply chain problems based on facts, rather than perception and judgement alone. Many supply chain managers still lack a basic understanding of the OR techniques applicable to the supply chain discipline (Frazelle, 2002:15). Decision support systems that incorporate OR techniques have developed significantly and their application is growing. Proposed framework

supply

chain

planning

The proposed supply chain planning framework is logically structured and consists of the following progressive elements: (a) an appropriate philosophy, (b) concept, (c) guiding principles, (d) typical petrochemical supply chain decisions, (e) the supply chain planning processes themselves, and (f) the means through which planning processes should be enabled. Each of the elements is briefly discussed in the following paragraphs. Petrochemical supply chain philosophy In future, supply chain leaders in the petrochemical industry will leverage their supply chain approach and capability to distinguish themselves from their competitors. They will look outside their own manufacturing operation for bottom-line improvements (and not primarily focus on reduction of manufacturing costs) (Whitfield, 2004). In focusing on lowering the total supply chain network‟s cost,

collaboration with trading partners becomes a prerequisite to align procurement, manufacturing and logistics capabilities with the customers‟ demands. To focus only on the functional excellence of individual functions in the supply chain will not suffice. In becoming customer focused and demand driven, a company needs to adapt a process approach in managing its business across all relevant internal functions and external partners. Fostering a supply chain culture will drive the correct values and required behaviours for a true supply chain approach (Brosset, 1999:21; Keen, 1997:107). Appropriate supply chain and planning performance indicators, linked to key business measures, will secure senior management‟s awareness, attention and support. Without senior management‟s complete support and active participation in using a supply chain management approach to manage their business, the full potential and benefits of superior competitiveness will not materialize. By evaluating future demand requirements and constraints, supply chain planning processes ensure a proactive approach and enough time to prepare supply chain operations properly for synchronized execution. Supply chain planning will play the key role in aligning all the supply chain partners to reach a common goal on strategic, tactical and operational levels. By following a holistic integrative approach and removing organizational barriers (silos) between interdependent chemical value chains, process-wide optimality can be achieved. As a rule this is far better than the local optimization of the individual value chains. The internal and external integration within individual supply chains (structured around the value chain of an individual product or product family) is the first plateau reached by following a conventional supply chain approach in a petrochemical company. This can be viewed as intra-supply chain integration. Due to the highly integrated nature of petrochemical value chains, related supply chains should also be integrated by taking account of enterprise-/industrywide synergies and interdependencies. This moves beyond this first plateau and can be viewed as intersupply chain integration. Inter-supply chain integration can typically develop within three dimensions: - Upstream chemical feed interdependencies/synergies; - Downstream product interdependencies/synergies; - Macro logistics network interdependencies/synergies. Concept of planning

advanced

supply

chain

Supply chain planning supports the Supply Chain Management (SCM) objectives to minimize the total supply chain cost, to maximize net revenues and to

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achieve non-monetary objectives, such as customer service, availability, reliability, product variety and quality. A supply chain must be viewed as one system (Lummus, Krumwiede & Vokurka, 2001:428), since changes at one segment of a supply chain affects the overall performance of the whole supply chain. Individual petrochemical value chains and their associated supply chains exist for a specific product or product family, and form the basis for business unit structures in this industry (as indicated in Figure 2). Sources for chemical feedstock supply could either be

internal or external to the business. The demand for final product supply could also be internal or external to the business. The external demand is typically viewed as an independent demand (external consumers‟ demand driven by their own business dynamics). On the other hand, internal demand is viewed as a dependent demand, since the downstream consumptions can be derived from known drivers (e.g. downstream production plan/schedule).

Figure 2. A petrochemical value chain with its associated supply chain elements

Independent

External Source

Internal Source

External Demand

Upstream Chemical

Feed Supply

Downstream Chemical

Chemical

Transformation

Oil, Coal & Gas

Tightly interdependent value chains form value chain clusters (upstream and downstream in the macro petrochemical value chain). These chemical value chain clusters then closely cooperate in balancing their interrelationships and aligning to reach shared objectives. Upstream, the focus is on collaboratively allocating scarce molecules profitably to downstream consumers. Downstream, the focus is more on collaborative inventory allocation to regions/customers and swaps/exchanges with other industry competitors (downstream product supply clusters). From a logistics perspective, large-scale petrochemical companies can work more closely within themselves, within the chemical industry, and also with related industries (e.g. chemical, paper and pulp, and chemicals and paints). Interdependencies can exist related to storage at facilities, and transportation along specific corridors (represented by the key logistics service providers). Figure 3 indicates the expanded chemical supply chain operations and decision domains (two distinct advancement stages) that supply chain planning processes should cover. These two stages relates to intra-supply chain (for a product/product family) and inter-supply chain (interdependencies/synergies across supply chains or segments thereof).

Product Supply

Dependent Internal Demand

Derivatives / Commodity Chemicals

Guiding principles related petrochemical industry

to

the

A number of principles related to a supply chain planning approach are briefly noted and described.  A supply chain exists for each product/product family. A supply chain is the physical representation of a business's value chain (Stephens, 2005).  A supply chain is made up of interlinked segments/threads. The supply chain segments/threads within and outside an organization represent all the operations and activities taking place within a supply chain from original supplier, through manufacturing and distribution, to the end customer (Dawe, 1996:112).  Progressing from intra- to inter-supply chain thinking will become a competitive requirement in the petrochemical industry. In the petrochemical industry the level of interdependencies is such that individual supply chains must work together in value clusters to ensure optimal and feasible plans for each related supply chain.

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Figure 3. Expanded chemical supply chain operations and decision domains

Strategic Tactical

Macro logistics network clusters

Operational

Upstream feed supply clusters

Downstream product supply clusters

(chemical streams)

(chemical products)

Supply chain

Inte

(for a product / product family)

Intr a-s u













Supply chain planning processes enable supply chain decision making and ultimately guide supply chain execution activities. Supply chain planning processes exist within and relate across three decision layers, namely: strategic (longterm), tactical (medium-term) and operational (short-term) (La Londe, 2005). Supply chain decisions should be based on sound facts. Transparency and timely access to key planning information across all supply chain segments is vital for effective supply chain planning for fact-based analysis and decision making (Vakurka & Lummus, 2003:55). Decision domains exist along and between individual supply chains. Many decision domains could exist along a supply chain (because of functional domains and different parties involved in the supply chain) or between segments/elements of supply chains. These domains require cross-coordination to ensure effective supply chains. Effective supply chain planning orchestrates the synchronised flow of goods. This is achieved through adherence to a single transparent demand-and-supply plan and execution in a well coordinated fashion. Planning and optimization must focus on the entire supply chain. In supporting planning at all levels optimization must focus on the entire supply chain as a whole, rather than optimizing each individual function. Appropriate planning performance measures should be used for each supply chain planning timeframe. These performance measures (reaching across the whole supply chain) can then





ppl

y ch

r-su

ppl

y ch

ai n

ai n

be used as the means of measuring how some of the agreed-upon supply chain objectives are achieved (Higgins & Hack, 2004:43). Independent demand to drive dependent demand (through causal relationships). The projected offtake is dependent on the expected sales of finished goods (independent demand) (Miller, 2001:90-91). Supply chain planning involves collaboration and coordination. Collaboration requires a climate of trust and cooperation (for information sharing on foreseen demand/developments and visibility of the current activities). Collaboration is a key approach to breaking down secrecy and a silo mentality along the supply chain.

Petrochemical supply chain decisions Supply chain decisions should be guided by the overarching corporate and business decisions. The competitive environment faced by an enterprise and its subsidiary businesses could require and predetermine specific supply chain designs and configurations. A business strategy and the associated marketing strategy create a number of supply chain challenges that need to be addressed. Intra-supply chain decisions typically cover a number of decision areas across the long-, mediumand short-term timeframes for a specific supply chain. Brief descriptions of the different supply chain decisions timeframes are given below. Long-term supply chain decisions, looking 1 to 5 years ahead in monthly, quarterly, yearly time buckets. (Mindset: Strategise and prepare.)

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Taking account of corporate and business strategic decisions (having a long-lasting effect), the business‟s strategy is translated into a supply chain strategy. Long-term supply chain decisions determine the supply chain network that provide the configuration and inventory flow capacity for feed supply, manufacturing and distribution of products to the marketplace served. Strategic supply chain objectives and targets are also determined. Medium-term supply chain decisions, looking 3 to 6 months ahead in weekly and monthly time buckets. (Mindset: Structure and organize.): Working under the umbrella of the long-term decisions (e.g. supply chain network, prescribed material flow-management policies), the prime focus is on converting the supply chain strategy into supply chain operational plans. Mediumterm decisions also focus on optimizing supply to the market within the supply chain resource capability available. Short-term supply chain decisions, looking 1 to 4 weeks ahead in hourly, daily & weekly time buckets. (Mindset: Commit and control.): Conscious of the medium-term economics (e.g. profitable product allocations, crude slate decisions already taken), the prime focus is on converting the supply chain operation plans into supply chain operation schedules. The inter-supply chain decisions typically deal with synergies and interdependencies between supply chains within an enterprise and closely relate to the overarching corporate and business decisions. Three typical dimensions for grouping inter-supply chain decisions are: (a) macro logistics network, (b) upstream feed supply clusters, and (c) downstream product supply clusters.

Supply chain planning processes Supply chain planning processes exist to support supply chain decision making. Different supply chain decisions are taken in the long-term (strategic), medium-term (tactical) and short-term (operational) timeframes. Figure 4 indicates the extended scope of intraand inter-supply chain planning processes across the strategic, tactical and operational decision levels found in the petrochemical industry. An indication is also given of what functional areas are covered by each of the planning processes (bottom of Figure 4). In the paragraphs following, these processes are briefly described and their interrelationship indicated. Strategic operations supply chain)

planning

(intra-

The strategic intra-supply chain planning processes related to long-term decisions for a specific business unit's supply chain focus on the design, structuring and configuration of individual supply chains and require contributions from all the supply chain partners involved (internal and external to company). These strategic planning processes include:  Supply chain scenario evaluation: For the various business scenarios being considered, viable highlevel supply chain alternatives are evaluated;  Draft supply chain network design and configuration: A supply chain conceptual design proposal is developed for the selected supply chain alternatives describing viable and feasible supply chain structures, configurations and appropriate operational practices;

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Figure 4. Intra- and inter-supply chain planning processes Strategic operations planning: Across BU’s in the same company and external to company

Inter-supply chain

Consolidated macro supply chain scenario evaluation Macro logistics network synergy and interdependency evaluation Sourcing consolidation (feed) Chemical feed clusters supply planning Chemical product clusters supply planning

Intra-supply chain

Strategic operations planning: For a specific business unit's SC with its SC partners (internal and external to company) Supply chain scenario evaluation Concept supply chain network design and configuration Detail supply chain operational and functional design Alliance and trading partner strategic planning Supply chain implementation and commissioning Tactical operations planning Demand planning and forecasting

Supply planning

Inventory planning Trading and feed procurement supply planning (external)

External supply and exchange planning

Manufacturing planning Feed supply planning (internal)

Physical distribution planning

Operations Scheduling External supply and exchange scheduling Production scheduling Procurement supply scheduling (external)

Inventory deployment and replenishment scheduling

Feed supply scheduling (internal)

Order fulfilment scheduling

Supply chain execution monitoring Procurement (with external feedstock suppliers)

Internal feedstock suppliers

Inbound logistics

Manufacturing

Upstream chemical feed supply

Outbound logistics

Internal Marketing & sales product (with external consumers product consumers)

Downstream chemical feed supply

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Corporate Ownership & Control / Volume 8, Issue 3, 2011, Continued - 4 





Detailed supply chain operational and functional design: A supply chain functional/operational design is established/finalized by collaborating with key supply chain stakeholders; Alliance and trading partner strategic planning: Since many operational activities in a supply chain are outsourced, careful consideration must be given to alliance and trading partner selection; Supply chain implementation and commissioning: The operational implementation of a supply chain design forms a major part of a new business‟s establishment. Some of these major activities revolve around infrastructure, equipment design, operating procedures, contingencies and commissioning.

Tactical operations supply chain)

planning

(intra-

Tactical operations planning focuses on the mediumterm decisions for a specific business unit's supply chain. The two major overarching operations planning processes are demand planning and supply planning. Demand planning normally initiates the tactical operations planning processes and consolidates the anticipated/committed demand for a given supply chain‟s product(s). Supply planning determines the optimal supply plan to meet the anticipated demand. These two overarching processes interact with one another and eventually lead to the establishment of an agreed demand plan and a feasible, profitable operational supply plans (upstream, production and downstream). This process also relates to the popular Sales and Operations Planning (S&OP) approach followed in many businesses. The supply planning process is broken down further into a number of sub-planning processes that are closely related to one another. These include: - Inventory planning; - External supply and exchange planning; - Physical distribution planning; - Manufacturing planning; - Feed supply planning (internal); - Trading and feed procurement supply planning (external). Operations chain)

scheduling

(intra-supply

The scheduling of supply chain operations processes focuses on short-term operational coordination, synchronization and control. The daily and weekly operations activities must carry out the resource allocation and utilization decisions made at the tactical level. These supply chain operations scheduling processes include: External supply and exchange scheduling (product); Production scheduling;

-

Inventory deployment and replenishment scheduling; Order fulfilment scheduling; Feed supply scheduling (internal); Procurement supply scheduling (external); Supply chain execution monitoring.

Strategic operations supply chain)

planning

(inter-

Extended supply chain integration requires the use of appropriate advanced supply chain planning processes (for the systematic evaluation of all the long-term considerations). The scope of these processes reaches across the supply chains of individual business units (or relates to elements thereof). The extended dimensions of inter-supply chain interdependencies/synergies relate to upstream chemical supply clusters, downstream product supply clusters and macro logistics network clusters. The inter-supply chain planning processes that emerged from the literature study and empirical research include the following: - Consolidated macro supply chain scenario evaluation: The effect of large, company-wide business scenarios also requires proper evaluation from a supply chain perspective. These evaluations typically need to highlight potential synergies, opportunities, effect of interdependencies and potential risks; - Macro logistics network synergy and interdependency evaluation: Major industry players within the same company and/or across related external companies collaborate on logistics synergies and interdependencies related to common logistics infrastructure that could be leveraged for mutual benefit (e.g. economies of scale, commercial synergies, mitigating aggregate risk); - Sourcing consolidation (feedstock): Feedstock, chemical commodities and process material shared by multiple business units within the same company and/or related external companies could provide synergistic opportunities. This can be achieved through a consolidation process (strategic sourcing practices). The aim is to reduce total cost of ownership (TCO) of materials; - Chemical feed clusters supply planning: Chemical feed clusters supply planning takes an enterprise-wide perspective on the upstream segments of interrelated supply chains (supply chains that share common chemical feed steams). If there is adequate upstream feed available to satisfy all the downstream requirements, the chemical feed streams are not in a constraining condition. However, when the downstream demand for chemical feed exceeds the available supply, sound trade-off analysis is required to ensure enterprise-wide optimal decisions across

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the related supply chains. Operational constraints should also be considered; Chemical product clusters supply planning: Specific situations may exist where related downstream chemical products are exchanged between supply chains. Product exchanges can occur within a large enterprise between business units or external to the enterprise. Other interdependencies relate to where more than one business unit produces the same product within a large enterprise. A specific customer might also be served by a number of business units from the same enterprise with various products. These then typically become mutually shared strategic customers. Synergistic opportunities could exist between these different supply chains (e.g. corridors of movement, adjacent geographical facilities, same destination points).

Enabling supply chain planning A number of supply chain enabling planning processes exist that can enhance the execution of future operations planning and transactional activities. These include: - Supply chain strategy formulation; - Business process design and configuration (for planning and execution); - Organizational design with anchor positions; - Monitoring and control methods design (based on performance targets); - Information technology enablement design. Operations Research (OR) techniques and Decision Support Systems (DSS) also play an important role in enabling supply chain planning processes. Database systems, modelling tools and solvers (optimizers) form the basic building blocks for Decision Support Systems . Together with the appropriate graphical user interface (GUI) and presentation mechanisms, end users can properly interact with a DSS. The database systems do not only provide the required decision information, but also the means to drive master data standardization, a vital requirement for data aggregation and descriptive analysis. Modelling tools and solvers utilize OR

techniques to provide optimization capabilities. Descriptive and normative models are used to provide the appropriate analytical techniques in support of supply chain planning processes (Shapiro, 2001:1012). Descriptive models typically enable the required business intelligence (e.g. forecasting models, simulation models) while normative models provide optimization capabilities (e.g. linear programming models). Proposed roadmap advancement

for

supply

chain

To guide a petrochemical company along the planning intervention journey, a roadmap can be followed that articulates the stages for advancing supply chain planning. Such a roadmap is provided in Figure 5. It articulates the different plateaus reached, which each provide the basis for the next level of advancement. These stages include supply chain grounding basics followed by first- and second-stage advanced supply chain planning. Any intervention related to planning should follow a programme approach (i.e. a set of initiatives supporting an agreed objective) and requires a focused champion to lead it. These initiatives normally require a “cross-section” of participants from all relevant functions and disciplines. Any company that plans to implement advanced planning should typically evolve through advancement stages. Each stage covered provides the building blocks required for the next level of advancement. Advancement can be fast-tracked, however, based on a company‟s readiness and capacity for change. Key mechanisms that can be applied to aid the advancement of supply chain planning intervention include: planning process improvements and reengineering, advancement in analytical techniques, decision support systems‟ advancement, change of management practices, organization design, roledefinition and people-competency development, and continuous improvement practices.

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Figure 5. Roadmap stages for advanced supply chain planning

Downstream product clusters

Macro logistics letworks

Value unlocked

Upstream feed clusters

Second stage of advanced supply chain planning Inter-supply chain

Advance decision support systems Advance analytical techniques First stage of advanced supply chain planning

Extend SC planning decision level Extend SC planning reach

Intra-supply chain

Align organizational structures Introduce supply chain processes (including planning processes)

Supply chain grounding

Supply chain approach/orientation adoption and implementation Establish supply chain awareness and interest Time

Supply chain grounding basics A number of basic building blocks are required to commence with the planning process. These building blocks initiate the first important stage to secure the proper grounding of supply chain basics in an organization. They include:  Establish supply chain awareness and interest;  Introduce supply chain processes (including planning processes);  Align organizational structures.

Systems helps to embed and enable the supply chain supply chain planning processes. Second Stage of advanced supply chain planning (across supply chains) With each business unit‟s supply chain optimized and related internal functions and external supply chain partners extended, a business can start to advance its supply chain planning processes to incorporate the value-addition dimensions described earlier (i.e. upstream feed clusters, macro logistics networks and downstream product clusters.)

First stage of advanced supply chain planning (for individual supply chains)

Requirements for sustainable change

With the basics of a supply chain approach properly established, a business can start to advance its supply chain planning processes in a number of ways. By extending the reach of supply chain planning processes, more of the related internal functions in a business and external supply chain partners are integrated. Extending the supply chain planning processes decision level from the operational decision level to also cover tactical and strategic decision levels makes the supply chain more proactive and capable of responding to future customer demand requirements and foreseen operational realities. As businesses advance their supply chain scope (reach and decision level), the decision support models used to support the associated planning processes also expand from descriptive to optimization models (more advanced analytical OR techniques being used). The introduction of Advance Decision Support

Once a supply chain planning capability has been established, it is important to ensure that it can be sustained. The following are typical practices that can be utilized to sustain a supply chain planning capability: - Apply holistic integrative thinking; - Measure and report benefits; - Show small benefits as soon as possible and reward champions; - Publicize successes and share learning; - Break the big interventions up into smaller projects (each with key deliverables); - Ensure that all processes have owners; - The new planning processes must become the normal practice on a day-to-day basis; - Recognize that planning processes are “living” and will continuously evolve and improve over time; - Provide for on-going support and enhancements.

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The roadmap outlined above is considered useful and appropriate in that it could guide a petrochemical company along the journey of advancing its supply chain planning processes and ultimately enhance its competitiveness. The resulting framework for this research could also be applied to small to medium-sized chemical organizations, although they might not be faced with the same complexities as those of large-scale petrochemical companies. The philosophy, concept and guiding principles derived in this article could also be applied in other industries where interdependencies between related supply chains (or segments thereof) become apparent. References

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10.

11.

12.

13.

14. 15.

1. 2.

3.

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5.

6.

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Brosset, P. 1999. To Logistics Manager, FYI. HP: The IT Journal, 1st Quarter: 20-28. Centre for Logistics - CSIR, 2005. Second Annual State of Logistics Survey for South Africa. Pretoria: CSIR. Cecere, L. 2006. Aligning Supply Chain Design with 25 Levers of Agility. Boston: AMR Research. (Research Alert - January). Chapman, P., Christopher, M. Juttner, U., Peck, H. & Wilding, R. 2002. Identifying and Managing Supply Chain Vulnerability. Logistics Focus, 4(4): 59-64. Christopher, M. 1998. Relationships and alliances. Embarking on? the era of network competition, 272284. In: Gattorna, J. (ed.) Strategic Supply Chain Alignment; Best Practices in Supply Chain Management. Hampshire, England: Grover. Dawe, R. 1996. Proper strategy needs a sound process. Transportation and Distribution, 37(6): 112114. Fleischmann, B. Meyr, H. & Wagner, M. 2000. Advanced Planning, 57-71. In: Stadtler, H. & Kilger, K. (ed.) Supply Chain Management and Advanced Planning; Concepts, Models, Software and Case Studies. Berlin: Springer. Keen, P.W.G. 1997. The Process Edge; Creating Value Where it Counts. Boston: Harvard Business School Press.

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Klatch, W. & Walker, W.T. 2005. Architecting the Liquid Supply Chain. Ascet, Volume 7. [Online]. < http://www.ascet.com/> [Cited 13 September 2005]. Frazelle, E.H. 2002. Supply Chain Strategy; The Logistics of Supply Chain Management. New York, NY: McGraw-Hill. Higgins, L. & Hack, B. 2004. Measurement in the 21st Century. APQC White Paper. [Online]. [Cited 14 February 2006]. La Londe, B. 2005. Planning in Turbulent Times. Supply Chain Management Review. [Online]. . [Cited 12 February 2006]. Lummus, R.R., Alber, K. & Vokurka, R.J. 2000. Selfassessments: a foundation for supply chain success. Supply Chain Management Review, 4(3): 81-87. Miller, T. 2001. Hierarchical Operations and Supply Chain Planning. London: Springer. Pienaar, W.J. 2010. Logistics Management Aspects of Planning, Implementing and Controlling Commercial Petroleum Pipeline Operations. Corporate Ownership & Control, 8(1): 447-455. Porter, M.E. 1985. Competitive Advantage: Creating and Sustaining Superior Performance. New York, NY: Free Press. Rossouw, P. 1994. Process manufacturing industries. Logistics News. 26-30. Shapiro, J.F. 2001. Modeling the Supply Chain. Pacific Grove, CA: Duxbury. Stephens, S. 2005. Integrated Logistics: How to avoid the Weakest Link syndrome. In: SAPICS 2005, 27th Annual Conference and Exhibition. Sun City, South Africa. Vakurka, R.J. & Lummus, R.R. 2003. Better Supply Chains with Baldrige. Quality Progress. 51-57. April. [Online]. [Cited 03 June 2003]. Wawszczak, J. 2003. Companies with Mature Supply Chain Planning Practices and Systems Are More Profitable. The Performance Measurement Group press release. Chicago, IL. [Online]. [Cited 30 September 2003]. Whitfield, M. 2004. Archive a stronger link. [Online]. European Chemical News: September. [Cited 27 September 2004].


EMPLOYEE PERCEPTIONS OF KNOWLEDGE MANAGEMENT IN TWO SERVICE UNITS: A CASE STUDY OF MANAGEMENT SERVICES AND ORGANISATIONAL DEVELOPMENT (OD) AND SKILLS DEVELOPMENT UNITS Bethuel Sibongiseni Ngcamu* Abstract The main objective of knowledge management in organizations is its “use” or “benefit”. A comprehensive review of the literature has revealed a rapidly increasing and eclectic body of knowledge relating to knowledge management by both practitioners and academics. Knowledge management initiatives adopted within eThekwini Municipality are technologically oriented and lack deeper analyses of knowledge. The purpose of this study is to gain knowledge on or insight into employee perceptions about the factors that contribute to the strategies for managing knowledge, to gain knowledge on, or insight into, employee perceptions about knowledge management processes to convert tacit into explicit knowledge, to explore employees’ views regarding the implementation of knowledge management strategies and employee’ perceptions about the ways in which knowledge management can contribute to organisational effectiveness and efficiency. Furthermore, this study investigates the interrelations between the four dimensions that impact on knowledge management (current knowledge management strategies, current processes for managing knowledge, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) respectively. This study seeks to investigate new systematic strategies for knowledge management within eThekwini Municipality and international knowledge management initiatives and strategies in the public sector are to be explored with the aim to promote knowledge transfer. The study was undertaken at Skills Development and Management Services and Organisational Development (MS&OD) Units within eThekwini Municipality. A knowledge management survey used census and questionnaires were administered to 80 employees, of which 66 questionnaires were suitably completed. The survey took place during June to July 2009. Statistical analysis of the questionnaire included descriptive (measures of central tendency and dispersion) and inferential t-test, ANOVA and intercorrelations statistics. The validity and reliability of the questionnaire was established using factor analysis and Cronbach’s Coefficient Alpha, respectively. The hypothesis of the study was tested using inferential statistics to determine whether significant relationships exist among the variables. Interpretation of results indicated that there exists a significant relationship amongst the key variables of the study relating to knowledge management respectively. It is argued that these findings have practical implications for human resource management discipline, local government, private organisations and academics as it proposes and suggests strategies and recommendations that may be implemented to overcome barriers of implementing knowledge management. The limitations of the study as well as directions for further research are also discussed. Keywords: Tacit knowledge, explicit knowledge, community of practice, census, case study *Acting Senior Director: Human Resources and Development, Mangosuthu University of Technology, 37 Dagwood Crescent, Kingsburgh 4126 Tel: 031-9164385/0795589794 Email: [email protected]

Introduction There is a growing interest and concern from organisations pertaining to skills and knowledge that employees have which is not captured and recorded with the aim of inventing the knowledge wheel Wiig

(2002:224) argues that not enough attention has been paid to human capital and its role in the competitive advantage of business in today's knowledge economy. A vital aspect of the society's success is the knowledge that its citizens possess, is made available to its public servants, and is embedded in structural

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and other intellectual capital assets that can be leveraged internally and in the global market. The broad field of knowledge management (KM) introduces new options, capabilities, and practices to assist public administration to great advantage. It becomes a new responsibility to manage knowledge to strengthen public service effectiveness and improve the society it serves (Lee, Y. C. and Lee, S.K. 2007:28). Knowledge management is the collective phrase for a group of processes and practices used by organisations to increase their value by improving the effectiveness of the generation and application of their intellectual capital. The effective management of a firm's knowledge assets is an essential factor to achieve a sustainable competitive advantage in today's market (Drucker, 2001:18). A firm's knowledge encompasses a mix of framed experience, values, contextual information and expert insight that makes possible the incorporation of new experiences and information (Davenport and Prusak, 1998:45). This same knowledge entails the domain-related skills needed to boost organisational effectiveness through innovation and the enablement of a flexible knowledge management infrastructure (Watad, 2002:45). According to Boisot (1995:23), knowledge management processes are meta-processes which cannot be uniformly observed like physical processes and differ according to their means of creation, nature, recording, transmission and mode of use. According to the definition, no two knowledge management implementations will be the same since socio-cultural contexts differ and more importantly because human beings with different perceptions and philosophies are central to all knowledge management applications. In the South African context, local governments such as eThekwini Municipality are failing to initiate and implement knowledge management programmes to all units. Whilst, in the South African private sector, organisations have invested on human capital with rewards in promoting transfer of tacit to explicit knowledge which is mainly used for innovation and creativity which brings change and high productivity rate or level. Paradoxically, however, while the importance of these issues has been widely articulated, people management perspectives have yet to be fully developed, and the knowledge management literature has made only partial and limited use of human resource management concepts and frameworks (Afiouni, 2007:124). The idea is that the success of any knowledge management initiative is likely to be critically dependent on having suitably motivated people taking an active role in the process (Robertson and O'Malley Hammersley, 2000:33). Few researchers have studied the perceptions of employees on knowledge management within the public service units focussing on the knowledge management strategies, processes, implementation and the impacts to organisational effectiveness.

The research objectives of the study are to examine and analyse current knowledge management strategies, tacit and explicit transfer processes, and knowledge management‟s contribution to organisational effectiveness and efficiency and implementation strategies. Furthermore, to provide recommendations with strategic direction and improvements as far as knowledge management is concerned. The importance and value of the study is to contribute to the formulation of knowledge management strategies and initiatives within Skills Development and Management Services and Organisational Development (MS and OD) Units. Furthermore, to enable aforementioned units assigned to drive knowledge management to be effective and efficient in its implementation; and to add value to the body of knowledge in knowledge management research in South African local government as there are limited numbers of researchers who have contributed to the study. From this, the present study will explore current knowledge management strategies employed by Skills Development and MS and OD. In addition, this study will investigate whether knowledge management has a significant relationship with its aforementioned dimensions. Synthesis and Critical evaluation of the literature The concept of knowledge management is traced back to the 1950‟s which was the decade of electronic data processing. Gamble and Blackwell (2001:5) confirms that this decade was associated with quantitative management techniques such as Project Evaluation and Review Technique (PERT) and highly structured management approaches such as Management by Objectives (MBO). Nonaka (1994:76) defines knowledge discovery as the development of new tacit or explicit knowledge from data and information or from the synthesis of prior knowledge. The discovery of new explicit knowledge relies most directly on combination, whereas the discovery of new tacit knowledge relies most directly on socialisation. Knowledge management is the process by which managers create mechanisms for exchanging knowledge and creating new knowledge (Cabrera and Cabrera, 2002:34). Knowledge management is "how distributed group members and their organisational colleagues, locate, store and retrieve the data, information and knowledge that they need for their individual and collective work" (Hollingshead, Fulk and Monge, 2002: 335). Effectively managing knowledge in organisations involves considerations of both knowledge acquisition and knowledge transmission (Lowendahl, Revang, and Fosstenlokken, 2001:55). Although knowledge management is typically defined as the holistic combination of measures for managing people, processes, and technology, the

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explicit integration of human resource management into knowledge management initiatives is seldom examined. The idea is that the success of any knowledge management initiative is likely to be critically dependent on having suitably motivated people taking an active role in the process (Robertson and O'Malley Hammersley, 2000:33). Spender (1996:77) proclaims that tacit knowledge is acquired through experience. It is personal and, therefore, difficult to formalise, communicate and share with others. It consists of a technical dimension often referred to as know-how and a cognitive dimension that includes schemes, mental models and beliefs; in short, a conception of reality (Hussi, 2004:77). On the other hand, explicit or codified knowledge (Polanyi, 1966:16) is transmittable through formal, systematic language, and may adopt the form of computer programs, patents, diagrams, or similar attributes (Hedlund, 1994:49). Explicit knowledge can be conceptualised and stored in information systems (Hussi, 2004:11). Much of organisational knowledge is tacit (Cook and Yanow, 1993:67), that is, it is generated through the experience that the daily work consists of. Knowledge management has emerged to create and leverage intellectual capital (IC) into the business equation and into the public (Allee, 1998; Bohme and Stehr, 1986; OECD, 2000; Reich, 1991and Wiig, 1994, 1997). IT is used extensively to support knowledge management, although many information management tools are marketed as being "knowledge management" tools, which they arguably are not knowledge, it must be realised, is distinctly different from information, and knowledge management and information management are not the same. According to Tobin (2006:1), knowledge management in South Africa has been the focus of a number of research projects, with South African based authors having covered subjects such as surveying, measuring and valuing knowledge management practices (Botha 2004; Botha and Fouché 2002; Kruger and Snyman 2005a; Tobin and Volavsek 2006:33); the role and influence of corporate culture (Davel and Snyman 2005; Ndlela and Du Toit, 2000:38); knowledge management in South African law firms (Du Plessis and Du Toit, 2005:87); leadership issues (Kok 2003:29); organisational maturity and world-class performance in relation to knowledge management (Kruger and Snyman 2005b; Tobin and Snyman 2004:16); strategic perspectives (Snyman and Kruger 2004:44); knowledge management and organisational structure (Gichuru and Tobin, 2004; Tobin and Franse, 2005:20); communities of practice (Van den Berg and Snyman 2003:34); and knowledge management and the use of enterprise intranets (Van der Walt, Van Brakel and Kok, 2004:1). Despite the fact that the literature includes numerous typologies for organisational knowledge which are scientific and practical (Hayek, 1945:66),

objective and based on experience (Penrose, 1959:4), procedural (Winter, 1987:77), incorporate (Suboff, 1988:99), migratory and embedded (Badaracco, 1991:122), and are codified (Blacker, 1995:8) - the most frequently used is the one that distinguishes between tacit and explicit knowledge, proposed by Polanyi (1966:88) and later utilised by other authors. Knowledge management is an important organisational consideration because it increases organisations' viability, competitive success, and performance outcomes (Cabrera and Cabrera, 2002; Dyer and Singh, 1998; Palassolo, Serb, She, Su, and Contractor, 2006 and Shou and Fink, 2003). Trethewey and Corman (2001:622) tied effective knowledge management practices to enhance creative potential, stating "effective knowledge management systems that may relieve individuals of the burden of 'reinventing the wheel,' freeing them to engage in more creative tasks". Furthermore, Intranet-based communal knowledge repositories, hereinafter referred to as repositories, are used to contain knowledge and make it accessible. Demarest (1997:98) characterised this type of knowledge management as information based and delineated four stages of knowledge management: discerning knowledge, choosing a container, disseminating the knowledge, and using the knowledge. Hypothesis development There exists significant intercorrelations amongst the dimensions of the study (current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) respectively. Developing communities of practice (CoPs) is one example of a people-based knowledge management strategy. This theory considers knowledge-as-process, in which relationships among individuals are cultivated to enhance knowledge sharing (Demarest, 1997; Iverson, Liedtka, Haskins, Rosenblum and Weber, 1997; Kuhn, 2002 and McPhee, 2002:31). CoPs recognise that "knowledge has to be continuously negotiated through interactive social networking processes" (Swan, Newell, Scarbrough and Hislop, 1999:5), and they highlight the role of communication and interaction to transform information into a useful resource in organisational sense-making and learning (Sorn and Taylor, 2004:76). Edvardsson (2003:5) is of the opinion that the tacit knowledge management process has fewer parts than the explicit one. Although the knowledge creation process is similar in both cases, the main differences lie in the distribution of knowledge. Distribution of tacit knowledge has been most successfully achieved by apprenticeship, communities of practices, dialogues, meetings, informal talks,

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conferences, lectures and mentorship. The use of knowledge is also similar to that of the explicit one interpreted by McAdam and Reid (2005:34). Literature shows clearly techniques and strategies of creation and transferring new explicit knowledge. Nonaka (2004:98) confirms that explicit knowledge is discovered through combination, wherein the multiple bodies of explicit knowledge (also data or information) are synthesised to create new, more complex sets of explicit knowledge. Through communication, integration, and systemisation of multiple streams of explicit knowledge, new explicit knowledge is created either incrementally or radically (Nahapiet and Ghoshal, 1998:143). Existing explicit knowledge, data, and information are reconfigured, recategorised, and recontextualised to produce new explicit data, information, and knowledge embedded in prior proposals may be combined into new proposal. Also mining techniques may be used to uncover new relationships among explicit data that may lead to predictive or categorisation models that create new knowledge. Explicit knowledge can be resultant of the converted tacit knowledge which is in documents, processes and databases. This is referred to as “decanting the human capital into the structural capital of an organisation.” (Morey et al. 2005:71). Furthermore, enhancing tacit knowledge flow through better human interaction such that knowledge is diffused around the organisation and not held in the heads of a few employees. Given the fact that knowledge can exist within people (individuals or groups), artefacts (tacit knowledge) (practices, technologies, or repositories), and organisational entities (explicit knowledge) (organisational units, organisations, or intergovernmental networks). It is of utmost importance to capture tacit knowledge from the individual‟s minds as well as the explicit knowledge from the manual, such as that knowledge that can be shared with others. Nonaka (1994:98) defines knowledge capture as the process of retrieving either explicit or tacit knowledge that resides within people, artefacts, or organisational entities. Also, the knowledge captured might reside outside the organisation boundaries, including consultants, competitors, customers, suppliers, and prior employers of the organisation‟s new employees. Nonaka (1994:156) discusses the role of externalisation and internalisation which assists in capturing the tacit and explicit knowledge. According to Nonaka (1994:34) externalisation involves converting tacit knowledge into explicit forms such as words, concepts, visuals, or figurative language (for example, metaphors, analogies, and narratives).Externalisation also helps translate individuals tacit knowledge into explicit forms that can be more easily understood by the rest of their group. Nonaka (1994:36) suggested that externalisation may be accomplished through the use of metaphor (for example, understanding and

experiencing one kind of thing in terms of another). According to Nonaka (1994:38) internalisation is the conversion of explicit knowledge into tacit knowledge. It represents the traditional notion of “learning.” Explicit knowledge may be embodied in action and practice. So that the individual acquiring the knowledge can re-experience what others have gone through. Nonaka and Takeuchi, 1995:54) state alternatively, individuals could acquire tacit knowledge in virtual situations, either vicariously by reading manuals or others‟ stories, or experientially through simulations or experiments. Tacit knowledge can also be acquired through sharing ideas, debates, interviews processes, as well as conflict handling and resolutions. The combination of domain, community, and practice is what enables communities of practice to manage knowledge. Domain provides a common focus; community builds relationships that enable collective learning; and practice anchors the learning in what people do. Cultivating communities of practice requires paying attention to all three elements. These same elements provide the structure underlying the doughnut model of knowledge management (Wenger, 2004:3). Heaton and Taylor (2002) have recently argued that most organisational knowledge is embedded in the processes of CoPs. In CoPs, more sophisticated information sharing can take place because tacit knowledge is not easily transmitted simply through technology. Technology makes differences in local practices and culture within an organisation which is hard to transmit (Empson, 2001; Swan et al. 1999). Embodied, and enculturated ways of knowing are tied to CoPs and the process perspective of knowledge management (Blackler, 1995:65). According to Fong et al. (2005:6) cited in Apostolou and Mentzas, (2003); Liebowitz and Megbolugbe (20003), for knowledge management to be successful, an organization must have a strategy and individuals must be persuaded to contribute to its formulation and implementation. The knowledge management strategic plan has greater focus on the knowledge needs of the organization and an evaluation of capabilities. Apastolou and Mentzas (2003) cited in Fong et al. (2005:6) developed the Know-Net KM approach, which includes the interplay among strategy, assets, process, systems, structure, individuals and teams, across organisations and within the organization itself. Knowledge acquisition is about recruiting outstanding people and about helping them learn and grow as individuals and as professionals. It is also about encouraging employees to participate in professional networks and communities of practice that extend beyond organisational boundaries (Wenger et al. 2002:45). Knowledge creation is achieved by creating a supportive environment, through requisite human resource management, for individuals, groups and teams in order to be

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challenged by the organisational problems, to search for the problems' solutions and to innovate. Wenger (2004:3) proclaims that knowledge management is a strategic activity. It starts with strategy and ends with strategy. It connects strategy to performance through knowledge. Performance management identifies who or what delivers the critical performance with respect to the business strategy and objectives, and ensures that performance is successfully carried out (Roberts, 2001:1). Evans (2003:98) points out that the basis of what gets measured normally gets done it is important that firms consider the knowledge component in their performance management systems. O‟Brian (2005:56) further says that successful knowledge management creates techniques, technologies, systems, and rewards for getting employees to share what they know and to make better use of accumulated workplace and enterprise knowledge. Communities of practice create value by improving the performance of their members when they apply their knowledge in the performance of their job. Involving practitioners in knowledge management is also important for returning knowledge from the field. The work of an organisation produces two kinds of results which are business results and knowledge results. Business units will apply the business results to serving customers. Communities of practice, for their part, need to manage the knowledge results from the work of their members and feed this knowledge back into the organisation. Thus the management of knowledge assets closes the loop connecting strategy and performance through a full "knowledge doughnut." While organisational leaders and managers must manage as knowledge leaders, they must be aware of the relationship between knowledge and those who possess it. Obtaining individual cooperation and motivation to be part of teams and groups is essential in making knowledge sharing the core of effective knowledge management. Knowledge workers are socalled because they possess valuable knowledge that drives organisational performance and success (McFarlane, 2008:5). As such, they can refuse to share their knowledge depending on perceptions of responsibilities and rewards within the organisation. If knowledge workers feel that organisational rewards are not congruent with their knowledge levels and inputs, then perhaps a there will exist a decreased tendency or inclination toward knowledge sharing on a person-to-person basis. Thus, it is important that knowledge leaders align compensation and reward systems, as well as organisational strategies and tasks with knowledge workers‟ needs. Serenko, Bontis, and Hardie (2007) understand this process as they describe three major barriers to knowledge-sharing: individual, organisational, and technological. Evans (2003) stresses the role of human resource managers in helping their organisation to develop an organisational culture that supports knowledge

building and sharing. The steps necessary in such transformation process include agreeing strategic priorities and areas for change, helping demystify knowledge management by linking knowledge management activity to establish business processes and human resource management practices, and engaging others in knowledge management dialogue. Maybury and Thuraisingham (2002:64) discuss two thrusts of strategy of which the first thrust focuses on making known and accessible knowledge that already exists, for example, by sharing best practices. This thrust is best paraphrased as, “if only we knew what we knew.” Too frequently, people in one part of an organisation reinvent the wheel or fail to solve customer problems because the knowledge they need is elsewhere in the company but not known or accessible to them. The second major thrust of knowledge focussed strategies is that of innovation, the creating of new knowledge and commercialising it as valuable products and services. This is sometimes referred to as knowledge innovation. These researchers have found that in their research there is no shortage of creativity in organisations. The real challenge is to convert ideas into products and services or improved business processes, doing it faster and better than competitors. Morey et al. (2002:66-68) argues that there are seven levers that organisations commonly use to exploit knowledge which are customer knowledge; knowledge in people; knowledge in products; knowledge in processes; organisational memory; knowledge in relationships; and knowledge asserts. Entrepreneurs are considered to be the main catalyst for economic growth and a key factor in organisational innovation, especially in the market. Scholars have described entrepreneurship in different terms, such as, entrepreneurial proclivity (Pellissier and Van Buer, 1996:78), entrepreneurial management (Stevenson and Jarillo, 1990:123), and entrepreneurial orientation (Lumpkin and Dess, 1996:44). This research employs the last definition, which examine the process of entrepreneurship itself by describing how it leads to new ideas or knowledge through risk taking, pro-activeness, autonomy, and competitive aggressiveness (Lumpkin, and Dess, 2000:56). The aim of entrepreneurship is to bring something "new" to the market, with most of the newness deriving from the unique combination of existing knowledge and new knowledge (Ahuja and Lampert, 2001:24). Organisations should identify and acquire special information and knowledge (Teece, 2000; Sahra and George, 2002:123) in order to improve their competitive advantage. Before the combining of knowledge, organisations should 'convert' all external knowledge into the organisation that can then be used to generate innovations. This suggests that an entrepreneurial-oriented organisation can enhance its capabilities to convert and combine knowledge to develop new products or processes. When an organisation has more of an entrepreneurial

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orientation, its processes of 'innovation conversion' and of frequently upgrading or improving its competencies should be better and it ought to be more generally effective as an organisation as a result. Innovation on the part of an organisation should contribute to improvements to the innovations, to a reduction in diffusion and to a greater distribution of knowledge as well as enhance responsiveness to market changes (Gold et al. 2001:76). This suggests that organisational effectiveness can be gained through product and process innovations. In order to respond to market changes quickly, organisations should be proactive in combining existing and new knowledge and anticipating changes in a better way. Consequently, organisation must be able to identify and disseminate new knowledge internally, throughout the organisation (Liao et al., 2003:156). Through social capital, redundancy in information and the extent of knowledge diffusion tends to decrease (Burt, 1992:145). Some members voluntarily "fill up the hole" in the organisation to obtain and disseminate more resources or information. This suggests that social capital can moderate the effects of entrepreneurial orientation on innovation, improvements in competence and organisational effectiveness. Companies with a diverse, multicultural workforce tend to rely on workshops to develop knowledge management skills among people from different backgrounds. These training sessions may emphasise ways to shorten the amount of time it takes to solve problems and explore alternative courses of action. However, these sessions usually lack a very important component, which is focusing on building mechanisms for knowledge sharing and converting tacit to explicit knowledge. Diversification of the workforce provides companies with access to different ideas, skills, and it enhances the companies' competitive edge (Elmuti, 2001:45). However, management has to provide mechanisms and adjust structural arrangements in order to reap the benefits that accompany a diversified workforce. One may assume that, given that members of different cultures have different kinds of frames of reference, a team composed of members from different cultural backgrounds would be interested in knowing the way of solving problems and sharing knowledge in their own as well as in their host cultures. On the other hand, cultural diversity may impede the sharing of knowledge, as there is a lack of personal compatibility and common language. Knowledge sharing helps in organisational learning (Ford and Chan, 2003:134) and the development of domain related skills (for example, expertise), a pre-condition to organisational innovation. Knowledge sharing, which involves the process of disseminating knowledge within the firm, is susceptible to the effects of cultural differences (Ford and Chan, 2003:14). Trust, common languages and beliefs are critical to effective knowledge sharing

(Simonin, 1999:56). More specifically, knowledge sharing within heterogeneous cultural groups tends to be difficult, requiring more time and effort than in homogeneous cultural groups (Ford and Chan, 2003:33). Therefore, management should promote knowledge sharing along formal structures that exhibit a formal reward system and incentives. A commonly used practice entails moving from rewarding individuals to rewarding groups, or devising incentives that promote sharing at both the divisional and firm levels (Watad and Peres-Alvares, 2007:49). Hansen (1999) argues that there are basically two strategies for managing knowledge. They term these strategies „codification‟ and „personalisation‟. The former refers to the codification of knowledge and its storage in databases where it can be accessed and used readily by anyone in the company. Such organisations invest heavily in information computer technology (ICT) for projects like intranet, data warehousing and data mining, knowledge mapping (identifying where the knowledge is located in the firm), and electronic libraries. This increases effectiveness and growth (Hansen, 1999:110) indicates „The reuse of knowledge saves work, reduces communications costs, and allows a company to take on more projects.‟ It is thus closely related to exploitative learning, which tends to refine existing capabilities and technologies, forcing through standardisation and reutilisation, and is risk-averse (Clegg and Clarke, 1999:21). RESEARCH DESIGN Research approach Based on the literature review and hypothesis developed in the previous section, a methodology to guide the study was developed. This study treats knowledge management as an independent variable that is expected to influence knowledge management dimensions (current knowledge management strategies, current processes for managing knowledge management and perceptions of the impact of knowledge management effectiveness) respectively. A combination of factors is predicted to influence the service units‟ current strategies, processes in place, implementation strategies as well as its impacts to organisational effectiveness and efficiency. As indicated earlier, the study also examines the effectiveness of knowledge management strategies and its implementation within eThekwini Municipality‟s Management Services and Organisational Development (MS and OD) and Skills Development Units. This study followed quantitative research tradition and descriptive statistics, namely, measures of central tendency and measures of dispersion were used to condense the data into a few summary measures. The aim of these techniques was to identify

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essential charectestic of a random variable and to produce a profile of its behaviour through summary measures. This study focussed on the census which the data is obtained from or about every member of the population of interest (McDaniel and Gates, 1998: 302). Saunders et al. (2007:204) indicate that it may be possible to collect and analyse data from every possible case or group member, this is termed a census. McDaniel et al. (1998:302) state that census is not often used in marketing research; there are instances where they are appropriate and feasible. For example, census may be appropriate and feasible in industrial products settings where a particular firm may have a small number of customers for the highly specialised products it sells. Under the ambit of Skills Development and M S & O D Units, it was possible to obtain information from the entire population of employees taking into cognizance the organisation‟s population of less than 100. Inferential statistics, such as, correlation, t-test and ANOVA have been undertaken, the purpose of which was to generalise sample findings to the broader population. Research method Research participants This study used a census with the population size of 80 employees from which a sample of sixty six (66) respondents completed the interviewer-administered questionnaires thereby generating a response rate of 82.5%. Appropriate questions were designed based to the challenges and gaps identified while reviewing the literature. This study used ten questionnaires as a pilot and its main intention was to obtain some assessment of the questions‟ validity and the likely reliability of the data that was considered.

A likert scale was used for all sections B to E (in a questionnaire) to rate the responses. The Likert scale that was utilized was a five point scale ranging from strongly disagree (1), disagree (2), undecided (3), agree (4) and strongly agree (5). The questionnaires were self-administered by the researcher to the aforementioned units during the month of June-July 2009. Prior to the consent from the eThekwini Municipality‟s Skills Development Units Head, a population of 80 was distributed to the respondents and 66 of the questionnaires was received. Research procedure The questionnaire was structured into five Sections, for which Section A is the biographical data and Sections B, C, D and E are actual items relating to the dimensions of knowledge management being assessed. The questionnaire for this study was structured according to the six specific research objectives. The questionnaire comprised of five sections, namely, biographical data, current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness. The study used primary data through structured questionnaires for data collection. Furthermore, to generate data for the study, a questionnaire was developed, using appropriate coding for statistical purposes. The questionnaire was constructed by obtaining information from published journals by authors such as Wenger (2004), Lee and Sukoro (2007), Aflouni (2007), Teasley and Robinson (2005), Watad and Alvarez (2007) and Marr, Gupta, Pike and Roos (2003). Statistical analyses

Measuring instruments The scale used in this study was the Likert or Interval scale. Sekaran (1992:254) argues that the Likert or Interval scale enables certain arithmetical operations to be performed on the data collected from the respondents. Sekaran (1992:259) attests that statistics could be divided into parametric and non-parametric statists. In using parametric statistics, which includes vertical and ratio scales, assumptions or hypotheses distributed, can be made. In using non-parametric statistics, which includes nominal or ordinal data, no explicit assumption or hypothesis regarding the normality in the population can be made. In order to verify the constructs of this study, a number of tests (hypothesis testing and inferential statistics components) were conducted, including using correlation, the t-test, analysis of variance (ANOVA), factor analysis and cronbach‟s coefficient‟s alpha analysis.

The nature of the study required the researcher to use widely used available software such as Microsoft Excel and Statistical Packages for Social Scientists (SPSS) for data capturing, analysis and interpretation. Descriptive and inferential statistics were used for data analysis and interpretation. Moreover, three measures of central tendency which includes mean, median and mode as well as the measures of dispersion which includes the range, variance and standard deviation were used. Under the ambit of descriptive statistics, frequencies and percentages were presented in the form of tables. In this study the product moment correlation was used to determine whether the sub-dimensions of knowledge management (current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) correlate significantly with each other. Factor analysis

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examined the basic structure of the data, the internal consistency of each dimension was measured by itemto-total correlations, while the reliability of the measures was examined by Chronbach‟s alpha, using his generally accepted guideline for being internally consistent of 0.70 (Hair, et al. 1998).

RESULTS Descriptive and inferential statistics were used to analyse the data. Descriptive statistics The respondents were required to respond to the items of the questions relating to the key dimensions of the study using a 1-5 point Likert scale. Descriptive statistics were computed for each of the key dimensions (Table 5.1).

Table 1. Descriptive statistics – key dimensions of the study Statistic

Mean 95% Confidence Interval for Mean Lower Bound Upper Bound 5% Trimmed Mean Median Variance Std. Deviation Minimum Maximum Kurtosis

Current knowledge management strategies

Current processes for managing knowledge management

Implementation knowledge management strategies

2.98 2.78

2.970 2.54

2.75 2.7907

2.99 2.82

3.17 3.01 3.05 0.654 0.808 1 4 -0.318

2.96 3.004 3.125 0.520 0.7213 1.0 4.3 0.621

3.1941 2.76 2.88 0.719 0.848 1 5 -0.138

3.21 3.03 3.20 0.673 0.821 1.00 4.80 0.469

The mean scores values reflected in Table 1 indicate that employees have differing views on the sub-dimensions of knowledge management, which in descending level based on mean scores are as follows:  Perceptions of the impact of knowledge management effectiveness (Mean = 2.99).  Current knowledge management strategies (Mean = 2.98).  Current processes for managing knowledge management (Mean = 2.97).  Implementation of knowledge management strategies (Mean = 2.75). These values reflect that on a scale from 1 to 5, respondents generally were below 3. This indicates that a high proportion of respondents generally answered strongly disagree/disagree or was undecided about the questions relating to each dimension. This further reflects a negative perception with regards to each of the dimensions relating to the knowledge management within the Skills Development Units and M S & OD. This implies that improvement is needed in the current knowledge management strategies. A frequency analysis was undertaken and the research findings indicated that 25.8% of the respondents strongly disagreed and 15.2 % disagreed that knowledge management incentive systems were

of Perceptions of the impact of knowledge management effectiveness

satisfactory. Furthermore, 34.8% of the subjects strongly disagreed and 24.2% disagreed on the existence of knowledge management rewards system which acquaint to the effort the employees have contributed into knowledge creation. Moreover, a disproportionately high percentage of 30.3% respondents strongly disagreed and 13.6% disagreed that employees are rewarded in groups. Current processes for managing knowledge management is another area for improvement as reflected in the study findings. A frequency analysis was undertaken and the research findings indicate that 13.6% of the respondents strongly disagreed and 16.7% disagreed that these units recategorises and recontextualises existing explicit knowledge, data and information to produce new explicit data, information and knowledge. The research results further indicate that 19.7% strongly disagreed and 22.7% disagreed that these units use mining techniques to uncover new relationships among explicit data that may lead to predictive or categorization models that create new knowledge. Moreover, 16.7% of the subjects strongly disagreed and 19.7% disagreed that tacit knowledge is captured from individual‟s minds. Also the results indicate that there is a room for improvement for the implementation of knowledge

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management strategies. This implies that the implementation of knowledge management strategies should be taken into consideration when enhancing team effectiveness. The total percentage of 19.7% of the respondents strongly disagreed and 28.8% disagreed that these unit have implementation strategies to convert tacit to explicit knowledge. The research findings indicate that 21% of the respondents strongly disagreed and 27.3% disagreed that these units have knowledge that is codified and stored in databases where it is accessible and readily used by anyone in the organisation. Furthermore, the results indicate 18.2% of employees strongly disagreed and 31.8% disagreed that managers develop a system that encourages people to write down what they know and to get those documents into the electronic repository. The employees do not believe (supported by the research findings whereby 21.2% strongly disagreed and 27.3% disagreed) that the level and quality of employees‟ contributions to the document database and knowledge creation are part of their annual performance measurements (reviews). In addition, in these units the study findings depict a highest percentage of 24.2% of the employees who strongly disagreed and 19.7% who disagreed that there are techniques, technologies, systems and rewards for getting employees to share what they know. Also, the results indicate that there is room for improvement for the perceptions of the impact of

knowledge management effectiveness. The research findings show that 16.7% of the respondents strongly disagreed and 13.6% disagreed that employees participate in professional networks that extend beyond organisational boundaries. However, the high disproportionate percentage of 16.7% of the respondents strongly disagreed and 9.1% disagreed that these units apply knowledge assets. Finally, the total percentage of 16.7% of the respondents strongly disagreed and 15.2% disagreed that the role of human capital in these units contributes to the competitive advantage of business in today‟s knowledge economy. Inferential statistics Inferential statistics were computed to make decisions on the hypotheses of the study. Hypothesis 1 There exists significant intercorrelations amongst the dimensions of the study (current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) respectively.

Table 2. Intercorrelations amongst the key dimensions of knowledge management Dimensions



Implementation of knowledge management strategies

Perceptions of the impact of knowledge management effectiveness

1.000


Pearson Correlation


Pearson Correlation p N

0 .786** 0.000 66

Implementation of Pearson Correlation knowledge management P strategies N

0.725** 0.000 66

0.673** 0.000 66


0.696** 0.000 66

0.658** 0 .000 66

Pearson Correlation p N

1.000

1.000

0 .770** 0 .000 66

1.000

*p< 0.05 **p< 0.01

Table 2 indicates that there exists a significant correlation amongst the dimensions of knowledge management respectively. Hence, hypothesis 1 may be accepted. DISCUSSION The key variables investigated in this study include current knowledge management strategies, current

processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness and, will form the basis of the discussion of the results of the survey. The interpretation of the results indicated that there exists significant intercorrelations amongst the dimensions of the study (current knowledge management strategies, current processes for

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managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) respectively. Current strategies

knowledge

management

While there have been inconclusive results in linking the relationship between knowledge management strategies and organisational performance (Choi, Poon and Davis, 2008:13), there is clearly a relationship between knowledge management strategies and tendency toward organisations become learning centres for managing knowledge dealing with change as competitive exercises that affect survival. Knowledge-based systems are the major platforms upon which these competitive networks are established as knowledge workers utilise cognitive skills to devise new and innovative strategies to give products and services leaps over their competitors. Choi et al. (2008:14) communicate the relationship between knowledge management strategy and organisational performance as one of “noncomplementary”, “non-critical symmetric complementary” and “asymmetric complementary”. The relationship between knowledge management strategies and organisational performance is one which is obvious in consideration of the fact that we are living in an information-based economy (McFarlane, Britt, Weistein and Johnson, 2007:11) where knowledge is a key resource input into productivity and competitive processes. Current processes knowledge

for

managing

Knowledge management is defined as the collective phrase for a group of processes and practices used by organisations to increase their value by improving the effectiveness of the generation and application of their intellectual capital. Knowledge management processes are meta-processes which cannot be uniformly observed like physical processes and differ according to their means of creation, nature, recording, transmission and mode of use (Boisot, 1995:34). Marr, Gupta, Pike and Roos (2003:771) conducted a research building on the complexities of organisational knowledge creation. This research explored the alignment of knowledge management practices with the epistemological beliefs of individuals or groups in organisations. A panEuropean research project investigated individual‟s philosophy about truth, knowledge and the optimum approach of knowledge creation. These viewpoints and requirements are then contrasted with the knowledge management practices implemented in organisations. The results highlight significant misalignment between knowledge management

requirements in epistemological terms and individual‟s perception of organisational knowledge management activities. The research found that these differences lie at the heart of problems companies experience with extracting value from knowledge management initiatives. This research further suggested ways of identifying and evaluating resource transformations in organisations, in order to understand and manage knowledge creation to grow the intellectual capital of organisations (Marr, Gupta, Pike and Roos, 2003:771). Implementation of management strategies

knowledge

Knowledge construction and creation is a key element of effective knowledge management. This aspect of knowledge management identifies what is constituted as knowledge and how such knowledge is developed in the organisation and its employees. Nonaka and Takeuchi (1995:34) refer to this part of knowledge management as “organisational knowledge creation”, referring to the creation and development of knowledge within the organisation. Sternberg (1999:8) indicates that successful Medium Sized enterprises (SME) are characterised by creating new knowledge within the process of innovation. The study conducted by McAdam and Reid (2001:3) looking at the SME and large organisation perceptions of knowledge management revealed that knowledge transfer, organisational learning, knowledge capture and dissemination and organisational knowledge, are considered as key elements of knowledge and knowledge management. The most pronounced SME-large organisational differences shown in this research is in organisational knowledge and to a lesser degree in organisational learning, knowledge capturing and dissemination and knowledge transfer. In all these cases, a higher percentage response was recorded for the large sector organisations. The qualitative social constructionist workshops attributed this finding to large organisations having more resources to develop strategic knowledge management systems and to explore the social interaction aspect of knowledge within a wider populace of employees. The research revealed that SMEs have higher scores on “tools and methodologies”, where mechanised approaches to knowledge are used. These findings are consistent with SME- large organisation comparisons in regard to other management philosophies (for example, TQM, Wilkes and Dale, 1998 and reengineering, Francis and MacIntosh, 1997). Perceptions of the impact of knowledge management effectiveness Research was conducted by Lee and Sukoco (2007:1) around the effects of entrepreneurial orientation and knowledge management capabilities on innovation,

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competence upgrading and organisational effectiveness among companies in Taiwan, listed in the Top 100 firms. The research also examined whether social capital moderates the effects of orientation and knowledge on effectiveness. It was found that entrepreneurial orientation has a positive influence on the capability of organisation, on the upgrading of their competence as well as organisational effectiveness. Furthermore, knowledge management capabilities have a significant impact on innovation and organisational effectiveness. The results of the research indicate employee perceptions of the various dimensions of knowledge management, namely, current knowledge management strategies, current processes for knowledge management, implementation strategies and the impact of knowledge management effectiveness in the eThekwini Municipality‟s Skills Development and MS and OD units. In the interests of both the employers and employees, it is imperative that factors impacting negatively on the effectiveness of these units be thoroughly re-investigated with a view of intensifying intervention efforts so as to attain optimal levels of performance. Research by Connelly and Kelloway (2003:1) reveal that knowledge sharing has been identified as a positive force in creating innovative organisations, but the organisational and individual factors that promote or discourage knowledge sharing among colleagues are poorly understood. The study revealed significant relationships among the four dimensions of knowledge management (current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) respectively. Significant differences were found between the biographical variables (age, gender, education, race, tenure and job level) and the dimensions of knowledge management (current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) respectively. In descending level of employees differing views, the four dimensions of knowledge management are perceptions of the impact of knowledge management effectiveness, current knowledge management strategies, current processes for managing knowledge management and implementation of knowledge management strategies. Organisations investing in knowledge management gain an effectiveness and efficiency advantage over their competitors or they try to negate the competitive advantages of others.

Recommendations This study aims to provide recommendations for the organisation with regard to the findings of this study as well as recommendations for future research. Recommendations based on findings of the study This research produced certain findings which were consistent with the results of other researchers. Results indicated a significant relationship amongst the key variables of the study relating to the employee perceptions on knowledge management respectively. Employee perceptions of the four dimensions of knowledge management in descending order are:  Perceptions of the impact of knowledge management effectiveness.  Current knowledge management strategies.  Current processes for managing knowledge management.  Implementation of knowledge management strategies. All four dimensions (current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) required improvement in order to achieve greater level of knowledge management (tacit and explicit knowledge). Since a lack of these factors seemed to be a hindrance to knowledge management creation, processing, implementation and improvement in effectiveness, it is important to consider the ways in which these factors or problems can be rectified so as to achieve higher levels of effectiveness which result in employee competence, productivity and satisfaction. Current strategies

knowledge

management

In this study, respondents mentioned that in these units reward or incentive systems for knowledge management are absent which results to dissatisfaction. Arising from the literature study of chapters two and three, the research methodology of chapter four and the empirical evidence (chapter five) and discussion of results (chapter six), the following recommendations are proposed:  eThekwini Municipality should develop an encompassing knowledge management strategy which has both technical and cultural attributes.  eThekwini Municipality should formulate a knowledge management policy that rewards employees in order to drive knowledge management initiatives.  The performance measurements agreements of all employees should include knowledge

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







management as the strategic focus area during all financial years (at the senior management level). Knowledge management must be fully aligned and integrated into the municipality‟s strategy, plans, and unit‟s strategic plans as well as to department‟s business plans. Indigenous knowledge through publicparticipation should be extracted and used in order to play a tremendous role in organisational effectiveness. eThekwini Municipality must invest on human capital with rewards in promoting the transfer of tacit to explicit knowledge which is mainly used for innovation and creativity which brings change and a high productivity rate or level. eThekwini Municipality‟s knowledge leaders must align compensation and reward systems, as well as organisational strategies and tasks with knowledge workers‟ needs.

Current process for managing knowledge This study revealed that in these units Skills Development and MS and OD there are no processes in place to convert tacit to explicit knowledge, to recategorize and recontextualise existing explicit knowledge, data and information to produce new explicit data, information and knowledge. In order to respond to such challenges, the following recommendations are proposed:  Knowledge focus within eThekwini Municipality must be shifted from being on the individual to be integrated into the systematic considerations of broader work processes.  eThekwini Municipality must govern knowledge management-related processes and relationships by providing enterprise-wide support, infrastructure, and leadership.  eThekwini Municipality must have knowledge management systems to be designed to collect, disseminate and use project-generated knowledge, for the benefit of the entire organisation.  eThekwini Municipality should employ suitably and motivated people to take an active role in the process of knowledge creation, storing and dissemination thereof.  eThekwini Municipality should invest in constant training and development of employees to perform work processes and procedures that are specific to the organisation.  A balance scorecard approach must be adopted within eThekwini Municipality if employees are to realise that the firm is taking knowledge management seriously.  Communities of practice must be established within eThekwini Municipality as they create value by improving the performance of their members when they apply their knowledge in the performance of their job; hence, involving



practitioners in knowledge management is also important for returning knowledge from the field. eThekwini Municipality must introduce a competency framework that includes knowledge building and sharing behaviours, and which is linked to the performance management system.

Implementation of management strategies

knowledge

In this study, respondents mentioned that in these units there are no strategies in place to convert tacit to explicit knowledge, as a result, the absent of techniques, technologies, systems and rewards makes it difficult to share what they know. To respond to such challenges the following recommendations are proposed:  Explicit knowledge within eThekwini Municipality must be conceptualised and stored in information systems.  eThekwini Municipality must convert ideas into products and services or improved business processes.  eThekwini Municipality should create knowledge leadership and champions, a well-developed technological infrastructure („hard‟) and knowledge enriching culture.  eThekwini Municipality should establish knowledge management agents in all units. Perceptions of the impact of knowledge management effectiveness In this study, respondents mentioned that employees in these units do not participate or network with the knowledge management community of practice and professionals. Moreover, employees do not see the role of human capital as playing any role in these units. Therefore, the following recommendations are proposed to counter the aforementioned challenges:  Employees should increase the use of the organisational intranet system in order to increase knowledge.  eThekwini Municipality must upgrade innovation and competence as the strategy for managing knowledge effectively, by integrating existing knowledge and new information in order to develop new knowledge that will improve innovation.  eThekwini Municipality should diversify the workforce in order to provide the organisation with access to different ideas, skills and thereby enhance the organisations' competitive edge.  eThekwini Municipality must put in place multicultural communications tools to overcome language and cultural barriers. In fact, the cultural trait of not being outspoken, for example, can be remedied by a collaboration system that includes anonymous features, which are useful for idea generation and feedback.

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eThekwini Municipality must embark on a commonly used practice which entails moving from rewarding individuals to rewarding groups, or devising incentives that promote sharing at both the divisional and organisational levels.

Recommendations for future research Research is something that people undertake in order to find out things in a systematic way, thereby increasing their knowledge. There are multiplicities of possible purposes for the research which include describing, explaining, understanding, criticising and analysing. However, several barriers and limitations were present in the research design and during data collection phase of the research process caused by the resistance from senior management to access information. For future research it is suggested that:  The study focussed on two small units, thus future research can focus on all units within eThekwini Municipality.  Furthermore, this research has focussed on employees within eThekwini Municipality, thus future research can focus on employees within district and local municipalities throughout KwaZulu-Natal.  While the study only focussed on four dimensions of knowledge management (current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness), future research can look at other factors, such as diversity, team building, stakeholder participation, organisational structure, business processes, intellectual capital and communication. References 1.

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INCULCATING A SERVICE CULTURE AMONG HOSPITALITY MANAGEMENT STUDENTS THROUGH WORK INTEGRATED LEARNING (WIL): A CASE STUDY OF DURBAN UNIVERSITY OF TECHNOLOGY Nirmala Dorasamy*, Rishi Balkaran** Abstract Any segment of the hospitality industry, as a service industry ,focuses on the customer’s total experience. This focus is imperative if organisations are to maintain an edge in an increasingly competitive industry that demands added value. Services, both tangible and intangible, can be considered as a customer experience which cannot be recalled. Therefore, the standards for service operations must be zero defects. The establishment of standards and enactment thereof, is an integral part of the conduct of service employees. This article investigates through a qualitative approach how a service culture can be developed among hospitality management students during work integrated learning to enhance teaching and learning. The extent to which a quality service culture is advocated within the work integrated learning component by the Department of Hospitality Management at the Durban University of Technology is explored. It is argued that a focus on the service quality aspects of service in the areas of professional cookery, accommodation, catering and; food and beverage management can make a significant contribution to developing attributes like reliability, helpfulness and good communication. The article further demonstrates that by exposing students to the expected attributes and skills necessary for a service oriented culture, they are made aware of what constitutes “exceptional service quality”, thereby contributing to their learning about the importance of service in the hospitality industry. While work integrated learning is a philosophy of education based on the “theory of experience of the customer” within the hospitality industry, it is also an integral part of the students’ experience. Keywords: Hospitality, work integrated learning, service culture, customer *Senior Lecturer, Department of Public Management and Economics, Durban University of Technology, P.O. Box 1334, Durban, KwaZulu Natal, South Africa Tel: +27313736862 Fax: 0865509932 **Acting Executive Dean, Faculty of Management Sciences, Durban University of Technology, P.O. Box: 1334, Durban, KwaZulu Natal, South Africa Tel: +27313735374 Fax: 0866741181 Email: [email protected]

Introduction The hospitality industry has a unique culture which is influenced to a great extent on providing a service that not only simply meets customers expectations, but also adds value to customers experiences. The manner in which the service employee provides the service is integral to the customers overall experience, since customer experience is at the very heart of the hospitality industry. As such, employees who provide exceptional service is of paramount importance for the hospitality industry, since it is a key element of maintaining a competitive advantage in a service oriented

environment. Providing quality service has to be embedded within the organisational culture, so that the behaviour of employees contributes to the organisational goals of predictability, consistency and service to others. Hospitality management students need to be exposed to the world of work, where exceptional customer service is a critical component of the hospitality product. Such exceptional customer service necessitates an understanding that merely providing service is not as important as the manner in which the service is provided. This paper examines the work integrated learning model as an effective approach to the

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development of service driven graduates in the effort to drive forward a hospitality industry of a high standard. It can be suggested that work integrated learning helps students to acquire not only knowledge, but also skills and attributes that will enable them to adapt to a dynamic industry that is increasingly complex, integrated and inter dependent. Conceptualizing service culture Organisational culture refers to a system of shared assumptions held by members within the organisation, which includes values, attitudes and principles that help to create standards for employees to co-exist (Werner, 2008:26). The organisational culture serves to give employees an identity, establish greater commitment to organisational goals and provide guidance in terms of expected behaviour. Service in the hospitality industry can be considered as an accepted shared value which provides generalised justification both for appropriate behaviours of employees and for the activities of the organisation (Dawson, Abbott and Shoemaker, 2010:291). Such a shared value is essential for organisational survival because it ensures the organisation as a bounded unit and provides it with a distinct identity, thereby, motivating the performance of routine tasks associated with the hospitality industry. The cultural make-up or identity of the hospitality industry requires employees with personal attributes and qualities that reflect predictability and a desire to serve others. These characteristics can be considered as important in an industry where quality service is of paramount importance. In a study by Dawson et al. (2010:295), it is suggested that employees in the hospitality industry should serve to make their organisation “a home away from home”, “creating memories for their guests” and “helping guests celebrate milestones in their lives”. Creating such a service environment requires employees to make sound decisions when confronted with service quality issues since the nature of production and consumption is simultaneous. Service can be considered as all the actions and reactions that consumers perceive they have purchased. The focus is on the guests‟ total experience, which is influenced to a great extent by the performance of the organisation and it‟s employees. Establishing a service culture in the hospitality industry requires a congruence between what the organisation publicly claims as it‟s service policies and the way service is actually rendered by employees. It can be argued that commitment to the enacted service values by management can serve as an impetus for employee commitment to the quality of service. This necessitate restraining the rules of the operations in favour of satisfying customer request, since the customer is more important than rules in a service organisation that is largely dependent on

customer experiences. This is especially important since service consists of interactions and transactions that results in relationships among customers and employees, which is known as customer relationships (Tesone, 2010:5). The levels of customer interactions are dependent on the intensity of the interaction with the customer, as well as the duration of time spent with the customer. The complexity of services in the hospitality industry is quite high in terms of intensity and duration levels relative to the interaction with the customer. The service transaction can be electronic, mechanical, indirect, personal and face-to-face. Faceto-face transactions can be deemed to have the most powerful effect on customers. Therefore, employees whose work requires frequent personal contact with customer need to be effective representatives of the organisation. Personal service transactions include interpersonal and task aspects. The two aspects as shown in figure 1 focus on the following (Barrows and Powers, 2009:655):  Task - the task side of service is controlled by systems that are supported by written procedures that details how a service is to be rendered.  Interpersonal skills - these can be considered as “helping skills” which require a friendly attitude that is conveyed to the customer. Employees whose services exemplify the interpersonal and task aspects show “a high touch” of quality. The service experience is a crucial element in the transaction. Arguably, service that is heavy handed will result in an unhappy customer. However, equally important is the tangible side of the transaction. For example, a good meal can be ruined by a grumpy server, while all the friendliness in the world cannot make up for a hotel room that is physically in poor shape. Therefore, it is important to consider the hospitality product, which includes both tangible goods and less tangible services, since both are crucial to success. Since service is an experience which “happens” to a customer, there can be no recall of a “defective” service. Barrows and Powers (2009:650) view a customer‟s experience as “history” which cannot be changed. Therefore, much of the literature is in agreement that the only acceptable performance standard for a service organisation is zero defects. Institutionalising a culture of zero defects in the service industry necessitates the establishment of standards to help create consistence and to eradicate the margin for error. A common way of approaching the standard of zero defects is from a statistically based business strategy known as Six Sigma. In the hospitality industry, Six Sigma is used to improve services, by reducing the acceptable range of performance, for example, to improve services for the waiting time for tables at restaurants (Eckes 2001:69). Achieving zero defects based on Six Sigma entails creating and

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identifying strategic business objectives, creating core and sub processes, identifying process owners, creating and validating performance measures, collecting data on performance measures and determining prioritising projects for improvement. By

embracing the Six Sigma strategy, organisations attempt to improve their service and service quality.

Figure 1. Adapted: Barrows and Powers (2009:655)

INTERPERSONAL ASPECT

CUSTOMER provides helping skills provides competent performance TASK ASPECTS

SERVER

Driving service in the hospitality industry The Oxford English Dictionary (2006:690) defines hospitality as “the reception and entertainment of guests, visitors and strangers with liberality and good will”. Hospitality would therefore include all institutions that offer shelter, food or both to people to people away from their homes. Segments in the hospitality industry like lodging, food service, culinary and travel, and industry have to provide services and facilities associated with the hospitality industry. Employees providing services and facilities are expected to fulfil the following objectives (Barrows and Powers, 2009:5):  A friendly disposition to make customers feel welcome. This translates into an atmosphere of goodwill among all employees in the organisation.  Establishing a system of work so that expectations of customers like timely services and quality facilities are fulfilled.  Maintaining an operation that provides service, while being able to recover the costs of its operations and provide a return to the investor. The above objectives suggest that the hospitality industry as a service industry is unique since all employees are expected by customers and fellow workers to be friendly, care about what happens to customers and generally endure face-to-face relationships with employees and customers. Furthermore, a sophisticated customer base is placing

a major focus on the value of services received in relation to the price paid in the marketplace. With an intensely competitive industry vying to serve them, customers are in a lucrative position to demand good value for their money. In this regard, service is a crucial determinant of good value for money. According to a study by the Strategic Planning Institution (Barrows and Powers, 2009:648), when all industries are competitively matched, those that stress customer service will win. It can be argued that if customer service is the core business of the hospitality industry, then service is a strong determinant for its success. Approaches to managing personal service Hospitality service comprises transactions that are diverse, whereby simultaneous transactions during specific periods of time can possibly produce different responses. The multitude of transactions, coupled with numerous experiences that differ, is complex to control in any detail. The product view of service and the process view of service are commonly considered as basic approaches to managing services successfully. Barrows and Powers (2009:657) distinguish between the two approaches as follows:  Product view of service. Service is viewed as a product that the organisation sells to customers. The focus is on rationalizing the service process to ensure that it is efficient, effective and acceptable to the

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customer. The tasks that make up the service are controlled by prescribing in detail expected employee behaviours. McDonald‟s “quick service” formula is an example of the use of the product view, whereby carefully planned use and positioning of technology combined with the systematic substitution of equipment for people produces a specific product line. This approach supports the view that limiting employee choices in their tasks, order, standardisation and quality are enhanced. However, the approach is often criticised for the control imposed on employees, with little or no room for judgement. Furthermore, customer reactions are ignored.  Process view of service. While the product view focuses on control, the process view focuses on empowerment. Employees are empowered to solve problems using their discretion and initiative, since satisfying the customer immediately is considered a first priority. This can entail changing operating and accounting rules and procedures to help employees do what they have to do to render quality services. The aforementioned approaches are not necessarily mutually exclusive. In practice, some evidence of control in the product view can be identified in a well established service unit. Similarly, focus on the way customers are treated is vital in any operation. It can be argued that the focus should not be on choosing between the two approaches, but rather adapting each approach to the needs of particular hospitality segments. Service and quality Globally, the hospitality industry faces customers who are increasingly knowledgeable and sophisticated, with diverse tastes and experiences. In view of the demands placed on the industry in meeting customers‟ expectations, employees are expected to satisfy a “stated or implied need” (Davis 2008:372). The “stated or implied need” is provided by the totality of features of a service. If a product is a good quality, its attributes should match with predetermined standards. However, this simple definition cannot be applied to services, since they are difficult to standardize and are not defined from the customer‟s perspective. Therefore, Ekinci (2008:317) suggests that quality services must be understood from the customer‟s perspective of whether quality meets or exceeds expectations, which is a subjective assessment of performance. Customers translate their stated or implied need into several expectations of the service they will experience. It can be argued that if services exceed their expectations, then the customer will feel satisfied and feel that they have received “quality”. However, if expectations are not fulfilled, then there

is a gap between customer expectations and features of the service, thereby compromising the achievement of quality. Although service is frequently thought of as being intangible, tangible elements like actions, process and speed can be easily measured. However, intangible elements like care, warmth and friendliness are difficult to measure, but undeniably do exist as customers can “feel” good service. It is commonly contended that the intangible elements of service are often more important to the customer than the tangible elements of service. It is the intangible element of service that is difficult to influence. In this regard, Davis et al.(2008:375) stress the challenge for everyone to deliver to the customer “right the first time every time”. This entails applying the value of zero defects, which links quality to reliability of service. Quality should not be viewed as merely satisfying the customer. Deming (1982:48) suggests that unhappy customers will go to another service segment, but equally so a customer who is merely satisfied can also go elsewhere, because there is no great loss incurred. Therefore, organisations are being driven to move beyond simply satisfying customers and looking to “delight” the customer, by exceeding their expectations. Adding value entails being aware of escalating expectations, individual needs and a dynamic service environment that arouses customers latent expectations (Deming, 1982:60). Any business has to rely on profit. Therefore, businesses need to satisfy customer demands, while maintaining an edge of competitive advantage. Quality service provides the opportunity for establishing the winning edge over competitors. Organisations that build quality into their standards of service, find it easy to compete in a very competitive hospitality industry. This entails providing services that are not only reliable in meeting customers‟ expectations, but also adding value to exceed expectations. While quality is being addressed, the added benefits include profit, loyal customers and increased operational efficiencies (Davis, et al.,2008:377). Quality service provides the opportunity for establishing the winning edge over competitors. Organisations that build quality into their standards of service, find it easy to compete in a very competitive hospitality industry. Role of integrated learning in developing a service culture The emergence of a knowledge economy and challenging societal problems requires a broad based higher education which enables the development of a diverse range of competencies and skills. In South Africa, the Higher Education Act of 1997 (Act 101, 1997) emphasizes the need for higher education to be responsive to the needs of society and industry. There

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is increasing pressure on universities to bridge the gap between higher education and industry in the context of local and global issues. Students of hospitality management must be aware of the important role they will play in delivering quality services which meet the needs of all customers in the hospitality industry. By incorporating work integrated learning within teaching and learning frameworks, opportunities are created to address the challenges facing service provision in the hospitality industry. Working life is about continued learning, skilling and re-skilling to stay ahead. Therefore, higher education has a responsibility to ensure that students graduate with competencies that enable them to work effectively in a service industry. By exposing students to the world of work where there is high competition and increasing commoditization of service, they will realise the need to provide the customer with a memory of an experience that can they can take away with them, rather than just a good product or service (Brotherton, 2008:129). Such exposure affords students an opportunity to engage in the complete staging of the experience from start to finish and to think of it as an almost theoretical performance, expecting students to act out their roles in a carefully crafted environment (Davis et al., 2008:25). It is important that students are aware of the importance of customers‟ attitudes, expectations and experiences in providing quality services that add value. Exposure to the world of work, bring to reality that service products are perishable and not standardised, thereby necessitating a thorough understanding of managing the different elements of service. Work integrated learning (WIL) at the Durban University of Technology Further to the Higher Education Act 101 of 1997 (Republic of South Africa, 1997), the distinction between the curricula of universities of technology and traditional academic universities is gradually being lost as the boundaries between different institutional types become blurred. Universities of technology are now offering a mix of programmes, including career-oriented and professional programmes; and they all have work integration policies which provide guidelines for the development of experiential learning as a core function and to ensure its effective implementation. The National Qualification Framework, NQF (National Qualification Act 67 of 2008) acknowledges learning as an important feature of a free and democratic nation and imperative for the development of all citizens. One of the objectives of the NQF is to contribute to the full personal development of each student. Therefore, all qualifications and standards registered in the NQF are

underpinned by a system of education and training based on learning outcomes. Experiential learning may occur in commerce or industry (work integrated learning) or it may occur in a community (service learning) or both. On the job learning experiences through experiential learning is a defining element of a holistic educational strategy which advocates the formal integration of structured real-life experiences into the curriculum and highlights the responsiveness of higher education institutions to the needs of industry and the community. In view of the aforementioned, an hospitality management programme, in meeting the NQF criteria must afford opportunities to students to develop and broaden their skills and competencies to benefit themselves and the industry through WIL. At the Durban University of Technology, WIL is underpinned by the need to develop competencies of students through integration and application of knowledge, skills and values in an authentic context, while ensuring responsiveness to national imperatives, industry and community needs. This has necessitated the provision of high quality practices and procedures for experiential learning through formal credit bearing experiential learning academic programmes offered by the institution. All WIL modules at the university fulfil the following propositions as identified by Kolb and Kolb (2005:194):  Students are engaged in the experiential learning process whereby their education is conceived as a reconstruction of experience. Every programme requires reports from students, work place mentors and academic supervisors, which constitutes part of the feedback on the effectiveness of their learning efforts, thereby contributing to enhanced learning.  Students are expected to engage with their workplace mentors and academic supervisors on a regular basis; whereby views, ideas, and beliefs are considered for future improvements.  Students diaries and portfolios are modes of reflection, feeling and thinking; thereby driving the learning process through adaptation.  The integration of practice and theory contributes to holistic learning, whereby the student thinks, behaves and perceives as an integrated being.  Learning results from a reciprocal process of assimilating existing theory and accommodating existing theory to new experiences.  Knowledge is created whereby social knowledge is created and recreated in the personal knowledge of the student. The above propositions reflect the provisions of opportunities for students to acquire and assimilate knowledge and skills, while applying and managing knowledge and skills in action. WIL in any academic programme has to be supported by established monitoring and assessment initiatives. Monitoring of students by appropriately

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qualified and experienced academic and workplace supervisors at learning sites will ensure that students are meeting the requirements for the satisfactory completion of work integrated learning, while identifying the acceptability and appropriateness of placement sites. Assessments ensures that practices are aligned with the assessment policy of the university. This requires experiential assessment practices to be undertaken through collaborative partnerships. All mentors, both at the work place and higher education institution, and students must be aware of the assessment criteria and procedures. Moderation of assessment ensures the reliability and validity of assessments, as regulated by the specified criteria. Work integrated learning (WIL): Department of Hospitality Management The WIL focus on professional cookery, accommodation, catering and food and beverage management are considered the most important components of the National Diploma: Hospitality Management, since these areas are considered as key areas reflecting on satisfying customer expectations through quality service provision. It is envisaged that student performance in WIL constitutes the acid test by which industry judges the course and the department. Such performance is largely dependent on the degree of “goodwill” they succeed in establishing. The WIL component has a credit bearing contribution of 60 credits for the three year national diploma. The duration of WIL is one year, divided into two six months periods. WIL 1 is from June / July – December in the second year of study and WIL 2 is from January – June in the third year of study. Students are placed locally, nationally and internationally, which is indicative of the high esteem that the hospitality industry has of this programme. The authenticity of WIL is ensured by a progressive programme of exposure, covering the main operational and administrative areas of the segments of the hospitability industry. Students are expected to be exposed to the following areas for specified periods (Durban University of Technology, 2010:20):  Accommodation : 3 months  Catering : 3 months  Professional cookery : 3 months  Food and beverage management: 2.5 months During the above period, students are obligated to be dressed in uniforms and wear name badges prescribed by the university. It is envisaged that such a strategy, which has been positively received by students, does not only inculcate positive attitudes toward WIL, but also makes them proudly university students who are recognised from permanent staff. The WIL module aims to achieve the following (Durban University of Technology, 2010:4):

     

Inculcate attitudes of dependability, reliability and helpfulness to add value to the quality of service provision. Exposure to diverse customer expectations and experiences. Enhancement of service delivery to all customers through learning. Stimulation of research by analysing data generated through work integrated learning. Providing students with the opportunity to demonstrate their theoretical knowledge. Developing collaboration between industry and educational institutions through work integrated learning.

Learning outcomes The four areas of focus are underpinned by the following learning outcomes (Durban University of Technology, 2010:3):  Demonstrate the ability to apply basic management theory and understanding of the hospitality and tourism industry in an authentic workplace.  Identify and plan a sustainable hospitality enterprise.  Work under supervision and conduct a simple research project and report the findings in an appropriate report format.  Communicate effectively with colleagues, supervisors and subordinates in the hospitality and tourism industry.  Function professionally in accordance with student guidelines and the relevant organisational code of conduct within the hospitality industry. Assessment The aforementioned outcomes are linked to assessment instruments, comprising of monthly reports and a development portfolio, employers assessment and a WIL project. Since WIL is a major subject in the national diploma, students have to achieve an overall 50 percent pass mark based on the three assessment instruments. In view of assessment being an integral part of the teaching and learning process, the assessment instrument fulfils the following objectives of the universities‟ assessment policy (Durban University of Technology, 2008:2):  Evidence that the student have achieved the stated learning outcomes and met the assessment criteria.  Assessments aligned to learning outcomes.  Systematic, regular and formative assessments.  Valid, reliable and practical assessment process.  Authentic, current and relevant achievement of learning outcomes.  By assessing a variety of skills, outcomes and criteria using a combination of assessment

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instruments, an integrated assessment approach gives WIL greater authenticity, reliability, validity and relevance. Student experiences are shared through a formal debriefing after the WIL experience, where lessons learnt are shared with other students. Student diaries and reflective reports provide a good platform for reflective exercises, in an attempt to enhance learning for the world of work. Incorporating quality

dimensions

of

service

Literature determines that several dimensions like reliability, responsiveness, empathy, physical environment and reputation are associated with service quality. Bowen (2008:327) suggests that other elements like perceived value, desire congruence and the customers overall attitude to the hospitality industry should be taken into account. Choi and Chu (2001 in Bowen, 2008:320) identified the following factors that were likely to influence customers intention to return to the same hotel: staff service quality, value and room quality. Cadotle and Turgeon (1988 in Bowen, 2008:320) categorized the trends of complaints and compliments of service into four categories: satisfiers, dissatisfiers, criticals and neutrals. Nikolichard and Sparks (1995 in Bowen, 2008:320) found that good communication skills were an essential element of encounter satisfaction. The studies clearly indicate that customers expectations and responses to service can be diverse and difficult to categorize. Since it generally agreed that service quality is a key element of success in attracting repeat customers and maintaining a competitive advantage in a service oriented industry, students cannot jeopardise customers‟ expectations in the work integrated learning environment. The learning outcomes and areas of focus identified by the Department of Hospitality Management underpin the generic and unique service quality dimensions identified by several empirical studies in the hospitality industry. The learning outcomes acknowledge that attributes of service focuses on output quality and interactive quality. By focusing on output quality (physical quality) and interactive quality (quality of the relationship between customers and service employees), students are made aware that the manner in which the hospitality employee provides the service, as opposed to the service itself, is critical to the customer‟s overall “experience”. This requires employees who provide exceptional customer service that goes beyond simply satisfying the costumer. Quality assurance The learning outcomes and aligned assessment instruments reflect the programme‟s commitment to

promote students achievement through maintaining and enhancing the quality of their total learning experience within a well supported environment that promotes the principle of students as future employees, taking responsibility for their own learning. This is evidenced by the high employment of students in the industry, which is tracked through a departmental database. Maintaining the quality of WIL, is ensured by the Faculty Quality Committee which has an oversight role in monitoring that good practice is sustained. The implementation of improvement plans is undertaken in response to the outcome of the review process for the national diploma in hospitality management. Further, quality enhancement is an integral part of the management of quality, responsibility for which is shared by staff and students at programme, faculty and institutional levels (Durban University of Technology, 2009:5). Through formal contact with other hotel schools in the country, benchmarking constitutes an integral part of module improvement. The experience of hospitality management students is unique in that their work integrated learning is based in a service industry where the customer is present at the time of both production and service. All four identified areas of exposure required of students is based on little or no time delay between production and service. Davis et al.(2008:24) compares this uniqueness to the creation of a manufactured product, where the customer is not involved and there may be a considerable time log between production and service. Since services cannot be examined in advance and; they are highly perishable and cannot be stored, students are reminded during pre-placement that first impressions are lasting impressions in service delivery. Therefore, students are expected to put “their best foot forward”, during the time that the customer spends in the operation and what happens to them during that time. Conclusion Work integrated learning is a significant component of educational programmes in educational institutions in South Africa. It is considered as the pedagogical approach which is responsive to the demands of a dynamic external environment while promoting lifelong learning among students. The hospitality industry is characterised by a unique culture that is service oriented. Establishing a service culture with which employees can identify is vital to meet the challenges of such a demanding environment. Work integrated learning improves instructional training for students by providing them with an opportunity to apply their academic knowledge of hospitality management in the hospitality industry. In this way, students are exposed to the organisational culture of a service oriented industry that is driven by adding value to customer expectations.

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By being exposed to a service culture that demands attributes and skills that underpin exceptional customer service, the attention of students is drawn to the following:  Responsibility to work independently and to develop an awareness of service culture in the hospitality industry.  Reflect on their sustainability as future employees in a service oriented environment.  Contribution to employee efficiency by being involved in the production of the hospitality product.  Acknowledgement of a “zero defects” standard of service. The aforementioned highlights the notion that “customer is boss”, since customers are valued not just for their money, but as a rich source of customer expectations to add value to service quality. This is an important consideration, since customers are unique in respect of individual characteristics and an integral part of the emerging “experience” economy.

8.

9.

10.

11.

12. 13.

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15.

References 16. 1.

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Barrows, C.W. and Powers, T. (2009), Management in the Hospitality Industry, John Wiley & Sons Inc., New Jersey. Barrows, C.W. and Powers, T. (2009), Introduction to the Hospitality Industry, John Wiley and Sons, New Jersey. Bowen, J. (2008), Marketing and consumer behaviour in hospitality. In B. Brotherton and R.C. Woods (eds.), The Sage handbook of hospitality management, Sage: los Angels. Brotherton, B. (2008) Researching hospitality and tourism, Sage, Los Angels. Davis, B., Lockwood, A., Pante lidis, I. and Alcott, P. (2008), Food and Beverage Management, Eisener, Oxford. Dawson, M., Abbott, J. and Shoemaker, S. (2010), The hospitality culture scale: A measure of organisational culture and personal attributes, International Journal of Hospitality Management, 30 (2): 290 – 300. Deming, W.E. (1982), Quality, productivity and competitive position, Massachusetts Institute of Technology, Massachusetts.

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Durban University of Technology (2009), National Qualifications Framework, 2008 (Act 67 of 2008), Government printer, Pretoria, South Africa. Durban University of Technology (2010), Work Integrated Learning: Department of Hospitality and Tourism, Durban University of Technology, South Africa. Durban University of Technology. (2009), Quality Assurance Policy, Durban University of Technology, South Africa. Durban University of Technology. (2008), Assessment Policy, Durban University of Technology, South Africa. Eckes, O. (2001), The Six Sigma Revolution, John Wiley and Sons, New York. Ekinci, Y. (2008), Service Quality and hospitality organisations. In B. Brotherton and R.C. Wood (eds.), The Sage handbook of hospitality management, Sage: Los Angel. Gruman, J.A. and Saks, A.M. (2010), Performance management and employee engagement, Human Resource Management Review, 21 (2) : 133 – 136. Kolb, A.Y. and Kolb, D.A. (2005), Learning styles and learning spaces: Enhancing experiential learning in higher education, Academy of Management Learning and Education, 4 (2): 193 – 192. Luoh, H.F. and Tsaur, S.H. (2010), Customers‟ perceptions of service quality: Do servers‟ age stereotypes matter?, International Journal of Hospitality Management, 30 (2) : 283 – 289. Oxford English Dictionary (2006), Van Schaik: Pretoria. Republic of South Africa (1997), Higher Education Act of 1997 (Act 101 of 1997), Government Printer, Pretoria, South Africa. Shaw, G., Bailey, A. and Williams, A. (2010). Aspects of service – dominant logic and its implications for tourism management: Examples for the hotel industry, Tourism Management, 32 (2) : 207 – 214. Swarbrooke, J. (2001), The development and management of visitors attractions. Butterworth – Heinemann: Oxford. Tesone, D. (2010), Principles of Management for Hospitality industry. Butter Worth – Heinemann: Oxford. Werner, A. (2008), Organisational culture, ethics and diversity in global environment. In A. Werner (ed.). Organisational Behaviour: A contemporary South African Perspective. Van Schaik: Pretoria.


PERCEPTIONS OF KNOWLEDGE MANAGEMENT PROCESSES, STRATEGIES, IMPLEMENTATION AND IMPACT: BIOGRAPHICAL INFLUENCES Bethuel Sibongiseni Ngcamu*, Sanjana Brijball Parumasur** Abstract The study aims to provide recommendations with strategic direction and an improvement as far as knowledge management initiatives are concerned within the Skills Development and Management Services and Organizational Development Units so that they can drive knowledge management to be effective and efficient in its implementation whilst taking cognizance of the biographical correlates. This study seeks to address the bottlenecks as far as knowledge management is concerned by using biographical profiles with the view of promoting the creation and management of knowledge in the municipality concerned. The study reflects that the biographical profiles of employees (age, education, race, job level) influences their perceptions of the current knowledge management processes and strategies and their implementation and impact on effectiveness. The influence of age emphasizes that it is imperative to avoid the decay of employees’ knowledge stocks at the individual level by striving to make knowledge, skills and capabilities more valuable, unique and available. The influence of education reinforces the needs to improve the connectivity among all employees. The impact of race adds to the urgency to promote the diversification of the workforce in order to have access to different ideas and skills and, enables the organisation to enhance its competitive edge. The influence of job level demands that knowledge management activities should be cascaded down to the operational level. The combined effect of the biographical variables dictates that organisations need to foster a culture that supports knowledge sharing and must provide salient incentives to recognise and encourage such interactions. Keywords: management strategies, biographical influences, corporation *Acting Senior Director: Human Resources and Development, Mangosuthu University of Technology, 37 Dagwood Crescent, Kingsburgh 4126 Tel: 031-9164385/0795589794 Email: [email protected] **Senior Lecturer, Human Resource Management, University of KwaZulu-Natal Tel: 031-2607762 Email: [email protected]

INTRODUCTION The emerging global economy is characterized increasingly by knowledge intensive firms which require diverse and specialized knowledge workers to develop unique knowledge competencies and also to collaborate in ways to create new knowledge that enhances the performance of the organization. Furthermore, Dougherty (1992) and Nonaka (1994) argue that in knowledge intensive firms, competitive advantage and product success are a result of collaborative and ongoing learning. Success depends not only on how effectively the diverse individuals are able to organize and develop their unique knowledge competencies but also how they can integrate and utilize their distinctive knowledge both effectively and synergistically. Organizational knowledge is now recognized as a key resource and a variety of perspectives suggest that the ability to marshal and deploy knowledge dispersed across the

organization is an important source of organizational advantage (Teece, 1998; Tsai & Ghoshal, 1999). In the South African local government context, the municipality concerned promotes teamwork within an organizational structure that is lean, flatter and flexible and debureaucratized, despite the fact that it fails to design strategic programs with the view to formulate and implement knowledge management initiatives. Technological advancements created by Information Communication Technology (ICT) require employees to be creative and innovative and to record their skills and experiences to be used competitively by newly employed employees. Scarbrough & Swan (2001, p. 38) argue that the rise and growth of knowledge management is one of the managerial responses to the empirical trends associated with globalization and post industrialism. The authors further argue that these trends include the growth of knowledge worker occupations, and technological advances created by ICT. ICT can

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enhance knowledge sharing by lowering temporal and spatial barriers between knowledge workers, and by improving access to information. The research objectives of the study are to examine the influence of the biographical profiles of employees on current knowledge management strategies, the transfer of tacit to explicit knowledge, knowledge management‟s contribution to organizational effectiveness and efficiency and, implementation strategies of knowledge management. The authors consider the influence of the biographical profiles to be crucial considering the diverse workforces that exist in organizations and believe that a substantial part of knowledge management entails understanding these employees and appropriately managing their knowledge in order to make them more innovative, effective and output orientated. Furthermore, the study aims to provide recommendations with strategic direction and an improvement as far as knowledge management initiatives are concerned within the Skills Development and Management Services and Organizational Development Units so that they can drive knowledge management to be effective and efficient in its implementation whilst taking cognizance of the biographical correlates. This study seeks to address the bottlenecks as far as knowledge management is concerned by using biographical profiles with the view of promoting the creation and management of knowledge in the municipality concerned. Synthesis and critical evaluation of the literature The theoretical understanding of organizational knowledge has evolved over the last 50 years. Edvardsson (2003, p. 1) proclaims key factors in the growth of interest in knowledge management in the 1990s which was the rediscovery that employees have skills and knowledge that are not available to, or captured by, the organization. The popularity of knowledge management increased rapidly, especially after 1996, and it has become a central topic of management philosophy and a management tool. This popularity is reflected in the growing number of articles and books on the topic. In 1995, there were 45 articles about knowledge management in the ABI or Information database, 158 in 1998, 835 in 2002 and exceeding 13 000 citations in 2010 (Lang, Hall & Landrum, 2010). There are a number of definitions of knowledge management already presented in the extant literature. Drawing on the views of various authors,, knowledge management is defined as the process of acquiring, identifying, locating or creating, capturing or retrieving, storing, transferring, disseminating knowledge within and between organizations and, the management of its use (Alavi & Leidner, 2001; Bennett & Gabriel, 1999; Darroch, 2003). This study

follows Alavi and Leidner‟s (2001, p. 15) description of the creating, storing or retrieving, transferring, and applying the knowledge process. The creation process refers to the organization‟s effort to gather information and new knowledge from internal and external sources and codify it into explicit knowledge. The codification processes are followed by the storing process which enables the organization to fast-retrieve information when it is necessary, in order to develop new knowledge. In the public service, knowledge is acquired from stakeholders which include communities, the three tiers of government, civil servants, civil society and the private sector. Wiig (2002, p. 228) indicates that the conceptual leadership of knowledge management must in part reside within public administration but must also be shared with all stakeholders. Furthermore, knowledge management methods provide opportunities to prepare the citizenry to be more effective policy partners for conceptualizing, planning, deciding, and implementing public actions as well as for providing general support. In this sense, Quintas, Lefrere and Jones (1997, p. 145) believe that knowledge management is the continuous process of managing organizational knowledge in order to anticipate current and future needs, to identify and exploit existing and acquired knowledge as well as to develop new opportunities. In order to achieve this, it is imperative to evaluate current knowledge management strategies, current processes for managing knowledge, implementation of knowledge management strategies, perceptions of the impact of knowledge management on effectiveness and the influence of the biographical profiles of managers involved in the process. Current strategies

knowledge

management

Human capital, defined as the individual‟s knowledge, experiences, capabilities, skills, creativity and innovativeness (Edvinsson & Malone, 1997, p. 67), is the core of any knowledge-based enterprise (Bontis, 1998; Serenko, Bontis & Hardie, 2007) and is a primary component of the intellectual capital construct (Bontis & Fitz-Enz, 2002; Edvinsson & Malone, 1997; Sveiby, 1997). Marr, Gupta, Pike and Roos (2003, p. 771), cited in Teece (2000), believe that intellectual capital is a key driver of innovation and competitive advantage in today‟s knowledge based economy. At the same time, knowledge management (KM) is recognized as the fundamental activity for obtaining, growing and sustaining intellectual capital in organizations (Marr & Schiuma, 2001, p. 49). This means that the successful management of intellectual capital is closely linked to the knowledge management processes an organization has in place which in turn implies that the successful implementation and usage of knowledge management

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ensures the acquisition and growth of intellectual capital. Furthermore, Barney (1991, p. 87) agrees that an organization‟s human capital is an important source of sustainable competitive advantage in creating, building, and/or establishing effective knowledge management systems that will accumulate valued organizational leaders. Managers must recognize the interdependence of human, relational, organizational and technological capital as strategic knowledge stocks that contribute significantly to the development of long-term competitive advantage in the knowledge economy (de Pablos, 2003, p. 7). Frequent interaction can promote learning from existing knowledge (Chesbrough & Teece, 1996) by reducing redundancy (in knowledge) and transforming necessary knowledge into social norms, values and preference. Knowledge from different parts of the organization can be integrated to generate new knowledge. In „highly social capital‟ organizations, trust and norms tend to reduce the opportunistic behavior of leaking knowledge to outsiders (Kale, Singh & Perlmutter, 2000, p. 45). By better knowledge protection, organizations can devote their time and energy to innovation, competence improvement and become more effective (Lee & Sukoco, 2007, p. 549). During human resource information system implementation, companies become a drastic tool for knowledge management created in the 21st century. Knowledge management can be viewed as three levels of techniques, technologies and systems that promote the collection, organization, access, sharing and use of workplace and enterprise knowledge. Lee & Sukoco (2007, p. 549-550) indicate that data can be viewed either as factual, raw material or as signals with no meaning. Information as data related to other data, has meaning and is refined into structured or functional forms within a system (for example, client database or directories). The most fundamental and common classification of organizational knowledge is along the explicit-tacit dimension. Explicit knowledge is data, documents, things written down or stored on computers whilst tacit knowledge is the “how-to” of knowledge with resides in workers (O‟Brien, 2005, p. 56) such as insights, intuition, beliefs, personal skills and craft and using rule-ofthumb to solve complex problems (Chua, 2002; Daft, 2001; Hunter, Beaumont & Lee, 2002). In this classification, explicit knowledge is considered to be formal and objective and can be expressed unambiguously in words, numbers and specifications. Hence, it can be transferred via formal and systematic methods in the form of official statements, rules and procedures and so is easy to codify. Tacit knowledge, however, is subjective, situational, intimately tied to the individual‟s experience and hence, difficult to formalize, document and communicate to others.

Current processes knowledge

for

managing

Von Krogh, Roos & Slocum (1994:234) introduce the concept of corporate epistemology as the theory of how and why organizations gain knowledge and how they believe this knowledge is developed. Accepting this concept of corporate epistemology we deduct that in order for knowledge management initiatives to be successful, there has to be alignment between the epistemologies of individuals and the corporate epistemology within which these individuals are to operate. Ingrained into the process of knowledge management is the so-called knowledge cycle. This cycle integrates knowledge through four main phases, which should be observed interactively rather than by a linear approach (OECD, 2000:65):  knowledge acquisition, which focuses primarily on searching among various sources of information and knowledge, on their selection, and on ways to bring the existing knowledge in the possession of individuals and organizations;  knowledge creation, which focuses on the development and increasing bulk of new knowledge;  knowledge transfer, distribution, dissemination and sharing, aiming for relevant knowledge to reach relevant individuals, groups and organizations as soon as possible;  knowledge utilisation and application in various environments, which is the ultimate goal of the economic organizations and systems as well as individuals who work for them. Fong, Love and Irani (2005, p. 6), cited in Nonaka & Takeuchi, 1995, state that the Socialisation-Externalisation-CombinationInternalisation (SECI) model can be included as part of the knowledge management cycle. Fong, Love and Irani (2005:6) suggest that once key knowledge has been identified and codified in some way, socialisation effect occurs resulting in knowledge sharing. Knowledge resulting from this knowledgesharing experience becomes externalised, resulting in an application of the knowledge. This knowledge is then combined which should hopefully result in new knowledge being created, which then needs to be preserved as it becomes captured and the cycle begins again. Similarly, literature reveals the integration of multiple streams for the creation of new knowledge through the mechanism of socialisation which causes tacit knowledge. Nonaka (1994, p. 65) defines socialisation as the synthesis of tacit knowledge across individuals, usually through joint activities instead of written or verbal instructions. In a local government environment, socialisation can be promoted by diversified knowledge workers within the organization (during meetings and workshops, trainings) and outside the organization (during

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community meetings and dialogues) with the aim of combining it to create explicit knowledge. Implementation of management strategies

knowledge

According to McFarlane (2008:1), a knowledge worker is a product of education, technological marvel, and modern development of organizational practices and theories. Emerging out of value and process theories, the idea of knowledge in the form of human capability or human resources is instrumental in driving organizational performance, development and success. Knowledge workers are important and key strategic resources in modern learning organizations; they are value creators and value adders whose major contributions come from their abilities to process and apply knowledge and information to completing essential tasks, making decisions, and solving problems. According to Becker, Huselid & Ulrich (2001), human resource management's contribution to value creation is a firm's strategy based on people as a source of competitive advantage, and a firm's culture to share those values. The key to success is to ensure that the firm can attract and maintain knowledge workers through appropriate human resource management practices. According to McFarlane (2008:6), the management of the knowledge workers in today‟s organization and society, where there are increased educational and learning opportunities, requires organizational leaders and policy planners to rethink and redefine their roles as “knowledge leaders” whose very duties and responsibilities are to develop a system of participative knowledge sharing in attempting to solve organizational problems, accomplish the mission, vision and critical tasks, manage effectively and survive crises and change. According to Becker, Huselid, & Ulrich (2001, p. 76), employees create value when they help to implement a firm's strategy. If they are not able to do so, their talent has no value. Therefore, human resource professionals should understand the required competencies that can help implement a firm's strategy. Then, they should develop a set of human resource systems and practices that help develop those competencies (Afiouni, 2007, p. 124). Wright, Dunford & Snell (2001:33) made a clear distinction between the firm's human resources (for example, human capital pool) and human resources practices (those human resources tools used to manage the human capital pool). In applying the concepts of value, rareness, inimitability, and substitutability, they argued the human resource practices could not form the basis for sustainable competitive advantage since any individual human resource practice could be easily copied by competitors. Rather, they proposed that the human capital pool (a highly skilled and highly motivated workforce) had greater potential to constitute a source

of sustainable competitive advantage. These authors noted that to constitute a source of competitive advantage, the human capital pool must have both high levels of skill and willingness (for example, motivation) to exhibit productive behaviour. Thus, to create value, human resource practices are not enough; they need to be seconded by knowledge management practices that will ensure the development of employees' skills and competencies. Although time and competition tend to erode the strategic position of human capital, firms may be able to counteract these natural forces (Lepak & Snell, 1999:23). The resource-based view of the firm points out that the organization can avoid the decay of their knowledge stocks at the individual level (human capital) by striving to make knowledge, skills, and capabilities more valuable and/or unique. As Lepak & Snell (1999, p. 43-44) state, "to make the deployment and value of human capital more specific, managers logically may try to enhance the uniqueness of human capital by customising or adjusting skills, managers may use human resource investments to increase the uniqueness of human capital so they might strive to make human capital more valuable". One way to get these specific knowledge stocks at the individual level (human capital) is through an internal human resource management system (de Pablos, 2003:67). One can accomplish this through investing in constant training and development of employees to perform work processes and procedures that are specific to the firm. In fact, central to the concept of organizational learning is the process of developing and disseminating tacit knowledge (for example, firmspecific knowledge) throughout the firm (Senge, 1990). Given that knowledge management is often adopted by organizations in complex, unpredictable environments, traditional selecting and recruitment practices have more often than not had to be modified. Thus, Scarbrough (2003:18) points out that in innovative organizations, the selection of individuals with both appropriate skills and appropriate attitudes has been identified as crucial to the project team‟s ability to integrate knowledge from diverse sources. Scholars such as Edvardsson (2003), Carter & Scarbrough (2001), Currie & Kerrin (2003), Evans (2003), Hunter, Beaumont and Lee (2002) and Robertson and Hammersley (2000) have argued recently that knowledge is dependent on people and that knowledge issues, such as recruitment and selection, education and development, performance management, pay and reward, as well as the creation of a learning culture are vital for managing knowledge within firms and for the implementation of knowledge management strategies. Functionally focused centres (for example, marketing, sales) run separately, have their own cultures and make knowledge sharing between functions very difficult. Currie & Kerrin (2003) emphasize that in order to enhance knowledge

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Corporate Ownership & Control / Volume 8, Issue 3, 2011, Continued - 4 sharing, employees with an appreciation of others‟ perspectives have to be preferred, and they encourage the use of lateral career movement by employees in order to develop the necessary appreciation of others‟ perspectives. Other studies highlight the importance of a fit between new recruits and the organization‟s knowledge culture. These studies relate to the personorganizational fit literature within HRM and stress the need for a fit between the organizational cultures and hiring employees of suitable personality, as well as the socialisation of individuals into the culture of the firm (Judge & Cable 1997). Employee perceptions of management effectiveness

knowledge

According to Watad & Perez-Alvarez (2007:49), the spread of information technology (IT) and Internet applications has created a shortage in skilled labour in the IT industry. This shortage has created opportunities for under qualified people who were, often, at the right place at the right time. One of the unintended consequences of the shortage has been the increased cultural diversity of the workforce. Diversification of the workforce provides companies with access to different ideas, skills, and it enhances the companies' competitive edge (Elmuti, 2001:45). However, management has to provide mechanisms and adjust structural arrangements in order to reap the benefits that accompany a diversified workforce. In both global and organizational contexts, the broader the collective perspective of a project team is, the more likely the group will be to generate a wide variety of potential solutions to a problem. One may assume that, given that members of different cultures have different kinds of frames of reference, a team composed of members from different cultural backgrounds would be interested in knowing the way of solving problems and sharing knowledge in their own as well as in their host cultures. On the other hand, cultural diversity may impede the sharing of knowledge, as there is a lack of personal compatibility and common language. Companies with a diverse, multicultural workforce tend to rely on workshops to develop knowledge management skills among people from different backgrounds. These training sessions may emphasise ways to shorten the amount of time it takes to solve problems and explore alternative courses of action. However, these sessions usually lack a very important component, which is focusing on building mechanisms for knowledge sharing. Without these mechanisms, the work of the team will not reach adequate levels of performance that have a substantial impact on the effectiveness of the organization (Watad, 2007, p. 49). In order to both take advantage of a diverse workforce and to allow employees to perform at their full capacities, managers should promote a cultural

environment that is responsive to the employees' specific cultural needs (Elmuti, 2001, p. 44). Organizations need to put in place multicultural communication tools to overcome language and cultural barriers. In fact, the cultural trait of not being outspoken, for example, can be remedied by a collaboration system that includes anonymous features, which are useful for idea generation and feedback. The effective management of a firm's knowledge assets is an essential factor to achieve a sustainable competitive advantage in today's market (Drucker, 2001:33). A firm's knowledge encompasses a mix of framed experience, values, contextual information and expert insight that makes possible the incorporation of new experiences and information (Davenport & Prusak, 1998:45). This same knowledge entails the domain-related skills needed to boost organizational effectiveness through innovation and the enablement of a flexible knowledge management infrastructure (Watad, 2002:45). Knowledge sharing helps in organizational learning (Ford & Chan, 2003, p. 134) and the development of domain related skills (for example, expertise), a pre-condition for organizational innovation. However, knowledge sharing is susceptible to the effects of cultural differences (Ford & Chan, 2003, p. 14). Trust, common languages and beliefs are critical to effective knowledge sharing (Simonin, 1999). More specifically, knowledge sharing within heterogeneous cultural groups tends to be difficult, requiring more time and effort than in homogeneous cultural groups (Ford & Chan, 2003, p. 33). Therefore, management should promote knowledge sharing along formal structures that exhibit a formal reward system and incentives. A commonly used practice entails moving from rewarding individuals to rewarding groups, or devising incentives that promote sharing at both the divisional and firm levels (Watad & Peres-Alvares, 2007, p. 49). Influence of biographical variables on the dimensions of knowledge management The influence of age, gender, education, race and job level on the dimensions of knowledge management are being assessed as it is postulated that these biographical variables have the potential to affect perceptions of current knowledge management strategies, current process for managing knowledge management and to convert tacit into explicit knowledge, the implementation of knowledge management strategies and the impact of knowledge management effectiveness respectively. Researchers have also noted the influence of age (Connelly & Kelloway, 2003; Organ & Ryan, 1995), gender and tenure (Connelly & Kelloway, 2003) on knowledge sharing and the impact of education on new knowledge and existing knowledge (Egbu, 2004; Inkpen, 1996; Van den Börsch, 1999). The influence

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of race on knowledge management was indirectly noted in studies relating to workforce diversity, the influence of language barriers and multiculturalism (Finestone & Snyman, 2006). Job level also has the potential to impact on knowledge management, knowledge management support and information sharing (Connelly & Kelloway, 2003). Whilst many of these biographical influences have been noted in studies indirectly relating to knowledge management, this study aims to assess these direct influences statistically. RESEARCH DESIGN Research approach The research methodology is designed to examine the effectiveness of knowledge management strategies and its implementation within the municipality‟s Skills Development and Management Services and Organizational Development Units. Employee perceptions of knowledge management were assessed by obtaining primary data using a cross-sectional approach. In this formal, hypothesis-testing study, the unit of analysis is a group of employees from whom quantitative data was collected using self-developed questionnaires and analysed using descriptive and inferential statistics. Research method Research participants This study adopted a census approach whereby data was obtained from every employee of the Skills Development and Management Services and Organizational Development Units which was feasible as the units have less than 100 employees. From a population of 80 employees, sixty six (66) respondents correctly completed the personally administered questionnaires thereby generating a response rate of 82.5%. The sample may be described in terms of age, gender, education, race, tenure and job level. In terms of age, 13.6% of the respondents were 18-24 years, 34.8 were 25-34 years, 25.9% were 35-44 years, 21.2% were 45-54 years and 4.5% were 55 years and above. Males constituted 51.5% of the sample whilst 48.5% were females, thereby depicting a more or less equitable representation of gender in these units. In terms of education, there were a disproportionately high percentage of respondents (40.9%) with diplomas while 33.3% had degrees, 10.6% held a trade certificate, 9.1% had just a matriculation and 6.1% had below a matriculation. In addition, 78.8% of the respondents were Black while 9.1% were White, 7.6% were Indian and 4.5% were Coloured employees, thereby reflecting that these units may not be diversified enough for purposes of knowledge creation and the implementation of knowledge management strategies. In terms of

tenure, 63.6% of the respondents have been employed for 0-5years, 15.2% are employed for 6-10 years, 9.1% for 11-15 years and 12.1% have over 20 years of service. Furthermore, 65.2% of the respondents occupy non-managerial posts while 16.7% are at junior management,12% are at middle management and 6.1% at senior management levels. Measuring instruments The self-developed, closed-ended questionnaire comprised of two sections. Section A used a nominal scale and comprised of option categories to choose from per biographical variable (age, gender, education, race, tenure and job level). The respondents were required to put a cross (x) next to the appropriate answer. Section B measured the subdimensions of knowledge management which were assessed using a 1 to 5 point Likert scale ranging from strongly disagree (1) to strongly agree (5). Appropriate questions were designed based on the challenges, gaps and recurring themes that surfaced while reviewing the literature on knowledge management. Research procedure Subsequent to consent being given by the municipality‟s Skills Development Units Head and an ethical clearance process being followed, a pilot test was conducted by administering the questionnaire to 10 participants and its main intention was to obtain some assessment of the questions‟ validity. The results of the pilot study confirmed that the items were appropriate, and adhered to the principles of wording and measurement. Thereafter, the selfadministered questionnaires were administered over a two month time period. Statistical analyses Descriptive statistics (frequencies, percentages, measures of central tendency and dispersion) and inferential statistics (t-test and ANOVA) were used to analyse the results of the study which were processed using Statistical Packages for Social Scientists (SPSS). Furthermore, the psychometric properties of the questionnaire were statistically assessed using Factor analysis and Cronbach‟s coefficient Alpha respectively. The Factor Analysis generated four separate factors with latent roots greater than unity, which represented the four dimensions of the study. The questionnaire, therefore, validly determines the aforementioned dimensions. The overall Cronbach‟s Coefficient Alpha is 0.953 which depicts a high level of internal consistency of items. The Cronbach‟s Alpha values for individual dimensions were also high: Current knowledge management strategies (Alpha = 0.878), current processes for managing

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Corporate Ownership & Control / Volume 8, Issue 3, 2011, Continued - 4 RESULTS

knowledge management (Alpha = 0.840), implementation of knowledge management strategies (Alpha = 0.889) and perceptions of the impact of knowledge management effectiveness (Alpha = 0.876).

Descriptive and inferential statistics were used to analyse the data. Descriptive statistics The subjects were required to respond to the items relating to the key dimensions of the study using a 1-5 point Likert scale. Descriptive statistics were computed for each of the key dimensions (Table 1).

Table 1. Descriptive statistics – Key dimensions of knowledge management Statistic

Mean Confident interval for mean Variance Std deviation Minimum Maximum


Lower Upper


Perception of the impact of knowledge management

2.98 2.78 3.17

Current processes for managing knowledge management 2.97 2.54 2.96

2.75 2.7909 3.1941

2.99 2.82 3.21

0.654 0.808

0.520 0.7213

0.719 0.848

0.673 0.821

1 4

1 4.3

1 5

1 4.80

The mean score values reflected in Table 1 indicate that employees have differing views on the sub-dimensions of knowledge management, which in descending level based on mean scores are as follows:  Perceptions of the impact of knowledge management effectiveness (Mean = 2.99).  Current knowledge management strategies (Mean = 2.98).  Current processes for managing knowledge management (Mean = 2.97).  Implementation of knowledge management strategies (Mean = 2.75). These values reflect that on a scale from 1 to 5, respondents generally were below 3. This indicates that a high proportion of responses ranged from strongly disagree, disagree to being undecided about the questions relating to each dimension. This further reflects a negative perception with regards to each of the dimensions relating to the knowledge management within the Skills Development and Management Services & Organizational Development Units of the municipality concerned. This implies that improvement is needed with regards to knowledge management. In terms of current knowledge management strategies, a frequency analysis was undertaken and the findings indicated that 25.8% of the respondents strongly disagreed and 15.2 % disagreed that knowledge management incentive systems were satisfactory. Furthermore, 34.8% of the subjects strongly disagreed and 24.2% disagreed on the

existence of knowledge management reward systems which acquaint to the effort the employees have contributed into knowledge creation. Moreover, a disproportionately high percentage of 30.3% of the respondents strongly disagreed and 13.6% disagreed that employees are rewarded in groups. Current processes for managing knowledge management is another area for improvement as reflected in the study findings. A frequency analysis was undertaken and the research findings indicate that 13.6% of the respondents strongly disagreed and 16.7% disagreed that these units recategorises and recontextualises existing explicit knowledge, data and information to produce new explicit data, information and knowledge. The research results further indicate that 19.7% strongly disagreed and 22.7% disagreed that these units use mining techniques to uncover new relationships among explicit data that may lead to predictive or categorization models that create new knowledge. Moreover, 16.7% of the subjects strongly disagreed and 19.7% disagreed that tacit knowledge is captured from individual‟s minds. Also the results indicate that there is room for improvement for the implementation of knowledge management strategies. This implies that the implementation of knowledge management strategies should be taken into consideration when enhancing team effectiveness. The total percentage of 19.7% of the respondents strongly disagreed and 28.8% disagreed that these units have implementation strategies to convert tacit

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to explicit knowledge. The findings indicate that 21% of the respondents strongly disagreed and 27.3% disagreed that these units have knowledge that is codified and stored in databases where it is accessible and readily used by anyone in the organization. Furthermore, the results indicate 18.2% of employees strongly disagreed and 31.8% disagreed that managers develop a system that encourages people to write down what they know and to get those documents into the electronic repository. The employees do not believe (supported by the research findings whereby 21.2% strongly disagreed and 27.3% disagreed) that the level and quality of employees‟ contributions to the document database and knowledge creation are part of their annual performance measurements (reviews). In addition, in these units the study findings depict a highest percentage of 24.2% of the employees who strongly disagreed and 19.7% who disagreed that there are techniques, technologies, systems and rewards for getting employees to share what they know. The results also indicate that there is room for improvement for the perceptions of the impact of

knowledge management effectiveness. The research findings show that 16.7% of the respondents strongly disagreed and 13.6% disagreed that employees participate in professional networks that extend beyond organizational boundaries. Also, 16.7% of the respondents strongly disagreed and 9.1% disagreed that these units apply knowledge assets. Finally, the total percentage of 16.7% of the respondents strongly disagreed and 15.2% disagreed that the role of human capital in these units contributes to the competitive advantage of business in today‟s knowledge economy. Inferential statistics Inferential statistics were computed to make decisions on the hypotheses of the study. Hypothesis 1: Managers differing in biographical profiles (age, gender, education, race, tenure and job level) differ in the perceptions of the key dimensions of knowledge management respectively (Tables 2 to 7).

Table 2. ANOVA: Age and key dimensions of knowledge management Dimension of knowledge management

Age categories

N

Mean

F

p


18-24 25-34 35-44 45-54 55-64

9 23 17 14 3

2.93 3.09 2.74 2.94 3.80

1.303

0.279

Current processes for knowledge management

18-24 25-34 35-44 45-54 55-64

9 23 17 14 3

3.01 3.00 2.83 2.92 3.67

0.884

0.479

Implementation strategies

management

18-24 25-34 35-44 45-54 55-64

9 23 17 14 3

3.11 2.95 2.63 2.23 3.21

2.578

0.046*

knowledge

18-24 25-34 35-44 45-54 55-64

9 23 17 14 3

3.00 3.07 2.85 2.87 3.77

0.907

0.466

of

knowledge

Perceptions of the impact management effectiveness

of

* p < 0.05

Table 2 indicates that there is a significant difference in the perception of employees varying in age regarding the implementation of knowledge management strategies at the 5% level of significance. In order to assess exactly where the differences lie, mean differences was assessed and it was found that

employees between the age of 55-64 years held more positive views of the implementation of knowledge management than all other employees, especially those between 45-54 years who had the most negative views. Furthermore, there is no significant difference in the perception of employees varying in age

494


regarding the other three dimensions of knowledge Table 3 indicates that there is no significant management (current knowledge management difference in the perception of male and female strategies, current processes for managing knowledge employees regarding each of the key dimensions of management and perceptions of the impact of knowledge management respectively. Hence, knowledge management effectiveness) respectively. hypothesis 1 may be rejected in terms of gender. Hence, hypothesis 2 may be partially accepted in terms of age. Table 3. t-Test: Gender and key dimensions of knowledge management Male Dimensions of management

Female

knowledge

N

Mean

Std dev

N

Mean

Std dev

df

T

p


34

2.92

0.793

32

3.03

0.833

64

-0.568

0.572

Current processes knowledge management

for

34

2.956

0.6983

32

2.984

0.7559

64

-0.159

0.874


34

2.60

0.817

32

2.91

0.863

64

-1.522

0.133


34

2.976

0.796

32

3.009

0.858

64

-0.162

0.872

Table 4. ANOVA: Education and key dimensions of knowledge management Dimension of management

knowledge

Education Categories

N

Mean

Std Dev

F

p


Below matric Matriculation Trade Certificate Diploma Degree

4 6 7 27 22

2.68 3.18 3.20 3.23 2.60

0.789 0.542 0.922 0.787 0.759

2.433

0.057

Current processes knowledge management

for


4 6 7 27 22

2.938 2.792 3.054 3.213 2.699

0.7108 0.7486 0.8318 0.7204 0.6323

1.736

0.154



4 6 7 27 22

2.81 2.44 2.95 3.10 2.32

0.944 0.710 0.866 0.718 0.856

3.252

0.017*



4 6 7 27 22

2.58 2.50 3.06 3.44 2.63

0.665 0.853 0.932 0.658 0.751

4.795

0.002**

* p < 0.05, ** p < 0.01

495


Table 4 indicates that there is a significant difference in the perception of employees varying in education regarding the implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness at the 5% and 1% levels of significance respectively. In order to assess exactly where the differences lie, mean differences was assessed and it was found under the education category that employees with diplomas had the highest mean score value of 3.10 thereby reflecting the view that knowledge management strategies are implemented in these units. However, employees with degrees held the most negative impression of the implementation of knowledge

management strategies in these units. In addition, employees varying in education differed in their perceptions of the impact of knowledge management effectiveness. In this regard, employees with a diploma had the most positive view (Mean = 3.44) whilst those with a matriculation (Mean = 2.50) had the most negative impression. Furthermore, there is no significant difference in the perception of employees varying in education regarding the two dimensions (current knowledge management strategies and current processes for managing knowledge management) respectively. Hence, hypothesis 2 may be partially accepted in terms of education.

Table 5. ANOVA: Race and key dimensions of knowledge management Dimension management

Race Categories

N

Mean

Std Dev

F

p

management

Black White Indian Coloured

52 6 5 3

2.98 3.73 2.00 3.00

0.787 0.484 0.612 0.000

4.949

0.004**

knowledge


52 6 5 3

2.947 3.479 2.475 3.167

0.7033 0.6728 0.9203 0.0722

1.956

0.130

knowledge


52 6 5 3

2.86 2.85 2.10 1.67

0.793 0.816 0.756 1.155

3.243

0.028*



52 6 5 3

3.04 3.33 2.60 2.20

0.814 0.737 0.758 0.866

1.770

0.162

Current strategies

of

knowledge

knowledge

Current processes management

for


* p < 0.05 ** p < 0.01

Table 5 indicates that there is a significant difference in the perception of employees varying in race regarding the current knowledge management strategies and implementation of knowledge management strategies at the 1% and 5% levels of significance respectively. In order to assess exactly where the differences lie, mean differences were assessed and it was found that Whites with the highest mean value of 3.73 are happier with current knowledge management strategies whilst Indians held a more negative view (Mean = 2.00). In addition, the mean differences were assessed on the

implementation of knowledge management strategies and the study indicates that Blacks with the highest mean value of 2.86 agreed that knowledge management strategies in these units are implemented. Furthermore, there is no significant difference in the perception of employees varying in race regarding the two dimensions (current processes for managing knowledge management and perceptions of the impact of knowledge management effectiveness) respectively. Hence, hypothesis 2 may be partially accepted in terms of race.

496


Table 6. ANOVA: Tenure and key dimensions of knowledge management Dimension management

of

knowledge

Tenure Categories

N

Mean

Std Dev

F

p

management

0-5 6-10 11-15 20+

42 10 6 8

2.88 2.90 3.18 3.40

0.877 0.596 0.821 0.571

1.083

0.363

knowledge

0-5 6-10 11-15 20+

42 10 6 8

2.917 3.013 3.063 3.125

0.7584 0.4505 0.9577 0.7008

0.236

0.871

knowledge

0-5 6-10 11-15 20+

42 10 6 8

2.64 3.00 2.79 2.97

0.881 0.553 1.183 0.716

0.699

0.556


0-5 6-10 11-15 20+

42 10 6 8

2.85 3.09 3.43 3.28

0.891 0.528 0.755 0.669

1.372

0.260

Current knowledge strategies

Current processes management

for


Table 7. ANOVA: Job level and key dimensions of knowledge management Dimension of knowledge management

Job level Categories

N

Mea n

Std Dev

F

p


Senior Middle Junior Nonmanagerial Senior Middle Junior Nonmanagerial Senior Middle Junior Nonmanagerial Senior Middle Junior Nonmanagerial

4 8 11 43

3.73 3.06 2.80 2.93

0.818 0.233 0.548 0.905

1.412

0.248

4 8 11 43

3.594 2.969 2.773 2.962

0.9036 0.3116 0.7089 0.7508

1.290

0.286

4 8 11 43

3.31 2.47 2.64 2.78

0.473 0.947 0.663 0.890

0.958

0.418

4 8 11 43

3.78 2.56 3.31 2.92

0.263 0.637 0.314 0.906

2.827

0.046*

Current processes for knowledge management



* p < 0.05 Table 6 indicates no significant difference in the perception of employees varying in tenure regarding four aforementioned dimensions of knowledge management (current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) at the 5%

level of significance respectively. Hence, hypothesis 2 may be rejected in terms of tenure. Table 7 indicates that there is a significant difference in the perception of employees varying in job level regarding the impact of knowledge management on the units effectiveness at the 5% level of significance. In order to assess exactly where the differences lie, mean differences were assessed and it was found that senior managers (Mean = 3.78) were

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most in agreement that knowledge impacts on the unit‟s effectiveness, contrary to the beliefs of middle managers (Mean = 2.56). Furthermore, there is no significant difference in the perception of employees varying in job level regarding the three dimensions of knowledge management (current knowledge management strategies, current processes for managing knowledge management and the implementation of knowledge management strategies) respectively. Hence, hypothesis 2 may be partially accepted in terms of job level. DISCUSSION The influence of the key biographical variables (age, gender, education, race, tenure, job level) on knowledge management dimensions will form the basis of the discussion of the results of the study. Age Analyses of the data indicate that there was a significant difference in the perception of employees varying in age regarding the implementation of knowledge management strategies. Employees‟ ages and career stage may also affect their knowledge sharing behaviours through the size and utility of their social networks; experienced employees may simply be more able to share their knowledge because they know more of the right people in the organization (Organ and Ryan, 1995:8). Gender The analyses of the results show that there is no significant difference in the perception of male and female employees regarding each of the key dimensions of knowledge management respectively. However, according to Organ and Ryan (1995: 8), gender was not found to be a significant predictor of organizational citizenship behaviour, but given gender‟s influence on communication styles, it is not unreasonable to wonder if it would also affect knowledge sharing (Organ & Ryan, 1995:8). The research conducted by Connelly & Kelloway (2003) investigated whether organizational factors such as employees‟ perceptions of management‟s support for knowledge sharing, their perceptions of the organization‟s social interaction culture, the organization‟s size, and the organization‟s available knowledge sharing technology, as well as whether individual factors such as age, gender and organizational tenure had a significant impact on employees‟ perceptions of a knowledge sharing culture. Gender was a significant moderator; female participants required a more positive social interaction before they would perceive a knowledge sharing culture as positive as compared to their male counterparts (Connelly and Kelloway, 2003).

Education The analysis of the data provides evidence that there is a significant difference in the perception of employees varying in education regarding the implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness respectively. The exploration of new knowledge is more effective when there is interaction between new knowledge and existing knowledge from internal and external sources in the organization (Van den Börsch, 1999; Inkpen, 1996:14). By transforming tacit into codified knowledge, organizations can utilise explicit knowledge more efficiently and effectively (Egbu, 2004:3). Subsequently, the transformed knowledge should be able to be stored, retrieved, applied, shared and distributed in order to facilitate the creative and renewal competence process in the organization (Almeida, 1996; Bhatt, 2001:8). The enhancement of knowledge management capability emphasize the gathering of new knowledge, something that can be done by encouraging members to sustain their continual application, distribution and creation (Hauschild, Licht & Stein, 2001:17). It means that organizations should encourage their members to update their existing knowledge to develop new competencies that will be beneficial to them. Acquiring knowledge about the market is well established as a precursor for developing innovations that best suit customer requirements. If the internal process encourages individuals to interact and collaborate with others it will facilitate the transmitting and disseminating of knowledge, which will increase the probability of innovation and enhance organizational effectiveness (Leonard & Sensiper, 1998; Gold, Malhotra & Segars, 2001:187). The research conducted by Lee & Sukuco (2007) investigating the effects of entrepreneurial orientation and knowledge management capabilities on innovation, competence upgrading and organizational effectiveness among companies in Taiwan, listed in the Top 100 firms revealed the benefits of entrepreneurial orientation. The research found that entrepreneurial orientation has a positive influence on the capability of organization to manage their knowledge, on new product or process innovation, on the upgrading of their competence as well as on organizational effectiveness. This analysis showed that entrepreneurial orientation had a highly significant impact (p=0.000) on knowledge management capability, innovation, competence upgrading and organizational effectiveness. Race Research results of this study reflected that there is a significant difference in the perception of employees varying in race regarding the current knowledge management strategies and implementation of

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knowledge management strategies respectively. The “identity-group affiliations” concept (as discussed by Thomas & Bendixen, 2000:1) can be problematic when one looks at the variety of sub-cultures existing within the corporate culture. Thomas and Bendixen (2000:12) make a valuable prediction that “the challenge facing South Africa today is for managers to harness the richness of the many ethnic groups so as to enhance productivity and facilitate global competitiveness. This demands an understanding of ethnic values and how they impact on global competitiveness”. This statement is also very valid from a knowledge-management perspective. One should never lose sight of the fact that companies exist to make money. They want to see return on investment whether from research and development or knowledge management. Research employed by Finestone & Snyman (2006:45) focussed on the influence of multiculturalism on the corporate environment and the respondents differ widely in their responses. One respondent sees multiculturalism as having a big influence because there is distrust, especially among the different levels in the company. Upper levels are still mostly comprised of White employees and lower employee levels are still mostly consisting of Black employees. Language barriers also create problems for them. In their situation, labour unions play a big role in the functioning of the company and it causes tension between the role players. Tenure Research results of this study reflected that there was no significant difference in the perception of employees varying in tenure regarding the knowledge management dimensions (current knowledge management strategies, current processes for managing knowledge management, implementation of knowledge management strategies and perceptions of the impact of knowledge management effectiveness) respectively. Job level Tests of significance indicated that there is a significance difference in the perception of employees varying in job level regarding perceptions of the impact of knowledge management. Kelloway & Barling (1999:12) have suggested that transformational leadership may be a potential predictor of knowledge use in organizations. In, addition, leadership commitment to knowledge sharing has also been identified by Martiny (1998:26) as a key challenge. Davenport (1994:26) indicates that this support, of course, must be encouraging rather than coercive; employees can receive suggestions on what and how much to share with their colleagues, but the final decision is always up to them. In fact, when lower level workers are ordered to “share”

information with those higher up the corporate ladder, meddling and micromanagement can result (Davenport, 1994:26). The study findings by Connely & Kelloway (2002:6) indicated that employees are interested in acting in accordance with management direction. Further research can assess whether managers can best encourage their employees to share knowledge with each other by acting as a role model, by rewarding desired behaviour, or with charismatic persuasion. The interpretation of the results indicated that employees differing in biographical profiles (age, education, race) differ in the perceptions of the implementation of knowledge management strategies, those differing in race differ in their perceptions of current knowledge management strategies and those varying in education and job level differ in their perception of the impact of knowledge management effectiveness. Recommendations This study aims to provide recommendations for the organization with regard to the significant findings of this study. Age In this study, respondents indicated that in these units employees between 25-54 years of age held negative views on the implementation of knowledge management. It is therefore, recommended that the municipality concerned should:  avoid the decay of their knowledge stocks at the individual level (human capital) by striving to make knowledge, skills, and capabilities more valuable and/or unique.  embark on a commonly used practice which entails moving from rewarding individuals to rewarding groups, or devising incentives that promote sharing at both the divisional and organizational levels.  employ young people as they can acclimatize easily working in groups and are mostly involved in social networks (internet) including network structures that are most effective for facilitating knowledge sharing outside of the group.  foster a culture that supports knowledge sharing and provides incentives for newly appointed employees to participate, either through their performance evaluation or public recognition. Education In this study, respondents mentioned that in these units, employees with degrees held the most negative impression of the implementation of knowledge management. It is therefore, recommended that the municipality concerned should:

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





emphasise that in order to enhance knowledge sharing, employees with an appreciation of others‟ perspectives have to be preferred, and they should encourage the use of lateral career movement by employees in order to develop the necessary appreciation of others‟ perspectives. hire suitable personality types that match the culture of the firm, as well as ensure the socialisation of individuals into the culture of the firm. assess ways to improve the connectivity among their employees, such as cross-functional workshops or knowledge fairs, that offer an arena for bringing people together. invest in the constant training and development of employees to contribute to knowledge management processes.

Job level This study revealed that middle managers in these units do not believe that knowledge impacts on the unit‟s effectiveness. It is therefore, recommended that the municipality concerned should:  logically try to enhance the uniqueness of human capital by customising or adjusting skills, and may use human resource investments to increase the uniqueness of human capital so they might strive to make human capital more valuable.  implement a sophisticated but easy to use, new knowledge sharing software so that managers can find more ways to demonstrate their support to employees who share their knowledge.  cascade knowledge management activities down to operational level.

Race

Conclusion and managerial implications

In this study, respondents mentioned that employees in these units most especially Indians and Coloureds held more negative view regarding the current knowledge management strategies and implementation of knowledge management strategies respectively. It is therefore, recommended that the municipality concerned should:  promote the diversification of the workforce in order to have access to different ideas and skills as it enhances the companies' competitive edge.  promote a cultural environment that is responsive to the employees' specific cultural needs and should put in place multicultural communication tools to overcome language and cultural barriers.  guide the radical cultural change for knowledge creation and knowledge sharing of all employees.  introduce workshops to promote the identification of commonalities and differences with the aim of promoting knowledge management components through diversity. The objective should be the broadening of perspectives and approaches that produce a competitive advantage through the effective management of diversity in the workforce.

The study reflects that the biographical profiles of employees (age, education, race, job level) influences their perceptions of the current knowledge management processes and strategies and their implementation and impact on effectiveness. The influence of age emphasizes that it is imperative to avoid the decay of employees‟ knowledge stocks at the individual level by striving to make knowledge, skills and capabilities more valuable, unique and available. The influence of education reinforces the needs to improve the connectivity among all employees. The impact of race adds to the urgency to promote the diversification of the workforce in order to have access to different ideas and skills and, enables the organisation to enhance its competitive edge. The influence of job level demands that knowledge management activities should be cascaded down to the operational level. The combined effect of the biographical variables dictates that organisations need to foster a culture that supports knowledge sharing and must provide salient incentives to recognise and encourage such interactions.

Tenure This study indicated that in these units studied, there is no relationship between tenure and the aforementioned knowledge management dimensions. It is however, recommended that the municipality concerned should:  formulate a retention strategy for the employees with knowledge to stay within the organization up to retirement age and beyond (where possible) in order to impart knowledge acquired to newly inexperienced employees.

Limitations and recommendations for future research Barriers and limitations were present in the research design and during the data collection phase of the research process whereby resistance was met from senior management to access information. Furthermore, due to the constraints of time and data availability, longitudinal research was not viable in this study, although it is the kind of study that will be valuable in the future. It is suggested that future research assesses whether managers can best encourage their employees to share knowledge with each other by acting as a role model, by rewarding desired behaviour, or with charismatic persuasion.

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