Stakeholder engagement and business performance for selected SMEs in Gauteng

Stakeholder engagement and business

performance for selected SMEs in Gauteng

G JOOSTE

Mini-dissertation submitted in partial fulfilment of the requirements

for the degree

MASTER IN BUSINESS ADMINISTRATION

at the

NORTH-WEST UNIVERSITY, POTCHEFSTROOM CAMPUS

Supervisor: Prof. Ines Nel

December 2010

NORTH-WEST UNIVERSITY

YUNIBESITI YA BOKONE-BOPHIRIMA NOORD'JVES-UNIVE RSITEIT

Stakeholder engagement and business

performance for selected SMEs in Gauteng

G JOOSTE

Mini-dissertation submitted in partial fulfilment of the requirements

for the degree

MASTER IN BUSINESS ADMINISTRATION

at the

NORTH-WEST UNIVERSITY, POTCHEFSTROOM CAMPUS

Supervisor: Prof. Ines Nel

December 2010

NORTH-WEST UNIVERSITY

YUNIBESITI YA BOKONE-BOPHIRIMA NOORD'JVES-UNIVERSITEIT

ABSTRACT

Stakeholder engagement, and specifically employee engagement has proven to have an influence on how companies perform and how value is created in organisations. Within the competitive world where Small and Medium Sized Enterprises (SMEs) are functioning, employee engagement can be the master key that unlocks better organisational performance.

The objective of this study is to research the influence of stakeholder engagement on business performance and value creation, and to identify factors that impact on stakeholder engagement. The processes that are in place to engage with employees and how value are created through employee engagement, are also investigated.

Studies have proven that successful employee engagement can have a positive influence on how businesses perform. The various factors that have an influence on employee engagement, are identified, including:

•

People.

•

Communication.

•

Work.

•

Rewards.

•

Opportunities.

•

Quality of life; and

•

Company practices.

The study found that engagement levels in selected SMEs in Gauteng are high and the results, as discussed in Chapter 3, are positive. It proves that a significant percentage of employees are engaged on the following levels:

1. Rational - this indicates how well employees understand their roles and

responsibilities in their various companies.

2. Emotional-this level indicates with how much passion employees work

and how passionate they are about their organisation.

3. Motivational - this indicates how willing employees are to give more than

is expected of them, and how hard they work to perform well on their roles and responsibilities.

ABSTRACT

Stakeholder engagement, and specifically employee engagement has proven to have an influence on how companies perform and how value is created in organisations. Within the competitive world where Small and Medium Sized Enterprises (SMEs) are functioning, employee engagement can be the master key that unlocks better organisational performance.

The objective of this study is to research the influence of stakeholder engagement on business performance and value creation, and to identify factors that impact on stakeholder engagement. The processes that are in place to engage with employees and how value are created through employee engagement, are also investigated.

Studies have proven that successful employee engagement can have a positive influence on how businesses perform. The various factors that have an influence on employee engagement, are identified, including:

•

People.

•

Communication.

•

Work.

•

Rewards.

•

Opportunities.

•

Quality of life; and

•

Company practices.

The study found that engagement levels in selected SMEs in Gauteng are high and the results, as discussed in Chapter 3, are positive. It proves that a significant percentage of employees are engaged on the following levels:

1. Rational - this indicates how well employees understand their roles and

responsibilities in their various companies.

2. Emotional-this level indicates with how much passion employees work

and how passionate they are about their organisation.

3. Motivational - this indicates how willing employees are to give more than

is expected of them, and how hard they work to perform well on their roles and responsibilities.

The results of the study can be used by companies to improve employee engagement and create value in their organisations - it can assist them in building a sustainable, competitive organisation.

Key words: Stakeholder engagement, employee engagement, business performance, SMEs, value creation, business processes.

The results of the study can be used by companies to improve employee engagement and create value in their organisations - it can assist them in building a sustainable, competitive organisation.

Key words: Stakeholder engagement, employee engagement, business performance, SMEs, value creation, business processes.

OPSOMMING

Die betrokkenheid van belanghebbendes - aandeelhouers en werknemers - kan 'n invloed he op die sukses van 'n maatskappy en hoe waarde geskep kan word.

Te midde van die kompeterende omgewing waar kleinsakeondernemings moet funksioneer, kan die manier hoe daar na werknemerbetrokkenheid omgesien word, die sleutel wees tot die sukses van In organisasie.

Die doelwit van hierdie studie is om die invloed van werknemerbetrokkenheid op 'n maatskappy se sukses te ondersoek, asook die faktore wat 'n invloed het op die vlak van werknemerbetrokkenheid. Hoe maatskappye waarde skep deur na werknemer­ betrokkenheid om te sien, word ook ondersoek.

Dit is bewys dat suksesvolle werknemerbetrokkenheid 'n positiewe invloed kan he op die sukses van In besigheid. Die faktore wat werknemerbetrokkenheid bernvloed, word ge"identifiseer as volg: • Mense. • Kommunikasie. • Werk. • Vergoeding. • Geleenthede. • Lewenskwaliteit; en • Maatskappybeleid.

Die afleiding dat werknemerbetrokkenheidsvlakke in kleinsakeondernemings in Gauteng hoog is, kan vanuit die studie gemaak word. Die uitslae is oor die algemeen positief en bewys dat werknemerbetrokkenheid op die volgende vlakke plaasvind:

1. Rasioneel - hoe goed werkers hul rol in die organisasie verstaan.

2. Emosioneel - met hoeveel passie werkers hul opdragte uitvoer en hoe passievol hulle is oor hul organisasie.

3. Motiverend - hoe gewillig werkers is om moeite te doen met hulle werk en hoe goed hul werk gedoen word.

OPSOMMING

Die betrokkenheid van belanghebbendes - aandeelhouers en werknemers - kan 'n invloed he op die sukses van 'n maatskappy en hoe waarde geskep kan word.

Te midde van die kompeterende omgewing waar kleinsakeondernemings moet funksioneer, kan die manier hoe daar na werknemerbetrokkenheid omgesien word, die sleutel wees tot die sukses van In organisasie.

Die doelwit van hierdie studie is om die invloed van werknemerbetrokkenheid op 'n maatskappy se sukses te ondersoek, asook die faktore wat 'n invloed het op die vlak van werknemerbetrokkenheid. Hoe maatskappye waarde skep deur na werknemer-betrokkenheid om te sien, word ook ondersoek.

Dit is bewys dat suksesvolle werknemerbetrokkenheid 'n positiewe invloed kan he op die sukses van In besigheid. Die faktore wat werknemerbetrokkenheid bernvloed, word ge"identifiseer as volg: • Mense. • Kommunikasie. • Werk. • Vergoeding. • Geleenthede. • Lewenskwaliteit; en • Maatskappybeleid.

Die afleiding dat werknemerbetrokkenheidsvlakke in kleinsakeondernemings in Gauteng hoog is, kan vanuit die studie gemaak word. Die uitslae is oor die algemeen positief en bewys dat werknemerbetrokkenheid op die volgende vlakke plaasvind:

1. Rasioneel - hoe goed werkers hul rol in die organisasie verstaan.

2. Emosioneel - met hoeveel passie werkers hul opdragte uitvoer en hoe passievol hulle is oor hul organisasie.

3. Motiverend - hoe gewillig werkers is om moeite te doen met hulle werk en hoe goed hul werk gedoen word.

Die uitslae van die studie kan gebruik word as hulpmiddel vir maatskappye wat werknemerbetrokkenheid wil verhoog en waarde wil skep in hul organisasies - dit kan hul help om 'n volhoubare en kompeterende besigheid te bou.

Sleutelwoorde: Aandeelhouerbelang, werknemerbetrokkenheid, besigheidsukses, kleinsakeondernemings, waardeskepping, besigheidsprosesse.

Die uitslae van die studie kan gebruik word as hulpmiddel vir maatskappye wat werknemerbetrokkenheid wil verhoog en waarde wil skep in hul organisasies - dit kan hul help om 'n volhoubare en kompeterende besigheid te bou.

Sleutelwoorde: Aandeelhouerbelang, werknemerbetrokkenheid, besigheidsukses, kleinsakeondernemings, waardeskepping, besigheidsprosesse.

TABLE OF

CONTENTS

ABSTRACT ... 11

OPSOMMING ...IV TABLE OF CONTENTS ...VI LIST OF FIGURES ...IX LIST OF DIAGRAMS ...IX LIST OF TABLES ...IX 1 CHAPTER 1 : INTRODUCTION ... 2

1.1 AN OVERViEW ... , ... 2

1.2 A SENSIBLE STRATEGY ... 4

1.3 THE USE OF BUSINESS PROCESSES ...

7

1.3.1 Perspectives of the Balance Score Card ... 8

1.4 PROBLEM DEFINITION ... 9

1.5 RESEARCH OBJECTIVES ... 10

1.6 RESEARCH METHODOLOGy ... 10

1.7 SCOPE OF THE STUDY ... 11

1.8 ASSUMPTIONS AND LIMITATIONS ... 11

1.9 STRUCTURE OF THE STUDy ... 12

2 CHAPTER 2: STAKEHOLDER ENGAGEMENT: AN OVERViEW ... 13

2.1 INTRODUCTION AND OVERViEW ... 13

2.2 VALUE BASED MANAGEMENT ... 14

2.2.1 Principles of VBM ... 14

2.3 STAKEHOLDER ENGAGEMENT ... 16

2.3.1 The definition of is engagement.. ... 17

2.3.2 The power of engagement.. ... 17

2.4 EMPLOYEE ENGAGEMENT ... 18 2.4.1 Background ... 18 2.4.2 Driving forces ... 25 _ _ _,2.4.2.1 People ... 26 _ _ _,2.4.2.2 Communication... 30

TABLE OF

CONTENTS

ABSTRACT ... 11 OPSOMMING ... IV TABLE OF CONTENTS ... VI LIST OF FIGURES ... IX LIST OF DIAGRAMS ... IX LIST OF TABLES ... IX 1 CHAPTER 1 : INTRODUCTION ... 2 1.1 AN OVERViEW ... , ... 2 1.2 A SENSIBLE STRATEGY ... 4

1.3 THE USE OF BUSINESS PROCESSES ...

7

1.3.1 Perspectives of the Balance Score Card ... 8

1.4 PROBLEM DEFINITION ... 9

1.5 RESEARCH OBJECTIVES ... 10

1.6 RESEARCH METHODOLOGy ... 10

1.7 SCOPE OF THE STUDY ... 11

1.8 ASSUMPTIONS AND LIMITATIONS ... 11

1.9 STRUCTURE OF THE STUDy ... 12

2 CHAPTER 2: STAKEHOLDER ENGAGEMENT: AN OVERViEW ... 13

2.1 INTRODUCTION AND OVERViEW ... 13

2.2 VALUE BASED MANAGEMENT ... 14

2.2.1 Principles of VBM ... 14

2.3 STAKEHOLDER ENGAGEMENT ... 16

2.3.1 The definition of is engagement.. ... 17

2.3.2 The power of engagement.. ... 17

2.4 EMPLOYEE ENGAGEMENT ... 18

2.4.1 Background ... 18

2.4.2 Driving forces ... 25

_ _ _ ,2.4.2.1 People ... 26

_ _ _ _2.4.2.3 Work... 34

_ _ _ _ _.2.4.2.4 Rewards ... 36

_ _ _ _ _2.4.2.5 Opportunities ... 39

_ _ _ _2.4.2.6 Quality of life ...40

________2.4.2.7 Company practices ... 43

2.4.3 When engagement isn't enough ... 45

2.5 BUSINESS PERFORMANCE ... 46

2.5.1 Focus on engagement ... 46

2.5.2 How to measure business performance and success ... 47

3 CHAPTER 3: DATA ANALYSIS, FINDINGS AND DISCUSSIONS ...•.•... 49

3.1 Introduction ... 49

3.2 EMPIRICAL RESEARCH DESIGN ... 50

3.2.1 Measuring instrument ... 50

3.2.2 Data Preparation ... 52

3.2.3 Responses ... 52

3.2.4 Statistical analysis ... 52

3.3 Research findings ... 55

3.3.1 Demographics of the respondents ... 55

3.3.2 Explanatory questions ... 59

3.3.3 Reliability ... 63

3.3.4 Practical significant relationships ... 64

________3.3.4.1 Relationship between the level of education and people ... 65

_ _ _ _ _.3.3.4.2 Relationship between the level of education and communication ... 65

Relationship between the level of education and rewards and recognition ... 66

_ _ _ _ _3.3.4.4Relationship between the number of people working in the company and company practices ...66

_ _ _ _ _3.3.4.5 Relationship between the numbers of years the company has been in operation and people ...66

3.4 SUMMARY ... 67

4 CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS ... 68

4.1 INTRODUCTION ... 68

4.2 RESULTS AND CONCLUSION OF MAIN GOAL. ... 68

4.2.1 RESEARCH RESULTS ... 69

4.3 RESULTS AND CONCLUSION OF SUB-OBJECTIVE 1: ... 70

4.4 RESULTS AND CONCLUSION OF SUB-OBJECTIVE 2: ... 71

4.5 RESULTS AND CONCLUSION OF SUB OBJECTIVE

3: ...

72

_ _ _ _ 2.4.2.3 Work ... 34

_ _ _ _ _ .2.4.2.4 Rewards ... 36

_ _ _ _ _ 2.4.2.5 Opportunities ... 39

_ _ _ _ 2.4.2.6 Quality of life ... 40

________ 2.4.2.7 Company practices ... 43

2.4.3 When engagement isn't enough ... 45

2.5 BUSINESS PERFORMANCE ... 46

2.5.1 Focus on engagement ... 46

2.5.2 How to measure business performance and success ... 47

3 CHAPTER 3: DATA ANALYSIS, FINDINGS AND DISCUSSIONS ...•.•... 49

3.1 Introduction ... 49

3.2 EMPIRICAL RESEARCH DESIGN ... 50

3.2.1 Measuring instrument ... 50

3.2.2 Data Preparation ... 52

3.2.3 Responses ... 52

3.2.4 Statistical analysis ... 52

3.3 Research findings ... 55

3.3.1 Demographics of the respondents ... 55

3.3.2 Explanatory questions ... 59

3.3.3 Reliability ... 63

3.3.4 Practical significant relationships ... 64

_________ 3.3.4.1 Relationship between the level of education and people ... 65

_ _ _ _ _ .3.3.4.2 Relationship between the level of education and communication ... 65

Relationship between the level of education and rewards and recognition ... 66

_ _ _ _ _ 3.3.4.4Relationship between the number of people working in the company and company practices ... 66

_ _ _ _ _ 3.3.4.5 Relationship between the numbers of years the company has been in operation and people ... 66

3.4 SUMMARY ... 67

4 CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS ... 68

4.1 INTRODUCTION ... 68

4.2 RESULTS AND CONCLUSION OF MAIN GOAL. ... 68

4.2.1 RESEARCH RESULTS ... 69

4.3 RESULTS AND CONCLUSION OF SUB-OBJECTIVE 1: ... 70

4.4 RESULTS AND CONCLUSION OF SUB-OBJECTIVE 2: ... 71

4.6 RECOMMENDATIONS ... 72

4.7 SUGGESTIONS FOR FURTHER STUDIES ... 74

REFERENCES ... 75

APPENDIX 1: QUESTIONNAIRE ... 82

4.6 RECOMMENDATIONS ... 72

4.7 SUGGESTIONS FOR FURTHER STUDIES ... 74

REFERENCES ... 75

LIST

OF

FIGURES

FIGURE 1.1: VALUE BASED MANAGEMENT FRAMEWORK (ITTNER & LARCKER. 2001 :353) ... 5

FIGURE 1.2: THE BALANCED SCORECARD (KAPLAN & NORTON. 1996:76)... 7

FIGURE 2.1: TYPICAL EMPLOYEE ENGAGEMENT DISTRIBUTION (FEDERMAN. 2009:20)... 20

FIGURE 2.2: FACTORS DRIVING EMPLOYEE ENGAGEMENT (Source: OWN) ... 25

FIGURE 4.1: EMPLOYEE ENGAGEMENT GUIDELINE (Source: OWN) ... 73

LIST

OF

DIAGRAMS

DIAGRAM 3.1 : RESPONDENTS GENDER ...55

DIAGRAM 3.2: RESPONDENTS AGE ...56

DIAGRAM 3.3: RESPONDENTS LEVEL OF EDUCATION ...56

DIAGRAM 3.4: RESPONDENTS ETHNICITY ...57

DIAGRAM 3.5: HOW MANY PEOPLE WORK IN THE RESPONDENTS' ORGANISATION? ...57

DIAGRAM 3.6: HOW LONG HAS THE RESPONDENTS' COMPANIES BEEN IN OPERATION ... 58

DIAGRAM 3.7: HOW LONG HAVE THE RESPONDENTS BEEN MEMBERS OR THEIR ORGANISATIONS? ...58

DIAGRAM 3.8: HOW LONG HAVE THE RESPONDENTS BEEN ECONOMICALLY ACTIVE? ... 59

LIST

OF

TABLES

TABLE 3.1: VALUE CREATION ...59

TABLE 3.2: PERFORMANCE MANAGEMENT ...60

TABLE 3.3: COMPANY PRACTICES ...61

TABLE 3.4: PEOPLE ...61

TABLE 3.5: COMMUNICATION ...61

TABLE 3.6: WORK ...62

TABLE 3.7: REWARDS & RECOGNITION ...62

TABLE 3.8: OPPORTUNITIES ...63

TABLE 3.9: QUALITY OF LIFE ...63

TABLE 3.10: RELIABILITY OF THE DIFFERENT FACTORS ...64

TABLE 3.11: CORRELATION BETWEEN FACTORS and selected Demographics ...65

LIST

OF

FIGURES

FIGURE 1.1: VALUE BASED MANAGEMENT FRAMEWORK (ITTNER & LARCKER. 2001 :353) ... 5

FIGURE 1.2: THE BALANCED SCORECARD (KAPLAN & NORTON. 1996:76) ... 7

FIGURE 2.1: TYPICAL EMPLOYEE ENGAGEMENT DISTRIBUTION (FEDERMAN. 2009:20) ... 20

FIGURE 2.2: FACTORS DRIVING EMPLOYEE ENGAGEMENT (Source: OWN) ... 25

FIGURE 4.1: EMPLOYEE ENGAGEMENT GUIDELINE (Source: OWN) ... 73

LIST

OF

DIAGRAMS

DIAGRAM 3.1 : RESPONDENTS GENDER ... 55

DIAGRAM 3.2: RESPONDENTS AGE ... 56

DIAGRAM 3.3: RESPONDENTS LEVEL OF EDUCATION ... 56

DIAGRAM 3.4: RESPONDENTS ETHNICITY ... 57

DIAGRAM 3.5: HOW MANY PEOPLE WORK IN THE RESPONDENTS' ORGANISATION? ... 57

DIAGRAM 3.6: HOW LONG HAS THE RESPONDENTS' COMPANIES BEEN IN OPERATION ... 58

DIAGRAM 3.7: HOW LONG HAVE THE RESPONDENTS BEEN MEMBERS OR THEIR ORGANISATIONS? ... 58

DIAGRAM 3.8: HOW LONG HAVE THE RESPONDENTS BEEN ECONOMICALLY ACTIVE? ... 59

LIST

OF

TABLES

TABLE 3.1: VALUE CREATION ... 59

TABLE 3.2: PERFORMANCE MANAGEMENT ... 60

TABLE 3.3: COMPANY PRACTICES ... 61

TABLE 3.4: PEOPLE ... 61

TABLE 3.5: COMMUNICATION ... 61

TABLE 3.6: WORK ... 62

TABLE 3.7: REWARDS & RECOGNITION ... 62

TABLE 3.8: OPPORTUNITIES ... 63

TABLE 3.9: QUALITY OF LIFE ... 63

TABLE 3.10: RELIABILITY OF THE DIFFERENT FACTORS ... 64

1 CHAPTER 1 : INTRODUCTION

1.1

AN OVERVIEW

While trying to step out of what is arguably one of the worst economic recessions in 70 years, it is clear that the business climate companies have to operate within, is more complex, volatile and interconnected than ever before. Companies face complex goals where it is required to provide customers with differentiated experiences, while the cost of delivering the experience should be reduced. Companies are required to show growth, while continuing to manage the bottom line and keep costs down. Technology and the rise of social media is a factor that could be used to drive efficiency, but it should be done without sacrificing the personal connection to customers, employees and other stake holders. There is, however, one common element that enables organisations to move forward in this complex environment - people (Towers Perrin, 2008:1).

People are a critical source of skills and knowledge and employee and customer loyalty may give any company a sustainable competitive advantage. If companies invest time and effort in their people, it could have a positive influence on business performance.

Within the competitive world that companies have to operate and manage ideas, employee engagement is emerging as the master key that unlocks business performance. Successive research exercises over the past five or six years have shown that without engagement, companies will fail to continuously create a sustainable competitive advantage (Pickard, 2009:18).

Employee engagement approaches can help companies to deal with the challenges of the recession because by establishing trust, it can unlock more of the knowledge and commitment of individual employees, for example, developing ways of performing tasks more effectively and efficiently. Engagement can enable organisations to retain the employees' support while taking and implementing difficult decisions (Noakes, 2009).

1 CHAPTER 1 : INTRODUCTION

1.1

AN OVERVIEW

While trying to step out of what is arguably one of the worst economic recessions in 70 years, it is clear that the business climate companies have to operate within, is more complex, volatile and interconnected than ever before. Companies face complex goals where it is required to provide customers with differentiated experiences, while the cost of delivering the experience should be reduced. Companies are required to show growth, while continuing to manage the bottom line and keep costs down. Technology and the rise of social media is a factor that could be used to drive efficiency, but it should be done without sacrificing the personal connection to customers, employees and other stake holders. There is, however, one common element that enables organisations to move forward in this complex environment - people (Towers Perrin, 2008:1).

People are a critical source of skills and knowledge and employee and customer loyalty may give any company a sustainable competitive advantage. If companies invest time and effort in their people, it could have a positive influence on business performance.

Within the competitive world that companies have to operate and manage ideas, employee engagement is emerging as the master key that unlocks business performance. Successive research exercises over the past five or six years have shown that without engagement, companies will fail to continuously create a sustainable competitive advantage (Pickard, 2009:18).

Employee engagement approaches can help companies to deal with the challenges of the recession because by establishing trust, it can unlock more of the knowledge and commitment of individual employees, for example, developing ways of performing tasks more effectively and efficiently. Engagement can enable organisations to retain the employees' support while taking and implementing difficult decisions (Noakes, 2009).

Seijts and Crim (2006:1) say that companies should be concerned about the level of engagement in the workplace. The most recent results of employee engagement studies indicate that:

• Only 29% of employees are actively engaged in their jobs. Those

employees work with passion and feel a profound connection to their company. People that are actively engaged help move the organisation forward.

• 54% of employees are not engaged. These employees have essentially "checked out," sleepwalking through the workday and putting time - but not passion - into work.

• 17% of employees are actively disengaged. These employees portray unhappiness, undermining what engaged co-workers are trying to accomplish.

From the information above it is clear that there's a need for effective employee engagement in order to influence business performance.

MacLeod and Clarke (2009:10) stipulate that despite the debate about what the precise meaning of employee engagement is, it can still be measured and when a company have engaged employees, it should have a positive influence on performance. What makes it important as a tool for business success, is the fact that employees have a big influence on the different levels of engagement.

Towers Watson (2009:1) states that employee engagement encompasses three dimensions:

1. Rational - how well employees understand roles and responsibilities. 2. Emotional-how much passion is brought to work and the organisation. 3. Motivational - how willing employees are to invest discretionary effort to perform roles well.

From research, it has been established that there is not an agreed upon definition of employee engagement, but according to a quite few sources it is the degree to which a person commits to, and the impact the cornmitment has on performance and the length of occupancy with an organisation (Federman, 2009:33). It can also be explained as employee willingness and ability to contribute to company success. It's the extent to Seijts and Crim (2006:1) say that companies should be concerned about the level of engagement in the workplace. The most recent results of employee engagement studies indicate that:

• Only 29% of employees are actively engaged in their jobs. Those

employees work with passion and feel a profound connection to their company. People that are actively engaged help move the organisation forward.

• 54% of employees are not engaged. These employees have essentially "checked out," sleepwalking through the workday and putting time - but not passion - into work.

• 17% of employees are actively disengaged. These employees portray unhappiness, undermining what engaged co-workers are trying to accomplish.

From the information above it is clear that there's a need for effective employee engagement in order to influence business performance.

MacLeod and Clarke (2009:10) stipulate that despite the debate about what the precise meaning of employee engagement is, it can still be measured and when a company have engaged employees, it should have a positive influence on performance. What makes it important as a tool for business success, is the fact that employees have a big influence on the different levels of engagement.

Towers Watson (2009:1) states that employee engagement encompasses three dimensions:

1. Rational - how well employees understand roles and responsibilities. 2. Emotional-how much passion is brought to work and the organisation. 3. Motivational - how willing employees are to invest discretionary effort to perform roles well.

From research, it has been established that there is not an agreed upon definition of employee engagement, but according to a quite few sources it is the degree to which a person commits to, and the impact the cornmitment has on performance and the length of occupancy with an organisation (Federman, 2009:33). It can also be explained as employee willingness and ability to contribute to company success. It's the extent to

which employees "go the extra mile" and put discretionary effort into work - contributing more energy, creativity and passion to the job. Frauenheim (2009:9) states that it refers to the level of commitment workers make to employers, seen in the willingness to stay at the company and go beyond the call of duty. Gatenby, Soane and Truss (2009:10) is of opinion that engagement is about creating opportunities for employees to connect with colleagues, managers and the wider organisation. It is also about creating an environment where employees are motivated and want to connect with and really care about doing a good job. It is a concept that places flexibility, change and continuous improvement at the heart of what it means to be an employee and an employer in a twenty-first century workplace.

Companies will function optimally when its employees' commitment, potential, creativity and capability are central to the operation. How employees behave at work can make the crucial difference between business and operational success or failure. However, people in an organisation are not the only measure for success and cannot function in isolation, therefore financial means and a sensibly strategy are also vital (MacLeod & Clarke, 2009:7).

1.2 A SENSIBLE STRATEGY

A sensible strategy to follow would be Value Based Management (VB M), as it builds upon a shared set of core values. It offers a logical framework for designing a company's structures and processes to instil a culture that would allow the company to function optimally (ESOP Association:1998).

The approach builds on preceding practices to provide an integrated framework for measuring and managing businesses, with the explicit objective of creating sustainable value (lttner & Larcker, 2001 :352). Although VBM frameworks vary between companies, it generally includes six basic steps. As shown in Fig.1.1, these steps include:

• ChOOSing speCific internal objectives that lead to stakeholder value enhancement. • Selecting strategies and organisational design consistent with the achievement of

the chosen objectives.

which employees "go the extra mile" and put discretionary effort into work - contributing more energy, creativity and passion to the job. Frauenheim (2009:9) states that it refers to the level of commitment workers make to employers, seen in the willingness to stay at the company and go beyond the call of duty. Gatenby, Soane and Truss (2009:10) is of opinion that engagement is about creating opportunities for employees to connect with colleagues, managers and the wider organisation. It is also about creating an environment where employees are motivated and want to connect with and really care about doing a good job. It is a concept that places flexibility, change and continuous improvement at the heart of what it means to be an employee and an employer in a twenty-first century workplace.

Companies will function optimally when its employees' commitment, potential, creativity and capability are central to the operation. How employees behave at work can make the crucial difference between business and operational success or failure. However, people in an organisation are not the only measure for success and cannot function in isolation, therefore financial means and a sensibly strategy are also vital (MacLeod & Clarke, 2009:7).

1.2 A SENSIBLE STRATEGY

A sensible strategy to follow would be Value Based Management (VB M), as it builds upon a shared set of core values. It offers a logical framework for designing a company's structures and processes to instil a culture that would allow the company to function optimally (ESOP Association:1998).

The approach builds on preceding practices to provide an integrated framework for measuring and managing businesses, with the explicit objective of creating sustainable value (lttner & Larcker, 2001 :352). Although VBM frameworks vary between companies, it generally includes six basic steps. As shown in Fig.1.1, these steps include:

• ChOOSing speCific internal objectives that lead to stakeholder value enhancement. • Selecting strategies and organisational design consistent with the achievement of

•

Identify the specific performance variables or value drivers that actually create value in the business.

•

Developing action plans, selecting performance measures and setting targets.

•

Evaluating the success of the action plans and conducting organisational and performance evaluations.

•

Assessing the ongoing validity of the organisation's internal objectives, strategies, plans and control systems in light of current results, and modifying them as required.

FIGURE 1.1: VALUE BASED MANAGEMENT FRAMEWORK (ITTNER & LARCKER, 2001:353).

It is concluded that if a company has a strategy in place for engaging with stakeholders, it enables all people in the company to perform to the highest standards. In order to engage effectively with employees, it is recognised that it can only happen if workers feel respected, involved, heard, well led and valued by the companies they work for and with (MacLeod & Clarke, 2009:7).

The results from a recent study done by an American-based company, Towers Perrin, show that every leading indicator of financial performance rise in tandem with an

•

•

•

•

Identify the specific performance variables or value drivers that actually create value in the business.

Developing action plans, selecting performance measures and setting targets.

Evaluating the success of the action plans and conducting organisational and performance evaluations.

Assessing the ongoing validity of the organisation's internal objectives, strategies, plans and control systems in light of current results, and modifying them as required.

FIGURE 1.1: VALUE BASED MANAGEMENT FRAMEWORK (ITTNER & LARCKER, 2001:353).

It is concluded that if a company has a strategy in place for engaging with stakeholders, it enables all people in the company to perform to the highest standards. In order to engage effectively with employees, it is recognised that it can only happen if workers feel respected, involved, heard, well led and valued by the companies they work for and with (MacLeod & Clarke, 2009:7).

The results from a recent study done by an American-based company, Towers Perrin, show that every leading indicator of financial performance rise in tandem with an

increase in engagement. The conclusion is that more engaged employees care more about the quality of work that is delivered to the company (Towers Perrin, 2008:5). According to Pickard (2009: 19) there is sufficient studies and conclusive evidence to demonstrate a correlation between employee engagement and business performance. Employee engagement can be a key to unlocking productivity and transforming the working lives of many people. It can also play a significant role in boosting economic recovery.

If it is correct that effective employee engagement can contribute towards business performance as well as positively influence organisational success and how value in an organisation is created, it is necessary to research factors that could assist in increasing employee engagement for companies. It is proposed that the existence of employee engagement and high employee buy-in into ownership of a company will increase business performance. The proposition is also made that the development and mapping of business processes for employee engagement throughout a company will assist to increase business performance and value creation. It is therefore necessary to determine what the relationship is between successful stake holder engagement, business performance and value creation.

The most successful organisations understand that the purpose of any business is to create value for customers, employees and investors, and that the interests of these three groups are inextricably linked. Therefore, sustainable value cannot be created for one group unless it is created for all of them. The first focus should be on creating value for the customer, but this cannot be achieved unless the right employees are selected, developed, and rewarded, and unless investors consistently receive attractive returns.

Value for employees includes being treated respectfully and being involved in decision­ making. Employees also value meaningful work, excellent compensation opportunities and continued training and development (O'Malley, 1998).

Business processes are defined as a continuous series of tasks undertaken for the purpose of creating output. There are many reasons why business processes can possibly contribute towards business performance, such as optimising efficiency, knowledge sharing and process documentation for certification and standardisation.

Business processes are necessary to find the optimal way of producing products or delivering services (Sheer, 1999:3-6).

increase in engagement. The conclusion is that more engaged employees care more about the quality of work that is delivered to the company (Towers Perrin, 2008:5). According to Pickard (2009: 19) there is sufficient studies and conclusive evidence to demonstrate a correlation between employee engagement and business performance. Employee engagement can be a key to unlocking productivity and transforming the working lives of many people. It can also play a significant role in boosting economic recovery.

If it is correct that effective employee engagement can contribute towards business performance as well as positively influence organisational success and how value in an organisation is created, it is necessary to research factors that could assist in increasing employee engagement for companies. It is proposed that the existence of employee engagement and high employee buy-in into ownership of a company will increase business performance. The proposition is also made that the development and mapping of business processes for employee engagement throughout a company will assist to increase business performance and value creation. It is therefore necessary to determine what the relationship is between successful stake holder engagement, business performance and value creation.

The most successful organisations understand that the purpose of any business is to create value for customers, employees and investors, and that the interests of these three groups are inextricably linked. Therefore, sustainable value cannot be created for one group unless it is created for all of them. The first focus should be on creating value for the customer, but this cannot be achieved unless the right employees are selected, developed, and rewarded, and unless investors consistently receive attractive returns.

Value for employees includes being treated respectfully and being involved in decision-making. Employees also value meaningful work, excellent compensation opportunities and continued training and development (O'Malley, 1998).

Business processes are defined as a continuous series of tasks undertaken for the purpose of creating output. There are many reasons why business processes can possibly contribute towards business performance, such as optimising efficiency, knowledge sharing and process documentation for certification and standardisation.

Business processes are necessary to find the optimal way of producing products or delivering services (Sheer, 1999:3-6).

1.3 THE USE OF BUSINESS PROCESSES

The use of a business process like the balanced scorecard (BSC) would enable organisations to measure employee engagement. The BSC is a strategic planning and management system that is used extensively in businesses worldwide to align business activities to the vision and strategy of the organisation, improve internal and external communications and monitor organisation performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement to traditional financial metrics tool, to give managers and executives a more 'balanced' view of business performance. Figure 1.2 is adapted from Kaplan and Norton (1996:76).

Kaplan and Norton (1996:76) describe the innovation of the BSC as follows: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

Fi

nancia

l

Cu

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Processes Vision and Strategy l earning Growth

FIGURE 1.2: THE BALANCED SCORECARD (KAPLAN & NORTON, 1996:76).

1.3 THE USE OF BUSINESS PROCESSES

The use of a business process like the balanced scorecard (BSC) would enable organisations to measure employee engagement. The BSC is a strategic planning and management system that is used extensively in businesses worldwide to align business activities to the vision and strategy of the organisation, improve internal and external communications and monitor organisation performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement to traditional financial metrics tool, to give managers and executives a more 'balanced' view of business performance. Figure 1.2 is adapted from Kaplan and Norton (1996:76).

Kaplan and Norton (1996:76) describe the innovation of the BSC as follows: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

Cu

stomer

Fi

nancia

l

Vision and Strategy learning Growth Processes

1.3.1 Perspectives of the Balance Score Card

The balanced scorecard suggests that the company is viewed from four perspectives, and to develop metrics, collect data and analyse it relative to each of these perspectives (Kaplan & Norton, 1996).

• Learning and Growth

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker company, people - the only source of knowledge - are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge-workers to be in a continuous learning mode. Learning and growth provide the essential foundation for success of any knowledge-worker company.

Kaplan & Norton (1996) emphasise that 'learning' is more than 'training' - it also includes mentors and tutors within the company, as well as ease of communication among workers that allow them to readily get help on a problem when it is needed.

• Business Process

This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission).

• Customer Perspective

Recent management philosophy has shown an increasing realisation of the importance of customer focus and customer satisfaction in any company. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.

• Financial Perspective

Kaplan & Norton (1996) do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. The current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include

1.3.1 Perspectives of the Balance Score Card

The balanced scorecard suggests that the company is viewed from four perspectives, and to develop metrics, collect data and analyse it relative to each of these perspectives (Kaplan & Norton, 1996).

• Learning and Growth

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker company, people - the only source of knowledge - are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge-workers to be in a continuous learning mode. Learning and growth provide the essential foundation for success of any knowledge-worker company.

Kaplan & Norton (1996) emphasise that 'learning' is more than 'training' - it also includes mentors and tutors within the company, as well as ease of communication among workers that allow them to readily get help on a problem when it is needed.

• Business Process

This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission).

• Customer Perspective

Recent management philosophy has shown an increasing realisation of the importance of customer focus and customer satisfaction in any company. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.

• Financial Perspective

Kaplan & Norton (1996) do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. The current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include

additional financial-related data, such as risk assessment and cost-benefit data, in this category.

There is a range of variables to be considered when the relationship between employee engagement, business performance and value creation is considered. For the purpose of this study, business performance will be measured by the ability of the company to create shareholder value with employee engagement, ownership and buy-in in the company.

This chapter provides the background to the study as well as the problem statement and objectives. The study will include literature research before the proposition - i.e. that effective employee engagement will positively contribute towards business performance and value creation - will be tested.

Companies that will be part of the study will be chosen from attendees to SME (Small and Medium Enterprise) workshops in Gauteng.

The study will identify how companies engage with employees and how they manage to create value in their organisations. The results can assist companies to implement systems and processes to engage with employees and create value and by doing so, assist them in establishing a sustainable, competitive company.

South Africa can, by establishing more successful companies, alleviate poverty by creating more jobs. If employee engagement will positively influence business performance and value creation, and by doing so contribute to South African economic growth, it is necessary to research the factors that influence engagement levels and proposed methods and processes for companies to engage successfully with employees and create value.

1.4 PROBLEM DEFINITION

There is a need to increase business success rates in South Africa. From what could be gathered by intensive research, various success factors for businesses have been researched, but the factors impacting on employee engagement and the effect of additional financial-related data, such as risk assessment and cost-benefit data, in this category.

There is a range of variables to be considered when the relationship between employee engagement, business performance and value creation is considered. For the purpose of this study, business performance will be measured by the ability of the company to create shareholder value with employee engagement, ownership and buy-in in the company.

This chapter provides the background to the study as well as the problem statement and objectives. The study will include literature research before the proposition - i.e. that effective employee engagement will positively contribute towards business performance and value creation - will be tested.

Companies that will be part of the study will be chosen from attendees to SME (Small and Medium Enterprise) workshops in Gauteng.

The study will identify how companies engage with employees and how they manage to create value in their organisations. The results can assist companies to implement systems and processes to engage with employees and create value and by doing so, assist them in establishing a sustainable, competitive company.

South Africa can, by establishing more successful companies, alleviate poverty by creating more jobs. If employee engagement will positively influence business performance and value creation, and by doing so contribute to South African economic growth, it is necessary to research the factors that influence engagement levels and proposed methods and processes for companies to engage successfully with employees and create value.

1.4 PROBLEM DEFINITION

There is a need to increase business success rates in South Africa. From what could be gathered by intensive research, various success factors for businesses have been researched, but the factors impacting on employee engagement and the effect of

employee engagement on business performance of companies in South Africa have not been researched.

From the literature it is obvious and intuitively rational to expect that a positive relationship should exist between stakeholder engagement, company performance and business value creation. Within in the context of business success and sustainability the issue is whether stakeholder engagement and specifically employee engagement can, by creating a competitive advantage, contribute significantly to the performance of organisations and how value is created over the long term.

1.5

RESEARCH OBJECTIVES

The study is conducted from a both a literature and empirical perspective with study goals as listed below.

Primary objective

The primary objective of the study is to investigate the impact of employee engagement on business performance and value creation for selected SMEs in Gauteng.

Secondary objective

The secondary objective is to determine the different factors that have an influence on engagement levels and business value creation.

This study will aim to research the following:

1. The factors impacting on employee engagement. 2. The existence of processes to engage with employees.

3. Whether SMEs in Gauteng are able to create value through employee engagement.

1.6

RESEARCH METHODOLOGY

The study will be done through literature research (theoretical study) and an empirical study. The method of research will involve completion of questionnaires by various SMEs. A range of questions will be asked, including the years the company has been in employee engagement on business performance of companies in South Africa have not been researched.

From the literature it is obvious and intuitively rational to expect that a positive relationship should exist between stakeholder engagement, company performance and business value creation. Within in the context of business success and sustainability the issue is whether stakeholder engagement and specifically employee engagement can, by creating a competitive advantage, contribute significantly to the performance of organisations and how value is created over the long term.

1.5

RESEARCH OBJECTIVES

The study is conducted from a both a literature and empirical perspective with study goals as listed below.

Primary objective

The primary objective of the study is to investigate the impact of employee engagement on business performance and value creation for selected SMEs in Gauteng.

Secondary objective

The secondary objective is to determine the different factors that have an influence on engagement levels and business value creation.

This study will aim to research the following:

1. The factors impacting on employee engagement. 2. The existence of processes to engage with employees.

3. Whether SMEs in Gauteng are able to create value through employee engagement.

1.6

RESEARCH METHODOLOGY

The study will be done through literature research (theoretical study) and an empirical study. The method of research will involve completion of questionnaires by various SMEs. A range of questions will be asked, including the years the company has been in

operation, questions on communication levels and existing processes or maps in place for stakeholder engagement.

A literature study will be done to direct the empirical study. The various concepts of employee engagement, business performance and value creation will be researched through the use of academically acclaimed, journals, articles and some books. All material collected will be tested for validity and reliability.

Terms and definitions of employee engagement, business performance and value creation as determined through the literature study will be researched.

The ultimate objective of the study is to determine whether or not a relationship exists between employee engagement, business performance and how value is created within an organisation.

The empirical research will be based on the findings of the literature research. A questionnaire will be developed in accordance with the literature research and completed by employees and owners of different companies that are participating in the study.

1.7 SCOPE OF THE STUDY

The study will research how SME companies in Gauteng interact with employees and what processes are in place to engage effectively with employees, as well as the effect thereof on business performance and value creation. It will also measure how employee morale, management involvement, workers' understanding of company needs, how employees advocate for the company and the confidence workers have in leaders and senior management are influenced by employee engagement.

1.8 ASSUMPTIONS AND LIMITATIONS

The assumption is made that all the respondents of the questionnaires are employees or owners of an SME company in Gauteng. It is also assumed that the respondents understood all the questions and gave honest answers.

operation, questions on communication levels and existing processes or maps in place for stakeholder engagement.

A literature study will be done to direct the empirical study. The various concepts of employee engagement, business performance and value creation will be researched through the use of academically acclaimed, journals, articles and some books. All material collected will be tested for validity and reliability.

Terms and definitions of employee engagement, business performance and value creation as determined through the literature study will be researched.

The ultimate objective of the study is to determine whether or not a relationship exists between employee engagement, business performance and how value is created within an organisation.

The empirical research will be based on the findings of the literature research. A questionnaire will be developed in accordance with the literature research and completed by employees and owners of different companies that are participating in the study.

1.7 SCOPE OF THE STUDY

The study will research how SME companies in Gauteng interact with employees and what processes are in place to engage effectively with employees, as well as the effect thereof on business performance and value creation. It will also measure how employee morale, management involvement, workers' understanding of company needs, how employees advocate for the company and the confidence workers have in leaders and senior management are influenced by employee engagement.

1.8 ASSUMPTIONS AND LIMITATIONS

The assumption is made that all the respondents of the questionnaires are employees or owners of an SME company in Gauteng. It is also assumed that the respondents understood all the questions and gave honest answers.

The study is limited to SMEs operating in the Gauteng province, South Africa and does not include companies that operate outside of the province. It is also limited to SMEs and does not include companies outside this criterion.

1.9 STRUCTURE OF THE STUDY

Chapter 1: Introduction.

This chapter outlines the background of the study. The problem statement is formulated and the research objectives, methods and more general information are given.

Chapter 2: The literature research: Stakeholder engagement.

Chapter 2 provides the study with a theoretical background. The chapter researches stakeholder engagement, employee engagement and value based management. The different factors that influence employee engagement are also discussed.

Chapter 3: Empirical research: Data analysis, findings and discussion.

In chapter 3 the results of the research and questionnaires are discussed. How companies create value through employee engagement, are analysed.

Chapter 4: Recommendations and conclusions.

In this chapter a summary of what the research has found, is presented. The findings are discussed in specific relation to the objectives that was set and recommendations are made.

The study is limited to SMEs operating in the Gauteng province, South Africa and does not include companies that operate outside of the province. It is also limited to SMEs and does not include companies outside this criterion.

1.9 STRUCTURE OF THE STUDY

Chapter 1: Introduction.

This chapter outlines the background of the study. The problem statement is formulated and the research objectives, methods and more general information are given.

Chapter 2: The literature research: Stakeholder engagement.

Chapter 2 provides the study with a theoretical background. The chapter researches stakeholder engagement, employee engagement and value based management. The different factors that influence employee engagement are also discussed.

Chapter 3: Empirical research: Data analysis, findings and discussion.

In chapter 3 the results of the research and questionnaires are discussed. How companies create value through employee engagement, are analysed.

Chapter 4: Recommendations and conclusions.

In this chapter a summary of what the research has found, is presented. The findings are discussed in specific relation to the objectives that was set and recommendations are made.

2 CHAPTER 2: Stakeholder engagement: An overview

2.1 INTRODUCTION AND OVERVIEW

The effect of global and technological change has made companies recognise that in order to survive and succeed there needs to be changes in they way business is done. Companies are seeking more flexible ways for rewarding and motivating their employees while costs are controlled and higher levels of value delivered to customers and other stakeholders (ESOP Association, 1998).

Employees are a critical source of skills and knowledge, able to create a sustainable competitive advantage for a company. The latter is specifically true, it seems, if employees are allowed, motivated, empowered and want to pledge and apply personal skills and knowledge to the benefit of employers. Notwithstanding, the perception exists that very few organisations are tapping into this source and achieve the results that can be obtained by full investment in the workforce.

Companies are realising that a new way of thinking is required in order to create a competitive advantage and establish a sustainable company. A new way of thinking would not reject the important role of systems, but would redesign systems in order to put its employees first. It would recreate the management approach that makes the workplace more human. It would shift power, responsibility and control over modern tools and advanced organisational systems from the few to every person that is affected by the process (ESOP Association, 1998).

Every company exists to serve a purpose and to create value. In order to do that, a lot of time, effort, investments, assets and resources are used. That is why it makes business sense to ensure, manage, measure, monitor, encourage and support these resources in order to ensure that maximum value is realised. Value Based Management (VBM) will enable companies to do that (www.valuebasedmanagement.net).

2 CHAPTER 2: Stakeholder engagement: An overview

2.1 INTRODUCTION AND OVERVIEW

The effect of global and technological change has made companies recognise that in order to survive and succeed there needs to be changes in they way business is done. Companies are seeking more flexible ways for rewarding and motivating their employees while costs are controlled and higher levels of value delivered to customers and other stakeholders (ESOP Association, 1998).

Employees are a critical source of skills and knowledge, able to create a sustainable competitive advantage for a company. The latter is specifically true, it seems, if employees are allowed, motivated, empowered and want to pledge and apply personal skills and knowledge to the benefit of employers. Notwithstanding, the perception exists that very few organisations are tapping into this source and achieve the results that can be obtained by full investment in the workforce.

Companies are realising that a new way of thinking is required in order to create a competitive advantage and establish a sustainable company. A new way of thinking would not reject the important role of systems, but would redesign systems in order to put its employees first. It would recreate the management approach that makes the workplace more human. It would shift power, responsibility and control over modern tools and advanced organisational systems from the few to every person that is affected by the process (ESOP Association, 1998).

Every company exists to serve a purpose and to create value. In order to do that, a lot of time, effort, investments, assets and resources are used. That is why it makes business sense to ensure, manage, measure, monitor, encourage and support these resources in order to ensure that maximum value is realised. Value Based Management (VBM) will enable companies to do that (www.valuebasedmanagement.net).

2.2 VALUE BASED MANAGEMENT

Discounted future cashflows are used to determine the value of a company. When capital are invested at returns that exceed the cost of capital, value are created. By focusing on how companies use Value Base Management (VBM) to make major strategic and everyday operating decisions, the concepts are extended. If it's properly implemented, VBM can be an approach for management to align a company's management processes, analytical techniques and overall aspirations. Management can then focus their decision making on the key drivers of value (Koller, 1994:87).

2.2.1 Principles of VBM

VBM gives attention to improved decision making in an organisation, across all levels. It is not a staff-driven experiment and it gives regocnition to the fact that top-down command-and-controll is not effective, and therefore it's suggested that managers should use value-based performance metrics to make better decisions. Management of the balance sheet, income statement and balancing of the long- and short-term percpectives are included in VBM.

VBM can bring tremendous benefit to an organisation, if it's implemented effectively. It works and can be compared to restructuring to achieve maximum value on a continuing basis. VBM can improve economic perfocmance and it has huge impact, Koller (1994:87).

When VBM are effective, an organisation's management processes will be able to provide decision makers on all the different levels with correct information and rewards to make decisions that will create value. The processes and systems that are set in place by managers will encourage employees and managers to always behave in a manner that will maximise the value of the company. When communication that surrounds planning, target setting, performance measurement and incentive systems are closely connected to value creation, it will work effectively (Koller, 1994:89).

VBM is a systematic approach that enables each member of the company to: • Participate fully as a worker and owner in the company.

• Receive a fair distribution based on what he or she contributes to the company as a worker and owner.

2.2 VALUE BASED MANAGEMENT

Discounted future cashflows are used to determine the value of a company. When capital are invested at returns that exceed the cost of capital, value are created. By focusing on how companies use Value Base Management (VBM) to make major strategic and everyday operating decisions, the concepts are extended. If it's properly implemented, VBM can be an approach for management to align a company's management processes, analytical techniques and overall aspirations. Management can then focus their decision making on the key drivers of value (Koller, 1994:87).

2.2.1 Principles of VBM

VBM gives attention to improved decision making in an organisation, across all levels. It is not a staff-driven experiment and it gives regocnition to the fact that top-down command-and-controll is not effective, and therefore it's suggested that managers should use value-based performance metrics to make better decisions. Management of the balance sheet, income statement and balancing of the long- and short-term percpectives are included in VBM.

VBM can bring tremendous benefit to an organisation, if it's implemented effectively. It works and can be compared to restructuring to achieve maximum value on a continuing basis. VBM can improve economic perfocmance and it has huge impact, Koller (1994:87).

When VBM are effective, an organisation's management processes will be able to provide decision makers on all the different levels with correct information and rewards to make decisions that will create value. The processes and systems that are set in place by managers will encourage employees and managers to always behave in a manner that will maximise the value of the company. When communication that surrounds planning, target setting, performance measurement and incentive systems are closely connected to value creation, it will work effectively (Koller, 1994:89).

VBM is a systematic approach that enables each member of the company to: • Participate fully as a worker and owner in the company.

• Receive a fair distribution based on what he or she contributes to the company as a worker and owner.