Assessing value–based management implementation in a mining company

Assessing value-based management

implementation in a mining company

JC Maree

23207795

Mini-dissertation submitted in partial

fulfilment of the

requirements for the degree Magister

in

Business

Administration at the Potchefstroom Campus of the

North-West University

Supervisor:

Prof I Nel

ABSTRACT

Value-based management (VBM) is a business philosophy and management system for competing effectively in the global marketplace, based upon the inherent value, dignity and empowerment of each person particularly each employee, customer and supplier.

Although VBM has been implemented in an organisation, the difficulty remains that the employees/workers do not necessarily understand the mechanics of VBM, or their actions in value creation.

The main objective of this study is to determine if the employees/workers of the mining organisation understand the basic concepts of VBM, where it has been implemented and to determine whether or not VBM has been successfully implemented within a mining organisation.

This was done by collecting data using a standardised questionnaire distributed among the mining company‟s employees.

The results from the study indicated that VBM in general was successfully implemented but that lower lever employees is less informed on certain aspects of VBM.

TABLE OF CONTENTS

ABSTRACT ii

LIST OF ABBREVIATIONS vi

LIST OF FIGURES vii

LIST OF TABLES vii

CHAPTER 1

INTRODUCTION

1.4 RESEARCH DESIGN AND METHODOLOGY 3

1.4.1 Literature study 3

1.4.2 Empirical study 4

1.5 SCOPE OF STUDY 4

1.6 LIMITATIONS OF STUDY 4

1.7 LAYOUT 4

CHAPTER 2

LITERATURE STUDY

2.1 INTRODUCTION 6

2.2 DEFINING VALUE-BASED MANAGEMENT (VBM) 6

2.3 STRATEGY 9

2.4 VALUE DRIVERS 10

2.5 METRICS 11

2.5.1 Shareholder value analysis (SVA) 11

2.5.2 Economic value added (EVA) 12

2.5.3 Rate of return on invested capital (ROIC) 13

2.5.4 Cash flow return on Investment (CFROI) 13

2.5.5 Discounted free cash flow valuation (DCF) 14

2.6 MANAGING FOR SHAREHOLDER VALUE 15

2.6.1 Governance and ownership 15

2.6.2 Remuneration 15

2.6.3 Culture 16

2.6.4 Structure 17

2.7 IMPLEMENTATION OF VBM 18

CHAPTER 3

VALUE-BASED MANAGEMENT: THE ANGLO

PLATINUM CASE STUDY

3.1 INTRODUCTION 21

3.2 MINING IN SOUTH AFRICA 21

3.3 PLATINUM GROUP METALS (PGM) 22

3.4 MINING AND PROCESSING OF PGMs 23

3.5 COMPANY BACKGROUND 23

3.6 VBM AT ANGLO PLATINUM 24

CHAPTER 4

RESEARCH: ANGLO PLATINUM CASE

4.1 INTRODUCTION 26 4.2 RESEARCH METHODOLOGY 26 4.2.1 Questionnaire Development 26 4.2.2 Data collection 27 4.3 RESULTS 27 4.3.1 Demographic information 27

4.3.2 Frequency results for section B (Group 1&2) 28 4.3.3 Frequency results for section C (Group 1&2) 29 4.3.4 Frequency results for section D (Group 1&2) 30 4.3.5 Frequency results for section E (Group 1&2) 31 4.3.6 Frequency results for section B (Group 3&4) 32 4.3.7 Frequency results for section C (Group 3&4) 32 4.3.8 Frequency results for section D (Group 3&4) 33 4.3.9 Frequency results for section E (Group 3&4) 34

4.3.10 Summary of frequency results 35

4.4 FACTOR ANALYSIS 36

4.5 EFFECT SIZE 37

4.5.1 Cohen‟s d: Senior & line management and general staff 38 4.5.2 Cohen‟s d: Mining staff and support services 41

CHAPTER 5

CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION 45

5.2 RESULT AND CONCLUSION ON MAIN OBJECTIVE 45

5.2.1 Results 45

5.2.2 Conclusion 45

5.3 RESULTS AND CONCLUSION OF SUB OBJECTIVES 45

5.4 RECOMMENDATIONS 47

REFERENCES 48

APPENDICES 53

1. Questionnaire 54

2. Results of questionnaire 58

LIST OF ABBREVIATIONS

BU Business Unit

CFROI Cash flow return on investment COSTCAP Cost of capital

CV Current value

DCF Discounted free cash flow valuation EVA Economic value added

FCF Free cash flow

GDP Gross domestic product

HR Human resources

Ir Iridium

JSE Johannesburg Stock Exchange

K Discount rate

KD(A-T) Cost after debt after taxes KP Cost of preferred stock

Ks Cost of common equity

MRM Mineral resource management NOPAT Net operating profit after taxes

Os Osmium

Pd Palladium

PGM Platinum Group Metals

Pt Platinum

Rh Rhodium

ROIC Rate of return on invested capital

Ru Ruthenium

SHE Safety, health and environmental SVA Shareholder value analysis

TV Terminal value

VBM Value-based Management WACC Weighted average cost of capital

WC Weight of common equity

WD Weight of debt

LIST OF FIGURES

LIST OF TABLES

Table 4.1 Senior & line management vs. General staff: Knowledge of concepts Table 4.2 Senior & line management vs. General staff: Financial matters Table 4.3 Senior & line management vs. General staff: VBM Implementation Table 4.4 Senior & line management vs. General staff: Management commitment Table 4.5 MRM vs. Support staff: Knowledge of concepts

Table 4.6 MRM vs. Support staff: Financial matters Table 4.7 MRM vs. Support staff: VBM Implementation Table 4.8 MRM vs. Support staff: Management commitment Table 4.9 Factor Analysis

Table 4.10 Grouping of respondents between management levels and general workers

CHAPTER 1

STUDY ORIENTATION

Adam Smith (1776) wrote “Of all those expensive and uncertain projects, however, which bring bankruptcy upon the greater part of the people who engage in them, there is none perhaps more ruinous than the search after new silver and gold mines. Projects of mining, instead of replacing the capital employed in them, together with the ordinary profits of stock, commonly absorb both capital and profit.”

Crucial to the success of any mining company is the ability to effectively manage the capital investment made so as to ensure acceptable stakeholder returns. A Business philosophy that can be used to measure the returns or value is Value-based Management (VBM).

VBM is a business philosophy and management system for competing effectively in the global marketplace, based upon the inherent value, dignity and empowerment of each person particularly each employee, customer and supplier (Cesj, 1998).

The value of a company is determined by the discounted value of its future cash flows. From the latter one may derive that value is created only when companies invest capital at returns that exceed the cost of that capital. VBM extends the concept by focusing on how companies use it to make both major strategic and everyday operating decisions. Properly executed, it is an approach to management that aligns a company‟s overall aspirations, analytical techniques, and management processes to focus management decision making on the key drivers of value (Koller 2005:86).

Reinforced by a VBM system and culture of ownership, workers become empowered to make better decisions, discipline their own behaviour, and work together more effectively as a team. Because each person contributes, risks and shares as an

owner, as well as a worker, VBM helps unite everyone's self-interest around the company's bottom-line and corporate values (Cesj, 1998).

Although VBM has been implemented in an organisation, the difficulty remains that the employees/workers do not necessarily understand the mechanics of VBM, or their actions in value creation.

VBM is not new to the mining industry and has been practised in a variety of forms for several years. VBM as a process:

 Provides a set of metrics and a logic framework for value and prioritization discussions;

 Ensures alignment of objectives, establishes a common language, standards, and processes to align decisions and actions;

 Provides a common approach to setting goals, identifying issues and opportunities, making decisions, allocating resources, and taking action;

 Creates a common set of tools and approaches to understand sources and drivers of value, to prioritize issues and evaluate options (Smith, 2012).

1.2 PROBLEM STATEMENT

If VBM has been practised in the mining industry for several years and has been implemented successfully in a mining organisation, the employees/workers of the mining organisation should:

 understand the mechanics of VBM,

 their actions in value creation,

 discipline their own behaviour, and

 work together more effectively as a team.

Each employee/worker should contribute risk and share as an owner of the mining organisation.

In contrast recent articles in newspapers read:

 “…wildcat walkouts in gold and platinum mines…” (Marcus, 2013);

 “The impact of strikes in mining… will have long-term effects on the economy…” (The M&amp, 2012); and

 “This year‟s outlook for South African mining is bleak” …” (lol, 2013).

1.3 GOALS AND OBJECTIVES OF THE STUDY

1.3.1 Main goal

The main goal of this study is to determine if the employees/workers of the mining organisation understand the basic concepts of VBM, where it has been implemented.

1.3.2 Sub objectives

 The conceptualisation of the VBM framework

It is important to gain an understanding of and form an opinion on the definition and characteristics of VBM and the related metrics. The VBM framework needs to be understood from concept to successful implementation.

 To determine whether or not VBM has been successfully implemented within a mining organisation.

1.4 RESEARCH METHODOLOGY

The research methods envisaged are:

1.4.1 Literature study

A literature study will be done to provide a conceptualization of VBM. The literature study focuses on the following:

• VBM definitions, principles and metrics;

• Benefits/advantages/criticisms of using VBM.

1.4.2 Empirical study

The exposure of workers/employees to VBM will be determined through questionnaires. The aim of the questionnaires will be to determine if workers/employees:

 Have a working knowledge of VBM;

 Have been exposed to implementation steps of VBM; and

 Are dedicated to the successful functioning of VBM.

1.5 SCOPE OF THE STUDY

The field of study for this research is financial management. This study will not focus on the entire organisation, but will describe the VBM process at a specific mining operation.

1.6 LIMITATIONS OF THE STUDY

There are certain limitations to this research. The findings of the research are based on questionnaires of a sample of employees across the organisation and might not represent the entire organisation.

1.7 LAYOUT OF THE STUDY

Chapter 1: Introduction

Chapter 1 sets the context of why the specific research topic was chosen. In this chapter, the problem statement is formulated and the research goals, research methods, and limitations are given.

Chapter 2: Literature study: Value-based Management

The aim of this chapter will be to provide a theoretical background to VBM, Factors of success implementation of VBM; and benefits/advantages/criticisms of using VBM.

Chapter 3: VBM at Anglo Platinum

The aim of this chapter is to give a brief background of the mining and processing of Platinum Group Metals (PGMs). The chapter also provides a brief background of Anglo Platinum and explains briefly how Anglo Platinum has gone about to implement and measure VBM.

Chapter 4: Empirical study

In this chapter the results of the research on the current knowledge and need for VBM related information within the organisation are discussed. In this chapter the second primary goal is addressed, namely to determine the use of and exposure to VBM and related principles within the organisation.

Chapter 5: Conclusions and recommendations

In the last chapter a summary of the research is provided. Specific findings and conclusions derived from the research are discussed in more detail. Recommendations on the use of VBM and the application of VBM at the lower levels of the organisation are also made within this chapter.

CHAPTER 2

LITERATURE STUDY

2.1 INTRODUCTION

The aim of this chapter is to provide a theoretical background to VBM.

The chapter consists of the following section:

 Defining VBM.

o Strategy – Value creation;

o Metrics – Value Measurement; and

o Management – Governance, remuneration, culture and structure.

 Implementation of VBM.

2.2 DEFINING VALUE-BASED MANAGEMENT

No clear definition exists for VBM, various definitions exist. Ameels (2002:6) grouped the most popular definitions of VBM as:

 Outcomes :

o “A driving philosophy is to maximize shareholder value by producing returns in excess of the cost of capital” (Simms, 2001:34).

o “A framework for measuring and managing businesses to create superior long-term value for shareholders” (Ronte, 1998:38).

o “A framework for measuring and managing businesses to create superior long-term value for shareholders. Rewards are measured in terms of enhanced share price performance and dividend growth.” (Marsh, 1999:58).

o „A management philosophy which uses analytical tools and processes to focus an organisation on the single objective of creating shareholder value.” (Condon & Goldstein, 1998:10).

o „A new way for managing, focused on the creation of real value not paper profits. Real value is created when a company makes returns

that fully compensate investors for the total costs involved in the investment, plus a premium that more than compensates for the additional risk incurred.” (Christopher & Ryals, 1999:2).

o “The notion that the central objectives for all public traded companies is to maximize shareholder value because it offers companies a logical and systematic way to pursue improvements in shareholder value, and it has received considerable media coverage in the business press.” (Bannister & Jesuthasan, 1997:12).

o “A term that describes a management philosophy based on managing a firm with Economic Value Creation principles.” (Armitage & Fog, 1996:21).

 A combination of processes and outcomes:

o “A combination of beliefs, principles and processes that effectively arm the company to succeed in the battle against competition from the outside and the institutional imperative from the inside. These beliefs, principles and processes form the basis of a systematic approach to achieving the company‟s governing objective.” (Mc Taggart & Kontes, 1994:26).

o “VBM aligns strategies, policies, performance, measures, rewards, organisation, processes, people, and systems to deliver increased shareholder value” (Black, Wright & Bachman, 1998:292).

o “A managerial approach in which the primary purpose is shareholder wealth maximisation. The objective of the firm, its systems, strategy, processes, analytical techniques, performance measurements and culture as their guiding objective shareholder wealth maximisation.” (Arnold, 1998:1050).

o “A management approach which puts shareholder value creation at the centre of the company philosophy. The maximization of shareholder value directs company strategy, structure and processes; it governs executive remuneration and dictates what measures are used to monitor performance.” (KPMG Consulting, 1999:20).

o “The key to increased shareholder value lies in the integration of strategic planning, performance measurement and compensation.”

o “A different way of focusing an organisation‟s strategic and financial management processes” (Anonymous, 1998:10).

 Processes :

o “A holistic management approach that encompasses redefined goals, redesigned structures and systems, rejuvenated strategic and operational processes, and revamped human-resources practices.” (Boulos, Haspeslagh & Noda, 2001:62)

Shareholder value is created by generating future returns for equity investors which exceed the returns that those investors could expect to earn elsewhere. The belief is that these excess returns will be reflected within the share price of the company. The returns are measured in terms of cash flow, and the cost of capital is used to charge for the use of the capital invested. In essence, the idea is that if you manage your business to add to your shareholder value, then you also improve the value of your shareholders‟ investment, and this is consistent with the organisational objective of maximising shareholders‟ wealth (Minchington, 2000:23).

From the above definitions of VBM the key elements of creating (strategy), measuring (metrics) and managing (management) shareholder value emerge.

Cooper, Crowther, Davies & Davies (2001) as cited by Starovic, Cooper and Davis (2004:22), summarise the advantages and disadvantages associated with the adoption of the techniques of VBM as follows:

Advantages

 Provides a common language – usable internally and externally.

 Powerful comparative tool – in terms of benchmarking competitive performance.

 Useful for resource allocation – better discrimination between value-creating and value-destroying investment.

 Positive effect on financial performance – achieved through reductions in capital base.

 Regarded as very useful tool to help management focus upon value drivers; and

 Helps create more shareholder value by getting more accountability for discrete business units.

Disadvantages

 Different forms of VBM and methods complicate task;

 Relatively disappointing at the subordinate business level because of the difficulty of forecasting value;

 Managerial costs of implementation the degree of complexity in the calculation was a limitation;

 Difficult to translate the financial measures into operating customer measures; and

 Technical measurement difficulties –such as the cost of capital.

2.3 STRATEGY

Strategy is a statement of goals and plans for the entire organisation. It is a big and important plan which states the direction that executives or senior management wants the organisation to be heading. Besides defining the direction of the organisation, it is concerned with such issues as organisational strengths and weaknesses, its overall performance, competitor analysis, industry changes and uncontrollable external factors such as economic crisis and war (Anderson 1988; Gray, Salter & Radehaugh 2001; Wheelen & Hunger 2000). Strategic control is the process of deciding on the goals and the strategies for attaining these goals after taking into consideration the capabilities, resources, structure and system of the organisation (Sakunasingha, 2006:15).

Understanding value drivers and their interactions is, without doubt, the hardest part of developing strategy (Starovic et al., 2004:7).

2.4 VALUE DRIVERS

According to Koller (2005:91) an important part of VBM is the understanding of value drivers. An organisation cannot influence the value of the company, if the variable that affects the value of the company is not understood.

The level of detail of value drivers must also be consistent with the decision making capabilities of line managements. Koller (2005:91) suggests the following levels:

 Generic;

 Business unit ;

 Grass roots, where value drivers are precisely defined and tied to specific decisions that front-line managers have under their control.

The levels of value drivers can graphically be presented as follows:

Figure 2.1: Value drivers

Level 1 Generic Level 2 Business-unit

Specific

(examples)

Level 3 Operational

(examples)

Revenue Customer mix Sales force productivity

(expenses against revenue)

Per cent accounts revolving Dollars per visit

Unit revenues Margin

Cost Fixed cost / allocations Capacity management

Operational yield

Billable hours to total payroll hours

Per cent capacity utilized Cost per delivery ROIC

Working capital

Accounts receivable terms and timing

Accounts payable terms and timing Invested capital Fixed capital (Source: Koller 2005:91)

Identifying key value drivers requires an organisation to relook at their processes in a different way. Existing reporting systems may not be equipped to supply the necessary information. Mechanical approaches based on available information or purely financial measures rarely succeed. Each value drivers cannot be considered in isolation, for example, a price increase might, boost value but not if it results in substantial loss of market share. Koller (2005:91) suggest that a creative process is needed to identify the key value drivers, with much trial and error involved.

2.5 METRICS

From the concept of shareholder value and how this can be created and sustained, a number of “value metrics” were developed, the most significant being:

 Shareholder value analysis (SVA);

 Economic value added (EVA®);

 Rate of return on invested capital (ROIC);

 Cash flow return on investment (CFROI); and

 Discounted free cash flow valuation (DCF).

2.5.1 Shareholder value analysis (SVA)

SVA is the future free cash flows discounted to a present value at the company‟s cost of capital, less the company„s debt (Minchington 2000:26). Ameels (2002:21) formulated it as:

SVA = (Present value of cash flow from operations during the forecast period + residual value + marketable securities) - Debt

Sakunasingha (2006:54) interpreted the formula as “the value creation of an investment at rates in excess of the cost of capital rate required by the capital market”, formulated as:

SVA = Change in NOPAT / K(1+K)t-1 – Present value of incremental investment

Where the increase in net operating profit after taxes (NOPAT) is capitalized each year and discounted back to the present, at the discount rate (K). SVA is obtained by subtracting the present value of incremental investment from the present value of the capitalized NOPAT increase.

2.5.2 Economic value added (EVA®)

EVA is based on the concept of „residual income‟ or economic profits. The residual income or economic profits differ from accounting profits and can according to (Sakunasingha, 2006:55): be explained as follows:

Accounting profits

= sales – cost of goods sold – operating expenses – interest expenses – taxes

Economic profits or Residual income:

= sales – cost of goods sold – operating expenses – interest expenses – taxes – charge for all capital used

= net operating profits after taxes – charge for all capital used

Economic Value Added (EVA) in comparison is according to (Stewart, 1991:23) computed as:

EVA = Net operating profits after taxes – (Cost of capital x beginning CAPITAL)

= NOPAT – (WACC x CAPITAL)

Where NOPAT is the company‟s operating profits after taxes but before financing costs and noncash entries except depreciation; WACC the company‟s weighted

average cost of capital. CAPITAL is capital in the company at the beginning of the year such as accounts payable, accrual wages and taxes.

Alternatively, EVA is expressed as:

EVA = (ROIC – WACC) x CAPITAL

Where ROIC = NOPAT / CAPITAL and ROIC is the return on invested capital for year one.

2.5.3 Rate of Return on Invested Capital (ROIC):

ROIC is the ratio of net operating profits less adjusted taxes (NOPAT) to its invested capital (Koller et al., 2000:166). It is expressed as:

ROIC = NOPAT

CAPITAL

Where NOPAT is the earnings before interest and taxes less cash taxes, CAPITAL is the amount invested in the operations of an organisation.

2.5.4 Cash Flow Return on Investment (CFROI):

CFROI represents a cash-based measure, converting all accounting profits into cash flows. CFROI method relies completely on cash flows and recognizes the life over which assets will produce cash flows (Frykman & Tolleryd, 2003:11). Expressed as:

Where CF is the inflation-adjusted annual cash flow, TV is the inflation-adjusted terminal value of all future cash flows from year n to infinity and n is the average economic life of the firm‟s assets.

2.5.5 Discounted free cash flow valuation (DCF)

The company value is calculated as all the future free cash flow streams discounted back to today using the appropriate cost of capital (Koller et al. 2000:41). The formula for the DCF model is:

Where CV is the corporate value, TV is the terminal value, FCF is future free cash flows, WACC is constant weighted average cost of capital, g is growth rate of the free cash flow and n is number of years in the explicit period.

Discounted free cash flow valuation (DCF method) consists of two major components:

 free cash flow (FCF); and

 cost of capital (COSTCAP).

Cash flow from operations represents the difference between operating cash inflows and outflows (Brigham & Houston, 2004). These cash flows are relevant for estimating the firm‟s value since it represents cash available to compensate all investors, which are both debt holders and shareholders. These available cash flows are called “free cash flow” (Copeland, Koller & Murrin, 2000:41).

The cost of capital is an economic concept, where the cost is based on the opportunity cost of the invested capital. The appropriate rate for discounting the cash flow stream is the weighted average of the cost of debt and equity capital (Martin & Petty, 2000:183). The cost of capital is expressed as:

Where WD is the weight of debt in capital structure, WP is the weight of preferred stock in capital structure, WC is the weight of common equity in capital structure, KD(A-T) is the cost of debt after taxes, KP is the cost of preferred stock, and KS is the cost of common equity

2.6 MANAGING FOR SHAREHOLDER VALUE

2.6.1 Governance and ownership

The agency theory focuses on the agency relationship between the owners of a company (the principal) and the managers of the company (the agent). This is given the assumption that agents are motivated by self-interest, necessary to ensure an efficient alignment in interests (Ameels, 2002:5). This alignment in interests can be sub-divided into two main problems:

 The agency problem rests on the assumption that the desires and goals of the agents and principals can conflict; and that it is difficult or expensive for the principal to monitor what the agent is doing (Eisenhardt, 1989:58); and

 The problem of risk sharing is based on the assumption that the principal and the agent have also different attitudes towards risks, which explains their different courses of action (Shankman, 1999:320).

“Shareholder value drives a wedge between those who create the economic performance and those who harvest its benefits. Those who create the benefits are disengaged from the ownership of efforts, and treated as dispensable, while those who own the enterprise treat that ownership as dispensable and so disengage themselves from its activities.” (Mintzberg, 2002:68)

2.6.2 Remuneration

A method to address the agency problem is to allow employees to share directly in the benefits they helped create, by linking rewards to a long-term growth in value (Starovic et al., 2004:17).

According to Chingos (2002:42) the objective of VBM-based compensation plans is to reward employees for acting like shareholders, by designing cash and equity-based plans that simulate the risks and rewards of ownership. In these plans, a portion of the sustained value creation is shared with employees through annual and long-term incentives. From this philosophy, several key principles of plan design can be derived.

 The “rewards of ownership” are measured in terms of absolute performance. VBM-based incentives set performance standards that are empirically derived from shareholder expectations.

 VBM plans reward sustained value creation. This implies a long-term performance measurement period.

 The rewards of ownership are potentially unlimited.

 VBM incentives incorporate downside risk as well as upside opportunity. The methodologies used to ensure that sustainable performance is rewarded must allow for the reversal of accrued awards when economic value is destroyed. The plan‟s ability to produce large awards when substantial value is created and to reduce rewards when value is destroyed is critical to establishing an ownership mentality; and

 Measuring VBM performance at the lowest possible units of measure is a key success factor. Measuring economic profit at a corporate level does not provide accurate line-of-sight for most employees. Incentives designed to directly measure the lowest appropriate levels improve line-of-sight while maintaining focus on creating value for the company as a whole. Where appropriate, the components of the chosen VBM metric value drivers may be used to fund or distribute incentives.

2.6.3 Culture

Creating value is a continuous cycle, supported by strategic and operational decisions made throughout the company, embedded into company culture (Starovic et al., 2004:19).

Culture has been defined as “that complex whole which includes knowledge, belief, art, morals, law, custom, and any other capacities and habits acquired by man as a member of society” (Tylor, 1924:52). In organisations, culture encompasses all of the implicit norms and ways of behaving that direct employee actions.

Starovic et al. (2004:19) highlights five elements of cultural transformation shared by companies where VBM programmes have been successful.

 Nearly all made an explicit commitment to shareholder value.

 Through training, they created an environment receptive to the changes that the programme would engender.

 They reinforced the training with broad-based incentive systems that were closely tied to the VBM performance measures and which gave employees throughout the company a sense of ownership in both the company and the programme.

 They were willing to make major organisational changes that would allow workers to make value creating decisions; and

 The changes introduced to the company‟s systems and processes were broad and inclusive rather than focused narrowly on financial reports.

2.6.4 Structure

Structure tries to align different parts of the organisation with the overall strategic direction and doing so in a way that makes strategic choices visible. Research has confirmed that a shared commitment to the VBM philosophy plays a key role in promoting inter-functional co-ordination in companies (Roslender & Hart, 2003:271). It requires different functions to move away from exclusive or silo approaches to managing the organisation in favour of a more inclusive perspective (Starovic et al., 2004:19).

2.7 IMPLEMENTATION OF VBM

Starovic et al. (2004:22) states that implementing VBM is not easy, either conceptually or in practice, because:

 most companies have competing priorities, making the discipline of VBM difficult to apply;

 lack the resources or commitment. Implementation is usually costly and mostly initially implemented by consultants, at a significant expense. Investment in training is high and the opportunity cost of time devoted to the programme; and

 VBM implementation is disruptive (culture), especially if there is a need for extensive restructuring. Deliberately creating a spotlight designed to expose those parts of a business that do not create value is going to generate fear and disquiet among staff.

Even for companies that do experience success in implementing VBM, sustaining initial gains is a challenge. It is easy to lose focus and go back to the old ways of managing. If the process of implementation is drawn out and comes in a long line of initiative, there is a risk of change fatigue setting in. Staff can become cynical and view VBM as just another consultant-driven fad (Starovic et al., 2004:22).

According to Koller (1994:100) putting a VBM system in place is a long and complex process, but successful implementation share the common features:

 Establish explicit, visible top management support.

 Focus on better decision-making among operating (not just financial) personnel.

 Achieve critical mass by building skills in a wide cross-section of the company.

 Tightly integrate the VBM approach with all elements of planning.

 Underemphasize methodological issues and focus on practical applications.

 Use strategic issue analyses that are tailored to each business unit rather than a generic approach.

 Ensure the availability of crucial data (e.g. business-unit balance sheets).

 Provide standardized, easy-to-use valuation templates and report formats to facilitate the submission of management reports.

 Tie incentives to value creation; and

 Require that capital and human resource requests be value-based.

Minchington (2000:29) found three types of difficulty which are associated with the implementation of these new measures in practice:

 Awareness difficulties: Possible lack of awareness of new measures, despite very active promotion by the management consultants.

 Technical difficulties: The barriers to implementation include technical difficulties, such as the establishment of the cost of capital and the capital asset base; and

 Organisational difficulties: Organisational barriers, such as time, and resistance to change. Organisations may encounter cultural and political difficulties in trying to gain acceptance and ownership of the new measures.

According to Martin and Petty (2001:2) successful VBM programs have common attributes:

 Top management support – genuine commitment not simply token involvement.

 Links to compensation.

 Investment of time and money in educating the firms workforce about how the program works; and

 Simplicity valued over complexity.

2.8 CONCLUSION

VBM refers to a framework and a set of performance measurement tools for building and maximizing long-term shareholder value. VBM is, in theory, all-encompassing and includes corporate strategy, management compensation issues and detailed

internal control and reward systems, all designed to link employee performance to shareholder value. Effective use of VBM should span all levels of the corporation and have an impact on all employees (Sakunasingha, 2006:9).

CHAPTER 3

VALUE-BASED MANAGEMENT: THE ANGLO PLATINUM

CASE STUDY

3.1 INTRODUCTION

The aim of this chapter is to provide a background of:

 Mining in South Africa;

 Platinum group metals (PGMs);

 Mining process;

 Anglo Platinum; and

 VBM at Anglo Platinum.

3.2 MINING IN SOUTH AFRICA

South Africa‟s mineral reserves is some of the world‟s most valuable, estimated at R20.3-trillion ($2.5-trillion), with the world‟s largest reserves of manganese and platinum group metals (PGMs). South Africa is estimated to have the world‟s fifth-largest mining sector in terms of GDP value and produces about 70% of all the newly mined platinum in the world. Five of the largest platinum-producing mines in the world are in South Africa (South Africa, 2013:1).

According to the Chamber of Mines of South Africa, mining accounted for:

 19% of private sector investment and 11.9% of total investment in the economy in 2012; and

 24.7% (R1.8 trillion) of the All-Share Index and 24.4% (R1.9 trillion) of the equities market capitalisation, at end 2012 on the Johannesburg Securities Exchange (JSE) (Chamber of Mines of South Africa, 2013:2).

South Africa‟s mineral sales consisted of PGMs (R69.2 billion), coal (R96.1 billion) gold (R76.8 billion), iron ore (R52.6 billion), chrome ore (R8.3 billion) and

manganese (R10.8 billion). Gold, PGMs, iron ore and coal accounted for 81% of South Africa‟s total mineral sales in 2012 (Chamber of Mines of South Africa, 2013:2).

In 2012, the PGM mining industry generated R69 billion in sales and was responsible for 23% of the country‟s mining exports (Chamber of Mines of South Africa, 2013:33).

3.3 PLATINUM GROUP METALS (PGM)

Platinum is found with 5 other Platinum Group Metals (Angloplatinum, 2013:1).

Platinum group metals (PGMs) are found as a compound which includes six pure metals with high melting points:

 platinum (Pt),

 palladium (Pd),

 rhodium (Rh),

 iridium (Ir),

 osmium (Os) and

 ruthenium (Ru); as well as gold and base metals such as nickel, copper and cobalt.

Platinum group metals (Pt, Pd and Rh) oxidation and reduction (ability to stay stable at high temperatures) properties make the ideal metals for automotive catalytic converter applications (Bafokengplatinum, 2013a:1).

3.4 MINING AND PROCESSING OF PGM

The opening of a platinum group metal (PGM) mine consist of the following key stages:

 Exploration drilling

 Mine development and construction

Mine development involves preparing and construction of infrastructure in preparation of ore extraction.

 Mining

Most platinum mining takes place underground and extraction is therefore a labour-intensive process. Miners bore holes with hand-held pneumatic devices and then blast with explosives to obtain the ore.

 Ore transportation

The transportation of ore from underground to the surface.

 Crushing and milling

Ore is crushed and milled to smaller rock particles, exposing PGM particles.

 Flotation and drying

The PGM particles are mixed with water and special reagents, with air passing through the liquid in a 'froth flotation' process. The PGM-rich particles float to the surface and are removed as a soapy-looking froth. The concentrate is then dried.

 Smelting and refining

After drying, the concentrate is smelted in an electric furnace at over 1,500ºC during which a matte containing the valuable metals is separated from the waste (Bafokengplatinum, 2013b:1).

3.5 COMPANY BACKGROUND

Platinum mining in South Africa regards Anglo American Platinum the industry leader in the mining, marketing, and distribution of the precious mineral. Operating within platinum mining in South Africa, as well as other platinum group metals, Anglo Platinum produces 40% of the world‟s total platinum group metals. Other key

platinum mining in South Africa companies include the likes of BHP Billiton and Impala Platinum (Projectsiq, 2013:1).

Anglo American Platinum Limited is listed on the JSE and has its headquarters in Johannesburg, South Africa (AngloPlatinum, 2013:1.)

3.6 VBM AT ANGLO PLATINUM

“In 2008 one of the key initiatives was to restructure the mining operations of Anglo American Platinum into more efficient stand-alone units. The new structures allowed operational management to meet the safety, labour, and technical challenges of the mining environment. Larger mines were split into smaller new entities, to ensure the focused and VBM of assets. These improvements supported a sustainable reduction in the unit cost of production and underpinned the company‟s commitment to extracting maximum value from its assets.” (Anglo Platinum Limited 2008, 2009:1)

The new mind set, culture and advantaged decision-making capabilities of VBM was instilled during 2008 throughout the organisation. The key focus areas addressed were:

Beliefs:

 The governing objective of a corporation should be to maximise value;

 The value of each Business Unit (BU) and the overall corporation can and should be explicitly managed; and

 The value of the corporation reflects the collective value of its BUs plus any affiliation benefits from being part of the overall Group.

Principles:

 A common language, standards, and processes are used to align decisions and actions across the company and over time.

Processes & Tools:

 An integrated approach to setting targets, creating the facts, identifying issues & opportunities, developing alternatives, making decisions, allocating resources, and taking action; and

 A set of tools and techniques to understand the sources and drivers of value, prioritise issues, and evaluate alternatives.

Five requirements were identified to maximise value:

 Clear definition of what it means to “win” in both the product and capital markets.

 Shared understanding of the sources and drivers of profitable growth

o A granular understanding of where and why economic profit pools exist and what drives advantage.

 Focused value improvement and delivery agendas,

 Differentiated business models and differential allocation of resources

o Deciding where and how to compete to capture a disproportionate share of the value pool and

o Aligning resources with advantaged business models.

 Disciplined and integrated management model

o Common, disciplined process, standards and capabilities for making strategic, resource allocation and performance management decisions across the company; and

o Management capabilities to develop and deliver consistent value improvement.

CHAPTER 4

RESEARCH: ANGLO PLATINUM CASE

4.1 INTRODUCTION

This chapter presents the research methodology followed in the study and reports on the results. More specifically the chapter focuses on:

 Research methodology;

 Statistical analysis; and

 Results and discussion.

4.2 RESEARCH METHODOLOGY

4.2.1 Questionnaire development

The purpose of this research is to investigate the exposure of workers/employees of Anglo Platinum to VBM. The aim of the questionnaires will be to determine the workers/employees:

 Knowledge of VBM;

 Exposed to implementation steps of VBM; and the

 Dedication to successful functioning of VBM.

Quantitative research was done by means of a structured and self-administrated questionnaire that was developed from the literature review.

The questionnaire was grouped into the following sections: Section A – Demographic information;

Section B – Knowledge of VBM concepts; Section C – Understanding financial matters; Section D – View of successful implementation; Section E - Management commitment to VBM.

Since this study is measuring attitudes and not personality traits it was decided to use a Likert scale as a measuring instrument. A 4-point Likert scale was used as a measuring instrument in the questionnaire.

1 – Strongly agree; 2 – Agree;

3 – Disagree; and 4 – Strongly disagree

4.2.2 Data collection

Primarily the data was collected at the morning safety meetings held at a mining shaft. The questionnaires were handed out before the start of the meeting. Participants were asked to deliver their completed questionnaires to the researcher after the meeting was adjourned, and not to take it home to complete at a later stage. This practice ensured the high response rate that was achieved.

A total of 140 questionnaires were handed out to participants for completion and 101 completed questionnaires were collected, resulting in a 72% response rate.

The North-West University‟s Department of Statistical Consultation Services was used to assist in analysing and interpreting the results.

4.3 RESULTS

4.3.1 Demographic information

The purpose of section A was to give an indication of the demographical information of the participants working at the company. The first part was to determine the different levels under which the participant resort to within the company and the second part was to determine the department the participant resorts to.

The participants were grouped by demographical information into the following groups:

 Senior & line management or general staff. No head office or executive management staff participated in the survey.

 Secondly employees were grouped into mining & resources management staff and support services staff.

The results of the demographical groupings being:

Mining and Mineral Resource management Supporting services (Finance, HR, Engineering, SHE) Total Participants

Senior & Line Management 25 7 32 General staff 48 21 69 Total Participants 73 28 101

Based on the demographical groupings, the participants were compared, as follows:

 Senior & line management (group 1) to general staff (group 2); and

 Mining and mineral resource management (MRM) (group 3) to supporting services (group 4).

4.3.2 Frequency results for Section B (Group 1&2)

Section B of the questionnaire attempted to evaluate the participant‟s knowledge of the concept of VBM. Results from the questionnaire are summarized below.

Table 4.1: Senior & line management vs. General staff: Knowledge of concepts

Section B: Evaluating participants’ knowledge of the concept of

value-based management

Senior & Line Management General staff

S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts

The meaning of Value-Based

Management". 6% 79% 11% 4% 32 10% 79% 7% 3% 69

The focus of Value-Based Management". _{9% 61% 24% 6% 32 10% 72% 13% 4% 69} What Value-Based Management" is. _{4% 41% 43% 13% 32 7% 69% 17% 7% 69} What Value-Based Management" centres

around. 2% 36% 52% 11% 32 12% 74% 9% 5% 69

What Value-Based Management" entails. _{11% 56% 28% 5% 32 15% 67% 11% 7% 69} Employees‟ responsibility to ensure

sustainability. 8% 86% 3% 3% 32 12% 87% 1% 0% 69

Participants agreed strongly on meaning of VBM. Senior and line management disagreed with the statement that VBM focuses on customers or community upliftment; or that VBM centres around the financial well-being of employees. General staff felt that VBM centres around the well-being of management; maximising profit in the short term; and is only a financial framework. Both groups agreed that VBM focuses on the maximisation of short term value.

4.3.3 Frequency results for Section C (Group 1&2)

Section C of the questionnaire attempts to evaluate the understanding of financial matters related to VBM. Results from the questionnaire are summarized below.

Table 4.2: Senior & line management vs. General staff: Financial matters

Section C: Analysing the understanding of financial matters related to value-based management

Senior & Line Management General staff

S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts

Financial items related to value-based

management. 11% 83% 5% 1% 32 11% 85% 2% 2% 69

The understanding of equipment

management 13% 84% 2% 2% 32 12% 84% 4% 0% 69

The understanding of the operating profit management process (Operating profit = Sales/Revenue less working/operating

costs). 12% 78% 8% 2% 32 10% 85% 4% 1% 69

The understanding of the cost

management process (Cost management entails the following up of variances between actual and budgeted targets and

expenses). 17% 79% 3% 1% 32 10% 88% 2% 0% 69

Both groups agreed strongly on all financial matters, indicating that the senior & line management and general staff have the same understanding of financial matters related to VBM.

4.3.4 Frequency results for Section D (Group 1&2)

Section D of the questionnaire attempts to evaluate the participant‟s view of successful implementation. Results from the questionnaire are summarized below:

Table 4.3: Senior & line management vs. General staff: VBM Implementation.

Section D: Employees view of successful

implementation of VBM Senior & Line Management General staff

No Im p a ct S lig h t im p a ct Hug e im p a ct Deva s ta ti n g im p a ct T o ta l p a rticip a n ts No Im p a ct S lig h t im p a ct Hug e im p a ct Deva s ta ti n g im p a ct T o ta l p a rticip a n ts

In your view, please measure the rate of impact the below mentioned have on the

sustainability of the company:

66 Maintaining / increasing mining

production levels. 0% 6% 22% 72% 32 0% 3% 49% 48% 69 67 Quality of grade (ore versus waste). _{9% 22% 25% 44% 32 10% 16% 51% 23% 69} 68 Stores availability (Timber,

explosives, etc.). 0% 28% 41% 31% 32 1% 12% 67% 20% 69 69 Absentees of employees (AWOPS). _{0% 31% 34% 34% 32 7% 20% 55% 17% 69} 70 Cost per ton mined. _{0% 9% 47% 44% 32 1% 9% 55% 35% 69} 71 Utilities cost. _{9% 47% 38% 6% 32 16% 62% 22% 0% 68} 72 Labour cost. _{6% 41% 31% 22% 32 16% 65% 16% 3% 69} 73 Stores cost. _{3% 63% 28% 6% 32 17% 64% 19% 0% 69} 74 Head office cost. _{16% 44% 34% 6% 32 20% 52% 14% 13% 69} 75 Cash flow analysis. _{47% 38% 9% 6% 32 52% 42% 4% 1% 69} 76 Availability of equipment. _{13% 31% 38% 19% 32 6% 39% 43% 12% 69} 77 Meeting budget

targets/requirements. 9% 16% 41% 34% 32 1% 19% 54% 26% 69 78 Community and social development

programs. 34% 53% 6% 6% 32 9% 29% 45% 17% 69

79 Involvement of all employees in

strategic planning. 34% 53% 9% 3% 32 16% 36% 32% 16% 69

Senior and line management and general staff indicated that maintain mining productions levels with the quality of grade have a higher impact than cost (Utilities, labour, stores and head office) on the sustainability of the company. Both groups also rated equipment availabilities and meeting budget requirements as a huge impact on sustainability, but felt that that employee involvement in strategic planning has a slight impact.

Both groups agreed that communication should be encouraged from board level to employees in general with communication sessions involving line management and employees to participate and that every individual is responsible to achieve

sustainable value for the company. General employees however felt that limiting communication to senior and line management creates value for the company.

4.3.5 Frequency results for Section E (Group 1&2)

Section E of the questionnaire attempts to evaluate the participants‟ attitudes towards management‟s commitment in enhancing the VBM strategy. Results from the questionnaire are summarized below.

Table 4.4: Senior & line management vs. General staff: Management commitment

Section E: Participant's attitude towards management’s commitment in enhancing the value-based management strategy

Senior & Line Management General staff

S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts

Management is commitment in enhancing the

value-based management strategy. 10% 67% 18% 5% 32 11% 70% 14% 5% 69

In generally staff agreed on all the statements, however general staff agreed more strongly that the company listens to their opinion to create value compared to senior and line management.

Senior and line management had no strong agree or disagree opinion whether the company have the ability to lower operating cost; or if an employee is rewarded what he influences directly; or if they are rewarded for hard work.

Similarly general workers were split on the statement if incentive payment should be tied to the company‟s financial performance, and disagreed that business unit

4.3.6 Frequency results for Section B (Group 3&4)

Section B of the questionnaire attempted to evaluate the participant‟s knowledge of the concept of VBM. Results from the questionnaire are summarized below

Table 4.5: MRM vs. Support staff: Knowledge of concepts.

Section B: Evaluating participants knowledge of the concept of

value-based management

Mining and Mineral Resource management Supporting services

S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts

The meaning of Value-Based

Management". 8% 81% 8% 3% 73 11% 74% 10% 5% 28

The focus of Value-Based Management". _{9% 72% 14% 5% 73 11% 61% 23% 5% 28} What Value-Based Management" is. _{7% 59% 26% 8% 73 4% 60% 23% 12% 28} What Value-Based Management" centres

around. 10% 62% 22% 5% 73 5% 61% 23% 11% 28

What Value-Based Management" entails. _{13% 68% 15% 4% 73 16% 52% 20 13% 28} Employees‟ responsibility to ensure

sustainability. 5% 91% 2% 1% 73 23% 75% 2% 0% 28

Participants agreed strongly on meaning of VBM. Mining and Mineral resources management staff felt that VBM focuses on the maximizing value in the short term and did not entirely agree that VBM is a management approach that focuses on customers.

Both groups agreed that that VBM is only a financial management framework.

4.3.7 Frequency results for Section C (Group 3&4)

Section C of the questionnaire attempts to evaluate the understanding of financial matters related to VBM. Results from the questionnaire are summarized below.

Table 4.6: MRM vs. Support staff: Financial matters.

Section C: Analysing the understanding of financial matters related to value-based

management

Mining and Mineral Resource

management Supporting services

S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts

Financial items related to value-based

management. 9% 88% 2% 1% 73 16% 76% 4% 5% 28

The understanding of equipment management _{9% 86% 4% 1% 73 20% 79% 2% 0% 28} The understanding of the operating profit

management process (Operating profit =

Sales/Revenue less working/operating costs). 9% 87% 3% 1% 73 15% 71% 13% 1% 28 The understanding of the cost management

process (Cost management entails the following up of variances between actual and

budgeted targets and expenses). 9% 88% 2% 0% 73 21% 77% 3% 0% 28 How importance of future endeavours _{11% 84% 5% 0% 73 15% 74% 7% 4% 28}

Both groups agreed strongly on all financial matters, indicating that the senior & line management and general staff have the same understanding of financial matters related to VBM.

4.3.8 Frequency results for Section D (Group 3&4)

Section D of the questionnaire attempts to evaluate the participant‟s view of successful implementation. Results from the questionnaire are summarized below: Table 4.7 – MRM vs. Support staff: VBM Implementation.

Section D: Employees view of

successful implementation of VBM Mining and Mineral Resource management Supporting services

No Im p a ct S lig h t im p a ct Hug e im p a ct Deva s ta ti n g im p a ct T o ta l p a rticip a n ts No Im p a ct S lig h t im p a ct Hug e im p a ct Deva s ta ti n g im p a ct T o ta l p a rticip a n ts

In your view, please measure the rate of impact the below mentioned have on the

sustainability of the company:

66 Maintaining / increasing mining

production levels. 0% 4% 40% 56% 73 0% 4% 43% 54% 28 67 Quality of grade (ore versus

waste). 11% 16% 38% 34% 73 7% 21% 54% 18% 28

68 Stores availability (Timber,

explosives, etc.). 0% 14% 56% 30% 73 4% 25% 64% 7% 28 69 Absentees of employees

(AWOPS). 7% 21% 51% 22% 73 0% 32% 43% 25% 28

70 Cost per ton mined. _{1% 11% 55% 33% 73 0% 4% 46% 50% 28} 71 Utilities cost. _{14% 58% 26% 1% 72 14% 54% 29% 4% 28} 72 Labour cost. _{14% 59% 23% 4% 73 11% 54% 14% 21% 28} 73 Stores cost. _{15% 60% 23% 1% 73 7% 71% 18% 4% 28} 74 Head office cost. _{18% 48% 25% 10% 73 21% 54% 11% 14% 28} 75 Cash flow analysis. _{48% 41% 8% 3% 73 57% 39% 0% 4% 28} 76 Availability of equipment. _{8% 29% 48% 15% 73 7% 57% 25% 11% 28} 77 Meeting budget

targets/requirements. 3% 18% 53% 26% 73 7% 18% 39% 36% 28 78 Community and social _{development programs. 15% 37% 32% 16% 73 21% 36% 36% 7% 28} 79 Involvement of all employees in

Mining and Mineral Resource management staff and supporting services staff had the same responses to the statements; however supporting services staff felt that meeting cost per unit have a bigger impact on the sustainability of the company that mining and mineral resource management staff. On the other hand Mining and Mineral Resource management staff rated the availability of equipment higher that supporting services.

Both groups agreed that communication should be encouraged from board level to employees in general with communication sessions involving line management and employees to participate and that every individual is responsible to achieve sustainable value for the company. Mining and Mineral Resource management staff felt that limiting communication to senior and line management creates value for the company.

Supporting staff felt that they think it is the responsible of only the senior management team for achieving sustainable value within the company.

4.3.9 Frequency results for Section E (Group 3&4)

Section E of the questionnaire attempts to evaluate the participants‟ attitude towards management‟s commitment in enhancing the VBM strategy. Results from the questionnaire are summarized below:

Table 4.8: MRM vs. Support staff: Management commitment.

Section E: Participant's attitude towards management’s commitment in enhancing the value-based management strategy

Mining and Mineral Resource

management Supporting services

S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts S tr o n g ly a g re e A g re e Di sa g re e S tr o n g ly d isag re e T o ta l p a rticip a n ts

Management is commitment in enhancing the

value-based management strategy.. 9% 71% 15% 5% 73 13% 65% 16% 5% 28

Both groups responded the similar to statements, including that business unit performance should not reward shareholders.

4.3.10 Summary of frequency results

Summary of results per section:

Section B – Knowledge of VBM concepts

 Participants agree strongly on the meaning of VBM;

 Senior & line management disagreed that VBM focuses on customers or community upliftment;

 General staff felt that VBM centres around the well-being of management; and

 General, mining & mineral resource management and supporting services felt that VBM is only a financial management framework.

Section C – Understanding financial matters

 All groups strongly agreed on financial matters. Section D – View of successful implementation

 All groups agreed that maintaining production levels with quality of grade has an higher impact than cost (utilities, labour, stores and head office) on the sustainability of the company;

 Supporting service staff felt that it is the responsibility of senior management to achieve sustainable value within the company;

 Mining and mineral resource management staff felt that limiting communication to senior and line management creates value for the company.

Section E - Management commitment to VBM.

 In general participants agreed on all the statements;

 Senior and line management had mixed feelings on whether the company will be able to lower it operating cost;

 General staff, mining and mineral resource management and supporting services staff felt that business unit performance should not reward shareholders.

4.4 FACTOR ANALYSIS

Factor analysis was utilised to reduce the set of observable variables to a smaller number of latent factors. The primarily goal was to test for relationships among the questions. The underlying assumption of factor analysis is that there exists a number of unobserved latent variables (or "factors") that account for the correlations among observed variables, such that if the latent variables are partialled out or held constant, the partial correlations among observed variables all become zero. In other words, the latent factors determine the values of the observed variables (Ats, 2013a:1).

Cronbach's alpha measure of internal consistency was used to evaluate how closely related a set of items are as a group. Internal consistency ranges between zero and one. A commonly-accepted rule of thumb is that an α of 0.5-0.7 indicates acceptable reliability, and 0.8 or higher indicates good reliability (Ats, 2013b:1). Cronbach alpha coefficients that are less than 0.5 are regarded as unacceptable for practical or research use.

The following factors were identified:

Table 4.9: Factor Analysis

Factor Question Cronbach’s

alpha F1 42, 34, 43 0.62 F2 44, 51, 60, 13, 52 0.51 F3 11, 47, 20 0.45 F4 28, 29 0.48 F5 61, 40, 58, 25 0.64 F6 64, 46, 15 0.58 F7 24, 26, 19 0.57 F8 7, 8 0.49 F9 31, 14, 49 0.52 F10 56, 38 0.55 F11 73, 71, 72, 75, 23 0.79 F12 68, 66, 67, 69, 70 0.73 F13 21, 17, 30, 74 0.57 F14 79, 78, 57 0.68 F15 76, 77, 9 0.58 F16 63, 65 0.49 F17 12, 50, 45, 59 0.51 4.5 EFFECT SIZE

Effect size measures either the sizes of associations or the sizes of differences. A common measure of effect size is d, sometimes known as Cohen's d. This can be used when comparing two means and is calculate by the difference in the two groups' means divided by the average of their standard deviations. Cohen suggested that d=0.2 be considered a 'small' effect size, 0.5 represents a 'medium' effect size and 0.8 a 'large' effect size (Staff, 2013:1).