CHAPTER 2: THEORETICAL FRAMEWORK AND LITERATURE
2.3 Literature review
2.3.3 Organisational Development (OD) in South Africa
What informs the inception of Organisational Development (OD) in organisations are various variables, some endogenous, others exogenous, and the need to evolve through innovation due to pressures imposed by peers. The role of globalisation and what it means to be part of a globalising world is of great importance in understanding successes for an organisation. Early literature by the pioneers of OD has laid compelling arguments within this chapter with the work of Cummings &
Worley, Wren, and Burke having formulated the fundamental principles of Organisational Development approaches; the value of the need to adopt certain strategies and the holistic change that can be the outcome from its adoption. The changes in automotive manufacturing saw new ideologies emerging with the writings of West, Oliver & Wilkinson, Dr W. Edwards Deming,
26 Ohno and Poksinska and others. The new thought leaders introduced approaches such as Lean production, Just-In-Time (JIT), Kaizen, Total Quality Management (TQM), ISO Standards, and Kanban. The use of the Industrial Policy Action Plan (IPAP) has been adopted as it shapes and informs the structure of the South African industrial sector, its status quo, and identified areas of intervention. The intense study undertaken by Velia and Robbins has provided rich data that has informed this chapter, as the early writings of Hofstede and Moerdyk and Aardt have laid a basis for the South African OD approaches adopted by domestic organisations. South African national entities have thus been developed to assist and implement approaches to achieve desired change in organisations. Entities such as Productivity SA and the Human Resource Development Council of South Africa (HRDCSA) are some of the organisations that are mandated to assist with OD approaches to achieve continuous learning and continuous evolution through planned change.
The second half of 2015 presented a multitude of challenges for the South African economy. These challenges affected many economic sectors in South Africa and around the globe. President Patricio Aylwin Azócar of Chile understood what he saw in 1918 and argued that “...the globalization that characterizes today’s economics goes beyond or eludes the sovereignty of individual states, and thus the power of their rulers. It is not they, but rather financial groups in control of vast amounts of capital, who decide upon their vertiginous passage through nations, without taking into account the serious crises they might generate” (Patricio Aylwin Azocar 1918).
The statement clearly highlights the nature of the modern world, the interconnectedness of the globe can vividly be described by the domino effect or chain reaction (Stronge 2004). This was recently demonstrated when the Chinese devalued their currency in 2015, a decision that produced ripple effects across the globe. More specifically this saw the South African Rand reaching an all- time low in thirteen years with the exchange rate of R14 to the US$. With the fall of the Rand had severe ramifications for the local manufacturing sector (The Wall Street Journal 2016). In light of such developments, it is indisputable that organisations require endogenous measures to deal with the exogenous factors. South African manufacturers are confronted with “escalating electricity prices which impact negatively on domestic input costs, an increasing number of cheap imports and illegal goods, existing poor rail and harbour capacity, the shortage of skilled labour and rising employment cost, labour market inefficiencies caused by constrained labour laws and policies, limited financial and water resources” (EDGE 2013: 19).
27 The South African domestic manufacturing sector has been hit by many challenges since the 2007/08 global financial crisis. This crisis has seen the South African economy being negatively affected including the local manufacturing sector’s performance. Endogenous factors facing South Africa manufacturing sector include the cost pressures, electricity instability and increased costs, the volatility of the exchange rate, skills constraints, industrial action, high administration prices in rail freight and port charges for value added products (DTI, IPAP 2015/16- 2017/18), and these factors have had influences in the productivity and competitiveness of the sector (DTI, IPAP 2015/16- 2017/18). Labour instability is a serious challenge in South Africa across all sectors. Any one sector that experiences a strike action will have implications on the performance of the others, no one sector activities are independent of another.
The real Gross Domestic Product growth in South Africa saw a contraction in real value add in the manufacturing sector to the value of 0.2% in the first three quarters of 2014. This was cited as the worst performance since the 2008/09 recession (DTI, IPAP 2015/16-2017/18). The manufacturing sector of this country produces 13% real value-added goods for the economy, it contributes 11.5%
employment to the (overall employment stats of the country) and 54% of export earnings in the country (DTI, IPAP 2015/16-2017/18). In terms of composition of the manufacturing sector in South Africa, it has strong linkages with other domestic suppliers of goods and services. Therefore, the dismal performance of the sector has had dire consequences for all the other actors in the value chain. Across all the manufacturing sector, a lot of distress has been reported; in the clothing and textiles, plastic products, the metals sector, machinery and equipment, motor vehicles and components sector with the outputs of the components sector contacting (DTI, IPAP 2015/16- 2017/18).
One of the key indicators of the success of sectors especially the manufacturing sector is the production output, and the investment activity within it. In the third quarter of 2014, these key indicators demonstrated the strain that the local manufacturing sector was under. “The adverse trends in manufacturing production and investment activity resulted in continued job shedding on a net basis. Employment levels in the sector in the third quarter of 2014 were about 20% lower than those recorded prior to the 2008 world economic crash” (DTI, IPAP 2015/16- 2017/18). The employment figures in South Africa in various sectors and especially manufacturing have been on a severe decline starting from the 2008/09 recession. This sector is described to have a multiplier
28 effect, an economics term which describes the phenomenon that an increase in spending will produce an increase in national income and consumption that will be larger than the amount initially spent (dictionary.com). Through this spending it is believed that it has the ability to produce high rates of employment, but under the current strain the ability to do so becomes impossible (DTI, IPAP 2015/16 – 2017/18).
Manufacturing employment has seen a decline from 14.6% in the first quarter of 2008 to 11.5% in the third quarter of 2014 which equates to 370 000 real employment opportunity loss, with only 880 000 additional jobs being created in the same period. This is indicative of the inability to produce the targeted jobs as outlined by various policy frameworks in order to deal with the high unemployment levels that characterise the South African labour market (DTI, IPAP 2015/16- 2017/18). In the fourth quarter of 2014 unemployment was measured to be 24.3% which translates to over 4.9 million people within South Africa unable to find work, in a population of 54 million, the majority being individuals of working age, which is defined as people between the ages of 15- 64 (Stats SA QLFS 2014). This population of 24.3% unemployed individuals has led to the rising numbers of discouraged work-seekers within the “youth” age category. This is a national problem as the country’s population is interpreted as having a youth bulge which is a large population of adolescents entering the labour force which, in the absence of available job opportunities, will create high numbers of unemployment (Fuller 1995).
The importance of the success of the South African manufacturing sector cannot be doubted, not only for South Africans, but for the African continent. The local manufacturing sector has placed South Africa in the prime location as the main exporter of goods to the rest of the continent. The exporting of manufactured goods amounted to 31% of all exports in 2014 or R143 billion in real values (DTI, IPAP 2015/16-2017/18). In spite of this competitive advantage, South African firms contribute to a very low share of global manufacturing value-added (MVA), with exports being in the region of 1.1 % and 1.3% in 2008 (Bolaky 2011). There is a need for South African manufactures to develop and transform. The advancement of East Asian and Pacific countries in manufacturing has seen their output of technology manufacturing exports increase over the period from the year 2000 with 17% to 26% in 2008 (Bolaky 2011). Such growth figures can be realised in Africa and more precisely in South Africa (Bolaky 2011).
29 The introduction of firms to global strategies in the automotive industry can be traced to the 1980s, where early analysts such as Michael Porter cited as saying a “firm’s competitiveness in any one of the world’s major regional markets is independent, and symbiotic with its position elsewhere”
(Porter 1986). The need to raise company competitiveness dawned with the emerging environment that characterised the automotive industry which came with immense global competition for manufacturers and their peers. This pressure forced companies to review their adaptive strategies (Belis-Bergouignan et al. 2000). The understanding of the uniqueness and individuality of operating firms makes it imperative to understand that there is no one master strategy that will suit every firm (Belis-Bergouignan et al. 2000). The organisational structures that companies adopt are informed by the function of their acquired competencies, and the transformation model that the organisation uses to retain its competencies enabling companies to be able to develop endogenous organisational capabilities autonomously (Chandler 1992). The key for an automotive firm’s survival rests in the ability to maintain its competitive advantage. This would be determined by the ability of a company to create its own trajectory, complete with company specific solutions which can only be utilised for the original company.