towards a model for sustainable international stock...

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Lenny Dhliwayo EMBA 11 P a g e i

Towards a model for sustainable international stock-broking

joint ventures

EMBA DISSERTATION

Lenny Dhliwayo

07/03/2011

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Lenny Dhliwayo EMBA 11 P a g e ii

UNIVERSITY OF CAPE TOWN

GRADUATE SCHOOL OF BUSINESS

DATE: 07th March 2011

DECLARATION

1 I know that plagiarism is wrong. Plagiarism is to use another‘s work and pretend that it

is your own.

2 I have used a recognised convention for citation and referencing. Each significant

contribution and quotation from the works of other people has been attributed, cited

and referenced.

3 I certify that this submission is all my own work.

4 I have not allowed and will not allow anyone to copy this essay with the intention of

passing it off as his or her own work.

Signature: Date: 7 March 2011

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Lenny Dhliwayo EMBA 11 P a g e iii

Abstract

According to Peter Drucker, “business once grew by one of the following ways: grassroots up, or by acquisition and today, businesses grow through alliances – all kinds of dangerous alliances, joint- ventures, and customer partnering, which by the way very few people understand” (Peter Drucker).

International joint ventures are increasing in popularity globally. An international joint

venture is established by the teaming up of an international partner with a local one to

create a joint venture business (JV).

International stock-broking joint ventures (IJVs) are also increasingly becoming a popular

business model globally as well as in South Africa. In most cases IJVs are established by

global investment banks that team up with local banks or other partners to create a JV.

The increase in popularity of these international JVs is driven by a variety of reasons

amongst others, the need to quickly access new foreign markets, products, and the need

to share the business risk associated with such operating such businesses. Despite their

increasing popularity, international JVs are regarded as risky and unsustainable due to

their high failure rates which are estimated between 50-70% globally as indicated in the

Accenture report on international JVs of 2009.

In South Africa, IJVs are gaining popularity as evidenced by the establishment of six IJVs

in the last ten years. Four out of the six IJVs have since been terminated and most of them

within two years of their establishment. Their longevity is the concern for this study.

The study undertook to understand the underlying causal mechanisms that impact the

behaviour of the concern through a case study approach based on ABC, an IJVs

established in 2006. Data from another IJVs also established in the same year was used

extensively used to compare and triangulate the findings. These are not the real names of

the organisations but names chosen for confidentiality reasons. The researcher was

employed at ABC at the time of conducting this study.

ABC lasted for four years whilst BBB is still operating. To develop a detailed understanding

of the stakeholders and the situation, a stakeholders analysis was conducted using the

CATWOE framework. This identified the key stakeholders and their multiple worldviews

which were then positioned in a Rich Picture which further highlighted the situation and the

concern.

The study established that the longevity concerns impacted the IJVs ability to recruit and

retain staff in the business due to the high levels of uncertainty associated with JV

businesses. The concern led to the development of the question which was to be

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Lenny Dhliwayo EMBA 11 P a g e iv

answered during the study based on the findings from ABC and BBB. The question was,

―What critical factors impact the longevity of international stock-broking joint ventures in

South Africa?‖

To find an answer to the question, the researcher developed an integrated research

framework which used the grounded theory methodology as its core process. A critical

realist perspective based on the researcher‘s ontology and epistemology was integrated

into the framework and was extensively used in the study.

A wide variety of research participants as indentified by the stakeholders‘ analysis were

engaged and these were mostly drawn from ABC, BBB and other key industry

stakeholders. The participants ranged from staff, management, and shareholder

representatives for both ABC and BBB. The majority of interviews were conducted face to

face and at times telephonic interviews were utilised especially for participants based

overseas. E-mail surveys were used but mostly for second round interviews as well as

when most convenient to the participants.

During the study, five core-variables emerged being:

The articulation of a compelling vision and objectives

The level of cybernetic capabilities of the organisation

The availability of enabling business resources

The development of a sustainable competitive advantage

The extent of business autonomy.

The variables were analysed using an inter-relationship diagraph to establish and

understand their systematic relationships. The articulation of a compelling vision and

objectives variable emerged as the strongest driver whilst the extent of business autonomy

emerged as an outcome.

The emergent core-variables were theoretically coded and validated using two well

established business theories, the Viable Systems Model (VSM) developed by Stafford

Beer, and the Business Idea developed by Kess van der Heijden to establish an emergent

theory.

A causal loop diagram (CLD) was created using the core-variables and this was the

answer of the research question or the emergent theory from the study. The CLD was a

representation of the underlying causal mechanisms that were impacting the concern

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Lenny Dhliwayo EMBA 11 P a g e v

therefore it was the answer to the research. The findings established that a lack of the five

critical factors the core-variables identified in the study provided a plausible explanation of

the reasons why the majority of the IJVs are terminated before reaching the end of their

terms. It was deduced that IJVs can implement the critical factors to positively enhance the

longevity of their businesses.

The research process and answer were evaluated for relevance, utility, validity, and ethical

considerations. The evaluation was conducted using the Velasquez ethics model. The

evaluation could not establish any ethical infringements by both the research process and

the answer.

It can be confirmed that the study was conducted on sound research principles and thus

the results presented are credible and can be relied upon. The emergent theory was found

to be valuable to current, future IJVs and any other business types which seek to enhance

their longevity and sustainability.

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CONTENTS

1 CHAPTER 1: INTRODUCTION AND OVERVIEW ....................................................... 1

1.8.1 Force field analysis of the factors impacting ABC‘s concern ................................................... 15

1.9.1 Scope of the question ............................................................................................................... 17 1.9.2 Construction of the question ..................................................................................................... 18 1.9.3 Assumptions of the research question ..................................................................................... 18

2 CHAPTER 2: LITERATURE REVIEW ........................................................................ 21

3 CHAPTER 3: RESEARCH METHODOLOGY ............................................................ 39

3.2.1 Epistemology – our knowledge of what exists .......................................................................... 40 3.2.2 Ontology – what exists ............................................................................................................. 42 3.2.3 Application of critical realism in the study ................................................................................. 42

3.4.1 Stage 1 – Context Setting ......................................................................................................... 45 3.4.2 Stage 2 – Data generation and analysis .................................................................................. 46 3.4.3 The grounded theory process ................................................................................................... 47 3.4.4 Stage 3 – Emergent theory formulation .................................................................................... 51 3.4.5 Stage 4 – Theoretical Coding - finding a coding family or archetype for the emergent theory 52 3.4.6 Theory validation against the viable systems model ................................................................ 53 3.4.7 Theory validation against the business idea ............................................................................ 54

4 CHAPTER 4: RESEARCH RESULTS ........................................................................ 56

1.1 INTRODUCTION ..................................................................................................................................... 1 1.2 OVERVIEW OF THE RESEARCH TOPIC ...................................................................................................... 2 1.3 THE RESEARCHER‘S PURPOSE .............................................................................................................. 2 1.4 CASE STUDY APPROACH ........................................................................................................................ 2 1.5 SITUATION – JVS GLOBAL CONTEXTUAL ................................................................................................. 3 1.6 THE ABC CASE STUDY (TRANSACTIONAL ENVIRONMENT) ........................................................................ 5 1.7 THE SITUATION AT ABC ...................................................................................................................... 12 1.8 CONCERN – THE LONGEVITY OF IJVS ................................................................................................... 13

1.9 THE RESEARCH QUESTION .................................................................................................................. 17

1.10 RESULTS ............................................................................................................................................ 18 1.11 THE ANSWER ...................................................................................................................................... 19 1.12 RATIONALE OF THE ANSWER ................................................................................................................ 19 1.13 EVALUATION OF THE STUDY AND ANSWER............................................................................................. 20

2.1 INTRODUCTION AND OVERVIEW ............................................................................................................ 21 2.2 THE PARENT DISCIPLINE - JOINT VENTURES (STRATEGIC ALLIANCES) ...................................................... 22 2.3 FACTORS IMPACTING THE CONCERN - LONGEVITY OF IJVS .................................................................... 26 2.4 CORE-VARIABLE – THE ARTICULATION OF A COMPELLING VISION AND OBJECTIVES .................................. 29 2.5 AVAILABILITY OF ENABLING BUSINESS RESOURCES ............................................................................... 31 2.6 THE DEVELOPMENT OF A SUSTAINABLE COMPETITIVE ADVANTAGE ......................................................... 33 2.7 THE EXTENT OF BUSINESS AUTONOMY.................................................................................................. 35 2.8 THE LEVEL OF CYBERNETIC CAPABILITIES OF THE ORGANISATION ........................................................... 36 2.9 CONCLUSION ...................................................................................................................................... 38

3.1 INTRODUCTION AND OVERVIEW ............................................................................................................ 39 3.2 CRITICAL REALISM - THE PHILOSOPHY OF MY RESEARCH METHODOLOGY ............................................... 39

3.3 SYSTEMS THINKING AND APPROACHES ................................................................................................. 43 3.4 AN INTEGRATED RESEARCH FRAMEWORK ............................................................................................. 44

3.5 CONCLUSION ...................................................................................................................................... 55

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4.2.1 Transcription of the data ........................................................................................................... 56 4.2.2 Coding Software ....................................................................................................................... 57 4.2.3 Data analysis (coding) .............................................................................................................. 57 4.2.4 Concept formulation ................................................................................................................. 58 4.2.5 Theoretical sampling ................................................................................................................ 59 4.2.6 Categories development and saturation ................................................................................... 59 4.2.7 The emergence of the core-variables ....................................................................................... 60 4.2.8 Inter-relationship diagraph of the core-variables ...................................................................... 63 4.2.9 Definition of variables ............................................................................................................... 64 4.2.10 The theory development process ............................................................................................. 66 4.2.11 The articulation of a compelling vision and objectives loop (strategic intent) .......................... 66 4.2.12 Distinctive competences loop ................................................................................................... 67 4.2.13 Competitive advantage loop ..................................................................................................... 69 4.2.14 The emergent theory or framework (the answer) ..................................................................... 71 4.2.15 Validating the core variables against established theories ...................................................... 72 4.2.16 Articulation of a articulation of a compelling vision and objectives ........................................... 74 4.2.17 The cybernetic capabilities of the organisation ........................................................................ 75 4.2.18 Availability of enabling business resources .............................................................................. 75 4.2.19 The development of a sustainable competitive advantage ...................................................... 76 4.2.20 The extent of business autonomy............................................................................................. 76

5 CHAPTER 5: CONCLUSIONS AND EVALUATIONS ................................................ 78

5.1.1 Possible implications of the answer.......................................................................................... 79 5.1.2 Some practical suggestions for future IJVs .............................................................................. 80

5.2.1 Relevance ................................................................................................................................. 81 5.2.2 Utility ......................................................................................................................................... 81 5.2.3 Validity ...................................................................................................................................... 82

5.3.1 Credibility .................................................................................................................................. 82 5.3.2 Transferability ........................................................................................................................... 83 5.3.3 Dependability ............................................................................................................................ 83 5.3.4 Confirmability ............................................................................................................................ 84

6 APPENDIX A: THE INTERVIEW LIST OF PARTICIPANTS ...................................... 90

7 APPENDIX B: THE RESEARCH DESIGN ................................................................. 91

8 APPENDIX C: DOING THE RESEARCH ................................................................... 93

9 BIBLIOGRAPHY ...................................................................................................... 106

4.1 INTRODUCTION AND OVERVIEW ............................................................................................................ 56 4.2 DATA GENERATION PROCESS OVERVIEW .............................................................................................. 56

4.3 CONCLUSION ...................................................................................................................................... 76

5.1 SIGNIFICANCE OF THE ANSWER ............................................................................................................ 78

5.2 EVALUATIONS OF THE STUDY ............................................................................................................... 80

5.3 QUALITY ASSURANCE OF THE STUDY .................................................................................................... 82

5.4 ETHICS ............................................................................................................................................... 84 5.5 RECOMMENDATIONS FOR FURTHER STUDY ........................................................................................... 88 5.6 PERSONAL REFLECTION AND LEARNING ................................................................................................ 89

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List of figures

Figure 1.1: JSE top 10 ranking by market share (source: www.jse.co.za) ........................................................ 3 Figure 1.2 :The technological model of ABC ...................................................................................................... 8 Figure 1.3 : VSM Diagnostic of ABC joint venture ........................................................................................... 10 Figure 1.4 : ABC IJV rich picture ...................................................................................................................... 13 Figure 1.5 : Concern behaviour over time – longevity of IJVs .......................................................................... 14 Figure 1.6 : Force field analysis of the factors impacting ABC's concern ........................................................ 15 Figure 1.7: The causal mechanisms that impact the longevity of IJVs ............................................................ 19 Figure 2.1 : Literature review conceptual framework applied to the study ....................................................... 21 Figure 2.2 : The strategic partnership model by Robert Wallace (2004) ......................................................... 24 Figure 2.3 : Articulating of a vision: source Collins & Porras (1996) ................................................................ 30 Figure 3.1 : The Real, the Actual, the Empirical source: John Mingers (2006) ................................................ 41 Figure 3.2 – Systems approaches used in this dissertation (adapted from systems thinking (Jackson 2003) 43 Figure 3.3 - The integrated research framework developed for the study ....................................................... 44 Figure 3.4: Stage 1 – Context setting part of the research framework ............................................................ 45 Figure 3.5 : Stage 2 – Data generation and analysis ....................................................................................... 47 Figure 3.6 : Three domains of reality and their interaction with grounded theory ............................................ 50 Figure 3.7 : Stage 3 - Theory formulation part of the research framework ...................................................... 51 Figure 3.8 : Stage 4 - Theoretical coding of the emergent theory .................................................................... 52 Figure 3.9 Illustrating the Viable Systems Model Components ........................................................................ 53 Figure 3.10: The Business Idea model ............................................................................................................. 54 Figure 4.1: An extract of level 1 codes from ATLAS.ti ..................................................................................... 58 Figure 4.2 : Inter-relationship diagraph of the core-variables ........................................................................... 63 Figure 4.3 : Strategic intent loop ...................................................................................................................... 67 Figure 4.4 : Distinctive competences loop ........................................................................................................ 68 Figure 4.5 : The competitive advantage loop ................................................................................................... 69 Figure 4.6 : Concern causal-loop diagram (CCLD) of the factors that impact longevity of IJVs ...................... 70 Figure 4.7 : The proposed model or framework to increase sustainability of IJVs ........................................... 71 Figure 5.1: Answer causal loop diagram (ACLD) of the findings ..................................................................... 78 List of Tables

Table 1.1 - The structure of the dissertation ....................................................................................................... 1 Table 1.2 : Some of the recent international stock-broking JVs established in South Africa ............................. 4 Table 1.3: ABC TASCOI Analysis ...................................................................................................................... 7 Table 1.4 : ABC‘s shareholders business performance measures and expectations ...................................... 12 Table 1.5 - A CATWOE analysis capturing multiple shareholders perspectives ............................................. 16 Table 4.1 : An example of some of the level 2 categories ............................................................................... 59 Table 4.2 : Five core-variables that emerged from the grounded theory ......................................................... 60 Table 4.3 : An illustration of the emergence of the extent of business autonomy core-variable ...................... 62 Table 4.4 : 4D Definition of variables ............................................................................................................... 65 Table 4.5 : Validating the core-variables of the emergent theory against established business theories ....... 73 Table 4.6: Mapping the emergent theory to the Business Idea........................................................................ 74 Table 5.1: An evaluation of the grounded theory using Strauss & Corbin criteria. ......................................... 81 Table 5.2 : An ethical evaluation of the research process and answer ............................................................ 88

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Glossary of Terms and Abbreviations

No Term Description

1 Stock-broking The stock-broking industry is concerned with the buying

and selling of securities or shares through a regulated

exchange or body. In South Africa stock-broking firms buy

and sell shares on behalf of their customers through the

JSE Securities Exchange which is the regulated

exchange for the securities market.

2 Economic Value Net profit after tax minus cost of capital

3 Pre-Tax Margin Profit before tax as a percentage of revenue

4 Cybernetics Cybernetics is the study of human/machine interaction

guided by the principle that numerous different types of

systems can be studied according to principles of

feedback, control and communications (Mindell, 2000)

5 Sustainability The company‘s ability to achieve its business goals and

increase long-term shareholder value by integrating

economic, environmental, and social opportunities into its

business strategies (Lipsky & Wirtenberg, 2006).

No Key Abbreviations Description

1 IJV International stock-broking joint venture

2 JV Joint venture

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Acknowledgements

Firstly, I give thanks to the all mighty creator for giving me the strength and courage to

complete this hard but enlightening journey.

Special thanks to my wife Ntombifuthi, for the unwavering support and continuous words of

encouragement when I felt like giving up. Thanks for taking care of our boys especially

when I was away attending modular work and more importantly for putting up with my

studies. Ngiyabonga Mandaba!

To my boys and brothers, thank you!

To the management team at ABC, for allowing me to be away from the office for extended

periods of time to attend the modules and for allowing me to conduct this research during

the most turbulent period of the joint venture.

To my EMBA 11 classmates, thank you for everything and especially for making this

journey worthwhile. You shall remain special to me.

Very special thanks to the GSB academia and staff for making it an enlightening journey. I

sincerely thank each and every one of you.

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1 Chapter 1: Introduction and overview

1.1 Introduction

Chapter 1 provides an overview of the research paper. The foundation of this research

paper is the systems thinking discipline of management practice and the research topic is

anchored in the subject of sustainability of international stock-broking joint ventures (IJVs)

as shareholder value creators.

The dissertation is organised into five sections (excluding appendices) as summarised in

the table below.

Chapter Title Brief Description

1 Introduction and Overview Provides background to the study and the

reasons for conducting the study. It also

provides an overall overview of the study.

2 Literature Review Provides a summary of the literature reviewed

as part of the study as a means of obtaining

background knowledge of the phenomena

under study or as part of the key concepts

which emerged from the study.

3 Research Methodology This chapter presents the research framework

to answer the research question and outlines

the systems methodologies that were used.

4 Research Results This chapter details the application of the

research framework and the results.

5 Conclusions and Evaluation This chapter provides the significance of the

findings as well as the conclusions and

evaluations of the study.

Table 1.1 - The structure of the dissertation

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1.2 Overview of the research topic

A definition that best captures the essence and meaning of a joint venture (JV) is the one

from Professor Edward Zajac. He defined a JV or strategic alliance as any contractual

arrangement between two or more entities for the purpose of on-going co-operation or

executing a particular business undertaking and all parties agree to share in the losses and

profits of the entity (Zajac, 2010).

JVs make for an interesting paradox; whereas their popularity is very high, the percentage

of the JVs that fail is very high too (Talman, 2003). The increase in popularity of these

international JVs is driven by a variety of reasons amongst others, the need to quickly

access new foreign markets, products, and the need to share the risk of operating such

businesses.

1.3 The Researcher’s purpose

This study was conducted for dual purposes. Firstly, it would enhance the researcher‘s level

of understanding of the underlying causal mechanisms that were impacting the longevity of

IJVs. A good appreciation of the causal mechanisms would be of great personal interest to

the researcher since he intends to establish a stock-broking business of his own in the

future and most likely an IJV.

Secondly the researcher hopes to propose a business model derived from the findings

which could be of benefit to current and future IJVs or any other JV which seeks to increase

their success, longevity, and sustainability levels. It is the researcher‘s hope that the derived

model will also address the perception that IJVs are never successful business models.

1.4 Case study approach

The case study approach was chosen because of its relevance to the phenomena under

study. Case study research is more aptly described as a strategy than a method. It sets out

to address the understanding of a phenomenon within its operating context. It is flexible and

can be adapted to many areas of knowledge creation (Harrison, 2002).

It was the researcher‘s objective to use the findings from the ABC case study and BBB to

propose a framework that can be used by current and future IJVs that seek to enhance the

levels of sustainability of their businesses.

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1.5 Situation – JVs global contextual

More than 5,000 JVs, and many more strategic alliances, have been launched worldwide in

the past five years. Companies are realising that JVs and alliances can be lucrative vehicles

for developing new products, moving into new markets and increasing revenues. The

problem is the success rate for JVs and alliances is on a par with that for mergers and

acquisitions—which is to say not very good (Bamford, Ernst, & Fubini, 2005). The Accenture

report on international JVs of 2009 estimates their failure rate to be between 50-70%

globally.

South African context

In South Africa the popularity of international stock-broking joint ventures (IJVs) is on the

increase as evidenced by the establishment of six (IJVs) in the last ten years. Four out of

the six have since been terminated and most of them were terminated within two years of

their establishment. Three of these IJVs, were quite successful in terms of their market

positioning as measured by the JSE Securities Exchange market share rankings. At one

stage the all three of them where ranked in the JSE top ten brokers market share rankings.

The table below highlights the JSE top ten member rankings by market share performance

and highlights the performance of IJVs against other stock-broking businesses operating in

South Africa.

Figure 1.1: JSE top 10 ranking by market share (source: www.jse.co.za)

What‘s puzzling is the fact that despite their good market share performance, their longevity

is not so great. On average they are terminated before three years and majority never exist

for their full terms as depicted in Table 1.2.

Rank Joint Venture Trading Service Provider Value Traded in millions of Rands Market Share %

1 No Deutsche Securities (Pty) Ltd 535,251,636,641 9.58%

2 Yes Credit Suisse Standard Securities (Pty) Ltd 470,501,885,908 8.42%

3 No Citigroup Global Markets (Pty) Ltd 408,845,454,501 7.31%

4 No UBS South Africa (Pty) Ltd 404,484,235,538 7.24%

5 No ABSA Stockbrokers (Pty) Ltd 344,345,994,568 6.16%

6 No JP Morgan Equities Ltd 337,760,489,264 6.04%

7 No Merrill Lynch South Africa (Pty) Ltd 282,923,958,491 5.06%

8 Yes RMB Morgan Stanley (Pty) Ltd 276,367,712,351 4.94%

9 No Peregrine Equities (Pty) Ltd 270,766,343,727 4.84%

10 No Investec Securities Ltd 268,642,516,372 4.81%

Total Market Value 2,794,728,401,077

Total JSE Equities Market as at 30 Nov 2010

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The termination of these JVs could have been either due to operational or strategic

reasons. This inclusion of this information here is to highlight the longevity of the JVs and

provides context to the current situation in South Africa regarding IJVs.

Establishment

Date

Joint Venture Name Shareholders Duration

2000 Macquarie & Old Mutual Macquarie & Old Mutual 2 years

2001 Macquarie & Standard Bank Standard Bank and

Macquarie Bank

2 years

2003 Credit Suisse First South Credit Suisse and First

South Securities

3 years

2006 Macquarie First South

Securities

Macquarie & First South Ongoing

2006 Credit Suisse Standard

Securities

Credit Suisse and

Standard Bank

4 years

2006 RMB Morgan Stanley Rand Merchant Bank and

Morgan Stanley

Ongoing

Table 1.2 : Some of the recent international stock-broking JVs established in South Africa

The JVs listed above had varying degrees of success in terms of performance and

longevity. The early termination of the majority of these IJVs in South Africa can be

interpreted as failure of the businesses and also adds to the increasing perception that IJVs

are unsustainable shareholder value creators and risky business models.

The measurement of performance and success of IJVs is a widely debated issue. IJVs

performance has been conceptualised as the following broad constructs: survival

(longevity), financial outputs (e.g. return on investment), market share, overall satisfaction,

achievement of individual or joint goals and learning. However there is considerable

disagreement about the validity and reliability of these measures (Krishnan, Martin, &

Nooderhaven, 2006). The validity of using longevity as an acceptable measure to measure

the performance and success of IJVs in the industry was confirmed by research by Makino,

Chan, Isobe and Beamish in 2007.

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1.6 The ABC case study (transactional environment)

This case study sought to find and develop an understanding of the underlying causal

mechanisms that affect the longevity and sustainability of IJVs as value creators for

shareholders. It is mostly based on a case study of ABC, an IJV established in 2006 by a

global investment bank and a leading emerging markets bank. It also draws on data from

BBB, another IJV, also established in 2006 by an international investment bank and a

continental bank. ABC and BBB are not the real names of the organisations but are names

chosen to protect the confidentiality of the organisations and participants. The researcher

was employed at ABC from its inception until its dissolution early in 2011.

ABC was established as an institutional stockbroker to service South African and

international clients (institutions). The IJV was an equal ownership business (50/50) which

meant each shareholder invested the same amount of capital and had equal rights to profit

or losses. It had a renewable initial term of five years and the products and markets where

clearly articulated in the shareholders‘ agreement.

The shareholder agreement also governed how the shareholders provided services to ABC

and these were all governed by a service level agreement. Front office services or revenue

generating services were provided by shareholder B whilst shareholder A provided the back

office services and support. To ensure transparency, ABC revenues and market share were

reported to both shareholders on a daily, weekly, monthly, and annual basis.

Before the JV, Shareholder A had a competitive trading business with a weak investment

research product, and operated only locally in South Africa whilst shareholder B had a

strong competitive global research product with no trading capabilities in South Africa. The

objective of the JV was to combine the offerings from both parties to create a competitive

stockbroker, offering local and international clients a competitive research product and best

trading execution capabilities.

ABC can be described as a business that failed to create sustainable shareholder value due

to its performance as measured by profits generated and its longevity measured by duration

whist BBB is the opposite. ABC was terminated before completing its first term whilst BBB‘s

term has just been extended for another five year term due to its market performance and

profit success. It is the objective of this study to establish the underlying causal mechanisms

that impacted ABC‘s longevity.

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It was important to establish whether ABC was a viable organisation so as to establish

whether its longevity was impacted by any viability challenges. To achieve this, a detailed

analysis of the organisation needed to be completed. The diagnosis will lead to a concern

and questions which this study will need to answer. The researcher used the Viable

Systems Model developed by Stafford Beer (1984) to complete a detailed diagnosis of ABC.

The VSM was selected because of its diagnostic capabilities. It can be used as a tool for

organisational design as well as to diagnose organisational viability.

Its use in this area was to establish whether ABC was a viable organisation and to unearth

any potential organisational challenges the JV faced. An understanding these organisational

challenges would contextualise the situation and the concern to set the scene for further

exploration during the grounded theory process. A step by step application of the VSM

diagnosis is conducted and presented.

Diagnosis of ABC using the Viplan method

The Viplan method is a software that is used to support the application of the VSM to all

kinds of organisations. The method is used in two modes. Mode I studies an existing

organisation and its purpose is diagnostic; Mode II is a design instrument for an enterprise

that is in the process of being established or is undergoing a fundamental change in identity

(i.e. for a ‗new‘ organisation) (Espejo R. , 1989). Since ABC was an existing organisation,

Mode I was used and the results of each step will be elaborated and demonstrated in the

upcoming sections.

Establishing organisational identity (Step 1)

Identity statements express the organisation‘s meaning for its participants and make visible

the business areas that the organisation is in, that is, the areas in which in the organisation

accept the challenge of viability. The identity of an organisation is about what the

organisation is, rather than what it does (Espejo R. , 1989).

ABC’s identity statement

ABC is a small, leading cash equities institutional stock-broking JV that provides customers

with differentiated investment research and best trading execution services through a

dynamic team based in South Africa.

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The identity statement says what the organisation does, who does it, who they do it for, on

whose behalf they do it and who else is involved. An identity statement (or a system name

as it is also referred to in Viplan) is a concise but highly descriptive statement of the

organisation as a total system, from a particular viewpoint (Espejo R. , 1999).

The TASCOI mnemonic stands for (Transformation, Actors, Suppliers, Customers, Owners,

and Interveners) and helps to identify both the transformations that the system needs to

perform to fulfill its self-defined purposes and the participants involved.

The value of completing this step was that it enhanced the researcher‘s level of

understanding of ABC‘s purpose and roles performed by various stakeholders and their

relevance and importance to ABC.

The TASCOI analysis for ABC is depicted below.

Transformation What input is converted into what output?

Orders from clients are transformed into exchange executions or trades Ideas are transformed into actionable investment research

Actors: Who is involved in carrying out the activities entailed by the

transformation?

Staff and employees of ABC including traders and research analysts

Suppliers: Who are the suppliers of the inputs to the transformation?

Suppliers of trading systems, internet service providers and client connectivity service providers.(GL Trade, Internet Solutions, and Peresys)

Customers: Who are the ones receiving the outputs of the transformation?

Asset Management firms, Pension funds, Hedge funds

Owners: Who has in the system an overview of its transformation?

Shareholders, Board of Directors and Executive Management team

Interveners: Who, from the outside, is defining the context for the system's

transformation?

Regulator (JSE Securities Exchange), Competitors

Table 1.3: ABC TASCOI Analysis

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Modelling structural activities (Step 2)

The purpose of structural modelling is to start to examine the ―independent chunks‖ of

complexity that are fundamental to the organisation‘s strategy and the way it works. These

chunks are propositions or hypotheses of the way the organisation is managing the

complexity of its total operations (Espejo R. , 1999).

Figure 1.2 :The technological model of ABC

The model above highlights that ABC consisted of five key independent chunks that were

critical to the way the organisation operated. Effective functioning of each components or

division is important for ABC to be able to service the customer needs.

Understanding and unfolding complexity (Step 3)

The primary activities of ABC were identified as Equities and Prime Services. The Equities

division was made up of the following sub-divisions: Sales, Sales trading, Trading,

Research, and Support services which offered essential support services to the business.

Each of the sub-divisions within the Equities division were run and managed as

autonomous units with own management structures. The study could not identify any further

JSE Trades

Investment Research

Sales

Equities

Sales

Trading

Equities

Trading

Equity Research

ABC Support Services

CompanyReports

Orders

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sub-divisions for the Prime Services division. The value of performing this step was to

appreciate the levels of complexity with the set up of ABC.

Modelling distribution of discretion (Step 4)

The distribution of discretion among primary activities is at the core of the centralisation-

decentralisation issue in organisational design. If, in relative terms, too much discretion is

retained at the corporate level, the flexibility of the lower structural levels may be hindered;

their response to local changes may become ineffective. In Viplan the distribution of

discretion is modeled in a table of ‗recursions against functions‘. A distribution of discretion

exercise was performed for ABC and the results are illustrated in Appendix C.

According to the VSM theory, the devolvement of discretion to the lower levels of the

organisation improves the organisation‘s ability to adapt thus its viability over the long term

(Jackson, 2004).

The study established that at ABC, discretion was more concentrated at the top

management levels instead of being distributed to the lower levels. The impact of this setup

was that a lot of the decisions had to be escalated to top management levels for approval.

Modelling VSM organisational structure (Step 5)

The policy function, System 5 (S5) at ABC was performed by the board of directors. The

board consisted of equal representatives nominated by the shareholders. Some of the

policies set included the definition of products, markets, and the term of the JV. The S5

delegated limited authority to the System 4 (S4) and as result the S4 had to refer a lot of

decisions upwards for resolution. The impact of this limited authority was that it slowed

down the pace of decision-making. The limited delegated authority frequently resulted in the

S5 collapsing into the S4 and this disempowered the S4 from completely fulfilling some of

its functions.

The planning and strategising function (S4) is performed by the executive management

team. The S4‘s function also included performing market intelligence responsibilities which

entailed constantly scanning the environment for changes that could impact the viability of

the organisation. The biggest challenge of this system was limited delegated authority which

resulted in a high number of decisions averaging four per month being referred to S5 for

pronunciation. The other challenges included bias by some members to one shareholder

which always resulted in management tensions which slowed down decision-making.

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The control function was performed by System 3 (S3) and was fulfilled by the Chief

Operating Officer and the finance team. The diagnosis revealed that the S3 performed a lot

of the S4 functions since most members of the S4 were busy with System 1 (S1) activities.

The stretching across Systems always resulted in the S3 not having enough capacity to

deal with its core function of organisational control.

The co-ordination functions were performed by System 2 (S2) and were fulfilled by teams

offering support services which included human resources and information technology (IT)

teams. Their main challenge was budgetary constraints which limited their ability to service

the S1 and other Systems within the organisation. IT capital expenditure requests required

the approval of both shareholders and majority of these requests were declined.

The System 1 (S1) function was fulfilled by the Trading, Sales, Sales trading, and Research

teams who are the value creators and the customer facing units. The biggest challenge the

S1 faced was the people challenges. It was quite difficult to recruit and retain staff for the

value-adding activities. The staff for S1 are quite expensive such that their recruitment costs

were always above the delegated authority limit of the S1 which meant their appointments

needed to be referred to S5 for final approval.

Figure 1.3 : VSM Diagnostic of ABC joint venture

Policy

S5

Planning

S4

Control

S3

Co-ordination

S2

EM

Environment

A

B

C

R0

R1

S5

S4

S3

S2

S1

Stakeholders

S5’s desire to retain ultimate authority and controlDifferences in measures of performance Shareholder agreement structure Stakeholder composition

Crashes into S4

Limited authority delegated Some biased to one shareholderRelationship management Clarity of vision and objectives

Strengthening of S3 functionPlays S4 function Capacity constraints Time constraints

Time constraints Limited resourcesBudgetary constraints Level of experience

Limited products Limited power to expand Expensive to recruit and retain staff

Force Field Analysis

Board

Exco

COO Team - Controller

Co-ordinators (IT, HR)

Traders & Research Analysts

AutonomyS5 (Board)

ControlS2 & S3

CooperationS4 & S1

ABC Equities

Industry

Operations

S1a -Trading

S1b -Research

R2

Stakeholder Analysis

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Key findings of the VSM diagnosis

The VSM diagnosis of ABC established the following threats to viability:

The System 4 (S4) function which is performed by executive management team did

not have enough delegated authority as a result they had to escalate many decisions

to System 5 for approval. This slowed down the speed of decision making quite

significantly.

The S4 function of market intelligence was weak, putting the business at risk of

losing touch with important market and environmental changes.

The S2 function of co-ordination lacked adequate capacity and resources to service

the business.

Significance of the VSM diagnosis findings

The significance of the VSM diagnosis findings is that it exposed potential threats to the

viability of ABC as highlighted in the section above. However despite these potential viability

threats, ABC was indeed a viable organisation. The various Systems required for a viable

system were in place even though some did not function optimally especially the S4.

The implications of the findings are that the lack of delegated authority reduced the

efficiency and level of competitiveness of the organisation. Lack of market intelligence

placed the organisation at risk of missing adverse market and environmental signals

changes. The stock-broking industry is a dynamic industry that requires quick decision

making and swift action taking. Failure to address the findings is a threat to organisational

viability and longevity of the IJV. The diagnosis enhanced the contextualisation of the

situation within the organisation.

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1.7 The Situation at ABC

ABC changed their Chief Executive Officer (C.E.O) only after two years of operation after he

fell out of favour with Shareholder A. He was recalled by Shareholder B in 2008 since

Shareholder A believed he was not serving the needs of both shareholders equally. He was

reported to be biased and focussing on integrating ABC more to shareholder B instead of

managing it as an independent self-standing entity. The business market performance was

below shareholder expectations in 2006 and 2007.

The CEO was replaced by another one who was independently appointed from a competing

firm. Within a couple of months after the change, the market share of the business improved

significantly soon afterwards from May 2008.

Business Measure 2007 2008 2009 2010

ABC pre-tax margin performance 22%

21% 16% 9%

Shareholders pre-tax margin expectation

25%

25% 25% 25%

ABC market share ranking performance

7

5 2 2

Shareholders market share ranking expectations

Top 5 Top 5 Top 3 Top 3

Table 1.4 : ABC’s shareholders business performance measures and expectations

Despite market share success, ABC still failed to meet the shareholders pre-tax margin

percentage expectations as depicted in Table 1.4. Both shareholders placed a lot of focus

and weight on this measure and expected at least an annual pre-tax margin of at least

twenty five percent (25%). ABC‘s pre-tax margin was far behind those expectations from

inception until termination.

After four years of operation, both shareholders agreed to terminate the JV despite a good

market positioning making ABC a short-lived JV.

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The rich picture below highlights the situation at ABC and the understanding of the multiple

worldviews of the stakeholders involved.

Figure 1.4 : ABC IJV rich picture

ABC‘s early termination meant it was one of the JVs that created economic value for the

shareholders only for a limited time. Similar to IJVs in South Africa, it had short-lived market

success and longevity slightly above the three year average life- cycle of South African

IJVs. The concern that this study seeks to unpack is the longevity of these IJVs.

1.8 Concern – the longevity of IJVs

The argument for the longevity concerns is based on the average duration of IJVs as

depicted Table 1.2. This argument is further substantiated with the researcher‘s personal

knowledge and experience gained whilst working in the industry, especially in the last four

years at ABC. The ABC case study will assist the understanding of the underlying causal

mechanisms that impact the behaviour of the concern.

ABC Stock broking Joint Venture Rich Picture

Shareholder A: We should have control over the financial resources and IT

Should we continue with ABC joint venture in South Africa?

Shareholder B: We want more profits not interested in market share

JVs are too risky to trust with our business, they never last long.

Shareholder B: We should control IT & financial resources

What happens at the end of the JV term. Will I still have a job?

No, let‘s terminate the JV and set up our own business. The JV is no longer serving our purpose

I don‘t like them.

They are not sustainable businesses.

Shareholder A: The market share is good and growing

ABC Economic value

We can‘t compete with

the big firms we should set up a JV with a big partner in the industry.

This infrastructure needs fixing. I need budget to fix this

Should I open my account with a JV stock broker or not?

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Figure 1.5 : Concern behaviour over time – longevity of IJVs

The concern of IJVs also impacts other aspects of business operations as listed below:

It becomes very difficult to recruit new staff into the JV business due to the

uncertainty associated with the JV termination. Potential recruits are worried about

potential job losses at termination and general career prospects. The Human

Resources Manager at ABC pointed out that in 2009, it took ABC almost 11 months

to fill a vacant Economist position. Most candidates highlighted uncertainty as a key

concern and reason for not willing to join the JV.

Customers were uncomfortable to sign long-term brokerage agreements with ABC

beyond the initial term of the JV also due to the uncertainty of the business. Most

customers when dealing with JVs prefer to renew the agreements annually.

Suppliers were uncomfortable to extend credit lines to ABC and as result most

accounts were managed on a cash basis. This makes working capital management a

big challenge for the JV. Banks were also very conservative in extending credit and

overdraft facilities which makes the situation more complex.

Time in years

ConcernIJVs longevity makes them unsustainable shareholder value creators

PerformanceMeasures as a %

0%

25%

50%

75%

Shareholder Expectations PTM%

ABC‘s actual PTM%

Joint ventures failure rate %

ActionNeed to identify the critical factors that impacts the longevity of IJVs as sustainable shareholder value creators.

0 2 4

Average duration of Stock broking JVs

Concern BOT

Longevity of international stockbroking

JVs

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1.8.1 Force field analysis of the factors impacting ABC’s concern

Figure 1.6 : Force field analysis of the factors impacting ABC's concern

The challenges ABC faced were quite common with the challenges faced by other IJVs or

other types of business. The challenge with the situation at ABC was that the negative

factors outweighed the positive factors.

Longevity

Of

ABC

Joint

Venture

Divergent shareholder objectives

(growth path)

Divergent cultures

Staff challenges (hiring)

Different performance measure

(market share Vs pre-tax margin)

Negative factors Positive factors

Market positioning

(market share)

Autonomous existence

Established as a stand alone firm

Trust among partners

Budgetary constraints

Limited products due to restrictive

Shareholders agreement

Limited delegation of authority

Staff loyalty to one shareholder

Global best practise processes

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To fully appreciate the situation and the concern at ABC, it was necessary to incorporate the

worldviews of multiple stakeholders. To enable this, a Customers, Actors, Transformation,

Worldview, Owners, and Environment analysis known as a CATWOE was completed. A

CATWOE captures the multiple perspectives of key identified stakeholders and is depicted

below.

Shareholders Management &

Employees

Clients and service

providers

Customer Clients: Asset

Managers and Pension

Funds

Shareholders and

clients

Clients : Investors

Service Providers:

Stockbrokers

Actors Management and

employees

Shareholders,

Management and

employees

Management and

employees

Transformation To generate wealth

through profits

Stock-broking: buying

and selling of shares

and production of

investment research

Stock-broking: buying

and selling of shares and

production of investment

research

Worldview Stock-broking

JVs a strategic

alliance

Collaboration

Value creators

Profit and risk

sharing

mechanism

Longevity

concerns

Not sustainable

Don‘t work

Uncertain future

Complex

Challenging

Stock-broking JVs

have a high failure

rate

Not sustainable

They are too risky

and unstable

Owners Shareholders and

Regulators

Shareholders and

Regulators

Shareholders and

Management

Environment Financial

Global markets

Financial

Global markets

Financial

Global markets

Table 1.5 - A CATWOE analysis capturing multiple shareholders perspectives

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The situation and concern as described highlights a very complex picture regarding IJVs

and establishes the relevance of the of the research problem. To address this research

problem, key questions needed to be developed so that the study can seek to find an

answer.

1.9 The Research Question

The study considered a number of questions including, ―what factors impact the success or

failure of IJVs‖? Developing an understanding of the factors that impacts their success and

failure would enhance the levels of understanding of the research problem. The main

question that was developed which the study will answer is:

“What critical factors affect the longevity of international stock-broking joint ventures

in South Africa”?

The primary concern which the study needed to address was the longevity of IJVs. The

study needed to understand the underlying causal mechanism that impacted the behaviour

of the concern so that an answer could be established.

The question was evaluated against the architecture of a powerful question which consists

of scope, construction and assumptions (Ryan, 2009). In setting the research question, the

researcher was by guided by the need to ask a powerful question which was linked to the

primary concern. The question will now be evaluated against the constructs of a powerful

question.

1.9.1 Scope of the question

The scope of the study and question is limited to IJVs in South Africa. The scope was

limited to factors within management or shareholder control which are the domains the

researcher has access to in terms of gathering the information required to complete the

study.

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1.9.2 Construction of the question

The research question is framed with a ‗What‘ which is considered a construct of a powerful

question (Ryan, 2009). Questions constructed with a ‗Why‘ and ‗How‘ are considered more

powerful constructs but a ‗What‘ construct offered more flexibility in terms of its broader

searching capabilities when compared to the other constructs. Also by answering ‗What‘,

the ‗How and Why‘ will be answered indirectly.

1.9.3 Assumptions of the research question

The following assumptions were made in formulating the research question:

The longer the IJV the more sustainable it is

IJVs are interested in increasing their longevity

IJVs‘ longevity is a factor impacted by management action

Improving the longevity of IJVs increases shareholder and stakeholder value.

Despite the assumptions highlighted, the researcher is satisfied with the relevance of the

research question and its ability to lead to an answer that answers the research question.

1.10 Results

The application of the integrated research framework identified five core variables which

emerged from the grounded theory process being: ―the articulation of a compelling vision

and objectives‖; ―the level of cybernetic capabilities of the organisation‖; ―the availability of

enabling business resources‖; ―The development of a sustainable competitive advantage‖

and ―the extent of business autonomy‖. The core-variables were modelled into a causal loop

diagram which answers the research question. The core-variables were further analysed

using an inter-relationship diagraph to establish their relationship and the articulation of a

compelling vision and objectives emerged as the core driver of the emergent variables.

The emergent variables were theoretically coded and validated against established

business theories such as, the Viable Systems Model by Stafford Beer, and the Business

Idea by Kess van der Heijden. It was established the critical factors that emerged could be

explained using the components of the Business Idea model developed by Kess van der

Heijden.

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1.11 The Answer

The answer to the research question was a systematic integration of the core emergent

variables. It was established that the articulation of a compelling vision and objectives was

the core-variable that had the biggest impact to the concern and was the driver of the

causal mechanisms as depicted in Figure 1.6 which represents the answer or the critical

factors that the study sought to establish.

Figure 1.7: The causal mechanisms that impact the longevity of IJVs

1.12 Rationale of the answer

The study established that the longevity of IJVs was impacted by a couple of critical factors

(casual mechanisms) which were identified as the core variables. It was established that the

answer to the research question entailed a systematic integration of the identified critical

factors and an increase in their levels.

The study also established that the articulation of a compelling vision and objectives was

the core driver of the concern. This meant that JVs that needed to enhance the longevity

and sustainability would need to ensure that their vision and objectives are clearly

articulated. The rationale and significance of the answer are explained in detail in Chapter

5.

Cybernetic

capabilities

of the

organisation

Articulation

of a

compelling

vision and

objectives

Availabilityof enablingbusinessresources

Thedevelopment

of asustainablecompetitiveadvantage

++

+

+

Longevity

of stock

broking JVs

The extentof businessautonomy

+

+

+

+

+

++

+

Sustainablelevels of

stakeholdervalue

Sustainable

levels of

shareholder

wealth and

value

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1.13 Evaluation of the study and answer

The study followed a known research methodology, the grounded theory and the results

were validated and theoretically coded using known and established business theories to

ensure their validity of the findings.

Multiple data collection methods and tools ranging from participants interviews most of them

conducted through face to face interviews, telephonic interviews, as well as e-mails surveys

were utilised in the study.

Data was obtained from participants from ABC, BBB, other IJVs, literature sources, as well

as data from other stakeholders representing suppliers and customers of IJVs were utilised.

The use of multiple sources enabled the triangulation of the data which enriched the study.

Literature reviews where conducted using credible data sources to ensure high credibility of

the study.

The research process and proposed answer were evaluated for ethical considerations using

Velasquez model. It can be confirmed that the study was conducted on sound research

principles and thus the results presented are credible and can be relied upon. A detailed

evaluation is included in Chapter 5.

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2 Chapter 2: Literature Review

This chapter details the existing literature which was reviewed to develop a detailed

understanding of the parent discipline and the core-variables identified as the factors that

impacted the longevity and sustainability of the parent discipline.

2.1 Introduction and overview

―Literature review is an objective, thorough summary and critical analysis of the relevant

available research and non-research literature on the topic being studied‖ (Hart, 1998). The

study will use literature reviews to deepen the understanding of the parent discipline as well

as to sharpen the understanding of the concern and the identified core-variables such that

this can assist the development of a body of knowledge that will assist the formulation of the

answer.

Three level literature review conceptual framework

Figure 2.1 : Literature review conceptual framework applied to the study

Why – Parent Discipline - Joint ventures (strategic alliances)

What – Concern Variable – Longevity of IJVs

How – Core Variable – The articulation of a compelling

vision and objectives

Cybernetic capabilities of

the organisation

The development of a sustainable competitive advantage

Availability of enabling business resources

The extent of business autonomy

Three - level literature review framework

Key Variables

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2.2 The parent discipline - joint ventures (strategic alliances)

To establish a good understanding of the parent discipline, the researcher reviewed papers

which provided definitions of joint ventures. The paper by Bamford, Ernst & Fubini (2005)

describes joint ventures as, ―a formal arrangement between two or more firms to create a

new business for the purpose of carrying out some kind of mutually beneficial activity, often

related to business expansion, especially new product and or market development‖

(Bamford, Ernst, & Fubini, 2005).

The paper by Janel Vaughan (2009), What is a joint venture describes a JV as, ― an

association of two or more entities (whether corporate, government, individual or otherwise)

combining property and expertise to carry out a single business enterprise and having a

joint proprietary interest, a joint right to control and a sharing of profits and losses‖

(Vaughan, 2009).

The paper by Vaughan argues that, ―regardless of the scope of the undertaking, the nature

of the JV or the respective degrees of equity or management involvement, a JV must: (1) be

a separately identifiable entity; (2) have an ownership interest in such entity by each joint

venture partner (JVP); and (3) have an active management involvement or deliberate

rejection of the right to such involvement by each JVP‖ (Vaughan, 2009).

It is clear from these definitions that JVs are strategic alliances and are established to serve

multiple objectives. Common themes that come from these definitions is that JVs include

the coming together of two or more entities to engage in mutually beneficial activities as well

as the agreement to share profits or losses.

The literature reviewed identified a variety of reasons why firms establish joint ventures. The

paper by Tom Herd (2009), suggested that firms create JVs for the following reasons:

Kick the tyres before buying

Risk mitigation strategy

Operational efficiencies

Customer responsiveness

The paper by Janel Vaughan (2009) suggests the following as reasons why firms establish

joint ventures, Risk Sharing, Economies of Scale, Market Access, Geographical

Constraints, and Funding Constraints. Whilst this list is not exhaustive of all the reasons, it

provides some of the common reasons why firms establish JVs. The drivers for the

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establishment of both ABC and BBB JVs were risk sharing and to enable market access for

their international partners.

The paper by Al-Khalifa and Peterson (1999) argued that JVs, ―enable organisations to gain

a competitive advantage through access to a partner's resources, including markets,

technologies, capital, and people. Both the nature and strength of the motivating factors for

entering into a JV have an influence on partner satisfaction and JV performance‖ (Al-Khalifa

& Peterson, 1999). The study established that both ABC and BBB JV were established for

quite similar reasons to the ones described by Al-Khalifa and Peterson. The international

partners in the JVs sought to gain competitive advantages through access to the resources

and markets of their local partners. The international partners all partnered with well

established local partners who they deemed to have required resources and market access.

In South Africa, in the stock-broking industries it can be established that most of the

international partners prefer to partner with well established partners as evidenced by the

local partners in both ABC and BBB JVs.

The paper by Beamish and Lupton (1998) provides the phases of the JV partnering process

and the life-cycle. JVs like other businesses go through a life-cycle starting from the time

they are conceptualised until they are terminated. The paper identifies four identifiable

phases that make up the JV partnering process:

Assessing the strategic logic for creating the venture,

Selecting the partner,

Negotiating the terms,

Implementation and on-going management of the business

This study focuses mostly on the factors in the last phase of the business life-cycle which

Beamish and Lupton referred to as on-going management of the business.

The paper by Kale and Singh (2009) identified the following as key success factors for

strategic alliances: ―partner selection, partner complementarities, partner compatibility,

partner commitment, use of co-ordination mechanisms, development of trust and relational

capital, conflict resolution and escalation processes‖. Kale and Singh further argued that a

lack of these key factors can result in strategic alliances failing to meet shareholder

objectives (Kale & Singh, 2009). Success factors for JVs are a critical component to the

concern of this study. A good understanding of the factors was important to the researcher

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as it enabled the establishment of a good body of knowledge that would be useful to

understand the factors that impacted the concern.

The book by Robert Wallace ‗Strategic Partnerships‘ (2004) provides a strategic partnership

model which provides guidance to firms entering joint ventures. Successful JVs are

dependent on the execution of proper sequence of events (Wallace, 2004).

―Each of these steps plays a crucial part in the establishment and successful operation of a

joint venture. Overlooking any or some of the steps could have an impact on the longevity or

success of the JV‖ (Wallace, 2004). The steps Wallace proposed are depicted in Figure 2.3.

Figure 2.2 : The strategic partnership model by Robert Wallace (2004)

The book by Alan Gutterman (2008) called ―Short Course in International Joint Ventures‖

identified the following as key factors required for JVs success:

1. Objectives and activities

2. Contributions of the partners

3. Management and control

4. Allocation of profits and distributions

5. Term and termination

The models proposed by Wallace and Gutterman were useful to the researcher in the sense

that they broadened the researchers level of understanding of the key steps and key factors

Define Mission

Goals, and ObjectivesExit Strategies

The “Vow”

Aspects Define Customer’s

Products and Services

Complete

Self-Evaluation

Know Your

Partner

Meet the family

(Team)Establish

Relationship Boundaries

Determine

Projects

Relationship

Maintenance

Building Trust

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required to establish a successful JV. Knowledge of these factors will broaden the

knowledge regarding the parent disciple.

To further enhance the researcher‘s knowledge of the governance factors of JVs, a paper

by Bamford and Ernst (2005), ―Governing Joint Ventures‖ was reviewed. The paper

highlights the importance of corporate governance in JVs. They argue that, ―despite the

differences between wholly-owned businesses and JVs, many of the basic tenets of good

corporate governance should be applied to both‖ (Bamford & Ernst, 2005). They summarise

JV proper corporate governance as adherence to the following:

1. Have a board of directors with at least one outside director

2. Designate lead directors or a strong chairperson

3. Review and reward the performance of board members

4. Sponsor an external audit

5. Let the JV CEO run the business

The corporate governance criteria suggested by Bramford and Ernst was found to be very

useful in the study since it provided guidelines which were useful to both ABC and BBB as

well as for future JV businesses.

The paper by Bruce Kogut (1988), ‗Joint ventures – theoretical and empirical perspectives‘,

suggests that there are three principal theories used to explain strategic alliances,

especially joint ventures and these are ―transaction cost economics, organization theory and

business strategy‖ (Kogut, 1988). Williamson‘s transaction cost economics theory states

that, ―firms chose alternative arrangements that minimize the sum of production and

transaction costs‖ (Williamson, 1975). The three theories as suggested by Kogut provide

background reasons why firms establish joint venture businesses.

The paper by Miller, Glen, Jespersen, and Karmokolias (1997), ―International JVs in

developing countries‖ provides a good context of the appeal and performance as well as the

challenges IJVs face in developing countries. ―International JVs offer attractive

opportunities, yet they frequently perform unsatisfactorily and are comparatively unstable‖

(Miller, Glen, Jaspersen, & Karmokolias, 1997). The paper identifies some of the reasons

why International JVs run into trouble and suggest some possible strategies partners and

managers can employ to maximise their chances of success.

The paper groups the problems International JVs face into two main categories: namely,

contractual and operational problems. Some of the common contractual problems it

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identifies include changes in ownership and control, conflict resolution agreements, division

of management responsibility and degree of management independence. The common

operational problems that it identifies include marketing and staffing issues, cultural

problems, technology utilisation, and product line disputes. The challenges of International

JVs are interesting phenomena which this study needs to have a good handle on as they

could provide an explanation of the concern, longevity of IJVs.

The literature reviewed confirmed the popularity and complexity of the JV business model. It

also confirmed some of the key success factors for JVs and highlighted the importance of

the establishment of terms and objectives, partner selection, management and control and

the developments of operational terms and termination processes.

The body of literature reviewed intensified the researcher‘s level of appreciation of the

parent discipline especially the reasons for establishing as well as the challenges they face.

The literature assisted in unearthing and debugging some of the common challenges that

JVs face which have an effect on their longevity.

2.3 Factors impacting the concern - longevity of IJVs

Literature reviews were also conducted to establish the factors which were impacting the

concern. The paper by Siri Terjesen (2008) titled, ―Joint ventures – synergies and benefits‖

identified some risks which JV businesses face which can threaten the longevity and

success of the businesses. Communication, Strategy, Imbalanced Resources and Culture

were identified as some of the main factors.

The paper identifies miscommunication of objectives by the firm as a possible source of

misunderstandings. Geographical and cultural distances were also identified as additional

factors that could further exacerbate the communication issues (Terjesen, 2008). The paper

also identified divergent strategies of JV partners as possible reasons for failure to reach

mutually agreeable objectives which could include resource allocation as well as exit

strategies. It also identified imbalanced allocation of resources as a possible source of

conflict. The last item identified by the paper was culture. It was suggested that JV partners

may have distinct corporate and national cultures which could result in varying management

styles that could lead to poor integration and cooperation (Terjesen, 2008). The factors

identified by Terjesen could provide some explanations as to why JVs are short-lived.

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The other paper reviewed to broaden the understanding of the concern was the paper by

Makino, Chan, Isobe, and Beamish (2007) ‗Intended and unintended termination of

international joint ventures‘. They confirm the validity of using survival (longevity) as a

measure of performance as well as noting whether the termination was intended or

unintended.

The paper further examines the factors that affect intended and unintended termination of

International JVs. They establish that, ―International JVs are terminated either when the

initial purposes of the formation of the International JVs have been achieved which they

referred to as intended termination, or when unanticipated contingencies that emerge in the

external, internal, or inter-partner conditions after the establishment of the International JVs

impede the continuation of its operation which they referred to as unintended termination‖

(Makino, Chan, Isobe, & Beamish, 2007).

The paper established that, ―approximately 90 percent of all International JVs terminations

are unintended and 10 percent intended and that the frequency of intended termination and

unintended termination varies noticeably depending on the initial purposes of formation‖

(Makino, Chan, Isobe, & Beamish, 2007). They further establish that ―the longevity of

International JVs is significantly contingent on their formation and on-going management‖

(Makino, Chan, Isobe, & Beamish, 2007).

Their findings were of particular interest to this study since most published statistics simply

indicate that JVs have very high termination rates without indicating the difference between

intended and unintended terminations. The confirmation that the majority of JVs

terminations were unintended strengtherns the validity of the concern of this study. The

confirmation of the validity of using longevity as a valid measure of JV perfomance also

confirmed and strengtherned the validity of the concern and this study.

The paper by Ren, Gray, & Kim, (2009) titled, ‗performance of international joint ventures:

what factors really make a difference and how?‘ identifies some common measures of

International JVs performance. Three factors were identified and these were survival,

financial output measures, and the achievement of partner objectives.

They establish that JV survival as measured by longevity to be one of the most common

indicators of International JVs performance. The assumption they made was that the longer

the International JVs survives, the more successful and sustainable it becomes. Longevity

was deemed to be a sign of success and termination a sign of failure. This seems to be the

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commonly accepted business view regarding JVs and this study uses that thinking. The

other commonly used measure was financial outputs as measured by return on investment

(ROI) and market share. This study established that both shareholders of ABC and BBB

also used these measures quite extensively as a way of determining JV performance.

Investors use these measures quite extensively as a way of measuring businesses

performance.

The final measure commonly used is checking whether the individual or joint objectives

have been met. They established that this measure is judged from each of the partner‘s

perspectives. This study established that all the three common measures were also used

extensively by both ABC and BBB even though longevity and financial outputs were

established as the most common and extensively used in this study.

To further broaden the understanding of the factors impacting the concern, the book by Alan

Gutterman titled ―Short Course in International Joint Ventures‖ was reviewed. The book

provides factors that affect the success or failure of International JVs. Whilst acknowledging

that JVs are unique, the book lists some of the common problems normally experienced by

JVs as, ―poor pre-formation planning, unexpected poor financial performance, management

problems, strategy problems, improper choice of JV format, inappropriate performance

milestones, personnel problems, and conflicting objectives‖ (Gutterman, 2008).

Whilst the book provides a wide variety of the factors, it provides adequate pointers of the

common sources of factors. The majority of the problems at the ABC JV can be categorised

into the ―conflicting objectives‖ category as indicated in some of the participant interviews.

The other paper reviewed regarding the concern is the paper by Jose Mata

(2009),‘termination of joint ventures‘. The paper describes the four different ways in which

JVs can be terminated and are listed below:

One partner sells his stake to the other partner(s)

One partner sells to a third party

Both partners sell their stake to a third party

The JV is liquidated

The review of this paper confirmed the most common termination methodologies used to

end JV agreements. An interesting observation was that the ABC JV was terminated

through a sale by one of the partners to the other. Liquidation seemed to be the least

common method based on the information gathered during the study and interviews.

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The last paper reviewed regarding the concern was the paper by Hennart, Kim and Zeng

(1998) titled ―the impact of joint venture status on the longevity of Japanese stakes in the

U.S. manufacturing affiliates‖. They identified that most JV exits are either due to a sale of

the business or through liquidation. They argue that, most international JVs are dissolved

largely due to the difficulties experienced doing business abroad as compared to doing

business at home. They argue that, ―foreign investors lack knowledge of the country‘s

business culture and connections to the local stakeholders‖ (Hennart, Kim, & Zeng,1998). In

support of this argument, with the ABC JV, it was the foreign partner who sold their stake to

the local partner.

The reviewed body of literature regarding the concern positioned some of the common

factors that impacted the longevity of International JVs. It highlighted that longevity as

measured by survival is affected by a variety of factors which confirms what this study also

established. The literature also ratified that longevity is a valid measure of the success of

JVs.

The literature identified some common risks that impact the concern (longevity) and

confirmed the accepted measures of JV performance as survival, financial outputs like

return on investment and market share, and the achievement of individual or joint

objectives.

It enhanced the researcher‘s levels of understanding of some of the common factors that

affect the success or failure of JVs locally and globally. This knowledge is valuable to the

researcher and will assist his intention of developing or proposing a framework that could be

useful to current and future JVs which seek to enhance their longevity and levels of

sustainability.

2.4 Core-variable – The articulation of a compelling vision and objectives

The following set of literature was reviewed to enhance the understanding of the core-

variable that was established by the study. The core-variable is the variable that was found

to have the largest impact to the concern. The paper by James Collins and Jerry Porras

titled (1996) titled ‗Building Your Company's Vision‘, suggests that a well-conceived vision

consists of two major components being the what they termed core ideology and envisioned

future. ―The core ideology is the yin in our scheme and it defines what we stand for and why

we exist. It provides the glue that holds an organization through time. The yin is unchanging

and complements the yang which is the envisioned future‖ (Collins & Porras, 1996). This

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literature emphasises and validates the importance of articulating a vision and objectives for

the firm hence it was found to be the core-variable.

Figure 2.3 : Articulating of a vision: source Collins & Porras (1996)

Within the core-variable of this study, the vision of the JV is the ―yin‖ and the objectives are

the ―yan‖. This literature elevated and confirmed the core-variable as an instrumental

component of a JV business.

Another piece of literature that was reviewed regarding the core-variable was the paper by

Stu Walesh (2008) titled, ‗Vision: pie in the sky or organizational priority?‖The paper

provides a definition for vision as ―a cognitive image of the future, which is positive enough

to members so as to be motivating and elaborate enough to provide direction for future

planning and goal setting‖ (Walesh, 2008). This definition also emphasizes the important

role a vision plays in any organization including JVs. An important observation articulated in

the definition is the requirement for the vision to be motivating and clear enough so as to be

able to provide the required direction. This literature further elaborates the criticality and

importance of the core-variable.

To further broaden the appreciation of the core-variable, the book by Chandler (1962)

‗strategy and structure – chapters in history of American industrial enterprise‘, was

reviewed. In Candler‘s definition strategy means determining long-term goals and objectives

of enterprises. It also determines which courses of action should be adopted as well as

defining the allocation of resources necessary for those goals (Chandler, 1962). Chandler‘s

definition provides a more encompassing definition and perspective of what strategy is and

should do. This could provide useful guidelines to JVs and be a useful tool that can be

employed by JVs in search of ways to increase their longevity.

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Another interesting definition of strategy was provided by Mintzberg, Quinn, and Voyer

(1995). They describe strategy as, ―a pattern or plan that integrates the organisation‘s major

goals, policies, and action sequences into a cohesive whole‖ (Mintzberg, Quinn, & Voyer,

1995). This definition further highlights the importance of a vision or a strategy as a plan that

integrates the goals and objectives of an organisation.

The body of literature regarding the core variable, the articulation of a compelling vision and

objectives highlighted the important role a clearly articulated vision plays in a JV or any

other business. It demonstrated that the core-variable is the driver of the causal

mechanisms that the study undertook to establish and reinforces the validity of the

researcher‘s findings. The literature highlighted and emphasised the important role played

by a core-variable. The literature reviewed further enhanced and broadened the

researcher‘s appreciation of the knowledge regarding the core-variable.

2.5 Availability of enabling business resources

Availability of enabling business resources enables the business to implement competitive

advantages and service the needs of the customers. To further appreciate the importance of

this variable, the paper by Daft (1983) ‗organisation theory and design‘ was reviewed. The

paper described business resources as firm resources which include all assets, capabilities,

organisational processes, firm attributes, information, and knowledge. Daft argues that the

business resources should be controlled by the firm to enable the firm to conceive and

implement efficiency and effectiveness strategies (Daft, 1983). Daft‘s paper highlighted the

important role played by business resources in enabling the firm to meet its objective and

service the customer.

The concept of enabling business resources was further supported by the Resources Based

View (RBV) concept which originates from Penrose‘s work (1959). Penrose describes the

firm as a bundle of resources and points that the growth of a firm is both facilitated and

limited by management‘s search for the best usage of available resources (Penrose, 1959).

This concept clearly articulates that availability of business resources alone is not the

enough for the growth of the firm but should be supported by effective management and

utilisation of the resources. This concept is particularly true and important to JV businesses

where business growth and performance is an important determinant of the business‘s

longevity.

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The paper by Barney (1991) titled ‗firm resources and sustained competitive advantages‘,

provides a precise and formalised description of the resources based view. It identified

resources as ―assets, capabilities, processes, attributes, knowledge and the know-how that

are possessed by a firm and that can be used to formulate and implement competitive

strategies‖ (Barney, 1991). Barney argues that it is the, ―rationale identification and use of

resources that are valuable, rare, difficult to copy, and non-substitutable which lead to

enduring variation and supernormal profits‖ (Barney, 1991). The principles of the RBV are of

critical importance to the JVs seeking to enhance their longevity as they provide useful

ideas regarding the creation of sustainable competitive advantages.

Another paper by Mata, Fuerst and Barney (1995) further elaborates that, ―the RBV relies

on two fundamental assertions, that of resource heterogeneity (resources and capabilities

possessed by firms may differ) and of resources immobility (these differences may be long

lasting)‖ (Mata, Fuerst, & Barney, 1995).

A paper by Rumelt (1984), ‗towards a strategic theory for the firm‘ further advanced the RBV

by arguing that the internal development of resources, the nature of those resources, and

different methods of employing resources are related to profitability (Rumelt, 1984). This

concept becomes particularly interesting to JVs since profitability is one of the most

commonly used measure of their performance and an important determinant of their

longevity.

The last paper reviewed on this variable was paper by Dierickx and Cool (1989) titled ‗Asset

stock accumulation and sustainability of competitive advantage‘ provided a more dynamic

perspective of business resources. They argue that, ― it is not the flow of resources but,

rather, the accumulated stock of resources that matters, and that only those resources that

are non-tradable, inimitable, and non-substitutable are essential for competitive advantage,

typically measured in terms of above-normal rents‖ (Dierickx & Cool, 1989).

The concept of using business resources to create sustainable competitive advantages, if

successfully implemented by JVs could become a great source of success and a way for

them to enhance their longevity. The literature reviews on the variable proved the validity

and importance of the availability of enabling business resources variable as a source of

creating competitive advantages which could play a key role in enhancing JVs longevity.

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2.6 The development of a sustainable competitive advantage

Literature reviewed confirmed that firms can develop competitive advantages through the

effective use of its assets which include business resources, knowledge and information,

processes, and people.

The paper by Barney (1991), ‗firm resources and sustained competitive advantages‘,

defines a sustainable competitive advantage as, ―the implementation of a value creating

strategy that is not susceptible to duplication and not currently implemented by competitors‖

(Barney, 1991). Barney‘s concept emphasises on the utilisation of resources which are not

easily copied by competitors. The concept also emphasises on the ability of management to

make informed decisions regarding which resources to utilise in the creation of the

sustainable advantage.

Barney also argues that, ―firms develop competitive advantages through, implementing

strategies that exploit their internal strengths, responding to environmental opportunities

and neutralising external threats and avoiding internal weaknesses‖ (Barney, 1991).

Barney‘s paper confirms the importance of the development of a sustainable competitive

advantage concept as an important variable that has an impact on the performance and

longevity of a firm.

The paper by John Riesenberger (1998) titled, ‗The source of sustainable competitive

advantage‘, brings in a global learning and intellectual capital angel to creating competitive

advantages. Riesebberger argues that successful firms of the future are those firms that are

able to continuously innovate and utilise knowledge and information. He suggests that

organisations that are able to effectively utilise their intellectual capital and global learnings

will be more successful than those that are unable to do so. (Riesenherger, 1998).

Riesebberger‘s observations are particularly true to international JVs which should utilise

global learnings from their international partners and make use of the intellectual capital

available to them create competitive advantages which could positively impact their

longevity.

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Another paper reviewed to broaden the knowledge on the variable was the paper by Jeffery

Pfeffer (1995) titled, ‗producing sustainable competitive advantage through effective

management of people‘.

Pfeffer argues that firms can achieve competitive advantages through the effective

management of their workforce. His argument revolves around management changing the

way they view and manage their workforce. Pfeffer‘s concept involves a fundamental

alteration of the way management think about the workforce and their employment

relationship. He argues that, ―management should see the workforce as a source of

strategic advantage, not just as a cost to be minimized or avoided‖ (Pfeffer J. , 1995). He

concludes that firms that take this different perspective of people management are often

able to successfully outmaneuver and outperform their rivals (Pfeffer J. , 1995).

To further understand the development of a sustainable competitive advantage variable, the

paper by Michael Potter and Victor Millar (1985) titled, ‗How information gives you a

competitive advantage‘ was reviewed. The paper identified that information technology has

two powerful effects on a competitive advantage. They argue that technology can create a

competitive advantage either by cost effectiveness or through differentiation. They argue

firms should seek to use technology to improve their value chain activities themselves or

employ it to continuously introduce product and process differentiation to stay ahead of the

competitive scope (Potter & Millar, 1895).

The literature reviewed established the development of a sustainable competitive

advantage can be utilised by firms to achieve superior financial and market performance.

Achievement of such superior performance by JVs will result in happy shareholders and will

have a positive impact on their longevity. Previous literature has already established

financial and market performance as common measures of success for JVs.

The literature reviewed also expanded the researcher‘s knowledge of how competitive

advantages can be created and sustained. It confirmed that the utilization of resources,

technology, intellectual capital and effective people management strategies as possible

sources for firms to create competitive advantages. It also confirmed the validity of the

variable as a key factor that impacts the performance and longevity of JVs.

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2.7 The extent of business autonomy

The other variable established by the study as an important factor that impacted the

longevity of international JVs was the extent of business autonomy. A couple of papers

were reviewed to broaden the researcher‘s appreciation of this variable. Business autonomy

is measured by the level of independence and decision making powers vested in the

management of the business.

The paper by Peter Killing (1982) titled, ‗How to make a global joint venture work‘ provides a

broad perspective of the challenges JV autonomy. Killing acknowledges that, ―JVs are too

complex, too ambitious, and inflexible and that managers must learn to accept and work

with JVs despite the difficulties of double parenting‖ (Killing J. , 1982).

Killing measured the extent to which a JV was dominated by either of its parents by

focussing on the way in which decisions were made and in particular, by determining how

much influence each parent had on various types of decisions. In his study Killing identifies

three categories of JVs: dominant partner JVs, where only one of the parents plays a

dominant role in decision making; shared management JVs, where each parent plays an

active role in decisions; independent JVs, where neither parent plays a strong role and the

JV general manager or CEO enjoys extensive decision making autonomy. (Killing J. , 1982).

Killing acknowledges that independent JVs out-perform shared management JVs due to the

absence of interference from either parent. He concluded that management autonomy was

important in the JV‘s effectiveness, arguing that a reduction in management autonomy

slows down and confuses the decision-making process and performance worsens (Killing,

1982). The validity of Killing‘s observation was confirmed by an evaluation of the level of

autonomy of ABC which confirmed that the decision making process was slower due to

limited authority vested in management as opposed to BBB where the management had

more powers and were more effective.

The researcher‘s understanding of the concept of the extent of business autonomy was

further expanded by the review of Stafford Beer‘s Viable System Model (VSM). Beer

believed that, ―effective organisations should maximise the freedom of their participants,

within the practical constraints of the requirements for those organisations to fulfil their

purpose‖ (Beer, 1981). One of the principles of the VSM is the concept of self-organisation

which requires that organisations should have the ability to self-manage and control. This

self-organisation concept hinges around the concept of business autonomy.

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The book by Koot (1988) titled,‘ Underlying Dilemmas in the Management of International

Joint Ventures‘, identified JV autonomy as one of the sources of JV tensions. The book

identified most of the tensions to be positioned in strategic decisions rather than operational

decisions.

This study established that one of the main differences between ABC and BBB JVs was the

levels of business autonomy. It was established that ABC‘s management had limited

business autonomy due to limited authority delegated whilst BBB‘s management seemed to

have the required authority and autonomy to operate the business.

The literature reviewed confirmed that most JVs had operational autonomy or authority to

make operational decisions and did not have strategic autonomy. The literature also

confirmed that the extent of the business autonomy of IJVs is an important aspect the

business and has a strong bearing to the effective operation and performance of the

business. It reconfirmed the validity of the business autonomy variable and further

highlighted its importance to the parent discipline.

2.8 The level of cybernetic capabilities of the organisation

The final variable for the literature reviewed was the level of cybernetic capabilities of the

organisation. The cybernetic capabilities of an organisation are largely embedded in the

three principles of cybernetics being requisite variety, feedback and self-organisation which

will be reviewed in detail.

The best place to start to broaden the understanding of cybernetics was to review the work

of Stafford Beer who is widely regarded as the ―father of cybernetics‖. He describes

cybernetics as, ―the science of effective organisations‖ (Beer, 1981). Beer further describes

cybernetics as, ―the science that studies the abstract principles of organization in complex

systems‖ (Beer, 1981).

Beer identified three key principles that are important for effective organiosations being self-

organisation, feedback and variety. These principles were deemed to be important to better

understand the effective functioning of organisations (Beer, 1981). Cybernetic capabilities of

an organisation or JV are an important determinant of its performance and in the case of

JVs they are an important determinant of their longevity.

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The other paper reviewed was the paper by James Rowe (2010) titled, ‗the cybernetics of

organising – management and leadership‘. Rowe argues that, ―in a strategic context,

organising is a cybernetic process that corresponds to leadership and management‖ (Rowe,

2010). Rowe brings in an interesting angle to cybernetics linking it to leadership and

management. The cybernetic capabilities of an organisation are largely embedded in the

three principles of cybernetics being requisite variety, feedback and self-organisation.

The following literature reviews describes the three concepts in more detail. The first

concept is the law of requisite variety was developed by Ross Ashby (1969). Requisite

variety is an important concept and required by JVs due to their increased levels of

complexity. Ashby‘s law states that, ―the variety of response must match the variety of the

disturbance and only variety can destroy variety‖ (Ashby, 1964).

A paper by Pickering (2002) titled, ‗Cybernetics and the mangle‖, suggests that, Stafford

Beer extended Ashby‘s work into the notion of the Viable Systems Model in 1984.

Pickering‘s works suggests that Beer considered that ―the success or failure of

organisations was a function of their adequacy in coping with their environment, the outside

world of suppliers and consumers‖ (Pickering, 2002). This concept is important to

international JVs since they operate in very complex environments which require them to

have the requisite variety capabilities in order to deal with the variety coming from their

environments.

The second principle of cybernetics is the concept of feedback. The paper by Allenna

(1990) titled, ‗The cybernetics glossary for new management‘, suggests that, ―feedback

takes a system‘s output and applies it to change or maintain its input‖ (Allenna, 1990).

Allenna suggests that, ―feedback may either be negative (error correcting) or positive (trend

enhancing)‖ (Allenna, 1990). In the context of JVs, feedback either comes through formal

channels after performance reporting or informal channels through normal business

interactions. Allena argues that, ―In a well functioning system feedback loops are designed

so that the system is brought back under control in the act‖ (Allenna, 1990).

The final important principle for organizational cybernetics is self-organisation. The paper by

Molleman (2001) titled, ‗Variety and the requisite of self-organisation‖, describes self-

organisation as, ―a unit‘s autonomous decision making with respect to both the transactions

it wants to realize and the way it organizes its transformation processes to achieve these

transactions‖ (Molleman, 1998).

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Cybernetics capabilities of the organisation especially the three principles are a relevant and

crucial concept for international JVs since majority of them are expected to function as

stand-alone entities with arm‘s length support from the shareholders. The literature

reviewed on the variable confirmed its criticality and importance in ensuring the

organisational viability.

2.9 Conclusion

The body of literature reviewed in the chapter enhanced the researcher‘s level of

understanding of the parent discipline, the concern, and the core-variables which emerged

from the study.

Literature reviews served a dual purpose in the study. The first purpose was to saturate the

emerging core-variables during the grounded theory process and the second purpose was

to enhance the researcher‘s body of knowledge on the parent discipline and variables.

The literature reviews also helped the positioning of the concern and the core-variables

within the current body of knowledge thereby confirming the validity of the researcher‘s

findings. It also helped the researcher identify some aspects of the parent discipline and the

concern that would require further study and these will be discussed in Chapter 5.

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3 Chapter 3: Research Methodology

The purpose of this chapter is to introduce the systems methodologies and the research

framework that was applied in the study to find the answer.


An integrated research framework underpinned by systems thinking was developed for the

study. The framework was underpinned by the Critical Realism philosophy and the

Grounded theory methodology was main research methodology used in the study. It was

also underpinned by a solid ethics framework which was applied throughout the study. The

choice of the systems methodologies that were used were guided by the phenomena under

study, the longevity, and sustainability of IJVs as value creators. To recap, the key question

that needed answering was:

What critical factors affect the longevity of international stock-broking joint

ventures in South Africa?

The research question was designed as a searching question which was aligned to the

research philosophy to search for an answer or a framework that would provide an answer

to the phenomena under study. The identification of the critical factors would provide an

answer or a model which would explain how the concern can be addressed.

The research framework and the methodology which will be covered in more detail in this

chapter provided the plan to find the answer to the research question.

3.2 Critical Realism - the philosophy of my research methodology

This research paper was approached from a critical realist perspective. In order to make

sense of the situation, the process was started by using critical realism. Critical realism is

minimally the claim that there is a real world, including a real social world, which exists

independently of our knowledge about it (Bhaskar, 1975).

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It is a philosophy which looks at reality as three different domains which are the ‗real‘, the

‗actual‘, and the ‗empirical‘. The ‗real‘ contains the causal mechanisms events and

experiences with enduring properties. The ‗actual‘ consists of events that are generated by

this mechanism whilst the ‗empirical‘ is actual observed and experienced events (Mingers,

2006).

Critical realists assume a ‗stratified ontology‘, which sees processes, events, and structures

as different strata of social reality with different properties. A distinction is drawn between

the ‗real‘, the ‗actual‘ and the ‗empirical‘: the ‗real‘ is the domain of structures with their

associated ‗causal powers‘; the ‗actual‘ is the domain of events and processes; the

‗empirical‘ is the perception of the ‗real‘ and the ‗actual‘ that is experienced by social actors

(Fairclough, 2005).

3.2.1 Epistemology – our knowledge of what exists

Epistemology is the philosophical discipline that helps us develop knowledge. It is the

branch of philosophy concerned with the nature and scope (limitations) of knowledge. The

relationship or overlap between ontology and epistemology can be summarised as follows:

ontology is the theory and nature of the world and epistemology is the theory about

knowledge of the world (Durant-Law, 2005).

It addresses the questions:

What is knowledge?

How is knowledge acquired?

What do people know?

How do we know what we know?

The diagram below depicts the representation of critical realism, the three domains as

interpreted by John Mingers (2006).

http://en.wikipedia.org/wiki/Philosophy

http://en.wikipedia.org/wiki/Knowledge

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Figure 3.1 : The Real, the Actual, the Empirical source: John Mingers (2006)

The ‗empirical‘ is made up of experiences and events through observations

The ‗actual‘ includes events whether observed or not

The ‗real‘ consists of the processes, structures, powers, and causal mechanisms that

generate the events.

Critical realists have adopted the retroductive strategy which follows the following three

steps.

1. The research begins in the domain of the ‗actual‘, with observed connections

between phenomena. The task is to explain why such connections or relationships

occur.

2. The second step is to postulate the existence of the real structures and mechanisms,

which if they existed, would explain the relationship.

3. The third step is to attempt to demonstrate the existence and operation of these

structures and mechanisms. The central problem for critical realism is how to

establish the plausibility of hypothesised structures and mechanisms given that they

are not immediately available to experience.

Reality is ‗real‘ but only imperfectly and probabilistically apprehensible and so triangulation

from many sources is required to know it (Guba & Lincoln, 2002).

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3.2.2 Ontology – what exists

This paper has followed an ontological approach and has made use of ontological

questions. Ontology is a philosophical discipline that helps us answer the question ―what is

the form and nature of reality and therefore what can be known about it?‖ (Guba, 1990). It is

also referred to as the philosophy of the worldview of reality (Durant-Law, 2005).

In systems thinking language, the worldview is called weltanschauung. Worldviews can be

thought of as views of the world through different spectacles of the observers. The reality of

the world or the situation would be different when observed by different people with different

assumptions and beliefs about the world. In this study, the worldview of the researcher was

shaped by personal experiences gained working at ABC as well as the worldviews of the

interviewed participants.

3.2.3 Application of critical realism in the study

Within the context of the study, the ‗real‘ world is represented by the stock-broking JV

businesses. The study focussed on the reality of what transpired in the JVs from the

perspective of the participants interviewed. The insights, evidence, and data presented by

the participants represents the ‗real‘ in the study.

The ‗actual‘ is events and non-events that are generated by the underlying mechanisms.

The view of the ‗actual‘ was enriched by perspectives from other stakeholders like

customers and service providers which was obtained through conversational interviews and

e-mail surveys. The ‗actual‘ includes the early termination of most JVs generated by

underlying mechanisms. All the data came from South African based stock-broking JVs.

The ‗empirical‘ world is represented by what the stakeholders actually observed and

experienced to be happening. The ‗empirical‘ was the actual experiences of the participants

who consisted of JV shareholders, management, and staff who worked in JV businesses.

Their individual experiences representing their interpretations of the situations which they

experienced was collated and consolidated into a body of data which was analysed to

ascertain and develop a better understanding of the underlying causal mechanisms which

produced the collective behaviour.

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3.3 Systems thinking and approaches

System thinking is best described as holistic thinking. It entails the art of seeing the world in

terms of wholes, and the practice of focusing on the relationships among the parts of a

system (Jackson, 2004). There are four systems approaches that were identified by

Jackson being:

Systems approaches for improving goal seeking and viability – examples are Viable

Systems Model (VSM) and Organizational Cybernetics;

Systems approaches for exploring purposes – examples are Soft Systems

Methodology (SSM) and Interactive planning;

Systems approaches for ensuring fairness – an example is Critical Systems

Heuristics (CSH);

Systems approaches for promoting diversity – an example is Postmodern Systems

Thinking.

The approaches that are most relevant to this study are the systems approaches for

improving goal seeking and viability (VSM and Organisational cybernetics). The choice and

selection of the systems methodologies used in this dissertation were guided by the System

of Systems Methodologies (SOMS) framework developed by Jackson and Keys in 1984

which is illustrated below. The SOMS framework is an ‗ideal-type‘ grid of problem situations

and contexts. Within the study the selection and justification of the use of the VSM was

guided by the power, functionality offered by the tool and the problem context.

Figure 3.2 – Systems approaches used in this dissertation (adapted from systems thinking (Jackson 2003)

Unitary Pluralist Coercive

Sim

ple

Co

mp

lex

Complex- Unitary Complex- Pluralist Complex- Coercive

Simple - Unitary Simple - Pluralist Simple - Coercive

PARTICIPANTS

SYST

EMS

VSM

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3.4 An integrated research framework

To enable the achievement of a complete set of results in the study, an integrated research

framework which combined the system methodologies and tools was developed for the

study. Utilising a single methodology would limit the ability to unearth the critical factors

required hence the preferred approach of integrating the use of the systems methodologies.

This combined approach increased the effectiveness of the research process through the

provision of a balanced perspective that enabled the generation of sound hypotheses.

Figure 3.3 - The integrated research framework developed for the study

This creative integration of systems methodologies provided a framework for discovery

through research. It enhanced the quality of the research thus making it possible for the

generation of actionable hypotheses that identified the critical factors which impacted the

longevity of IJVs.

Stage 1 – Context Setting

1. Literature review scans2. Research Design3. Stakeholders Analysis – CATWOE4. Organisational diagnosis using VSM

Stage 2 – Data Generation and Analysis

1. Critical Realism2. Grounded Theory process3. Data Analysis techniques & sof tware (Atlas.ti)4. Data coding (Level 1 and 2)

Stage 3 – Emergent Theory Formulation

1. Identification of core Variable2. Identification of causal relationships3. Development of CCLD

Stage 4 – Theoretical Coding

Finding an archetype

a) Theoretical codinga) Business Ideab) VSM

The Integrated Research Framework

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3.4.1 Stage 1 – Context Setting

The first stage of the research process entailed ensuring a complete appreciation of the

research problem and context of the study. The context setting covered the following

activities, the initial literature review, detailed research design, a stakeholder analysis, and

VSM diagnosis of ABC.

Figure 3.4: Stage 1 – Context setting part of the research framework

The initial literature review

It is well documented that when utilising a grounded theory method the researcher should

avoid conducting extensive literature reviews prior to commencing the data collection and

analysis. By avoiding a literature review at the beginning of the study it is more likely that

the emergent theory will be grounded in the data (Guba & Lincoln, 2002). General reading

of the literature maybe carried out to obtain a feel for the issues at work in the subject area,

and identify any gaps to be filled in using grounded theory but it is important that the reading

is not too extensive (Smith & Biley, 1997). In stage 1, literature reviews were utilized to

obtain background knowledge and appreciation of the research topic and context.

1. Initial literature review scans

2. Research Design

3. Stakeholders Analysis –CATWOE

4. Organisational diagnosis using VSM

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The research design

According to Joseph Maxwell (2005), research design should be a reflexive process

operating through every stage of a project. The research design consists of the following

key components, goals, conceptual framework, research questions, methods, and validity. A

detailed research design for this study is included in Appendix B.

Stakeholders Analysis

A stakeholders analysis assists the identification of key stakeholders of the phenomena

under study. A CATWOE analysis is a tool which incorporates the perspectives of multiple

stakeholders and a CATWOE analysis developed for this study was illustrated already in

Table 1.5. A stakeholders analysis also assists the identification of the stakeholders who

should be engaged as part of the study.

Organisational diagnosis (VSM)

To finalise the context setting and complete the stage 1 of the research framework, a

diagnosis of the ABC using VSM was completed. The detailed results of the VSM diagnosis

were already illustrated in Figure 1.3.

3.4.2 Stage 2 – Data generation and analysis

The data generation and analysis stage is where the research methodology of grounded

theory is applied extensively. The objective of this stage is to produce and analyse data.

The grounded theory process was developed by Glaser & Strauss in 1967. It is defined as a

qualitative research method for collecting and analysing data. It is an approach in which

theory emerges from data systematically collected and analysed in social research. It is

developed inductively from a corpus of data and it is a way of thinking about data towards a

goal of developing a theory grounded in the empirical substance of the social area.

Generating a theory from data means that most hypotheses and concepts not only come

from the data, but are systematically worked out in relation to the data during the course of

the research. Grounded theory is built on two key concepts being ‗constant comparison‘ in

which data is collected and analysed simultaneously, and ‗theoretical sampling‘ in which

decisions about which data should be collected next are determined by the theory that is

being constructed (Glaser & Strauss, 1967).

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3.4.3 The grounded theory process

The process consist of a series of steps which includes data generation from various

sources including stakeholder interviews and literature scans, data analysis, concept

formulation, concept development, emergence of core-variables, and a core-variable the

grounded theory.

It should be viewed as a package of research methods that includes the use of concurrent

data collection and constant comparative analysis, theoretical sampling and memoing, all of

which can create an awareness and an appreciation of the scientific merit required of

grounded theory research and promote quality standards relating to research practices in

grounded theory methodology (Elliot & Lazenbatt, 2005).

Figure 3.5 : Stage 2 – Data generation and analysis

Data generation methods

The researcher used face to face recorded conversational interviews as the primary data

collection method. This was the preferred method since the majority of the participants

worked at ABC. The conversational interviews method also allowed the researcher the

ability to ask further probing questions to clarify matters during the participant interviews.

Data

Generation

Data

Analysis

Concept

Formulation

Concept

Development

Data

LiteratureReviewsMemoing

InterviewsSurveysConstant

Comparison

ConversationalInterviews

LiteratureE-mail Surveys

Coding

Level 1 - SubstantiveLevel 2 – Categories

Reduction samplingSelective literature reviewSelective sampling of data

Theoretical

Sampling

Stage 2 – Data Generation and Analysis

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Personal observations and experience gained by the researcher working at ABC were also

used as a rich source of data and were used in conjunction with participant interviews.

Recognising personal involvement in the study need not be construed as a bad practice or

bias but as a source of data in its own right, particularly when rich qualitative data collection

methods are used (James & Vinnicombe, 2002). Other data sources were utilised to ensure

balanced data generation and triangulation.

Conversational interviews were held with ABC staff, management, and shareholders at

times and places most convenient to the participants. Telephonic interviews were used to

reach participants based overseas and other key participants where it was not possible to

meet face to face. E-mail surveys were utilised when telephonic and face to face interviews

were not possible. Identified participants were e-mailed a questionnaire for them to

complete and return back to the researcher for analysis.

The data generation stage was the most challenging and most time consuming since a lot of

planning and re-organisation was required to accommodate participants changing

scheduled interviews due to other more pressing commitments.

Data analysis – coding process

There are six different methods for data analysis which are listed below:

Open coding of the data for conceptual understanding.

Constant comparison of codes, concepts

Categories as they emerge from the data.

Memoing for clarity of thought.

Discovery of the core category which becomes the focus for selective coding.

Theoretical coding that investigates the links between categories.

Data analysis through constant comparison

Constant comparison is a strategic method for the generation of concepts and theory. It

verifies whether the fact is a fact. Thus facts are replicated with comparative evidence,

either internally (within a study) or externally (outside a study) or both (Glaser & Strauss,

2008).

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Constant comparison is a dynamic relationship between data generation and analysis which

enables the researcher to check if preliminary findings remain constant when further data is

collected. Constant comparison and data analysis offer the researcher an opportunity of

generating research findings that accurately represent the phenomena being studied (Elliot

& Lazenbatt, 2005).

The principle of constant comparison was continuously applied in the study through

continuous comparison of data against each other until saturation was reached. Constant

comparison of data is an iterative process checking of the evidence collected from ABC with

data collected from other IJVs. It was used as a way of validating facts towards developing

concepts and a theory.

Theoretical sampling

Theoretical sampling is the process of data collection for generating theory whereby the

researcher jointly collects, codes and analyses data, and decides what data to collect next

and where to find it in order to develop the theory as it emerges.

A distinctive feature of theoretical sampling is its function, which is to ensure that the newly

developed theory is theoretically complete. As the research progresses, theoretical

sampling will guide the questions used to collect data and indeed the sources of data, so as

to ensure the theory is developed fully (Elliot & Lazenbatt, 2005).

Theoretical sampling also identifies sources for obtaining additional data for saturation and

triangulation of categories.

Use of memoing during grounded theory process

The writing of theoretical memos is a core activity throughout the grounded theory research

process. Memos are theoretical write-ups of ideas about the codes and their relationships

as they strike the research as while coding (Glaser, 1978). Memos were extensively used

during the grounded theory process to capture participants‘ opinions and emotions were

applicable. The memoing technique was used extensively to control potential distortion

during analysis and to record personal biases. This means in grounded theory memoing has

a dual purpose of being part of the data analysis and countering subjectivity (Elliot &

Lazenbatt, 2005).

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Use of literature reviews during the grounded theory process

The use of literature reviews in the grounded theory process is a highly debated topic.

Hutchinson (1993) argued that the preliminary literature review is to sensitise concepts and

increase an awareness of the gaps in the knowledge and the second review is should be

woven into the emerging theory a stage they call the concept development stage

(Hutchinson, 1993). This study almost follows the approach suggested by Hutchinson but

will also utilize additional literature reviews to saturate and triangulate data.

The integration of critical realism and grounded theory

The study adopted a critical realist approach as its ontology and grounded theory

methodology as the epistemology approach for the research. The integration of the

approaches in the research framework enabled the researcher to establish a greater

understanding of the phenomena under study. Grounded theory enabled the researcher to

collect large volumes of data which was coded into grounded substantive codes which

interpreted stakeholder sentiments and insights.

Figure 3.6 : Three domains of reality and their interaction with grounded theory

AD

CB

AD

CB

AD

CB

Owner

Board of directors Executive Management

The Real WorldWhat caused the happening

The Actual WorldWhat has happened as experienced By key stakeholders

The Empirical WorldWhat key stakeholders actually perceive, Their explanation of actual

Use of GT to surface empirical

Data

From our observation of the Empirical we identify the problem variable that exhibits undesirable behaviour the CBOT

Grounded Theory Process

Interviews Observations Literature/

DocumentationE-mailSurveys

RESEARCH DATA

Explains the behaviour of CBOT

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3.4.4 Stage 3 – Emergent theory formulation

The theory formulation stage is a stage of the grounded theory process whose objective is

to produce an answer to the research question.

Figure 3.7 : Stage 3 - Theory formulation part of the research framework

Theory formulation

Theory formulation is about the connections among phenomena, a story about why acts,

events, structure, and thoughts occur. It mostly focuses on improving extant explanations

for what is readily observable, via a process of incremental change informed by logical

empirical or practical tests (Whetten, 2002). Developing a theory involves linking all the

variables into a ‗more holistic theory‘ (Smith, Thorpe, & Lowe, 1991).

The theory formulation phase seeks to formulate the core-variables from the data. Core-

variables emerge after rigorous constant comparison and saturation of data. Once core-

variables have emerged, they will be analysed using an inter-relationship diagraph to

understand their causal relationship. Identification of their causal relationship assists the

identification of drivers and outcomes of the core-variables.

Theory Formulation

1. Identification of core variables2. Identification of causal relationships

Stage 3 – Theory Formulation

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3.4.5 Stage 4 – Theoretical Coding - finding a coding family or archetype for the

emergent theory

The theoretical coding stage is the process that takes the core-variables to the final CLD

that answers the research question. The CLD is the answer or the emergent grounded

theory.

Figure 3.8 : Stage 4 - Theoretical coding of the emergent theory

Once the emergent grounded theory has been established, the researcher will validate the

emergent theory against established theoretical frameworks. This step enriches the findings

of the grounded theory and assists the development of well-founded set of conclusions from

the grounded theory.

The choice of theoretical frameworks to be used in the validation selection was guided by

the need to compare against theories that idealise organisational development, and

organisation viability.

The theoretical frameworks selected are the Viable Systems Model (VSM) by Stafford Beer

and the Business Idea by Kess van der Heijden.

Theoretical coding

1. Map core variables into an archetype2. Validation of theory against VSM & the Business Idea3. Formulation of final CLD that answers the question

Stage 4 – Theoretical Coding

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3.4.6 Theory validation against the viable systems model

In the study the VSM was used for dual purposes. Firstly it was applied as a diagnostic tool

to diagnose potential viability challenges faced by ABC. Secondly, it was used as a

theoretical framework used to validate the emergent theory from the grounded theory

process.

The Viable Systems Model (VSM) was selected because it is system suited for

organisational goal seeking and viability. It was developed by Stafford Beer and is one of

the most insightful and powerful tools available today for studying organisational structure

and viability. It can be used as either a design or diagnostic tool.

The VSM is made up of three elements: namely, the environment, the meta-system, and

the operation. The environment consists of all those parts of the outside world which are of

direct relevance to the system in focus. In this study the environment is the stock-broking

industry and all its components.

The VSM has five systems, being System 1 to System 5, all providing a different function to

each other and to the organisation.

Figure 3.9 Illustrating the Viable Systems Model Components

S5 Policy, ultimate authority, and identity

S4 Adaptation, forward planning, and strategy

S3 Internal regulation, optimisation, and synergy

S2 Conflict resolution and stability

S1 Primary activities

Viable Systems

Model

Has

3 Elements - Operations (S1), Meta-system (S2,S3,S4,S5),Environment (which interacts with S4)

5 Systems (S1, S2, S3, S4, S5) which have various interactions

5 Systems

Views

All organisations through Cybernetic eyes and all viable Organisations look exactlythe same

“They are all underwritten byThe same laws”

and

O

S5

S4

S3

S2

S1

Meta-system

Operation

Environment

3 Elements

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System 1 (S1) - is responsible for the primary activities of the firm. This is where all the

value chain or value-adding activities of the organisation are performed. Transformation of

inputs into outputs happens in this system.

System 2 (S2) - Co-ordinates the parts that make up S1 in a harmonious way, as well as

between S1 and higher management.

System 3 (S3) - The S3‘s function is to ensure the company policy; quality control

standards and any other internal controls are in place and are adhered to within a system.

System 4 (S4) - S4‘s role is to provide an intelligence function for the organisation. This

function liaises with the external environment and monitors external developments to see

how they are likely to impact the organisation.

System 5 (S5) - The role of the S5 system in an organisation is to establish policies and

strategies of the organisation and this is where ultimate authority of the organisation

resides.

3.4.7 Theory validation against the business idea

―The Business Idea provides a method to consider the future viability of a business

proposition in all basic aspects that together make for a longer-term success‖ (Heijden,

2001). The Business Idea was developed by Kees van der Heijden as the organisation‘s

mental model of the forces behind it‘s current and future success.

Figure 3.10: The Business Idea model

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In order to work effectively in the organisation, the Business Idea must be a rational

explanation of why the organisation has been successful in the past and how it will be

successful in the future. The model suggests that good business planning remains

important, but without a solid, underpinning business idea, the business plan is not much

more than a piece of fantasy.

Kees van der Heijden proposes asking the following questions to rationalise the outlook for

newly conceived businesses.

Understanding the evolving needs in society – What is the customer value that

generates revenue?

The entrepreneurial invention – What inventive and original insight generated this

business opportunity?

The unique activity set – What unique activities will create customer value? What are

we providing better than anybody else?

The competitive advantage – What is the competitive advantage being exploited?

How do competitors do this? What is different?

The results obtained – How is the financial surplus realised? What aspects of the

offering is the price carrier?

The distinctive competences – What resources and competences that we apply to

create our unique activity set are ours alone? What is the system that binds our

distinctive resources and competences together?

The use of theoretical frameworks to validate the emergent theory or hypotheses was

designed in such a way that it enriched the findings from the grounded theory process.

3.5 Conclusion

The integrated research framework was consciously crafted using the researcher‘s

knowledge and experience gained during the EMBA and was developed in such a way that

it positioned the study to produce valuable results from its application.

The integrated research framework provides opportunities to actively engage in the theory

building process through the process of discovery and validation of findings with known and

established theoretical frameworks.

It is the researcher‘s belief the integrated research framework as presented in this chapter

provides a solid plan to find the answer to the research question.

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4 Chapter 4: Research Results

This chapter details how the research framework was applied in the study.


The primary purpose of this chapter is to detail the results of the application of the

integrated research framework to find an answer. It provides details of the rigorous process

that was applied to formulate a substantive theory that answers the research question.

4.2 Data generation process overview

Most of data came from face to face, telephonic interviews and e-mail surveys. Primary data

came from ABC participants as well as other participants who worked at other stock-broking

JVs in South Africa. The interview schedule is supplied in the Appendix A.

The researcher had good access to the key participants at ABC representing staff,

management, and shareholders. Access to participants at BBB was more challenging hence

most of the BBB data from was either collected through telephonic interviews or e-mail

surveys.

The data generation process was both challenging and frustrating at times due to the

unavailability of participants at most times or them requesting to reschedule the interviews

at short notice. To ensure compliance with good ethical research standards, the researcher

always had to reschedule the interviews to a date and time most convenient to the

participants. Some interviews especially with the shareholders had to be rescheduled more

than three times at the request of the participants.

4.2.1 Transcription of the data

Data from the various stakeholders obtained through interviews was recorded and later

transcribed into an electronic format in preparation for coding and analysis. The researcher

found the transcription process more challenging than initially anticipated due to the amount

of time required to complete it. On average it would take the researcher about three hours to

transcribe a thirty minutes interview. Data from the study was transcribed on the same day

or very close to the interview date whilst the interviews were still quite fresh in the

researcher‘s memory to avoid some of the most common errors experienced by researchers

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when transcribing. To avoid some of the common transcription errors like superficial coding

and de-contextualisation, the researcher‘s approach was to go back to replay the recordings

to double check the interpretations based on the transcript. Where possible the participants

reviewed and verified the captured data to ensure their contributions were captured

accurately. Data from stakeholder interviews was supplemented with other data from notes

and minutes from ABC‘s executive management and board meetings.

4.2.2 Coding Software

The researcher used qualitative analysis software called ATLAS.ti (www.atlasti.com) to

assist the coding of the data. The researcher manually coded the data using the software

instead of using the automatic coding functionality. The manual coding functionality ensured

the researcher interacted with the data and observe the concepts and categories emerging

directly from the data.

The software was useful for efficient storage and organisation of data. It also improved

efficiency of the coding process through its ability to facilitate coding of data from multiple

data sources which enriched the data collection process.

4.2.3 Data analysis (coding)

Coding consists of identifying one or more passages of text that exemplify some thematic

idea and linking them with a code which is a shorthand reference to the thematic idea

(Gibbs, 2007). After transcribing the data into Microsoft excel, it was then imported it into the

ATLAS.ti software for manual coding. The software supported three coding techniques,

namely open coding, coding by list, and substantive coding. These coding techniques are

described as follows:

Open coding – This is when the researcher created own code definitions based on

his understanding of the text. The researcher generated these codes by asking

questions about what the data was telling. A phrase or a word that best captured the

meaning from the data was used as the code.

http://www.atlasti.com/

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Substantive coding – This is when the researcher created a code definition from an

existing text or short phrase from the actual language as supplied by the participants

in the study.

Coding by list – This is when the researcher reused an existing code definition

created earlier either substantively or when open coding was used.

The coding generated a pool of 235 propositions or code definitions. An extract of some of

the codes is illustrated below.

Figure 4.1: An extract of level 1 codes from ATLAS.ti

The researcher‘s guiding principle during coding was ensuring that the true richness of the

data was captured by creating meaningful codes linked into the data meaning. Participants‘

opinions and emotions were captured in memos to ensure the coded data remained factual.

The memos were also coded since they are regarded an important source of data.

4.2.4 Concept formulation

The generated propositions were coded into level 1 codes which were then used to develop

higher level code categories (level 2).The categorisation process was achieved through a

process of constant comparison and reflection on the level 1 propositions and concepts.

Constant comparison consists of comparing codes against each other and is a continuous

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process that is performed throughout the grounded theory process (Gibbs, 2007). A total of

twenty level 2 categories emerged from the process and some examples are illustrated

below.

Level 1 Coding Level 2 Categories

Clarity of roles and responsibilities

Clear reporting lines

Partner responsibilities

Level of partner involvement

Clear staff roles and responsibilities

Clear roles and responsibilities

Compelling business vision

Clear business objectives

Common shareholder goals

Compelling vision & objectives

Table 4.1 : An example of some of the level 2 categories

4.2.5 Theoretical sampling

Theoretical sampling assisted the further data collection, review and analysis process as

well as identifying sources for obtaining additional data to saturate and triangulate the

categories.

4.2.6 Categories development and saturation

To further enrich the concepts and categories that were emerging from the process,

additional literature reviews were performed to saturate the emerging categories. This

process was continued until saturation of the emerging categories was achieved. The

literature reviews were conducted using the reputable data sources e.g. McKinsey quarterly

review journals, Harvard business review journals and other publicly available data on JVs

from credible sources like the Finance week publication. These literature reviews were

conducted until data saturation was achieved. This step was an important one as it resulted

in the emergency of the core variables.

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4.2.7 The emergence of the core-variables

Five core-variables representing the critical factors which affect the longevity of IJVs

emerged from the process and are listed below.

The emergent five core-variables

The extent of

business

autonomy

Cybernetic

capabilities of

the organisation

The

development of

a sustainable

competitive

advantage

Availability of

enabling

business

resources

The articulation

of a compelling

vision and

objectives

Table 4.2 : Five core-variables that emerged from the grounded theory

The researcher will illustrate the emergence process using one of the variables. The

emergence process for the rest of the core-variables was quite similar so this process will

not be repeated for each and every one of the variables to avoid repetition.

The extent of business autonomy will be used for this illustration. The naming of this

variable was quite challenging because two strong level 2 substantive codes were part of

this variable being, leadership Independence and level of business autonomy. The extent of

business autonomy was chosen since it captured the essence of the two level 2 categories.

The extent of business autonomy core-variable was made up of the following level 2

categories which are described in detail in the next table:

leadership Independence

level of delegated authority

unique culture & identity

level of business autonomy

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The extent of business autonomy core-variable

Level 1 codes

& concepts

Level 2

categories

Concept description Justification for inclusion in

this core-variable

CEO

Leadership

JV CEO should

be independent

Unbiased

leadership

Leadership

Independence

Leadership

Independence

This was derived from the

data which indicated that

the CEO and the

leadership of JVs should

be independent and serve

the interests of the JV and

not be biased to one

shareholder.

Participants and the

literature identified this as

one of the critical success

factors for JVs.

The lack of CEO leadership

and independence was

identified as one of the

reasons some JVs were not

successful.

Leadership independence is

important for the

establishment of an

autonomous JV.

Executive

management

with real power

Level of

business

independence

Delegated

authority

Management

empowerment

Level of

delegated

authority

This was substantively

coded from the data. The

shareholders should give

enough authority to the JV

management to run and

operate the business.

This is important for the JV

to be able to operate.

Data shows that a lack

authority restricts

management from

effectively running the

company hindering the

success and sustainability of

the JV.

This gives the JV the power

to exist autonomously hence

its inclusion in this variable.

Stand alone

business

Level of

business

Also substantively coded

and means the JV

business should be

This is the anchor of this

variable. This came up in

various interviews and

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Highly

independent

business

The extent of

business

autonomy

Business

empowerment

with decision-

making

autonomy established as a stand-

alone entity existing

autonomously from the

shareholders.

Substantively coded. In

legal terms means the JV

should be a separate

‗juridistic person‘ capable

of separate independence

and making own decisions.

literature as a key driver for

the success of the JV.

For stock-broking JVs it

becomes even more

important since it means the

JV can be operationally

independent from the

shareholders.

This also means the JV can

be self- governed and

managed as a separate

entity.

Establish own

culture

Unique culture

& Identity

Common

beliefs

Unique

culture &

identity

Also substantively coded

from data and is a

characteristic of

independence and identity

of the JV.

Unique culture and identity

is important for JV

cohesion and teamwork.

This was identified by most

participants as key to the

success and sustainability of

JVs.

JVs which are a hybrid of

the two partners lack market

differentiation and struggle

with market presence.

The existence of a unique

culture is a key

characteristic of business

autonomy hence its

inclusion.

Table 4.3 : An illustration of the emergence of the extent of business autonomy core-variable

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4.2.8 Inter-relationship diagraph of the core-variables

Figure 4.2 : Inter-relationship diagraph of the core-variables

The emergent core-variables were used to develop the emergent theory. This was done by

integrating the core-variables to develop a theoretical framework. To establish the

relationships between the core-variables, an inter-relationship diagraph (ID) was used as

depicted above. The use of an inter-relationship diagraph enables one to build contextually

relevant theories (Ryan, 2009).

The ID enabled the systematic analysis of the cause and effect relationships of the variables

in order to identify the drivers and outcomes in order to develop the grounded theory of

―what is happening‖ in the situation. Establishing the driver(s) enables one to identify the

core-variable that has the most effect on the concern variable or the CBOT (Ryan, 2009).

The articulation of a compelling vision and objectives and the cybernetic capabilities of the

organisation variables emerged as the drivers of the concern variable. The extent of

business autonomy emerged as one of the outcomes. The drivers are the variables with the

strongest impact on the concern (longevity of IJVs).

Cybernetic capabilities of the

organisation

The level of development of an organisational DNA


Articulation of a compelling

vision & objectives


Driver

Strongest Driver

Outcome

IN OUT

1 4

IN OUT

0 5

IN OUT

3 2

IN OUT

2 3

IN OUT

4 1

Joint venture Longevity

CBOT

IN OUT

5 0

Key Outcome

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4.2.9 Definition of variables

Variable

Reference

(Constituent Definition) What?

Sense

(Semantic Definition)

Functional Definition

(Why would you use this in your business?)

Operational Definition

(How would you change the variable?) What practical and concrete action would you take

Articulation of a compelling vision and objectives

This is the core driver of all the variables

The strategic intent or the purpose of the establishing something.

Increases the ability of the JV to plan and implement its future objectives. Clarity of this variable increase the longevity of JVs

Articulation of a clear vision for the organisation Strengthening of the policy making function of the organisation Establishing a strong board of directors. Communicating the vision to all stakeholders

Cybernetic capabilities of the organisation

This is a driver of the autonomous business, organisational DNA and Enabling business resources

JVs need the ability to exist independently of the shareholders. A systems thinking philosophy based on the three cybernetic laws of feedback, self-organising and requisite variety

Cybernetic capabilities increase the ability of the JV to operate as a stand-alone business. An increase of this variable increases the longevity of JVs

Defining a clear vision and strategy of the organisation Empowerment of the organisation with fully operational authority Little interference in the operations of the business Appoint experienced management team


This is an outcome of the various interactions of the variables.

A stand alone business capable of independent existence. The management is fully empowered and has authority to manage and operate the business as designated by the board or shareholders

Increase the level of independence of the JV and ensures little interference by the shareholders Reduces dependency on shareholders and increase longevity of JVs

Increase CEO leadership of the JV Reduce shareholder interference in business operations Allocate sufficient resources to the JV Autonomy Freedom

Availability of enabling business

This is driven by the articulation of

This is based on the resources based view theory

Increases the ability of the business to serve

Allocate the JV sufficient budget Allocation of sufficient

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resources a compelling vision and objectives and the cybernetic capabilities of the organisation

which suggests that firms require enabling business resources which they can develop into unique or leading edge capabilities to create competitive advantages.

it customers and increases the ability of the JV to exist as an autonomous business

resources managing resources as assets

The development of a competitive advantage

This is driven by the cybernetic capabilities of the organisation and the availability of enabling business resources

The institutionalisation of the organisation's resources, people, systems, and processes to create a unique competitive advantage which is difficult to copy by competitors.

This increase the level of competitiveness of the JV and its ability to exist as an autonomous business.

Continuous improvement of products, processes and people Innovation

Articulation of a compelling vision and objectives

This is the core driver of all the variables

The strategic intent or the purpose of the establishing something.

Increases the ability of the JV to plan and implement its future objectives. Clarity of this variable increase the longevity of JVs

Articulation of a clear vision for the organisation Strengthening of the policy making function of the organisation Establishing a strong board of directors Communication the vision to all stakeholders


This is a driver of the autonomous business, organisational DNA and Enabling business resources

JVs need the ability to exist independently of the shareholders. A systems thinking philosophy based on the three cybernetic laws of feedback, self-organising, and requisite variety.

Cybernetic capabilities increase the ability of the JV to operate as a stand- alone business. An increase of this variable increases the longevity of JVs

Defining a clear vision and strategy of the organisation Empowerment of the organisation with fully operational authority Little interference in the operations of the business Appoint experienced management team

Table 4.4 : 4D Definition of variables

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4.2.10 The theory development process

To develop theory from the results, the study needed to develop a detailed understanding of

the variables and how they interacted with each other. The ID provided a good starting

block by defining the inter-relationships of the variables and identifying the drivers and

outcomes.

By means of a concern causal loop diagram (CCLD), the results from the grounded theory

process created from data gathered during the study will now be presented. To recap, the

concern behaviour over time (CBOT) was the longevity of IJVs. The study sought to

understand what critical factors impacted the longevity of IJVs as sustainable value

creators. The results from the study indicating the factors that were identified to be

impacting the concern will now be introduced loop by loop.

4.2.11 The articulation of a compelling vision and objectives loop (strategic intent)

The study established that the, articulation of a compelling vision and objectives loop was

weak at ABC since a clearly articulated vision and objectives could not be established.

Without a clear vision it means the strategic intent of the IJV is not clearly established.

The study established that the articulation of a compelling vision and objectives was the

main driver of the concern. Since this variable could not be established at ABC, this could

offer some explanation or the reason the IJV was short-lived. A compelling vision will drive

the level of cybernetic capabilities of the organisation or IJV which will lead to an increase in

the extent of business autonomy which enhances the longevity of the business.

It is important that all three components of the strategic intent variables are strengthened or

increased to positively impact the concern variable.

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Figure 4.3 : Strategic intent loop

The strategic intent is the purpose and reason for the establishment of the IJV and a lack of

or a deficiency of any of these variables would negatively impact the longevity of IJVs.

The level of cybernetic capabilities of the organisation variable observes and obeys the

three cybernetic laws: being self-organising, feedback, and requisite variety. The essence of

cybernetic organizations is that they are self-controlling, self-maintaining, self-realising.

(Ericson, 1973).

The study also established that the autonomy of the business is an important aspect

required for longevity of the IJVs. BBB which has outperformed the longevity of other IJVs

was established as a completely self-standing business which supports the claim that

autonomy is important for longevity.

The importance of clearly defining a strategic intent cannot be underestimated as evidenced

above. A desultory or superficial strategic intent negatively impacts the longevity of IJVs or

any type of business for that matter.

4.2.12 Distinctive competences loop

The distinctive competences loop consists of the cybernetic capabilities of the organisation,

availability of enabling business resources and the articulation of a compelling vision and

objectives variables. A distinctive competency is achieved by building distinctive resources

and competences not available by others. It consists of uncodified institutional knowledge in

networked people and in embedded processes (Heijden V. D., 2001).

Cyberneticcapabilities of

theorganisation

Articulationof a

compellingvision andobjectives


+

+

+

Stategic intent

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Figure 4.4 : Distinctive competences loop

The study established that at ABC, the IJV lacked access to enabling resources from the

shareholders which limited its ability to develop the required distinctive competences.

Budgetary constraints hindered the development and implementation of required IT systems

and capabilities. The participants from IT clearly highlighted that funding for integrating

systems was never approved and at times it was quite difficult to get budget to fix some of

the systems which needed attention. Neither shareholder wanted the JV to be

technologically dependent on either of the shareholders. During the interviews one of the

participants representing one of the shareholders clearly articulated, ―The IT systems of the

JV should not be tightly integrated into any of the shareholders as it will create problems

when it is time to go our separate ways‖.

Technology plays a vital role in the stock-broking industry since the majority of business

processes are technologically driven, in particular electronic trading and investment

research publication and distribution. A JV with less developed distinctive competences will

find it hard to compete in this very competitive industry. A lack of this capability negatively

impacted ABC‘s longevity.

Cybernetic

capabilities

of the

organisation

Articulation

of a

compelling

vision and

objectives


++

+

Distinctive

Competences

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4.2.13 Competitive advantage loop

The competitive advantage loop consists of the cybernetic capabilities of the organisation,

availability of enabling business resources and the development of sustainable competitive

advantage variables. A competitive advantage is built by the rational identification and use

of resources that are valuable, rare, difficult to copy, and non-substitutable which lead to

enduring firm variation and supernormal profits (Barney, 1991).

Figure 4.5 : The competitive advantage loop

By harnessing rare enabling business resources and institutionalising a high stock-broking

etiquette or culture into the operations of the business, a sustainable competitive advantage

will be created.

The study could not find any established competitive advantages for ABC but established

that BBB‘s ability to consistently produce actionable accurate investment research was

unparalleled in the market. A unique blend of global research skills and resources combined

with leading edge IT systems was developed into a sustainable competitive advantage

which was proving to be a competitive advantage which no other brokers could currently

emulate.

The CCLD combining all the loops showing all the core-variables previous discussed is now

presented. The identified core-variables are the critical factors that impacts the longevity of

IJVs which the study undertook to establish.

Cyberneticcapabilities

of theorganisation

Availabilityof enablingbusiness

resources

+

Competitiveadvantage loop

Thedevelopment

of acompetitiveadvantage

+

+

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Figure 4.6 : Concern causal-loop diagram (CCLD) of the factors that impact longevity of IJVs

The study established that the clear articulation of a compelling vision and objectives will

influence the positively impact the level of cybernetic capabilities of the organisation and this

will result in an increased levels of business autonomy. It also influences the effective

utilisation of enabling business resources will drive the creation of a sustainable competitive

advantage for the JV. The articulation of a compelling vision and objectives will also

influence the creation of an autonomous business and this positively impacts the concern. It

was established that an increase in the level of any of the core-variables will have a positive

impact on the concern (increase longevity) whilst a decrease of the same has a negative

effect (decrease longevity).

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4.2.14 The emergent theory or framework (the answer)

The emergent theory suggested that, the articulation of a compelling vision and objectives

together with the increase in the level of cybernetic capabilities of the organisation are the

drivers of a strategic intent which elaborates how to utilise available enabling business

resources in order to create a competitive advantage. This enhances the extent of business

autonomy thereby enhancing the longevity of IJVs as sustainable shareholder value

creators.

The emergent theory clearly highlights that the answer to the question and to address the

concern is not a single variable but consists of a systematic integration of the

core-variables. This systematic integration is what the researcher regards as a model to

enhance the longevity and sustainability of IJVs.

Figure 4.7 : The proposed model or framework to increase sustainability of IJVs


The development of a competitive advantage



Articulation of a compelling vision & objectives

Emergent Theory Framework

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The components of the model are unpacked further below.

i. The articulation of a compelling vision and objectives (strategy) is required to provide

the JV with the strategic direction, plan of action and activities, and reason for

existence for the business. The core-variable encompasses the vision, the strategic

thinking, and the plan of the JV.

ii. The cybernetic capabilities of the organisation are important to ensure that JV is self-

managed, self-regulated, and self-controlled. Cybernetic rules will ensure that the JV

develops monitoring systems and processes in order to take corrective towards its

own plans and processes and reduce the dependency on the shareholders.

iii. The availability of enabling business resources is crucial to enable the business to

develop the required capabilities that will enable it to serve customer needs.

iv. The development of a sustainable competitive advantage is developed when the

organisation institutionalises the best practises that enable it to efficiently serve its

customers and enhances the level of competitiveness of the organisation and

positively impacts the concern.

v. The extent of business autonomy is established through the empowerment of the

leadership team and the level of independence they are granted. It was found to be

an important factor that enables IJV businesses to exist and operate independently

from the shareholders.

4.2.15 Validating the core variables against established theories

The emergent theory variables (answer) were validated against some established theories

or business frameworks. The theories used for validation were the Viable Systems Model by

Stafford Beer and the Business Idea by Kees van der Heijden.

The importance of this step is that it locates the findings within the scope of existing body of

knowledge. It validates that the study did not produce a new body of knowledge but the

findings can be located in the existent body of knowledge in this case Van der Heijden‘s

Business Idea theory.

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Validating the answer against existing business models

Beer‘s Viable Systems Model

Van der Heijden‘s

Business Idea

The articulation of a compelling vision and objectives

The level of cybernetic capabilities of the organisation



The development of a sustainable

competitive advantage

Table 4.5 : Validating the core-variables of the emergent theory against established business theories

Validation against the VSM

On validation against the VSM, the study established that the emergent theory does not

satisfy all the components that make the VSM model. The availability of enabling business

resources and the development of a sustainable competitive advantage could not be fitted

into any of the VSM components.

Validation against the Business Idea

Emergent theory component The Business Idea Component

The articulation of a compelling vision

and objectives

Can be matched with the Entrepreneurial invention

of the Business idea. This refers to the strategic

intent of the business

The level of cybernetic capabilities of

the organisation

Can be matched with the Distinctive Competences

of the organisation. They enable the organisation to

self-organise

Availability of enabling business Can be matched to the Resources component of

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resources the Business Idea. Enabling resources re-enforces

the Distinctive competences of the organisation

The extent of business autonomy Can be matched to the Results component of the

Business Idea. Business autonomy was established

as an outcome in the emergent theory therefore it

represents the results

The development of a sustainable

competitive advantage

Matches directly the Competitive advantage

component.

Table 4.6: Mapping the emergent theory to the Business Idea

4.2.16 Articulation of a articulation of a compelling vision and objectives

The study revealed that the articulation of a compelling vision and objectives within an IJV

revolves around the establishment of strategic intent of the business which sets the

business direction. A clearly articulated vision of the JV could not be established at ABC.

The lack of this variable could be part of the reason the JV was terminated. The study

clearly established that a clearly articulated vision has a positive effect of increasing the

longevity of the JV. This theory is confirmed by Stafford Beer‘s VSM theory which states

that every viable system should have a system responsible for performing the organisation‘s

policy making and strategy functions. In the VSM these functions are performed by Systems

5 and 4 respectively.

Van der Heijden‘s Business Idea theory also supports the articulation of a compelling vision

and objectives through the entrepreneurial intervention component of the theory. The theory

suggests that the entrepreneur should have a vision of creating a business or a product that

will satisfy customer needs. Recognizing potential customer value alone is not enough. The

entrepreneur also needs to have an idea of how he is going to make a contribution toward

relieving the scarcity (Heijden V. D., 2001).

The validation of this variable with these two established theories provides the validity of the

finding and confirms its relevance.

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4.2.17 The cybernetic capabilities of the organisation

The study revealed that for an IJV to increase its longevity, it needed to abide by the

cybernetic rules of self –organisation, requisite variety, and feedback. This was confirmed

by the fact that this variable was established to be one of the drivers of the variables. JVs

need to be self-organising systems to enhance their longevity. Self-organising systems have

many purposes, some of which may not be obvious. However they all share the need to

remain viable. This simply means that they share the aim of continuing to exist, at least until

the time when their purpose has been achieved (Beer S. , 1984).

Van der Heijden‘s Business Idea theory confirms the feedback principle of cybernetic

capabilities of organisation through the use of positive feedback loops. A business that

wants to survive needs to develop a virtuous (positive feedback) loop that feeds back some

of the benefits of its unique performance into investments that maintain distinctive resources

and competences , allowing the firm to continue to operate a unique activity set from which

competitive advantage is derived (Heijden K. v., 1996).

The fundamental nature of organisations can usefully be understood by conceptualising it

as a cybernetic system of loops in a network of relationships, both internal as well as

external. Firms can be interpreted as systems of feedback loops, designed to maintain

favourable conditions for one dominant positive feedback loop, based on its business idea,

which creates the growth of the enterprise (Beer S. , 1984).

The validation of the varibale as illustrated above also confirms the validity and relevancy of

the variable as an important factor that impacts the longevity of IJVs.

4.2.18 Availability of enabling business resources

This concept is confirmed by the resources component of the business idea. Resources are

a positive feedback loop, in which resources generated drive growth. Establish the

underlying logic of how self-reinforcing system can strengthen the competences driving the

activities and alternatively how the self-reinforcing system can lead to a collapse (less

surplus leading to fewer resources, leading to weaker competences, leading to less surplus,

etc.). Consider the options for keeping the loop working in a growth (Heijden K. v., 2001).

Availability of enabling business resources enables the JV to develop distinct capabilities

which positively impact growth and the longevity of the business. The situation at ABC

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clearly indicated that the JV did not have access to all the required resources especially in

IT as demonstrated by the budget constraints. This impacted the JV‘s ability to drive its

growth through a reinforcing resources positive feedback loop.

4.2.19 The development of a sustainable competitive advantage

The development of a sustainable competitive advantage is a competitive advantage

created through effective use of a firm‘s resources, processes, and people. This concept is

confirmed by Van der Heijden‘s theory of the Business Idea which used Michael Potter‘s

(1986) concept of a competitive advantage. According to Porter, a competitive advantage

comes from two sources being product differentiation and cost leadership.

Distinctive competences are used to create a differentiated product (competitive

advantage), the characteristics of which cannot be matched by the competition and for

which the customer is prepared to pay a superior price compared to what they would pay

the competition (Heijden K. v., 2001)

A JV‘s differentiated new products, processes, people, and services can be used as a

source of building competitive advantages.

4.2.20 The extent of business autonomy

The concept of the extent of business autonomy is confirmed by Stafford Beer‘s VSM. He

believed that effective organisations should maximise the freedom of their participants,

within the practical constraints of the requirements for those organisations to fulfil their

purpose.

The concept is also confirmed by the results component of the business idea. Results offer

feedback to the business which allows the business to make required changes which

enhances autonomy and longevity.

4.3 Conclusion

The application of the research framework established five core variables which provided an

answer to the research question. The study established that the emergent theory variables

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are the critical factors that impact the longevity of IJVs which the research question sought

to establish.

A detailed discussion of the implications and significance of the results is discussed in detail

in Chapter 5.

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5 Chapter 5: Conclusions and Evaluations

This chapter provides the conclusion and evaluation of the study. It evaluates the validity

and trustworthiness of the findings including an ethical evaluation of the study. It also

highlights areas for further study as well as the limitations of this study.

5.1 Significance of the answer

The study established five critical factors which affect longevity of IJVs. These critical

factors can be mapped into Van der Heijden‘s Business Idea concept as illustrated in the

Chapter 4 and below. The significance of this is that this means that IJVs which need to

enhance their longevity need to consider implementing the variables of the Business Idea

model. The answer could not be implemented at ABC since the business was terminated

early in 2011 but is relevant current and future IJVs.

Figure 5.1: Answer causal loop diagram (ACLD) of the findings

These critical factors provide a plausible explanation of the causal mechanisms that cause

IJVs to be short-lived. The lack of a Business Idea framework can be the reason the

majority of the JVs are terminated before reaching the end of their terms.

Cybernetic

capabilities

of the

organisation

Articulation

of a

compelling

vision and

objectives


Thedevelopment

of asustainablecompetitiveadvantage

++

+

+

Longevity

of stock

broking JVs


+

+

+

+

+

++

+

Sustainablelevels of

stakeholdervalue

Sustainable

levels of

shareholder

wealth and

value

Strategic intent

Distinctive

competences

Competitive

advantage

Core-Variable

Concern

Results

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5.1.1 Possible implications of the answer

Implications of the core-variable

The answer could mean shareholders need to make some possible changes with regards to

the way they establish and manage IJVs. Most importantly they need to ensure they have a

clearly articulated strategic intent (vision and objectives) when they establish new IJVs. For

IJVs which are already operation without a strategic intent, it is highly recommended that

this is established and communicated to management and staff.

Implications of the extent of business autonomy variable

Shareholders will also need to ensure that they establish IJVs as autonomous businesses.

This could mean that shareholders should be prepared to delegate more authority to

management so that they can effectively run the business. This could also mean the CEO of

the business should be entrusted to operate the business reporting to the owners. It could

also mean that the involvement of owners in business management could need to be

restricted unless necessary.

Implications of the availability of enabling business resources variable

Shareholders of IJVs will need to ensure that the IJVs have access to required enabling

business resources. This could imply capital outlays or investments on the part of the

owners to ensure the IJVs have the required access to the resources. Resources can be in

the form of human capital, assets, or other.

Implications of the cybernetic capabilities of the organisation variable

This could mean that management of IJVs develop processes and controls that will enable

them to self-organise, monitor feedback, and have the requisite variety required to deal with

the complexities associated with IJVs.

Implications of the development of a sustainable competitive advantage variable

This could mean IJVs need improve or work on their innovation levels so that they can

establish competitive advantages on the differentiated product front. It could also mean

being efficient in their processes such that they can identify cost efficiencies which could

give them cost advantages which they can turn into competitive advantages.

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5.1.2 Some practical suggestions for future IJVs

The following section details some practical suggestions for consideration by future IJVs.

Ensure the goals and exit strategies of the partners are aligned. The exit strategy

should be clearly articulated upfront and included in the shareholders agreement.

Where possible avoid 50/50 ownership. One partner should have control. 50/50

ownership JVs can erode speed and alignment of decision making. According to

research conducted by Accenture, 51/49 JVs are increasing in popularity especially

in Asia and Europe. The data and challenges experienced by ABC are supportive of

this as well.

Ensure a strong governance structure that balances business goals with risk. Have

an external auditing firm, audit the IJV annually.

5.2 Evaluations of the study

The Strauss and Corbin (1998) evaluation criteria consist of two sets of criteria for

evaluating the grounded theory being, the research process, and the empirical grounding of

the findings.

The study will be evaluated using the criteria as presented below.

Component of the study Evaluation

Research process The study made use of an integrated research

framework which positioned it to discover valid

findings. Participants from ABC, BBB and other

stakeholders were engaged to ensure the views

and data were triangulated. Literature from

reputable sources was utilised which enhanced the

validity of the process.

Empirical grounding of the research

findings

Three of the final core-variables were substantively

coded which enriched the findings and meant the

emergent theory was grounded in the data.

The core-variables could be mapped into an inter-

relationship diagraph which explained the

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systematic relationship of the concepts. This

validates the interrelatedness of the concepts and

enabled the formulation of a systematic theory.

The study determined five critical factors that affect

the longevity of IJVs. These were evaluated against

proven business theories.

Table 5.1: An evaluation of the grounded theory using Strauss & Corbin criteria.

The universal criteria proposed by Hammersley (1992) suggest that grounded theory should

be evaluated against validity and relevance. The suggested EMBA criteria as suggested by

Tom Ryan uses relevance, utility, validity and ethical considerations and thus will be used

for this study.

5.2.1 Relevance

The study sought to establish the critical factors affecting the longevity of IJVs. Whilst the

findings were based on a case study, it is the researcher‘s belief that these have wider

relevance to other IJVs as well as other business types.

The answer identified the critical factors and proposed a business model that can be

applied to address the concern and the question. The relevance of the answer was further

substantiated by testing it against established business models to enhance its standing as a

valid answer.

5.2.2 Utility

The answer has utility in the sense that the proposals are practical and actionable in the

real world. Given the relevance established above, the establishment of a credible answer

was of significance to future stock-broking JVs and to the researcher since he plans to

establish his own JV in future therefore it has utility.

The answer can be implemented by current and future IJVs or any other type of business

that is concerned with its longevity or sustainability. The answer is a systematic integration

of the critical factors (core-variables) that affect the concern enhancing its utility.

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5.2.3 Validity

To ensure validity of the research findings, the following steps were taken:

a) Use of appropriate and accepted systems thinking tools and methodologies from the

sense making stage to data collection, analysis, and evaluation. Some of the tools

and methodologies used include critical realism and grounded theory.

b) Incorporation of multiple stakeholder perspectives representing ABC, BBB, and other

stock-broking JVs. This helped to eliminate any potential bias that might arise from

analysing and coding data from a single JV.

c) Data collected from primary methods (conversational interviews) was triangulated by

data from other secondary collection methods like e-mail surveys and telephonic

interviews.

d) Most data was validated by the research participants when possible to ensure

accurate capture of the data from interviews. Second interviews were also conducted

at times to validate the participant‘s contributions.

e) The validity of the research was further enhanced by the use of available literature

within the current body of knowledge.

5.3 Quality assurance of the study

To ensure quality assurance, the study was evaluated against the qualitative research

criteria suggested by Lincoln and Cuba (1985) which is includes the following aspects which

will be discussed in detail:

Credibility,

Transferability,

Dependability and

Confirmability

5.3.1 Credibility

To ensure credibility of the study, data was obtained from participants who represent more

than one IJV. The participants were also drawn from various levels of the organisations

starting from shareholders representatives, management, and staff. The engagement of

both sides of the shareholder representatives enriched the credibility levels of data through

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the provision of perspectives from both sides. It also eliminated any potential bias by

participants‘.

Data was drawn from IJVs which were regarded as success (BBB) as well as other

regarded as unsuccessful. This enhanced credibility and provided balance of perspectives.

Data was also obtained from Customers and Suppliers of IJVs to obtain multiple

perspectives and triangulation of the data.

Literature reviews were conducted using only credible like academic journals and books

written mostly by subject matter experts.

5.3.2 Transferability

The framework used for the study is generic, based on established theories, and can

generally be applied. These finding should generally be applicable to all joint venture

business and are not specific to international stock-broking JVs only. It is the researcher‘s

strong belief that the findings are generally applicable and transferable to other types of

businesses and are not specific to JVs. Any type of business that would like to increase its

sustainability levels can apply the findings.

The researcher could not identify any reasons why the findings could not be transferable to

any other JVs or international joint ventures as well as any other type of business hence it is

their strong belief that the findings are transferable. The ability to map the findings to well

known theories in this case the Business Idea developed by Kess van der Heijden,

enhanced the levels of transferability of the findings to all business types.

5.3.3 Dependability

The dependability of the study was established two-fold. Firstly the researcher used well

established systems theories and methodologies during the study to enhance the

dependability of the research process and findings.

The dependability was further enhanced by the use of advanced software during the coding

of the data. The use of the software ensured dependability of the coding process since the

data can be re-analysed by going back to the Atlas.ti database to further interrogation and

analysis.

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A measure which might enhance the dependability of qualitative research is the use of an

―inquiry audit‖, in which reviewers examine both the process and product of the study for

consistency. The process and product of this study can be audited by back to the atlas.ti

database.

5.3.4 Confirmability

The confirmability of the study is provided by the available audit trail which consists of the

following:

raw data on the recorder,

data transcripts of the interviews,

coded data (available in the Atlas ti database),

personal notes and

downloaded research materials as well as books.

The availability of the above listed sources provides the confirmability of the study.

5.4 Ethics

Ethical considerations were central to the research process from the data gathering stage to

the identification of the answer stage. According to Velasquez, ethics is the discipline that

examines one‘s moral standards or the moral standards of society (Velasquez, 2006).

The model was used to evaluate the study‘s ethical considerations. Overall there was no

evidence of infringements with the ethical rights and morals to any of the groups involved in

the study.

The answer that was established by the study was not implemented but the ethical

implications of implementing the answer will be considered and evaluated.

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Stakeholder

group

Utilitarianism:

Does the action as far

as possible, maximise

social benefits and

minimise social injuries

Rights and Duties:

Is the action consistent

with the moral rights of

those whom it will

affect?

Justice:

Will the action lead

to a just

distribution of

burdens and

benefits

Caring:

Does the action

exhibit

appropriate care

for the well-being

of those who are

closely related or

dependant on

oneself?

Staff of ABC,

BBB and

other stock-

broking JVs

If the longevity of

IJVs is enhanced,

the JV staff will

benefit from the

enhanced

longevity of the

business since

their employment

life is increased.

Management and

staff will benefit

from enhanced

career

advancement

opportunities.

The rights of staff to

decline to

participate in the

study were

observed and

respected.

The study did not

propose anything

that undermines the

rights of the staff.

There was no

evidence of

injustice during

the study and

the researcher

does not

foresee any

potential

injustice if the

proposed

answer is to be

implemented in

the future.

Caring was

demonstrated

through the

willingness to

reschedule the

interviews

when

participants

could not

make the

interviews.

Some

interviews had

to be

rescheduled

more than

three times.

The most

convenient

participation

method to the

participants

was used all

the time.

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ABC

Executive

Management

Will benefit from

possible

enhancement of

career

advancement

opportunities due

to enhanced

longevity of IJVs.


decline to

participate in the

study were

observed and

respected. Two

identified

participants

declined to

participate in the

interview process.

Implementation of

increased

delegated authority

to management will

empower the

management team.

The study does not

propose anything

that undermines the

rights of these

stakeholders.

They will

benefit from

increased

powers due to

increased

delegated

authority.

Caring was

demonstrated

through the

willingness to

reschedule the

interviews.

Giving them

more authority

is caring for

them.

ABC Board

of directors

Will benefit from

enhanced career

advancement

opportunities


decline to

participate in the

study were

observed and

respected.

The delegation of

authority to

management might

Ultimately they

will benefit from

burden reduced

caused by

delegation of

authority to

management.

Caring was

demonstrated

through the

willingness to

reschedule the

interviews and

honouring

their request

of not

disclosing

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reduce some of the

directors‘ power but

will also reduce

their workload.

Ultimately they will

benefit from the

action.

their names as

well as the

real names of

the firms in the

study.

ABC

Shareholders

Will benefit from

enhanced value

and wealth

creation

opportunities.


decline to

participate in the

study were

observed and

respected.

The study does not

propose anything

that undermines the

rights of these

stakeholders.

The study does not

propose anything

that undermines the

rights of these

stakeholders.

There was is

evidence of

injustice during

the study as

well in the

proposed

answer

implementation.

Caring was

demonstrated

through the

willingness to

reschedule the

interviews and

honouring

their request

of not

disclosing the

name of the

firms in the

study.

Customers

and suppliers

of IJVs

Will benefit from

enhanced service

and value created

by the IJV.

The rights of

customers and

suppliers to decline

to participate in the

study were

observed and

respected.

The study does not

propose anything

There was no

evidence of

injustice during

the study as

well in the

proposed

answer

implementation.

Caring was

demonstrated

through the

willingness to

reschedule the

interviews.

The

confidentiality

of the

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that undermines the

rights of these

stakeholders.

participants

and their

organisations

is maintained.

Table 5.2 : An ethical evaluation of the research process and answer

5.5 Recommendations for further study

Throughout the study process, the researcher came across many aspects of the parent

discipline which this study could not get into and therefore are recommended as areas for

further study. Some of them were generated from questions which were raised or

discovered during the study. The following areas or topics are suggested for further study:

Does the partnering with a local partner increase the performance and longevity of

IJVs? There is an increasing trend to partner with local firms.

Do multiple cultures play any role in the success or failure of IJVs? Shareholders of

IJVs are normally from different cultures and it would be interesting to examine the

role culture plays in the IJVs.

Are international stock-broking JVs ever successful?

Does control by one JV partner increase the performance and effectiveness of JVs?

Why do IJVs remain popular when their failure rates remain high?

Are most IJVs terminated by sale by one of the shareholders or through acquisitions

by the other partner?

Examine the impact of ‗double parenting‘ to the success or failure of IJVs.

Examine the role of co-ordination and Trust in ensuring JV success

Do JVs with national partners last longer than JVs with international partners?

Do JVs have positive effects on shareholders‘ wealth?

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5.6 Personal reflection and learning

The findings of the study are encouraging to the researcher since it is his personal ambition

to set up a stock-broking business. Whilst the ideas of a joint venture business model are

still appealing, valuable lessons regarding the challenges of these businesses were

enhanced by the study. The critical factors identified in the study definitely offer valuable

lessons for current and future stock-broking joint venture businesses.

The researcher‘s personal ambition of proposing a framework that will enhance the

longevity and sustainability of IJVs was met. Whilst the research did not generate new

theory that adds to the body of knowledge, the researcher is satisfied with the personal

value the findings added to his personal knowledge. The researcher‘s personal goals for

conducting this study were met.

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6 Appendix A: The Interview list of participants

Interview # Role Firm Interview Type Date of Interview

1 Co-Head of Equities - Shareholder B ABC Face to face conversational 18/10/20102 Human Resources Manager ABC Face to face conversational 22/10/20103 Head of Legal and Compliance ABC Face to face conversational 22/10/20104 Head of Prime Services ABC Face to face conversational 22/10/20105 Prime Services ABC Face to face conversational 22/10/20106 Financial Manager ABC Face to face conversational 18/10/20107 Chief Executive Officer ABC Face to face conversational 29/10/20108 Chairman of Board - Shareholder A ABC Face to face conversational 29/10/20109 Head of Research ABC Face to face conversational 18/10/201010 Chief Operating Officer Former ABC COO e-mail survey 05/11/201011 General Manager - EQD Other Stockbroking firm e-mail survey 05/11/201012 Research Analyst ABC e-mail survey 05/11/201013 Company Secretary ABC e-mail survey 05/11/201014 Head of IT ABC Face to face conversational 03/11/201015 Co-Head of Trading ABC Face to face conversational 03/11/201016 Chief Operating Officer BBB Telephonic 05/11/201017 Fund Manager BBB Telephonic 05/11/201018 Research Analyst BBB Telephonic 15/10/201019 Chief Operating Officer Other Stockbroking firm Telephonic 15/10/201020 IT Manager BBB Telephonic 15/10/201021 FX trader BBB Face to face conversational 12/11/201022 Fund Manager Supplier Telephonic 05/11/201023 Fund Manager Customer Telephonic 15/10/201024 Account Manager Supplier Telephonic 05/11/201025 Fund Manager Customer Telephonic 05/11/201026 Account Manager Supplier Face to face conversational 29/10/2010

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7 Appendix B: The Research Design

The research design framework developed and used in the study.

Topic - Longevityand sustainability ofStock-broking joint

ventures (IJVs)

Concern is the longevity

of stock broking joint

ventures

Average lifecycle of SA stock

broking joint ventures is 3 years

and globally 50-70% of JVs fail

Stock-broking firms

becoming unsustainable

value creators for their

stakeholders

“What critical factors affect the

longevity of IJVs in South

Africa?"

A hypothesis of howstock-broking joint ventures can

increase their longevity andsustainabilty

How to increase the longevity

and sustainability IJVs?

The answer is to identify the

critical factors that affect the

longevity of IJVs

Utilisation of CR and GT

methodologies to resolve the

research problem

STAGE 1

STAGE 2

Defines

Motivates

Finds

Leads to

Helps to solve

incurs costs in a

Explains Results in a

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It is important to design the research before starting the research process. This ensures that

the researcher has clearly thought about the processes and methodologies that will be

employed in the study.

Goal (s)

Why is my study worth doing?The failure rate joint ventures businesses is high resulting in many undelivered shareholder and stakeholder goals and expectations. My research will examine the critical success factors required to enhance joint ventures success and their sustainability.

What issues do I want to clarify, and what practices and

policies do I want this study to influence?I would like to examine the critical success factors key to making joint ventures successful? There is growing perception that joint ventures don‘t

work and don‘t deliver shareholder value at most times. I want to

establish or propose a potential business model for future joint ventures.

Why do I want to conduct this study and why should people

care about the results?I am personally interested in the joint venture business model because it is the model I plan to use to launch my stock-broking and other business I plan to establish. I would like to clearly establish the critical success factors so that I can ensure they are present when I launch my businesses or for future joint venture business to consider when setting up.

Research Question(s)

What specifically do I want to understand by doing

this study?

I would like to know the following: The critical success factors required to make stock-broking joint venture businesses successful and to enhance their sustainability.

Whether stock broking joint ventures business can ever be sustainable wealth creators for their shareholders and value for their stakeholders.

What do I not know about the phenomena I am

studying that I want to learn?

The longevity formula for stock broking joint ventures that will make them sustainable value creators

The critical ingredients required for the success of joint venture businesses.

What questions will my research attempt to answer

and how are these questions related to one another?

What critical factors affect the longevity of international stock broking joint ventures (IJVs) in South Africa?

Methods

What will I actually do in conducting this study?I will interview the shareholders, management and staff from our current joint venture. I will also interview management and staff from other joint ventures in the industry.What approaches and techniques will I use to collect and

analyse my data?Data will be collected through face to face interviews , telephonic interviews for stakeholders based offshore and I will e-mail the questions to participants I am not able to meet with. I will use a software called Atlas Ti to assist in the data analysis.How will I establish relationships with participants in my

study?Through my position at our JV, I have access to the participants from my company. I will also use my relationships with other contacts in the industry to access other participants from other joint ventures.How will I select the settings, participants, times and places

of data collection and other data sources such as

documents(sampling)?I will select participants from different departments in the JV so that I get multiple perspectives. I will also select participants from both sides of the shareholders to get a balanced view. I will use the most convenient place and times for all participants.What data collection methods will I use?Face to face conversational , telephonic and e-mail interviews techniques will be used.What data analysis strategies and techniques will I use?I will utilise Critical Realism, Grounded Theory, Soft System methodologies and VSM.

Validity

How might my results and conclusions be wrong?I should not rely on my personal insights only gained through my working experience at ABC Securities alone. I need to draw on insights and input from other stock-broking joint ventures as well to obtain data from diverse sources.

What are the plausible alternative interpretations and validity threats to these, and how will I deal with

these?The success of joint venture businesses is dependant on economic climate and business environment at the time.How can the data that I have, or that I could potentially

collect, support or challenge my ideas about what’s

going?The data that I have need to be enriched by data from multiple stock-broking joint ventures to broaden my viewpoint.

Why should my results be believed on?The outcome of my research will be triangulated by data from other sources and knowledgeable experts on joint venture business models. I will also critically analyse the empirical data and proposed hypothesis.

Longevity and sustainability of international

Stock-broking Joint Ventures in South Africa

as value creators for their stakeholders

Conceptual Framework

What do I think is going on with the issues, settings, or

The people I plan to study?

Stock–broking joint ventures face fundamental operational and sustainability challenges which affect their success levels as well as longevity. What theories or beliefs and prior research findings will

Guide or inform my research?There are strong beliefs that joint ventures business don‘t work as

they don‘t always deliver shareholder value. My research will be

guided by first hand experience and insights drawn from working in a stock-broking joint venture business for 5 years as IT Manager and Chief Operating Officer (COO) .What literature, preliminary studies and personal

Experiences will I draw on for understanding the people

Or issues I am studying?The study would rely on my insights obtained from working in a joint venture as well as insights from colleagues and other people who have worked or are still working in a stock-broking joint venture. I will also draw on literature from local and international publications on the subject.

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8 Appendix C: Doing the research

Sense Making Stage

Identifying the Stakeholders

It is important to determine which of the stakeholders are involved with the situation so that they can be included in the study as participants for the study. The stakeholders‘ analysis also assists when needing to incorporate multiple stakeholders‘ worldviews into the study.

Executive Management

Board of Directors

INVOLVE

CustomersRegulators

COLLABORATE

Suppliers

Monitor

EmployeesTeam

Defend

Low High

High

Low


Those carrying out the work

Beneficiaries and VictimsThose Managing the organisation

Those providing organisationWith resources

Executive Management

Board of Directors

INVOLVE

CustomersRegulators

COLLABORATE

Suppliers

Monitor

EmployeesTeam

Defend

Low High

High

Low


Those carrying out the work

Beneficiaries and VictimsThose Managing the organisation

Those providing organisationWith resources

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Making Sense of the situation at BBB

A Rich Picture of BBB was developed as part of the sense making stage. This assisted the

researcher to be able to compare and contrast the two IJVs.

Courtesy of istock.com

BBB Rich Picture – Shareholders Perspective

Analyst rankings

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Diagnosis of ABC – using the Viplan Method

The ABC technology model

This was conducted as part of the diagnosis process of ABC to obtain a good handle of the

organisation‘s purpose, the structures, complexity and evaluate the distribution of discretion.

Forming

Identity

Statement

Structural

Modelling

Understanding

& Unfolding

Complexity

Evaluating

Management

Discretion

Diagnostic

Points

Overview

Interviews Participants Observations

Diagnostic

Points

Organisation’s

Data

VIPLAN – TECHNOLOGICAL MODEL

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Understanding & Unfolding Complexity

Model distribution of discretion

Sales

ABC EQUITIES

ResearchTrading

Support

Sales

D

Sales

I

Primary

Activity 1

Primary

Activity 2

Primary

Activity 3

Secondary

Activity 4

Research Trading

D

Trading

I

ITCorporate

Services

Finance HR

1.1 1.2

2.1 3.1 3.2

4.4

4.34.2

4.1

Equities Prime Services

ABC SECURITIES

Primary/ Secondary

Activities

Trading x x x x x x x

- Domestic x x x x x x x x

- International x x x x x x x x

Policy

Planning & Strategizing x x

Corporate Intervention x

Resource Bargaining x x x x x

Monitoring x x x x

Co-ordination x x

Research x x x x x

- Domestic x x x x x x

- Offshore x x x x x x

Policy

Planning & Strategizing x

Corporate Intervention x

Resource Bargaining x

Monitoring x

Co-ordination x x

IT S

upport

IT D

evelo

pm

ent

Legal

Com

pliance

Tra

inin

g

Recr

uitm

ent

Exco

Sta

tionery

Adm

inis

tration

ABC Functions

Fin

anci

al Contr

ol

Paym

ents

Budgeting

Mark

eting

Induct

ion

Payro

ll

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The VSM Diagnosis of ABC

R1

R2

O

R0

VSM Diagnostic

S1

Environment

SalesS1

SalesTrading

S1

TradingS1

ABC Support ServicesS2

ResearchS1

S3 – COO, Finance

R1 – ABC Equities

R2

System in Focus

S4 - Exco

S5 - Board

R0 – Stock Broking Industry

Global Financial Markets

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Doing the research

The steps of the grounded theory process that was followed.

A graphic description of the grounded theory process

Grounded Theory

Data Generation

Journals

Interviews

Literature

Fieldwork Documents

A

D

C

B

1 Substantive Codes

2 Categorization

3 Identification of Basic Social Processes

1 Reduction Sampling

2 Selective Review of the Literature

3 Selective Sampling of the Data

Concept Formation

Concept Development

Core Variable

Data Analysis

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Results of the data coding using the Atlas.ti software

Examples of Level 1 codes and initial propositions

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The initial network view of the extend of business autonomy category in ATLAS.ti

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The development of the core variables

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