Category Archives: Misc. business and management

Given Diminishing Foreign Funding Are South African NGOs Effectively Using Social Media to Leverage the Potential Resource Pool Offered by Individual Donors? – A Cursory Literature Review

Introduction

The promise of the new democracy and the international response to HIV/AIDS in the mid-1990’s led to a sea change in the way South African NGOs could source and access funding. Whilst the available resources were larger the fundraising became increasingly project focuses (as opposed to programmatic) and donor driven (Krige, 2012). Since 1994 KZN in particular has received the second largest commitments from donor funding (Ewing and Guliwe, 2008).

This has led to many NGOs becoming captive to certain large foreign funders (Ewing and Guliwe, pp. 271; Wescott, 2009, pp.35). Like any industry captive suppliers are extremely vulnerable to any shift in their main client’s strategy.

“The World around NPOs is a fast changing one… and the conditions globally at the end of the first decade of the 21st century are far from favourable for agencies working in the development sector” (Trilogue, 2011, pp.89 & 91).

What is required is a new discourse in fundraising strategy and the identification of new income streams which allow NGOs to deliver on their visions and missions in an innovative, programmatic and unrestricted manner.  This environmental shift is taking place concurrently to the appearance of new technological and media opportunities for NGOs to strategically engage their communities through “dialogic and community building practices” (Lovejoy and Saxton, 2012) that were not available with traditional websites and communication strategies. This literature review will examine the changing funding landscape, appraise the state (and/or potential) of individual giving in South Africa, and finally examine the issues that arise when and where social media meets this need.

Shifting Sources of Funding

The International Stage

The South African NGO sector now finds itself in a straits brought about the confluence of the international financial climate and the country’s emergence as a leading democratic and economic force on the continent (Ewing and Guliwe, pp.275). Donor’s are shifting focus to other countries as South Africa “graduates from being a donor-funded recipient” (Ewing and Guliwe, 275, Trialogue, pp.88), and even those that remain in South Africa were not immune to the global economic recession (Ewing and Guliwe, pp.275).

While the argument for the retraction of donor-funding to South Africa asserts that South Africa is able to mitigate this withdrawal through macro-economic repositioning this is unlikely to happen given the ideological, political and socio-economic landscape (Ewing and Guliwe, pp.276). It is an imperative that local resources be mobilised (Ewing and Guliwe, pp.271).

Sources of South African NPO Funding

Local Corporate and Trusts,  and Foreign Donors lead the funding source log in 2003 and 2011 (first and second place, respectively), however, both Corporate and Foreign Donor sources show a significant drop between the two periods (there is no 2003 data for Trusts) (Trialogue, pp.33). Government comes in as the fourth leading source of funding across the two periods, also showing a marked drop (Trialogue, pp.33). Coming in at the lowest contributions are Self-Generated and Private Individual funding sources. Interestingly enough these two are the only two which show an improvement over the period (Trialogue, pp.33). Over the 2010 2011 period 16% of NGOs reported that self-generated income contributed the most to increased income. For the 10% that experienced decreased income for the period this was due to diminished trust, corporate and foreign donors.

Salaries are the 2nd biggest expense for NGOs representing an average of 33% of the budget; this is often an expense least likely to be funded by corporate. Further, 30% of the corporate participating in this study do not fund NPO operating costs as a matter of policy (Trialogue, pp.40).

The State of Individual Giving in South Africa

In national research conducted across 3000 randomly sampled respondents controlled against national demographic norms Everatt and Solanki (2003, pp.51) discovered a sample mean for money given to a charity/cause/organisation of R27 in the month preceding the study. This was accompanied by a sample mean for money given directly to the poor of R6.60, and a sample mean for time given to a charity/cause/organisation of 1.9hrs. While as fragmented a group as this nationally drawn random sample represents this reveals an astonishing total investment of R100800 and 5700 man hours in the month preceeding the study. While this study is not exhaustive it gives a sense of the potential individual donor resource that could be harnessed in a more strategic way by NGOs.

Pros and Cons of Private Giving for the Development Sector

The debates around this point can be distilled into a recognition of a need for coordination of private funding to the non-profit sector that protects it from fragmentation of effort and resources, but that also doesn’t result in paralysing government regulations (Ewing and Guliwe, pp.272, Wescott, pp.36).

To unpack this the benefits of pursuing individual donors can be seen in that as opposed to corporate of foreign donors, individuals are less concerned with “earmarking” their specific donations (Trilogue, pp.89). So while “designation” as mentioned above may be a draw card it is not as rigorously audited per specific individual amount as it would be in the case of a corporate or foreign donor. This means that funds generated here can be used to cover core operating costs, or as unrestricted funding which places the organisation in a position to “experiment”. In the face of decades worth of “traditional” methods still not having succeeded in eradicating social ills and injustice the need for innovation and risk-taking is significant (Wescott, pp.21). Being able to leverage unrestricted funds through a successful Individual Giving strategy will not only contribute towards and NGO’s sustainability and autonomy of mission and vision, but will also give it the much needed freedom to strategise outside of the box, and to potentially make mistakes towards developing increased efficiencies whilst not risking its financial sustainability through earning the ire of a disgruntled project-specific foreign donor.

Determinants of Personal Donations

In determining the factors and characteristics of an NGO that influence individual giving Nunnenkamp and Ohler (2011) identified the following characteristics as having positive corollaries with individuals’ decisions to donate: a large fundraising expenditure,; being in receipt of significant funding from donor foundations; and being able to generate significant self-generated funds; and when donations could be designated towards a specific activity. The latter point might explain the surprising finding that an NGO’s increased level of specialisation, either in sector or geographical focus did not have a positive correlation to the amount of donations received. The authors make the assumption that the belief that the individual can designate funds doesn’t require them to fund an organisation that deals solely or explicitly with the specific issue of greatest import to the individual donor. Whilst the following correlations did not meet statistical significance they are still interesting: the availability of an online donation option was negatively associated to the amount of donations received, whilst the option of being able to donate periodically was positively associated with donations received. Another interesting mention in this study revolves around competing NGOs (whether that competition is explicit in a corporate sense, or merely referring to the efforts to secure resources from a common and finite basket is immaterial), that is, that diversion of funds away from an organisation due to another NGO’s fundraising efforts are typically cancelled out by the “awaking” of awareness this activity performs in society. This research is severely limited in that it was conducted with US subjects and organisations. While there is no evidence to suggest a similarity or difference between this and the South African context it provides an interesting point of departure for this thesis.

 

What Strategies are Used to Leverage Individual Giving

The Internet

In the last 15 years the internet as become a new channel through which NGOs have sought to communicate their messaged and leverage funds (Treiblmaier and Pollach, 2006, pp.808). Despite this NGOs typically have limited skill in maintain online content, or justifying expenditures in this regard and despite the potential offered by this channel its current efficacy is questioned as many standing donors of an organisation may never actually visit its website (Treiblmaier and Pollach, pp.809).

What does become clear (Treiblmaier and Pollach, Shier and Handy (2012), Hou, Du and Tian (2009)) is that simply having a web presence is not enough and that consideration has to be given to concepts that belong in the realm of classical marketing and cognisance must be given to brand equity and individual self-concept.

Building Trust in a Virtual Space

Research into the efficacy of “Donation” buttons on NGO websites revealed that trust plays an important role in determining action once the base levels of marketing communication have played their part (Gibbons, 2010; Lassila, 2010, pp.30). What this study discovered was the strongest levels of trust were induced when the donate-button design incorporated photographic evidence of both the need that was targeted and the response delivered by the organisation, and that this medium was well suited to conveying relevant information and promoting certainty amongst potential givers (Gibbons, 2010).

Social Media – Leveraging an Ubiquitous Presence

The most well known social media platforms are Twitter and Facebook, and like the myriad applications which have become household names in recent years these virtual communities are built to be integrated across the user’s life and digital experience (Lassila, pp.18). The fine line here is to engage in these community members as a community member and not be perceived as a disconnected externally intruding marketer (Lassila, pp.18). If this is successfully navigated then salience, the base level of many classical marketing frameworks including Keller’s Customer Based Brand Equity Pyramid model (2000), can be achieved. The weakness for most NGOs lies in the fact , mentioned above by Treiblmaier and Pollach; that if NGOs don’t have the ability to maintain websites, which are far more static than social media applications, they will struggle to remain relevant on these platforms unless they make a concerted and strategic effort. This need to be more engaging may negate the benefits of social media for NGOs that Lovejoy and Saxton (2012) identify, namely: they are more intuitive and purpose designed for interaction than traditional webhosting. Part of this effort, as mentioned above, is to understand the individual’s self-image concept, and to appreciate that social media platforms are used by individuals to “enhance their self-presentation” (Lassila, pp.28), and that through allowing the individual’s donation behaviour to become a part of their repertoire of self-presentation enhancers NGOs can further leverage and induce individual giving.

From Traditional to Networked NGOs – the Challenges.

Immersing itself into the realms of social media can be difficult for traditional organisations which emphasise controlling communication in order to protect the organisation from harm (Kantner and Fine, 2010, pp.49). The fears that paralyse a traditional organisation from leaping into this interactive social media  realm include: social media norms appear unprofessional; the transparency it nurtures can expose organisational weaknesses/vulnerability, it could provide a platform for public criticism, it could damage the brand, or its use presents the risk of a staff member inadvertently writing something damaging about the organisation or stakeholders (Kantner and Fine, pp.50).

Conclusion

 

The research drawn on above clearly depicts the changing funding climate that South African NGOs are experiencing, as well as where and how NGOs changing sustainability needs are converging with social media strategies on a general and global level. What is clear is that less resources are going to be available for South African NGOs from foreign donors, and that a potential strategy to mitigate this is the deployment of social media strategies. Conspicuous by its absence in this literature review is a detailed examination of to what extent, and with what level of success, South African NGOs are using social media to leverage individual giving; which, as shown above, is not and has not been a traditional primary fundraising focus.

References

Everatt, D. And Solanki, G. (2008) A nation of givers? Results from a national survey of social giving. In Habib, A. and Maharaj, B. (Eds.) Giving and Solidarity: Resource Flows for Poverty Alleviation and Development in South Africa. Cape Town, HSRC Press.

Ewing, D. And Guliwe, G. (2008) Foreign Donor Funding Since 1994. In Habib, A. and Maharaj, B. (Eds.) Giving and Solidarity: Resource Flows for Poverty Alleviation and Development in South Africa. Cape Town, HSRC Press.

Gibbons, S. (2010) The Effects of Non-Profit Agency Website Donation Button Design on Aid Agency Trust and Donation Compliance. Department of Applied Psychology, University of Canterbury. (Masters Thesis)

Kantner, B. and Fine, A. (2010) Creating a Social Culture. In: Kantner, B. and Fine, A. The Networked Nonprofit: Connecting with Social Media to Drive Change. San Francisco, Jossey-Bass. pp. 41-58.

Keller, K., (2000) The Brand Report Card. Harvard Business Review, February, p.2000. Cited in: Kuhn, K., and Alpert, F. (?) Applying Keller’s Brand Equity Model in a B2B Context: Limitations and an Empirical Test.Griffith University. Publication details unknown. [available online] http://www98.griffith.edu.au/dspace/bitstream/10072/2338/1/26187_1.pdf

Krige, K. (2011) Individual Giving: The Holy Grail of Fundraising.

Available at: http://www.ngopulse.org/article/individual-giving-holy-grail-fundraising

Hou, J., Du, L. and Tian, Z. (2009) The effects of nonprofit brand equity on individual giving intention: mediating by the self-concept of individual donor. International Journal of Nonprofit Volunteer Sector Marketing, (14), pp.215–229 (Abstract Available Only).

Lassila, H. (2010) Humanitarian Non-Profit Organizations Marketing Effects on Donor Behavior in Social Media. Department of Marketing and Management, Alto University. (Masters Thesis)

Lovejoy, K. and Saxton, G. (2012) Information, Community, and Action: How

Nonprofit Organizations Use Social Media. Journal of Computer-Mediated Communication, (17), pp.337-353.

Nunnekamp, P. And Ohler, H. (2011) Donations to US based NGOs in International Development Cooperation: How (Un-) Informed Are Private Donors? Discussion Paper Number 117 – February 2011. Center for European Governance and Economic Development Research.

Shier, M. L. and Handy, F. (2012) Understanding online donor behavior: the role of donor characteristics, perceptions of the internet, website and program, and influence from social networks. International Journal of Nonprofit Volunteer Sector Marketing, (17), pp.219–230. (Abstract Available Only).

Treiblmaier, H. And Pollach, I. (2006) A Framework for Measuring People’s Intentions to Donate Online. Proceedings of the 2006 Tenth Pacific Asia Conference on Information Systems.

Trialogue, 2011. The CSI Handbook (14th ed.) Cape Town, Trialogue

Wescott, H. (2009) Individual Philanthropy in Post-Apartheid South Africa – A Study of Attitudes and Approaches. Department of Sustainable Development, Planning and Management, University of Stellenbosch. (Masters Thesis)

Applying Porter’s Five Forces Model to the NGO Sector

Porter’s Five Forces are designed for traditional for-profit commerce and industry scenarios. With slight tweaking they are equally applicable to the non-profit sector; an examination of these will highlight the implicit vulnerabilities of organisations working in this sector. Where Porter’s model looks at the way the forces can affect profit, the NGO adaptation of his model is more concerned with how the forces impact an organisation’s ability to perform its mission effectively and efficiently.

Porter’s Five Forces are:

  1. The power of large customers
  2. The power of large suppliers
  3. The level of rivalry among organizations in an industry
  4. The potential for entry into the industry
  5. The threat of substitute products

 

The significance of each of these will be individually engaged in a general discussion of the NGO sector. Implicit in this discussion will be the task and general environmentof South African NGOs. This discussion will close with the presentation of an NGO adaptation of Porter’s Five Forces model.

The Power of Large Suppliers and the Power of Large Customers.

For the NGO sector the activities are mainly service, and not product, based. Further, these services are social in character and based on specific skills rather than material resources. This diminishes the impact of supplier power in comparison to a production based for-profit company, as intended by Porter’s original model.

 However, the donor community and corporate funders can be seen as both the supplier and customer in the NGO model. They provide the resources, in the form of funds, for the NGO to carry out its mission, and in return they can lay shared claim to the positive social impact which is achieved through the NGO’s activity. The donor organisations need this to fulfil their own mandate; and corporate funders are able to include this in their CSI portfolio and report it in their triple bottom line.

In this regard the power of large funders, be they donor organisations or corporate funders becomes a force in the NGO adaptation of the model.  How this plays out in real-world situations is largely dependent on the strength of the NGO’s leadership. For lack of a better analogy it can become a carrot and stick scenario. A large funder is defined as one with influence in the donor community and the potential to contribute significantly to the NGO’s resource base. Funding is granted in one of two large catergories; project or operational. Project funding is typically directed towards a specific project with defined objectives and measures of success; while operational funding is directed towards the organisation’s operating costs. The later includes infrastructural, administrative and staff/organisational development, as well, as the name suggests, general operating costs.

The power of large funders can impact an NGO across both these areas. Through the lure of significant project funding it can draw an NGO away from its core vision and mission into activities which introduce scope-creep into every level of operation. Through the lure of significant operational funding conditionalities can be imposed upon which the funding, and any future funding, can be made contingent. It is not the presence of conditions but rather the nature of the conditions which can impact an NGO’s autonomy in determining its organisational structure and future strategy. It is important to state here that the impacts of this force are not necessarily negative. An organisation cannot exist as a static entity and project funding can provide the opportunity to evolve the organisation in a new direction to better meet the changing social development market. Scope-creep and evolution are two sides of the same coin; the strategy of the organisation determines which side is called. Similarly structural-adjustment-policy-style (Stiglitz, 2002) operational funding could be piggy-backed upon to bolster autonomous strategic directions and activities. Ultimately, to reiterate an earlier point, the threat posed by this force can be mitigated by strong leadership with a clear strategic vision – if someone else is holding the reins a gift-horse should be looked in the mouth.

What the power of large funders highlights is the tacitly accepted unequal power balance between NGOs and donors; remember this is social development and not charity (the distinction between these is a paper in itself). The donor organisations have a mandate to fulfil, in fact the sole reason most of them exist is to award grants towards social development activities. They are not service providers nor are they capable of carrying out the actual delivery of social development activities at the community level; they need NGO service providing partners. Similarly, corporate funders need CSI portfolios for their BBBEE scorecards and their triple bottom line reporting; NGOs provide a service they need at lower cost than they can do it in-house. The power balance exists not because the funders hold the money, but because money is incredibly tangible, measurable and traceable. The impact, for example, of the training of a community based crèche teacher on the life of a young child is not readily tangible, measureable or traceable over the course of that child’s life. NGOs and the theories of change that underpin their work believe they are making a positive difference; they are selling that change; but what they battle to do is demonstrate or measure that change as clearly as funders can demonstrate and measure their investment. What we have is a strange economy, where cash is traded for an intangible sense of positive social impact supported by rudimentary indicators (including: numbers reached and anecdotal evidence). In some case this economy exchanges cash for no more the “warm-fuzzies”.

“One cannot refute that CSI reports carry “warm-fuzzy” value and that pictures of impoverished yet smiling African children in annual reports and media have become a form of currency and are interpreted to be an indicator of development.”

(Roberts, 2011)

This recognition presents an opportunity for NGOs to leverage competitive advantage through being able to demonstrate the impact of their work to funders in a manner that is more tangible, measurable and traceable than other NGOs working in their field. Achieving this, will also lay the foundation for NGOs to educate their funders and partner organisations as to what are reasonable processes, outcomes and measurable impacts of social development activities in relation to a given sum of donor funds; effectively benchmarking.

(A note at this juncture: Not all funders need to be educated, nor do they all assume tacit domincance.)

 

 

The Level of Rivalry Among Organisations in an Industry

Local NGOs, to my understanding, have always had a tacit agreement to not work in, or encroach on each other’s area of operation. However, the social development NGO sector, broadly, is at a crossroads. South Africa is not the darling child of the international donor community that it was during apartheid or through its transition and establishment as a true democracy. International donors who were in some ways the staple providers for a range of activities have shifted their country focus, or shifted their activity focus, or both. There is a smaller pool of International Donor Funding than in times past, further to this, the remaining pool of International Donors was not impervious to the financial recession of 2009. There are fewer funding sources available to the sector. Because the funds are scarce donors are placing (and rightly so) an increasing emphasis on measurement and demonstration of the impact of their investment, this is discussed above. While the increasing scarcity of resources and changing mood of the environment does not necessarily translate to the cut-throat vistas painted by corporate rivalry, it does create a competitive environment. In terms of the well being of the broader social development sector this is not a bad thing at all. If any sector should be focussed on efficiency and effectiveness of delivery it should be the social development sector; and where slack can be cut out or better managed competitive advantage can be gained; and greater positive impacts achieved.

 

Potential for Entry into the Industry

Barriers of entry into the non-profit sector are extremely low.

 

The Threat of Substitute Products

Within the NGO sector the threat of substitute products must be seen to take the form of competing funding requirements between different development focuses; for example between HIV/AIDS programmes, ECD programmes, Nutrition programmes, Psychosocial programmes etc. For the model adaptation this shall be renamed the threat of competing needs. With positive social impact being the end goal of all investments and activities there is strong debate around which areas should be key focus areas, and if more than one area is identified which area should be seen as the core set of service needs upon which the others can be attached. Again, the ability to demonstrate tangible, measurable and traceable impacts will leverage competitive advantage here. (If all NGOs were able to measure impact fully and perfectly some serious discussions would need to take place, and priorities agreed upon by the entire sector. In this event individual NGOs could not serve themselves before the bigger picture.)

It must be highlighted here that NGO’s are ultimately working towards making themselves obsolete. Fully functional government service delivery would be the ultimate substitute product. NGOs actively advocate for this as part of their operations. Perhaps this substitute, then, should rather be seen as a goal than a threat.

What Porter’s Five Forces model does not make provision for, but which is central to an NGO’s mission are beneficiaries. For individuals outside the development sector it might be assumed that all intended beneficiaries are able to, and gladly and willing engage in development initiatives. This is not the case. Individuals and communities set their own development agendas, and rightly so. Communities experiencing severe malnutrition may not be able to fully participate in and benefit from programmes that deliver ECD support. Similarly, communities faced with chronic poverty may be too pre-occupied with subsistence livelihood strategies to take advantage of a workshop or some other activity that engages a need higher up along Maslow’s Hierarchy. They may abandon your project as soon as an Expanded Public Works Project, or some similar stipend paying project enters the community. People know what they need. Therefore, the fifth force for the NGO adaptation of Porter’s Five Force model should be, the ability and willingness of beneficiaries to participate.

 In summary of this sector overview the adaptation of Porter’s Five Force Model will be presented.

Porter’s Five Force Model – Adapted for NGOs

  1. The level of rivalry among organizations in an industry
  2. The potential for entry into the industry
  3. The power of large funders
  4. The threat of competing needs
  5. The ability and willingness of beneficiaries to participate

Faced With a Growing Need for Sustainable Development Should Corporations Aim to Maximise Profit?

In order to discuss and answer the seemingly straightforward question each element that comprises it will be unpacked and engaged. Namely in terms of defining the role of the corporation in a 21st century globalising world, and in terms of defining profit. The latter cannot be limited to one-line financial textbook definitions; it will need to probe these definitions and unpack the essence of the elements that make up those definitions. This must then be married to economic definitions of profit which will lift profit out of the microcosm of a single corporation and deal with it in a way which appreciates the interconnectedness of business and social systems on a global level. Implicit in this discussion will be the broader issue of how corporations can and should maximise profit.

Following this the significance of maximised corporate profit for the social and physical world, as we know it, will be discussed. Finally and in conclusion an answer to the problem question, supported by the discussion will be given.

Unpacking the Question Elements

The Corporation

Businesses exist in a range of forms, these will not all be laid out here but the characteristics of one of these forms, the corporation will be defined. A corporation is a business in which the business itself is constituted as a legal entity separate from the individual owners. This is called limited liability, and protects the owners from liabilities arising from obligations of the business (Graham and Winfield, 2010, p.3). The legal entity of the corporation therefore is recognised by the law to have rights and responsibilities, as if it were a person. Of interest to this discussion Wikipedia goes further to define corporations as being able to exercise human rights against individuals or the state, and very importantly, corporations themselves can be responsible for human rights violations, criminal offences, fraud and manslaughter.  If corporations can be held responsible for these things where does the imperative for the individuals, who constitute corporations, to act justly and legally come from? Jeffrey Immelt, CEO of General electric is quoted as saying, “It’s up to us to use our platform to be a good citizen. Because not only is it a nice thing to do, it’s a business imperative” (Savitz, 2006, p.21). What Immelt  is alluding to here is not an idealistic call for business to become more philanthropic but the recognition that financial investors and creditors are becoming increasingly sensitive to issues of corporate citizenship; and how good corporate citizenship is seen to decrease the chances of any future social risk or potential corporate liabilities (Tialogue, 2004, p.13). Investors are learning through the “Enron, Global Crossing, Imclone, Tyco, World Com and Martha Stewart” scandals that socially irresponsible business not only loses shareholder value but has dire consequences for larger financial systems and stakeholders (Hollender and Fenichell, 2004, p.vii). In the 21st century corporate reputation is not only as important as financial outcomes (Trialogue, 2004, p.13), but is in fact its most crucial asset (Hollender and Fenichell, 2004, p.54) which ultimately underpins a corporation’s ability to generate shareholder value.

The second characteristic of a corporation is that because it exists as an independent legal entity the business’s lifespan is not tied to specific individual owners, and the business can continue to exist in perpetuity despite change in ownership. This characteristic is called perpetual succession (Graham and Winfield, 2010, p.293). It is paradoxical then that the behaviours which erupted in the financial scandals at the start of the 21st century and during the 2009 recession were characterised by traders and CEOs employing blinkered short-term projections and strategies (Hollender and Fenichell, 2004, p.32; The Smartest Guys in the Room). The pursuit of quarterly figures and reports were leading (in some case majestic) generations old corporations by the nose towards the abattoir of catastrophic share-value collapse. This “frontier mentality” (Savitz, 2006, p.233) and its blindly optimistic short-term profit seeking ultimately depleted shareholder wealth; and destroyed corporations which, all things being equal, could have generated profit for generations to come had a longer-term approach been employed.

Profit

Financial accounting textbooks will define profit as: The residual amount that remains after expenses have been deducted from income (Graham and Winfield, 2010, p.293). This can be simplified to read as profit = revenue – costs.

Financial accounting textbooks, however, do briefly introduce a discussion around arguments that the objectives of a business need to go further than merely maximising profit for their owners but must also include the wellbeing of employees, the natural environment and the wider social environment. This is accompanied by the acknowledgment that these factors underpin and are critical to the long term achievement of the objective of maximising profit (Graham and Winfield, 2010, p.5). This has given rise to triple bottom line financial reporting, where profit as well as people and planet contribute to the bottom line.

While economics recognises the appropriateness of the accounting definition of profit (above) as being sufficient for the purpose of financial accounting, economics as a discipline also makes use of the concept of economic profit. Where the above accounting definition of profit being equal to revenue – cost, economic profit is calculated as revenue – economic costs (Schiller, 2011, p.112). The concept of economic costs is key to this discussion as economic costs don’t just include the explicit costs as used in accounting, but take into account implicit costs that are incurred through the use of resources that are not explicitly paid for (Schiller, 2011, p.112). This notion of implicit costs is important because it paves the way for the economic concept of social costs, which is defined as the full resource costs of an economic activity (Schiller, 2011, p.192); those costs that are borne by all of society, as opposed to private costs which are incurred directly by the producer. What this means is that there must be a recognition that every action undertaken by a corporation will produce two simultaneous outcomes: “an impact on profits, and an impact on the world” (Savitz, 2006, p.28). When looking at aggregated profit and cost data through an economic lens we are then able to include environmental degradation and social dissolution as costs of certain activities. An economic approach to profit needs to lead this discussion.

Profit Maximising

According to classical economic theory the production of goods and services, the core function of corporations and the means through which income is generated, is dependent on what are termed the factors of production (Schiller, 2011, p.6; Mohr and Fourie, 2009, p.6). The factors of production represent limited, or scarce, resources (Mohr and Fourie, 2009, p.4); and they include natural resources, labour, capital and entrepreneurship. Money is not a factor of production, merely a means of exchange (Mohr and Fourie, 2009, p.25). Therefore the generation of financial profit alone does not necessarily ensure a reinvestment into, or the sustainability of the factors of production. Where the factors of production are scarce or finite the production possibility curve can be pushed outwards by a more efficient use of resources (Mohr and Fourie, 2009, p.20-21), and the reduction of waste born from efficiency can create abundance, not limits (Hollender and Fenichell,2004, p.87).

Following on the above and the concept of social costs Hart (2005, p.33) argues that the global economy is in fact constituted of three superimposed economies: the money economy, the traditional economy and nature’s economy. The money economy is that sphere of industry and commerce making up the developed and emerging economies (Hart, 2005, p.34). 2 billion people participate in the money economy. The traditional economy refers to the activities of some 4 billion participants who engage very sparingly in the money economy but whose livelihoods are almost wholly based on subsistence activities, dependent on their natural environment (Hart, 2005, p.36). Finally and most critically is nature’s economy, this is the environment, its ecosystems and natural resources upon which the money and traditional economies are dependent (Hart, 2005, p.37). Some elements of nature’s economy are renewable (as long as their propensity for regeneration is not degraded) while others are non-renewable. The manner in which the money economy conducts itself directly impacts the well being and sustainability of nature’s economy and the traditional economy (Hart, 2005, p.40); that is the negative externalities of the money economy are borne by the other two economies. Based on this and the above acknowledgement that the factors of production are limited resources, choices need to be made as how best to use and allocate them (Mohr and Fourie, 2009, p.4) and these choices will be coloured by whether short-term or long-term profit maximisation is desired.

This discussion has already recognised that short-term profit strategies will need to operate within certain parameters if long-term profit maximisation is desired. These parameters may curtail the realisation of maximum short-term profit but will ensure the critical resources (including corporate reputation) for long-term profit maximisation are not depleted or degraded beyond a point from which they are able to renew themselves.

This is where sustainable development needs to enter the discussion. Sustainable development requires long-term thinking as it aims to meet current performance goals whilst both ensuring the long-term survival and performance of the company, and considering the wellbeing of future generations (Savitz, 2006, p.233; Hollender and Fenichell, 2004, p.81). Critically, however, Savitz(2006, p.244) that whilst sustainable development will require a move away from a short-term focus on maximising shareholder wealth, towards a greater focus on long-term stakeholder wellbeing it does not automatically translate to corporations needing to sacrifice profit or to be satisfied with diminished financial performance.

Savitz (2006, p.22) writes about the sustainability sweet spot, a way to conduct business in a manner that simultaneously meets and furthers company and stakeholder interests. Savitz (2006, p.243) argues that a corporation that can find and leverage this sweet spot, through being sincerely socially responsible, will make more profit than its competitors in the long run. Hollender and Fenichell (2004, p.27) support this view when they argue that visionary corporations, those driven by core-ideologies which are not primarily centred on profit maximisation, ultimately generate greater profit than their profit-driven competitors. But Hollender and Fenichell (2004, p.27) also underscore a point made earlier in this discussion about long-term orientation; they state this is a critical component because the tangible impact (maximised profit) brought about through sustainable approaches and social responsibility requires a longer time frame to manifest itself.

The Significance of Maximised Profit for the Social and Physical World

Corporations’ value chains are now global and sustainable development with an eye to profit maximisation must be discussed at a global level (Hollender and Fenichell, 2004, p.111). Hart (2005, p.33) states that the achievement of global sustainability, in the face of population growth and limited resources, will require the creation of trillions of dollars worth of new products, services and technologies. Supporting this, Dr. Brundtland (in Hollender and Fenichell, 2004, p.80) when addressing the 1985 World Commission on Environment and Development claimed that given the exploding world population, “the problems of poverty and underdevelopment cannot be solved unless we have a new era of growth in which developing countries play a large role and reap large benefits”. Echoing this, Hart (2005, p.32) argues that the wellbeing of the poor [assumedly including the traditional economy, global value chains and ultimately every human being] will “require the creation of new wealth on a massive scale”. The global population is projected to peak at between 8 and 10 billion people by 2050 (Hart, 2005, p.32). Because poverty and population growth are each positive functions of the other, and birth rates have an inverse relationship with education levels and standard of living (Hart, 2005, p.32) sustainable development without economic growth is not enough to ensure global sustainability. Hart (2005, p.32) hazards to suggest that global economic activity will need to grow to ten times its current level to support this future population.

The above paragraph highlights the fact that in order ensure the basic survival and upliftment of our social and physical world we will not only require an almost unfathomable amount of economic growth but a simultaneous fundamental shift in the way the money economy conducts itself. This demands a fundamental increase in the efficiency and sustainability with which mankind uses natural resources; and the adoption of a new paradigm of working in a socially responsible way.

 These most critical needs will be met through the outcomes and positive externalities of the corporate long-term profit maximisation behaviours discussed above.

[If] yesterday’s businesses were often oblivious to their negative impacts and today’s responsible businesses strive to reduce their impacts, tomorrow’s businesses will learn to make a positive contribution [because it is in the interests of profit maximisation].

(Hart, 2005, p.33)

In closing, “Should corporations aim to maximise profits?”

All things being equal, absolutely.

References

Books

Graham, M. and Winfield, J., 2010. Understanding Financial Statements. 2nd ed. Cape Town: Cape Business Seminars.

Hart, S., 2005. Capitalism at the Crossroads: The Unlimited Business Opportunities in Solving the World’s Most Difficult Problems. New Jersey: Wharton School Publishing.

Hollender, J. and Fenichell, S., 2004. What Matters Most: Business, Social Responsibility and the End of the Era of Greed. London: Random House Business Books.

Mohr, P., Fourie, L. and associates, 2008. Economics for South African Students. Pretoria: Van Schaik.

Savitz, A., with Webre, K., 2006. The Triple Bottom Line. San Francisco: Jossey-Bass.

Schiller, B. 2011. Essentials of Economics. 8th ed. New York: McGraw-Hill/Irwin.

Trialogue, 2004. The Good Corporate Citizen: …pursuing sustainable business in South Africa. Inaugural ed. Cape Town: Trialogue.

Websites

Wikipedia:

URL: http://en.wikipedia.org/wiki/Corporation

Date Accessed: 3/9/2011

DVD

The Smartest Guys in the Room. 2005. [DVD Documentary] Alex Gibney. United States of America: Based on the 2003 book of the same title by Bethany Mclean and Peter Elkind.

BEER: Brand Relationships and the Difference Between Loyalty and Resonance

 

11 questions, 12 beer drinkers and some insights into brand relationships. 

 I undertook a pilot-study  to understand consumers’ brand relationships with their beer and what achieving “brand resonance” entails. A convenience sample was administered an 11 item questionnaire in order to explore whether Keller’s Customer Based Brand Equity (CBBE) Model (or Pyramid) could shed light on understanding how consumers respond to their brand of beer and to what extent this is influenced by the different elements of the integrated marketing communications strategy of the brand.
In order to explore this, simple open ended questions were designed to investigate whether the 6 elements that make up Keller’s CBBE Pyramid were evident in the subjects’ brand selection. The questionnaire was administered to a convenience (non-random) sample of known beer drinkers. Drinking an SAB brand was not a criterion for eligibility as the aim of the pilot-study was understand “beer drinkers” brand relationships broadly rather than just SAB beer drinkers brand relationships.

Conceptual Framework
Before discussing the findings Keller’s Consumer Based Brand Equity Pyramid will be introduced followed by an introduction of the survey questions and which aspect of the Pyramid each relates to.
Keller calls the effect that brand knowledge has on consumer response to the marketing efforts of a brand, brand equity (Keller, 1993). Brand equity occurs when the consumer knows the brand and possesses strong, positive and differentiated brand associations (Keller, 1993). The building of a strong brand requires the achievement of “resonance” with the customer. “Resonance” is the apex of Keller’s CBBE pyramid; but according to the model there are several steps that need to be accomplished along the way.

Figure 1: Keller’s Customer-Based Brand Equity Pyramid (With acknowledgement to Kuhn and Alpert)

The first step, at the base of the Pyramid, is “Salience”. This is creating the basic identification of the brand, linking it to a specific product category or need (Keller, 2003). This step basically places the brand on the consumers’ radar, whether or not they choose to engage it happens at subsequent steps along the pyramid.
The next two tiers of the pyramid can be seen to be divided into two segmented columns which only meet again at the apex, or “Resonance” level. The one column is characterised by objective brand characteristics (“Performance”) and any subsequent objective “Judgements” based on these characteristics; whilst the twin column is concerned with the subjective “Imagery” (values) projected by the brand and the subsequent “Feelings” this elicits from the consumer. This section of the Pyramid can be seen to be requiring a cognitive engagement by the consumer. When exposed to objective and subjective information (and or stimuli) the consumer will either reach a positive or negative objective judgement about the brand; and simultaneously will associate a negative or positive feeling towards the brand. Keller called this “brand response” (2003).
The final step is “brand relationships”; this is where a positive brand response is translated into “an intense, active loyalty relationship between customers and the brand” (Keller, 2001). This is “Resonance”. Just as an un-plucked guitar string will begin to vibrate and eventually sound in the presence of music of the right pitch, so too will the consumer resonate with the brand.

The Questionnaire
Based on the CBBE Pyramid’s logic of progression from salience to resonance (and all the steps in between) the following questions were posed in the questionnaire.
Questionnaire Item (Followed by Rationale)
1) What is the brand you buy most often?
In order to establish brand.
2) When did you become aware of the brand?
In order to determine when salience occurred.
3) Was there a defining moment which brought the brand to your attention?
In order to determine if the significance of the “moment of salience”.
4) How big a role did technical, brewing and nutrient value information etc. (delivered through adverts) play in your decision? Please explain briefly.
In order to determine the role of “Performance” as per the CBBE Pyramid.
5) Based on the above information how would you objectively judge your brand against the rest of the market?
In order to determine the role of “Judgement” as per the CBBE Pyramid.
6) What does the beers image represent to you?
In order to determine the role of “Imagery” as per the CBBE Pyramid.
7) How does the brand make you feel? (Drunk is not an appropriate answer here )
In order to determine the role of “Feeling” as per the CBBE Pyramid.
8 ) Even if you occassionally purchase other brands would you say you are a loyal consumer of the brand identified in question 1?
In order to determine loyalty and perhaps even “Resonance” as per the CBBE Pyramid.
9) Was there ever a time when you were more staunchly loyal to your current (or another) beer brand?
In order to determine the consumers trajectory through the product category; and possible previous “Resonant” relationships.
9i) What was different about you at this time?
To further explore conditions contributing towards item 9.
9ii) What was different about your environment/surroundings at this time?
To further explore conditions contributing towards item 9.

The Respondents
Due to the context and exploratory nature of the research a convenience sample of known beer drinkers was selected over a random sample for several reasons. Firstly the data was never intended to be quantitative, or to be submitted to the rigours of statistical analysis. Secondly, and most significantly the researchers are aware of the demographic and psychographic characteristics of the respondents which allows for some degree of assumption and hypothesising behind the analysis of the results; without having to cater for a battery of questions aimed at determining these characteristics within the questionnaire itself. This background knowledge of respondents coupled with an analysis of the questionnaires performance would also help to inform the design of a more robust and sophisticated tool should anyone wish to explore this research on a larger or more formal scale.

Analysis of Responses
The results drawn from this sample are by no means statistically representative of a larger population, but it does highlight some very important gaps and contradictions which integrated marketing communication strategies and brand equity models need to somehow engage. The analysis will follow the logic of the CBBE Pyramid, working from “Salience” towards “Resonance”.
Of the 12 respondents the following brands were represented: 1 Fosters; 1 Millers; 1 Amstel; 2 Windhoek Lagers; 2 Castle Lites; and 5 Black Labels. There was a fair degree of diversity and divergence from the CBBE model across and within the brand specific consumer responses as will be discussed below.
For the sake of brevity the discussion will not detail the minutiae of every response (these are available as an addendum) but will rather discuss trends.
The first thing that became apparent is that the word “taste” was used 15 times (not counting the word “flavour” or taste-related adjectives). Now “taste” in the meaning of one of the “five senses” and not as an “aesthetic” must require that it be placed under the objective “Performance” column of the CBBE Pyramid. It cannot be confused with aesthetics or imagery. For example; pilchards taste of pilchards; hops taste of hops: these are objective facts. Whether you like the taste of pilchards, or hops, is exercised in the “Judgement” phase; and not the “Feeling” phase.
Fosters and Millers were the furthest off the CBBE model. The Fosters case may well be an outlier as the respondent is an expatriot who is simply supporting the cheapest brand in the pubs of his new country. What is significant here is that price-leading is evidenced to be the strategy which has attracted this consumer; and might be a worthwhile strategy to deploy in a cosmopolitan market where there is a low representation of a traditional or chronically-loyal consumer base.
The Millers response was very interesting. Here the respondent places a positive emphasis on taste; as well as the way it leaves him feeling physically after “a night of quaffing” (which is better than other brands). These are objective “Performance” characteristics and their associated positive “Judgement”. Expectedly these responses are met with an affirmative response to item 8. This is a loyal consumer. What is unexpected from the perspective of the CBBE Pyramid (which unintentionally encourages one to see a holistic congruence) is the response to the items which explore “Imagery” and “Feeling”. The response is copied below:
“That sort of thing doesn’t really occur to me when it comes to what beer I drink. I’m not even sure what image the advertisers are going for with Miller. The TV adverts of metro-sexuals prancing around annoy me.”
In this case one would have to declare that loyalty and “Resonance” are not the same; but if loyalty is enough to ensure purchases are made what is the role of “Resonance”? As will be explored below, one might argue that “Resonance” is that factor which keeps the loyal from experimenting or straying.

The two Castle Lite drinkers rate “Performance” (and quality under this) positively. The taste and alcohol content are delivered whilst quality and healthiness are maintained. Under item 6 which is investigating “Imagery” the two responses are:
1) A fresh, crisp, refreshing drinking experience, and
2) Cool, light, fresh, cold.
These two almost encapsulate the advertising imagery. Something is happening here, both respond “yes” to being loyal consumers but it may still be short of “Resonance”. The “Imagery” this brand generated for the consumer is of the beer itself, and to a much lesser extent an image of themselves, the consumer of the brand. For item 7, “How does the brand make you feel?” the responses were:
1) Content, and
2) Makes me feel metro and sophisticated
The second respondent might be lost to Millers. Although “content” signifies a degree of satisfaction this brand relationship seems to lacks the passion one would expect of “Resonance” when compared to the findings below.
In comparison to the other brands the data for the Black Label brand rolls across the analysis matrix like the “Four (in this case five) Riders of the Apocalypse”. Compared to the other brands whose respondents for the most part have only been consumers of their current brands for no more than four years; all of the Black Label respondents have all been aware of the brand (and it appears consumers of the brand) since the mid-1990’s around the time they all finished high school.
The moment of “Salience” is also reported with much more clarity and the influence of social groups here, rather than an IMC strategy is glaringly evident:
– “A neighbour swore by it.”
– “Yes… the moment Flea said, ‘Ziggs… have a sip of this golden magic…’”
– “Introduced to the beer at a friend’s house.”
– “It was the brand most of my friends were drinking when I was growing up”
When it comes to item 4 which looks at what role “Performance” apart from taste had on their decision they all reply “None” with impunity.
– “All based on taste.”
– “Black Label has never claimed to be technically proficient, extra matured or nutritionally better for you.”
– “It is about the taste and not the calorie count or how it is brewed.”
One response even begins to touch on the role “Imagery” plays for the brand:
– “None, but the adverts were always of these fris big fellas drinking after a hard days work.”
Of the 4 responses from this group to item 5 which asks them to objectively compare the brand to others the word “Best” appears in 3 of the 4 responses. Here again the brands image is included with their objective responses:
– “It has the status of being a manly man’s beer… if they had the same adverts with guys opening a Hunters Dry, it wouldn’t have the same effect.”
The influence of packaging on its position also comes out here:
– “New packaging adds to the appeal.”
By the time the analysis gets to looking at the subjects responses to “Imagery” and “Feeling” one might be forgiven for wanting to visit their nearest liquor-store to buy a case of Black Label Quarts. The enthusiasm of this group is gathering momentum. Item 6, “What does the beer’s image represent to you?”
– “Black Label has an almost cult following associated with it.”
– “More reward at the end of the day.”
– “Real man’s beer (strongest alcohol percentage too if I may add… ;).”
– “A beer of the average guy, not a show off beer.” (Stark contrast to Millers and Castle Lite imagery)
– “A hard man’s beer.”
But it doesn’t stop there. Item 7, “How does the brand make you feel?”
– “Like I’m drinking manly beer.”
– “Deserving and satisfied.”
– “Black Label in my hand makes me feel like I’m drinking real beer.”
– “Loyalty to my country’s product.”
When asked about loyalty the responses don’t only include “yes” (as all other brand consumers used), but the phrases “Hell Yeah!”; “For Surely”; and “Very much so.”
Compared to the other brands the Black Label responses give an overwhelming sense of “Resonance”. This is beyond loyalty. Just reading this analysis makes one think “I could do with some of what these guys have.”

Discussion of findings
The Black Label Cult
Based on the above cursory analysis the root of Black Label’s “Resonance” in the beer market is built upon the following.
1) A good taste and high alcohol content. Other items of “Performance” like calorie count and brewing technique don’t matter.
2) “Salience” that is socially transferred and transmitted inter and intra-generationally.
3) An image that creates a “cult-like following” and an identity for both consumer and the brand.
But “Resonance” is not a criterion for loyalty. Brands which serve niches (low-calories, sophisticated, or metro-sexual) will still be able to compete even if the relationship they have with their consumer is qualitatively different from the Black Label Cult.

Other Important Strategic Issues Arising From the Analysis
1) Salience:
IMC is only one of multiple roots that bring about “salience”. Word of mouth and peer influence play a role in this. The IMC challenge therefore is to get consumers speaking about their brand.
2) Promotions:
Only one of the respondents cites promotional activities as leading to salience at subsequent “loyalty”. Although it is a very small non-random sample this aspect of IMC might be worth exploring further, it accounts for 8% of the consumer choices here.
3) Socialisation and the Culture of Beer Drinkers
Beer as a product is complex in that it does not only possess a simple quantifiable utility value but is inextricably linked to the individual’s socialisation, culture and the taste cultures (their aesthetic). A mix of factors come together to provide that critical mass which results in “Resonance”, look at the Black Label examples above. There is more happening in the environment that influences these brand relationships than the IMC strategy can account for alone. If this could be unpacked and mapped there would be scope to inform other and future IMC strategies. You will not necessarily end up being able to recreate the Black Label Cult phenomenon but you could use it to leverage a brand to other loyal niches or consumers who are moving between brands on their brand consumption trajectory.
4) Brand Consumption Trajectories
As mentioned above, beer brands are closely linked to socialisation and culture. The non- Black Label drinkers all had changed brands in the recent past and the reasons cited range from their increased purchasing power as they grew older and earned more; the fact that alcohol-cantered socialising is playing a diminishing role in their lives; to the physical toll on their bodies from other brands. If marketers can map out the brand consumption trajectories of different demographic and psychographic groups they can cater for these transitions from young-adulthood (teens and 20’s) where price and group influence play a large role; to adulthood where consumers can afford to be more discerning and find themselves in different social milieus and social rituals to those that dominated their youth.
All societies use ritual to celebrate and support its members through moments of transition; birthdays, puberty, young adulthood, graduation, marriage, parenthood, career change, etc. These moments of transition can impact brand consumption trajectories through influencing the consumer’s brand relationship. These transitions may be ripe hunting grounding for targeted IMC to develop a brand’s market through capturing all those who find themselves on the fringe of brand and social relationships due to the stage of their life trajectory.

Conclusion and Recommendations
It is evident that the mechanisms which influence brand equity can be very complex, and that resonance is not entirely the same as simple product loyalty. Further the different elements that make up “Performance” in the CBBE Pyramid are not all equally weighted across different consumer segments. What has also been revealed through an overview of the responses is that consumers are not static, but rather dynamic entities exposed to different influences over time which can alter the characteristics that determine resonance in their brand relationships. IMC strategies need to take cognisance of this to ensure they can out leverage competitor brands.
Closing Thought
How many men start “settling down” or become more health conscious and drink light beers without any enthusiasm, without resonance in their brand relationship? By way of example, men who drink light Woolworths store branded beer are not getting the same product experience as Black Label drinkers (This author gets sad just thinking about this demographic). This study suspects there are legions of men who are drinking “responsible” beers without enthusiasm or resonance. Imagine if SAB could give them a healthier brand (Performance) which delivers powerful taste, powerful imagery and powerful feeling. Imagine if SAB could give them a resonant brand relationship; then imagine the money to be made.

References

Keller, K., 1993. Conceptualising, Measuring and Managing Customer-Based Brand Equity. Journal of Marketing. 57(1), pp. 1-22. **
Keller, K., 2001. Building Customer-Based Brand Equity. Marketing Management. 10(2), p.14-19.**
Keller, K., 2003. Strategic Brand Management: Building, Measuring and Managing Brand Equity, 2nd ed. New Jersey: Prentice Hall.**
** In:
Kuhn, K., and Alpert, F. (?) Applying Keller’s Brand Equity Model in a B2B Context: Limitations and an Empirical Test. Griffith University. Publication details unknown. [available online] http://www98.griffith.edu.au/dspace/bitstream/10072/2338/1/26187_1.pdf [Accessed April 2011]

Thoughts on Management – more layers to add to the mix

Introductory Analogy: The Kruger National Park has hundreds of thousands of animals. Within reason dictated by the artificially imposed boundaries of the park, no systems are needed to control it. It is natural, and as such, it finds its own equilibrium. Much like Adam Smith’s notion of the invisible hand of the market it is self-regulating. Zoo’s and circuses on the other hand have far fewer animals but require far more management input to ensure survival of the animals, the socialization of individuals, as well as productive social groupings of animals. The environment is not natural and due to externally imposed restrictions it cannot self-regulate.

The Industrial Revolution was one of the most significant shifts in human production and has greatly impacted human social life. As always technological advancements outpace the cultural advancements required to balance the potential impacts wrought by technological change. This is called cultural lag. Clearly seen in the fact that early classical management theory begins with seeing the worker as no more than a productive unit; which through task specialization and time-motion applications can be reduced to an automaton that can produce more output (when organized into groups with other automatons) that an individual could under the old craft-production system.

What this approach fails to take into account is the correlation between increasingly productive systems and increasing human alienation. Alienation from the product as a whole (task specialization); alienation from society (9-5 in a controlled environment without being able to choose the other individuals in the environment; and being curtailed by rules as to how you may or may not interact with them) and; alienation from the customer, the end-user. The human condition is disrupted by the requirements of the industrial system. It is not able to self-regulate because the achievement of “balance” would not result in the achievement of maximum profit.

Hence the X and Y model can be tweaked. X and Y can be re-worded, and once reworded it applies to all workers:

It is not the natural state of man to undertake repetitive tasks day in and day out towards an indirect goal; the entirety of which he is largely alienated from; in an environment where social relationships are externally imposed. This is an unbalanced condition/system and behavior will tend towards actions or inaction that will seek to restore equilibrium.

If you then manage in the X-prescribed ways you reinforce the alienation and imbalance mentioned above.
But, based on this new assumption, if you manage in the Y-prescribed ways the manager becomes a contributing agent of equilibrium. Less energy (conscious or subconscious) will be spent on seeking equilibrium and more energy will be available for productivity.

You find the extreme examples of this in companies like Netflex and Oticon in management textbooks. These “Spaghetti-organisations” allow the workers to interact, live and be productive from 9-5 (or whenever really) in a more natural way. It is closer to equilibrium. (Obviously with profit as a bottom line manufacturing industries will be impacted differently than creative industries by this approach. But then again, look at the introduction of women during Wartime Manufacturing. One gets the sense of a deal of fulfillment through these roles due to very tangible shared common goal – fulfillment brings equilibrium.)

But what happens when the founding head of a spaghetti-organisation leaves? The spaghetti-organisation becomes more routinsed. The leader is replaced but his charisma was lost. Whilst management can be learnt charisma (leadership?) cannot. And if the manager cannot be a contributing agent of equilibrium in his workers 9-5 lives through natural leadership he/she will increasingly have to rely on routinised interactions, monitoring and controlling activities, and ultimately “routinised leadership”. (Possibly why we need the interpersonal aspects of Human and Organisational Studies to provide “routinised leadership” when a leader is not available.)

So, to answer the question of “why we need managers?”: The industrial organization of human beings and production is in opposition to the natural condition of man, and as such will be assailed by forces seeking equilibrium. The job of the manager is to a) keep those forces at bay through an X-type approach or to b) Be cognizant of this and to, within the realms of what is possible, be a contributing agent of equilibrium whilst still leading a team to deliver outputs. If the manager posses a natural un-routinised charisma and leadership quality these will have multiplying effects on his/her efforts to be a contributing agent of equilibrium.