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Transformation in the Petroleum Retail Sector

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Copyright UCT Transformation in the Petroleum Retail Sector Making Black Entrants Linger Longer A Dissertation submitted in partial fulfilment of the requirement for the Degree of Executive Masters of Business Administration At Graduate School of Business University of Cape Town By: Bubele Dyantyi DYNBUB001 2012
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Transformation in the Petroleum Retail Sector – Making Black Entrants Linger LongerTransformation in the Petroleum Retail Sector – Making Black Entrants Linger Longer
A Dissertation submitted in partial fulfilment of the requirement for the Degree of Executive Masters of
Business Administration
University of Cape Town
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: 19 March 2012
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1.1 BACKGROUND TO THE RESEARCH ............................................... 12
1.2 RESEARCH ISSUES AND CONTRIBUTION ...................................... 20
1.3 JUSTIFICATION OF THE RESEARCH .............................................. 22
1.4 OUTLINE OF THIS REPORT ............................................................ 23
1.5 DELIMITATIONS AND KEY ASSUMPTIONS ..................................... 24
1.6 CONCLUSION ................................................................................. 26
2. LITERATURE .................................................................................. 27
3.1.1 RESEARCH GOALS ........................................................................ 35
3.1.2 CONCEPTUAL FRAMEWORK ......................................................... 35
3.1.3 RESEARCH QUESTIONS ................................................................ 36
3.2.4 SOFT SYSTEMS METHODOLOGY .................................................. 46
3.2.5 CRITICAL SYSTEMS HEURITICS .................................................... 48
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4.2 PURPOSE OF THE STUDY ............................................................. 47
4.3 METHOD ........................................................................................ 49
4.4 SAMPLING ..................................................................................... 49
4.8 STAKEHOLDER ASSUMPTIONS ................................................. 51
4.10 IMPLEMENTATION ....................................................................... 51
5.1 RELEVANCE ................................................................................. 63
5.2 UTILITY ......................................................................................... 63
5.3 VALIDITY ...................................................................................... 64
TABLE OF FIGURES
1.1a Petrol and diesel consumption in South Africa from 1988 to 2009 ......... 12
1.1b Summary of the Liquid Fuels Charter ................................................... 13
1.1c BEE profile of company ABC ............................................................... 16
1.1d Economically Active Population ........................................................... 16
1.1e Concern Causal Loop Diagram ............................................................ 17
1.1f Rich Picture ......................................................................................... 19
1.2 The leaking bucket syndrome .............................................................. 21
2. Parent Theory, Research Problem Area, and the Research Problem ... 27
3.1 Interactive Model of Research Design .................................................. 31
3.2.3a Inductive Research Process ............................................................... 41
3.2.3b Process of Grounded Theory Research .............................................. 43
3.2.4 The Learning cycle of Soft Systems Methodology ............................... 47
4.3 Assumptions Rating Chart ................................................................... 46
4.4 80/20% of Causal Loop Diagram of the Answer .................................... 46
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4.6 Categories and Definition ...................................................................... 55
3.2.5a CSH Boundary Statements Without Answers ..................................... 49
3.2.5b Model of Utilitarianism, Rights & Duties, Justice, Caring ..................... 50
4.7 Boundary Statements With Answers ...................................................... 56
5.3 Quantitative vs Qualitative Research Validation ..................................... 63
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BBBEE Broad Based Black Economic Empowerment
BEE Black Economic Empowerment
View, Owners, Environment Constraints
CLD Causal Loop Diagram
CSH Critical Systems Heuristics
DOE Department of Energy
LFC The Petroleum Liquid Fuels Charter
RP Rich Picture
SSM Soft Systems Methodology
SMME‘s Small, Micro, and Medium Enterprises
SYNFUEL Synthetic Fuels
CBT Calculus-Based Trust
KBT Knowledge-Based Trust
IBT Identification-Based Trust
EXECUTIVE SUMMARY
Black Economic Empowerment has been identified as one of the tools to address
past economic imbalances post the dawn of a democratic dispensation in South
Africa. BEE, as it is commonly known, is a national reality, manifesting itself in
various ways in a host of communities. It is a complex problem, also referred to as a
wicked problem, where the key problem is indefinable and the answer unsolvable.
This research paper focuses on a specific sub system of BEE resulting in non-
traditional methods of accessing finance, which in turn improves BEE in the service
station business. The answer is derived using a soft systems methodology approach
to assist in managing the wicked problem.
The concern identified for the purpose of this paper is increasing BEE representation
in the petroleum retail sector. The key question that this paper seeks to answer is:
What mechanisms can facilitate the entry of Black operators into the Petroleum
Retail sector be increased, while at the same time ensuring those Black
entrepreneurs already in the system survive? This question is referred to as the
research problem.
The answer to this question is two pronged. Assisted buy-outs will bring about
access to finance, and lower the financial hurdles to entry for Black entrepreneurs;
and formalising informal training will ensure longevity of entrants. The two variables
have been identified in this paper as the determinants of success for Black entrants
into this industry. Failure to address both variables at the same time will result in a
leaking bucket syndrome in which the rate of entry is not higher than the rate of exit,
making long term progress elusive. The answer to this research problem is referred
to as the BIG IDEA.
Assisted buy-outs will provide relative ease of access to financial resources as
lending institutions are more likely to fund a business in which one of the partners
has a history with the financial institution and has a proven managerial track-record
of running a successful business. The experience and history engenders trust in the
venture. This is called knowledge-based trust (KBT). The financial institutions
develop trust for the company as a result of the knowledge and skills embedded in
one of the partners.
Formalising of the informal learning interventions should provide entrants with
practical experiential training, as opposed to a classroom based or even traditional
seminar experience. What is needed is the infrastructure to support the learning after
the formal generic programmes have been completed.
The research methodology that was used to address this concern was Grounded
Theory Methodology. Through this process core variables emerged from a process
involving levels I and II coding, and saturation was reached via constant comparison
and theoretical sampling.
The concern variable was treated as a wicked problem, and the wicked problem
archetype was used to model both the concern and the answer causal loop
diagrams. The wicked problem archetype used the following variants: the wickedness
of problem (slow level of achieving BEE targets) difficulty in formulating the problem
(empowerment over time), probability of unforeseen circumstances (mechanisms for
partnerships), accountability of planners (reflective of demographics), knowing when
the problem is solved (survival of new entrants), sources of causal influence
(availability of finance), solutions not true or false (passing of skills), and
opportunities for experimental learning (benefiting more people).
Why should we care about the findings in this report? This report is relevant on five
fronts:
a) It is an attempt to make a contribution in the wicket problem that is BEE.
Admittedly, there is a no panacea for this problem, but this paper makes
plausible arguments on one of the angles in which it could be attacked.
b) It addresses a topical issue that has far reaching implications for the country
and the petroleum industry in particular. The petroleum industry was the first
sector to adopt a transformation charter, but it lost ground to other sectors that
have developed far more robust charters.
c) The report does not take a broad swipe at the elephant that is BEE, but
approaches the subject from a specific angle and focuses on one aspect of
BEE in the petroleum industry. The paper does not attempt to present the
issues from a scholastic polemic angle, but as a social phenomenon for which
practical approximations are possible.
d) The petroleum industry is a heavily regulated sector of the economy and can ill
afford more regulation. As the government, through statements issued by
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successive ministers, is not happy about the progress made in this industry,
the last thing that the industry needs is an intervention through legislating how
BEE should be implemented. To this end, taken to heart, the ideas in this
paper will move the industry closer to the desired state and alleviate the need
for government intervention.
This research can form a strong foundation for future research wherein ideas in
this paper can be explored further, and delve deeper into the nuts and bolts of the
subject. To that extent, and without being magniloquent, this paper can be seen
as a trail blazer that can serve as a catalyst for future research on a sector that
so little is written about.
In the same way that the paper was conducted using a rigorous methodology, a
similarly thorough approach was deployed in the evaluation process. In section
5, the paper presents expansive arguments for relevance, utility, and validity.
The latter involved arguments on credibility, validity, conformability, and
transferability of the solutions presented. Finally, using Velasquez‘s typology of
evaluating ethical considerations, the answers can be shown to be of good
ethical standing.
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ACKNOWLEDGEMENTS
I would like to convey my appreciation to my colleagues and business partners for
their willingness to listen and answer what must have seemed odd questions at
times. My working environment became the laboratory, and my colleagues the
guinea pigs in my application of theories and concepts learnt. Their bewildered eyes
when I spouted EMBA gobble-de-gook were constant reminders that theory always
had to be brought back to practice in a language that everyone understood.
Sherry was an important part of the whole EMBA experience, as the constant
reminders kept me going one step at a time. Tom was always there to give support
and encouragement. He made what seemed to be too difficult seem achievable.
I must also thank Engen Petroleum Ltd for allowing me the time to complete the
programme. My thanks go specifically to the General Manager for Sales and
Marketing, Mr Vukile Zondani for approving the study in the first place.
Lastly, but very importantly, I would like to thank my family for their understanding
over the last three years. My dear wife Boniswa supported me through the difficult
period of doing the EMBA and of writing this research report. Knowing that she was
there for the children for the six by two-week study periods ensured constant stability
in my family. Your constant nagging for me to finish the report kept the wheels
turning until the very last stage. This was proof that much can be achieved if the
environment is supportive. It is difficult to imagine how I could have finished this
report without my sons Ntsika, Khaka, and Nqaba, who kept me feeling guilty that I
was taking too much time away from them whenever I had to disappear into the
study room or campus library to find a quiet place to work on my studies.
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1.1 Background to the Research
The liquid petroleum industry is the lifeblood of the private, public and commercial
transport sectors of the economy. According the South African Petroleum
Industry Association (SAPIA), South Africa consumed approximately 11.3-billion
litres of petrol and 9.1-billion litres of diesel during 2009, as illustrated in Figure
1.1a below.
Figure 1.1a: Consumption of petrol and diesel in South Africa from 1988 – 2009
Source: SAPIA website, http://www.sapia.co.za
One of the distinctive features of this industry is that government regulates
wholesale margins and controls the retail price of petrol. One of its main
challenges has been achievement of Broad Based Black Economic
Empowerment (BBBEE) or transformation.
The whole debate on BBBEE was started with the introduction of affirmative
action legislation in 1998, four years after the first democratic elections.
Affirmative action (also known as employment equity), had the limitation that it
approached the subject of BEE only from the employment perspective. It aimed
to eliminate unfair discrimination in the workplace. It aimed to benefit previously
disadvantaged people or the designated groups‘ (EE Act, 1998, p 3). The
designated group were defined as black people, women, and people with
disabilities‘. This legislation didn‘t address other kinds of economic
empowerment, but the government and industry at large awoke to the need for
broader forms of empowerment. In the absence of any legislative framework on
which to base their empowerment models, each industry started to develop its
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own charter to guide its implementation of BEE and provide a mechanism for
measurement against achievement of specific targets.
The Oil Industry, under the umbrella of South African Petroleum Industry
Association (SAPIA) duly adopted a Liquid Fuels Charter (LFC) in 2000. The LFC
was made up of 13 components as shown in Figure1.1b below. The focus of this
paper is on component no 9, which deals retailing and the provision of fair
opportunities for entry into the retail network (service stations).
Figure 1.1b: Summary of the LFC
Liquid Fuels Charter
No. Element Sub-Element
(From preamble / interpretation) 25% ownership and control of entity that
holds the SA operating assets of the Oil
company.
the Value Chain
Sustainable presence/Sustainability through
2. Management Control Control of the entity through majority
shareholding, effective controlling
3. Supportive Culture
supportive culture and enabling environment
for business success
understand the spirit and background of the
charter policies
HDSA’s
business principles.
4. Capacity Building Training of HDSA employees on core, priority
and scarce skills
Identifying a talent pool & fast tracking it
Implementing mentorship programs
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achievements
- With criteria that favour HDSA companies
Scope of preferential procurement to include
all supplies (including crude)
List of HDSA suppliers
supplies/products to meet all prescribed
health, safety and environmental standards
7. Access to joint facilities Fair ownership opportunities
Non-discriminatory access to uncommitted
crude oil and petroleum products
8. Refining Capacity Selling shares in the refinery to HDSAs
Making refining capacity available to HDSA
companies, thru , e.g. toll refining
agreements
9. Retailing Fair opportunities for entry to the retail
network
commercial sectors
and external financing mechanisms for giving
HDSA’s access to equity ownership and entry
into viable strategic partnerships.
12. Terms of Credit Providing terms of credit to HDSA customers
(e.g. retailers and client wholesalers)
13. Synfuels Supply Parties to accommodate HDSA’s, which lack
the facilities to comply fully, in the fairest way
possible
Source: SAPIA website, http://www.sapia.co.za
The retail part of this industry is made up of service stations that sell petrol and
diesel to customers. The majority of these service stations also offer other
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convenience products to the customers. Some of these C-stores also offer fast
food products. According to a research report by Matsho (2010), the country has
over five thousand service stations spread across the nine provinces as
illustrated in Table 1.1 below
Table 1.1 Service Station Network in South Africa Province No. of Service Stations %
Gauteng 1582 30.95
Source, Jim Motsho: Retail Petrol Industry in South Africa
This paper will use data and research findings made within one of the oil
companies to make conclusions about the industry as a whole. Company ABC (its
real identity protected) has 1199 service stations nationwide. Company ABC
accounts for 23% of all service stations in the country.
Figure 1.1c below shows that 831 (62%) service stations are operated by White
people, 277 (21%) operated by Indians, 206 (15%) operated by Africans, while 29
(2%) are operated by Coloured people. Put differently, White South Africans
operate 62% of this company‘s service stations, while only 38% are in Black
control.
Source, created for this study
To gain a better understanding of why this profile represents a challenge, once
juxtapose it against the profile of economically active population in the country.
Figure 1.1d below shows that, according to the latest official census statistics,
Africans make up 75% of the economically active population (Statistics South
Africa, 2001). In figure 1.1c, we saw that Africans make up 15% of all the
entrepreneurs in the service station industry. Blacks make up 90% of the active
population of the country.
Source: Stats SA, 2001
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The under-representation of Black people in the service station industry is the
underlying concern that this paper seeks to address.
Adopting a critical realist approach, economic empowering must be seen as
something exists independently our description of it. To that extent BEE as a social
phenomenon is viewed as less determined and predictable. This paper will take
given the social reality of BEE is stratified into three domains, i.e., the empirical,
the actual, and the real. To this end, the paper will start in the domain of the actual
and review connected variables and their causal connections for the concern.
The section on research methodology will elaborate critical realism and the
Grounded Theory processes. Figure 1.1e below, represents the Concern Causal
Loop Diagram (CCLD) of variable interaction affecting the level of BEE progress in
the industry.
Figure 1.1e Causal Loop Diagram showing which variables impact negatively on
BEE
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From the above diagram it is clear that certain variables have a direct effect on the
progress of BEE.
The narrative behind the causal mechanisms of the poor Black representation in
the service station industry is compounded by the lack of definitive formulation of
the problem. The government feels that the current legislative framework is
inadequate and requires more fine-tuning. There are those that believe BEE is
nothing more than reverse discrimination. The White entrepreneurs believe that
BEE takes away opportunities from them. Others complain that BEE only works for
the connected few and that its implementation has only fuelled corruption. The
many published cases of politically connected who win tenders and clinch big
deals result in some people thinking BEE is just for the connected elite. Similarly,
any interventions are not true or false, but better of worse. The validity of solutions
to problems is stakeholder dependant. It is the participants of a particular
transaction that can truly judge whether there was empowerment or not. Even
though there‘s an idea of a solution, it is difficult to arrive at final solution. Any
solution that results in the improvement in the situation will not present the final‘
solution. It will merely be a contribution to a process that will take generations to
overcome. The social system in question can be considered to be symptom of
other internal aspects of the same problem. In the context of this paper, BEE is
presented as a symptom of the dual problems of lack of experience and access to
capital. The availability of finance prevents new entrants from coming into the
industry. This in turn slows down the level of empowerment, which negatively
impacts the achievement of BEE targets. On the other hand, those Black
entrepreneurs already in system find it difficult to stay as they struggle to survive
due to lack of experience, expertise, and access to finance, especially for working
capital requirements.
BEE is a subject that brings varied responses depending on which interest group
is involved. This subject is emotive because different people expect different things
from it. Many stakeholder groups prevail, representing a multitude of divergent
agendas. Some of the interested parties include legislators, beneficiaries, lobby
groups, financial institutions, and current owners of the economic activity being
contested.
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Each interest group has its own views about what solutions ought to be
implemented. Such divergent views can be seen in the Rich Picture in Figure 1.1f
below.
Source, created for this study
The Rich Picture reveals the wickedness of the problem. It shows different
stakeholder groups and their disparate world views reflecting their concerns,
expectations and frustrations. Black people are impatient at the slow pace of
transfer of ownership of service stations into Black people. Their major frustration
is securing funding to acquire service station when they become available for
purchase and to have cash to operate the businesses successfully.
Entrepreneurs need capital to pay for goodwill, stock, and working capital. Unlike
their White counterparts, they do not have the experience to run these
businesses. The major funding institutions want surety for their loans. They are
risk-averse, and would rather fund those with proven track record in running
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businesses. They want to see that Black entrepreneurs have unencumbered
cash to contribute to the capital requirements of the business. For those that
appear to present more risk, more interest is required. The financial institutions
are only concerned about bringing good returns to their shareholders. They have
no trust in unproven entrepreneur. The government on the other hand is
frustrated at the lack of rapid transformation. It wants petroleum companies to
give more service stations to Black entrants. Its hands are tied, but legislation
remains an option. The current view BEE is a means to replace White operators
with Black operators. They see the system as preventing young White
entrepreneurs from having entering the industry. The petroleum companies on
the other hand want transformation to occur, but they have no control over the
financial constraints of aspirant entrants. They have selection policies that
prioritise Black applicants, but each applicant must have secure funding to meet
the financial requirements.
1.2 Research Issues and Contribution
The under-representation of Black people in the service station industry is the
underlying concern that this paper seeks to address. Turning the concern into a
research question, this paper asks: how can Black entrants into the petroleum
retail industry be increased, while at the same time ensuring that Blacks already
in the industry survive? This paper argues that the rate of entry of Black
entrepreneurs must be higher than the rate of their exit, if the concern of their
under-representation it to be addressed. The opposite scenario is a leaking
bucket. In this condition, minimal progress is achieved as the inflow is
undermined by the outflow. In the leaking bucket syndrome the same or more
quantity seeps out of the bucket at same or more rate as the inflow. The zero
sum effect of the leaking bucket imagery is that much time and effort is spent
without much progress towards the end goal as the energy extended into the
inflow is cancelled out by the drainage through the holes in the bucket. The entry
into the petroleum retail industry by Black entrepreneurs is presented as the
inflow. The exit of Black entrepreneurs is presented as the seepage. This paper
seeks will suggest ways of increasing the inflow pressure, while at the same time
identifying ways in which seepage could be minimised.
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Figure 1.2 below represents this paper‘s concern behaviour over time (CBOT). In
order to deal with the CBOT, this paper proposes that the flow can be increased
while at the same time ensuring that seepage is controlled or minimised.
Figure 1.2 The leaking bucket syndrome
Source, created for this study
Answering the research question will be answered in more detail in section 4.2
below.
In summary, this research paper makes three contributions. Firstly, literature on
the transformation of the petroleum retail industry is conspicuous by its absence.
Black Economic Empowerment literature in the sector is mainly in the form of the
LFC and commentary on it. The LFC and other literature on transformation in this
industry focus on employment equity, equity in the oil majors, and procurement.
Secondly, because this sub sector of the petroleum industry has received so little
attention in the past, challenges facing its transformation have remained largely
under the radar for too long. Consequently, ways to address such challenges
have hardly been explored beyond intra-company mechanisations.
Entry of Black Entrepreneurs
Exit of Black Entrepreneurs
Thirdly, and perhaps more importantly, some innovative ideas are presented,
that, if implemented, could change the face of this sector in ways that represent
win-win solutions for the entrants and those with skills and capital.
A number of questions were considered for purposes of dealing with the concern
observed.
These questions are summarised below of which an answer to one question was
then chosen for the purpose of this paper.
The questions identified were as follows:
What do stakeholders have to offer as possible solutions?
What long-term solution that can be regarded as a win-win for most, if not
all stakeholders?
What can each key stakeholder contribute to the solution?
What financing models can prevent the pitfall of the past failed models?
How can current White service station owners be encouraged to support
BEE without the losing their own businesses?
How can Black entrants into the market be equipped to survive and be
successful as their White compatriots?
What mechanisms can facilitate the entry of Black operators into the
Petroleum Retail sector be increased, while at the same time
ensuring those Black entrepreneurs already in the system survive?
By answering the latter question, we would be dealing with the concern identified.
Answering this question is critical as it will assist in dealing with the overall
problem of BEE and the concomitant dissatisfaction with progress over the past
number of years since the signing of the LFC.
1.3 Justification for the Research
Too many Black entrepreneurs battle to access finding as they find doors shut in
their face when they look for finance from financial institutions. As if that was not
enough, they do not have enough savings of their as unencumbered cash.
Secondly, those that go past the first hurdle often find themselves faced with
another challenge round the corner. They don‘t have any experience to handle
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the complexity of running a business that runs for 24 hours, and consists of
multiple businesses at the same time.
Why should we care about the findings in this report? This report is relevant on
five fronts:
a) It is an attempt to make a contribution in the wicket problem that is BEE.
Admittedly, there is a no panacea for this problem, but this paper makes a
plausible argument on one of the angles in which it could be tacked.
b) It addresses a topical issue that has far reaching implications for the country
and the petroleum industry in particular. The petroleum industry was the first
sector to adopt a transformation charter, but it lost ground to other sectors that
have developed far more robust charters.
c) The report does not take a broad swipe at the elephant that is BEE, but
approaches the subject from a specific angle and focuses on one aspect of the
petroleum industry. The paper does not attempt to present the issues from a
scholastic polemic angle, but as a social phenomenon for which practical
approximations are possible.
d) The petroleum industry is heavily regulated that can ill afford more regulation.
As the government is not happy about the progress made in this industry, the
last thing the industry needs is for the minister to intervene by legislating how
BEE should be implemented. To this end, taken to heart, the ideas in this
paper will move the industry closer to the desired state and alleviate the need
for government intervention.
e) This research can form a strong foundation for future research wherein ideas
in this paper can be explored further, and more focus can be given to the nuts
and bolts of the subject. To that extent, and without being magniloquent, this
paper can be seen as a trail blazer that can serve as a catalyst for future
research on a sector that so little is written about.
1.4 Outline of this Report
Companies in the petroleum industry want to achieve transformation but their
strategies are compromised by the inability of Black entrepreneurs in particular to
find capital. Moreover, those that are already inside the system are finding it
difficult to stay. This situation likened to a leaking bucket.
This paper addresses the subject of BEE from a point of view that it is a wicked
problem. The reasons for this approach will be made clear as this paper unfolds.
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Secondly, the paper focuses on the subject as it plays itself out in the petroleum
industry in general, but uses company ABC for experiences and examples to
extrapolate generalisations about the research problem.
Thirdly, the paper reviews some of the literature on the subject. The literature
review is structured in such a way that it presents the parent theory, the research
problem area, and the research problem. The broader BEE represents the parent
theory, transformation talks to the research problem area, and entry and survival
of new entrants addresses the research problem.
Fourthly, the paper explores the research methodology that was used to conduct
the research. The paper used triangulation of methods, but largely informed by
Grounded Theory as the preferred methodology. This research report is
premised on a critical realism world view.
Fourthly, the paper proceeds to the research results. This section of the paper
details how the core variables emerged from the data. It presents the proposed
answer to the research problem. This presents two related answers to the
research problem.
Finally, the paper justifies the answer in terms of its relevance to the research
problem, how useful it is as an answer to the problem, and the extent to which
the results are generalisable (validity). This section also adopts the Velazquez
model on moral reasoning as the basis for assessing whether the answer offered
is ethical in the situation concerned. In this case the answer does maximize
social benefits (people across the country will benefit from the solution of assisted
by-outs while ensuring those inside the system survive ), the actions proposed
will not infringe the moral rights of the stakeholders involved, benefits will be fairly
distributed and due care applied.
1.5 Delimitations and Key Assumptions
The paper presents BEE as a wicked problem. Table 1.5 below enumerates the
characteristics of wicket problems.
1. There is no definitive formulation of a wicked problem
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2. Wicked problems have no stopping rules
3. Solutions to wicked problems are not true of false, but good or bad
4. There is no immediate and ultimate test of a solution to a wicked problem
5. Every solution to a wicked problem is a ‘one-shot’ operation because there is
no opportunity to learn by trial and error, every attempt counts significantly
6. Wicked problems do not have an enumerable set of potential solutions nor is
there a well described set of permissible operations that may be incorporated
into the plan
7. Every wicket problem is essentially unique
8. Every wicket problem can be considered to be a symptom of another problem
9. The existence of a discrepancy representing a wicked problem can be
explained in numerous ways. The choice of explanation determines the nature
of the problem’s resolution
10. The planner has no right to be wrong. Planners are liable for the consequences
of the actions they generate
Source: Swedish Morphological Society, http://www.swemorph.com
This paper focuses only in the petroleum industry and takes even a narrower
angle of the petroleum retail sector, also referred to as the marketing of
petroleum retail products. In assisted buy outs, the premise of this paper is that
the assistance will come from White South Africans who are more likely to be
experienced and have better access to financial resources. The assisted will be
Black entrants with little or no prior entrepreneurial experience, and would
otherwise struggle to obtain financial assistance on his/her own steam.
This paper does not assume that the ideas presented represent the only
available ideas on how to fast track BEE in the sector. The paper also does not
assume that all Black entrepreneurs need to be assisted in the ways suggested
in this paper. The paper merely points out that such interventions have a place,
and are likely to work in certain circumstances, particularly where the partners
trust each other.
All the research and interviews were conducted with participants based in Cape
Town and Port Elizabeth. This was due to the cost and time constraints involved
if a wider audience was to be included.
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1.6 Conclusion
This chapter was concerned with presenting the foundations for the report. The
research is placed within the context of Black Economic Empowerment with
particular reference to the petroleum industry. The research problem is the under-
representation of Black entrepreneurs in the service station industry. The
research problem is presented as a wicked problem, which by itself is an
admission that we are dealing with a complex social challenge for which there is
no panacea. Among the different stakeholders, there is little consensus about
what the problem is, let alone how to solve it.
The research question that this paper tries to answer is: What mechanisms can
facilitate the entry of Black operators into the Petroleum Retail sector be
increased, while at the same time ensuring those Black entrepreneurs
already in the system survive? Answering the research question is justified
because it makes a contribution in the wicket problem that is BEE, the subject
has far-reaching implications for the country, the proposed solutions are practical,
which can take the industry forward, and hopefully serve as fertile ground for
future research.
The next chapters proceed with a detailed description of the research project.
The very next section deals with the with literature review. This is the body of text
that reviews the critical points of current knowledge on the subject. It is a review
of secondary sources of information. The section on research methodology
details how the paper will carefully investigate and search for new insights on the
research topic. It will be a voyage of discovery using qualitative research
methods combining critical realism, grounded theory and soft systems
methodologies. The second last section reveals the new body of knowledge, also
known as research results in common parlance. Lastly, we will evaluate the
recommendations in terms of the relevance, utility, validity and whether they are
in line with Velasquez‘s typology of ethical considerations.
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2. LITERATURE REVIEW This part of the paper reviews the existent literature in the field of BEE in general,
transformation within the petroleum industry with specific reference to ownership
of service stations, and mechanisms to ensure long tenure and survival of the
most Black new entrants into the industry. The broader BEE represents the
parent theory, transformation talks to the research problem area, and entrance
and survival Black entrepreneur addresses the research problem, as depicted in
Figure 2 below.
Area, and Research Problem
Source, created for this study
The origins of Black Economic Empowerment in South African probably have
their routes in the introduction of the affirmative action by the United States of
America via the Sullivan Code of Principles, which were applied to American
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multinationals operating in South Africa. The strategy of affirmative action was
accelerated via this programme during the latter half of the 1980‘s to restore
historic imbalances in the economic growth of South Africa (Verhoef, 2001).
Internally, one can trace the roots of BEE from the ANC‘s Reconstruction and
Development Program (RDP) Base Document (1990), in which it was stated
that the South African economy is in deep-seated structural crisis as such
requires fundamental reconstruction‘. In a journal by Verhoef (2001), the
South African Institute of Race Relations referred to BEE as process of both
natural self-empowerment and organised initiatives to promote black
empowerment.
In legal terms, Black is a generic term that includes Africans, Coloureds, and
Indians. BEE targets Blacks as beneficiaries of this policy direction and is a
tacit acknowledgement that racial groups were disempowered as a result of
apartheid policies. Earlier definitions of empowerment‘ targeted Blacks,
women, and people with disability under the umbrella name of previously
disadvantaged people‘. The current discourse seems to have shifted to focus
mainly on Blacks; hence the latest legislation refers only to Broad Based
Black Economic Empowerment (BBBEE).
Economic‘ refers to the notion that the country is not endowed with unlimited
resources, and therefore choices must be made among the available
alternatives. The choices depend on the incentives available for each choice.
Woolley (2005) suggests that the incentives for BEE are anchored on two
premises. One, there‘s a moral obligation to atone for the economic
repression and exploitation of Black people in the pre 1994 era. To this
extent, one of the stated purposes of the BBEEE legislation is to promote the
effective participation of black people in the economy (Jordan, 2010). Two,
there is a social imperative to reduce the high Gini-coefficient to create a
more stable society. The Gini-coefficient index of a country is a measure of
the levels of inequality in society. A larger coefficient is indicative of larger
disparities between the rich and poor.
Empowerment‘ can be understood as a concept at the core of which is power
(Page and Czuba, 1999). The argument goes along the lines that
empowerment requires that power can change, and that if power cannot
change, then empowerment cannot happen. Power does not exist in isolation,
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or without a context. It exists within the context of people or things. By
implication, since it is created in relationships, power and power relations can
change. Page and Czuba (1999) define power as empowerment in a multi
dimensional social process that that helps people gain control over their own
lives. This paper will adopt the same definition of empowerment.
The implementation of BEE has seen a fair share of problems, and has been
challenged from various quarters. The first variant of black economic
legislative framework was criticised by many because of its failure to provide
access to the economy to the poorest of the poor and to uplift those that need
it most‘ and BEE was experienced by a handful of black celebrity
entrepreneurs (Petersen, 2007). In that process, NAIL became the first black
owned listed company on the JSE (Verhoef, 2003). Eleven of the sixteen
board members, whose executive chairman was Dr. Motlana and the deputy
executive chairman, was Dikgang Moseneke, were Black (2001). In a
memorial lecture, Maseti (2005) lambasted the approach in which narrow
BEE focussed on the advancement of a black minority through equity
acquisitions.
The introduction of Broad Based Economic Empowerment by the Department
of Trade and Industry (DTI) was aimed at deflecting the criticisms levelled at
narrow based BEE. The BBBEEE Codes of Good Practice that were
published by the government in 2005 introduced a 7-point scorecard in which
ownership only accounted for 20%.
In spite of all the efforts of government, Non Governmental Organisations and
private companies, the transformation of economic landscape in favour of
previously disadvantaged South Africans in general and Blacks in particular,
remains a challenge, and there are many questions than answers. Maseti
(2005) argues that South African needs a black economic empowerment
programme that will seriously contribute to the real development of the poor
and the starving people in squatter camps. Although some progress has been
made, no one can claim to have all the answers.
On the subject of transformation within the petroleum retail sector, and
judging by the Minister of Energy‘s 2011 budget speech, the government is
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unhappy about progress on the BEE front in the petroleum industry. In her
speech, Minister Dipuo Peters said the state of affairs of empowerment in the
industry was not acceptable. She said that for our democracy to be
sustained, inequality needs to be addressed‘ She believes that disincentives
for non-compliance will have to be tighter and tougher.
According to the Business Day (01/2011), the National Empowerment Fund, a
government agency developed to promote and facilitate broad-based black
economic empowerment, has earmarked franchising, especially within the
petroleum industry, as one of the key tools to accelerate the participation of
Black entrepreneurs in the mainstream economy. To this end, the National
Empowerment Fund last year entered into a two-year R50m agreement with
petroleum giant Engen to increase the number of Black entrepreneurs within
this lucrative industry.
We now turn our attention to the intertwined concepts of the research problem
and the BIG IDEA. Firstly, assisted buy-outs have been suggested in this
paper as part of the answer to the problem of the transformation in the
petroleum sector. Section 4 of this paper deals with this answer in more
detail. Assisted buy-outs assume partnerships between individuals, wherein
the one partner does not have either the money required to pay for the
business or the experience, or both in most cases. The other will have the
money, and sometimes, the experience in the petroleum retail industry. The
partner with money cannot unlock the opportunities because of transformation
requirements. The key ingredient in a partnership is not the convenience of
one party empowering the other. Trust between the parties plays a big role in
whether the relationship will last or not. Positive expectations and a
willingness to be vulnerable are the two essential elements of trust (Saparito
& Colwell, 2010). Positive expectations are confident, if nebulous beliefs that
are premised on the idea that your business partner will act in a fashion that
is consistent with your welfare. Fink and Kebler, 2010 propose that such
positive expectations may be based upon rational judgement or grounded in
affective or social biases. Willingness to be vulnerable, on the other hand
points to the possibility of a loss, and suggests some risk taking in placing
one‘s welfare in the hands of another. Thus, the definition of trust from
Rousseau at al (1998) is more in line with the concepts developed in this
paper: Trust is a psychological state comprising the intention of one party to
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accept vulnerability based upon positive expectations of the intentions or
behaviour of another party‘.
The credit crisis of 2008 and 2009 has made it more difficult for entrepreneurs
to raise debt and financial institutions‘ appetite for risk has been significantly
curtailed (Black et al, 2010). The concept of trust is important because it also
emerges when the entrepreneur needs to approach a financial institution for
funding. The firm-bank relationship is complex and multidimensional
functioning along a typology consisting of three dimensions of trust. Saparito
& Colwell, (p152, 2010) adopt Lewicki and Bunker‘s (1996) view that trust is
calculus-based (CBT), knowledge based, (KBT), and identification based
(IBT). CBT is about the rationale consideration of self interest whose
compliance is ensured by a system of rewards and punishment. KBT
emphasises information that accumulates over time through repeated
interactions, making the parties‘ behaviour more predictable. The history of
interactions allows predicting of future behaviour and gives comfort that risk is
minimised. Entrepreneurs often have the wrong idea when applying for
finance. Entrepreneurs and financial institutions have significantly different
ideas on entrepreneurial success traits (Black at al, p 194, 2010). KBT is
largely influenced by experience. Aspiring entrepreneurs view characteristics
inherent in their nature as more important that financial institutions, as banks
place more weight on experience than do entrepreneurs. In a study
conducted by Black et al (2010), it was found that inexperienced
entrepreneurs differ significantly from financial institutions in identifying what
financial institutions look for when making funding decisions. Highlighting the
value of partnerships between new entrants and experienced entrepreneurs
and the benefit of the experience that can be gained through partnerships, it
was found in the same study that experienced entrepreneurs do not differ
significantly from funding institutions in identifying what funding institutions
look for when making funding decisions. For example, it was found that
inexperienced entrepreneurs differ most in their view of the importance of
management (the other criteria were, future returns, product/service, and
other) to the funding decision. They cite management as an important factor
only 21% of the time compared to financial institutions that cite management
36% of the time. On the other hand, experienced entrepreneurs cited
management as 33% of the time, and do not differ significantly from the
financial institutions who cited management 36% of the time. According to
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Black et al (p196, 2010), these results indicate that entrepreneurs are more
able to identify with what financial institutions are looking for only after
experience with a funding decision. The role of trust, especially KBT, in
assisted buy-outs will be expanded upon in chapter 4.
IBT is about decisions that are made in line with the intrinsic commitment to
the relationship. The relationship between these three forms of trust is that
IBT largely relies on the presence of CBT and KBT (Saparito & Colwell, p153,
2010).
Others, however, are suspicious of assisted buy-outs. Fakude (2008) argues
against the expectation that entrepreneurs should be supervised or mentored
before they can be fully accepted. She contents that such notions amount to
limitation on market entry. Furthermore she sees that reliance on assisted
buyouts perpetuate the stereotype concerning competence and quality of
Black businesses. She argues that that Black businesses have struggled to
access finance because of what she calls the albatross‘ of blacklisting.
However, hhe agrees that accessing finance remains a challenge for Black
people. According to her, the government must take step in and remove what
she calls structural prejudices‘.
The second part of the BIG IDEA is that entrepreneurs in the petroleum
industry need a support system in which informal training is formalised. The
majority of entrants into the industry are those that take over existing
businesses. Start-ups are few and far between because construction of new
service station is not a common occurrence now; as opposed to 15-20 years
go. However, Perry et al (2010) argues that approximately two out of every
five businesses were sold back on to the market within two years. This
suggests that only 40% of those that buy business give up within two years.
How can the success rate be increased, one may ask?
This is where learning intervention play a part. They should provide entrants
with practical experiential training, as opposed to a classroom based or even
traditional seminar experience. Moreover, franchisors provide formal and
generic programmes that are geared to suit everyone therefore rarely
addressing specific needs of participants. The degree of actual learning in the
formal training environments is arguable (Perry et al, p 58, 2010). What is
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often lacking is the infrastructure required to support the learning after training
has been completed. Moreover, informal training frequently plays a role in the
development of management skills. As tacit skills relate to the precise way in
which tasks are performed within a specific environment, they can only be
learned through experience within that particular environment, and may be
particularly important to skills development of entrepreneurs who are likely to
be inheriting existing processes and procedures rather them building them
from the ground up.
In a research report by Perry et al (2010), it was found that the richest source
of learning amongst new franchisees was the time spent working alongside
the present owner, when they learnt not only about the business but also
about the skills required to manage it.
The practical informal experiential learning needs to happen within a
framework, otherwise it becomes too lose and uncoordinated. To overcome
this problem, Kelleher and Reinl (2010) suggest a facilitated micro-firm
cooperative learning network environment. Such a framework will provide
entrepreneurs with an environment in which they experience, reflect,
conceptualise, and act. In this framework, cooperative learning forms an
important part of the individual‘s learning process wherein interaction with
like-minded individuals can result in improved effectiveness, efficiency, and
innovation.
3. RESEARCH METHODOLOGY
The methodology section deals with the process to be followed in the collection
and analysis of data. The process in this paper is within a framework of certain
philosophies. These philosophies used are qualitative in nature and involve
critical realism, grounded theory, and soft systems.
3.1 INTRODUCTION AND OVERVIEW
The objective of this paper is to study the mechanisms that hinder transformation
in the petroleum industry, with specific reference to the ownership of service
stations. The aim is to identify key variables that can be viewed as hurdles that
need to be removed to achieve accelerated progress in transformation of the
industry. The premise of the study is that there is an isomorphic relationship
between transformation and the challenges that contributed to fewer Blacks
entrepreneurs. The paper looks at a situation where, 17 years since the first
democratic elections, more than half of the service station network is owned by
White operators, the reasons behind such dissonance, and how the situation
could be turned around in a sustainable way. This paper uses examples from
company ABC to make generalizations about the industry as a whole. The
rationale for such deductions is that company ABC represents 23% of the service
stations in South Africa.
The research question identifies the phenomenon to be studied. It‘s intended to
lend focus and clarity about the phenomenon of interest. But it must be borne in
mind that a truly accurate question is impossible to ask before the grounded
theory study begins. The question in this paper was refined during the process.
This paper uses a design process know as Interactive Model Research Design
(Maxwell 2005). Figure 3.1 below is an illustration of how the five components of
the model are interconnected to form an integrated and interacting whole, with
each component closely tied to several others, rather than being linked in a linear
or cyclic sequence.
Source: Joseph Maxwell, Model for Qualitative Research Design
3.1.1 Research Goals
This study is worth doing because unless ways are found that can accelerate
the acquisition of service stations by Black operators, then it is very likely that
the government would step in and regulate by legislation. The Minister of
Energy has already indicated unless progress is made soon, it may leave the
government little choice but to pass legislation whose aim will be to fast track
Black Economic Empowerment. Up to now, it has been very difficult for Black
entrepreneurs to enter the fuel retail business. Those that have come in have
found it tough to stay. The paper will identify what prevents the entry of Black
entrepreneurs into the petroleum retail industry and why those Black
entrepreneurs already in the system do not survive.
3.1.2 Conceptual Framework
BEE is widely seen is something that only benefits only those who are
politically connected. On the other hand, it is often stated by the beneficiaries
that the White people are opposed to BEE and will put obstacles in place to
the achievement of these objectives. White operators on the hand do not
understand why they have to give up what they have worked for all their lives.
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There is a willing seller willing buyer principle that is protected by the
constitution.
This paper will explore the research problem from the point of view that it is a
wicked problem. This paper will also adopt a Critical Realist approach and
apply retroductive strategies to uncover underlying causal mechanisms that
are responsible for the empirical effects. In addition, this paper will develop
some theories about BEE. Such theories will be developed inductively from
the data. The theory developed in this way is called Grounded Theory. Critical
Systems Heuristics will be used to uncover personal interests, views, and
assumptions of different stakeholders on the subject of BEE. The Soft
Systems Methodology will be used to Identifying the problematic situation,
researching the situation and building a 'rich picture' of it, select perspectives
and build 'root definitions', develop a conceptual model of the change system,
comparing the model with the real-world situation, defining the changes to be
implemented, and taking action. The Strategic Assumptions Surfacing and
Testing technique will be used to surface and challenge the assumptions of
the different stakeholders.
3.1.3 Research Questions
This study aims to understand what can be done to achieve transformation
and enhance entry of Black entrepreneurs into the service station ownership
business.
What do stakeholders have to offer as possible solutions?
What can each key stakeholder contribute to the solution?
What financing models can prevent the pitfall of the past failed models?
How can Black entrants into the market be equipped to survive and be
successful as their White compatriots?
How can current White service station owners be encouraged to support
BEE without the losing their own businesses?
What long-term solution that can be regarded as a win-win for most, if not
all stakeholders.
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What mechanisms can facilitate the entry of Black operators into the
Petroleum Retail sector be increased, while at the same time
ensuring those Black entrepreneurs already in the system survive?
3.1.4 Methods
This paper will also use triangulation of methods. According to Pogson et al
(2002), triangulation can be broadly defined as the combination of
methodologies in the study of the same phenomenon. Triangulation can
happen in different ways. It can happen when two different data types are
used, qualitative and quantitative. It can also happen through the use of
multiple qualitative methods. Lastly, triangulation can happen through the use
of specific data collection methods.
The advantage of triangulation is that it can result in greater confidence in
results, and a more comprehensive integration of theories. Triangulation with
qualitative methods allows the researcher to measure the construct in a more
approximate manner, and thereby allowing a clearer understanding of the
complexity of the situation under investigation (Pogson et al, 2002, p.3). In
triangulation, it is important to empirically validate the measurement of
constructs and the convergence with the individuals‘ perception of these
constructs. It is important to distinguish between first and second order
constructs in triangulation. A first order construct refers to how the focal
individuals conceptualise the phenomenon of interest, while a second order
construct typically refers to how the researcher makes sense of the
phenomenon (Pogson et al, 2002, p.4). The inductive paradigm allows the
researcher‘s personal experience with the construct to drive subsequent
research. In this case, the researcher is interested in identifying first order
constructs, which can inductively be used to develop categories to explain the
experiences of the sample, thus describing the second order constructs. In
stark contrast to the deductive strategy where researchers are often detached
from the phenomenon of interest, the inductive paradigm involves the
researcher‘s immersion in the experiences of the participants.
Primarily, this paper uses data collection methods embodied within Grounded
Theory. The data will be collected from some of the stakeholders identified in
the Rich Picture. Any quantitative data will be collected via a desktop exercise
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exploring existing documents, company policies, current company reports,
and any other relevant written documentation, and such data will form part of
the describing the situation.
Black and White entrepreneurs will be interviewed. The conversational
interviewing technique will be used to focus on those operators with whom I
already have rapport. The reason is to be able to get to some of the deeper
issues that unfamiliar operators might not be willing to volunteer. These
participants were chosen across the broader Company ABC‘s network of
entrepreneurs, but mostly those based in Cape Town and Port Elizabeth
because it was more convenient as the researcher travelled more often
between the two cities. A selected number of employees of Company ABC
were interviewed as well.
Data was collected through interviews, field notes, documents, and literature.
More details of the method are laid out in the next sections. The detail will
include:
The selection of settings, times, and places of data collection
Data collection methods
Data analysis
3.1.5 Validity
The results and conclusions will be heavily influenced by what comes out of
the data. This in turn will be the result of the choice of participants and data
analysis. It is plausible that the study conducted with a different set of
participants could lead to different results. The same could be said of the
impact of the researcher as the biases and analytical ability pay a critical part
in shaping the research results. The level of abstraction necessary in
developing substantive codes depends largely on the researcher‘s ability to
develop abstract concepts from the data.
This research will not use participant validation, a process where the
researcher returns to the participants and check the accuracy of individual
interview transcripts with participants or check that the researcher‘s
interpretations of the data represents what was said in the interviews. Instead,
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checking will be built-in and become part of the process rather than it
becoming a distinct exercise. A dynamic relationship between sampling and
analysis will be maintained to ensure that the emerging findings remain
constant as further data is collected.
To counter the possibility of researcher‘s bias, memoing will be used to
control distortions that may arise. All the memos that do not fit into the data
will eventually be set aside. To this effect, memoing will be used both as part
of data analysis and also in countering subjectivity.
3.2 OVERARCHING PHILOSOPHY
3.2.1 Critical Realism
This paper is premised on a critical realist world view. According to this world
view, research participants are valid scientific data than can lead to
consequential social transformation (Burnet, 2007). The participants act upon
social reality, but are also impacted by it. The real world and social reality
exist independently of our perception of it, but can only be understood under
particular descriptions, hence the ontological and epistemological premises to
critical realism. Critical realism rejects positivism‘s preoccupation with
prediction, and quantification and measurement because social reality can be
understood, but not often measured; hence it makes sense to employ
qualitative methods. Qualitative research involves detailed, verbal
descriptions of characteristics, cases, settings, people or systems obtained by
interacting with, interviewing and observing the subjects (Thompson, 2007).
Ontology can be defined as the world as it is‘ and epistemology as the world
as we know it‘. Critical realism prioritises the former over the latter. As a
consequence, the three ontological premises of critical realism are:
intransitivity, stratification of reality, and causal relations in social reality.
Intransitivity refers to the real things and structures, mechanisms and
processes and events in the world that are independent of human beings
(Burnet, 2007, p.2). Stratification refers to the idea that the reality is stratified
into three domains, namely; empirical, actual and real. The empirical domain
can be viewed as things we experience through our senses or perception.
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The actual domain is the events that happen in the world outside our
perception. It refers to events and outcomes that occur in the world. The real
domain refers to underlying relations, structures, and tendencies that have
the power to cause changes in the actual realm. Most often these causal
influences remain latent; however, under the right circumstances, factors in
the real domain can act together to generate causal changes in the actual
domain. These causal changes are neither uniform nor chaotic but are
somewhat patterned.
The real domain refers to causal mechanisms that generate events. The
causal mechanisms are the unobservable entities, processes and structures
that generate outcomes. In the realm of the real, critical realism views
behaviour as being influenced by both agency and structural factors. Although
humans have a degree of agency, this is always constrained by wider
structural factors that are viewed as surrounding the individual. Although
culture can be conceived as being dependent on and created only through
the existence of humans, critical realism argues that culture exists
independent of individuals. Likewise, social phenomena are made possible by
the presence of humans but are deemed to be external to individuals and
have existence and the power to constrain whether this is recognized by
individuals or not.
Critical realism adopts a retroductive approach to research. Retroduction
implies that researchers look for the conditions or qualities that make the
phenomenon beyond what they can immediately see. It compels us to ask,
not only what happened, but what could happen or what hasn’t happened. It
enables an understanding of the mechanisms underlying the dynamics in the
observed events.
Critical realists use retroduction as a strategy to conduct research. The
strategy unfolds in three steps:
a) The research begins in the domain of the action
b) The research postulates the existence of real structures and mechanisms
c) The research demonstrates the existence and operation of these
structures
This paper will employ retroductive strategies to uncover underlying causal
mechanisms that could be responsible for changes in transformation of the
face of the service station industry.
3.2.2 Grounded Theory
This paper will use grounded theory as the dominant methodology. Grounded
theory is a qualitative research method of field research. Qualitative methods
involve flexible investigation in natural settings using participant perspectives
(Pogson et al, 2002, p.5). It follows a largely inductive approach as a result of
which theory is derived from the study of the phenomenon it represents. In
the early stages of research, the focus is on theory development and
elaboration without any formal hypothesis presented or tested. The creation
of hypothesis can influence and distort the way in which researchers collect
and interpret data (Pogson et al, 2002, p.6). The goal becomes the creation of
a testable model. As depicted in Figure 3.2.3a below, inductive research
approach moves from specific observations to broader generalisations and
theories. Loosely, it can be termed as a bottom-up approach. Metaphorically,
this research approach can be described as hill climbing. An important
consideration about grounded theory is that research does not begin with a
theory, but is an exploration of social processes with the goal of developing
theory. The goal of grounded theory investigations is to discover theoretically
complete explanations about particular phenomena.
Figure 3.2.3a Inductive Research Process
Source, created for this study
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As Elliot and Lazenbatt (2005) point out, grounded theory emphasises the
importance of developing an understanding of human behaviour through a
process of discovery and induction rather than from the more traditional
research process of hypothesis testing and deduction. The essential
components of the grounded theory method of doing research are concurrent
data collection and constant comparative analysis; theoretical sampling;
memoing; and understanding how these methods impact on the quality of the
research.
Having said that, it is important to realise that the methods of sampling, data
collection, and data analysis should not be considered as separate procedural
steps in the research process but instead need to be considered as a
continuous cycle of data collection, analysis and sampling (Elliot and
Lazenbatt, 2005, p.50). In this continuous process, the researcher starts
analysing data as soon as it collected and then moves on to compare the
analysis of one set of data with another. In a nutshell, constant comparison
analysis and data collection offer the researcher an opportunity of generating
research findings that accurately represent the phenomenon of interest.
During the process, it is impossible to control for the presence of the
researcher. There was no deliberate attempt to eliminate the influence of
these researcher‘s personal experience, background, and preferences.
The data used in this research paper was collected from interviews, field
notes, documents and literature. A wide and representative sample was
sought to ensure relevant participant experiences were included in further
analysis. The interviews were both face to face and telephonic, especially for
those respondents that did not live in the same city as the researcher. The
interviews covered a sample of twenty one respondents who included nine
current and former colleagues, one employee of a competitive company, and
eleven service station operators. The internal staff interview contingent was
made of eight senior managers who either have had a direct or indirect
interaction with the service station owners. For employees of Company ABC,
both senior and junior levels were selected. The primary selection criterion
was position. The educational background was not regarded as a relevant for
the purpose of the research study. The initial process involves generating
data through the various data sources. The entire process is depicted in
figure 3.2.3 B below.
Source, created for this study
The next step is data analysis. Open coding is the initial phase of grounded
theory analysis. It results in substantive codes. The initial codes are often too
many and often require reworking into patterns or combinations of codes to
produce a smaller number of categories. As the research progresses and the
categories are developed, the researcher uses selective coding to check out
whether the newly developed categories remain constant when the data is
analysed specifically for these categories. The ultimate aim is to ensure that
data is not being forced into categories but rather that the categories
represent data. This dynamic relationship between data collection and
analysis enables the researcher to check if preliminary findings remain when
further data is collected (Elliot and Lazenbatt, 2005, p.50).
The most distinctive features of grounded theory are constant comparison
and theoretical sampling. Constant comparison refers to the process by which
each time an instance of an existing category is found in the data, it is
compared with previous instances of the same category and their definitions.
Theoretical sampling on the other hand, is the process by which the
researcher controls the process of developing a theory. This is achieved by
deliberately seeking to minimise or maximise selected differences and
similarities between cases, and thus between instances of data that underlie
categories and their properties (Partington, 2002).
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As the process gathers momentum, theoretical sampling guides the sources
of data, and the questions used to collect data to ensure the theory is
developed. This implies that fixed and predetermined questions and
participants identified before the research begins can only be used as a
starting point. Enough room needs to be left for data analysis to guide the
direction of further questions and participant selection.
Memoing is another important feature of grounded theory, which refers to
researcher writing down ideas that arise during data analysis. The memos are
essentially used to record the meaning of conceptual ideas and jotting down
ideas for theoretical sampling. One reason why writing memos is considered
important is that it encourages analysis that is grounded in the data because
the researcher must consider how codes and their properties relate to each
other (Elliot and Lazenbatt, 2005, p.51).
The final product is a framework of participant experiences categorised and
labelled by meaning.
Critical realism and grounded theory then become highly compatible, sharing
a focus on abduction and accepts fallibility and the interconnectedness of
practice and theory. Critical realism simultaneously recognizes the existence
of knowledge independent of humans but also the socially embedded and
fallible nature of scientific inquiry. Attending to evidence and meaning,
individual agency and social structure, theory-building and the pursuit of
practical emancipatory goals, the resulting approach is ideally suited to social
work research.
The empirical domain can be viewed as things we experience through our
senses or perception. In grounded theory, but instead empirical data is used
to explain and sometimes to predict phenomena.
In a similar fashion to grounded theory, critical realism has been applied in
qualitative research in a variety of ways. It views reality as complex and
recognizes the role of both agency and structural factors in influencing human
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behaviour. The strengths of critical realism for qualitative research lie in its
desire to render complexity intelligible, its explanatory focus, its reconciliation
of agency and structural factors, and its ability to recognize the existence of
wider knowledge while respecting the importance of social meaning to
humans. Its ontology may underpin empirical work irrespective of whether this
is overtly recognized or acknowledged. Much qualitative research seeks to
understand the causes of social phenomena through recourse to both
individual and contextual factors.
In terms of method, critical realism can be used to guide empirical work as
part of recognized approaches. For example, interpretations of critical realism
can underpin variations of ethnography and grounded theory. Alternatively,
approaches that are presented as critical realist have been developed.
Although there is no single critical realist method, these various approaches
have some commonalities.
A strong focus in theorising and research informed by critical realism is
placed on understanding causality and explaining events in the actual
domain. This movement from events to their causes, known as abduction, is
contrasted with other common goals of research to describe, predict,
correlate, and intervene.
Critical realism attempts to respond to and understand reality as it exists in
the actual and real domains. Grounded theory and critical realism are
particularly well suited to exploring research questions that relate to
understanding complexity. Rather than controlling for or simplifying
complexity artificially, the approaches advocate that complexity must be
embraced and explored. Although other research methods, such as the
randomised trial, have control and artificiality as defining characteristics,
critical realism and grounded theory advocate that phenomena must be
understood in the real world. Understanding phenomena in this natural realm
means that findings do not need to endure problematic generalisations from
unnatural to natural settings. In grounded theory the generalisations trace
similar patterns. These patterns don‘t aim to be the truth, but merely capture
and capsulate what is going on. In critical realism, patterns are used to
identify or understand the underlying phenomena. As a result, there is often
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difficulty in accounting for why trends exist or why programs perform as they
do. There is nothing inherent in critical realism that directs researchers to
theoretical, qualitative, or quantitative methods.
Explanation should be rich and deep, invoking both agency and structural
factors in a complex way to account for patterns in data. In this way, results
are not descriptive but should provide an explanation of patterns identified in
data. Interactions between factors should be described, and a sense of
complexity should be to the fore. Different types of data can be relied on to
provide a case for explanation, including lay accounts from different key
groups or document analysis. These qualitative data can also be linked to
quantitative data for corroboration or further explanation. The rationale for this
multiplicity is that each method or perspective can provide evidence of what is
occurring in the world.
Critical realism is also compatible with grounded theory because it views
individuals as having the potential for emancipation. Critical realism
recognizes that humans can actively shape and change wider social
phenomena through channels such as collective action, the arts, and
research.
In both approaches, the beliefs, understandings, and meanings of humans do
matter—not because they determine what objective reality is but rather
because they are likely to influence behavior. Hence, critical realism can be
used to guide research into lay beliefs, accounts, and discourse with the
broad caveat that data produced in these inquiries relate to accounts of reality
that may or may not be accurate but do not determine reality. This is
compatible with many forms of qualitative research.
While critical realism views having a deep understanding of why patterns exist
as a prerequisite to effective action, grounded theory reveals the patterns that
explain what is going on.
3.2.4 Soft Systems Methodology
The soft systems methodology was developed by Peter Checkland in the late
1960‘s. The methodology is illustrated in figure 3.2.4 below. The first two
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stages are involved in defining the situation in some way. The process is not
constrained by any formal definitions. It often involves data collection in
whatever form seems necessary. The problem is also expressed in all its
richness, normally via a rich picture.
Figure 3.2.4 The Learning cycle of Soft Systems Methodology
Source: Systems Thinking: Creative Holism for Managers
The third stage moves out of the real world into the systems world. It draws
on the rich picture and identifies the various perspectives of the different
interest groups and participants. Each stakeholder group defines the purpose
of the system in their eyes. The views expressed may not be acceptable to
those who own the power relations, but the views must still be allowed to be
expressed. Each perspective or Holon is then expanded by means of a
CATWOE mnemonic.
The fourth stage involves developing a conceptual model using systems
conversations. This process need not be too cumbersome becomes SSM is
about cycles of discussion and debate and not about developing an ideal
situation first time. The purpose of the model is to show a logical process that
shows all the features that describe a system. The key feature of the model is
that it must be representative of the views expressed in the participants.
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Stages five to seven take the process away from the systems realm to the
real world. Now the model is compared with reality, insights drawn from that
comparison, and ideas for improvements determined. The model is compared
with what is actually happening in the real world.
Stage six begins to explore possible alternatives and assess the feasibility of
each alternative.
In stage seven the methodology comes full circle and identifies what action
might be taken to improve the problem situation. Whenever there is an
implementation, a whole new cycle begins as the underlying dynamics take
on a different shape.
3.2.5 Critical Systems Heuristics
Critical Systems Heuristics (or CSH for short) was chosen because the
constituent parts are relevant to the phenomenon of interest. Heuristics
literally means the art of discovery‘ (Ulrich, 1983). As a methodology,
heuristics has been chosen because it serves to identify and explore relevant
problem aspects, assumptions, questions, or solution strategies. This paper is
about a process of discovery to better appreciate the dynamics at play to
enhance or hinder the entrance and survival of Black entrepreneurs in the
service station industry.
The problems statement is viewed from a critical perspective because it is
believed that there is no single right way to achieve transformation. Answers
depend largely on various interests and views. If there were any cookbook
answers to BEE, it would not be viewed as a wicked problem, and this study
would probably not be worth doing.
This paper is presented from a systems thinking perspective because all
problem definitions, solution proposals, evaluations of outcomes, and so on,
depend on prior judgments about the relevant whole system‘ to be looked at.
The relevant aspect of CSH is the boundary judgements, which becomes a
guiding framework on which aspect of the system are viewed as more
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relevant than others. To this end, this paper will frame the boundary
statements in the is‘ mode to gain a better understanding of what is
happening. The twelve boundary statements are presented in figure 3.2.5a
below.
Questions
Who is the actual client of transformation design, i.e. who belongs to the group
of those whose purposes (interests and values) are served, in distinction to those
who do not benefit but may have to bear the costs or other disadvantages?
What is the actual purpose of transformation design, as being measured not in
terms of declared intentions of the involved but in terms of the actual
consequences?
What, judged by the design's consequences, is transformation’s built in measure
of success?
Who is actually the decision taker in transformation, i.e. who can actually change
the measure of success?
are really controlled by the decision taker?
What conditions are not controlled by the decision taker, i.e. what represents
"environment" to the decision maker?
Who is actually involved as planner?
Who is involved as "expert", of what kind is his expertise, what role does he
actually play?
Where do the involved see the guarantee that their planning will be successful?
(E.g. In the theoretical competence of experts? In consensus among experts? In
the validity of empirical data? In the relevance of mathematical models or
computer simulations?
In political support on the part of interest-groups? In the experience and
intuition of the involved? Etc.) Can these assumed guarantors secure the design's
success, or are they false guarantors?
Who among the involved witnesses represents the concerns of the affected?
Who is or may be affected without being involved?
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Are the affected given an opportunity to emancipate themselves from the
experts and to take their fate into their own hands, or do the experts determine
what is right for them, what quality of life means to them, etc? That is to say, are
the affected used merely as means for the purposes of others, or are they also
treated as "ends in themselves" (Kant), as belonging to the client?
What world view is actually underlying the design of transformation? Is it the
world view of some of the involved or of some of the affected?
Source: Systems Thinking: Creative Holism for Managers
3.3 ETHICAL CONSIDERATIONS
Ethics is the moral compass that will be used to conduct the research and the
filter for any proposed solution. During the research process, ethical
considerations will feature prominently in the way participants‘ views are
treated and protected. Each participant‘s contribution will be treated
confidentially and will not be shared with the other people. The Velasquez
(2006) model of looking at utilitarianism, rights and duties, justice, and caring
will be employed as follows:
Table 3.2.5b Valesquez Model of Utilitarianism, Rights & Duties, Justice,
Caring
Utilitarianism (Does the action, as far as possible, maximise social benefits and minimise social injuries?)
Rights & Duties (Is the action consistent with the moral rights of those whom it will affect?)
Justice (Will the action lead to a just distribution and burdens?)
Caring (Does t

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