CONCEPTUAL FRAMEwork AND HYPOTHESis development

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CHAPTER 3: CONCEPTUAL FRAMEWORK AND HYPOTHESIS DEVELOPMENT

INTRODUCTION

The concept of value creation has been investigated in innumerable frameworks over the years. The previous chapter examined the concept of value creation and its importance to the stakeholders. This chapter will explore the concept of value creation. It will discuss value creating variables and their impact on both organisations and stakeholders. The discussion will further depict the dimensions of stakeholder value creation. Thus, forming the basis under which a conceptual framework for stakeholder value creation is developed.
Therefore, this chapter will recommend a framework that links different constructs with their impact on stakeholder value creation. The projected conceptual framework will lead the quantitative research. This will include leading the research from data collection and analysis to establishing a correlation between the projected framework and stakeholder value creation. The critical issue is to permit the framework to interrogate the essence of integrated reports in stakeholder value creation.
To achieve the aim of this study, the researcher developed a stakeholder instrument to complement the integrated reports in stakeholder value creation. The stakeholder instrument will constitute the salient information from the integrated reports, thus heightening the levels of transparency and accountability. The stakeholder instrument recognised five vital factors that inspire stakeholder value creation, transparency and accountability: corporate governance, financial and non-financial measures.

VALUE CREATION AND HYPOTHESIS

The overarching research question of the study aims to find stakeholders value creation attributes. The purpose of identifying these value creation attributes is to help stakeholders optimise on the use of the integrated reports in decision-making. On the other hand, the attributes will aid management in compiling integrated reports that have meaningful, concise, accurate and transparent information. This section focuses on identified value creation attributes namely: integrated reports, financial, non-financial and corporate governance in the development of the hypothesis to answer the research question.
Research question: Are the integrated reports serving their purpose of value creation, transparency and accountability to its stakeholders?

Integrated Reports

The increased corporate governance lapses and high profile corporate failures and accounting scandals have raised serious concerns pertaining to the integrity of the accounting information given to the stakeholders (Negash, 2009; Cohen, Dey & Lys, 2008). Furthermore, such predominant absence of accountability and transparency and a decay in morals and ethics of management had adversely affected stakeholders. Stubbs and Higgins (2014) alluded to the integrated reporting failure to encourage innovation in disclosure requirements. The concerns raised by stakeholders about lack of integrity of the information coupled with integrated reporting challenges encouraged the researcher to find a solution to bridge the gap (Stent & Dowler, 2015). Therefore, the advent of the solution in bridging the information gap between management and stakeholders included developing the stakeholder instrument. The stakeholder instrument enables stakeholders to understand the integrated reports and subsequently the organisation.
During the development of the SI, the researcher looked at the components of the integrated reports together with the international integrated reporting framework. According to Skae (2014: 9), the guiding principles that underpin the preparation and presentation of the integrated reports are strategic focus, connectivity of information, stakeholder relationships, materiality, conciseness, reliability and completeness, consistency and comparability. Thus, the attributes of the stakeholder instrument were informed by these underlining principles. The stakeholder instrument is envisaged to bridge the information gap between management and stakeholders. It will provide stakeholders with concise and relevant information.
The stakeholder instrument represented most of the key value drivers from the integrated reports namely; leadership, scenario planning, innovation, risk and reward, human resources, supplier focus, customer focus, market attractiveness and economic value analysis. These value drivers were summarised as follows: governance, financial and non-financial measures. Stent and Dowler (2015: 92-117) highlighted the capital resources organisations have at their disposal. Therefore, organisations use the capitals to create sustainable value for the stakeholders. Furthermore, Stent and Dowler (2015: 92-117) stipulated the guiding principles that inform the integrated reports. However, the content elements of the integrated reports measure the created value and sustainability. The study was critical in adding value to the body of knowledge by consolidating the bulky integrated report into a two (2) page report enabling stakeholders to focus on critical issues influencing decision-making.
The researcher used the integrated reports of organisations trading on the Johannesburg Stock Exchange (JSE), the rationale being that the findings could be generalised across organisations in South African. The JSE follows stringent listing rules in conformity with the world’s best practices.
Table 3.1 below depicts the value creating activities derived from the integrated reports. According to Low (2000: 252-262), the critical categories of non-financial performance that determine value creation are as follows:
i) innovation
ii) quality
iii) customer relations
iv) management capabilities
v) alliances;
vi) technology;
vii) brand value;
viii) employee relations;
ix) environmental and community issues.
Table 3.2 breaks down the importance of each stakeholder and their expectations. Shareholders have their capital invested in the organisation. For that reason, they expect their capital to grow. The shareholders expect management to create value for them. On the other hand, employees expect the organisation to improve their livelihood through the payment of salaries and benefits. Employees expect stability and growth. Furthermore, customers Value from the products and services they procure. Customers are critical in that, they are the income providers for the organisations. Therefore, the organisations have a mandate to keep them satisfied. Customers expect organisations to create value for them through the provision of quality and low cost products and services. Suppliers are the income generators for the organisations. These stakeholders are the heartbeat of organisations through the provision of inputs, which are transformed into products and services. Finally, the community’s expectations relate to job creation, donations, tax income and infrastructure improvement initiated by the organisations. Communities further, expect organisations to protect the environment through the provision of environmentally friendly products (Haksever, Chaganti & Cook, 2010).
HA1: The integrated reports provide factual and succinct information on financial and non-financial measures for stakeholders

Financial Measure: Scenario Planning and Strategic thinking

According to Hirsch, Burggraf and Daheim (2013: 363-374), enumerated scenarios are hardly implemented in organisation foresight. There is little proof in the literature of quantified long-term models that include uncertainty in organisations, in terms of long-term planning.
Scenarios remain qualitative images of possible futures that influence decision-making by way of support from top management. Quantifiable models that can forecast to a mid to long-term future are a rarity. Thus, the researcher elevated scenario planning as a direct response to the constantly changing business environment. This entails adjusting forecasts with probabilities of success between fairly certain, moderate and risky.
Chermack and Lynham (2002, 366-383) postulated that scenario planning is a method of developing numerous educated, probable and abstract different future situations in which choices may be made to influence present thinking, refining decision-making, improving human and organisation learning and performance. Duncan and Wack (1994: 18-46) supported this view by saying that scenario planning empower management to assess and analyse their options. Chermack and Swanson (2008, 129-146) elaborated further by saying that scenario planning assists management in viewing business environment differently, thus making it a vital strategic learning tool. As indicated by Wilburn and Wilburn (2011: 164-178), anecdotal case evidence of organisations depict that scenario planning encourages management to be proactive as they are confronted by environmental changes.
Figure 3.1 above depicts the power of effective planning and forecasting. Planning and forecasting is a management process imperative and should be done with a high level of precision. Allocation of probabilities to the forecasts indicates that management appreciate the uncertainty of the business environment.

Financial measure: Risk and reward analysis

Lambert, Emmelhainz and Gardner (1996: 1-18) reiterate the importance of organisations sharing both the benefits and costs with stakeholders. This is an assessment of the attractiveness and rationale of the strategic choices, to serve as a measure in making decisions. Risk and reward analysis forms part of the integrated measures in measuring performance. According to Haksever, Chaganti and Cook (2010: 291-304) economic value is generated for shareholders when the organisation returns a profit and when its owner’s equity increases. Additionally, value creation can be achieved by increasing the efficiencies, quality, introduction of new products needed by customers, customer satisfaction and customer loyalty.
Risk and reward analysis is a financial measure that looks at the quantitative nature of value creation. As highlighted in figure 3.2 above, the concepts like return on equity, owner’s net worth, gearing and many more represent the information that stakeholders consider useful in decision making (Lambert, et. al. 1996 & Hasever, et. al. 2010).

Financial measure: Economic value analysis

Economic value analysis is a measure of management’s ability to create value for the organisation (Tulley, 1998: 193-6). The economic value analysis is different from the traditional value analysis since it includes implicit costs. Through the economic profit, the stakeholders are able to make informed decisions on the organisations’ performance. Economic value analysis includes the calculation of the fundamental value (book value) and compares it with the intrinsic value (market value). Such measurement adds value to stakeholders’ decision-making process. Economic profit takes into account the opportunity cost of capital, whereas accounting profit does not (Holian & Reza, 2011).
Economic value analysis is a quantitative measure of value. Figure 3.3 above highlights that this performance attribute is critical in illuminating the effectiveness of management processes in achieving the organisation’s strategic goals. Stakeholders take keen interests in monitoring the performance of their capital.

Non financial measure: Market attractiveness

According to Chikweche (2013: 764-787), organisations should continually review customers’ needs and expectations due to the changes that take place in the marketplace. Organisations must respond to market needs with exceptional products or services. Stakeholders are attracted to organisations with basic fundamentals in place, have measurable and realistic strategic vision and have strong leadership in place. Stakeholders want organisations that take them seriously and create value for them. An organisation is economically established when it meets its frequent dividends pay outs, provides a stable source of income and creates financial security for its stakeholders. Economic safety provides control for stakeholders and enables them to make informed business decisions (Haksever, Chaganti & Cook; 2010: 291-304).
Figure 3.4 above depicts that market attractiveness is a non-financial measure. The concepts included in this category are critical to business growth and value creation. The ability of the organisation to increase both its market share and competitiveness in the market place is considered as a measure of value by stakeholders (Chikweche, 2013).

 Non-financial measure: Customer Focus

According to Bowman and Ambrosini (2010: 5479-5495), customers aim to optimise the ratio of benefits accrued for the exchange value paid. The benefits accrued must be greater than the cost paid. On the other hand, the success of an organisation is directly linked to its customers. The customers bring income to the organisation. Therefore, the researcher included the quality of the product or service offered, customer satisfaction and discounts granted indices in analysing non-integrated measures of performance.
Figure 3.5 above shows that customer focus is a non-financial measure. According to Haksever et, al. (2010), customers are the providers of income. The ability of an organisation to satisfy its customers through provision of quality products and great customer service creates value for stakeholders.

Non financial measure: Human resources

The human factor in the organisation represents, the combined intelligence, skills, and expertise that make the organisation competitive (Bontis 1998: 63-76). It constitutes the cornerstone of a successful organisation. When employees’ objectives align with those of the organisation, success is unavoidable. Employees’ education, training and development, well-being and satisfaction play a role in an organisation’s value chain. Furthermore, high staff turnover is an indicator of uncertainty and hence a value destroyer.
Figure 3.6 shows a human resources concept.as a non-financial measure. Bontis (1998) acknowledged that employees are an essential component of the organisation’s success. It is therefore, imperative that management focusses on employee development programs to keep them motivated and goal oriented.

Non financial measure: Supplier focus

According to Gouillart, (2014: 2-8), suppliers are the providers of resources necessary in the production process. Suppliers are a source of short-term financing, through their provision of resources for production or day-to-day operations. Therefore, the partnership between the organisation and its suppliers is critical in business success. The researcher regards supplier focus as a strategic panacea to value creation.
Supplier focus is a non-financial measure. Haksever (2010) added that suppliers are the source of income. Figure 3.7 above shows that stakeholders are interested in how management engage with their suppliers for value creation.

Non financial measure: Innovation focus

Varadarajan (2018: 143-166) defines innovation as the creation of value by applying relevant knowledge and resources for conversion of an idea into a new product, process, or practice or, enhancements of existing products, processes, or practice. The longevity of organisations defined by how they respond to customer needs by being relevant to the market at all times. The researcher interrogated the research and development expenditure and the ratio of new products to other products. Innovation forms part of continuous improvement and therefore, is a critical component in value creation.
HA2: Financial and non-financial measures have an influence on stakeholder value creation and the concept of transparency and accountability.

Corporate Governance: Leadership

According to Meyer and Boninelli (2007), leadership is a matter of intelligence, trustworthiness, humaneness, courage and sternness. Adair (2003) stipulates that strategic leadership includes overall accountability for the operation of the organisation by delivering the right goods or services, whatever they may be, at the right time and at the right price. The researcher measures the effectiveness of the organisations’ leadership through its public responsibility and citizenry, strategy execution and implementation, sustainability and wealth creation.
Figure 3.9 above shows that leadership is a critical element of value creation. The attribute leadership forms part of management process. Adair (2003) and Meyer et. al. (2007) posited that effective leadership is about accountability and integrated thinking.

TABLE OF CONTENTS
DECLARATION
ACKNOWLEDGMENTS
ABSTRACT
ACRONYMS AND ABBREVIATIONS
TABLE OF CONTENTS
List of Figures
List of Tables
CHAPTER 1:  INTRODUCTION AND BACKGOUND
1.1 INTRODUCTION
1.2 Problem statement
1.3 Motivation FOR THE STUDY
1.4 BENEFITS OF THE STUDY
1.5 Significance of original contribution
1.6 Research output
1.7 Limitations
1.8 Demarcation (Delimitations)
1.9 Layout
CHAPTER 2: THEORETICAL FOUNDATION AND LITERATURE REVIEW
2.1 introduction
2.2 The objective of Integrated reporting
2.3. Stakeholders
2.4 Value Creation
2.5 financial and Non-financial Measures and value creation
2.6 Corporate Governance
2.7 CHAPTER Summary
CHAPTER 3: CONCEPTUAL FRAMEwork AND HYPOTHESis development
3.1 Introduction
3.2 value creation and hypothesis
3.3 Ethics
3.4 CHAPTER Summary
CHAPTER 4: RESEARCH METHODOLOGY
4.1 Introduction
4.2 research paradigm
4.3 The aim of the empirical investigation
4.4 Methodology
4.5 Design of the study
4.6 Data Collection
4.7 Data analysis
4.8 Hypotheses Testing
4.9 Ethical Considerations
4.10 Validity and reliability
4.11 CHAPTER Summary
CHAPTER 5: RESULTS
5.1 introduction
5.2 Sample DescriptiON
5.3 reliability
5.4 Demographics
5.5 Measures of central tendency and spread for the attributes of components of the instrument
5.6 DESCRIPTIVE STATISTICS ON each item of the stakeholder instrument (SI)
5.7 chi-square test of INDEPENDENce TO DETERMINE DIFFERENCES between the observed and expected values across variables
5.8 Regression analysis
5.9 CHAPTER SUMMARY
CHAPTER 6: CONCLUSIONS and IMPLICATIONS
6.1 introduction
6.2 BRIEF REVIEW OF THE STUDY
6.3 summary of the results
6.4 study’s contribution to new knowledge
6.5 Limitations
6.6 Recommendations for further research
7. References
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