Market analysis of Arivia.kom

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MARKET ANALYSIS OF ARIVIA.KOM
by
Vamaalen Mogambery Moodley
submitted in fulfilment of the requirements for the degree of
MASTER OF COMMERCE
in the subject
BUSINESS MANAGEMENT
at the
University of South Africa
Supervisor : Professor MC Cant
Joint supervisor : Professor JW Strydom
June 2004

i Student number: 3049-282-3
I declare that
MARKET ANALYSIS OF ARIVIA.KOM
is my own work and that all the sources that I have used or quoted have been
indicated and acknowledged by means of complete references.
……………………….. ………………………..
Signature Date
(MR VM Moodley)

ii
Acknowledgements
I gratefully acknowledge the role and support of the following people during the
course of this study:
Carolyn Brady for unfailing support, friendship and love manifested in constant
reminders and subtle pressure. It made all the difference.
Professor MC (Michael) Cant for his sense of humour, invaluable professional
support, encouragement and empowering attitude.
Professor JW (Johan) Strydom for his sincerity, efficient and prompt support, and
professionalism.
Dr D (Deon) Tustin of the Bureau of Market Research (BMR) for professional
assistance in the research planning and data analysis for the purposes of this
study.
All arivia.kom staff who assisted in the pre-testing of the research instrument
used in this study.
All Eskom staff who participated in this study including those mentioned below.
Mr Pradeep (Prince) Kara of Eskom Transmission Information Management for
his time and assistance in pre-testing the research instrument used in this study.
Mr Sagren (Sagie) Chetty of Eskom Generation for facilitating the participation of
the Generation Information Management respondents in this study. It is greatly
appreciated.
All Eskom executives, managers and administrators who made time in their
demanding work schedules to participate in this study. The candid feedback was
invaluable.

iii
Abstract
Arivia.kom was formed out of a merger of the information technology (IT)
departments of Eskom, Transnet and Denel. The aim was to address skilled
staff losses and to achieve economies of scale. Agreements were drafted
ensuring arivia.kom business patronage for a period of five years.
Arivia.kom's commencement was accompanied by problems, affecting its
customers to the extent that they indicated dissatisfaction with performance.
This study established the extent of those problems, and the reasons for their
occurrence. A market analysis was conducted with specific focus on customer
and competitor analysis. An investigation was conducted into the quality of
service, overall customer impression of the organisation since its inception, as
well as performance against competitors.
The major findings indicated that performance problems were not isolated
incidents but consistent across the organisation. These problems stemmed from
poor organisational design, poorly evolved organisational culture, unclear
positioning and poor competitor and customer intelligence capability.
Key terms: B2B, Competitor Analysis, Competitor Intelligence, Customer
Analysis, Customer Dissatisfaction, Industrial Marketing, Market Analysis,
Privatisation, Segmentation, Unmet Customer Needs.

iv
Table of Contents
CHAPTER 1: INTRODUCTION AND BACKGROUND TO THE PROBLEM................... 1
1.1 INTRODUCTION TO THE STUDY..................................................................................... 1
1.2 PROBLEMS IN THE ARIVIA.KOM ENVIRONMENT............................................................. 5
1.2.1 Guaranteed contracts ........................................................................................ 5
1.2.2 Customer dissatisfaction ................................................................................... 5
1.3 PROBLEM STATEMENT................................................................................................ 7
1.4 RESEARCH OBJECTIVES ............................................................................................. 7
1.4.1 Primary objective................................................................................................ 7
1.4.2 Secondary objectives......................................................................................... 8
1.5 RESEARCH METHOD AND DATA................................................................................... 8
1.5.1 Population .......................................................................................................... 9
1.5.2 Data collection and analysis ............................................................................ 10
1.6 LAYOUT OF THE DISSERTATION................................................................................. 10
CHAPTER 2: PROFILE OF ARIVIA.KOM ...................................................................... 12
2.1 INTRODUCTION......................................................................................................... 12
2.2 SALIENT FEATURES OF SITA AND ARIVIA.KOM.......................................................... 13
2.3 FORMATION OF ARIVIA.KOM ...................................................................................... 15
2.3.1 Financial modelling .......................................................................................... 16
2.3.2 Enabling agreement......................................................................................... 17
2.3.3 Incorporation of arivia.kom .............................................................................. 18
2.3.4 Human resource unpacking and repacking..................................................... 19
2.3.5 Appointment of senior executives ................................................................... 20
2.4 STRUCTURE AND FINANCIAL PERFORMANCE OF ARIVIA.KOM ..................................... 21
2.4.1 Infrastructure Business (IB)............................................................................. 22
2.4.2 Focused Business Solutions (FBS)................................................................. 22
2.4.3 Niche Markets .................................................................................................. 23
2.4.4 Corporate function............................................................................................ 24
2.4.5 Financial performance..................................................................................... 25
2.5 THE MAIN CUSTOMERS OF ARIVIA.KOM...................................................................... 26
2.5.1 Denel and Transnet ......................................................................................... 26

v 2.5.2 Eskom .............................................................................................................. 27
2.6 THE RELATIONSHIP BETWEEN ESKOM AND ARIVIA.KOM............................................. 31
2.7 SUMMARY................................................................................................................ 33
CHAPTER 3: THE ENVIRONMENTAL LANDSCAPE OF ARIVIA.KOM...................... 35
3.1 INTRODUCTION.......................................................................................................... 35
3.2 B2B AND INDUSTRIAL MARKETING.......................................................................... 36
3.3 OVERVIEW OF MARKET ANALYSIS ............................................................................. 37
3.4 CUSTOMER ANALYSIS ............................................................................................... 42
3.4.1 Customer Analysis Framework ....................................................................... 43 3.4.1.1 Customer segmentation .................................................................................43 3.4.1.2 Customer Motivations ....................................................................................50 3.4.1.3 Unmet needs and customer dissatisfaction......................................................53
3.5 COMPETITOR ANALYSIS............................................................................................ 58
3.5.1 Competitive environment of arivia.kom ........................................................... 58
3.5.2 Competitor analysis framework....................................................................... 62 3.5.2.1 Competitor identification.................................................................................63 3.5.2.2 Analysis of strategic competitor groups ...........................................................68 3.5.2.3 Key competitor objectives...............................................................................70 3.5.2.4 Competitor strategies .....................................................................................72 3.5.2.5 Competitor strengths and weaknesses ............................................................75 3.5.2.6 Forecasting competitor response patterns .......................................................78
3.6 SUMMARY................................................................................................................. 81
CHAPTER 4: RESEARCH METHODOLOGY................................................................. 82
4.1 INTRODUCTION.......................................................................................................... 82
4.2 THE RESEARCH PROCESS ....................................................................................... 82
4.3 RESEARCH DESIGN FORMULATION.......................................................................... 83
4.3.1 General............................................................................................................ 83
4.3.2 Define the information needed........................................................................ 84
4.3.3 Design the exploratory, descriptive or causal phases of the research........... 85 4.3.3.1 Exploratory research designs .........................................................................85 4.3.3.2 Conclusive research designs .........................................................................86
4.3.4 Specify the measurement and scaling procedures ........................................ 87 4.3.4.1 Comparative Scales .......................................................................................88 4.3.4.2 Noncomparative Scales .................................................................................89
4.3.5 Construct and pre-test the questionnaire ........................................................ 90
4.3.6 Specify the sampling process and sample size.............................................. 97
4.3.7 Develop a plan of analysis............................................................................. 100

vi
4.4 SUMMARY............................................................................................................... 102
CHAPTER 5: CUSTOMER AND COMPETITOR ANALYSIS OF ARIVIA.KOM - SURVEY RESULTS....................................................................................................... 104
5.1 INTRODUCTION........................................................................................................ 104
5.2 SURVEY RESULTS: DEMOGRAPHIC DETAILS........................................................... 105
5.3 SURVEY RESULTS: SERVICE PROVIDERS ................................................................ 106
5.4 SURVEY RESULTS: ENABLING AGREEMENT (EA) .................................................... 108
5.5 SURVEY RESULTS: SERVICE DELIVERY CRITERIA................................................... 111
5.5.1 Customer segmentation................................................................................. 111
5.5.2 Customer motivations to purchase................................................................ 116
5.5.3 Unmet customer needs ................................................................................. 120
5.5.4 Customer dissatisfaction ............................................................................... 122
5.6 SURVEY RESULTS: SERVICE PROVISION CRITERIA ................................................. 125
5.7 SURVEY RESULTS: OVERALL IMPRESSION OF ARIVIA.KOM'S SERVICE..................... 129
5.7.1 Comments on the poor quality of services .................................................... 130
5.7.2 Comments on customer orientation and poor organisational culture ........... 130
5.7.3 Comments on lack of skills and capacity ...................................................... 131
5.7.4 Comments on cost......................................................................................... 131
5.8 DISCUSSION OF RESULT VALIDITY: DISTRIBUTION BU............................................ 133
5.9 SUMMARY............................................................................................................... 137
CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS...................................... 139
6.1 INTRODUCTION........................................................................................................ 139
6.2 SUMMARY OF MAIN FINDINGS AND INTERPRETATIONS ............................................ 140
6.3 CONCLUSIONS IN TERMS OF STATED OBJECTIVES .................................................. 146
6.3.1 Discussion of conclusions ............................................................................. 147 6.3.1.1 Inappropriate Organisational Design ............................................................. 148 6.3.1.2 Organisational Culture.................................................................................. 148 6.3.1.3 Unclear positioning of the organisation .......................................................... 150 6.3.1.4 Poor competitor and customer intelligence capability...................................... 150
6.4 RECOMMENDATIONS BASED ON THE CONCLUSIONS ............................................... 151
6.4.1 Recommendations for addressing poor organisational design..................... 152
6.4.2 Recommendations for promoting an organisational culture ......................... 152
6.4.3 Recommendations for positioning the organisation ...................................... 153
6.4.4 Recommendations for developing intelligence capability ............................. 155

vii
6.5 AREAS FOR FUTURE RESEARCH ............................................................................. 155
6.6 CONCLUSION.......................................................................................................... 156
BIBLIOGRAPHY ............................................................................................................ 158
ANNEXURE A: GLOSSARY OF TERMS..................................................................... 162
ANNEXURE B: QUESTIONNAIRE................................................................................ 163

viii
List of Figures
Figure 1.1 Formation of arivia.kom …..…………………………………. …………………………………………………...
1
Figure 1.2 Organisational structure of arivia.kom ……………………. ………………………………………………..
4
Figure 2.1 Migration into arivia.kom ……………………….…………… ………………………………………………….
19
Figure 2.2 Arivia.kom organogram ……………………….…………….. 21
Figure 2.3 Eskom structure …….……………………………………….. ………………………………………………….…………
30
Figure 3.1 The market environment …………………….……………… 38
Figure 3.2 Porter's five forces model ………………………………….. …………………………………………………..
65
Figure 4.1 Components of a Research design …….….………………. ………………………………………..
84
Figure 5.1 Service providers preferred to arivia.kom ……………….... ……………………………..
110
Figure 5.2 Customer segmentation and fulfilling customer needs .…. …………………………………………………..
114
Figure 5.3 Customer motivations to purchase ….…………………….. ……………………………………..
119
Figure 5.4 Unmet customer needs …………………….……………….. …………………………………………………...
121
Figure 5.5 Customer dissatisfaction ………………….………………… ………………………………………………….
124
Figure 5.6 Service delivery criteria ….………………………………….. …………………………………………………...
128
Figure 5.7 Overall impression of arivia.kom service …….………….… ………………………………
132
Figure 5.8 Mean overall ratings per BU for arivia.kom …….…………. ……………………………
135
Figure 5.9 Mean overall ratings per BU for preferred "other" service provider ..……………………………………………………… 136
Figure 6.1 Summary of service delivery and service provision criteria ……….
145
Figure 6.2 Positioning of arivia.kom ……..……………………………… ………………………………………………….
154

ix
List of Tables
Table 2.1 Financial performance of arivia.kom for the year ended 31 March 2003 …..……………………………………………….. 25
Table 3.1 Arivia.kom's competitors in the Eskom Account …..……… 62
Table 3.2 Strategic competitors grouped by service provision ….….. 69
Table 4.1 Summary of questions employed in questionnaire ….…… 96
Table 4.2 Representation of elements in the target population ….…. 98
Table 5.1 Respondents according to business unit …..……………… 105
Table 5.2 Service providers used by Eskom …..……………………… 107
Table 5.3 Opinions regarding the EA and choice of service provider 108
Table 5.4 Customer segmentation and fulfilling customer needs ….. 112
Table 5.5 Customer motivations to purchase service from service provider ….……………………………………………………. 117
Table 5.6 Unmet customer needs ….………………………………….. 120
Table 5.7 Customer dissatisfaction ….………………………………… 123
Table 5.8 Service provision criteria ….………………………………… 126
Table 5.9 Overall impression of arivia.kom's service ….…………….. 129
Table 6.1 Service delivery and service provision criteria ….………... 142

1 Chapter 1: Introduction and background to the problem
1.1 INTRODUCTION TO THE STUDY
Over time, South Africa's prominent parastatal organisations (Eskom, Transnet
and Denel) developed extensive lnformation technology (IT) capability and
infrastructure. At the end of 2000, the state (the Department of Public
Enterprises) decided to merge the IT functions of these three organisations into
one organisation. Under this initiative the IT function of each parastatal, namely,
Eskom’s ITS, Denel’s Ariel Technologies and Transnet’s Datavia, were formally
merged into one state-owned information technology business known as
arivia.kom©. The formation and ownership of arivia.kom is depicted below in
figure 1.1.
Source: Author's visualisation of formation of arivia.kom
Figure 1.1: Formation of arivia.kom
Formation of arivia.kom
Eskom's IT division (ITS)
Transnet's IT division
(DataVia)
Denel's IT division (Ariel Technologies)
ITS This division services the
Eskom Account using it's
original staff
DataVia This division services the
Transnet Account using
it's original staff
Ariel Technologies This division services the
Denel Account using it's
original staff
arivia.kom

2 Arivia.kom is a "business-to-business" (b2b) organisation, selling IT solutions and
services to its founding organisations (Eskom, Denel and Transnet) and to the
government (by responding to tenders), as well as to other entities in the private
sector (see ch 3 for further elaboration on b2b and arivia.kom's role in Eskom).
Its key objectives are to:
Ÿ be a profitable player in the IT industry
Ÿ provide high quality services to its final customers (the three main customers
being Eskom, Transnet and Denel)
Ÿ grow its customer base by seeking new business from the private sector, in
addition to being the service provider of choice to Eskom, Transnet and Denel
The government had attempted a similar exercise previously. Prior to the
inception of arivia.kom, the government authorised the formation of the state
Information Technology Agency (SITA). SITA arose from the merger of the IT
departments of the South African Police Services (SAPS), Department of
Defence, State Expenditure's Chief Directorate and the Central Computer
Services. SITA was intended as a b2b organisation, and was tasked to provide
IT services to the state. Its main focus was on military applications, integration of
information systems across governmental and ministerial departments,
implementation and management of human resources systems and the
establishment of information quality standards for use in the government. SITA
and arivia.kom differ in their operational focus and target market, and hence do
not compete for the same business. However, mutual agreement has been
reached by the two organisations to provide services to each other where one is
deficient and could benefit from the other's expertise.
By way of an initial agreement concluded with Eskom, Transnet and Denel,
arivia.kom will be provided with guaranteed business contracts until the end of
2003 (subsequently renewed till the end of 2005). Each of these organisations is
now a final customer of arivia.kom. These final customers are defined further as
follows:

3 Ÿ Eskom comprises Generation, Transmission, Distribution and Eskom
Enterprises. Eskom Enterprises houses all non-core activities such as
research and development, maintenance and telecommunications, whilst the
former units represent core business responsible for electricity production and
delivery.
Ÿ Transnet comprises, amongst other businesses, Spoornet, Portnet, Airports
Company, and Petronet. These businesses are responsible for transportation
services specialising in bulk long-distance haulage.
Ÿ Denel is the state-owned manufacturer specialising in armament and military
research, design and manufacture.
Arivia.kom has "first right of refusal" over all IT services required by its final
customers. This implies that these customers may only engage the services of
other service providers if arivia.kom cannot provide the services required, or if it
specifically refuses to perform work requested because of a lack of technical
skills.
In the 2002/2003 financial year, Eskom contributed approximately R601 million to
arivia.kom's revenue, whilst Transnet and Denel contributed R400 million and
R90 million respectively (the arivia.kom orgnanisation structure is provided in
figure 1.2). The services rendered by arivia.kom are summarised in the following
lines of business (LOB):
Ÿ Focused Business Solutions. This LOB provides analytical, design and
development services for the purposes of developing specialised (customised)
software solutions for customers.
Ÿ Infrastructure Business. Arivia.kom provides customers with local area
networks (LAN) and wide area networks (WAN) which provide complex
connectivity between computer systems and business system environments to
make possible information exchange using specific software, e-mail and usage
of the Internet and intranet.

4 Ÿ Niche Markets. This LOB provides technology solutions for specific
applications such as security systems and geographic surveying.
The formation of arivia.kom was based on certain preconditions:
Ÿ The final customer would be contractually bound to offer IT business
exclusively to arivia.kom.
Ÿ Arivia.kom has the "first right of refusal" over such work offered to it by the final
customer.
Ÿ No business is to be given to external service providers without prior
notification of such intention, and subject to arivia.kom's approval in this
regard.
The main reason for the above arrangement was to sustain the cost of employing
staff and systems inherited from its founding IT organisations in Eskom, Transnet
and Denel (who are now arivia.kom's final customer). The arivia.kom staff were
Source: Arivia.kom annual report 2003
Figure 1.2: Organisational structure of arivia.kom
Arivia.kom Board of Directors
Eskom (46%) Transnet (32%)
Denel (22%)
Chief Executive Officer (CEO)
Chief Financial Officer (CFO)
Human Resources
Market Development
Infrastructure Business Division
Focused Business Solutions Division
Niche Markets Division

5 provided with guarantees of job security and of such positions that they held with
their previous employers. This arrangement prevailed until the end of the 2003
financial year, at which time arivia.kom's contracts with its final customers were
extended until the end of 2005. These preconditions would have implications for
the way in which key people in the customer base view arivia.kom, as well as for
the operational constraints faced by arivia.kom.
1.2 PROBLEMS IN THE ARIVIA.KOM ENVIRONMENT
1.2.1 Guaranteed contracts
Given the contracts agreed to with Eskom, Transnet and Denel, arivia.kom
initially had the "right of first refusal" on all IT-oriented work conducted by each
of the three organisations for at least three years, which has subsequently been
renewed until the end of 2005. This exclusivity period commenced on 1 April
2001 and will now continue until 31 December 2005. In instances where
arivia.kom does not possess the capability to perform such work, it would then
be referred to the "open market".
Customers have expressed concern about being compelled to use arivia.kom
as an exclusive service provider until the end of the exclusivity period, and have
expressed their desire to engage other competitors. Reasons for such
dissatisfaction have often been related to poor service quality. In a survey
conducted by arivia.kom during July 2001 with the Eskom customer base,
numerous reasons for dissatisfaction were proffered. These are listed below.
1.2.2 Customer dissatisfaction
Certain customers in the arivia.kom customer base have expressed
dissatisfaction with the contractual arrangement. In a survey conducted by
arivia.kom focusing exclusively on the Eskom final customer in July 2001, the
following comments were made (extracted as written by them):
Ÿ "I don't mind paying for a service, as long as I get the service. Paying
for a pathetic service leaves a bad taste in my mouth."

6 Ÿ "I don't want to know about your logistical problems (e.g. software that
was stolen). Don't make excuses, DELIVER, that's what Eskom is
paying arivia for."
Ÿ "The service provider is not as reactive as the competition available in
the market, time to react and the innovation with regard to solutions and
meeting the customers needs is lacking, the whole culture of 'business
as usual' is still prevalent."
In addition, Eskom customers have engaged the services of external companies
without disclosing their intentions to Eskom senior management or to
arivia.kom. One example is that of Technology Services International (TSI)
which is a research and development group in Eskom. TSI engaged the
services of PQ Africa (subsequently called Comparex) at the beginning of July
2001, and did not disclose its reasons for doing so to Eskom management.
Arivia.kom support staff discovered the services provided by Comparex when
system-planning documentation was issued to TSI. The involvement of
Comparex by TSI contradicts arivia.kom's mandate, which also comprises
system research, analysis and design.
Other behaviour on the part of Eskom customers has also been a cause of
concern. During October 2001, TSI approached external service providers for a
payroll system, without involving arivia.kom in the process until one week before
the close of the tender date. The contract was then awarded to an external
organisation despite arivia.kom's protests. Other customers, such as Eskom
(Transmission Division) and Eskom (Generation Division) are also employing
technical IT staff in an effort to prevent reliance on arivia.kom.
At present, it is unclear whether arivia.kom is meeting certain customer
expectations. Hence it is also unclear whether its key objectives are likely to be
met, given the challenges being experienced.

7 1.3 PROBLEM STATEMENT
The problems that arivia.kom is experiencing seem to emanate from the market
environment (from customers and competitors). In order to understand these
problems and to investigate possible solutions to them, a market analysis is
required, with specific focus on arivia.kom's customers and competitors. It is
essential that a market analysis be conducted in order to establish why
arivia.kom is not meeting key objectives, which it has identified as being critical to
its survival and growth.
Arivia.kom's three largest customers are Eskom, Transnet and Denel. These
parastatals contribute approximately 72% of its revenue (approximately R1,091
billion out of a total of R1,51 billion). Eskom is arivia.kom's single largest
customer, contributing approximately 55% of the revenue derived from the
parastatals (R601 million of the R1,091 billion). Eskom's revenue contribution
constitutes approximately 40% of arivia.kom's overall revenue base. Eskom has
also been most prominent in expressing dissatisfaction over the quality of service
received from arivia.kom. For the purposes of this study, arivia.kom's customers
and competitors will be investigated in relation to its Eskom account.
Arivia.kom's other key customers, namely the parastatals Transnet and Denel,
will not form part of this study since little information has been made available on
those entities for the purposes of this study.
Arivia.kom has no intermediaries, and its supplier environment has not been
problematic to the extent that customers have been affected by non-delivery.
1.4 RESEARCH OBJECTIVES
1.4.1 Primary objective
The primary objective is to analyse the market environment (customers and
competitors) of arivia.kom. Strydom, Jooste and Cant (2000:40) define the
market environment as comprising consumers, competitors, intermediaries,
suppliers and opportunities and threats in the market in which a firm operates.

8 1.4.2 Secondary objectives
The secondary objectives are as follows:
Ÿ To determine why customers are reluctant to provide more business to
arivia.kom, and in some instances, are actively campaigning to replace
arivia.kom as their service provider of choice
Ÿ To establish whether arivia.kom is conducting customer segmentation
effectively for the sake of profitability and survival
Ÿ To establish customer perceptions of arivia.kom with regard to quality of
service delivery and service provision, and an overall impression of
arivia.kom's performance since its inception
Ÿ Establishing who the competitors are, the reasons for their progress in
arivia.kom's customer base which was seemingly secured contractually
Ÿ To identify areas in need of further study
1.5 RESEARCH METHOD AND DATA
The analytical survey method has been chosen as the appropriate methodology
for research in the context of this study. The data to be gathered will be
essentially quantitative. The purpose is to analyse the data collected and extract
certain meanings they may contain that will shed light on the study at hand. The
primary method of data collection will be a questionnaire. The Eskom customer
base will be required to complete this questionnaire. The questionnaire is to
address specific issues that have a direct bearing on the purpose of this study.
Primary data will be gathered from the Eskom customer base in one of the
following manners:
Ÿ sending the questionnaire to customers and evaluating their responses from
the completed questionnaires received
Ÿ conducting telephone interviews with customers, using the questionnaire as a
strict guideline and noting the responses on each questionnaire

9 In addition, data available from print media and reports generated from within
arivia.kom will also be used as sources of information. These will be secondary
sources of information. Secondary data will also be used to collect information
on arivia.kom's competitors in the marketplace.
1.5.1 Population
The population that will targeted for this study is the "Eskom Account" business
group. The Eskom Account group represents 90 key customers. These
customers authorise and influence key decisions, and represent a user
community of approximately 8 000 employees nationally who depend on the
availability of arivia.kom's computing services. The key Eskom Accounts that
receive service from arivia.kom are as follows:
Ÿ Eskom Enterprises (a subsidiary of Eskom which houses all noncore
businesses such as research and development, maintenance and protection
metering systems. This represents 15 major stakeholders/customers.
Ÿ Generation (part of Eskom's core business comprising power stations for
generating electricity). This group represents 20 major
stakeholders/customers.
Ÿ Transmission (part of Eskom's core business focusing on transmitting
electricity from power stations to final customers. This group represents 15
major stakeholders/customers.
Ÿ Distribution (part of Eskom's core business focusing on the transport of
power to local municipalities, residential areas and townships). This group
represents 20 major stakeholders/customers.
Ÿ Eskom Corporate Services (includes Eskom Human Resources, Finance,
Marketing, Treasury, Pension Fund, Corporate Planning and Corporate
Information Management). This group represents 20 major
stakeholders/customers.

10
These customers are direct users of arivia.kom services, and are also involved
in either influencing or making decisions about the purchasing of services from
arivia.kom. It is their input into and attitude towards arivia.kom that is of interest
for the purposes of this study. Their perception of service delivery and value
received from arivia.kom will influence future decisions on whether the
relationship is worth continuing upon expiry of the exclusive contractual period.
For the purposes of this study, the Eskom Account business group will be the
total population. A survey of these 90 account holders will therefore be
conducted.
1.5.2 Data collection and analysis
Primary data will be collected using a questionnaire to be constructed for the
purposes of this study. The questionnaire will focus on customers in the stated
Eskom Account areas with whom arivia.kom business managers interact in
preparing solutions and services.
1.6 LAYOUT OF THE DISSERTATION
The study is to be structured as follows:
Chapter 1: Introduction and background to the problem
· Background
· Brief description of arivia.kom's business environment
· Problem statement
Chapter 2: Customer and Competitor analysis
· Brief description of a market environment
· Review of the components comprising market analysis, and how this will
apply to the investigation of the relationship between arivia.kom and the
Eskom customer
· In-depth overview of customer analysis and competitor analysis

11
Chapter 3: Profile of arivia.kom
· Description of arivia.kom and its history
· Review of SITA and the key differences between SITA and arivia.kom
· Description of products and services offered by arivia.kom
· Description of arivia.kom's objectives
· Review of examples where these objectives have not been met
Chapter 4: Research methodology
· Statement of primary and secondary objectives
· Population targeted
· Questionnaire design
· Data collection - questionnaire constructed for the purpose of establishing the
reasons why objectives are not being met
· Data analysis
Chapter 5: Customer and competitor analysis of arivia.kom - survey results
· Analysis of the environment based on results from responses to the
questionnaire
· Further areas of research
Chapter 6: Conclusions and recommendations
· Summary of main findings and interpretations
· Conclusions in terms of stated objectives
· Recommendations based on conclusions
· Areas of future research

12
Chapter 2: Profile of arivia.kom
2.1 INTRODUCTION
When the present government came into power in 1994, it adopted a different
approach to public sector management from its predecessors. The previous
government's involvement in state owned enterprises (SOEs) dealing with
energy, transport and military systems was extensive and came to be viewed as
counterproductive and unnecessary by the present government. A white paper
published by the Department of Public Enterprises (DPE) during 2000 proposed
that economies of scale could be derived from rationalising the energy and
transport enterprises, among other SOEs, which provided prominent input costs
for vital industries such as tourism, communications, technology and export.
Such liberalisation would result in a lowering of input costs in such industries, and
generate new streams of wealth creation contributing to domestic economic
growth whilst addressing social development needs and relieving the burden on
the taxpayer. The decision to pursue public sector reform was therefore an
imperative.
In the interests of demonstrating to international communities its commitment to
rapid public sector reform, government involvement in IT was considered
appropriate for immediate reorganisation. In 1999, the State Information
Technology Agency (SITA) was formed with the intention of realising economies
of scale from the management of governmental IT needs. Thereafter, in 2001,
arivia.kom was created after the DPE decided to merge the IT departments of the
government's largest parastatals (Eskom, Transnet and Denel). Arivia.kom is
supposed to be a multipurpose IT service provider that comprehensively services
the needs of Eskom, Transnet, Denel and other governmental organisations (in
collaboration with SITA), as well as the private sector. This chapter focuses on
arivia.kom, and its formation and current business environment in terms of its
customers and competitors. Since SITA was the first of such initiatives
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13
undertaken by the state, arivia.kom is often regarded as an extension of SITA
rather than a separate entity. A brief comparison of both entities follows.
2.2 SALIENT FEATURES OF SITA AND ARIVIA.KOM
When arivia.kom was established, it was unclear to many observers whether it
would be a distinct entity from SITA. It is therefore appropriate to commence this
section with brief descriptions of the salient characteristics of arivia.kom and
SITA in order to clarify their differences and the motives underlying their creation
by the state.
On 1 April 1999, SITA was formed out of the merger of the IT departments of the
South African Police Services (SAPS), the Department of Defence, the
Department of State Expenditures Directorate and Central Computer Services.
The organisation was formed with the following objectives in mind:
Ÿ to render IT planning and advisory services to its key customers in
government
Ÿ to leverage economies of scale in the procurement of software, hardware and
IT services through a single point for government departments
Ÿ to address the IT skills drain affecting the public sector by consolidating the
resource base in order to manage the rapid losses of IT professionals to the
private sector
Ÿ to set standards for information security and the interoperability of systems in
government departments
Ÿ to promote the use of IT to improve service delivery by government (known as
e-government initiatives)
Ÿ to extend IT services across all government departments commencing with
those departments from which it initially arose
SITA was created as the official channel for the advancement of IT initiatives in
all state departments, with the intention of managing their diverse needs in a
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14
coordinated fashion. In addition, it was intended to be a single point of interface
for state IT requirements thereby minimising delays in the procurement and
implementation of hardware and software systems. State expenditure on IT
services is in excess of R10 billion annually, making it feasible to ensure that
there is prudent and responsible management of such funds, and that IT
requirements are addressed in the best interests of the state. Hence SITA was
viewed as the appropriate vehicle for the coordinated management of state IT
requirements, at the same time eliminating the duplication of efforts to procure
products and services at the lowest possible cost.
On 1 January 2001, the DPE announced the merger of the IT departments of
Eskom, Transnet and Denel to form arivia.kom, which formally commenced
operations on 1 April 2001. Arivia.kom is a "business-to-business" (B2B)
organisation. This involves selling services between itself and other formally
incorporated organisations. Arivia.kom's operations would thus entail the selling
of IT solutions and services to its founding organisations and to the government
(in collaboration with SITA), as well as to other entities in the private sector and
elsewhere in Africa. Its key objectives are as follows:
Ÿ to be a profitable player in the IT industry by providing system infrastructure
maintenance and software development services to its three main customers,
Eskom, Transnet and Denel
Ÿ to provide adequate levels of service to its three main customers which are
consistent with their expectations as specified in service level agreements
(SLAs) drawn up to this effect
Ÿ to maintain the integrity and security of data and information for its key
customers;
Ÿ to provide IT planning, integration and configuration of systems to its key
customers
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15
Ÿ to address the IT skills drain affecting the public sector by consolidating the
resource base in order to manage the rapid losses of IT professionals to the
private sector
Ÿ to grow its customer base by seeking new business from the private sector,
Eskom, Transnet and Denel, and to service governmental IT needs in
conjunction with SITA; also to seek new business opportunities elsewhere on
the African continent
Ÿ to collaborate with and support S ITA's initiatives in the public sector
To avoid confusion about the states' intentions for arivia.kom and SITA, the
chairpersons of both entities issued a joint statement on 13 July 2001, which
reiterated the complementary nature of the roles fulfilled by both organisations in
realising the objectives of the government. Both organisations are expected to
comprehensively support the IT needs of the original organisations from which
they arose. However, whilst SITA is supposed to remain the official IT advisor
and supplier of services to the state, arivia.kom's role is to extend its operations
to the private sector, with a view to becoming a commercially functional entity.
The creation of arivia.kom, and its eventual operation as a commercial entity,
required the unmitigated input and involvement of key organisations. Extensive
research was conducted into the feasibility of creating such an organisation and
its viability as a going concern.
2.3 FORMATION OF ARIVIA.KOM
To achieve the formation of arivia.kom and its ultimate operation as a commercial
entity, extensive research and facilitation were required for decision making on
crucial aspects of the merger. Throughout the premerger and postmerger
phases, consultants, appointed by the DPE, guided the development of
processes that would aid decision making on the formation and operation of
arivia.kom. The consultants facilitated a comprehensive process of investigation
and consultation with stakeholders in Eskom, Transnet, Denel and the DPE.
Detailed financial feasibility analyses were conducted, to assist the DPE in its
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16
decision to create arivia.kom as well as the drafting of enabling agreements with
Eskom, Transnet and Denel, to ensure contractual control over the management
of relationships with the entity after the commencement of operations. Human
resource issues relating to the transition of IT staff from Eskom, Transnet and
Denel to the new entity also merited consideration. Furthermore, the
management structures required to ensure the appropriate leadership and
management of the organisation on commencement of operations needed to be
determined.
2.3.1 Financial modelling
Eskom, Transnet and Denel were required to submit detailed information to the
DPE on the income and expenditure specifically related to their IT service
divisions that would eventually form part of arivia.kom. The information related
to various aspects of financial endeavour, and included the following:
Ÿ the operating cost of the IT infrastructure used by the parastatals
Ÿ the total value (capitalised) of the infrastructure managed by the respective
IT departments that would be merged to form arivia.kom
Ÿ income projections that could be derived from providing maintenance and
support to each organisation
Ÿ the human resource costs of each IT department including valuations of
gratuities, pension funds, training and development requirements, as well as
projections of the funds required to achieve parity in salary and employment
benefits among the employees of the organisations on conclusion of the
merger
Ÿ the costs of migration from the parastatal entities to arivia.kom, including the
of marketing and branding of the new entity
The information was collated into a comprehensive financial model that mapped
the financial viability of the organisation and its expected performance for the
first three years of its existence, as well as the future financial capital required to
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17
maintain arivia.kom as a going concern. The proportion of services to be
purchased from arivia.kom after its inception, as well as the capital outlay made
by each parastatal, as determined during financial modelling, formed the basis
of each organisation's shareholding in the new entity. The results yielded by
the financial modelling exercise indicated that it was financially viable for the
state to proceed with the formation of arivia.kom, given that the expected
benefits would exceed the costs relating to formation.
Thereafter, negotiation with the three parastatals resulted in the draft enabling
agreement describing the entity to be formed, and the terms and conditions that
would bind Eskom, Transnet and Denel as shareholders and customers of
arivia.kom.
2.3.2 Enabling agreement
The enabling agreement (EA) specified the reasons for the formation of
arivia.kom, and facilitated formal cooperation among the parastatals in order to
coordinate support for its existence. The aim of the agreement was to ensure
that the diverse corporate objectives formulated for each parastatal, and their
own privatisation objectives, were aligned with the imperatives defined for
arivia.kom. To ensure objectivity and consistency in each parastatal's treatment
of arivia.kom, the EA made provision for consultation forums and committees to
cope with any operational and strategic discrepancies and disputes that could
arise between arivia.kom and the parastatals.
The EA specified the role of the respective shareholders of arivia.kom, and their
rights and responsibilities as key customers of the organisation. Amongst the
various terms and conditions defined in the EA was a provision compelling the
major shareholders to make exclusive use of arivia.kom's services for at least
three years (ending on 31 December 2003), with the option of contract renewal
upon expiry of that term. In addition, the EA specified the use of service level
agreements (SLAs) to control and monitor the quality of service provision. The
SLAs specified services to be provided to each customer at group and
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18
subgroup level, and key performance indicators (KPIs) to be monitored for the
services provided. Conformance with SLA requirements was to be measured
on a monthly basis and nonconformance was to be reported to operational
forums. The EA specified the use of operational liaison forums which would
convene monthly, and a strategic liaison committee to convene quarterly to
monitor the progress of business performance and strategic relationships
between arivia.kom and its shareholders, as well as significant deviations from
KPI measures specified in the SLAs. The strategic liaison committee also
provides input into annual price increase negotiations held with arivia.kom
2.3.3 Incorporation of arivia.kom
Upon finalisation of the financial feasibility study and the drafting of the EA to
which Eskom, Transnet and Denel were signatories, the DPE subsequently
approved the incorporation of arivia.kom as a legal entity on 1 January 2001.
Ownership of the organisation would then vest in the three parastatals, resulting
in Eskom owning a 46% of the organisation, with Transnet and Denel owning
32% and 22% respectively. The proportion of ownership was determined by the
financial contribution of each entity to the capital costs of forming arivia.kom as
an entity, and the number of staff to be transferred from each parastatal to the
entity. Thereafter, the migration of the IT entities of the three parastatals into
arivia.kom commenced and is illustrated in figure 2.1, along with the
shareholder representation of each organisation. The financial year of
arivia.kom commences on 1 April of each year and ends on 31 March of the
following year. Between 1 January 2001 and 1 April 2001, the migration of staff
(human resources unpacking and repacking) from Eskom, Transnet and Denel
to arivia.kom was effected.
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19
2.3.4 Human resource unpacking and repacking
On completion of the transition of employees from the IT departments of
Eskom, Transnet and Denel to arivia.kom, the organisation comprised
approximately 1 700 employees. As part of the transition from being employees
of Eskom, Transnet and Denel, to being employees of arivia.kom, the Employee
Participation Forum (EPF) was created comprising of representatives from
arivia.kom nationally. The purpose of the EPF was to represent the needs of
employees and it was the official forum in which all human resource issues
were discussed and communicated. In addition, all management decisions
taken as a result of the merger were communicated to the organisation with the
approval of the EPF. Initially, the EPF met at two-week intervals to discuss
crucial employee-related issues. Thereafter, these issues were discussed with
the arivia.kom HR department for feedback and/or action.
One of the main items of concern was the issue of parity in salaries and benefits
between employees from the various parastatals, who would now be working
together. Comprehensive consultations and negotiations between the EPF and
arivia.kom HR and executive management were held in this regard, resulting in
a decision that employees would retain benefits that they had held prior to the
merger. Any deficiencies in the basic salaries of any group would be raised to
Source: Author's visualisation of formation of arivia.kom
Figure 2.1: Migration into arivia.kom
DenelEskom Transnet
ITS DataVia Ariel
Technologies
arivia.kom
Eskom (46%) Transnet (32%)
Denel (22%)
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20
an acceptable level over a specified time period to soften the impact of this on
the cash flow of the organisation. Thereafter, all new persons employed by
arivia.kom who were not from the parastatals were subject to different
conditions of service from the former employees of the parastatals. The
principal issue requiring attention was the appointment of senior executives to
provide leadership for arivia.kom, which is discussed below.
2.3.5 Appointment of senior executives
In the appointment of executives, representatives from each parastatal IT
department were given prominent roles in arivia.kom. However, the
appointment of the chief executive officer (CEO) was made at ministerial level in
the DPE. The final senior management structure comprised the following
representation:
Ÿ Chief Executive Officer (CEO): ex-Denel IT executive
Ÿ Chief Financial Officer (CFO): external appointment
Ÿ Chief Operating Officer (COO): external appointment
Ÿ Infrastructure Line of Business: ex-Eskom IT executive
Ÿ Focused Business Solutions: ex-Transnet IT executive
Ÿ Niche Markets Business: ex-Denel Executive
Ÿ HR Executive: ex-Transnet HR IT manager
Ÿ Market Development Executive: ex-Eskom IT executive
Owing to a commitment made by the state to the employees of arivia.kom, no
external appointments would be made to key positions within the organisation,
unless such skills were not available internally. Hence the majority of senior
executive positions were occupied by internal candidates out of deference to
their prior positions of seniority held during tenure in the respective parastatal IT
departments. All executive positions, with the exception of the COO and CFO,
were occupied at the commencement of business on 1 April 2001. The role of
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21
the CFO was managed by the original financial managers of the parastatal IT
departments, until the formal appointment was made at the end of July 2002.
The role of COO was vacant from the date of commencement of business and
was only filled in February 2002. The organisation is governed by a board of
directors (mainly external representatives appointed at governmental level) and
an executive committee comprising executives from within the organisation. An
organisation chart specifying the executive structure of arivia.kom is provided in
figure 2.2 below. This chart also alludes to the structure of arivia.kom to be
discussed in the section below.
2.4 STRUCTURE AND FINANCIAL PERFORMANCE OF ARIVIA.KOM
Arivia.kom was structured into distinct lines of business (LOBs), having
management representation at the executive committee. In addition, there is a
Corporate function that provides a variety of support functions to the three main
LOBs. The (LOBs) of arivia.kom are as follows:
Ÿ Infrastructure business
Ÿ Focused Business Solutions
Ÿ Niche Markets
Figure 2.2: Arivia.kom organogram
Source: Arivia.kom website dealing with group structure
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A discussion of the nature and function of these LOBs follows.
2.4.1 Infrastructure Business (IB)
In addition to the vast network of business infrastructure used by its largest
customers (Eskom, Transnet and Denel), arivia.kom provides extensive
information infrastructure to enable them to manage their businesses
effectively. Arivia.kom's customers operate business centres throughout South
Africa and rely extensively on IT networks to enable them to communicate.
Software, hardware and security systems, managed by arivia.kom, facilitate
information transfer daily in these parastatals on a massive scale.
Arivia.kom provides customers with local area networks (LANs) and wide area
networks (WANs) which ensure connectivity between business systems for
information exchange using specific software, e-mail, Internet and intranet.
System security monitoring is provided on all systems. Dedicated network staff
provide service and support throughout the year, including weekends and public
holidays. Planning and design services are also offered to facilitate the
commissioning of new systems for existing customers and for new customers
outside the parastatals.
The Infrastructure Business (IB) is the largest generator of revenue for
arivia.kom, and contributes approximately R1 billion to turnover annually. It also
employs approximately 1 000 employees, constituting 59% of the arivia.kom's
workforce of 1 700 people. Working closely in conjunction with the IB, LOB is
the Focused Business Solutions LOB.
2.4.2 Focused Business Solutions (FBS)
Focused Business Solutions (FBS) LOB provides business analysis and
consulting solutions for customers. Services include business information
requirement analysis, business process modelling, systems analysis, systems
design and implementation services and systems training and post-
implementation support. In addition, enterprise resource planning (ERP)
solutions are provided through Csiper Consulting, a wholly owned subsidiary of
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23
arivia.kom. Csiper Consulting is a specialist solution provider of ERP software
to medium to large organisations. ERP solutions are able to integrate
information throughout large organisations and consolidate reporting at a single
point to promote strategic decision making. They are also vast and resource
intensive, requiring extensive planning and design prior to implementation.
Arivia.kom also provides software development services, and has developers
skilled in a most of the commercially applicable programming languages.
Services include the development of web-based applications, to enable
customers to access business information using the Internet. Such software
development capabilities enable arivia.kom to provide custom-developed
software to customers in instances where commercially available software
cannot meet specific needs. Such was the case with Eskom, when engineering
applications were previously unavailable commercially, requiring the
organisation to have customised applications developed for its specific needs.
This LOB contributes approximately R275 million to arivia.kom's annual
turnover and employs approximately 300 employees, constituting 15% of the
total staff complement. A close counterpart to the FBS division is the Niche
Markets portfolio of arivia.kom.
2.4.3 Niche Markets
This LOB provides customers with specialised technologies for specific
applications such as security systems and geographic surveying. Tools such as
smart card and biometrics systems enable customers to provide access control
to their employees in work environments such as hospitals or government
facilities where security is vital. Biometrics systems involve technology that has
the ability to recognise the specific biological profiles of people, such as
employees' fingerprints and are used for access control in organisations.
Clients such as Eskom and Transnet often require important geographic
information to plan for the expansion of their electrical and rail infrastructure
networks. The Niche Markets LOB provides geographic information systems
(GIS) and documentation management systems for this purpose to make
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24
possible terrain mapping, and geographic modelling for infrastructure planning.
In addition, this LOB has secured contracts for the provision of electoral
systems to help collate election information, and has been involved in numerous
tenders from States on the Africa continent where elections have been held.
Niche Markets contributes approximately R209 million to arivia.kom's total
annual revenue. It is the smallest of the three LOBs and employs
approximately 140 staff members, constituting 8% of the total number of people
employed by arivia.kom.
2.4.4 Corporate function
The corporate function of arivia.kom provides service and support to the whole
organisation in a way that goes beyond the specific operating scope of the
LOBs. The corporate function is not involved with the direct provision of IT
services to customers; nor does it earn direct income for the organisation. The
corporate environment comprises the following functions:
Ÿ Human resource management is responsible for the management of
arivia.kom's resource policies, payroll, liaison with the Employee
Participation Forum (EPF) and deals with all remuneration-related issues.
Ÿ Market development is responsible for the development of marketing plans
and brand management initiatives on behalf of arivia.kom. In addition, key
account management resides in this function and is responsible for liaison
with customers for the identification of problems with existing services,
management of service quality and the identification of new opportunities for
the organisation. All marketing events are also coordinated through this
function.
Ÿ Procurement is responsible for the formal procurement of goods and
services on behalf of arivia.kom. Procurement enables the organisation to
acquire goods and services from suppliers, either for the internal use of
arivia.kom, or on behalf of customers who may require it.
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25
Ÿ Risk management is responsible for identifying risks to the organisation, and
drafting of policies and procedures that may be used to manage such risks
appropriately. Internal audit functions are also the responsibility of this
department.
Ÿ Legal resources is responsible for the management of all legal affairs on
behalf of arivia.kom, including the drafting of policies on legal matters for the
organisation, and the management of all contractual matters affecting the
organisation.
Ÿ Corporate information management is responsible for the management of all
information policies and standards related to software and hardware used in
the organisation. This function also regulates control over information
security in order to prevent the misuse of information or the access of
internal information by external entities.
This function accommodates approximately 260 staff, constituting
approximately 15% of the total number of employees at arivia.kom.
2.4.5 Financial performance
The financial performance of arivia.kom is set out in table 2.1 below.
Table 2.1: Financial performance of arivia.kom for year ended 31 March 2003
Financial Indicators
Revenue R1,51 bn
Net income R65 m
Revenue Generated by LOB Contribution to revenue
Revenue generated by Infrastructure LOB R1,030 bn 68.0%
Revenue generated by Focused Business LOB R275 m 18.2%
Revenue generated by Niche Markets LOB R209 m 13.8%
Source: Arivia.kom's Annual report for the 2002/2003 financial year
Arivia.kom's revenue is expected to grow modestly until the end of 2004, given
the consolidation initiatives undertaken by the IT industry for 2002 and 2003.
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26
2.5 THE MAIN CUSTOMERS OF ARIVIA.KOM Eskom, Transnet and Denel are the largest of arivia.kom's customers [contracted
as per the original enabling agreements (EA)], accounting for approximately 72%
of its revenue or R1,091 billion. The contributions to revenue by these customers
are as follows:
· Eskom's contribution to revenue is approximately R601 million (40% of
turnover overall, and 55% of turnover contributed by EA customers).
· Transnet contributes R400 million (37% of turnover overall and 40% of
revenue contributed by EA customers).
· Denel contributes approximately R90 million (6% of turnover overall and 8%
contributed by EA customers). Eskom is the largest consumer of IT services
in South Africa and remains one of arivia.kom's most valuable customers.
The challenging targets set by the state for the privatisation of its assets, and the
liberalisation of the transport and energy markets in South Africa, have
implications for future IT services required by SOEs. Eskom and Transnet in
particular are faced with difficult and challenging privatisation objectives, and will
require further investment in IT services to keep pace with these change
imperatives. Denel is also faced with privatisation goals. However, given the
involvement of Eskom and Transnet and key drivers of input costs in various key
industries in South Africa, the plight of Denel's privatisation initiatives is not
considered in the same light as its energy and transport sector counterparts.
2.5.1 Denel and Transnet
Transnet is the state's second largest SOE and was incorporated as a holding
company in 1990. It comprises 13 subsidiaries, its core business being the
provision of multimodal transportation services to the general public and to
industry in South Africa. Of its various subsidiaries, South African Airways
(SAA) and Spoornet (rail services) are its most prominent revenue generators.
Transnet's restructuring is ongoing, and privatisation is imminent. However,
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27
further progress is dependent on the government's ability to manage the large
debt burden the organisation has incurred in the management of its operations.
Denel was incorporated as a private company in 1992 by the South African
government, and is the state's seventh largest SOE. It is involved in research,
development and the manufacture of armaments and related products for
military application and the aerospace industry both in South Africa and
internationally. Denel currently supplies approximately 37% of the governments
requirements for armaments and derives approximately 50% of its revenues
from domestic trade. After 1998 planning was initiated for the partial
privatisation of Denel by the government, which subsequently sold an equity
stake in the organisation to BAE Systems in August 2000. Denel contributes
the least amount of revenue of arivia.kom's three largest customers and prefers
to maintain a large in-house IT network. This is largely because of the
emphasis on maintaining strict security over information on its intellectual
property and business dealings, as opposed to purchasing such services from
arivia.kom which utilises generic infrastructure for the provision of its services.
Eskom is the largest consumer of arivia.kom's services and is the primary focus
of attention in this study.
2.5.2 Eskom
Eskom is the largest of the SOEs in South Africa with total asset value
approximating R80 billion and revenues of R28 billion for the 2002 financial
year. Its monopoly over the electricity market in South Africa has long been
considered an area for rationalisation. The organisation is currently
characterised by volatility induced by the state's decision to introduce
competition into the energy market in South Africa by initiating a restructuring
programme that commenced in 1995. Prior to 1995, the organisation operated
as a single entity with various departments, responsible for the management of
electricity production and delivery to customers. The restructuring programme
resulted in the organisation being divided into the following ring-fenced entities:
Generation, Transmission, Distribution, Eskom Enterprises and Corporate
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28
Functions. Eskom's business environment will now be discussed with specific
focus on each of the ring-fenced entitites separately.
2.5.2.1 Generation
This entity represents Eskom's power-generating capacity and contains all the
active power stations used to produce electricity. Generation has 20 power
stations situated throughout South Africa and employs approximately 10 500
people. As part of the liberalisation of the energy market in South Africa, the
government intends selling off 30% of Generation's capacity (6 power stations)
to external business entities comprising Black Economic Empowerment
consortia and representatives of previously disadvantaged communities. The
planned launch of this initiative is scheduled to commence at the beginning of
2005.
2.5.2.2 Transmission
The Transmission entity is responsible for the management of power lines and
substations that transport the electricity from power stations to wholesale
electricity customers such as mines and industrial conglomerates (eg
aluminium producers) in South Africa. This entity has two major functions.
Firstly, it is responsible for managing a power pool that purchases power
hourly from each of the power stations, on the basis of the cost schedules
provided by each generating power station. The power pool functions as a
trading organisation that evaluates electronic "bids" submitted by each power
station, and purchases power from stations in order of priority from the lowest
cost generator to the highest, utilising stations that generate highest cost per
unit last. This ensures that Eskom optimises the cost of power generation
from all its power stations, with exception reporting done on those stations that
consistently produce "bids" to sell electricity at high prices, thereby prompting
Eskom to manage its power stations' cost of production within certain
predefined limits.
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29
Secondly, Transmission is responsible for managing the transport of electricity
from the power stations to the consumers which are bulk users of such power,
providing guarantees on the quality of the electricity used. All plant and
equipment used to transport the electricity belong to Transmission and are
maintained by this division of Eskom. Transmission employs approximately
7 000 people. It is government's intention to separate the functions of
transporting and pooling and trading electricity. At the beginning of 2005,
government plans to form a separate organisation to trade in electricity
generated from the various entities resulting from the market liberalisation
process.
2.5.2.3 Distribution
Distribution is responsible for transporting electricity to retail customers such
as municipalities (which sell electricity to suburban users), townships and
metropolitan consumers. Whilst the Transmission division sells large amounts
of power to a relatively small number of customers (operating as an electricity
wholesaler), the Distribution division sells smaller units of power to a larger
number of customers throughout South Africa, thereby operating as an
electricity retailer. Distribution employs approximately 8 000 people. The
Distribution function is currently in the process of forming Regional Electricity
Distributors (REDs) which will be responsible for the distribution of electricity
on behalf of municipalities in all nine provinces in South Africa, commencing at
the beginning of 2005.
2.5.2.4 Eskom Enterprises (EE)
EE is responsible for the management of all services that support the main
electricity business of Eskom. EE contains business units that provide
consulting and support services for the electrical infrastructure used for the
provision, transport and delivery of electricity. Services of EE include the
refurbishment of power stations and the servicing of power station equipment
(eg turbines). EE has also become a business vehicle for the furthering of
Eskom's objectives in Africa and Asia. Eskom's knowledge of power system
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30
development is considered valuable by many developing countries in Africa
and Asia, resulting in the extension of EE's involvement to assuming interests
in power utilities in countries such as Ghana, Uganda, Manantali and Nigeria.
EE employs approximately 2 500 employees and is a is a wholly owned
subsidiary of Eskom Holdings. EE is also the custodian of Eskom’s 46%
ownership of arivia.kom.
2.5.2.5 Eskom Holdings
This entity owns and controls all the ring-fenced business interests of Eskom
and is responsible for managing corporate strategy that drives the
management of all its business interests. The South African government owns
Eskom Holdings (and therefore the whole of Eskom), and is responsible for
formulating the policy and directives governing the management of the
organisation and the socioeconomic role it is intended to fulfil in South Africa
and on the African continent. Eskom Holdings houses the portfolios of Human
Resource Management, Resources and Strategy, Corporate Affairs and
Finance. Resources and Strategy is responsible for setting the strategic
direction of the organisation and monitoring compliance with government al
initiatives.
Source: Author's visualisation of Eskom
Figure 2.3: Eskom structure
Eskom Holdings Ltd
Eskom Distribution
Eskom Enterprises
Eskom Generation
Eskom Transmission
Corporate Affairs
Resources & Strategy
Human Resources
Finance
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The Human Resources function formulates, executes and controls the policies
and procedures for the management of human capital in the organisation.
Eskom has a Corporate Affairs division responsible for the coordinating of
various initiatives such as the management of corporate communications in
the organisation as well as with the general public and the state. The Finance
function controls the financial management and stewardship of the various
financial instruments used by Eskom. Figure 2.3 depicts Eskom's various
entities.
2.6 THE RELATIONSHIP BETWEEN ESKOM AND ARIVIA.KOM
Eskom is arivia.kom's largest customer contributing approximately 47% to the IT
organisation's annual turnover (about R600 million). Eskom is a technology-
driven organisation that places great emphasis on the use of timeous information
in the management of its various business units. It is one of the largest
consumers of information technology services in South Africa, spending
approximately R1,8 billion annually on IT systems' planning, design,
implementation and support. Eskom makes extensive use of Enterprise
Resource Planning (ERP) systems such as SAP R/3 to integrate financial and
human resource information from its various ring-fenced business units. Given
the privatisation imperatives defined by government, Eskom is currently involved
in various initiatives which render information technology an important tool in the
change process. From the outset, it would seem as though arivia.kom is well
positioned to take the initiative to provide IT services to meet Eskom's
transformation objectives. However, various stakeholders in the organisation's
ring-fenced entities have expressed concern about the service provider's ability
to meet the objectives specified in the enabling agreement (EA) and the
performance measures specified in the service level agreements (SLAs).
From casual observation, there appears to be certain problems underlying the
relationship between arivia.kom and Eskom. In a survery conducted by
arivia.kom in July 2001 (see 1.2.2 in ch 1), certain comments were made by
Eskom customers expressing their dissatisfaction with arivia.kom's performance
Chapter 2 comprises the knowledge of the author obtained as an employee of arivia.kom.

32
as a service provider. In addition, formal representation was also made by
customers regarding frustrations arising from the manner in which arivia.kom
conducts its business with Eskom. The Transitional Management Committee
(TMC) meetings constituted the forum between arivia.kom and Eskom within
which such representations were made. The following are some of these
observations made by Eskom to arivia during these forums (categorised by
general headings):
Ÿ Arivia.kom staff are reactive and do not demonstrate sufficient initiative in
resolving problems:
p Customer requests to arivia.kom for new services are often not followed
up on, prompting them to follow up with repeated requests.
Ÿ Poor customer service is evident.
p The time taken by arivia.kom to prepare proposals for new services often
takes too long. At times, a proposal can take as long as three weeks to
prepare.
Ÿ Arivia.kom staff are perceived to be poorly trained and lacking in the
necessary skills to attend to the problems at hand and understand customer
requirements:
p Problems experienced with customer information system environments
are often misdiagnosed. The subsequent implementation of the
prescribed solution by arivia.kom meets with customer criticism that
arivia.kom does not take the time to understand the customer's business
environment before implementing the solution.
p Customers perceive the attitude of systems support staff to be
unprofessional.
Ÿ The enabling agreement (EA) entered into between arivia.kom and Eskom is
perceived to be a source of frustration by certain Eskom customers:
Chapter 2 comprises the knowledge of the author obtained as an employee of arivia.kom.

33
p They have expressed dissatisfaction at being compelled to adhere to the
principles of the enabling agreement (EA) entered into between Eskom
and arivia.kom, requiring them to consult arivia.kom for new services first
before engaging organisations in the open market.
p They feel restricted by the agreement because they wish to engage
suppliers of their choice. Customers also perceive arivia.kom's inability to
meet their requirements as a hindrance to effectively meeting their
business objectives.
It would be necessary to establish whether the comments made by Eskom
customers correlate with any nonconformance with key performance indicators
(KPIs) specified in the SLAs. Furthermore, it is necessary to analyse whether
this has serious implications for arivia.kom's aspirations to generate further
business opportunities in Eskom, and whether it is likely to retain Eskom
patronage upon expiry of the initial contractual period specified in the EA. It will
be necessary to investigate whether the terms and conditions of the EA are a
source of frustration to Eskom, given that arivia.kom could be perceived as a
hindrance to change imperatives that Eskom has been bound to by the
government's privatisation programme.
2.7 SUMMARY
The formation of arivia.kom and its subsequent role as an IT service provider to
Eskom, Transnet and Denel have been notable milestones for the Department of
Public Enterprises (DPE). However, since the commencement of operations by
arivia.kom, observations made about its role in the Eskom business environment,
and the manner in which Eskom has reacted to arivia.kom, warrants further
investigation and analysis. In addition, Eskom is well known in the IT industry for
its tendency to invest extensively in information technology, which tends to make
it a target for many of arivia.kom’s aggressive competitors. Arivia.kom’s
behaviour towards its competitors has thus far not indicated an awareness of the
need to respond appropriately; nor is there any indication of a formalised
Chapter 2 comprises the knowledge of the author obtained as an employee of arivia.kom.

34
business objective specifying the approach to competitive threats. Moreover, the
presence of the enabling agreement (EA) between arivia.kom and Eskom may
also be a factor determining the approach adopted by the organisation, and
Eskom's subsequent reaction. The EA may also play a role in determining its
competitive stance in the industry with regard to Eskom.
However, further investigation and analysis of the Eskom environment are
necessary to establish formally what factors are contributing to the apparent
problems experienced in arivia.kom. In addition, investigation and analysis are
required on the competitor dimension which seems to be affecting the
organisation's ability to exploit new business opportunities in Eskom.
Chapter 2 comprises the knowledge of the author obtained as an employee of arivia.kom.

35
Chapter 3: The environmental landscape of arivia.kom
3.1 INTRODUCTION
Arivia.kom was recently formed as a result of the merger of the information
technology (IT) departments of Eskom, Transnet and Denel. Prior to the merger,
the separate entities existed as IT service departments within these organisations
and were accustomed to insular environments that isolated them from the
operating conditions to which business-driven organisations in the private sector
are ordinarily accustomed. This environmental landscape changed for arivia.kom
on commencement of business on 1 March 2001, and it is now expected to
operate in the same manner as organisations in the private sector.
The modern business environment is often turbulent and volatile, and within it
arivia.kom is now required to engage competitors and customers in a manner
with which it has had little prior experience. However, despite years of
experience even the most successful and established organisations commit
strategic errors. A case in point is Motorola, which, during 1999 and 2000,
misjudged customer preferences and competitor focus in their European market,
when launching a new cellphone model, the so-called "Shark Phone", (Crockett
2001:42). The product failed because of Motorola's poor understanding of the
preferences of fashion-conscious European customers, and lack of insight into
competitor offerings, which were better attuned to those customer preferences.
At present, it is uncertain whether arivia.kom is appropriately attuned to its
customers preferences, and whether it is sufficiently aware of the capabilities and
threats posed by its competitors. It will be necessary to establish whether it
possesses the abilities to cope with these competitor and customer challenges
that will arise in its new business environment. This chapter will focus on
customer analysis and competitor analysis in relation to the marketing
environment. An overview will also be given of the key components that
comprise a market analysis, of which customer analysis and competitor analysis
are subsets. Given that arivia.kom is a b2b organisation, the concept of business

36
to business (b2b) marketing (also known as industrial marketing) will be
discussed in the context of its relationship with Eskom. This discussion follows
below.
3.2 B2B AND INDUSTRIAL MARKETING
Schoell and Guiltinan (1995:166) and Brassington and Pettitt (1997:127) define
b2b marketing as the provision of products and services to all buyers except
ultimate consumers. Du Plessis, Jooste and Strydom (2001:83) make certain
distinctions between b2b marketing and b2c (Business to Consumer, also
associated with consumer markets) marketing, which are also specific to the
South African business context, as follows:
Ÿ The total rand-value of products sold in South Africa is greater for b2b
markets than for consumer markets.
Ÿ The size of each purchase tends to be significantly larger for b2b markets
than for consumer markets.
Ÿ The number of business customers are generally fewer than those in
consumer markets.
Ÿ The business markets tend to be geographically more concentrated than
consumer markets.
Ÿ In business markets it is often more difficult to identify the real decision maker
as more than one person is generally involved in the purchase-decision
process (see section 3.4.1.2).
Another aspect of the b2b relationship, as is the case between Eskom and
arivia.kom, is that business decision makers are generally more knowledgeable
and risk-oriented about the products (and services) they are buying than the
average consumer (Brassington & Pettitt, 1997:127-129).
Given the above definition and elaboration on b2b marketing, it is clear that the
relationship between arivia.kom and Eskom is a b2b relationship. Arivia.kom

37
does not sell any services to Eskom's final consumers, but rather to the
organisation itself, which in turn uses the service to provide a product (electricity)
to final consumers. An example of this is arivia.kom's provision of a scheduling
system to Eskom's Transmission and Generation Groups. The system responds
to various data inputs by producing a schedule that prioritises that production of
electricity on an hourly and half-hourly basis from Eskom's power stations. The
information on the schedule enables Eskom to use the cheapest available power
stations for power production that is then sold to final consumers such as mines
and aluminum producers. In this entire process, arivia.kom merely provides
Eskom with the hardware and services to maintain the system that enables
efficient electricity management. It is not involved with the selling of services to
Eskom's final consumers.
The same b2b principle holds true for all of arivia.kom's customers. The b2b
principles that govern the relationship between arivia.kom and Eskom shall be
dealt with as relevant later in this chapter. An overview of the market analysis of
arivia.kom follows below.
3.3 OVERVIEW OF MARKET ANALYSIS
Market analysis has to do with the study and evaluation of a particular market to
establish its attractiveness to current and potential participants (Du Plessis et al,
2001:48). It is associated with two primary objectives, firstly, determining the
attractiveness of the market and submarkets that an organisation is targeting,
and secondly, understanding the dynamics in that market in order to devise
strategies to counter any threats and to exploit appropriate opportunities that may
arise (Aaker 1998:22). As part of its ongoing activities, the organisation is
required to analyse its own strengths and weaknesses as well as current and
possible marketing actions to determine which opportunities it can best pursue
(Kotler & Armstrong 2001:69). The frequency and timing of market analysis is
important to the organisation because timeous and continuous scanning of the

38
environment is essential for making sound decisions that will affect its marketing
strategy (Strydom et al 2000:35).
The set of environmental variables and forces inside and outside the
organisation, which influence the marketing management's decisions, is known
as the marketing environment (Strydom et al 2000:34). Changes in these
environmental forces and variables affect the organisation's marketing strategy
requiring it to adapt accordingly. The entire marketing environment is illustrated
in Figure 3.1, which depicts the macroenvironment, market environment and the
microenvironments (Strydom et al 2000:40).
The microenvironment represents the organisation itself. An organisation
typically comprises interrelated groups such as marketing management, senior
management, finance, research and development (R&D), purchasing,
manufacturing and accounting (Kotler & Armstrong 2001:88-89). However, the
organisation can also be identified by the following components (Strydom et al
2000:39-40):
Ÿ the mission and objectives of the organisation (the stated objectives of the
organisation and how it intends achieving them)
Ÿ the organisation and its management (the structure of the organisation and the
management employed to operate the organisation)
Figure 3.1: The marketing environment
Macro
Macro
Macro
Market
Macro
Market
Macro
Market
Market
Micro

39
Ÿ organisational resources (such as human resources/human capital, know-how
and information)
The components of the microenvironment are within the control of the
organisation, and the proper management of these is essential for its very
existence and survival. However, the scope of this study precludes further
discussion of this environment, given the focus on the market environment, and
customer and competitor analysis in particular.
The market environment comprises those components of the marketing
environment that exist outside the organisation (Strydom et al 2000:40-43). The
market environment comprises the following variables:
Ÿ consumers
Ÿ competitors
Ÿ intermediaries
Ÿ suppliers
Ÿ opportunities and threats
Consumers purchase goods and services from the organisation and thus have
buying power. Consumer buying power and behaviour have an impact on the
number of entrants (competitors) that then enter the market (Strydom et al
2000:43). One of the most significant challenges facing modern organisation is
customer scarcity (Wiersema 2001:45), which refers to more competitors
entering the various markets and competing vigorously for limited customer
spend (customer spend refers to the disposable income that a customer has
available to purchase desired goods and services). Consumer and competitor
variables are therefore closely intertwined in the market environment.
Competitors are those organisations that sell the same product or service (or
similar products or services) and compete for the buying power of the consumer.
Competitors may be established organisations in the market, wishing to maintain
or improve their position, or may be new or potential organisations wishing to

40
enter the market (Strydom et al 2000:43). The advent of competition in a market
requires the organisation to gain a strategic advantage by strongly positioning its
offerings against competitor offerings in the minds of consumers (Kotler &
Armstrong 2001:91).
Intermediaries are those organisations that play a bridging role between the
manufacturer and consumer and are involved in the transfer of goods and
services between them (Cant, Strydom & Jooste 1999:50-51). According to
Kotler and Armstrong (2001:89) the role of intermediaries is to help the
organisation to promote, sell and distribute its goods to final buyers. These
intermediaries may be wholesalers, retailers, commercial agents and spaza
stores. While arivia.kom is an organisation that manages the vast IT services for
Eskom and Transnet, it can also be regarded as an intermediary, given that it is a
distributor of systems for Sun Microsystems (Sun) and Hewlett-Packard (HP).
Sun and HP do not sell systems directly to Eskom and Transnet but prefer to use
intermediaries for this purpose.
Suppliers provide inputs from the market environment to the organisation. These
may comprise raw materials, energy, capital and labour which a supplier may use
to produce products or services which the organisation then purchases for its
own consumption or resale to its consumers. Having access to reliable suppliers
for high-quality, well-priced inputs is essential for success in a competitive
market. Poor suppliers and variable supply availability can affect the
organisation negatively in the eyes of its customers. Incidents such as supply
shortages or delays and labour strikes can lead to lost sales in the short term and
impair customer satisfaction in the long term (Kotler & Armstrong, 2001:89).
Opportunities and threats to an organisation emanate from two main sources,
namely current and potential customers and competitors (Hooley, Saunders &
Piercy 1998:39-41). An opportunity is a favourable condition in the market that
can be exploited by management for the benefit of the organisation (Cant et al
1999:52). However, not all opportunities can or should be exploited. They

41
should first be assessed against the organisation's resources and capabilities. A
threat is an unfavourable condition in the market environment, which can lead to
failure of the organisation, its products or services, in the absence of intervention
by management to counteract it. Hooley et al (1998:40) identify threats as arising
from two main sources, namely a changing marketplace which the organisation is
either unaware of or cannot keep pace with, and competitive activity designed to
change the balance of power in the marketplace.
The macroenvironment surrounds and impacts on the market and the
organisation and is associated with trends which either directly or indirectly affect
the strategy formulation of the organisation (Du Plessis et al 2001:20). The
organisation is required to identify these trends and establish their likely effect on
the organisation. The macroenvironment is characterised mainly by the following
variables:
Ÿ the technological environment (eg the introduction of e-mail and its effect on
the telegram services offered by the Post Office)
Ÿ the economic environment (high interest rates and fuel prices affect the
manner in which an organisation operates on a daily and monthly basis)
Ÿ the social/cultural environment (emerging trends in lifestyles and fashions or
cultural norms can have implications for the manner in which an organisation
does business),
Ÿ the physical environment (the actual size of a market and the components
that make up that market, such as age, gender and race, will affect the
organisation's planning and approach to that market)
Ÿ the institutional/political environment (governmental policies such as black
economic empowerment may have an effect on the partners with which an
organisation associates when conducting future business)
Ÿ the international environment (the threat of world war may affect the balance
of power globally and influence the outcome of nations with whom an
organisation may conduct business).

42
The variables in the macroenvironment can have a profound impact on the
organisation. Changes in these variables are beyond the control of the
organisation and may influence its ability to survive. However, the scope of this
study precludes further discussion of this environment, given the focus on
customer and competitor analysis.
Arivia.kom operates in an industry (the IT industry) which is increasingly volatile
and turbulent. Rapid product obsolescence and aggressive price competition are
key attributes of this industry. In addition, two of arivia.kom's key customers
(Eskom and Transnet) are experiencing rapid change in their industries. Rapid
change, global competition and the diversity of buyers in many markets require
constant focus of attention to identify shifting buyer requirements, changes in
competitive positioning and new opportunities for products and services (Cravens
1997:89). Understanding the competitor dynamics and the nature of customer
preferences in these industries is therefore crucial to an understanding of the
implications for arivia.kom's ability to survive in its new business environment in
the future. Whilst the market environment comprises many important
components requiring investigation, the focus of the analysis for the purposes of
this study will revolve around customer and competitor analyses.
The objectives of customer analysis are to understand who the organisation's
customers are and their aims, priorities and potential needs (Aaker 1998:45-59).
Competitor analysis entails identifying the organisation's current and potential
competitors, and an evaluation of their potential to threaten its position in the
market.
3.4 CUSTOMER ANALYSIS The purpose of customer analysis is to establish the identity of the organisation's
customers, their objectives, priorities and potential needs (Aaker 1998:44-45).
Customers are a source of valuable insight into an organisation's relevant
operational opportunities, threats and uncertainties for that organisation.
Analysis of customers (present and potential) is therefore likely to generate

43
valuable information that the organisation could use to its advantage. It also
enables the organisation to understand the threats it faces (from competitors
targeting the same set of customers) and the opportunities that may arise as a
result of a better understanding of customers' present and future needs.
Lehmann and Winer (1997:98) consider the objectives of a customer analysis
exercise to be:
Ÿ establishing who the organisation's customers are
Ÿ defining them
Ÿ grouping (segmenting) them
The desired outcome of this exercise is to the facilitate effective strategic and
tactical decision making which ultimately results in greater profits for the
organisation (Lemann & Winer 1997:99). Customer analysis is vital because it
enables the organisation to become better acquainted with its customers within a
logical framework. This framework is discussed further below.
3.4.1 Customer Analysis Framework
A practical framework is necessary in order to analyse the organisation's
customers effectively and logically. Aaker (1998:45) proposes the following
framework for customer analysis:
Ÿ customer segmentation
Ÿ customer motivations
Ÿ unmet needs of customers and/or customer dissatisfaction
Each of these components is briefly discussed below.
3.4.1.1 Customer segmentation
Customer segmentation involves classifying the different types of customers
identified into logical groups to enable one to apply unique business strategies
to them where possible (Aaker 1998:45). The resources and efforts of the
organisation are then focused on adding value to those specific groups of

44
customers. Du Plessis et al (2001:332) define segmentation as the process of
dividing a market into subsets or segments of consumers such that members
within a given segment share common characteristics, which are distinct from
members of other segments.
Initially, market segmentation entails defining the market that an organisation
has identified to be the focus of its efforts (McDonald & Dunbar 1995:16).
However, this is not a simple process, because defining a market
inappropriately may result in so-called "Marketing Myopia" (Levitt 1975:1-12).
This is characterised by organisations defining their businesses too narrowly,
thereby excluding themselves from potential marketing opportunities that could
be exploited, had they viewed their markets in a broader context. Levitt (1975)
cites the example of railway operators who became casualties of marketing
myopia by defining their businesses too narrowly, and subsequently foregoing
business opportunities afforded by the wider transport industry (road and air
transport), eventually eroding its once dominant market share.
An important prerequisite for customer segmentation is aptly defining the
market within which a business operates (Aaker 1998:45). This entails
understanding certain crucial issues about that market such as identifying
customers according to identifiable characteristics and in accordance with their
ability to spend disposable income with the organisation. It also helps to place
in perspective the groups of people a company deals with in order to devise
strategies that address such groups effectively, efficiently and in a manner
consistent with its grand strategy.
There are many ways to segment a market. However, for segmentation to be
effective for an organisation, a market segment needs to conform to certain
prerequisites (Kotler 1997:269). The characteristics of the market (such as its
size and customers' purchasing power) must be measurable. The market
segment must be substantial enough for the organisation to earn a profit in it
because funds will be invested in formal marketing programmes and will

45
therefore require sufficient justification prior to investment. If the segment is
too small it may not justify investment.
The market must be accessible because the organisation will need to reach its
customers effectively if it intends serving them, and customers, in turn, will
need to reach the organisation in order to purchase goods and/or services.
The organisation must thus be positioned in such a way that customers can
easily reach it in order to conduct their business. A market segment must be
distinguishable (distinctly recognisable) from other segments to justify
organisational investment of effort and resources. It must also be actionable,
enabling the organisation to develop specific marketing programmes and
product offerings for separate segments. A possible target market exists if it
conforms adequately to these criteria.
However, besides establishing whether a particular segment is worthy of
targeting marketing efforts, there must be a basis upon which a market is
segmented. The bases of segmentation enable the organisation to
conceptualise the manner in which a particular market may be approached.
Schoell and Guiltinan (1995:203-220) differentiate between the bases of
segmentation for consumer markets and organisational markets. The focus of
market segmentation in consumer markets is ultimate consumers, whilst
organisational markets relate to firms (organisations), buying centres in firms
and individuals in buying centres.
The bases of segmentation can be classified as follows in consumer markets
(Schoell & Guiltinan 1995:203):
Ÿ Geographic segmentation. The organisation may elect to divide the total
market into geographic regions, and then target a limited number of
geographical areas.
Ÿ Demographic segmentation. This constitutes a common basis for
segmentation and often involves an investigation into the needs of the
various race groups, gender, age and culture. However, variables such as
education, lifestyle and living standards are increasingly used to determine

46
the needs of target markets, given that the needs of race groups are
approaching similarities that make such bases useful.
Ÿ Psychographic segmentation. This involves segmenting a market
according to attributes such as social class, lifestyle or personality with a
view to establishing what drives consumer sentiment. Such knowledge
places the organisation in a better position to devise products or services
and marketing messages that will appeal to the chosen segments.
Ÿ Product-related segmentation. This refers to segmentation on the basis of
the consumer's relationship to the product (Schoell & Guiltinan 1995:216-
218). The subcategories of product-related segmentation can be classified
as follows:
p Amount of usage. This involves the quantity of the product consumed,
the frequency of service or interactions with a retailer during a specific
period.
p Type of usage. Products are segmented according to the manner in
which they are used for example, home exercise equipment may be
targeted at consumers preferring to exercise in privacy rather than
visiting gymnasiums.
p Brand loyalty. This refers to the consumer concentration on a particular
brand within a specific product category. Understanding which
customers are brand-loyal can help marketers to target their marketing
efforts more efficiently.
p Benefits sought from products. This refers to the segmentation of
consumers based on the benefit they derive from products. This helps
an organisation to determine the benefit segments to which its brands
appeal, or may even draw attention to a new benefit which is not being
catered for.
The bases of segmentation in organisational markets can be classified as
follows (Schoell & Guiltinan 1995:219):

47
Ÿ Segmenting organisations within industries. The objective here is to
identify segmentation variables that are good predictors of differences in
buying behaviour. The following variables can be used:
p Size of firm (organisation). This involves the number of establishments,
the volume of shipments to an organisation or the number of employees
in an organisation. All of this helps to determine the value of one
organisation being targeted in relation to another organisation.
p Geographic location. Target organisations that are geographically close
to one another can be classified as a segment and treated differently
from organisations in different geographic locations.
p Structure of the procurement function. This may vary between
centralised and decentralised procurement, and will have different
implications for the marketing organisation.
p Buyer's use of the product. This may play a part in determining the type
of product being manufactured to suit relevant conditions.
p Type of buying situation. This refers to instances where the
organisational customer requires modifications to reordered inventory or
whether the products will be reordered without modifications.
p Inventory requirements. Certain organisations may prefer to purchase
inventory on a just-in-time basis, requiring marketing organisations to
tailor their offerings accordingly. Others may prefer a more
conventional approach, keeping inventory on site.
p Buying criteria. This refers to customers setting criteria for products or
services purchased, to which organisations must conform in order to
sell their offerings. Criteria may include accreditation from credible
institutions certifying conformance to quality standards.
Ÿ Segmenting buying centres within organisations. Marketing organisations
may segment according to the way in which buying centres in targeted
organisations are constituted (whether they have representation from

48
senior management or personnel in key departments of the organisation).
This will determine how the organisation should focus its marketing efforts.
Ÿ Segmenting individuals within buying centres. Organisational marketers
can identify key decision makers and individuals in organisations at whom
marketing efforts can be targeted.
By using certain bases for segmentation, the organisation attempts to gain
benefits aimed at survival and profitability. Strydom et al (2000:104) identify
certain benefits that accompany customer segmentation. This compels
organisations to focus more specifically on customer needs. It can lead an
organisation to discover new opportunities in segmented markets, which may
have remained undiscovered, had segmentation not taken place.
Segmentation enables the organisation to develop specific offerings for certain
customers or markets. It also allows an organisation to prioritise the allocation
of resources to provide maximum benefit for market or customer segments
using the appropriate resources, and minimising the misallocation of resources
to segments that do not yield optimal benefits for the organisation.
However, segmentation has certain inherent disadvantages inherent in it
(Strydom et al 2000:104). Economies of scale that could be afforded by high-
volume manufacture (mainly cost savings that could be passed on to the
customer) may be sacrificed in favour of product or service variations to suit
the specific needs of certain customers or groups of customers. Limited
market coverage is a by-product of segmentation. Marketing messages (and
advertising spend) are now spread over various segments, as opposed to a
generic message which is targeted at a mass market. In addition, those
organisations that segment markets and tailor their offerings excessively may
run the risk of cannibalisation which means that their own products or services
(or even resources in the organisation) compete against one another for
market share.
Whilst the above may be valid arguments against segmentation, organisations
cannot serve all customers effectively and profitably, and are thus required to

49
focus on those market segments in which they are most likely to succeed in
selling their products and services profitably. Moreover, whilst customers
constantly seek lower prices (a function of economies of scale) they also
require organisational flexibility that will afford them products or services that
are customised to their needs. Schonberger and Knod (1997:18) identify cost
and flexibility (among other variables) as imperatives that the organisation
must achieve if it wishes to survive, and do not merely view them as trade-offs.
Hence segmentation is aimed at customer satisfaction, which in turn
generates long-run benefits for the organisation.
Customer segmentation often becomes a difficult and cumbersome exercise,
depending on the situation in which an organisation finds itself. To benefit
from customer segmentation (Aaker 1995:50), it often helps to:
Ÿ confine the analysis to a manageable number of variables
Ÿ define the range of variables as widely as possible in order to gather as
much useful information as possible about customers
Ÿ constantly evaluate the variables identified to assess their relevance to the
strategies employed
To illustrate the importance and relevance of customer segmentation, Gilbert
(2002:8) relates the results of a study conducted amongst various industries in
South Africa namely IT, Industrial Gases, Car Rental, Engineering and
Packaging. Two common issues were apparent in this study, namely that
there was a distinct lack of market segmentation practised by the majority of
organisations, and that there was a tendency towards a "one-size-fits-all"
approach. The main conclusion that Gilbert (2002a) drew from the study was
that it is important to segment markets in order to target attractive customers,
whilst delivering clear marketing messages to each identifiable segment.
Arivia.kom derives a large portion of its revenue from the energy sector
(Eskom), transport sector (Transnet) and the public sector (inclusive of Denel
and government departments). Prior to the merger of the three IT

50
organisations which resulted in the establishment of arivia.kom, those IT
departments in Eskom and Transnet specifically, enjoyed preferential status
from their parent organisations. There was no need to segment their markets
because each department serviced its respective organisations exclusively. In
the first few months of operation of arivia.kom, management executives
discussed the economies of scale that could be realised from adopting a
uniform approach to its three major customers. The operational structures
have now been in place for approximately two years, and as yet,
comprehensive market segmentation has not been discussed as a strategic
imperative. One of the objectives of this study would thus be to establish
whether arivia.kom is conducting customer segmentation effectively for the
sake of profitability and survival, and whether segmentation is necessary and
relevant to the organisation.
3.4.1.2 Customer Motivations
Motivation is the driving force behind a customer compelling him or her to take
action to specify certain needs (Schoell & Guiltinan 1995:143). Understanding
customer motivations is essential for those organisations competing for the
patronage of a finite set of customers targeted by other competitors. If
marketers in organisations can identify those needs, they are able to devise
effective strategies to motivate customers to make purchases. The
organisation should thus not be viewed only as the manufacturer of goods and
services, but should also practice "doing things that will make people want to
do business with it" (Levitt, 1975: 10). Hence, organisations should
systematically endeavour to understand how these motivations differ from one
segment to the next, and the effect on their operations (Aaker 1998:49).
Aaker (1998:50) identifies a customer motivation analysis framework that aims
to establish the bases for purchase decisions, their relative priorities and their
impact on business decision making. The framework for analysis of customer
motivations comprises the following steps:

51
Ÿ Step 1: Identify motivations for a given segment. The aim of the
identification process is to enable an organisation to place in perspective
what exactly motivates a customer to purchase a specific product and/or
service. This generally entails systematically interacting with customers
regarding the product or service in question. Whilst it may be relatively
simple for the organisation's management to speculate internally on
customer motivations, the validity of such motivations may be less accurate
than those obtained directly from customers (Aaker 1998:50). Schoell &
Guiltinan (1995:180) acknowledge that organisations do not influence
purchasing decisions, but people within them. It is therefore essential to
firstly identify the key people in these organisations, and secondly, to
understand the needs of each person who may influence the outcome of
marketing efforts. Schoell and Guiltinan (1995) identify the following
people in organisations who play key roles:
p Users. There are people in the organisation who use the product(s) or
service(s) directly. Talking to these users can help organisations to
better understand future requirements and/or improvements to existing
products or services
p Influencers. These are people inside or outside the target customer
organisations who help to shape buying decisions. For example,
engineers in the organisation or consulting engineers outside the
organisation may set tolerance levels for equipment.
p Gatekeepers. These people are able to control information entering
and exiting the organisation (eg secretaries), and have the ability to limit
information made available to the marketing organisation and its
salespeople.
p Deciders. They are people with the authority to make the final buying
decision (if the product value is considerable) which the customer
organisation will implement.

52
p Buyers. These are people tasked with the contractual details involved
in the sale with suppliers. However, if the value of the product is
considerable, relative to other measures in the organisations, then a
committee, as opposed to a single person, may be tasked with this
function.
Ÿ Step 2. This entails the grouping and structuring of the motivations
identified. The marketing organisation may be required to deal with large
numbers of people in targeted customer environments. These people may
contribute information that results in a huge list of motivations which may
require categorisation into logical groups. Categorisation will enable
management to set priorities according to whether the motivations require
a more strategic or focused tactical approach on the part of the
organisation.
Ÿ Step 3. This entails assessing the importance of the motivations to the
customer in terms of priority. Aaker (1998:51) refers to this process as
determining the relative significance of motivations. Customers may
sometimes list certain criteria as decisive in influencing their purchase
decision, but these may often be over-ridden by other criteria that influence
the actual purchase decision. Knowing the value a customer places on a
product will assist in the prioritisation process and simplify key decision
making for the organisation (Lehmann & Winer 1997:107).
Ÿ Step 4. Here the motivations that will be of strategic importance to the
organisation must be identified. The motivations that will influence the
organisation's strategy will be considered, along with competitive strategies
as well as the organisation's overall strategies. The organisation will need
to consider the implications of competition and whether these motivations
are compatible with the organisation's overall strategy, as well as strategy
implementation considerations.
Customer motivations may also have implications for arivia.kom. Gilbert's
(2002:8-9) discussion of the study conducted by an Ohio-based consulting

53
organisation on the critical sales practices of exceptional sales forces, deals
with certain issues that have implications for customer motivation in their
business decision making. The study concluded that there is a growing need
from customers to have supplier organisations move closer to them and to
have employees from supplier organisations empowered with decision-making
authority to promote flexibility and speed up service delivery.
Changing customer priorities may also be essential for organisations such as
arivia.kom. Aaker (1998:52) emphasises the need to understand changing
customer priorities, especially in high-tech business, and acknowledges that
there is an element of risk in assuming that customer priorities are not
changing. Arivia.kom operates in the high-tech industry, which is often
criticised by customers as being driven by supplier willingness to sell software
and equipment without focusing specifically on their changing needs. Eskom
has also criticised arivia.kom for such behaviour, perhaps because of its
imperative to pursue profitable growth, and meet stringent revenue targets.
Whereas Eskom was previously an engineering-driven organisation, it is now
business focused with different objectives. Its motivations are thus changing,
and arivia.kom will have to understand and adapt to this new reality. This
study needs to establish whether the criticisms of arivia.kom's approach are
valid and whether the organisation is aware of the changing motivations
driving customer business needs as they undergo restructuring in their
industries.
3.4.1.3 Unmet needs and customer dissatisfaction
The concepts of unmet customer needs and customer dissatisfaction are
closely intertwined. Both are discussed separately below.
a Unmet needs
Aaker (1998:53) considers customers' unmet needs to be those needs that
are not being met by existing product offerings. Successful identification of
unmet customer needs may have significant implications for the

54
organisations that initially discover them, because they could result in a
competitive advantage for the organisation, especially in highly competitive
industries (Urban & Hauser 2002:22). Unmet needs afford an organisation
opportunities to increase market share or access other markets that would
ordinarily be difficult to penetrate using conventional techniques. Regular
discovery of these needs may be more important in certain industries than in
others. In high-tech industries such as the one in which arivia.kom operates,
changes are rapid and product obsolescence cycles short. Hence current
market research analyses may not be as reliable for the purposes of
discovering and satisfying customer needs in businesses dealing with high-
tech products (Von Hippel 1986:791). Other techniques and approaches
may therefore be necessary.
It is possible to identify unmet customer needs in the following two ways
(Aaker 1998:54-55):
(1) Using customers to identify such needs. This can be done in a number of
ways. Firstly, one can observe customers using products in their normal
environments, and make judgements on how these can be improved
upon. Secondly, one can interview customers to determine existing
problems with products, frustrations in their use, comparisons with other
products, and suggestions on product improvements. Thirdly, surveys
can be conducted inviting customers to highlight problems with products
and make new product suggestions.
(2) Using lead users. According to (Aaker 1998:55) lead users are often a
source of unmet needs and new product concepts. They are users who
have certain needs months (or even years) before the marketplace
encounters them, and are positioned to benefit significantly by finding a
solution to those needs (Von Hippel 1986:796). In essence, they are
likely to use products in the marketplace beforehand and thus assist in
evolving and refining such products before they are formally launched on

55
the open market. Von Hippel (1986:797) proposes a four-step process in
conducting lead user market research as follows:
(a) Identify an important market or technical trend.
(b) Identify lead users who lead that trend in terms of experience and
intensity of need.
(c) Analyse lead user needs data. From this step, information may
become available which the organisation may be able to use to
determine whether certain needs can be defined, and thereafter to
devise products appropriate to those needs.
(d) Project lead user data into the general market of interest. The
organisation may use data discovered in the previous steps to
assess how it can apply possible solutions to its larger target
market. Von Hippel (1986: 802-803), however, cautions that such
data may not be directly transferable to the intended target market,
and states that further research and even new approaches may be
necessary.
Utilising customers and lead users to identify unmet customer needs is
becoming increasingly important for organisations operating in highly
competitive industries. In the industry in which arivia.kom competes, rapid
changes and increasingly demanding customers could make the
identification of unmet customer needs a useful approach to consider.
Whether the organisation is aware of the benefits of such an approach and
whether it may be useful and appropriate in the relevant environment is
unclear at this stage.
Unmet customer needs (in their entirety) do not constitute needs that have
not yet been contextualised by the customer. They may also exist in the form
of customer expectations that have not yet been met by organisations,
thereby creating dissatisfaction. Customer dissatisfaction therefore

56
constitutes an equally important area requiring investigation and action on
the part of the organisation.
b Customer dissatisfaction
Customer dissatisfaction (or satisfaction) relates to a comparison of customer
expectations about a particular product and supporting service against the
actual performance of the product and supporting services (Cravens
1997:143). However, prior experience may also provide a basis of
comparison of such expectations. Experiences with poor-quality products or
services often generate customer dissatisfaction. Hence dissatisfied
customers may often tell up to 11 other people of their unsatisfactory
experiences and dissatisfaction with an organisation's service and/or
products (Brassington & Pettitt 1997:95). This is two to three times more
people than a satisfied customer is likely to speak to if they experience good
service. Tax and Brown (1998:86) refer to these dissatisfied customers as
"terrorist" customers who actively criticise the organisation upon receiving a
poor service or product. As a rule, these customers would previously have
been loyal to the organisation prior to the poor service experience.
According to Reichheld (1996:58-60) customer satisfaction is a result of the
customer's perception of the value that he or she has received. Often such a
perception of value is likely to keep customers loyal to the organisation,
although they are often the first to know whether an organisation's value
proposition "… is foundering in the face of competition" (Reichheld 1996: 59).
He (1996:61) alludes to certain guidelines that may help an organisation to
understand its customers better, whilst minimising dissatisfaction. Firstly, it is
vital to identify those customers who are most loyal and profitable to the
organisation (those who settle their accounts promptly and prefer stable
relationships with their business partners). Secondly, it is necessary to
identify customers who derive huge benefits from using the organisation's
products and/or services. Lastly, it is necessary to differentiate those

57
customers who are really worth keeping, as opposed to those whom the
organisation has difficulty satisfying at a profit.
From the above guidelines, identifying loyal and profitable customers who
derive value from the organisation, has implications for the development and
management of the relationship between the organisation and the customer.
Where relationships between the organisation and the customer develop
over a period of time, conflicts are likely to be inevitable (Tax & Brown
1998:87). However, management of such conflict is essential to maintain
customer satisfaction, loyalty and trust. If the conflict is poorly managed, the
majority of customers will become disillusioned, and this will give rise to
dissatisfaction.
In addition to the development of relationships with customers, identifying
customers who are worth more to the organisation than to its competitors has
implications for profitability. Tax and Brown (1998:86) identify a strong
correlation between organisational profitability and service recovery. Service
recovery refers to customer complaints that have been followed up, and
permanent solutions implemented to address the organisation's problematic
service system. Kotler and Armstrong (2001:91) infer that it is imperative for
the organisation to provide greater value to its customers than its competitors
are able to do in order to keep them satisfied. This implies that actively
addressing causes of customer dissatisfaction can help an organistion to
position itself more favourably with customers. Hence a competitive
advantage can arise from making sincere efforts to address customer
dissatisfaction comprehensively and from identifying unmet customer needs
by converting these into products or services that add value. In essence,
customers should be seen as active participants whose opinion may have a
significant effect on the organisation (Brassington & Pettitt 1997:95).
At present, Eskom, Transnet and Denel are compelled (by organisational
directive) to use arivia.kom's services. In certain instances, Eskom
customers have begun to exploit the definition of certain commercial

58
processes by interpreting circumstances to exclude arivia.kom from new
projects that have been planned. This study will establish whether this is a
growing trend, and whether there is a link between it and customer
dissatisfaction. Currently, secondary information does exist from a study into
customer satisfaction conducted on behalf of arivia.kom (Klein 2003:37).
This study alludes to customer dissatisfaction with the Eskom customer
environment.
In addition to analysing its customers, arivia.kom is faced with a competitive
environment that may benefit from its inability to deal effectively with
customer dissatisfaction. As it moves into the future, understanding the
value proposition that it offers to customers is essential to assist in
organisational planning. However, competitor analysis is also required in
order to gain further perspective on the challenges it faces. Arivia.kom may
have a government directive compelling parastatals to utilise its services, but
this does not guarantee the organisation protection from the competitive
forces that exist in the highly competitive high-tech industry. In addition, prior
to the formation of arivia.kom, Eskom and Transnet invested heavily in
technology solutions from organisations that are now direct competitors of
arivia.kom. The relationships that developed at the time still exist. Hence
there are undoubtedly competitive pressures which arivia.kom will need to
comprehend adequately if it is to act appropriately. This leads on to the topic
of competitor analysis.
3.5 COMPETITOR ANALYSIS
3.5.1 Competitive environment of arivia.kom
Since the beginning of 2001, the information technology (IT) industry has
experienced poor growth globally. Certain factors contributing to this include
the hasty investment in Internet-based start-ups or their systems by many
organisations, subsequently followed by widespread failure of many of these
ventures. The subsequent so-called "dot.com bust", as it became known, which
commenced from approximately 2000 onwards, heralded the onset of

59
organisational pessimism and scepticism towards the IT industry in general
(Bührmann 2001:42-54). A major contributor to this was the initial exaggeration
and excessive enthusiasm of organisations in general regarding the potential
these Internet web-based organisations promised (Arthur 2002:26-34). Many
investors in these ventures questioned their initial enthusiasm for embracing the
Internet without giving due attention to its relevance to their organisation and
business strategy. Consequently, well-known Internet-based organisations
such as WebVan (an Internet grocer) and WorldCom failed, along with lesser-
known organisations such as Wholefoods.com, with only a fraction of web-
based organisations surviving to date.
As a result industry cutbacks in IT expenditure have affected the IT and
telecommunications industries which collaborate to make Internet-based
business application possible. Subsequently, the telecommunications industry
worldwide, has experienced shrinkage, because of the initial overinvestment in
capacity in anticipation of growth that has failed to materialise. Investor and
consumer confidence in both industries was significantly affected as a result of
these developments.
South Africa has also been affected by developments in the global IT industry,
resulting in many well-known organisations resorting to mergers with other
organisations or ceasing operations, owing to global market conditions that
have impacted on product pricing, and consequently, profit margins. The
following are some notable examples of IT service providers that have been
adversely affected by changing market conditions in South Africa:
Ÿ Computer Configuration Holdings (CCH) which experienced operational and
financial difficulties during 2000, was eventually acquired by MGX during
2000/2001. MGX is currently experiencing financial difficulties as well.
Ÿ Orca Technologies (providers of storage media solutions) grew aggressively
during 1998 and 1999, but experienced problems during 2000. They were
subsequently bought over by MGX as well.

60
Ÿ Argil-Ernst and Young (providers of IT and other business consulting
services) were purchased by CS Holdings during 2001.
Ÿ Siltek, software and hardware distributors, ceased operations during mid-
2001 mainly because of cash flow problems.
South Africa's IT industry is currently experiencing a period of consolidation
amongst service providers which are making concerted efforts to survive in
increasingly volatile circumstances. Whilst the demand for IT services seems to
be static in the private sector, there are organisations in the public sector that
are investing in IT products and services to assist their transformation initiatives
induced by government's restructuring objectives. Eskom is one of the largest
of these organisations, spending approximately R1.6 billion annually on IT
services. Thus many of South Africa's leading IT service providers constantly
seek business opportunities in Eskom, and this has implications for arivia.kom's
ability to maintain Eskom as a key account.
Eskom makes extensive use of IT consultants for the design and
implementation of its various systems. Organisations such as Accenture,
Deloitte & Touche and PriceWaterhouseCoopers (PWC) have been extensively
involved in strategy consulting work for Eskom's various divisions and have
devised solutions that often have strong IT influences. In addition, IT consulting
firms such as Comparex, Global Technologies and Intrinsic Technology also
provide IT-specific services to Eskom. Whilst arivia.kom's role was actively
publicised in the media at the time of its inception, its role in Eskom being well
known, this has not deterred competitors from approaching Eskom's various
entities with business propositions, in defiance of the EA that was entered into
between Eskom and arivia.kom. Comparex, approached an Eskom subsidiary
in August 2001, promising improved service delivery and system improvements.
Arivia.kom management was slow to respond, reacting to the potential threat in
December 2001, approximately four months later. The threat of lost business
was only averted when the senior management of Eskom intervened prompting
the departure of Comparex.

61
In addition, certain groups in EE have also excluded arivia.kom from IT tenders
that have been issued for the development of human resource systems. The
tendering process for the Human Resource systems in EE was already in
progress before arivia.kom was notified of the details. Thereafter, the tender
was awarded to an external supplier operating in partnership with a consulting
organisation that competes for IT consulting work with arivia.kom in EE. It was
later discovered that the competitor was responsible for influencing the
tendering process through prior collaboration with the customer.
Arivia.kom therefore appears to have a problem dealing with its competitors
effectively. It is unclear whether the executive management of the organisation
possess the necessary abilities and mechanisms to identify their competitors
effectively, and to devise strategies to protect their business interests from
erosion by such competitors.
Kotler (2000:223) defines competitors as companies (organisations) that satisfy
the same customer need. For the sake of its survival and profitability any
organisation operating in a competitive industry will need to constantly monitor
its environment for threats from competitors. Competitor analysis is thus an
essential and ongoing exercise that entails identifying and understanding an
organisation's current and potential competitors, and evaluating their ability to
threaten its position in the market (Aaker 1998:58-59). Competitor analysis
should ideally enable the organisation to build stronger defences and provide a
foundation for outmanoeuvring the competition in order to gain market position
(Brassington & Pettitt 1997:849).
Arivia.kom operates in one of the most volatile industries in South Africa, and
competes with many reputable organisations, some of which have global
presence. Comparex, IBM, Dimension Data and Accenture are a few of the
competitors that have already established a presence in arivia.kom's key
customer accounts, Eskom and Transnet, and are held in high regard by
influential people in those accounts. According to research (IDC 2002:22),

62
certain information is known about these competitors as illustrated in table 3.1
below.
Whilst it may have government assistance to aid the viability of its business
model, arivia.kom faces competitive challenges from skilled competitors who
are able to devise strategies to circumvent such policies they consider
obstructive to their business imperatives. Such competition therefore has
implications for its ability to conduct effective competitor analysis.
The importance of competitor analysis necessitates a logical framework that will
enable the organisation to establish an understanding of business issues and
information that could have a direct impact on its survival in its industry. It is
therefore necessary to establish if arivia.kom understands the nature of the
competition it is likely to face, and whether it has the ability to analyse and
address the competitive challenges that are likely to occur.
Table 3.1: Arivia.kom's competitors in the Eskom Account
Competitor Key areas of focus Turnover
2002 (R m)
Market
share
(in SA)
Comparex Hardware & software integration & support, IT
Infrastructure management & professional services
1 744 10.8%
IBM (South
Africa)
Hardware & software provider, systems integration
& business consulting services
940 5.8%
Dimension
Data
Software provider, business consulting,
professional services
1 388 8.6%
Accenture Business technology consulting & outsourcing 472 2.9%
3.5.2 Competitor analysis framework
Du Plessis et al (2001:111) suggest the following framework for competitor
analysis:
Ÿ Identify present and potential competitors.

63
Ÿ Analyse strategic groups of competitors.
Ÿ Infer key competitors' objectives (predicting their likely actions).
Ÿ Deduce competitors' strategies (past and present).
Ÿ Deduce key competitors' strengths and weaknesses.
Ÿ Forecast competitor response patterns (predicting competitor responses to
changing market and competitive conditions).
Each component of the competitor analysis is discussed below.
3.5.2.1 Competitor identification
An organisation must understand who its competitors are and identify all
possible sources of threats to its profitability and existence. The competitors
to an organisation are not only confined to other organisations that are present
and visible (offering similar products or services), but also to those that are
likely to offer substitute products and/or services which may render the
organisation's own offerings obsolete. An organisation can therefore define its
competitors in one or more of the following ways (Kotler & Armstrong
2001:682):
Ÿ other companies offering similar products and/or services to the same
customers at similar prices
Ÿ all companies manufacturing the same product or class of product
Ÿ all companies making products that supply the same service
Ÿ all companies that compete for the same consumer spend
Kotler and Armstrong (2001:682) and Du Plessis et al (2001:111) caution
against organisations that define the scope of their competitive environment
too narrowly (referred to as competitor myopia). Competitor myopia can
cause an organisation to disregard other possible competitors that could
render the organisation's products (or the organisation itself) obsolete. Myopic
behaviour can also result in the following (Lele 1997:253):

64
Ÿ overlooked markets
Ÿ missed growth opportunities
Ÿ loss of customers
Ÿ loss of market share
Arivia.kom's ability to identify competitors and react appropriately has already
been tested. During the last quarter of 2001, one of its key competitors,
Comparex, commenced work for Eskom Enterprises, and the management of
arivia.kom only discovered this two months later. It did not consider this to be
a threat until major contracts were lost to Comparex. The fact that
government had stated its support for guaranteed business to arivia.kom in
Eskom and Transnet may have induced a sense of entitlement into the
organisation rendering it unable to identify and deal with Comparex decisively.
However, its lack of experience in identifying and dealing with competitors
efficiently may also have played a part in the incident.
Whilst identifying existing competitors may seem relatively uncomplicated,
pinpointing potential competitors may be even more difficult to do. A potential
competitor could be a new organisation offering similar products or producing
a substitute product that eliminates the need for the organisation's product (Du
Plessis et al 2001:111). An organisation faces potential competitors if it enters
a new industry that it finds attractive, or if new competitors enter the industry in
which it currently operates. In making the decision to enter and invest in a
particular market, organisations would typically examine the nature and
intensity of competition in those markets to determine their attractiveness.
Kotler (1997:228) discusses the five forces model (fig 3.2) which typifies
competitive pressures in markets, and which can help to determine a market's
attractiveness that gives rise to such pressures.
The threat of intense rivalry refers to existing competitors in the market who
engage in fierce competition to protect large investments already made in that
market. Arivia.kom has entered an intensely competitive industry and

65
competitors, such as Comparex, are finding ways to penetrate these markets.
However, the advantages afforded to it by government may help it to cope with
these competitive pressures. The threat of new entrants into an industry is
determined by whether the barriers to entry are low and whether it is profitable
to do so. The threat of substitute products can also determine whether an
industry or market is sufficiently attractive to enter. Substitute products can
result in price limits and curtail profit margins that can be earned in an
industry, requiring a potential entrant to be aware of price trends and
technology advances because falling prices (and lower profit margins) may
have significant impact on new entrant's ability to survive.
The bargaining power of buyers (customers) in a market can also determine
the attractiveness of that market. If customers have significant buying power
(notably in markets where there are substitute products), they have the ability
to induce intense competition amongst organisations for better-quality
products and/or services at lower prices. Large customers have the ability to
exercise significant buying leverage over organisations, especially where they
constitute the majority of revenue for that organisation. Arivia.kom finds itself
in this position, with Eskom and Transnet being its two largest customers
Figure 3.2: Porter's five forces model

66
(constituting approximately 70% of its revenue base). The power of suppliers
in an industry can also be a significant factor especially when the threat of
substitute products or services is low, and the industry has few powerful
suppliers. This may result in prices and margins being maintained at levels
acceptable to suppliers.
Analysis of the competitive forces that determine industry profitability enables
an organisation to better understand the barriers to entry into the market and
gives it the ability to identify significant new entrants into the market. The
barriers to entry to a particular industry are obstacles that a potential
competitor must overcome in order to compete in a particular market (Dwyer &
Tanner 2001:181-182). Dwyer et al (2001) also list a number of barriers to
entry. These include product differentiation, which refers to having a unique
product or service distinct from the competitor's offerings, and inducing brand
and customer loyalty. Other barriers to entry are economies of scale and cost
advantages unrelated to size which place potential competitors at a cost
disadvantage, rendering their offerings more expensive to customers.
However, the barrier to entry that is most relevant to arivia.kom is government
policy, which specifies a sunset clause for the organisation which was
reviewed on 1 April 2004, prompting the renewal of the original existing
contracts until 31 December 2005. In creating arivia.kom, the Department of
Public Enterprises had effected government policy compelling Eskom,
Transnet and Denel to use it as the primary IT service provider. As a result,
the organisation has at its disposal a competitive weapon that could be used
effectively if exercised appropriately against potential competitors. The
challenge that arivia.kom faces is balancing the policy that supports its
existence against providing a level of service that makes it a formidable
competitor and a service provider of choice.
However, arivia.kom does not face threats from other organisations only. It
also faces competition from other less obvious avenues, such as the following:

67
Ÿ Some customers prefer to develop their own IT departments "in-house",
thereby placing less reliance on IT service providers.
Ÿ "Easy to configure" IT software and hardware eliminate the need for
complex the IT skills sold by arivia.kom and its competitors. The growing
ease of use of computer systems today and the abundance of skilled (yet
less expensive) resources, makes this option increasingly attractive.
Product lifecycles are shortening (Lehmann & Winer 1997:65). The IT industry
is a prime example of an industry where this is occurring. Goldstuck (2001:17)
cites Moore's Law, a primary benchmark, which states that the power of the
fastest computer chip will double every 18 months whilst the space it occupies
will halve in the same period. As a result of such advances in processing
capacity, computer systems are becoming more powerful, and technologically
advanced, at the same time being simpler to configure and use with each
subsequent development. An example is Microsoft’s introduction of Windows
3.1 software, at the beginning of the 1990s, which was followed by Windows
95 four years later. Learning the use of Windows 95 was easier and enabled
more applications to be used than was possible with its predecessor.
Microsoft, and other organisations, have since developed shrink-wrapped
software ("ready-to-use" products requiring minimal configuration). These
products may not have the in-depth functionality of custom-developed
software, but are increasingly sought after as the alternative to custom-
developed solutions, which are often time-consuming, complex and expensive
to develop and implement.
Arivia.kom employs many skilled resources to conduct custom software
development for its key customers. However, the growing popularity of
"shrink-wrapped" software from industry leaders may soon have an impact on
the ability of arivia.kom to deliver products and services that the customer
considers to be of value. At present it is unclear whether arivia.kom has
appropriately identified who its direct and potential competitors are, and

68
whether it is planning appropriate action to counteract potential moves into its
customer base.
3.5.2.2 Analysis of strategic competitor groups
Any organisation wishing to conduct a competitive analysis in a vast industry
can identify many (possibly hundreds) of competitors. Analysis of each
competitor individually is generally time-consuming, thus making it prudent to
group competitors into appropriate categories in order to generate strategic
information that is relevant and usable. Reducing the large number of
competitors to a small number of strategic groups allows for analyses that are
compact, feasible and usable (Aaker 1998:62). The organisation's closest
competitors are those pursuing the same target market with similar strategies
(Kotler 1997:233). In such cases, all such organisations form part of a
strategic group. Analysis of the competitive intensity of strategic groups is
useful for characterising the various competitors and important for prediction
purposes (Wheelen & Hunger 1998:68). Analysis of strategic groups as
opposed to each competitor in turn may be less time-consuming.
Furthermore, little strategic content and insight will be lost by this exercise,
given that these organisations tend to act in similar ways to any arising
developments in their industry.
Analysing the strategic groups of competitors can help the organisation to
determine its likely future strategies, and also enables it to plan its own actions
in turn. Du Plessis et al (2001:113) define the characteristics of strategic
groups as follows:
Ÿ They pursue similar competitive strategies (eg being low-cost producers).
Ÿ They have similar traits (such as size of organisation or use of
technologies).
Ÿ They possess similar assets or skills (eg use of mass product production to
enable high-volume production of products).

69
The organisation needs to specify the key dimensions that will identify
strategic groups in the industry (Kotler & Armstrong 2001:684). These key
dimensions may be each competitor's product quality, features and mix,
pricing policy, distribution coverage, sales force strategy, advertising and sales
promotions programmes, in addition to strategies for research and
development (R&D), purchasing and financial detail. Organisations that are
grouped together strategically will therefore have similarities, which are
generally not prevalent in other organisations that are in different strategic
groups within the same industry (Wheelen & Hunger 1998:67). In the IT
industry on which arivia.kom focuses, the areas in which Comparex,
Dimension Data, Accenture and IBM compete directly are illustrated in table
3.2 below (IDC 2002:23-66). These strategic groups will be studied as part of
the secondary objectives of the study, and will form the basis for further
research into the analysis of these competitor groups and the extent to which
they are able to compete effectively against arivia.kom in the Eskom business
environment.
Table 3.2: Strategic competitors grouped by service provision
Service provided Key competitor to arivia.kom
Hardware & software installation & support Dimension Data, Comparex, IBM
Network consulting & integration Dimension Data, Comparex, IBM
Systems integration Dimension Data, Comparex, IBM, Accenture
Applications consulting & customisation Dimension Data, Comparex, IBM
Application development Dimension Data, Comparex, IBM, Accenture
Information system outsourcing Dimension Data, Comparex, IBM
IT infrastructure services provision Comparex, IBM
IT consulting services Accenture (market leader and very strong in
Eskom), IBM, Comparex
During the last quarter of 2001, Comparex Africa (a large professional IT
services organisation) approached TSI (an Eskom Enterprises subsidiary and

70
customer of arivia.kom) offering IT services, and was subsequently appointed
to administer certain of its high-profile projects. Arivia.kom management only
reacted to this occurrence in January 2002, by which time, TSI had made
certain contractual commitments to Comparex. Arivia.kom management's
slow reaction seems to indicate that its competitive analysis capabilities may
not be of a sufficiently high standard to prevent such competitor activities in
future. Furthermore, the slow reaction seems to indicate that management
intelligence oriented towards competitor analysis is either poorly developed or
non-existent. However, this warrants further study to establish the true extent
to which arivia.kom approaches competitor groupings as part of its competitor
analysis.
Conceptualising the competitive environment by way of strategic groupings
fosters a better understanding of the challenges facing the organisation. As
part of the systematic competitor analysis process, it also a logical precursor
to focusing the organisation on important competitors whose characteristics
(objectives, strategies and weaknesses) must be understood, if the
organisation plans to counter any anticipated moves.
3.5.2.3 Key competitor objectives
After determining who its competitors are an organisation must establish what
each competitor seeks in the marketplace and what its strategies are (Kotler &
Armstrong 2001:683). It is important to establish what motivates competitors
to act as they do, because developing an understanding of a competitor's
product portfolio could provide valuable insight into its objectives (Brassington
& Pettitt 1997:852). Insight gained from such analyses could help the
organisation to appreciate for how the competitor's strategy is likely to be
executed, thereby enabling it to devise an appropriate defence.
Understanding a competitor's objectives enables the organisation to determine
whether the competitor's strategy is effective or whether it is likely to be
changed in future (Aaker 1998:66). Establishing whether the performance of
competitors and their financial objectives are within acceptable levels will help

71
an organisation to determine whether they are likely to sustain a presence in
the market, and whether they have sufficient backing from their investors and
management to do so. Kotler and Armstrong (2001:683) infer that competing
organisations have a general mix of objectives in common. Understanding the
relative importance of this mix to competitors may help the organisation to
comprehend how they are likely to react to different competitive actions. This
mix comprises (but is not necessarily limited to) the following (Du Plessis et al
2001:113; Kotler & Armstrong 2001:683):
Ÿ current and long-term profitability and cash flow (financial goals)
Ÿ market share growth
Ÿ technological, service, price and market leadership, which are all
qualitative objectives.
The degree of importance attached to the components of this mix will vary
from one organisation to the next. By understanding its competitor's
objectives, the organisation is not only educated about new segments that a
competitor may identify, but will also be aware of any competitive threats that
will be posed to the market space it occupies. Being "forewarned and,
hopefully, forearmed" is thus a key benefit for the organisation when engaging
in the practice of establishing competitor objectives (Kotler & Armstrong
2001:683).
The Comparex episode in Eskom Enterprises highlights a key issue regarding
the understanding of competitor objectives. Arivia.kom was unaware of the
intentions of Comparex, and when it did react, chose to cooperate with the
organisation rather than devise a strategy to defend market share within
Eskom Enterprises. It was only after the competitor's objectives became clear
that arivia.kom reacted by invoking the government policy clause for "first right
of refusal" of work within Eskom and Eskom Enterprises. The wrong course of
action initially (cooperation as opposed to confrontation) seemed to indicate a
lack of experience in understanding competitor objectives and dealing with
them apropriately. It is unclear whether arivia.kom possesses any detailed

72
information on its key competitors or their objectives. There are no apparent
formal mechanisms within the organisation that facilitate the collection of
pertinent information in this regard. Hence it may be necessary to establish
whether arivia.kom places any priority on establishing competitor objectives in
the planning of its own operations for the sake of protecting the market in
which it operates.
3.5.2.4 Competitor strategies
Understanding the current and past strategies of competitors is a vital aspect
of competitor analysis. An organisation's knowledge of a competitor's
previous strategies may be significant, especially those that have failed,
because they could provide insight into the strategic alternatives that the
competitor may choose to avoid in future (Aaker 1998:67). Moreover,
understanding a competitor's strategies could provide insight into the manner
in which a competitor currently operates, thus enabling the organisation to
plan for the present and future. Vigorous pursuit of a strategy could result in a
sustainable competitive advantage. Understanding the sustainable
competitive advantage at which a competitor aims, or currently enjoys, as a
result of the strategy pursued, could help the organisation to plan its defence
against such competition. Three main issues in particular should be
established in trying to understand competitors' current strategies (Hooley, et
al 1998:156). Firstly, the organisation should study the market(s) in which
those competitors have chosen to operate (the target market). Secondly, the
organisation should identify the strategic choices (generic strategies) the
competitors have made in order to bring about competitive advantage in those
markets. Thirdly, the organisation needs to pinpoint the marketing mix
directed at the target market in order to achieve the goals that have been
determined by the strategic choices.
A competitor could choose strategies from three broad alternatives, also
known as generic strategies (Pearce & Robinson 1997:216). The first is
overall low-cost leadership in an industry, where a competitor competes

73
primarily on the price of the product(s) sold. The second is differentiation
through the creation and marketing of unique products and/or services for
varied customer groups, by offering distinctly recognisable selling propositions.
The third choice entails focusing on a specific customer group or groups of
customers, by concentrating on their cost or differentiation concerns. This
strategy can be regarded as a subset of low-cost leadership or differentiation
strategies, but is generally aimed at a smaller more specific set of customers.
Customers targeted by this strategic option usually have specific requirements
that are ignored by low-cost or differentiation-oriented competitors who tend to
focus on typical customers requiring products that generally have a mass
appeal.
By detecting and understanding the type of strategy a competitor adopts, an
organisation is better able to ascertain its future growth directions (Aaker
1998:67). Establishing the type of strategy adopted by a competitor can, for
example, lead the organisation to the following insights (Aaker 1995:74):
Ÿ If a low-cost leadership strategy is pursued, a competitor could have
uncovered certain economies of scale or streamlined operations developed
over years of practice (experience curve). It may also have production
facilities and/or equipment that could lower the cost of a product. It could
have access to raw materials (and/or cheap labour) which enable it to
deliver products or services at a low cost.
Ÿ If a differentiation strategy is pursued it could be because of a competitor's
extensive product line or that it produces a high-quality product or service.
The competitor may also have an extensive and efficient distribution
network, or possess products or services that are positioned as exclusive
and unique, and are brand-specific.
Ÿ If a focus strategy is pursued, a competitor may have its business scope
defined in such a way that it can target consumers in order to address their
cost or differentiation concerns in specific manner. An example of such a
strategy is the provision of satellite (also known as cable) television

74
services, provided to subscribers in rural areas that are largely ignored by
television networks which target audiences in cities and suburban areas
(Pearce & Robinson 1997:217).
Accurately establishing with which generic strategy a competitor identifies,
could enable the organisation to plan its own counter-attack effectively.
Pearce and Robinson (1997:88), however, observe that an organisation could
make mistakes in drawing inferences about competitor strategies. An
example of this is possibly misunderstanding the purpose of a strategy by
obsessively trying to outsmart competitors, rather than add value to its
customers. The organisation could also focus excessively on the competitor's
resources or market position, and overstate their importance relative to the
competitive ability of such a competitor(s). The organisation could assume
that a competitor pursuing a similar strategy could face constraints similar to
its own, and hence is likely to base actions on such assumptions. If such
assumptions are inaccurate they could be misleading.
In analysing the strategic choices made by competitors, the organisation will
need to look beyond what it is currently doing and focus on the possible future
actions of its competitors as well. Given any environmental and competitive
changes faced by competitors, they are likely to react in a variety of ways.
The organisation must be in a position to establish what the future competitive
landscape will look like, on the basis of an understanding of the following
about their competitors (Hooley et al 1998:165):
Ÿ Establishing whether the competitor is satisfied with its current position. A
competitor that is content may allow indirect exploitation of its market
without expending any effort on aggressive defence of that market.
Ÿ Establishing strategic shifts or changes that a competitor could make. The
organisation can assess this, and then evaluate whether its own plans and
goals will be sufficient to defend against strategic shifts from competitors.

75
Ÿ Establishing where a competitor is vulnerable. This could help the
organisation to position its strengths against a competitor's weaknesses in
order to gain a competitive advantage.
Ÿ Understanding what actions will provoke effective retaliation from
competitors. This understanding could help the organisation to identify
what is likely to provoke a competitor because it could then decide to avoid
such a course of action altogether. Alternatively, it may be more sensible
for the organisation to pursue a less sensitive route to success, rather than
invoke the wrath of a powerful competitor through direct aggression
(Hooley et al 1998:166).
Most of arivia.kom's competitors have extensive experience in the IT Industry
in South Africa and globally. Competitors (such as Accenture) have provided
consulting services to Eskom for more than seven years and have developed
good relationships with Eskom management. By establishing a relationship of
trust with Eskom management and leveraging its global brand presence, it has
been successful in obtaining contracts to provide IT services on a regular
basis.
It is presently unclear whether arivia.kom has effectively established the
competitive strategies of its competitors. What is known, however, is that
Eskom has been criticised it for its perceived inability to embrace a business
identity that espouses a unique selling proposition to Eskom that will enable it
to differentiate itself from its competitors. Eskom has also criticised its cost
structure as being uncompetitive compared to those of Accenture or other
competing service providers. The question whether this criticism is unanimous
and credible needs to be studied to establish its validity.
3.5.2.5 Competitor strengths and weaknesses
Understanding competitor strengths and weaknesses will provide valuable
insight into the resources that an organisation has at its disposable. Such
knowledge may be useful to an organisation because it may then be in a
position to act in a manner that exploits a competitor's weaknesses to its own

76
advantage, or possibly to pursue actions that will neutralise or bypass a
competitor's strength (Aaker 1998:68). In a highly competitive industry, such
as the one in which arivia.kom operates, it is essential to have knowledge of
competitor's strengths, and where they could be vulnerable. Du Plessis et al
(2001:116) consider the understanding of competitor's strengths and
weaknesses to be an important prerequisite in the organisation's formulation of
a competitive strategy. By understanding a competitor's strengths and
weaknesses, an organisation is able to speculate on the likely courses of
action that it could take in response to specific actions by competitors, such as
price cuts, promotions or new product introductions (Kotler & Armstrong
2001:684). The following factors could make a competitor vulnerable to other
organisations (Du Plessis et al 2001:115):
Ÿ poor cashflows or lack of cash
Ÿ low margins and/or poor growth (in the event of price competition with
other organisations, a competitor could experience eroded profitability and
losses)
Ÿ the high cost of operations and/or distribution
Ÿ overdependence on one market or one account (an organisation that
derives the bulk of its income from one or a few key customers could be
vulnerable if the customer looks elsewhere for the same product)
Ÿ strength in failing sectors (high market share in a declining market)
Ÿ short-term focus,
Ÿ resource problems (eg losses of skilled people)
Ÿ predictability (a competitor's moves become easy to read and predict by
other competing organisations)
Ÿ product or service obsolescence or weakness
Ÿ predictability (organisation's abilities are conventional and known to others)
Ÿ a cumbersome organisation hampered by bureaucracy

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At times, competitors may possess strengths that are beyond the
organisation's ability to neutralise. Moreover, if challenged, such strong
competitors could respond aggressively to the organisation. Knowledge of
such abilities possessed by competitors could assist the organisation to decide
not to compete directly, but rather to seek an alternative approach.
Whether or not an organisation chooses to act aggressively (or at all) against
a competitor, it is nevertheless prudent to understand the resource availability
and abilities of its competitors (Du Plessis et al 2001:115). Hence competitor
strengths and/or weaknesses depend on whether they possess the necessary
assets or skills (Aaker 1995:76). These assets and skills are critical success
factors in the industry in which the organisation and its competitors operate,
and represent the bare minimum requirements to stimulate competitiveness.
Without these requirements the ability to compete effectively may be lacking.
An analysis of assets and skills possessed by competitors can thus be
conducted in the following ways (Aaker 1995:76):
Ÿ Identify successful organisations in the industry and establish the assets
and/or skills that have contributed to their success over time.
Ÿ Establish what is important to customers (their main reasons for
purchasing) and the key skills or assets necessary to deliver the value they
seek.
Ÿ Determine whether one (or more) component(s) of the value chain
comprise a sustainable competitive advantage (strength) for the
competitor. For instance, a primary activity in the value chain such as
service, could be a competitive advantage for the competitor to the extent
that it is renowned for service excellence. Such an attribute is an asset
that differentiates a competitor from the organisation in question.
Organisations such as (but not limited to) Accenture and DiData, are
formidable competitors that compete aggressively against arivia.kom for
market share in Eskom. As experienced business organisations, it is not
inconceivable that they have conducted analyses of arivia.kom's strengths and

78
weaknesses. Regardless of this, it is necessary for arivia.kom to conduct its
own analysis of the strengths and weaknesses of its competitors for the sake
of its future profitability and survival.
3.5.2.6 Forecasting competitor response patterns
In a competitive market or industry, any course of action embarked upon by an
organisation is likely to induce competitors to respond in some manner. It may
therefore be useful for the organisation to predict the likely reaction of these
competitors. Du Plessis et al (2001:118) regard competitor responses to
changes in the market as well as competitive changes an important objective
in competitor analysis. They also consider competitor behaviour in this regard
to have three distinct components:
(1) These are, the likelihood of a competitor responding to changes in the
market place;
(2) The probable response of the competitor to moves from other competitors;
(3) Speculation on the possibility that the competitor will react aggressively
and, if so, the type of reaction it may take.
Du Plessis et al (2001:118) identify four types of competitors that an
organisation may typically encounter:
(1) The Market Leader. This competitor has the largest share of the
market for its product and usually leads the way in price changes, new
product introductions, promotional intensity and distribution coverage.
This type of organisation must constantly combat rival offerings such
as product innovations, pricing promotions and lower costs, and
normally responds by expanding the total market for its product,
protecting its current market share through aggressive or defensive
actions or by aggressively penetrating the target market. From prior
indications, this definition would apply to Accenture in the Eskom
context.

79
(2) The Market Challenger. This is normally a "runner-up" organisation
that attacks market leaders in order to increase its own market share.
Organisations such as Bentley West would fit into this category in the
Eskom business environment (see ch 5 sec 5.3).
(3) The Market Follower. This organisation prefers to follow rather than
challenge the market leader, and aims to retain current customers
whilst attracting new ones. It follows a business practice that does not
openly invite competitive retaliation. The definition would apply to
Comparex given their initial dealings with Eskom Enterprises and
arivia.kom.
(4) The Market Nicher. This organisation prefers to be a leader in a small
(niche) market, and avoids competing directly with larger organisations
by targeting smaller organisations that are of little or no interest to the
larger ones. This type of organisation specialises in one segment or
geographic area or product type. This definition would most suit an
organisation such as Enerweb (see ch 5 sec 5.3).
Du Plessis et al (2001:118) espouse the use of a response profile to assist in
determining the key competitors to target in relevant segments. Response
profiles can help to decide which strategy the organisation would use in each
situation. In developing the response profile for its key competitors, the
organisation will need to establish the following:
Ÿ whether it is satisfied with its current position
Ÿ the likelihood that the competitor will change its strategy
Ÿ the importance a competitor will attach to a change in its strategy
Ÿ the way in which other competitors will respond to such changes in its
strategy
Ÿ whether new opportunities will be afforded to rivals when competitors make
strategic changes

80
Ÿ whether opportunities provided by competitors are likely to endure over
time or will be short-lived
Ÿ the way competitors will respond to environmental changes, including
moves by other competitors
Ÿ which moves competitors respond well to, and which they react poorly to,
Ÿ what moves a competitor is likely to make in reaction to actions from other
competitors
However, in the past, competitors have often emerged unexpectedly and from
unanticipated sources and circumstances. Managers are therefore required to
be familiarise themselves with competitor scenarios of future markets that are
not merely extrapolations of current trends (Fahey 2003:32-44). Such
scenarios provide an organisation with the means to learn about the current
and potential competitive environment. They also enable it to gain unique
insights into the rivals that will shape the nature and direction of marketplace
competitiveness and promote learning about both competitors and the
competitive context that would otherwise be out of the question. Managers
are thus required to think about the broader competitive context and of the
implications for their firm's strategy and operations, enabling them to prepare
for changing competitive conditions.
Globally, and in South Africa, the IT industry is evolving rapidly and is highly
competitive. Arivia.kom is now a rival to other organisations in this industry,
and services two organisations (Eskom and Transnet) that are regularly
targeted by aggressive competitors. In addition, the nature of the IT industry is
changing rapidly and the introduction of the Internet has redefined business
models and altered the nature of competition in this as well as in other
industries. Forecasting competitor responses cannot therefore be viewed from
a conventional perspective, which entails competitor analysis on existing
organisations in the IT industry. The rapid nature of change in the IT industry
requires forecasting the impact of new competitors and technologies in its
markets. Fahey (2003: 39) refers to the creation of so-called "invented

81
competitors", an exercise that requires the organisation to systematically think
about the changing nature of competitors and competitiveness in their markets
such that underlying assumptions and the original view of competition are
viewed differently. The aim of the invented competitor approach is to establish
a radically distinct perspective on its future marketplace from which to review
its current strategy.
3.6 SUMMARY Since the advent of democracy in South Africa in 1994, the has been responsible
for a determined push for change in the private and public sector. Eskom and
Transnet have been at the centre of government-led initiatives in this regard, and
arivia.kom has also been viewed as vital to such initiatives in this context.
The expectations created around the formation of arivia.kom were initially high.
However, customer expectations and the presence of formidable competitors in
the IT industry which are also targeting Eskom and Transnet are placing a strain
on its ability to meet such expectations. The aim of this study is to identify the
key contributors in the customer and competitor context, to such pressures so
that appropriate attention can be directed towards determining suitable
constructs that address them appropriately.

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Chapter 4: Research methodology
4.1 INTRODUCTION
Research is usually undertaken to discover facts that may be used to describe
and evaluate actions. To attain these overall objectives, it is essential that the
facts revealed by the research should be accurate so that they can be measured
in statistical terms. Research methodology has distinct characteristics, one of
which is the necessity for hard, measurable data to assist in the resolution of the
problem that gave rise to the need for research (Leedy 1989:5).
This chapter focuses on the fundamental concepts of the research methodology
and describes the practical execution of the research undertaken for this study.
The research project was conducted on one of arivia.kom's key customers,
Eskom, the respondents being the management and employees of the
organisation. The main objective of the study was to conduct a market analysis
of arivia.kom. There is no reason to believe that the findings and conclusions
drawn will not be applicable, to a lesser or greater degree, to arivia.kom's other
key customers. The findings and recommendations of the study should also be
relevant to arivia.kom's other key customers, namely Transnet and Denel, given
that at the time of inception they were designated as key customers of
arivia.kom. They are also state-owned organisations and are subject to the same
forces of change as Eskom because they are all governed by the Department of
Public Enterprises (DPE). Consequently, they are expected to have similar
performance imperatives and expectations from suppliers.
4.2 THE RESEARCH PROCESS
Malhotra (1996:8) defines marketing research as the systematic and objective
identification, collection, analysis and dissemination of information for the
purpose of improving decision making related to the identification and solution of
problems and opportunities in marketing.

83
According to Kotler and Armstrong (2001:140), marketing research comprises the
following four steps:
Ÿ step 1: defining the problem and research objectives
Ÿ step 2: developing the research plan for collecting the information
Ÿ step 3: implementing the research plan - collecting and analysing the data
Ÿ step 4: interpreting and reporting the findings
The first step in the research process, namely definition of the problem and the
research objectives of this study, was executed in chapter 1. The primary
objective (see sec 1.4.1 in ch 1) is a market analysis of arivia.kom. The
secondary objectives of the study (see sec 1.4.2 in ch 1) were, firstly, to establish
the reasons why Eskom decision makers were reluctant to provide arivia.kom
with more business opportunities, and secondly, to establish who arivia.kom's
competitors are. The third objective is to establish the customer perception of
arivia.kom's service quality, and finally, to identify areas in need of further study.
The second step in the research process, formulating the research design for
data collection, and the third step, implementing the research plan to facilitate the
collection and analysis of data, will be detailed in this chapter. The final step in
the research process, interpreting and reporting the findings will be outlined in
chapter 5. Chapter 6 will deal with the recommendations made on the basis of
the interpretation of the findings.
4.3 RESEARCH DESIGN FORMULATION
4.3.1 General
Malhotra (1996:86) refers to research design as a framework or blueprint for
conducting the marketing research project, which details the procedures
necessary for obtaining the information required to structure or solve marketing
research problems. A sound research design ensures that the marketing
research project is conducted effectively and efficiently, and lays the foundation

84
for conducting the project. A research design involves certain crucial
components as reflected in figure 4.1 below.
Whilst a 1999 version of the text by Malhotra exists, some of the material and
processes defined in it differ from the corresponding section in the 1996 version
of the textbook. The latter shall be used predominantly since the definitions and
processes therein are considered to be more appropriate for the purposes of
this study. However, the 1999 version of the textbook will also be referred to
where relevant and appropriate.
4.3.2 Define the information needed
According to Malhotra (1999:36-37), of all the steps in the marketing research
process, problem definition is the most important. It is only after the marketing
research problem has been clearly defined that research can be designed and
conducted properly. Inadequate problem definition is considered to be the
Figure 4.1 Components of a research design

85
leading cause of failure of marketing research projects. However, better
communication and greater involvement in problem definition are the most
frequently mentioned ways of improving the usefulness of research. In
essence, the researcher's role is to help management identify and isolate the
problem. Malhotra (1999:45-46) distinguishes between the objectives of the
organisational decision maker and the market researcher. The former reviews
management decision problems in deciding a course of action, whilst the
marketing researcher asks what information is needed and how it can be
obtained effectively and efficiently. The process and roles of the decision
maker and the researcher are interactive. In defining the information needed,
what is initially required is a statement of the market research problem in broad
and general terms, thereafter identifying its specific components. In this study,
this was done in section 4.2 chapter 1.
4.3.3 Design the exploratory, descriptive or causal phases of the research
Research designs may be broadly classified as exploratory or conclusive (Dillon
Madden & Firtle 1993:32-33; Malhotra 1996:86-88). The various aspects of
either type of research design will be discussed briefly below.
4.3.3.1 Exploratory research designs
The primary objective of exploratory research is to provide insights into and
promote understanding of the problem confronting the researcher. Exploratory
research is appropriate in situations of problem identification and definition.
After clearly defining the problem, exploratory research can be used to identify
alternative courses of action. When conducting exploratory research,
qualitative data are often used, and should be regarded as tentative or as
input for further research. The insights gained from exploratory research
might be verified by conclusive research. Exploratory research designs
include secondary data sources, literature reviews, observation and interviews
with industry experts. This study utilised a two-step approach. Initially, a
literature review was undertaken in chapters 2 and 3, whilst a more structured

86
approach is used for conclusive purposes in chapter 5. Conclusive research
designs are briefly outlined below.
4.3.3.2 Conclusive research designs
Conclusive research is typically more formal and structured than exploratory
research. This type of research is based on representative samples and the
collected data are subjected to quantitative analysis. Findings from conclusive
research serve as input into managerial decision making because they assist
the marketer to evaluate and select a course of action. Conclusive research
can be subdivided into descriptive and causal research, which are explained
below.
Ÿ Descriptive Research. The major objective of descriptive research is to
describe something, usually market characteristics or functions.
Descriptive research may, for example, be conducted to describe the
characteristics of relevant groups such as consumers, organisations or
market areas. It can also be used to describe or determine perceptions of
certain phenomena, or applied to determine the degree to which marketing
variables are related. It can even be used to make specific predictions.
Descriptive research makes the assumption that the researcher has much
prior knowledge about the problem situation. It is thus preplanned and
structured, and is marked by a clear statement of the problem, specific
hypotheses and detailed information needs. Descriptive research can be
further subclassified into cross-sectional design and longitudinal design.
The former involves the collection of information from any given sample of
population elements only once. Longitudinal design involves a fixed
sample of population elements measured repeatedly over time to provide
an illustration of the situation and the changes that are taking place
(Malhotra 1996:90-95). The descriptive approach is considered most
appropriate for the purposes of this study. However, for the sake of
completeness of definition, causal research is briefly outlined below.

87
Ÿ Causal Research. The aim of causal research is to obtain evidence of
cause-and-effect relationships. Marketing managers continually make
decisions based on assumed causal relationships. These assumptions
may not be justifiable and the validity of the causal relationships should be
examined through formal research. Causal research is appropriate for
understanding which variables are the cause (independent variables) and
which variables are the effect (dependent variables) of a phenomenon, and
can be used to determine the nature of the relationship between causal
variables and the effect to be predicted.
4.3.4 Specify the measurement and scaling procedures
Measurement involves assigning numbers or other symbols to characteristics of
objects according to certain predetermined rules (Malhotra 1996:271).
However, the object itself is not measured, but some characteristic of it. For
example, in the course of conducting marketing research, we do not measure
consumers but rather their perceptions, attitudes, preferences or other
measurable characteristics. In marketing research, numbers are assigned,
firstly, to allow the statistical analysis of the resulting data, and secondly, to
facilitate the communication of measurement rules and results. The principal
aspect of measurement is the specification of rules for assigning numbers to
characteristics. The assignment process must be such that there is a one-to-
one correspondence between the numbers and the characteristics being
measured. Moreover, the rules for assigning numbers should be standardised
and uniformly applied, and should not change over objects or time.
Scaling is regarded as an extension of measurement. It involves creating a
continuum on which measured objects are located. There are four primary
scales of measurement, namely, nominal, ordinal, interval and ratio scales,
which will be briefly discussed below.

88
Ÿ Nominal scale. In this scale, numbers serve merely as tags for identifying
and classifying objects. Each object has only one number assigned to it,
and no two objects have the same number.
Ÿ Ordinal scale. This is a ranking scale in which numbers are assigned to
objects to indicate the relative extent to which they possess some
characteristic. This scale allows one to determine the relative position of
one object to one or more other objects. However, it does not indicate the
magnitude of differences between the objects.
Ÿ Interval scale. An interval scale contains all the information of an ordinal
scale, but also allows one to compare the differences between objects.
There are numerically equal distances on the scale representing equal
values in the characteristic being measured and there is constant interval
between scale values. An example of this is a temperature scale.
Ÿ Ratio scale. A ratio scale possesses all the properties of the nominal,
ordinal and interval scales, as well as an absolute zero point. This enables
the researcher to identify or classify objects, rank objects and compare
intervals or differences. Most importantly, all statistical techniques can be
applied to ratio data.
The scaling techniques commonly employed in marketing research can be
classified into comparative and noncomparative scales (Malhotra 1996:276-
277). These scaling techniques will be briefly outlined below.
4.3.4.1 Comparative Scales
Comparative scales involve the direct comparison of stimulus objects, and
data must be interpreted in relative terms and have only ordinal or rank-order
properties. The major benefit of comparative scales is that small differences
between stimulus objects can be detected, given that respondents are
compelled to choose between stimulus objects which they are required to
compare. In addition, respondents approach the rating task from the same
reference points and there are fewer theoretical assumptions involved in these

89
scales. However, one of the main disadvantages of the use of such scales is
that they do not allow for accurate generalisation beyond the stimulus objects
scaled, requiring another study to be conducted if comparison is required with
a new stimulus object.
4.3.4.2 Noncomparative Scales
Noncomparative scaling is the most widely used scaling technique in
marketing research (Malhotra 1996:277-297; Dillon et al 1993:277). Using this
scaling technique, each object is scaled independently of the others in the
stimulus set. Respondents evaluate only one object at a time as opposed to
rating one object to another or to a predetermined standard.
Noncomparative scales may be classified as continuous or itemised scales.
These classifications are briefly explained below.
Ÿ Continuous scales. Using this scale, the respondents rate the objects by
placing a mark at the appropriate position on a line that runs from one
extreme of the criterion variable to the other. Continual scales are easy to
construct. However, scoring can become cumbersome and unreliable, and
such scales often provide little new information.
Ÿ Itemised rating scales. Respondents are provided with a scale that has a
number or brief description associated with each category. The categories
are ordered in terms of scale position and the respondents are required to
select the specified category that best describes the object being rated.
Itemised scales are widely used in marketing research and form the basic
components of more complex scales such as multi-item rating scales
(Malhotra 1999:270-274). Commonly used itemised rating scales are the
Likert scale, Semantic differential scale and Stapel scale. The Likert scale
is widely used and requires the respondent to indicate a degree of
agreement or disagreement with each of a series of statements about the
stimulus objects, with a numerical score being assigned to each statement.

90
The Semantic differential scale is a seven-point scale with end points
associated with bipolar labels. It is versatile and commonly used to
compare brand, product and company images. The Stapel scale is a
unipolar scale with 10 categories numbered from -5 to +5 without a neutral
(zero) point. Using this scale, respondents are asked to indicate how
accurately or inaccurately each term describes the object by selecting an
appropriate numerical response category. The Stapel scale is the least
popular of the itemised scales because it is regarded as confusing and
difficult to apply by some researchers (Malhotra 1999:275).
For the purposes of this study, noncomparative scales are considered more
appropriate than comparative scales, given the complex issues at hand which
require in-depth investigation.
4.3.5 Construct and pre-test the questionnaire
A questionnaire is a formalised set of questions for obtaining information from
respondents (Malhotra 1999:293-295; Dillon et al 1993:300). Any questionnaire
has three objectives. Firstly, it must translate the required information into a set
of specific questions that respondents can and will answer. Secondly, it must
be able to motivate and encourage the respondent to become actively involved
in the interview so that he or she cooperates and completes it. Thirdly, the
questionnaire should minimise response error, which could arise when
respondents give inaccurate answers, or when answers are incorrectly recorded
or analysed.
Malhotra (1996:318-341) provides some general guidelines on the
questionnaire design process. These guidelines or steps are briefly explained
below.
· Step 1. Specify the information needed. This will entail a review of the
problem and approach, the hypotheses and the characteristics that influence
the research design. Having a clear concept of the target population is also

91
important because the characteristics of the respondent group will influence
the questionnaire design.
· Step 2. Specify the type of interviewing method. The type of interview to be
conducted with respondents could be a personal interview, telephone
interview, mail questionnaire, computer-assisted interview or even an
Internet questionnaire. The length and complexity of questions will vary
according to the interview method being used. In addition, the content of the
individual questions will also be influenced by the interview method. For the
purposes of this study, the researcher decided that the mail questionnaire
method would be most appropriate in the interests of time and cost.
Moreover, the respondents used in this study were geographically dispersed
throughout South Africa, rendering this type of interview method the most
suitable in the circumstances. If required, a telephonic follow-up would be
conducted.
· Step 3. Determine the content of individual questions. Every question in the
questionnaire should contribute to the information needed. Neutral
questions may need to be incorporated into the questionnaire if considered
appropriate in order to establish rapport, and if the topic is considered
controversial or sensitive. Efforts should be made to avoid "double-
barrelled" questions in order to avoid ambiguity (Malhotra 1999:298). In
instances where two answers are required, it is advisable to ask two
separate questions to obtain information, as opposed to requesting multiple
answers from a single question.
· Step 4. Overcome the inability to answer. Researchers should not assume
that respondents can provide reasonable answers to all questions.
Reasonable steps should thus be taken deal with the likelihood of a
respondent's inability to answer. The inability to answer questions generally
stems from the respondent not being informed, not remembering information
or being unable to articulate certain types of responses. Hence it may be

92
necessary to use a filter question to screen potential respondents to ensure
that they meet the sample requirements.
· Step 5. Overcome the unwillingness to answer. There are instances where
the respondents are able to answer questions, but may be unwilling to do
so. This may arise because there is too much information required, or the
context is inappropriate for disclosure, there is no legitimate need for the
information requested as perceived by the respondent, or the information is
sensitive. In the interests of saving the respondent time and effort, a list of
options can be provided from which the respondent can choose items as
appropriate. To put the respondents at ease and manage their
apprehensions about potentially sensitive issues, it may be necessary to first
make statements to place the issue in question in context before asking the
actual question. Respondents may also question the legitimacy of questions
being asked hence the need for a preliminary statement to justify the
question to follow. Respondents are also likely to be unwilling to answer
sensitive questions, or give biased responses, because of a perceived threat
to their prestige or self-image. In order to avoid this, sensitive questions
could be placed at the end of the questionnaire, by which time initial mistrust
could be overcome. In addition, questions could be categorised to enable
the respondent to indicate a general category rather than a specific answer
(eg in the case of annual income) or questions can be phrased using the
third person technique.
· Step 6. Choose the question structure. A question may be unstructured or
structured. Unstructured questions are open-ended questions that
respondents answer in their own words. They are useful in exploratory
research and are often appropriate as first questions on a topic. However,
the data recorded are prone to interviewer bias and the validity of the data
recorded depends on the recording ability of the interviewer. Structured
questions specify the set of response alternatives and the response format.
There are three types, namely multiple-choice questions, dichotomous

93
questions or a scale. Multiple-choice questions provide a choice of answers
and respondents are asked to select one or more alternatives. Dichotomous
questions often have only two response alternatives between which a
respondent must choose. In certain instances, a neutral alternative is also
provided where it is considered that a large number of responses may be
neutral or undecided about the issue in question. Scales can also be used
to structure questions where alternatives are given from which respondents
are asked to select an answer along a continuum.
· Step 7. Choose the wording of questions. The wording of questions must
be such that respondents can clearly and easily understand them. To avoid
bias in responses, the following guidelines are suggested (Malhotra
1999:305):
o The issues must be clearly defined.
o Ordinary words and easily understood phrases should be used.
o Unambiguous words must be used such that respondents clearly
understand the question.
o Leading or biased questions, which are likely to elicit skew responses
should be avoided.
o Questions must be explicit to give the respondents a clear indication of
what the issue at hand relates to.
o Questions that do not contain assumptions to clarify the issue at hand
should be avoided.
o Generalisations should be avoided in favour of specific information
requested from respondents. At times, this may require two simple
questions rather than one complex question.

94
o Dual statements can be used to gain a better understanding of the
information received from respondents. Dual statements may be positive
and negative, and when used appropriately, can help to eliminate bias
from the directionality of statements.
· Step 8. Determine the order of questions. Opening questions can be crucial
in promoting the confidence and cooperation of respondents. The opening
questions should thus be interesting, simple and nonthreatening. Difficult,
embarrassing or complex should often be placed late in the sequence of
questions. Questions should be asked in a logical order and should follow a
funnel approach where the questionnaire begins with general questions
followed by progressively specific ones.
· Step 9. Decide on the form and layout. The format, spacing and positioning
of questions can have a significant effect on results. The way in which
questions are placed on the questionnaire, and the numbering of
questionnaires and the questions contained in them are important
considerations in assisting the researcher to process data after they have
been collected from respondents.
· Step 10. Reproduce the questionnaire. The manner in which a
questionnaire is reproduced could influence the results. Use of poor quality
paper or an unprofessional appearance could affect the perception of
respondents. The questionnaire should therefore be printed on good quality
paper and look professional. If the document is extensive, it should be
suitably bound rather than untidily stapled together. Questions should be
neatly presented, and the tendency to make questionnaires look shorter
than they really are, should be avoided. The questionnaire should ultimately
be easy to read and answer by respondents.
· Step 11. Pretest the questionnaire. This involves testing the questionnaire
on a small sample of respondents for the purposes of identifying and
eliminating potential problems. The respondents in the pretest phase should

95
be similar in background to the actual respondents participating in the
survey. Moreover, the pretest respondents should be interviewed in person,
regardless of the actual telephonic interview, in order to gauge the
participants actual responses to questions in the questionnaire. If significant
revision of the questionnaire is required, another pretest session should be
conducted.
Taking into account the guidelines discussed above, a questionnaire (attached
as per annexure B) was created for the purposes of this study to obtain the
necessary information. The questionnaire defined for the process of this study
comprises the following fields for which information is required from
respondents:
· Section 1: demographic details. Respondents are required to provide their
names and contact details as well as the relevant Eskom division they
represent.
· Section 2: service providers. Respondents are requested to identify, from
a list of service providers, organisations that they have used in the past
three years. Arivia.kom is included in this list of service providers.
Thereafter, the customer is required to rate the three best service
providers. The aim of this section is to establish arivia.kom's competitors,
and the extent to which Eskom holds them in higher regard. The types of
questions in this section are not intended to be open-ended but rather
dichotomous.
· Section 3: enabling agreement. The enabling agreement between Eskom
and arivia.kom is investigated to establish whether Eskom customers feel
compelled to work with arivia.kom, and to establish whether customers
would use another service provider if the opportunity arose to do so.
· Section 4: service delivery criteria. Using a 10-point scale, respondents
are required to rate arivia.kom and any other information technology

96
service provider (which has rendered service to Eskom in the past three
years) on specific service delivery criteria. The criteria are consistent with
the format as specified in chapter 3 regarding customer analysis, and
comprise the broad categories of "Customer segmentation", "Customer
motivations to purchase", "Unmet customer needs" and "Customer
dissatisfaction".
· Section 5: additional comments. Respondents are required to state their
overall impression of the service rendered by arivia.kom over the past
three years. This question is intended to be open ended.
The questionnaire was also put through pretesting in order to eliminate any
errors that were overlooked, and to gauge the response of readers that would
help in rendering it user-friendlier. During this phase input was received from
two arivia.kom colleagues and an Eskom employee (Transmission IT
manager). As a result changes were made to the questionnaire with regard to
explanation of the rating system (section 4 of the questionnaire) and
elimination of ambiguous phrases and terms that were used at the time in
favour of simpler and clearer alternatives. Table 4.1, below provides a
summary of the type of questions employed in the questionnaire.
Table 4.1: Summary of questions employed in questionnaire
Section Type of questions posed to respondents
Section 1: demographic details Name, contact details and BU they are employed by
Section 2: service providers Indication (by way of cross or tick) of organisations dealt with by
the respondent
Section 3: enabling agreement Specific questions asked with regard to EA
Section 4: service delivery criteria Ratio scale (10-point scale) used. Respondents asked to rate
arivia.kom and competitor on given criteria
Section 5: additional comments respondents asked to summarise their overall perception

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4.3.6 Specify the sampling process and sample size
The aim of most marketing research projects is to obtain information about the
characteristics or parameters of a population. Malhotra (1999:328) defines a
population as "the aggregate of all the elements, sharing some set of
characteristics, comprising the universe for the purpose of the marketing
research problem". Information about population parameters may be obtained
by taking a census or a sample. A census involves a complete enumeration of
the elements of a population. The population parameters can be calculated
directly in a straightforward manner after the census has been enumerated. A
sample, on the other hand, is a subgroup of the elements of the population
selected for participation in the study. Sample characteristics, called statistics,
are then used to make inferences about population parameters.
Budget and time constraints are factors that favour the use of sampling
(Kinnear & Taylor 1996:406). A census is unrealistic if the population is large.
If the cost of sampling errors is high, a census, which eliminates such errors, is
desirable. However, a high cost of nonsampling errors would favour sampling.
A census can greatly increase nonsampling error to the point that these errors
exceed the sampling errors of a sample. Although Eskom has a relatively large
population of employees (approximately 30 000 employees), they are housed in
five main business units. Of all the employees at Eskom, only 8 000 use
arivia.kom services directly. However, these employees work in one of five
business units and are represented by IT managers in these units. In arriving at
the appropriate number of people to participate in this study it is still considered
appropriate to assess the sampling process for the sake of completeness.
Malhotra (1999:329-333) suggests a five-step process for the specification of
the sampling process and sampling size. This process is discussed below.
· Step 1. Define the population. The target population is the collection of
elements or objects that possess the information sought by the researcher
and about which inferences are to be made (Malhotra 1999:330). The target
population for the purposes of this study is the employees of Eskom. The

98
study will focus in particular on those business units in Eskom which procure
services directly from arivia.kom. These business units represent
approximately 8 000 users of IT services provided by arivia.kom.
· Step 2. Determine the sampling frame. Direct liaison with arivia.kom is
done via the management and team leaders of the business units which
have a direct impact on whether further services should be procured from
arivia.kom or from its competitors. The five business units that comprise the
Eskom business formed part of this study (from which 90 respondents were
identified). These 90 respondents are the key decision makers constituting
managerial and technical staff with sufficient authority and responsibility to
influence decisions made regarding work to be done with arivia.kom on
behalf of their various BUs in Eskom. The study will therefore comprise a
census as opposed to being a sample. The five business units of Eskom
are represented in table 4.2.
Table 4.2: Representation of elements in the target population
Business group in Eskom No of interviewees
Eskom Enterprises 15
Generation 20
Transmission 15
Distribution 20
Eskom Corporate Services 20
Total 90
· Step 3. Select a sampling technique. Malhotra (1999:331) refers to three
distinct sampling techniques that can be used in the sampling process,
namely the Bayesian approach, sampling with replacement and sampling

99
without replacement. The Bayesian approach entails selecting elements
sequentially, and incorporates prior information about population parameters
as well as the costs and probabilities associated with making wrong
decisions. In sampling with replacement, an element is selected from the
sampling frame and appropriate data obtained. Thereafter, the element is
placed back in the sampling frame, making it possible for the sample to be
selected more than once. Using the technique of sampling without
replacement, an element is selected from the sampling frame and
appropriate data collected. It is then removed from the sampling frame and
cannot be included in the sample more than once. For the purposes of this
study, because the elements will be interviewed once, sampling without
replacement will be used. However, as stated earlier (see step 2) this study
will comprise a census as opposed to the use of sampling.
· Step 4. Determine the sample size. Sample size refers to the number of
elements to be included in the study. Determining the sample size is
complex and involves several qualitative and quantitative factors (Malhotra
1999:332). Important qualitative factors in determining the sample size
include the importance of the decision, the nature of the research, the
number of variables, the nature of the analysis, sample sizes used in similar
studies, incident rates, completion rates and resource constraints.
· Step 5. Execute the sampling process. Execution of the sampling process
requires a detailed specification of how the sampling design decisions with
respect to the population, sampling frame, sampling unit, sampling
technique and sample size are to be implemented. In the case of Eskom, all
business unit managers and unit team leaders for each unit (as specified in
table 4.1) would comprise the population for this study. As a result, there
was no sampling process to execute as all 90 key decision makers were
identified as participants in the study.

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4.3.7 Develop a plan of analysis
After the sampling process has been completed, data collection and analysis
are required. Data collection takes place through fieldwork. Malhotra
(1999:405) observes that data collection, for marketing research purposes, is
rarely conducted by the person who designs the research. However, for the
purposes of this study, and given the cost and time constraints, this is the case.
Before raw data contained in the questionnaires can be subjected to statistical
analysis, they must be converted into a form suitable for analysis (Malhotra
1999:419; Kinnear & Taylor 1996:566). The quality of the results depends on
the care exercised in the data preparation phase. Malhotra (1999:420) outlines
an eight-step approach to data preparation prior to the process of analysis. The
approach is briefly outlined below.
· Step 1. Prepare the preliminary plan of data analysis. This is an initial guide
of how the research will be conducted, as determined during the research
design phase. This method may differ significantly from the final data
analysis strategy. This step incorporates the data preparation process and
seeks to reveal any problems likely to occur that will influence the
modification of any fieldwork if necessary.
· Step 2. Check the questionnaire. This involves checking the questionnaires
for completeness and interviewing quality. This can be done while fieldwork
is in progress. However, a pretesting phase will be done prior to the
commencement of fieldwork in order to detect any errors or problems with
the questionnaire, to test for readability and to eliminate ambiguity where
possible.
· Step 3. Edit. The questionnaire is edited in order to increase its accuracy
and precision. Questionnaires are screened to identify illegible, incomplete,
inconsistent or ambiguous responses. Poor recording may occur for both
unstructured and structured questions, requiring questionnaire editing to
reduce the likelihood of further occurrence as fieldwork progresses. In

101
cases where unsatisfactory responses do occur, they may have to be
treated by returning the questionnaire to the field to clarify responses, or
assigning missing values to unsatisfactory responses, or discarding the
relevant respondents altogether.
· Step 4. Code. Coding refers to assigning a code, usually a number, to each
possible response to each question, along with the data record and column
position the code will occupy. Malhotra (1999:425) recommends the
formulation of a codebook containing instructions and the necessary
information about the variables in the data set.
· Step 5. Transcribe. Transcribing involves transferring the coded data from
the questionnaires into computing systems.
· Step 6. Cleaning the data. The data produced from the computer systems
are then checked thoroughly for consistency and missing responses.
Consistency checks identify data that are out of range, logically inconsistent
or have extreme values. This is done to identify data with values that are
not in the coding scheme because they are inadmissible. Missing
responses refer to values of a variable that are unknown because the
respondents gave ambiguous answers to the question. The researcher
decided to enlist the assistance of the Bureau of Market Research (BMR), a
division of Unisa, for the purposes of coding, transcribing, data cleaning and
statistical contextualisation.
· Step 7. Adjust data statistically. This is not always necessary, but can
enhance the quality of data analysis. This can be done by weighting, where
each respondent in the database is assigned a weight to reflect its
importance relative to other cases or respondents. Variable re-specification
can also be used to create new variables or modify existing ones to render
them more consistent with the objectives of the study. Scale transformation
is another option available to the researcher, which entails a manipulation of

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scale values to ensure comparability with other scales or otherwise make
data suitable for analysis.
· Step 8. Select a data analysis strategy. The selection of a data analysis
strategy should be based on the earlier steps of the marketing research
process (problem definition, development of an approach and research
design). Consideration should be given to the validity and reliability of the
data because this will have direct implications for the credibility of the study.
Furthermore, consideration should also be give to the ability to replicate the
study at a later stage using the same techniques and steps. Thereafter, the
known characteristics of the data must be considered. For example, the
scales used may exert an influence on the choice of statistical techniques
employed during analysis. The properties of statistical techniques can also
influence the outcome of analysis. Hence understanding the value and
strengths of certain techniques can assist in the choices made for the
purposes of data analysis. The final step prior to the choice of a data
analysis strategy is consideration of the philosophy and background of the
researcher. The background of the researcher and his or her philosophy will
determine the choice of techniques appropriate for analysing the data for a
given project.
4.4 SUMMARY
In this chapter, the research methodology used to investigate the customer and
competitor environments of arivia.kom was detailed. The marketing research
investigation was dealt with according to the steps of the marketing research
process, namely defining the problem and research objectives, developing the
research plan for collecting the information, implementing the research plan,
collecting and analysing the data and interpreting and reporting the findings.
Defining the problem and the research objectives was detailed in chapter 1 of the
study. This chapter focused on the next two steps, namely research design
formulation and the approach to data collection. Research design formulation

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comprises designing exploratory and/or conclusive phases of the research,
determining the sources of data, specifying scaling procedures, constructing and
pretesting questionnaires, specifying the sampling process and size and
developing a plan of analysis. The data collection process involved the use of
questionnaires in order to obtain the relevant information required for the
purposes of this study.
When the fieldwork has been completed, the research proceeds to an analysis of
the research results, which constitutes the next step of the marketing research
process to be dealt with in chapter 5.

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Chapter 5: Customer and competitor analysis of arivia.kom - survey results
5.1 INTRODUCTION
Upon planning and designing of an appropriate research method (see ch 4), a
research instrument (questionnaire) was devised for data collection at Eskom.
The questionnaire was then used to gather data which were subsequently
analysed. Each of the questions contained in the questionnaire (see annexure B)
is analysed and discussed in this chapter. The results of the survey are based
on 75 completed questionnaires received from a census survey of 90
respondents employed in the main business divisions of Eskom, which is the
universe from which the sample is drawn. The sample is large enough to be
representative of the universe, and there is no reason why the conclusions drawn
and recommendations made in the study should not also be applicable to
arivia.kom's other key customers, including Transnet and Denel.
The first section of the questionnaire relates to the demographic details of the
respondents from each business unit (BU). The subsequent sections identify
service providers, including arivia.kom, with which Eskom has dealt since the
inception of arivia.kom. The respondents are asked to rate the top three service
providers they preferred to engage with in order of preference, and were also
questioned about the current enabling agreement (EA) between Eskom and
arivia.kom and their preference of service provider, if given freedom of choice.
For the purposes of comparison, arivia.kom was also rated on the basis of
specific service delivery criteria, and measured against a corresponding rating for
a preferred "other" service provider that was used, or is currently employed by
Eskom.
Whilst all of the results are also available at BU level, given the consistency in
results between the BUs and the similarities in services provided across BU, it
was only considered necessary to discuss them where further emphasis was

105
required. In addition, the results at BU level, when viewed in isolation are not
considered to be as useful as when viewed at organisation level.
5.2 SURVEY RESULTS: DEMOGRAPHIC DETAILS
Table 5.1 lists the respondents from Eskom who participated in the study
according to business unit (BU). Initially, 90 respondents were identified for the
purposes of the study. Owing to time constraints, 15 respondents were
unavailable to participate in the study, which meant that 75 respondents were
involved in the study with a response rate of 83.3%.
Table 5.1: Respondents according to business unit
Eskom business
unit (BU)
Number of
respondents
initially
identified
Actual number of
respondents (%
response rate per
BU)
Actual
responses as
a % of total
Importance of
each BU to
arivia.kom
(income in
millions)
Eskom Corporate 20 16 (80%) 21.3% R125
Generation 20 19 (95%) 25.3% R57
Transmission 15 12 (80%) 16.0% R21
Distribution 20 13 (65%) 17.3% R380
Eskom Enterprises 15 15 (100%) 20.0% R18
Total 90 75 (83%) 100% R601
Of all BUs, Eskom Enterprises and Generation provided the highest actual
response rates from interviewees. Eskom Corporate and Transmission
responded with 80% of identified interviewees participating in the study. The
relative importance of each BU is also evident from their contribution to
arivia.kom's income (approximated) for 2002. Most notably, whilst Distribution
contributed the largest portion of income to arivia.kom (R380 million) it attained

106
the lowest response rate of all the Eskom divisions (65%), and was a cause for
further deliberation. Nevertheless, the rating received from Distribution for all
criteria is consistent with those achieved by the other Eskom BUs, and thereby
validates the conclusions drawn. However, the validity of the information is a
vital issue for the purposes of this study, given Distribution's importance to
arivia.kom. Hence criterion validity, content validity and construct validity will be
discussed later in this chapter in the context of sample size and its relevance to
Distribution and to the study as a whole.
5.3 SURVEY RESULTS: SERVICE PROVIDERS
The aim of section 2 of the questionnaire was to identify the frequency of use of
particular service providers and Eskom's preference for such service providers in
relation to arivia.kom. A list of service providers contracted by Eskom BUs in the
previous three years (2001 to 2003) was compiled, and respondents were
required to identify those used. Respondents were also asked whether the EA
currently in place between arivia.kom and Eskom compelled them to make use of
arivia.kom's services. They were asked whether, if given freedom of choice, they
would prefer to use another service provider instead of arivia.kom. In instances
where the respondents indicated that they preferred to use another service
provider, the primary reasons for the decision were required, as well as their
personal preference of service provider.
Table 5.2 refers to the responses received from Eskom regarding their rate of
usage of service providers, including arivia.kom, and their rating of service
providers according to their perception of the quality of service received. This
table gives an indication of arivia.kom's closest competitors and Eskom's
perception of these organisations in relation to arivia.kom. Arivia.kom was
identified as being used by all BUs at Eskom (100%). However, Accenture was
identified as being its closest competitor with a response rate of 60% from the
respondents that had made use of their services. Bentley West (45.3%) and

107
Deloitte Consulting (44%) were also identified as being preferred service
providers.
Table 5.2: Service providers used by Eskom
Service provider used
Actual
number out
of 75
respondents
% of
Respondents
using service
provider
Top 3 service
providers
preferred by
Eskom BUs ito
service quality
Accenture 45 60.0% 1
Arivia.kom 75 100.0%
AST 27 36.0%
Bentley West 34 45.3% 2
Comparex 11 14.7%
Data Centrix 3 4.0%
Deloitte Consulting 33 44.0% 3
IBM 14 18.7%
IST 15 20.0%
PriceWaterhouseCoopers (PwC) 27 36.0%
Other (Enerweb, Meta, Gartner, Harvey-
Jones Systems, Schlumberger-Sema,
RealRM, KPMG, In-house resources,
independent contractors)
29 38.7%
Whilst arivia.kom is used by all BUs in Eskom, it is obviously not held in high
regard as a preferred service provider. Accenture, Bentley West and Deloitte
Consulting were rated as the top three service providers in terms of the
responses received for question 2.2 of the questionnaire dealing with perception

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of service quality. This is further supported by responses obtained from section 3
of the questionnaire relating to the EA, and whether it compelled customers to
comply with the Eskom directive specifying exclusive use of arivia.kom's
services. The responses for section 3 are discussed in section 5.4 below.
5.4 SURVEY RESULTS: ENABLING AGREEMENT (EA)
Section 3 of the questionnaire deals with the EA. Eskom respondents were
asked whether they felt compelled by the EA to make use of the services of
arivia.kom. In addition, they were asked whether they would still use arivia.kom's
services if the EA were not in place. The aim was to establish whether key
decision makers and/or persons influencing IT purchasing decisions would
choose other service providers rather than arivia.kom if allowed freedom of
choice. The main reasons for not using arivia.kom are discussed together with
the service provider preferred to arivia.kom. Table 5.3 below outlines the
responses to the two key questions on the EA.
Table 5.3: Opinions regarding the EA and choice of service provider
Questions asked in section 3 of questionnaire
% of
respondents
Actual number
of respondents
out of 75
(Question 3.2) Respondents who considered their
BUs compelled to use arivia.kom's services
exclusively because of the EA
85% 60
(Question 3.3) Respondents who would prefer to use
another service provider to arivia.kom if allowed
freedom of choice
92% 69
From the responses in table 5.3, it is apparent that 85% (60 out of 75
respondents) felt compelled to make use of arivia.kom's services. Moreover,
92% (69 out of 75 respondents) preferred using another service provider if
allowed freedom of choice. In instances where the respondents indicated that

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their preference was not to use arivia.kom's services, the reasons for their
decision were required. The 69 respondents gave the following reasons (in order
of priority):
Ÿ poor quality of service (30 respondents - 43%)
Ÿ slow delivery times to requests (11 respondents - 16%)
Ÿ cost/pricing considered to be too high for value received (9 respondents -
13%)
Ÿ lack of customer focus (9 respondents - 13%)
Ÿ lack of skills and expertise in the organisation (10 respondents - 14%)
The final question in section 3 (question 3.4) sought to establish which service
providers customers preferred, given the freedom of choice. This question was
asked in conjunction with the responses received in table 5.2 above, where the
service providers were listed in order of priority (whilst most respondents listed
their choices in relation to table 5.2, certain respondents also mentioned
additional service providers). The preferred "other" service providers by Eskom
BUs are indicated in figure 5.1.
Figure 5.1 shows that Accenture commands a preference amongst Eskom BUs
(21.3%), which is significantly larger than that of the other service providers
listed. These figures therefore demonstrate the following:
Ÿ Accenture is arivia.kom's largest competitor in Eskom.
Ÿ Despite the existence of the EA Eskom BUs are engaging with other service
providers either in contravention of the EA, or are seeking services which
arivia.kom currently does not offer.
The most notable implication for arivia.kom regarding this section is that
Accenture is well known in Eskom, and is widely regarded as a service provider
of choice to various areas of the business. In addition, Accenture has a

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preference rate that is 12% greater than that of its nearest rival (Deloitte
Consulting).
In table 5.2, Bentley West and Deloitte are rated second and third respectively in
terms of service quality. However, figure 5.1 indicates that Deloitte Consulting
and Enerweb are the preferred service providers to Bentley West. Hence
Accenture seems to have the appropriate mix of criteria that renders it a
formidable competitor to arivia.kom for market share in Eskom. In general, the
competitive environment in Eskom should thus be a concern for arivia.kom, with
threats emanating from Accenture, Deloitte Consulting, Enerweb and Bentley
West. Section 3 thus far illustrates a preference amongst Eskom BUs to conduct
business with other service providers because of dissatisfaction with arivia.kom's
Figure 5.1: Service providers preferred to arivia.kom

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service offerings. Section 4 of the questionnaire seeks to establish whether there
is consistency between customer preference to do business with other service
providers and the rating of arivia.kom's service delivery ability. This is discussed
in the next section.
5.5 SURVEY RESULTS: SERVICE DELIVERY CRITERIA
Section 4 of the questionnaire deals with service delivery criteria. Central to this
study are four key aspects of customer analysis, namely customer segmentation,
customer motivations to purchase, unmet customer needs and customer
dissatisfaction. The theoretical aspects of customer analysis were covered in
detail in chapter 3 (sec 3.4) of this study.
This section of the questionnaire deals with each of the customer analysis
components separately. The aim of the section is to establish Eskom's
perception of arivia.kom's performance for each of the criteria specified in relation
to a corresponding rating given for preferred "other" service providers. A 10-point
scale is used in this section with 1 representing "totally disagree" and 10
representing "totally agree" for the criteria listed, whilst 5 represents
"average/acceptable" performance. In instances where a rating could not be
given for "other" service providers (eg where no other service providers were
used) a rating of 11, representing "don't know", was allowed. A rating of 11
therefore did not apply to arivia.kom, given that it serviced all Eskom business
units without exception. Each aspect of the customer analysis will be discussed
below.
5.5.1 Customer segmentation
Customer segmentation is dealt with in section 4.1.1 of the questionnaire (see
annexure B). The ratings for each of the criteria in this section are summarised
in table 5.4 below. The intention of this section was to establish whether
arivia.kom's offerings were aligned with customer requirements and if a
constant effort was made to adapt services to meet changing customer needs.

112
This section also investigates customer perception of whether arivia.kom
delivers value for money, the effectiveness of service definitions in its formal
service level contracts and its ability to effectively control service quality
promised in such contracts. Lastly, this section also establishes arivia.kom's
rating against industry standards, and whether the brand is associated with
quality products and services.
Customers were asked to rate a preferred "other" service provider on the same
criteria. The ratings provided for arivia.kom and for "other" service provider are
discussed below, together with their implications.
Table 5.4: Customer segmentation and fulfilling customers needs
Arivia.kom rating "Other" SP's rating
Criteria
M in
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m
M ax
im u
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A ri
vi a.
ko m
m e
a n
M in
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M ax
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O th
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M ar
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av er
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Current offerings in line with unique needs 1 8 4.53 4 10 7.76 6.15
Tailors service to meet changing needs 1 9 3.99 5 10 7.72 5.86
Delivers value for money 1 9 3.23 3 10 7.28 5.26
IT services properly defined in SLA 1 10 5.49 3 10 7.30 6.40
SLA effectively controls quality of service 1 8 3.75 3 10 7.55 5.65
Service quality meets industry standards 1 7 3.65 5 10 7.91 5.78
Association of brand with quality products/services
1 7 3.04 5 10 8.04 5.54
Average for customer segmentation 3.95 7.65 5.80
Source: Question 4.1.1 of questionnaire
Customer segmentation comprised seven criteria on which arivia.kom and
"other" service providers were rated. The highest mean rating attained by
arivia.kom (5.49) related to proper definition of services in the service level

113
agreements (SLAs), indicating that arivia.kom's ability to define its services in
contractual form was marginally acceptable or above average. Of all the ratings
in sections 4 and 5, this would be the highest mean score attained by
arivia.kom. However, for this criterion the preferred "other" service provider
attained a higher rating (7.30). Whilst arivia.kom defines its services reasonably
well, its competitors are seemingly able to do so considerably better.
The second highest mean rating (4.53) related to customer perception of
whether arivia.kom's services were in line with the unique needs of their
business. Arivia.kom's ability to tailor its service offerings to meet the changing
needs of the customer business environment was given a mean rating of 3.99,
whilst the ability of the organisation to effectively control the quality of its service
delivery was rated as 3.75. These were the third and fourth highest scores
respectively. Customer perception of whether arivia.kom matches the industry
standard was rated as 3.65, attaining fifth position. The lowest mean attained
was for delivering value for money (3.23) and customer association of the
"arivia.kom" brand with quality products and services (3.04). With the exception
of defining the services in the SLA, all other criteria for arivia.kom attained a
mean rating less than 5, indicating below average and/or unacceptable
performance for those criteria from the customer's point if view. The highest
score received by arivia.kom from an individual customer was 10, and related to
the definition of IT services in the SLA. The lowest score received from any
given customer was 1, and this was achieved in each of the criteria. These
scores imply that arivia.kom's performance for most criteria in customer
segmentation are unacceptable from the customer's point of view.
The highest mean rating awarded to the "other" service provider (8.04) related
to the customer's association of the particular organisation with quality products
and services. This rating coincides with the lowest mean rating attained by
arivia.kom for the same criterion. The second highest mean rating (7.91) was
attained for perception of service quality meeting industry standards. In
addition, all other criteria attained an average mean rating in excess of 7,

114
indicating an above average level of performance as perceived by customers.
The highest individual score attained (for each of the criteria) from a given
customer was 10, whilst the lowest score received from an individual customer
was 3 (relating to the perception of delivering value for money for services
rendered).
None of the mean ratings for arivia.kom exceeded any of those for the preferred
"other" service provider in the customer segmentation section. In addition,
arivia.kom performed below the market average, which was derived from an
average of the combined scores of arivia.kom and the "other" service provider.
Overall, arivia.kom attained a mean rating of 3.95 for customer segmentation,
while the "other" service provider attained 7.65. The overall arivia.kom mean
rating was also below the overall market average of 5.80. Arivia.kom's lowest
score was attained for the customer perception of its brand, whilst the "other"
service provider received the highest mean rating for the same criterion.
Viewed broadly, such performance indicates that arivia.kom does not perform
as well as its competitors with regard to market segmentation and fulfilling
customers needs, and that its brand is not associated as readily with quality
products and services as the brands of its competitors.
Figure 5.2: Customer segmentation and fulfilling customers needs

115
Arivia.kom's overall performance and that of the preferred "other" service
provider are graphically illustrated in figure 5.2, which clearly indicates
arivia.kom's performance against the market average and the mean rating for a
given competitor. (The market average was calculated by adding the mean
rating for arivia.kom and that of the preferred "other" service provider and
dividing by 2.)
The poor customer perception ratings seem to indicate problems and areas of
concern with regard to the following:
Ÿ offering services and products that are more closely aligned to the unique
needs of Eskom Business
Ÿ being attuned to the changing Eskom business environment and tailoring
services and products to meet evolving business needs,
Ÿ managing the perception of value delivered to Eskom (in essence delivering
value for money)
Ÿ IT services being better defined in the SLA
Ÿ ensuring more effective control of the quality of service delivered to
customers, using the SLA as well as other tools
Ÿ managing customer perception of whether quality standards currently set by
arivia.kom meet industry standards
Ÿ management of the quality of services and products rendered such that the
perception of the quality brand is perceived in a more positive light
The mean rating for arivia.kom in each of the criteria has consistently fallen
behind that for a preferred "other" competitor rated by Eskom. This seems to
indicate poor ability on the part of arivia.kom to effectively conduct customer
segmentation in a manner that meets Eskom business needs, and is supported
by literature and previous research referred to in section 3.4.1.1 of chapter 3 of
this study. However, conclusions drawn and recommendations made regarding
customer segmentation and fulfilling customer needs will be discussed in

116
chapter 6. The next section analyses the results obtained for criteria relating to
customer motivations purchase products and services.
5.5.2 Customer motivations to purchase
Customer motivations to purchase are dealt with in section 4.1.2 of the
questionnaire (see annexure B), and comprises eight criteria on which
arivia.kom and "other" service providers were rated.
The intention of this section was to establish whether arivia.kom possesses
adequate understanding of the Eskom business model and the challenges that
face the organisation and the environment in which it operates. This section
also investigates whether arivia.kom is perceived as being appropriately skilled
to support the Eskom business in its day-today IT activities and whether it is
able to guide the transformation of Eskom to meet increasingly complex
strategic challenges. The final two questions in the section relate to whether
Eskom decision makers would prefer to make regular purchases from
arivia.kom, and whether it is considered a supplier of choice for the future. The
ratings for each of the criteria in this section are summarised in table 5.5.
Arivia.kom scored the highest mean rating for knowledge of the Eskom
business model (4.28). This was not surprising, given that arivia.kom staff and
management comprise former Eskom employees who were well acquainted
with the Eskom business model. However, the score attained was below 5,
indicating that Eskom was not satisfied with arivia.kom's level of proficiency in
knowledge of its business model. The implication of this rating in particular is
that arivia.kom may not have kept touch with the changing needs of Eskom,
resulting in a lack of knowledge of Eskom's current business model. Moreover,
arivia.kom's competitors seem to have invested time and effort to become better
acquainted with Eskom, and thus demonstrate a level of knowledge of the
Eskom business model that meets with Eskom's approval, resulting in a higher
rating than the corresponding rating for arivia.kom.

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Table 5.5: Customer motivations to purchase from service providers
arivia.kom rating
Other SP's rating
Criteria
M in
im u
m
M a
x im
u m
A ri
vi a.
ko m
m e
a n
M in
im u
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M a
x im
u m
O th
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P m
e a
n
M a
rk e
t av
er ag
e
Knowledge of business model 1 9 4.28 3 10 7.39 5.84
Awareness of future challenges facing the business 1 9 3.80 4 10 7.65 5.73
Strategic understanding of challenges facing the industry
1 8 3.60 3 10 7.76 5.68
Understands how industry challenges will affect the business
1 9 3.59 2 10 7.35 5.47
SP possesses expertise required 1 10 3.66 3 10 7.73 5.70
SP possesses transformational skills to help the business
1 10 3.67 4 10 7.66 5.67
Willingness to purchase regularly from SP 1 10 3.29 3 10 7.59 5.44
SP preferred as supplier of choice in future 1 8 3.03 4 10 7.90 5.47
Average for customer motivations to purchase 3.62 7.63 5.62
Source: Question 4.1.2 of questionnaire
Arivia.kom's awareness of the future challenges facing Eskom was the second
highest mean rating attained (3.80), and once again indicated a lack of
understanding of the complexities faced by the utility, and how these
complexities affect it operationally and strategically. Relating to the challenges
facing Eskom are the challenges the electricity industry is encountering and
more generally, the energy industry of which it is a subset. Forces and
developments that occur in the energy industry therefore impact directly on
Eskom's business and its revenues. With regard to demonstrating an
understanding of the energy industry and its implications for Eskom, mean
ratings attained by arivia.kom were 3.60 and 3.59 respectively. Arivia.kom's

118
lack of understanding of the complexities of these future challenges therefore
renders it unable to forecast strategic scenarios that will help Eskom to prepare
itself to meet these challenges from an IT perspective.
Regarding the skills possessed by arivia.kom to service Eskom's business
needs effectively, and to assist the utility with organisational transformation from
an IT perspective, arivia.kom's mean ratings were 3.66 and 3.67 respectively.
The second lowest mean ratings attained by arivia.kom involved Eskom's
preference to make regular purchases from the organisation (3.29), whilst the
lowest mean rating related to whether it was considered a service provider of
choice to Eskom (3.03). The highest rating awarded by individual customers to
arivia.kom was 10 in three areas (possessing business skills, transformational
skills and customer willingness to make regular purchases from arivia.kom).
However, the lowest scores from individuals were evident in all areas, as
illustrated in table 5.5. The implications of these ratings for arivia.kom is that it
is perceived to be unable to assist Eskom with effective organisational
transformation, or assist the utility to transform to meet future challenges that
are likely to affect it. Moreover, these ratings depict arivia.kom as an
organisation from which Eskom is unwilling to make regular voluntary
purchases.
For the preferred "other" service provider, the highest mean rating attained
related to being considered as a service provider of choice (7.90). Mean ratings
for understanding the challenges facing the energy and electricity industry
(7.76), having the necessary skills to service Eskom's business needs (7.73)
and possessing skills to assist with organisational IT transformation (7.66) were
also higher than those of arivia.kom. The lowest score attained had to do with
understanding how industry challenges and developments will affect Eskom
(7.35).
Figure 5.3 illustrates the comparative performance of arivia.kom and the
preferred "other" service provider. The figure shows that arivia.kom is rated

119
below the market average and the mean ratings for its competitor in all eight
categories.
Overall, arivia.kom scored 3.62 whilst its competitor scored 7.63 in this section.
The overall market average was 5.62. The implications of these ratings are that
the preferred "other" service provider is perceived to understand Eskom's
business and its environmental challenges to a greater extent, and is
considered to be better equipped to assist the utility with organisational
transformation from an IT perspective. Arivia.kom's overall rating is not only
lower than that of its competitor, but is also lower than the market average,
indicating a lack of ability to create the appropriate perception in Eskom with
regard to understanding Eskom's business motivations, and how that translates
into strategic IT needs and requirements. Hence Eskom considers arivia.kom
to be lacking an in-depth understanding of its needs and environmental
challenges, whilst arivia.kom's competitors are making and effort to better align
themselves with Eskom, in a manner that renders them preferred suppliers of
choice to the organisation.
Figure 5.3: Customer motivations to purchase

120
The next section deals with unmet customer needs and focuses on whether a
proactive approach is adopted in doing business with Eskom.
5.5.3 Unmet customer needs
Unmet customer needs are dealt with in section 4.1.3 of the questionnaire (see
annexure B), and comprise four criteria on which arivia.kom and "other" service
providers were rated.
The aim of this section was to investigate the customer perception of
arivia.kom's ability to provide creative business solutions and proactively impart
research and development information that could assist with strategic planning.
This section also investigated whether arivia.kom was perceived to be proficient
in thought leadership such that it could be considered a trusted advisor of
choice to Eskom decision during strategic planning initiatives. The ratings for
this section are summarised in table 5.6.
Table 5.6: Unmet customer needs
arivia.kom rating Other SP's rating
Criteria
M in
im u
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M ax
im u
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A ri
vi a.
ko m
m e
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M in
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M ax
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O th
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P m
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M ar
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av er
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Regularly provides creative solutions not yet considered 1 8 2.48 2 10 7.56 5.02
Proactive provision of R&D information for the business
1 7 2.19 4 10 7.49 4.84
Demonstration of thought leadership in the IT field
1 7 2.93 4 10 7.72 5.33
Thought leadership advisor of choice for the business
1 7 2.75 3 10 7.49 5.12
Average for unmet customer needs 2.59 7.57 5.08
Source: Question 4.1.3 of questionnaire

121
The highest rating received in this section was for demonstrating thought
leadership in the IT field (2.93). The second highest rating (2.75) was attained
for being considered thought leadership advisor for the business. The lowest
mean ratings were for the provision of creative solutions not yet considered
(2.48) and for proactively providing research information that Eskom would find
useful (2.19). The highest score received from an individual customer was 8,
whilst a score of 1 was attained in all criteria. Overall, arivia.kom scored a
mean rating of 2.59 for unmet customer needs. All of the mean ratings were
below average, and demonstrated that arivia.kom as an organisation is not
readily associated with proactive solution creation, research and development
or thought leadership.
The preferred "other" service provider scored highest for proficiency of thought
leadership (7.72), with 7.56 for the provision of creative solutions that were not
yet considered. The proactive provision of research and development
information, and Eskom's preference for the organisation to be the preferred
thought leadership advisor of choice scored equal mean ratings of 7.49.
Overall, the preferred "other" service provider scored 7.57 for unmet customer
needs.
Figure 5.4 provides a graphical illustration of the mean ratings of arivia.kom
against the market average and that of the "other" service provider. This
Figure 5.4: Unmet customer needs

122
demonstrates that arivia.kom is not perceived to be a creative provider of
unique solutions to Eskom; nor is it considered proactive in providing research
and development information that will enable Eskom to be at the forefront of
technological developments in the IT field. In contrast, the preferred "other"
service provider exceeded the market average for all criteria, and is clearly
stronger than arivia.kom in each area identified in this section. Arivia.kom is not
considered an effective thought leader in the IT field; nor is it a preferred
thought leadership advisor of choice to Eskom. In contrast, Eskom's rating for
the preferred "other" service provider indicates that arivia.kom's competitors
provide thought leadership support to Eskom in a manner that earns them
preference as thought leadership advisors. In addition, arivia.kom may not be
attuned to the emphasis that Eskom places on proactive business solutions,
research and development and thought leadership, rendering a perception
within the organisation that it is less proficient than external service providers.
These ratings indicate dissatisfaction with arivia.kom's service approach and
abilities. The next section deals with customer dissatisfaction.
5.5.4 Customer dissatisfaction
Customer dissatisfaction comprises section 4.1.4 of the questionnaire (see
annexure B). This section comprises six criteria on which arivia.kom and the
preferred "other" service provider were evaluated. The results of this section
are summarised in table 5.7.
The objective of this section was to establish whether arivia.kom was adhering
to the provisions of the SLA in servicing Eskom's daily IT needs, and whether
complaints and serious problems were being attended to efficiently and
professionally. The survey also sought to uncover whether arivia.kom service
staff were appropriately skilled to provide the service contracted for and whether
proposals for new work required were properly documented and professionally
presented. Lastly, this section sought to establish whether Eskom was
generally satisfied with the level of service provided. The results of this section

123
and how arivia.kom compared with the preferred "other" service provider are
discussed below.
Table 5.7: Customer dissatisfaction
Arivia.kom rating Other SP's rating
Criteria
M in
im u
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M ax
im u
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A ri
vi a.
ko m
m e
a n
M in
im u
m
M ax
im u
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O th
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P m
e a
n
M ar
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av er
ag e
SP resolves most problems within SLA times 1 8 3.23 2 10 7.70 5.47
SP follows up efficiently on complaints 1 7 2.77 4 10 7.71 5.24
SP gives regular feedback on serious problems being resolved
1 8 3.07 3 10 7.80 5.44
SP's staff perceived as well skilled to provide service
1 8 3.56 4 10 8.06 5.81
SP delivers high-quality proposals (timeous & error-free)
1 10 3.00 3 10 8.11 5.56
Satisfaction with level of service from service provider
1 7 2.69 2 10 7.94 5.32
Average for customer dissatisfaction 3.05 7.89 5.47
Source: Question 4.1.4 of Questionnaire
Arivia.kom attained the highest mean rating in this section for being perceived
to have well-skilled staff to enable provision of the services contracted for
(3.56), whilst its competitor was rated at 8.06. The highest score awarded to
arivia.kom by a given individual for this criterion was 8. The perception of
resolving problems within the times specified in the SLA was rated second
highest (3.23), whilst the competitor achieved a corresponding mean rating of
7.70 (the highest individual score given to arivia.kom was 8). On providing
regular feedback on serious service problems, arivia.kom scored 3.07, whilst its
competitor scored 7.80. In following up on complaints efficiently and delivering
high-quality proposals timeously and free of error, arivia.kom scored 2.77 and

124
3.00 respectively. The lowest score achieved by arivia.kom was 2.69 for
Eskom's general impression of service delivered. Overall, arivia.kom's mean
rating for customer dissatisfaction was 3.05 compared with its competitor's 7.89.
This indicates a general level of customer dissatisfaction by Eskom with
arivia.kom's service, whilst the corresponding overall rating for the preferred
"other" service provider indicates a great degree of satisfaction with the quality
of services received.
Figure 5.5 graphically illustrates the comparison between the mean
performance of arivia.kom and its competitors in this section.
In comparison, arivia.kom performed below an acceptable level of performance
for Eskom (mean rating below 5) in all six criteria. It also performed below the
market average and below the mean ratings for all criteria on which its
competitor was evaluated. Arivia.kom's problems can thus be summarised as
follows:
Ÿ problematic systems and processes in solving problems within times
contracted for in the SLA with Eskom
Ÿ inefficient follow-up on complaints lodged by customers
Figure 5.5: Customer dissatisfaction

125
Ÿ communication problems in providing regular feedback on serious problems
being attended to
Ÿ service staff not regarded as being adequately skilled to deliver the services
promised
Ÿ proposals submitted for new work required by Eskom not up to the standard
of those delivered by preferred "other" service providers
Ÿ general satisfaction with overall level of service provided by arivia.kom
below average and below what is being provided by competitors
The implications of these ratings are that Eskom relates more readily to the
performance of the preferred "other" service provider than to arivia.kom.
Arivia.kom thus has significant room for performance improvement in pursuing
customer satisfaction for its Eskom customers. The conclusions drawn and
recommendations made in this regard will be discussed in chapter 6.
Section 5 of the questionnaire deals with arivia.kom's service provision ability,
and the data analysis of this section is discussed below.
5.6 SURVEY RESULTS: SERVICE PROVISION CRITERIA
Section 5 of the questionnaire deals with service provision and comprises five
criteria on which arivia.kom was evaluated. These are summarised in table 5.8.
The aim of this section was to establish arivia.kom's ability in key areas that were
being targeted by its competitors who were also servicing Eskom BUs. The key
areas in which arivia.kom operated, which it had in common with other service
providers, were as follows:
Ÿ IT and information system (IS) consulting capability, involves IT and IS
strategy planning and development.
Ÿ System Integration capability conventionally entails planning, designing and
integrating complex systems into large corporate environments.

126
Ÿ IT systems maintenance and support refers to the commissioning and support
of networks and computer hardware and software to enable the organisation
to work efficiently in a computer-based environment.
Ÿ Application development refers to custom-developed software that is
specifically designed for a particular use in the organisation.
Ÿ Outsourcing is a common trend for many large organisations nationally and
internationally. They outsource their internal IT services departments to
external companies in order to reduce cost expenditure. Arivia.kom now
competes with other organisations such as Didata, Data Centrix and
Comparex for such business, and these organisations, in turn, regularly target
Eskom.
The results of this section are provided in table 5.8.
Table 5.8: Service provision criteria
arivia.kom rating Other SP's rating
Criteria
M in
im u
m
M ax
im u
m
A ri
vi a.
ko m
m e
a n
M in
im u
m
M ax
im u
m
O th
er S
P m
e a
n
M ar
ke t
av er
ag e
IT/IS consulting ability 1 8 3.17 4 10 7.93 5.55
System ntegration ability 1 8 3.67 3 10 7.67 5.67
IT systems maintenance & support 1 8 4.12 4 10 7.62 5.87
Application (software) development 1 8 3.96 3 10 7.67 5.82
Outsourcing 1 7 3.39 4 10 7.79 5.59
Average for service provision criteria 3.66 7.74 5.70
Source: Section 5 of Questionnaire
Arivia.kom was rated highest for IT systems maintenance and support (4.12) and
second highest for application development and support (3.96). These were two
key functions in which former IT staff were most frequently involved prior to the

127
formation of arivia.kom. However, whilst the prominence of these two criteria is
to be expected in relation to the other three criteria, it was rather surprising that
they were below 5, which is regarded as average/acceptable performance. This
could be attributed to Eskom's decreasing preference for custom-developed
software in favour of more commercially available applications. However, IT
maintenance and support are a core business function of arivia.kom, and was
therefore expected to achieve a higher mean rating. By contrast, the preferred
"other" service provider scored respective mean ratings of 7.62 and 7.67,
indicating a higher level of satisfaction amongst Eskom BUs. However, the
ratings for arivia.kom for these two criteria are consistent with the overall level of
satisfaction of Eskom BUs with the performance of services (see sec 5.5.4).
Arivia.kom attained a mean rating of 3.67 for system integration whilst its
competitors attained a comparative rating of 7.67. This could be attributed to
arivia.kom's relative age in relation to competitors who have had more
experience in this particular area of IT business. However, during 2002,
arivia.kom did acquire an experienced systems integration business which
contributed to its progress in this area of IT business consulting, hence the rating
could conceivably have been higher.
With regard to IT and IS consulting ability and outsourcing, arivia.kom obtained
scores of 3.17 and 3.39, whilst the preferred "other" service providers received
7.93 (the highest overall score of either arivia.kom or "other" service provider)
and 7.79 respectively. These areas are also not traditional areas of strength for
arivia.kom, and the mean ratings were therefore expected to be lower than those
of its competitors. However, as with all the other ratings in this section, none are
equal to or in excess of 5, implying a level of dissatisfaction amongst Eskom BUs
with arivia.kom's service delivery ability in these key business areas.
Figure 5.6 provides a graphical illustration and summation of the overall
performance of arivia.kom with respect to the market average and the
performance of its competitor. Besides scoring below 5 (which represents

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average/acceptable performance), arivia.kom also scored below the market
average for each of the criteria. Whilst maintenance and support and application
development have traditionally been areas of strength for the organisation, its
competitors seem to be perceived as superior in those areas.
Arivia.kom's deficiencies in this section can thus be summarised as follows:
Ÿ Poor ability in IT/IS consulting
Ÿ improvement required in system integration ability
Ÿ apparent weakening in traditional strength in IT systems maintenance and
support
Ÿ a weakening in traditional strength in the area of application development,
with the prospect of diminishing demand as global and national trends
indicate a preference for commercially available solutions which are becoming
increasingly cost effective
Ÿ poor ability in the area of outsourcing
Overall, arivia.kom's mean rating for service provision was 3.66 whilst its
competitor received a rating 7.74. In all areas that were evaluated, arivia.kom
Figure 5.6: Service delivery criteria

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consistently performed worse than its competitors. Arivia.kom's poor
performance in areas in which it ought to be strong traditionally indicates a
growing dissatisfaction amongst Eskom customers with services rendered. In
addition, the poor perception of arivia.kom's abilities seems to indicate a lack of
confidence in the abilities of arivia.kom to adequately support business
imperatives in the manner required. The extent to which this is the case will be
examined in the next section, which summarises the overall impressions of
respondents of arivia.kom's service over the past three years.
5.7 SURVEY RESULTS: OVERALL IMPRESSION OF ARIVIA.KOM'S SERVICE
Section 6 comprised the final section of the questionnaire. This section
contained a single question asking respondents to comment on the overall
impression of arivia.kom's service over the past three years.
Table 5.9: Overall impression of arivia.kom's service
Criteria %
Total number of respondents who commented (62 of 75 respondents) 82.7%
Total number of respondents who did not comment (13 of 75 respondents) 17.3%
Total number of respondents 100%
Break-down of respondents who commented (62 respondents)
Poor service quality 41.1%
Customer orientation & poor organisational culture 23.1%
Skills & capacity 14.5%
High costs 4.0%
Total number of respondents who commented 82.7%
Source: Section 6 of questionnaire
Table 5.9 is a summary of the comments made by respondents. Owing to the
different wording used for the comments made by respondents, it was necessary
to group all the responses into general categories and to combine the scores

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obtained into those categories. The comments made in the general categories
are extended to the actual comments summarised from customer responses as
follows:
5.7.1 Comments on the poor quality of services
Ÿ The quality of services deteriorated.
Ÿ The response is slow - there is no sense of urgency.
Ÿ Network issues are not timeously addressed.
Ÿ Staff are not committed to resolving problems.
Ÿ There is a lack of continuity.
Ÿ Performance is inconsistent.
Ÿ Quality of output is poor.
Ÿ A proactive approach is lacking.
Ÿ There is a lack of coordination between departments.
Ÿ The staff lack commitment.
Ÿ The staff are inefficient.
Ÿ The organisation does not secure return on investment.
5.7.2 Comments on customer orientation and poor organisational culture
Ÿ The organisation is not competitive.
Ÿ It is unaware of customer business needs.
Ÿ It is not customer focused.
Ÿ It is not driven by the clients' demands.
Ÿ Customers are captive (possibly implying complacency).
Ÿ A "private sector" approach to business is lacking.
Ÿ There is a lack of leadership (management).

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Ÿ Management is ineffective.
Ÿ There is no coordination between management and operations.
Ÿ Communication is poor.
5.7.3 Comments on lack of skills and capacity
Ÿ Staff have limited skills/expertise.
Ÿ There are skills/attitude problems in the production systems area.
Ÿ Strategic skills are inadequate.
Ÿ Skilled staff are not empowered to provide quality service.
Ÿ There is a lack of effective maintenance and support services.
Ÿ Staff numbers are inadequate.
Ÿ There is a lack of capacity to handle all contracts awarded.
Ÿ There is a high labour turnaround (turnover).
5.7.4 Comments on cost
Ÿ Services are too expensive and application development costs too high.
Figure 5.7 provides a graphical summary of the scores provided in table 5.9. Of
all comments made, none were positive about service improvement on the part of
arivia.kom.
Poor service quality was a noticeable comment by many respondents (41.1%)
who perceived that the quality of service of arivia.kom has deteriorated in the
past three years. Customer orientation and poor organisational culture received
the second highest rating (23.1%) for customers' overall impression. Lack of
skills and capacity were cited by 14.5% of the respondents while 4% highlighted
costs being too high as an overall impression. In general, arivia.kom's cost base
is considered to be relatively low compared with the industry standard. However,
the customers responses may be interpreted as follows: they do not associate
arivia.kom's service with value for money rather than the fact that costs are too

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high. This is substantiated by the perception of poor service quality highlighted
earlier, as well as arivia.kom not being perceived as delivering value for money
(see table 5.4), and the brand not being associated with quality products and
services (see sec 5.5.1 in this chapter).
In general, 82.7% of the respondents gave a negative overall impression of
arivia.kom for the past three years, whilst 17.3% of respondents did not
comment. In addition, Eskom customers made no positive comments when
giving an overall impression of arivia.kom over the past three years. The
comments made in this section and the lack of positive comments from Eskom,
are consistent with the results tabulated for service delivery criteria (sec 5.5) and
service provision criteria (sec 5.6).
The overall implication of the results of this section is that in general terms,
arivia.kom's image in Eskom has deteriorated among the Eskom customer base.
The organisation is also deemed to have a poor business and customer
orientation and consistently renders poor quality service. This is further
substantiated by the absence of positive feedback from customers of arivia.kom's
service since its inception in 2001.
Figure 5.7 Overall impression of arivia.kom service

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A discussion on result validity in this study follows in the next section, and in
particular, the results obtained from Distribution in relation to the other BUs.
5.8 DISCUSSION OF RESULT VALIDITY: DISTRIBUTION BU
The issue of validity was raised at the start of this chapter with reference to the
representation of results from the Distribution BU in Eskom. Distribution
contributes the largest portion of income for arivia.kom (approximately R380 m
annually) from the Eskom account, yet only a 65% response rate (13
respondents out of 20 staff initially identified) was obtained from the BU, which
was the lowest response rate of all the BUs. In order to dispel any concerns
about the representativeness of the study results from the Distribution BU it was
decided to assess its validity thereof in relation to the results from the other BUs.
The objective of this section is to demonstrate that whilst the response rate from
Distribution is the lowest of all the BUs, the results are nevertheless inherently
valid and consistent with those from the other Eskom BUs involved in the study.
A brief discussion on validity follows together with a discussion of Distribution's
results in relation to the study as a whole.
Malhotra (1999:219) mentions the following two goals that a researcher should
pursue when conducting an experiment:
(1) He or she should draw valid conclusions about the effects of independent
variables on the study group. This goal concerns internal validity, which
measures the accuracy of an experiment and essentially measures whether
or not the manipulation of the independent variables actually caused the
effects on the dependent variable(s). Kumar, Aaker and Day (1999:353)
further define internal validity as the ability of the experiment to show
relationships unambiguously. In instances where observed effects are drawn
from extraneous variables it is difficult to draw valid inferences about the
causal relationship between independent and dependent variables.
(2) He or she should make valid generalisations to a larger population of interest.
This goal has to do external validity, and seeks to determine whether the

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cause-and-effect relationships found in the experiment can be generalised
beyond the experimental situation. Threats to external validity arise when the
specific set of experimental conditions does not realistically take into account
the interactions of other relevant variables in real-world situations.
In its broadest context, validity is essentially concerned with error (Tull & Hawkins
1993:316). Furthermore, an attitude measure has validity if it measures what it is
supposed to measure (Aaker, Kumar & Day 1998:295). Tull and Hawkins
(1993:317-318) refer to three types of validity, namely content validity, construct
validity and criterion-related validity. These are discussed briefly below:
(1) Content Validity. This is the most common form of validation applied in
market research. Content validity estimates refer to systematic, but
subjective evaluations of the appropriateness of the measuring instrument for
the task at hand. It is most commonly used in multi-item measures, where the
researcher assesses the sampling adequacy of the included items in the light
of the purpose of the measuring instrument.
(2) Criterion-related Validity. This is based on empirical evidence and involves
inferring an individual's score or standing on a specific criterion, from the
measurement at hand. Criterion validity has two further subsets, namely
concurrent validity and predictive validity. If, during the study, two variables
are measured at the same time, concurrent validity is established.
Furthermore, if the measurement can predict some future event, then
predictive validity can then be established.
(3) Construct Validity. This involves understanding the meaning of the
measurements obtained. It is achieved when a logical argument is advanced
to defend a particular measure (Aaker et al 1998:296). Construct validity is
not commonly attempted in the marketing field largely because of a lack of
well-established measures that can be used in a variety of circumstances.
From the above parameters governing validity, it can be inferred that if a
particular measure in a study or experiment conforms to the criteria relating to

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content validity, criterion-related and construct validity, then greater reliance can
be placed on conclusions and inferences derived from the criteria.
Consequently, the results from the Distribution BU were evaluated using the
same criteria in order to establish the validity of the results obtained and their
representativeness in the study as a whole.
If the parameters of construct validity are applied in the Distribution context,
subjectively, it could be argued that whilst Distribution yielded only a 65%
response rate for the study, it is nevertheless considered adequate. This
deduction is derived after assessing whether or not the results at BU level
deviated significantly from the results achieved for the other BUs. No significant
deviations were evident in the absence of in-depth analysis.
Regarding criterion-related validity, empirical evidence is required to infer an
individual's score or standing on a specific criterion. In attempting to satisfy
concurrent and predictive validity requirements, information was extracted from
Figure 5.8: Mean overall ratings per BU for arivia.kom

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the statistical information available in order to illustrate consistency of information
received from BU to BU.
Figure 5.8 illustrates the overall mean ratings provided at BU level for each of the
customer criteria on which arivia.kom was evaluated. From these mean ratings,
it can be seen that the Distribution BUs ratings do not significantly differ from
those of the other BUs. Whilst the Corporate and Generation BUs tended to be
slightly higher in their overall ratings, they did indicate, by virtue of being below 5
overall, that arivia.kom did not perform well in each of the sections evaluated. In
addition, the Distribution BUs ratings were consistent with those for Transmission
and Eskom Enterprises. Overall, no significant deviations could be detected.
Figure 5.9 refers to the mean ratings provided by each of the BUs for the
customer criteria on which the preferred "other" service provider(s) were rated.
From the graphical illustration of the mean scores, it can be seen that there is
consistency from BU to BU on the ratings achieved, without significant deviation
Figure 5.9: Mean overall ratings per BU for preferred "other" service provider

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on any of the criteria. The Distribution BUs scores are consistent with those of
the other BUs. It is noticeable once again that the Corporate and Generation
BUs have mean scores that differ from slightly from the other BUs, and that
Transmission, Eskom Enterprises and Distribution have similar profiles in their
mean scores. However, overall scores indicate a consistency in assessment of
criteria from BU to BU, indicating no significant deviation that could render the
Distribution BU scores unreliable or misleading.
Regarding construct validity, it was considered appropriate to refer to the
graphical representation of the Distribution scores in relation to the other BUs.
These scores for arivia.kom and for the preferred "other" service provider yield no
significant deviation that could detract from the findings already indicated in this
study. The consistency in results for each BU indicates a sentiment among
Eskom BUs that was evident in the mean ratings for each of the sections
discussed previously in this chapter, further substantiating the issues and
challenges already facing arivia.kom.
The information obtained during the course of this study is therefore considered
valid and representative, implying that a significant degree of reliance can
therefore be placed on the analysis of results and conclusions drawn.
5.9 SUMMARY
From the results discussed in this chapter, it is clear that arivia.kom's
performance is below that of preferred "other" service providers being used by
Eskom. Customer comments also indicate consistency between the ratings that
were awarded and the overall impression of arivia.kom's performance for the
three years after its inception. Poor business culture and customer orientation
and ineffectual management and leadership are problems that Eskom identified
as being part of the symptoms contributing to the level of service rendered by
arivia.kom. The consistency in results achieved across BUs, rendered it
unnecessary to discuss all the results at BU level, and this is further supported by
the fact that Eskom's BUs procure similar services from arivia.kom, and have

138
similar IT requirements from BU to BU. However, given the seemingly low
representation from the Distribution BU, it was deemed necessary to discuss the
issues relating to validity for the sake of completeness and to dispel any doubts
that may have arisen from any perceived lack of representative information.
Chapter 6 deals with the conclusions drawn and recommendations made
regarding problems identified in this chapter.

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Chapter 6: Conclusions and recommendations
6.1 INTRODUCTION
Privatisation is a relatively new practice in previously state-owned entities in
South Africa. Whilst there were instances of privatisation initiatives by the
previous government (eg the formation of Iscor and its subsequent flotation on
the Johannesburg Stock Exchange), it was not widely advocated until the advent
of the newly elected government in 1994. Since then the state has placed
greater emphasis on fiscal discipline resulting in the planning and design of
privatisation initiatives with a view to realising greater efficiency in the utilisation
of state-owned resources and the generation of revenue from the sale of state-
owned assets. The state has adopted this policy to reassure foreign investors
and government s of its intentions to pursue market-driven economic policies that
are investor-friendly.
Arivia.kom commenced operations in April 2001 under the auspices of this new
policy direction adopted by the state, resulting in the IT organisations of Eskom
(IT Services), Transnet (Datavia) and Denel (Ariel Technologies) being merged
into one entity (arivia.kom) to serve the organisations from which they originated.
The rationale behind the merger was to provide more efficient IT capability at
lower cost to the parastatals, whilst curtailing the rapid loss of IT skills from those
parastatals to the private sector. The merger was also effected to ensure that the
standard of service received by Eskom, Transnet and Denel would improve.
The sections in this chapter revisit the primary and secondary objectives of the
study, summarise the findings of the survey and make recommendations on the
basis of the objectives. The chapter concludes with recommendations on areas
of further study that could be useful to arivia.kom.
Three years have elapsed since the inception of arivia.kom. The aim of this
study was to establish whether arivia.kom has met the expectations of one of its
key customers (Eskom) regarding to the initial rationale advocated by the state in

140
forming the IT service provider. Primary and secondary objectives were
formulated for the purposes of this study, and these will be briefly discussed
together with the methodology adopted and the validity issues relating to the
methodology.
The main findings and conclusions of the study will now be discussed.
6.2 SUMMARY OF MAIN FINDINGS AND INTERPRETATIONS
This review of the results and findings of the study commences with a few
comments on the respondents who participated in the survey. Of the 90
respondents originally identified, only 75 participated in the survey (83%
response), with representation from Eskom's five main business units (BUs)
namely Corporate, Generation, Transmission, Distribution and Eskom
Enterprises. Adequate representation was achieved in each BU with the lowest
response rate (65%) from Distribution and the highest from Eskom Enterprises
(100%). Overall, the responses received from each BU correlate with the mean
ratings achieved for Eskom as a whole. Consequently, the results for Eskom are
interpreted at organisational level to promote a strategic understanding of the
problems experienced and facilitate a conceptual approach to the resolution of
such problems. The similarities in structure amongst the BUs, and the type of
service they require from IT service providers also render this approach
appropriate. Moreover, little or no further benefit can be derived for this study by
analysing information at BU level.
Eskom's BUs have employed a number of service providers since the inception
of arivia.kom. However, the survey established that arivia.kom was used by all
the BUs. This was to be expected, given that Eskom is compelled to use
arivia.kom because of the provisions in the EA. Most notably, Eskom also makes
frequent use of other service providers such as Accenture, Bentley West, Deloitte
Consulting, IBM and IST. When the respondents were asked to rate the top
three service providers in terms of quality of service, the following were selected
in order of priority:

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(1) Accenture
(2) Bentley West
(3) Deloitte Consulting
Arivia.kom was not ranked amongst the top three service providers in terms of
service quality. At this stage, it is evident that staff at Eskom do not regard
arivia.kom as a top-quality service provider.
When questioned about the EA entered into between Eskom and arivia.kom,
85% of the respondents felt compelled to use arivia.kom's services because of
the provisions in the EA. This indicates that whilst Eskom executive
management support the EA, decision makers at IT management level feel
compelled to comply with the company policy and directive. The respondents
were asked whether, given freedom of choice, they would use another service
provider instead of arivia.kom 92% of them indicated that they would. The
reasons for using a service provider other than arivia.kom were attributed mainly
to the following:
Ÿ poor service quality
Ÿ lack of customer focus
Ÿ lack of skills and expertise in the organisation to adequately support Eskom's
business needs
These reasons, and the high percentage of customers (92%) seeking an
alternative, are consistent with the initial view of arivia.kom not being regarded as
a high-quality service provider as indicated by customers in the preceding
question. It is also important to note the preference that customers have for
doing business with Accenture and other organisations, despite the existence of
the EA. This indicates that whilst Eskom BUs acknowledge the decision taken by
senior management regarding the EA, regardless of this decision they are also
engaging other service providers where possible.

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The ratings for service delivery and service provision criteria are summarised in
table 6.1. A graphical illustration of these ratings is also provided in figure 6.1.
Table 6.1: Service delivery and service provision criteria
Criteria Arivia.kommean Other SP
mean Market
average
Customer segmentation 3.95 7.65 5.80
Customer motivations to purchase 3.62 7.63 5.62
Unmet customer needs 2.59 7.57 5.08
Customer dissatisfaction 3.05 7.89 5.47
Service provision criteria 3.66 7.74 5.70
It is evident from table 6.1 that arivia.kom has not performed well compared with
the rating for the preferred "other" service provider. In addition, it has not
obtained a rating equal to or greater than 5 to indicate that customers are
reasonably satisfied with the level at which arivia.kom is operating in Eskom. It is
clear therefore that arivia.kom has performed below the market average in all
instances.
From these results, it can be inferred that arivia.kom has placed little emphasis
on segmenting its market in Eskom in an effort to tailor service offerings to meet
its unique customer needs. Furthermore, the seeming lack of ability to address
service quality issues has also affected its standing with customers, resulting in
erosion of its brand equity from the customer's point of view. Overall, the
preferred "other" service provider seems to excel in customer segmentation
ability (arivia.kom obtained a rating of 3.95 compared with 7.65 for its
competitor).

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In assessing customer motivations to purchase, arivia.kom performed poorly
overall. The preferred "other" service provider achieved a mean rating of 7.63 for
customer motivations to purchase, whilst arivia.kom obtained only 3.62. This can
be attributed to arivia.kom's reliance on past knowledge of Eskom's business
model and the challenges facing its business environment, and an assumption
that this model has remained unchanged. As an organisation, Eskom has altered
its structure and focus in the past three years with a consequent shift in business
emphasis, rendering arivia.kom largely out of touch with the organisation's
strategic aspirations. Eskom staff therefore perceive arivia.kom to be lacking in
organisational transformation and operational skills rendering it to be a less than
ideal future supplier of choice. Arivia.kom's ability to strategically understand
Eskom's motivation to purchase goods and services poses a serious threat to the
future sustainability of the organisation in the absence of political support for the
organisation from within Eskom.
In anticipating unmet customer needs, arivia.kom is clearly not considered to be
proactive in the way it does business with Eskom because it obtained a mean
rating of 2.59 compared with 7.57 for the preferred "other" service provider.
Organisations such as Accenture are known to visit Eskom IT managers and
senior IT staff regularly and present information on industry best practices and
methodologies that are relatively unknown to the organisation. These practices
prepare Eskom for future challenges and aid its transformation in a rapidly
evolving IT environment, by providing useful education on future strategic
possibilities. Such exercises are considered part of the culture of many
consulting firms that do business with Eskom, thereby enabling them to be
positioned as preferred thought leadership advisors to the organisation.
Arivia.kom is not viewed in the same light as these organisations; nor is it
considered to exude the culture and business qualities that Eskom expects from
service providers on a regular basis.
In attending to customer dissatisfaction issues, arivia.kom received an overall
mean rating of 3.05 against 7.89 for the preferred "other" service provider.

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Customers feel that most serious operational problems are not followed up on
efficiently; nor does arivia.kom communicate effectively with them in times of
crisis. Operational staff are not considered to be highly skilled, and proposals for
new work are considered to be of a lower quality than those of its competitors.
Frequently, proposals for new work are submitted late to Eskom, and sometimes
contain errors. This requires arivia.kom sales staff to redo the proposals. In
contrast, proposals from organisations such as Accenture are of such a high
standard that they are well received and often commended in Eskom. During the
interviews conducted, staff often verbalised the contrast in the quality of the
proposals received from arivia.kom and other external service providers. Overall,
the level of customer satisfaction with arivia.kom's service is below that of the
preferred "other" service providers, indicating that competitors practise a culture
of customer orientation which is lacking in arivia.kom itself.
Service provision criteria were also evaluated and summarised in table 6.1. The
overall mean rating obtained by arivia.kom was 3.66, whilst its competitor
averaged 7.74. Eskom considers arivia.kom's ability in IT consulting, system
integration, systems maintenance and support, software development and IT
outsourcing to be below par. Regarding software development in particular,
arivia.kom employs a division of programmers to develop customised
applications for use by Eskom. The demand for customised applications has
started to decline because of off-the-shelf software that is commercially available
for customisation by organisations. Such software is also of a higher quality and
can be integrated into an organisation in less time than customised applications,
and most often at a significantly lower cost.
Figure 6.1 graphically depicts arivia.kom's deficiencies in each area of customer
and competitor analysis, the most notable deficiency being in unmet customer
needs. Arivia.kom is often accused of having a "fire-fighting" culture, and the
tendency to react to situations rather than to pre-empt service problems. In
substantiation of this perception, figure 5.7 (see ch 5, sec 5.7) summarises the
overall impression given by respondents of arivia.kom's performance since the

145
start of its operations. In general, the impressions were negative, indicating that
arivia.kom did not have a positive impact on Eskom customers overall. Four
common areas in which arivia.kom has been criticised are as follows:
Ÿ extremely low service quality
Ÿ customer orientation and poor organisational culture (the organisation is
considered to be unfocused on business and customer orientation)
Ÿ skills and capacity (it is considered to be lacking and/or diminishing)
Ÿ high costs (this can be interpreted as customers not receiving desired value
for money spent)
A frequent criticism on the part of Eskom customers is that arivia.kom lacks a
sense of urgency because there is an EA in place which guarantees it revenue
for a fixed period. The predictability afforded by the EA to arivia.kom could quite
conceivably breed complacency in the organisation, resulting in a poor attitude
towards customer service. The extent to which the EA breeds complacency and
is linked to a lack of strategic market planning is an area that merits further study
in relation to the objectives that were originally formulated. In addition, the
Figure 6.1: Summary of service delivery and service provision criteria

146
linkages between complacency and the apparent state in leadership of the
organisation warrant further study. The conclusions in terms of the stated
objectives will be discussed below.
6.3 CONCLUSIONS IN TERMS OF STATED OBJECTIVES
The previous section summarised the main findings of the survey conducted in
Eskom. From the discussion, it is now possible to draw conclusions in terms of
the objectives formulated for the study. However, it is first necessary to revisit
the primary and secondary objectives.
The primary objective of the study was to conduct a customer and competitor
analysis of arivia.kom to establish whether it has segmented its market
appropriately, is focused on customer purchasing motivations, has devised a
proactive approach to doing business and has attended to any factors that may
have contributed to customer dissatisfaction.
The secondary objectives of this study were as follows:
Ÿ to determine why customers are reluctant to provide more business to
arivia.kom, and in some instances, are actively campaigning to replace
arivia.kom as their service provider of choice
Ÿ to establish who its competitors are, and their comparative performance with
arivia.kom which enables them to operate effectively in arivia.kom's customer
base
Ÿ To establish whether arivia.kom is conducting customer segmentation
effectively for the sake of profitability and survival
Ÿ to establish customer perceptions of arivia.kom regarding quality of service
delivery and service provision, and an overall impression of arivia.kom's
performance since its inception
Ÿ to identify areas meriting further study.

147
Based on the information in the preceding (sec 6.2) and the analysis of results in
chapter 5 of the study, the primary and all the secondary objectives formulated
for this study are considered to have been met. A discussion of the conclusions
that can be drawn and the corresponding recommendations, follows below.
6.3.1 Discussion of conclusions
The survey demonstrated that adequate and valid representation was received
from respondents in all of Eskom's BUs (see ch 5, sec 5.8) and that arivia.kom
is not considered to be amongst Eskom's top three service providers in terms of
quality. The following also came to light:
Ÿ The EA compels Eskom IT decision makers to engage arivia.kom's services,
but they would choose differently if allowed freedom in selecting service
providers.
Ÿ Arivia.kom's main competitor in Eskom is undoubtedly Accenture.
Arivia.kom's other competitors, Deloitte Consulting and Bentley West, also
feature prominently.
Ÿ A comparison of arivia.kom's performance to that of preferred "other" service
providers illustrates that it performed poorly in all areas of service delivery
and was rated poorly in terms of service offerings.
Ÿ The respondents were also asked to give their brief overall impressions of
arivia.kom's service for the past three years. All these impressions were
negative, and were consistent with the mean ratings allocated in the
preceding sections of the questionnaire.
Ÿ In establishing whether customers are reluctant to afford arivia.kom more
strategic IT work, rather than contracting it out to competitors, this is in all
probability a reality in the light of the ratings received by arivia.kom.
Ÿ The customer perception of arivia.kom is such that the quality of the
organisation is perceived to be low and in need of much attention.

148
Arivia.kom's brand is clearly not associated with top-quality products and
services in the way that its competitors brands are.
On the strength of the findings as discussed above certain inferences can be
made. These will be discussed below.
6.3.1.1 Inappropriate Organisational Design
Arivia.kom's organisational design is not conducive to conducting business in
a manner aligned with customer objectives. The organisation employs a silo-
based design that separates internal entities into distinct areas according to
function. This has created divisional rifts in the organisation resulting in
miscommunication and duplication of effort as well as inconsistencies in the
efficient use of resources. Hence seemingly routine operations are made
difficult because of poor coordination and the lack of singular focus on
common objectives.
The current structure reflects an internal focus rather than a customer
centricity. Arivia.kom's major areas of business include Energy, Transport,
Defence and the Public Sector (eg servicing the South African Revenue
Services [SARS] and other government departments). However, the current
organisation relies on operations being structured in a manner that utilises
resources generically rather than having them focused on a sector-by-sector
basis. Consequently, sector-based expertise and knowledge building is not
consistently developed because resources are constantly shifted from sector
to sector to attend to crises that arise.
6.3.1.2 Organisational Culture
A lack of operational and strategic coordination is evident from the comments
and ratings of Eskom respondents. As indicated in section 6.3.1.1, there
seems to be a preoccupation with internal issues rather than a business and
customer orientation. Internal processes in the organisation are complex and
cumbersome, and are often subject to change, resulting in a "fire-fighting"

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environment that is constantly in crisis management mode. Arivia.kom's
senior management are often criticised by its own staff as not being visible
enough to the organisation. A perception also exists among Eskom customers
that there is little empowerment at middle and junior management levels in
arivia.kom. There is a distinct lack of decision-making authority at these levels
because company policy on senior management authorisation of
documentation for new and existing projects. An example of this is the
requirement that all proposals for new work should have at least four
signatures of approval from various managers, prior to final submission to the
customer. Any amendments to the document (including minor changes)
require documentation to be resubmitted for signature and authorisation,
resulting in lengthy delays and increasing customer frustration. Decision
making on critical issues is slow and cumbersome, and further reinforces the
Eskom perception of poor quality in service offerings and delivery.
Another notable concern is that the corporate strategy of the arivia.kom was
not formulated clearly at its inception, and was only finalised during 2002,
indicating an unclear strategic orientation and lack of focus on common intent
and objectives of the organisation. The complexity of internal processes and
lack of a conceptually driven view of the organisation further exacerbate the
crisis management culture and contribute to the poor service delivery already
perceived by customers.
The above problems are symptomatic of the lack of a business-driven and
customer-oriented culture in the organisation. The preoccupation with the
internal workings of the organisation and a concentration of decision-making
authority amongst a few managers in the management hierarchy create a
business environment that hinders speed and flexibility. This environment and
culture create and perpetuate an impression amongst customers that their
importance and business needs are secondary to those of arivia.kom.
When arivia.kom was established in 2001, three distinct organisational
cultures were noticeable because most of the employees came from three

150
main organisations, namely Eskom, Transnet and Denel. During the past
three years, little or no effort has been made to create a unique arivia.kom
culture hence certain fragments of the three previous cultures remain
entrenched in certain areas of the organisation, further contributing to the
coordination problems that currently exist.
6.3.1.3 Unclear positioning of the organisation
Customers perceive arivia.kom not to be of the same calibre of organisation as
Accenture or Deloitte Consulting, yet it competes for the same type of work in
the Eskom market. Accenture and Deloitte Consulting have reputations as
top-quality service providers with access to knowledge and expertise of
strategic value to the organisations they target. Arivia.kom's approach in this
regard is unclear and often incoherent to its target customer. It currently,
derives much of its revenue from the maintenance and support of hardware,
software and infrastructure in Eskom and its other key accounts. These
services are offered by many organisations in a competitive market, rendering
them low-margin businesses, whilst consulting and strategically oriented
business offerings generally yield higher profit margins. Whilst arivia.kom
does claim to offer these services, they are not seen to be actively marketed;
nor are organisational resources devoted to building this part of the business.
In effect, the infrastructure maintenance portion of the business still
commands the majority of funding and resources. Hence arivia.kom is
perceived as an infrastructure service provider whilst it competes rather
ineffectively with consulting firms for strategic consulting work which
customers feel it is unable to handle effectively.
6.3.1.4 Poor competitor and customer intelligence capability
Arivia.kom's intelligence capability is clearly not on a par with, for example,
Accenture, or its other key competitors at Eskom. Arivia.kom was rated below
its competitors for its ability to understand customer needs effectively (see sec
5.5.1 in ch 5). Its competitors, however, are seen to be more effective in this
regard, demonstrating a level of proficiency that wins Eskom's approval.

151
Moreover, arivia.kom has demonstrated an inability to keep track of its
competitors and their capabilities, strengths, weaknesses and strategies.
Opportunities to learn from competitor abilities and strengths are not widely
embraced by the organisation for the sake of introspection and the resultant
development of a much-needed competitive outlook.
6.4 RECOMMENDATIONS BASED ON THE CONCLUSIONS
It would seem from the discussion of the main findings that Eskom perceives
arivia.kom to be a substandard service provider. The main reasons for this can
be attributed to inappropriate organisational design, lack of a distinct customer
and business-focused corporate culture and poor competitive intelligence
capability.
The lack of a quality-driven, customer-focused corporate culture invariably results
in a poor perception of the quality of services and products delivered by an
organisation. Customers are likely to feel as though they are not sufficiently
valued or that they are taken for granted, resulting in the organisation being
viewed in a negative light. This inhibits future prospects for business. Poor
intelligence capability, which in this study refers specifically to the customer, and
to a certain extent, competitor intelligence, reflects an organisation, firstly, as an
ill-informed supplier, and secondly, as an indifferent competitor in the
marketplace. Such an organisation is less likely to succeed over time because it
cannot satisfy customer requirements for creative, ground-breaking solutions and
allows competitors, who it does not actively monitor, to erode its market share.
These observations of arivia.kom emerged in this study.
To resolve these problems, certain recommendations are made which will
be discussed below. However, prior to these recommendations being
discussed under their respective subheadings, a main recommendation is
made as a catalyst for organisational renewal, namely to formulate a
strategy for the organisation, to specifically address the problems
highlighted above. The strategy formulation process should be supported

152
at senior management level, and also viewed as an ongoing process aimed
at providing direction for the organisation and its people, whilst seeking
sustained business growth through coordination and teamwork.
A discussion of the recommendations based on the conclusions drawn follows
below.
6.4.1 Recommendations for addressing poor organisational design
Poor organisational design often results in ineffective coordination of workflow
and inconsistent delivery of products and services, as well as duplication of
effort which invariably affects resource availability. The strategy formulation
process must highlight the deficiencies in the current organisational structure
and design. It must seek collaborative input, creative suggestions and
consensus from participants that will address flaws experienced in the current
structure. Management support and a liberal attitude will be of paramount
importance in this process. A redesigned organisation should be flexible and
adaptable to changing circumstances, whilst rendering acceptable quality
products and services through the efficient use of available resources.
In so doing, arivia.kom staff and management will need to seriously consider
adopting a sector-based structure in which resources are focused on the key
areas and/or industries the business serves. The energy, transport and
defence sectors generate most of arivia.kom's revenue, and the organisation
should therefore focus on structuring itself in order to target resources at each
sector in an effort to deepen knowledge and expertise in these industries. In
this way, duplication of effort can be eliminated, and solutions can be readily
focused on the customer without requiring staff to learn about certain aspects of
his or her business before taking action to render the required service.
6.4.2 Recommendations for promoting an organisational culture
Understanding the need for and adopting a corporate culture that is business-
driven and customer-oriented is a vital part of the strategy formulation process.

153
Participation by management and their leadership by example, will be crucial to
the adoption of this culture by the organisation as a whole. Processes and
policies alone are insufficient as reliable drivers of quality and customer
orientation. A culture, whilst intangible to a large extent, permeates the
organisation and filters through to service delivery, ultimately creating and
influencing customers' perceptions. Given that quality can be measured
tangibly, it is imperative to agree on certain measures that are also valued by
customers, requiring liaison and collaboration with them to establish common
values to which arivia.kom and Eskom can jointly relate.
Arivia.kom comprises former employees of Eskom, Transnet and Denel, which
were previously parastatal organisations. The attitude that prevailed in those
organisations at the time of arivia.kom's formation was one of bureaucracy and
poor business orientation, resulting in the same orientation filtering into the new
organisation. The fact that arivia.kom has developed a similar poor attitude
towards business orientation is therefore not surprising, and this issue needs to
be addressed. The strategy formulation process and any renewed effort in
creating a vision and mission will need to encompass the imperative for change
towards a business-oriented approach. Central to such an approach is the
identification of problems such as the lack of a proactive problem-solving
environment and the crisis management mentality that prevails in the
organisation. The business-oriented approach will also need to emphasise re-
engineering the organisation and shedding bureaucratic processes that hamper
value delivery to the customer. Speed and flexibility must be the key focuses of
business orientation, such that Eskom and arivia.kom's other customers derive
value from conducting business with the organisation.
6.4.3 Recommendations for positioning the organisation
Arivia.kom's unclear competitive positioning is a hindrance to the organisation
and its customers. The apparent fixation on infrastructure support services and
the devotion of resources to the infrastructure business (IB) in arivia.kom,
conveys a message that it is predominantly a maintenance and support

154
organisation. However, its aspirations towards being a provider of consulting
services have received poor attention in the past. As part of the strategy
process, arivia.kom will need to devote time, human capital and financial
resources towards establishing centre's of excellence (COEs) that will develop
the capability required for the organisation to compete with competitors such
Accenture, Deloitte Consulting and Bentley West. Figure 6.2 illustrates an
approximate positioning of arivia.kom's closest competitors, in relation to profit
margins and the positioning of their services to Eskom. The dotted arrow
indicates the direction in which arivia.kom should proceed if it is to match its
competitors. By focusing on the development of higher quality and greater
value-added service offerings, arivia.kom will be able to move towards
generating higher margins on those offerings.
This recommendation is closely intertwined with the development of intelligence
capability (see sec 6.4.4 below), as much can be learnt from the approaches,
processes and strategies already adopted by arivia.kom's main competitors.
Arivia.kom's competitors are known to devote much time and effort to
researching their customer's industry and business environment prior and
Figure 6.2: Positioning of arivia.kom
Ÿ Accenture Ÿ Deloitte
Ÿ Bentley West
Profit Margins
Positioning of Quality of Service
Low
High
Low High
Ÿ arivia.kom

155
continually updating their knowledge of changing circumstances, to ensure that
their recommended solutions are based on the latest available information. In
so doing, arivia.kom's competitors are able to generate a perception of a
professional, top-quality service provider and hence able to generate higher
profit margins from their service offerings.
A discussion the development of intelligence capability follows in the next
section.
6.4.4 Recommendations for developing intelligence capability
The development of intelligence capability is a strategic imperative that must fit
into a broader framework of environmental scanning to aid continual revaluation
and revision of arivia.kom's corporate strategy. Understanding the changing
needs of customers and the forces that drive their business is of utmost
importance to arivia.kom. Such information must be shared on a regular basis
and in a manner that involves arivia.kom employees in a team effort that reflects
the culture and business-oriented approach adopted by the organisation.
Competitor intelligence gathering is also vital to the organisation. The IT
industry is characterised by rapid evolution and fierce competition. Hence
competitor strategies and innovations and capabilities must be continually
monitored for the sake of formulating retaliatory actions in order to protect and
grow market share in specific target markets. It is recommended that
intelligence capability be centralised in knowledge databases that are easily
accessible to all employees of the organisation. Regular forums should be held
to disseminate important information about customers and competitors, with
special forums to highlight any significant changes or occurrences that could be
of use to arivia.kom employees as a whole.
6.5 AREAS FOR FUTURE RESEARCH
One of the objectives of this study was to identify areas of further study and to
provide information on problems experienced not already covered in this study.

156
The area of leadership at arivia.kom and its role in assisting the organisation to
change strategically needs to be defined. Whilst arivia.kom's leaders cannot be
criticised or entirely blamed for the problems at hand, they nevertheless do have
a critical role to play in assisting the organisation to transform in order to meet the
challenges that have been identified in this study.
A second area meriting further study is that of the role that the EA has played in
influencing arivia.kom and Eskom to approach each other as they have done in
the past. The EA guarantees arivia.kom revenue streams that have not been
awarded to its competitors, which is understandable in the light of the rationale
behind its formation by the state. However, such guaranteed revenue and
access to Eskom could conceivably breed complacency in the organisation. If
this is the case, then an investigation could be made into the feasibility of an
altered business model that emphasises a performance-oriented approach that
will negate the tendency towards complacency through financial penalties and
rewards for nonperformance and attainment of performance targets respectively.
Another area of further study is that of establishing the extent to which arivia.kom
intends formulating a strategic marketing plan that will result in less reliance on
Eskom, Transnet and Denel for most of its revenues. In effect, Eskom and
Transnet account for approximately 75% of arivia.kom's revenue. These two
organisations, whilst relatively stable financially, are slated for restructuring as
the state moves ahead with privatisation initiatives. Such environmental changes
could therefore significantly impact on arivia.kom's revenue base unless it plans
strategically to reduce such risk exposure.
6.6 CONCLUSION
This study has shed light on a difficult subject in a complex business
environment. A market analysis was conducted of arivia.kom, but was limited to
two components, namely customer analysis and competitor analysis. An in-
depth market analysis could have been conducted involving all variables that

157
would ordinarily comprise a market analysis. However, a market analysis and
competitor analysis were deemed appropriate for the purposes of this study.
Given the relative age of arivia.kom, its performance to date could reasonably
have been expected. However, certain themes have recurred with alarming
consistency, implying that the organisation will require strategic structural
adjustment in order to address the serious concerns raised. The lack of
customer and competitor analysis and a climate nurturing business apathy are
not conducive to productive business operations in the long run.
The conclusions drawn and recommendations made in this study can
conceivably be applied to planning and design for other parastatal organisations
that the state may contemplate privatisating in the future. It is to be accepted that
errors of judgement are a natural part of the planning, design and operation of
previously state-owned organisations, and that mishaps will invariably occur.
However, one of the suggestions made in this study is the need for a proper
focus on customer needs and the adoption of a competitive intelligence capability
in organisational design and strategic planning, to enable such organisations to
avoid the pitfalls that arivia.kom is currently experiencing. Such shortcomings
have the capacity to alienate customers and afford competitors opportunities to
win market share in business environments in which this would ordinarily have
not been possible. It is hoped that this study sufficiently highlights the need for
customer centricity and competitor analysis capability to be built into
organisational strategy and design so that the problems experienced by
arivia.kom can be urgently addressed. In addition, it is hoped that such problems
will not recur in arivia.kom itself, and in any other organisations likely to follow the
same route.

158
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Annexure A: Glossary of Terms
The following terms have been used in the proposal:
Term Meaning and/or description
arivia.kom Organisation to be studied. Is a b2b organisation formed through the
merger of the IT organisations that previously existed within Eskom,
Transnet and Denel. Except at the beginning of a sentence, arivia.kom
shall be written in lower case in accordance with brand stipulation.
B2B Business to Business relationship. This is understood to be one business
entity providing services to another in exchange for a consideration agreed
to between both entities.
Customer base Understood to be the Eskom Customer environment for the purposes of
this study.
Enabling
Agreement (EA)
An agreement entered into between Eskom, Transnet and Denel ensuring
arivia.kom ‘first right of refusal’ on all IT work.
Exclusivity
Contracts
Arivia.kom has been granted exclusivity of business by Eskom for a period
of three (3) years commenced March 2001. Thereafter, Eskom and its
various subsidiaries are at liberty to use other service providers if it so
chooses.
IT information technology
LOB Lines of Business - These are the main business areas that arivia.kom
focuses in.
NEC New Engineering Contract. Used by all Eskom business units to contract
with internal and external suppliers.
Service Level
Agreements
(SLAs)
Used by Eskom customers to transact with arivia.kom - are contracts used
to state all services to be provided, service description, and the pricing per
service offered.
SITA State Information Technology Agency

163
Annexure B: Questionnaire
Please turn over for the questionnaire.Annexure B: Questionnaire
1
arivia.kom
Market Analysis Survey: 2003
For attention: Eskom divisions/business units
Dear respondent,
The marketing strategy of arivia.kom is focused on, amongst others, customer satisfaction. In pursuit of this endeavour, arivia.kom needs frequent feedback from its valued customers. To meet this objective, a short questionnaire was designed to be completed by all Eskom divisions/business units. The questionnaire will take approximately 7 minutes to complete.
Your division/business unit is kindly requested to complete the questionnaire and return it within one week of receipt. By participating, the survey affords Eskom divisions/business units an opportunity to be part of the strategic business planning of arivia.kom. It should be noted that the initiative for the customer satisfaction study originated from a current employee of arivia.kom who is currently enrolled for his M-Com degree at the University of South Africa (Unisa). Your division/business unit is also encouraged to participate in the spirit of human resource development.
Please be assured that all responses will remain strictly confidential. To assist herewith, the Bureau of Market Research (BMR) at the University of South Africa has been appointed to oversee the data planning and analysis process. Your participation in this study will be rewarded by a comprehensive summary of the research findings. The extent to which future marketing strategies will be accompanied by improved service delivery will depend entirely on the feedback we receive from your division/business or unit.
We thank you in anticipation for your cooperation. If you have any enquiries regarding the survey, please contact Professor MC (Michael) Cant at the following numbers:
· Office : (012) 429-4456
· Cell : 082-442-5703
VM Moodley Student Number: 3049-282-3 Manager: arivia.kom 082-808-9812 November 2003

Annexure B: Questionnaire
2
Section 1: Demographic details
1.1 Please supply the following information:
Name of respondent
Current position
Contact phone number for follow-up
1.2 Please indicate at which Eskom division are you currently employed (circle one only).
1 2 3 4 5
Eskom Corporate (Holdings)
Generation Transmission Distribution Eskom Enterprises
PLEASE NOTE: FOR THE SECTIONS TO FOLLOW REFERENCES TO SERVICE PROVIDERS INCLUDE ALL
STAFF (MANAGERS AND EMPLOYEES) WHO PROVIDE YOUR DIVISION/BUSINESS UNIT WITH
INFORMATION TECHNOLOGY AND CONSULTING SERVICES. When referring to your "business unit" (or BU) the
word "organisation" is used.
Section 2. Service Providers
2.1 Which one of the following information technology (IT) and consulting service providers has your division/unit used during the past 3 years? Circle those applicable and/or list any other service providers used during the past three years.
1 Accenture
2 arivia.kom
3 AST
4 Bentley West
5 Comparex
6 DataCentrix
7 Deloitte Consulting
8 IBM
9 IST
10 PriceWaterhouseCoopers (PWC)
11 Other (please specify): _________________________________

Annexure B: Questionnaire
3
2.2 Using the information in 2.1 - Please rate ONLY THREE of the information technology and consulting service providers listed below according to the quality of services provided to your division/unit. (1 = highest quality provider, 2 = second highest quality provider and 3 = third highest quality provider).
Rating
1 Accenture
2 arivia.kom
3 AST
4 Bentley West
5 Comparex
6 DataCentrix
7 Deloitte Consulting
8 IBM
9 IST
10 PriceWaterhouseCoopers (PWC)
11 Other (please specify): _________________________________
Section 3. Enabling Agreement
Yes No
3.1 Does the current Enabling Agreement (EA) compel you to work exclusively with arivia.kom? 1 2
Yes No
3.2 If the EA were not in place, would you consider using any other service provider instead of arivia.kom? 1 2
3.3 If yes to question 3.2, please specify the main reason.
_______________________________________________________________________________________
3.4
From the list in 2.2 (above), please select one service provider that you would use other than arivia.kom:
_________________________________________________

Annexure B: Questionnaire
4
Section 4. Service Delivery Criteria
4.1 In the tables below please rate arivia.kom against any 'other' preferred service provider. For each criterion circle one choice only for arivia.kom AND for the 'other' service provider.
A 10-point scale is provided (1=Very Poor, 5=Average/Acceptable & 10=Excellent).
An example is provided below.
Example:
Criteria Totally Disagree Totally Agree Don’t know
arivia.kom 1 2 3 4 5 6 7 8 9 10Current service offerings from the service provider are in line with the unique needs of your business. Other 1 2 3 4 5 6 7 8 9 10 11
4.1.1 Customer Segmentation
Criteria Totally Disagree Totally Agree Don’t know
arivia.kom 1 2 3 4 5 6 7 8 9 10Current service offerings from the service provider are in line with the unique needs of your business. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider makes a notable effort to tailor its service offerings to meet the changing needs of your business. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The price charged by the service provider is considered fair for the services performed when compared to the IT industry norm (ie. the service provider delivers value for money.)
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10IT services provided to your business are properly defined in a service level agreement (SLA). Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The SLA assists in effectively controlling the quality of service delivery from the service provider. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10Quality of service delivery is perceived to match IT industry standards.
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10You associate the service provider’s brand with quality products and services.
Other 1 2 3 4 5 6 7 8 9 10 11

Annexure B: Questionnaire
5
4.1.2 Customer Motivations to Purchase
Criteria Totally Disagree Totally Agree Don’t know
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider has an in-depth understanding of your current business model. (ie knows how your business currently operates.)
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider makes an effort to learn how your business will change in future. (ie makes an effort to learn about your future challenges.)
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider demonstrates a strategic understanding of the challenges facing your industry. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider demonstrates a strategic understanding of how challenges in the energy industry will affect your business.
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider is perceived as possessing the necessary expertise required by your business. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider is perceived as having the necessary skills and capabilities to support your business as it transforms to meet future challenges.
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10You prefer to make regular purchases of goods and services from the current service provider. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10You would prefer this service provider as a supplier of choice in the future.
Other 1 2 3 4 5 6 7 8 9 10 11
4.1.3 Unmet Customer Needs
Criteria Totally Disagree Totally Agree Don’t know
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider regularly approaches you with creative business solutions that you had not previously considered. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider proactively provides you with research and development information to illustrate relevance to your business.
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider is perceived as demonstrating proficient thought leadership in the IT field. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10You consider the service provider to be the appropriate thought leadership advisor of choice for your organisation. Other 1 2 3 4 5 6 7 8 9 10 11

Annexure B: Questionnaire
6
4.1.4 Customer Dissatisfaction
Criteria Totally Disagree Totally Agree Don’t know
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider resolves most IT service problems within agreed times (as specified in service level agreements - SLAs).
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider follows up efficiently on all complaints.
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider gives regular feedback on the status of serious problems being attended to. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service providers’ staff is perceived as reliable and well-skilled in providing the required service. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10The service provider regularly delivers high quality proposals for new work (ie. error free and timeous delivery). Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10You are satisfied with the level of service provided by the service provider.
Other 1 2 3 4 5 6 7 8 9 10 11
Section 5. Service Provision Criteria
On a 10-point scale, please can you rate arivia.kom against a preferred service provider on the brief criteria stated below .
Criteria Poor Excellent Don’t know
arivia.kom 1 2 3 4 5 6 7 8 9 10Information Technology/Systems (IT & IS) Consulting Ability. The service provider's ability provide professional, high quality consulting services (eg. IT/IS Strategy development, operations assessment, IT design, maintenance planning, etc.).
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10System integration Ability. The service provider's ability to plan, design & integrate systems into your existing environment to meet your business needs.
Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10IT systems maintenance and support. The ability of the service provider to support your IT systems & networks efficiently. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10Application (software) development. The quality of software developed by the service provider for your specific business needs. Other 1 2 3 4 5 6 7 8 9 10 11
arivia.kom 1 2 3 4 5 6 7 8 9 10Outsourcing. The ability of the service provider to take over and manage your IT requirements under Service Level Agreement (SLA) effectively.
Other 1 2 3 4 5 6 7 8 9 10 11

Annexure B: Questionnaire
7
Section 6. Additional Comments
What is your overall impression of the service delivered by arivia.kom over the past 3 years?
Thanking you for participating in this study.