Bay Bridge – Team 7 | Organizational Behavior Course – HULT MBA | March 12, 2016

Executive Summary    

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This paper presents our research and study of the challenges faced by many companies, resulting from globalization and the growing interest in developing countries’ economies. As the main part of our study, we concentrated on corporate corruption, looking at the telecommunication industry in Kenya with a specific case of Safaricom Ltd, the largest mobile provider in the country.   

The team has chosen this topic because corruption is one of the most significant global challenges faced by many companies. Examining Safaricom’s organizational culture and its ecosystem will help us understand how corporations in developing nations could address the threats of fraud and exploitation. In this paper, we study the current and potential impact of integrity issues, and the need for a strong, well developed organizational culture to control and overcome the effects of an internal breach of trust.  

There are limitations in this study due to the complexity of the issue chosen, the timeframe of the course and the available information through campus library and online resources. Even though public companies present a significant amount of information on their annual and sustainability reports, there is still hidden information that is out of our reach.  

Globalization and Telecommunication

As one of the fastest growing industries in developing countries, the telecommunication industry made a significant contribution to the economic growth of Kenya. However, the industry and its players are also facing major challenges including corporate corruption and fraud. Research has pointed out that the key drivers of this concern could range from regulations (or lack of them), the culture of the local society, the company’s culture, and management. Corruption as an organizational problem is becoming more challenging as globalization progresses, especially for developing countries. Large companies are concentrating their strategy towards penetrating these nations due to lower labor cost and high revenue potential.

The telecommunication industry is highly sensitive to corruption due to its structure, services and environment, creating a significant impact on the company’s image, its stakeholders, and the future.

An illustration of this case was published globally in 2014. AT&T, the world’s largest network in the mobility business, as a part of their expansion strategy outsourced their business to different parts of the world. When it was fined for $25 Million by FCC due to a data breach, in which 28,000 CPNI (Customer Propriety Network Information) got stolen, all its customers felt threatened. Later, the investigation revealed that the breach happened in three outsourced nations – Mexico, Colombia, and the Philippines, where AT&T had very little authority. It was difficult for AT&T to

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come up with a strategy for outsourcing, as it knew that it might lose total control of the company’s culture: something that is shaped by regional culture as well. Internally, the issue cost AT&T more than just the $25 Million. It had to improve, add and replace several company’s assets – from process, technology to workforce (TeriRobinson, 2015).

As globalization evolves, what keeps any CEO awake at night is data security. As technology becomes more complex, corruption becomes less visible to the naked eye. Technology is both a protector and a threat. This story is very similar to what happened to Safaricom in Kenya, where 10,000 costumers were involved in fraud (Sustainability Report, 2015). Like AT&T, Safaricom has the biggest market share and also wanted to create a culture separate from the one ingrained in Kenya. The business model may be different as Safaricom isn’t an outsourcing business. But, they both are servicing in the telecom field where one question remains– how to create an anti-fragile company in a fragile environment? 

Telecommunication Industry in Kenya  

Kenya’s Information Communication and Technology (ICT) sector is a main driver of the country’s economic growth, accounting for 8.4% of GDP. ICT experienced rapid expansion in the cellphone market of Kenya, where Safaricom and other players continue to contribute substantial gains to the economy. This allowed the sector to grow by 20% annually and add 1% to GDP annually for the past decade. It is expected to contribute 10% to the country’s GDP by 2017 (KPMG, 2015). The future is undeniably huge for the Industry but, what are the challenges?

Corruption as a global challenge

When addressing such major challenge, a clear definition of corruption needs to be made; however it is easier said than done. While different resources define corruption as actions or transactions, either with a financial aspect or not, that support a promise or acceptance of benefits and motivate unethical actions; the perception of what actions are considered corrupt or unethical vary, depending on many factors including exposure, education, locally accepted behaviors, culture and the environment (Mckinsey, 2015).

In many cases, it is not clear whether an action or transaction can be seen as having a corrupted nature, especially when behavioral codes differ between borders. Often, what may seem unethical or corrupt in one country can be seen as a gesture or a gift, in others. While organizations have to face the different perceptions of ethics and corruption among their employees, it is important to clearly communicate the corporate perception of ethics at all levels of the organizations. This can be obtained by creating transparency, documenting the process and ensuring that everybody within the company speaks the same language (Mckinsey, 2015).

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One of the biggest corruption risks, many companies are facing is employee’ fraud. Having their own employees making unethical actions can damage the company in many ways. This type of corruption is difficult to combat without an internal competence and a suitable and robust organizational culture (Ravi Venkatesan, 2015).

Corruption in Kenya

In 2013, Kenya was ranked as number four among countries that experienced the highest amount of bribery and fraud worldwide. 70% of interviewers in Kenya reported that they had given bribes in previous 12 months. Compared to the world’s average of 27% of interviewers, indicates that the integrity, corruption, and bribery are still standing as major challenges to Kenya’s growth and development (TI survey, 2013).

In December 2015, the president of Kenya declared corruption as a national threat. The acknowledgment of the Kenyan government in the changes need to be made in order to align with the new opportunities and global connections, is significant for companies like Safaricom. Having to compromise and adjust to the local culture and behavior pattern, impacted the internal culture of organizations in Kenya as well as their performance and global connections. 

Safaricom Ltd.

Background

Safaricom Ltd is a leading network operator in Kenya that was initially founded as a fully owned subsidiary of Telkom Kenya (the Posts and Telecommunication Corporation of Kenya). The organization was established in 1997 as a private limited liability company and became public in the year 2002. In May 2000, Vodafone Group from the UK acquired 40% of Safaricom’s shares and management responsibilities. In 2008, the Kenyan government, which held 60% shares in the company, disbursed 25% of its shares and made available to public; turning Vodafone UK to be the main shareholder in Safaricom Ltd (Safaricom Ltd Web Site, 2015).

Safaricom envisions to “Transform lives of the people”, delivering efficient services, with simplicity and grow trust of the people (Safaricom Ltd Web Site, 2015). In order to achieve their vision, Safaricom provides a range of products and telephone services, broadband, Internet and financial services. Safaricom Ltd. Provides services to over 25 million subscribers and currently commands a market share of 67%, according to the Communications Authority of Kenya (CA) June 2015 Sector Statistics reports. The Company's integrated telecommunication services include mobile and fixed voice, short messaging service (SMS), data, internet and its money transfer service, M-PESA. After experiencing the success it achieved with the M-PESA

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service in Kenya, Safaricom has now extended its services to the global markets. The MPESA service has now emerged as a most favored personal cash transfer medium, making it a globally known money transfer service operating in Afghanistan, India, South Africa and Eastern Europe (Karuri, 2012). Looking at the global opportunities, Safaricom has started to implement many changes within the organization; the number of employees was almost doubled in the past few years (4,129 employees in 2015 compared to 2,400 in 2013), new policies and procedures along with a change of management.

Statement of the Problem

Safaricom Limited has faced many cases of corruption involving its employees, management, and business partners. The most recent case was in 2015 when the company fired 58 of its employees due to fraudulent activities (George Ngigi -Business Daily, 2015). While Safaricom shows great commitment to implementing a well-developed integrity system, many related issues are still emerging due to the company’s growth, driving opportunities as well as risks. Safaricom has relations with many business partners, including local and national governments, suppliers, dealers, and agents. These significant relationships lead to an increased risk of unethical behaviors by employees or partners. Due to the government privatization process, Safaricom was no longer a state corporation and thus has the obligation to act according to the Ethics and Anti-corruption Commission Act (Mckinsey&Company, 2015).

While Safaricom performance seems promising with a high growth rate and an increasing number of subscribers and services, it’s still clear that the lack of integrity and corruption cases created an impact on the company’s image, loss of trust from customers, partners and employees, and a loss of market share to its competitors (Appendix, Exhibit 1). The KPMG True Value report for 2015 determined that the external and internal corruption elements in Safaricom are damaging the economic value of the company, estimating a loss of 30 Billion KES (KPMG, 2015). Safaricom acknowledges that further steps need to be taken to face the ongoing unethical behavior by its employees and change the culture both internally and externally.

Actions Taken

To fight against corruption, Safaricom has implemented the AB&C program (The Anti-bribery and Corruption program) which adheres to both local and international requirements. As part of this program, Safaricom invested in developing a strong governance in order to implement integrity standards. One of the key elements under this goal is the ethics committee, which is led by the CEO and involves many senior managers, including the Director Risk Management, CFO, and other senior Management with the Ethics and Compliance Head of Department as the Secretary

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(Safaricom Ltd, 2015). In addition to the program, Safaricom CEO Bob Collymore stated that Safaricom’s business reports (showing both assets and liabilities) are shown publicly to ensure transparency in this matter. Shown in the company’s sustainability report, Safaricom re-echoes its pledge to advocate a culture that promotes personal and corporate integrity, committing oneself to a high form of ethical standards (KPMG, 2015).

Future Steps

The company has been well-recognized for the implementation of the anti-corruption framework (KPMG, 2015) but what they overlooked was how these action plans affect their bottom line, their employees and other elements of the business. As an example, in the recent people survey, (Appendix Exhibit 2) Safaricom’s employee net promoter and engagement metrics show a diminishing trend.

In addressing these issues, our team decided to use Mckinsey 7S Model to identify Safaricom’s next steps. The 7S model serves as a tool for analyzing the company’s organizational design with the attention on 7 key internal elements: strategy, structure, systems, shared values, style, staff and skills, and helps to identify how to effectively align these elements and allow the organization to achieve its goals. One key aspect of this model is the interconnection between all 7 elements and how a change in one area requires a change in the rest for the firm to function effectively (Exhibit 5).

The model divides these elements into hard and soft areas and emphasize that strategy, structure and systems are hard elements which are easier to identify and manage, and the soft areas which are counted as the foundation of the organization, and are harder to manage.

For Safaricom’s future steps we chose to focus on two main soft elements of the model: Staff and Shared Values. Staff refers to the people, their backgrounds and competencies aided by recruiting process, selection, trainings, career development, etc. Whereas Shared Values refer to the fundamental set of values shared throughout the organization and serve as guiding principles of what is important. Under this model, organizations are successful when they achieve an integrated harmony among all the elements (Mckinsey 7S's Model).

Using this model, our team analyzed the current situation in Safaricom and its goals for the company’s integrity system development as well as its global expansion plans. It is clear that there are inconsistencies between the company’s current situation and its aspirations. While some elements of the 7S model are well developed, we acknowledge the interconnection of these elements and the need to make adjustments and tuning of its shared values and staff to ensure that it works effectively to reach its desired goals.

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Recruitment Process

The most pivotal role of a human resource team is to hire the right person, for the right role at the right time. An effective recruitment process is crucial because it plays a huge part in ensuring that a company is sustainable in the long run.

Studying the hiring process of Safaricom, it isn’t clear which assessment it uses to ensure that applicants’ core values are aligned with that of the company’s. It focuses only on hard skills, and from the data gathered, it is easy to draw an assumption that character/behavior filtering during the hiring process is not implemented at all. According to Towers Perrin Report, two of the attraction drivers in recruiting the right people are Reputation of the Organization as a good employer and the Caliber of coworkers hired. Ruling out ethics as a pre-qualifier in the recruitment process may potentially diminish the chance in getting the right people. Safaricom is continuously facing corruption issues, coupled with demotivated employees, because it failed to thoroughly identify the right candidates and missed setting integrity expectations from the beginning. This decreases employees’ morale due to misalignment it sets from the start which resulted in a poor employee satisfaction and engagement trend.

Human Capital brings a unique source of competitive advantage to any organization and choosing the right workforce will help the company from the desired culture. As a further step, our team highly recommends Safaricom to use behavioral assessment during the interview process. It not only adds reliability to the quality of their new hires, but also sets a proper expectation for the candidates on the level of strictness the company gives to its moral codes. As a reference point, please see the detailed and successful AT&T Mobility Hiring Process (Exhibit 3) in the Philippines in which they put a huge value in filtering behaviors first before skills.

Discipline Management Process

Safaricom’s Risk Management 2015 report details different statistics that show the effectiveness of their action plans against fraud. Their anti-corruption corrective measures include a number of fraud cases investigated, disciplinary warnings, dismissals and cases reported to local law enforcement agencies. Looking closely at the progress, it is clear that their overall number of disciplinary warnings since 2014 had decreased tremendously in 2015. To an untrained set of eyes, this achievement may call for a celebration, but does the trend truthfully show how serious the company is in addressing their corruption issues? Note that though there was a decrease, the very presence of disciplinary warnings only shows that Fraud/Corruption is not part of their zero tolerance policy which should have been clearly defined in the company’s Code of Conduct. This is a huge red flag that the management disregarded and highly contradicts Safaricom’s public claim on the level of severity they place on the issue; this causes a huge misalignment within the

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organization. Understanding the principle of employees’ behaviors formation – cognitive, affective and behavioral, it is easy to predict that when they see a misalignment, they start showing their resentment in their daily routine.

 The right discipline management process would have been, when one proven guilty after careful administrative investigation, any acts related to fraud or willful breach committed by the employee, regardless of his job grade, must be punishable with automatic dismissal. Allowing a range of Disciplinary Warnings to Dismissal as a penalty clause sends a wrong message to the employees, stating that first offense is always acceptable which misleads them from the true core values of the company and doesn’t drive the right behavior in any organization. It increases an opportunity for them to commit fraudulent activities which is against the cause of what Safaricom has been fighting for and confuses them further on where they stand in this battle.

Conclusion

Globalization is one key source that drives changes in an organization’s culture, structure, design and strategies. Corruption and fraudulent activities are one of the greatest threats faced by organizations operating in emerging economies. When addressing these new challenges, it is important for organizations to have an end to end solution, and drive its values and policies in its people, internally and externally. Every employee of the company starting at the hiring point and throughout their time at the organization, must be well aware and continually exposed to the values and changes in the organization. The Leadership of the organization must communicate its values and perception of ethics in every action it takes. As Safaricom is starting to establish a global importance, the organization presents a strong commitment towards a robust integrity system. The company’s non-tolerance policy for corruption needs to be aligned with its actions and communicated properly at all levels of the organization. This would in turn lead to a better connection within the 7 elements of the Mckinsey Model. A strong recruitment and Discipline Management process along with continual efforts implementing Safaricom’s anti-Bribery and Corruption policies, would help Safaricom achieve its goals, developing an ethical ecosystem along with becoming a relevant global player in the telecommunication industry.

References

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(2015). Retrieved from Safaricom Ltd Web Site: http://www.safaricom.co.ke/

George Ngigi - Business Daily. (2015). Corporate News. Business Daily.

KPMG. (2015). True Value Report.

Mckinsey. (2015). AB&C.

Mckinsey 7S's Model. (n.d.). 7S's Model.

Mckinsey&Company. (2015). AB&C Program.

Safaricom Ltd. (2015). Sustainability Report.

(2015). Sustainability Report. Safaricom.

Teri Robinson. (2015). Associate Editor. SC Magazine for IT Security Professionals.

Appendix

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Exhibit 1

Exhibit 2

Exhibit 3

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Exhibit 4

Exhibit 5

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