Learning Networks in Action

Some Case Examples

The Saligna Value Chain
(a full discussion of this case appears in Bessant, John; Kaplinsky; Raphael and Morris, Mike
(2003). Developing capability through learning networks. International Journal of
Technology Management and Sustainable Development, 2(1), pp. 19-38)

In the forest industry, South Africa is uniquely placed to take advantage of a key
development in markets, which are sensitive to environmental concerns such as the
destructive of rain forest. Saligna, a species of Eucalyptus hardwood is commercially grown
semi-hardwood kin South Africa. This distinguishes it from other hardwood species grown
in indigenous forests in the developing world. Saligna is not a traditional hardwood, but its
ability to take colouring well means that it can be treated to look like virtually any wood,
including all he species of threatened hardwoods.

Traditionally Saligna was grown for use in the local mining industry; but the changeover to
concrete mining supports led to a sharp decline in domestic demand (Finance Week, 9 July
1999). In the context of growing environmental concerns in final markets, therefore, the
existence of the previously low-priority Saligna hardwood plantations, with under-utilised
capacity, offers unexpected potential for exporting furniture to Europe and North America.
It also provides furniture producers the opportunity to move into new market niches with
higher unit prices.

Exploiting this opportunity requires a reorientation from the traditional trajectory of the
wooden furniture value chain, which has been focused on the export of pine furniture into
increasingly price competitive markets. For example exporters of pine bunk beds have been
subject to sustained falls in final product prices, thus implying a significant learning and
upgrading challenge to such firms. The dimensions of learning are highlighted in the below.1

The Upgrading Challenge

Type of Upgrading Specific Challenges

Improving process efficiency  Furniture firms learn to work with
Saligna
 Improvement in overall
manufacturing efficiency
 Learning to use young tress
 Better co-ordination of deliveries
 Different product specifications for
raw timber
 Improved and consistent input
quality
 Human resource development

1
The categories of learning highlighted in Table 4 are drawn from recent theorisation of upgrading processes
in the context of value chain theory – see Kaplinsky and Morris (2011).

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Introducing new products or improving  Designs suitable for Saligna wood#
existing products  Design for manufacture
 Learning to utilise new and
environmentally friendly lacquers
and paints
Functional upgrading  Increasing domestic design content,
within individual links or in
collaboration between links and with
the national system of innovation
Moving to a new value chain  Moving from pine to Saligna
furniture, from furniture to doors and
from doors to industrial products and
toys

Although the stimulus for change had been present for some time and the opportunities were
recognised, pulling the players together into a learning framework took considerable time
and external facilitation. To some extent its formation was also triggered by a growing sense
of crisis within the industry. The prices offered for pine furniture by global buyers were
plummeting and few South African producers could meet these demands without the risk of
loss and business insolvency. Products based on Saligna offered producers and exporters
the potential to escape the downside of competitive pressure in the global market, since
Saligna is a low-cost and environmentally acceptable alternative to increasingly scare and
highly priced traditional hardwoods such as teak and mahogany.

On the other side of the coin, Saligna timber suppliers were beginning to see a shift in
market demand. The maturation of Saligna plantations was complimented by a decline in
demand for mining pit props because of a decline in mining activity and the development of
alternative materials. This created an unexpected surplus of Saligna timber, so that both
timber growers and millers dealing with hardwoods had to find a market to realise the
benefits due to their plantation investments.

Thus, the value chain restructuring initiative arose from a combination of bother extra-
national and intra-national pressures. But within this, although the stimulus to change
emanated from both ends of the chain, it was the changing perspective of the sawmills that
had the greatest impact. Previously, the sawmills held the rest of the value chain to ransom,
for they controlled the quantity and quality timber supplied to the manufacturers. In the
pine value chain, they had even blocked attempts to promote value chain efficiency. Now it
was their desire and need for change which allowed the Saligna restructuring initiative to
proceed. This provided the foundation for the development of a strong sense of the
interdependence of players along the value chain.

The willingness to be seen as ‘part of a whole’, which was induced by emerging over-supply
in both product and input markets, was a critical first step in improving the possibilities for
co-operation along the value chain. However, translating an awareness of interdependence
into actual co-operation that holds mutual benefits for value chain stakeholders and
overcomes longstanding barriers of trust is a complex process.

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The Initiative
The first Saligna network workshop, organised in early 1999 by a university-based research
project called the Industrial Research Project (IRP)2, was well attended by twenty-six
delegates representing government departments, manufacturers, timber traders, industry
specialists (both academic and consultants) and timber growers and mills. It brought
together stakeholders from all levels of the Saligna value chain with a view to promoting
cooperative problem resolution. From the outset, the interest group was driven by a value
chain approach. The facilitators stressed the necessity of a value chain perspective to
international competitiveness, the interdependence of the various stages of the Saligna value
chain in order to achieve vertical and horizontal collective efficiency, and the necessity for
the chain to deepen its learning, within and between firms.

In its workings the group was driven by a very practical approach – the need to resolve the
two key issues of supply and final marketing limiting the export potential of Saligna timber
products. In line with this attempt to rapidly move beyond simply talking about co-
operation, the group immediately focused upon practical problems and mutually beneficial
solutions. Three key linkages within the value chain posing particular problems for vertical
efficiency were identified and small groups with participants from each side of the
problematic link were created to identify key issues. This ensured that participants had a
real opportunity to air their grievances and hear those of others. The involvement of a
number of competing firms at each level of the value chain created a situation where failure
to co-operate held the risk of missing out on benefits enjoyed by competitors. Finally,
stakeholders were encouraged to participate in the small group discussion that related most
closely to their own priorities. However, the information and benefits were made accessible
to all participants in plenary session.

This proved to be highly successful and the workshop gave birth to the Saligna Value Chain
(SVC) Group, a co-operative national network, of ‘stakeholders’ spread throughout the value
chain, co-ordinated by the Industrial Restructuring Project (IRP). All co-ordination and
meeting costs were born by the IRP, the members being responsible only for costs associated
with attending meetings. The SVC group comprised:
 timber growers, primarily the large companies that also owned the sawmills, but also
a few owners of some small plantations;
 the two large corporate sawmills and an independent small sawmill;
 timber product manufacturers spread along the spectrum of products – the number
varied with each meeting, but at least eight formed the hardcore of the group;
 key government department concerned with plantations, water supply and
manufacturing support;
 a member of the export council;
 two institutions claiming a specialised assistance role to the industry (a consultant
with a loose attachment to one of the firms, and a semi government research
organisation); they interacted with the group on a more intermittent basis and
without a defined role.

2
The IRP is a joint project involving the School of Development Studies at the University of Natal (South Africa)
and the Institute of Development Studies at the University of Sussex (UK). The points made in this text as only
marginally affected by the financial base of the intermediaries. There is little reason why a similar outcome
would not have emerged gad the initiative been facilitated by an independent firm, or a parastatal. The key
issue is not the financial base, but the process methodology adopted by the facilitators, in this case the
utilisation of action‐research methods.

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  members of the IRP, including action-researchers who had had successful experience
with value chain learning in the auto-components sector.3

The SVC Group set up technical working groups to examine problems that were considered
to be critical to the value chain’s performance. Each technical working group was co-
ordinated by a person from a firm in the value chain. This arrangement spread the
responsibility of internal change agents beyond the original initiators. The working groups
were charged with the responsibility of tackling selected discrete issues through research and
experimentation. Their brief was to report on how to deliver tangible benefits in their
specific sphere to the value chain. The external intermediaries took no responsibility for the
practical work of the working groups except to act, if called upon, as the communication
nodal point between a working group and the broader SVC group.

The initial three technical working groups spun off into a number of different groups. These
tried to solve problems and report the results back to the main value chain group. The
activities of these technical working groups essentially revolved around two big issues that
bought together the participants in the SVC group in search of solutions. The issues
addressed were the following:
 how to maximise the quantity and quality of the Saligna timber supply;
 how to maximise current marketing and upgrade final products through focus on
design and branding.

Some manufacturers saw that the issue of design and marketing as the key to key to
upgrading through the introduction of new products or the improvement of old products or
through changing the mix of activities. However, issues of quantity and quality of supply
tended to dominate the activities of the technical working groups as well as the plenary
discussions of the entire group. This was not surprising since, in order of priority, the supply
issue:
 was a major concern of the timber mills who exercised the real power in the SVC
group, and whose participants dominated the membership of the technical working
groups;
 was perceived as the pre-eminent problem for timber product manufacturers;
 allowed manufacturers to avoid confronting the more difficult issues of increasing the
efficiency of their internal production processes;
 required problems to be resolved before questions of design, branding and marketing
strategies can be tackled.

The combination of external intermediaries and internal change agents from within the
value chain (manufacturers) was critical in arranging the first Saligna workshop. As much
as an external agent was required to overcome trust barriers, the support of key internal
agents lent credibility to the process, encouraging stakeholders to see the proposed
workshop as offering a viable possibility of delivering real benefits. Industry supporters of
the idea of co-operation played a critical role in publicising the event, and invitations to the
workshop from the intermediaries were noticeably more effective when industry supporters
had already broached the subject of a Saligna network with the invitee. Various other
external attempts to get manufacturers in the South Africa timber products sector to work
co-operatively have struggled to get off the ground, or have failed entirely. This can be
attributed largely to the fact that that these were policy driven top-down programmes

3
See www.kznbenchmarking.co.za; Barnes and Morris (1999); Morris (2002).

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“imposed” on the industry. The South African experience has shown that even the offer of
financial incentives is not enough to widely encourage firms to co-operate. This, in low-trust
environments it is extremely difficult to encourage co-operation through the medium of
policy support mechanisms unless there are already key players prepared to champion the
cause of co-operation and network building.

Equally important in creating a favourable internal environment for this particular network
was the object of gaining initial support from key players at all levels of the value chain – in
this case, specifically the buy-in of key sawmills as well as manufacturers, a restructuring
network requires a ‘critical mass’ of relevant stakeholders before it is likely to be successful.
Relevance and criticality may be variously defined by the firm’s position in the value chain,
size of the firm or simple interest in finding solutions to a particular problem. However,
unless enough of the key stakeholders are involved to actually affect change, the network is
unlikely to get beyond the theoretical stage.

The historical lack of trust pervading the sector combining with the general discrete
individualism of economic existence, created a particular challenge for the external
intermediaries (the IRP research team). These external intermediaries played a catalytic
function in building the trust necessary for co-operation by mobilising, co-ordinating and
sustaining the dynamism of existing value chain. Of major importance was the fact that the
local and international members of the research project:
 bought international expertise, status and esteem (particularly important in the
developing country context);
 had established some level of credibility within the furniture sector and a number of
other key local manufacturing sectors;
 were able to use their credibility to leverage top-level government buy-in from the
two key government departments (Trade and Industry, and Water and Forestry)
which in turn strengthened the image of the process within the Saligna value chain;
 were clearly neutral – this was critical for successfully involved the whole of the
Saligna chain in the face of lack of trust and general suspicion about motives that
remained an issue within the sector.

Through the involvement of neutral intermediaries with concrete and real expertise, as
opposed to simply facilitative skills, the Saligna value chain group was able to avoid the
danger of becoming (or appearing to become) an initiative designed to favour a particular
stakeholder or group of stakeholders in the value chain. This was a real threat, given that the
Saligna manufacturing sector was at this stage dominated by small firms unable to take on
the logistical burden of organising such a group. At the same time, given prevailing negative
sentiments towards the sawmills, which were traditionally seen as wielding undue and
unreasonable control over the industry, a group organised by the mills would have been
primarily involved in supplying Saligna sub-sector are positioned as rivals, and an interest
group facilitated by one would be unlikely to attract the support of the other.

However, although internal change agents have a crucial role to play in championing and
maintaining the cause of value chain co-operation, the specific actors playing this role shift
and change. The initial thrust for setting up the SVC group came from the furniture
manufacturers, and although power was most concentrated amongst the millers, they tended
to play a more supportive role. However, as the group solidified, the sawmills began to plat
an increasingly important role in co-ordinating many of the working groups. This has been
accelerated with the timber supply problem less acute. As the wood shortage eased, so the

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vociferousness of the manufacturers, and their roles as enthusiastic leaders, started to
diminish. The leadership roles then radically shifted and it was the millers who became most
concerned that the SVC group did not lose its momentum and collapse, this emerging as the
new internal change agents in the latter stages of the SVC group’s existence.

Did the SVC Achieve Any Lasting Upgrade Momentum?

The activities of the SVC group yielded the greatest efficiency gains in terms of:
 internal firm process upgrading, primarily of a technical nature;
 markedly ratcheting up inter-firm process and supply chain efficiency between the
mills and manufacturers;
 facilitating important product developments – both within and between chain links –
through the young tree and wood density experiments;
 some, although on the whole unrealised, gain in changing the mix of activities within
firms and up the value chain through emphasising design, finishing and marketing.

Upgrading the internal operating processes of firms in the value chain was unfortunately not
an explicit focus of the activities of the SVC group. However, work on the numerous supply
issues between the mills and the manufacturers in the value chain, which challenged the
technical parameters of what could be produced at the manufacturing firms, did in fact have
an upgrading impact on the internal production processes of the manufacturers.

2. Automotive Component Benchmarking Clubs in South

Africa
(a fuller description of these cases can be found in Morris, M., Bessant, J., Barnes, J., Using
learning networks to enable industrial development: case studies from South Africa,
International Journal of Operations and Production Management, 2006, Vol. 26, Pages
532-557, ISSN 0144-3577)

In the mid 1990s the South African environment underwent a significant shift from import
substituting industrialization to trade liberalisation, a major drop in tariff protection and
rapid integration into the world economy. Research carried out the University of Natal
suggested that when comparing SA firms with their international competitors’ local
performance was very weak; this data served as a catalyst for change in behaviour amongst a
group of component manufacturers. Using government support (65%) and their own
investment a learning network was establishing January 1998 and named the ‘KwaZulu
Natal Benchmarking Club’ (KZNBC).

The initial KZNBC membership comprised 11 component makers and one large assembler
and was supported and facilitated by staff from the University. It was designed as a learning
network to facilitate rapid development world class manufacturing capability and central to
this was the use of a benchmarking model key competitiveness drivers. Organisation of the
Club was based on 2 industry representatives and the facilitators/service providers acting as
an executive on behalf of the rest. Initially the services available to the members were:
 Confidential diagnostic report which measured operational performance of each firm
against the drivers in the benchmarking model. The report also contained the results
of a survey of the ten major customers’ perceptions of the firm in terms of the same
performance drivers and similar data from their major ten suppliers. In other words
it offered confidential but evidence-based feedback on performance and the emerging
learning agenda.

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  Confidential annual report benchmarking each firm against a ‘like for like’
international competitor.
 Monthly newsletter outlining aggregate benchmark data for the whole network.
 Quarterly workshops discussing generic findings, common problems and emerging
solutions to deal with the competitiveness issues raised.
 Encouragement of experience and information sharing – for example through inter-
plant visits, etc.

Although the intention was to make this an effective experience-sharing learning network it
proved difficult at the outset to overcome the long history within the sector of lack of trust
and an unwillingness to share information – a legacy of the apartheid era. Additionally there
was a strong tendency to pass the blame for the emerging problems to others – government,
suppliers, customers, etc. this was gradually overcome through a process of facilitated
activities which give a sense of a larger purpose to the activities of the network and led to the
firm members taking ownership of the network.

Key indicators of the effectiveness or otherwise of the network in supporting learning and
development of knowledge were:
 Evidence of increasing knowledge sharing
 Evidence of significant knowledge transfer
 Evidence of major improvement in their operational performance
 The spread of the Clubs as new members were attracted.

Considerable qualitative data exists to support the contention that knowledge sharing and
transfer took place, and there is clear evidence of growth in the popularity of the Clubs and
the persistence of membership (suggesting that firms perceived the activities as beneficial).
But the significant indicator is that of actual improvements in operational performance
which member firms attributed to their participation in the network. The use of a
benchmarking methodology was a core feature of the clubs and a detailed measurement
framework was developed and used (for details of this see Barnes and Morris, 1999). Using
this together with internationally comparative data it is possible to see the nature and rate of
performance improvement against component suppliers; Table 1 presents this data in
summary form.

Table 1: Learning and Operational Performance Change of Firms in Clusters4.

Critical Key Performance South African Firms Comparator
Success Indicators Firms
Factors 1998/ 2001 Improvement Western Emerging
1999 1998/99-01 Europe Economies
Cost Total inventory 62.6 42.0 32.8% 31.2 38.6
Control (days)
Quality Customer return 3270 1240 62.0% 549 624
rate (ppm)
Internal reject rate 4.9 3.9 20.7% 1.9 3.5
(%)
Supplier return rate 21989 1851 16.0% 8319 13213
(ppm) 8

4
Time series data only exists for 32 South African based component firms (3‐4 year period). Performance in
2001 is matched by a sample of 26 international firms, for which we do not have time‐series data.

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Flexibility Lead time (days) 19.9 17.9 9.9% 16.8 12.0
Supplier on time (%) 78.7 82.2 4.5% 92.2 92.3
On time to 92.2 92.7 0.6% 96.1 93.5
customers (%)
Capacity to Training spend as % 1.3 2.0 56.2% 1.3 3.1
Change total remuneration
Absenteeism 4.4 4.0 9.4% 4.2 5.7
Innovation R&D Expenditure 1.64 2.12 29.5% 1.83 2.90
Capacity
Source: Benchmarking and Manufacturing Analysts (www.bmanalysts.com)

This data suggests that the industry has gone a long way towards catching up with ‘world
class’ standards (especially in internal operations) although externally linked activities like
delivery performance show less improvement. There is still some way to go to reach the
frontier of international manufacturing practice but we would suggest that there is evidence
of fast learning across this sample of firms.

The Durban Auto Cluster5

By 2001 the principles of horizontal cluster co=operation, exemplified in the Benchmarking
Clubs, had been applied to demonstrable effect in terms of performance improvement and
perceptions of learning. Attention in the KZN region shifted to vertical and macro-economic
issues which lay outside the direct control of individual firms. Once again a specific vehicle
provided the focus for the d3evelopment of a learning and lobbying network, the Durban
Auto Cluster (DAC).

The initial stimulus for setting up DAC came from the head of the economics department of
the Durban Metropolitan Council. Toyota SA, the major regional assembler, had secured a
significant export order and the opportunity presented itself to work with them and key
supplier to enable regional economic growth. The concept of cluster collaboration provided
the focus for this and a six month trial programme was set up aimed at enhancing both
horizontal and vertical co-operation amongst the automotive components sector and with a
mandate to tackle the key issues blocking the emergence of collective efficiencies.

The existing infrastructure – and more importantly, high trust social relations – within the
KZN Benchmarking Club was used to help initiate the DAC. Once again the external
facilitators of the KZNBC played a key role in set-up by bringing interested parties together
and establishing ground rules for emerging learning and other co-operative activities. In
outline the chronology of establishing the DAC took the following form over the six month
trial period running from June to December 2001:
 All relevant firms in the local value chain (40 in total) were identified, visited,
apprised of the initiative and invited to participate without financial obligation;
 A number of workshops involving all the major actors in the local value chain were
held;
 International research on cluster success was undertaken to provide the required
knowledge and information to participants;
 Local, national and provincial government was made visibly present at these
workshops so as to provide political legitimacy;
 A local needs survey was undertaken on the key issues affecting the local industry;

5
See www.dbnautocluster.org.za for more information.

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  Participants voted to identify four key issues – these were logistics, human resource
development, supply chain management and operational competitiveness;
 Technical task teams comprising firm level expert representatives were set up to
manage these focus areas identifying the issues to concentrate on, as well as writing a
clear one year business plan with program goals, activities and designated budgets;
 A workshop in November 2011 discussed key issues – business plans, a (firm-based)
governance structure, an overall budget, availability of government support,
membership fees, etc. firms then voted on whether the cluster should be formally
launched and whether they would commit to sign up as fee paying members.

As a result of this 6 month pilot/set-up process the Durban Auto Cluster as a public-private
initiative was formally launched in January 20026, run by an executive committee
comprising representatives from the firm, the government sections providing funds and the
two facilitators from the service provider. Its role was to take forward four major
development programmes, run by four technical steering committees, each with a firm
representative as chair and the rest seconded by their firms. The teams were supported by a
designated service provider member as technical support a, with control over program
activities and responsibility for expenditure on its budget line items. The programmes are
Logistics, Supplier Development, Human Resource Development and Operational
Competitiveness7.

Operationally, the DAC works through a number of mechanisms, which are themselves
evolving; these include:
 providing key operational services to members;
 exploring and enabling financial saving through joint activities;
 knowledge sharing through workshops and a newsletter;
 joint research disseminated in a user friendly manner;
 access to an online database.

These services had already been of proven value in enabling horizontal co-operation and
learning in the experience of the KZNBC. The major development in the DAC was the impact
on vertical co-operation where the value chain vertical linkages have played a crucial role in
reinforcing such horizontal co-operation. In essence this is a cross-sector application of the
principles of supply chain learning in which 1st tier suppliers use their resources, industry
influence and knowledge to provide assistance to the 2nd and 3rd tier members.

6
The DAC currently has 28 participating firms paying membership fees.
7
This programme will not be discussed her since it is simply the incorporation and expansion with new
members of the KZN Benchmarking Club, which we have already discussed, into the DAC.

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