Effects of Delayed Payment of Contractors on the Completion of Infrastructural Projects

This study examines the effects of delayed payment of contractors on the completion of infrastructural projects, using the Sondu-Miriu Hydropower Project in Kisumu County, Kenya as a case study. It explores the relative importance of delayed payment compared to other forms of contractual delays and the perceived effects of delayed payment on project completion. The study highlights the need for timely payment of contractors to ensure the continuity and timely completion of infrastructural projects.

Chinese Business Review
Volume 14, Number 7, July 2015 (Serial Number 145)
David
David Publishing Company
www.davidpublisher.com
PublishingDavid

Publication Information:
Chinese Business Review is published monthly in hard copy (ISSN 1537-1506) and online by David Publishing
Company located at 1840 Industrial Drive, Suite 160, Libertyville, IL 60048, USA.
Aims and Scope:
Chinese Business Review, a monthly professional academic journal, covers all sorts of researches on Economic
Research, Management Theory and Practice, Experts Forum, Macro or Micro Analysis, Economical Studies of Theory
and Practice, Finance and Finance Management, Strategic Management, and Human Resource Management, and other
latest findings and achievements from experts and scholars all over the world.
Editorial Board Members:
Kathleen G. Rust (USA)
Moses N. Kiggundu (Canada)
Helena Maria Baptista Alves (Portugal)
Marcello Signorelli (Italy)
Doaa Mohamed Salman (Egypt)
Amitabh Deo Kodwani (Poland)
Lorena Blasco-Arcas (Spain)
Yutaka Kurihara (Japan)
Shelly SHEN (China)
Salvatore Romanazzi (Italy)
Saeb Farhan Al Ganideh (Jordan)
GEORGE ASPRIDIS (Greece)
Agnieszka Izabela Baruk (Poland)
Goran Kutnjak (Croatia)
Elenica Pjero (Albania)
Kazuhiro TAKEYASU (Japan)
Mary RÉDEI (Hungary)
Bonny TU (China)
Manuscripts and correspondence are invited for publication. You can submit your papers via Web Submission, or
E-mail to [e-mail], [e-mail]. Submission guidelines and Web
Submission system are available at http://www.davidpublisher.com.
Editorial Office:
1840 Industrial Drive, Suite 160, Libertyville, IL 60048, USA E-mail: [e-mail]
Copyright© 2015 by David Publishing Company and individual contributors. All rights reserved. David Publishing
Company holds the exclusive copyright of all the contents of this journal. In accordance with the international
convention, no part of this journal may be reproduced or transmitted by any media or publishing organs (including
various websites) without the written permission of the copyright holder. Otherwise, any conduct would be
considered as the violation of the copyright. The contents of this journal are available for any citation, however, all
the citations should be clearly indicated with the title of this journal, serial number and the name of the author.
Abstracted / Indexed in:
Database of EBSCO, Massachusetts, USA
Ulrich’s Periodicals Directory, USA
ProQuest/CSA Social Science Collection, PAIS, USA
Cabell’s Directory of Publishing Opportunities, USA
Summon Serials Solutions, USA
ProQuest
Google Scholar
Chinese Database of CEPS, OCLC
ProQuest Asian Business and Reference
Index Copernicus, Poland
Qualis/Capes Index, Brazil
NSD/DBH, Norway
Universe Digital Library S/B, ProQuest, Malaysia
Polish Scholarly Bibliography (PBN), Poland
SCRIBD (Digital Library), USA
PubMed, USA
Open Academic Journals Index (OAJI), Russian
Electronic Journals Library (EZB), Germany
Journals Impact Factor (JIF) (0.5)
WZB Berlin Social Science Center, Germany
UniMelb, Australia
NewJour, USA
InnoSpace, USA
Publicon Science Index, USA
Turkish Education Index, Turkey
Universal Impact Factor, USA
BASE, Germany
WorldCat, USA
Subscription Information:
Print $520 Online $360 Print and Online $680
David Publishing Company, 1840 Industrial Drive, Suite 160, Libertyville, IL 60048, USA
Tel: [phone] Fax: [phone]
E-mail: [e-mail]
Digital Cooperative Company: www.bookan.com.cn
David Publishing Company
www.davidpublisher.com
DAVID PUBLISHING
D

Chinese
Business Review
Volume 14, Number 7, July 2015 (Serial Number 145)
Contents
Management
Effects of Delayed Payment of Contractors on the Completion of Infrastructural Projects:
A Case of Sondu-Miriu Hydropower Project, Kisumu County, Kenya 325
Maurice Paul Okeyo, Charles Mallans Rambo, Paul Amollo Odundo
Instruments for Analysis of Knowledge Management in Operators Companies of Metropolitan
Transport Systems 337
Manoel Agrasso Neto, Andre Ricardo Wesendonck, Viviane D’Barsoles Gonçalves Werutzky
IT Influence on Organizational Structure: Empirical Studies Among Polish Organizations 348
Katarzyna Tworek
Systems Analysis in the Study of the Political Elite 354
Nadezhda Ponomarenko
Privatizing War 360
Kenneth Shaw

Chinese Business Review, July 2015, Vol. 14, No. 7, 325-336
doi: 10.17265/1537-1506/2015.07.001
Effects of Delayed Payment of Contractors on the Completion of
Infrastructural Projects: A Case of Sondu-Miriu Hydropower
Project, Kisumu County, Kenya
Maurice Paul Okeyo, Charles Mallans Rambo, Paul Amollo Odundo
University of Nairobi, Nairobi, Kenya
Sondu-Miriu hydropower (SMHP) project experienced delay for about five years and one of the contributing
factors was delayed payment of the contractor, with ripples effect extending down the contractual hierarchy. This
study assessed the effects of delayed payment of the contractor on the completion of SMHP project in Kisumu County,
Kenya. More specifically, the study addressed two research questions: What is the relative importance of delayed
payment of the contractor compared to other forms of contractual delays? What is the perceived effect of delayed
payment of the contractor on the project’s completion? A causal-comparative design was adopted and primary data
sourced in May 2011 from 39 senior management staff of contractual parties. Relative importance index (RII) was
used to determine the relative importance of perceived effects of delayed payment of the contractor on the project’s
completion; while Kendell’s coefficient of concordance was applied to determine the degree of agreement among
participants regarding their perceived effects of delayed payment. The study found that delayed payment of the
contractor affected the project by causing: loss of productivity and efficiency (71.8%); increase in time-related
costs (71.8%); re-scheduling and re-sequencing of works (69.2%); extension of time and acceleration (69.2%); as
well as prevention of early completion (53.8%). The study concludes that timely payment of contractors is crucial
for ensuring the continuity of works and completion of infrastructural projects within time, budget, and quality
specifications. The study recommends the need for appropriate mitigative measures against potential risks, such as
delayed disbursement of funds by external financiers, delayed approval of contractors’ payment requests, as well as
community participation and involvement of civil society to influence accountability in the management of project
funds and expedite disbursement of funds for subsequent project phases.
Keywords: infrastructural projects, contractor, delayed payment, budget overrun, time overrun
Introduction
Sondu-Miriu hydropower (SMHP) project is located in Kisumu County, about 337 kilometres from
 Acknowledgement: Special thanks go to the University of Nairobi for granting opportunity to the first author to pursue his
Master of Arts Degree Project Planning and Management. Secondly, all the participants who took their time to provide the
requisite information are thanked. Thirdly, the support provided by Tom Odhiambo in reviewing the manuscript is acknowledged.
Maurice Paul Okeyo, M.A., project planning and management, University of Nairobi, Nairobi, Kenya.
Charles Mallans Rambo, Ph.D., extra mural studies, University of Nairobi, Nairobi, Kenya.
Paul Amollo Odundo, Ph.D., education administration, University of Nairobi, Nairobi, Kenya.
Correspondence concerning this article should be addressed to Charles Mallans Rambo, P.O. Box 30197-00100, Nairobi,
Kenya. E-mail: [e-mail]; [e-mail].
DAVID PUBLISHING
D

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA326
Nairobi. The project is a run-of-the-river scheme, relying on the water from the Sondu-Miriu River, flowing
into Lake Victoria. The project was initiated by Kenya Electricity Generating Company Limited (KenGen) to
inject an additional 80 mega watts of electricity into the national grid and more particularly to support the
economy of western Kenya, which had a power deficit of about 75 mega watts at the time the project was
initiated in 1995 (KenGen, 2004).
The project was financed by the Government of Japan through Japanese International Corporation Agency
(JICA), under Overseas Development Agency (ODA) loans at a cost of KES 18 billion (JICA, 1985). The loan
was disbursed in two phases: in 1999, where KenGen received about 40% of the approved funds; in 2004,
where the remaining 60% of the funds was disbursed. Phase I funding covered civil works and engineering
services; while Phase II funding covered remaining civil works, hydro-mechanical works, generating
equipment, and transmission line works (KenGen, 2004; Nippon Koei, 2008). According to the initial
construction plan, the project was supposed to be completed by December 2005. However, due to delay, the
project’s completion date was revised to November 2011. Among the factors that contributed to the delay was
delay in the payment of contractors for completed works (Nippon Koei, 2008; Abiero, 2010).
As noted by Alaghbari, Kadir, Salim, and Ernawati (2007), late and inconsistent payment of contractors
for completed works is one of the critical factors, causing delays in the completion of infrastructural projects in
developing countries. Delay in payment at the higher end of hierarchy is likely to trickle down the chain of
contracts (Construction Industry Working Group on Payment, 2007). More specifically, delay in payment of
completed works is likely to constrain contractors’ cash flow, which in turn might affect timely payment of
sub-contractors, workers, suppliers, and service providers. Regarding human labor, delayed payment of
workers is likely to affect motivation, punctuality, productivity, honesty, pace of works, and completion of
construction projects.
Memon, Rahman, Aziz, Ravish, and Hanas (2011) have associated prolonged delays in payment with
consequences, such as high risk of industrial disputes, wanton destruction of property, and a high turn-over of
workers; while Raj and Kothai (2014) pointed out that timely payment of workers is necessary for maintaining
motivation, willingness, confidence, discipline, and cheerfulness to perform work. Furthermore, Abdul-Rahman,
Takim, and Min (2009) linked delayed payment to causal factors, such as clients’ poor financial and business
management; financial impropriety and political interference; inaccurate valuation for completed works; as well
as insufficient documentation and information for valuation, among other factors. Whereas causes of delays in
the construction of infrastructural projects have attracted many studies, particularly in developing economies,
the effects of such delays have not received as much attention (Sambasivan & Soon, 2007; Aziz, 2013;
Owolabi et al., 2014). More specifically, few studies, such as Sambasivan and Soon (2007), Abdul-Rahman et
al. (2009), and Memon et al. (2011), have focused on the effects of delayed payment of contractors on the
completion of infrastructural projects.
In Kenya, no studies have ever assessed the effect of delayed payment of contractors on the completion of
infrastructural facilities. This study examined the effects of delayed payment of contractors on the completion
of SMHP project by aggregating perspectives of the project’s key stakeholders, including KenGen (the
employer), Nippon Koei Company Limited (the engineer), Sinohydro (the contractor), and JICA (the financier).
The study further applied a coefficient of concordance to determine the degree of agreement among the four
categories of participants with respect to their ranking. The study addressed two research questions: What is the
relative importance of delayed payment of contractors compared to other forms of contractual delays? What is

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA 327
the perceived effect of delayed payment of contractors on the project’s completion?
The purpose of the study was to inform stakeholders about the potential negative effects of delayed
payment of contractors on the completion of large infrastructural projects. The study also intended to contribute
to existing literature on infrastructural project delays, particularly in Sub-Sahara African (SSA) countries, with
a view to sensitizing stakeholders to work towards lessening such delays, in order to deliver inspirational,
durable, efficient, and safe infrastructural facilities within scheduled timeframes and allocated budgets.
Enhancing efficiency in the construction of infrastructural facilities is particularly important for SSA countries,
where available resources cannot suffice the need for more infrastructural facilities and where nearly half of the
population live on less than US$ 1.25 a day (World Bank, 2015; Gutman, Sy, & Chattopadhyay, 2015).
Literature Review
Infrastructural projects are considered successful when delivered within scheduled duration, allocated
budget, and specified quality (Majid, 2006; Owolabi et al., 2014). Delay in the completion of infrastructural
facilities is a critical challenge with a global dimension, often leading to increased construction costs due to
time extension or acceleration as well as loss of productivity, disruption of work, loss of revenue through
lawsuits between contractual parties, and project abandonment (Sambasivan & Soon, 2007; Owolabi et al.,
2014). Many SSA economies experience losses amounting to billions of dollars, as a result of delayed
completion of infrastructural projects, which undermines the noble goal of poverty reduction (Gutman et al.,
2015). Delay in the completion of infrastructural projects has significant cost implications, which in turn bears
far-reaching consequences in the lives of citizens, especially in SSA countries. Costs arising due to such delays
often manifest themselves in terms of accumulated interest on loans, high cost of maintaining management staff,
as well as continuous escalation in wages and material prices.
Studies conducted in various contexts have deduced that although delay in the completion of infrastructural
projects is a global phenomenon, it appears to be more common in developing than in developed countries
(Sambasivan & Soon, 2007; Alaghbari et al., 2007; Aziz, 2013). Among the developed countries, delay in the
completion of infrastructural projects has been reported in Canada, the United States, Australia, and Britain,
among others. In Canada for instance, De Souza (2009) attributed delays in the completion of infrastructural
projects to various factors, including reduced funding by sponsors, communication breakdown, delayed
disbursement of funds, poor site management by contractors, and tedious legislative procedures. In the United
States, SNL Financial (2010) reported delay in the completion of a pipeline project connecting Florida State
and Bahamas, particularly due to design changes; while Baldwin and Manthei (1971) associated project delays
in the United States with weather vagaries, labor supply, and poor management of sub-contractors.
In developing countries, delays in the completion of infrastructural projects have been reported in India,
Malaysia, Indonesia, Qatar, Jordan, Egypt, Ghana, South Africa, and Kenya, among other countries. In India, a
government Infrastructure Delay Report of 2006 reported delays in the completion of a rail project in West
Bengal and a coal project for about three and two decades, respectively, which were attributed to slow design
processes and late disbursement of project funds (Government of India, 2006). In Qatar, a Public Works Report
of 2009 linked delays in the completion of about one-third of infrastructural projects to contractors lack of
capacity, escalation of construction material prices, prolonged transfer of land ownership rights to contractors,
deferral of payments due to design issues, as well as legislative challenges in the procurement of necessary
equipment and machinery from overseas market (Government of Qatar, 2009).

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA328
In Malaysia, Sambasivan and Soon (2007) identified causes of delays in the completion of infrastructural
projects, including contractor’s improper planning, poor site management, inadequate experience, inconsistent
flow of payments for completed work, poor management of sub-contractors, inconsistent communication
between parties, as well as shortage of materials, equipment, and labor. In South Africa, a government report
linked infrastructural project delays with changes in project design, inconsistent flow of financial resources, and
contractor’s lack of capacity to deliver (Government of South Africa, 1999). In Ghana, delay in payments, poor
contractor management, delays in material procurement, poor technical performances, and escalation of
material prices were identified as key factors accounting for about 80% of delays in the completion of
infrastructural projects (Frimpong, Olowoye, & Crawford, 2003).
In Kenya, delays in the completion of infrastructural facilities have been associated with factors, such as
poor financial management by government agencies, inadequate designs, and poor management of the
construction process by contractors (Talukhaba, 1999). Arguably, these factors are compounded by secondary
factors, such as poor management of materials and equipment by contractors, inadequate recognition and
response to risks emanating from the physical and socio-economic environments, as well as inadequate regard
for stakeholders’ needs (Talukhaba, 1999). Another study conducted by Ondari and Gekara (2013) reported
significant correlation between project delays and factors, such as management support (r = 0.625), design
specifications (r = 0.836), contractor’s capacity (r = 0.567), and supervision capacity (r = 0.712).
Delays in the completion of infrastructural facilities were also identified by Abiero (2010) in the study that
examined challenges of stakeholder management in implementation of SMHP project in Kenya. The study
reported that the Phase II of the SMHP project delayed for four and half years due to delays in the release of
funds, which in turn was caused by delay in the management of issues arising, including unsatisfactory
accountability for funds released in the previous phase and improper management of dissenting voices among
stakeholders (Abiero, 2010). The study further cited cases of delayed infrastructural projects in the lake region
of Kenya, including the Kisii-Chemosite Road, which delayed for more than 15 years, as well as the Nyanza
Provincial Headquarters, which stalled for more than two decades. The study noted that delayed completion of
the projects has led to loss of both time and possession utility of the projects.
The literature review shows that most studies focused on causes of delays in the completion of
infrastructural projects in developed and developing countries, with a few to explicitly identifying delayed
payment of contractors, as one of the factors contributing to delayed completion of the cited projects. More still,
no study has ever examined the effects of delayed payment of contractors on the completion of infrastructural
projects.
Methodology
The study adopted a causal-comparative design, which permitted the application of quantitative approaches
in data collection, processing, and analysis. Causal-comparative designs employ natural selection principle,
rather than manipulation of dependent variables to reveal relationships with independent variables (Oso & Onen,
2005). Self-administered questionnaires were issued to the management staff of contracting parties to source
information on causes of contractual delays and effects of delayed payment of the contractor on the completion
SMHP project. Primary data were supplemented with secondary data sourced from the project archives.
The study targeted senior management staff of SMHP project, affiliated to all contracting parties,
including KenGen (the employer), Nippon Koei Company Limited (the engineer), Sinohydro (the contractor),

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA 329
and JICA (the financier). Senior management staff members were targeted, because contractual issues form part
of their responsibility. A sampling frame of all senior management staff was prepared using organizational
management charts of each contracting party and the process identified 54 eligible participants, who were all
included in the sample to avoid the risk of sampling error (Table 1).
Table 1
Sampling Frame
Contracting partner type Frequency Percent
Employer 15 27.8
Contractor 20 37.0
Engineer 15 27.8
Financier 4 7.4
Total 54 100.0
Self-administered questionnaires were used to source the information, particularly because they provided
the flexibility that targeted participants would require, considering their complicated itineraries. The approach
enabled participants to provide the requisite data at their convenience. One module of the instrument was
applied across the board to permit comparison of perspectives from different contracting parties. The
instrument, which had both closed- and open-ended questions, captured information on contractual delay
typology, perceived causes and effects, as well as mitigative measures.
The instrument was pre-tested at the Kisumu Airport Expansion Project, which had a similar contractual
management structure. The pre-testing was important for testing reliability of the instrument, validity, and
feasibility of data collection approaches. Primary data were collected in May 2011 after obtaining necessary
approval from University of Nairobi, National Council of Science and Technology, as well as KenGen.
Questionnaires were delivered to targeted participants and follow-ups were made through e-mails and
telephone calls. Of the 54 targeted participants, 39 (72%) successfully completed and returned the
questionnaires. Table 2 shows the questionnaire return rate for each category of participants.
Table 2
Questionnaire Return Rate
Contracting partner type No. targeted No. of participants Return rate (%)
Employer 15 14 93.3
Contractor 20 12 60.0
Engineer 15 10 66.7
Financier 4 3 75.0
Total 54 39 72.2
Primary data were listed, coded, digitalized, and cleaned for logical inconsistencies and misplaced codes.
The methods used included descriptive, factorial comparative, and rank analyses, to develop relative
importance of causes and effects of contractual delay on the project’s completion. Relative importance index
(RII) was computed using the formula (Kometa, Oloimolaiye, & Harris, 1994).
RII  (1)

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA330
where W is the weighting assigned to each response on a scale of 1 to 5 corresponding with lowest to highest; A
is the highest weight; and N is the total number of participants.
RII yielded values in the range of 0 < x ≥ 1. The higher the value of RII is, the more important the
identified factor on contractual delays is. This ranking enabled cross comparison of the relative importance of
the factors as perceived by the four categories of participants. RII is a non-probabilistic rank statistic derived
from ordinal data; hence, its accuracy is non-dependent on sample size or the population.
Furthermore, Kendell’s coefficient of concordance was applied to determine the degree of agreement
among the four categories of participants with respect to their ranking (Frimpong et al., 2003). The coefficient
states that the degree of agreement on a 0 to 1 scale is given by W, such that:
(2)
where,
Σ … Σ (3)
where n is the number of factors; m is the number of groups; and j represent the factors 1, 2, 3, … n.
As noted by Frimpong et al. (2003), Kendell’s coefficient of concordance is strong on both probabilistic
and non-probabilistic distributions, because it is not sensitive to sampling error. In addition, Chi-square statistic
was used to determine whether there was a significant difference in the ranking of contractual delay factors
perceived to be influencing delays in the project’s completion. The Statistical Package for Social Sciences
(SPSS) and Microsoft Excel were used to analyze the data.
Results
The results of this study were organized, interpreted, and discussed under five thematic areas, including
participants’ profile, forms of contractual delay, components of contractual delay, and effects of delayed
payment of the contractor on the project’s completion. Details are presented and discussed under the following
sub-sections.
Participants’ Professional and Work Experience
The study covered 39 senior management staff of the contractual parties, including 14 (35.9%) from
KenGen, 12 (30.8%) from Sinohydro, 10 (25.6%) from Nippon Koei, and 3 (7.7%) from JICA. The duration of
professional and work experience is an important factor in successful management and administration of
construction projects. In view of this, participants were requested to indicate the duration of experience in
managing construction projects and more specifically, the duration of experience in managing SMHP project.
The results are summarized in Table 3.
The results show that the employer’s staff reported an average professional experience of 2.6 years in the
management of construction projects and 2.3 years in the management of SMHP project. The contractor’s staff
indicated an averaged experience of 2.1 years and 1.7 years in the management of construction projects and
SMHP project, respectively. Engineer’s staff reported an average experience of 3.0 and 2.1 years; while the
Financier’s staff stated the least experience of 2 years in the management of construction projects and 1.3 years
in SMHP project.
The results suggest low variability of experience among participants. The average experience was 2.4
years in management of construction projects and 1.9 years in management of the project. The engineer’s staffs
were the most experienced with a relative weight of 1.0 compared to the employer’s 0.9 and the contractor’s

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA 331
0.7. The least relative management experience was noted among the financier’s staff, which was weighted at
0.6. Low variability further suggests that the participants were fairly homogenous in terms of professional
experience and therefore provided reliable information with negligible internal deviation of ±0.03 year.
Furthermore, the contractual documents revealed that the employer set a minimum professional experience
in managing construction projects at three years, upon which the reported duration of professional experiences
was compared. The results show that only the engineer’s staff met the minimum threshold, which may suggest
that the employer might have failed to exercise authority to ensure adherence to the standard by all contractual
parties. Projects which are managed by highly experienced personnel have a relatively lower risk of
experiencing contractual delays, due to the management’s ability to proactively assess and mitigate potential
risk factors. In view of this, the staff of most contractual parties reported a professional experience, which is
lower than the threshold set in the contractual documents, which might have contributed to the contractual
delay experienced in SMHP project.
Participants were requested to indicate their perspectives on whether SMHP project was on time or in
delay. The results presented in Table 4 show that out of the 14 staff of the employer, 11 (78.6%) indicated that
the project was in delay. The same status was confirmed by all the staff members of the contractor (12), the
engineer (10), and the financier (3).
Table 3
Professional and Work Experience
Contractual party Frequency Average experience (years) Relative weighted
managementConstruction projects Sondu-Miriu HP
Employer 14 2.6 2.3 0.9
Contractor 12 2.1 1.7 0.7
Engineer 10 3.0 2.1 1.0
Financier 3 2.0 1.3 0.6
Total 39 2.4 1.9
Table 4
Perception on the Timeliness of the Project
Contractual partner type Yes No
Frequency Percent Frequency Percent
Employer 3 21.4 11 78.6
Contractor 0 0.0 12 100.0
Engineer 0 0.0 10 100.0
Financier 0 0.0 3 100.0
Total 3 7.7 36 92.3
Overall, 36 (92.3%) participants across the contractual parties affirmed that the project was not on
schedule, while 3 (7.7%) expressed contrary opinions, suggesting that some participants might not be having
sufficient experience in the project’s delay aspects. Nonetheless, the high proportion of participants (92.3%),
affirming that the project was in delay, is a robust indication that the project’s completion was behind schedule.
Forms of Delay in SMHP Project
Three main forms of project delay, namely, contractual, stakeholder, and force majeure, were listed in

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA332
the data collection instrument and participants requested to indicate their opinion regarding the frequency
of occurrence on a five-point integer scale ranging from 1 to 5 and corresponding to “very low”, “low”,
“medium”, “high”, and “very high”. A mean statistic, indicating convergence among groups, was computed to
establish agreement among participants on the frequency of occurrence. Table 5 provides a summary of the
findings.
Table 5
Forms of Delay on SMHP Project
Contractual partner type Contractual delay Stakeholder delay Force majeure
Mean Category Mean Category Mean Category
Employer 3.8 High 3.8 High 1.8 Low
Contractor 2.8 Medium 2.3 Low 2.9 Medium
Engineer 3.8 High 1.5 Low 1.5 Low
Financier 3.7 High 2.1 Low 1.7 Low
Convergence 3.5 High 2.4 Low 2.0 Low
The results show that the most common form of delay was contractual, scoring an average of 3.8 (high)
among the employer’s staff, 2.8 (medium) among the contractor’s staff, 3.8 (high) among the engineer’s
staff, and 3.7 (high) among the financier’s staff. Overall, the analysis obtained a convergence of 3.5 (high)
across all the groups. Regarding the stakeholder form of delay, the analysis obtained a mean score of 3.8 (high)
among members of the employer’s group, 2.3 (low) among members of the contractor, 1.5 (low) among
members of the engineer, and 2.1 (low) among employees of the financier. The overall convergence was 2.4
(low) across all the groups, which is an indication that the frequency of stakeholder delay was lower than
contractual delay.
The results in Table 5 further show that force majeure was the least common form of delay with scores of
1.8 (low) for the employer, 2.9 (medium) for the contractor, 1.5 (low) for the engineer, 1.7 (low) for the
financier, and a convergence of 2.0 (low) across all the groups. This also implies that the frequency of force
majeure was the least common form of delay in the context of SMHP project. The results indicated the relative
importance and hence, agreement among contractual parties regarding the order of importance.
Components of Contractual Delay: Payment of Contractors
Contractual delay is a manifestation of failure by contractual parties involved to perform their obligations
under the contract. Such obligations may include timely payment of workers for accomplished construction
works as well as timely mobilization of necessary equipment or machinery and manpower, among others. In
view of this, the study sought to establish perceptions of the management staff regarding the occurrence of
payment and resource mobilization delays in the context of SMHP project. In this regard, participants were
requested to state at a nominal scale of “yes” or “no”, whether payment of the contractor ever occurred during
the project’s implementation, the results of which are presented in Table 6.
The study found that delay in payment of the contractor for completed works was experienced during the
project’s construction. Overall, about one-half (49.9%) of the participants across all groups affirmed that the
project experienced delays in payment of the contractor for completed works. The analysis obtained RII for
each form of contractual delay to facilitate ranking in terms of seriousness. The results show that delay in
payment of the contractor might have been fairly serious, with an RII of 0.5.

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA 333
Table 6
Components of Contractual Delay (%)
Components of delay Employer Engineer Contractor Financier Overall RII
Yes No Yes No Yes No Yes No Yes No
Design 57.2 42.8 79.9 20.1 92.3 7.7 100.0 0.0 82.4 17.6 0.8
Payment 42.8 57.2 40.0 60.0 49.7 50.3 67.0 33.0 49.9 50.1 0.5
Site possession 56.7 43.3 9.8 90.2 58.0 42.0 0.6 99.4 31.3 68.7 0.3
Mobilization 50.3 49.7 90.2 9.8 33.3 66.7 99.6 0.4 68.4 31.6 0.6
Legal procedures 42.5 57.5 80.4 19.6 66.8 33.2 67.4 32.6 64.3 35.7 0.5
Effects of Delayed Payment of the Contractor on the Project’s Completion
Contractual documents reveal that payment of the contractor for completed works was the employer’s
responsibility. The contractor was required to submit payment requests, supported with the engineer’s
certification, in accordance with contracted schedule. The employer was obligated to honor payment requests
within the time specified in the contract. However, the results show that about one-half (49.9%) of the
participants identified delayed payment of the contractor for completed works as one of the factors that may
contribute to delay in the project’s completion. Participants attributed delayed payments to late disbursement of
funds by the financier and the employer’s inefficient financial management system. Regarding the perceived
effects of delay in payment on the completion of SMHP project, Table 7 presents the results.
Table 7
Effects of Payment Delay on the Project’s Completion (%)
Effect Employer Contractor Engineer Financier Total
Yes No Yes No Yes No Yes No Yes No
Prevents early completion 57.1 42.9 83.3 16.7 20.0 80.0 33.3 66.7 53.8 46.2
Extends time & acceleration 71.4 28.6 100.0 0.0 30.0 70.0 66.7 33.3 69.2 30.8
Loss of productivity & efficiency 64.3 35.7 100.0 0.0 50.0 50.0 66.7 33.3 71.8 28.2
Re-scheduling & re-sequencing 71.4 28.6 91.7 8.3 40.0 60.0 66.7 33.3 69.2 30.8
Increase time-related costs 78.6 21.4 100.0 0.0 40.0 60.0 33.3 66.7 71.8 28.2
Abandonment of project 35.7 64.3 16.7 83.3 10.0 90.0 0.0 100.0 20.5 79.5
n 14 12 10 3 39
The results show that delay in payment of the contractor for completed works affected the project by
causing: loss of productivity and efficiency (71.8%), increase in time-related costs (71.8%), re-scheduling and
re-sequencing of works (69.2%), extension of time and acceleration (69.2%), as well as prevention of early
completion (53.8%). Timely payment for completed works is a key factor determining the level of productivity
and efficient utilization of resources, including time, towards project’s completion. Participants indicated that
delay in payment caused anxiety among workers, leading to low motivation, sub-optimal productivity, labor
unrest, and periodical discontinuation of works. The negative consequences of delay in payment and extended
periods of cash shortage intertwined to prevent timely implementation of work plans and completion of the
project.
Participants further associated delay in payment with slow progression of works and inefficient utilization
of time, which in turn, had negative implications on time-related costs, such as maintenance of management

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA334
staff, renting equipment, paying insurance premiums, servicing interest on loans, and paying for security
services, among others. Participants further noted that periodical discontinuation of works and labor unrests
dragged the implementation of work plans, which necessitated re-scheduling and re-sequencing of project
activities, albeit with cost implications. Participants noted that re-scheduling and re-sequencing of project
activities are expensive and complicated planning processes, requiring the participation of all stakeholders.
Participants also linked delay in payment with the extension of timeframe and acceleration of works,
which was intended to make up for lost time. Acceleration of works, including overtime, shifts,
out-of-sequence work, as well as bloating workforce, was associated with reduced labor productivity and
inefficiency, with heavier financial implications on the project’s budget. More still, participants observed that
acceleration of works heightened the risk of construction works not meeting quality standards, which may
affect durability, operational efficiency, profitability, and safety of the infrastructural facilities. In their study, G.
Sweis, R. Sweis, Abu-Hammad, and Shboul (2008) agreed that delay in payment was the most frequent cause
of project completion delay resulting to inefficiency and extension of time frame and acceleration of works. In
view of this, delay in payment of contractors is a costly challenge that requires effective financial management
systems on the part of the employers and proper cash flow management on the part of contractors.
Discussions
The aim of this study was to determine effects of delayed payment of the contractor on the completion of
SMHP project. The study relied on the perspectives of senior managerial staff of the contractual parties,
including KenGen (the employer), Nippon Koei Company Limited (the engineer), Sinohydro (the contractor),
and JICA (the financier). The purpose was to sensitize stakeholders about the negative effects of delayed
payment of contractors on the timely completion of infrastructural projects as well as contribute to existing
literature on infrastructural project delays, particularly in SSA countries, with a view to sensitizing stakeholders
to work towards lessening such delays in order to save resources for other development activities.
The results of this study showed that delay in payment of the contractor for completed works affected the
project by causing: loss of productivity and efficiency (71.8%); increase in time-related costs (71.8%);
re-scheduling and re-sequencing of works (69.2%); extension of time and acceleration (69.2%); as well as
prevention of early completion (53.8%). Even though stakeholders coped with the effects of delayed payment
of the contractor by re-scheduling and re-sequencing of project activities as well as extending timeframe and
accelerating works, there was no evidence linking such measures with timely completion of the project.
Instead, participants amplified the heavy budgetary implications of the processes, which might have
exhausted contingency funds. Hence, delayed payment of contractors is one of the factors likely to cause
budget overruns, which in turn may stall infrastructural projects for a long time, thus, delaying the contribution
of such facilities to national social and economic development.
Efficient management of infrastructural projects is particularly important in resource-poor contexts, such
as the SSA region. A high level of efficiency is preferable and likely to save resources that can be invested in
the construction of more infrastructural facilities. Timely payment of contractors for completed works is one
way through which SSA countries can ensure efficiency in the management of infrastructural projects. There is
no doubt that delay in payment is likely to raise anxiety, reduce productivity, retard progression of works, and
instigate labor unrests; which may affect the environment required for timely completion of infrastructural
projects. Project delays and subsequent wastage of resources may be considered unfavorable for SSA

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA 335
economies, where about one-half of the population (47%) live in extreme poverty. Investing in infrastructural
facilities should help reduce rather than exacerbate poverty levels.
Conclusions
Timely payment of contractors for completed works is crucial for ensuring the continuity of works and
completion of infrastructural projects within time, budget, and quality specifications. Payment of contractors is
likely to prevent cost and time overruns, which may have significant ripples effect, particularly in low-income
economies, such as SSA countries. In view of this, payment of contractors should be planned properly by
initiating appropriate mitigative measures against potential risks, such as delayed disbursement of funds by
external financiers, delayed approval of contractors’ payment requests, political interference, as well as
financial misappropriation by employers, among others. Mitigating such risks, however, requires the
involvement of stakeholders at the national, project, and community levels. Community participation and
involvement of civil society are particularly crucial for influencing leaders to expedite budget approval and
fund disbursement processes.
At the project level, community participation should be encouraged to enhance accountability in handling
and managing project funds by accounting officers. Efficiency of financial management system at the project
level should be reflected by prompt filing of returns to relevant authorities to facilitate timely release of funds
for subsequent project phases. Good project managers should understand that cash flow is the lifeblood of
infrastructural projects, without which delay, abandonment, and subsequent wastage of resources become
inevitable.
References
Abdul-Rahman, H., Takim, R., & Min, W. S. (2009). Financial-related causes contributing to project delays. Journal of Retail and
Leisure Property, 8, 225-238.
Abiero, A. (2010). Challenges of stakeholder management in implementation of Sondu Miriu hydropower project in Kenya
(Master’s thesis in business administration, University of Nairobi).
Alaghbari, W. E., Kadir, M. R. A., Salim, A., & Ernawati, K. (2007). The significant factors causing delay of building
construction projects in Malaysia. Engineering, Construction and Architectural Management, 14(2), 192-206.
Aziz, R. F. (2013). Factors causing cost variation for constructing wastewater projects in Egypt. Alexandria Engineering Journal,
52, 51-66.
Baldwin, J., & Manthei, J. (1971). Delay causes in the construction industry. Journal of the Construction Division, 97(2),
177-187.
Construction Industry Working Group on Payment. (2007). The importance of payment in the construction industry (Report on
Enactment of Construction Industry Payment and Adjudication Act (CIPAA)).
De Souza, M. (2009). Project delays. Post Medium News, p. 43.
Frimpong, Y., Olowoye, J., & Crawford, L. (2003). Causes of delay and cost overruns in construction of ground water projects in
developing countries: Ghana as a case study. International Journal of Management, 21(1), 321-326.
Government of India. (2006). Infrastructure delay report. New Delhi: Ministry of Statistics.
Government of Qatar. (2009). Major project and infrastructure in Qatar. Doha: Ministry of Public Works.
Government of South Africa. (1999). Design and construction of infrastructure projects. Cape Town: Department of Public
Works.
Gutman, J., Sy, A., & Chattopadhyay, S. (2015). Financing African infrastructure: Can the world deliver? Washington, DC:
Global Economy and Development at Brookings.
Japanese International Cooperation Agency. (1985). Feasibility study for Sondu River Basin. Nairobi: JICA.
KenGen. (2004). Sondu-Miriu hydroelectric power project (Unpublished project briefing paper for the Parliamentary Committee
on energy).

A CASE OF SONDU-MIRIU HYDROPOWER PROJECT, KISUMU COUNTY, KENYA336
Kometa, S. T., Oloimolaiye, P. O., & Harris, F. C. (1994). Attributes of UK construction clients influencing project consultants’
performance. Construction Management Economics, 12, 433-443.
Majid, I. (2006). Causes and effect of delays in Aceh construction industry (Master’s thesis, University Technology, Malaysia).
Memon, A. H., Rahman, I. A., Aziz, A. A. A., Ravish, K. V., & Hanas, N. I. M. (2011). Identifying construction resource factors
affecting construction cost: Case of Johor. Proceedings from Globalizing Innovation for Sustainable Transformation, Batu
Pahat, Johor, Malaysia.
Nippon Koei. (2008). Delay to Sondu-Miriu hydropower report (Unpublished project report, Nairobi, Kenya).
Ondari, P. O., & Gekara, J. M. (2013). Factors influencing successful completion of roads projects in Kenya. International
Journal of Arts and Entrepreneurship, 1(5), 1-22.
Oso, W. Y., & Onen, D. (2005). General guide to writing research proposal and report: A handbook for beginning researchers.
Kisumu, Kenya: Options Printers and Publishers.
Owolabi, J. D., Amusan, L. M., Oloke, C. O., Olusanya, O., Tunji-Olayeni, P., Owolabi, D., … Omuh, I. (2014). Causes and
effect of delay on project construction delivery time. International Journal of Education and Research, 2(4), 197-208.
Raj, B. V. A., & Kothai, P. S. (2014). Improving the labour productivity through other resources in construction field.
International Journal of Engineering Research and General Science, 2(2), 205-213.
Sambasivan, M., & Soon, Y. (2007). Causes and effects of delays in Malaysian construction industry. International Journal of
Project Management, 25, 517-526.
SNL Financial. (2010). Sector focus intelligence. London: SNL Press.
Sweis, G., Sweis, R., Abu-Hammad, A., & Shboul, A. (2008). Delays in construction projects: The case of Jordan. International
Journal of Project Management, 26, 665-674.
Talukhaba, A. A. (1999). An investigation into factors causing construction project delays in Kenya (A Ph.D. thesis, Department
of Building Economics and Management, University of Nairobi).
World Bank. (2015). Global monitoring report 2014/2015: Ending poverty and sharing prosperity. Washington, DC:
IBRD/World Bank.

Chinese Business Review, July 2015, Vol. 14, No. 7, 337-347
doi: 10.17265/1537-1506/2015.07.002
Instruments for Analysis of Knowledge Management in
Operators Companies of Metropolitan Transport Systems
Manoel Agrasso Neto
Centro Universitário FACVEST, Lages, Brasil
Andre Ricardo Wesendonck, Viviane D’Barsoles Gonçalves Werutzky
Universidade Federal de Santa Catarina, Florianópolis, Brasil
This research aimed to determine instruments for analysis of knowledge management in operators companies of
metropolitan transport systems. How much the goal was an exploratory research, how much the procedure was a
literature search, how much as nature was an applied research, and how much as approach was qualitative research?
The following instruments were identified and selected: (a) the methodology for the analysis of metropolitan
transport systems; (b) the knowledge management maturity model (Siemens); and (c) Documentation and Information
Centre. The simulation, using the tools in the knowledge management to analyze the Company Metropolitan of São
Paulo—METRO, identified the need for improvements in eight areas and the problems: (1) rethink the knowledge
management area; (2) develop new knowledge management policies; (3) define responsibilities in knowledge
management area; (4) implement new knowledge management processes; (5) explore new ways and structures of
knowledge; (6) consider the internal and external actors in knowledge management actions; (7) expand the
dissemination of the collaborative culture; and (8) integrate in the knowledge management area current and future
initiatives. The analysis shows that the transposition of the current situation to the desired situation for the company
can be obtained with the implementation of an Information and Documentation Centre. The conclusion is that this
set of tools allows to characterize, evaluate, and model the knowledge management in this business.
Keywords: organizational intelligence, intellectual capital, complex business, organizational strategies
Introduction
The choice of subject knowledge management in metropolitan systems operating companies of transport
for this research took place, on one hand, due to the demand for consultancy in this area, manifested by a
company of this sector based in Latin America, and on the other hand, the familiarity of the authors with
knowledge management.
According to Quivy and Campenhoudt (1995), the best way to begin a research work is to formulate a
project as an initial question, because through this issue, the researcher will try to express as precisely as
possible what it seeks to know, elucidate, and understand better. So two research questions were defined: (a)

Manoel Agrasso Neto, Ph.D., Centro Universitário FACVEST, Lages, Brasil.
Andre Ricardo Wesendonck, master student/business administration, Universidade Federal de Santa Catarina, Florianópolis,
Brasil.
Viviane D’Barsoles Gonçalves Werutzky, Ph.D. student, Universidade Federal de Santa Catarina, Florianópolis, Brasil.
Correspondence concerning this article should be addressed to Manoel Agrasso Neto, Servidão Rosa Maria das Neves, 48,
Ingleses do Rio Vermelho, CEP 88058-780, Florianópolis, Santa Catarina, Brasil. E-mail: [e-mail].
DAVID PUBLISHING
D

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT338
What are the characteristics of the operator companies of metropolitan transport systems; (b) what are
instruments used for the analysis of knowledge management in this type of business?
They constitute criteria for choosing and organizing readings according to Quivy and Campenhoudt
(1995), from the initial question to avoid a large number of texts, choose synthesis of texts at first to then look
for texts that have analysis and interpretation, present different approaches to the subject, and pick out the
search sites information and texts on the subject.
SCIELO databases and the Internet were defined as sources of information. The search terms were
knowledge management and operators companies of metropolitan transport systems. Title and abstract were
defined as search fields. A search performed in SCIELO database has not recovered any records. The Internet
search recovered numerous articles on operators companies of metropolitan transport systems, but did not
characterize this type of business and did not address the subject knowledge management.
Not getting success on the first search attempt was prompted collaboration with the network of
relationships in the librarianship area in Mexico and France. The librarian of the Autonomous National
University of Mexico—UNAM managed to regain an article about this type of company with legal approach
(Hernández-Mendible, 2008). A collaborator of France managed to regain a dissertation with administrative
approach. These two documents give reasons showing characterization of this type of business.
The problem is the approach or theoretical approach adopted to address the problem posed by the initial
question. Considering the two questions, the first was answered and the second issue involved topic known to
those of researchers. The aim of the study is to determine the instruments for analysis of knowledge
management in companies’ operator metropolitan transport systems.
Methodology for the Analysis of Metropolitan Transit Systems
Teles (2007) developed a methodology for the analysis of the metropolitan transit system that has its
starting points—the recognition of the deficiencies of the market in transit systems. The first stage includes the
characterization of the market and items ranging from the types of marketing efforts to the organizational
structures of the market and the interrelationship between the actors, among others. This characterization allows
the reflection and analysis of performance.
If no problems are detected, the methodology presents two scenarios of resolution: Either a new and more
detailed characterization to allow identification of the existing problems is carried out, or if the problem has
been detected, authors pass to the stage of the development of the current structure. Framing the metropolitan
transit system in its current structure is to allow improvements, in order to meet this same system on the basis
of a future strategic vision, so to frame a future structure. At every stage of the methodology, it may be
necessary to resume the stage characterization, as a way to detect and relearn points that have not been subject
to the necessary reflection (Teles, 2007).
The methodology allows contextualizing the reality of a metropolitan transit system, taking into account
the various items that this system implies, rather than to analyze individually and without the necessary and
consistent interaction. As there are multiple combinations of themes, it is also possible to obtain a different
“photo” for each specific situation. When this characterization through performance indicators is done, an
assessment is made in order to detect problems and frame the existing organizational structure. This review will
enable improvements in the system and a better future structure (Teles, 2007).

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT 339
Maturity Models of the Knowledge Management
Knowledge Management has always existed within the organizations, namely, voluntarily or involuntarily,
in a structured way or not, but to transform it into a competitive advantage you need to implement
structured and coordinated knowledge management (Borba, Knoll, & Todescat, 2013). Understanding the
flow of information and knowledge in the organization is essential for continuous improvement in its entirety,
but hardly understanding is not feasible to implement the structured process of knowledge management. There
is a need to create tools and models to measure the knowledge management in organizations (Borba et al.,
2013).
There are different models of maturity, according to the area of application and in which knowledge
management to assess their level of maturity can be based. The important thing is to select the model that most
apply to the organizational reality so that the results provide information that will help to draw a realistic plan
of action and achieve the desired level of maturity, and thus support the strategic objectives of the organization.
The maturity models are applied in various fields of work, such as project management, human resource
management, software development, and the topic of interest—knowledge management. These maturity models
contain levels that represent the maturity of the application area and elements of measurement to determine this
level (Costa, Moura, & Luna, 2014).
The lack of an international organization that regulates the issue of knowledge management and creates
standards for defining models and best practices, has led to the practitioners of the generation of the knowledge
society, between academics and consultants and develops different maturity models to apply to cases of timely
business (Costa et al., 2014). However, despite their levels and features, most of them can be categorized into
three types: (a) models of capability maturity: measure the maturity of an organization ability to perform a
certain activity; (b) projects maturity models: focus on the degree of analysis and level of maturity of the
processes that are running in the development of a project; and (c) maturity models of ability to change: The
level of maturity is placed according to the potential and capacity of response that has an organization to adapt
to the changes.
For the implementation of the knowledge management in an organization, it is important to first assess its
degree of maturity, for that authors have to select the appropriate methodology in accordance with the
guidelines and specific needs of the organization; by developing the valuation, authors can group the results by
critical areas or processes, according to their importance to the company. In this way, it is obtained as a result
of the current state of knowledge management in the company, being the starting point for its implementation.
These activities would be repeated in a new improvement cycle to assess the results of the action plans made
and how these contributed to the increase in the level of maturity in accordance with the goals defined in the
organization (Costa et al., 2014).
According to views of various authors, a maturity model is a conceptual structure composed of
well-established processes through which an organization develops in a planned and systematic way, in order to
achieve a desired future state. For each step in this evolution, the maturity model recognizes and notes the
increasing maturity of the organization (Prado, 2008). To decide which models are suitable to evaluate the
maturity of a particular organization, it is necessary to understand the similarities, differences, and limitations.
The models investigated arose between 2000 and 2003. The knowledge management maturity model (Infosys)
was the first to be published and the knowledge management capability assessment was the last, but it was

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT340
submitted to a review years later, in 2004. After this period, there is no story of experience in the
implementation of any of the models. This is possibly due to the fact that the organizations see their intellectual
capital as major competitive advantage. Another possible reason is that the knowledge management models in
general belong to consulting firms, which possesses a high cost of implementation, which restricts the
disclosure of the contents (Costa et al., 2014).
With regard to the levels of maturity, only knowledge management capability assessment considers six
levels, having defined the characteristics of level zero. None of the models studied has superimposed levels, i.e.,
none of the models that officially allows the improvement actions related to a certain level can be applied
before any slope of the previous level has been corrected (Costa et al., 2014).
Each model has a valuation approach. In this context, Siemens knowledge management maturity model is
the one that has greater scope, working with workshops, questionnaires, and research. When working with the
workshops, this model is also considered as the most in need of an expert in the evaluation process. Other
models have a unique approach based on a questionnaire and research or, simply, the approach is based on a
questionnaire (Costa et al., 2014). Currently the knowledge management maturity model is widely studied and
applied in various organizations to measure the knowledge management. This model is the definition of a
conceptual framework of five levels of knowledge management that reflects the value given by the organization
to key areas related to the knowledge. Each level presents a standard of the knowledge management in the
organization that promotes understanding and planning for improvement and alignment with strategic purposes.
The model helps organizations assess their progress on the implementation of this management to a more
detailed level. It can be described as a structured set of elements that describe the different levels of maturity
(Young, 2010).
According to Ehms and Langen (2002), the levels have the following features: (1) “initial” maturity
level—processes are not consciously controlled, activities related to the “successful” knowledge are seen as a
stroke of luck and not as the result of setting goals and planning; (2) “repeated” maturity level: The
organization has recognized the importance of knowledge management activities for its business.
Organizational processes are partially described as knowledge management tasks and under individual ideas of
“pioneers in knowledge management”, there are pilot projects; (3) “defined” maturity level—established and
practiced activities that give effective support to knowledge management in separate parts of the organization.
These activities are integrated into the work processes from day to day and their relevant technical systems are
maintained; (4) managed—is characterized by the existence of strategy and common approach; indicators on
the efficiency of knowledge management activities are regularly measured; senior management and middle
management support; activities supported by knowledge management systems; and (5) “optimization” maturity
level: Measuring instruments are combined with other knowledge management instruments for strategic control.
There are challenges that cannot be solved with knowledge management tools established.
Currently, there are several variations of this model of maturity that has been evolving and adapting to
new discoveries, always aiming to achieve a more accurate diagnosis of the knowledge management in the
organizations. After the evaluation process, an improvement plan that overcomes the limitations found in the
organization shall be developed. According to the approach taken by the four models investigated, the plan
must be developed from the results obtained with the model application and experience of the evaluator (Costa
et al., 2014).

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT 341
Documentation and Information Center
Maybe because it is a “mixed” entity that does not have a theory and a specific method for the treatment of
the collection, the Documentation and Information Center is the institution that occupies less space in the
literature of different areas that make science information, although often present in businesses, government
agencies, labor organizations, social movements, and universities. The area that best took care of them was the
librarianship, because it considered them as part of its domain and did this in a specific dimension: organizing
and referencing the documents as isolated parts, whatever its nature, and treating their information as data that
is broken and rearranged. Authors are opposed to the application of the principles and rules governing
librarianship to all this documentation, in the extent that this procedure violates the various features that the
collections centers kept and understand them as entities much more complex. The Documentation and
Information Center is a mixture of traditional entities, without being identified with any of them. It collects, by
purchase, donation, or exchange documents from different sources, single or multiple (in the form of originals
or copies), and/or references on a specific area of human activity. These documents and references can be
classified as archives, libraries, and/or museum (Tessitore, 2003).
The Documentation and Information Center aims to gather documents and information about the history of
the company, including historical objects, text documents, iconographic, audiovisual, digital media, etc. It
operates in the areas of document management, historical research, the dissemination of information, and
supports various activities of the organization, constantly striving to record history in the time that is being built.
This collection allows the Information and Documentation Center to develop their duties in document
preservation and research support in the broadest sense: not only to provide the researcher references to the
location of the sources of interest, but also to become a hub documentary production featuring of people and
entities who work or worked in their field of expertise (Tessitore, 2003).
Relationship Among Instruments
Understanding the flow of information and knowledge in the organization is essential for continuous
improvement in its entirety, but merely the comprehension makes it not feasible to implement a structured
process of knowledge management, there is a need of measuring knowledge management in organizations.
Methodology for metropolitan transport systems analysis (Teles, 2007) can facilitate such comprehension,
as it allows to contextualize the reality taking into account the various issues that this system implies, rather
than individually analyze without the required and consequent inter-relationship. As there are multiple
combinations of themes, it is possible to get a “picture” different for each specific situation. The knowledge
management maturity model (Siemens) consists of defining a conceptual framework of five levels of knowledge
management that reflect the value given by the organization to key areas related to knowledge (Ehms & Langen,
2002). Each level shows a pattern of knowledge management that promotes understanding and planning for
improvement and alignment with strategic objectives. After the evaluation process, an improvement plan that
overcomes the limitations in which the organization is located must be developed from the results obtained
from the application of the model and the experience of the appraiser. The concept of Documentation and
Information Centre, regardless of the improvement plan of the content, can be responsible for the plan, because
it is a mix of traditional entities, without identifying with any of them. It brings together different document
sources and single or multiple (a form of originals or copies) references on a specific area of human activity.
These documents and references can be typified as archives, libraries, and/or museum (Tessitore, 2003).

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT342
How to Use These Instruments
The set of instruments has the objective to facilitate the work of professionals in the field of knowledge
management that operates in the business of metropolitan transport systems, in order to understand this type of
business, diagnose problems, establish the current level of maturity and the desired organization, and propose
solutions.
Methodology for analysis transports metropolitan systems is easier to understand and analyze this type of
business, which, among other characteristics, is a complex legal nature, involves businesses that are not part of
your field of business, and has diversity of involved and interested in the business. The Siemens CMMM
maturity model facilitates the analysis and positioning of the organization in one of five levels considered by
the model and based on its knowledge management practices and enables you to identify the company’s current
situation and perspectives future. The Documentation and Information Centre is one of the types of
documentary conservation organization and is a mix of other entities, without identifying with any of them.
Among its objectives are the research, production, and services. His area of specialization and thematic lines is
to define its actions and activities, which can be transformed to the extent that the field of knowledge which is
attached is transformed, thus changing their perspectives and demands.
These characteristics represent the competence to adapt to diversity of organizational demands, making it
useful at all organizational levels of maturity in terms of knowledge management. After the evaluation process,
an improvement plan that overcomes the limitations of the organization should be developed from the results
obtained by applying on model and evaluator experience.
Research Methods
As to objective, this is an exploratory research, because it seeks to familiarize with the knowledge
management theme in operators companies of metropolitan transport systems; subject is still little known and
little explored. As for the procedures, it is a literature search, because quest theoretical references are already
analyzed and published in writings and electronic media, in order to identify instruments for analysis of this
type of business. It is applied research, because it aims to generate knowledge to identify and select instruments
to analyze this type of business. The approach is a qualitative research, because it does not care about numerical
representation, but rather to deepen the understanding of knowledge management in operators companies of
metropolitan transport systems (Gil, 2008).
Research Steps
In step 1, two research questions were defined originally: (a) What are the characteristics of the operators
companies of metropolitan transport systems; (b) what are instruments used for the analysis of knowledge
management in this type of business? In step 2, sources of information SCIELO databases and the Internet were
defined. The search terms were knowledge management and operators companies of metropolitan transport
systems. Title and abstract were defined as search fields. In step 3, considering that the first two questions, the
first was answered and the second issue involved topic known to those of researchers. The aim of the study
became to determine the instruments for analysis of knowledge management in companies operator
metropolitan transport systems. In step 4, the main concepts were defined: organizational maturity in v and the
center of documentation and information. The main hypothesis was defined: Whatever the level of maturity
organization, documentation, and information center can suit their needs. In step 5, three models were selected:

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT 343
(a) the methodology for the analysis of metropolitan transport systems (Teles, 2007); (b) the maturity model of
knowledge management, Siemens knowledge management maturity model (Ehms & Langen, 2002); and (c)
Documentation and Information Center (Tessitore, 2003). In step 6, three operations have been defined: (a)
present the data (aggregate or not) as required by variables involved in the hypotheses and present them, so that
the characteristics of such variables will be evidenced by the description; (b) measure the relationships among
the variables, from the way these relationships were foreseen by the hypotheses; and (c) compare the observed
relations with relations theoretically expected by the hypothesis and measure the distancing between them. In
step 7, it resumes the methodological way, presents the results, and puts in evidence perspectives practices.
Model for Checking the Role of Documentation and Information Centre in Knowledge Management
The “model for checking the role of Documentation and Information Centre in knowledge management”
suggests that the dependent variable “knowledge management desirable” is limited or stimulated by an
independent variable “limiters factors and/or stimulators of knowledge management” which can be influenced
by a mediating variable/intervener “Documentation and Information Centre” able to facilitate and/or
consolidate the knowledge management desirable (Figure 1).
Figure 1. Model for checking the role of Documentation and Information Centre in knowledge management.
The model seeks to highlight the restrictions on the knowledge management and the influence the
Documentation and Information Centre may exercise. To this end, this paper sought to data regard to the matters
involved in the research object, according to the research variables. In the literature review, it has not been
found a model that, by itself, enables the operationalization of the model, thus became necessary combination
of various models. The chosen models were: methodology for analysis of metropolitan transport systems (Teles,
2007), Siemens knowledge management maturity model (Ehms and Langen, 2002), and Documentation and
Information Centre (Tessitore, 2003). The model for checking the Role of Documentation and Information
Centre in knowledge management might facilitate the implementation process, as it allows a more accurate
diagnosis of the current situation which enables structure Documentation and Information Centre in accordance
with the strategies organizational. The model can be used as an instrument in knowledge management.
Analysis of Knowledge Management in Companies Operators
Metropolitan Transport Systems
The formulation and exploration of the initial question (through reading and data collect), the elaboration
of the problem, and the construction of an model of analysis and data gathering resulted in the identification of
Limiters Factors and/or
Stimulators of
Knowledge Management
Desirable Knowledge
Management
Documentation and
Information Centre

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT344
three instruments for analysis of knowledge management in companies operators metropolitan transport system,
as described below.
The set of instruments includes: (a) the methodology for the analysis of metropolitan transport systems; (b)
the maturity model of knowledge management—Siemens knowledge management maturity model; and (c)
Documentation and Information Center. The set of instruments is directed primarily to the personnel
responsible for knowledge management in operators companies of metropolitan transport systems. Other
recipients who can take advantage of this set of instruments are librarians and consultants who work in this
business. With the incorporation of this set of instruments, it is expected that the evaluation of knowledge
management in this type of business not be additional or islanded activity but integral part of the formulation of
plans and knowledge management policies in operators companies of metropolitan transport systems. The set
of instruments comprises a framework for analysis of this type of business, including a maturity model that
recognizes and indicates a progressive maturity of the organization in terms of knowledge management, and
includes also an entity that brings together traditional knowledge management entities. The set of instruments
has three main objectives: It helps to understand, assess/supervise, and plan.
Practical Application
The simulation of instruments was based on information of the Company of Metropolitan São
Paulo—METRO. The documents examined were: Organogram of the Company, Administrative Report 2014
Paper presented at the XV Week metro-railway technology “The Experience of Restoration Maintenance
Teams Metro Service São Paulo” (Hirano, Siqueira, & Barbosa, 2009) and articles.
The Measurements of Knowledge Management in the METRO
The measurement of levels of maturity CMMM Model (initial, repeated, defined, managed, and
optimizing) was performed across eight key areas based on the EFQM (European Foundation for Quality
Management), which are as follows: strategy/knowledge goals, support leadership, processes/roles organization,
technology infrastructure, knowledge structures/knowledge forms, environment partnerships,
people/competence, and collaboration culture. The assessment tool was investigative.
Table 1 shows the results of measurement on the vertical axis which are the levels listed in the model
CMMM and the horizontal axis are the areas listed in EFQM. The practices identified in METRO are described
and classified following.
Table 1
Knowledge Management Maturity Levels in Metro
Cmmm model
Strategy
knowledge
goals
Leadership
support
Processes
roles
organization
Technology
infrastructure
Knowledge
structure
and forms
Environment
partnerships
People
competencies
Collaboration
culture
Level 1 initial
Level 2 repeated X X X X
Level 3 defined X X X X
Level 4 managed
Level 5 optimizing Level
desired
Level
desired
Level
desired
Level
desired
Level
desired
Level
desired Level desired Level
desired
The results of the measured areas show that, according to established practice, four areas are situated on
level 2, four areas situated on level 3, and the desired level is level 5. They are described below established

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT 345
practices for each level.
The “strategy area and knowledge goals” exists as practices established the knowledge retention policy
acquired by Metro Company professionals. The practice was defined as level 3 as the only identified practical
and therefore a practice isolated. It was observed that the mission of the management services and
infrastructure (GSI) is to endow the Metro Company of adequate conditions of building infrastructure and
administrative services, preserving its heritage, including the documentary. The mission of the GSI suggests
that documentation is not their competence which is not a priority.
The practice identified in the leadership support area and established, as level 3 was the presentation of the
work “the experience of the teams of restoring maintenance of the São Paulo Metro Services” (Hirano et al.,
2009), which the authors’ intention was to pay tribute to the effort and dedication over the course of more than
20 years, of all the professionals involved in this work and knowledge management process.
In processes organization roles area, the practices were defined as level 3, because only the elaboration
process of internal training aiming at retaining knowledge acquired can be regarded as defined, others did not.
In the technology infrastructure area, electronic and electromechanical equipment maintenance was
identified, thus defined as level 3.
In the area of knowledge structure and knowledge forms, practices established are the Training
Development Process Internal and Corporative University—UNIMETRO, though the UNIMETRO has no
legal nature, does not charge for its services, and has no return on assessment practice over investments in
corporate education. Thus, it was defined as level 2.
In the area of environment partnerships, agreements to modernize and expand the lines of the São Paulo
subway, cultural activities, and social campaigns have been identified, so defined as level 2.
In the area of people competencies, there exists a necessity to create competencies for mastering the
increasing volume of information turning them into knowledge, training requirements which no longer meet an
appropriate manner and the need to of knowledge management tools for professional improvement, thus
defined as level 2.
In the area of collaboration culture, the “Social Network Tool Corporate” known as “next
station—knowledge” was identified, designed to stimulate the sharing and dissemination of information and
knowledge, facilitating connection and offering space and tools for creating and interchange of ideas and views
on general matters and professionals, thus defined as level 2.
An improvement plan that overcomes the limitations found in the organization should be developed, after
the evaluation procedure. According to the approach taken by the model knowledge management maturity
model, the plan should be developed from the results obtained by applying the model and the evaluator experience.
Plan for Knowledge Management Improvement on the METRO
The human experience has produced and accumulated a large number of records which constitute
document, technically defined as a set of information and its support. The book, magazine article, the medical
record, the letter, the poster of a seminar, the video conference, the legislation, the objects used, etc. are
documents. To comply with its social, administrative, legal, technical, scientific, cultural, artistic, and/or
historical records, it is necessary that the document be preserved, organized, and accessible.
The measurement of maturity levels in knowledge management in the METRO allowed the identification
necessity of improvements in eight areas related to knowledge management. The areas are: strategy/knowledge

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT346
goals, support leadership, processes/roles organization, technology infrastructure, knowledge
structures/knowledge forms, environment partnerships, people/competence, and collaboration culture.
The needs identified were: (1) rethink the knowledge management area; (2) develop new knowledge
management policies; (3) define responsibilities in knowledge management area; (4) implement new
knowledge management processes; (5) explore new ways and structures of knowledge; (6) consider the internal
and external actors in knowledge management actions; (7) expand the dissemination of the collaborative culture;
and (8) integrate in the knowledge management area current and future initiatives.
There are four types of entities that carry out this task: archives, libraries, museums, and documentation
and information centers. The Documentation and Information Centre is a mix of other entities, extrapolating
their documentary universes. The accumulation of this acquis enables Documentation and Information Center
to comply with their duties in document preservation and research support in the broadest sense: not only
making it available to the researcher references to the location of the sources of interest, but also becoming one
pole of attraction of document production persons and entities that operate or acted in his field of expertise.
The area of expertise Documentation and Information Centre will guide the development of thematic lines,
around which there will be given training and the expansion of the acquis and the establishment of programs of
action and the definition of activities. However, these lines are not fixed and unchanging. They will undergo a
process of transformation as the field of knowledge to which the center is linked turns, changing their
perspectives and demands of research, since these changes involve new demands for information.
Table 2 presents the steps for implementation of the Documentation and Information Centre.
Table 2
Steps for Implementation of Documentation and Information Centre
Steps for implementation of the
Documentation and Information Centre Objectives
1 - Definition area of specialization
The initial and fundamental step in realizing the Center is their official creation, through
the appropriate formal instruments which involve a name, nature, purpose, objectives,
subordination, internal structure, and functions; these instruments are approved by the
relevant bodies.
2 - Organizational structure It should reflect its functions, which may be more or less extensive, depending on the
entity’s objectives.
3 - Functions
The Center can be subdivided into technical areas, by function rather than by type of
collection and an administrative area. In complex organizations, they can also be
subdivided according to the nature of the acquis.
4 - Humans resources
The most modern infrastructure, however, does not give life to the center, if there is no
competence technical staff to operate it, which will be responsible for carrying out the
activities planned in the implementation stages, but also of materializing routine
services, continuity of work and its future expansion.
The Documentation and Information Centre can be seen as a back office area that adds safety, considering
the present, past, and future, giving answers to the demands; serves the front office which adds value. In
complex organizations, the back office mission is to add security in terms of the content consistency of
information systems and structure front office service information an appropriate manner by guiding the
production of information.
Conclusions
With the objective of determining instruments for analysis of knowledge management in operators
metropolitan transportation systems business, a literature search was carried out, with exploratory objective of

INSTRUMENTS FOR ANALYSIS OF KNOWLEDGE MANAGEMENT 347
an applied nature and qualitative approach. The results were as the followings:
(1) Three instruments were determined for analysis of knowledge management in operators companies of
metropolitan transport systems: (a) the methodology for the analysis of metropolitan transport systems (Teles,
2007); (b) the maturity model—Siemens knowledge management maturity model (Ehms & Langen, 2002); and
(c) Documentation and Information Centre (Tessitore, 2003).
(2) The simulation uses the tools in the knowledge management to analyze the Company Metropolitan of
São Paulo—METRO. The need for improvements in eight areas and the problems were identified: (a) rethink
the knowledge management area; (b) develop new knowledge management policies; (c) define responsibilities
in knowledge management area; (d) implement new knowledge management processes; (e) explore new ways
and structures of knowledge; (f) consider the internal and external actors in knowledge management actions; (g)
expand the dissemination of the collaborative culture; and (h) integrate in the knowledge management area
current and future initiatives.
(3) The analysis shows that the transposition of the current situation to the desired situation for the
company can be obtained with the implementation of an Information and Documentation Centre. The role of
the Documentation and Information Centre is to provide security to front office.
(4) The conclusion is that this set of instruments allows to characterize, evaluate, and model the
knowledge management in this business.
Future research should: (a) characterize in more detail this type of business; (b) identify practices of
knowledge management implementation in this business; and (c) identify best knowledge management
practices in this business.
References
Borba, F. R., Knoll, E. C., & Todescat, M. (2013). Diagnóstico dos Niveis de Maturidade em Gestão do Conhecimento: Centro de
empreendimento inovador da Fundação CERTI. Navus—Revista de Gestão e Tecnologia. Florianópolis, 3(2), 163-176.
Costa, C. P., Moura, H. P., & Luna, A. J. H. (2014). Modelos de Maturidade de Gestão do Conhecimento: Uma Análise
Comparativa. Retrieved from http://www.ufpi.br/subsiteFiles/ercemapi/arquivos/files/artigos/pos/pg9.pdf
Ehms, K., & Langen, M. (2002). Holistic development of knowledge management with KMMM. Retrieved from
http://www.kmmm.org/objects/kmmm_article_siemens_2002.pdf
Gil, A. C. (2008). Como elaborar projetos de pesquisa (5th ed.). São Paulo: Atlas.
Hernández-Mendible, V. R. (2008). La Regulación del Sistema de Transporte Metropolitano. Ciudad de México: UNAM.
Retrieved from www.juridicas.unam.mx
Hirano, A., Siqueira, L. C. H., & Barbosa, S. (2009). Gestão do Conhecimento—A Experiência das Equipes de Manutenção de
Restabelecimento de Serviços do Metrô de São Paulo. Proceedings from 15 STM 09: 15 Semana Tecnológica
Metrôferroviária. São Paulo, SP: AEAMESP.
Prado, D. (2008). Maturidade em Gerenciamento de Projetos (INDG Tecnologia e Serviços, Minas Gerais, Brasil).
Quivy, R., & Campenhoudt, L. V. (1995). Manuel de recherche en sciences sociales. Paris: Dunod.
Teles, M. F. C. S. (2007). Metodologia de Análise de Um Sistema de Transporte Metropolitano: o caso da Autoridade
Metropolitana de Transportes do Porto (AMTP) (Dissertação (Mestrado), Faculdade de Engenharia da Universidade do
Porto).
Tessitore, V. (2003). Como Implantar Centros de Documentação. São Paulo: Arquivo do Estado, Imprensa Oficial.
Young, R. (2010). Knowledge management tools and techniques manual. Retrieved from
http://www.apo-tokyo.org/publications/files/ind-43-km_tt-2010.pdf

Chinese Business Review, July 2015, Vol. 14, No. 7, 348-353
doi: 10.17265/1537-1506/2015.07.003
IT Influence on Organizational Structure: Empirical Studies
Among Polish Organizations
Katarzyna Tworek
Wroclaw University of Technology, Wroclaw, Poland
The paper describes information technologies (IT) role in organization—especially its influence on organizational
structure. Article concerns the importance of analyzing IT acceptance, while describing IT in organization and points
out that inadequate variable choice may influence validity of IT analysis. First part of the article describes both
variables analyzed in presented research—IT dissemination and IT acceptance. It also presents how in theory IT can
influence organizational structure. The main part of the article describes empirical studies conducted in order to
verify if the influence of IT on the organizational structure exists. First, the main goal and methodology of the
empirical studies are presented. Variables used to assess IT and organizational structure in organizations are
discussed. Then, there is a description of research results—statistical correlation between analyzed variables and
regression models is shown. Conclusion of the article is that IT can influence organizational structure, but the most
important factor ensuring this influence is the actual use of IT by employees of the organization—their access to IT is
not enough.
Keywords: information technology (IT), IT acceptance, IT dissemination, organizational structure
Introduction
Information technologies (IT) are defined as application of computers and telecommunications equipment
to store, retrieve, transmit, and manipulate data (Daintith, 2009). In today’s world, with emerging economy, the
increase of importance of information technology use in organizations is caused primarily by the need of
knowledge and information management. Along with the changes in the world at the turn of the century, it
almost became a necessity to have the knowledge and skills that allow the use of information technology for the
company benefits. Jones and Dewett (2001) pointed out that IT can be seen as a source of competitive
advantage of the organization only in a situation in which it is actually used by the employees in the
organization. Because, what is worth noting, among others advantages, is that IT facilitates the change of
communication channels in organization (Crowston, 2000). The problem arises when the IT in organization is
analyzed and its influence on other organizational aspects is discussed. The issue of IT impact on
organizational structures appeared in the literature as early as the 60’s. Over the last 50 years, there have been
many empirical studies about this issue—the earliest ones made by Galbraith (1977) and Whisler (1970). Then
new facts were discussed by Orlikowski and Robey (1991) and Currie (1996). Recent studies were carried out

Katarzyna Tworek, Ph.D., Eng., Wrocław University of Technology, Wrocław, Poland.
Correspondence concerning this article should be addressed to Katarzyna Tworek, wyb. Wyspiańskiego 27, 50-370 Wrocław,
Poland. E-mail: [e-mail].
DAVID PUBLISHING
D

IT INFLUENCE ON ORGANIZATIONAL STRUCTURE 349
by Spanos, Prastacos, and Poulymenakou (2000) and Bresnahan, Hitta, and Brynjolfsson (2002). Results of
these empirical studies, however, are not clear—different variables to describe IT are used and different
methodologies of research are adopted; therefore, there is no certainty as to the direction of changes in the
organizational structure caused by IT.
The aim of this article is to present a new research conducted in 2012 in Poland, made using not one (as in
most available studies), but two different variables describing IT in organization and to determine if IT can
influence organizational structure. First part of the article describes variables analyzed in presented
research—IT dissemination and IT acceptance. It also presents how in theory IT can influence organizational
structure. The second and main part of the article describes empirical studies conducted in order to verify if the
influence of IT on the organizational structure exists.
IT in Organization
IT in organization is considered as a group of IT systems (available for the employees in organization)
with implemented set of IT functions. The most approved method of characterizing IT in organization is the
analysis of its dissemination. In the context of IT, dissemination will be understood as the extent in which they
are available in the organization (a number of employees of the organization having access to these
technologies) and it will be the first variable used in this publication to characterize IT in organization. It is
worth noting here that the count is the number of unique visitors—individuals with access to IT. Thus,
regardless of what the frequency of technology use is (if they do not use it at all, use once a month or several
times a day), each user is counted once and only once. Therefore, it considers members who have access to IT,
but not necessarily use it.
It is important to analyze IT with a use of variables that allow to specify how many employees actually use
IT in their work. That was the genesis of the concepts of IT acceptance. It has allowed to take into
consideration the imbalance between the number of employees who have access to IT and the number of those
actually using it. IT acceptance, understood as a demonstrable willingness within a user group to employ IT for
the tasks it is designed to support (Dillon, 2005), will be a second variable used in this publication to
characterize IT in organizations.
IT Influence on Organizational Structure
IT is considered by many authors as the main source and carrier of change in organizational structure
(Jones & Dewett, 2001). Most common opinion among authors is that IT reorganizes the communication
channels within the organization (making it easier for employers to communicate directly). IT contributes to
several changes in organizational structure. Several of them are listed as conclusions in many papers analysing
IT—those listed below can be considered as the most important ones (Jones & Dewett, 2001; Spanos et al.,
2000):
 reduction of the number of administrative employees and middle management employees mainly caused
by a more efficient exchange of information;
 increase of self-reliance due to better access to information among employees using IT, which contributes
to the increase of the average span of management;
 increase of information synergy on the lower levels of management, which leads to the situation, in which
employees are better equipped to make the right decisions in place, in which the problem arises;

IT INFLUENCE ON ORGANIZATIONAL STRUCTURE350
 willingness among managers to delegate decisions to lower levels of the hierarchy, due to the fact that
employees acquire additional skills and knowledge while using IT;
 emergence of intelligent formalization effect, which allows employers to communicate and exchange
information in codified way, which at the end contributes to unification and organization of documents and
procedures;
 reduction of negative effects of specialization due to work enrichment and increased self-reliance of
employees.
It is worth noting that in most papers—in which the influence of IT on organizational structure is
considered—IT is described and analysed only using IT dissemination as a characteristic.
Empirical Research Concerning IT Influence on Organizational Structure
Research Method
Relations between IT and organizational structure were tested in studies conducted in Poland in 2012
(Tworek, 2014). One hundred and five organizations operating in Poland were examined (they were different in
terms of size, industry, and ownership structure). All of these organizations have implemented IT systems (they
were different in terms of dissemination, user acceptance, and type—construed as number and nature of
implemented IT function) and claimed that IT is used, among others, to support communication of the
employees.
Table 1
Items of Organizational Structure Dimensions
Hierarchy Centralization Formalization Specialization
Organizational structure is
complicated.
Decisions concerning response to
environment change are made on
highest hierarchy level.
Number of organizational
documents is high.
Tasks are simple and
repetitive.
Number of hierarchy levels is
high.
Decisions concerning intellectual
capital are made on highest
hierarchy level.
Degree of documents details
is high.
Number of production
workers is high.
Number of direct subordinates of
managers is high.
Decisions concerning
manufacturing technologies are
made on highest hierarchy level.
Number of regulations
concerning ways of
accomplishing tasks is high.
Number of non-production
works is high.
Managers will not be able to
manage more subordinates than
they are managing now.
Operational decisions are made in
place of the problem.
Regulations concerning
employees’ communication
are formal and restricted.
Task rotation is common.
To investigate the results of the relation between IT and organizational structure, the key variables
describing four organizational structure dimensions were defined: hierarchy, centralization, formalization, and
specialization. Subjective level of each variable was calculated as the arithmetic mean of grades given to each
item describing one of four variables. Items were put in form of statements and they were rated by the
respondents with Likert scale (five items scale) (list of items—statements—for each variable is included in
Table 1). It is worth noting that Cronbach’s α was 0.641 and higher for every variable, which indicates a high
internal reliability of the scales and measurements.
IT was described by degree of IT dissemination and IT acceptance in organization. Subjective level of IT
dissemination was calculated based on a set of statements included in Table 2. Cronbach’s α was calculated for
this scale as 0.803 which indicates high internal reliability of a scale.

IT INFLUENCE ON ORGANIZATIONAL STRUCTURE 351
Subjective level of IT acceptance was calculated based on a set of statements prepared on basis of IT
acceptance measuring method proposed by Davis—set of statements and detailed information were published
by Tworek (2014). Additionally, Cronbach’s α was calculated for this scale—it came back as 0.905 which
indicates very high internal reliability of scale.
Table 2
Items of IT Dissemination
Information technology dissemination
Number of employees with
access to IT is high.
The number of persons
employed as maintenance for
IT in the organization is high.
Number of computers in
organization is high.
The number of tasks performed
in the organization, supported
by IT is high.
Research Results
After confirming internal reliability of each scale and normal distribution for each variable, correlation and
regression analysis was done. Firstly, correlation analysis using Pearson coefficient was done (Table 3).
Analysis has indicated that there is indeed a correlation between IT acceptance and hierarchy complexity and
degree of centralization which may indicate that with increase of IT acceptance, the organizational structure
changes into more organic-type one (hierarchy is less complex and centralization degree is smaller).
Table 3
Correlation Between Organizational Structure and IT
Hierarchy Centralization Formalization Specialization
IT acceptance
Pearson correlation -0.299 -0.295 -0.126 -0.037
Bilateral significance 0.002 0.002 0.204 0.707
Number of organizations 104 104 104 104
IT dissemination
Pearson correlation 0.347 -0.006 0.137 0.445
Bilateral significance 0.011 0.949 0.165 0.001
Number of organizations 104 104 104 104
Secondly, stepwise regression analysis was performed. Fitting models were obtained for hierarchy ( F (4,
99) = 14.585, p < 0.001), formalization (F (3, 100) = 8.357, p < 0.001), and specialization (F (4, 99) = 23.145,
p < 0.001). Only IT acceptance proved to be a significant independent variable with every obtained model
(Table 4). IT acceptance proved to be the only significant independent variable in model obtained for
centralization (F (1, 102) = 9.690, p < 0.05). Although this model cannot be characterized as fitting, obtained
predictors explained only 7.8% of the variance of the dependent variable. Regression analysis has shown that
with increase of IT acceptance, there is a significant change in each variable characterizing organizational
structure. Hierarchy complexity declines, as the degree of centralization and formalization does. It confirms
that organizational structure becomes more organic-type one.
It is worth underlining that IT dissemination was not proven to be a significant independent variable in any
obtained model. Therefore, even though in Table 3, there is a confirmation that there is also a correlation
between IT dissemination and hierarchy complexity and degree of specialization—regression analysis did not
support that IT dissemination explains in a statistically significant way the variance of this organizational
structure variable.

IT INFLUENCE ON ORGANIZATIONAL STRUCTURE352
Table 4
Regression Analysis Confirming Correlation Between Organizational Structure and IT
Independent variable in regression models
Dependent variable in regression model
1st model:
hierarchy
2nd model:
centralization
3rd model:
formalization
4th model:
specialization
IT
acceptance
B -1.133 -0.489 -0.481 -0.426
Standardized error 0.193 0.150 0.201 0.129
Beta -0.538 -0.356 -0.248 0.277
T-student test -5.884 -3.262 -2.396 -3.303
Significance 0.001 0.002 0.019 0.001
Significant element of regression model Yes Yes Yes Yes
IT
dissemination
B 0.189 0.044 0.072 0.183
T-student test significance 0.220 0.762 0.711 0.146
Significant element of regression model No No No No
Figure 1. IT acceptance influence on organizational structure. Source: Author’s own work.
Conducted research has shown that IT (Figure 1) indeed impacts organizational structure and contributes to
reorganizing to structure less complex, with lower degree of centralization and formalization. It is worth noting
that IT acceptance, not its dissemination, was proven to be a significant factor in regression models explaining the
variance of each organizational structure variable—it confirms that IT acceptance influence on organizational
structure is statistically significant and can be an important factor contributing to organizational structure
reorganization.
Conclusions
Research has shown that IT indeed can influence organizational structure, but not exactly in the way
predicted by most authors (Jones & Dewett, 2001; Spanos et al., 2000). The most important variable is IT
acceptance, not its dissemination. Therefore, it can be concluded that IT can influence communication channels
within the organization, which leads to changes in structure hierarchy complexity, degree of centralization,
formalization, but it can happen only when IT in organization is actually used by employees to perform their
tasks, not only available to them. In that case, IT indeed impacts organizational structure and contributes to
reorganizing it to a less complex one, with lower degree of centralization, formalization, and specialization. It
ORGANIZATIONAL
STRUCTURE
HIERARCHY
CENTRALIZATION
SPECIALIZATION
P = -0.295; B = -0.489 (sig 0.002)
B = -0.481 (sig 0.019)
B = -0.445 (sig 0.001)
FORMALIZATION
MORE
ORGANIC
STRUCTURE
P = -0.229; B = -1.133 (sig 0.001)
IT
ACCEPTANCE

IT INFLUENCE ON ORGANIZATIONAL STRUCTURE 353
can be concluded that the research provides evidence that in fact there is an increase of self-reliance among
employees using IT, which contributes to the increase of the average span of management and results as lower
centralization level and less complex structural hierarchy in organizations with highest IT acceptance. However,
centralization, which is getting lower with increasing IT acceptance, can be primarily the evidence of
incensement of information synergy on the lower levels of management. This increasing of IT acceptance leads
to the situation, in which employees are in fact better equipped to make the right decisions in place, in which
the problem arises and results with lower degree of centralization. Therefore, it can be concluded that IT
acceptance in fact influences organizational structure.
It is also worth noting that conducted research confirmed that IT acceptance is a significant variable
describing IT use in organization and should not be omitted during analysis of IT. It appears to be an important
conclusion, because many papers postulating lack of IT influence on organizational structure are focused on
analysis of IT dissemination in organization. Lack of IT influence concluded by them, may be caused by omitting
the analysis of variable which allows to assess the actual use of IT in organization, not only its theoretical
dissemination.
References
Bresnahan, T. F., Brynjolfsson, E., & Hitt, L. M. (2002). Information technology, workplace organization and the demand for
skilled labor: Firm-level evidence. Quarterly Journal of Economics, 117(1), 339-376.
Crowston, K. (2000). Processes as theory in information systems research. Proceedings from International Working Conference
on the Social and Organizational Perspective on Research and Practice in Information Technology.
Currie, W. L. (1996). Organizational structure and the use of information technology. International Journal of Information
Management, 1(16), 51-64.
Daintith, J. (2009). “IT”—A dictionary of physics. Oxford: Oxford University Press.
Dillon, A. (2005). User acceptance of information technology. In W. Karwowski (Ed.), Encyclopedia of human factors and
ergonomics. London: Taylor and Francis.
Galbraith, J. R. (1977). Organization design. Miami: Addison-Wesley.
Jones, G. R., & Dewett, T. (2001). The role of information technology in the organization: A review, model, and assessment.
Journal of Management, 27, 313-346.
Orlikowski, W. J., & Robey, D. (1991). Information technology and the structuring of organizations. Information Systems
Research, 2(2), 143-169.
Spanos, Y., Prastacos, G. P., & Poulymenakou, A. (2000). The impact of information and communication technologies on firm
structure: Evidence from an economy in transition. Management of Innovation and Technology, 2, 573-579.
Tworek, K. (2014). Wpływ technologii informacyjnych na struktury organizacyjne przedsiębiorstw (Ph.D. thesis, Wroclaw
University of Technology, Wroclaw).
Whisler, T. L. (1970). The impact of computers on organizations. New York: Praeger Publishers.

Chinese Business Review, July 2015, Vol. 14, No. 7, 354-359
doi: 10.17265/1537-1506/2015.07.004
Systems Analysis in the Study of the Political Elite
Nadezhda Ponomarenko
The Russian Presidential Academy of National Economy and Public Administration, Novosibirsk, Russia
The main topic of the research is applying of systems approach in studying of political elite. This approach was
applied in the analysis of Russia’s regional power elite (1991 to 2010). The elite was studied as a complex
self-reference system oriented at its own environment, not only in an adaptive way, but first and foremost in
structure. The systems approach specifies the following conceptual framework of the study: self-reference, system
boundaries, and interaction between the political elite and the surrounding world. Application of the systems
analysis to studying the political elite enabled to analyze the structure and functions of the elite, create a model of
elitogenesis, and receive study matrix.
Keywords: political elite system, self-reference, boundaries of the political elite, political elite, systems analysis,
structure of political elite
Introduction
The power elite is one of the most important factors in the political process. Changing of the elite structure,
its role, and significance in the public system requires applying new methods of analysis, since the former
approaches were not always functional for solving newly emerging problems. In the paper, the systems
approach is proposed in the studying of the political elite. Application of the systems analysis to studying the
political elite enabled to analyze the structure and functions of the elite and create a model of elitogenesis
(Ponomarenko, 2013). Studying the political elite as a system but not merely a social group allowed to
substantially broaden the scope for analyzing it. Analyzing the elites from the viewpoint of the systems theory
made it possible to consider the object under study as a complex system existing in the conditions of
transformation thereby determining the conceptual framework of the study.
In the first part, the main approaches of studying of political elite are shown. In the second part, the
peculiarities of systems approach in studying of political elite are described. In the third part, the limitations of
the systems approach are summarized.
Political Elite as a Social Group
In terms of a conceptual expression, the studies of political elite may be divided into stratificational and
transitological, each based on different theoretical premises and methodological approaches. Both of the
approaches are related. As the methods of study of the political elite, use was primarily made of the analyses of

Nadezhda Ponomarenko, Ph.D., Department of Political Sciences and Technologies of Siberian Institute of Administration, The
Russian Presidential Academy of National Economy and Public Administration,Novosibirsk, Russia.
Correspondence concerning this article should be addressed to 
Nadezhda Ponomarenko, Department of Political Sciences and
Technologies of Siberian Institute of Administration, The Russian Presidential Academy of National Economy and Public
Administration, Novosibirsk, Russia. E-mail: [e-mail].
DAVID PUBLISHING
D

SYSTEMS ANALYSIS IN THE STUDY OF THE POLITICAL ELITE 355
documents and biographies of elite representatives, as well as semi-formalized profound interviews, expert and
mass polls, case-studies, inclusive observation, and others. Within the framework of stratification studies,
political elite is treated as a special social group. Principal attention was paid to its specific characteristics, such
as structure, mobility (genesis, recruiting, excorporation, and career trajectory), interaction with other social
groups, and finally, values and purposes (Kryshtanovskaya, 2004).
In its turn, transitological studies are based on the analysis of the influence of elites upon the processes of
transformation of political regime in post-Soviet Russia. Succession and changeability of elites in these studies
are considered from the point of view of prospects of democratization and other consequences of a change of
the political regime (Duka, 2005).
The researchers treated political elite as a social group. Consequently, they studied the structure of this
group, the channels of incorporation and excorporation, but it is noteworthy that the subject of political elite is
somewhat wider than a mere social characteristic of the ruling class: In the first place, this problem concerns
the peculiarities of the ruling regime, design of the power institutions, prospects of transformation, and
directions of transformation of political system.
The method of approach to political elite as a social group makes it possible to characterize the structure,
belonging to profession, psychological portrait of the elite, but it is rather problematic to analyze the structure,
functions of the political elite, construct a matrix for the comparison of various elite groups, and formulate
conceptual and theoretical generalizations.
The System of Political Elite
In recent study, the systems approach was applied as some theoretical basis of the analysis of political elite.
In the study, the political elite was studied as a self-reference system. The system is characterized as a
self-reference one, if the elements of which the given system is comprised are organized by the system itself as
functional unities, and in all the relations among these elements, the system provides reference to such
self-constitution, thereby continuously reproducing it.
The subject of self-reference refers to the problem of system formation; incidentally, it should be pointed
out that this subject is getting more and more attention, including such themes as self-reference systems and
autopoiesis. In any case, in the theory of systems, the vector is changed, which makes it possible to shift
self-attributing from the level of system formation and structure changing to the level of organization elements.
The transition to the theory of self-reference systems, in the framework of the general theory of systems
possesses certain structural and processual consequences, taking which into account people obtain both a new
set of instruments and a point of view at the phenomenon of political elite.
The consequence of transition to the concept of self-reference systems deals with the operative level of
systems processes. For the whole aggregation of systems open to the surrounding world, with the transition
from self-organization to “autopoiesis”, the key problem underlying the theory changes. Up to the point when
authors proceeded from the problem of formation and changing of the structures and perceived in it the systems
dynamics, the problem consisted in the special conditions in which repetition of a similar action or expectation
of its repetition was probable. On the contrary, in the theory of autopoietic systems, in the first turn, there arises
a question as how the transition from one elementary event to another occurs; the main problem being, in this
case, not repetition, but the ability for joining. So, in the research, the following matrix was used: the structure

SYSTEMS ANALYSIS IN THE STUDY OF THE POLITICAL ELITE356
of political elite system, system boundaries, and interaction between the political elite and the surrounding
world.
The Structure of Political Elite System
Political elite is a self-reference system. Self-reference assumes a principle that is designated as the
principle of a compound constitution which declines the former idea that the system as a whole of political elite
in particular consists only of elements and connections among them. No element can be determined irrespective
of the system (Luhmann, 2007). So, the system of political elite considers its elements as such and it qualifies
them in connection with this. As a result, the system of political elite can be constituted and changed only by
means of the relations of its elements, but not by means of disintegration and reorganization. The system as a
unity that cannot be decomposed any further is each time the element (Luhmann, 2007).
The realization of intra-elite connections in consequence of the integrity calls for selection but not mere
inclusion of new elements in the system structure. The fact rather unlike that elite systems are formed out of the
initial stratum of fairly similar unities may be accounted for by the necessity of selection and by the fact of
conditioning by the selection acts. It should be noted that the self-reference, at the level of elements,
reproduction of the elite is to secure elements of those kinds that are stipulated by the existing system of
relations, thereby ensuring reproduction, which results in setting the boundaries of variations of transformation
of the elite structure.
The process of reproduction of the system of political elite can be applied only internally. In other words,
the elite structures, unless they are willing to relinquish the foundation of their existence, have to secure the
capacity for attaching reproduction, which limits the range of feasible changes within the framework of the
system.
The system of political elite that has at its disposal in its own structures and processes is capable of
subordinating to these forms of strengthening of selectivity all the elements that are produced and reproduced
by it. As a result, it will be able to regulate its own autopoiesis (Luhmann, 2007). However, in the conditions of
the surrounding world, this consideration of the whole aggregate of possible elements by means of the forms of
strengthening selectivity cannot still have any exclusive applicability. This works merely as the procedure of
differentiation, consequently, in analyzing the elite structures, one should take into account the events of
deviation, while in respect of intra-elite processes, account should be taken of possible and unrealizable ones.
Political elite structures leave open a limited set of choice possibilities. By means of this selection, the
structures can direct further acts of selection, each time reducing the possibilities to visible situations. The
processes are realized, due to the fact that particular acts of choice are arranged in time relative to each other,
are joined together with each other, and, consequently, the previous selection acts and respectively its expected
acts, are built in a separate selection act as its prerequisites (Luhmann, 2007).
It is noteworthy that in the framework of new conceptions of the theory of systems, the structure does not
act as such, but is part of the experience of differences (Luhmann, 2007). Thus, the elite system creates its own
past as its own causal foundation that allows it to distance from the causal pressure of the surrounding world.
As a result, the modus operandi of self-reference elite systems passes on to such forms of causality which to a
large degree take the system away from the safe external control.
Elite systems that create their own causality in that case are no longer subject to “causal explanation”
(unless in the procedure of the observer’s reduction) and the reason lies not only in the lack of transparency of

SYSTEMS ANALYSIS IN THE STUDY OF THE POLITICAL ELITE 357
their integrity, but due to logical foundations. They assume themselves as the produce of self-reproduction
(Luhmann, 2007). The system of political elite may perceive any external influence or external stimulus first
and foremost as information, i.e., an experience of difference and in that form fixes it in itself.
The integrity of political elite is reproduced as an inevitable trait at each of the higher levels of
formation of the given system. An integrated system of political elite must adapt not only to its surrounding
world, but also to its own integrated nature. The system should be able to cope with its internal crises and
“challenges”, evolve mechanisms that could reduce any deviated behavior, which becomes possible only due to
the fact that there exist dominant basic structures (Luhmann, 2007). Consequently, elite, as a self-reference
system, has to be self-adaptable, namely, to be able to adapt to its own integrity. This fact explains why elite
systems cannot continuously follow changes in its surrounding world even in the conditions of transformation
of the regime.
It should be pointed out that the degree of integration of political elite may be different. In the systems
theory, systems of higher (emergent) order may possess lower integrity than systems of lower order, since they
themselves determine the integrity and the number of elements of which they consist, i.e., in the integrity, they
are independent of their real foundation (Luhmann, 2007). It also means that the necessary and respectively
sufficient integrity of the political elite system are not determined by the “material” used by the system, but can
be determined anew for each system formation level, either in conformity with the relevant surrounding world
or with respective political regime.
System Boundaries of Political Elite
The most important requirement for isolation of the systems, along with the constitution of their own
elements is determination of the boundaries. The boundaries may be considered determined enough, if they
allow to process problems of behavior of the borderline that remained open or attribute the events either inside
or outside, by the system’s own means (Luhmann, 2007).
In a general sense, the boundaries of political elite possess a dual function of separation and joining the
system and the surrounding world. If the boundaries are determined accurately, the elements may be attached
either to the system or to its surrounding world. On the contrary, relations may exist both between the system
and the surrounding world. The boundary separates the elements, but not necessarily the relations; it separates
the events, but allows causal actions to be realized (Luhmann, 2007). This feature distinguishes the notion of
system from the notion of structure.
This, in itself, old and indisputable notion of the boundary is a prerequisite for the latest development of
the theory of systems, in which the distinction between open and confidential systems is already perceived not
as antipodes of the types, but as a manifestation of strengthening (Luhmann, 2007). With the help of the
boundaries, the systems may at the same time close and open, thereby separating the internal interdependences
from interdependences system/surrounding world, and connect them with each other. In this respect, the
boundaries are predominantly an acquisition of evolution. Any higher development of the system, first and
foremost, its development of the systems of internally-closed self-reference assumes the presence of boundaries
(Luhmann, 2007).
In the perspective of the dynamics of development, the boundaries act as a factor of amplification. In the
system theory, this aspect is designated as the derivative of systems differentiation. Formation of the
boundaries interrupts the discontinuity of processes connecting the system with the surrounding world

SYSTEMS ANALYSIS IN THE STUDY OF THE POLITICAL ELITE358
(Luhmann, 2007). The discontinuities produced in the process may be fairly regular, allowing the system an
opportunity to estimate its contacts with the surrounding world.
The boundaries of the system always cut off the surrounding world; yet, the requirements presented here
are changed, if the system in its own surrounding world has to discern other systems (and their surrounding
worlds) and determine its boundaries in accordance with that distinction. The relation, in which the boundaries
are determined under pressure of the necessity of their input, consequently, the relationship that requires a more
accurate determination of their boundaries and their preservation, follows from the above distinction between
the aggregate surrounding world and the systems in the surrounding world of the system (Luhmann, 2007).
The notion of a boundary implies that the processes crossing them (for instance, information exchange)
proceed in the transition of the system in different conditions (for example, in the conditions of fragmentation
or consensus of the ruling elite). One should take into account that the boundaries do not signify any rupture of
the connections. In this respect, preserving the boundaries is a condition for retaining the system of ruling elite,
since the distinction is a functional prerequisite of self-reference operations.
Interaction Between the Political Elite and the Surrounding World
In this connection, this paper would like to dwell in greater detail on the difference between the system of
political elite and the surrounding world which has deep consequences for understanding the causality within
the framework of the system of political elite. The ruling elite as a system is oriented at its own surrounding
world not only in an adaptive sort of way, but first and foremost in structure. The political elite systems are
constituted and preserved by means of creating and preserving the difference with the surrounding world.
For their part, the systems in the surrounding world of some system are oriented at their surrounding
worlds. However, no system can totally control someone else’s relations system/surrounding world, if only by
way of destruction. Therefore, every system has its surrounding world in the form of an involved complex
structure of mutual relations of the system and the surrounding world, and at the same time as a unity
constituted by the system itself that requires only selective watching (Luhmann, 2007).
The fact that it is important to differentiate the surrounding world of the system and the system in the
surrounding world of the given system is one of the most important consequences of the paradigm
system/surrounding world (Luhmann, 2007). So, first and foremost, one should draw a hard and fast line
among the relations of dependence between the surrounding world and the system from the relations of
dependence among the systems. This distinction undermines the former themes of domination/subordination.
Whether the relations in which one system dominates over the other can and how far they can develop not in
the last place depend on the situation of dependence of both systems and the system of their relations on the
respective surrounding world (Luhmann, 2007).
The line of separation between the system and the surrounding world should not be perceived as isolation
and integration of the most important causes in the system; for it, to a much greater degree, slits the causal
relationships. Hence, as a result of evolution, a complex of “productive reasons” can be formed, and being once
formed, supplement appropriate reasons from the surrounding world (Luhmann, 2007).
Limitations of the Systems Approach
In the course of the conducted investigation, some limitations of the systems approach have been
established. For one thing, the present approach is characterized by a certain degree of reduction. Thus, in

SYSTEMS ANALYSIS IN THE STUDY OF THE POLITICAL ELITE 359
creating a model of Russia’s elitogenesis, the necessity of considerable schematization of the processes under
study, as well as some “depersonalization” of the elite was shown. Nevertheless, the efficiency of the systems
approach in the study of the political elite is sufficiently high, though the application of the present approach
needs further working out as well as discussing in the professional sphere.
Conclusions
Studying the political elite as a system but not merely a social group allowed to substantially broaden the
scope for analyzing it. The systems approach enabled to work out a more flexible and effective theoretical basis
for studying political elites at both regional and federal levels. Analyzing the elites from the viewpoint of the
systems theory made it possible to consider the object under study as a complex system existing in the
conditions of transformation thereby determining the conceptual framework of the study. Applying the systems
approach makes it possible to evaluate the political elite structure in its organic unity, as well as to elucidate its
functions and evolution features.
References
Duka, А. В. (2005). The study of elites: The search for theoretical foundations. Power and elites in the Russian transformation. St.
Petersburg: Intersonic.
Kryshtanovskaya, О. В. (2004). Anatomy of the Russian élite. Moscow: Publishing House of the A. V. Soloviev.
Luhmann, Н. (2007). A social system. An essay of the general theory. St. Petersburg: Nauka.
Ponomarenko, Н. А. (2013). The formation of the regional ruling elite in the period of transformation of post-Soviet Russia:
Materials of the Siberian macro region. Novosibirsk: Nauka.

Chinese Business Review, July 2015, Vol. 14, No. 7, 360-366
doi: 10.17265/1537-1506/2015.07.005
Privatizing War
Kenneth Shaw
State University of New York, New York, USA
Since the advent of the U.S. Iraq war in 2003, there has seen an acceleration of functions and operations which used
to be the province of government become increasingly privatized. The division of the world into public and private
spheres is at the center of a debate over what the government’s role should be. This paper seeks to frame the debate
between public and private roles regarding security issues. The military has been one area where there has never
been a question of nation states outsourcing or privatizing. This paper will touch on the use of mercenaries and then
discuss the growing use of corporate entities to supply what were considered to be traditional military activities and
objectives.
Keywords: privatization, mercenaries, private armies, security firms
Introduction
On March 31, 2004, a small town in Iraq called Fallujah became the center of media attention. Images of
rioting populous, mutilated, and charred corpses of men hanging from a bridge hit every media outlet. The
international media storm became a political crisis as the US president ordered the Marines to invade the town
to quell the violence. The attack killed approximately 600 Iraqis and some of them were women and children.
This dark chapter in the war brought a relatively unknown business to the forefront, as the victims of the
rioting were not soldiers but armed civilian contractors who were employed by a private company called
Blackwater. There are 20 thousand more just like them in Iraq. Fallujah was an action that set off a much larger
event that was detrimental to the American image in Iraq and thus, the history of the Iraq war cannot be written
without considering Fallujah and private companies providing military assistance, something quite different
from any prior war. These emerging private military firms are a direct result of a market demand created by a
change in the global order. From this change, government trained soldiers with unique military skill sets create
a market for themselves plying their specialization. There is a direct correlation among the number of
government trained individuals being discharged from duty with this growth of private military firms.
Private Versus Public Debate
The division of the world into public and private spheres is at the center of the long debate over what
government’s role should be. There is a give and take between the public and private with the line between the
two constantly shifting as some governments have found it expedient to transfer some of their public
responsibilities to the private sector. They may do this because of issues concerning cost, quality, efficiency,
Kenneth Shaw, Ph.D., associate professor, Department of Management and Marketing, State University of New York at
Oswego, USA.
Correspondence concerning this article should be addressed to Kenneth Shaw, 312 Rich Hall Oswego, NY 13126, USA. E-mail:
[e-mail].
DAVID PUBLISHING
D

PRIVATIZING WAR 361
time, or changing conceptions of governmental duties. These issues include health care, prisons garbage
collection, and education. All are examples of services that have, in some cases, shifted among a public
responsibility of the government to the private market. The terms “outsourcing” and “privatization” are often
used interchangeably to describe this relocation of service provisions.
Yet one area where the debate over public or private never ventured was the military, the force that
protects the state. Providing for national, and hence their citizens’ security, was one of the most essential tasks
of a government. It defined what a government was supposed to be (Avant, 2008). The result is that the military
has been one area where there has never been a question of states outsourcing or privatizing. Even the most
radical conservative thinkers, who tend to believe that everything else should be left to the market, made an
exception of the military. Most viewed national defense as something best carried out by a tax financed
government force. For the last two centuries, the military profession has been seen as distinctive from all other
pursuits. Huntington (1957, p. 37), one of the great political scientists of the time summarized this distinction,
“Society has a direct, continuing, and general interest in the employment of this skill for the enhancement of its
own military security. While all professions are to some extent regulated by the state, the military profession is
monopolized by the state”. The present breakup of this public monopoly of the military profession in light of
events like Fallujah illustrates how the public-private dichotomy regarding the waging of war is now under
siege. The debate about the public and private sectors has moved farther than ever before, to the nature of
military services.
Private Military Firms
These companies are a new development known as privatized military firms (PMFs) or private military
companies (PMCs). They are business organizations that trade in the professional services intricately linked to
warfare. They are corporate bodies that specialize in the provision of military skills, including combat
operations, strategic planning, intelligence, risk assessment, operational support, training, and technical skills.
PMFs are private business entities that deliver consumers a wide spectrum of military and security services,
once generally assumed to be exclusively in the public domain. Considering the mixture of the public military
and the private modern business entity is almost paradoxical, yet in the post-Cold War era, the private military
industry has become global in both its scope and activity in response to worldwide policies of military
disarmament and downsizing.
Since the 1990’s, PMFs have been active in zones of conflict and transition throughout the world. They
have been critical players in several conflicts and often the determinate actor. They have operated from Albania
to Zambia, often with a strategic impact on both the process and outcome of conflicts. Their operations are not
restricted to any one geographic area or type of state. PMFs have been active on every continent but Antarctica,
including in relative backwaters and key strategic zones where the superpowers once vied for influence.
Moreover, their operations have become integral to the peacetime security systems of rich and poor states alike.
Their customers rang across the moral spectrum from ruthless dictators, caused driven rebels and drug cartels to
legitimate sovereign states, and respected multinational corporations and humanitarian non-governmental
organizations (Bicanic & Bourque, 2006). An overall global pattern is emerging, one of reliance by individuals,
corporations, states, and international organizations on military services supplied not only by the public sphere
but also by the non-sovereign private market. The emergence of a privatized military industry may well
represent the new business face of war (Avant, 2008).

PRIVATIZING WAR362
Mercenaries and the Private Military Firm
Central to the PMF industry is the notion of ethics revolving around services provided by these firms and
this is being connected to the controversial topic of mercenaries. Mercenaries and their extensive use have
existed throughout history. However, the private military market was delegitimized by the end of the 1800’s
both for material and practical reasons. The practice of hiring foreign soldiers was universally condemned and
legislated against culminating in the Geneva Conventions and further by the United Nations Convention on
Mercenaries, which essentially criminalized the mercenary trade and made these individuals pariahs; yet this
did not mean that the private soldier was eliminated. Market demand and the profit motive simply pushed it
underground. Even today, mercenaries are presented with rewards that are quite lucrative.
In the Kosovo war, the going rate for a professional soldier to help the rebel KLA group was a reported $4,000 per
month, while private fighters on the Serb side were given a free license to pillage and loot the countryside: Many left with
truckloads of stolen consumer goods. (O’Brien, 1998, pp. 79-105)
Nevertheless, the entire process of the black market mercenary trade remains inefficient and the impact of
such individuals is nominal.
With some mercenary trade continuing operations to this day, the majority of PMFs are associated
with and judged similarly to the individual mercenary. Although certain parallels exist between the past
private military organizations and even present day mercenaries, the current waves of PMFs have some
fundamental differences. The essential difference is the corporatization of military services. PMFs are
structured as firms and operate as businesses first and foremost. As business entities, they are often linked
through complex financial ties to other firms, both within and outside their industry. In fact, many of the most
active PMFs, such as G4S and Vinnell, are openly part of broader multinational corporations. They represent
the next step in the provision of military services by private actors, parallel to the development of the modern
business organization. Six essential characteristics distinguish mercenaries from other combatants and military
organizations:
(1) Foreign: A mercenary is not a citizen or resident of the state in which he or she is fighting;
(2) Independence: A mercenary is not integrated (for the long term) into any national force and is bound
only by the contractual ties of a limited employee;
(3) Motivation: A mercenary fights for individual shot-term economic reward, not for political or religious
goals;
(4) Recruitment: Mercenaries are brought in by oblique and roundabout ways to avoid legal prosecution;
(5) Organization: Mercenary units are temporary and ad hoc groupings of individual soldiers;
(6) Services: Lacking prior organization, mercenaries focus on just combat services for single clients
(United Nations General Assembly, 1989).
What set PMFs apart from mercenaries are:
(1) Organization: prior corporate structure;
(2) Motives: business profit motive, rather than individual profit motive;
(3) Open market: legal, public entities;
(4) Services: wider range, varied clientele;
(5) Recruitment: public, specialized;
(6) Linkages: ties to corporate holdings and financial markets (Scahill, 2007).

PRIVATIZING WAR 363
Such factors and market ties provide a whole new level of legitimacy and connections for PMFs. In
addition, they allow greater access to financial capital and also have on call other corporate resources. The
private military industry is not just a return to historic private military agents; rather it is distinctly
representative of the changed global security and business environments at the start of the 21st century.
The Market Creation and Growth
The end of the Cold War is central to the emergence of the privatized military industry. When the Berlin
Wall fell, an entire global order collapsed almost overnight. The resulting effect on the supply and demand of
military services created a security gap that the private market rushed to fill. Two other factors also impacted
the situation. One was the broad transformations that have taken place to warfare itself including terrorism,
asymmetrical combat, and nation building. These have created new demands and new market opportunities for
PMFs. A second factor was the privatization movement initiated by Ronald Reagan and Margaret Thatcher,
which provided the logic, legitimacy, and models for the entrance of private companies into formerly public
areas.
The end of the Cold War has allowed conflicts long suppressed or manipulated by the superpower to re-emerge. At
the same time, most armies have gotten smaller and live footage on CNN of United States soldiers being killed in Somalia
has had staggering effects on the willingness of governments to commit to foreign conflicts. We fill the gap according to
Colonel Tom Spicer, industry executive, and owner of Sandline. (Retrieved from www.telegraph.co.uk)
With renewed conflicts, the rise of non-states in violence, the market flood of labor (soldiers), the market
flood of tools (weapons), the decline of local state governance, the decline of military response, and the decline
of outside intervention, due to great power unwillingness, UN inability, and regional organization failings, have
created an ideal environment for PMFs to flourish.
Nine elevenths has also been a major catalyst in the industry’s growth. The whole security world has
grown and become more important in the eyes of the world, a reflection of rising levels of wariness.
When looking at the economy the year after the attack, virtually every industry went down except these
PMFs. On average, they went up by 50%, some of them even doubled and tripled their stock price. What has
happened to this industry is parallel to the internet boom, as these companies have exploded in size in a
relatively short amount of time (Polk, 2007).
Marketing the Business of War
The private military industry is still in its youth with plenty of room for expansion. The barriers to entering
the private military service market are relatively low, as are the economies of scale. National armed forces
require substantial and regular budgets to operate, while the only requirement for a low level PMF is a small
amount of financial and intellectual capital (Fainaru, 2008).
The marketability of these firms is simple with the theme essentially revolving around cost. Tools are
readily available at almost bargain prices. There is a large supply of labor that is easily accessed. Usually PMFs
operate as virtual companies. This is similar to temporary worker firms that save by limiting their expenditure
on fixed assets, permanent employees, and a standing force. Global locations and high levels of adaptability
allow these companies to provide services at a fraction of the price compared to the public sector with a high
rate of returns. Due to the murkiness of the industry, exact data are limited. A best estimate of annual market
revenue is in the range of $100 billion and growing, indicating its health and power (Schrader, 2002).

PRIVATIZING WAR364
Despite how simple these factors make the industry seem, many of the companies rely heavily on
reputation and “word of mouth” as a marketing tool. This encompasses a variety of marketable factors, such as
the rate of success in operations, what its labor force is made up of, the tools it possesses, and so forth. One of
the best examples of this is executive outcomes (EO).
EO was one of the first and most notorious PMFs and is what many of today’s firms model themselves
after. Its primary marketing tool was its reputation. EO’s labor force consisted almost exclusively of the elite
apartheid-era South African Defense Force (SADF). It possessed air weapons systems like the Russian MI-24
HIN attack helicopter with pilots qualified to fly any air systems that might be supplied. They also possessed
mechanized units and it could organize an elite fighting force in a matter of days. All of these aided in selling
its single product, offensive force.
Executive outcomes-typical fees in 1997 are as the followings:
(1) infantry troops—$4.5 million;
(2) weapons—$2.5 million;
(3) attack helicopter—$44.1 million;
(4) assault helicopter—$3.0 million;
(5) pilots—$1.0 million (Bicanic & Bourque, 2006).
EO’s fist contracts in Angola in the early 90’s are attributed to its marketed organizational structure and
also SADF connections to the oil and mining industries that were under threat. Its highly successful operations
in Angola caught the media’s attention and EO was quick to take credit. Word quickly spread and its reputation
grew. This was the reason why the government of Sierra Leone hired the company. The weak government was
under threat by a massive rebel army, the Revolutionary United Front. With an inept military and a rebel army
encroaching on the capital, the government hired EO. Over a period of 18 months, EO forced a 15,000 strong
rebel force to the negotiating table with only 150 men. This shocking feat showcased its abilities to carry out
war far exceeding most African states which contributed to EO’s undertaking larger economic holdings.
However, the marketing of its reputation and services was EO’s ultimate downfall. Branded as a mercenary
firm, clients found doing business with the company too complex and turned to EO’s “quieter” competition.
The company disbanded in 1999 (Bicanic & Bourque, 2006).
Market trends have pushed the industry into new realms. Initially being made up of a limited number of
firms offering limited military specialties, the PMF industry is expanding to offer a wider range of more
sophisticated services. The industry’s usual structure consists of the following:
(1) Military Support Firms: non-lethal aid and assistance (Halliburton, KBR, and SAIC);
(2) Military Consultant Firms: advisory and training (MPRI, G4S, Vinnell, and DynCorp);
(3) Private Military Companies: implementation and command (EO, Sandline, Blackwater, Kroll,
TripleCanopy, Control Risks, ArmorGroup, G4S, and Aegis).
As the businesses respond to marketplace demands, a rapid consolidation into international firms is taking
place. PMFs are essentially following the standard business techniques for market engineering used by other
types of firms. Many are either partnering up with equals or acquiring smaller market participants with niche
markets and technologic specializations. The reason for this consolidation centers on brand marketing and sub
specialization seen as necessary by the leading firms to compete on the global scene. Broader based firms can
more easily offer the wider range of services that are seen as necessary for complex security situations. Already
having name recognition and established brand records, diversification allows the bigger international to

PRIVATIZING WAR 365
increase their market share rapidly. Such is the case for G4S, which prides itself on being a global security
conglomerate able to undertake any security challenge that may be presented. It is the world’s largest security
company measured by revenues with operations in over 125 countries. With more than 630,000 employees, it is
the world’s second largest private sector employer next to Wal-Mart.
Key facts and figures marketed directly on G4S’s website are the followings:
 G4S is the largest security services provider in the world, with operations in more than 125 countries
across six continents;
 The Group offers a wide range of secure solutions and business processes, including secure facilities
management, security consultancy, event security, secure transport services, security systems, and security
services to governments;
 G4S provides services to public, private, and corporate customers;
 G4S plc is a FTSE 100 listed company and is listed on the Copenhagen stock exchange;
 In 2010, the Group had a turnover of 7.4 billion pounds sterling;
 With over 625,000 employees, G4S is the largest employer listed on the London stock exchange;
 G4S was formed from the merger between Securicor plc and Group 4 Falck A/S’ security business which
was completed in July 2004;
 Our head office and the executive committee are located in Crawley, the United Kingdom.
However, specialization and reputation can be limiting factors to consolidation and globalization.
Although the move towards corporate military conglomerates is in full effect, some sectors of the field remain
highly specialized. This is due to the high concerns of reputation that cuts both ways. A number of firms that
engage in humanitarian operations, such as the demining companies Ronco or Minetech, focus only on their
singular specialty, despite the fact that they recruit many of the same ex-military personnel as larger and more
diversified firms (South African Institute of International Affairs, 2000). Although still military in nature,
removing anti-personnel mines is considered more acceptable than such areas as combat training or strategic
consulting, because it involves weapons removal rather than use. In order to keep humanitarian minded clients
happy, many mine removal firms do their utmost to disassociate themselves from the rest of the PMF industry
and the “mercenary” label.
Outside of global tier companies, a market niche remains for more aggressive and smaller firms that can
cut informal deals which bigger transnational firms cannot. Such companies have less regard for their corporate
image and can more easily insinuate themselves in the political network of unseemly regimes. They also can
use the barter system of payment that larger firms with scrutinized accounting practices would not be able to
employ, as in the case of EO (Bicanic & Bourque, 2006).
Conclusions
PMFs are quintessential examples of the private industry responding to market demands that spawn an
industry. These emerging PMFs are a direct result of a market demand created by a change in the global order.
The idea of private businesses as viable and legitimate military actors has begun to gain credence among a
growing number of political analysts and officials from all across the political spectrum. Their activities have
caught the attention of legislative officials in a number of countries and led to the submission of several bills
covering their actions. An international forum of African heads of state advised their use in certain situations,
as the commander of the UN operation in Sierra Leone did. Another sign of emerging market maturity is the

PRIVATIZING WAR366
industry trade association, International Peace Operations Association (IOPA), recently formed to lobby on
behalf of military firms. The point is that, as obscure and veiled as this private military industry once was, no
longer does it remain either small or obscure. However, for all its growth, the understanding of it still remains
greatly limited. These episodes are indicators of a profound development in the manner that security is both
conceptualized and realized. For each conflict, a critical factor behind the possible turn of events may be a
private firm being hired, hardly the traditional means of winning wars.
Works Cited
Avant, D. D. (2008). Private security. In P. D. Williams (Ed.), Security studies: An introduction. New York, NY: Routledge.
Bicanic, N., & Bourque, J. (Director), & Bicanic, N., & Bourque, J. (Writer). (2006). Shadow company [Motion Picture]. Canada:
Purpose Films.
Fainaru, S. (2008). Big boy rules: America’s mercenaries fighting in Iraq. Cambridge, MA: Da Capo.
Gilligan, A. (1998). Inside Lt. Col. Spicer’s new model army. Retrieved from www.telegraph.co.uk
Huntington, S. P. (1957). The soldier and the state: The theory and politics of civil military relations. New York, NY: Random
House.
O’Brien, K. (1998). Military advisory groups and African security: Privatized peacekeeping. International Peacekeeping, 5(3),
79-105.
Polk, W. R. (2007). Violent politics: A history of insurgency, terrorism and guerilla war from the American Revolution to Iraq.
New York, NY: Harper Collins.
Scahill, J. (2007). Blackwater: The rise of the world’ most powerful mercenary army. New York, NY: Nation Books.
Schrader, E. (2002). Companies capitalize on war on terror. Retrieved from
http://www.latimes.com/news/nationworld/nation/la-041402trainers.story
South African Institute of International Affairs. (2002). Private security: Phantom menace or evil empire? Retrieved from
http://saiia.org.za/
United Nations General Assembly. (1989). International convention against the recruitment, use, financing and training of
mercenaries. Retrieved from http://www.un.org/documents/ga/res/44/a44r034.htm