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Growing… going… gone?

By Johan Pauw, Managing Director, SAEON
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Public value could mean many different things to different people...

As a publicly funded entity, a key objective of SAEON is to grow its public value. A simplified value chain summarises what we mean by the public value derived from SAEON (Figure 1).

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       Figure 1: The value chain of SAEON

In the language of business, the value chain of SAEON consists of infrastructure for ecosystems research and the associated research and data. Based on those, SAEON also offers education-outreach programmes and environmental monitoring/research services.

Not only does SAEON produce science to inform more and better environmental science, but also science for environmental decision-making, including, when appropriate, early warnings of impending hazards. Overall, the SAEON value chain contributes to economic development and a society that will be more secure in the face of rising global and local environmental changes.

Growing SAEON’s public value would mean accessing more resources as well as doing things more effectively.

With respect to financial resources, the core source for SAEON is Government. Over the past few years Government maintained a budget trajectory for SAEON at levels converging to the rate of inflation. In real terms this means that in recent years there was no growth in financial resources. However, that is not the full story because annual salary increases over the last few years have exceeded inflation, resulting in a proportionate reduction in funds available for research operations.

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“SAEON … has grown from strength to strength. It's unique as a network organisation, standing in the middle of the Earth Observation arena and functioning as an agent of government at large. Its neutral position among all the participants and stakeholders is key to its continued growth and success.” – The Minister of Science and Technology, Naledi Pandor

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SAEON has become the main agent for the South African Risk and Vulnerability Atlas, the South African Bioenergy Atlas and the South African Spatial Data Infrastructure

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SAEON plays a key role in the development of the Data Intensive Research Infrastructure of South Africa

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“Overall, the SAEON value chain contributes to economic development and a society that will be more secure in the face of rising global and local environmental changes.” – Johan Pauw

This leaves SAEON with four possible main management responses to a funding regime that was not conducive to growth in recent years: 1) reduce staff and/or salaries; 2) reduce operations; 3) generate external income, 4) collaboration and sharing.

Option 1: Reduce staff and/or salaries

For a knowledge organisation in the public domain to increase its productivity, the first requirement is a growing funding stream to employ and retain top scientists and administrators as well as to provide them with state-of-the-art research infrastructure. With respect to its human resources component, SAEON has grown by nearly 65% over the past seven years, despite rising salary scales and an annual core budget which grew by 73% over the same period.

Nonetheless, as a public entity, working in a domain wherein South Africa is a world leader and has a geographic advantage, SAEON has grown from strength to strength and “is unique as a network organisation, standing in the middle of the Earth Observation arena and functioning as an agent of government at large” (Minister of Science and Technology, 2016*).

Indeed, SAEON should ideally grow a further four-fold in its present size in order to come near achieving the full scope of its mandate and its potential for offering reliable environmental data, information and services, while growing human capacity in the field. Therefore, other than the national financial crunch, there is not yet sufficient business reason to reduce SAEON staff and/or salaries.

Option 2: Reduce operations

The stagnation of SAEON’s operational budget over time has indeed helped to focus SAEON’s research and some projects have already been stopped. It goes without saying that a 65% increase in staff numbers should have required a commensurate increase in the available operational budget, but that was not the case across SAEON in the past five years.

Nonetheless, there is no obvious room for reducing activities; instead activities are increasing despite the decreasing available operational budget. How this might be is explained below.

Option 3: Generate external income

Up to a point, this has proven to be a viable option for SAEON. During 2011 a strategic decision was taken to establish the last two nodes of SAEON despite a dismal financial outlook and the negative impact on the available operational budget.

SAEON management and the NRF Executive agreed that it made sense to employ more staff because that would create more opportunities for growth. Such opportunities were expected to manifest through student supervision, contract income, grants and publication rewards. The rest is history and the SAEON team should be congratulated on its success.

Growing its scientific staff placed SAEON in a more favourable position to compete for external resources offered by several new NRF programmes such as the Strategic Research Infrastructure Grant; Research and Innovation Reward Programme; the DST-NRF Internship Programme; the DST-NRF Conference Fund; the Knowledge, Interchange and Collaboration Programme; the Collaborative Platforms Grant; and the Professional Development Programme.

By doing the right things, SAEON’s nodes became reputable institutions in just a short while, which in turn allowed them to sign research contracts and MoUs with various private and public organisations, including the Department of Environmental Affairs and the South African National Parks.

Another strategic direction pursued by SAEON management, was to build internal expertise and a reputation for the development of Earth observation data systems and online platforms that allow various organisations to publicise and share their data. Based on this expertise, SAEON has become a service provider to government departments such as the Department of Science and Technology and the Department of Rural Development and Land Reform.

As a result, SAEON has become the main agent for the South African Risk and Vulnerability Atlas, the South African Bioenergy Atlas and the South African Spatial Data Infrastructure. SAEON also plays a key role in the development of the Data Intensive Research Infrastructure of South Africa.

Option 4: Collaboration and sharing

SAEON will continue to follow its core mandate of being a network organisation rather than a stand-alone research institute. External resources are therefore leveraged for SAEON’s benefit by collaboration and sharing relations with external organisations.

In the first instance SAEON nodes collaborate internally, but numerous external collaborations also do not require an exchange of funds. Examples are co-supervision of students with universities, sharing of research equipment and infrastructure, joint research programmes, research associateships, free access to research sites and free research services.

Only a few collaborations result in funding exchange arrangements, e.g. consortia applications for research grants.

Systemic implications of SAEON’s budget regime

SAEON’s business model has been shifting more than just slightly towards active income generation in response to Government budget levels, our growing reputation and the demand to be “an agent of government at large”. However, at no point can it be said that SAEON has a commercial objective or even that it has a full-cost recovery business model.

Instead, SAEON considers providing national services on top of its core structure as a form of public value (Pauw, 2014*). Such services charge 10% on average for SAEON overheads. When a service arrangement is in fact a collaboration resulting in SAEON receiving important data from such a project, there is often no service charge deducted from such a contract.

SAEON’s administrative component is fully stretched by now and cannot absorb more pressure from the additional workload and complexity associated with external income streams. Accordingly, the additional agency type support that SAEON provided to government departments and industry has become limited, although the demand for such support is steadily increasing.

The steep growth of SAEON’s HR component has benefited the National System of Innovation in many ways. More and better science is produced, a greater number of students, postdocs and interns are supported, more research collaboration with HEIs is happening and more scientific and data services are offered (including to government and scientists).

SAEON’s contribution to the national science system, given the core funding level received from Government, has now peaked and results in chronic overspending. SAEON will therefore have to put limits on further growth and consider gradual downscaling. The essential elements of SAEON have systemic implications and downscaling decisions will require due diligence investigations when those become inevitable.

Summary

SAEON’s growth over the past seven years did not result from increasing core funding from Government, but from a successful growth strategy and new funding opportunities by the NRF as well as several contracts from government departments. At this stage, limits to growth are kicking in and which can only be alleviated by an increase in SAEON’s core funding, ideally from a cohort of government departments.

Alternatively, it should be accepted that SAEON has reached a tipping point which will result in negative growth in the public value that can be expected from it.

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