working capital thesis

Role of working capital management in profitability considering the connection between accounting and finance

Asian Journal of Accounting Research

ISSN : 2459-9700

Article publication date: 25 August 2020

Issue publication date: 7 December 2020

The study aims to explain the relationship between accounting and finance through measuring the effect of rational working capital management on profitability.

Design/methodology/approach

Employing the methodology of semi-structured interviews with sixteen financial managers.

The findings pointed out the relationship between accounting and finance is complementary, since it supports the accountant by the critical skills and information, like project evaluation, managing the company funding resources and working capital management. These skills put the accountant up to the financial manager stage. The working capital investment and financing policies have the most significant impact on profitability. These policies related to risk and return theory; since the conservative policy will reduce both the risk and return and the aggressive one will have the opposite impact.

Originality/value

It recommends accountants to be in professional stage and increase the profitability of the company to grab both accounting and finance information and skills.

• Working capital
• Profitability
• M4 Accounting and Auditing

Morshed, A. (2020), "Role of working capital management in profitability considering the connection between accounting and finance", Asian Journal of Accounting Research , Vol. 5 No. 2, pp. 257-267. https://doi.org/10.1108/AJAR-04-2020-0023

Emerald Publishing Limited

Copyright © 2020, Amer Morshed

Published in Asian Journal of Accounting Research . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Despite the strong correlation between accounting and finance, each of them influences the management of operations in a different direction ( Brief and Peasnell, 2013 ). This link leads some people, who are not experienced and do not have the relevant knowledge, to confuse these two terms and connect some unrelated job duties to accountants ( Droms and Wright, 2010 ). Cleary and Quinn (2016) mentioned that accounting is an essential component of financing operations since finance is a term that includes accounting information.

Thus, the information provided by accountants is the primary element in decisions made by managers in general and financial managers in particular. However, in this context, Fields (2016) added that financing incorporates more subjects than only accounting. It contains statistics, economics, mathematics and any matters which are required for financing.

The main objective of the company, in common, is to achieve the most significant profits. The company aims to gain the maximum profit, and this can be done by multiplying the volume of production or the operation. One of the essential portions of production, trading and providing service is the working capital. Therefore, companies provide liquidity for working capital to achieve business continuity. In obtaining the purposes of the company, most often, business and financial directors are entitled to implement relevant working capital management policies. These policies are needed for financing because errors in working capital management may lead the commercial operations to withdrawn. Consequently, the sequence follows up on the status of working capital. It is significant and in touch with the entire business position ( Muhammad et al. , 2016 ).

Accordingly, the study aims to explain the relationship between accounting and finance through measuring the effect of rational working capital management on profitability and discussing the financial managers' responsibility. This article applies different procedures than those applied by other studies related to working capital management. The methodology adopts the qualitative method by conducting interview via Skype with financial managers from various territories in Europe and Asia to collect the data. These data reflect the best practices of working capital management from different economies, industries and sizes of capital. Hence, the results will be more generalisable.

The article found that the corporate finance skills put the accountant up to the financial manager stage. The working capital models play a significant role in advancing the profitability. Moreover, investment and financing policies have a substantial impact on profitability. These policies are related to risk and return theory since the balance between conservative and aggressive policies will contribute positive results.

Section 2 discusses a literature review of the working capital management. Section 3 discusses the methodology. Section 4 is the findings and discussion. In the end, Section 5 points out the conclusion.

2. Literature review

Explaining the profitability importance, Cakici et al. (2017) concluded that the companies use profitability as one of the four segments applied for the analysis of financial statements and performance. The other three are efficiency, solvency and market prospects. Managers, creditors and investors use these crucial impressions to analyse the company performance and its future potential if operations are suitably achieved. Vintilă and Nenu (2016) added that resources such as cash, overdraft and liabilities are used to cover the variable and fixed costs of the production process and to purchase the stock for resale operations. Profitability is the relationship between revenue and expenses and how well the company is performing and the potential future growth of the company and how it manages its working capital.

To explore the working capital management's effects on the profitability, Anwar (2018) examined the influence of the length of the operation cycle and the turnover of receivables and inventory on the profitability index of listed firms in Indonesia. The article concluded that reducing the turnover of both receivables and inventory leads to a decrease in the operation cycle and an increase the companies' profitability. Lazaridis and Tryfonidis (2006) reached results which show a relation between profitability and the operating cycle. Further, directors are able to generate gains for their businesses by controlling the operating cycle carefully and maintaining every different factor of the working capital to the most appropriate level. Pais and Gama (2015) pointed out many outcomes that inform the drop in the period of collecting the trade receivables and the rise in the number of days to settle their commercial liabilities are related to higher profitability. Additionally, the profitability is also an advance in return on assets with a reduction of the working capital amount.

The role of working capital management policies arose when Padachi (2006) concluded that excellent working capital control and policy affect the formulation of a company's value. This conclusion came from the investigation of the working capital control policy objectives and its relation to companies' achievement and profitability. This was done by applying statistical methods using the return on total assets ratio. The results show that focussing heavily on investments in high capital causes low profitability ratios. Muhammad et al. (2016) added that firms can use working capital management, which is one of the essential determinants to influence their profitability. The result reveals that there is an association between working capital elements and profitability. This is defined as the increase in the cash conversion cycle influences the profitability negatively. Additionally, directors can produce a definite amount for the company by minimising the cash conversion cycle at the most suitable level and performing a proper working capital policy and by taking care of each element of it at a sharp level. The findings of the study of Singh et al. (2017) confirmed that working capital management is linked with profitability, which indicates that aggressive working capital investment and finance policies drive higher profitability. Moreover, the cash conversion cycle is observed to be related to profitability negatively. The paper examined the working capital management variations and profitability by analysing the connection among changes in working capital management and firm profitability.

The previous literature review provides evidence of the significant roles of working capital management on the accounting profitability and assures that both accounting and finance are strongly associated. This article will apply different procedures than those applied in other studies related to working capital management to provide a deep discussion of the role of working capital management in profitability with the connection between accounting and finance.

3. The methodology

Aiming to approach practical information related to the study purpose and find practical generalised implications, this paper examines the opinions of interviewees gathered from semi-structured interviews with a group of participants consisting of sixteen financial managers. All the interviewed persons are actively involved in the financial decisions of their companies. Those interviewed found a strong desire to study objects and thus produced a fruitful penetration in this article. The respondents were selected depending on the country, industry and the size of capital as in the following table (see Table 1 ):

The researcher conducted semi-structured interviews to gain relevant data for the research objective. The meetings were carried within a reasonably free connection. Therefore, some questions proposed were not planned. Only the main questions to start the conversation were planned.

Numerous questions were automatically asked through the interview, providing elasticity to both the interviewer and the participant. This elasticity helped to examine and explain additional features or to recognise other vital details. This is unlike a structured interview, where questions are designed and arranged beforehand.

The key questions of the interviews were:

Do you find corporate finance important to accounting?

How do working capital management models improve profitability?

How do working capital management policies affect the profitability?

The meetings were in the structure of a dialogue. The interviews were conducted via Skype during the period of May 2019 until February 2020. The meetings were in Arabic and English, and the Arabic interviews were translated into English. They were recorded, transcribed and coded manually by the researcher. Finally, the researcher compared the interview proceeds with related literature in order to find the results.

The method proceeded by including the analysis of discussion records and applying qualitative coding and manual recoding by the researcher. This technique depends on the researcher's qualifications of the subject since the researcher has an eleven years' experience in accounting and auditing and, additionally, professional certificates in accounting.

4. Findings and implications

For the purpose of exploring the connection between the accounting and finance, the conversation started by the question:

4.1 Do you find corporate finance important to accounting?

If you do not understand how to use corporate finance, you will pass as a simple accountant. It is called financial management. How can any manager take a financial decision without it?.

Accordingly, using hermeneutic analysis, financial management supports and advances the accountant to be a financial manager.

I have completed my master's degree in accounting and finance, and there were two compulsory subjects related to corporate finance. There are many universities that have departments named finance and accounting, that means the instructors have information on both accounting and finance.

I am a CMA holder; the second part of this certificate is ultimately about corporate finance. The association of chartered certified accountant providing the ACCA, and this certificate include two critical papers about corporate finance which are financial management and advanced financial management.

These abstracted sentences provide tangible evidence for the connection between accounting and finance. This realisation came from the point that professional accounting bodies consider financial management as an essential part in their certifications.

On the other hand, the participants provided valuable information related to accounting education. Universities provide the junior accountant to the market. Therefore, they should consider the financial management as a vital part of the accounting curriculum that improves the new graduates' skills.

Investment decision skills

The previous literature shows that investment decision skills are essential for the accountant to be a financial manager. They point out some of these skills, like the net present value (NPV), internal rate of return (IRR), payback method and the equivalent annual cost method ( Gardiner and Stewart, 2000 ; Hung and Liu, 2005 ; Daunfeldt and Hartwig, 2014 ).

Imaging yourself in a meeting with the CEO, and he asks you to appraise a project. Without investment appraisal skills, you are in an embarrassing situation. As a financial manager at a manufacturing company, I have to decide when the underlying machine should be replaced. Therefore, I use the equivalent annual cost method since it could be applied to compute a maximum replacement cycle.

Where I work, we do many projects in one year, and it is essential to predict the profitability of these projects and the time when the initial cost payback, so you have to be familiar with the NPV and payback methods.

I know many accountants are still doing the usual accounting occupation since they do not have investment appraisal skills like NPV and IRR.

(2)Funding from external sources

Many ways to source funds from external resources were mentioned during conversations, like bonds, deep discount bonds, convertible bonds and long-term bank loans ( Kiyama and Rios-Aguilar, 2017 ).

It is valuable to each accountant to be a professional financial manager to know how he can find the sources of funds for the company; especially the external funds. There are many types of funds available for any firm; some of them are internal and others are external, but the vital thing for the financial decision is the gearing. If you are a professional financial manager, you have to keep the WACC in optimal value.

The researcher, using hermeneutic analysis with meeting proceeds, found that gearing and capital structure have a vital impact on profitability. Four theories explain this impact. The quoted sentences were identical to the literature. Therefore, both were combined to avoid redundant wording.

Traditional view: Under the traditional view, the ideal capital combination leads to minimising the average cost of capital. The cost of debt remains fixed up to a particular percentage of gearing. Passing this scale leads to a higher debt cost. The financial risk increase if gearing raises this relationship causes the equity cost to increase ( Berry et al. , 1993 ).

Modigliani and Miller (MM): The firm operating level and its profits only specify the market value of the firm in the position of no tax. The risk is attached to these profits, so there is no relation to the gearing. In the case of tax, a high level of gearing decreases the cost of capital since the interest is taxable. ( Brusov et al. , 2011 ).

Market imperfections: In a high level of gearing, the company is unable to perform its interest obligation, leading to bankruptcy ( Sanstad and Howarth, 1994 ).

Pecking order theory: Firms favour retained earnings as the optimal source of finance and then straight debt, convertible debt, preference shares and equity shares ( De Jong et al. , 2011 ).

To discuss the second key question:

4.2 How do working capital management models improve profitability?

The participators mentioned that working capital management deals with the root of the operation and the daily transactions that include cash, receivables, trade payables and inventory.

Da Costa Moraes et al. (2015) and Righetto et al. (2016) mentioned that the Baumol model and the Miller–Orr model are critical to run the cash in the optimal value to keep the liquidity and earn a profit.

(4)Inventory

Previous studies mentioned the impact of inventory management on profitability and showed that models are being used to improve inventory management.

Economic order quantity:

The professional stock administration can be divided into three sections: (EOQ), discounts for bulk purchases, it could be more economical to purchase inventories in significant order quantities to achieve discounts, buffer inventories to reduce the stock-out risk.

(EOQ) is the ordering amount for an inventory item which reduces the costs of stocking and damage.

Just-in-time system:

(5)Accounts receivable

Braun et al. (2018) supported that a higher balance of bad debt improves sales size. Given that, when the progress of the sales passes the total addition to the cost of fixed expenses and bad debts and discounts, the policy of mitigating credit requirements is profitable.

Providing credit possesses a cost; the amount of the interest imposed on an overdraft to finance the credit time; additionally, the not collected cash misses the interest of the bank deposit. Improvement in profit of increased sales following from granting credit could balance this loss.

One of the methods mentioned to keep the accounts receivable as a profitable behaviour is a credit rating system.

Credit score:

Ajanaku and Ekundayo (2017) and Richard and Kabala (2019) mentioned that points are granted according to client efficiency components, the credit amount relay on their credit score.

The interviews contributed that “the institution may establish a credit rating scheme for different customers based on personal client characteristics (such as whether the client is the owner of a state, the customer, age and profession).”

The second method is factoring; it was coded from the transcript of many interviews.

Factoring is an agreement to possess debts gathered by a factoring firm, which prepays a balance of the money it is due to settle ( Van der Vliet et al. , 2015 ).

(6)Trade accounts payable

Attempting to receive a satisfying credit of suppliers. Endeavouring to enlarge credit times of cash deficit. Keeping relations with frequent and significant suppliers.

Accordingly, the researcher comprehended from the interviews that these models of working capital management are effective since almost the entire sample apply them.

The third key question during the meetings was:

4.3 How do working capital management policies affect the profitability?

(7)Working capital investment policy

Organisations must ascertain the significant risks linked to working capital and hence whether to adopt a conservative, aggressive or moderate method to investing in working capital.

The conservative working capital investment policy aims to decrease the risk of operation failure by maintaining high levels of working capital.

The aggressive working capital investment strategy aims to overcome this financing cost and improve profitability. That could be by using the method of lowering inventories, advancing recovering credit time of customers and lingering instalments to suppliers.

(8)Working capital financing policy

Working capital financing policies are divided into conservative, aggressive and moderate approaches to financing working capital. It is classified according to the size of working capital financing from short-term assets and long-term assets ( Mohamad and Saad, 2010 ; Wasiuzzaman and Arumugam, 2013 ; Kwenda and Holden, 2014 ).

Almost all the participators expressed the opinion “the relation between the selected policy and the profitability is ‘high-risk, high-return’”. That means that aggressive policies increase profitability. This opinion is supported by ( Pais and Gama, 2015 ; Baños-Caballero et al. , 2016 ; Gonçalves et al. , 2018 ; Chand et al. , 2019 ).

On the other hand, opinions expressed based on practical experiences prefer the moderate policies, “moderate policies meet the targets of higher profitability, that come by avoiding risk losses.” This opinion could be supported by studies by Sharma and Kumar (2011) and Abuzayed (2012) showing a positive relationship between an increasing cash conversion cycle (CCC) and increased profitability, since the increase in the CCC means moves to moderate and conservative policies.

5. Conclusion

The results of the conversations support the literature review of the article. There is consistency between what the participants contributed and the previous studies interpreted. This consistency provides results that the relation between accounting and finance is vital. It can be described as a complementary relationship.

The financial manager starts as an accountant. By getting experience, he can make critical accounting decisions. When he gains corporate finance knowledge and skill, he starts providing financial management decisions. Ultimately, by the continuous improvement in finance management and the experience, he achieves the position of the chief financial manager.

On the other hand, the relationship between working capital management and profitability is similar to the relationship between finance and accounting in many aspects. For example, the accountant needs to be familiar with financial models which provide practical methods to handle working capital elements like cash and inventory.

Additionally, many strategies can help them to manage the accounts receivable to avoid more interest that arises from the cash matching and to decrease the bad debt expense. All of the methods mentioned contribute to avoiding expenses to gain the maximum profit.

The working capital investment and financing policies have the most significant impact on profitability. These policies are related to risk and return theory since the conservative policy reduces both the risk and return and the aggressive one has the opposite impact.

The article recommends accountants to be in professional stage and increase the profitability of the company to grab both accounting and finance information and skills.

Despite the positive interview aspect, the challenges that were encountered with the meeting comprised the severe limitation of the study. When setting up the meetings with the participants, most of the sample apologised in the first attempt, and later many efforts the acceptance to conduct the meeting has been awarded. This situation has complicated the research timetable and forced the researcher to extend the research time plan to keep the methodology flow. Some meetings were time-restricted. Therefore, gaining information to suggest other research paths was not in a perfect manner.

However, the author suggests some topics for future research, for example, conducting research to provide more models to manage the working capital elements. Moreover, measuring the consequences of linking accounting with strategic management, governance and control management in education and practical experience should be done.

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The performance of platform flexible employees is a core element that contributes to the rapid growth of the sharing economy platform. It is crucial to explore strategies to improve employees' performance with the growing competition among these platforms. Only a handful of research evidence has been found evaluating platform flexible employees’ psychological capital and work engagement to improve their performance. In order to remedy the gap, we draw on self-determination theory to develop a moderated mediation model, which examines how psychological capital affects platform flexible employees’ job performance. We employed hierarchical regression analysis to test the theoretical model and carried out two rounds of surveys, resulting in 474 valid paired questionnaires. The questionnaire assessed the psychological capital, work engagement, job performance, and job autonomy of flexible platform employees. The results indicate that work engagement plays a mediating role between psychological capital affects platform flexible employees’ job performance. Moreover, job autonomy moderates the mediating effect. The findings not only contribute to the literature on employees’ psychological capital and job performance, but also broaden the research scope of self-determination theory, and provide new ideas for improving the job performance of platform flexible employees.

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Introduction.

Amid the rapid development of the sharing economy, China's employment landscape is undergoing significant transformation, giving rise to a substantial number of 'flexible employees'. These flexible employees accept orders based on their own conditions and timing on large sharing economy platforms such as Meituan and Ele.me, with their compensation being tied to the number of orders complete. According to the 2022 data released by the National Bureau of Statistics of China, the count of flexible employees reached 200 million by the end of 2021. This novel form of employment enhances the flexibility of China's labor market while simultaneously posing fresh challenges to traditional employment relationships 1 , 2 . For instance, many platform-based flexible employees have not entered formal labor contracts with their respective platform enterprises 3 , leading to an ambiguous legal status for these workers and a heightened risk of rights infringement 4 , 5 . Furthermore, the income instability experienced by these flexible platform employees contributes to elevated psychological pressure and a vague sense of work motivation, potentially resulting in job burnout and hindering the growth of the platform enterprises 1 , 4 , 6 , 7 . Therefore, significant differences exist in the psychological states, work motivations, and needs of flexible and standard employees 7 , 8 .

Given the absence of formal labor contracts, flexible platform employees often do not enjoy the same benefits and support guarantees as those with standard labor contracts, fixed working hours, and fixed workplaces. Furthermore, with the increasing number of flexible employees, factors such as their educational background and work environment may be associated with relatively lower psychological capital compared to other employees. These changes necessitate new strategies for improving the job performance of flexible platform employees.

Flexible platform employees significantly differ from traditional employees regarding legal identity, work characteristics, and the protection of rights and interests 6 , 9 . Platform enterprises in China often form contracts with workers through third-party institutions to circumvent legal risks and fulfill social insurance responsibilities, dictating the scope of work and work methods of flexible employees through algorithmic rules. Consequently, flexible employees are in a weak negotiating position, with their rights and interests inadequately protected 1 , 4 , 10 . For instance, a 2022 survey report by the Jinan Survey Team of the National Bureau of Statistics of China revealed that a mere 13.8% of employers in Jinan purchased industrial injury insurance for takeaway riders. Amid high delivery demands, only 39.0% of takeaway riders reported no accidents involving themselves or colleagues. The disparities between flexible and traditional platform employees suggest that previous research conclusions regarding the impact of employees' psychological capital on individual behavior may not be entirely applicable in the case of flexible employees. This highlights the need for further exploration in this area.

Self-determination theory is a motivational process theory that explores human behavior related to self-determination 11 , 12 . In China, platform flexible employees come from diverse backgrounds. Some engage in flexible work during their off-hours from other jobs, while others rely entirely on such employment for their livelihood. The variability in individual characteristics leads to significant differences in the motivations and needs of these flexible employees. Moreover, flexible work is characterized by a high degree of flexibility and autonomy. Therefore, this study employs self-determination theory to explore the association between psychological capital and job performance among platform flexible employees, with a particular emphasis on engagement.

Psychological capital, a positive psychological state, Individuals with higher psychological capital are more likely to be optimistic and positive, have stronger motivation, exhibit more positive behavior and outcomes, and are more inclined to endorse and assimilate external regulations. They also demonstrate a focused work ethic and are generally more likely to deliver high job performance 13 . Work engagement emerges as a critical stimulator of employee performance within this process 14 . In this study, our objective is to comprehensively examine the positive mediating influence of work engagement on the positive relationship between psychological capital and job performance among flexible platform employees. This exploration is conducted through the theoretical framework provided by self-determination theory.

Job autonomy is a fundamental characteristic of platform-based flexible employment and a significant factor in attracting individuals to such roles. This autonomy is also a typical attribute of flexible platform labor and has proven correlations with individual behavior and performance 15 . According to self-determination theory, job autonomy is critical in stimulating job performance. However, in the context of the sharing economy platform algorithm, the job autonomy of flexible employees is inevitably compromised. Strict limitations are often imposed on aspects such as working hours, the number of orders, and the timeliness and quality of service completion. For instance, food delivery platforms like Mei Tuan and Eleme mandate staff to complete orders within a specified timeframe, with the number of allowable order rejections capped at a specific upper limit. Staff members are subject to penalties and rank downgrades for poor evaluations 16 .

Such excessive restrictions may lead to a slackening off among flexible employees, subsequently inhibiting performance enhancement and impeding the development of the platform enterprises. Furthermore, employees with higher job autonomy may exhibit higher satisfaction and work engagement. However, the current discourse on the boundary role of job autonomy remains limited 17 . Consequently, this study aims to extensively explore the positive moderating role of job autonomy in the relationship between the positive impact of psychological capital and job performance of flexible platform employees, based on self-determination theory.

Our research has three contributions to the existing literature: First, while existing research predominantly focuses on standard employees who have labor contracts with an enterprise, fixed working hours and locations, and full social insurance benefits, our study extends this focus. We explore the correlation between psychological capital and work engagement among platform flexible employees, as well as the association of flexible employment with job autonomy and job performance. Against the backdrop of the rapid development of China's platform economy, this study emphasizes the importance of psychological capital for flexible employees, enriching the relevant literature on psychological capital.

Secondly, current platform companies are making efforts to explore methods to improve the job performance of flexible employees, but existing research on this issue is insufficient. This study, based on self-determination theory, explores ways to enhance the job performance of flexible employees by focusing on the development of psychological capital, fostering work engagement, and creating a climate of job autonomy. It enriches and calls for attention to the research theme of work engagement and job performance of platform flexible employees 18 , 19 .

Thirdly, we explore how job autonomy, as a boundary condition, regulates the impact of psychological capital on the work engagement and job performance of flexible platform employees. From an empirical perspective, this study illustrates the positive impact of job autonomy as a key characteristic and advantage for platform flexible employees. The interaction between work engagement and job autonomy provides theoretical and practical value for improving the job performance of flexible employees.

This study is designed to offer platform enterprises with valuable insights into the pivotal factors influencing the job performance of flexible employees. The adoption of this approach is aimed at enabling these enterprises to establish a robust foundation for the enhancement of psychological well-being and job autonomy among flexible employees. The cultivation of psychological capital is of paramount importance, as it not only facilitates individual development but also significantly contributes to the overall growth and expansion of platform enterprises. Such insights are crucial for both the strategic development and sustainable success of these organizations in the dynamic and evolving landscape of platform-based employment.

Theoretical background and hypotheses

Psychological capital of flexible platform employees and their work engagement.

Psychological capital plays a significant role in shaping individual behavior, as it possesses the capacity to enhance employees' motivation towards their work, thereby driving them to achieve their highest level of performance, leading to positive outcomes and behaviors 20 , 21 , 22 , 23 . Also, psychological capital is an optimistic psychological state individual can cultivate. It bolsters their confidence to tackle challenging tasks and aids their resilience in the face of adversity 24 , 25 . Psychological capital encompasses four dimensions: hope, optimism, resilience, and self-efficacy 20 . In addition to fostering personal growth, psychological capital also positively impacts individual’s behavior and outcomes. It can be seen in an individual's work and academic work engagement, as well as their behavior and performance in the workplace 20 , 23 , 26 , 27 , 28 .

Kahn proposed the concept of 'work engagement'. He posited that the work engagement represents how employees integrate aspects such as emotions, cognition, and abilities into their work roles during the work process 29 . It is expressed physically, cognitively, and emotionally through self-application and self-expression. Since then, the interpretation of 'work engagement' has been subject to various viewpoints. Considering the nature of the platform's high repeatability and low complexity, flexible employees within the scope of this study have their work content tied to completing orders 16 . Existing research indicates that work resources and psychological factors are closely associated with the engagement of standard employees 21 , 30 , 30 , 31 . Highly engaged employees approach their work with energy, commitment, and intense focus. They are more likely to engage in job crafting, less prone to burnout, and capable of achieving safer and more positive work outcomes 23 , 32 , 33 .

Platform flexible employees represent a unique group characterized by significant diversity in skills, educational backgrounds, and needs. Typically, these employees face lower barriers to entry in terms of job requirements, do not have formal labor contracts, and are ineligible for benefits such as social insurance. They also lack fixed working hours and locations, yet are subject to control by the algorithms of platform companies 9 , 10 , 34 , 35 Given the considerable individual differences among platform flexible employees, often constrained by educational level and income, they tend to have lower psychological capital. Their job performance is closely associated with the management algorithms set by the platform. Consequently, conclusions from previous research regarding the impact of psychological capital on job performance may not fully apply to this group.

According to self-determination theory, fulfilling three fundamental psychological needs—autonomy, competence, and relatedness—can foster individuals’ emergence of intrinsic motivation. Such individuals, imbued with robust intrinsic motivation, tend to exhibit a more positive disposition 36 , 37 . Existing research indicates that psychological capital can influence employee behaviors and outcomes from a motivational standpoint 21 , 22 . For example, Xi, based on self-determination theory, suggests that psychological capital can enhance the engagement of standard employees through motivation 38 .

Firstly, flexible platform employees endowed with high levels of psychological capital possess greater hope and conviction. They are more inclined to align with the platform's operational philosophy, reject the notion of being controlled by the platform, and find their needs for autonomy more readily met. This process is associated with a heightened sense of identification with the platform and their work, which is observed to foster a willingness to engage in work positively. Such patterns are linked with increased levels of work engagement 2 , 20 , 27 , 36 .

Secondly, flexible employees with high psychological capital exhibit a more optimistic and confident demeanor. Their favorable views extend to their industry, organization, and prospects for development. Bolstered by their self-belief, they are eager to engage in challenging tasks, concentrate on their work, and satisfy their autonomy needs through task completion. Finally, high psychological capital employees demonstrate resilience when confronted with workplace difficulties. Individuals in this context are observed to interpret obstacles and challenges as avenues for personal and professional development. This perspective aligns with the principles of self-determination theory, emphasizing the importance of motivation. These individuals demonstrate a remarkable capacity for resilience, swiftly recovering from setbacks. They approach difficulties with a constructive and committed mindset to meet the needs of ability in self-determination theory 20 , 22 . Based on this, we propose the following hypothesis:

Hypothesis 1: Psychological capital of flexible platform employees is positively related to the work engagement.

Engagement of flexible platform employees and job performance

Job performance pertains to the extent of specific goal attainment and can be stratified into individual, team, and organizational levels 39 , 40 . This study concentrates primarily on the job performance of flexible platform employees at the individual level, emphasizing all behaviors and outcomes pertinent to achieving organizational objectives during the work process. Reflecting on prior research and the work traits of flexible employees on Chinese platforms—characterized by high repetitiveness and minimal innovation 6 , 35 , 41 —we categorize job performance into task performance and contextual performance. Evaluation of task performance is conducted through an analysis of the resources or support mechanisms essential for individuals to proficiently carry out technical tasks. These tasks are integral to the technical procedures, either in a direct or indirect manner. On the other hand, contextual performance pertains to the spectrum of employee behaviors that transcend the scope of task-specific activities, thereby contributing significantly to the broader organizational objectives. Such behaviors encompass a range of activities, including the voluntary participation in informal tasks, strict adherence to designated responsibilities, active collaboration and support for colleagues, and the exhibition of a fervent commitment towards furthering the aims of the organization 42 , 43 , 44 .

Existing research suggests that the work engagement of standard employees is closely linked to their performance. Highly engaged employees tend to be more focused, less prone to cyberloafing 30 , and capable of achieving excellent job performance 30 , 45 . Work engagement is equally important for managers, as transformational leadership can enhance managers' creative performance through increased engagement 46 . Platform flexible employees often face a lack of job stability. In terms of insurance, benefits, and developmental opportunities, these employees generally have limited protections. The majority of platform flexible employees do not plan for long-term engagement in their roles. They often lack recognition for their platform work and exhibit low enthusiasm 2 , 47 , 48 . Compared to standard employees, they may have relatively lower levels of work engagement and exhibit lower work motivation. In this context, the extent to which work engagement affects job performance warrants further exploration 2 , 7 , 9 , 49 .

Grounded in self-determination theory, distinctions in the origins of individual motivation and the extent of external rule internalization permit further classifying motivational types into three categories: intrinsic, extrinsic, and motivation 18 , 36 , 50 . Identified and integrated regulation, within intrinsic and extrinsic motivation, constitute autonomous motivation. Under the aegis of autonomous motivation, individual cognition and other behaviors tend to be more proactive, facilitating the generation of positive outcomes such as innovation 51 , 52 .

Employees on flexible platforms who exhibit high levels of work engagement are more inclined to conform to the platform's rules and values, as indicated by. They perceive their work as essential and meaningful, facilitating the internalization and assimilation of external regulations, such as platform evaluation algorithms. This process leads to an increase in autonomous motivation. Enhanced task performance, characterized by increased dedication, focus, and a positive mindset, results in greater effort and time investment 27 , 39 , 53 .

Furthermore, highly engaged platform flexible employees settings are likely to demonstrate a cooperative approach. This propensity is based on the requirements of relational and interactive dynamics, as well as the fulfillment of relationship-oriented needs, fostering a willingness to assist and support colleagues 54 , 55 , such as food delivery staff serving orders in the same area, or online ride-hailing drivers transferring orders that are inconvenient for colleagues to accept or complete. Some flexible platform employees spontaneously establish mutual aid organizations to aid colleagues in resolving disputes and provide financial support in unforeseen circumstances such as traffic accidents. Through a series of helpful behaviors, the relational needs of flexible platform employees can be effectively addressed, further enhancing internal motivation, producing higher contextual performance, and fostering a virtuous cycle. Accordingly, we propose the following hypothesis:

Hypothesis 2: Work engagement of flexible platform employees positively impacts job performance.

The mediating role of work engagement

As previously mentioned, the group of platform flexible employees often exhibits lower psychological capital and insufficient work engagement. Additionally, the income of platform flexible employees is typically linked to the number of orders they complete. Platform companies assess flexible employees based on the quantity, timing, and quality of order completion through algorithmic rules, which exert a certain degree of control over these employees. Therefore, unlike standard employees, their job performance is closely related to these algorithmic rules, and the role of psychological capital and work engagement in this context remains to be further clarified 5 , 10 , 35 , 49 .

Self-Determination Theory indicates that satisfying individuals' psychological needs can foster intrinsic motivation, which is closely related to their performance and outcomes 51 , 56 , 57 . Platform flexible employees with higher psychological capital may find their needs more readily met, more easily align with platform algorithmic rules, and are likely to experience stronger autonomous motivation, leading to a positive and proactive work state.

These individuals are proactive in seeking platform-based organizations that resonate with their personal growth goals, integrating these organizations' principles into their flexible work objectives. In this context, the external environment can enhance the motivation of platform flexible employees with high psychological capital. Such integration is associated with higher levels of sustained focus and enthusiasm among employees, potentially leading to increased work engagement and enhanced job performance. Previous research indicates that psychological capital and work engagement are positively related to job performance 21 , 22 , 25 , 58 , 59

Building upon the theoretical underpinnings of Hypotheses 1 and 2, it is reasonable to postulate that the psychological capital of platform flexible employees exerts a positive influence on their job performance, with work engagement acting as a mediating factor in this dynamic. Existing research indicates that employees with high work engagement exhibit heightened job satisfaction, engage more in organizational citizenship behaviors, and demonstrate stronger organizational commitment, all of which contribute to improved job performance 32 , 33 , 60 . In this context, platform flexible employees with substantial psychological capital are more likely to be in alignment with the business objectives of platform enterprises, enhancing their professional conduct. Such employees are likely to be actively engaged in their work, exhibiting greater enthusiasm and a sense of responsibility 28 , 61 , 62 . Their active pursuit of personal work goals, underpinned by this alignment, is indicative of superior job performance 1 , 34 , 55 . Hence, work engagement functions as a pivotal intermediary, connecting the positive relationship between the psychological capital of platform flexible employees and their job performance. Therefore, the following hypotheses are proposed:

Hypothesis 3: Work engagement mediates the positive impact of psychological capital on job performance for platform flexible employees.

The moderating role of job autonomy

Job autonomy refers to the extent of freedom and independent decision-making afforded to individual employees in their work processes. Psychological capital refers to the positive psychological state that individuals exhibit during their personal growth and development. Work engagement refers to the level of employee input and enthusiasm towards their work, which is demonstrated through a sense of responsibility, enthusiasm, and professionalism. Previous research on job autonomy has primarily been based on the Job Demands-Resources theory, which considers job autonomy as a positive resource that can enhance individual states, behaviors, and outcomes 30 , 31 , 46 . Job autonomy can enhance employees' work engagement 28 , 30 , bolster work well-being 34 , 63 , significantly mitigate emotional exhaustion among flexible employees 5 , 34 , reduce cyberloafing 30 , curb job burnout 17 , 34 . Positive psychological states and job autonomy promote job satisfaction among platform flexible employees, alleviate mental stress, and lead to better work outcomes, thereby improving the job performance.

Employees exhibiting varying degrees of job autonomy often manifest different behaviors, even when individual characteristics and external environment remain consistent. According to self-determination theory, when the external environment satisfies internal needs, it can stimulate the emergence of intrinsic motivation. Conversely, if the external environment instills feelings of control or incompetence in the individual, it will diminish their intrinsic motivation 36 . Platform algorithm rules stringently govern the job performed by Chinese platform flexible employees, these rules directly impact their job autonomy and can significantly affect their motivation. Upon receiving an order, the platform initially forwards it to the lobby for flexible employees to accept. The system enforces order dispatch for longer-term orders based on real-time distance, the number of orders currently undertaken by flexible employees and their respective scores. This is evidenced in Meituan’s active order-grabbing and system dispatch orders, and Didi Chuxing’s reservation orders, order-grabbing, and real-time dispatch orders.

Sometimes, flexible employees are compelled to accept orders they prefer not to undertake. If system dispatch orders are frequently canceled within a certain period, the employee may face punitive actions such as order suspension, score reduction, or subsidy deduction. Repeated penalties could result in difficulties in receiving orders or the ramifications of only being able to receive low-quality orders. These situations can rapidly induce emotional exhaustion, decreasing employee motivation and efficiency 9 , 35 . Typically, newly established platforms impose fewer restrictions on flexible employees, their algorithms are more user-friendly, management rules are more relaxed, and job autonomy is heightened. Given similar work conditions, flexible employees prioritize orders from the new platform and allocate more significant attention. Consequently, job autonomy is intrinsically linked to the psychology and behavior of flexible platform employees.

Self-determination theory posits that the need for autonomy is one of the three fundamental psychological needs. The fulfillment of this need is associated with the development of stronger intrinsic motivation in individuals, leading them to perceive their work as interesting and meaningful 51 , 56 , 64 . Individuals with stronger motivation are likely to engage actively in their work and are more inclined to achieve favorable outcomes. Furthermore, they often prefer choosing their type of work based on personal preferences, seeking autonomy to exert control over their actions and decision-making processes. Platform flexible employees possessing a high degree of job autonomy are less likely to feel controlled. They tend to maintain an optimistic state, feeling valued and respected by the platform. This group finds it easier to identify with their work, believing they can accomplish their tasks and that the platform and its customers need their contributions 9 , 17 , 35 . Consequently, they are more likely to invest more of their cognitive resources, emotional energy, and physical effort into their work, culminating in a higher work engagement.

Conversely, in scenarios where job autonomy is limited, platform flexible employees may experience feelings of constraint, perceiving their role as subordinate. This can lead to a sense of underappreciation by the platform, with their rights and interests potentially being less safeguarded. The lack of sufficient information to address the autonomy needs outlined in self-determination theory exacerbates this issue. In such cases, employees might feel compelled to undertake undesirable tasks, driven by the need to avoid punitive measures like score reductions and fines. This coercion can impede their ability to find meaning and value in their work. When their fundamental psychological needs are not adequately met, they may encounter job burnout, exhibiting negative psychological states and behaviors, and facing increased job role complexity. As a result, these individuals may struggle to enhance work engagement, even with high levels of psychological capital. Based on these considerations, we propose the following hypothesis.

Hypothesis 4: Job autonomy positively moderates the relationship between the psychological capital and the work engagement of platform flexible employees.

Existing research based on the Job Demands-Resources model indicates that job autonomy for standard employees, as a resource, can promote work engagement 30 , 65 , enhance job performance 15 , 66 , 67 . For platform flexible employees, job autonomy serves as a positive work resource and an important source of motivation. Drawing from the above discussion, in addition to the moderating effect of job autonomy on the relationship between psychological capital and the work engagement of platform flexible employees, we further postulate that job autonomy can conditionally influence the intensity of the indirect relationship between psychological capital and job performance by satisfying psychological needs and fostering internal motivation. Specifically, the work engagement mediates the impact of the psychological capital of platform flexible employees on job performance, and this mediating role is influenced by job autonomy. Psychological capital, as a positive psychological state, can effectively engage flexible employees on the platform. It effectively motivates employees and ultimately leads to high job performance 21 , 28 , 62 . Job autonomy has the potential to meet the autonomy and competence of flexible employees in platform-based jobs, resulting in greater motivation, enhanced work engagement, and ultimately, improved job performance 61 , 63 . When platform flexible employees enjoy a higher degree of job autonomy, the indirect effect of platform flexible employees’ psychological capital on wage performance through work engagement is more substantial. On the contrary, when job autonomy is low, the indirect impact of psychological capital on job performance through the work engagement is weakened. Accordingly, we arrive at the following hypothesis:

Hypothesis 5: Job autonomy will moderate the mediating role of work engagement between psychological capital and job performance.

The research model of this paper is shown in Figure 1 :

Hypothesized research model.

Participants and procedures

This study primarily selects typical sharing economy platform enterprises operating in Beijing, Tianjin, and Jinan. We successfully established communication with the heads of five prominent Internet platform enterprises: Mei tuan-Dianping, Ele.me, Didi Chuxing, JD Logistics, and Dada Express. These corporations command a significant market share within their respective sectors. In 2020, Mei tuan takeaway emerged as a leading entity in its market, securing an impressive market share of 68.2%. Concurrently, Ele.me (referred to as 'Hungry' in some contexts) maintained a notable market presence with a share of 25.4%. These platforms are distinguished by their extensive arrangements for flexible employees, positioning them as exemplars of inclusivity and diversity in the workforce. During our investigation, we initially liaised with the regional personnel managers of these five platform enterprises, outlining our research objectives and processes. Subsequently, with the aid of the personnel managers, we randomly reached out to the leaders of 15 operational sites.

Having obtained consent from each site leader, we randomly selected 10% of platform flexible employees from each operational station's actual registered workforce to participate in the survey. They have not signed formal employment contracts with the platform and receive orders and income through the platform's app. The specific job types include food delivery workers, online ride-hailing drivers, and logistics couriers. Throughout the research process, we assured the respondents of the confidentiality and anonymity of the research. We affirmed that the collected data would be strictly used for scientific research purposes and would not disclose business secrets or personal information. We also clarified that the various response options carried no right or wrong, thus alleviating any concerns of the respondents and encouraging them to provide responses that genuinely reflect their feelings and experiences.

We employed a scale that has received recognition through its publication in esteemed academic journals 68 , 69 , 70 , 71 . To further refine our approach, we consulted with subject matter experts, including two professors in the fields of management and psychology, as well as two doctoral students. We also conducted a preliminary survey to refine the questionnaire. This process enabled us to make necessary modifications, especially in addressing any items that might be considered controversial or sensitive. For example, we revised the statement "I am proud of my career" to "Engaging in flexible work arrangements makes me proud."

We adopted the commonly used two-time stage data collection method, which can help avoid some biases. In the initial stage, we distributed 550 questionnaires to platform flexible employees to complete sections on psychological capital, work engagement, and job autonomy. One month later, In the second stage, we distributed an additional 550 questionnaires for managers to complete the section on the job performance of platform flexible employees. Managers needed more time to observe and assess the job performance of flexible employees more thoroughly. By employing this method, we can avoid the impact of environmental factors on data accuracy and reduce errors stemming from self-assessment by flexible employees. Accounting for employee turnover and role changes, we recovered 495 of these questionnaires. We assigned a unique identification number to each surveyed platform flexible employee and matched the data based on these unique identifiers. After excluding invalid questionnaires, such as those with patterned responses or unanswered questions, we ended up with 474 valid questionnaires, yielding an effective response rate of 80.9%. The percentage of individuals with a junior high school education or below was 23.63%. High school graduates accounted for 51.46% of the population, while those with a junior college education made up 18.14%. Only 4.22% of individuals had an undergraduate degree, and a mere 2.53% possessed a master's degree or higher.

Of the valid responses, 78.06% were from male participants, while 21.94% were from female participants. The majority, 64.98%, had been in flexible employment for one to four years. The proportion of respondents who were married stood at 67.09%, and those aged between 21 and 50 years represented 80.16% of the sample.

Adhering to Brislin's back-translation procedure, we selected scales from authoritative English-language journals and translated them into Chinese, ensuring the semantic equivalence of the items. This translation process involved the collaboration of a doctoral student specializing in Human Resource Management and another in Linguistics. Their translations were cross-compared and calibrated for accuracy and consistency. We employ the reverse translation technique iteratively until achieving consistency in terms of content, semantics, format, and application. At present, it is advisable to invite experts in the field of human resource management to engage in discussions and revisions of the Chinese version of the scale, with the aim of developing the initial questionnaire. Before launching the primary survey, we executed a small-scale pre-survey, deploying 50 questionnaires. Based on the feedback from this preliminary round, we refined the semantics and wording of certain items. All items in our study utilized a 5-point Likert scale(1= strongly disagree, 5= strongly agree). The specific measurement methods employed were as follows:

Psychological capital (PC)

We employed the scale devised by Luthans 70 , which primarily incorporates 14 measurement items. An example item is "I am confident I can always find complex solutions." In this study, the Cronbach's alpha coefficient of the five-level scale is 0.876.

Work engagement(WE)

We utilized the scale formulated by Schaufeli 69 , which primarily includes 17 measurement items. An example is "When I am at work, I am filled with motivation and energy." In this study, the Cronbach's alpha coefficient of the five-level scale is 0.902.

Job performance(JP)

We adopted the scale developed by Chen 68 , which mainly encompasses eight measurement items. For instance, "The quantity of my surpasses the average level." In this study, the Cronbach's alpha coefficient of the five-level scale is 0.911.

Job autonomy(JA)

We adopted the scale designed by Spreitzer 71 , which primarily consists of three measurement items. An example is "I have substantial decision-making authority in my job." In this study, the Cronbach's alpha coefficient of the five-level scale is 0.783.

Control variables

To enhance the precision of this study, we considered several control variables to mitigate potential interference with the research outcomes. Based on existing research, we selected age, gender, marital status, flexible working years, salary perception, and education level of platform flexible employees as control variables. To ensure the validity of our study results, it is imperative to address and mitigate the impact of potential confounding factors. These variables have the potential to impact the outcomes of the study. For instance, individuals who possess flexibility in their work arrangements, especially younger employees or those with longer working hours, tend to demonstrate more positive psychological and behavioral outcomes. Conversely, highly educated flexible employees prioritize job autonomy as a significant concern. Married flexible employees often exhibit a greater dependency on work income, potentially leading to increased investment in their work. Additionally, employees perceiving a higher salary perception may experience greater job satisfaction and tend to display more proactive behavior 5 , 29 , 33 , 55 , 62 .

Data analysis

We mainly conducted data testing following the following procedures: Firstly, we conducted a common method bias test. Secondly, we tested the discriminant validity of the four variables using confirmatory factor analysis. Thirdly, we conducted descriptive statistical analysis and correlation analysis. Finally, hypothesis testing was carried out through regression analysis.

Ethical approval

This study strictly adhered to the 1964 Declaration of Helsinki and was approved by the Ethics Committee of the School of Business Administration of Shandong University of Finance and Economics. We confirmed that all participants understand the purpose of our research and provided informed consent.

Common method variance (CMV)

Given that all variable data were filled out by the respondents, there might exist the potential for common method bias. We employed the Harman single-factor test method to investigate this bias. An unrotated principal component factor analysis was performed on the items of all significant variables. The results showed that four factors have eigenvalues greater than 1, accounting for 73% of the explained variance. The first factor accounted for 45% of the total variance and did not exceed 50%, suggesting no severe standard method bias. Subsequently, we adopted the common latent factor (CLF) method and added a CLF in the measurement model, which points to the measurement items of all variables. By comparing the standardized factor loadings differences between the model with CLF and the model without CLF, if the majority of the differences in factor loadings are greater than 0.1, it indicates a significant common method bias. The results showed that the differences in factor loadings between the two models were far less than 0.1 (maximum 0.062), indicating that the impact of common method bias on this study is minimal.

The results of the validity indicators suggest that the convergent validity is within an acceptable range. As indicated in Table 1 , the Cronbach's alpha coefficient (α > 0.7), construct reliability (CR > 0.7), standardized factor loadings (SFL > 0.6), and average variance extracted (AVE > 0.5) all satisfy the necessary criteria 72 , suggesting that all of our constructs meet the established standards.

Confirmatory factor analysis(CFA)

This study employed AMOS 24.0 software to examine the discriminant validity of the four main variables: psychological capital, work engagement, job performance, and job autonomy of platform flexible employees. The results of the confirmatory factor analysis for the five models are presented in Table 2 . As can be seen from Table 2 , the four-factor model exhibited the best fit compared to other competing models (χ 2 /df = 2.485, RMSEA = 0.079, NNFI = 0.902, CFI = 0.908), suggesting that the four variables at the individual level in this study possess good discriminant validity. Based on the technique proposed by Podsakoff and colleagues 73 , we added a common method factor into the four-factor model to examine changes in fit indices and to investigate common method bias. The results indicate that the five-factor model fits well (χ 2 /df = 2.127, RMSEA = 0.063, CFI = 0.915, NNFI = 0.910). The changes in the above indices are all less than 0.02, indicating that our study does not have a significant common method bias issue.

Descriptive statistics

We use SPSS 23.0 software to analyze the strength of the correlation between variables using pearson correlation coefficient. Table 3 presents the descriptive statistics of mainly variable in this study, including the mean, standard deviation, and correlation coefficients between variables. These preliminary results support our research hypotheses.

Hypothesis testing

We used Hayes' Process Macro (SPSS 23.0) to verify the main effects, mediation effects, and moderation effects through hierarchical regression. We employed Mplus 8.3 for bootstrap sampling to test the mediation effects and moderated mediation effects 30 , 74 , 75 . Firstly, we ran a control variable test and tested Hypothesis 1and Hypothesis 2. Secondly, we tested Hypothesis 3's mediation effect. Thirdly, we examined the moderation effect of Hypothesis 4. Lastly, we conducted a moderated mediation test for Hypothesis 5. The results indicated that all hypotheses were support.

Hypothesis 1 posits that psychological capital can positively influence the work engagement. As displayed in the second column of Table 4 , after controlling for variables such as gender, age, years of flexible work, education level, and salary perception, psychological capital significantly correlates with the work engagement (β=0.924, p <0.01). Therefore, Hypothesis 1 is supported.

Hypothesis 2 suggests that work engagement significantly positively impacts the job performance of flexible platform employees. The fifth column of Table 4 shows a significant positive correlation between the work engagement and job performance once all control variables are accounted for (β=0.976, p <0.01). Thus, hypothesis 2 is verified.

Hypothesis 3 suggests that work engagement mediates the relationship between psychological capital and the job performance of flexible platform employees. As illustrated in column (7) of Table 4 , when work engagement and all control variables are included, psychological capital positively influences job performance (β=0.104, p <0.05). Additionally, based on the main effect test results, the psychological capital of platform flexible employees positively impacts work engagement, and work engagement has a positive effect on job performance. To further substantiate the mediating role of work engagement in the effect of platform flexible employees' psychological capital on job performance, random bootstrap sampling was employed. The results demonstrate that the indirect effect of psychological capital on job performance via work engagement is 0.969, with a 95% confidence interval of [0.521,1.124]. These findings affirm that work engagement mediates the effect of platform flexible employees' psychological capital on job performance, thus supporting Hypothesis 3

Hypothesis 4 posits that job autonomy moderates the effect of psychological capital on work engagement. According to column (3) of Table 4 , the interaction between psychological capital and job autonomy among flexible platform employees has a significant positive effect on work engagement (β=0.102, p <0.01). Further, the simple slope diagram (Fig. 2 ) reveals that psychological capital has a stronger impact on work engagement when job autonomy is high, thereby verifying Hypothesis 4.

Moderate effect of job autonomy on psychological capital and work engagement.

To precisely test the moderated mediation effect proposed in Hypothesis 5, we employed the Bootstrapping Method to examine the mediation effect of work engagement between psychological capital and job performance of platform flexible employees under different levels of job autonomy. The specific results are presented in Table 5 . The findings indicate that under low job autonomy, the impact of psychological capital on job performance through work engagement is significant, with an effect size of 0.477, and a 95% confidence interval of [0.324,0.631]. Under high job autonomy, the indirect effect of psychological capital on job performance through work engagement is also significant, an effect size of 0.711, and a 95% confidence interval of [0.505,0.918]. This reveals that job autonomy positively moderates the mediating role of work engagement in the influence of psychological capital on job performance. Additionally, through the effect value, it can be deduced that the higher the job autonomy, the more significant the mediating effect. Based on the above analysis, Hypothesis 5 is supported.

Our study explores the mediating mechanisms and boundary conditions that are associated with the job performance of platform flexible employees in the context of their psychological capital. Through a combination of theoretical and empirical approaches, we seek to understand the relationship between the psychological capital of these employees and their job performance. Informed by Self-Determination Theory, our research examines the potential mediating role of work engagement in the association between psychological capital and job performance for platform flexible employees. Additionally, we observe that job autonomy appears to be a moderating factor in the relationship between psychological capital and work engagement in this group. Our findings indicate a notable association between psychological capital and job performance via work engagement, especially in situations characterized by high job autonomy.

Theoretical implications

Our study presents three primary theoretical contributions:

Firstly, our research unveils the mediating role of work engagement in the influence of psychological capital on the job performance of platform flexible employees. Prior studies on job performance and its determinants have primarily focused on traditional employment status 21 , 42 , 76 . Previous studies have shown that psychological capital plays a crucial role in enhancing the interpersonal relationships and work outcomes of standard employees. This includes improving the work engagement, employee attitude, and behavior of workers in various industries, such as the telecommunications and construction sectors 20 , 21 , 22 , 77 . However, as highlighted earlier, platform flexible employees experience vague legal and labor relations, along with significant changes in work methods 9 , 34 . This indicates that earlier conclusions may not entirely apply to this group, necessitating further exploration of how their work behavior and results are influenced by psychological capital. Grounded in Self-Determination Theory, our study reveals that work engagement serves as a pivotal mediator between psychological capital and the job performance of platform flexible employees, thereby enriching the discourse on psychological capital. Psychological capital components such as optimism, resilience, and self-efficacy can assist platform flexible employees in effectively handling disputes with the platform and consumers, as well as other challenges. These components help mitigate the negative impacts of occupational stigma and low social standing, foster intrinsic motivation, enabling employees to focus and engage with vitality in their work, thereby enhancing work engagement and achieving better performance.

Secondly, we illustrate that job autonomy moderates the association between psychological capital and the job performance of platform flexible employees. Having a certain degree of autonomy in work is a key characteristic distinguishing flexible employees from standard employees. Previous studies on moderating variables in the impact of psychological capital on job performance have predominantly focused on individuals' emotional attachment to the organization and the work atmosphere and environment 20 , 58 , 78 , 79 , 80 . Our findings suggest that higher job autonomy amplifies the influence of psychological capital on job performance through work engagement, thus enriching the research on boundary conditions impacting the relationship between psychological capital and job performance from the perspective of job characteristics. Our study explores not only the interplay between psychological capital and job autonomy in affecting work engagement but also the moderating role of job autonomy in the relationship between psychological capital and work engagement, as well as the indirect influence of psychological capital on job performance through work engagement. This helps clarify the conditions under which psychological capital can affect the job performance of platform flexible employees.

Thirdly, our research enriches the study of self-determination theory by focusing on platform flexible employees. Unlike traditional self-determination research, which primarily targets standard employees 81 , this study applies the theory to platform flexible employees, who operate within a new employment relationship. From a motivational perspective, the research emphasizes the importance of psychological capital, work engagement, and job autonomy of for flexible employees. By addressing how to enhance the job performance of platform flexible employees through building psychological capital, increasing work engagement, and fostering an autonomous work environment, this study extends the explanatory boundaries of self-determination theory.

Finally, our research enhances labor rights protection theory. Current research on protecting platform flexible employees' rights in China's New forms of primarily employment emphasizes the principle of fairness, a cornerstone of Chinese civil law, to protect workers' rights and support socio-economic stability 82 , 83 It tends to achieve rights protection by clarifying labor relationships and enhancing insurance systems 4 , 10 , 84 , considering more on policy and legal dimensions. From the enterprise employees' perspective, less exploration can hinder the balance between individual and corporate interests and hampers the achievement of sustainable development 5 , 34 , 85 . Our study elucidates the positive significance of psychological capital, work engagement, and job autonomy to the job performance of platform flexible employees and enterprise development. It clarifies directions for enterprises regarding workers' autonomy, work engagement, and rights protection, providing a valuable reference for advancing existing theories on workers' rights protection.

Practical implications

Our study also delivers several practical recommendations:

Firstly, the findings suggest that platform managers might benefit from recognizing the importance of nurturing the psychological capital and work engagement of their flexible workforce. Due to the relatively simple and easily replaceable nature of the work performed by platform flexible employees, many platforms control the behavior of flexible employees through algorithmic rules to urge them to complete more task orders, overlooking the negative effects of this on work quality. Although the algorithmic rules to some extent regulate the behavior and outcomes of flexible workers, platform companies have neglected more scientifically proven methods to improve their work behavior and outcomes. Over-reliance on algorithmic rules to control flexible employees can easily lead to disharmonious labor relations and hinder the development of platform companies. Providing psychological capital development, work engagement incentives, and other forms of human care for flexible workers, as well as offering an autonomous work environment, are reasonable and sustainable ways to stimulate their outcomes.

Specifically, During the recruitment process, it could be advantageous to assess the psychological capital of potential flexible employees through test questions or performance during a trial period. This approach could assist in identifying individuals with higher levels of psychological capital. Moreover, in the management and training processes, employing supportive management techniques could potentially facilitate the development of their psychological capital. These could include attending to flexible employees' physical and mental health, ensuring occupational safety, and offering adaptive training and skills development. Additionally, managers should explore strategies to enhance employee work engagement. This might entail establishing a people-first platform culture, and creating specific promotion channels for flexible employees, improving their performance. Achieving this would benefit the employees and the platform companies themselves, ultimately fostering a harmonious relationship between labor and capital.

Secondly, our study reveals that job autonomy plays a vital role in improving the job performance of flexible platform employees, offering guidance for platform businesses to refine algorithm rules and management methods, and to respect worker rights. For platform flexible employees, job autonomy emerges as a central concern, as it holds significant positive implications for individual behavior and outcomes. Therefore, it is imperative for platform enterprises to prioritize safeguarding job autonomy for flexible employees.

Specifically, the algorithm design of the platform should consider the protection of employee autonomy more carefully. This could involve revising the current assessment and evaluation methods, reducing the impact of negative evaluations and complaints on job selection, and establishing channels for appeals and relief. It would also be beneficial to lessen restrictions on order numbers, rejections, and working hours, lower penalties for independent work content selection, and foster flexible employment autonomy organizations such as trade unions and industry associations. Changing the current subordinate position of flexible employees could provide these workers with more job selection opportunities and satisfy their basic psychological needs. The government can adopt a regulatory approach to balance the relationship between platforms and flexible employees. This involves clarifying the rights and duties of platforms, intervening in the establishment of platform algorithm rules, ensuring the autonomy of flexible employees, and encouraging proactive behaviors for improved outcomes.

Finally, enhancing the job autonomy and work engagement of platform flexible employees has numerous benefits. It can increase their motivation and performance, helping them earn higher incomes. Improved performance among flexible employees also contributes to the growth and development of platform enterprises. Therefore, it is crucial for government management to clarify the nature of platform enterprises' employment practices, specifically their use of flexible employees to fulfill orders. This could involve policy and legal changes to shift away from the current third-party company labor dispatch. This would establish a clear relationship between platform enterprises and flexible employees, outline employer responsibilities, and increase social insurance obligations for flexible employees' employers. Additional supervision of flexible employment in platform enterprises could reduce employees' sense of control, improve the work environment, enhance autonomy decrease psychological burdens, and foster alignment with platform concepts, values, and flexible employment methods. These efforts would support flexible employees in achieving more positive behaviors and outcomes while promoting platform enterprise development, improving the current gap between flexible employees and the platform, and protecting rights and interests, thus driving socio-economic development.

Limitations and future research

This research carries some limitations that should be acknowledged. Firstly, the data utilized in this study predominantly rely on the subjective assessments of the platform's flexible employees or managers. Although a two-stage approach was employed to gather data, the inclusion of this methodology has contributed to mitigating common biases arising from factors such as time differences, external disturbances (e.g., systemic errors, subjective preferences, environmental changes, and emergencies). Nevertheless, the possibility of common method bias may still be present.

In future research, data on various variables could be collected through alternative methods. For instance, psychological capital and engagement questionnaires could be jointly completed by supervisors and employees, or qualitative interviews could be conducted. Analyzing objective data on job autonomy and job performance could also be beneficial, including statistics from the platform's app on minimum job requirements and performance metrics. In addition, it is possible to explore issues such as the stigmatization of work and lower social discourse power for platform flexible employees. Based on these issues, explore the impact of perceptions of decent work on the job performance of flexible workers.

Secondly, the study's participants are primarily flexible employees from five platform companies, such as Mei Tuan, Ele.me, and Didi Chuxing. While these platforms account for a substantial quantity of flexible employees, the term 'flexible employees' encapsulates a wide range of workers including, but not limited to, hourly workers, freelancers, software contractors, and self-media professionals. The distinct characteristics and individual differences across these worker types may limit the applicability of this study's conclusions. Future research should broaden the participant pool and further segregate different categories of flexible employees, this includes developing targeted strategies to ensure a more representative and diverse participant demographic. Conducting comparative analyses across these categories will provide more nuanced and precise conclusions.

Thirdly, the participants in this study are exclusively sourced from Chinese platform enterprises. Nevertheless, the disparities between Chinese and Western policies, regulations, and the job characteristics of flexible platform employees should be acknowledged. Western platform flexible employees experience fewer platform-imposed restrictions, affording them greater freedom and choice. Future research initiatives might benefit from expanding the scope of data collection to encompass a variety of industry types within Western cultural settings. This could entail conducting surveys among Chinese and American takeaway distributors in major urban centers across China, the United States, and other nations. By analyzing and contrasting these data sets, and by integrating cultural background variables into the survey instruments, researchers will be in a position to assess the applicability of current findings across different cultural contexts and determine the extent to which these conclusions are consistent or subject to variation.

Lastly, our study focuses on examine job autonomy and its associated career motivations, as well as exploring the moderating role of job autonomy in the nexus between psychological capital, work engagement, and job performance. Furthermore, this research acknowledges that flexibility, non-fixedness, diversity of job content, and skill diversification are pivotal characteristics of platform flexible employees, yet these aspects have not been fully integrated into the research framework. Future research is thus advised to begin by thoroughly examining the fundamental attributes of platform flexible employees, followed by an analysis of how various factors influence individual behavior and outcomes, with a particular emphasis on psychological needs.

This study aims to explore the mediating mechanisms and boundary conditions related to the association between psychological capital and job performance in platform flexible employees. The findings suggest a correlation between psychological capital in these employees and their job performance, potentially facilitated by increased work engagement. Job autonomy is observed to possibly play a significant role, seemingly influencing the relationship between psychological capital and work engagement among these employees. Moreover, in scenarios characterized by high job autonomy, there appears to be a notable association between the psychological capital of platform-based flexible employees and job performance, with work engagement acting as a potential mediator. These insights provide valuable perspectives for platform managers and government entities looking to understand factors associated with the performance of platform flexible employees and to develop strategies for enhancing this performance. Furthermore, these observations lay the groundwork for future research into the behaviors and outcomes of platform flexible employees.

Data availability

The original contributions presented in the study are included in the article. Further inquiries can be directed to the corresponding author.

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The authors would like to thank the article editor and reviewers for their thoughtful comments that greatly improved the paper.

This research was supported by China National Arts (2020-A-05-(063)-423).

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Liu, J., Xu, R. & Wang, Z. The effects of psychological capital, work engagement and job autonomy on job performance in platform flexible employees. Sci Rep 14 , 18434 (2024). https://doi.org/10.1038/s41598-024-69484-3

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A Primal Panic In Jumia Technologies Did Not Change The Investment Thesis

• Jumia Technologies suffered a 53.8% post-earnings loss despite positive financial results and guidance reaffirmation. A large secondary share offering was the likely cause of the collapse.
• CEO Francis Dufay plans to use the secondary offering funds for customer acquisition, accelerating supply, and market expansion beyond capital cities.
• Jumia's business uptrends remain intact with positive growth metrics, especially in countries like Ghana and Ivory Coast, despite on-going macroeconomic challenges.
• I maintain strong buy rating given the positive business model remains healthy and intact for the long-term.

Delmaine Donson

A Secondary Accompanied By A Primal Panic

Investing in the future of Africa is not for the faint of heart. Despite reporting on-trend financial results and reaffirming guidance for the year, African e-commerce company Jumia Technologies ( NYSE: JMIA ) suffered a massive 53.8% post-earnings loss. This collapse came on the heels of a 5-month rally that saw JMIA increase nearly 5x after an earnings report that delivered proof-positive of a turn-around for the company. Now, the company faces one of its biggest challenges yet: winning back investor confidence after the company announced a large secondary offering along with the earnings report.

JMIA collapsed under the pressure of the announcement of a large secondary offering. (TradingView.com)

In my latest post-earnings discussion with CEO Francis Dufay, I got right to the question weighing heavily on the minds of investors: why now and why this much just one quarter after insisting that the company had sufficient liquidity ? Given the rapid reduction in losses and improving performance metrics, JMIA on paper looked like it was trending to breakeven status in the near future. However, Dufay is looking beyond sustenance existence. With the company restructured and working efficiently, he is now turning his attention to fueling and funding growth. Dufay explained:

“...we’ve done a lot of the heavy lifting to be a lot more efficient in operations…to get more supply, to get the right thing in the right place and to reach out to customers wherever they are in the small cities. Now we have something that’s starting to look pretty good...”

Moreover, the macroeconomic environment in Jumia’s African markets remains volatile. This economic reality makes it difficult to invest in JMIA. This same reality also compels Dufay to be conservative and seek cushion against an uncertain economic future (also a reason for the conservative guidance). Dufay emphasized “we don’t know what happens to the world or to Africa in six months.” The secondary provides the company cushion against the volatility and the uncertainty. One only need to observe the stresses around the globe caused by the current deleveraging from the carry trade in financial markets to appreciate Jumia’s difficult operating environment.

We continued the discussion with Dufay reiterating three strategic pillars: 1) customer acquisition, 2) accelerating supply, 3) expansion beyond the capital cities.

Customer Acquisition

Jumia has 2M customers in countries with a total population of 600M. After a strategic decline from pulling back on money-losing marketing, the active customer base is stabilizing. With a more efficient marketing engine, Jumia is ready to spend on marketing judiciously to begin acquiring more customers in this 600M market. With a product offering that is more relevant to the populations in its African markets and with the supply relations to deliver these products reliably and at a reasonable price, Jumia is ready to achieve maximum leverage from its marketing spend. These customer acquisition metrics will be an important performance metric for investors to track going forward.

Currently, Jumia is showing significant and promising retention rates. For example, during the conference call , Dufay described the success in the Ivory Coast with a 46%, 90-day repurchase rate from Q1 ’24 new customers. Dufay expects to see overall repurchase rates improve as the company expands its efforts across all its markets using Ivory Coast as a model.

Accelerating Supply

The second area for investment from the secondary is accelerating supply. Dufay noted that he has explained many times that “a lot of our growth is purely driven by better supply…nothing will make up for better supply in Africa. No marketing budget will make up for it.” For example, Jumia currently has 60 employees sourcing electronics from Shenzen, China. The supply for other product categories sits in other regions. Jumia now needs to scale up in those regions as well.

Dufay explained the importance of creating a supply flywheel in the context of Jumia’s successful Anniversary Sale. Delivering a better proposition to customers creates more volumes. More volumes generates more leverage with suppliers. Those suppliers are happy to provide better pricing because they are confident in Jumia’s ability to sell those products. Better access to supply attracts more customer (pent-up) demand. On the other hand, if supply is poor, the entire virtuous cycle falls apart.

Market Expansion

A third area is the expansion of Jumia’s reach beyond the capital cities. Dufay plans to make further technology investments in vendor platforms and marketing (SEO, CRM) that will accelerate growth prospects for Jumia. I discuss the market expansion further in the section below on “country stories.”

Key Financial Results

There are several metrics that show Jumia’s business uptrends remain intact. The most telling slide from the earnings presentation shows the dramatic turnaround in year-over-year growth metrics for customers and orders. The change in active customers is on the verge of turning positive with consistent to-date sequential improvements. Order growth turned positive in Q1 and further improved in Q2. In constant currency terms, GMV (Gross Merchandise Value) growth was over 20% for the third consecutive quarter.

Jumia's improving customer and order metrics remain on-trend. (Jumia Technologies Q2 2024 investor earnings presentation)

Other highlight puts and takes include:

• Revenue up 15% year-over-year (constant currency)
• Loss before income tax from continuing operations up 1% year-over-year (constant currency)
• Adjusted EBITDA loss down 11% year-over-year (constant currency)
• Liquidity position down $8.7M from Q1 to a total $92.8M
• Year-over-year Jumia Pay transactions up 31%, moving them from a 32.0% share of transactions to 39.1%. Total payment volume ("TPV") soared 49% in constant currency terms.
• Fulfillment expense as a percentage of GMV fell from 5.9% to 5.5% while fulfillment expense as a percentage of orders increased 13% on a constant currency basis.

Country Stories

Ivory Coast comes up a lot as a model market where Jumia proves out strategies for adoption in other countries. In this earnings conference call, Dufay provided details on Ghana and the distribution network in Ivory Coast and Nigeria. These details were great context for explaining the 6 of 11 countries where Jumia experienced GMV growth vs 5 in Q1.

Ghana saw amazing growth in GMV. GMV in the country grew 116.4% year-over-year in constant currency. Dufay explained that this success is part of the company’s playbook where “the right execution meets big demand.” Jumia shut down the grocery-delivery business to focus on e-commerce. The company built efficient distribution for a rebuilt assortment of affordable products selected specifically for the Ghanaian market. This success story is particularly notable given Ghana suffered some of the worst ravages of inflation in Africa in 2023.

The earnings presentation provided a schematic of the extensive network of roads that the Ivory Coast and Nigeria have revamped. This important infrastructure makes Jumia’s supply distribution even more efficient and cheaper. These improvements are helping drive up the growth rate of orders in these countries according to Dufay. The share of orders from outside of major Nigerian cities like Lagos and Abuja expanded by 413 basis points year-over-year to 50%.

The expansion beyond capital cities continues apace overall. As Dufay explained in the conference call, “smaller cities are a major opportunity for growth and acceleration because the supply is even more underserved than in capital cities.” The mix of orders in these “secondary” cities has reached 53% versus 48% a year ago and 5% in Q1. Importantly, 73% of the orders in secondary cities went through pickup stations ("PUS"). These 3rd-party partners are key to Jumia’s asset light model and efficient logistics. As Dufay explained “these pickup stations…cut down on fulfillment and delivery costs while offering a central location to increase customer engagement.”

On an important side note, with relief, Dufay shared during the interview that Jumia and its partners avoided damage or casualties from recent widespread protests in Nigeria. The company is well-experienced and well-prepared for volatile situations. In this case, Jumia suspended deliveries in certain cities. The protests were widespread and garnered an extensive response from the government. President Bola Tinubu addressed the nation including a long list of economic reforms and initiatives underway by his government. If some of these initiatives bear fruit, they would greatly benefit the nation. However, Peter Obi, a contender for president in last year’s election, responded curtly “I respectfully reiterate that the President should declare a war on insecurity, the economy, poverty, unemployment, and the power sector.”

Moving Past the Primal Panic

While Jumia will benefit over the long-term from this large secondary offering of 20,227,736 ADSs, the timing was unfortunate in several ways. First of all, the imminent sale creates an overhang on to the stock until the sale is complete. Next, the deleveraging in the market that is hitting emerging markets particularly hard has investors and traders selling first and asking questions later. That poor sentiment contributed to the excessive and panicked selling in JMIA. This collapse also comes on the heels of celebrating the validation of my Jumia investment thesis from Benchmark’s recent $14 price target on the stock . At the time I cautioned that the stock was rapidly approaching what I saw as a short-term valuation ceiling (based on price/sales relative to the last few years). I of course did not contemplate the stock risked hitting a complete reset as it has done now. JMIA now trades at just 2.6 times forward sales with an even lower EV/sales ratio of 2.0 . These bargain basement levels price in a lot of risk.

This wild cycle of euphoria followed by abrupt panic has truly been humbling. Needless to say, you have firmly believe in the future African commerce to stick with JMIA. Fortunately, the company has in Francis Dufay a CEO who looks up to the challenge.

Given what will likely be on-going volatility in the stock, I must discuss potential trading strategies in addition to the investment thesis.

In comments on my last JMIA post, I discussed with readers potential options when a stock gets to uncomfortably high levels, especially at a rapid pace. I suggested establishing a core position and trading around that position. With the stock back to low levels, this kind of strategy can be even more attractive for long-term investors. Buying trading positions at low prices greatly reduces the downside risks and increases the odds that sometime in the near future you can sell those shares to pay down the cost of the core position. Going forward, I will be adding trading strategies to my core position (I also wrote about aggressive trading strategies in the early manic days of JMIA after its IPO like selling calls covered by shares).

For now, one step at a time. JMIA is the damaged stock of an intact company. Nothing about the business or the investment thesis changed after this latest earnings report. In fact, the business prospects look incrementally better. Jumia Technologies is a “battle tested” company getting ever more fit for the rigors of conducting ecommerce in African countries. While the risks surrounding the business are largely out of the company’s control, the company’s ability to tap into pent-up demand and to deliver the right supply at the right prices will be a powerful combination as the company scales over time.

Be careful out there!

This article was written by

Analyst’s Disclosure: I/we have a beneficial long position in the shares of JMIA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Tracking emissions to help companies reduce their environmental footprint

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Amidst a global wave of corporate pledges to decarbonize or reach net-zero emissions, a system for verifying actual greenhouse gas reductions has never been more important. Context Labs, founded by former MIT Sloan Fellow and serial entrepreneur Dan Harple SM ’13, is rising to meet that challenge with an analytics platform that brings more transparency to emissions data.

The company’s platform adds context to data from sources like equipment sensors and satellites, provides third-party verification, and records all that information on a blockchain. Context Labs also provides an interactive view of emissions across every aspect of a company’s operations, allowing leaders to pinpoint the dirtiest parts of their business.

“There’s an old adage: Unless you measure something, you can’t change it,” says Harple, who is the firm’s CEO. “I think of what we’re doing as an AI-driven digital lens into what’s happening across organizations. Our goal is to help the planet get better, faster.”

Context Labs is already working with some of the largest energy companies in the world — including EQT, Williams Companies, and Coterra Energy — to verify emissions reductions. A partnership with Microsoft, announced at last year’s COP28 United Nations climate summit, allows any organization on Microsoft’s Azure cloud to integrate their sensor data into Context Lab’s platform to get a granular view of their environmental impact.

Harple says the progress enables more informed sustainability initiatives at scale. He also sees the work as a way to combat overly vague statements about sustainable practices that don’t lead to actual emissions reductions, or what’s known as “greenwashing.”

“Just producing data isn’t good enough, and our customers realize that, because they know even if they have good intentions to reduce emissions, no one is going to believe them,” Harple says. “One way to think about our platform is as antigreenwashing insurance, because if you get attacked for your emissions, we unbundle the data like it’s in shrink-wrap and roll it back through time on the blockchain. You can click on it and see exactly where and how it was measured, monitored, timestamped, its serial number, everything. It’s really the gold standard of proof.”

An unconventional master’s

Harple came to MIT as a serial founder whose companies had pioneered several foundational internet technologies, including real-time video streaming technology still used in applications like Zoom and Netflix, as well as some of the core technology for the popular Chinese microblogging website Weibo.

Harple’s introduction to MIT started with a paper he wrote for his venture capital contacts in the U.S. to make the case for investment in the Netherlands, where he was living with his family. The paper caught the attention of MIT Professor Stuart Madnick, the John Norris Maguire Professor of Information Technology at the MIT Sloan School of Management, who suggested Harple come to MIT as a Sloan Fellow to further develop his ideas about what makes a strong innovation ecosystem.

Having successfully founded and exited multiple companies, Harple was not a typical MIT student when he began the Sloan Fellows program in 2011. At one point, he held a summit at MIT for a group of leading Dutch entrepreneurs and government officials that included tours of major labs and a meeting with former MIT President L. Rafael Reif.

“Everyone was super enamored with MIT, and that kicked off what became a course that I started at MIT called REAL, Regional Entrepreneurial Acceleration Lab,” Harple says. REAL was eventually absorbed by what is now REAP — the Regional Entrepreneurship Acceleration Program, which has worked with communities around the world.

Harple describes REAL as a framework vehicle to put his theories on supporting innovation into action. Over his time at MIT, which also included collaborating with the Media Lab, he systematized those theories into what he calls pentalytics, which is a way to measure and predict the resilience of innovation ecosystems.

“My sense was MIT should be analytical and data-driven,” Harple says. “The thesis I wrote was a framework for AI-driven network graph analytics. So, you can model things using analytics, and you can use AI to do predictive analytics to see where the innovation ecosystem is going to thrive.”

Once Harple’s pentalytics theory was established, he wanted to put it to the test with a company. His initial idea for Context Labs was to build a verification platform to combat fake news, deepfakes, and other misinformation on the internet. Around 2018, Harple met climate investor Jeremy Grantham, who he says helped him realize the most important data are about the planet. Harple began to believe that U.S. Environmental Protection Agency (EPA) emissions estimates for things like driving a car or operating an oil rig were just that — estimates — and left room for improvement.

“Our approach was very MIT-ish,” Harple says. “We said, ‘Let’s, measure it and let’s monitor it, and then let’s contextualize that data so you can never go back and say they faked it. I think there’s a lot of fakery that’s happened, and that’s why the voluntary carbon markets cratered in the last year. Our view is they cratered because the data wasn’t empirical enough."

Context Labs’ solution starts with a technology platform it calls Immutably that continuously combines disparate data streams, encrypts that information, and records it on a blockchain. Immutably also verifies the information with one or more third parties. (Context Labs has partnered with the global accounting firm KPMG.)

On top of Immutably, Context Labs has built applications, including a product called Decarbonization-as-a-Service (DaaS), which uses Immutably’s data to give companies a digital twin of their entire operations. Customers can use DaaS to explore the emissions of their assets and create a verification or certificate of the quantified carbon intensity of their products.

Putting emissions data into context

Context Labs is working with oil and gas companies, utilities, data centers, and large industrial operators, some using the platform to analyze more than 3 billion data points each day. For instance, EQT, the largest natural gas producer in the U.S., uses Context Labs to verify the carbon intensity of its operational assets and refine its overall GHG emissions mitigation strategy. Other customers include the nonprofits Rocky Mountain Institute and the Environmental Defense Fund.

“I often get asked how big the total addressable market is,” Harple says. “My view is it’s the largest market in history. Why? Because every country needs a decarbonization plan, along with instrumentation and a digital platform to execute, as does every company.”

With its headquarters in Kendall Square in Cambridge, Massachusetts, Context Labs is also serving as a test for Harple’s pentalytics theory for innovation ecosystems. It also has operations in Houston and Amsterdam.

“This company is a living lab for pentalytics,” Harple says. “I believe Kendall Square 1.0 was factory buildings, Kendall Square 2.0 is biotech, and Kendall Square 3.0 will be climate tech.”

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Starwood Capital Group Careers

Acquisitions off-cycle intern 2024.

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Acquisitions Off-Cycle Internship - October 2024

Starwood Capital Group is a private investment firm with over $120 billion in assets under management and a primary focus on real estate. The Firm maintains offices in Miami (Headquarters), Arlington, Atlanta, Chicago, Dallas, Greenwich, Los Angeles, San Francisco, Washington, D.C., and affiliated offices in Amsterdam, Hong Kong, London and Luxembourg.

Starwood Capital’s hallmark is to invest opportunistically, moving between asset classes, geographies and positions in the capital stack as the firm perceives risk/return dynamics to be evolving. The firm has invested in nearly every class of real estate on a global basis, including residential, hotel, office, retail, industrial and student housing assets.

Our size and structure provide Off-Cycle Interns with a high level of responsibility and the unique opportunity to work directly with senior management, joint venture partners, investment bankers, brokers, and commercial lenders in all real estate asset classes and across several European geographies. You will generally be working in lean deal teams, made up of a n MD , VP/ Associate and Analyst.

Job Overview:

As an Off-Cycle Intern at Starwood Capital, you will be responsible for analysing potential investment opportunities and supporting the investment decision-making process. You will work as part of the investment team and contribute to the identification, evaluation, and execution of investment opportunities across different geographies and asset classes.

Duration: 3-6 months

Key Responsibilities:

• Conducting Market Research: You will be responsible for conducting research and analysis to identify potential investment opportunities in different geographies and asset classes. This will include analysing market trends, supply and demand dynamics, and economic indicators to assess the attractiveness of different markets.
• Financial Analysis: You will be assisting in performing financial analysis and underwriting of real estate investments. This will include building cash flow models, conducting sensitivity analysis, and assessing the risk-return profile of different investments.
• Due Diligence: You will be responsible for supporting the due diligence process for potential investments. This will include reviewing legal documents, financial statements, and property-specific information to identify potential risks and opportunities. You will work closely with the legal, tax, and accounting teams to ensure a comprehensive understanding of the investment.
• Investment Memos and Presentations: You will be contributing to the preparation of investment memos and presentations for the investment committee. This will require you to effectively communicate the investment thesis, key risks, and financial projections in a clear and concise manner.
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Overall, the Off-Cycle Intern at Starwood Capital will play a critical role in identifying, evaluating, and executing real estate investment opportunities across different geographies and asset classes. They will work with in the investment team and other functional groups to ensure successful execution of the investment strategy.

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Abnormal Security CEO On Raising $250M, IPO Plans And Doubling Down On AI

The AI-powered cybersecurity vendor is aiming for a 2025 IPO after achieving a $5.1 billion valuation, Abnormal Security CEO Evan Reiser tells CRN.

Abnormal Security plans to use its newly announced funding infusion of $250 million to advance its cybersecurity platform powered by behavioral AI technologies and work toward going public late next year, Co-founder and CEO Evan Reiser told CRN.

On Tuesday, Abnormal announced raising the Series D funding round led by Wellington Management, which brings with it a valuation of $5.1 billion. That’s up from $4 billion in mid-2022.

[Related: Here’s What 20 Top Cybersecurity CEOs And CTOs Were Saying At RSA Conference 2024 ]

The vendor—which made its name on email security but has since expanded to protect collaboration and cloud platforms—also disclosed that its annual recurring revenue (ARR) recently surpassed $200 million. That’s double what it was a year ago .

Abnormal is now eyeing an initial public offering for the fourth quarter of 2025, according to Reiser.

With the funding, which brings Abnormal to a total of $546 million raised since its launch in 2018, “this allows us to invest more and build out our customer base, build out new products,” he said. “And that's going to be really important for an IPO.”

Other investors in the round included Greylock Partners, Menlo Ventures, Insight Partners and CrowdStrike Falcon Fund.

The funding comes after Abnormal has been expanding its leadership ranks with a series of notable hires. In January, the company brought on a longtime cybersecurity and channel industry executive, Jonathan Corini, as its new channel chief . The following month, Abnormal hired James Yeager as vice president of public sector sales following seven years in the equivalent role at CrowdStrike.

In the interview with CRN, Reiser said the company is next looking to expand its AI-powered platform to protect a greater number of SaaS applications from attacks that are themselves increasingly driven by AI.

“We feel like the world needs to use the same [AI] technology to defend against these types of attacks,” he said. “There’s a way bigger opportunity for us to further develop some of our behavioral modeling and AI detection and response to go stop those attacks.”

After getting its start in email security and then expanding to protect Microsoft and Google apps more broadly, “now we're going to expand to [secure] all cloud applications,” Reiser said.

During the interview, Reiser also discussed the plans for investment in enabling channel partners, which he described as “incredibly important in this age of AI.”

What follows is an edited portion of CRN’s interview with Reiser.

What prompted making this move right now? What are the major goals for the funding?

Unlike a lot other startups, we have a really reasonable burn rate. We don't waste money on silly things like a lot of startups. So we didn't really have to raise money. We had a path to get to IPO and be cash flow positive without more money. But at the same time, we see a lot of success commercially. We also feel that we're entering a cybersecurity world, where criminals are increasingly using new technology, specifically AI, to supercharge all their attacks. We feel that modern day defenses are too reliant on human-powered operations, where you have a bunch of people try to figure out all the applications, dump all the data into a SIEM, guess what the attacks will be, create alerts, figure out how to how to get all the manpower to investigate those — it's increasingly unsustainable. There's too much data, the attacks are too complex. A couple years from now, emails, FaceTime calls, Zoom calls—[many of them] are going to be fake and they're going to be indistinguishable by humans, even trained analysts. And so we feel like the world needs to use the same [AI] technology to defend against these types of attacks. We do think there needs to be good AI to fight the bad AI. We feel really good about the core business we have today. But we feel like there’s a way bigger opportunity for us to further develop some of our behavioral modeling and AI detection and response to go stop those attacks. We’ve proven that we can do that for email. We've extended it to other products, like our cloud account takeover product, using the same technology. We think there's other surface areas to protect and more use cases that we can apply the technology to.

Where are some of the areas you’re looking to focus on next?

One is to just continue to develop the core behavioral AI detection and response technology. AI is moving really quickly — we need to be ahead of the attackers. [That means] investing in more infrastructure to allow us to connect to more platforms inside the customer’s environment. We want to understand their business and their employees and their vendors and their data better than they do. We want to understand humans better than humans — that's our motto for our core technology. We want to have a 10X higher efficacy than other products, and that's all reliant on the core behavioral approach we’ve taken.

We want to build new products to address new use cases and future use cases. [In terms of] geographic markets, we're slowly expanding into Asia and Europe. And so this is going to be an opportunity for us to accelerate that international expansion. And the third is new customer segments. Probably within six months we'll have our full FedRAMP authorization so allow us to protect new customer segments.

[Another] area of investment for us is just investing in the company. We'll grow our headcount by more than 50 percent this year. Our aspiration is not just to be a public operating company in the next 18 months, but also to be a really long-term, durable, sustainable, generational company. And so that requires us evolving [all the] processes that we have internally so we can scale from 800 employees today to 8,000 employees at some point in the future.

Are there specific product areas you’re looking at moving into?

The three product lines we have today [are] really focused on Microsoft and Google. We started off as an email security company. We expanded to more comprehensively protect the Microsoft and Google platforms, the core productivity platforms. We're taking those product lines and expanding those to the broader set of everyday applications that knowledge workers use. The three new categories are the identity platforms — we’ve launched our account takeover product for those. The second is common SaaS applications. We eventually want to [secure] all SaaS applications, but today it's ServiceNow, Salesforce and Workday. The third bucket is cloud infrastructure platforms — AWS, Azure GCP. We protect the management consoles. So what are the engineers logging into, what are they doing, and is that appropriate? We're not looking at your virtual machines and trying to figure out if there’s malware on there. But we're trying to make sure that people are not doing things in those environments that they shouldn't be doing. So we want to take those three products and expand those to all those different service areas. The same ways we protect Microsoft today, we want to protect Workday and Salesforce. And that includes not just the account takeover, which we already announced, but those other product lines as well.

So we're expanding Abnormal — we started with an email security company, we became a Microsoft and Google security company. Now we're going to expand to [secure] all cloud applications. That's what we see on our six to 12-month roadmap.

Are there certain types of AI-powered capabilities you’re looking at for the future?

Our long-term thesis as a company is that a higher percentage of attacks will have never been seen before. And the reason is that it used to be very hard and very expensive as a criminal five years ago to send a personalized attack. Now with these generative AI and different machine learning tools, you can write a script that reads everything that has ever been written on the internet and everything about [a target victim] — and then create this attack profile and personalize the message to [them]. So you can have all the threat intelligence in the world, and it’s not going to identify that attack. That's where you need this behavioral-based approach. We think criminals will adopt more technology to use offensively, including generative AI and tools like ChatGPT — which is probably the best tool ever invented if you're a social engineer. We think it's going to be more and more common. Today it's primarily email. But we’ve already seen deepfake Zoom calls, and two to three years from now, that’s going to be way easier. So that's the world we're going into and why we feel that this approach, while it's effective now, just becomes increasingly critical in the future.

Could you talk about some of the channel-related investments you’re planning with this new funding?

We work really heavily with the channel. Our channel partners are the trusted advisors for our customers. And that's incredibly important in this age of AI, where every solution is claiming they have magical AI too. So if you're a CISO today, you’ve got 1,000 startups pitching you 1,000 products — and probably only three work. And so our customers really rely on channel partners to help identify what is legit, what's useful — and how to prioritize and how to evaluate that. We will be investing a lot more in our channel. We’ll keep doing better enablement for channel partners, better incentives for our channel partners, more relationship building.

Where the channel has been very effective for us is helping customers evolve from their third-party gateway to moving to a Microsoft plus Abnormal architecture — which is the most effective at stopping attacks. And it's also operationally more efficient.

How will this funding be useful in terms of working toward an IPO?

We [raised this] to accelerate our growth ahead of an IPO. This isn't a replacement for an IPO. It doesn't change our timeline at all. Our internal plan has always been to target [being] able to operate a public company in Q4 next year.

The thing that does change is, this allows us to invest more and build out our customer base, build out new products. And that's going to be really important for an IPO. Because today, from the outside, many people today think about us just as an email security company. If you're a customer, you know there's a lot more to Abnormal than just blocking phishing emails. This gives us an opportunity to further expand our capabilities to a platform. Eventually our IPO investors will be able to recognize the application of that core behavioral approach to stopping attacks, and the relevance of that in the future threat landscape.

More From Forbes

Laws of motion revolutionizes fashion inclusivity with its sizing technology.

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Carly Bigi speaking at Columbia Business School’s 2024 Women's Business Leadership in Tech ... [+] Conference.

Imagine a world where all women felt comfortable and confident in their skin while taking on the world. Inclusivity isn’t solely about making workplace environments better. The ideology expanded into various industries and everyday functionality, such as fashion. Over the past decade, size inclusivity, better known as plus-size, has gained traction in fashion. However, in the past year, brands have significantly reduced the amount of mid-size and plus-size clothing they produce. The Vogue Business size inclusivity report found an incremental decrease in total size inclusivity across New York, London, Milan and Paris. Of the 8,800 looks presented across 230 shows and presentations, 0.8% were plus-size (US 14+), and 3.7% were mid-size (US 6-12), meaning 95.5% were straight-size (US 0-4).

Companies like Laws of Motion, founded by Carly Bigi , are bridging the gap between unrealistic expectations and empowering women to feel confident when they walk out the door. The company’s technology utilizes proprietary AI that predicts body measurements with 99% accuracy to recommend the best-fitting sizes and help brands refine and extend their sizing to better fit their customers. The technology was incubated in Laws of Motion’s direct-to-consumer brand, which fuels customers’ ambitions through perfect-fitting apparel made with zero waste.

In 2019, Bigi launched the company as a direct-to-consumer brand. The organization recently commercialized its sizing technology to license to other brands. Laws of Motion closed an oversubscribed $5 million seed round this spring, led by Corazon Capital, with participation from Sequoia and Leadout Capital; retail investors include John Howard and Eva Jeanbart-

“It’s all about elevating collective consciousness and increasing confidence for customers,” Bigi shares during a Zoom interview. “For customers, it’s about increasing confidence and size selection online and saving them time and money. For brands, it’s about understanding how their customers are actually shaped so that they can refine and extend their sizing to better fit them in the future.”

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Carly Bigi, founder and CEO of Laws of Motion, leading a user interface working session.

The digital fashion industry is struggling with a staggering 24.4% return rate, which has risen by more than 50% since 2020. Thirty-nine percent of these returns are due to dissatisfaction with sizing, while 13% are from people who have ordered multiple sizes to get the right fit. Laws of Motion is breaking these barriers using 2 billion body measurement data points to train its model. The API-based platform integrates smoothly with a single line of code, ensuring accurate measurements across multiple brands and manufacturers. Early adopters have seen a drastic reduction in return rate, dropping it to less than one percent.

The company’s belief in its system is mirrored in its innovative licensing model based on pay-for-performance. It boosts sales and decreases returns. The platform provides partners with a comprehensive, real-time dashboard to track essential metrics like conversion rate, size sampling and return rate, enabling them to make decisions based on data.

“Because our technology predicts accurate body measurements, we’re able to show brands how their sizes are linearly proportioned; here’s how their customers are actually shaped,” the progressive-thinking CEO explains. “Also, here’s the demand for sizes that are larger or smaller than the brand currently carries and the opportunity to expand its target addressable market and do so in a way that actually fits those customers’ body proportions.”

Megan Eddings Feely, founder and CEO of Eddy, is an early adopter of the technology. It assists her customers in gaining confidence in purchasing their correct size the first time around. Feely’s team has already rolled it out on every product page, which helps with fit feedback, improving future inventory buys and reducing return rates.

“Size inclusivity is really important, and helping women of all sizes purchase the right fit isn’t easy,” Feely expresses. “LOM is helping women literally put the tape measure in their own hands and use that information to get something that will look great on them.”

Bigi was strategic in the investors she brought on—it was important for her to find individuals who understood the broader landscape and how LOM’s technology changes lives. Ali Rosenthal, founder and managing partner at Leadout Capital, appreciated the company’s unique data-driven approach to solving a large-scale issue with a software solution for digital brands.

“We invest in founders like Carly, who have spent time and energy understanding the needs of their customers and their pain points,” Rosenthal comments. “When we meet those founders, we like to see a data-driven approach to testing their software-driven solutions for product market fit. In addition, the founders we support have a commitment to building a diverse team and a proven ability to recruit and retain talent. Carly certainly met all of these criteria.”

Carly Bigi, founder and CEO of Laws of Motion

For business owners looking to scale their companies, Bigi advises:

• Never forget that if it was easy or obvious, it would already be done. There’s a reason that this is your calling to create what you are building, and there’s a reason it doesn’t exist—lean into that.
• Get comfortable with discomfort. There’s a high correlation between discomfort and successful entrepreneurs and successful businesses.
• Rules are suggestions on a good day. Think outside the box; better yet, think that there is no box. Harness what it is inside of you that’s driving you to start this business and make it happen.

“The name Laws of Motion itself is all about being a force at whoever you choose to be in life,” Bigi concludes. “We started developing this technology with the thesis that there’s a one-to-one correlation between how well a garment fits you and how confident you feel in high-pressure, unknown situations. We quite literally add that extra inch both to your posture but also to your mindset.”

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