Transformation strategies strengthen company performance, build the economy, and deliver social impact
South Africa’s history of excluding most of its people from active participation in the mainstream economy – both from an ownership and employment perspective – has left a persistent generational legacy of social inequality.
Fostering multi-tier economic growth to drive positive social impact for individuals and communities is a cornerstone of the government’s range of transformation policies.
Central to this is the government’s agenda to redress historical economic imbalances and promote sustained investments in small, medium, and micro-sized enterprises (SMMEs). And, while the empirical data that comprehensively evaluates the outcomes of these initiatives continues to evolve, the undeniable significance of these programmes in fuelling economic development and curbing unemployment underscores their importance.
One route to transformation is broad-based black economic empowerment (B-BBEE). While B-BBEE has attracted criticism (some justified), it is short-sighted to see it only through the lens of creating immense wealth for a tiny majority of previously disadvantaged South Africans. Nor should B-BBEE be seen only in the context of ownership and the false narrative of Black people receiving equity in white-owned companies, while offering little or no value in return. This short-sighted criticism of B-BBEE overshadows the broader economic social impact it delivers to many ordinary South Africans.
In its broadest definition, B-BBEE requires companies of a certain size to actively contribute to the development of basic and much-needed skills for individuals to empower them to become economically active citizens. This is the Skills Development (SD) component of the government’s transformation policy. SD has specific requirements to bring the most marginalised of all citizens -black, disabled people – into the formal economy.
Enterprise and Supplier Development (ESD) is another critical pillar of the government’s transformation policy, promoting entrepreneurship, business ownership, job and owner wealth creation. In fact, the “social” element of the Environmental, Social and Governance Framework (ESG), which is now used in global investor decision making, links directly to the B-BBEE model to ESD. These are ensuring responsible supply chain partnerships, fair pay and living wage, as well as equal employment opportunities.
Often the refrain from black SMEs is that they do not seek handouts, but rather access. This element of the scorecard actively incentivises companies to develop SMEs to a point that they can be incorporated into the supply chain. The incentive for the corporate being that further procurement from these SMEs feeds into their procurement points.
One of the biggest shortfalls of most companies with a turnover of more than R50 Million is that they are unable to achieve almost half of the points on the Preferential Procurement Element – procuring from a diverse supply chain (focusing on black-owned and black female-owned SMMEs aimed at growing them into larger suppliers ) makes up more than 55%.
This element of ESD, the largest on the scorecard, attracts criticism as the funds are at times deployed to friends and family of the corporate gatekeeper with no outcomes-based measurement.
However, it often becomes all too easy for companies to regard both SD and ESD as must-do compliance exercises that only impact their B-BBEE reporting requirements and assessments rather than should-do interventions that contribute to short to long-term positive economic and social impacts.
However, when management buys into the importance of establishing and supporting SD and ESD programmes, a compelling set of benefits immediately available to the company become instantly apparent. These benefits have a positive impact on companies’ financial performance in the following ways: reduced investment in SD and ESD through programme cost recovery; access to market opportunities based on more attractive B-BBEE scores; potentially more competitive cost of services from ESD-enabled suppliers; and upskilled pool of prospective employees.
However, the direct benefits to companies have a multiplier effect on the operating environment in which they seek to thrive, including the social cohesion, healthy functioning and stability needed for long-term sustainability; and the impact that social cohesion, healthy functioning and stability have on overall economic growth and prosperity for all.
With the global demand for business to adopt and comply with Environmental, Social and Governance (ESG) practices, South African companies’ transformation strategies are a key input to their ESG strategies.
Forward-thinking companies focus on “win-win” scenarios where the dividends of business benefits are seamlessly intertwined with profound socio-economic impacts. They have mastered the art of aligning their transformation and B-BBBEE strategies with the specific objectives of their business growth strategies.
Eruditio was born 13 years ago in the belief that for transformation to become a reality and provide the intended benefits for both South African companies and citizens, meaningful SD and ESD programmes had to be founded with this ‘win-win’ philosophy.
Achieving this consistently with programme owners and beneficiaries alike has required a dedicated application of our four foundational principles. These can be applied by any company to shape and direct their individual transformation strategies and programmes so that they deliver optimal business benefits and also create the desired socio-economic impact. Our four foundational principles are:
Firstly, a holistic perspective on transformation return on investment (ROI) by company management: at the most senior levels, a clear understanding and consensus around the tangible benefits that can be unlocked is imperative for the organisation to realise optimal ROI from its SD and ESD programmes.
Second, aligning the programme design with the company’s transformation strategies: the success of any SD or ESD programme depends on how its design, implementation and management reflects the intent and purpose of the company’s transformation strategy. In some instances, we needed to collaborate with the company in either creating or redesigning their strategy so that SD and ESD programmes have the desired impact on the company’s business objectives and their social impact objectives.
Third, transparent communication: establishing transparent and regular communication channels between SD and ESD programme owners, beneficiaries and ourselves provide the environment for open dialogue in which the intent and expectations are supported by all stakeholders.
Finally, continuous measurement and evaluation: implementing a robust system for measuring and evaluating the performance of both SD and ESD programmes, including regular assessments, is essential for gauging their real-world impact on the lives of beneficiaries
Given the many and varied challenges confronting our country, there has never been a better time for transformation to secure our future. DM
By Joel Emmanuel, Managing Director of Eruditio, specialist Transformation Strategy and Implementation Partners.