Opinionista Peter Flack 22 May 2018

Quo Vadis, SAA?

It is SAA management that is the key and, while an experienced board of executives is valuable, they direct on a part-time basis. They do NOT manage the business. The management team does so on a full time basis and must be allowed to do so.

The article Pravin Gordhan’s Hobson’s Choice at SAA persuaded me to put pen to paper. I have followed this and other parastatal problems over the years but been reluctant to comment for a whole variety of reasons, not the least being that I do not want to appear to be some “Clever Dick” who thinks he has all the answers because I don’t.

However, this and other issues like it, fall four square within whatever little competence I have for the simple reason that, for over 25 years or so, I and my colleagues have spent our days and nights trying to repair broken organisations or improve failing ones such as Fraser Alexander Limited, Randgold & Exploration Company Limited, IST Limited, LeisureNet Limited, MGX Limited, Kolossus Limited, Sallies Limited and, lastly, the Department of Justice, to name just some of the better known entities on which we worked. In some cases we were successful and in others we failed, normally because there was some systemic reason for the organisation’s situation, because we were called in too late or, quite simply, because we lacked the ability to fix the problem.

The lessons we learnt in doing so can be summarised as follows:

No organisation, be it a company, church, club or country, can succeed unless it has four things:

1 Leadership and, preferably, strong, decent and visionary leadership.

2 A written strategic plan produced as a result of completing a clearly defined process involving, on an inclusive basis, all those directly involved in its implementation and which plots the way forward for the organisation over the next three to five years because we have never seen an organisation turned around permanently on a sustainable basis in under three years.

3 A motivated, competent, cohesive, well-rounded management team who have been directly involved in the preparation of the strategic plan and who together have all the necessary skills and proven past, practical experience to implement it.

4 A written action plan which breaks the strategy down into small, measurable, bite-sized bits, the implementation of which is tracked at short, regular intervals, preferably no more than a week apart because, if you do not measure progress or the lack thereof at short, regular intervals, you will not end up with desired result.

I am not saying that, if you have all these four things the organisation will be successful but that, if you do not, you will never be successful. I would now like to add a few additional random comments on the above four factors, namely:

We were loosely termed turnaround specialists or company doctors and, just like a doctor, before you can diagnose the patient’s ailment(s) you need to thoroughly examine him/her. In the case of an organisation, you need to perform a thorough due diligence or business review first and I cannot stress this point too strongly. Failure to do so is like driving down the motorway at speed with a blindfold on. It is not a case of whether you are going to crash and burn but only when.

In this situation, it is tempting to use audit firms or consultants who provide a swarm of eager young beavers with prepared questionnaires, whose most expensive purchase to date has been their BMW M3 but who have little or no practical, hands-on experience in this arena. As such, they normally ask management for the answers to their questions and, as management is more often than not part of the problem, their answers do not help much. This is a bit like someone borrowing your watch to tell you the time.

This is not what you need. You need experienced business people who have been through the mill, who have had the wool pulled over their eyes before, who have learned from their mistakes and, for example, I will never buy a business without checking the accrued, unfunded liability in the pension fund. In an early acquisition I did not think it necessary to do an actuarial valuation. Big and expensive mistake.

I can quote numerous other practical examples of critical information established by the business review only because our team member knew where to look and what to look for. You want the best possible people to do this critical job even if they cannot stay on afterwards to help further. Facts have a strong inherent logic and those discovered during the review can often point a successful way forward.

You also need to pay particular attention to those areas where managers can cut costs but the effects are only likely to be felt much later and lurk like time bombs beneath the feet of the unwary incoming management team – matters like insurance, training, safety, marketing, advertising, PR, repairs and maintenance. I was amazed to read a little while ago of the new CEO of a parastatal proudly pointing to a substantial turnaround in its fortunes in the first year of her appointment while posing for a photograph with a group of happily grinning politicians. Later, when reading the financial statements, I found she had cut out some R174-million from repairs and maintenance budget, which effectively explained the profit shown. Pathetic really.

While quantitative information is important, qualitative information is even more so and again this takes time and experience to extract and evaluate. It is seldom that people at the coalface do not know what is wrong with the organisation and, more importantly, what is required to fix it. As such, we would always prepare a detailed questionnaire during the business review process and, towards the end of it, over a long day, go through it with a cross-section of employees, one after the other, to eliminate the possibility of them comparing notes and providing prepared answers. In well managed organisations it was amazing how similar the answers were. The opposite was also true.

It was important to talk to all the stakeholders in the organisation – customers, suppliers, capital providers, the communities where the organisation operated but, if you talked to only one group, then make sure it was the employees and that they knew their answers were received in strict confidence and no names would be attributable to any comment. In the Department of Justice the employees were particularly paranoid about this issue.

In all of the above, it is management that is the key and, while an experienced board of executives is valuable, they direct on a part time basis. They do NOT manage the business. The management team does so on a full time basis and must be allowed to do so. The key functions of a board are to choose the CEO; approve and monitor the strategic plan; the structure of the company and the budget flowing from the strategy and, finally, to supply the management team with the wherewithal to implement the strategy because, if they do not have it, then the management team cannot be held accountable and responsible for its failure. This is important to bear in mind as many failed or failing organisations often seem to confuse this issue and, it is axiomatic that, where two or more parties are responsible for performing the same tasks, then no-one is accountable.

I can go on and on about this important topic as I have taught on this subject at both Wits and Stellenbosch University Business Schools for many years. I also contributed a chapter dealing with this matter to the book, Turnaround Management and Corporate Renewal – A South African Perspective, edited by Professor Neil Harvey. In essence, there is hardly ever a quick fix to turnaround any organisation, let alone a large one employing many people and particularly if it has been allowed to languish for an extended period. By then, most of the good people who could find jobs elsewhere will have left, usually leaving only the sick, lame and lazy behind. Having said that, there are tried and tested methods for doing so which have been applied successfully to a variety of different businesses and organisations in the public and private sectors. All it requires is skilled, experienced and motivated management, supportive shareholders or members and lots of very hard work. DM

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