The devastating impact of State Capture lies not just in the money that has been siphoned out of the public sector, but also in the collateral damage done to public sector management.
Various estimates have put the cost of State Capture at well above R50-billion rand. This sounds like a large number. However, as many have pointed out, with a GDP of well over R6-trillion, a once-off impact of R50-billion on the economy would be difficult to detect in terms of the county’s growth and employment statistics.
In our interactions with managers in government departments, parastatals, universities and state-owned enterprises, we frequently hear it said that “what we are currently experiencing is even worse than State Capture”.
These conscientious managers are intimating that there have been knock-on effects from State Capture. As they look at their organisations, they see that hesitancy, poor decision-making and bad management in the wake of State Capture are indeed causing measurable harm.
We hope to unpack some of this in a series of articles. One of the areas of poor management, perhaps the most visible, is that of procurement.
For many successful organisations around the world, including governments, procurement and the supply chain function are major sources of efficiency, innovation and competitive advantage. Innovation and efficiency – the ability to do more with less – are of course indispensable when tackling the widespread challenges of poverty, unemployment and inequality that we face as a country.
Both of us have worked with procurement functions in many different contexts; one of us spent time in Europe generating millions of dollars of improvement in large, already productive organisations. There are important lessons to be learnt from international best practice for quicker, responsive, cost-effective service delivery.
First, procurement is strategic. Just as a marketing department segments the different users, so a strategic procurement function segments the market from which it sources.
Some segments represent commodities that can be squeezed, while others are driven by innovation. Some should be kept at arm’s length, while others invite partnerships.
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In some segments, middlemen create significant value, in others they represent an unnecessary layer. Some segments can be dealt with on an ad hoc basis, others through sustained involvement and longer-term contracting. In some commodities, supplier partnering itself may be a way to unlock significant value.
Fortunately, in the public sector, all these tools are indeed available in the form of practice notes and regulations written during the time of President Thabo Mbeki when Treasury believed that the developmental state could be agile and productive.
Indeed, there was a strong view back then that the public sector could be competitive and hold its own in terms of agility and responsiveness with organisations in the so-called private sector.
Second, a core skill of supply chain is the ability to reverse-engineer an offering. It isn’t good enough just to take the lowest price. A procurement officer always has an independent view of what the cost should be and how this translates into a fair price.
It is not enough to take the lowest cost of a donkey cart, should one be required. A procurement officer should have an independent view as to what a donkey cart should cost and whether or not a premium is being paid. This elevates the role of the procurement officer.
Third, there is a need to actively manage for value. This involves understanding where value is created and where value is destroyed. It involves being able to understand and calculate total cost of ownership.
It involves the two important negotiating questions: what I do that adds cost to you and what you do that adds cost to me. Part of innovation is the ability to generate options and alternatives. To do this, procurement and operations have to work hand in glove.
Since the late 1990s, governments across the world have moved to become leaner, more efficient and more responsive. This has involved governments focusing increasingly on value for money, best practice and innovation. Cumbersome practices aimed exclusively at compliance have been replaced by equally robust practices, but aimed at creating value.
Since State Capture, supply chain practices across the public sector have regressed.
First, procurement has become a compliance function rather than one that adds value. Second, a range of Treasury best practices have collapsed to a very restrictive use of the tender tool. Third, they have increasingly decoupled procurement decisions from operations, service delivery and government performance.
Almost invariably, procurement has over time developed a quite different set of priorities from the line functions they were set up to serve. Increasingly, the priorities of procurement trump those of service delivery.
Ironically, as compliance measures have increased, so have the corruption loopholes. In truth, as large corporates have found, a focus on results helps cut the opportunity for corruption; it is very difficult to get the best value for money and to be corrupt at the same time. There isn’t the resource left over to appropriate.
When he was president, Thabo Mbeki once indicated that waste and inefficiency can be as detrimental to service delivery as corruption. The scale of State Capture under former president Jacob Zuma and President Cyril Ramaphosa seem to belie this.
Our argument is that State Capture is worse than the numbers would suggest, and the reasons for this are the bad management practices that have come in its wake.
The hangover of State Capture is an embarrassment of bad management practices.
We believe that poor practices in management and decision-making are playing a big role in holding back the capacity of the state to deal with poverty, unemployment and inequality. DM