Whilst addressing the meeting with the Council of Foreign Relations in Washington DC in March 2011, then Deputy President Kgaleme Motlanthe, said:
“Like in every war and battle, the transformation path has not been smooth. We still lack universal access to quality education and healthcare. Unemployment remains high. Growth rates are humble, thus limiting opportunities for sharing.”
The question is then raised, has transformation made any headway in the past 4 years. The expectation that transformation would occur quickly as unrealistic, here are some potential corporate pitfalls of slow transformation as follows:
1. Aligning Transformation with the Business Imperative
The disconnect between the procurement and the transformation departments within an organisation is one of the major stumbling blocks in transformation for organisations. To remedy this, the business must appoint the correct people to manage these departments.
A pre-requisite for a successful transformation manager is a good grasp of economics. One of the reasons transformation strategies fail, is because the transformation manager who created them, did not use commercial principles to design the programmes and management best practice to implement these plans.
Transformation is naturally a political and social endeavour, although to make it attractive and meaningful to business, these plans need to be based on economic and management principles.The buying power of the procurement department is crucial to the success of any transformation strategy. If the transformation manager does not have the buy-in from the procurement manager, an organisation risks its spend being directed to existing suppliers rather than SMEs rather than growing new SMEs that in turn drives job creation. A strong transformation manager will be able to lobby management and sit with the Chief Financial Officer to explain transformation in financial terms, and justify the re-allocation of spend accordingly.
Procurement managers, on the other hand, need to see the bigger picture to understand why transformation is a company and country imperative. Through localisation of procurement, jobs are created, the corporate has greater flexibility of supply as well as quicker response times from their suppliers, which in turn leads to better turnaround from the corporate to their own customers.
The world is moving to a more responsible consumer mind-set, especially a country such as South Africa where historical injustices are very much at the forefront of our collective memory. Because there is a move by consumers to support responsible companies, what we are seeing at Edge Growth is the need for companies to buy and package locally. Rather than advertising on a billboard, companies can build a greater sense of credibility in the brand by responsible buying.
2. Narrow Based vs Broad Based Transformation
Another fundamental flaw in the current transformational behaviour is that it is largely concerned with changing the management of an organisation, as opposed to building the businesses and creating wealth for all associated with it. The failure in this premise is the belieft that the majority of wealth in a small business flows through to the ownership structure, when in fact it goes to the employee structure in the SME market segment. A calculation conducted on the Edge portfolio of SMEs indicates that up to 20 x more wealth is created outside of the ownership structure through salaries, taxes and spending. Therefore, merely swapping ownership from one ethnic group to another, will not necessary generate the wealth required to grow the economy in a sustainable manner. The focus needs to be on sustainable job and wealth creation through SME growth as opposed to who owns the business.
3. Transformation needs to be driven from the top
Transformation is generally not a priority of top management. There are several reasons for this mind-set: firstly that the executive team are often not socialised or connected to the political reality of transformation; secondly, that there is a great deal of cynicism surrounding transformation.
For transformation to become a seamless and natural process in South Africa, it needs to be viewed as deeper than compliance. Unless this compliance mind-set is changed, the transformation process will be delayed even further due to companies only ensuring minimal compliance.
One of the major macro pitfalls facing organisations is education. In the Quarterly Labour Force Survey (Q2: 2014)2 released by Statistics South Africa employment levels rise with higher education, in other words, the higher the level of education received the more likely one is to find gainful and sustainable employment.
Changing the demographics of the workplace is a long-term task, education is one of the cornerstones of transformation. The South African education system needs a radical overhaul, consistency and quality will be the driving forces of creating a generation capable of holding certain positions in companies, or even starting their own. Statistician-General Pali Lehohla supports this notion, he is quoted as saying:
“The numbers tell the story. The grey matter needs to be fed to reap change. Education is the only way to feed grey matter. Grey matter is what makes successful countries. It’s not about the amount of gold you are sitting on.”
Globally, companies are neither obligated nor rewarded for transformation through Black Economic Empowerment (BEE) points, but rather believe in transformation as a means to develop the economy and reduce wealth inequality through increased use of localised businesses candidates who are able to hold positions in corporates, or to become entrepreneurs.
Realistic, attainable and measurable goals need to be developed and management must be held accountable if these goals are not met. Transformation is no longer a nice-to-have, it is becoming more and more evident that transformation should focus on job creation as the major driver of equality and wealth creation. Although skills are likely to remain a challenge, corporate South Africa is in a position to get going and take the required accountability.
Daniel Hatfield is co-founder of Edge Growth, a procurement and supply chain strategy and advisory firm. Daniel has been involved in ESD across the entire value chain; from developing and implementing ESD strategies for numerous corporates across multiple sectors to being ‘hands on’ with grass roots SME incubation.