Five strategies for building a solid transformation plan
Companies need to stop being so short-sighted when it comes to B-BBEE.
Broad-Based Black Economic Empowerment (B-BBEE) has become an integral part of the business impacting a company’s taxes, cash flow, forecasting and overall business success. The sooner organisations accept that B-BBEE is not going anywhere, the better they can position themselves to reap the benefits and use it to further develop.
To better utilise transformation as a strategy, here are five short, medium and long-term strategies to a successful transformation plan, focusing on the core B-BBEE elements of ownership, management control, skills development, supplier development, and social investment.
Ownership will not fall within the spectrum of a short-term strategy because, In terms of transformation, ownership is always the slowest changing element. In the medium term, however, organisations can follow one of two methods: They can either scout for qualifying talent and investors within the market that are liquid and have the potential to acquire the equity; or, if the individual(s) meet the criteria but lack the financial ability to purchase a stake in the business, the company can finance the deal through various loan structures. If companies are financing the deal, they should seek an individual that comes with value. That individual must further possess technical skills or relationships that can grow the business.
In the long term, organisations can cultivate shareholders from within.
This is done by earmarking an individual(s) that has shown loyalty and whose qualities fit the role based on the company’s needs. The downside to this approach is that often the identified individual does not have the funds to purchase equity and thus must be assisted through a share-ownership plan or some form of equity compensation
2 Management control
Management control is about promoting people through the company’s ranks and is a medium-term strategy. Depending on the level of the identified employee(s), there needs to be a mentorship and coaching programme within the organisation to not only groom the employees but to also instil soft proficiencies that people aren’t born with, such as leadership skills, management and more technical aptitudes, like managing an organisation.
But often employers and owners of the organisations want the business to stabilise before instituting the relevant raise that accompanies the promotion. What senior managers don’t consider is that refusing to give an employee a raise could lead them to resign. Opening up the business to the sheer costs of recruiting for new talent, which comes with astronomical costs both direct and indirect, such as downtime, lack of proficiency, customer and client orientation.
Management control is about more than simply adding a title next to a person’s name. It is about equipping them with the institutional finesse to lead, and financially rewarding them for their contribution.
3 Skills development
Skills development, in terms of common practice is often seen as a short-term goal. Workplace plans are often set on an annual basis, which means that companies embark on training to meet their workplace plans every year.
Employees should not simply be trained for the BBBEE points. They should receive training to get them to a point where they are promotable, as that works hand-in-hand with the Management Control element outlined above. When assessing a company skills position, the immediate approach is to look at what the scarce and critical skills in the organisation are, what is the current skills sets are, and how to bridge that gap.
Skills development should be considered on a case to case basis. A personal development plan should be assigned to every employee in the organisation. Learning a specific business function can take time, skills development as a strategy must be split into the short, medium and long term.
But skills development can also sometimes be a trap. Businesses can become a training school for the unemployed, who while they may become more qualified, never actually acquire employment.
It is vital that employers effectively communicate this strategy to their employees because you don’t want to create an expectation amongst the employees of receiving a managerial position simply for completing the various skills development programmes the organisation offers.
4 Supplier development
When it comes to supplier development, organisations can follow one a variety of different routers. They employer can opt to uplift small businesses or individuals who will either grow into their supply chain or will be assimilated into the organisation and eventually acquire shares.
An alternative is to take an enterprise under the organisation’s wing, offering them mentorship and coaching, making them the benchmark supplier so that they graduate from a small medium enterprise into a generic business, and pay it forward by developing other small enterprises.
Based on the amended BBBEE codes, this process is now driven through procurement and can be one of the most difficult elements to control. Remember, your suppliers’ points can drop if they are not managing their BBBEE strategy properly, impacting your organisations’ points.
Therefore, it is important to have a road map with each of your suppliers so that you can monitor their BBBEE scorecard over every 12-month cycle.
5 Social investment
The best place to start when uplifting communities is through their education and that is a long-term strategy. Education can start as young as Early Childhood Development to primary and high school and eventually tertiary. But ultimately you want to bring that person into your organisation or your supply chain.
Identifying a charity of your choice is great in theory, but the amended codes now stipulate that any donations made must end up as income-generating activities.
As most organisations often have their charities of choice, and those charities have a bigger marketing budget, they receive more donations regularly. Meaning the wealth is never distributed evenly. It is critical that when companies consider their BBBEE strategy they acknowledge this. The best approach is to urge the public to look beyond the known charity organisations and start supporting even individuals.
Transformation is an inclusive process. A more equitable economy will benefit all South Africans, individuals and enterprises. BBBEE should be part of every company’s growth strategy. But traditionally, it has been viewed as a grudge payment, akin to paying your taxes or insurance. There is a purpose behind BBBEE, it is associated with good governance. If we do not get behind it, it will fail. Most organisations do not understand the economic growth and development BBBEE will offer their businesses. Ignore it at your peril.