Transcript Stages of BEE for SMEs

Stages of BEE for SMEs
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
KEY ROPES OF BEE
Ownership
Direct
Empowerment
Management
Employment
Equity
Human
Resources
Development
Skills
Development
•Broad-based BEE
Strategy (March 2003)
• Broad-based BEE Act
(Signed January 2004)
•Draft Codes of Good
Practice on BEE
(December 2004)
Preferential
Procurement
Indirect
Empowerment
Enterprise
Development
Residual factor
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Denial Stage
• Features of this stage
– No basic understanding of the imperative behind BEE
– No intention to implement any BEE initiative
• Typical Statement
– “We do not provide goods or services to the
government, therefore we do not have to worry about
BEE”
– “This is something for the big guys”
• Snap survey question
– BEE has no relevance to me.
• Affirmative procurement effect
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Public Sector Entities
1st Tier
Suppliers
Supplier A
2nd Tier
Supplier AA
Suppliers
Supplier BA
Supplier B
Supplier BB
Supplier C
Supplier BC
3rd Tier
Suppliers Supplier BAA
Supplier BAB
4th Tier
Suppliers
SUPPLIERS TO THE ABOVE COMPANIES
Stages of BEE for SMEs
Supplier BAC
Supplier CA
Suppliers to CA
© Bonngoe Capital (Pty) Ltd 2006
Anger
• Features of this stage
–
–
–
–
–
Rage and subtle resentment
“Emperor caught with no clothes on”
No idea where to start
Anything will do just to get them off my back
Excuses found for not doing much
• Typical Statements
– “BEE is reverse discrimination”
– “BEE will kill the economy of this country”
• Snap survey question
– The idea of BEE being imposed on small business
makes me angry.
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Bargaining
• Features of this stage
– Obsession with the scorecard and legal form of BEE
rather than economic substance
– Unsustainable BEE deals
– Fronting-type of mechanisms put in place
– Still not fully conscious of what real BEE requires
• Typical Statement
– “It seems like we have to do this, What is the minimum
that we need to do to gain the maximum points”
• Snap survey question
– If the Government gave me a tax break or other
financial incentive, I would consider becoming a BEE
company.
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Depression
• Features of this stage
– Assimilation of lessons through the hard way
• Unsatisfactory ratings
• Negative public perceptions on initiatives
• Losing business even though there were initiatives in place
– Emotionally exhausted and painful period
– Slow absorption of what the spirit of BEE is
• Typical Statement
– “We have tried do much and yet we get no recognition for our
efforts”
– “What can we learn from all this?”
• Snap survey question
– The idea that I have to have BEE status makes me want to give
up.
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Acceptance
• Features of this stage
– BEE is imbibed in the blood of the top management and from the
bottom up
– There is integrity/alignment in the following
• Our true thoughts about BEE (Thought)
• What we communicate to internal and external stakeholders (Word)
• What we actually do (Deed)
– BEE integrated in the different aspects of the company value chain
– There is robustness and substance to the initiatives around BEE
– The is realism in what can be achieved
• No draining pessimism
• No misplaced and uninformed enthusiasm
• Typical Statement
– “BEE is a long-term imperative and this is what we are doing on a day to
day basis to contribute”
– “BEE and transformation is natural part of doing business in this
company”
• Snap survey question
– The concept of BEE is right for my business and for the economy.
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Where are we in South Africa
• The first decade of democracy
– Spent in the denial stage (1994 – 2002)
– Anger stage (2003 - 2004?)
• Current scenario
– Bargaining stage (Majority of companies)
• Increase in the number of BEE deals
– Sustainability questionable
• Increase in fronting activities
– Increased affirmative procurement pressure
– Acceptance stage
• BEE Competitive advantage
• Once all entities in the sector comply, BEE competitive
advantage vanishes
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Results of Snap Survey
The 5 stages of BEE among SMEs
45.66%
50
45
40
30.17%
35
25.28%
24.27%
30
17.48%
25
20
15
10
5
0
Denial
Stages of BEE for SMEs
Anger
Bargaining
Depression
Acceptance
© Bonngoe Capital (Pty) Ltd 2006
Reality check: BEE Awareness
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Reality check: BEE ownership
• BEE ownership levels decreasing
– 2004 = 41%
– 2005 = 36%
– 2006 = 29% (with 14% saying don’t know)
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Reality check: BEE Procurement
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Stages of BEE – Side 2
• Childhood Innocence
– “With BEE I’m S-O-R-T-E-D, tell me where to sign?”
• Pain
– “How could this happen to me?”
• Knowledge
– “I need to get more info to make this work this time
around”
• Action
– “I am applying the knowledge I’ve gathered to add
value and have more returns on my investment”
• Wisdom
– “…”
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
What do you need to do?
• Understand the basics of what BEE is all about
• Determine your capacity to be able to contribute
• Quantify the TWO GAPS
– Between what the targets and where you currently are
– Between your current status and your competitors
• Put integrity to your BEE initiatives
– Alignment in Thought, Word and Deed
• Always focus on the substance of BEE rather than just
earning points on the scorecard
• Do not rush because of fears nor be complacent by
waiting for finality in the codes or charters
• Keep It Simple
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Effect of BEE on the value of your company
Impact of BEE on Company Valuation
600
500
Value of Company
400
300
200
100
0
1
2
3
4
5
6
7
8
9
10
Years
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006
Questions?
Stages of BEE for SMEs
© Bonngoe Capital (Pty) Ltd 2006