Given a shaky investment environment, Marriott, the income specialists, suggests that investors focus on managing risk and preserving capital

We often go into denial in the face of bad news as this can protect us from very stressful situations such as the loss of a loved one. But unchecked, it can cause us to ignore critical change in our world and its impact on us. Denial is often the case when dealing with our finances and this probably relates to the stress of our savings and the continual worry whether we have saved enough for the future. We mistakenly presume that good returns we may have enjoyed will continue and we miss signals indicating that we need to make changes.

 

But what is likely to remain the same? And what might change? What impact might this have on our investments and what can we do about it?

 

Let’s look at our local experience over the last few years.

 

Like most countries, South Africa experienced a financial jolt during 2008 as a result of the global credit crisis. Many were affected but since then our economy has continued to grow, spending has continued unabated and our stock and bond markets have reached new heights. Is this good news likely to continue?

 

A major driver in our economy over the last five years has been the vigorous spending from both the consumer and the government.

 

As interest rates have declined the cost of debt has reduced, resulting in more available cash for households. Extra cash has also come from continued borrowing especially from overdrafts and short-term loans. The South African government, too, added ten million more recipients of social grants increasing the number of economically active households. But will this set of circumstances continue? Perhaps not.

It’s time for marketers to make the shift from event dollies to boardroom ambassadors

 

Let’s face it; marketing is not taken seriously in many boardrooms. What many of us suspected has been confirmed by the inaugural Brand Marketing Barometer Survey*. The research, compiled by the Brand Council of South Africa, makes it clear that marketing does not command respect from the higher powers in the boardroom. And this disconnect is not unique to South Africa (or limited to a particular industry) as Deloitte’s Marketing in 3D global report uncovered that one third of CFOs do not believe that marketing is a key growth driver or is crucial to devising strategy.

The greening revolution is a fad, and the term “greening” is a fatuous one. These are probably not words that you would expect from a “greenie”. However, the truth is that “going green” has come to mean very little in the corporate world where the term “return on investment” will always be king.

 

Despite this, the green movement is going for gold and there are numerous studies that show the growth of the green sector, including a recent study by McGraw-Hill, that states that green building is, “rapidly taking hold in South Africa, with its share of firms that are highly dedicated to green building growing at a faster rate than in any other part of the world.”

 

The study shows that the average green share of building project activity in South Africa in 2012 was 31%, with the majority of growth in the sector as a result of it “being the right thing to do”.

 

Yet, is it “the right thing to do”? The answer is both yes and no. There is no doubt that a well-executed greening plan has real benefit. However, if this is not integrated into a more meaningful sustainability plan, the real reduction of impact is minimal at best.

 

A large number of companies realise this and are concentrating significantly on “sustainability”, a far more encompassing term that can result in real change and makes the greening efforts inherent within it meaningful and impactful.

 

Perhaps semantics, or pedantry here, are out of place. I would say not. The more we call for real, sustainable change, the better. Changing to energy saving light bulbs should not be seen as a greening initiative for which companies should receive credit, but should be seen as a basic obligation, a duty, a minimum. Not something you do to “go green”. Similarly, recycling should be seen as a moral obligation, not something for which a pat on the back is deserved.

 

So, where does that leave companies who truly want to make a difference in ensuring they minimize their impact on the environment (and too often forgotten) the people within it? Waiting for legislation is clearly not the right thing to do, as we all wait in anticipation for the effects of 2015’s carbon tax, the consequences of which have already been felt with ArcelorMittal’s shares dropping by 6% in February this year following the announcement of the tax in Pravin Gordon’s budget speech.

 

To truly “go green” in 2013, a company needs a comprehensive sustainability plan that critically accesses the organization’s impacts and contains detailed implementations that aim to reduce these. It needs to look beyond investor relations, stock value, and customer opinion. It also needs to look beyond “greening” and deeply investigate the company’s social impact, which often is an extrapolation of its environmental impact – you seldom come across a company with an excellent and meaningful corporate social responsibility record and a poor environmental stance. Society and the environment can no longer be separated.

 

Having said all this, we need to start somewhere and for companies who are now, commendably, if not a little slowly, looking at their sustainability, “greening” is good place to start and “green” initiatives can be quickly implemented that also show a return on investment.

 

A quarter of all global greenhouse gas emissions come from power and heat generation. While transport accounts for 14% of greenhouse gas emissions. So these are two key areas where companies like starting their greening initiatives, followed by water and waste management, and rightly so.

 

Yet there are so many other avenues to explore. Greenhouse gas emissions, of which carbon is seen as the devil of emissions, despite the perhaps more pressing concern and danger of methane – the real Mephistopheles of emissions, is only one aspect, though an important one, of becoming sustainable.

 

Few companies, however, look at their corporate real estate beyond energy consumption and water and waste management. And when the do, they only look at direct solutions: light bulbs, daylight harvesting, alternative energy, etc.

 

Companies need to look at how they can reduce their impact far more holistically, and an excellent place to start is with their staff. Offices, are after all, merely structures that unite a workforce and provide staff with facilities to enable them to work productively. Productive staff are clearly better for a company’s carbon footprint than unproductive staff – yet few companies make this link and concentrate on reducing emissions by changing their buildings as apposed to changing the mindset of their staff and the way they work.

 

Changing the way we work can have a meaningful impact on a company’s environmental impact. Underutilized workstations, for example, are a potential source of energy savings. Because many office buildings are only 40-50% occupied, this creates the opportunity to reduce the number of workstations provided. By reducing the number of workstations, you are reducing the space you occupy, the cost of maintaining this space in both financial and resource terms and you optimize your workflow. This can all be successfully achieved by adding flexible time schedules and shift management options; taking advantage of satellite office locations; eliminating unused workspaces; creating more integrated and multifunctional workspaces; and instituting a company bus service to allow for more off-site work.

 

It is by adopting initiatives such as these that will ensure sustainability and promote a mindset that goes beyond compliance and simply greening.

In today’s world, there is no longer any argument over the need for business analytics. It provides facts and information that can be used to enhance decision-making, improve business agility and provide an important competitive edge. However, much confusion remains in the market over centralised and decentralised solutions, so-called agile Business Intelligence (BI) and traditional BI, which provide different levels of analytics freedom and IT control. This typical disconnect between business and IT leads to the business analytics dilemma – the need to keep both business and IT happy and deliver solutions that provide real business value and return on investment (ROI).

 

The reality is that top performing companies are analytics-driven, as the proper optimisation of information assets provides insight to guide actions throughout the business. Organisations are now looking to increase investment into business analytics to cover multiple areas, including BI, data exploration, trend and statistical analysis, what-if analysis and predictive analytics. In this manner, it is the ultimate goal of the enterprise to change the culture and discipline of their organisation to rely on analytics driven decisions, rather than going by gut feel or using what amounts to educated guesswork. The challenge is no longer around the decision to implement solutions for data and analytics, but the actual process of going about doing so successfully, so that benefits will be realised and goals attained.

 

This challenge is only exacerbated when different advisors and vendors raise the perceived conflict between centralised or decentralised solutions, which provide different levels of analytics freedom and IT control. This rift, or lack of vision and cooperation, between the “business” stakeholders and the “IT” stakeholders, is a common challenge in many areas, and is well known if not well understood and dealt with. Traditional BI is perceived as being a dinosaur, too rigidly controlled by IT to provide the necessary information to the business to enable them to make decisions. However, the so-called agile BI tools claim that analytics can simply be “plugged in” to any data source and can then be used. The danger of this scenario, while it does provide compelling freedom to the business, is that this data is then uncontrolled, and different users could get different insights based on different data, which may well lead to conflicting predictions and analytical outcomes.  

 

Solving the dilemma means satisfying both the business demands for access to information, and the IT need to control and manage this data in an acceptable manner. Satisfying both parties can prove to be immensely challenging, and often results in a stalemate, where nothing gets done because a suitable middle ground cannot be found.

 

In order to meet this challenge, it is critical to include both IT and business in all analytics decisions. The business should not simply task IT with finding a tool, as happens so often. IT often does not understand the needs and requirements of the business, and business users do not understand the mechanisms and requirements of IT.

 

Finding the middle ground requires a balance between access to information as well as applicable regulations and control. It is no use having a solution that is so rigid with rules and regulations on how to access the data that business users reject it as impractical, as this is a waste of a significant investment. At the same time, business users should not be permitted unfettered access to any and all business information. The freedom to explore information and understand how business can benefit from reporting and analysis should be balanced by the discipline required to validate the data, provide a single version of the truth for reporting purposes, and standardising dashboards and reporting across the organisation.

 

Business users must be given access to the tools they need, and IT must cater to this new breed of business user. However it is still vital to exercise the right governance and control over the information. The only successful outcome for the organisation is a solution that offers an agile and personal analytics capability, which is integrated with approved enterprise planning and forecasting, analysis, profitability modelling and performance reporting.

 

While this need may be well recognised, achieving this balance still proves to be an insurmountable challenge for many organisations. Organisations need to understand the full spectrum of their requirements before opting for any solution that they are sure will provide for all of their needs, even if they start by addressing only specific pains. Partnering with an expert consultant, one which understand the business needs as well as having the right vendor solutions in their stable will ensure that the most appropriate solution is selected and effectively implemented to meet the needs of both business and IT around business analytics.

Accepting that consistently high returns are probably in the past is the most important investment tip for 2013. This is according to Marius Fenwick, Chief Operating Officer for Mazars Financial Services. “Don’t expect the returns we’ve seen, especially not from the same asset classes. And if you want higher returns, be prepared to take on more risk.”

 

Fenwick says listed property, which has delivered excellent returns of late, is likely to disappoint over the next few years with lower returns and a possibility of capital loss. Nor is cash by any means a good investment. Fenwick insists that investors avoid keeping cash in the bank unless they intend to spend it within two years. “Even pre-tax returns on cash are below inflation. Cash should only be a parking ground for money in between transactions.”

 

“Government bonds are also likely to disappoint,” he says, “and with equities we anticipate a lot of volatility going forward, although equities are still the asset class of choice for decent returns over the longer term. For the first time since the late ‘90’s, offshore equities are expected to outperform local equities over the next 3-5 years.”

 

What investors should do

When it comes to investing, there is no crystal ball, but for every type of investor, from young professionals to retirees, specific asset allocation guidelines can assist in building and preserving wealth.

 

The low interest rate and higher inflation period we are heading towards will prove a difficult environment for generating strong, real returns using only conservative low risk assets.  Accordingly, Fenwick says investors will have to increase their risk appetite. Even popular guaranteed income products are fatal in long term wealth creation. The guaranteed amount that pays out after 5 years is eroded by inflation and at 7% annual inflation the original capital amount’s real value is almost halved after 10 years.

 

A challenge facing retirees is where they should put their money to preserve it and earn an income. “Retirees must continue to look at growth assets. When retiring at age 65 one must still plan for an investment horizon of at least 15 – 25 years depending on your health and family history. A typical retired investor should have an equity exposure of around 30% - 40%, an exposure to listed property of 5-10%, and the remainder in specialist income funds which includes exposure to commercial bonds and inflation-linked bonds. Of these investments, around 30% should be offshore,” says Fenwick.

 

Long-term conservative investors should invest around 5% in property, 20% - 30% in equities and the balance in specialist income funds, while  moderate to aggressive investor should put 50% + in equities and the rest in specialist income funds with some 10% property exposure.

 

As a rule of thumb for offshore investing, choose offshore equity, where Fenwick says aggressive investors should have around 40% offshore exposure within their portfolios, and conservative investors should have 20% - 30%. There is also some embedded value in selected offshore property.

 

The above applies to lump sum investments. When investing by way of regular contributions, much more risk can be taken on and the above limits to equities and offshore exposure can be increased by at least 50%. Rand cost averaging will ensure that over an extended period, optimum growth will be achieved. The important factor is to stick to the program and continue with the contributions even when markets drop.

 

Going the distance

The key to investing, however, is really to look forward and be as long a term investor as possible.

 

“Returns do eventually come through and even though we cannot rely on past performance to get us through investing in 2013, we can take comfort in knowing that a long-term approach will add up favourably in the long run,” Fenwick concludes.

Investment managers define risk in different ways.  Some define it as volatility, while others define it as being different. According to Allan Gray, however, the most important risk in investing is the risk of permanently losing money. 

 

Volatility essentially measures how much an investment’s return varies from its average over time. By defining risk as volatility, the relationship between the intrinsic value of an investment and its price is downplayed, as is any intrinsic risk of the company’s operations or financial structure, says Mahesh Cooper, director of Allan Gray.

 

“The problem with using volatility as a gauge of risk is that it is mostly an indicator of changes in the perceived value of an investment based on the fluctuations of historic return patterns. It therefore gives you no sense of the possibility of an intrinsic looming threat to returns.”

 

Another popular interpretation of risk is that risk is being different, as measured by tracking error. Tracking error is the statistical amount by which the returns of a particular share differ from those of a benchmark.  A share whose returns differ widely from a specific benchmark (usually an index) is considered to have a high tracking error and is therefore considered high risk.

 

“We accept that for an investor whose objective is for returns to mimic an index, tracking error is a relevant risk measure. However, for an investor aiming to create long-term wealth, defining risk as tracking error simply doesn’t make sense,” says Cooper.

 

“To us, however, investment risk is not about how variable a share’s returns are over history, either versus its own average or that of any pre-selected benchmark. It is simply the probability of permanently losing money from an investment.” 

 

He says it’s important to be aware not only of the possibility of loss, but also of the potential magnitude of the loss. If a fund has a long-term history, investors can assess the largest peak-to-trough decline in returns over the life of the fund, also known as the ‘maximum drawdown’. It’s also important to consider how long it takes an investment to bounce back following a decline.

 

Benjamin Graham, the father of securities analysis, maintained that a potential decline in the price of a share does not ultimately raise the risk of loss if the decline is temporary and if the probability of selling during the decline is low. Graham applied the concept of risk solely to a loss of value, which may be realised through actual sale; caused by a significant deterioration in the company’s position; or, more frequently, may be the result of overpaying for an investment relative to its true intrinsic worth.

 

“Since our primary definition of risk is the probability and the extent of capital loss, we always try to invest in businesses when share prices are well below our assessment of the company’s intrinsic value and we are offered some protection should things turn out worse than we forecast – in other words, a margin of safety exists.”

 

Cooper says Allan Gray believes that to invest where value is exceptional is not only the lowest risk, but also the most rewarding strategy. “In our opinion, the best predictor of returns is the price you pay for the investment relative to its intrinsic value and risk.”

 

If a particular investment appears overpriced, Allan Gray considers it risky and won’t purchase it for their clients. “Conversely, we consider it prudent to invest in assets that we believe offer exceptional value even if they are out of favour and not represented in the average portfolios. This means that our portfolios often differ markedly from those of the average investment manager.” 

Can we create a measure for internal marketing campaigns? That’s the eternal question and it still remains pretty tricky. However, the evolution of the discipline and access to technology by employees has made measurement more possible, if not easier.

Where measurement becomes tricksy is in separating out the variables that impact on the campaign or programme, not unlike above-the-line or direct marketing, but maybe a little more difficult because of the sheer number of internal issues affecting employees attitudes, perceptions and behaviours.

If what you want is to identify and separate the factors that influence the outcome of a campaign and to determine whether the results you got were because of something you did or because of something someone else did – then there is only one way to do it. You would have to go through the laborious and costly process of controlled studies – which is impossible to do for every internal marketing campaign. So, you would need to decide about what is realistically measurable.

These would include:

a) Efficiency of channel: Did your message get to the right people at the right time?

For example: what were the results of using new media rather than traditional media. How far into the target market did the medium reach? This mix would depend on the individual organisation including factors such as access to technology, internal distribution and event attendance. You may be surprised to find that new media works in the most unlikely organisations. For example: many people have access to cell phones and sms’s can be sent cheaply in a range of languages, offering the critical advantage of over-coming language barriers. The trick is to try a range of mediums and track which combination works best in your company.

b) Effectiveness of communications. Was your message read, understood and remembered?  

This is where technology can really come into play. Of course, you could do a ‘tick-the-box’ option on a questionnaire at reception. But you could also use random webcam interviews, on-line competitions and messaging integrated into team-building activities to test recall and memorability. As always, the key to effectiveness is: creativity in the initial campaign, consistency in communication and importantly, taking the time to consider what would reach the most people in an impressionable way. It’s not about the message. It’s about a focus on the people receiving the message and that requires the most intangible but most magical of elements – creativity!

c) Impact on employee behaviour. Did people change how they behaved? Generally, internal marketing campaigns are executed for three reasons: to motivate employees, to change culture or to orient employees to new systems/products. Each of these objectives can also be measured differently. This may include, for example, a perceptions audit, if the aim was to motivate employees. Or focus groups and customer feedback to ascertain culture change.

d) Business impact. Did the changes people made as a result of the campaign affect productivity, profitability or the customer experience? Here’s where the people responsible for internal marketing campaigns should work closely with the other parts of the business to take a base-line measurement of the results that would be meaningful to the business. It would be advisable to decide on specific targets in advance. For example: a 7% improvement in customer experience. It would also be prudent to ensure that the other criteria for effective change can be met such as: providing employees with the necessary tools to do the job.

Depending on the duration, you should measure at various points in the campaign. You will be able to refine measurements to suit your organisation as campaigns are executed and you’ll also have the option of refining the campaign to iron out any bugs and take advantage of what is working well. However, good communication is underpinned by imaginative and creative campaigns – so don’t let an attempt to provide ‘proof’ undermine the heart of the campaign.

As this month draws to a close, many companies have realised that with the second quarter of the year well underway, it is time to evaluate their business. With the large number of public holidays in April, this evaluation will most likely offer disappointing results, placing added pressure on sales teams to catch up over the next few months.

If you look at the year to date, how much work has actually been done?” asks Louise Robinson, Sales Director of CG Consulting. “With December, January and April essentially being complete write-offs because of the public holidays and leave employees have taken, many companies are very far behind their targets and with a long school holiday in June which will disrupt business again. This leaves companies with nine months of the year to do 12 months worth of sales.”

She adds that there is little time for businesses to catch up. “There are six months of 2012 left, which equates to only 28 weeks, or 140 days excluding public holidays. If public holidays are taken into account, there are only 134 working days left of this year as there are another six public holidays still to come. This doesn’t leave a lot of time for sales teams to meet their targets.”

The solution to this time crunch? Lead generation provided by a specialist service provider, offering a springboard for sales teams. Robinson explains that a lead is not, in and of itself, a sale. It's a clue (or lead) that a sales opportunity exists. Successful lead generation involves finding prospects that have a genuine need and who are actively seeking a way to fill that need. Sales teams can then contact these individuals with further information on tailored offers, products and services.

“In many industries, it can take up to two months or more to close one deal; that is 20 actual working days spent on one sale. If you consider this, it becomes obvious that sales teams are losing time making cold calls to establish leads, and that instead of wasting time on the phones, they could be in front of prospective clients. Outsourcing to a lead generation company is therefore is a win-win situation, and conversion rates on qualified leads will have a higher success rate than cold contacts because the prospect is pre-qualified, before you ever receive the lead, further speeding the sales process up,” Robinson points out.

In addition, a specialist service provider like CG Consulting can use the lead generation process to help build a client’s pipeline by looking for opportunities in the market place defined by their chosen criteria.  With so much competition out there, it important for businesses to develop a strategy to continually grow the pipeline, and lead generation is therefore an essential part of succeeding in sales.

“If you need business fast, or if you want to effectively manage your company’s growth, lead generation is essential,” Robinson says. “It's an easy way to increase your ROI and get more business on your books. The key to being successful using lead generation is to brush up on your sales and marketing skills so that the leads you receive convert at a high sales rate. Do not try to approach this method of marketing without the ability to follow through and close the sale, and don’t waste precious time trying to cobble leads together yourself. You’re the expert in your business; use a lead generation expert to help you grow that business.”