Productivity. The word continues to make its way into just about every business conversation today – yet, for all the emphasis and awareness, many companies fall short of being able to truly align and engage employees on this issue. The reality about productivity is that if buy-in is achieved, in line with company strategy, the result is an increase in shareholder return and business growth.

 

When we speak of productivity, what do we actually mean? It is a simple but important question – particularly because there is often a discrepancy between what a business perceives to be employee value add through measurable output and what an employee feels he or she is ‘putting into the job’.

 

From a Human Capital Management (HCM) point of view, productivity is understood to mean outputs from a particular activity and the metrics involved in measuring these outcomes include time, quantity and quality.

Contrary to what many people may believe, mergers and acquisitions are happening quite regularly across different industries, jurisdictions and business sizes in South Africa. Not all of the deals are made public or make big news, as it is usually only the ‘big name’ deals that tend to reach the mainstream media.

 

This is according to Isaac Chindotana, Lireas Portfolio Manager, who says, “Taking the insurance industry as an example, a number of mergers and acquisitions (M&A) have been happening and this has been seen across the entire insurance value chain: brokers, Underwriting Management Agencies (UMAs) and insurance companies. The past few years have seen more high profile M&A activity in the broker space, in some cases even extending to operations outside South Africa’s borders.”

 

He comments, “Most role players in the short-term insurance industry are faced with uncertainty, limited organic growth and various other challenges that may be partially absorbed or overcome through a merger or acquisition. Further to this, a number of players in the market are holding large amounts of excess capital that is available for deployment, further creating appetite for M&A activity.

 

“In the deals that Lireas Holdings – as a strategic investment company for Hannover Re Group Africa - has done with its partners over the years, we have observed some of the benefits and value unlocked out of merging or acquiring businesses. The current environment is therefore one that would encourage and in some cases necessitate mergers and acquisitions, rather than not.”

 

Chindotana says the UMA space, which provides specialised insurance products and services to brokers within specific lines of business, has also been quietly active in the past few years, although with less prominence than the larger brokers and insurers. “As a strategic investment company for Hannover Re Group Africa, Lireas Holdings has been involved in a number of very successful merger and acquisition deals involving UMAs, especially over the past five to 10 years. When businesses come together, it is usually as a result of voluntary and strategic moves to achieve certain business objectives.

 

“However, it is also not uncommon for businesses to approach a suitable buyer of their business as a way to ensure their survival when faced with challenges. At the extreme end of the M&A activity spectrum, we also find businesses that have been acquired against their will in hostile takeovers.”

 

Chindotana says that, disregarding the risks or potential downside associated with mergers and acquisitions, the potential benefits or drivers for such deals are generally as follows:

• Synergies – The potential efficiency gains achieved through sharing resources across products and increasing profit margins in the combined entity can create a major attraction for consolidation. 
• Growth – Mergers and acquisitions also help to improve operating scales, access to other markets, distribution channels, niche lines of business and customer bases. A number of players in the South African financial services arena have acquired businesses in lucrative emerging markets where these businesses are expected to grow faster than South Africa in coming years.
• Diversification or sharpening business focus – Some organisations may choose to acquire another company in an unrelated industry to protect themselves from any downturns in their core industry’s performance. On the other hand, organisations seeking to sharpen focus often merge or acquire companies that have a deeper market penetration in a key area of their operations.
• Response to a competitive and/or changing landscape – Organisations are sometimes better off combining forces to meet challenges that they would struggle with separately. The increasing compliance and regulatory requirements in the financial services space would encourage consolidation.
• Supply chain control (vertical combinations) – As a strategic move, a business may choose to buy one of its suppliers or distributors to achieve cost savings in its business or more closely control the chain. For example, in jurisdictions which allow this, some insurance companies have bought into brokerages in order to have control over product distribution channels.
• Management of competition – M&A deals are sometimes specifically carried out to eliminate future competition or gain control of a competitor’s potential business advantage.

I was recently following a conversation on LinkedIn about BEE and whether it has failed or succeeded and found it to be such an interesting conversation - more so because all of the participants of different gender, races and ages, were fundamentally agreeing with each other.

Unfortunately they were so quick to argue that they didn’t realise their agreement until much later on in the discussion, and their argument made me realise that South Africa as a nation seems to be doing exactly the same thing.

The issue of empowerment needs to be about increasing the number, value and size of opportunities in South Africa. The principles of BEE are about including all South Africans in the ability to access the economy. This means equal education, equal rights, and equal access to entrepreneurial, corporate or informal employment. Most importantly though, it means choices and economic freedom that is directly related to how hard you work and how committed you are.

All of this is achieved remarkably well in a growth economy, but less so in a struggling economy. South Africa is identified as an investment risk by so many countries in the world due to various factors, but mostly skills shortages, the perception of restrictive regulation and lack of clarity around the leadership of the country.

Many South African companies are downsizing or shutting their doors due to poor economic growth and decreasing profits. How does one focus on anything other than survival when the world faces recession? The recent mining strikes are a classic example of how the poor need more than the back-breaking challenges of employment opportunities just above the poverty line. However, to negotiate better working conditions for our poor we need to showcase South Africa as a politically stable, economically robust, attractive investment destination.

On the back of increased interest in investing in SA and a willingness to negotiate the terms of investment in order to access an attractive market, so too lies our ability to negotiate empowerment commitments, investment in skills development and training and increased social and developmental investment.

So many multinationals are competing with South African businesses globally, so many countries in the world are supporting their SMME markets to export globally as a means to reduce the impact of global recession. By contrast, in South Africa, we seem to be so internally focused on pointing fingers at our inadequacies and frantically trying to grab at the crumbs that are left of the economic pie that we have stopped trying to increase the size of the pie. We seem to have turned on each other when, in these economic times, we should be supporting each other as a united collective, to survive economic turmoil.

Where is the growth strategy? Where are the commercially-linked educational programmes? Where is the commitment to mentorship and skills development in critical skills shortage areas such as energy, renewables, nuclear, mining, construction, engineering and medicine? There needs to be a structured strategy, but the key issue of BEE is fundamentally one of economic and social transformation. Therefore, it should consider all South Africans.

How do we ensure that all South Africans participate in an environment of growth, stability and opportunity? How do we ensure that the majority of South Africans have access to the mainstream economy and all that comes with it? It requires collaboration. It requires us to seek solutions, to be proudly South African and part of rebuilding not only our reputation but our national pride.