Stages of BEE for SMEs

© Bonngoe Capital (Pty) Ltd 2006Stages of BEE for SMEs

Stages of BEE for SMEs


KEY ROPES OF BEE KEY ROPES OF BEE

DirectEmpowerment

Ownership

Management

HumanResources

Development

EmploymentEquity

SkillsDevelopment

IndirectEmpowerment

PreferentialProcurement

EnterpriseDevelopment

Residual factor

•Broad-based BEE Strategy (March 2003)

• Broad-based BEE Act (Signed January 2004)

•Draft Codes of Good Practice on BEE (December 2004)


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


Public Sector Entities

Supplier A Supplier CSupplier B

Supplier BCSupplier BBSupplier BASupplier AA Supplier CA

Supplier BACSupplier BABSupplier BAA Suppliers to CA

SUPPLIERS TO THE ABOVE COMPANIES

1st Tier Suppliers

2nd Tier Suppliers

3rd Tier Suppliers

4th Tier Suppliers


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.


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.


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.


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.


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


Results of Snap Survey

25.28%

30.17%

24.27%

17.48%

45.66%

0

5

10

15

20

25

30

35

40

45

50

Denial Anger Bargaining Depression Acceptance

The 5 stages of BEE among SMEs


Reality check: BEE Awareness


Reality check: BEE ownership

• BEE ownership levels decreasing– 2004 = 41%– 2005 = 36%– 2006 = 29% (with 14% saying don’t know)


Reality check: BEE Procurement


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– “…”


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


Effect of BEE on the value of your companyImpact of BEE on Company Valuation

0

100

200

300

400

500

600

1 2 3 4 5 6 7 8 9 10

Years

Valu

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pan

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Questions?

Stages of BEE for SMEs

Documents

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