By Prof Kerrin Myres, Anne Cabot-Alletzhauser, Amanda Khoza, Prof Anastacia Mamabolo
Summary of the findings:
Enterprise and supplier development (ESD) programmes have gained increasing attention as vehicles that support the growth and sustainability of small and growing enterprises, or the SMME sector, in South Africa. Fuelled by legislation such as the Broad-Based Black Economic Empowerment (BBBEE) Act 53 of 2003 and the Constitution, transformation and inclusion remain two of their core objectives. Currently, these programmes are estimated to draw between R20 billion and R30 billion of investment per annum.
An important unanswered question, though, is whether the substantial resources being dedicated to these programmes are actually producing the intended ambitious outcomes. Studies conducted on ESD in South Africa paint a picture of an initiative that runs the risk of veering precipitously off course.
This particular study, conducted over 2023/24 by Prof Kerrin Myres at the Gordon Institute of Business Science (GIBS) through the GIBS Responsible Finance Initiative, begins to translate such concerns into specific insights as to why these programmes may not be hitting their targets. The observations derived from 41 comprehensive interviews with the three main stakeholder groups in the ESD ecosystem – corporate sponsors, training intermediaries, suppliers and entrepreneurs – offer critiques of the current state of the ESD ecosystem as well as indications of how ESD programme effectiveness could be improved.
What follows here is a summary of the key points from the study.
INSIGHTS
1. Varying degrees of commitment to transformation result in inconsistent levels of compliance and engagement with ESD programmes.
ESD effectiveness begins with the overall business philosophy regarding the role of business and the need for a high level of commitment to transformation as a mechanism for bringing about a more equitable society. Such a commitment ensures that ESD extends beyond compliance and is actively integrated into the corporate vision, strategy and operations. This enables the corporate to benefit directly from ESD, while also addressing societal issues such as inequality and sustainability.
2. Business-like approaches to ESD offer business benefits and help to address implementation challenges.
It appears that a clear ESD strategy, which is linked to the corporate strategy and integrates the needs of the business directly into ESD programmes, is associated with enhanced effectiveness. Organisational structure, managerial incentives and regular reporting processes help to cement ESD programmes by adding value to the core, rather than being dismissed as ‘not our business’.
3. There is evidence that best-practice ESD requires a coherent, patient and customised approach.
ESD effectiveness may be improved by integrating corporate social investment (CSI), enterprise development (ED) and supplier development (SD) into a seamless development pipeline which mirrors the natural development of a small business and focuses on the long-term benefits to the business. An ESD programme should provide business development support that is customised to the needs of the businesses in question. As a result, the volume of businesses supported may be small, but the effectiveness will be greatly enhanced.
4. A poorly defined and untested theory of change guides much ESD practices.
ESD effectiveness can be improved when programmes are designed around an evidence-based understanding of what SMMEs need and how best to deliver developmental support that is aligned to corporate strategy and focused on meeting SMME needs. Evidence-based programming and monitoring and evaluation (M&E) not only have the effect of working for the entrepreneur but they also deliver value to the corporate.
5. The ESD ‘ecosystem’ is not an ecosystem at all – it is corrupt and intensely competitive.
An enhanced, well-functioning and collaborative ecosystem that is able to self-regulate and share best practices and data provides insights about what does and does not work.
This ecosystem could also be used to establish a code of ethics and quality standards associated with the practice of ESD. If the ecosystem fails to self-organise, there is a risk of more onerous and expensive regulations being introduced to extract more value from ESD spend than is currently being realised.
6. ED tends to be broad-based, contracted out, at arm’s length.
ED programmes may be improved by making them more business development-orientated instead of treating them as social responsibility programmes. In particular, this means ensuring that they have an impact on the businesses being served. Best practice involves treating the ED programme as a stepping stone to SD. This could include a stronger focus on the relevant geography, industry or value chain.
Corporate contracting out of ESD programmes to business development service providers (BDSPs) should ensure that the latter are appropriately accredited and qualified. Furthermore, a strong, verifiable M&E system is essential for success.
7. SD tends to be more customised, focused and intimate.
Ensure that SD programmes are better integrated into the corporate’s operations and strategy, and that a long-term view of development is taken. Successful SD programmes seem to involve heavily customised, one-on-one support and extensive involvement of corporate staff to ensure that the SMME can meet the required standards.
8. Business development suppliers have an image problem – which can probably only be solved through more regulation.
ESD effectiveness can be improved by enhancing the professionalism of the BDSP sector and improving the quality of the services provided. In many ways, BDSP quality, together with corporate indifference, is considered to be one of the main reasons for the lack of effectiveness of the ESD ecosystem.
9. SMMEs are generally disinterested in and cynical about ESD but some are engaged and appreciative of the opportunity.
Listen to the voice of South African SMMEs directly, rather than assume that, as corporates or BDSPs, we know what they need. ESD programmes are capable of delivering SMME growth, provided they are designed, executed and evaluated based on evidence of what SMMEs really need in order to grow.
An Action Agenda
Given that ESD spend in South Africa is currently estimated to be around R25 billion per year, it seems worth it to develop an action agenda to maximise the benefits of ESD for businesses. The following is an action agenda for assessing the effectiveness of your ESD programmes – whether you are a corporate spending the money or a BDSP ensuring that the money is well spent:
| Your business’ philosophy and overall approach to transformation should be visible to stakeholders and align with the design and execution of ESD programmes. SMMEs doing business with you look for an authentic expression of this philosophy in the nature and outcomes of the programme. |
| Go beyond tick-box compliance. Ask yourself: how does ESD link to ESG? Does our ESD strategy include clear, measurable objectives? Is the execution of this strategy fully integrated into the business? Does reporting align with the importance of the programme? |
| Turn your ESD programme into a seamless development pipeline which mirrors the actual development of entrepreneurs. Make use of GIBS’s research that shows how SMME needs differ at each stage of development. Understand exactly how long it takes to develop a business which can be part of your value chain. |
| Make your ESD theory of change explicit. This involves articulating what activities or actions in your ESD programme you expect will lead to particular outcomes and why you think these strategies and resources will achieve the goals you have set. Test your assumptions about what works and what doesn’t. |
| Consider what success (or its alternative) really means, not just to your business but also to the SMMEs who need to benefit and to the country’s development as a whole. Rethink ED as being the next-generation value chain, not just money that must be spent in return for BBBEE Scorecard points. |
| Give some thought to how your business can contribute. Can you collaborate to share data, information and experiences – even with competitors? |
| Our research shows that what seems to work best is the intimate involvement of the business in the process of identifying supply chain opportunities and finding SMMEs that have the potential to capitalise on them. Thereafter, a customised, one-on-one development process that is informed by the needs of the business and the SMME should be patiently implemented. In SD, what matters is depth, not numbers. |
| Does ESD need a watchdog of its own? This sector can be a breeding ground for corruption if managed irresponsibly. |
| BDSPs need to emphasise their credentials and expertise and back up their claims with hard evidence. More conversations need to take place among BDSPs that are directed at establishing an industry body to set quality standards and ensure they are met. The alternative is that this sector will invariably attract the attention of regulators who are not necessarily as knowledgeable about what will work best. |
Now is the time to act, before regulatory pressures increase and make the ESD ecosystem more onerous than it needs to be. Let’s work to rectify the situation.
Find out more
- Link: https://www.gibs.co.za/pages/responsible-finance-initiative
- Contact information: Prof Kerrin Myres – myresk@gibs.co.za
