17 May 2017
Businesses all over South Africa are asking the same question: following the sovereign ratings downgrade to junk status and the looming threat of economic free-fall, how will we survive? DR GRANT SIEFF looks at resilience as the country heads into unknown territory.
In April 2017, research analysis firm Nomura gave a bleak forecast for South Africa following the abrupt removal of Finance Minister Pravin Gordhan from office, cutting South Africa’s 2017 GDP forecast from 1.1% to just 0.2%. The country has been downgraded to junk status, per capita wealth has seen steady decline, and unemployment rates remain high. Focus Economics has warned of a “potential retreat from fiscal prudence, a rise in spending and increased opportunities for patronage”, which are unlikely to impress investors.
Businesses, big and small, are facing the same challenge: survival in an unforgiving climate. But, just as it would be in a literally dangerous climate, executives must do what nature does: rely on adaptability. Resilience, interestingly, is explained by more than one dictionary as being synonymous with elasticity. It follows then that flexibility is a core part of any resilience strategy.
And yet, despite the signs, many South African businesses invest precious little in their resilience. The recent ITWeb/ ContinuitySA 2017 Business Resilience survey, released in February, found that the majority of South African organisations are well aware of the importance of sound strategy in determining resilience. And yet a third of them cited the cost as a reason for not investing in a resilience strategy that could minimise the effects of disruption. Just 8% said they specifically had a business continuity plan.
Specific resilience strategies are just one piece of the puzzle. An overall sound business strategy will contribute enormously to resilience. Organisations that have moved beyond growth for growth’s sake, and have considered sustainable growth above short-term shareholder satisfaction, have already taken the first step to building a more resilient business. A solid, sustainable growth-strategy is non-negotiable.
The core features of a resilient organisation lie in two main areas: firstly, the capacity to withstand uncertainty; and secondly, the ability to achieve optimal connectedness. The former means building fat into existing structures so that the organisation has the resources and potential to survive when things don’t go as planned.
The second is further-reaching. Being connected enough means avoiding the kind of isolation that can be damaging to a business. But it also means not being over-connected: to one’s existing systems, structures, relationships and methods. Under-connectedness increases vulnerability. But over-connectedness risks atrophy. It is essential to see the value of different perspectives and styles of strategy, depending on the operating environment.
There is no shortage of well-known theoretical perspectives on the crafting of strategy. But the best strategy is worth nothing if it is not implemented. In simple, applied terms, this means: thinking about strategy, planning for strategy, executing the strategy, engaging people in the strategy, and actioning the strategy. An end-to-end approach therefore includes thinking, formulating and visioning (including three- and five-year plans); moves into examining options, understanding gaps and initiatives associated with those gaps; understanding the uncertainty, and then going on to develop objectives and action plans.
In tough economic times, an essential part of the implementation is engaging the people involved. In this sense, it is helpful to think of sound strategy – whether it is a more general business plan or specifically geared towards resilience – not only as end-to-end, but also as rounded or spherical. The top-down aspect ensures that there is leadership and direction. But from the bottom up comes engagement. It’s a matter of culture and buy-in.
Strategy and implementation should also be approached from the outside in so as to take in the context; that is, it should be propped up by relevance. And lastly, it must be viewed from the inside out, for leverage. Because this, of course, involves examining what distinctive competencies are available in order to differentiate.
Currently, South Africa’s social, political and economic climate is at best unpredictable. Organisations are facing a more challenging business environment with both greater risks and, thanks to fewer borrowing and lending options, less access to capital.
Infrastructural hurdles also take their toll. In the same poll taken by ITWeb and ContinuitySA, the majority of organisations said their downtime over the previous year had been caused by power outages. The rest had faced technological or network issues.
Then there are the human resources challenges. Already in 2015, when growth was declining more slowly, South Africa faced a dismal level of employee engagement according to one report. At the time, British multi-national Aon had noted that just a 5% increase in employee engagement could add up to a 3% increase in annual revenue, so when belts are tight, it’s an investment worth making.
South Africa’s top companies recognise this. According to data from the Top Employers Institute, which annually certifies HR excellence in South African employers, 98% say they execute a formal engagement study at least once every two years looking at issues like reputation and company culture.
Smart employers know that when the economic forecast is looking increasingly uncertain, it’s essential to realise that sustainability relies on tapping into the passion and desire of the people involved in the day-to-day, here and now operation of the business and to retain that relationship.
A strong strategy recognises that a lot of what forms it is subjective. The critical question becomes, then: how does one connect people to the vision? How does one maintain morale and commitment? And, perhaps most importantly, how does one inspire faith in the organisation (from the inside out)?
Like fictional character Arthur Dent in the famous book The Hitchhiker’s Guide to the Galaxy, we are heading into unknown territory. Any organisation’s survival post-downgrade in South Africa will depend on marrying flexibility and sustainability, with a side serving of effective engagement. It’s unlikely that business won’t continue taking a knock. But the gap between uncertainty and sustainable growth is bridged by resilience.
Dr Grant Sieff teaches the Strategic Thinking and Execution for Growth short course (Executive Education) at the UCT Graduate School of Business. For more information about it and other courses, visit http://www.gsb.uct.ac.za/