With South African business facing ongoing challenges posed by the drought, dwindling levels of consumer spending, reducing margins and the risk of a ratings downgrade, there has never been more demand for ‘corporate entrepreneurs’ – particularly in businesses that have annual turnovers of between R300-million and R1,2-billion, which are the backbone of South Africa’s economy.
Business confidence ebbed to its lowest level in almost six years in the first quarter of 2016, with only marginal improvement in growth expected in the economy in 2016. However, significant opportunities exist for companies which embrace a culture of innovation.
“Although it may seem to be a contradiction in terms, for most people who associate entrepreneurship with the cut and thrust of the IT industry and burgeoning small businesses, the demand for entrepreneurship in large established companies across sectors is something that cannot be ignored,” says Karl Gotte, head of Standard Bank Commercial Banking.
Moreover, larger businesses that fail to keep pace with changes within their respective industries face the risk of getting left behind. When considering that only a quarter of the top 100 companies from 1920 are still in existence, it becomes clear that the need for larger businesses to return to their entrepreneurial roots has never been greater.
Gotte adds that it is often larger businesses – those who operate locally and even internationally who have to re-invent themselves if they are to grow and prosper.
To many corporate managers and entrepreneurs, the solution for problems at home has been to enter new markets. While many African economies have taken strain in the past year due to low oil prices and slower demand from China, significant new opportunities exist.
According to the IDC, SA’s exports into Africa were measured at 25,7% of total exports in 2010 and in 2015, 29% of all merchandise exports were destined for other African markets, with 87,4% of the export basket being manufactured goods. Around 42% of South Africa’s total manufactured exports were sold in the rest of Africa in 2015.
“The risk for larger businesses is that the entrepreneurial spirit that they were initially built upon may be dissipated. In many cases, this drive to succeed has been replaced by policies and guidelines and a feeling that every day is business as usual. Innovation has taken a back seat,” says Gotte.
McKinsey Global Institute’s recent Lion’s on the Move report highlights the immense potential that exists despite the challenges. It says output could expand to nearly $1-trillion in 2025 if Africa’s manufacturers were to produce more to meet domestic demand from consumers and businesses, and work with governments to address factors hindering their ability to produce and export goods.
The African continent has 400 companies with revenue of more than $1-billion per year, and these companies are growing faster, and are more profitable in general than their global peers. Yet Africa has only 60% of the number of large firms one would expect if it were on a par with peer regions – and their average revenue, at $2-billion a year, is half that of large firms in Brazil, India, Mexico, and Russia, for instance.
Meanwhile, the region is expected to enjoy the fastest urbanization of any region in the world, and to have a larger workforce than either India or China by 2034. It also has a huge opportunity to leverage internet and mobile technology, and still has abundant resources. Africa’s household consumption and business spending are both growing strongly, offering companies a $5,6-trillion opportunity by 2025.
Returning to an inventive and solutions-driven culture to kick start increased production requires identifying what the company needs to do to remain relevant. In the case of banks, this has meant examining the roots of the business and its future direction.
“The emphasis at Standard Bank, for instance, has turned 180 degrees. Instead of developing products for the market, the market now dictates what is required and the bank responds. This has required innovative internal programmes to drive change. Added to this has been the creation of informal environments where people are encouraged to spend time developing solutions. We have also stuck by our knitting by believing in the future of Africa – a continent we call home.”
The result has been banking that has moved from branch networks into people’s pockets. Mobile banking and apps have flourished and payment systems have been transformed. More of the same is now expected of corporate and business bankers.
“Embracing innovation has therefore become inseparable from entrepreneurship. The emphasis is now on being quicker to bring services and solutions to market. This is necessary to counter the move by tech and communications companies into the financial services arena,” says Gotte.
Locally, this change has been evidenced within Standard Bank Commercial Banking by the bank providing assistance to a client in the construction industry who is embracing digital channels and payment solutions, including the InstantMoney solution to assist with funds transfer, to gain a competitive advantage.
The mining industry, one of the traditional mainstays of the South African economy, is one of the areas that has been identified as an activity requiring an entrepreneurial approach. Another is manufacturing – which will be the engine room for job creation.
According to McKinsey digital technologies have the potential to unlock new ways of managing variability and enhancing productivity in mining. Four different clusters of technologies are seen as becoming increasingly important – data, computational power and connectivity; analytics and intelligence; human-machine interaction and digital-to-physical conversion. In mining, the use of teleremote and assisted-control equipment, for example, is becoming common, and deployment of fully autonomous equipment is taking hold in haulage, drilling, and other processes.
A new era of collaboration is required by companies across their eco-systems to ensure higher levels of innovation of profitability.
In a 2014 report for the G20 Young Entrepreneurs’ Alliance, Accenture estimated that digital entrepreneurs could create 10-million youth jobs in the next five years. However, it also found that the overwhelming majority will need to leverage the market power and scale of larger, established enterprises if they are to be truly successful.
To improve long-range planning and forecasting, companies must explore emerging information technologies, such as cloud computing, embedded logic, sensors, GPS systems, cyber security, big data, and simulation modelling and 3D visualisations. These are all good alternatives which can be as relevant in other commercial sectors.
The most important change to be planned for will be a new approach to securing suppliers. Internal business changes will require that new strategies are developed to meet the challenges involved.
“Corporate entrepreneurship is crucial for large companies and its encouragement should also be viewed as a means of promoting corporate renewal,” says Gotte.
These organisations are traditionally averse to risk-taking to innovate, but leaders and teams need to seek out increased level of corporate enterprising. In addition to the obvious benefits obtained through innovation, this approach also provides the organisational benefit of setting the stage for leadership continuity.
“As well as a drive towards innovation, there must be equal emphasis on breaking the conventional approach to business in favour of exploration and risk-taking. Working together these approaches have the potential to work across an entire company and the entire spectrum of activities from IT to product development and administration,” says Gotte.
But for large and small companies alike in South Africa, corporate entrepreneurship must now be seen as an essential tool driving survival and future success. A culture of corporate entrepreneurship should permeate these organisations as they strive to achieve profitability in increasingly challenging economic climates.
Companies must encourage, foster and incentivise entrepreneurs who will question and design new business processes – these are people who will look beyond existing technologies and identify new processes and have the courage and corporate support to experiment.
“But there is more to an environment of corporate entrepreneurship than simply inciting inspiration. It also relies heavily on a system of continuous analysis and feedback,” says Gotte.