Addressing the challenge
Malcolm Ray
Published: 07-FEB-07

Surviving in South African business is nerve-wracking stuff if you’re not a determined, nimble, quick-witted and strategic executive leader. Surviving in an economy anchored to a global economy that is exceedingly more complex, even more so.

Increasing technological innovation and integrated markets in a hotly competitive global economy have contributed to rising executive mobility, which has meant that companies are constantly losing talented leaders.

It’s a global trend, in evidence for years, and there is no quick fix. So the question is: what are we going to do to turn it around?

The answer’s pretty straightforward, says Derrick Boshard of the search firm Heidrick and Struggles. “If South Africa is to enjoy widespread, long-term economic growth, it has to open its doors to foreign skills.”

Part of the solution may indeed lie in recruiting abroad — the strategy of ‘replacement recruiting’ — and South Africa would seem, at face value, to be a major candidate for such a policy approach. There is clearly no shortage on the supply side and South Africa has an advanced industrial economy and sits at the foot of a continent that is losing skills to non-African countries at an extraordinary rate.

Yet the country has not joined the global hunt for replacement skills, preferring instead to remain wedded to a national patriotism that has as its central pivot the empowerment of indigenous black Africans. The government has been slow to react to the emigration trend, which undermines its efforts to create new jobs.

In a veiled reference to the country’s aversion to the globalisation of skills, even former president Nelson Mandela has suggested that South Africa’s ‘brain drain’ would be much lower if skilled South Africans were more patriotic and had higher levels of national identity.

While the vast majority of students surveyed by analyst Jonathan Crush in his study on student perceptions of emigration exhibited a high degree of national identity and patriotism, it is apt to ask whether nationalism is justifiable enough to block foreign skills from plugging the existing skills deficit. Is South Africa’s studied refusal to take skilled immigrants a principled stand against an idea of raiding countries and economies less privileged than its own? If so, such a self-congratulatory argument lacks real conviction. Rather, South Africa represents, in especially acute form, the contradictions between globalisation and nationalism, particularly when it comes to participation in the global market for skills. Regardless of the reasons, it’s apparent that this policy position has driven the country to the brink of a serious skills deficit. As a matter of fact, the loss of each skilled professional costs up to 10 unskilled jobs, according to a 2004 Unisa study.

On the other side of the divide, officially only 3 053 people moved to South Africa in the first ten months of 2005. However, unskilled people from neighbouring countries such as Zimbabwe and Mozambique are desperate to find work in South Africa.

The recent response to this perceived crisis starkly illustrates that the forces of globalisation may eventually undermine and subvert even the most protectionist and nationalistic immigration policies.

Importing talent the answer?

In the meantime? The government would prefer local companies to train blacks to fill the gap left by emigrating professionals rather than encourage the immigration of foreigners.

Constrained by prohibitive empowerment and employment equity policies, companies are having to devise strategies to practically deal with the rising demand for executive skills and are finding, surprisingly, that grooming a new generation of leaders can go a long way.

For the resource-endowed multinationals, recruiting expats from their countries of origin is not uncommon. Coca-Cola, for example, attracts the best talent in the world and, according to Coca-Cola Africa CEO, Alex Cummings, deploys its resources on a global scale based on its ‘freedom within a timeframe’ model.

The company does see importing skills as a short term solution that needs to be balanced by more effective use of local talent.

“We have to both nurture talent inside Africa and bring back those members of the diaspora who have worked or studied abroad,” says the company’s Human Resources Africa Group director, Susan Githuku.

She says although Coca-Cola’s primary strategy is to “aggressively employ and grow talent locally wherever possible”, the company has had to recognise the additional benefits that a diverse, international cadre of talent brings to the business.

“As a result, our employment value proposition that looks at our organisational reputation, the calibre of internal talent, the growth potential of our business, our ethos and the career opportunities we offer, needs to be internationally competitive.”

Although the company aims to move beyond its current 10-14 percent expatriate leadership population and grow long-term leaders on the continent, its strategy is global. “We deliberately export and import talent across geographies in the continent and abroad,” says Githuku.

For Cummings, employing Africans in Africa who know the continent’s operating environment and culture is far more productive than importing heavyweights from abroad. He concedes that there are times when importing talent fits the strategic mould as a way of accelerating local skills transfer.

“We invest a lot in and pay a lot of attention to the long term development and retention of local talent,” he says — even if that means bringing in foreigners to meet the company’s short term goals.

Corporate responses

But importing skills at a significant cost is seldom a solution for smaller companies in South Africa. They simply can’t afford to.

So the typical corporate response has been to apply traditional approaches of recruiting remaining white talent. But, according to South Africa’s Employment Equity policy and Black Economic Empowerment legislation, companies doing business in South Africa are required to have a quota of black managers, executive directors and owners in order to reap the benefits of the country’s lucrative procurement policies.

So the country’s employment equity regime places limits on the extent to which top management can be populated with white executives.

Next, they tried recruiting new black talent but their knowledge and experience has proved wholly inadequate.

Because of the pressure on companies to find executives, there’s a hugely popular method of graduate training where companies would have programmes for junior and middle management, provided they have the right qualifications.

“The consequence,” says Boshard, “is not only that you are pushing young talent through the system too quickly, but that these young managers move on to more money elsewhere.”

The result of this is an unpalatable phenomenon that has gained ground in recent years called ‘serial job-hopping’ where the demand for black professionals and managers is so high that young black recruits are increasingly leveraging themselves in the market to increase their salaries after short stints in companies.

So in the end, most established businesses in the country must still compete within a small talent pool of young job-hoppers because of the country’s empowerment and employment equity legislation.

This has come at a considerable cost to business. According to a 2006 survey by P-E Corporate Services — which sampled more than 850 organisations employing 1,5 million people —many companies are finding it difficult to recruit managers with the required mathematical, scientific and engineering skills, and managerial experience.

It also found that staff were increasingly motivated by salaries rather than commitment. Of the companies surveyed, 56 percent found it necessary to pay premium salaries to retain existing skills and attract new skilled personnel, which was a significant climb from the 45 percent recorded in 2003.

Increases in executive pay levels averaged between 7 and 8 percent last year. However, executives at the largest listed companies were awarded increases that were double that.

Business impact

Job-hopping was exerting pressure on corporate pay budgets. According to the P-E Corporate Services survey, staff turnover within South African companies has surged to about 12 percent across all job categories as people continued to seek greener pastures within the strong domestic economy or abroad.

The cost of replacing employees — which includes recruiting replacements and building up their skills and experience — could mount to between 35 and 40 percent of the annual remuneration package.

Job-hopping could be costing South Africa more than R25bn a year based on SA Reserve Bank figures, which showed that employee compensation in total cost companies more than R600bn a year.

According to Boshard, the greatest mobility will continue to be among black junior and middle managers unless there’s a strategic imperative to implement a human resource strategy that takes a long term perspective on talent.

“The entire system, from schooling to tertiary education and mentorship programmes has got to be aligned to market needs,” he says.

And so, the successful pursuit of economic growth depends that much more on the quality and capacity of higher education institutions and research councils. The argument is familiar and hardly contentious — a society as divided, fragmented and unequal as South Africa cannot take comfort in its economic strategy unless it is accompanied by tangible advances in its talent pool.

While there is a strong case to be made for a graduate development programme for black candidates, with business playing a significant role in ensuring that there is a high number of enrollments and graduates with the right technical and managerial competencies, most companies don’t have the luxury to bide their time until younger apprentices mature. The risks and rewards of a fast-track programme for black graduates with management potential to achieve executive status are often less direct and analytically more demanding.

Fact is it takes two decades to hone the experience and skills needed to lead an organisation, says Loen Potgieter, CEO of recruitment firm The Oval Office, of his experience of executive leadership development — what Boshard succinctly calls the “transition from conceptually abstract thinking to thinking strategically”.

“You are looking at something other than hard skills. When you sit with a client they focus on past experience because they know that because you are trained as an engineer, you seldom use your engineering skills as a CE or manager,” says Boshard.

And in the current era of globalisation, that requires that they additionally possess the ‘multinational mindset’.

Daunting? Probably. But at the same time, businesses simply can’t walk away from the opportunities on offer in South Africa and the rest of the African continent.

What next?

So now what? Standard Bank Chief Economist, Goolam Ballim, says in the near term, greater training and development on the part of the private sector will potentially provide speed wings.

“Also, a more flexible emigration approach will help fill the gaps and facilitate knowledge transfer,” he says.

Short of luring emigrants back to the country or calling up retired executives, both Boshard and Potgieter feel the country’s empowerment and affirmative action policies must be relaxed if the country is to attract skilled emigrants back and retain existing ones and graduates.

“It is going to be difficult to move substantial numbers of white expats back to South Africa until there is some clarity on what their role is going to be and how the empowerment agenda rolls out,” says Boshard. “There has to be greater certainty that in 5 or ten years time the new discrimination will end.”

Potgieter is less concerned about the impact of empowerment and affirmative action on skills, which he says “can be learnt”, than the dire need to bring back a generation of leaders to groom the next generation.

“Business leaders are retiring a lot sooner these days or emigrating due to affirmative action and black empowerment. These are global knowledge banks that can’t be taught, and no competency test can resolve. They’re indispensable and unless we bring them back, we’ll face a generation gap in the talent market.”

That’s unlikely to happen in the near future though. As a result, South Africa’s corporates face acute challenges in all three of the critical human resources staffing functions: recruiting, development, and retention.

Interestingly, the issue for these leaders is not which cultural and racial backgrounds offer the best fit for operating successfully in South Africa and the rest of the continent, but instead what methods will best enable them to get results with the available pool of employees.

These days, recruitment agencies tend to be a lot more selective in their assessments, applying experiential paradigms rather than straightforward academic skills evaluations.

Heidrick and Struggles uses a rigorous assessment model to determine the employee’s skills and bank of management experience to think strategically.

“A while ago, if you were over 50, you’d be justifiably worried about your next move,” says Boshard. “Today, clients are delighted when we recruit project managers at age 64 because they have 40 years hard experience in leadership on the job.”

Search firm DAV engineering team leader, Andrea van Olst, agrees. She says conventional competency models, however rigorous, in themselves don’t work. “I’m not a great fan, simply because it’s hard to determine competency based on conventional skills assessment models. There’s no substitute for experience.”

Neither do fast-track programmes for black graduates with the support, career planning, mentoring and coaching work.

Short term versus long term survival

So business leaders are adopting familiar human resource strategies and adapting them to the requirements of the business environment in specific companies.

One small company we interviewed had effectively adapted its staffing requirements to short term results that accrue over time with outsourced inputs from specialists. This, of course, is nothing new with the rise of flexible production or lean production models during the 1980s and ‘90s where managerial functions are fragmented between core internal competencies and non-core external competencies.

The company employed 20 permanent administrative staff, down from a total staff complement of 40 two years ago, and employs professionals and managers on flexible contracts.

This is one way of giving a small company a capability boost in the short term. But it’s not a long term remedy to the talent challenge as companies mature on a growth curve.

Other medium-sized empowerment companies — essentially black-owned and controlled organisations — like TSS (Tactical Software Services (Pty)), a Johannesburg-based medium-size company, are empowering black talent, using the company as a training ground for ICT graduates and benefiting at the same time from their inputs at cheaper costs than the rate of employing fewer highly experienced executives.

The rate of staff churn is high but the company has adapted its operating system to apprenticeships.

As a result of the company’s talent strategy, some key employees have stayed on. Turnover has also picked up.

In all cases, established, predominantly white-owned businesses have taken short term measures to deal with the quandary.

But to better understand how the leaders of South Africa’s private sector are addressing these talent challenges for the long term, there’s no better example than MTN.

MTN stands out as an exception to the trend. Since the early days, MTN executive, Irene Charnley, has built the company’s talent strategy consciously around the premise that if you hire the right type of employees, give them sufficient challenge, and take care of their needs, long term success is assured. She’s built the talent strategy around diversity and empowerment as a fundamental part of the company’s culture and the opportunity for growth and learning, to hold onto its employees.

Rather than view black graduates as a problem, she sees the relationship between young black professionals and MTN as a symbiotic one where both parties reap the rewards. Charnley aggressively recruited blacks at all levels of the company with a long term proposition that MTN would evolve a workable business model in the empowerment environment.

In this model, empowerment is about broadening black participation in management, but also unlocking value through skills and human development, as well as social responsibility investment — what Charnley calls a “gentler capitalism”.

MTN may not be the flavour du jour among South African businesses battling the effects of what they perceive as a new discrimination. But the company has shown that there is an alternative.

Those companies that engage the war for talent with serious introspection, investment, innovation and risk-taking in human capital management may just have what it takes to succeed in South Africa and the continent. -Business in Africa Magazine

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