Busbrief Aug-sept 2009

August / September 2009 Vol.14 No.4 R33.00 (incl. VAT) Other African Countries R28.95 (excl.tax)

CONTINUE ADVERTISING!ARE RESTRAINTS OF TRADE ENFORECEABLE?BEE – NECESSARY EVIL OR ECONOMIC JUSTICE?

FEATURES• PRIVATE EQUITY• BUSINESS SOFTWARE

GIVEAWAYS• DELL INSPIRON MINI 9• HANDPRESSO

NEWTRAVELLING WITH RICHARD QUEST

YOU COULD FACE DISMISSAL!

FACEBOOK

1BusinessBrief August/September 2009

CONTENTS

REGULAR SECTIONS

•PrivateEquity 24

•Facebook-Doyouriskdismissal? 16

FEATURES

GIVEAWAYS 5

COVER STORY BRIEFCASE

• Books gadgets and gizmos to keep you

ahead in your business

MANAGEMENT

• BEE: Necessary evil or economic Justice?

• The business of sport

LEGAL

• Facebook – Do you risk dismissal?

• Rules of the tendering game

TAx

• The upside of tax losses

• Pain-free returns

FInAnCE&EqUITy

• King III: Comply vs Apply

• Restructuring in a downswing

ASSETS&InvESTmEnTS

• Golden year planning

• Beating the market

BAnkIng&InSURAnCE

• Trim your insurance bill

• HIV programmes

mARkETIng&SEllIng

• Continue advertising

• Don’t lose your voice!

HUmAnCAPITAl

• Are restraints of trade enforceable?

• Chair sanction overturned

InFoRmATIonTECHnology

• Selecting your ISP

• Black or white?

4

10

16

20

40

44

50

54

58

74

79

80

6TRAvEl&lEISURE

• Richard Quest: Air travel – Keep it safe

• Allée Bleue Wine Estate

SEmInARS&ConFEREnCES

• All the latest events

CONTRIBUTORS

• Consult our contributors directly

for professional advice

•BusinessSoftware 64

•DellInspironmini9

•Handpresso

PUBlISHER James Scott

EDIToR Graeme Swinney / [email protected]

FEATURESEDIToR Cheryl Reddy / [email protected]

CONTRIBUTORS Please see Contributors Pg 80

oFFICEmAnAgER Jenny Horsman

ADvERTISIngSAlES James Scott / [email protected] Paul Vos / [email protected] Justin Lavers / [email protected]

DESIgn&lAyoUT Design Bandits Bryan Maron / [email protected] Tel: 083 460 3633

CovERDESIgn&ConCEPT James Scott Bryan Maron

PRInTEDBy United Litho (JHB) Tel: (011) 402 0571

PUBlISHEDBy BusinessBrief Publishing (Pty) Ltd Tel: (011) 788 0880 Fax: (011) 788 2807 57a Second Avenue, Inanda, Sandton PO Box 1546, Parklands, South Africa, 2121

SUBSCRIPTIonS Tel: (011) 788 0880 Fax: (011) 788 2807 [email protected]

Our readers surely need no introduction to Richard Quest, CNN’s popular travel and business presenter. We are excited to launch

in this edition the first of his articles on business travel. Richard is the host of CNN’s monthly Business Traveller programme and hour-long weeknight business show Quest Means Business. He has worked in broadcasting for more than 20 years covering international financial markets, key world events and travel. We hope that readers enjoy Richard’s canny observations and wry wit.

The BusinessBrief team would like to extend a hearty welcome to new readers from the South African Black Entrepreneurs Forum (SABEF), with whom the publication has formed a partnership, and The Association of Business Executives South Africa (abeSA), who have accredited the publication for its ongoing professional development programme.

A further introduction is necessary: We are delighted to welcome Cheryl Reddy to the BusinessBrief team. She joins us as our new features editor and will be writing the features that appear in each edition.

As readers will no doubt be aware, social networking, and Facebook in particular, has enjoyed a phenomenal increase in use around the world over the last number of years. It is not surprising then that we hear of a corresponding increase in the number of cases involving employees publishing less than kind comments about their employers online. While some employees might think they can say what they like about their bosses in their private time, local courts often disagree. As our lead article in this edition highlights, recent court rulings indicate that when an employee acts in a way that

negatively impacts upon his employer’s business, the employer’s right to fair labour practice may hold precedence over the employee’s right to privacy. The result can be disciplinary action and even dismissal. So no matter what the forum, watch what you say about your boss!

This edition’s first feature looks at Private Equity (PE) and considers what role the sector is playing in these times of economic uncertainty. Not surprisingly PE activity has slowed dramatically around the world this past year. In South Africa, however, while the mega deals are no longer in evidence, smaller deals are still popular and PE remains an important contributor to the SA economy.

Business Software has become such an important part of our everyday work lives that most of us do not think much about its role in our work anymore. But for many companies today, the selection of software solutions can be the difference between business success and failure. Our second feature looks at some of the issues facing management when making software implementation decisions.

FEATURE

&MS

B&I

MANAGEMENT MARKETING & SELLINGLEGAL

BRIEFCASE

FINANCE & EQUITY TAX

TAX

ASSETS & INVESTMENTS

HUMAN CAPITAL BANKING & INSURANCE

BAN

KIN

G &

INSU

RAN

CE

S&C

TRAVEL & LEISURE SEMINARS & CONFERENCES

SEM

INARS &

CO

NFE

REN

CES

EDITOR’S NOTE CONTACTS

CO

NTACTS

INFORMATION TECHNOLOGY

T

CM

ARKETIN

G&

SELLIN

GL

A&I

LEG

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BRIE

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ASSETS &

IN

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TRAVEL &

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T&L

Acommitmenttoprofessionalpublishing

The publishers of this magazine are members of the Magazine Publishers’ Association of South Africa.They have made a commitment to:

• Conduct business professionally and ethically at all times• Not misrepresent their experience or capabilities, or those of their employees and agents.• Not make misleading claims or use terms which may be misunderstood• Treat as confidential all off-record information learned about the customer• Publish the magazine timeously• Open their distribution records for audit by the Audit Bureau of Circulation

CPD/E

The following bodies, subject to individual requirements, have accredited BusinessBrief for purposes of CPD/E (Continuing Professional Development/Education)

EDITOR’S NOTE

The Association of Business Executives

South Africa

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BRIEFCASE

GIVEAWAYFor a chance to win the Dell Inspiron Mini 9 from DCC and/or the Homeline Direct Handpresso please send an email or postcard (one entry per person per Giveaway) with your name, physical address and telephone number marked “DCC/BusinessBrief Competition” and/or “Homeline Direct/BusinessBrief Competition”. Please note that this competition is only open to our South African readers.

Email:[email protected]: PO Box 1546, Parklands, 2121Closingdate: Friday 11 September 2009

Congratulations to Yasmin Mall of Robertsham, Johannesburg, who is the

winner of last edition’s Polycom Communicator C100s. Your prize will soon be delivered to you by Southbird courier service.

Southbird courier and freight service delivers the prizes to the Giveaway winners in each edition of BusinessBrief.

For further information on SouthBird contact:

Tel: 086 161 5555 Cell: 082 667 7277Emergency: 076 601 2609Email: [email protected]: www.southbird.co.za

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4 BusinessBrief August/September 2009


BRIEFCASE

TheEffectiveInvestorTheDefinitiveguideforallSouthAfricansBy Franco Busetti

During times of economic downturn and upheaval, people express heightened interest in the stock market and there is a greater need

for sound advice. For existing and aspiring private investors, the stock market is often intimidating, so valuable information is of the utmost importance. Even professional investors require insights into the stock market that are unbiased and clinical. This book is a valuable source of information in that it supplies concise and insightful answers to questions such as “What drives returns?”; What does risk really mean and how can one reduce it?” and “How much should one invest offshore?” Published by Rollerbird/Pan Macmillan

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For further information on how to enter this Homeline Direct/BusinessBrief competition please see the requirements at the foot of page 4. For further information on the Handpresso contact Homeline Direct: Tel. 011 708 6695; Fax: 011 7086712; Website: www.homelinedirect.co.za.

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RequestTRAVEL & LEISURE

Airtravel–Keep it safe

The crash of the British Airways 777 at LHR last year brought it home to me. Although flying remains one of the safest forms of travel there are still risks

involved and it is our responsibility to remember how to look after ourselves in a crisis. For instance, when did you last read the safety instructions left lying, gathering dust, in the seat back pocket?

The 777 from Beijing lost power minutes from landing at London Heathrow, the pilot skilfully glided the plane on the grass... the cabin crew got the passengers out and by all accounts it was a textbook evacuation. (Much more worryingly they still don’t know why the engines refused to obey the pilot’s commands for more power... worrying indeed since the 777 is the backbone of oceanic travel.)

It gave me the jolt I needed to start paying attention again to the safety announcements at the start of each flight. I had become one of those regular too-clever-by-half travellers given to making huge sighs of “do I have to listen to this again” and then noisily picking up a newspaper, pointedly ignoring the flight attendant demonstrating the oxygen mask…

Today I act more responsibly when the safety announcement is made. I genuinely look to see which is my nearest exit and I note the number of rows to reach it. In any crash if you survive the impact then it is fire and smoke which pose the greatest danger.

I am old enough to remember the Manchester Air Disaster when fire took hold on a British Airtours 737 while taking off…..the plane stopped on the runway, but still 55 people died. Time and again accidents which should have been survivable have seen loss of life because people didn’t know what to do.

The opposite is also true: if you know what to do you stand a very good chance of surviving!! For instance, in 2005 the Air France A340 crash in Toronto when the plane ran off the end of the runway and ended up in a ditch, was another case of everyone doing what they should. To view the pictures the inferno suggested horrendous loss of life, (even more so since some of the emergency slides didn’t automatically deploy) but because crew and passengers alike knew what to do everyone survived. The same could be said for the China Airlines 737 which caught fire shortly after arrival in Naha city in August 2007. Just moments before the plane exploded, all onboard escaped safely via the emergency chutes.


That’s not to say I believe all the safety rubbish thrown at us; for instance the lifejacket demonstration.

To my knowledge no commercial airliner has ditched in the middle of the ocean. They have been blown up, they have been hijacked, and they have attempted crash landings and ended up in the water but none has merrily put down in midst of raging seas…And even if they did, and everyone managed to get out how long do you think you can survive the waters of the North Atlantic? (Not long enough to blow the bloody whistle to attract attention!)

Yes, I have become a bit obsessed by the whole safety question and I travel with my own smoke hood for use in hotel rooms if there was a fire…it’s a small plastic pouch no bigger than a pocket camera…and it might save my life one day!

Safety sounds sensible and therefore boring. It’s like the old advice given to turn off the gas if you’re going on holiday, or lag your

water pipes in winter... And it’s true those announcements can sometimes be interminable as they drone

on about what happens if you “tamper with, destroy or interfere with” the

lavatory smoke detectors. But at the end of the day it is

my skin and I want to keep the blood

running

on


the inside, thank you.

Finally, I won’t name the airline involved, but please, change your safety video... the people in it are smiling as if a quick dose of emergency oxygen was just what they’d been looking for... Safety is a serious issue. And it’s my responsibility to do my bit. I am not so altruistic that I care too much if the other passengers get out safe and sound…this is all about ensuring I get out, preferably ahead of them!

[email protected]

TRAVEL & LEISURE

TRAVEL & LEISURE

SteepedinhistoryFranschhoek’sAlléeBleueWineEstate


As one of the oldest vineyards in the Cape, the Allée Bleue Estate lies in a picturesque location in the Franschhoek

Valley - an area with a distinct French influence - and offers a breathtaking view of the Drakenstein mountain range. With its snow-white, thatched buildings surrounded by dense lavender bushes, the extensive estate stands proudly in the middle of large fields of herbs and expansive meadows.

In response to the frequent requests by guests to linger longer after a visit to the estate, the Estate recently opened a Boutique Hotel. This deluxe addition to Allée Bleue includes two en-suite bedrooms, a large living area with an outdoor veranda overlooking the estate vines. Ideal for bridal couples and business VIP’s, the restored historical Boutique Hotel is a contemporary mix of old and new. Current renovations of the estate’s historic manor house are paving the way for a chic boutique hotel that is due for launch in 2010.

Allée Bleue Estate has been superbly restored and houses state-of-the-art conference facilities. Varying in size, the conference rooms cater for executive boardrooms, advanced training facilities, product launches and corporate retreats. In addition to its world class conference facilities, the venue can host a special event or celebration beneath its 220-seater free-form tent that is anchored to the famous 1 000-year-old olive tree.

Other recently opened accommodation is the charming Kendall Cottage. Built in 1920, the historic residence now boasts a fresh and modern interior that is an ideal retreat for newly-weds, private parties of friends and business guests. The cottage offers only two generous suites, a spacious living room with hospitality bar as well as a private terrace overlooking the Estate’s beautiful lavender and rosemary fields.

Dressed in cooling hues of blues and whites, the décor is the epitome of understated elegance that includes an international collection of contemporary art adorning the farmhouse walls.

Exclusive butler and chef services are on hand to ensure the most memorable of stays. When not dining at the Cottage, guests may chose the relaxed but chic ambience of the Allée Bleue Bistro or sample the many renowned restaurants of the Franschhoek Valley.

Kendall Cottage is the first phase of the Estate’s luxury accommodation future offering. By mid 2010, a total of seventeen stylish suites will be completed using the existing and historic collection of manor houses that dot the Estate’s stunning landscape. A fine-dining restaurant will also be opened to residents and day visitors.

For reservations call 021 874 1021 or email [email protected]. For further information on Allée Bleue Estate visit www.alleebleue.com.

With 300 to 500 million people infected and two to three million deaths, malaria has become a modern day

scourge. It is in Africa that malaria has gained its greatest foothold and where it is responsible for the most fatalities – mostly among the poorest of the poor.

“However,” cautions Glenda Seeger, Operations Manager of Netcare Travel Clinics, “nobody is truly immune from malaria. It is therefore imperative that leisure and business travellers are at all times made aware of the risks associated with malaria and how to prevent possible infection. For example, there is a very real risk involved for individuals that are deployed into high risk malaria areas in Africa – particularly as many of these individuals become less careful with time.”

“When it comes to young children one cannot be careful enough! That is why we tend to advise parents against travelling into known malaria areas with children under the age of five. Despite the fact that there are at least three types of prophylactics available on the market nowadays we still do not encourage the use thereof by young children.”

Seeger explains that there is no such thing as “the best or the worst” prophylactic to use. “In fact,” she says “Each individual has different healthcare needs and a unique healthcare profile. That is why it is best to get a prophylactic prescribed that best meets your needs. Simply buying a prophylactic over the counter is not wise as you may well end up buying a perfectly good product that is not suitable for you.”

The carrier of the malaria parasite is the smallest Anopheles mosquito. Although there are times when malaria is very much less active, it is important to remember that you are at risk at any time of the year when entering a malarial area.

According to Seeger there are three critical lines of defense to observe when it comes to malaria prevention:

• Don’t get bitten! Personal protective measures against mosquito bites are the cornerstone of malaria prevention, whether in a high or a low risk area

• Be sure to take malaria chemoprophylaxis measures as advised by your doctor or travel clinic. It is important to remember that there are only three types of medication that are effective in Africa. This medication, which is only 95% safe, is also suitable for long-term use. It is essential that each person be individually evaluated in order to determine which medication is the most appropriate for him/her.

• Be alert to any signs of illness after visiting a malarial area, no matter what time of year it is!

“Strict adherence and compliance to all three of the above lines of defence are needed to ensure maximum protection against malaria,” cautions Seeger. “Do remember that prevention is better than cure, as severe malaria is often fatal, even with the best possible care.”

TRAVEL & LEISURE

Safetyinmalariaareas


BEE has been seen on the one hand as an ethically just initiative to

compensate previously disadvantaged individuals, and on the other hand as a pragmatic strategy that undercuts the notion of merit.

BEE began as a ruling that propagated the participation of black people in the economic mainstream. This was aimed to allow for black people who were previously deprived of opportunities to assume positions which would rebut the previous lack. However, a ruling which gives a certain percent of employment to black individuals, irrespective of merit implications, can be counter-productive.

The core essence of justice is challenged at the thought of a white individual who meets the given criteria, but is shunned because of his skin colour. The question then arises; can previous injustices be set right by the same system?

Evidently, the BEE debate is a delicate one. In its BEE strategy document, the Department of Trade and Industry states, “No economy can grow by excluding any part of its people, and an economy that is not growing cannot integrate all

of its citizens in a meaningful way,” As such, this strategy stresses a BEE process that is associated with growth, development and enterprise development, and not merely the

redistribution of existing wealth.

Set out in those words, the idea of a broad

based policy seems concrete. Whether South Africa is administering this in a ‘broad based’ manner is the key question. Born out of this debate is the Broad-Based Black Economic Empowerment

(BBBEE) Act which is a more integrated policy integrating all previously disadvantaged individuals including disabled, small and medium businesses, rural communities, trade unions and workers.

However, even still, implementation in a just manner is unfortunately an ideal. BEE and BBBEE is great in theory, but in reality some see it as ‘cutting the proverbial economic pie in smaller pieces.’ (http://www.inside-south-africa.blogspot.com/). What we essentially want moving forward is to grow the pie.

Another criticism is that BEE is only beneficial to the marginal elite. Some believe that it ignores the cries of the average and below average black population. In his article entitled, “BEE Fuelling Economic Revolution,” (Financial Times, May 2006), Jim Sutcliffe, former CEO of Old Mutual says that according to the South African Advertising and Research Foundation, “Nearly half a million black adults moved into the middle income bracket in 2006 … [The] number of black people in the upper brackets grew 30% and the proportion of blacks in the top income bracket is now 20%, up from close to zero a decade ago.”

Sutcliff explains further, “This was perhaps inevitable as businesses scrambled to find what they considered to be bankable and ‘connected’ partners as a new era dawned.” He also mentions that this has lead to a growing culture of entrepreneurship in South Africa, which was required.

Profmthulincube,Executive Director,

Wits Business School and President, South African Business Schools Association

BEE:necessaryevilor economicjustice?By Profmthulincube, Executive Director, Wits Business School and President, South African Business Schools Association

Administeringeconomicjusticeafterfortyyearsof

oppressionisindeedaheavytask.BEEpolicyhasbecome

centraltoadministeringjusticeinalegislative

environment.However,sinceitsconception,the

authenticityandrelevanceofBlackEconomicEmpowerment(BEE)hascomeunderscrutiny.

MANAGEMENT


Weneedanationthatworkstoachieveexcellence

MANAGEMENT


outperformingthecompetitionby Janemacgregor, Head Consultant, Maestro Performance

Despite the current economic climate, organisations can still perform well, albeit with a smaller staff and reduced

customer base. Good leadership, motivation and teamwork are the most important components to ensuring success.

Current performance is, no doubt, affected by retrenchments, hiring freezes, budget cuts and the loss of customers. However, companies with leaders who understand the overall business and are always considering the bigger picture can still perform well.

The organisation has changed and will need to continue to change in order to adapt to the new market place. Leaders must adapt the company’s vision, mission and goals to meet these new conditions, even if the company is smaller and is aiming at a smaller customer base.

These managers, CEOs and directors are responsible, not only for setting these goals, but also in communicating them effectively to staff and inspiring passion, commitment and motivation. Getting buy-in and understanding from staff is crucial.

Regardless of the economy there are still customers out there who need your products or services and they are still willing to

pay for them. An organisation’s success stems from the ability to provide these things consistently better than competitors.

All members of staff from factory floor to management are skilled and need to continually upskill themselves to improve performance. In addition, each employee needs to understand the business processes and the value that they individually bring to the company. Enabling staff to determine their own performance on a daily basis contributes to their general understanding of the bigger picture and allows them to see the value that is generated from what they do.

A company is a complex system, just like an orchestra. Each action, employee and resource of the company works together towards a common goal, and thus they all affect one another. Relating that analogy to a company means that the basic business processes, and more importantly the value that each step adds, need to be understood. These define how the business hangs together. Once these are understood, rework and duplication of effort can start to be eliminated, thereby saving on costs. In addition, the processes and resources that don’t add any value can be eliminated, and the processes that do add value be focused on to ensure that they continue to add value and grow.

It gave “some of the brightest black brains” the opportunity to open their own businesses and build our nation as opposed to joining the never ending political struggle for justice. Companies, (both black and white) have according to Sutcliff benefited largely from the BEE policy:

“Empowerment deals such as the ones announced by De Beers, Merrill Lynch and my own company over the past year are increasingly the norm. Beneficiaries will own a growing stake in these companies’ South African subsidiaries. They include employees, customers, emerging businesses as well as strategic black business partners who bring real bottom-line value to the table and are rewarded accordingly,” said Sutcliff.

The gap between rich and poor still stands, however. It also seems the gap between the black rich and black poor is widening. In this light, others have the perception that BEE was good while it lasted, but it is now time to move on. We have seen its effects in reparation

and restoration, but it is certainly not an indefinite solution. South Africa is synonymous for its stance in restoring justice, and it would only make sense for us to play the field in a clean and merit driven manner from here onwards.

Also, rewarding individuals on the basis of colour encourages an apathy that breeds mediocrity. Black individuals have been

deprived of a holistic quality education. How can they be assisted if they are deprived (yet again), of the

prime lesson of hard work? How can we breed a nation that does not settle for mediocrity but instead works to achieve excellence at all costs?

This places employers in a particularly tough situation when hiring people who will make a contribution to an organisation, but are not considered BEE candidates. As South Africa

sees the change of guard in the reigns of leadership, the question

on all our minds remains, what is the next step to administer justice? After much exploration, the voice of the people is what should dictate the outcome. Should

we not focus on entrepreneurship? How about the rural poor? How are they being

catered for?

12

MANAGEMENT

Theglobalfinancialcrisisanditsimpactonsportssponsorshipsandfundingingeneral

SERIESPART3

BusinessBrief August/September 2009

Thebusinessofsportby Briannaicker, Programme Leader, FIFA-CIES Programme in Sport Management, UNISA School of Business Management

This is the third of a seven part series of articles on sports management by Brian Naicker, Programme Leader of the FIFA-CIES Programme in Sport Management, a programme designed by Centre Internationale du Sport in conjunction with FIFA. FIFA-CIES has a collaboration agreement with UNISA to provide the tuition for this programme. In addition to heading up the Programme, Brian is also the Head of UNISA Centre for Business Management (CBM).

G iven the current sale of Christiano Ronaldo from Manchester United to Real Madrid for £80 million, one

could be forgiven for thinking that the football and sporting world in general was awash with a great deal of money. The global financial crisis is certainly impacting sports in a significant way, however. Some of the recent articles written in major sports media centre around the following; “UEFA, top officials in talks to cap transfer and pay”, “ Government bailout 2012 Olympic Village project”, “ AIG will not renew Man Utd sponsorship”, “Spurs freeze ticket prices to help fans”, “Johnson & Johnson ends Olympic sponsorship deal”.

While some major sports like tennis have indicated that they are able to withstand the current financial crisis, other sports have been heavily affected. The 2012 London Olympics has been affected to a significant extent. Britain’s Olympic Minister, Tessa Jowell recently announced a $633 million cash injection to offset some of the funding that has not materialised from private investments.

This has been the trend with many other codes of sport as well. Those sports requiring large amounts of capital investments have been severely affected. Many golf course developments which have residential and hotel components attached to them have been downscaled drastically or been put on hold entirely. This so called trend of government or public bailout of projects which have a huge public interest is happening globally. Projects such as Vancouver 2010 (Winter Olympics), FIFA World Cup 2010 (in South Africa); Commonwealth Games (Delhi 2010) and the London 2012 Summer Olympics are just a few examples. These projects obviously have huge fixed capital investments and will have to be completed; hence the bailouts.

On the micro-level of sports, the picture appears to be somewhat different. Football clubs for example are facing increasing pressures to limit wages and to place a cap on transfers. Some clubs, e.g. Tottenham Hotspurs, have decided to freeze the price of tickets for up to two years in order

to maintain the support in terms of season ticketholders and the fan base in general. Many clubs involved in rugby, football and cricket are having to focus increasingly on the domestic front as the quest for regional and continental glory requires massive investment on top notch players as well as all the incremental expenses involved with regional and continental competitions. The top names and brands in sport have not been spared the financial meltdown. One of the largest insurers in the world, American Insurance Group (AIG) has indicated that it will not renew its four year $100 million deal with Manchester United. Many of the global carmakers, e.g. General Motors and the like, have also indicated that they will severely curtail their sponsorships within sports over the next few years.

Many of the global sports have taken an internal view and have started to address fundamental issues within the sport. The entire Formula One industry has begun a process of looking at the costs which underpin the operation of the sport. The new wave of creating sustainable golf course developments and reducing the high dependence on water and other resources is now becoming increasingly important.On a parallel front, many new legislative requirements are being proposed to handle the current problems being faced by many sports, leagues and clubs across the world.

Issues like percentages of revenue to be spent on wages and transfers, maximum foreign ownership, salary caps etc. are currently being placed on the discussion table.

If history is anything to go by then what we will perhaps witness over the next few years looks encouraging. After the Great Depression and heading into the 1930s we saw an incredible surge within the community participation in sport. The reduction of ticket prices meant that stadiums were packed and the masses were able to attend many sporting events. Construction was largely driven by the need to get people back to employment and many projects were driven along community and social improvement lines. Those years post 1929 and the desire to improve the community

base for sports also nurtured many athletes out of the amateur ranks who went on to achieve global fame. The names of boxing legend Joe Louis, athlete Jesse Owens, football star Stanley Matthews and cricket legend Don Bradman come to mind. These were working class heroes who started their long road to fame on the amateur stage and spent considerable time within those ranks.

Briannaicker, Programme Leader, FIFA-CIES Programme in Sport Management, UNISA School of Business Management


MANAGEMENT

Change management plays a pivotal part of any business, regardless of its size or the services offered to the public. All organisations will experience change at

some point because change is constant and necessary in a competitive environment.

Change happens when a specific entity enters the process of transitioning from a known environment to an unfamiliar situation where new knowledge is required to perform the duties expected of individuals involved.

ApproachMost government departments are currently going through fundamental changes as our new South African President, Jacob Zuma, takes over the top position in the country. The approach used to implement these changes is vital because the transition needs to happen smoothly without hindering productivity. Government departments are mostly filled with intellectuals and introducing change in an authoritative way might be met with resistance. In this case, change management needs to be adapted and approached more carefully to suit the needs of the individuals who will be experiencing this change.

ResistanceUnfortunately, change doesn’t always happen effortlessly and in many cases it can be met with strong hesitation from staff, clients, management and even executives. The reason behind this resistance could be based on various factors related to human emotions, personal beliefs, poor leadership, lack of communication or even lack of support from those in charge of implementing the change process.

maturitycurveRecent research suggest that 75% of all change initiatives fail or do not reach their intended objectives, nine of the ten reasons cited for this failure are related to people issues. The need for change management therefore becomes clear and a detailed strategy must be implemented to ensure a smooth transition. Strategies implemented to facilitate this change should be designed to suit the characteristics of the organisation.

Before implementing a change intervention, management should consider the current state of the economy, the culture of the organisation and the position of the organisation on the maturity curve. This will give those individuals in charge of driving change a better understanding of what approach to use when implementing the transition.

SeniormanagementThe importance of change management in an organisation should not be underestimated. Managing change should be viewed as a strategic tool and should be controlled from the

CEO’s office with the support of the Strategic Development Office. Human Resource departments should be dealing with cultural and capacitation issues while departmental heads deal with matters related to operational excellence and increased productivity.

Senior management should always be involved in the change process and must be aligned with the intensity and level of change. The CEO of the organisation should focus on implementing a best fit approach that will act as a roadmap to reach the ultimate goal. Evaluating the situation closely is imperative. The execution of change from the existing situation to the desired end-state, exists to facilitate in achievement of most predetermined objectives.

StructuredprocessAs change is implemented, new insights, unexpected results and crucial opportunities that could translate into productive and lucrative prospects arise and, if it is handled correctly, will result in substantive benefits being realised. Change management is not only about people’s emotions, it is a structured process supported by tools and insights designed to enable the successful and seamless execution of a project or to address the strategic objectives of the organisation.

DifferentdisciplinesChange management requires effective utilisation of a number of disciplines ranging from people skills, project management, business management, process management, and technical skills. Institutions wishing to embark into a change journey should not hesitate to obtain the services of a change management professional. A best fit approach minimises mistakes and avoids change fatigue, it can accelerate the key processes and dramatically increases the confidence of the individuals involved in achieving project outcomes across the entire organisation.

Companies throughout South Africa are increasingly realising the importance of implementing effective change management processes in order to achieve strategic and operational excellence. An integrated model that takes into account the effect of any change on the organisation as a whole in a manner that enables an organisation to remain agile is best. An integrated model should be designed to assist businesses implement change as quickly and smoothly as possible using a combination of global and local research.

AdaptLife changes every day and it is the responsibility of individuals to adapt to the changes in order to become successful. Change is inevitable and the sooner individuals of an organisation take a conscious decision to accept and adapt to change, the quicker the rewards of implementing holistic change will be experienced.

Changemanagement:Isyourbusinesshanginginthebalance?by Tokozilemarah, Associate Director, PricewaterhouseCoopers

MANAGEMENT

Weak links appearing in supply chains because of economic instability, overambitious cost savings and increased

global risks. More and more businesses are facing threats to their profitability because of an increased likelihood of needed supplies not arriving when planned, according to a new report.

ProfitshitThe report highlights that the number of companies saying that supply chain disruptions have hit their profits has more than doubled in the last five years, while the number of countries considered to have “supply chain vulnerability” has risen by more than a third.

IncreasinglycomplexFor a number of reasons, the challenges of managing a global supply chain are becoming increasingly complex. As global markets have become increasingly competitive, many businesses have introduced cost-saving supply chain strategies to maintain profit margins, including sole sourcing and just-in-time deliveries of critical resources and components. With many organisations worldwide facing a major economic slump, some of these earlier savings are becoming operational weak links, especially in extended supply chains.

ReputationalriskThe increased risks facing businesses’ supply chains include suppliers going into receivership, suppliers’ financial problems meaning they are not able to deliver to the right quality or timescales, fraud, government intervention or embargo, strikes and natural disasters. These supply chain issues are a risk not only to the profitability of companies but also to their reputation with customers, investors, policy-makers and the general public.

ProtectingyoursupplychainAmong the most important questions to ask regarding the health of your supply chains are:

• Do you know who your critical suppliers are and how much their failure would harm your company’s profits?

• Do you have a complete picture of your critical supply chains from raw material to customer?

• Do you have routine systems for measuring the financial stability of your suppliers?

• Do you understand how natural disasters could impact your key production facilities and distribution centres?

• Have you provided risk training to your supply chain management team?

overstretchedsupplychainthreat!by nickWildgoose, Supply Chain Product Manager, Zurich

Directors have a legal duty to act at all times in the best interests of their

companies. Naturally, a conflict arises where a director has an interest, either directly or indirectly, in any transaction that is being concluded with his company. Where these conflicts arise, there are a number of legal requirements relating to consent and disclosure that have to be met by directors to render their conduct lawful and the resultant contracts valid.

Broadly speaking, two distinct but related rules govern these matters. Firstly, directors may not act for or on behalf of their company in the negotiation and conclusion of a contract in which they may have a conflicting interest. This is known as the rule against “self-dealing”. The reason for this rule is fairly self-evident - a director of a company is obliged to obtain the best terms possible for that company when concluding a contract whilst his personal interest in that contract may motivate him to do just the opposite. The only exception to this

rule is where the director has obtained the consent of the members of the company in a general meeting.

The second rule is known as the “fair-dealing” rule and essentially compels a director to make full disclosure of his interest in the contract and of all other relevant material facts. Unless the company’s articles of association stipulate otherwise, disclosure must be made to the members of a company at a general meeting. Interestingly, once full disclosure is made, a director who is also a member may even vote for the approval of the relevant contract at a general meeting.

A company’s articles of association will often, for the sake of convenience, give the board of directors the authority to consider and approve contracts in which a particular director has a personal interest. The Companies Act, 1973 prescribes the manner in which disclosure must take place but not the

content of the disclosure, and this will depend on the circumstances of each case. At the very least, a director should disclose the nature of his interest, any profits he may make and any other facts that would have a bearing on the company’s decision to enter into the contract.

If a director contravenes either the self dealing rule or the fair dealing rule, the contract is voidable at the insistence of the company no matter how fair or reasonable the transaction. However, if the contract was concluded with a third party that did not know, or could not reasonably have been expected to know, of the conflict of interest; the company is bound to the terms of the contract. In those circumstances, the company has a right to claim back from the relevant director any profits he may have made from the transaction. In addition, the director may well be held liable for any damages sustained by the company arising from the non-disclosure.

Conflictofinterest?by marianneduToit–Scholtz, Senior Associate, and AlbertAukema, Candidate Attorney, Cliffe Dekker Hofmeyr


Employeesshouldrememberthattheycannotbitethehandthatfeedsthem

16

LEGAL


A23-yearoldDurbanemployeewasrecentlydismissedbyhisemployeraftertheemployeepostedarudecommentabout

hisbossonFaceBook.Cananemployertakeaction

againstanemployeefortheemployee’sconductoutsideoftheworkenvironment?Does

theemployee’srighttoprivacynotprevailandactasashieldagainsttheemployer’srightto

discipline?

Two other employees were also suspended by their respective

employers following their exploits on FaceBook. A 25-year-old Pretoria man was reportedly suspended after posting comment on his FaceBook page about his employer’s alleged laziness. A 25-year-old Johannesburg woman was reportedly suspended for promoting a competitor’s product on her profile home page. In all three instances, the employers took a dim view of the employees’ conduct in posting their comments on FaceBook.

FaceBook is a social phenomenon that has taken the world by storm. With increased mobility of employment, many globetrotting (and less fortunate) employees use FaceBook as an effective vehicle for staying in touch with friends and family. President Obama is reported to be the most popular person on FaceBook. If the President of the United States of America has a page on FaceBook, shouldn’t all of us have one? The reports above highlight some of the downsides of ‘FaceBooking’, however.

The employer’s right to discipline its workers flows directly from the common law provisions of the employment contract. Under the common law, an employee places his or her labour potential at the disposal of the employer in return for remuneration. In doing so, the employee is in a subordinate position and must subject himself or herself to the employer’s control and command. The employer has the corresponding right to issue instruction and expect obedience to all lawful and reasonable instructions.

Logically, though, the employer can only control and command those actions of the employee resorting within the employment relationship. What the employee does in his spare time is of no consequence to the employer. The employer can certainly not instruct the employee (and expect compliance) of those aspects that has no bearing on the employee’s employment duties.

Whilst the Courts have accepted this

principle, the caveat lies in those otherwise private actions of the employee that may impact on the employment relationship with the employer. For instance, if an off-duty employee makes defamatory statements in relation to his employer in public, this (otherwise private) action may have a direct bearing on his continued employment with his employer. Certainly, an employer cannot be expected to continue the work relationship with an employee where the latter’s actions are irreconcilable with a healthy employment relationship. But what if it took place outside of working hours or the workplace? The Courts have been willing to accept that a link can arise between the employee’s private actions and the employment relationship. Where the employee, in his private capacity, acts in a manner that negatively impacts on his employer’s business, the employer’s right to fair labour practice may trump the employee’s right to privacy. The employer may then discipline and even dismiss an employee whose after-hours conduct negatively impacts on the employer’s business.

In Van Zyl v Duvha Opencast Services, the Industrial Court upheld the dismissal of an employee who assaulted his supervisor, in front of another employee, after hours. The Court held that the employee’s actions made a harmonious working relationship intolerable. Thus, although the employee acted outside of the workplace and after working hours, his actions still linked back to the employment relationship. In assaulting his supervisor, he damaged the relationship between him and his employer beyond repair. This resulted in the dismissal being held to be fair, notwithstanding the fact that it was an ostensible private act by the employee.

Employees should also remember that they are under a common law obligation to further their employer’s business interests. This means that they may not do anything to destroy harmonious working relations with their employer or

JohanBotes,Director Employment,Cliffe Dekker Hofmeyr

Facebook–Doyouriskdismissal?By JohanBotes, Director Employment, Cliffe Dekker Hofmeyr

colleagues. When posting comments on social networking sites such as FaceBook, they should remember that potential clients, competitors and colleagues may trawl the internet for information on their suppliers, rival businesses or co-workers. In doing so, it is foreseeable that they may come across information posted by staff. Employees are labouring under a terrible misapprehension if they believe that the information they post on most social networking sites are private and cannot have any bearing on their continued employment.

An employee who disrespects his employer in a public forum like FaceBook should expect the same treatment as that dished out to a drunken employee shouting obscenities to his boss at the annual Christmas lunch. And an employee who punts the opposition’s business on FaceBook or in an email to third parties can face the same wrath as if she went on radio or television, defaming her employer. The employee’s obligation to further his employer’s business interests, or the duty not to do his employer’s business harm, does not keep office hours. Employees should remember that they cannot bite the hand that feeds them.

In January 2009, the Regulation of Interception of Communications and Provision of Communication Related Information Act, 2002 (RICA), was

amended so as to change the requirements for certain cell phone and SIM-card information to be collected and stored.

RICA now imposes information recording and storing obligations on, among others, employers who provide SIM-cards to persons in their employment. These information recording and storing obligations took effect on 1 July 2009.

An employer must, before handing over the SIM-card to the employee, record the:• Date and period for which the SIM-card is provided; • Mobile Subscriber Integrated Service Digital Network number (MSISDN-

number) of the SIM-card; and• Full names and surname, identity number and at least one address of the

employee concerned, or, in the case of an employee who is not a South African citizen or who is not permanently resident in South Africa, the country where the employee’s passport was issued.

An employer must verify this information with reference to the following documents: Recordedinformation• Full name, surname, identity number and identity of employee.• Employee’s address.

Documentstoverifyinformation• Identity Document.• Employee’s address. • Bank statement, a municipal rates and taxes invoice, telephone of cellular

phone account that is not older than three months, any other utility bill or an account of a retailer not older than three months, an existing lease, rental or credit sale agreement, insurance policy, a current television licence or a new motor vehicle licence document.

This information must all be stored for five years.

Employersmustrecordsim-cards

By WendyRosenberg, Director, and Tebogomthiyane, Senior Associate, Werksmans Incorporating Jan S de Villiers

epsonadvertpage17

18

TherateatwhichtendershavebeenchallengedinSouthAfricahasincreaseddramaticallyoverthepastyear.Asaresult,moredecisionsacrossthecountryarebeingchallengedonthetenderprocessasentitiesandtenderersarerealisingthatthereislegalrecoursetoaction.Therulesoftenderingforpubliccompaniesputtingworkouttotenderandentitiesbiddingonthattenderarehighlightedhere.

The onus lies on the public body to make sure that tender decisions are transparent, lawful and procedurally fair.

Public entities can expose themselves to legal action if these requirements are not met. In a recent case, before the Supreme Court of Appeal a company that was awarded the tender, completely relied on the strength, competence and expertise of another entity, even though the company that was awarded the tender, did not itself, satisfy the requirements of that tender.

The rules of the tendering game for companies putting work out to tender include:

1.Advertising/publicknowledge – First and foremost public entities are obliged to advertise tenders that are valued at R500 000 or more. All parties that might want to be involved in the tender process need knowledge of the tender or the public entity can be taken to task;

2.Substanceoverform – If a company was formed purely for the purposes of winning the tender bid it does not, per se, have to satisfy tender requirements. However, a public entity would have to satisfy itself on whether or not the company that is tendering is able to meet the requirements of the tender;

3.Roomforcompetitionatalllevels - The law encourages historically disadvantaged companies to participate, and public entities need to ensure that they properly consider joint ventures between SMMEs and other bigger entities;

4.Rationallyconnectedtotheobjective - Be aware of the provisions of the Promotion of Administrative Justice Act No. 3 of 2000. This means that your actions and decisions must be reasonable, procedurally fair and lawful;

5.Termsandconditions – public companies need to ensure that they adhere to the terms and conditions laid out in the tender document. These would include BEE requirements, percentages linked to expertise needed/equipment, technical requirements etc; and

6.Disqualification – companies tendering cannot simply be disqualified for mere non-compliance to small technicalities, for example, submitting an unsigned document. Courts have gone further to say where it is obvious that certain compliance is technical in nature, one cannot disqualify a company especially if their value-add will far outweigh the technical oversight or error.

Companies bidding for a tender have the right to administrative action that is reasonable, procedurally fair and lawful. If one has won a tender unlawfully, and if the person challenging the tender succeeds, one will not have recourse to the money or damages one may have incurred in operating the tender unlawfully.

Companies bidding for tenders really need to take three areas into consideration:

1.Thetenderrequirements• There will always be a deadline for submitting a tender which

needs to be met – make sure your application is submitted timeously

• Formal and technical requirements will need to be met, including, for example, bank guarantees and tax clearance forms

• BEE figures will need to be represented, including equity in management and staff

• Any service level agreements will need to be signed

2.Experience• A company will need to show their knowledge, competence

and skill within the relevant sector. In other words if you were bidding for, say, a catering tender to provide food, you would need to prove that you have registered dieticians available for the purposes of compiling appropriate menus and the requisite staff

• If there is a joint venture, experience within this venture will need to be shown

3.Physicalrequirementsofthetender• A tender will often have physical requirements that need to be

met. For example, if the tender is to supply equipment, minerals or technology, a company would need to show that they have requisite premises and technology to implement the tender

• Companies would also need to prove their compliance with the necessary applicable laws, including but not limited to environmental health and safety legislative requirements

It takes a great deal of money and time for an aggrieved tenderer to seek justice, and the down side is that you could be cutting off the hand that feeds you if you follow such a course of action. Bear in mind that if you are solely relying on public entities for business, you could be ruining that relationship for good if you take them to task.

RulesofthetenderinggameBy Bulelwakhemese, Director, Werksmans Incorporating Jan S. De Villiers

LEGAL


newprotectionforwhistleblowers

The new Companies Act 71 of 2008, which is likely to come into force in the middle of next year, provides greater protection for whistleblowers,

particularly in the corporate sector. The implications of the relevant section of the Act are potentially far-reaching and will need to be managed strategically so that companies do not unwittingly expose themselves to claims.

noteffectiveEmployees who blow the whistle on some sort of unlawful or irregular conduct are currently protected under the Protected Disclosures Act (the PDA). However, the protection tends not to be very effective, as it makes no provision for the often very subtle forms of discrimination and detriment to which whistleblowers are subjected.

InadditionChapter 7 of the new Act is titled “Remedies and Enforcement” and provides certain protections for whistleblowers. Significantly, it provides that to the extent that it creates any right of or establishes any protection for an employee as defined in the PDA, this is in addition to any protection in terms of the PDA.

The section also states that any provision in a company’s Memorandum of Incorporation or rules or an agreement will be void if it is inconsistent with or tries to circumvent the section.

According to the Act, any disclosure of information will be protected if made in good faith to an appropriate person or body – and the Act lists these.

ReasonablebeliefFurther, the whistleblower must have a reasonable belief at the time of making the disclosure that the company or individual contravened legislation, failed to comply with a statutory obligation, engaged in conduct that could (or did) endanger someone’s health or safety (or damaged the environment), or engaged in unfair discrimination.

The list of persons who would qualify for protection with regard to the good faith and reasonable belief requirements referred to is far broader than an employee alone as provided for in the PDA. The list, which is set out in sub-section 4, includes: a shareholder; a director; the company secretary; a prescribed officer; an employee; a registered trade union that represents employees of the company or another employee representative; or a supplier of goods or services to the company or an employee of such a supplier.

ImmuneThey would have qualified privilege in relation to the disclosure and are also immune from any civil, criminal or administrative liability as a result of the disclosure. In addition, they are entitled to compensation for damages suffered as a result of the possible or actual disclosure from any other person who causes detriment to them, or who threatens them with detriment. This means that there would potentially be no limit to compensation.

HotlineFinally, companies (whether public or state owned) must establish and maintain a system to receive confidential disclosures and act on them. Clearly a hotline would be the primary tool for companies to use in this regard.

by gillianBolton, Head Forensic Services, Mazars Moores Rowland

TAX

Be warned that large losses offer no protection from tax audits. In fact, in times of falling profits and shrinking revenues, tax authorities will go the extra mile to replenish public coffers.

It is not enough to be aware of the risk attached to innovative loss utilisation. During this period of rapid change for many financial institutions, ostensibly assured tax losses could be at risk as companies restructure, shareholders change and businesses refocus their strategies.

In such an environment, it is absolutely essential that tax losses and similar tax attributes are managed in real time so as to minimise risk of forfeiture and maximise current and future benefits.

Critically, tax should be considered at the start of the decision-making process throughout this defining period.

Many companies are re-examining the way they do business, in the course of the process of which they are defining the successful core and restructuring to focus on that core. A takeover, or a major change in shareholding arising from a merger, may limit a corporation’s ability to use losses incurred prior to the transaction.

Even internal restructuring on its own may be sufficient to threaten available tax losses in some jurisdictions or across multi-jurisdiction operations. The future use of losses incurred by a specific business may be lost or severely limited in certain jurisdictions if that business is terminated, even if the group as a whole continues to trade.

Consolidation of businesses for cost reduction purposes may also put tax losses at risk. The CFO will need to ensure that tax is considered in the early stages of any re-organisation. To fully understand the impact on losses, the CFO must ensure that the tax department is involved in business planning and forecasting.

One of the most effective ways to obtain a benefit from tax losses is by carry-back

Tax losses are one of the most immediate sources of value for

companies looking to position themselves

for growth when the market upswing occurs. If correctly

utilised, these losses have the potential to

offset tax payments on future profits, giving

institutions a head start in the recovery years

to come.

By Nazrien Kader, Lead Tax Director of Financial Services, Deloitte, and former member of the SAICA National Tax Committee

Nazrien Kader,

Lead Tax Director of Financial Services,

Deloitte, and former member of the

SAICA National Tax Committee

However, the complex tax codes around the world and the rapid

reorganisation of many corporations will result in these tax losses easily vanishing if not carefully understood and managed. In addition, many such losses are time sensitive and will require careful treatment if they are to remain of value to each entity.

Be aware, however, that it will not be plain-sailing for the tax department when it comes to offsetting the huge losses incurred during the downturn against potentially more modest profits when the markets eventually start to recover.

No company can assume that the tax benefit arising from operating losses is a foregone conclusion. For one thing, the Chief Financial Officer and tax director should go to great lengths to ensure that book losses are flowing through to the tax returns. Permanent, temporary or timing differences should be fully understood and managed to maximise the company’s ability to utilise losses efficiently as the business recovers.

The upside of tax losses

The tax opportunities available to businesses during a loss period should not be missed


TAX

The draft Taxation Laws Amendment Bill has been released for public comment. The draft bill deals with a

number of issues that will affect a wide range of taxpayers. This article highlights some of the proposed amendments that will be of general interest to businesses.

There are a number of provisions dealing with the conversion of secondary tax on companies to a dividend tax. Although legislation is in place, the conversion has not yet been made effective. The additional provisions proposed in the draft bill include anti-avoidance measures aimed at preventing the conversion of proceeds from the sale of shares into tax-exempt pre-sale dividends. A mechanism to apply the concept of deemed dividends, well established under the secondary tax on companies regime, is also introduced. The distribution of shares and share rights is also addressed. The new provisions will come into effect at the same time as the conversion as a whole.

The draft bill continues the government’s approach of incentivising environmental efficiencies. The sale of certified emission reductions (so-called carbon credits) will be exempt from income tax. There will also be notional income tax deductions available as a result of energy savings. These savings will require energy efficiency

certificates from the National Energy Efficiency Agency.

Another issue that is addressed is the depreciation of improvements to assets. The draft bill aims to harmonise the approach taken throughout the Income Tax Act in this regard. Improvements will be depreciated as if they were stand alone assets themselves. The principles that apply to the depreciation of the relevant underlying assets (for instance, that they be new and unused) will be applied to improvements to those assets.

In terms of current legislation, deductions against taxable income from financial leases of depreciable assets are limited (leading to the ring-fencing of losses). The draft bill recognises that the scope of the limitation is too wide, particularly to the extent that losses that have arisen cannot be set off against proceeds from a sale of the underlying assets. The draft bill narrows the scope of the limitations and it will be possible to set the losses off against recoupments and capital gains on disposal of the underlying assets.

The provisions regulating learnership allowances are also to be simplified. In essence, the existing formula based approach is to be replaced with fixed sum deductions.

New tax laws affect formula approachBy Tim Desmond, Director, Garlicke & Bousfield

against prior year profits, if available. This may give certainty of use and result in a tax repayment rather than a benefit at some time in the future. Such a strategy may require the tax department to change its behaviour and file tax returns earlier if repayment of tax cannot be obtained until the tax return for the loss period is submitted to the authorities.

Where tax losses cannot be immediately utilised, companies need to consider the extent to which losses carried forward can be recognised for accounting purposes, as well as the value that regulators might put on deferred tax assets representing loss carry-forwards.

The tax director’s target should be to maximise efficient use of

losses and understand how this will be achieved. Effective tax management for a loss-making business must be measured over an extended period to determine effectiveness. Quick wins such as loss carry-back should be implemented swiftly where possible, thus providing a more immediate cash benefit.

The eventual ability to use tax losses is key. The importance of minimising the risk of future challenge by tax authorities cannot be underestimated. Above all, tax risk is as great an issue now as during high tax-paying periods.

A final word: The tax opportunities available to businesses during a loss period, such as the potential to implement internal restructure plans, should not be missed.

New laws keep rolling inby Kemp Munnik, Tax Director, BDO Spencer Steward

On 1st June, the 2009 Taxation Laws Amendment Bill and the Taxation Laws Second Amendment Bill were released for

comment. Many taxpayers saw 2009 as a year of consolidation following a fairly benign Budget on the tax front. Nevertheless, the combined bills run up to over 200 pages of legislation. These changes are highlighted in this series.

Demise of the Deemed kilometreFrom 1st March 2010, it will no longer be possible to regard the annual kilometres from 18 000km to 32 000km to be for business purposes. It will then become necessary to retain a logbook of business travel, which excludes commuting to the office and back. The PAYE rules will be amended accordingly, on a basis whereby the portion of the allowance subject to PAYE will be increased from 60% to 80%.

Medical Aid ContributionsCurrently employer contributions to medical aid funds are exempt from tax up to the monthly capped amount and not regarded as a fringe benefit. On 1st March 2010, the fringe benefit exemption relating to a portion of an employers contribution to a medical aid scheme, will fall away. This will be compensated for by a deduction by individuals of amounts contributed by employers, up to the current monthly capped limits. The net effect is expected to be neutral.

Pre-Retirement Lump SumsThe proposed amendment brings into effect a separate set of tables which apply on resignation from a fund. It is now made clear that one cannot structure one’s affairs to benefit from both the average rates on resignation and the average rates applicable to retirement and death, as the two separate sets of tables work on a cumulative basis.

Minor Beneficiary FundsIn order to simplify compliance, payments from minor

beneficiary funds will no longer attract PAYE like annuities. Instead of this, lump sum tax will be imposed on the

death of a retirement fund member.

Unrealised Gains on DeathUnder the capital gains tax rules, assets

are deemed to have been disposed of at market value and acquired

at the

stepped up value in the hands of the estate and then eventually the beneficiaries. There is however potential for double tax where assets transfer directly to heirs, as there are no step-up rules for such beneficiaries. This will be remedied with effect from 1 January 2010 for years of assessment ending after that date. Simplification of Learnership AllowancesThe complexity and number of variables involved with this incentive have rendered it unworkable. For this reason, the rules have been significantly simplified and the caps, based upon employee income, have been removed. Also the learnership allowance programme previously only allowed for a deduction in the first year and a completion allowance in the final year. Special rules and enhanced allowances are proposed for learnership contracts of three years or more.

Post-Retirement Medical AidMany employers have opted to substitute the uncontrollable cost of future medical expenses for retired employees with a lump sum, the tax deductibility of which is uncertain. This uncertainty will be remedied on a basis whereby a full deduction will be allowed in the hands of the employer, unless the payment does not effectively shift risk and is a disguised investment.

Retirement Annuity Contributions by an EmployerAt present such contributions are a fringe benefit in the hands of an employee yet do not rank for the deductions which would have applied, had an employee contributed directly. This anomaly will be corrected with effect from 1 March 2010.

Payout of an Actuarial Surplus from a Pension FundCurrently such amounts are taxable in full but circumstances may have arisen where an employer did not enjoy a deduction of the contributions (eg, on a take-over). The position will be remedied, retrospective to 1 January 2009 to allow for a reduction of the gross income amount to the extent that the employer has made contributions or paid costs that were not claimed as a deduction.

Carbon Emission CreditsIn order to compensate for the market failure associated with environmental protection, the disposal of credits by a registered project will be exempt from income tax. Furthermore, as most credits will be for export, the zero rating for VAT purposes has been made clear.

Energy EfficiencyA special allowance will be created for energy efficiency savings

determined by an accredited professional.

Dividends Tax RefinementsNumerous refinements have been proposed to this impending tax which will, in all likelihood be subject to significant further changes, not

yet announced. This will be examined in greater depth, once the dust begins to settle.

SERIES PART 1

TAX


Pain-free tax returnsby Grant Lloyd, Managing Director, Softline Pastel Payroll

The 2009 tax filing season went live on 1 July and to avoid punishing fines or

penalties, individuals need to know what is required of them and be aware of the deadlines they have to meet. Individuals should start getting their documents in order now.

For those who earned more than R120 000 and have to file a return, the deadline is 18 September if the return is being done manually, but those who have access to an internet connection and choose to submit electronically gain an additional six weeks up to 20 November.

Manual returnA manual return pre-populated with the individual’s tax certificate information submitted by the employer can be requested from the local SARS branch or obtained by completing a return request form that was posted to all non-eFiling taxpayers last month. SARS eFiling users

can simply log on to the website to verify and complete the pre-populated IT12 return online.

When completing their tax returns, individuals can claim certain deductions against their taxable earnings. These include medical expenses, retirement annuity contributions, business kilometres travelled if a travel allowance was received, business travel expenditure against subsistence allowances and donations to an approved charity or NGO.

Travel allowanceTaxpayers should be aware that this 2008-2009 return will be their last opportunity to submit claims against a travel allowance without a detailed logbook as proof of business trips made using a private car.

Currently, a maximum of 32 000

kilometres can be claimed of which the first 18 000 kilometres is regarded as non-business travel. So a taxpayer with a travel allowance who travelled more than 32 000 kilometres in this financial year but did not keep a detailed logbook, will be allowed to claim a total of only 14 000 kilometres for business purposes against the travel allowance.

Taxpayers must make sure that they claim their business kilometres this year or SARS will recover tax on assessment from the 40% of the travel allowance that was not subject to PAYE (employers are obliged to deduct PAYE from only 60% of the value of travel allowances).

Taxpayers should have started to record their business travel details from 1 March 2009 as they will not be able to submit any claims against a travel allowance without a detailed logbook after 28 February 2010.

TAX

24

FEATURE - PRIVATE EQUITY

Private Equity

The global credit crisis has produced a mixed bag of fortunes for private equity – the investment class in which capital is invested in private companies. On the downside, corporate earnings have declined but on the upside, reduced company valuations have produced a range of investment ‘bargains’. This feature discusses the last year, the current state of the industry, black economic empowerment (BEE), trends in the market and international investment, among other aspects.


“P rivate equity represents a viable option for the funding of businesses in South Africa. This type of funding is ‘smart capital’ as private equity fund managers make a return from the increased valuation of a business and hence work with

management to develop the business,” says Executive Officer of South African Venture Capital and Private Equity Association (SAVCA), J-P Fourie.

Sasfin Capital’s Private Equity Head, Malcolm Segal adds that private equity is not just for multi-billion rand transactions. “It is a versatile form of funding that can help companies of any size unlock their true potential without burdening themselves with excessive debt. Private equity is well placed to play a dynamic role in the growth and development of smaller entrepreneurial companies,” he says.Investments by private equity funds into companies hold great benefits besides the mere cash injection to develop a business. Private equity investments have considerable impacts in terms of productivity, skills development and job creation, as it includes the transfer

Private Equity shows growth despite economic downturn



and exchange of know-how and not only the flow of capital.

“In South Africa, the private equity industry represents a significant sector within the overall financial services industry, and an attractive asset class within the broader capital markets. As seen across a range of indicators, the profile of the local private equity industry is that of a productive contributor to the development of the South African economy. In particular, private equity facilitates BEE, addresses economic imbalances of the past, promotes entrepreneurial initiatives and positions South Africa to compete successfully on the global stage,” adds Segal.

Then and nowPrivate equity only really emerged in the 1980s with the huge RJR Nabisco deal valued at some $25bn. RJR Nabisco was then bought by Kohlberg Kravis Roberts & Co (KKR) at about $32bn and was at the time the largest leveraged

buyout, says Head of Private Equity at Nedbank Capital Dave Stadler. This was significant as the deals were being funded by ‘Junk Bonds’ – high yielding bonds.

A pattern emerged internationally, and even in South Africa where deals were funded with a very high level of leverage - little equity and more gearing. Between 2000 and 2007, American businessmen started investing in countries all over the world and eventually into South Africa, where the largest deal to date has been the Edcon buyout valued at R27bn.

Stadler says that these werethe boom years of private equity and huge amounts of debt were being raised. Then the private equity industry took a turn and we

saw tightening of credit, huge gaps between buyers and sellers and no money to do deals. Deal sizes have come down drastically in the last year.

Deloitte’s Leader of private equity group, Sean McPhee says that banks, insurance companies and corporate entities are not providing the level of funding for private equity that they once did. This means that the shortfall is expected to be filled by new sources such as private individuals and pension funds.

“Even the nature of deals has changed drastically.



In 2006, buyers would put up to 40% of equity into a transaction and raise 60% of debt, now private equity firms are ploughing in more equity and raising less debt,” says McPhee.

The inability to ‘leverage up’ means that the private equity deals that you will see in the next year are likely to be much smaller than in the recent past. Of the 400 private equity practitioners surveyed by Deloitte, more than half believe the deal size will fall.

Director at Edward Nathan Sonnenbergs, Brad Serebro remarks that before the economic crisis, South Africa saw deals that were high priced. The multiples that people were paying for businesses, and the gearing ratio that they were obtaining to fund the acquisitions of those businesses were disproportionate to the actual values of the businesses.

“Basically, people were overpaying for assets and what is harder now is to pay for those assets and the debt that was borrowed as the economy has dipped significantly. Investors do not have

enough capital. If investors did have sufficient funding, that would help them to recapitalise their business and help them trade in these tough times,” says Serebro.

According to Serebro, the downturn will lead to a realignment of wealth, a realignment of private equity players. People will either be forced to sell their assets or indulge in a co-investment.

“Deals will require more equity than before and we expect to see more collaboration between private equity and corporate co-investing in opportunities,” says McPhee.

Sasfin Capital’s recently appointed Deal Origination and Capital Raising Executive, Neil Eppel shares this sentiment ,adding that co-investment with partner private equity players may become a predominant feature in many deals. “I believe that the private equity industry is going back to its more traditional roots. Since the term ‘debt funding’ is so much more scary

and the propensity for public issues more limited, this renders private equity capital even more sought after. Strangely enough, a positive aspect of the economic crisis has in fact been massive clean up of the private equity industry. The number of players in the market has been reduced, thus benefitting the more established players,” he says.

An industry perspectiveIn 2008, the rest of the world fell into a tailspin, but in South Africa, it appears that the South African private equity and venture capital industry remained in a relatively healthy position. “Though deal value and flow were lower than the last previous year, the industry still reported more than R20bn of investment activity. The South African economy, in spite of facing tough times, is one of the few worldwide to be marginally shielded from the financial meltdown. This level of protection comes from our nominal foreign exposure and also some good policy decisions,” says J-P Fourie.


On a macroeconomic level, South Africa is also fairly well-off. The banking industry remains robust, the banks are well regulated and their balance sheets are sufficiently capitalised. Inflation is forecast to start falling, allowing the Reserve Bank greater leeway with its monetary policy. Infrastructure spending continues to be robust, as government is ploughing billions into improving the country’s infrastructure and social services.

“In 2009, the drop in activity will continue. Though the economic outlook is uncertain, opportunities exist, especially for forward-looking managers who are not averse to risks. As an industry, we have worked hard to make ourselves more accessible. Though equity remains cheaper than debt, private equity will continue to remain a popular asset class, despite the lengthy investment cycle,” adds Fourie.

He reckons that investors are already demanding intelligent, lean and value-based opportunities. This will drive

a change in how the industry views investment opportunities, with greater interest in businesses that invest in research and development and ongoing innovation – good prospects for venture capitalists.

The time for mega-deals has also passed but the industry’s greatest opportunity in 2009 lies in the midmarket.

In a recent jointly-hosted media briefing by SAVCA and Sanlam Private Equity (SPE), which examined the state of private equity locally and globally, it was revealed that profitable exit from deals is likely to be delayed due to the downturn. However, with a slowdown in the number of companies listing on the stock exchanges, companies that may previously have gone public are now good prospects for private equity investors.

CEO of SPE Cora Fernandez said that experienced managers have demonstrated their ability to adapt in

a changing and challenging market. “Globally, merger and acquisition activity has slowed and mega deals have evaporated. Investors remain cautious since earnings visibility is a major challenge and debt markets have improved marginally. There is no shortage of debt for good deals, but the amount of debt offered has come down along with gearing levels. We have, in essence gone back to private equity basics.”

Fernandezshares Fourie’s sentiments in that private equity players in developed markets are now looking to mid-size companies for investment opportunities, with a hive of activity currently underway in underperforming assets and secondaries.

“The private equity industry in South Africa is far better placed than its more mature counterparts in the first world. South African private equity deals have never been geared to the same extent as the gearing levels seen in the developed markets. As a



result, we don’t expect to see a high level of underperforming or distressed assets, work outs or turnarounds,” says Fernandez.

She said that South Africa’s industry may be small by international standards – it makes up only one percent of global activity – but it does contribute a significant 3.2% to GDP, which contributes to expansion and development in the country. It is sophisticated and well-organised with a well established network of highly experienced players, deep and liquid debt markets and solid legal framework.

“Currently, the biggest challenge facing us in the aftermath of the financial crisis is fundraising. Locally, investors into PE funds are largely pension funds and endowments, many of which are currently reviewing

their asset allocation strategies in search of greater liquidity. More than 50% of capital raised by PE funds in the past two years was sourced offshore, principally the US and European countries. The full extent and consequences of this risk is only likely to be felt in the next 12 to 18 months,” adds Fernandez.

Fernandez said that, despite these challenges, private equity remains a great source of foreign direct investment and of growth and expansion finance. This is good news for the financial services sector and the economy, meaning that we can use foreign capital to finance and stimulate growth in South Africa.

The year at a glance...The South African sector remains strong due to ongoing infrastructure spend and limited exposure to global financial markets. Despite the global meltdown and a slowdown in local

merger and acquisition activity, South Africa’s private equity industry breached the R100 bn mark for the first time during 2008. In addition, R29.2bn in commitments remains undrawn and can be used for further investment. These were the findings of the KPMG and SAVCA Venture Capital and Private Equity Industry Performance Survey for 2008.

Growth in black economic empowerment (BEE) private equity deals grew 38.1% from R11.8bn in 2007 to R16.3bn in 2008.

Due to the absence of the large public-to-private deals as seen in 2007 such as Consol Glass, Edcon and Primemedia, it is no surprise to see that private equity investments fell in 2008 from R26.1bn in 2007 to R21.3bn in 2008. Fundraising also decreased from R15.4bn in 2007 to R7.2bn in 2008.

KPMG’s head of private equity Warren Watkins says, “These figures are a positive reflection on the achievements of the South Africa private equity. Although South Africa is not immune to developments in the global economy, we currently appear to be better off than other private equity markets. This could be due to South Africa’s ongoing infrastructure spending and limited credit crunch exposure”.

The survey also found that funds valued at R68.6bn were under the management of captives -government or entities that are either black owned, empowered or influenced. This is up to 16.3% from R59bn in 2007.

The private equity sector maintained a lingering exuberance from 2007 through the first half of 2008 and then became more subdued in the second half of 2008. The net result was overall growth of 19.5% on R86.3bn held in December 2007 to R103.1bn

Watkins remarks that there is a reason for cautious optimism for South Africa, in particular with respect to the prospect of lower interest rates, and the forthcoming FIFA 2010 Soccer World Cup.

“The scale of activity in our industry continues to outperform most of the major international economies, which bodes well for South Africa’s

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government stated growth targets, as local and international research confirms that private equity investment is a key driver of entrepreneurial activity and growth in any economy,” says Fourie.

The survey found that South Africa’s funds under management (excluding undrawn commitments) relative to GDP of 3.2% were higher than 2007 and again greater than the global average of 2.7%. Funds under management were R30.7bn in 1999 with R103.1bn reported in the current survey. This represents 14.4% compound annual growth rate.

The Credit Crunch“The period before the current global financial crisis was marked by the largest private equity boom to date. For nearly four years private equity firms went on a buying spree fuelled by the abundance of inexpensive credit globally. Existing shareholders of target companies were bought at considerable premiums, pushing valuations and prices to new heights,” said Serebro.

Target companies were saddled with billions of dollars of debt used in these leverage buy-outs (LBO). The change in the global deal multiples is:• Debt/EBITDA multiples increased by

50% from 2001 (average 4.1x Debt/EBITDA) to 2007 (average 6.2x Debt/EBITDA)

• Purchase price/ EBITDA multiples increased by 62% from 2001 (6.0x) to 2007 (9.7x Debt/EBITDA)

According to Serebro, it became clear that as the credit crunch manifested, the massive loans used to fund LBOs would be the first to dry up. Current deal multiples have changed significantly, with lower gearing levels (Debt/EBITDA) and significantly higher equity injections required.

With adversity comes opportunityMcPhee highlighted that the financial crisis and declining valuations should provide significant opportunities for private equity firms to acquire assets at attractive prices once expectations between buyers and sellers converge.

According to the sixth local Deloitte Private Equity Confidence Survey (PECS) which is conducted in collaboration with SAVCA, among investment professionals in the private equity industry, 40% of respondents expect the overall economic climate to decline, 33% to remain the same and 27% expect the economic climate to improve.

Despite global uncertainty and the anticipated difficulty in raising funds, 62% of respondents are planning to raise a new fund over the next 12 months. Greg Benjamin, Deloitte Corporate Finance Manager comments,

“In a world where competition for capital is increasing, this is going to be incredibly tough but respondents are under no illusion, with 76% acknowledging this challenge.”

According to McPhee, South Africa is

still the leading source of raising capital followed by the US (29%) and then Europe (20%). A potential structural change is evident in the sources of these funds as more respondents are looking to other markets such as the Middle East and Asia to close their funding gap.

51% of respondents envisage investing all available funds in less than two years, which is a crucial driver of the raising of new funds. 47% of respondents envisage taking up to four years to invest their current funds. It is these funds with their “war chests” already in place that will be best positioned to take advantage of the opportunities that are expected to emerge when the economy finally turns.

No respondents are looking to invest in start-up companies and seed capital. 18% of respondents believe that the attitude and understanding of institutional investors is worsening, which is the highest recorded in this survey. In line with respondents spending the majority of their time being internally focused on investee companies, the transaction focus will be on providing replacement/buy-out and expansion and development capital.

57% of respondents expect that competition for new assets will decline, while 79% of respondents expect entry multiples to decrease. This must represent a huge buying opportunity however, the big question is, when will the bottom be reached and will sellers’ price expectations converge with buyers?


80% of respondents expect deal sizes to decrease as the equity to total transaction capital ratios increase. As a result, Deloitte expects more activity in the mid-market space. 64% of respondents expect the availability of debt funding for transactions to decrease and Deloitte expects the equity component of deals to increase as deals are more conservatively financed. 80% of respondents expect exit valuations to decrease and 76% expect the volume of exits to decrease. This confirms that it is not a good time to exit.

“There is an opportunity for the emergence of a stronger secondary private equity market in South Africa,” says McPhee. “A stronger secondary market would inject liquidity and has been successful in achieving this in markets such as the US, UK and Europe.”

“Investors remain confident that private equity returns will outperform returns achievable on the JSE. We are confident that the private equity

industry will emerge stronger and will continue to play a significant role in capital markets and building better, more resilient businesses,” concludes McPhee.

Global SurveyThe global economic downturn has many venture capitalists altering strategies, including reducing investment levels in the short term. This is according to the 2009 Global Venture Capital Survey by Deloitte.

“The main findings of the survey are: that the competitive landscape is poised to shift due to industry globalisation; the clean technology sector has been identified for future investment; and the majority are looking outside home markets for opportunities,” says Sean McPhee of Deloitte.

51% of the survey respondents are decreasing the number of companies in which they plan to invest and just 13% are increasing this activity.

The 2009 Global Venture Capital survey,

which measured the opinions of more than 700 venture capitalists worldwide, also shines headlights into the post-recession landscape.

“While the recession has slowed the pace of venture investing in the short term, it may very well have expedited the global evolution of the industry in the long run,” says Greg Benjamin, Deloitte Corporate Finance Manager.

“In recent years, many entrepreneurs who have been educated in the United States have returned to their home countries to start companies. The playing field continues to level out in terms of new innovation hot spots, broader access to capital and growing regional ecosystems that foster risk taking and capital formation.”

While investment levels may decline, the majority of venture capitalists are not shifting their investment strategies in terms of the industries where they are putting their money to work. A majority of venture capitalists (79%) anticipate stable levels of investment across all industry sectors with the

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exception of the clean technology sector where 63% of venture capitalists expect to increase their investments over the next three years.

Advances in new technology, growing consumer demand in alternative energy and the ambitious plans of governments worldwide to invest in clean technologies have made this sector a key focus for the venture community.

The medical device sector ranked second in terms of growth potential with 37% of respondents anticipating increases in investment followed by new media (26%), consumer business and biopharma (24%) and software (22%). Venture capitalists are less optimistic about more mature sectors, such as the telecommunications and semiconductor industries, with just 15% and 16% of venture capitalists surveyed planning to increase their investment in those sectors respectively.

The recession also has a core group of venture capitalists shifting their stage of development investment focus. 36% of the respondents surveyed intend to move toward later stage investing in order to support existing portfolio companies until the exit markets improve. Just 6% intend to move toward early stage investing to take advantage of the longer runway for company growth.

BEE“Many of the BEE deals struck in recent years after painstaking negotiations may have to be renegotiated, dealing a blow to the Department of Trade and Industry’s goal for an unencumbered 25% of the economy to be in black hands by 2017, says Werksmans Attorneys Senior Director in the corporate and commercial department, Morne van der Merwe.

An estimated R41 billion worth of potential BEE deals have been wiped out due to unfavourable trading conditions in the past two years, according to statistics sourced from BEE rating agency Empowerdex. Last year, the total value of BEE deals sealed on the JSE declined fivefold to R13 billion (from R66 billion in 2007). But the real threat is that deals already struck may begin to unwind.

Van der Merwe adds that a solution with special focus on mergers and acquisitions (M&A) would be for government to consider a bail-out package to ensure no BEE deals fail, and the country remains on target to meet DTI objectives.

He says that a number of BEE deals will be under threat during the current economic slowdown, especially those deals struck in the mining sector at the top of the cycle, as many were last year, to meet the Mining Charter deadline. Van der Merwe is confident that a large portion of deals should be safe in light of the fact that a significant number of the latest wave of BEE deals were struck on a vendor-finance basis, using less bank finance than was the case under the model that collapsed during the Nineties market correction.

However, many deals (especially the large value deals) were structured using bank and private equity funding.

Paul Austin, Head of Corporate Finance at BDO Spencer Steward in the Cape, says that where bank finance is present in a deal, the structure may be under stress, not so much because of the share price collapse, but due to falling company earnings in an economic slowdown.

“A lot of BEE deals are still financed with debt, and bankers the world over are under pressure to find more security and reduce their exposure to risk. Although banks have a substantial

exposure to BEE finance, we have not yet seen any

deals actually collapse,


BusinessBrief June/July 200934

because there is a degree of robustness in many of the older deals. Even if a share price has collapsed from, say, R500 to R300, if the deal was done in 2005 it is likely to still be in the money. For instance, the original share price might have been R100,” says Austin.

It would only affect deals either done at the peak of the cycle last year, or where the share price collapse has been of spectacular proportion. However, there have been some such spectacular collapses in share price of as much as 94% in the case of Super Group. Austin says many of these deals still have a long time horizon in which to recover, and BEE partners are therefore no worse off than other shareholders.

In most deals involving bank finance, a certain rigour was introduced by the banks’ process of due diligence. Austin says although banks have been heavily involved in funding BEE deals, “they never gave anything away, and every deal had to be bankable with their loan capital well secured”.

In the few cases where deals have to be renegotiated, both Van der Merwe and Austin see a positive aspect to it. Only last September were the Codes of Good Practice finally published, and only in February this year was the final piece of the jigsaw put in place when a verification system was authorised.

Meanwhile RMB Corvest, a captive fund that has concluded over 30 BEE deals, confirms that BEE deals can only be successful if the underlying company’s value increases. One of the company’s directors, Stephen Brown adds that if you have done a BEE deal at a high price earnings (PE) ratio and the company’s performance comes down, those BEE transactions may be in trouble. “BEE is a way of life and in the previous booming economy, BEE deals were able to use debt from banks but due to debt having dried up, more deals will be done through private equity,” adds Brown.

Brown mentions that in this economic downturn, RMB Corvest is not fully affected as being a captive fund gives them the advantage to wait for the market to turn before exiting a deal, and to wait for growth in the business before exiting, thereby generating improved returns if they hold on, and possibly wait for a trade sale.


Brown also mentions that they have a long term strategy in place where a six to eight year view is taken when assessing deals. “There is a pressure for more businesses to go black and RMB Corvest still has more BEE deals on the cards. Increasing BEE credentials is vital to stay in the game,” remarks Brown.

More buyers than sellers“Despite the marked decrease in mergers and acquisitions (M&A) in the first quarter of this year, there are more buyers than sellers in the market at the moment,” says Wils Raubenheimer, Director at Mazars Moores Rowland.

He adds that in the current difficult economic environment, one would expect to find more sellers than buyers but most would-be sellers have gone to ground and are waiting for a better economic environment to sell or seek investors for fear of selling at too much of a discount.

Prior to the global financial meltdown values were driven to unrealistic heights with less and less relationship to net asset value (NAV). While current values are distressed, that doesn’t mean sellers can’t extract fair value. “Nor is it impossible for buyers to get funding if they don’t have the cash. Interest rates are declining and lending institutions are looking for funding opportunities. Provided you present a good funding proposal and can meet more stringent requirements than before, the banks will look at it,” he remarks

He believes companies should consider taking on private equity investors and using that money to get ready for the next upswing. A strategic capital injection at this point could result in better competitiveness and the ability to take advantage of opportunities once the economic cycle turns more positive.


Restructuring in turbulent timesCompanies hoping to ride the economic downturn through restructuring their businesses could do well to approach the exercise with an informed measure of caution. Critical to the restructuring exercise is establishing the position of a business to ascertain where restructuring interventions will

deliver the most value to continued operational success.

“Typically, a business that might need to consider some level of restructuring could find itself in one of three positions in a continuum ranging from underperforming to stressed and, ultimately, distressed. To ascertain the nature and depth of the restructuring requirements, a key consideration is cash flow constraints, particularly in the latter two categories. While this is always a consideration in the operation of a business, it is especially the case during an economic downturn,”

says KPMG Director of Restructuring Advisory, Sandile Hlophe.

An underperforming business usually displays the signs of a continued but diminishing cash flow. This could be due to a number of factors ranging from pressure on the sector in which a business finds itself to inflationary constraints or difficulty with debtors.

The restructuring response could incorporate a number of interventions intended, broadly, to release working capital from existing operations. These could range from optimising costs, identifying and releasing working capital trapped in inventory, debtors or capital expenditure projects, finding new markets or rationalising operations.

“It is important to note that cost optimisation is not simply a case of cutting costs for the sake of cost cutting at any cost. As the term implies, it should be the efficient management of costs that continues to release value for the ongoing operation of the

business. A thorough analysis should be conducted to ascertain where costs can be optimised. A number of businesses seem to have interpreted cost optimisation as simply mass retrenchment or closure of certain operations, when, in fact, these extreme responses might not be the correct approach to restructuring as they may impact on sustaining remaining business processes and operations which would hamper the growth of the business should the economic environment improve in the near future,” adds Hlophe.

A stressed company is one that is not just facing a cash flow problem, but is also not making any profit at all. Typically, these companies struggle to meet their credit payment terms and their regular expenditure deadlines. For example, they might begin to pay salaries late and renege on UIF and PAYE obligations.

Some responses to address the situation include financial restructuring

BusinessBrief June/July 200936

CONTRIBUTORS

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KPMG 011 647 7128

SAVCA 011 268 0041

Sasfin Capital 011 445 8012

Sanlam Private Equity 011 778 6610

RMB Corvest 011 380 8310

Deloitte 011 209 8351

Edward Nathan Sonnenbergs 011 269 7600

Nedbank Capital 011 295 8316

Mazars Moores Rowland 021 405 4000

BDO Spencer Steward 011 488 1816

Werksmans Attorneys 011 535 8277

and a clearer understanding of the flexibility that might be afforded not just by lenders, but by commonly perceived ‘inflexible’ institutions such as SARS. As a solid turnaround plan might act as a persuasive mechanism in addressing both these players, it is critical that such a plan is developed following the detailed analysis of a company that finds itself in the stressed position by an independent advisor, if the plan is to win over the confidence of key stakeholders.

Looking AheadFourie said that more equity-only deals were a strong possibility in South Africa and around the world. “But raising funds in a climate of depressed corporate earnings will be a challenge. We will also see the lifecycle of a private equity deal increase as companies take longer to convert investment funds into tangible business results,” added Fourie.

He remarked that it looked likely that huge write-downs would be made, particularly in the highly leverage Europe and US, and that highly profitable exits would present a massive challenge. Private trade sales will far outstrip listing exits or sales to other private equity funds and unfortunately some new, young private equity firms could fall victim to a low appetite for private equity fund raising.

On the plus side, many international players are still extremely interested in the value which emerging markets can offer. Because, unlike the stagnant or

declining growth in Europe, the US and Australia, there is still good growth in China, Brazil and India and to a larger extent, the African continent.

There is hope. It is time that people start properly assessing their deals as capital is quite precious right now. In these turbulent times, the industry needs to demonstrate relevance and value as there issome optimistic news in the form of infrastructure spending, limited credit crunch exposure, interest rate head room and the FIFA 2010 Soccer World Cup to look forward to.

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Nedbank Ltd Reg No 1951/000009/06. We subscribe to the Code of Banking Practice of The Banking Association South Africa and, for unresolved disputes, support resolution through the Ombudsman for Banking Services. We are an authorised financial services provider. We are a registered credit provider in terms of the National Credit Act (NCR Reg No NCRCP16).

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‘If I provide goods or services to an overseas party, will

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‘If I pay for goods or services that are to be provided by

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FINANCE & EQUITY

The King II Report was drafted with ‘affected entities’ in mind. Essentially

these included listed companies, financial institutions and public entities. Private companies and other entities, although not specifically included in the definition were urged to comply on a voluntary basis. Thus, many private companies and other entities did not regard the King II code applicable to their companies and did not comply.

The framework of ‘comply or explain’ was applied mainly by listed companies, as a result of the requirement for compliance in the JSE listing requirements, and in the reports of many companies, it was clear that companies complied with those principles that they agreed with or were cost effective, and then did not comply with other principles. This resulted in many companies reporting on ‘substantial compliance’ on certain principles and not the code read as a whole.

In our attempt to broaden the scope of the King code, the King III code is drafted without any particular ‘affected’ companies in mind. The code applies to all companies, public entities, private companies and all other forms of businesses.

The aim of this objective is to ensure that all forms of business apply the basic principles of good governance in South Africa. This decision clearly resulted in the question of how a small company could comply with the principles of good governance, the same as what was expected from a large listed company. The focus was on compliance, still on the form over the substance and one would expect some form of comparability. To expect a small company to comply with the principles the same as a listed company would have significant cost implications and, we believed, have many unintended consequences.

Therefore, the King committee decided to draft the principles on an ‘apply or explain’ basis to prevent these cost implications and to ensure that the focus

is on ‘application’ versus ‘compliance’.

For this framework to work effectively, the principles were also drafted at a sufficiently high level to ensure that all organisations would be able to apply these principles for their particular circumstances.

The difference is best explained through an example. One of the principles of the King III Code is that the board is responsible for the process of risk management. When a large listed company applies this principle, it may require the establishment of a risk committee, a chief risk officer and several other process changes to achieve this principle.

A small one-man concern should also apply this principle, however as the person who ‘is the board’ this person may want to consider and note the top ten risks facing the entity and consider the applicable controls necessary to mitigate these risks.

Both entities have applied the principle, however very differently to fit the nature, size and complexity of the organisation. The explanation needed in both these cases is to set out how the principle is addressed and to give stakeholders the opportunity and the information to assess if the principle has been adequately addressed.

You may also find that some entities do not apply a particular principle, for example, a small business may decide that the company does not need a company secretary. In this instance it would be required of this business to explain that it has not applied a principle and what the reasons were, again providing the information to stakeholders to question the appropriateness of the decision.

The ‘apply or explain’ basis allows every organisation to apply all the principles of the code as it best meets the objectives of the entity and to focus on the substance rather on the form of application.

Lindie Engelbrecht,Chief Executive,

Institute of Directors in Southern Africa (IoD)

Many companies reported on certain principles only and not the code as a whole

King III: Comply vs Apply – What’s the difference?

One of the subtle changes in the King III draft report - released 25 February 2009

- is the shift from ‘comply or explain’ to ‘apply or explain’. However, to the uninformed,

the question may be what is the difference and the

informed may be wondering, why the difference?


By Lindie Engelbrecht, Chief Executive, Institute of Directors in Southern Africa (IoD)

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Manage working capital to release cashby Derek Engelbrecht, Director Assurance, Ernst & Young

In the current economic downturn, improved working capital management policies are necessary to enable the release of

much-needed cash to help consumer industry companies boost liquidity. This is vital in the face of slowing consumer demand and tightening credit conditions, currents which are compounded by commodity price and currency volatility. These factors will severely affect cash flow in industry and in particular working capital. That said, high levels of cash opportunity still exist.

It is of particular importance for consumer industry organisations to focus on liquidity. They should also aim to reinforce stringent working capital management.

Despite an increased focus on active management of working capital, most consumer products companies still have significant opportunities to release additional cash. An intensified focus on this issue can create the opportunity to release potentially billions of Rands of cash.

A recent global survey indicates that significant levels of cash were tied up in working capital across certain selected segments of the consumer products industry. The survey focused on the following segments: breweries, where figures indicate the ‘cash potential’ is somewhere between R26 billion and R50 billion; food and beverages, which has between R69 billion and R135 billion; and household and personal care, which has between R53 billion and R107 billion.

The range of opportunity is defined as the sum of the working capital cash for each company when comparing performances of each of the working capital components with both the low and high estimates of its industry segment peer group.

The analysis of such ‘cash potential’ also reveals that the opportunity is not concentrated in one area, but rather is distributed across the various components of working capital. These components include: gross working capital; sales; net debt; and enterprise value.

The figures for cash surplus, however, need to be treated with some caution. They are based on an external view of each company’s working capital performance. In other words, they have not been adjusted to reflect each company’s operational strategy, geographical reach or product mix. Also, differences in the accounting and disclosure of trade accruals have not been taken into account.

In addition, while process optimisation is an operation that could lead to significant operating cost benefits and the concomitant freeing up of more cash, it should be remembered that additional capital expenditure may be required to realise these benefits.

Ultimately, with the conservative attitude banks are presently taking toward lending, businesses will need to look at a variety of methods to gain access to cash. Putting working capital at the top of the agenda will offer organisations a chance to access what amounts to ‘free’ capital, leaving them well placed to take advantage of business opportunities.


The number of people entering the audit profession, or remaining in it, is declining, at times dramatically. The

prime reason for the phenomenon is that damage claims arising from alleged professional negligence

are increasing and the amounts claimed are rising to “staggering” levels, according

to the recent Discussion Paper on the Equitable Apportionment of Registered Auditors’ Professional Liability.

It seems clear from the paper that the claims levelled against auditors are often far in excess of the economic damage caused directly or indirectly by the auditor. We also predict that the economic meltdown will trigger another round of litigation, much

of it against auditors, who are

perceived to possess deep pockets because of the professional liability insurance they carry.

Numerous submissions to the relevant authorities have been made on the basis that the often spurious claims against the profession prevent auditors from concentrating on their task of providing the best auditing assurance possible “without fear or favour”.

The negative spinoffs from this phenomenon include: • The right calibre of people are not being attracted to the

profession (and/or are not remaining in the profession) for fear of being caught up in a massive claim for damages;

• The ability and desire to expand auditing and other assurance services to the business and investing community, thereby providing stability and credibility to the investment market, is being stifled; and

• The opportunity for mid-tier firms to expand into the upper end of the market, and thereby create greater choice for users, is dampened by the threat of litigation.

“A careful balancing of interests is of the utmost importance,” the paper maintains. “Adequate protection must be afforded to those who use the services of professionals, without placing an unreasonable burden on professionals.”

Do auditors need protection?by Jan Dijkman, Project Director: Ethics and Discipline, SAICA

FINANCE & EQUITY

Restructuring in a downswingby Robert Driman and Riza Moosa, Directors, Deneys Reitz

The worldwide economic meltdown caught many businesses unaware. Gearing quickly became over-gearing, leverage

- instead of being a catapult for new wealth -- became a noose, and business leaders had to scramble to keep their companies alive. Of critical importance is the injection of new capital to restore a balance sheet to solvency by ensuring that assets -- fairly valued -- exceed liabilities, or to generate cash flow to remedy technical solvency issues such as the ability to pay debts as and when they fall due. In this climate, there are a number of commercial remedies available that would benefit a stretched company. These involve gauging whether the Company is able to raise further funding in the form of debt (by way of borrowing from banks or by disintermediation and directly accessing the debt capital markets) or by way of equity in the form of share capital. Funding so raised may be used to strengthen the balance sheet or for working capital purposes or may be used indirectly to refinance more expensive debt. In order to raise debt funding, the company will need to consider which of its assets it is able to offer as security in order to reduce the costs of raising such debt. Security may also be granted in relation to the acquisition of or subscription for shares in the company, subject to the financial assistance provisions in the Companies Act.

A company may therefore cede its book debts to a lender as security for a fresh loan, invoices can be discounted to produce cash flow, assets can be mortgaged or hypothecated, and sleeping assets can be brought to life. Share capital may be raised by issuing new shares of various classes, each with different rights, offering the new investors preferential rights whether in respect of voting or to receive distributions from the company. Expert legal and commercial advice would help in releasing hidden value even in difficult market circumstances and where credit is no longer freely given. Investors and lenders will be careful in these circumstances to ensure that the security granted in their favour is not seen to prefer one creditor over the other or is subject to suspension during any so-called hardening periods in terms of the Insolvency Act. Companies facing solvency problems need to be properly advised on how to deal with the issues. Directors and others dealing with the companies’ problems may be at risk of personal liability. Giving selective or insufficient information to creditors or employees may be tempting but unwise. Specialised advice is required. Directors would be well advised to ensure that all affected parties obtain their own advice. In the meantime business rescue creditors’ consortiums -- while cumbersome

-- could well help by making sure that a balance is introduced that brings fairness into play to promote workable solutions.

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Fraud on the rise!

by Luway Mongie, Associate, White Collar Crime, Bowman Gilfillan

Many businesses are feeling the effects of the economic downturn and in their attempts to minimise losses,

often they unknowingly open themselves up to huge financial and reputational risks. This is due to the fact that when companies cut back on costs, they often increase their chances of being victims of fraud.

According to various reports, fraud is South Africa’s number one economic crime and considering that fraud accounts for 7% of company revenue worldwide, any further increases in this figure could prove detrimental to an organisation in these difficult economic times. In South Africa alone, it is estimated that fraud costs the economy in excess of R2bn a year.

Fraud is often explained in terms of the fraud triangle which describes that fraud is most likely to occur when there is an overlap of an incentive or pressure to commit fraud, the opportunity to commit fraud, and a rationalisation therefore.

In an economic downturn, the incentive or pressure to commit fraud is increased as financial pressures increase, unrealistic corporate targets are set, the desire to help the organisation succeed intensifies, and/or employees feel the need to impress employers as those around them lose their jobs. This may result in the fraudster defrauding the company for their personal benefit, or resorting to fraudulent actions on behalf of the company to ensure success for their organisation.

When tough economic times impact the company financially, this usually increases the opportunity to commit fraud. This is because in an attempt to reduce costs, companies usually resort to measures like retrenching staff (which may affect the segregation of duties doctrine), reduced training, abandoning checks and balances which may be in place, and/or cutting back on internal audits, amongst various other things. In such conditions, an organisation is susceptible to fraudulent behaviour from its employees both internally, as well as externally in transactions binding the firm. As employees feel the effects of the recession, they also begin to find it easier to rationalise any corrupt doings.

Businesses are particularly hard hit and it is important that the appropriate measures are taken to mitigate losses. Directors and officers are ultimately responsible so they should be proactive and take the necessary steps to combat fraud. A strong emphasis should be placed on fraud prevention and deterrence. A risk-management strategy and well-drafted economic-crime prevention policies provide a vital platform for businesses to prevent and detect fraud, whilst adequate staff training is required. Internal controls and audits should be kept in place and a confidential whistle-blowing process should be in place as these provide some of the more successful means for the detection of fraud. Remember, you have to spend a little to save a lot!

Golden year planning

by Nico Coetzee, Head of Sales, PPS Investments

According to legislation, on retiring you are required to buy an annuity with at least two-thirds of your retirement capital

that you have accumulated in your pension fund or retirement annuity (if you were contributing to a provident fund, you are allowed to withdraw the whole amount at retirement).

The purpose of the annuity is to provide you with an income on retirement from capital you have accumulated over the years in your various retirement vehicles.

The type of annuity you choose will have a significant impact on whether you are able to maintain your standard of living. There are two main types of annuities available – living and guaranteed. A living annuity allows you to select a rate of income annually which is withdrawn from your capital, while a guaranteed annuity provides you with a stipulated income for the rest of your life.

Both these annuities have a place in the market. A deciding factor will be the level of control that you want over your post-retirement savings.

If you want to have a high degree of control over your income each year, and would like to grow your post- retirement income, then a living annuity may be appropriate. Always bear in mind that with more control comes more responsibility. With a living annuity, it is up to you to determine how much of your capital you draw each year, which can be between 2.5% and 17.5% of the annual capital value of the annuity. This income can be paid out annually, half-yearly, quarterly or monthly. You must review the annuity amount every year and you need to carefully manage your income so that you do not run out of capital.

A living annuity also provides you with far more investment choice than a traditional guaranteed annuity. It therefore requires you to play a more active role in ensuring you have sufficient money on which to live until the day you die.

You are in charge of the underlying investment choices. You can select and change the underlying investments at your discretion within the options available from your annuity provider. One option is to invest in a balanced fund that provides some growth, helping your capital to keep pace with inflation, while at the same time offering protection in falling markets.


Finally, unlike a guaranteed annuity, when you die, the amount left in your living annuity is passed on to your beneficiaries. This amount can be passed on as an ongoing annuity to generate an income, or as an accelerated annuity that pays out all the capital and investment growth over five years. The residue is not taxable in your estate, but will be treated as income in the hands of your beneficiaries, who will be taxed at their marginal tax rates.

While living annuities have the edge in many respects, if you want a guaranteed income for the rest of your life and do not want to get involved in managing your retirement capital, then a guaranteed annuity would be appropriate. Your income is determined by interest rates on the day that you retire and your monthly income stays the same. This option may suit investors who require the certainty of a fixed income. One of the drawbacks is that your income may not keep pace with inflation.


As a doctor/lawyer/engineer etc, you have probably had to make a number of important decisions with long term consequences. As you approach retirement, you will face a decision that will largely determine how you live out your golden years, namely, what to do with the retirement nest egg you have built up over the years.

The type of annuity

you choose will have a significant impact on

whether you are able to

maintain your standard of

living

Nico Coetzee, Head of Sales,

PPS Investments

44

If you asked someone what they thought was the most volatile, between June 2008 and June 2009,

the rand-dollar exchange rate, or the Alsi Top 40 index over the last year, what do you suppose would be the answer? Contrary to popular perception, the rand tends not to be highly volatile and the rand-dollar exchange rate has been approximately half as volatile in the past year as the Alsi Top 40 index. Investor fear and greed play a significant and often irrational role in financial markets around the world and South Africa is no exception.

These market sentiments can be seen in the volatility of the market; when the market is fearful volatility is high and as a result large market moves either up or down are expected, in contrast, when the market is complacent, volatility is low and smaller market moves are expected. In essence, volatility can be seen as a measure of risk in financial markets.Now thanks to the SAVI Dollar, the latest volatility index launched by the JSE in collaboration with Cadiz Securities, business people can track the expected

investment risk of the rand-dollar exchange rate. This investment tool is especially relevant to businesses in the export and import arena that trade in currency futures and options, exchange enabling the investor to monitor ‘fear’ forecasts daily. As the performance of the rand is also an indicator of market sentiment for political and country risk, the SAVI Dollar gives also business people an instant snapshoot of investor confidence in South Africa in general.

The SAVI Dollar is derived from actual traded data; investment houses are polled regarding where they are prepared to price options in the market this is averaged out. Investment houses price options higher when they expect a high risk of a change in prices as they require a greater premium from traders to insure against such moves. The power of an indicator such as the SAVI Dollar is that it methodically draws on a large amount of raw data and transforms this into a simple to understand reference. A high value corresponds to a more volatile market and therefore more risk, while a low value is indicative of a less volatile market and therefore

less risk. For example, when daily currency market returns are sufficiently volatile, the SAVI Dollar will tend to spike upward, reflecting a sense of fear and a higher level of expected risk.

It must be noted that although a volatility index is often called the

“fear index,” a high volatility reading is not necessarily bearish for stocks. Instead, the SAVI and the SAVI Dollar are a measure of fear of volatility in either direction, including a market rally where share prices soar.

The SAVI Dollar follows on from the JSE South Africa Volatility index (SAVI) that forecast equity market risk in South Africa. The SAVI, which was the first of its kind in an emerging economy, is similar to the VIX volatility index in US, with the difference being that the US index measures implied volatility over one month, while SAVI looks forward three months. Both the SAVI Dollar index and the SAVI are calculated and published at the end of each trading day. It is available on the JSE’s website and the Reuters and Bloomberg news wire services.

New ‘fear index’ tracks risksby Allan Thomson, Head of Derivatives Trading at the JSE

Investors moving into capital-guarantee products solely because of equity market fears are probably

buying for the wrong reasons at the wrong time.

The sidelight on the cyclical vogue enjoyed by investments with built-in guarantees comes from, a portfolio manager and adviser who has experienced multiple market cycles in a 40-year career.

The investor’s personal or business need for absolute certainty should drive the purchase decision. Vague fears about market performance should not dictate.

Capital guarantees will always attract attention at times like these, but this type of product usually has most

emotional appeal when it’s already too late – you should have been worried about market performance when the market was high, not after values have tumbled.

The well advised investor who is well known to his adviser and fund manager and has honestly explained his or her risk tolerance usually has little need to pay for guarantees.

A professional who appreciates that capital preservation is the overriding requirement of the client should be able to make the appropriate portfolio allocations, even at times of market weakness.

Some asset managers combine advice and portfolio management as one fee. In other cases, an investor may be paying separate fees. Why should the client then meet another set of costs for a guarantee when he has already paid for professional expertise that will supposedly preserve capital?

Should you buy guarantees?by Dave Elliot, Chief Executive Officer, Imara Asset Management




There are active manager styles which consistently beat the market: the trick is knowing where to find them. The

decision to adopt an active investment stance over a passive stance has been debated extensively for decades. While, at the asset class level, equities offer superior returns to cash, bonds and property over time, investors aim to beat the market and capture even more than the average equity return.

However, research shows that globally, over investment periods of five, ten or even twenty years, about 75% of investors fail in their quest to beat the equity market. By extension, only a modest 25% of active investment managers are successful. This result suggests that for most investors, a passive investment is the correct decision.

Such an investment aims to replicate a market or index’s performance as closely as possible. A passive portfolio will usually track a market index, such as the FTSE JSE All Share Index or the Dow Jones Industrial Average, but they can also aim to mimic an investment theme or environment. For example, one can track European Financial Equities, or Large Cap Asian Equities. (Ironically, it can therefore be argued that a decision to be a passive investor is an active investment decision.)

By contrast, an active investor will set out to beat a pre-determined index. Some active managers employ a particular style in this pursuit, while others may make use of sophisticated quantitative tools or better-than-average research capabilities. In all instances the active manager, through the belief that markets are inefficient, is trying to outperform a particular index.

While the evidence is in clear support of passive investing, it is not without its shortcomings. By simply replicating an index’s performance or characteristics, no attention is given to forecasting or subjective assessment. For instance, if one were to construct and manage an index of high dividend yielding shares, it would take into account only historical information: no attempt would be made to determine whether those dividends will increase, decrease, or stop altogether. Unrefined or raw tracking of a market index will be overweight growth, high momentum and large-cap stocks. Of these factors, only momentum has been shown to have any merit in terms of future success.

All investors who choose active investment management do so with the belief that they fall into the 25% of those investors that beat the market. Different strategies are used in this task. They include a top-down or bottom-up approach, a belief that one can time the entry and exit point of markets and stocks, or perhaps that a purely quantitative investment process is most successful. Different active investment strategies provide us with examples of successful practitioners. However, while the likes of George Soros, Warren Buffett and Benjamin

Graham have focused on different strategies, and have proved successful investors, the evidence for active investing in aggregate remains damning.

That active investment managers fail to beat the market, is a mask which conceals the fact that certain styles of investing can consistently outperform the indices. In Eugene Fama and Kenneth French’s study of 1998, they examined the quarter of active investment managers that do beat the market. The results revealed that some styles consistently beat others, one of them being the value philosophy. The depth of this result is of importance too. The value style showed to be successful across markets, geographies, time, currencies and companies. Importantly, it is not an effect of investing in small companies, but delivers success across companies of varying sizes.

The chart above clearly shows that the value investment philosophy has delivered significant outperformance of both the growth investment philosophy and the market. However, long term market-beating performance by the value style is not without interruption over the short and medium term. The difficulty with adhering to this style is that most often, value investing opportunities are unpopular and unloved stocks. By contrast, most people follow loved and popular stocks, which are, by definition, high growth, high momentum, large capitalization shares. As stated earlier, of these factors, only momentum offers any evidence of success.

Since the market is the sum of all activity taking place in it, you need to be different to the market, or contrarian, to enjoy market-beating results. However, most people follow popular and fashionable shares, and so three quarters of investors fail to beat the market. Following a value style can require nerves of steel, as the short and medium term deviations from the market’s performance may be difficult to tolerate. For those who are unable to step away from the comfortable stance of ‘safety in numbers’, a passive fund is the correct place to be. For the rest, there is active value.


Beating the market – The active vs passive debateBy Andrew Newell, Head of New Business, Cannon Asset Managers

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Location, location, locationby Dr Koos du Toit, Chief Executive Officer, P3 Investment Group

The old adage that it’s better to buy a dump in the best suburb than to purchase a palace in a more suspect area remains

sound advice for property investors. Correct? Not necessarily. There are different sets of rules for different types of property investors that must be taken into account when deciding which property to buy.

Depreciate?The traditional philosophy that underpins the residential property market is that homes in the right locations appreciate more in value than homes in the “wrong” locations. Indeed, those in the wrong locations may even depreciate in value; so, because your home is your biggest investment, you need to select it carefully.

HomeThis philosophy holds true only for those investors who are buying the home to live in it, and who basically own just one property – and perhaps a second holiday home as well – at any given time. For these individuals, the wrong choice of home could well set them back financially, especially if they want to sell later.

Income But what if your point of departure is totally different from the basic philosophy used by the home buyer? What if you don’t intend to ever stay in the property? If you never intend to sell the property, but to use it as a source of income for as long as you live as an asset in your own buy-to-let business, the question of desirable location – and type and size of the property - takes on a whole different complexion.

For example, while homes in close proximity to industrial areas are usually considered less desirable than those in the so-called “leafy suburbs”, demand for entry-level rental flats and houses near an industrial area is high because it significantly reduces the cost of transport for the people likely to work there.

Rental incomeFor buy-to-let property entrepreneurs, the emphasis moves from capital growth to rental income. You may ‘invest’ in a property that might not be profitable in terms of re-selling it later, but will be highly profitable in terms of deriving a constant stream of income.

Selling a family businessby Jean-Christophe Bouche, Associate Director, PricewaterhouseCoopers

The results of recent survey showed that family businesses in the country are most likely to change

ownership in the near future for reasons which include:

• Addressing the ownership requirements of Black Economic Empowerment;

• Immigration of business owners and their families; and • Many young South Africans would rather look for work

opportunities in large corporations, opportunities outside of South Africa or are interested in alternative life experiences.

This means that when change of ownership occurs, it would most likely include a third party.

Sellers of the businesses need to be well prepared for the sale in order to get the best price for their business. Buyers

are generally very efficient when it comes to acquiring new businesses and are sure to negotiate in order to drive the price down.

For the reasons set out above, the third party interested in buying the business could be an empowerment partner, trade buyer or even a financial buyer such as a private equity firm. The need for advanced planning becomes essential for many reasons but four of the most important are:

• To prepare the business and the staff for the impending sale;

• Attract the right level of interest from prospective buyers; • Achieve the best price and terms upon sale; and • Concluding an efficient sale process.

Buying a house is probably the most important investment you will ever make, but it can also be a costly business.

Apart from the purchase price of the house, there are several other linked, once-off costs which, if you have not budgeted for them, can come as a nasty surprise. It is therefore always wise to work it into your overall financial plan before taking the plunge. This way you’ll also know first-hand what it is that you can afford. With the new lending criteria, banks no longer grant 100% mortgages, so buyers need to have a deposit of up to 20% of the purchase price.

Assuming the client can afford a 20% deposit and using Absa’s latest Average House Price Index, where buying an average house will cost you R950 800, the main costs of buying a house are as follows: Purchase Price: R 950 800 1. 20% Deposit R 190 160 2. Transfer Duty to SARS R 22 540 3. Conveyancer Fees & VAT R 11 400 4. Postages & Petties & VAT R 399 5. Deeds Office Transfer Levy R 500 6. Electronic Document Generation Fee R 111 7. Deeds Office Search Fee R 91 8. Local Council Rate Clearance R 150

Bank & Bond Cost on R 760 640 1. Deeds Office Levy Fee R 500 2. Initiation Fee R 3 612 3. Attorney Bond Registration Cost R 6 612 4. Postages & Petties & VAT R 285 5. Electronic Generation Fee R 111

Do not forget to also budget for the actual move. According to our calculations the cost of moving your furniture within a 100km radius will amount to over R10 000.00. Another small cost (about R200) to bear in mind is an electricity connection fee.

Among the monthly expenses that need to be budgeted for are:

• Monthly repayments on the bond: At the current interest rate of 13%, the monthly repayment on a bond of R760 640.00 will be R8 911.47.

• Bond Monthly Admin Service Fee: R28.50 • Home-owner’s insurance: Banks normally add this to the

mortgage amount to protect themselves against claims for flood, fire and hail damage.

• Insurance on the owner’s life: This is to cover the cost of the house in case of death. The policy will not only cover the outstanding loan amount to the bank, but will also ensure that at the time of death the home-owner’s dependants have a roof over their heads. Life cover insurance may vary from service provider to service provider, so it would be wise to visit your financial adviser or broker to do a complete financial needs analysis that should include your credit life insurance.

• Rates and taxes: Due to the municipality for rubbish removal and the maintenance of your area. This can be paid monthly or annually.

• Electricity and water: Due to the municipality for your monthly consumption of electricity and water.

The real cost of house buyingby Piet van der Walt, Managing Director, Sanlam Home Solutions

Those looking to buy a house should see a qualified financial adviser to help them get started.



fences your monthly premium should decrease. Or, perhaps, if you moved to a high security complex you could exclude theft cover. Alternately, if your car is parked on the street or in your garden, building a lock up garage could reduce your monthly car premiums substantially.

Changing your vehicle insurance to a named driver scheme may also reduce car premiums. For example, if you live alone or there are just two of you in your household, nominating you and your partner as the only people who drive your car should reduce your premium. If you have older children who regularly use your car, however, this would probably not be an advisable option. Alternatively, you could reduce your vehicle premium to just third party, fire and theft; or just third party - instead of comprehensive cover.

This strategy does, however, once again involve an element of self insurance. Policy holders need to be sure that they can cover themselves for the loss of uninsured property or occurrences - highlighting the advisability of building up a sufficiently large kitty to deal with any elements of self insurance if you are to follow this route.

Finally, if a client pays their premiums annually they will incur a substantial discount. Similarly a saving can be achieved by consolidating all your portfolios and paying by one debit order.

Having five insurers for five classes of insurance is expensive. Instead, different classes of insurance tend to subsidise one another. Having all your insurances with one insurer will also reduce your overall premium cost.

Given interest rates, food inflation and generally tougher times ahead advice on trimming ‘the fat’ abounds. Few, however, think to take a long hard look at their monthly insurance bills. Cutting fixed monthly costs like insurance can amount to considerable savings over time.

An effective way of reducing your monthly insurance bill is to

self-insure. Self insurance involves deciding what insurance you could do without – and cover yourself in the event of loss occurring.

This is, in fact, the basic concept of risk management – taking on some of the risk yourself to reduce monthly premiums.

Ultimately, the trick to cheaper insurance bills is to build up a kitty to manage areas of self insurance. This ensures you are covered if something does go wrong. If you don’t have this kitty you will not be covered in which case you need to make sure that the things you have chosen not to cover are not essential to your survival.

Things like cell phones, rings and watches, along with most of the stuff you use on a daily basis, are all replaceable at not so crippling costs. Rates on All Risk policies are high because you are covering valuables that you use outside of the home, and you are covered anywhere in the world. Yet how often are you actually overseas?

Instead you may consider giving up your All Risk policy, provided that you are able to self-insure the smaller day to day items that you may lose. Or, you may even decide that you do not need to insure them at all. In the event you were to travel abroad you could always take up temporary travel insurance.

Also, if you improve your risk, that is, make yourself less likely to suffer loss your premium is also likely to come down. For example, if you put in an alarm system and electric

Gari Dombo, Managing Director,

Alexander Forbes Insurance

Reduce your monthly insurance bill by self-insuring

Trim your insurance bill

By Gari Dombo, Managing Director, Alexander Forbes Insurance

BANKING & INSURANCE


selfmed-Busbrief 137x105 4/28/09 4:53 PM Page 1

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C M Y CM MY CY CMY K

HIV programmes: What to look forby Dr James Arens, Clinical Operations Executive, Pro Sano Medical Scheme

BANKING & INSURANCE

Most Medical Schemes and many businesses have come to accept that there are benefits in providing long term

treatment to their HIV and AIDS population. The debate today is how well schemes are doing in striving to recruit and retain individuals on their disease management programmes.

Because of the specialised knowledge required in the treatment of HIV and AIDS, disease management plays a particularly crucial role in ensuring that individuals receive the correct treatment at the right time and are monitored to detect development of drug resistance in good time so that appropriate action is taken.

Medical Schemes generally follow standard and acceptable treatment guidelines within the benefits of HIV and AIDS, most of which are largely adaptations from the SAHIVSOC (South African HIV Clinicians Society) guidelines. While medical schemes generally follow a treatment programme similar to that of the state, there are few but rather significant differences. Some medical schemes, for example, start treatment when the CD4 count falls below 350/ul whereas the state would normally wait till the CD4 count falls to below 200/ul. Medical schemes also generally provide access to a greater variety of antiretrovirals (ARV’s)

The Medical scheme benefits for HIV and AIDS should be structured as follows: Prevention of Mother to Child Transmission (PMTCT) - this entails putting the HIV positive mother onto the appropriate treatment regimen. The baby is put on AZT from birth for six weeks and is monitored with the appropriate tests till the age of 18 months. Some schemes provide for the formulary feed required during this period.

Post Exposure Prophylaxis (PEP) - this short term preventative ARV treatment has proved beneficial in reducing the likelihood of exposure to HIV. This applies to any form of exposure to HIV infected blood, body fluid or unprotected sexual intercourse.

ARV Treatment - the initiation of ARV’s requires a set of standard base line blood investigations, depending on the regimen of drug to be given. Guidelines suggest initiation of treatment at a CD4 count of below 200/ul.

Opportunistic Infections - the value in treating opportunistic infection like pneumonias, fungal infections and TB is well documented. All schemes cover for it, with the differences being in what drugs schemes permit as some of these drugs, particularly for fungal infections, may be very expensive.

Hospitalisation - this benefit is generally similar to that for any other disease. Members should be cognizant of the hospitalization limits pertaining to their options, and should as far as possible ensure adequate hospital cover.

Resistance Testing - resistance testing is an essential component of the benefits which excludes resistance as a

cause in poor response to treatment. Schemes will require a well documented motivation from the treating doctor before such tests are approved.

Vitamin Supplements - schemes differ in the way they view the value of vitamins and whether or not to provide any benefit. Options with savings accounts may allow the access of vitamins from such accounts.

Disease Management in HIV/Aids - this is the most important component in the management of HIV and AIDS. This process ensures that the patient is well counselled and motivated for the treatment program. A case manager is assigned to liaise with the patient, doctor and pharmacist. The treatment choices and blood investigations are also closely monitored through the program – this is to ensure that the patient receives optimal care.

Reporting - proper reporting is an essential part of the programme. Reports should be meaningful and should be able to direct the user to areas that need attention in order to improve the outcome of the program. Confidentiality has to be maintained throughout.


BANKING & INSURANCE

In a concerted effort to combat potential online identity theft and fraud, Internet Banking and online

shopping users are urged to use comprehensive security software or at least anti-virus software to protect themselves from cyber criminals.

While Internet Banking and online shopping provide fantastic convenience, it is the customer’s responsibility to ensure that they adhere to proper and safe use of the internet, especially when transacting online.

Clients should ensure they have quality security software and regularly update it. Security software ensures that clients enjoy a secure online experience especially when used in combination with the following simple protection measures:

• Keep your access information secure (account number, user number, and all PIN numbers and passwords);

• Ignore phishing emails (emails purportedly sent by your bank requesting you confirm or update your login details);

• Ensure you are logged on to your bank’s genuine Internet banking site by checking the address in the browser line;

• Ensure you see a lock and key icon either at the top of the Internet browser window or at the bottom – depending on your browser;

• Refrain from banking at public terminals like Internet Cafes; and

• Only provide credit card details to reputable companies; and look for the lock and key icon and security certificates when shopping online.

Update your online securityby Christo Vrey, Managing Executive, Absa Digital Channels

Tailor-make your insuranceby Helen Szemerei, Director Insurance Services, IntegriSure Group

Everyone realizes the importance of being innovative and vigorous to survive and grow in a competitive

environment. The insurance industry is no exception. The way in which innovation is implemented, however, is justifiable only if it benefits the client.

It is often asked whether insurance products can really be tailor-made without extra cost to the client. The answer is most definitely yes. Individuals who can make informed decisions, effectively have access to considerably better and often less expensive products. But informed is the operative word .

The public is often unaware of all the insurance permutations, which makes a well-informed decision impossible. It is at this point where an independent, professional advisor is of critical importance.Because the public is seldom confronted with all the variations and possibilities, naive decisions can easily be made – with bitter consequences. Unless they are informed otherwise, clients tend to assume that ‘everything’ is covered only to be in for a shock once they have a claim. This does not only harm the individual, but also causes untold damage to the industry.

Professional service providers cannot merely shrug it off by exclaiming: “But they never asked!” There is a professional obligation to ensure that the client is properly informed and that the needs and requirements of each client are carefully assessed.

The public should be informed in such a way that they are able to determine their risk levels themselves. For instance, a person who is totally dependent on a vehicle, needs to include a hire-car in the policy. Someone else may prefer

a lower premium with a higher excess for a vehicle that is seldom used, or a person residing in a maximum security complex may decide on fire insurance only.

One has to consider the fact that people are not exposed to matters of this nature every day. Consequently, they may lose track of detailed information such as the replacement value of household contents. The advisor has to provide guidance in this respect as well.

After all, the role of the advisor is to find and retain a client. That is why a professional, financial advisor will always seek and adjust where necessary, in order to offer the client the best product at the best possible price.

Insurers have a responsibility to educate financial advisers about the reality of unforeseen events that occur in the

lives of consumers. People suffer needlessly everyday because they haven’t made adequate insurance provision for themselves and their families. To this end, the claims-paying record of insurance companies is key information for consumers and for financial advisers to use in their advisory capacity to consumers.

Every well-established insurance company keeps a detailed record of the number and amount of claims that it honours in a year. These statistics should be used to highlight to consumers the importance of those monthly grudge insurance payments.

Check the claims recordby Neelan Porthen, Head of Risk Products, Liberty Life

A ll businesses are exposed to a multitude of risks daily. These risks can be the result of uncertainty in financial markets, project failures, legal liabilities,

credit risk, accidents, natural causes and disasters as well as deliberate attacks from an adversary.

While large corporations usually have comprehensive systems and processes in place to manage and mitigate any risk, it’s the small and medium enterprises (SMME’s) that are often left exposed. This is due to a lack of understanding of the importance of risk management and having the appropriate mechanisms in place to prevent and manage risk.

As risk management was closely linked to an insurance package in the past, it was not taken very seriously. Today however, the role of risk management in businesses has changed dramatically, especially with the increased rules and regulations and reliance on key resources. It is due to these business elements, among others, that risk management has evolved to become a management practice that is every

bit as important as financial or facilities management.

The basic principle of risk management is attempting to identify and then manage threats that could severely impact on an organisation. This involves reviewing operations of the organisation, identifying potential threats to the organisation and the likelihood of their occurrence, and then taking appropriate actions to address the most likely threats.

It is important to note that it is impossible for an SMME to focus on all the risks that it may be exposed to. The identification process should therefore focus on the key risks that could threaten the sustainability of the organisation or that could have a significant financial and/or reputational impact on the business.

Risks need not always be viewed as negative. The benefit of a risk management framework is balancing the risk and reward. It is through effective risk management programmes that optimum value is generated for stakeholders of a business.

Rewards for effective risk managementby Manie Whisgary, Executive Head Risk Management, Centriq Insurance

Reports of disputes around Michael Jackson’s children, estate and life insurance have raised a number of insurance-related issues. The first has to do with

exclusion clauses in his life policies that may result in these not paying out due to concerns over the nature of his death. This could leave his dependents with a large amount of debt and without sufficient financial resources for the future.

While life policies in some countries have a permanent suicide exclusion clause, in this country the typical policy will only not pay out if the policyholder commits suicide in the first two years of taking out the policy. This exclusion clause would fall away after the first two years.

No other exclusions are standard on life cover policies in South Africa, but it remains important to check the policy wording of your contract to ensure that this is the case.

On the other hand, most disability policies such as permanent income replacement and dreaded disease cover (i.e. in the case of a coma or paraplegia) typically have more standard exclusions and do not pay out if you are injured doing something illegal. A disability policy would also not pay out if the policyholder was disabled as a result of abusing prescription medication as it would probably fall under the deliberate self harm exclusion.

Life cover is crucial in order to prevent leaving your dependents in debt. You can take out policies for a specific reason, such as covering an outstanding home loan and cede it to the institution

through which you have obtained the loan, so that if you die, the policy covers the outstanding home loan.

Some insurers even allow you take out one policy and cede it to several people, divided up by the amount that you owe each one.

Another issue that Michael Jackson’s death has raised is the amount of death cover needed. Most companies follow similar financial underwriting requirements, using income and age as a guide as to how much death cover is appropriate. Generally, the younger the policyholder, the more life cover is needed as he or she is likely to have younger dependents who will require financial assistance for a longer period of time. In addition, current income also needs to be taken into account in order for dependents to continue with the same standard of living.

Another brewing controversy over Jackson’s death is around the nomination of beneficiaries. Individual life cover policies generally pay out quickly if a beneficiary is nominated. However, if no beneficiary has been nominated, the funds get paid to the estate and it can take years before the beneficiaries receive anything. It is also important to make sure your nominated beneficiary form is up to date as the life company will pay to the beneficiaries you have nominated on this form.

This is unlike death cover in a pension fund, which require the Trustees of the fund to investigate who the death cover should be paid to, regardless of who is nominated by the member.

Watch for exclusion clausesby Chris de Klerk, Corporate Actuary, PPS Insurance

BANKING & INSURANCE


John Bowles,Joint Managing Director,

Newspaper Advertising Bureau

Continue advertisingBy John Bowles, Joint Managing Director, Newspaper Advertising Bureau


MARKETING & SELLING

As we head into a time of budget cuts and advertising reviews, it’s important to make sure that we are aware of the big picture. Sure, we are experiencing an economic slowdown, but the market will and is continuing to operate.

Percentage contribution per month of total retail sales per annum (Stats SA)

Month 2001 2002 2003 2004 2005 2006 2007 2008 Average

2001-2008

January 7.4% 7.3% 7.5% 7.5% 7.2% 7.0% 7.3% 7.2% 7.3%

February 7.2% 7.1% 7.2% 7.3% 7.2% 7.2% 7.3% 7.5% 7.2%

March 8.0% 8.0% 8.0% 7.7% 7.7% 7.7% 7.9% 7.9% 7.8%

April 7.9% 7.7% 7.8% 7.6% 7.8% 7.7% 7.9% 8.0% 7.8%

May 8.1% 8.1% 8.2% 8.0% 8.0% 8.0% 8.2% 8.0% 8.1%

June 8.0% 8.0% 7.9% 8.0% 7.8% 7.8% 8.0% 8.0% 7.9%

July 8.2% 8.0% 8.0% 8.1% 7.9% 8.0% 8.0% 8.0% 8.0%

August 8.1% 8.2% 8.0% 7.8% 8.1% 8.1% 8.1% 8.1%* 8.1%

September 8.0% 8.1% 8.1% 8.3% 8.2% 8.6% 8.3% 8.2% 8.2%

October 8.5% 8.5% 8.4% 8.6% 8.7% 8.6% 8.5% 8.6% 8.6%

November 9.0% 9.1% 9.0% 9.1% 9.2% 9.4% 9.1% 9.0% 9.1%

December 11.% 11.% 11.% 11.% 12.% 11.% 11.5% 11.6% 11.8%

Total 100% 100% 100% 100% 100% 100% 100% 100.0%

Shoppers are still shopping, buyers buying and consumers consuming.

Even if a market retracts by 5%, there is still 95% of last years’ shopping taking place. That is better than half or nothing at all. What is interesting is how evenly retail sales are spread across the year. We know that people must eat every day and food and grocery sales will therefore be spread over the year. However, when you look at the spread of sales for the other categories, it is quite amazing to see how stable they are during the course of the year, and year-on-year. This has to have implications for advertising budget planning and brand visibility in the marketplace, particularly if you are a seasonal or ad hoc advertiser that has a store or product that you want buyers to consider purchasing. The numbers speak for themselves (see Table I)

Since 2001 (and before) retail sales have been unbelievably consistent month-after-month, year-after-year. If you had to put your house on it - some of us may need to in these times - you can bet that in January 2009, almost exactly 7.3% of retail sales for this year will have taken place. Whilst there may be a spike in December sales (logically), we are still not far off the average monthly retail sales. What does this mean? That people buy all the time. Some markets are ‘thicker’ than others are, but even the ‘thinner’ markets (like buying hardware or furniture) happen throughout the year. If you are not visible, you risk not being thought of when those buyers are in the market. In 2008’s retail sales, R508-billion of them across all of the categories, you can see the consistency of the monthly sales barring a few spikes during the Christmas season (see Table II).

* This table reads, of all retail sales in 2008, 8.1% went through the tills in August that year.

Tab

le I

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MARKETING & SELLING

Month

January 7.7% 7.0% 8.1% 6.6%

February 8.2% 6.8% 7.4% 8.1%

March 8.1% 7.1% 7.5% 8.0%

April 8.1% 8.5% 7.6% 8.4%

May 8.1% 8.4% 7.8% 8.5%

June 8.1% 7.8%* 8.2% 8.6%

July 8.8% 7.8% 8.1% 8.4%

August 8.4% 7.7% 8.0% 8.7%

September 8.5% 7.2% 7.4% 8.5%

October 8.6% 8.3% 8.4% 9.2%

November 8.7% 9.5% 9.3% 9.2%

December 8.8% 13.9% 12.1% 7.8%

Medical cosmetics toiletries

Clothing footwear Textiles Leather goods

Household Furniture Appliances & Equipment

Hardware Paint and Glass

* This table reads: 7.8% of all clothing retail sales in 2008 took place in June of that year.

Tab

le I

I

If you are a clothing retailer or manufacturer your gut might tell you to hit the market ‘big’ before each fashion season - say four times during the year in the biggest months. The outcome: You would still not be visible or thought of for 60% of the clothing, footwear, textiles and leather goods retail sales ‘season’. For others like the hardware sector, advertising seasonally could be commercial suicide. What the numbers tell us is that there is a strong case for regular consistent advertising that is visible to the market the whole year round, informing the market of your availability, image, price, benefits or other attributes. Quite simply, if you are not there, chances are that your competitors will be and they are going to reel in those buyers that are actively looking for goods and services.

“The budgets don’t allow for continuous visibility all year round,” you may hear. A sacrifice must, and should be made, in the frequency, or even impact region, the area that absorbs so much of the budget.

Media reach is the most crucial element - around your stores or where your products/services are available - but being visible all year has to be the second objective of your communication priorities. You may have to be more creative with less space, airtime or frequency, but retain your year round visibility. Reminding the buyer that you are there as close to the purchase as possible can only make that limited advertising budget work so much harder.

source: Stats SA retail sales 2008

MARKETING & SELLING

Every brand relies on one crucial factor: What happens inside the company behind it, or what is known as the

‘inside out’ factor.

The inside out factor is about nurturing your brand within the hearts and minds of your employees.

Brand engagement is far more than internal advertising; it is about designing the culture of your organisation in such a way that you inspire employees to understand, believe in and champion your brand.

As we move into recessionary times, it is particularly important to focus and energise all staff members to maximise their impact as ambassadors of the entire business.

The full potential of any brand can only be realised when brand engagement and brand culture is built from the inside out. It directly affects profit because your employees are the interface between your brand and your customers. According to the Harvard Business Review more than 68% of customer losses are due to an inappropriate attitude on the part of the person who served them.

Good brands become great brands when employees believe in them. This way, the experience promised by the brand is the experience delivered. This is becoming such an important issue globally, that increasingly HR departments are being renamed ‘Talent Departments’ and working ever more closely alongside their colleagues in Marketing. Companies now have to consider themselves as ‘Employer Brands’ as the competition for the best people intensifies.

The inside out factorby Jeremy Sampson, Chair, and Angela Bruwer, Chief Executive, Interbrand Sampson Group


Social media: social networkingby Richard Mullins, Director, Acceleration

If 2008 marked the year that social media burst into the mainstream, this is the year that the concept must prove

its value to skeptical marketers against the backdrop of a worldwide economic downturn.

Last year, the social networking space enjoyed stellar growth with worldwide revenues growing to US$2 billion, up 46% from the previous year. Growth this year is likely to be less impressive - eMarketer recently slashed its growth forecast for the social networking market from 32% to 17% and predicts that the market will be worth $2.3 billion by the end of 2009.

Of course, some might argue that double-digit growth in the midst of an economic downturn sounds good, but the reality is that the new forecast from eMarketer is nearly half of its earlier predictions. Growth in social networking spend around the world is slowing down not only as a result of poor economic conditions, but also because of a lack of proven advertising models.

Social media sites have a massive audience base to offer advertisers, but most of them are still struggling to show advertisers how they can tap the audience for a proper return on investment (ROI). Many advertisers have rushed into social media without truly understanding the space and have been disappointed with the results.

One of the major problems lies in the fact that the ROI benchmarks and models in the social media are still immature. Advertisers don’t understand the economic models because social media owners don’t yet understand them themselves.

So, what does this mean for you as a South African marketer? Social media sites have really taken off across the world, and South Africa is no exception. MySpace, YouTube, Twitter, Flickr and FaceBook all attract thousands of unique South African users generating millions of page impressions each month.

It’s not a channel that any forward-thinking marketer can afford to ignore completely. The challenge for marketers lies in understanding, firstly what social media is, and secondly, in how to harness its potential as a marketing and advertising medium.

Social media is all about community, networking, interaction and engagement. It’s a space where people meet others; build on existing relationships, and share information, feelings, ideas and content. As such, you can’t simply advertise to them as though you’re placing a banner on a news site.

Instead, it’s all about involving consumers in a dialogue with your brand. Setting up communities, creating interactive widgets, and other interactive elements are essential if you want to make the most of social networking. South African brands are starting to understand this - a number of local companies have set up groups on FaceBook or feeds on Twitter, with relative success. These tactics are relatively low-cost and allow one to drive quality interactions with one’s audience.

Even though the economic downturn is taking its toll on the social networking space, it is becoming increasingly clear that there’s an enormous amount of value in the concept for marketers. Best of all, one can start experimenting with the channel at a low cost.

Don’t lose your voice!

It is puzzling that during an economic downturn, companies look at cutting their public relations (PR) budgets. It is understandable that traditional advertising

budgets might get slashed, but PR is a critical element in connecting a business with its stakeholder groups, whether they are customers, staff, shareholders or partners.

Less effectiveThe bottom line is that we can’t stop communicating. Human beings and the organisations we form are inherently social, and communication is part and parcel of what we do. If you cut your PR budget, you won’t stop communicating, you will just do it less effectively and this will have an impact on your profile with your stakeholder groups.

Also, less of a focus on communication during a downturn means that you will have to work much harder to gain the ground you lose by slowing down on communications in a recession. By keeping communications consistent regardless of the economic climate, a company is well positioned to take opportunities as they arise even in a downturn, and build momentum when business conditions become more favourable.

Multi-skilledPerhaps part of the problem is that companies view PR only as media relations—a nice to have to build a bit of a profile. The reality, however, is that PR is actually relations with your publics, i.e. all people and groups who are connected with your business. These days, ‘PROs’ are multi-skilled executives who can help a business manage its communication to various audiences and across a number of different channels.

OnlineWhile traditional media relations will always be an intrinsic part of PR, the online medium offers significant opportunities to deliver tangible business benefits. In today’s connected world, borders between countries are really lines on a map from a business point of view. Having a strong online presence and harnessing

the medium as a communication tool can open up new markets and get you exposure in ways previously not possible.

To maximise the potential of this medium, PR companies are rolling out digital strategies such as search

engine optimisation, social networking initiatives and blogs for their clients. Many

agencies ‘ghostwrite’ company blogs, taking the pressure off executives while maintaining

the company/person’s individuality and style. This can only

be achieved when a PR agency is seen as a core part of

the business, has sight of its

strategy and a direct line to the

senior management team, including the

CEO.

by Ronelle Bester, Chief Executive Officer, Red Ribbon Communications

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HUMAN CAPITAL


Restraints of trade: Are they constitutional and enforceable? This question continues to be hotly debated in our courtrooms with two recent cases raising some legal eyebrows. The settled law on restraints of trade is that they are legal, and the party seeking to avoid a restraint must prove that the restraint is unreasonable and therefore contrary to public policy.

This has been further refined by the Supreme Court of Appeal, which notes

that when considering whether or not a restraint is reasonable four questions should be answered:

• Does the employer have a protectable interest that deserves protection?

• Is that interest threatened by the ex-employee?

• Does the employer’s interest weigh qualitatively and quantitatively against the interest of the employee to be economically active and productive?

• Is there an aspect of public policy that has nothing to do with the relationship but which requires that the restraint be maintained or rejected?

ConstitutionHowever, this clear situation has been somewhat thrown into disarray by Judge Davis in a recent Cape High Court case in which he examined the effect of the Constitution on restraints of trade.

He concludes that, given the importance placed by the Constitution on the dignity of work, an employer must justify the limitation on that right when seeking to enforce a restraint. He thus creates the impression that he believes restraints are prima facie invalid unless the employer can prove that they are justified.He also examines the wording of the restraint in question and comes to the conclusion that unless the wording is precisely applicable to the circumstances, the Court will refuse to apply the restraint by limiting it in some or other appropriate manner.

ReaffirmedThis somewhat controversial approach is roundly criticised by Acting Judge Wallis in a more recent Durban High court case, where he reaffirms the law on restraints, and points out the Constitutional Court has held that contractual obligations are enforceable unless they are contrary to public policy.

He says that there is no in-principle objection to restraints (as implied by Judge Davis) and that where a business has secured a restraint from an employee, there is no reason “for the courts or the law to view this with disfavour” unless public policy bounds are “overstepped”.

Acting Judge Wallis also points out that restraints are often drafted in extremely wide terms to cover all eventualities and that the Court should be quite prepared to partially enforce a restraint provided it does not give rise to an injustice. An example of this would be reducing the time period or the geographic area. Therefore, if the conduct complained of falls within the terms of the restraint, the court must enforce the restraint within the principles of public policy and grant appropriate relief.

Review Restraints by their nature are extremely difficult to advise on, particularly if regard is had to the differing views of our judges. Although, the approach of Acting Judge Wallis is in our view preferable, we would strongly advise employers to carefully review the wording of restraint agreements and only to contemplate legal action where they have a clear protectable interest which is being threatened.

Willie Coetzee,Partner,

Shepstone & Wylie

Employers should carefully review the wording of restraint

agreements

Are restraints of trade enforceable?By Willie Coetzee, Partner, Shepstone & Wylie

The challenge of changeby Simon Tankard, Director of Executive Education, University of Pretoria’s Gordon Institute of Business Science (GIBS)

Author, management guru and rock climber Jim Collins prefers to describe the current economic tough times as

“extraordinary times”. His work illustrates the opportunities in turbulence and the type of leadership required to spot those opportunities and grab them successfully. The past 50 years have been incredibly prosperous and many of today’s business leaders are inexperienced when it comes to managing through a prolonged period of uncertainty and all the changes this presents.

Panic often results in a reaction typified by freezing budgets and following short-term cost-saving measures - at the expense of a strategy to realign the business with new market opportunities. A favourite metaphor of Collins’ is, “Almost across the board, people are worried. As a rock climber, the one thing you learn is that those who panic die on the mountain. You don’t just sit on the mountain. You either go up or go down, but you don’t just sit and wait to get clobbered. If you go down and survive, you can come back another day. You have to ask the question, what can we do not just to survive but to turn this into a defining point in history?”The type of leader Collins’ believes businesses need in order to see beyond the ‘tough’ and spot the ‘extraordinary’ is what he calls the Level 5 Leader.

“Level 5 leaders are differentiated from other levels of leaders in that they have a wonderful blend of personal humility combined with extraordinary professional will. Understand that they are very ambitious; but their ambition, first and foremost, is for the company’s success. They realise that the most important step they must make to become a Level 5 leader is to subjugate their ego to the company’s performance.”

The question to Collins is, can Level 5 Leadership be learnt or is it

something one’s born with? “Part of it can be learned by putting yourself under pressure, and some of it is just innate.” Right now the pressure is on. The South African economy has already felt the effects of the global economic crisis and while we may be undecided as to the extent of the impact here, there is no doubt that the bigger picture has changed and local businesses, their leaders and teams need to start changing the way they think, hire, fire, plan, strategise and operate in order to make it through.

Professor Karl Hofmeyr, Director of Company Specific Programmes (CSP) at the University of Pretoria’s Gordon Institute of Business Science (GIBS) puts it well, “In times like these, the speed of learning has to be faster than the rate of change.”

It is a big learning curve we are embarking on but an exciting one. The businesses that survive this transition will be the ones that prepare for and embrace the big changes coming and meet the challenges head-on.

In Collins’ view “… the possibility of seeing that (uninterrupted prosperity) again in our lifetimes is very, very low. What we’re experiencing now, get used to it! It’s life, and it’s the normal life.”

Forget the training and perform!by Bernadine Reynolds, Managing Director, Hi-Performance Learning (HPL)

South Africa’s ongoing efforts to train its way out of the deepening skills crisis by using formal, traditional training methods won’t achieve much. The current focus on training should be shifted to a focus on performance.

Businesses spend considerable time, effort and money on training their staff in order to speed up their time to competence. However, the desired end-result of the training should be workplace performance. Yet the focus of every conventional training programme is on ‘learning’.

Research has shown time and again that 80% to 90% of what is invested in training is lost because people do not remember or cannot apply what they have learned. Indeed, conventional training’s track record in terms of improving performance, especially at the organisational level, is poor.

While the traditional approach to training and skills development had its place in the industrial age when change occurred relatively slowly, today’s rapid pace of range requires a whole new training paradigm. What is taught in the classroom today is often obsolete in the workplace tomorrow.

Yet organisations keep throwing money at the ‘tried, tested and failed’ way of doing things because they do not think there is an alternative.

If the desired outcome is to optimise an organisation’s work force, conventional training programmes need to be replaced with organisational ‘wells’. These wells support specific-skill development through smart workplace support. They are designed with change in mind and placed strategically within the work environment.

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Services SETA and the Association of Business Executives South Africa join forces


Services SETA

practising and aspiring managers and executives. In addition, through its affiliation with ABEUK professional certification, abeSA provides a route to further study through Bachelor’s and Master’s degree programmes as well as other professional courses through universities all over the world.

Certification and Continuous Professional DevelopmentAs a Certified Team Leader (CTL), Certified Supervisor (CS), Certified First Line Manager (CFLM), or, Certified General Manager (CGM) members are expected to map and implement a personalised Continuous Professional Development Plan (CPDP) annually.

This personalised plan is completed with the support of your employer and experts in the community of management from abeSA. It will be expected that each member keep a record of all learning activities, judgments on them and the practical inputs of the lessons learned. Evidence of how learning has been applied in real situations is critical. Learning activities can include attendance of learning programmes, workshops, conferences, enrolment in formal qualifications or undertaking of research. It is important to ensure that these activities are recognised by

abeSA in fulfilling requirements of your CPDP.

The Services SETA is offering its member companies the opportunity to get involved with the professional body. All a company would need to do is identify management employees (or aspiring managers) within their various departments, and notify the Services SETA of their participation. The Services SETA will then fund the assessment and membership of the employee with abeSA. This is an opportunity not to be missed!!

A certification ceremony was held on the 3 July 2009 to acknowledge 40 learners who have already entered this management programme. The Services SETA would like to encourage more employees to get involved. To find out more information please contact Nicola Young on [email protected] or Peta Broomberg on [email protected]

The Services SETA and the Association of Business Executives South Africa have joined forces to promote the Continual Professional Development (CPD) of people in the field of management.

The Association of Business Executives (ABE) is a professional body established in 1973 in the United Kingdom (UK). A Regional Chapter, subsidiary, was formed in South Africa in 2008 (abeSA). abeSA serves its members with a focus on the development of people in the field of management, and the professional certification of people against specific criteria.

The Services SETA partnership with ABE gives people an opportunity within junior and middle management to be certified against the various membership levels within this association. Services SETA levy paying companies may apply for this membership for their employees who are currently working in managerial positions, or who are aspiring managers. The following criteria from abeSA are relevant to the member:• Membership with abeSA with

recognition of status in the UK, - Student - Associate - Member - Fellow• Certification of managerial experience at the following levels; - Certified Team Leader - Certified Supervisor - Certified Front Line Manager - Certified General Manager• Development of a continuous professional development plan for each

member

Members will receive:• Quarterly subscription to magazines• E- Newsletters• Opportunities to attend workshops and conferences• Opportunities to study further on internationally recognised

programmes• Networking opportunities within the field of Management

Association of Business Executives

The primary objective of abeSA is to promote their members by allowing them access to obtain awards in the UK and issuance of South African designations of managerial certification to become more effective managers who are recognised and sought after in business. abeSA is unique among professional bodies as it provides opportunities for business education, and professional certification to

Peta Broomberg Services SETATel: +27 (0) 11 276 9647Fax: +27 (0) 11 276 9660Cell: +27 (0) 82 572 2478Web: www.serviceseta.org.za

Nicola Young, Ivor Blumenthal, Jonathan Swindell, Peta Broomberg and Dr Hendrick J Botha.


Storytelling is more often associated with kindergarten than the world

of business, but companies are fast waking up to the widespread benefits of organisational storytelling.

Storytelling can be used to influence others and lead more successfully. It can also equip businesses with the tools to develop and communicate a unique and congruent organisational story.

Recent years have seen stories popularised in the business world – with several businesses finding creative ways to put the power of words to effective use. Popularised to a great degree by

Steve Denning – former Programme Director of Knowledge Management at the World Bank – storytelling, in an organisational context, works because it creates an emotional response that leads to real learning and action. It catches, and maintains, people’s attention in a way that simple fact-sharing cannot; stories simply anchor facts into the memory more easily.

Storytelling is often the best way for leaders to communicate with people they are leading. Why? It is inherently well adapted to handling the most intractable leadership challenges of today – sparking change, communicating

who you are, enhancing the brand, transmitting values, creating high-performance teams, sharing knowledge, taming the grapevine, leading people in to the future.

Storytelling is a crucial tool for management and leadership, because often, nothing else works. Charts leave listeners bemused. Prose remains unread. Dialogue is just too laborious and slow. Time after time, when faced with the task of persuading a group of managers or front-line staff in a large organisation to get enthusiastic about a major change, storytelling is the only thing that works.

HUMAN CAPITAL

Telling stories for growthby Peter Christie and Nikki Friedman Course Directors, UCT Graduate School of Business

Chair sanction overturned

An employee pleads guilty to committing fraud amounting to hundreds of thousands of rands. The

chairperson of the disciplinary enquiry decides to impose a sanction of a final written warning. The employer is not happy with the sanction, as it feels that it cannot trust the employee anymore and that by retaining the employee in its employment it might create a precedent among employees, that if they committed fraud they would get away with a final written warning. Can an employer in these circumstances overturn the sanction imposed by the chairperson of the disciplinary enquiry? Generally in the employment law context, employers are bound by the sanction that is imposed by the chairperson of the disciplinary hearing.

A case of point is County Fair Foods (Pty) Ltd v CCMA and others. The employee was charged and found guilty for assaulting a fellow employee. The chairperson of the disciplinary hearing imposed a sanction of a final written warning and unpaid suspension. County Fair was not happy with the sanction and decided to overturn it. It dismissed the employee. The labour appeal court had to decide whether employers can overturn the sanction of a disciplinary chairperson should they not be satisfied with the sanction. The labour appeal court stated that if an employer’s disciplinary code makes provision for the decision of the chairperson of a disciplinary enquiry to constitute a recommendation, then the sanction can be overturned. County Fair’s disciplinary code did not permit

the employer to overturn the sanction imposed by the chairperson of a disciplinary enquiry. The labour appeal court found that the dismissal was procedurally unfair and awarded 10 months’ compensation to the employee.

The labour courts seem to be more lenient towards employers in the public sector. They have found in a number of cases that because the state as an employer deals with public funds and taxpayers monies, it should have the flexibility to overturn and second guess sanctions imposed by chairpersons of disciplinary enquiries. It, however, has to be in the public interest to do so.

Employers in the private sector can only overturn the sanction imposed by the chairperson of a disciplinary enquiry if their disciplinary code provides that the sanction constitutes a recommendation. Even if the disciplinary code provides for this, employers must provide well motivated reasons as to why it was necessary to overturn the sanction to a more severe sanction, should the employee decide to approach our judicial system for relief.

Employers are therefore advised to carefully consider the role and powers they want the chairpersons to have in their disciplinary hearings and provide for this in their disciplinary codes in order to avoid a situation where they will have to keep in their employ an employee who through his or her conduct has destroyed the trust relationship between them.

By Felicia van Rooi, Partner, and Nicole Chetty, Candidate Attorney, Eversheds

Many companies view corporate training as a luxury rather than a necessity or a key strategic resource. A common but largely

unfounded corporate concern is that staff that are empowered with training and skills development tend to leave after the company has invested this money in their personal growth, and join a competing organisation. So how can the corporate world benefit from conducting effective corporate training?

A company’s success depends greatly on the collective skills of its employees, and those companies that invest in employee training and development tend to outperform those that do not. For the organisation to fully benefit from this spend employees should view themselves as learners, constantly updating their skills and knowledge and thereby contributing towards reaching not only personal but also organisational goals.

Companies can benefit from investing in corporate training in the following ways:• Improved recruiting - a company that values comprehensive

training programmes and is focussed on fostering an environment where employees realise their growth potential, will always be a more attractive option for high calibre staff;

• Higher retention - if an employee knows that a company values their personal growth they are more likely to remain with the

company for a longer period;• Buy-in from the top - management is responsible for establishing

training schedules within the company. They must therefore be committed to developing an atmosphere dedicated to continual learning and education. If performance appraisals effectively identify training needs and these are then met, employees have a far greater chance of achieving success; and

• Alignment with corporate goals - training should go hand-in-hand with the company’s strategic plan, as it can involve interpersonal skills development such as conflict resolution, effective communication, quality management and team building.

Before you start incorporating a training regimen into your company’s strategic plans and budget, you have to assess current staff performance and productivity levels. Involve the entire team of employees and ask them what they believe is holding the company back. Then determine what skills your employees lack to do their jobs more efficiently. And how is their lack of knowledge and/or skill affecting general performance? There are many ways to conduct training including utilising corporate training providers, incorporating self-paced training, introducing mentoring or even computer-assisted or web enabled training. Decide which training option would be best suited to you and your employees’ specific objectives.

Training – Luxury or necessity?by Ian Yoel, Regional Director, Edexcel


“The Services SETA and the Association of Business Executives South Africa have joined forces to promote the Continual

Professional Development (CPD) of people in the field of management.” Ivor Blumenthal (CEO; Services SETA)

Are you a Services SETA member company?YES: You need to identify management or aspiring managers within your organisation who

would benefit from membership with an international professional body, and would benefit from continuous professional development opportunities.

The Services SETA will fund the membership and assessment of the employee with abeSA. Contact: Nicola Young from abeSA [email protected] or Peta Broomberg from the Services SETA

on [email protected] for more details and membership application forms.

CALL CENTRE: 0861 10 11 48Ser vices House, 14 Sherborne Road, Park town • ht tp://w w w.ser viceseta.org. za/

HUMAN CAPITAL


FEATURE - BUSINESS SOFTWARE

BUSINESS SOFTWARE

In an effort to deal with the ongoing changes in a dynamic and fluid environment, business stakeholders need to invest in the best software possible to take their businesses to the next level. This software must be able to translate a business vision into a realistic set of practical steps and then deliver the appropriate solution into the day-to-day operations of an organisation. The question remains, are decision makers objectively choosing the best software for their businesses?

Is business software coming of age?



The business software market has grown rapidly over the years and has become a part of our daily lives. Everyday,

each one of us makes use of an ATM, a spreadsheet, or an application that connects to a database system, a booking system or an accounting package. This feature aims to discuss aspects of how far software has come over the years, the advancements of Business Intelligence (BI), Client Relationship Management (CRM), Enterprise Resource Programmes (ERP), the advantages of Open Source Software (OSS), disaster management and how to go about choosing the right software package for your business.

The test of timeOne of the first business applications ever developed was an airline booking system. With ticket offices all over America and long waiting lists for commercial air travel in the mid 1950s, American Airlines noted that it was inevitable that there were going to be mistakes and delays correlating the two. In conjunction with IBM, the Sabre system was written. It took 10 years and $30million to develop, but when completed, made a huge difference to the day-to-day running of the Airlines, giving it efficiency and the edge it needed.

The term “software” was not really understood until the 1960s when IBM released its System/360 series that clearly differentiated hardware from software. By 1969, the need for programmers who dealt purely in software had become so large that IBM spun off its own internal software division as an entirely separate entity.

In 1972, five former IBM employees, Dietmar Hopp, Hans-Werner Hector, Hasso Plattner, Klaus Tschira and Claus Wellenreuther did just that. They created a company with the name of Systems, Applications and Products in Data Processing. They were a German-based operation that had a

vision to provide business data processing in real-time, not in batches as was still the IBM mindset. The five had noticed that during their time at IBM, many customers wanted the same kind of business applications and that those customers were developing the software they needed for themselves in-house.

They figured that a SAP system could become successful by offering a generic solution that could be customised to individual needs, but with a focus on real-time data processing and the data presentation at the terminal. Within a year, they had developed a financial accounting package. This component would form the foundation for the company’s first system: R/1. SAP, as the company eventually became known, continued to build on R/1, and in 1979, released R/2.R/2 was incredibly successful in Europe because it coped well with the multiple languages and currencies of that continent and because SAP made it available as modules.

Accounting was one of these modules, human resources another, manufacturing processes a third and logistics a fourth. Customers with mainframes were surprised to note that R/2 used the time-sharing facilities of IBM’s operating systems, which meant that they could work on their data directly, similar to the standard login prompt of today, rather than sending batches of work down to the computer department for processing.

A demand for SaaSSoftware as a Service (SaaS) is a model of software deployment whereby a provider licenses an application to customers for use as a service on demand. This type of on-demand licensing and use alleviates the customer’s burden of equipping a device with every conceivable application and reduces traditional End User License Agreement software maintenance, patches and support complexity within organisations.

Managing Director of Liquid Thought, Roger Strain, explains that the SaaS model has its roots in the payroll bureaux of the 1970s and the application service providers of the 90s, but the mechanics of delivering the service were always a


hurdle. Today’s resurgence of SaaS is due partly to the recent global bandwidth explosion, which means it is possible to deliver more data and more functionality, and cheaper than before.

Bandwidth is only part of the story, with the other part being that software providers have finally worked out how to use the Internet effectively to deliver functionality, whether it’s through web services or new rich browser technology.

“Security concerns are also no longer an issue. The range of new options made possible by better technology and better bandwidth includes sharing secure space on an off-premises server, having your own dedicated server off-premises or even having a third-party managed server at your own premises. Independent hosting can also confer a market advantage, particularly for companies that handle sensitive

customer data,” says Strain.

There are several factors driving the move to hosted

software services. First, it

eliminates the need to make large capital investments in hardware and software licences. Pay-per-use options also make it easy to scale operations up and down in response to changing requirements, making for lower risks and more predictable costs.

“This flexibility also offers very rapid speed to market, operations can be up and running in the time it takes to recruit and train employees, without waiting for complex infrastructure to be installed and configured. A third, related benefit is the hassle-free factor; it’s the service provider’s job to keep the service up and running at maximum efficiency, and to have the skills on hand to do that,” adds Strain.

SaaS is not a new concept but with the current economic conditions and changing times, companies need to look at maintaining profitability by sharpening their focus on costs and eliminating the unnecessary ones.

CEO of the Emerge Group, Jean Moncrieff points out that now more than ever, companies’ directors are compelled to look for cost-cutting opportunities in their organisations. So, as much as this is not the first time that we have had a recession, there are a number of combining factors that make this one a shot in the arm for SaaS. Moncrieff says, “Among those factors is the maturity of the SaaS model and the availability of better connectivity. These are key elements lacking in early attempts to achieve remote software delivery. The Application Service Providers of the early 2000s, for example, had a perfectly reasonable model in theory. In practice, it didn’t really work as the billing and usage

models were obscure while the bandwidth available at the time

was not capable of supporting reasonable performance.”

Managing Director of White Wall Web, Peter

Flynn, adds, “The key components for SaaS

to become a reality include a remote

server, web access and an

application that works

better than the

original version that is installed on the end users desktop. With data throughput increasing and the pricing of bandwidth dropping continuously, I believe all the ingredients are available to launch SaaS as a reality and to create an entirely new industry and business approach to the way things were done in the past. Ultimately, in the future all software will be web-based and accessed through various devices by users, an approach which, compared to investing in on-premises solution, minimises costs, reduces time to delivery, alleviates upfront cash-outlay and allows for OPEX verses CAPEX budget allocations. SaaS also reduces maintenance issues and increases the frequency of release of upgrades along with a host of additional benefits.”

One of the more prominent roles SaaS will play in today’s business arena is enabling the remote workforce and, as ongoing research conducted by White Wall Web and the forecasts that can be assumed based on current trends show, by 2015 there will be approximately 15-million remote or mobile Internet users and 42-million cellular users in South Africa.

“Bandwidth proliferation, coupled with the fact that Internet as a platform is widely trusted, makes for a favourable SaaS environment and we envision high levels of adoption over the coming months. Technical advances like Cloud Computing, H(ardware)aaS, P(latform)aaS and virtualisation are also indicators of future growth in this arena,” says Flynn.

BI for competitive advantageFor many years, Business Intelligence has been about point solutions, departmental solutions, individual productivity tools and analyzing data to get a better understanding of how a business operates. According to Group IT Director of Smollen Holdings, Colleen Rose, the trends are moving toward pervasive information that provides insight capability wherever the person is, gathered from multiple sources and delivered in actionable, understandable, agile ways.

“The advanced BI technology focuses on the same types of issues that a social networking application addresses i.e. connectedness, information on hand, networking.

Rose remarks that operational BI makes the technology more integrated with transactional applications for agile responsiveness and is thus more directly connected to business processes. “The obvious challenge to these considerations is that of security, the more pervasive the information the more difficult it is to ensure that the types of deep insights that are now being delivered onto mobile BI platforms do not end up in the wrong hands. Operational BI talks to merging the analytical capability of the IT team with the operational savvy of the people on the ground and embeds BI in the fabric of the business delivering the right information to the right people at the right time, which has been the vision of BI since its inception,” she adds.

According to Dave McWilliam, regional manager for BI and PM at IBM South Africa, businesses are always conflicted between building a more efficient organization or a more compliant one.

“A by-product of compliance is better insight into an organisation, but this relies on an effective understanding of good, clean, trusted data. Information is a company asset, one that is essential to the efficiency of any organization. As MDs and boards are taking a more healthy interest in their companies’ performance, they are looking to the financial systems to lead the way,” says McWilliam.

CEO of the I5 Group, Glen Ansell shares these sentiments and highlights that the IT trends over the next five years are that software as a service will become a way of life within IT going forward. “Virtual data centres will become a standard practice in South Africa, on demand processing becoming a part of day-to-day practice and social networking penetrating the market substantially such as Facebook, which means instant messaging, networking, marketing, knowledge transfer and selling,” says Ansell.

CRM a “hot commodity”A successful CRM solution should enable a company to simplify its business transactions as far as possible and to achieve customer advocacy. Companies need to think of the interactive experience from their customers’ point of view.

“This is particularly true, when we consider the impact of globalisation and growth in the uptake of the Internet because today’s consumers are now more sophisticated, educated and discerning. This increased level of awareness coupled with instant access to an abundance of information on both products or services and competitors makes the requirement for real CRM a business priority,” says MD of Digital Solutions, Yaron Assabi.

Assabi adds that CRM is not merely a solution, but a strategy that should be aligned to the company’s mission, vision, goals and business objectives. CRM technology is merely a tool and companies need to take an educated approach when choosing a technology solution that will suit and promote their CRM strategy.

Additionally, while technology such as a web-centric or multi-channeled approach has made it easy to gain insight into customer behaviour,



human intelligence is still required to understand customer behaviour, analyse it and then conceive targeted campaigns that will drive the lifetime value of the customer.

CRM is hot on the heels of the worldwide web in terms of reinvention and according to Strategic Sales Director of Softline Accpac Keith Fenner, CRM is a hot commodity, which is drawing attention from all corners of business.

“Businesses rely on customers to keep them afloat, so it stands to reason that money spent on customer retention is money well spent. Those already riding the second wave of CRM are looking for even more powerful solutions, while those who are still sitting on the sidelines realise that CRM is an essential business tool. CRM drives ERP. This new wave of CRM, which extends into the entire stakeholder space, means that various departments of an organisation, such as sales, customer care and marketing, are sharing all the information they collect from interactions with customers with the unified view of improving customer service. This collaboration of input results in increased customer satisfaction and loyalty,” says Fenner.

If used effectively with the right technology, collaborative CRM will actually solve two business critical

issues, improved customer service and, as a result, the lowering of day-to-day operational costs.

According to Fenner, a true aspiration of CRM is to create content and applications that are available for customers and other stakeholders to not only help themselves, but also to help others. As Africa demands more online capability, it is imperative for business to deliver a platform that suits the customer.

ERP – critical or risky?Effective and comprehensive customer participation at the right level of the organisation is critical to get ERP implemented correctly and to ensure the client’s satisfaction. Most cost overruns occur when a client fails to provide his best people to participate in preparation, planning and blueprinting of a solution.

“When the outcome of the blueprint is not satisfactory, the ERP solution becomes risky as the input provided by the organisation on its policies, processes, and procedures were not the best. ERP costs can be curtailed and contained if the customer makes available the most knowledgeable and skilled team,” says MD of Cornastone, Hamilton Ratshefola.

Since most ERP systems are process-driven, they must be implemented in consultation with people who are familiar with all processes in the


organisation. Most customers are inclined to put forward available people to participate in the design, when they should be putting forward their best people. The result is that when the blueprint for the solution is presented, there is unhappiness and dissatisfaction, which requires everyone to go back to the drawing board. And that is when the costs start to soar.

All corporates are looking for alternate ways to cut costs in the downturn in the world economy. One of the ways in which to do so is by the implementation of an ERP Payroll software solution, says Dave Teron, MD of Paywell.

Teron recently read an American survey of 650 companies that revealed:

• 95 % used Creditors control• 94 % used Stock control• 93% used General Ledger and

Debtors controlAnd only• 18% used the ERP Payroll and• 8% used the ERP Human Capital

Management modules.

Because the modules are individually tailor-made to meet the customers’ requirements, every time there is a change to your requirements, the ERP vendor will have to change the software’s source code. This will be done at considerable cost to you, the user.

This applies specifically to the payroll module, where on-going changes are required for statutory purposes, trade union demands or the company’s own employment policies.

Even small changes to your Payroll will require source code changes, re-compilation and testing which again will

The use of speech analytics in a contact centre environment is fairly widespread, but its use in a post-call survey is a new application with important benefits for

companies wanting to raise the bar in customer service.

“Speech analytics is able to detect a customer’s mood, monitor his/her tone and react to key words (e.g. swear words) in real time. Using speech analytics in a post-call survey, the contact centre can automatically detect how that customer is feeling, not necessarily from the content of their responses, but from the tone,” says Interactive Intelligence’s regional sales director, for UK, Middle East and Africa, Dave Paulding.

If the contact centre decides that the customer is upset, it can be programmed to transfer the call immediately to a team leader or supervisor who can deal with the problem there and then. This is revolutionary for problem resolution.

Even without speech analytics, post-call surveys have gone a long way to help companies get a realistic view on customer satisfaction levels. A survey of 362 companies conducted by Bain & Company in the US in 2006 revealed a startling incongruity. Companies were asked if they were delivering a superior service, and 80% replied “yes”. Their customers were asked if they were receiving a superior service and 8% replied “yes”.

Over the past few years, contact centres have woken up to the fact that they need to do more to get an accurate view of their customers’ experience of their service. As technology has advanced, companies are choosing post-call surveys over mailed questionnaires and follow-up calls as they have a relatively high response rate – 10% to 15% vs. 2% in mailed surveys – they are cheap to implement, and companies can get the results quickly.

But while post-call surveys enable the company to get a view on service areas that could be improved, as well as input into agent training that may be required, the customer who received the bad service is still leaving the contact centre with a problem.

With the use of speech analytics in a post-call survey, the company still gets the feedback on areas for improvement, and is also empowered to take active steps to change a customer’s experience from a bad one to a good one.

Another benefit for using speech analytics in post-call surveys is that contact centres can completely customise their post-call survey settings to take an action appropriate to their organisation. Some vendors offer a self-configuration option using a set-up wizard, so it is not necessary for the contact centre to call out a technician every time that want to change their post-call survey.

For companies wanting to change the dynamics in their customer relations and raise the bar customer satisfaction, speech analytics in post-call surveys is a critical step.

Speech analytics: raising the customer service bar

not only be extremely expensive but also have time constraints.

Teron adds that many corporations believe that it is desirable to have “on-line real time” interfaces between the Payroll module and other ERP modules, but says that what is not realised by management is that the payroll information is very rarely required in the ‘integrated’ needs of the corporation on a day-to-day basis.

In these sophisticated environments there are a number of pitfalls that are overlooked when the decisions are made to purchase these solutions. The biggest one is, what is the true cost of the ERP solution?

• It is critical to know up-front what the costs will be for implementation services and maintenance charges.

• Minor amendments, such as a simple change to a Union deduction, must be done via a database Administrator, usually overnight.

• Major source code updates, such as the Medical Aid Capping, are only done by the vendor and implemented via a database Administrator and can

take days or even weeks to complete.• Payroll data cannot be restored

without restoring the entire ERP database and subsequent data re-captured.

HR and Payroll – do your homework The vast majority of accounting and payroll programs perform similar functions. Does this mean you cannot go wrong when it comes to choosing accounting and payroll software? According to CEO of Softline, Ivan Epstein, there are differences among programs and the information they deliver, as well as companies that develop accounting and payroll software.

When looking for the best solution for your business, Epstein advises that you take a close look at the company that develops the software and find out more about its levels of back-up and service, as well as its vision for the future, in terms of its own products and the software industry as a whole. Scalability is another important issue.

Can your software expand as your business grows? This means finding out whether the software manufacturer has a family of products that you can upgrade to over time in a logical, easy, and cost-effective manner? And, can you add elements to enhance the existing software?

“Not doing enough homework is one of the most common mistakes people make when selecting accounting and payroll software. Analysing and then selecting this type of software takes time and effort, and information is critical to selecting the most appropriate system for your business,” says Epstein.

In South Africa, there is a need for a change and better use of financial and accounting systems. People and businesses have become more cost-conscious and therefore it is vital to invest in the ability to have easier access to the information in their financial and accounting systems. This will enable greater control and insight into businesses.

“Companies have always needed a financial package to run their businesses but they often do not have proper insight into what various systems can offer them. Using BI in conjunction with a financial solution can change the way a company does business as well as prevent the kind of situation we find ourselves in, as

South Africa needs to move faster to seize opportunities in the $56bn computer software and systems testing services market.

“India, which has been the preferred market, is battling to cope while South Africa with its reputation for innovation and high standards in information technology is lagging in seizing opportunities in an area of the global economy that is not faltering, but is growing,” according to Liza van Wyk, CEO of management and skills-training organisations AstroTech and BizTech

IT expert, Arthur Goldstuck of World Wide Worx says that there is not sufficient usability testing done in South Africa and developers often convince clients that all is in order and once in use costly errors occur.

International IT industry consulting firm, Ovum says, “Software testing services will grow at a compound annual growth rate of 9.5 percent from 2008 to 2013, faster than most other (information technology) services.” More companies are outsourcing testing services, according to Ovum.

“This gives South Africa, with its excellent software developers and information technology companies, a gap to create work and opportunities in an increasingly important field,” Van Wyk says. “Although India has been the favourite provider, due to the high demand of testing requests, India is no longer coping and more testing services jobs are going to places like China, Malaysia and North Africa.”

“In our current economic times we need to maintain market share and customer satisfaction and therefore testing is essential. This is also a field that is outsourced by major groups globally and South Africa needs to move to gain market share,” according to Van Wyk.

South Africa could create jobs by entering $56bn software testing market



Pastel Fittest 140x275 7/13/09 10:56 AM Page 1

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essentially – efficient analysis of data is vital to financial projections,” says Softline Pastel MD, Steven Cohen.

He says that using BI to complement an existing financial solution would go a long way for financial services organisations to improve performance and meet their fiduciary responsibilities. Most of the large financial services organisations already have ERP systems and so they have all the information that they need to make appropriate decisions. They just do not have the tools that can help them make sense of the information – because ERP collects rather than connects information. BI, in contrast is better at connecting information that has already been collected.

“With a greater understanding of the flexibility and speed that financial and accounting systems offer, as well as their benefits, in terms of decision making, companies are likely to make better management decisions with each improved implementation. If that is all that this recession achieves, it may be worth it,” says Cohen.

OSS reduces costsOpen Source Software offers ways for businesses to, if not entirely replace the organisation’s more propriety systems, then at least execute new initiatives and move on to new schemes that fly under the organisation’s planned budget radar, says CTO of Connection Telecom, Steve Davies.

In fact, in 2008, the State IT Agency (SITA), which is responsible for providing IT services to the South African government, indicated that the agency would use OSS as one of the strategies to reduce costs in improving IT services. It has been said that organisations that decide upon OSS over propriety software tools can reduce their total budget spend by 50% to 60% over a period of three years. “The adoption of OSS into an organisation can offer a range of benefits and advantages. An enormous strength of OSS is its flexibility component. Typically, an organisation wants to use their invested IT or a specific ICT tool to differentiate themselves. While

an off-the-shelf package offered to organisations may be able to meet 70% to 80% of what is required to achieve this, the package is essentially not tailored to meet their specific needs, which can result in a percentage of the overall cost being wasted. OSS allows an organisation to improve and adapt applications accordingly, all depending on how the business would prefer to use them,” says Davies.

Don’t neglect disaster managementLast year, computer experts issued warnings about what they said was the worst Internet virus yet, a worm that is stealing personal and corporate information and using computers to infect others. Warnings have intensified because millions of computer users have still failed to install relevant patches that could protect them.

CEO of training company, AstroTech, Liza van Wyk said, “The virus or worm called Conficker or Downadup, is spread by a Microsoft Windows vulnerability, by guessing network passwords and by hand-carried consumer gadgets like USB keys. Worms like Conficker harness infected computers into unified systems called botnets, which then accept programming instructions from their clandestine masters. Many computer users may not notice that their machines have been infected, and computer security researchers said they were waiting for the instructions to materialize, to determine what impact the botnet will have on PC users. It might operate in the background, using the infected computer to send spam or infect other computers, or it might steal the PC user’s personal information”.

The program uses an elaborate shell-



game-style technique to permit someone to command it remotely. Each day it generates a new list of 250 domain names. To control the botnet, an attacker would need only to register a single domain to send instructions to the botnet globally, greatly complicating the task of law enforcement and security companies trying to intervene and block the activation of the botnet. Computer security researchers expect that within days or weeks the bot-herder who controls the programs will send out commands to force the botnet to perform some as yet unknown illegal activity.

“A cleverly managed worm could disable a good deal of the world’s computers, devastating economies and companies and so it is essential that companies revisit their disaster management programs and if they don’t have them they need to create them. With computers, as an example, there are some essentials that not all companies have in place. System data should be backed up regularly and should designate the location of stored data, file-naming conventions, media rotation frequency and method for transporting

Liquid Thought 021 422 2616

Emerge Group 012 348 1385

White Wall Web 011 803 3058

Astrotech 011 453 5291

Smollen Holdings 011 640 8000

IBM 011 302 5951

Digital Solutions 011 759 7247

Softline Accpac 011 304 2000

Cornastone 011 287 1500

Paywell 011 453 8841

Softline South Africa 011 304 1000

Softline Pastel 011 304 3000

Connection Telecom 011 287 2000

Nfold 011 486 2418

Interactive Intelligence 072 737 5216

I5 Group 011 875 3000

World Wide Worx 011 782 7003

CONTRIBUTORS


data offsite. It is good business practice to store backed-up data offsite in commercial data storage facilities that are specially designed for this,” Van Wyk says.

Van Wyk said that growing challenges around climate change was seeing pressure on companies to manage insurance effectively, more flood, rain, hail, earthquake and fire damage is being recorded globally and it has put pressure on companies and individuals to revisit insurance policies and to ensure they have adequate protection.

The workplace has become a complex environment; those in charge of disaster management have to consider everything from a disruptive strike to a client slipping on a wet floor and getting injured while visiting, to acts of terrorism or simply bad luck. Having a disaster management and recovery plan in place reduces risk by making teams aware, and ensures that if misfortune strikes the company is better able to recover rapidly at lower financial and personal costs.

Defining your software decision frameworkBoth function and finance are important when evaluating software and you need to decide which is most important and by how much. There are also other factors in the back of your mind when you are choosing a winner, such as does your team think the software will make their lives easier, how quickly you will see the results, how credible are the suppliers, or how happy are their customers?

“We encourage you to allocate weightings to your decision criteria before issuing a request for proposal to alternative software suppliers. It’s important for managers to agree on what basis a winner will be selected. This takes some of the subjectivity out of the decision and helps you reach a consensus more quickly. Even subjective things can be rated during your evaluation, such as which solution your team likes best on a scale of 1 to 10,” says Sandy Pullinger, MD of nFold.

Pullinger mentions that one can also compare suppliers on a function vs. finance matrix or use more qualitative measures such as your overall impression of the solution vs. the supplier. A matrix helps you to express visually what you want to convey about the contenders. We often facilitate the selection of a supplier short list this way. We first discuss the relative advantages and disadvantages of each supplier and then see how they compare on the matrix.

“For soft issues such as how the team feels about the software, we use smiley face secret ballot survey forms to assess honest opinions. Smiley faces are good for customer references too – an essential part of the complete supplier evaluation. You might even want to add a site visit to the decision matrix, for short-listed suppliers. This allows you to quiz their customers face-to-face and see the software in action,” she adds.

A final word…We all know that the pace of technological innovation will continue to accelerate, so as we enter times of economic uncertainty, it is imperative that businesses

adopt a software package that will improve business efficiencies, costs and save time. It is therefore vital that the company align itself with a reputable organisation that understands the company’s needs and is committed to developing solutions that will meet the company’s vision for strategic customer experiences.

Eugene van der Merwe,Chief Executive Officer,Snowball Effect

band is preferred by WAPA as it is a proven commodity technology which provides for the low-cost extension of connectivity to especially those areas where copper or fibre connectivity is not available. When dealing with a good ISP, it should be in a position to assist you to make the right choice based not on the technology it advocates, but rather on your specific use-case. The next essential element for the ISP customer is service quality. Many internet consumers only come to realise the importance of service quality after they have chosen a service provider that does not deliver the required level of service. Accessibility and the quality of call centre support are important in this regard. Typically, it is when things go wrong that people interact with their service provider. That means the call centre has to be staffed with appropriately experienced people and it should never be over-busy. Even when downgrading or cancelling a contract, the quality of the contact centre experience is critical if the ISP is looking to invest in long term positive perceptions of its ability to deliver sound service. Some organisations appear to use a frustrating cancellation procedure to dissuade customers from exiting. People absolutely rely on the Internet and are getting more clued up. Simultaneously, there are more choices available in the South African market than ever before. Service providers have to respond by upping their game especially with regards to how they meet the increasingly sophisticated needs of their customers. The days of a two-year contract as a cushy tie-in are over, as are the days of convincing customers to sign up to a given technology without its delivering clear benefits to suit the use case. Customers are increasingly looking to exercise their right to choose and good service providers are delivering that choice.

The burden of increased choice in internet service providers is making the right decision to suit your needs. That much has become apparent with the proliferation of not only service providers but also technologies that enable a fast, reliable and secure internet connection. Making the right choice now requires an appreciation of the technologies that are available and a sound assessment of your use case.

When choosing an internet service provider (ISP), South African

consumers are undoubtedly price-sensitive and this is frequently the most important priority. This is something reinforced by the media, which is constantly harping on about the admittedly high cost of connectivity. However, while cost remains an important factor, consumers are encouraged to look beyond this when making a decision. The Internet has become as important a service for most of us in the home and office as electricity or running water is. As a result, quality and use case should also be prime considerations for technology and service provider selection.

In terms of technology, the primary connections are ADSL, 3G (and its derivatives, such as HSDPA), iBurst, WiMAX and WiFi on the ISM band, used by the Wireless Access Providers’ Association of South Africa. Consumers should look at the implications of the technology to be used, including the cost of ‘CPE’ (customer premise equipment), the ability for the technology to deliver a strong signal indoors and the bandwidth cap. WiFi on the ISM (Industrial, Scientific and Medical; these are radio frequencies previously reserved for these markets)

Selecting your ISPBy Eugene van der Merwe, Chief Executive Officer, Snowball Effect



Consumers are encouraged to look beyond costs

In the 1990s it was foretold that a digital revolution would take place, and that old media would be pushed aside by

‘new’ media. While the dot.com crash may have prolonged advancements, it certainly never hindered developments and today we are definitely reaping the many benefits of smarter communication mechanisms. But what defines smarter? If we consider that most employees have desk phones in the office, mobile phones in their pockets, and IP phone services, like Skype, coupled with emails and texts, and maybe even IM (instant messaging), blog posts and social networking – many businesses have realised that all this communication may just be a bit too much and could even hinder productivity!

Over-complicated?In fact, as technology has advanced at a rapid pace and new devices or gadgets are continuously being launched in the market, local communications can almost be summed up as ‘over-complicated’. Our history shows that rather than waiting for the uptake of a technology to ensue and examining where markets are believed to be headed from there; those technically inclined were developing their next innovative ‘fix’! The irony in this approach is that convergence was born, and thank goodness for that!

IntegrationEssentially convergence is the recognition of the need to integrate various products to form one multi-use device that has the advantages of all the communication mechanisms that flood employees’ daily lives.

More than just a concept, convergence is the promise of simplifying communications and interactions. If done right, it can also be a real boom to productivity and can give the flexibility of allowing people to work wherever they are, including at home. This in turn presents fruitful ground and opportunities for all employees to make both business and personal ‘lives’ easier, more convenient and more enjoyable. However, this raises some questions - which devices, which services and who to provide them? And what technologies are we going to use to converge it all?

Wide selectionWell, currently there is a multitude of technology available that enable a transformation to take place in our communications and information sharing. Bluetooth technology, for instance, has taken the challenge of true convergence head on. Bluetooth technology is indicative of mobile, multi-functional communication, and the multi-pairing of devices that enables the creation of a mini network - ensuring that communication is a step away, be it over a laptop, desktop, desk phone or mobile phone. Additionally, Bluetooth offers seamless integration and minimal complexity when connecting with other devices, therefore saving precious time and offering an immediate return on investment (ROI).

The ways it is usedBluetooth technology is just one example of the abilities of convergence. However, convergence does not only influence the technology tool itself, but the ways in which they are used within an organisation. It is therefore important to adapt to and instill a strategic culture towards smarter communications throughout the company. This is done by identifying the key business drivers for the adoption of convergence, which should include:

• Productivity – why further complicate matters when, through convergence, modern forms of communication can be adapted to individual lifestyle and enable centralised and unified communications. By making it easier and more comfortable to communicate, convergence, enables and encourages employees to indulge in reaching their full potential.

• Cost optimisation – rather than expending your communication spend on a multitude of technologies and gadgets, invest in technologies that promote convergence, enabling a centralised business model and reducing overheads and costs of communications – ultimately generating value and ROI.

• Consistency – business success seems to become more personified by one-on-one interaction with customers and partners, and there is a resulting need to remember that consistent communication in any business is a building block to solid customer and partner interaction. It is for this reason, among many, that careful steps are taken in evaluating and implementing strategic technologies to ensure this communication does not “fall by the wayside”.

• Competitiveness - in today’s demanding business environment, companies are continually challenged with differentiating themselves to increase market share. By investing in technologies that will not only address the current required efficiency enhancements demanded by your business, but the long term growth your organisations will need to remain competitive, your business will thrive and realise true competitive advantage.

How individuals communicate with one another on a business and social level is directly influenced by the technology made available to them. Businesses are understanding and widely supporting the need to deliver converged communication platforms to employees. They understand that by combining the best technology and design, convergence has become an innovative tool that provides necessary flexibility, creates easier and constant communications and in turn, assists in assuring high productivity and efficiency standards – all while staying connected. Smart and simple.

Achieving converged, smarter communicationsby Scott Gilbert, Kathea, the Jabra representative in SA



Black or white?

It is no secret that the original equipment cost for printers and copiers is only part of the overall cost.

During the expected life of the product, there are maintenance costs and, most importantly, the costs of consumables to keep the printing and copying running.

While there is not much you can do about paper costs, apart from managing usage, customers find that there are a number of possibilities regarding toner or ink – sometimes even spare parts as well. Looking at price alone, some of these seem very attractive. Some offer products at a fraction of the price of authorised products, with anything up to an 80% saving.

What the customer needs to consider before they buy such products is what risk of additional expenses they might be looking at. Losing the maintenance warranty on your equipment is a major risk which becomes almost inevitable if you use unauthorised consumables. Beyond that, there are the extra risks of increased downtime and more frequent maintenance cycles.

Whatever you might save in running costs will almost definitely be cancelled out by lost productivity and paying for equipment repairs that would have been covered by your contract if you stayed with genuine consumables.

Let us be very clear about the type of products that are involved. Once you are not buying the authorised manufacturer’s product from a genuine dealer or vendor, you will be buying either a “compatible” product or maybe an actual “counterfeit” product that appears to be the real thing but is not.

This is best understood in terms of grey market and black market products – descriptions that are familiar from other market sectors. The “compatible” products are made by large companies who have their own reputation to protect. Although they might not offer a complete guarantee that their products will work without any problems, they will support them with some sort of after-sales backup and they have an investment in making sure that customers are kept happy. These are what you might call grey market operations.

On the black market, you find less reliable products that really offer no support if anything goes wrong. Sometimes, these are fraudulently packaged to resemble or look like the authorised manufacturer’s product.

Using genuine consumables and parts removes all the above risks. The equipment will have longer maintenance cycles, the costs will often be covered as part of the contract agreement and there is no risk that warranties will be invalidated.

by Michael Powell, Product Marketing Manager, Kyocera Mita SA

There is absolutely and unequivocally no substitute for experience when it comes to implementing Enterprise

Resource Planning (ERP). Without the right partner to make it happen, even the greatest software can fail.

Like any major technology deployment, implementing ERP can be extremely complex. Things can go terribly wrong if the implementation is not fashioned and managed by experts who know what they are doing. And, the stakes are high. A bumpy, drawn-out implementation costs money, and few companies can afford to abandon an ERP project after time, money and resources have been invested.

Companies can, and should, expect to see a return on their investment in ERP quickly, within two years at most. For quick success and quick ROI, excellent software must be coupled with an excellent implementation partner. Software alone does not make a solution. At a time where consulting fees often match the cost of the software itself, companies should regard their selection and investment in a partner as important as their investment in the software. At the end of the project, a client should feel like they have received a return on their investment in a partner.

There are a number of ERP implementers in the country. Most vendors list their accredited partners on their websites, but, it is

really up to the client to do their homework early on and make sure they find a partner offering the right fit for their business and for what they want to achieve.

Word-of-mouth and previous client references are excellent ways of assessing potential partners and establishing whether they have the right mix of skills and experience when whittling down the short list.

Unfortunately companies often find out too late that they’ve chosen the wrong ‘guy for the job’. Signs that the partner is not up to scratch include amongst others poor project management; milestones and deadlines are not achieved; poor communication; poor understanding of the client’s business; lack of responsiveness and inflexibility to changes in project scope.

It is not always easy, or ideal, to bow out of a failing partnership, so the decision to dismiss an implementation partner should not be taken lightly. It can be costly to start a project from scratch with another implementer, so, depending on how far the project has progressed, switching partners might not be feasible.

Avoiding an unpleasant situation like this, which could ultimately put the implementation at risk, means doing the due diligence and ensuring that the right company for the job is chosen at the outset.

People integral to ERP successby Paul Marketos, Managing Director, Bluekey Software Solutions

Social networking: Saint or Sinner?by Teryl Schroenn, Chief Executive Officer, Accsys

The pervasive quality and immediacy of online social networking seems

to have arrested the attention of corporate South Africa. So much so that the concept of utilising digital forums to talk to the market, boost sales, generate leads and advertise services is now considered by many to be a serious element of overall marketing strategy. But, does this represent a boon or Pandora’s Box for companies?

There has been a considerable growth in popularity surrounding initiatives like Facebook and Myspace, which offer any end user free access to – as well as the opportunity and ability to manage – his or her own Internet space. It was simply a matter of time before businesses copped on to the strength of online social networking forums to up levels of exposure, generate leads and encourage referrals. The nature of the Internet is such that lends

itself very well to businesses as an automatic, cost effective and simple way to advertise and attract attention.

The reality is that more companies are assimilating their profiles and placing them on these websites to secure online presence. The introduction of Twitter and LinkID services has added a new dimension to modern corporate communication and networking.

Today the business environment involves engaging existing clients and prospective business partners using online channels. It is a step-up from email and the basic fact is that business is being conducted through online social forums.

It is about striving for and attaining higher levels of visibility, of reinforcing competitive advantage by know what is being said, when and by whom in the market. But, as with any

technology and initiatives that empower individuals and groups, there has to be a degree of responsibility. The onus is on the company to determine policy to regulate access to social networking resources and to better manage the process of what is being communicated. Information remains a business’ most prized asset – to encourage freedom to interact digitally is one thing, to do this with no policies, channels of responsibility or checks in place is simply asking for trouble.

The situation at present is that there are obvious marketing benefits associated with social networking for businesses to capitalise on. However, the success and experience will be influenced significantly by quality of product, reliability of the forum, the existence and strength of policies and procedures/ checks in place, and dexterity with which decision makers approach the situation.




SEMINARS & CONFERENCES

Professional Administrative and Secretaries Conference16 – 18 August 2009

CBM TrainingMagaliesbergTel: 011 454 5505Email: [email protected]

Providing the tools to cope with the increasing demands being placed on administrators.

The OHS Act and the Responsibilities of Management18 August 2009

SA Labour GuideCape TownTel: 012 661 3208Email: [email protected]

The application and purpose of the Occupational Health & Safety Act and how management needs to respond.

Economic Scenarios for South Africa and what these mean for SA Entrepreneurs19 August 2009

EndeavorJohannesburgTel: 011 463 0992Email: [email protected]

A session for entrepreneurs interested in what might lie in the future for them and how they might respond.

The Company of the Future and the People Within19 – 20 August 2009

Global LeadersJohannesburgTel: 011 575 6142Email: [email protected]

The genetic make-up of the company of the future presented by Dave Ulrich and Lynda Gratton.

Advanced Credit Management25 – 26 August 2009

EES-SIYAKHAJohannesburgTel: 011 726 3040Email: [email protected]

Examines the role of the credit manager and the credit department.

10th Annual BHF Southern African Conference 200930 August – 2 September 2009

Board of Healthcare FundersSun CityTel: 011 537 0236Email: [email protected]

The conference focuses on the National Health Insurance (NHI) debate and what this could mean for healthcare in South Africa.

Implementing Skills Development3 September 2009

The Portfolio Consulting GroupJohannesburgTel: 0861 754557Email: [email protected]

Update on skills development and an exploration of the new occupational learning system.

Project Management9 – 11 September 2009

ImsimbiJohannesburgTel: 011 678 2443Email: [email protected]

Projects are being used in organisations to achieve new levels of performance, new products and services at less cost than routine operational activities.

Business & Franchise Opportunities Expo11 – 13 September 2009

Thebe Exhibitions & ProjectsMidrand, JohannesburgTel: 011 549 8300Email: [email protected]

Offering companies and franchisors the opportunity to meet potential new investors.

Pan African Health Expo & Conference 200917 – 19 September 2009

CVL ConsultingMidrand, JohannesburgTel: 021 713 3360Email: [email protected]

The National Health Insurance scheme and its likely impact on healthcare.

Scenario Planning21 September 2009

Square Circle ConsultingCape TownTel: 082 494 8771Email: [email protected]

Getting ahead in business through predicting possible future scenarios.

20th ECSAFA Anniversary Conference 200921 – 23 September 2009

ECSAFA/SAICA/SAIPAJohannesburgTel: 011 621 6620Email: [email protected]

Conference of the Eastern, Central and Southern African Federation of Accountants.

Public Relations for Office Professionals8 – 9 October 2009

Siyanqoba Cape Town/JohannesburgTel: 012 998 3668Email: [email protected]

The role of office professionals is moving increasingly close to public relations officer.

PAYE School29 – 30 October 2009

BDO Spencer StewardMidrand, JohannesburgFax: 011 488 1701Email: [email protected]

Practical advice on how to reduce risk, ensure compliance and add value to your business.

SEMINAR & CONFERENCE CONTACT DETAILS DESCRIPTION


CONTRIBUTORS

A s a service to our readers, we have listed this issue’s contributors, together

with their contact numbers. Should you require more information or consultation on these topics, please contact the company or firm concerned.


Accsys - 011 719 8000

Bluekey Software Solutions - 021 671 4606

Kathea - 011 844 9900

Kyocera Mita SA - 011 540 2600

Snowball Effect - 021 880 2228

MANAGEMENT

Cliffe Dekker Hofmeyr - 011 290 7000

Maestro Performance - 011 886 6455

PricewaterhouseCoopers SA - 011 797 4000

UNISA Centre for Business Management - 012 429 4586

Wits Business School - 0861 000 927

Zurich - 011 370 9111

TAX

BDO Spencer Steward - 011 488 1700

Deloitte - 011 806 5000

Garlicke & Bousfield - 031 570 5300

Softline Pastel Payroll – 011 304 1000

FINANCE & EQUITY

Bowman Gilfillan – 011 669 9000

Deneys Reitz - 011 685 8500

Ernst & Young - 011 772 3000

Institute of Directors in Southern Africa – 011 430 9900

SAICA - 011 621 6600


Cannon Asset Managers - 011 463 3140

Imara - 011 550 6200

JSE - 011 520 7000

P3 Investment Group - 011 979 1216

PPS Investments - 021 680 3600

PricewaterhouseCoopers SA - 011 797 4000

Sanlam Home Solutions - 0860 122 345

BANKING & INSURANCE

Absa Digital Channels - 011 350 4421

Alexander Forbes Insurance - 012 452 7221

Centriq - 011 268 6490

IntegriSure Group - 0860 055 055

Liberty Life - 011 408 8716

PPS Insurance - 011 644 4200

Pro Sano Medical Scheme - 011 883 5644

MARKETING & SELLING

Acceleration - 021 487 1380

Interbrand Sampson Group - 011 783 9595

Newspaper Advertising Bureau - 011 889 0600

Red Ribbon Communications - 011 764 2582

HUMAN CAPITAL

Eversheds - 011 286 6900

Edexcel – 021 532 6000

Gordon Institute of Business Science - 011 771 4000

Hi-Performance Learning (HPL) - 011 259 4200

Shepstone & Wylie - 031 302 0111

UCT Graduate School of Business - 021 406 1922

LEGAL

Cliffe Dekker Hofmeyr - 011 290 7000

Mazars Moores Rowland - 021 405 4000

Werksmans Incorp. Jan S de Villiers - 011 535 8000