TFM Magazine, Issue 12 highlights the work done by Catalyst for Growth in creating a benchmark for measuring Enterprise Development Performance.
Business Development Services (BDS) are tasks and processes to develop and implement growth opportunities within and amongst organisations. It is a subset of the fields of business, commerce and organisational theory. BDS providers play a crucial role in developing small, medium and micro-enterprises (SMMEs) to their full potential.
Globally, SMMEs play a vital role in driving economic growth. The South African government has highlighted their importance through legislation by encouraging SMME investment through the Enterprise and Supplier Development element in the Amended Codes. Annually, billions of Rands are invested in Enterprise Development Programmes, yet, there is no benchmark to accurately evaluate whether the development methodology currently being applied by corporate South Africa in Enterprise Development Programmes is successful in driving sustainable growth.
According to the World Bank, South Africa’s growth potential has slowed; therefore considerable effort is needed to meet the target of creating one million jobs by 2030 as set out in the National Development Plan. Moreover, inequality continues, which suggests that inclusive growth remains a priority challenge. It is, therefore, vital that we recognise the key constraints to raising potential growth and acknowledge the need for deep-rooted structural reforms.
It is estimated that emerging economies in the formal SMME sector contribute 45% towards employment and 33% of the GDP. Enter the informal sector and these figures significantly increase. It is therefore evident that the SMME sector has the potential to play a considerable role in economic development and job creation, particularly in South Africa.
“As things stand today, the informal sector presents one of the greatest challenges and opportunities in the SMME space, with issues that go well beyond finance. Given the critical importance of job creation in the current recovering financial cycle, promoting SMME development should be highlighted as a national priority”, reveals Sifiso Ndwandwe, Executive Director at Catalyst for Growth.
The New Growth Path and the National Development Plan both support the government’s long-term objective of creating an empowered society that promotes regional balance and sustainable growth. “It has been 14 years since the B-BBEE Act came into effect. Yet the challenges remain in redressing governance and inclusiveness, promoting catalytic investment projects and focusing on high value-adding manufacturing and services sectors. These include broader economic reforms which seek to monitor and evaluate access to public finances,” confirms Ndwandwe.
“To support this national vision and address residual market failures the government has introduced interventions to foster SMME access to finance. In many cases, such interventions produce the desired results. However, not all interventions yield a positive outcome.
The lack of certainty as to whether interventions play a positive and sustainable role stems from the lack of tangible evidence to measure a positive or negative result,” affirms Ndwandwe.
Catalyst for Growth was established in 2012 as a two-year pilot project driven and funded by the JP Morgan Chase Foundation and Dalberg Global Development Advisors. In 2014, Catalyst for Growth was structured as a non-profit organisation based in Johannesburg.
The core objective was to establish an analytical IT-based solution to holistically measure and monitor the impact of BDS in the market. This solution would further investigate a market link between SMMEs and capital growth. “The pilot began with a ‘blank canvas’, as BDS neither had a benchmark for what best practices drive successful BDS provision, nor a data-driven method to adequately compare performance across BDS providers,” asserts Ndwandwe. In the absence of such a benchmark, markets run the risk of becoming distorted through low quality and ill-conceived development programmes.
The introduction of the Enterprise and Supplier Development element in 2013, provided an ideal laboratory to build an evidence base around BDS. Unlike any other market across the globe, South Africa has billions of Rands being directly invested into BDS annually. “This made the South African market a perfect platform for Catalyst for Growth to build substantive evidence based on BDS Providers’ performance against SMME outcomes,” confirms Ndwandwe.
In February 2017, emerging findings based on seven BDS Providers and more than 700 SMMEs spanning across various sectors and geographical regions over a one-year period, were revealed.
The report investigated what BDS interventions had the greatest impact on business growth, job creation and value for money based on the type of SMME.
These findings, based on the Beta Test results, should be viewed as emerging findings. As the base of information increases through partnerships with organisations and BDS Providers, more substantive results will determine the tangible success of BDS interventions. The results will ultimately measure the outcome of organisations investing in Enterprise Development Beneficiaries. At the launch of the findings project partner, Bridgit Evans from the SAB Foundation, stated “What we don’t need is 20 organisations like Catalyst for Growth all trying to measure the same data. We need one source that we all contribute to as a country, so we can genuinely learn the lessons we need to learn and learn them fast.”
“Catalyst for Growth is actively partnering with organisations and BDS Providers that will introduce more SMMEs to this analytical platform. It will further incorporate more Enterprise Development programmes that will ultimately contribute to and enhance findings. Fundamental to the success of measuring SMME development and Enterprise Development investments are collaborating to provide one comprehensive source,” concludes Ndwandwe.
SATISFACTION LEVELS VS PERFORMANCE – BDS providers that performed best on quantitative metrics were not those that SMMEs were most likely to recommend. That suggests that the most effective BDS is not necessarily the most ‘enjoyable’ for the SMME.
The process of growing a business comes with a myriad of challenges, and an effective BDS is one that will push the SMMEs to meet those challenges.
TYPE OF BDS VS PERFORMANCE – BDS was split into, namely Bespoke BDS and Programme BDS.
Bespoke BDS (‘bespoke BDS’) appeared to produce better results than programmes with a set curriculum and time frames (‘programme BDS’) for later-stage businesses (early growth and growth), while it was the reverse for start-ups.
EFFICIENCY BY TYPE OF BDS – Programme BDS appeared to be more efficient than bespoke BDS with expenditure per job added and revenue created.
EFFICIENCY BY STAGE AND SIZE – The stage and size of business that required the least funding per job added was not the same size and stage that required the least funding per revenue generated.
Across development stage of businesses, growth stage businesses required the most funding per revenue generated and jobs added.
Across size of businesses, micro-sized businesses required the most funding for jobs added, and required the least funding for revenue generated. Medium required the most funding for revenue generated.
ENTREPRENEUR EDUCATION TYPE VS PERFORMANCE- Entrepreneurs with a tertiary education from a university consistently performed lower than entrepreneurs with other education types, whereas entrepreneurs that had a tertiary education that was not a degree and high school type qualification performed best across types of SMME (size and developmental stage).
GEOGRAPHY AND SECTORS – Geographically, businesses based in Gauteng produced the highest percentage increase in full-time jobs.
Sectorally, businesses in the manufacturing, food and beverage, and personal services sectors produced the highest percentage increase in full time jobs.
It is noteworthy that sectors with the highest percentage growth in new jobs were not, except for personal services, sectors with the most SMMEs.
The Catalyst for Growth Analytics Platform is first and foremost a monitoring and evaluation tool, as well as a reporting one for BDS providers and buyers to monitor SMME performance. In turn, an SMME can monitor their business performance. This user-friendly solution is cloud-based, allowing users to access the system from their laptop or telephone to update data and track performance.
To partner with Catalyst for Growth to grow this platform visit www.catalystforgrowth.org or firstname.lastname@example.org.
Source of Reference: 1. http://www.catalystforgrowth.org/wp-content/uploads/2014/11/Catalyst-for-Growth-Final-Beta-Update-Report.pdf