BEE Partner, South Africa Economy Watch

The skills development levy was designed to force entities to invest in skills development by paying money to a SETA. This money is recoverable from that SETA when the company invests in skills development. A large majority interpreted the skills development levy as a pure tax, paid the money to the SETA and never reclaimed it. This approach results in zero return and becomes, as mentioned, a straight tax.

The objective of BEE is to stimulate growth, not to invoke taxes. If the skills development initiative is not going to result in a return for the business then it is likely to result in unsubstantial skills training. If it is unsubstantial, then the trainee is not going to be any closer to participating in the mainstream economy and the exercise lacks substance. Strictly speaking, BEE contributions that lack substance are not measurable.

An investment implies that the employee will return from training with the ability to make more money for the company than prior to the training. Whether that training entails operating a computer programme more efficiently or part-time study for a university degree is particular to each business. But it must result in a return for the company greater than the initial investment.

Divisional growth

Skills development is fundamental in the training of Black people for management positions. The skills development should be channelled into areas of the business where opportunities exist for Black managers. If there is no opportunity for the employee to develop newly acquired skills, that employee will leave the company and seek a more challenging position elsewhere. Similarly, if there is no scope for increased salary, the employee is likely to get a new job at a competitor where the remuneration is commensurate with the new skills.

Invest in skills capable of stimulating the economic strength of the country

Increasingly, some entities are considering developing the skills of a person so that the employee could leave the business and open up a new business. It may sound ludicrous, but what if the original business owner holds significant shares (up to a maximum of 49%) in the new business, which turns out not to be a competitor, but a similar business penetrating a new market. This also presents a potential opportunity for enterprise development, provided that there are no fronting motives behind this arrangement. Skills development strategically channelled has the potential to unlock new business for both the employee and the business owner, but the right skills need to be provided to the right employee.

Successful skills development investment is no different to any other investment. A company can spend it on a lottery basis (stupidity tax) and hope for the best, or it can be done strategically and end up as an investment.

Development process

Skills development is a three-step process, yet too often we see it applied in only two of these steps:

• The first step is learning the theory of the skill, which is done at school, college or university, or through on-the-job skills courses.

• The second step is applying that knowledge in a practical environment. Sufficient practical application will ingrain the knowledge of that skill in the employee.
• The third and critical step is analysing and evaluating the application of the skill by the employee to see the results achieved by such application. This is done through constant and frank review.

It is the third step that creates a true understanding of the skill, which is the essence of an effective employee.

Value-chain analysis

Michael Porter introduced the concept of value-chain analysis in a book called Competitive Advantage. Drawing from this concept, he proposes that a business could achieve greater profit margins by separating the value-added activities along a value chain.

The primary activities in the value chain are:

Inbound logistics, represented by receiving and warehousing raw materials and distributing them to the manufacturing plant

Operations, represented by transforming the raw materials into finished products

Outbound logistics, represented by warehousing and distributing the finished goods

Marketing and sales, represented by identifying customer needs and generating sales

Service, represented by offering after-sales customer and product support.

The primary activities are supported by:

Firm infrastructure, representing organisational structure, control systems and company culture

Human resources management, including employee recruitment, training and development

Technology development, representing technologies to support value-creating activities

Procurement, representing purchase of raw material, input, supplies and equipment.

By defining the value centres in the organisation, they can be analysed as a cost or profit centre. The efficiency at which each centre operates determines the entity’s profit margin. Where the added value that a customer is willing to pay for exceeds the operational costs of a value centre, the firm has a competitive advantage over its opposition that can be exploited. Where there is no competitive advantage, the value chain needs reconfiguring.

This is a long way from BEE, or is it? Skills development must be focused on core and critical areas in the business. If the measured entity uses Porter’s value-chain approach to identify areas that can provide a competitive advantage through skills development, it will result in increased profitability. From a BEE objective, this drives skills development in core and critical areas.

Skills development correctly used is a basic business principle, not a BEE-specific tax.

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