Black empowerment in IT: Falling short of the mark

Black economic empowerment (BEE) has made some progress since the dream at the dawn of the new SA.

Recent examples include Iscor entering talks to sell its 29% stake in AST to BEE groups, and the awarding of the R365 million National Traffic Information System contract to a BEE consortium led by arivia.kom.

While much of this progress has been made in the public sector, a handful of BEE companies are also making steady inroads into the private sector too. But despite a few highly visible success stories, major local players say that black empowerment in SA`s IT industry still has a long way to go.

The 4 000-member Black IT Forum (BITF) is particularly vocal about the lack of BEE progress in SA. Stating that "snails move faster" than South African BEE, the BITF has launched a new Accredited BITF Company Programme designed to kick-start new initiatives and promote existing ones in line with the government`s new BEE initiatives.

The government`s planned changes to BEE laws follow the submission of a Black Economic Empowerment Commission report last year. New policies are being put in place to set parameters for defining BEE, identify core programmes and define the role of the BEE Council, which will soon be formally established. The council will introduce a reporting and monitoring framework for companies, set targets and intervene when necessary.

The government`s new strategy will require industries to commit themselves to achieving certain BEE targets within a 10-year period, and will see the Companies Act amended to require BEE reporting and disclosure from listed and larger companies.

Dr Hasmukh Gajjar, national chairman of the BITF, was involved in drafting the original BEE Commission report and wholeheartedly supports these new initiatives. He says BITF is extremely concerned about the lack of BEE progress in SA`s IT industry. "The situation is worse than just unconvincing transformation," he says. "The number of established black IT companies is actually dwindling."

Gajjar says there was an estimated 130 black IT companies in SA last year. "But where are they?" he asks. "We only see around 30 to 40 of them operating as important players. An estimated 30 or so are nothing more than front companies, and the rest appear to be small operations that are dying out."

Companies should not ask `can we afford to support BEE?`, they should ask `can we afford not to?`.

Dr Hasmukh Gajjar, national chairman, BITF

Gajjar says this worrying trend is the reason why government and the BITF have embarked on programmes to drive black empowerment more effectively. He feels that the planned Black Economic Empowerment Council, as well as BITF and Black Business Council initiatives, may go some way towards addressing the problems.

"It is essential that effective BEE takes place. Companies should not ask `can we afford to support BEE?`, they should ask `can we afford not to?`. It is like asking `can we afford to have Apartheid?`," Gajjar notes. "SA cannot sustain economic growth on a minority skills base, with a limited consumer base."

Major local IT companies complain that they still have a great deal of trouble finding suitably skilled previously disadvantaged individuals (PDIs) to fill their employment equity quotas. The need to fill these quotas could force companies to poach suitable candidates at great expense - which really serves only to enrich a select few individuals as they do the rounds through the industry.

[VIDEO]In the early days of employment equity, this trend often meant that even unqualified individuals were appointed to high-profile positions to fill a quota. This was not an ideal solution and resulted in clouded corporate judgement against black IT professionals as a whole.

On the sidelines are a growing number of well-qualified, young, black IT professionals, who are finding it difficult to break into the top spots in the industry.

Koulla Koshiaris, research associate at Executive Placements at Deloitte & Touche Human Capital Corporation, is a head-hunter of top IT professionals. Koshiaris says black IT professionals face tougher tests than other applicants when applying for top posts in SA corporates.

"Many companies have been burnt by well-meaning but unqualified black professionals who were appointed simply to fill a quota," she says. "Now, affirmative action candidates need to go to great lengths to prove themselves in interviews and once they are appointed to top posts."

Jill Hamlyn, MD of The People Business, feels that companies are being "incredibly short-sighted" in their inability or unwillingness to take on PDIs.

To illustrate her point, Hamlyn says The People Business: People Development has been commissioned to do all of the business and interpersonal training for students who are accepted into the Oracle Academy.

"These students are the 'cr`eme de la cr`eme`, having achieved top academic performance, solid experience and outstanding attitudes. Despite this, the students face a considerable uphill battle to even get interviews with potential employers. I truly believe these students should be snapped up by companies, as the return on investment that is latent within each and every one of these employment equity applicants is, in my opinion, priceless. These are the potential future leaders within IT and yet they are being fobbed off at first base."

There is a lot of talent out there, but many black youths are simply not being given the opportunities they need.

Mark Harris, country GM, IBM SA

The solution is twofold, say leaders in black ICT circles: corporates need a change in mindset, and more skills development needs to take place.

The BITF calls for companies to invest in training previously disadvantaged individuals, with a view to genuine, long-term skills transfer and empowerment. It`s a strategy major companies such as IBM have embraced for some time with positive results: the recent Black ICT Achiever of the Year awards nominees list featured a number of rising stars who were trained and employed by IBM at some stage.

IBM SA country GM Mark Harris says: "There is a lot of talent out there, but many black youths are simply not being given the opportunities they need. This is why programmes such as the internship programme are so important to IBM. Thanks to programmes such as this, and opportunities available through parastatals, a new breed of executives is emerging fast," he says.

Datacentrix chairman and CEO Gary Morolo says there is still a shortage of previously disadvantaged individuals with management skills. "Most of the senior black IT professionals run their own operations and are not interested in being swallowed up in employment in large companies," he says.

"To counter this, companies need to take responsibility for developing skills themselves. This gives them a skills pool that meets their own specific needs, and assures them of management staff who share the corporate culture."

Datacentrix has a strong equal opportunity and empowerment ethic, with several empowerment and development programmes in place, including a bursary scheme for black IT students at the University of Pretoria.

Local BEE companies do not see their investment in bursaries, scholarships and intern programmes as wasted "social responsibility" donations, but rather as a sound investment in their future, and that of the SA economy as a whole. It`s not an overnight fix, but as the youngsters who benefit from these programmes come of age, the shortage of skilled PDIs will slowly diminish, they point out.

The issue of "front companies" elicits lively debate in black empowerment circles. "Fronting is emerging as a major dilemma," says Gajjar. "Smaller black companies face the problem of attracting investment to meet their venture capital needs. Large white-owned companies partner with them in order to retain and win contracts. They do this purely to serve their own commercial interests, so little or no skills transfer or development takes place within the smaller black-owned company."

Those involved in fronting should be identified, blacklisted and rehabilitated.

Mashudu Tshivhase, executive chairman, African Legend Technologies

According to Gajjar, it is frequently the case that the owner of the BEE IT company makes a great deal of money from the deal, loses his entrepreneurial spirit and withdraws from the industry.

In some circles, owners of front companies are roundly criticised as "sell-outs" with no sense of Ubuntu (an African concept defined as the spirit of collective unity or solidarity).

Business leaders such as Kgabo Badimo, EDS director of the Government Global Industry Group, and Livingstone Chilwane, director of Professional Services, SAP Public Services, are openly critical of front companies, saying they are contributing nothing to real empowerment.

[VIDEO]Mashudu Tshivhase, executive chairman of African Legend Technologies (ALT), is also severely critical of front companies, saying the practice of fronting is destroying the country`s economy. "Those involved in fronting should be identified, blacklisted and rehabilitated," he says.

Other, more considered views hold that many black-owned companies are unfairly labelled as front companies purely because of the mechanics of doing business.

Morolo points out that start-ups and small and medium enterprises (SMEs) are vulnerable to abuse by larger companies because of their lack of access to venture capital and their lack of capacity. "Fronting is dishonest and unacceptable," he says. "But it often occurs despite the best intentions of all parties. I believe that most black-owned companies have no intention of becoming front companies, but that they become compromised through an imbalance of power."

He says a small company can be virtually "swallowed up" by a large organisation for the duration of a major project in a joint venture initiative. At the end of a project, the smaller company may emerge without future cash flow, because all of its resources were devoted to a single project. It may then falter, leading to the perception that it was formed purely to secure a project for a major company.

Morolo adds: "If smaller companies want to protect themselves by refusing to commit to a project for a specific period, then moving on to other things to ensure a sustainable cash flow, they are likely to get a reputation as a front company. This is sometimes necessary because in the nature of these relationships, the share of revenues and profits for the SME partner is inconsequential relative to the total project revenues. These are the inevitable dynamics of these kinds of relationships. Asymmetrical partnerships between large established companies and SMEs can only end in tears and unfortunate recriminations about fronting."

Harris says fronting should not be accepted anywhere. "Fronting and self-enrichment does a lot of damage to black empowerment as a whole. Good corporate governance is essential to avoid inadvertent dealings with front companies, as this could do a lot of damage to a company`s reputation."

With a view to contributing to genuine empowerment, many major companies and parastatals have introduced comprehensive procurement policies aimed at weeding out the front companies from true BEE companies.

Realmakoi.co.za, driven by research house Forge Ahead BMI-T, is another initiative intended to serve as a resource listing genuine, qualified empowerment ICT partners. Realmakoi.co.za is an online resource providing data on black-owned ICT companies, including their ownership structure, solutions and services, client base, financial details, management and staff complement, and focus areas.

One of the trickiest aspects of BEE is effecting change in established, white-owned companies. By all accounts, progress in this arena is painfully slow, although companies are making renewed efforts to meet employment equity quotas.

There is huge interest in meeting BEE requirements.

Teddy Daka, owner, Tedaka Business Consulting

Teddy Daka, a BEE management consultant and owner of Tedaka Business Consulting, says companies are showing increasing interest in internal equity initiatives. Daka, formerly involved in managing Telkom`s affirmative procurement programme, is currently in a consulting position at MGX. He specialises in advising companies on BEE strategies and frameworks.

Daka says demand for his services has grown tremendously and is an indication of the desire to transform. "In my opinion, there is huge interest in meeting BEE requirements."

He frequently encounters companies that want to embark on BEE initiatives because they are forced to do so by an empowerment-sensitive market. "These companies tend to rush into fronting deals. The drawback of this is that there is no consideration for sustainable BEE and development.

"On the other hand, there are many companies that really want to transform themselves, beyond just a need to survive," he says. "I have seen an improvement in companies sponsoring training and skills development, and making an effort to do true BEE deals."

Daka believes the biggest stumbling block in the way of transformation within white-owned companies is the attitude of the people within the company. "It`s a generation issue. There are still perceptions that black people are incompetent. It is part of my job to prove that these perceptions are wrong. But these things take time. We need to create the right environment so that the next generation does not grow up with the baggage that we have."

Daka points out that empowerment programmes introduced in the US 30 years ago are still running. "We should not set a cut-off date for change. However, we should set targets for meeting BEE performance indicators."

On a positive note, Daka highlights the successes of BEE procurement programmes within state-owned enterprises in recent years. "The amount of BEE procurement spend has grown tremendously in recent years. These procurement programmes were introduced proactively - without laws forcing their introduction - and they are really working. State-owned enterprises have spent over R8 billion on BEE business in the past five or six years."

Combined BEE procurement spend.

Another difficult issue to overcome in the quest for effective empowerment is the issue of funding for BEE initiatives. Companies are not in business to give away their profits to "charity", and want to see a sound return on investment (ROI) on their BEE and development spend. This is particularly true of SMEs, as they have limited funds to spend on training and development.

We do not believe that empowerment should be self-enriching.

Semela Tseka, CEO, Choice Technologies

ROI is not the point, say BEE companies. The ROI is essentially immeasurable, and must be seen in terms of how BEE spend contributes to the SA economy as a whole, so ultimately improving the situation for all businesses operating within SA.

Choice Technologies CEO Semela Tseka says: "We do not mind training people, only to have them leave us. We are proud of our contribution to the skills pool. We do not believe that empowerment should be self-enriching."

[VIDEO]ALT`s Tshivhase is of the view that if enough training, development and BEE procurement takes place, SA could develop a technology industry similar to that in India. "There is so much potential in SA. All people need is an opportunity to develop. They will go out and begin things for themselves, the IT industry will grow, and all of SA will benefit."

While most parties feel that black empowerment in the IT industry has a long way to go, the overwhelming sentiment is one of optimism for the future.

Top traditional and BEE IT companies are already investing heavily in skills development, equity and social responsibility programmes, grooming the next generation to take the reins of a growing IT sector.

With new government initiatives and a growing commitment to BEE from the private sector, it would appear that it is only a matter of time before SA sees a thriving IT industry that is fully representative of its demographics.

Choice Technologies is a majority black-owned equity IT systems integration and solutions company, and is becoming a significant player in the local market.

Established around six years ago, it is an independent entity with an expected turnover of R199 million this financial year and offices in 16 centres countrywide. Choice targets the government and private sectors. Its new blue-chip customers in the private sector include Vodacom, the SA Reserve Bank and the United Cricket Board.

The company says it is increasingly being courted by the vendor community because of its marketplace successes, and a number of partnerships have been cemented with international suppliers. These include 3Com, IBM, Compaq, Cisco, Dell, NEC, Fujitsu Siemens, Legato and Microsoft.

Semela Tseka, CEO and chairman of Choice Technologies and the Choice Group, attributes most of the company`s success to its people. "Without skilled people with the right attitude, we would have no company."

Tseka says Choice is passionate about staff development, spending over R3 million on staff training in the past year. "We develop people, recognise their achievements, and look after them and their families. This improves staff morale, boosts loyalty and reduces staff turnover. We have streams of applications from IT professionals in other companies, because we have a reputation for treating our staff well."

Choice`s ethics are reflected in the company`s demographics - of a total of 185 staff members, 77 are black men, 42 are black women, 52 are white men and 14 are white women. "If you combine all previously disadvantaged individuals (PDIs), we have a total of 133 PDIs and 52 non-PDIs."

Tseka`s view is that his company is part of the economy as a whole, and that investing in skills development is an essential contribution to the economy.

"If any trained staff do choose to leave Choice, we know they will be a welcome addition to the South African economy. We are proud of our contribution to the skills pool and the South African economy. We do not believe that empowerment should be self-enriching."

IBM South Africa has earned a reputation for being a fertile training ground for top black South African IT professionals.

Mark Harris, IBM SA country GM, says the company has a long history of developing people, in keeping with the global corporation`s commitment to community development and social investment.

The company has a corporate culture of diversity, empowerment, skills development and community involvement. Its programmes include:

* Andisa Business Partner Programme. This is a BEE initiative aimed at building capacity, developing infrastructure and promoting business opportunities for previously disadvantaged organisations and black-owned and -controlled companies. The programme creates alliances between IBM and BEE business partners, both to win business and to enhance development in the industry. IBM points out that successful BEE IT company Lechabile was an Andisa business partner.

* Marang Programme. This is an IBM SA corporate social responsibility programme that aims to train and place new entrants from previously disadvantaged communities in IT careers.

* Skills training, job creation and internship programmes. The company runs several programmes aimed at addressing IT skills shortages. Its internship programme sees 25 technikon students from disadvantaged communities given experiential training opportunities within IBM each year. Most of them are given permanent employment after they complete their studies. The graduate hire programme involves mentoring of 25 students from all tertiary institutions.

* Inroads. This is a non-governmental organisation that drives the early identification and training of talented youth in business and industry, and prepares them for corporate and community leadership. It was established in Chicago in 1970, and is now in its second year in SA.

* KidSmart Early Learning Programme. This programme involves introducing children, aged five to seven, to technology. It includes supplying technology and teacher training to pre-schools. Harris says IBM has already spent tens of millions of rand on supplying technology to schools, and that this programme extends IBM`s contribution to early IT education.

* BEE procurement. As part of the company`s BEE strategy, IBM has an affirmative purchasing policy that establishes set targets for BEE procurement. IBM has increased the number of fully black-owned suppliers from five to 35. Last year the company spent approximately R38 million with black business suppliers. By the end of the first quarter of 2001, the company had spent R18.1 million.

IBM SA also has well-established diversity and employment equity policies in place.

Does this massive investment in equity and development bear fruit for IBM? Yes and no. IBM tends to serve as a training ground for other companies, and so loses some of the skills it has invested in developing.

Harris points out that staff turnover is natural, and that loyalty cannot be bought. "Some of the top trained professionals - who we would like to retain - ultimately go off and start their own companies."

While no longer employed by IBM, they generally still have some loyalty to the company, and may well go on to become valuable and powerful business partners. "As we grow our markets, we retain more individuals," Harris says.