Small business development specialist, Edge Growth, believes that SMEs play a critical role in shaping the future, and that collaboration is key to creating shared value, maximising impact and cultivating an ecosystem for SME growth. With this in mind, Edge Growth reached out to the Responsible Finance Initiative and the Centre for Business Ethics at The Gordon Institute of Business Science (GIBS) with the proposal to conduct research evaluating the effectiveness of ESD in South Africa.
South Africa appears to have a relatively robust financial and capacity-related development landscape for SMEs. For more than twenty years, various enterprise and supplier development (ESD) programmes and initiatives have been implemented by government agencies, private sector organisations and other role players to support the growth and development of SMEs, with a specific emphasis on historically disadvantaged individuals. These programmes have long been heralded as a key driver of economic development, job creation, inclusive growth and fostering entrepreneurship.
With ESD being a component of BEE legislation, an estimated 90% of large corporates contribute to ESD development, which estimates the market to be worth up to R35 billion. SMEs contribute 34% of South Africa’s GDP and 60% to our labour force, yet 70% of SMEs fail within the first 5 years. Within the ESD ecosystem, inadequate attention has been given to ascertaining whether these programmes lead to SMEs’ long-term sustainability.
The results of this research, sponsored by Edge Growth, culminated in the recently published white paper “Enhancing Enterprise and Supplier Development Ecosystem Effectiveness in South Africa”.
Authored by The Gordon Institute of Business Science’s Professor Kerrin Myres, Anne Cabot-Alletzhauser, Amanda Khoza and Professor Anastacia Mamabolo, this research reasserts the need for more impact measurement metrics and better benchmarks to assess “success”.
What makes this research particularly legitimate and impartial has been the unique insight and perspective provided by the Responsible Finance Initiative and the Centre for Business Ethics at The Gordon Institute of Business Science (GIBS).
The Responsible Finance Initiative (RFI) sees itself playing a critical role in measuring the economic value of integrating finance with social impact, with Cabot-Alletzhauser heading up the organisation, having trained as a developmental anthropologist.
Prof Myres from GIBS lectures in Entrepreneurship, Qualitative Research Methodology and supervises research at master’s and doctoral levels, and has herself founded two social enterprises and two for-profit enterprises, as well as mentoring countless entrepreneurs during the start-up and growth phases of their businesses.
In order to deliver these insightful results and findings and to be able to develop an action agenda to maximise the benefits of ESD in South Africa, cross-sectional qualitative research was conducted between October 2023 and March 2024, consisting of 41 interviews across the full enterprise and supplier development programme ecosystem.
Key findings from the research
The findings from this study consolidate the views of respondents from three main stakeholder groups in the ESD ecosystem, namely corporates, SMEs and business development service providers (BDSPs). The following ten key insights offer unique critiques of the current state of the ESD ecosystem as well as offer some indication of how ESD programme effectiveness could be improved:
Varying degrees of commitment to transformation result in inconsistent levels of compliance and engagement with ESD programmes
While some respondents reported that transformation was considered an imperative for the country’s economic development and for the growth and stability of industries, others had somewhat of a cynical approach which has led to a compliance mindset. This insight suggests that ESD effectiveness begins with the overall business philosophy regarding the role of business and the need for a high level of commitment to transformation as a mechanism for bringing about a more equitable society.
Business-like approaches to ESD offer business benefits and help to address implementation challenges
Where corporates recognised the strategic significance of ESD, implementation efforts were broadly and deeply integrated into the core business model, and a long-term view was adopted, ESD was more likely to be effective. Those corporates where ESD is either entirely separate from the business operation or at best engage at arm’s length, seemed to result in short-term ESD programmes that were more tactical and failed to generate much in the way of real impact. Here it is clear that an ESD strategy which is linked to the corporate strategy and integrates the needs of the business directly into ESD programmes, is associated with enhanced effectiveness.
The ESD ‘ecosystem’ is not an ecosystem at all – it is corrupt and competitive
One of the more alarming findings of this research was the feedback from respondents who noted that the sector is fraught with corrupt activity, both overt and implicit. Many corporates, BDSPs and SMEs act in their own interests rather than contributing to a common vision of transformation, with little regulation of the ESD ecosystem and limited collaboration between the public and private sectors.
Here ESD effectiveness could be improved through an enhanced, well-functioning and collaborative ecosystem that is able to self-regulate and share best practices and data about what does and does not work, along with a code of ethics and quality standards.
SMEs are generally disinterested in and cynical about ESD but some are engaged and appreciative of the opportunity
Many of the entrepreneurs who started and ran businesses were not particularly attentive to the efforts of the ESD ecosystem players to support them, and even appeared to lack knowledge and understanding of the scorecards intended to benefit them. Here, listening to the voice of South African SMEs directly, rather than assuming that we know what they need, will lead to better designed, executed, and evaluated ESD programmes. These and the many other insights gained from this research put on paper the steps and action points needed to enhance the effectiveness of ESD programmes.
“This research is a good start to crucial conversations and decisive action within the SME development sector.
There has been a lot of impactful work done by corporates, SMEs and business development service providers. Ultimately, what this research indicates is that we can both recognise the achievements made within the ESD space to date, as well as address the ongoing work required to create a sustainable, long-term impact for future generations,” says Nabeela Vally, Head of Business Development at Edge Growth.
Reflecting on the research conducted, Cabot-Alletzhauser says that while the white paper provided valuable insights, one key player within the ESD ecosystem that needs more attention is the policy maker. The government, which plays a crucial legislative role, needs to collaborate more within the ecosystem to implement the correct theory of change and ensure real impact results, not just transformation. Similarly, businesses need to see ESD as more than a box-ticking exercise, and that the real change, and the real success, comes when ESD and impact is incorporated into their business philosophy. Without this, what is being created is a cycle of dependency.
“At Edge Growth, we are honoured to have ignited the spark for this pivotal research to address whether ESD programmes are delivering what policymakers, sponsors, and programme recipients require, as well as whether there might be more constructive ways to reach those critical ends. We understand the immense value in creating more job opportunities by bridging the gap between businesses and entrepreneurs, and we want to know what is going on and how we can fix it,” says Stuart Townsend, a Director at Edge Growth. “We look forward to collaborating more to better catalyse change within the ESD and SME development landscape”.
Click here to read the full white paper.
