During a recent tender to a government institution I was faced with the question of job creation as part of supplier development. The tender was asking me how many new jobs our company would be creating if I were to win the tender. This made me think of the way in which companies account for job creation.
Based on the requirements for job creation set out in the amended BBBEE codes many companies will be targeting this as part of the Enterprise and Supplier Development plans. As part of this process companies should be asking themselves what a realistic expectation is in terms of job creation as part of supplier development and what the targeted cost per job created should be.
What is your definition of Job creation
During a recent engagement with a potential supplier they were promising the creation of 117 new jobs as part of a
What is your definition of job creation?
CSI project that they were wanting to complete. The project though would have taken a year to complete after which none of the jobs would be required any more. If we were to stagger the implementation process of the project, the project would take 5 years to complete, and the job creation part of supplier development would fall to 27 jobs over the period of the project. This would increase the likelihood of sustainability in job creation to a greater extent, the trade-off being that the project would take longer to complete.
Even though the company would not be able to claim a significant amount of new jobs for the financial year, the jobs that would be created would be much more sustainable as the venture that would be created would have a higher chance of survival and the chance of sustainable skill transfer would be higher. Unfortunately the nature of the short term projects in most public work programmes leads to non-sustainablejob-creation even though we need to give consideration to the skills that these programmes can create.
Preferential Procurement is not job creation, but could lead to it
An error many companies make in terms of job creation is that they view the preferential procurement process as adding to the job creation process. It is maybe worth noting that your measurement of the growth in turnover, of the companies that you seek to develop in your Enterprise and Supplier development process, should take into consideration the potential income that you have taken away from the other companies that you have been doing business with in the past.
Preferential Procurement is not an instant job creation process.
It does not take much to please an Enterprise Development manager when your hear that the companies that you are developing and procuring from are increasing significantly in turnover. Until you realise that you have taken revenue away from another company in order to grow the revenue in the companies you are developing.
The same could be said regarding job creation. When you have been procuring a service for the past 5 years and now contract with a QSE/EME for those services, you would be wise to consider that your new contracting strategy has potentially evened out the jobs that you have created. In some situations, as is the case with some services contracts, you might even find that the new company has employed the previous employees under the old contract, at a lower salary.
It would however also not be fair during the first year of supplier development, to expect the company that you are developing to have a revenue far above the revenue that you have taken away from your previous supplier. The larger the contract that you have given to the EME/QSE the more difficult it will be for them to focus on new business creation vs. maintaining the business from you as their new client.
The difference might however be if your company were to engage in a value creation process and procure new goods and services as part of this process. In these circumstances you might actually be creating new jobs in your procurement processes.
If you have finally come to terms with the fact that your preferential procurement processes might not be creating new jobs, but rather transforming the current job market, then you might need to start looking at what it would cost you to create a new job.
Making sense of Cost per Job
If you have been part of a job creation process then you might consider some of the benchmarks out there. When analysing these figures it is however important for us to consider the difference between job support and job creation. If you are an significant investor in the process then you can claim your spend as job creation part of supplier development, however if you are one of many investors then you should consider that you are supporting the creation of the jobs along with many of the other companies that are involved.
The jobs fund has recently claimed to create +/- 94000 jobs at a cost of R37044 per job, although the
What is your cost per job target?
overall cost per job seems to be in the region of R63742. The IDC has had a cost/job ratio of between R159 000 to R294000.
Research done by professor Shane in the US found the cost per job created in the United States to be in the region of R200000. Considering the Entrepreneurial support infrastructure in the United States this would probably be on the low side in comparison to South Africa. For mining and manufacturing processes the cost per job could actually be deemed much higher due to the investment cost that is required.
A comparison of all these different programmes indicates that there is a fair amount of relativity out there when comparing job creation, without even considering comparison of job support programmes. The best benchmark to use therefore might be to benchmark your own year on year Enterprise and Supplier development programmes in terms of job creation.