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Strategic drift how the mighty fall applied to the building industry

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Jim Collins (How the mighty fall) describes the rise and fall of many famous organisations. At the end of the day it has to do with hubris, the arrogance developed by the leadership of organisations …

Jim Collins (How the mighty fall) describes the rise and fall of many famous organisations. At the end of the day it has to do with hubris, the arrogance developed by the leadership of organisations that think they have made it - and they lose contact with customers. Industries can also go through the same phases, as desribed in this presentation related to the building industry in South Africa.

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  • 1. Strategic Drift: How the mighty fall: Applied to the Building Industry Dr. Llewellyn B. Lewis March 2009
    • THE STRATEGIC FORUM
    • A place of assembly
    • for strategic conversations
    THE STRATEGIC FORUM www.strategicforum.co.za BMI Studium Ad Prosperandum Voluntas in Conveniendum BUILDING RESEARCH STRATEGY CONSULTING UNIT cc Reg. No. 2002/105109/23 • BMI Studium Ad Prosperandum Voluntas in Conveniendum BUILDING RESEARCH STRATEGY CONSULTING UNIT cc • BMI • BMI • BMI
  • 2. THE STOCKDALE PARADOX When Jim Collins asked Stockdale “Who didn’t make it out?” he gave a surprising reply. “Oh, that’s easy,” he said and went on to explain. “The optimists. They were the ones who said, ‘We’re going to be out by Christmas’ and Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.” Stockdale went on to say: “This is a very important lesson. You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.” (Collins: How the Mighty Fall: 2009) The Stockdale Paradox Retain faith that you will Prevail in the end, Regardless of the difficulties Confront the most brutal Facts of your current reality, whatever they Might be AND At the same time
  • 3.
    • Bear Stearns fell from # 156 on the Fortune 500 to gone, bought out by J P Morgan Chase in a desperation deal engineered over a weekend;
    • Lehman Bros collapsed into bankruptcy after 158 years of growth and success;
    • Fanny Mae and Freddy Mac crippled , succumbed to government conservatorship;
    • Merryl Lynch , the symbol of bullish America, capitulated to a take-over bid;
    • Washington Mutual tottered on the edge of becoming the largest commercial bank failure in history;
    • The US Government embarked on the most extensive take-over of private assets in more than seven decades in a phonetic effort to stave off another Great Depression
    Time to ARMAGEDDON: 5 DAYS Time to ARMAGEDDON: 2 MONTHS Time to ARMAGEDDON: < 36 HOURS Time to ARMAGEDDON: 6 MONTHS Time to ARMAGEDDON: 15 MONTHS HOW THE MIGHTY FALL
  • 4.
    • Bear Stearns fell from # 156 on the Fortune 500 to gone, bought out by J P Morgan Chase in a desperation deal engineered over a weekend;
    • Lehman Bros collapsed into bankruptcy after 158 years of growth and success;
    • Fanny Mae and Freddy Mac crippled , succumbed to government conservatorship;
    • Merryl Lynch , the symbol of bullish America, capitulated to a take-over bid;
    • Washington Mutual tottered on the edge of becoming the largest commercial bank failure in history;
    • The US Government embarked on the most extensive take-over of private assets in more than seven decades in a phonetic effort to stave off another Great Depression
    Time to ARMAGEDDON: 5 DAYS Time to ARMAGEDDON: 2 MONTHS Time to ARMAGEDDON: < 36 HOURS Time to ARMAGEDDON: 6 MONTHS Time to ARMAGEDDON: 15 MONTHS HOW THE MIGHTY FALL
  • 5. “ The Bank of America is perhaps best known for its size – it is the world’s largest bank, with nearly 1100 branches, operations in more than 100 countries and total assets of about $100-bn. In the opinion of many close observers, an equally notable achievement is its quality of management …” (January 1980 issue of Harvard Business Review, as quoted in Collins : How the Mighty Fall : 2009) Were anyone to have predicted that in 1980 that in just eight years, the Bank of America would fall from its acclaimed position as one of the most successful companies in the world ….. he or she would have been viewed as a pessimistic outlier . Yet that’s exactly what happened to Bank of America. (As quoted in Collins : How the Mighty Fall : 2009) ON THE CUSP AND UNAWARE
  • 6. Bank of America Net Income 1972=1987 (in $ Millions) The World’s Largest Bank, Admired for its Management Yet on the Cusp of Catastrophic Decline 600 400 200 0 -200 -400 -600 -800 1972 1976 1980 1984 1987 ON THE CUSP AND UNAWARE (Source: Collins: How the Mighty Fall: 2009)
  • 7. Every institution is vulnerable, no matter how great. No matter how much you have achieved; no matter how far you have gone; no matter how much power you have garnered, you are vulnerable to decline. There is no law of nature that the most powerful will inevitably remain at the top; anyone can fall and most eventually do. (As quoted in Collins : How the Mighty Fall : 2009) ON THE CUSP AND UNAWARE
  • 8. Wall-Mart A Study of Contrasts Why does one Company fall . . . And the other Does Not? Two Companies Achieve great results with the same Business Model Then one Falls . . . While the other climbs . . . Ames 1974 1977 1980 1983 1986 1989 1992 30 25 20 15 10 5 0 Ratio of Cumulative Stock Returns to General Market ON THE CUSP AND UNAWARE (Source: Collins: How the Mighty Fall: 2009)
  • 9. ON THE CUSP AND UNAWARE
  • 10. Behind the Change Curve Ahead of the Change Curve Strategic Drift Demise Transformation or REINVENTION (Source: Based on Johnson and Scholes: 2002) STRATEGIC DRIFT www.strategicforum.co.za
  • 11. STRATEGIC DRIFT www.strategicforum.co.za Behind the Change Curve Ahead of the Change Curve Strategic Drift Demise Transformation or REINVENTION (Source: Based on Johnson and Scholes: 2002) From the realm of pure reason he could see that Intel’s present course had an obvious ending: Disaster! For a man who strives to grasp objective reality, Grove had missed a fundamental shift in the nature of his business. Intel had become a marketing company. And while a chip is built in a factory, a brand is co-created with the customer. This required a rethinking of the meaning of “objectivity”. In branding, a customer’s subjective reality, even if confused, becomes your objective reality.
  • 12. Paradigm Re-invention Scope of change and transformation Different All processes (Whole company) Single process (Part of company) Standing still Continuous Improvement Paradigm shift Best Practice Benchmarking Smaller Impact of Change and transformation Better The current and known world The future, unknown Transformed All organisations (Whole industry) Single organisations (Part of industry) Faster
    • INCREMENTAL CHANGE
    PARADIGMS CHALLENGED STRATEGY REGENERATION
    • PARADIGMS REINVENTED
    • TRANSFORMATION
    STRATEGIC DRIFT
    • DEMISE
    • FLUX
    STRATEGIC DRIFT IN COMPANIES www.strategicforum.co.za THE ENVIRONMENT
  • 13. Paradigm Re-invention Scope of change and transformation Critical mass of Investors (Whole community) Single Investor (Part of community) Paradigm Pioneer Early adopter Paradigm shift Late Adopter Bandwagon Flocking Herd behaviour Impact of Change and transformation All Countries (Whole World) Single Country (Part of World)
    • THE LOCAL PROPERTY MARKET
    LIMITS TO GROWTH PARADIGMS CHALLENGED ALTERNATIVE INVESTMENTS
    • REINVENTION
    • A Structural Change?
    • Self Organisation
    • Order for Free!
    • Property a preferred Investment!
    THE GLOBAL PROPERTY ENVIRONMENT
    • DEMISE
    • THE PROPERTY BUBBLE?
    THE EDGE OF CHAOS CREATIVITY INNOVATION The current and known world The future, unknown STRATEGIC DRIFT AND THE PROPERTY BUBBLE www.strategicforum.co.za
  • 14. Paradigm Re-invention Scope of change and transformation Critical mass of Investors (Whole community) Single Investor (Part of community) Paradigm Pioneer Early adopter Paradigm shift Late Adopter Bandwagon Flocking Herd behaviour Impact of Change and transformation All Countries (Whole World) Single Country (Part of World)
    • THE LOCAL PROPERTY MARKET
    LIMITS TO GROWTH PARADIGMS CHALLENGED ALTERNATIVE INVESTMENTS
    • REINVENTION
    • A Structural Change?
    • Self Organisation
    • Order for Free!
    • Property a preferred Investment!
    THE GLOBAL PROPERTY ENVIRONMENT
    • DEMISE
    • THE PROPERTY BUBBLE?
    THE EDGE OF CHAOS CREATIVITY INNOVATION The current and known world The future, unknown IMF World Bank Ministry Treasury Banks Public opinion Individual Contagion STRATEGIC DRIFT AND THE PROPERTY BUBBLE www.strategicforum.co.za
  • 15. Errol Kruger saw the crash coming early. Back in July 2005, when our Banks were enjoying big profits, Kruger called up the CEO’s of the five major Institutions – ABSA, Nedbank, Standard Bank, FirstRand and Investec – and cautioned he will be “pulling the handbrake” on expansions and acquisitions. To him, the economy was showing early signs of overheating . . . And he warned that SA’s financial institutions were at stage 7 of the banking cycle and not stage 4 as they thought. “ I didn’t want to be a pessimist, But I told them I could see a crisis coming, and they should expect a tougher stance, and increased activities from my office that are appropriate to stage 7 – activities which they might think are extremely bureaucratic.” STRATEGIC DRIFT AND THE PROPERTY BUBBLE www.strategicforum.co.za
  • 16. STRATEGIC DRIFT AND THE PROPERTY BUBBLE www.strategicforum.co.za
  • 17. STRATEGIC DRIFT AND THE PROPERTY BUBBLE www.strategicforum.co.za
  • 18. STRATEGIC DRIFT AND THE PROPERTY BUBBLE www.strategicforum.co.za The decline in Total Mortgage Advances was a massive R246,5 Billion . . . . 4 Times the size of annual New Residential Building Construction!
  • 19. STRATEGIC DRIFT AND THE PROPERTY BUBBLE www.strategicforum.co.za The decline in Total Mortgage Advances was a massive R246,5 Billion . . . . 4 Times the size of annual New Residential Building Construction! Did the Banks lose their appetite for long-term “Debt”?
  • 20. STRATEGIC DRIFT AND THE PROPERTY BUBBLE www.strategicforum.co.za Total Mortgages Outstanding has been increasing by some one quarter to one third of a percent per month since August 2009 (in current values). This clearly cannot be regarded as a recovery or the heralding of a less stringent credit policy by the Banks.
  • 21. STRATEGIC DRIFT AND THE BUILDING INDUSTRY www.strategicforum.co.za But they forgot to tell the Building Industry!
  • 22. STAGE 1 HUBRIS BORN OF SUCCESS Stage 1 Hubris born Of success Stage 2 Undisciplined Pursuit of More Stage 3 Denial of Risk and Peril Stage 4 Grasping for Salvation Stage 5 Capitulation to Irrelevance or Death STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za (Source: Collins: How the Mighty Fall: 2009)
  • 23. STAGE 1 HUBRIS BORN OF SUCCESS Stage 1 Hubris born Of success Stage 2 Undisciplined Pursuit of More Stage 3 Denial of Risk and Peril Stage 4 Grasping for Salvation Stage 5 Capitulation to Irrelevance or Death STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za An UNCANNY resemblance? (Source: Collins: How the Mighty Fall: 2009)
  • 24.
    • STAGE 1 HUBRIS BORN OF SUCCESS
    • Success, entitlement, arrogance;
    • Neglect of a primary flywheel;
    • “ What” replaces “Why”;
    • Decline in learning orientation;
    • Discounting the role of luck. (Source: Collins: How the Mighty Fall: 2009)
    STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za
  • 25. STAGE 2 UNDISCIPLINED PURSUIT OF MORE Stage 1 Hubris born Of success Stage 2 Undisciplined Pursuit of More Stage 3 Denial of Risk and Peril Stage 4 Grasping for Salvation Stage 5 Capitulation to Irrelevance or Death STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za (Source: Collins: How the Mighty Fall: 2009)
  • 26.
    • STAGE 2 UNDISCIPLINED PURSUIT OF MORE
    • Unsustainable quest for growth, confusing big with great;
    • Undisciplined discontinuous leaps;
    • Declining proportion of right people in key seats;
    • Easy cash erodes cost discipline;
    • Bureaucracy subverts discipline;
    • Problematic succession of power;
    • Personal interest placed above organisational interest. (Source: Collins: How the Mighty Fall: 2009)
    STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za
  • 27. STAGE 3 DENIAL OF RISK OR PERIL Stage 1 Hubris born Of success Stage 2 Undisciplined Pursuit of More Stage 3 Denial of Risk and Peril Stage 4 Grasping for Salvation Stage 5 Capitulation to Irrelevance or Death STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za (Source: Collins: How the Mighty Fall: 2009)
  • 28.
    • STAGE 3 DENIAL OF RISK AND PERIL
    • Amplify the positive; discount the negative;
    • Big bets and bold goals without empirical validation;
    • Incurring huge downside risk based on ambiguous data;
    • Erosion of healthy team dynamics;
    • Externalising blame;
    • Obsessive reorganisation;
    • Imperious detachment. (Source: Collins: How the Mighty Fall: 2009)
    STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za
  • 29. STAGE 4 GRASPING FOR SALVATION Stage 1 Hubris born Of success Stage 2 Undisciplined Pursuit of More Stage 3 Denial of Risk and Peril Stage 4 Grasping for Salvation Stage 5 Capitulation to Irrelevance or Death STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za (Source: Collins: How the Mighty Fall: 2009)
  • 30.
    • STAGE 4 GRASPING FOR SALVATION
    • A series of silver bullets;
    • Grasping for a leader–as–saviour;
    • Panic and haste;
    • Radical change and “ revolution” with fanfare;
    • Hype precedes results;
    • Initial upswing followed by disappointments;
    • Confusion and cynicism;
    • Chronic restructuring and erosion of financial strength. (Source: Collins: How the Mighty Fall: 2009)
    STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za
  • 31. STAGE 5 CAPITULATION TO IRRELEVANCE OR DEATH Stage 1 Hubris born Of success Stage 2 Undisciplined Pursuit of More Stage 3 Denial of Risk and Peril Stage 4 Grasping for Salvation Stage 5 Capitulation to Irrelevance or Death STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za (Source: Collins: How the Mighty Fall: 2009)
  • 32.
    • STAGE 5
    • CAPITULATION TO IRRELEVANCE OR DEATH
    • Giving up the fight;
    • Running out of options;
    • Denial or hope. (Source: Collins: How the Mighty Fall: 2009)
    STRATEGIC DRIFT AND THE STAGES OF DECLINE www.strategicforum.co.za
  • 33.
    • and the financial crisis of 2008
    • By the 1990’s, Fannie’s chief executive could boast, without much exaggeration, that “we are the equivalent of a Federal Reserve system for housing”;
    • At their pinnacle the two mortgage giants, Fannie and Freddie –neither of them an originator of loans – owned or guaranteed some 55% of the $11 Trillion US mortgage market;
    • Beginning in the 1980’s, the two companies also became important conduits for the business of mortgage-backed securities;
    • In 1999, under pressure from the Clinton administration, Fannie and Freddie began underwriting sub-prime mortgages;
    • The move was presented in the Press as a way to put homes within the reach of countless Americans, but providing loans to people who wouldn’t ordinarily qualify for them was an inherently risky business. (As quoted in Sorkin: Too big to fail: 2009)
    STRATEGIC DRIFT AND THE FINANCIAL CRISIS www.strategicforum.co.za
  • 34.
    • and the financial crisis of 2008
    • Fannie Mae was featured in Good to Great to its extraordinary performance leap in the early 1980s under David Maxwell;
    • Under Maxwell’s leadership, Fannie Mae transformed itself from a bureaucratic, government-chartered entity into a high powered capital market enterprise, generating cumulative stock returns substantially above the general stock market;
    • The 30-year cumulative stock return pattern, used as the basis for selecting Fannie Mae for Good to Great , ran from 1969 to 1999 and the research focused on those years;
    • Unfortunately, Fannie Mae of the 2000s exemplified just the opposite : Great to Good to Nearly Gone ;
    • As the housing bubble burst, financial executives at major institutions turned incredulous, seemingly unable to believe the terrifying reality of their situation. (As quoted in Collins : How the Mighty Fall : 2009)
    STRATEGIC DRIFT AND THE FINANCIAL CRISIS www.strategicforum.co.za
  • 35.
    • and the financial crisis of 2008
    • There was little evidence that the company’s executives seriously considered the possibility of failure;
    • Yet in September 2008, Fannie Mae found itself under government conservatorship, a legal status similar to bankruptcy;
    • On October 31, Fannie Mae’s stock price, which had stood at $57 a year earlier, had essentially evaporated, falling 98% to 93 cents;
    • According to the New York Times, Fannie Mae’s CEO later defended the company, pointing out that “Almost no-one expected what was coming. It’s not fair to blame us for not predicting the unthinkable.”
    • Indeed, nearly every major financial institution got mauled in the housing bubble, sub-prime mortgage mess of 2008 including Fannie Mae’s fraternal twin , Freddie Mac, along with institutions like City Group. (As quoted in Collins : How the Mighty Fall : 2009)
    STRATEGIC DRIFT AND THE FINANCIAL CRISIS www.strategicforum.co.za
  • 36.
    • Fannie Mae and the financial crisis of 2008
    • By the early 2000s, Fannie Mae had acquired a reputation for arrogance (“We always won, we took no prisoners and we faced little organised political opposition”) enabled by both its extraordinary success and its sense of missionary righteousness, vis-à-vis its special role in advancing the American dream of home ownership;
    • Fannie Mae had long prided itself on being a disciplined organisation, especially in managing risk but it also experienced substantial pressures for growth – from within and from Wall Street – compounded by political pressures to help more low income families become home owners.
    • Collins was struck by how the stages of decline – Hubris Born of Success, Undisciplined Pursuit of More, Denial of Risk and Peril, Grasping for Salvation (Government Save Us!), a nd finally capitulation to irrelevance or death – mapped very well not just to individual companies, but perhaps even to an entire industry, such as financial services or the American auto industry
    • Even so, it is worth noting that companies need not be imprisoned by their industries; not every financial company toppled during the 2008 crisis and some seized the opportunity to take advantage of weaker competitors in the midst of the tumult. (As quoted in Collins : How the Mighty Fall : 2009)
    STRATEGIC DRIFT AND THE FINANCIAL CRISIS www.strategicforum.co.za
  • 37. STRATEGIC DRIFT AND HOME OWNERSHIP www.strategicforum.co.za Visit to HUD: Washington DC: 1991 Pres. George Bush Snr
  • 38. STRATEGIC DRIFT AND HOME OWNERSHIP www.strategicforum.co.za NAHB CONFERENCE: ATLANTA GEORGIA: JANUARY 1991
  • 39. STRATEGIC DRIFT AND HOME OWNERSHIP www.strategicforum.co.za NAHB CONFERENCE: ATLANTA GEORGIA: JANUARY 1991 Visited by 65 000 people over 4 days.
  • 40. STRATEGIC DRIFT AND HOME OWNERSHIP www.strategicforum.co.za The Vision was said to be impossible. Nobody (ostensibly) bought it – certainly not the Government of the day. The NAHB “brought the vision” to South Africa. Launched at the biggest Housing Conference in history. Attended by 4 Ministers and opened by President FW De Klerk. In 1994 the new ANC Government undertook to build 1 million houses in 5 years. And they succeeded!.
  • 41. THE ROLE OF AFFORDABLE HOUSING IN THE ECONOMY: 2009 www.strategicforum.co.za 5 Million houses built in next 12 years and Backlog eliminated by 2020. The target remains the eradication of all slums, or informal settlements, by 2014. For this to happen, some 500 000 new units a year must become available, according to the Department of Housing’s Strategic Plan 2008 to 2011.
  • 42.
    • Typical RDP Housing (50%)
    • Basic Unit 45 m2
    • R105 000 including stand
    • Give-away housing
    • Row Housing and Walk-ups
    • Development and Subsidy facilitation
    • Upgraded RDP Housing (25%)
    • 40 – 60 m2 units
    • R105 – R250 000 including stand
    • Subsidy PLUS own credit
    • Development and Subsidy facilitation
    • Credit facilitation/granting
    • Rental
    SUBSIDISED RDP SUBSIDISED CREDIT LINKED OR RENTAL HOUSING R6 000 R11 000 R20 000 HHI HOUSE R105 000 R250 000 R450 000 BONDED HOUSING FSC
    • GAP Housing (15%)
    • 60 – 120 m2 units
    • R250 – R450 000 including stand
    • Subsidy PLUS Bond
    • Development and Subsidy facilitation
    • Access to Bond facilitation
    GIVEAWAY (RDP) Inclusionary Housing GAP HOUSING Sustainable Integrated mixed use Development SUBSIDISED CREDIT OR BOND LINKED OR RENTAL HOUSING COMPETITIVE POSITIONING: MIXED USE INTEGRATED DEVELOPMENTS
    • Bonded Housing (10%)
    • 120-220 m2 units
    • R450 – R750 000 including stand
    • Development facilitation
    • Access to Bond facilitation
    R750 000 BONDED HOUSING Mixed use Development STRATEGIC DRIFT AND HOME OWNERSHIP www.strategicforum.co.za
  • 43. STRATEGIC DRIFT AND HOME OWNERSHIP www.strategicforum.co.za
  • 44.
    • WELL FOUNDED HOPE
    • The signature of the truly great versus the merely successful is not the absence of difficulty but the ability to come back from setbacks, even cataclysmic catastrophies, stronger than before;
    • Great companies, great social institutions and great individuals can fall and recover;
    • As long as you never get entirely knocked out of the game , there remains always hope. (Source: Collins: How the Mighty Fall: 2009)
    STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 45. Stage 1 Hubris born Of success Stage 2 Undisciplined Pursuit of More Stage 3 Denial of Risk and Peril Stage 4 Grasping for Salvation Stage 5 Recovery and Renewal WELL FOUNDED HOPE STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za (Source: Based on Collins: How the Mighty Fall: 2009)
  • 46. Stage 1 Hubris born Of success Stage 2 Undisciplined Pursuit of More Stage 3 Denial of Risk and Peril Stage 4 Grasping for Salvation Stage 5 Recovery and Renewal WELL FOUNDED HOPE STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za ? What will it take? (Source: Based on Collins: How the Mighty Fall: 2009)
  • 47. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za Can the Building Industry TRANSFORM and REINVENT itself – can it recover?
  • 48. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za It will FUNDAMENTALLY depend on the strategy of the FINANCIAL INSTITUTIONS.
  • 49. Low High POWER INTEREST (STAKE) UNAFECTED STAKEHOLDERS Low High PLAYERS Demand creators Future oriented Proactive Innovative Entrepreneurial Risk Takers RESERVES Demand Responders Current orientation Reactive Responsive Service oriented Risk Managers ONLOOKERS Demand observers Past orientation Passive Risk Avoiders REFEREES Demand Facilitators Current orientation Reactive Responsive Mediating Gatekeepers Risk Averse BYSTANDERS ACTORS Building Industry Stakeholder Analysis STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 50. Low High POWER LEVEL OF INTEREST (STAKE) UNAFECTED STAKEHOLDERS Low High PLAYERS Committed In the Know RESERVES Involved Keep Informed CROWD Interested Minimal Effort REFEREES Concerned Keep Satisfied BYSTANDERS ACTORS Building Industry Stakeholder Analysis STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 51. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za INTEREST (STAKE) UNAFECTED STAKEHOLDERS Low High BYSTANDERS ACTORS Low High POWER PLAYERS Property Entrepreneurs, developers, Public Sector, FINANCIAL INSTITUTIONS (Mortgage Origination, Approval, Advances) RESERVES Architects, Specifiers, Manufacturers, Distributors, Contractors, FINANCIAL INSTITUTIONS Deposits, Repayments, Insurance) CROWD Labour, Unions, Consumer bodies, FINANCIAL INSTITUTIONS (Property Values, Property reports (HPI), Statistics) REFEREES Govt Prov-, Local-Authorities, CIDB, NHBRC, SABS, Agrement Board, MBA’S, SARB, State Tender Board, FINANCIAL INSTITUTIONS (Valuations, LTV ratios, Mortgage Rate, term, Affordability) Building Industry Stakeholder Analysis Financial Institutions have INORDINATE Power and Interest. They play in all the quadrants of the Stakeholder Matrix and are SIMULTANEOUSLY PLAYERS, RESERVES, REFEREES and CROWD . They make the rules of the game and influence every facet of it. In March 2009, the Financial Times claimed that the “credit crisis had destroyed faith in the free market ideology that has dominated Western thinking for a decade.”
  • 52. How can we create an environment that gives us the leverage to influence the Financial Institutions? “ Are we making the same mistake again, not to see a crisis in the making?” Relationships and tools that can be used to manipulate a crisis have to be prepared for years – sometimes decades – in advance. This reflects (Holling’s) belief that in a changing eco system the persistence of relationships matters more than anything else. That’s a reason that the re-acquiring of habits of international cooperation in everything from food aid to nuclear energy is so essential. It lets us begin to rebuild the webs of contacts, influence, and leverage to shape the environment around problems that we’ll never be able to attack directly. (Ramo: 2009: 214) STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 53. Building Industry Stakeholder Analysis Low High POWER INTEREST (STAKE) UNAFECTED STAKEHOLDERS Low High PLAYERS Property Entrepreneurs, Property developers, Public Sector, Building Industry RESERVES Architects, Specifiers, Manufacturers, Distributors, Contractors, Financial Institutions, Building Industry CROWD Labour, Unions, Consumer bodies, Building Industry REFEREES Govt, Provincial, Local-Authorities CIDB, NHBRC, SABS, Agrement Board, MBA’S, SARB, State Tender Board, Building Industry BYSTANDERS ACTORS Think “outside the box”. Change the “rules of the game”. Become a PRO-ACTIVE PLAYER in each of the quadrants of the Stakeholder Matrix. How can we create an environment that gives us the leverage to influence the Banks? STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 54. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za Building Industry Stakeholder Analysis Low High POWER INTEREST (STAKE) UNAFECTED STAKEHOLDERS Low High PLAYERS Property Entrepreneurs, Property developers, Building Industry (Mortgage Origination, Approval, Advances) RESERVES Architects, Specifiers, Manufacturers, Distributors, Financial Institutions. Building Industry (Contractors, Deposits, Repayments, Insurance) CROWD Labour, Unions, Consumer bodies, Building Industry (Property Values, Property reports (HPI), Statistics) REFEREES Govt, Prov-, Local-Authorities CIDB, NHBRC, SABS, Agrement Board, MBA’S, SARB, State Tender Board, Building Industry (Valuations, LTV ratios, Mortgage Rate, term, Affordability, Quality) BYSTANDERS ACTORS Develop an Igniting Vision and a Grand Strategy: Promote Building as the engine for growth, nation building and wealth creation through Property Ownership.
  • 55. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za Every American President including George Bush promoted Home Ownership Who promotes Home Ownership and Property as a preferred Investment in South Africa?
  • 56. Productive capacity Alliances, Joint Ventures Cross functional Networking Enterprise Development, BEE Skills Training and Development Leadership, Lobbying, Advocacy Modeling cooperative behaviour REINVENTION The Hot Spot Scenario: mapping emergence (Based on Gratton: 2007: 145) Building: The Engine for Growth and Wealth Creation. Property a preferred investment Management Training and Development INDUSTRY Government Labour STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 57. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za Productive capacity Alliances, Joint Ventures Cross functional Networking Enterprise Development, BEE Skills Training and Development Leadership, Lobbying, Advocacy Modeling cooperative behaviour REINVENTION The Hot Spot Scenario: mapping emergence (Based on Gratton: 2007: 145) Building: The Engine for Growth and Wealth Creation. Property a preferred investment Management Training and Development INDUSTRY Government Labour Who in the building and property industry is driving a vision of any description? Is there even a vision at all? Who will appropriate the role to champion the cause to promote nation-building through home-ownership, property as a preferred investment and building as an engine for growth and wealth-creation? And WHO WILL ADVOCATE THE HOPES AND DREAMS of millions of homeowners (and that of an industry that employs over one million people)? The more peers we can bring online for the business of saving the world, the easier the effort will be, and in a sense, the stronger we will each be. (Ramo: 2009: 240)
  • 58. We have concluded that it is not one single body or institution or company that should develop and drive an igniting vision for the building industry. The industry COLLECTIVELY must take ACCOUNTABILITY to develop an igniting vision of Nation Building through Home Ownership, Property as a Preferred Investment and Building as an Engine for Growth and Wealth Creation. We envision that every major organisation in the Building Industry from Development to Manufacturing, to Distribution, to Contracting and Finance should adopt this overarching vision and customise it for their own vision (see example of Claybrick.org overleaf). Then the Building and Property Industry will indeed become a HOT SPOT industry driven by an igniting vision, a collaborative mind-set, cross boundary networking and the productive capability to make South Africa a Winning Nation. Then a repetition of the sub-prime crisis will not catch a cooperating industry unawares. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 59. NATIONAL ISSUES GROWTH WEALTH EMPLOYMENT PROPERTY CLAYBRICK.ORG’S ROLE INVESTMENT ENVIRONMENT MARKETING LOGISTICS VISION Building is the engine for growth and wealth creation through Property Ownership and Clay brick is the preferred Partner for good as the green walling solution of choice. MANUFACTURING CLAYBRICK FOR GOOD MISSION Developing and growing competitive awareness, knowledge and support of burnt clay masonry and maintaining consistent standards in the environmentally friendly production of clay brick for good value and performance in building. REINVENTION Doing well while doing good. NARROW FOCUS ON COMPANY BROAD FOCUS ON CONTRIBUTION TO NATIONAL ISSUES
    • VALUES
    • CB has an igniting vision, a culture, or mind set of co-operation, collaboration and cross-boundary networking; and a production capability to facilitate delivery of fit for purpose products and solutions and based on the ethical values and code of conduct of:
    • Respect
    • Responsibility
    • Honesty
    • Integrity
    • Accountability
    • Collaboration
    Overarching vision aligned with National Issues, adapted and customised by Claybrick.org for their own vision and values. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 60.
    • The Major GAMEBREAKING POTENTIAL lie in the following areas:
    • An igniting vision of nation-building through home-ownership, property as a preferred investment and building as an engine for growth and wealth-creation;
    • Interest Rates falling further by 2-3 percentage points;
    • The Banks relaxing their stringent lending criteria and promoting Home Ownership as an Engine for Growth and Wealth Creation;
    • Return of Investor Confidence, Banks first and then Consumers;
    • Property a preferred Investment. (Source: BMI-BRSCU)
    STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 61. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
    • The Major GAMEBREAKING POTENTIAL lie in the following areas:
    • An igniting vision of nation-building through home-ownership, property as a preferred investment and building as an engine for growth and wealth-creation;
    • Interest Rates falling further by 2-3 percentage points;
    • The Banks relaxing their stringent lending criteria and promoting Home Ownership as an Engine for Growth and Wealth Creation;
    • Return of Investor Confidence, Banks first and then Consumers;
    • Property a preferred Investment. (Source: BMI-BRSCU)
    Retail Motor Industry chief executive Jeff Osborne is calling on South Africa’s banks to open the credit taps and on government to play its role by reducing the prime interest rate by a meaningful 2 percent. The umbrella body is the lead voice in the automotive industry, the largest manufacturing sector in the SA economy. With 7250 members , the RMI is also the major employer representative of the Motor Industry Bargaining Council. (Bus. Report, 26 November 2009) “ . . . They (the Banks) do hold the key to economic recovery and to the survival of small businesses. Although we are seeing the return of some stability in the market, there will be no real recovery until stable consumers can access credit.” (Bus. Report, 26 November 2009)
  • 62. Brian Joffe, CEO of Bidvest, the R112 Billion annual turnover company employing some 105 000 people recently stated that much more must be done to stimulate the economy and to promote growth. “ The lending criteria of the Banks are hopelessly too strict. It makes it very difficult for the economy to grow. Interest Rates are also too high. It must reduce and then things will happen. The Government must become more aggressive (in promoting growth).” (Sake24, 7 March 2010) &quot;The tenant moved on, so the rent fell away for a while, as we consider whether to rent again or sell. The banks have rejected two bond applications from prospective buyers so far. They even rejected me. A dear friend needed help with a very big loan for just a few months while he sold his house. I asked my bank to lend me the sum against my rental home (fully paid up through the same bank) but it refused me. I have banked with them for 46 years and paid up a bond and three cars. I suppose they'll blame the National Credit Act.&quot; (David Carte: When you get a death sentence: Deny it and take a trip: Moneyweb, 16 March 2010) STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 63. Sold out OFF PLAN in one week before launch! (15 November 2006) STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za Purchase Price R2,4 Million (R15 000/M2) 10% deposit (15 November 2006) Personal experience: Property a good Investment?
  • 64. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za Completed July 2009 Valuation R4,5 Million (R30 000/M2) Personal experience: Property a good Investment? Corporate Tennant, 3 year lease at R32 000 pm WITH ESCALATION. Increased Bond for R500 000 applied for to furnish Flat (LTV 60%) Not even the courtesy of a REPLY from the Bank that owns the Mortgage!
  • 65. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za Personal experience: We had to scramble to find the money for furniture. To protect our asset (and mainly that of the Bank). Flat furnished to the standard expected by the quality of the Investment
  • 66. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za The Terrace – before furniture.
  • 67. More than 50 percent of home loan applications are still being declined despite many banks relaxing their credit criteria. The gradual improvement in the residential property market since the second half of last year has been attributed largely to the relaxation by banks of their credit criteria (?) and the reduction in interest rates, enabling consumers to reduce their high debt levels. (Business Report, 17 March 2010) STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 68. It is encouraging to note Finance Minister Pravin Gordhan’s recent statement that South Africa’s Central Bank would release a report in the next two months on an investigation into the spread between its benchmark repurchase rate and the prime rate offered by commercial banks. Following former SARB Governor Mboweni’s comments early last year that the spread should be “reviewed”, Gordhan said that a joint committee was established between the SARB and the Banking Association of South Africa to discuss the spread. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 69. In order to achieve the Major GAMEBREAKING POTENTIAL a collaborative culture is required based on trust and cross boundary networking and dynamic Public, Private Sector Partnerships that can deliver on Infrastructure, Housing, Health, Education, Safety and Security et al and make South Africa a Winning Nation and a World model of Nation Building and Reconciliation. (Source: BMI-BRSCU) STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 70. Banks will no doubt survive (too big to fail?) .. . . But . . . Will Homeownership for the average citizen? Will Property as a preferred Investment? Will the Building Industry ? Will society ACCEPT THEIR FATE TO BE RENTERS WHILE THE RICH AND PRIVILEGED ARE THE LANDED GENTRY? Will NON DELIVERY lead to UNINTENDED CONSEQUENCES . . . TOO UNTHINKABLE TO CONTEMPLATE? STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 71.
    • It is hoped that business leaders will also find their voices to speak out boldly. In this regard, the recent comments by Dr Johann Rupert to the Anton Rupert memorial lecture, was enlightening.
      • “ I’ve kept my word to Mamphela Ramphele, who said that whites should start speaking out a little bit without having the fear of being branded racists.”
    • Quoting from his own experience he went on to say that even “Big Business with Government” meetings were orchestrated “powerpoint exchanges”. It was not frank dialogue.
      • “ And whenever any of us wanted to speak out our fellow businessmen made sure that we were kept quiet. So even the business leaders were very reluctant to criticise, preferring the lobbying route.” ( Business Times, 26 October 2008).
    STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 72. STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za Ramphele said it was astounding that SA’s business sector had remained largely silent , even on failures that directly affected it. This included the system of 23 sectoral education and training authorities (Setas), funded by a levy of 1% of payroll for businesses with an annual turnover of more than R500 000, that was “clearly not working”. (Business Day, 3 December 2008) The Setas, the labour department’s near-destruction of SA’s working apprenticeship system and SA’s further education and training (FET) colleges were producing “unemployable” graduates. This was because there was not enough synergy between the college curricula and industry needs. “ The private sector is too scared to upset (the government) ... but its silence is creating the seeds of social instability. Our people can’t read, write, or be usefully engaged,” she said. (Business Day, 3 December 2008)
  • 73. “ We need more civil society mobilisation. We can’t let people lie to us about what they are going to do with our taxes, and keep on voting for them.” What SA required was strong leadership of the enabling kind, instead of the traditional authoritarian kind, Ramphele said. The country’s leadership needed to create a milieu in which South Africans could commit to tackling the country’s dilemmas collaboratively. (Business Day, 3 December 2008) (Other) conundrums included how to develop a professional, performance-based, civil service; how to create an inclusive society while redressing lingering historical imbalances; and how to deal with the “huge” unintended consequences of some of the government’s “very good” policies. These policies included black economic empowerment (BEE), and the mass dismissal of white professionals from the civil service, particularly the country’s engineers. (Business Day, 3 December 2008) STRATEGIC DRIFT AND REINVENTION www.strategicforum.co.za
  • 74. Strategic Drift: How the mighty fall: Applied to the Building Industry Dr. Llewellyn B. Lewis March 2009
    • THE STRATEGIC FORUM
    • A place of assembly
    • for strategic conversations
    THE STRATEGIC FORUM www.strategicforum.co.za BMI Studium Ad Prosperandum Voluntas in Conveniendum BUILDING RESEARCH STRATEGY CONSULTING UNIT cc Reg. No. 2002/105109/23 • BMI Studium Ad Prosperandum Voluntas in Conveniendum BUILDING RESEARCH STRATEGY CONSULTING UNIT cc • BMI • BMI • BMI