A Global Leader in Performance Improvement Consulting: BMGI South Africa

“We have done a lot of work in repositioning their business models and specifically with business model innovation. It is not about what product or service that you are selling, it is about how you position it and how you create the business model around it that gets it to market.”

Interview with Dimitri Markoulides, SCP & Innovation Practice Leader at BMGI

Dimitri Markoulides, SCP & Innovation Practice Leader at BMGI

BMGI was founded in 1999 and quickly became one of the world´s top lean six sigma consulting firms. Can you start by telling us about the lean and six sigma methodologies you employ?

Let’s look at what Henry Ford did: he systematised production and by systematising production he was able to reduce the unit cost significantly by taking out all the waste and rework in the process. By systematising production he was able to come up with the Ford Model T at a much reduced price compared to the Model A which was initially released. That was the first trend where organisations and people started learning that systematising and taking out waste from a process actually provides a lot of benefit because it allows you to reduce your unit cost and it opens up new opportunities for new markets. That was the first trend and then closer to the Second World war, with the production of firearms, they realised that there was a lot of variation in producing firearms and back then a gentleman by the name of Shewhart came up with a technique called SPC or Statistical Process Control which was about maintaining consistency, keeping the variability under control and stabilising a process. That was the second trend that occurred. Today, the fact that we have systematised production and systematised defect reduction means we are able to walk around with cell phones for example, and they would not be a reality if we made them at very expensive prices, highly inefficient and unreliable for people to use. These two trends came about and if you look at lean six sigma, it is exactly that, it looks at a specific process and looks at ways of taking the waste out and reducing rework and defects. Fundamentally the two methodologies work well together in achieving a target unit cost or a target service level that is required by customers or new markets.

What is the key differential between lean and six sigma?

The lean looks at removing waste and six sigma looks at reduction of variation so reducing the variation in a process, in other words establishing consistency.

We haven’t grown fast enough into Africa, not only in the ICT sector but also other sectors. We should be a bigger player.

Given the state of the South African economy and because of the tough macroeconomic environment here, would you say that South African businesses are as uncertain as they are insecure currently? If so, how can a firm like BMGI help them alleviate these uncertainties and help them prepare for multiple possible futures?

Uncertainty is one of those things that the only way you can control it is to create stability. One way to create stability is to look at ways of differentiating your value proposition in such a way that it is attractive to many markets. Fundamentally one way to do this is to focus on what you are doing well and do it better. The other thing is to look at innovative ways of reaching new markets. Even though we are in South Africa and people might say that there is more instability in this country, in reality we are competing with the world. Today the market is open to everybody and long gone are the days that you had to be competitive only within your own environment. You are really competing with the world. The challenges that people face in South Africa now are more along the lines of skills development: upskilling people to ensure that they actually can produce at a very cost effective level and looking at ways of differentiating their value by finding new markets that they can compete with and grow in. Africa has a tremendous potential for South Africa to grow in and we haven’t actually even broken into the African market even though we are part of Africa.

Would you say that South African companies are more interested in learning about structure and methodical approaches for innovation than companies from other parts of the world?

I think they can see the value of it. They definitely see the value of having a structured approach in solving problems and in building their business and growing and differentiating their business. They do see that and they see the challenges that they have. There are more challenges from a skills development point of view compared to other countries that have higher skills levels in their labour markets. They have more challenges from that point of view but South Africans are very innovative. A lot of the technologies that are developed in South Africa are replicated overseas. A lot of the business models that are developed in South Africa are replicated overseas quite successfully. South Africans are very gifted and innovative in overcoming their challenges.

To what extent would you say that South Africa could take a big step forward in adopting a more scalable and replicable approach to innovation, particularly with new ICT etc.?

I think what we have to do is look at ways of differentiating value. What we do pretty well is we do a lot of process and product innovation but I believe where we need to focus is business model innovation which is the third step. Business model innovation really looks at changing the way that you position a product to make it applicable and attractive to new markets. I think we are not doing enough in that area. We are developing great local technologies but we are not taking advantage of those and we are not expanding as fast as we should be. That is what I would say is an opportunity for us in South Africa.

Innovation is obviously a key focus with Accelerate Cape Town. From your perspective what would you say are the top five means by which local companies and even local government bodies in the Cape can actually do more to harness innovation and gain that competitive global advantage?

The most important thing is that there is good synergy between government and business and in the Western Cape there seems to be very good synergy but there is still room for improvement. The other thing is both government and business need to work closer together in coming up with new technologies or integrating new technologies to make the Western Cape a real hot spot in terms of developing new sectors. The Western Cape is well positioned within South Africa to do this. We have high speed internet availability here as well as the engagement from business and government and that makes it ideal. We have a lot of local entrepreneurs that are very gifted but what is lacking is the capital. I am not seeing the investment coming in to back a lot of the ideas. When it comes to backing an investment and raising capital we are not the Silicon Valley and that is where we need to go; we need to create means for small and medium enterprises but also for business to look at ways of raising capital with less effort to be able to explore new areas of growth.

Africa is a lot more dependent on mobile technology typically than the US for example. When it comes to ICT and mobile technologies do you think that South Africa and the Western Cape in particular has a competitive strategic advantage?

I believe it has. I believe there is a lot of potential in South Africa not just in the Western Cape. I would say that there are a lot of opportunities that haven’t been exercised yet to the extent that they should have been. As I said earlier I do believe that we haven’t grown fast enough into Africa, not only in the ICT sector but also other sectors. We should be a bigger player. South Africa has tremendous potential and resources that it needs to utilise in capturing more of the African market and it needs to focus on that.

Can you give us some examples of major success stories or case studies that you are most proud of that BMGI has worked on?

We have worked on a lot of different South African companies. We have done a lot of work in repositioning their business models and specifically with business model innovation. It is not about what product or service that you are selling, it is about how you position it and how you create the business model around it that gets it to market. Whilst many companies focus around improving processes and products and getting new products, they tend to sit or become comfortable with their current business model and they tend not to explore new business models. That takes a bit of a risk appetite but at the end of the day, we have pointed out and highlighted with a lot of our clients the importance of thinking in that direction and as I said, there are a lot of good examples in South Africa of business models that have been replicated overseas with great success. South Africans really have to be proud of the achievements of local companies overseas.

What would you say are some of the most forbidding hurdles that are hankering South Africa’s growth potential? Which sectors do you think have the most promise to unlock value in the years to come?

I believe we have always been very dependent on mining but what has actually happened now is that mining has taken a back step. I think mining technology itself should have developed and moved away into automation a lot sooner and been less dependent on labour. We should have looked at developing people and paying people more but for doing more skilled work and looking at technologies that add value as opposed to having low cost labour as a solution. I believe that is one of the big lessons we learnt from mining and what happened is that over a period of time we have seen that the mining sector has now basically slipped away because of the high pressures from the labour unrests making it very difficult to make it profitable for organisations to stay in that sector. Also not getting the output that we used to get ten to twenty years ago has also affected the sector. I think there is a big lesson there; we need to differentiate value, we need to move with technologies. Automation is not necessarily a bad thing; automation could be a good thing provided that we invest in skills for people, the up skilled people, and we pay them more. That is fair enough as long as we are differentiating value. That is the important thing.

Are there any sectors that you can pinpoint that have a good future in South Africa beyond the existing mining backbone?

There are other sectors which show potential growth. Advanced manufacturing should be an area that could be a high growth area for South Africa. It has very low cost infrastructure to position it for that; it is about developing the skills of course but advanced manufacturing could be something quite competitive that South Africa could get into. Other areas could be ICT which we mentioned. Also I believe that there is a tremendous potential for energy; solar energy specifically given the amount of sun we get in this country and the amount of megawatts per km2 of illumination that we get in this country. I think we haven’t explored opportunities in that area. We are still very much thinking about nuclear and I don’t believe nuclear is the way to go. I really believe that solar power is the way to go and developing those technologies should be a priority and could be a major advantage in South Africa.

We shall see what happens in the upcoming impeachment process. What do you believe are some of the key competitive advantages of the Western Cape’s economy?

Location is critical because it provides access and the gateway to Africa. I think that is a big advantage. The second thing is that the natural beauty of Cape Town makes it very attractive for getting a lot of visitors and tourism. I think that is a big growth area for Cape Town. Besides that, look at the technologies developed in the Western Cape, for instance the universities that have the highest patent rates in South Africa all based in the Western Cape. Thus the Western Cape has a lot of potential. I am now working with a number of organisations to try and see how we can leverage that and get technologies developed on the university platform commercialised or how we can get business involved and engaged with the universities to leverage those technologies in order to get a commercialised product out. As I said earlier, South Africa has tremendous potential in terms of being innovative and developing great technologies. It is the back end exploitation part that needs a lot of work so commercialising and monetising.

What would be your key piece of advice to the head of a foreign multinational who would be contemplating a capital investment in this part of the world?

I would say firstly that I don’t believe that the risk is as high as the media makes it out to be. I wouldn’t be too worried about it. I believe that even though South Africa doesn’t seem to be shown as being stable I don’t believe that is the reality. I believe South Africa has tremendous potential, it has tremendous natural resources, it has great people that are interested in learning and growing, it has very innovative people that come up with some great technologies. If you look at the mining sector and some of the technologies that were developed over the years, they are world class. You have to look at the people and the infrastructure and you have to look at those aspects in terms of making an investment besides the apparent instability. I see great potential; I would say it wouldn’t be a risky investment at all. I would say it would be a stable investment but obviously there are certain things that need to be done in a certain fashion; selecting the right people is important like in any business, as is looking at ways of developing people. In terms of output compared to investment, if you invest in for instance Europe, you need double the investment in infrastructure to get a certain amount of output; from that point of view South Africa is very cost effective and competitive. Even if you compare for instance our kilowatt-hour rating in South Africa to that of the UK, you will see that the UK is about 5 or 6 times ours. So even though a lot of people complain about the cost of power here, I think that if you see it in relation to what is happening in the rest of the world, South Africa still has a lot of potential.

So don’t believe the hype?

Don’t believe the hype, look at the basics and come and see for yourself. I would say my advice is to come and see for yourself and make your own decision.


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