Unlocking the double hidden potential of SMEs for labour absorption at scale

Harambee Youth Employment Accelerator Overview

Ideathon question

How do we get 1 million young people into SME jobs? • How do we link and match young SMEs and young people in an

effective way? • How do we sustainably prepare young people for work in SMEs? • How do we advocate the value of SMEs as a credible employment

alternative for young people? • How do we nudge SMEs to increase their employment participation? • How do we ensure SMEs are ‘geared up’ to hire first-time work-

seekers?

2 minutes to pitch one idea

4

Diagnostic of needs

Online platform to submit requests

Free HR toolkit

Sourcing, screening, assessing and matching of candidates

Post placement support

Reduced matching fees

We screen candidates for specific markers that will make them more likely to be successful in an SME

environment

Literacy & Numeracy levels

Our traditional assessment battery

Learning potential

Shadow Match (matching young people to a super profile in

SALES)

MIE and Credit checks

Psychological assessments

Communication assessment (confidence in English and

vernacular) + Voluntary agency (the presence of past experiences where a young

person has demonstrated some drive)

SME Specific assessments

Registering SMEs through an online platform Platform homepage destination • Simple online registration and verification process

– 5 mins process (with email and internal verification) – Focused on key information correlated with high likely of high quality environment (e.g. maturity of SMEs,

number of employees, registration and VAT numbers) • Verification process through email (and in rare case through a follow through phone-call) • Existing clients will continue to be supported traditionally

Sign-in form

SME Servicing solution – Flow and platform

Activate SME demand at scale Support SME (and young

people) to drive placement / retention

Match young people to SME demand

Target SME in large numbers • Existing relationships • Aggregators • Supply chain of corporates

One-stop register • SME Email verification • Filtering SME readiness

based on profile questions • Targeted offering to SME

based on behaviours (‘Big Data’)

Keep SMEs engaged • Advocacy for hiring first-

time work seekers • Education and support to

SME through self-serve website

‘Push’ specific job families (product approach) • Retail & Hospitality • Face-to-face sales • General Administrative

Provide sufficient candidate information • Credit, criminal check,

assessment, and comments to SME

• Employer profile to candidate

Rapid heuristic-based diagnostic and matching • Questionnaire of SME

and job context matched to assessment dimensions

• Continuous improvement of matching algorithm

1. Educate SME on key practices driving retention • Contracting • On-boarding • Feedback quality and frequency • Minimal salary to ensure

sufficiency for transport, food 2. Incentivise SME through loyalty and behavioural economics 3. Support (for a fee) SMEs with HR, BEE issues

1. Support young people into their transition into SME • Create communities (e.g

Whatsapp, Facebook, Social collective to keep work-seekers engaged, and supported)

• Provide free webinars (tbd) • Provide support hotline (tbd)

Email platform Self-service Web Call center In-person

Onl

y qu

alify

ing

SMEs

Running order

• Harambee intro video & context - 4 minutes • Gallery walk – 10 minutes • Small group ideathon – 16 minutes • 2 minute solution sharing (assuming 10 groups of six each) – 20

minutes • Group comments and what Harambee is experimenting with –

10 minutes

10

The challenge South Africa has one of the largest youth unemployment rates

in the world at ~62%

QLFS Q4 2015, Statistics South Africa 11

36.3

16

9.6

12.1

2.3

3.9

1.9

6.3

Working agepopulation

Noteconomically

active

Discouragedjob-seeker

Unemployedyouth

Unemployedadult

Total employed Employed youth Employed adult

Working age population defined as ages 15 to 34 Adult defined as ages 35 to 64

62% of young people aged 18-

34 are not employed

12

15

5

11

Total

4

Large companies

6

Informal and private households

SME1 Total formal

Source: Quarter Labour Force Survey, Quarter 2, 2014

SMEs make up 55% of formal employment in South Africa (65% including informal

employment)

1 All companies employing 49 people or less

Num

ber o

f job

s M

illio

n

Total somewhere between 1M and 3M in number. Span across all industries: Concentrated in 3 key SME sectors (Industrial, Services and Trade), but with presence across all other sectors

By an SME we mean…

13

Small, micro, and medium enterprises comprising of <250 employees

SOURCE: National Small Business Act

My business is …

Micro

Very small

Small

Medium

Large-medium

Large

6-20 … owned and managed by my family but we do have clear support staff roles … a registered cc and we are a VAT vendor … a restaurant and has fixed business premises … mainly catering to the local community

Family restaurant

251-2 000 … owned by shareholders (private or Altex listed) and potentially governed by board members … benefitting significantly from limited liability … sometimes bureaucratic in its decision making and our size does slow down the pace of

innovation and adaptation of change

Capitec Bank

21-50 … managed in a partnership; we have a clear, yet complex management structure … conducted on fixed business premises with multiple geographic locations in SA … close to the ~50 people threshold so there is a high marginal cost associated with

additional people growth

Law firm (partnership)

50-250 … is owned and managed by me and private shareholders and we run with a broadly decentralised management structure … compliant with all formal business requirements

Consumer goods wholesaler

0-5 … owned and run by me using my specialised medical skills and professional GP licence … a formal business as my clients require receipts and I also have formal business

premises … mainly targeting friends, family, and referrals

Doctor’s practice (GP)

Example

2 000+ … a public company that is listed on the JSE (additional in other markets, e.g., Australia) … running a highly decentralised management structure with nearly ~300 top-tier

managers … diversified and we operate in all geographical regions

Bidvest

… not registered and I do not pay tax … low on capital invested and I also do not own too many assets … run my own little business training and as I started this shop when I was unemployed

Spaza shop owner

0-5

Form

al

Info

rmal

Aver

age

num

ber o

f em

ploy

ees

14

SMEs can play a profound role in addressing youth unemployment

Source: WMM; Global Insight (2009): IFC (2005); 2014 Team analysis

0

10

20

30

40

50

60

70

80

90

50 000 45 000 40 000 35 000 20 000 10 000 0 25 000 15 000 30 000 5 000

SMM

E em

ploy

men

t as

% o

f tot

al

empl

oym

ent (

both

form

al a

nd

info

rmal

) %

GPP per capita US$

France

Argentina Indonesia

Germany

USA UK Russia

China Chile

South Africa

Turkey Mexico

Brazil

SA’s potential

R2 = 0.46

Note: participation rate including informal sector = 65%; excluding informal sector only 55%

▪ SA is currently below the international line of best fit in terms of SMME participation in employment ▪ If South Africa raised its participation by ~10% to ~75% this would create ~1.4 million jobs

If the current participation rate of SMEs in employment can be increased by 10%, 1.4 million additional jobs could be created. This would reduce youth

unemployment by 35%

15

SMEs can play a profound role in addressing youth unemployment

SOURCE: World Bank Institute’s work on the role of SMMEs in 2003-04; OECD

▪ SMMEs tend to be more labour absorbing than larger enterprises (e.g., less economies of scale) and usually are the largest providers of employment in most countries, especially of new jobs

▪ Major source of technological innovation and new products ▪ Account for ~30% of GDP

Engine of growth 1

▪ SMMEs with high turnover and adaptability play a major role in removing regional and sector imbalances in the economy

▪ Easy entry and exit of SMMEs make economies more flexible and more competitive (relative to large enterprises)

▪ Large number of SMMEs create competitive market pressure also improving competitiveness of tradeables

▪ SMMEs also play an essential role as subcontractors in the downsizing, privatisation, and restructuring of large companies

Essential for competitive market

2

▪ SMMEs play a particularly important role in developing countries where poverty is most severe

▪ SMMEs tend to employ greater proportion of less educated/ experienced and low income workers

▪ SMMEs are sometimes the only source of employment in poor regions and rural areas

▪ Self-employment is the only source of income for many poor ▪ The government’s National Development Plan estimates that by 2030, 90%

of all jobs will come from small & expanding firms

Critical for poverty alleviation

3

Computer abilities

But SMEs are reluctant to hire young people

9% 11% 11%

23%

32%

Misalignedexpectations

Lack ofexperience

Don't stay Skills Work ethic

“Many [small business owners] felt that young people had a sense of entitlement, and did not perform productively. Allied to this was a widespread view that they had unrealistic expectations of their earnings and felt they would use small firms to gain experience and skills and then depart for better positions in larger firms.” (Source: SBP)

SMEs are risk averse to employing 1st timers. 1 in 3 firms went to the CCMA (Centre for Conciliation, Mediation and Arbitration) in a 12 month period; firms on average spend 7-12 days at CCMA. (Source: SBP)

SMEs reasons for not hiring youth

Literacy

Sales & marketing

Finance skills

Maths & science

General life skills

Work readiness requirements. Higher in SMEs than in corporates – more versatile, self-directed, & work ready.

Poor hiring practices. Often rely on word of mouth to hire; limited interviewing skills make it difficult to find best fit.

High cost of training youth for work readiness in SMEs means lighter touch interventions are required.

Very variable role requirements. Roles need diverse & changing skills sets, & industry knowledge… but must also be entrepreneurial!

Very fragmented sector. High effort required to activate a few placement opportunities. Solution

challenges with SMEs

1

5

3

4 2

Cost sensitive. And a disproportionately higher risk of a wrong hiring decision for SMEs compared to corporates.

6

SMEs often lack structures to transition young people into work. Particularly in respect of onboarding, formalised salaries & contracting, supervisory support, and feedback.

Structured training programmes often counter-productive. Don’t ready young people to enter unstructured, less supportive environments that characterise SMEs.

Behavioural readiness (e.g. punctuality, positive attitude) & functional competence gaps (e.g. numeracy, English, computer skills) High voluntary agency an attribute for success in SMEs.

SME brand. Low interest from young people in SMEs – difficult to attract sufficient work-seekers to available opportunities.

Poor work-seeker signals. Absence of vocational guidance & understanding of what good at. Solution

challenges with young

work-seekers

2

1

4

5

3

Retention. Young people will often leave to seek employment in large corporates.

6

The

voic

e of

the

youn

g w

ork-

seek

er

– th

e ex

perie

nce

of a

n SM

E

The experience of an SME employer – what work readiness takes

Irvin Sibeko. As Irvin had a driver’s license, he was streamed through the Harambee process for an opportunity with Uber (Uber anticipates growth that equates to over 15,000 employment opportunities and has been working with Harambee to identify the viability of a solution for this demand.) Irvin’s initial driver evaluation was unsuccessful and he was placed on a remedial safety and defensive driving course, which he subsequently passed.

He was interviewed for a position and two days later he started working. In less than two weeks however, the Uber partner received multiple complaints with regard to his behavior and performance. He would smoke in the car while transporting riders, he got into a minor accident with the car, and tried to hide the incident from the partner, and he would use the car for his personal use during working hours. Irvin was subsequently invited by Harambee to attend a pilot five-day work readiness intervention for drivers. It covered in-depth: customer service, training on the Uber app, geographies, hot spots, and tips on how to receive good ratings from riders. Irvin was given a second opportunity to be interviewed again by a different partner. Subsequent to his working again, his service has been described as “brilliant” and is meeting the necessary minimum fee targets.

Keeping the SME engaged between hiring requests The SME Hub • Internal, secure homepage to support low-touch hiring for SMEs • Request new hire section • Status updates on request for new hires, help etc. • Internal knowledge and FAQ platform (early stage) • Chat function for SMEs to Harambee (in development) • Community forums (in development)

Request new hires

Status updates, history

Request for help

Enhanced matching between demand and work-seekers through a data-driven, innovative rapid diagnostic (1/2)

Matching through algorithms

The Request to hire diagnostic form • “Rapid” diagnostic methodology allowing to match common requests (e.g. language requirements) to

assessment results of candidates • Automatic pull of profiles from database with gradated matching (in-development)

Implementation of a lean process to support interviewing, placement and placement fees

Interviewing and placement

Are there candidates that match

the requirements

Communicate with candidates for interest and

invite for interview

Prepare candidate profiles and share with SME

employer

Interview and feedback (ideally at Harambee on

batch days)

Billing and invoicing

Translated request from platform No Communicate expectations with

client within 72 hours

Yes • Key requirements for scale-up

– A valid and active candidates database – A dedicated call centre to connect to candidates

• Key questions to resolve – On which criteria do SMEs make decisions? – Current hypothesis include: picture, criminal credit check, Harambee commentary on job

readiness, masked assessment scores

• Key questions to resolve – What measures are needed to ensure prompt payment of placement fees?

Supporting SME and work-seekers to maximise placement and drive retention

Placement and post-placement

Educating SMEs on HR best practices

• De-risk hiring of first time-work seekers (e.g. through government subsidy) for SMEs

• Identify key practices that drive retention (hypothesis: timely contracting, timely feedback, shadowing period, quality of manager, minimal salary)

• Push: SMS/email to encourage behaviours at the right time (e.g. sms for contracting in week 1 at placement)

• Pull: Access to HR templates (contracting, hiring, policies) for SMEs to access on web-platform

• HR toolkit (1st version developed) • Knowledge platform on the web (Q4 2015) • Automated communication platform (Q1

2016)

Providing SMEs value added services (on demand)

• Provide SMEs with HR consulting support (1 hour for every 5 placements; per hour fee for additional)

• Provide SMEs with learning, webinar opportunities • Create a community for SMEs to connect with each

other, and self-resolve issues

• HR consulting offering in person (Q1 2016) • Helpdesk (live chat, FAQ platform) (Q4

2015) • Community forum (moderated) (Q1 2016) • Call centre (tbd)

Shaping behaviours through incentives

• Develop a loyalty (or points program) to shape key behaviours (see above) in a dynamic fashion (e.g. get 100R credit for future if candidate contracted within 1st week of hiring

• tbd

Support work-seekers within the SME environment

• Develop a loyalty (or points program) to shape key behaviours (see above) in a dynamic fashion (e.g. get 100R credit for future if candidate contracted within 1st week of hiring

• Develop SME on-boarding process • Provide community platform for work-

seekers to help each other (?Facebook) • Provide self-serve learning platform for first

time work-seekers (?)

Key features and functionality Platform implication