Managing for value to deliver on our medium-term strategy.
This year marks 117 years of contribution to the communities and societies to which we belong. It is a proud history that we are committed to upholding. Our transition to new leadership has provided an opportunity to think strategically about the future and reflect on our past performance.
We revised our strategy three years ago after engaging with our shareholders to determine their concerns, expectations and priorities. We then asked ourselves a number of key questions:
What is the full potential of each business in the portfolio today in the context of the constraints of their existing markets?
Are there opportunities within each of our chosen business segments to further expand the group?
What else would we need to deliver on our growth for value ambitions?
OUR AMBITION IS BOLD
To sustainably double the intrinsic value of our business every four years, enabled by the managing for value operating model.
To delight our customers and maximise shareholder value is grounded in the understanding that we must run a successful business that generates superior returns for our shareholders in order for us to create value for stakeholders and contribute meaningfully to the societies in which we operate.
Seeks to create value by balancing our long-term growth ambitions while focusing on achieving acceptable returns for our shareholders in the medium-term. This will continue to be underpinned by our sustainable development framework. In order to adapt to this new operating context and achieve our ambition, the group will drive the strategy by addressing three critical levers in the short- to medium-term:
FIX AND OPTIMISE OUR EXISTING PORTFOLIO
‘Fix’ means exiting certain businesses or taking action to achieve our return requirements within defined timelines. In terms of Equipment Iberia, we decided we would be better served redeploying the capital out of Iberia. Notwithstanding the challenges in the Logistics portfolio, we feel that the business has the potential to achieve its hurdle rates. Accordingly, we have exited some businesses in Logistics and are driving the underlying business to generate a return that would be above our cost of capital within two years.
‘Optimise’ applies mainly to our cyclical businesses. We want to ensure that as they go through the cycle, they don’t dip below our hurdle rates. Maintaining these rates is not about drastic action, but rather, about ensuring the resilience and longevity of the businesses.
IMPLEMENT AN ACTIVE SHAREHOLDER OPERATING MODEL
We have also made a conscious effort to change the nature of the group to become an active shareholder by focusing on five key pillars:
STRATEGY AND M&A
Sets strategy for the group and drives deal decisions through a centralised M&A function
LEADERSHIP AND TALENT
Managed centrally and deployed to the best available opportunities in the group
Monitor, measure and reward performance linked to group priorities
Allocation of financial, human, time and other organisational resources, based on performance and alignment to strategy
Conducting our business in a responsible manner that contributes to positive socio-economic and environmental outcomes that are aligned with our stakeholder expectations as well as governance
ADD HIGH GROWTH BUSINESSES TO OUR PORTFOLIO
Our key priority is transformative growth in line with our established set of guardrails, preferably in businesses that are counter-cyclical to the areas in which we already operate and in businesses that will provide us a platform from which to grow further. While our focus is primarily on emerging markets where we have the right competencies and the right experience, we are also considering leveraging our offshore ownership structures by capitalising on opportunities in developed markets.
Our vision will remain while these levers will change over time as we implement our strategy and adapt to a changing environment.
As this change occurs we continue to find the right levers to pull to ensure the ongoing creation of shared value for our stakeholders.
MEDIUM-TERM GOALS AND ACHIEVEMENTS
In the 2019 financial year Barloworld committed to capital release targets aimed at effective resource allocation, and optimal deployment of capital. We have continued to focus on efficient capital utilisation to enhance ROIC and economic profit.
The cash release of R2.5 billion from the sale of Equipment Iberia allows us to redeploy capital in alignment with the group’s strategy. This is also part of our capital release programme that will see us build cash up to R8 billion over the next six to 12 months with focus on the following areas
- Automotive Avis Fleet: R3.5 billion – R8 billion (six to 12 months)
- Equipment southern Africa: Rental: R2 billion
- Khula Sizwe: R2.2 billion.
|Exit Equipment lberia||2.5||0||2.5|
|Equipment Rental Fleet||2.0||0.6||1.4|
THE BARLOWORLD BUSINESS SYSTEM (BBS)
The effective execution of our group strategy has necessitated the design and implementation of a repeatable and scalable high-performance business system to increase the competitive advantage of our portfolio of businesses and enable the achievement of our vision and ambition.
Accordingly, the BBS, which anchors its business excellence pillar on a methodology based on the lean principles of the Toyota Production System (TPS), was launched with the guidance and support of experienced consultants.
WHAT IS THE BBS?
The BBS is a structured business operating system that enables a high-performance culture of both continuous improvement and business excellence to delight our customers and sustainably create value for our stakeholders. Our purpose is to defy limits by delivering breakthrough performance and results for Barloworld and our stakeholders.
THE KEY PILLARS OF THE BBS PHILOSOPHY ARE:
- Respect for people, including society and the environment
THE KEY PRINCIPLES OF THE BBS:
- The customer defines value
- Value to customers must be delivered on demand and right, first time
- A new way to evaluate and improve existing processes, removing waste and defects
- It demands that we standardise and document ’today’s best-known way’ of running a process
- Drives the ambition to continuously improve on a daily basis
- Mutual respect and shared responsibility enable higher performance
- Individuals go through a deep personal learning experience by ’learning as we do’
- It brings in new ways of working through innovation and embracing new business models
- Drives a change in leadership style and culture in the organisation.
WHY IMPLEMENT THE BBS?
The benefits of implementing the BBS can be seen across a variety of areas, most importantly in:
- People development: Developing people who create value for stakeholders on a daily basis
- Quality: Striving to deliver the right solutions to customers free of defects or errors – first time
- Delivery: Deliver solutions to customer requirements timeously
- Cost containment: Through increased productivity and lowering our cost to serve
- Growth: Achieving top quartile growth in value through organic and inorganic opportunities.
The BBS is a platform for developing servant leaders who are committed to embedding a culture of high-performance and innovation that is enabled through business excellence and digital-innovative ways of working. These new ways of working create opportunities to deliver tangible value for our customers, businesses, shareholders and employees, as we scale them out across the enterprise.
As we deploy business excellence to improve our processes, we develop our managers to become servant leaders who effectively enable our frontline employees to deliver successful customer outcomes. As the BBS matures, we expect to see all our people spending less time fire-fighting, and more time innovating and improving the business. As employees become more engaged, we anticipate that an environment of mutual respect and trust will develop.
Managing for Daily Improvement (MDI) is the BBS way of embedding and sustaining a culture of continuous improvement. By applying value stream analysis (VSA) that is executed through rapid improvement events (RIEs), we effect value stream improvements that deliver double-digit improvements in customer value metrics related to People Development, Quality, Delivery, Cost, and Growth (PQDCG). Value stream improvements incorporate the digital and innovation elements of human-centred design (HCD) and robotic process automation (RPA) to achieve the target state that enhances customer, user and employee experiences. In time, this will be enhanced through data driven insights and new capability led business models.
RISKS AND MITIGATING ACTIONS
The key risks to the BBS not gaining traction in the business are lack of leadership acceptance and having many misaligned initiatives and goals. We mitigate the risk of leaders not buying in through the following interventions:
- The BBS is sponsored by the group chief executive
- Designing and implementing a twelve-month Business Excellence Leadership Programme that includes training on principles, tools and techniques, as well as one-on-one coaching and learning-by-doing
- Introducing leader standard work and personal development plans aligned to key performance goals
- Implementing strategy deployment that drives translating our strategy into action by linking tactics on the frontline to the group strategic breakthrough objectives