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Employees as partners

Photo: WBS Journal.

When she started Umsinsi Health Care in South Africa in 2008, Amanda Wilde’s vision was to place the company, which distributed medical devices, in a trust for her employees. When this happened, they would become partners in the company. However, by 2013, Wilde was still the sole guardian of the Umsinsi Partnership Trust. She had postponed transferring the trust to her employees until the business was financially stable. With financial stability achieved, Wilde was now concerned whether her employees were ready for the responsibilities that came with the benefits of being partners.

Umsinsi Health Care was the sole sales, distribution and marketing partner of ConvaTec medical device products in South Africa. ConvaTec was a global company, with headquarters in the USA and over 30 years’ experience in developing and distributing wound care, stoma care and faecal incontinence products.

Wilde, employed by ConvaTec in the UK, had visited South Africa in 2003 and experienced an overwhelming sense of being at home. She therefore tried to persuade ConvaTec to open an independent office in the country. Her break came at the end of 2008, when the company’s contract with its existing South African distributor expired.

This left ConvaTec with a serious decision: either find another distributor in South Africa, or work with Wilde to set up an office in the country that would, in her words, “make a contribution towards economic upliftment, equal opportunities and skills development in South Africa”. ConvaTec chose the latter.

Thus, in 2008, Umsinsi Health Care started its operations with 10 employees. By 2013, the company had grown to 27 employees.

The Umsinsi partnership model

Wilde had set ideas on how she wanted to run the business in South Africa. The business model had to be innovative and contribute to the vision of former president Nelson Mandela that South Africa be a country in which all citizens had equal rights. “It struck me that what had been visualised for the country originally had not necessarily materialised, and part of the problem was how business was done,” noted Wilde. “There was still a lot of complaining about the difference between people at the top of companies and the bottom of companies, and the progress in transformation had not really happened.”

Wilde had heard about a partnership model used by UK department store chain, John Lewis, which made all employees partners in the business. It seemed to fit what she had in mind for Umsinsi.

The John Lewis partnership model

The John Lewis partnership model originated in 1929, when John Spedan Lewis envisioned a business powered by people and principles. Lewis had argued that the divide between a company’s profits and the meagre salaries paid to employees was a “perversion” of capitalism, saying, “It is wrong to have millionaires before you have ceased to have slums. Capitalism has done enormous good and suits human nature too well to be given up. But the perversion has given us too unstable a society.”

The John Lewis Partnership gave employees co-ownership of the company and a say in how the business was run. In turn, employees shared the responsibilities and rewards of ownership. Lewis’ ultimate purpose was to balance the happiness of employees with a successful business. In terms of the Partnership Constitution, employees had to commit to three things: taking responsibility for the success of the business and so generating profits for all to share; building relationships based on honesty, respect and encouragement; and developing themselves, balancing work and life priorities and supporting each other.

By 2013, as many as 84 700 employees were partners in the John Lewis group, each sharing ownership of 39 John Lewis shops, 291 Waitrose supermarkets, an online and catalogue business, a production unit and a farm. The business had annual gross sales of over £9,5 billion, with the partners (employees) sharing in the profits.

Umsinsi’s business strategy

Lewis’s idea of putting employee happiness at the centre of a business resonated with Wilde. And, although she initially wondered whether South Africa was the right African country for the model, considering the legacy of apartheid in separating people rather than bringing them together, it soon became clear to her that South Africa was the best country for a model that engendered interconnectedness among people.

She believed that the business model encapsulated the spirit of ubuntu because it emphasised the fact that people operated within a community and the actions of one impacted the other.

Once Wilde made the decision to go ahead with the partnership, she met with her two managers at the time – Noeleen Visagie, national head of performance standards, and Annalene Bosman, senior partner for sales analysis and effectiveness training – to develop a business strategy.

The company’s business strategy consisted of three objectives:

  1. that its partners should gain personal satisfaction from being members of a co-owned enterprise in which they had secure and fulfilling employment and confidence in the way that the partnership conducted business;
  2. that the partnership should attract and retain loyal customers by engendering trust and confidence in its reputation for value, choice, service and honesty, and for behaving as good citizens; and
  3. that the partnership should make sufficient profit to sustain its commercial vitality and distinctive character, allow for development and distribute a share of profits each year.

Employee happiness and well-being

Consistent with the John Lewis model, Umsinsi’s model focused on the happiness, equity and development of employees – something Wilde called the “shaman” element of the business.

To drive the ethos of putting the employees first, Wilde appointed Thomas Mphahlele as head of happiness and well-being. His passion for people made him a good fit for this position. “In this role I am able to change lives and be a witness to that change. That is very satisfying,” he said.

“The definition of happiness in our sense means having a satisfying and worthwhile job in a successful business,” explained Mphahlele. The recruitment process was unconventional, as the company valued a positive attitude, a sense of commitment and passion above skills, although the latter were not entirely ignored.

Umsinsi’s approach to the market

Wilde and her team decided to ensure that the perverse incentives for encouraging medical practitioners to use medical devices were not replicated in Umsinsi. “[We decided] from day one, we are not inflating prices, excessively discounting products, paying practitioners to use products. We will not financially incentivise them. We will not pay for dinners to persuade them to buy products. We will not buy them gifts, freezers of meat or cars – things that are observed and reported in our industry,” she explained.

However, this approach came at a price, and the company lost business initially. “I was shouted at when I said no. I was sworn at. We were thrown out of a private medical network after 12 weeks. They tried to bully us into discounting, demanding the 60% discount that they had been getting from the previous distributor,” she recalled.

Umsinsi’s sales team focused on getting the business off the ground. In its first year, the company turned over R32 million, with a 15% profit margin after tax. Wilde attributed this to divine help, hard work and a belief that good attracted good. Umsinsi soon acquired a reputation for being the “most sickeningly ethical company in the medical device sector”.

Marketing and sales strategy

Product specialists promoted and sold ConvaTec’s stoma and wound care products primarily to provincial hospitals and, to a lesser extent, to private hospitals. The product specialists promoted the products in hospital departments including surgery and oncology, HIV clinics and ICU theatres. Customers included nursing staff, doctors, procurement staff and the stores.

To combat the demand for discounts, the sales team emphasised that ConvaTec’s products were high quality and thus not cheap. Bosman explained, “You can’t expect to pay little for a good product. You pay for what you get.”

Another ongoing challenge was to persuade nurses to use the best product for the patient, and to use it correctly. “Likewise, for the buyers, getting them not to compare products on price is not easy. Ultimately, using another product may extend the patient’s stay in hospital,” Bosman said.

Finance and governance

Since inception, Umsinsi’s focus had been on creating sustainable growth and, by 2013, the company had been in a financially stable position for two years. Umsinsi’s head of finance and corporate responsibility, Julian Moonusamy, believed it was the 60-day credit guarantee and other good terms that gave Umsinsi a head start and led to its rapid growth and financial stability.

“One of the most important aspects of survival is cash flow, because you can make as many sales as you want, but if money does not come in, you can’t pay your staff or your suppliers and you can’t survive as a company,” Moonusamy noted.

During the company’s first few years (which coincided with the global recession caused by the sub-prime mortgage crisis in the US), Umsinsi kept its expense base lean, allowing only two major payments – salaries and its supplier, ConvaTec – and using sales to drive the business.

Trust transfer time?

Having achieved financial stability, Wilde considered transferring the business into a trust for Umsinsi employees. “At the moment, I own and care for everything. I will be happier when there is a board of trustees to share the load with me,” she said.

However, Wilde was still hesitant about transferring of the trust, because the South African environment itself was so fractured and she wondered whether the ubuntu ethos was sufficiently entrenched within Umsinsi. She found that people did not respect others in their day-to-day business conduct, or realise the impact they had on each other. Moreover, she was concerned that some employees did not have the emotional ability to grasp the significance of being responsible for the Umsinsi business.

“How do you evaluate the mindset for a group of people that has to take responsibility for the business’s success?” she asked. “And for driving it forward, when the thoughts that go through their minds each day relate to what they can get out of it for themselves? You need a set of indicators that tell when it is the right time for the transfer.”

With no indicators to guide her, should she go ahead with the transfer regardless, she wondered, or should she be cautious and rely on her intuition to recognise those elusive pointers when they appeared?


ACADEMIC RESPONSE

A comment from Mark Turpin, part-time lecturer in Contemporary Business Thinking on the WBS MBA programme and director at Kessel and Smit, the Learning Company. He also works as a coach and facilitator for the WBS Leadership Development Centre. He received his MBA from WBS in 2002.

Amanda Wilde had a vision – that the employees of Umsinsi Health Care would become full partners and owners of the company. She hoped to make a meaningful contribution towards economic upliftment, equal opportunities and skills development in South Africa. Drawing on the UK retail model of the John Lewis Partnership, which involved employees in the ownership of the business as a way to address the ‘perversion of capitalism’, Amanda felt that a similar model could help bring people together in South Africa.

The John Lewis business model, developed in the first half of the 20th century, received a lot of attention in political circles in the UK and attracted notice in South Africa.

Umsinsi, under Wilde’s leadership had achieved her first pre-condition for transfer – a degree of financial stability in a short few years. Could she now achieve her dream by handing ownership over to the employees?

The emotional intelligence of her employees was the central issue for Amanda – did she have enough critical mass in the emotional intelligence of her leadership team and the employees in general for her to believe that they could take on the collective responsibility of running the business together in a sustainable way?

Perhaps the critical issue related to trust, and the ability of Amanda to ‘let go’ of what she had created. This is often the pioneer’s dilemma and is not an easy challenge. And yet, perhaps this was also now her big opportunity. To achieve her vision, she would need to let go of it, and allow it to be created, expanded and shaped (perhaps even in ways that she does not envisage) by other people. And to do this, she would need to accept that there was never a ‘right time’, and that there were no guarantees of success.


COMPANY RESPONSE

Comment and update from Amanda Wilde:

As the recent strikes in our platinum and industrial sectors have shown, the rights of employees to a decent salary and the benefits of ‘ownership’ in the business that they work so hard for are an imperative consideration for South African employers. As we enter our sixth year of business at Umsinsi Health Care, I am reasonably confident that our financials display sufficient stability to attempt the trust transfer for the Umsinsi team.

The ability of the team to apply themselves to the responsibilities of owning their own business, throughout all disciplines, has improved significantly this past year. The Umsinsi Leadership Team is in good shape, they have all grown immensely, thus the final ingredient of the mix is the confidence of the owner/guardian of the business to let go of the reins.

It’s tough to watch the still young company that I helped bring into the world prepare to leave the nest, but I am in a good place to make the transfer and see what happens when the team faces the realities of ownership in the tough world of business. After all, as chair of the trust, I can still keep a watchful eye! The South African Revenue Service (Sars) is now our only remaining challenge, as we have requested Sars to support our efforts in bringing a more social face to capitalism in South Africa.


Useful resources:
Wits Business School Journal
As a leading Business Magazine in South Africa, the Wits Business School Journal's objective is to provide a tool that carries thought leadership to an audience hungry for knowledge.
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