Strategic drift how the mighty fall applied to the building industry

1 © BMI-BRSCU

Strategic Drift: How the mighty fall: Applied to the Building Industry

Dr. Llewellyn B. LewisDr. Llewellyn B. LewisMarch 2009March 2009

THE STRATEGIC FORUMTHE STRATEGIC FORUM

A place of assembly for strategic conversations

THE STRATEGIC FORUMwww.strategicforum.co.za

BMI

Studium Ad Prosperandum

Voluntas in Conveniendum

BUILDING RESEARCHSTRATEGY CONSULTINGUNIT cc

Reg. No. 2002/105109/23

•BMI




•BMI

•BMI

•BMI

•

2 © BMI-BRSCU

THE STOCKDALE PARADOX

The Stockdale Paradox

Retain faith that you willPrevail in the end,Regardless of the

difficulties

Confront the most brutalFacts of your currentreality, whatever theyMight be

ANDAt the same time

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)

3 © BMI-BRSCU

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 © BMI-BRSCU

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 © BMI-BRSCU

“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 © BMI-BRSCU

Bank of AmericaNet Income 1972=1987 (in $ Millions)

The World’s Largest Bank,Admired for its Management

Yet on the Cusp ofCatastrophic Decline

600

400

200

0

-200

-400

-600

-800

1972 1976 1980 1984 1987


(Source: Collins: How the Mighty Fall: 2009)

7 © BMI-BRSCU

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)


8 © BMI-BRSCU

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

ModelThen one Falls . . .

While the other climbs . . .

Ames

1974 1977 1980 1983 1986 1989 1992

30

25

20

15

10

5

0

Ra

tio o

f C

um

ula

tive

Sto

ck R

etu

rns

to G

en

era

l Ma

rke

t



9 © BMI-BRSCU


10 © BMI-BRSCU

Behind the Change Curve

Ahead of the Change Curve

Strategic Drift

Demise

Transformation orREINVENTION

(Source: Based on Johnson and Scholes: 2002)

STRATEGIC DRIFTwww.strategicforum.co.za

11 © BMI-BRSCU

STRATEGIC DRIFTwww.strategicforum.co.za

Behind the Change Curve

Ahead of the Change Curve

Strategic Drift

Demise

Transformation orREINVENTION

(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.

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”.

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.

In branding, a customer’s subjective

reality, even if confused,

becomes your objective reality.

12 © BMI-BRSCU

Paradigm Paradigm Re- Re-

inventioninvention

Scop

e o

f ch

an

ge a

nd

S

cop

e o

f ch

an

ge a

nd

tr

an

sfo

rmati

on

tran

sfo

rmati

on

DifferentDifferent

All processesAll processes

(Whole (Whole company)company)

Single Single process process (Part of (Part of company)company)

StandinStanding stillg still

ContinuousContinuousImprovementImprovement

ParadigParadigm shiftm shift

BestBestPracticePractice

BenchmarkinBenchmarkingg

SmallSmallerer Impact of Change and

transformation

BetterBetter

The current and known world The future, unknown

TransformeTransformedd

All All organisationsorganisations

(Whole (Whole industry)industry)

SingleSingle

organisationsorganisations

(Part of (Part of industry)industry)

FasterFaster

INCREMENTAL CHANGEINCREMENTAL CHANGE

PARADIGMS PARADIGMS CHALLENGEDCHALLENGED

STRATEGY STRATEGY REGENERATIOREGENERATIO

NN

PARADIGMS PARADIGMS REINVENTEDREINVENTED

TRANSFORMATIOTRANSFORMATIONN

STRATEGIC STRATEGIC DRIFTDRIFT

DEMISEDEMISE

FLUXFLUX

STRATEGIC DRIFT IN COMPANIESwww.strategicforum.co.za

THE THE ENVIRONMENTENVIRONMENT

13 © BMI-BRSCU

Paradigm

Re-invention

Scop

e o

f ch

an

ge a

nd

S

cop

e o

f ch

an

ge a

nd

tr

an

sfo

rmati

on

tran

sfo

rmati

on

Critical mass of Investors

(Whole community)

Single Investor (Part of community)

Paradigm

Pioneer

Early adopter

Paradigm shift

LateAdopter

Bandwagon Flocking

Herd behaviourImpact of Change and

transformation

All Countries

(Whole World)

Single

Country

(Part of World)

THE LOCAL PROPERTY THE LOCAL PROPERTY MARKETMARKET

LIMITS TO LIMITS TO GROWTHGROWTH


ALTERNATIVE ALTERNATIVE INVESTMENTSINVESTMENTS

REINVENTIONREINVENTION A Structural A Structural

Change?Change? Self OrganisationSelf OrganisationOrder for Free!Order for Free!

Property a Property a preferred preferred

Investment!Investment!





THE GLOBAL THE GLOBAL PROPERTY PROPERTY

ENVIRONMEENVIRONMENTNT

DEMISEDEMISE THE THE

PROPERTY PROPERTY BUBBLE?BUBBLE?

THETHEEDGE OF CHAOSEDGE OF CHAOS

CREATIVITYCREATIVITYINNOVATIONINNOVATION


STRATEGIC DRIFT AND THE PROPERTY BUBBLEwww.strategicforum.co.za

14 © BMI-BRSCU

Paradigm

Re-invention

Scop

e o

f ch

an

ge a

nd

S

cop

e o

f ch

an

ge a

nd

tr

an

sfo

rmati

on

tran

sfo

rmati

on

Critical mass of Investors

(Whole community)

Single Investor (Part of community)

Paradigm

Pioneer

Early adopter

Paradigm shift

LateAdopter

Bandwagon Flocking

Herd behaviourImpact of Change and

transformation

All Countries

(Whole World)

Single

Country

(Part of World)

THE LOCAL PROPERTY THE LOCAL PROPERTY MARKETMARKET

LIMITS TO LIMITS TO GROWTHGROWTH


ALTERNATIVE ALTERNATIVE INVESTMENTSINVESTMENTS









THE GLOBAL THE GLOBAL PROPERTY PROPERTY

ENVIRONMEENVIRONMENTNT

DEMISEDEMISE THE THE

PROPERTY PROPERTY BUBBLE?BUBBLE?

THETHEEDGE OF CHAOSEDGE OF CHAOS

CREATIVITYCREATIVITYINNOVATIONINNOVATION


IMFWorld Bank

MinistryTreasury

BanksPublic

opinion

Individual

Contagion


15 © BMI-BRSCU

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.”


16 © BMI-BRSCU

New mortgage loans and readvances by month and application: 1993-2009 (September)(Source: SARB, BMI-BRSCU Workings)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1993

/01

1993

/07

1994

/01

1994

/07

1995

/01

1995

/07

1996

/01

1996

/07

1997

/01

1997

/07

1998

/01

1998

/07

1999

/01

1999

/07

2000

/01

2000

/07

2001

/01

2001

/07

2002

/01

2002

/07

2003

/01

2003

/07

2004

/01

2004

/07

2005

/01

2005

/07

2006

/01

2006

/07

2007

/01

2007

/07

2008

/01

2008

/07

2009

/01

2009

/07

R M

illio

ns

(Cu

rren

t V

alu

es)

New mortgage loans and re-advances applied on existing buildings

Gross new mortgage loans and re-advances for construction of buildings

Net new mortgage loans and re-advances applied on vacant land

12 per. Mov. Avg. (New mortgage loans and re-advances applied on existing buildings)


17 © BMI-BRSCU

Mortgage Loans and Readvances by Application: YTD 2009 vs 2008: Current Values(Source: SARB; BMI-BRSCU Workings)

-80% -70% -60% -50% -40% -30% -20% -10% 0%

New mortgage loans andre-advances applied on

existing buildings

Gross new mortgageloans and re-advances forconstruction of buildings

Net new mortgage loansand re-advances applied

on vacant land

New Mortgage loans andReadvances for TotalBuildings and Land

Mortgage Loans and Readvances: YTD 2009 vs2008 (Sept)

-41.31%-52.36%-74.06%-43.92%

Mortgage Loans and Readvances: 2008 vs 2007 -33.18%4.74%-58.14%-32.36%

New mortgage loans and re-advances applied on

existing buildings

Gross new mortgage loans and re-advances

for construction of

Net new mortgage loans and re-advances applied

on vacant land

New Mortgage loans and Readvances for Total Buildings and Land


18 © BMI-BRSCU

Total Mortgage Loans and Readvances: 1979-2009(Source: SARB, BMI-BRSCU Workings)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

R M

illi

on

s (

Cu

rre

nt

Va

lue)

-100%

-50%

0%

50%

100%

150%

Gol

d bo

om

SA

SO

L II

SA

SO

L III

Aus

terit

y pa

ckag

e

Rub

icon

spe

ech

Deb

t sta

ndst

ill

Eco

nom

ic r

ecov

ery

Man

dela

's r

elea

se

Dem

ocra

tic E

lect

ion

Tra

nsiti

on to

Dem

ocra

cy

Cur

renc

y co

llaps

e

Wor

ld T

rade

Cen

tre

BN

G H

ousi

ng P

rogr

amm

e

Sub

Prim

e C

risis

Cre

dit C

runc

hDefining Events

Y/Y

Per

cen

atag

e C

han

ge


The decline in Total Mortgage Advances was a massive R246,5 Billion . . . .4 Times the size of annual New Residential Building Construction!

19 © BMI-BRSCU

Total Mortgage Loans and Readvances: 1979-2009(Source: SARB, BMI-BRSCU Workings)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

R M

illi

on

s (

Cu

rre

nt

Va

lue)

-100%

-50%

0%

50%

100%

150%

Gol

d bo

om

SA

SO

L II

SA

SO

L III

Aus

terit

y pa

ckag

e

Rub

icon

spe

ech

Deb

t sta

ndst

ill

Eco

nom

ic r

ecov

ery

Man

dela

's r

elea

se

Dem

ocra

tic E

lect

ion

Tra

nsiti

on to

Dem

ocra

cy

Cur

renc

y co

llaps

e

Wor

ld T

rade

Cen

tre

BN

G H

ousi

ng P

rogr

amm

e

Sub

Prim

e C

risis

Cre

dit C

runc

hDefining Events

Y/Y

Per

cen

atag

e C

han

ge


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 © BMI-BRSCU

Mortgages Advanced by Month: May 2006-January 2010: R Millions (Current Value)(Source: SARB, BMI-BRSCU Workings)

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

rD

ecem

ber

Janu

ary

Feb

ruar

yM

arch

Apr

ilM

ayJu

neJu

lyA

ugus

tS

epte

mbe

rO

ctob

erN

ovem

ber

Dec

embe

rJa

nuar

yF

ebru

ary

Mar

chA

pril

May

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

rD

ecem

ber

Janu

ary

Feb

ruar

yM

arch

Apr

ilM

ayJu

neJu

lyA

ugus

tS

epte

mbe

rO

ctob

erN

ovem

ber

Dec

embe

rJa

nuar

y

2006 2007 2008 2009 2010

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

R M

illio

n (

Cu

rren

t V

alu

e)

Y/Y Percentage Change Mortgages Advanced by Month 3 per. Mov. Avg. (Y/Y Percentage Change)


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 © BMI-BRSCU

INVESTMENT IN BUILDING 1946-2009: R MILLIONS(source: SARB, StatsSA, MFA, BMI-BRSCU Workings)

y = 26484e0.0241x

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1946

1947

1948

1949

1950

1951

1952

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

R M

ILL

ION

S (

2009

VA

LU

ES

)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Mun

siev

ille

Sha

rpev

ille

Dev

alua

tion

Sow

eto

upris

ing

Sev

ere

Rec

essi

on

Gol

d bo

omS

AS

OL

IIS

AS

OL

III

Aus

terit

y pa

ckag

eR

ubic

on s

peec

hD

ebt s

tand

still

Eco

nom

ic r

ecov

ery

Man

dela

's r

elea

se

Dem

ocra

tic E

lect

ion

Tra

nsiti

on to

Dem

ocra

cy

Cur

renc

y co

llaps

e

Wor

ld T

rade

Cen

tre

BN

G H

ousi

ng P

rogr

amm

e

Sub

Prim

e C

risisDEFINING EVENTS

1984 PEAK LEVEL

STRATEGIC DRIFT AND THE BUILDING INDUSTRYwww.strategicforum.co.za

But they forgot to tell the Building Industry!

22 © BMI-BRSCU

STAGE 1HUBRIS BORN OF SUCCESS

Stage 1Hubris bornOf success

Stage 2Undisciplined

Pursuit of More

Stage 3Denial of Risk

and Peril

Stage 4Grasping for

Salvation

Stage 5Capitulation to Irrelevance or

Death

STRATEGIC DRIFT AND THE STAGES OF DECLINEwww.strategicforum.co.za


23 © BMI-BRSCU

STAGE 1HUBRIS BORN OF SUCCESS



Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Death


An UNCANNY resemblance?


19

93

/01

19

93

/06

19

93

/11

19

94

/04

19

94

/09

19

95

/02

19

95

/07

19

95

/12

19

96

/05

19

96

/10

19

97

/03

19

97

/08

19

98

/01

19

98

/06

19

98

/11

19

99

/04

19

99

/09

20

00

/02

20

00

/07

20

00

/12

20

01

/05

20

01

/10

20

02

/03

20

02

/08

20

03

/01

20

03

/06

20

03

/11

20

04

/04

20

04

/09

20

05

/02

20

05

/07

20

05

/12

20

06

/05

20

06

/10

20

07

/03

20

07

/08

20

08

/01

20

08

/06

20

08

/11

20

09

/04

20

09

/09


24 © BMI-BRSCU

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)


25 © BMI-BRSCU

STAGE 2UNDISCIPLINED PURSUIT OF MORE



Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Death



26 © BMI-BRSCU

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.



27 © BMI-BRSCU

STAGE 3DENIAL OF RISK OR PERIL



Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Death



28 © BMI-BRSCU

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)


29 © BMI-BRSCU

STAGE 4GRASPING FOR SALVATION



Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Death



30 © BMI-BRSCU

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)


31 © BMI-BRSCU

STAGE 5CAPITULATION TO IRRELEVANCE OR DEATH



Pursuit of More


and Peril

Stage 4Grasping for

Salvation


Death



32 © BMI-BRSCU

STAGE 5CAPITULATION TO IRRELEVANCE

OR DEATH

Giving up the fight; Running out of options;

Denial or hope. (Source: Collins: How the Mighty Fall: 2009)


33 © BMI-BRSCU

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 CRISISwww.strategicforum.co.za

34 © BMI-BRSCU

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)


35 © BMI-BRSCU

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)


36 © BMI-BRSCU

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!), and 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)


37 © BMI-BRSCU

STRATEGIC DRIFT AND HOME OWNERSHIPwww.strategicforum.co.za

Visit to HUD: Washington DC: 1991

Pres. George Bush Snr

38 © BMI-BRSCU


NAHB CONFERENCE: ATLANTA GEORGIA: JANUARY 1991

39 © BMI-BRSCU


NAHB CONFERENCE: ATLANTA GEORGIA: JANUARY 1991Visited by 65 000 people over 4 days.

40 © BMI-BRSCU


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 © BMI-BRSCU

AFFORDABLE HOUSING DELIVERY AND BACKLOG: 2002-2009LOWER MIDDLE ROAD SOYUZ AND HIGH ROAD COLUMBUS SCENARIO: 2009-2020

(Source: StatsSA and BMI-BRSCU Workings)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

AN

NU

AL

HO

US

ING

DE

LIV

ER

Y (

UN

ITS

)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2,200,000

2,400,000

2,600,000

AN

NU

AL

HO

US

ING

BA

KL

OG

(U

NIT

S)

DOH Delivery: Lower Middle Road Soyuz Scenario DOH Delivery: High Road Columbus Scenario

Annual Housing Backlog under Columbus Scenario Annual Housing Backlog under Soyuz Scenario

THE ROLE OF AFFORDABLE HOUSING IN THE ECONOMY: 2009www.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 © BMI-BRSCU

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 ORRENTAL HOUSING

R6 000 R11 000 R20 000HHI

HOUSE R105 000 R250 000 R450 000

BONDED HOUSINGFSC

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 HOUSINGSustainable 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 HOUSINGMixed use Development


43 © BMI-BRSCU

Zoning Type Density )Gross) Units m2/Unit Total m2 R/m2 R/Unit Stand Total R Million* %Giveaway RDP Residential 2 Row Housing 90 Units/Ha 478,750 45 21,723,281 2,074 94,114 9,411 103,525 45,057 3.11%Giveaway RDP Residential 3 Walk-ups 125 Units/Ha 2,128,750 45 96,592,031 2,074 94,114 9,411 103,525 200,345 13.82%Upgraded RDP Residential 1 1 House/Stand 200 m2-450 m2 1,665,000 68 113,220,000 3,935 267,554 26,755 294,309 445,477 30.74%GAP Housing Residential 1 Semi-Detatched 190 m2 488,750 113 54,984,375 3,935 442,644 44,264 486,908 216,342 14.93%

Residential 1 1 House/Stand 1 per 350 m2 238,750 180 42,975,000 3,935 708,230 70,823 779,053 169,090 11.67%5,000,000 42 211,179,375 5,097 215,262 1,076,310 74.27%

1,076,310

Zoning Units m2/Unit Total m2 R/m2 R/Unit Stand Total R Million* %Business 5,000 5,000 25,000,000 4,957 24,783,464 2,478,346 27,261,810 123,917 8.55%Industrial 5,000 5,000 25,000,000 4,039 20,195,000 2,019,500 22,214,500 100,975 6.97%Business 10,000 5,000 50,000,000 2,960 14,800,000 1,480,000 16,280,000 148,000 10.21%

20,000 5,000 100,000,000 3,729 18,644,616 5,977,846 65,756,310 372,892 25.73%

311,179,375 1,449,202 100.00%

* Land excludedEmployment created per annum 301,072

ESTIMATED NON RESIDENTIAL INVESTMENT IN SUSTAINABLE INTEGRATED DEVELOPMENTS

ESTIMATED RESIDENTIAL INVESTMENT IN SUSTAINABLE INTEGRATED DEVELOPMENTSResidential

Bonded (FSC)Total Residential

BNG Housing

(Source: Emendo/BMI-BRSCU Estimate)

Non Residential (m2)Offices & Banking

Grand Total

Industrial and WarehousingShopping & CommercialTotal Non Residential Total Non Residential

Grand Total

ESTIMATED RESIDENTIAL INVESTMENT IN SUSTAINABLE INTEGRATED DEVELOPMENTS: 2010-2020(Source: BMI-BRSCU)

45,057

200,345

445,477

216,342169,090

1,076,310

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Giveaway RDP Giveaway RDP Upgraded RDP GAP Housing

BNG Housing Bonded (FSC) Total Residential

R M

illio

n

0%

20%

40%

60%

80%

100%

120%

Row Housing Walk-ups 1 House/Stand Semi-Detatched 1 House/Stand

ESTIMATED NON RESIDENTIAL INVESTMENT IN SUSTAINABLE INTEGRATED DEVELOPMENTS: 2010-2020(Source: BMI-BRSCU)

123,917 100,975148,000

372,892

1,449,202

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Offices & Banking Industrial andWarehousing

Shopping & Commercial Total Non Residential Grand Total

R M

illio

n

0%

20%

40%

60%

80%

100%

120%

25,000,000 25,000,000 50,000,000 100,000,000 311,179,375

m2 Provided by Segment


44 © BMI-BRSCU

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 REINVENTIONwww.strategicforum.co.za

45 © BMI-BRSCU



Pursuit of More


and Peril

Stage 4Grasping for

Salvation

Stage 5Recovery and

Renewal

WELL FOUNDED HOPE


(Source: Based on Collins: How the Mighty Fall: 2009)

46 © BMI-BRSCU



Pursuit of More


and Peril

Stage 4Grasping for

Salvation

Stage 5Recovery and

Renewal

WELL FOUNDED HOPE


?

What will it take?

(Source: Based on Collins: How the Mighty Fall: 2009)

19

93

/01

19

93

/06

19

93

/11

19

94

/04

19

94

/09

19

95

/02

19

95

/07

19

95

/12

19

96

/05

19

96

/10

19

97

/03

19

97

/08

19

98

/01

19

98

/06

19

98

/11

19

99

/04

19

99

/09

20

00

/02

20

00

/07

20

00

/12

20

01

/05

20

01

/10

20

02

/03

20

02

/08

20

03

/01

20

03

/06

20

03

/11

20

04

/04

20

04

/09

20

05

/02

20

05

/07

20

05

/12

20

06

/05

20

06

/10

20

07

/03

20

07

/08

20

08

/01

20

08

/06

20

08

/11

20

09

/04

20

09

/09


47 © BMI-BRSCU

Total Building Net Building in the Pipeline (NBIP): 1993-2010: BC and Ideal NBIP (INBIP) by Month: 1993-2009: R*1000 (Current Values) (Jan)

(Source: StatsSA, BMI-BRSCU: BC Total RSA by Month and Type of Building1993-2008: NBIP (BPP-BC): Chart 16)

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Total Building NBIP (BPP-BC) Total Building BCTotal Building INBIP 12 per. Mov. Avg. (Total Building NBIP (BPP-BC))12 per. Mov. Avg. (Total Building BC) 12 per. Mov. Avg. (Total Building INBIP)


Can the Building Industry TRANSFORM and

REINVENT itself – can it recover?

48 © BMI-BRSCU


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1993

/01

1993

/07

1994

/01

1994

/07

1995

/01

1995

/07

1996

/01

1996

/07

1997

/01

1997

/07

1998

/01

1998

/07

1999

/01

1999

/07

2000

/01

2000

/07

2001

/01

2001

/07

2002

/01

2002

/07

2003

/01

2003

/07

2004

/01

2004

/07

2005

/01

2005

/07

2006

/01

2006

/07

2007

/01

2007

/07

2008

/01

2008

/07

2009

/01

2009

/07

R M

illio

ns

(Cu

rren

t V

alu

es)

New mortgage loans and re-advances applied on existing buildings

Gross new mortgage loans and re-advances for construction of buildings

Net new mortgage loans and re-advances applied on vacant land

12 per. Mov. Avg. (New mortgage loans and re-advances applied on existing buildings)


It will FUNDAMENTALLY depend on the strategy of

the FINANCIAL INSTITUTIONS.

49 © BMI-BRSCU

Low Low High HighPOWERPOWER

INTER

ES

T (

STA

KE)

INTER

ES

T (

STA

KE)

UN

AFEC

TED

U

NA

FEC

TED

S

TA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

h

Hig

h

PLAYERSPLAYERSDemand creatorsDemand creatorsFuture orientedFuture orientedProactiveProactiveInnovativeInnovativeEntrepreneurialEntrepreneurialRisk TakersRisk Takers

RESERVESRESERVESDemand RespondersDemand RespondersCurrent orientationCurrent orientationReactiveReactiveResponsiveResponsiveService orientedService orientedRisk ManagersRisk Managers

ONLOOKERSONLOOKERSDemand observersDemand observersPast orientationPast orientationPassivePassiveRisk AvoidersRisk Avoiders

REFEREESREFEREESDemand FacilitatorsDemand FacilitatorsCurrent orientationCurrent orientationReactiveReactiveResponsiveResponsiveMediatingMediatingGatekeepersGatekeepersRisk AverseRisk Averse

BYSTANDERS ACTORSBYSTANDERS ACTORSBuilding Industry Stakeholder AnalysisBuilding Industry Stakeholder Analysis


50 © BMI-BRSCU


LEV

EL O

F I

NTER

ES

T (

STA

KE)

LEV

EL O

F I

NTER

ES

T (

STA

KE)

UN

AFEC

TED

UN

AFEC

TED

STA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

hH

igh

PLAYERSPLAYERSCommittedCommittedIn the KnowIn the Know

RESERVESRESERVESInvolvedInvolvedKeep InformedKeep Informed

CROWDCROWDInterestedInterestedMinimal EffortMinimal Effort

REFEREESREFEREESConcernedConcernedKeep SatisfiedKeep Satisfied

BYSTANDERS ACTORSBYSTANDERS ACTORSBuilding Industry Stakeholder AnalysisBuilding Industry Stakeholder Analysis


51 © BMI-BRSCU


INTER

ES

T (

STA

KE)

INTER

ES

T (

STA

KE)

UN

AFEC

TED

U

NA

FEC

TED

S

TA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

hH

igh

BYSTANDERS ACTORSBYSTANDERS ACTORS


PLAYERSPLAYERSProperty Entrepreneurs, Property Entrepreneurs, developers, developers, Public Sector,Public Sector,FINANCIAL FINANCIAL INSTITUTIONSINSTITUTIONS(Mortgage Origination, (Mortgage Origination, Approval, Approval, Advances)Advances)

RESERVESRESERVESArchitects, Specifiers,Architects, Specifiers,Manufacturers, Manufacturers, Distributors,Distributors,Contractors,Contractors,FINANCIAL FINANCIAL INSTITUTIONSINSTITUTIONSDeposits, Repayments, Deposits, Repayments, Insurance) Insurance) CROWDCROWDLabour, Labour, Unions,Unions,Consumer bodies,Consumer bodies,FINANCIAL FINANCIAL INSTITUTIONSINSTITUTIONS(Property Values, Property (Property Values, Property reports (HPI), Statistics)reports (HPI), Statistics)

REFEREESREFEREESGovt Prov-, Local-Govt Prov-, Local-Authorities, CIDB, NHBRC, Authorities, CIDB, NHBRC, SABS, Agrement Board, SABS, Agrement Board, MBA’S, SARB, State MBA’S, SARB, State Tender Board,Tender Board,FINANCIAL FINANCIAL INSTITUTIONS INSTITUTIONS (Valuations, LTV ratios, (Valuations, LTV ratios, Mortgage Rate, term, Mortgage Rate, term, Affordability)Affordability)

Building Industry Stakeholder AnalysisBuilding Industry Stakeholder AnalysisFinancial 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 © BMI-BRSCU

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)


53 © BMI-BRSCU

Building Industry Stakeholder AnalysisBuilding Industry Stakeholder Analysis


INTER

ES

T (

STA

KE)

INTER

ES

T (

STA

KE)

UN

AFEC

TED

U

NA

FEC

TED

S

TA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

hH

igh

PLAYERSPLAYERSProperty Entrepreneurs, Property Entrepreneurs, Property developers,Property developers,Public Sector,Public Sector,Building IndustryBuilding Industry

RESERVESRESERVESArchitects, Specifiers,Architects, Specifiers,Manufacturers, Manufacturers, Distributors,Distributors,Contractors, Financial Contractors, Financial Institutions,Institutions,Building IndustryBuilding Industry

CROWDCROWDLabour, Labour, Unions,Unions,Consumer bodies,Consumer bodies,Building IndustryBuilding Industry

REFEREESREFEREESGovt, Provincial, Local-Govt, Provincial, Local-AuthoritiesAuthoritiesCIDB, NHBRC, SABS, CIDB, NHBRC, SABS, Agrement Board, MBA’S,Agrement Board, MBA’S,SARB, State SARB, State Tender Tender Board,Board,Building IndustryBuilding Industry

BYSTANDERS ACTORSBYSTANDERS 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?


54 © BMI-BRSCU


Building Industry Stakeholder AnalysisBuilding Industry Stakeholder Analysis


INTER

ES

T (

STA

KE)

INTER

ES

T (

STA

KE)

UN

AFEC

TED

U

NA

FEC

TED

S

TA

KEH

OLD

ER

SS

TA

KEH

OLD

ER

SLow

Low

Hig

hH

igh

PLAYERSPLAYERSProperty Entrepreneurs, Property Entrepreneurs, Property developers,Property developers,Building IndustryBuilding Industry(Mortgage Origination, (Mortgage Origination, Approval, Advances)Approval, Advances)

RESERVESRESERVESArchitects, Specifiers,Architects, Specifiers,Manufacturers, Manufacturers, Distributors, Financial Distributors, Financial Institutions.Institutions.Building IndustryBuilding Industry(Contractors, Deposits, (Contractors, Deposits, Repayments, Insurance)Repayments, Insurance) CROWDCROWDLabour, Labour, Unions,Unions,Consumer bodies,Consumer bodies,Building IndustryBuilding Industry(Property Values, Property (Property Values, Property reports (HPI), Statistics)reports (HPI), Statistics)

REFEREESREFEREESGovt, Prov-, Local-Govt, Prov-, Local-AuthoritiesAuthoritiesCIDB, NHBRC, SABS, CIDB, NHBRC, SABS, Agrement Board, MBA’S,Agrement Board, MBA’S,SARB, State Tender SARB, State Tender Board,Board,Building IndustryBuilding Industry (Valuations, LTV ratios, (Valuations, LTV ratios, Mortgage Rate, term, Mortgage Rate, term, Affordability, Quality)Affordability, Quality)

BYSTANDERS ACTORSBYSTANDERS ACTORSDevelop an Igniting Vision and a Grand Strategy: Promote Building as the engine for growth, nation building and wealth creation through Property Ownership.

Develop an Igniting Vision and a Grand Strategy: Promote Building as the engine for growth, nation building and wealth creation through Property Ownership.

55 © BMI-BRSCU


Every American President including George Bush promoted Home Ownership

Who promotes Home Ownership and Property as a preferred Investment in South Africa?

56 © BMI-BRSCU

Productive capacity

Alliances,Joint

Ventures

Cross functional

Networking

Enterprise Development,

BEE

Skills Training and Developmen

t

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


57 © BMI-BRSCU


Productive capacity

Alliances,Joint

Ventures

Cross functional

Networking

Enterprise Development,

BEE

Skills Training and Developmen

t

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 © BMI-BRSCU

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.


59 © BMI-BRSCU

NATIONAL ISSUES

GROWTH WEALTHEMPLOYMENT PROPERTY

CLAYBRICK.ORG’S ROLE

INVESTMENT ENVIRONMENT

MARKETING LOGISTICS

VISIONBuilding 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

MISSIONDeveloping 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.

REINVENTIONDoing well while

doing good.

REINVENTIONDoing well while

doing good.

NARROW FOCUS ON COMPANY

NARROW FOCUS ON COMPANY

BROAD FOCUS ON CONTRIBUTION TO NATIONAL ISSUES

BROAD FOCUS ON CONTRIBUTION TO NATIONAL ISSUES

VALUESCB 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.


60 © BMI-BRSCU

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)


61 © BMI-BRSCU


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 © BMI-BRSCU

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)

"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." (David Carte: When you get a death sentence: Deny it and take a trip: Moneyweb, 16 March 2010)


63 © BMI-BRSCU

Sold out OFF PLAN in one week before launch!(15 November 2006)


Purchase PriceR2,4 Million (R15 000/M2)10% deposit

(15 November 2006)

Personal experience: Property a good Investment?

64 © BMI-BRSCU


Completed July 2009

ValuationR4,5 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 © BMI-BRSCU


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 © BMI-BRSCU


The Terrace – before furniture.

67 © BMI-BRSCU

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)


68 © BMI-BRSCU

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.


69 © BMI-BRSCU

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)


70 © BMI-BRSCU

Total Mortgages Outstanding: 1994-2008Lower Middle Road Scenario: 2009-2020

(Source: SARB, MFA, BMI-BRSCU Workings)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

R M

illio

ns

(C

on

sta

nt

20

08

Va

lue

s)

Total Mortgages Outstanding Total Assets Mortgaged

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?


71 © BMI-BRSCU

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).


72 © BMI-BRSCU


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 © BMI-BRSCU

“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)


74 © BMI-BRSCU

Strategic Drift: How the mighty fall: Applied to the Building Industry

Dr. Llewellyn B. LewisDr. Llewellyn B. LewisMarch 2009March 2009

THE STRATEGIC FORUMTHE STRATEGIC FORUM

A place of assembly for strategic conversations

THE STRATEGIC FORUMwww.strategicforum.co.za

BMI




Reg. No. 2002/105109/23

•BMI




•BMI

•BMI

•BMI

•

Real Estate

Strategic drift how the mighty fall applied to the building industry