M-Web retrenchments: Just like that

M-Web have confirmed rumours that it will be retrenching about 7% of its staff. The number of jobs is about 66, out of about 1 000, according to its CEO, Rudi Jansen, speaking on The World at Six radio programme. The reduction in staff numbers cannot however be attributed to the global economic slowdown, as the internet industry is likely to experience significant growth as the cost of broadband decreases in South Africa. Obviously, there will be a slowdown in consumer spending, but that cannot explain the decision to retrench workers. Explaining why the retrenchments have occurred in a growing industry — in one of the largest players in that industry — is important because as the financial crises bites we sometimes become desensitised to retrenchments. Why then has M-Web retrenched people?

The official explanation is that it is about refocusing the company to be more competitive in a changing ICT landscape. Industry insiders suggest that it is about M-Web focussing on its core offering as an internet service provider, and attempting to get rid of its non-core offering. Further, as suggested by industry outsiders, the skill sets of the employees mean they are unlikely to be unemployed for a long period of time. The argument is that there will be no casualties in the process, as workers will receive employment, and the company will achieve its “strategic reorientation”.

However, there is an alternative explanation. M-Web is part of the Naspers group. Last year, Naspers attempted to sell M-Web through an auction but was unable to find a willing buyer, ostensibly because of the financial crises. The retrenchments could thus potentially be seen as part of an attempt to trim down overheads for a potential sell-off later in the year. When one looks at options available to M-Web, one has to conclude that it tells us about the inability of large companies to think strategically and ethically. What then are these options?

Two options are immediately available to the company.

Option One: Redeploying staff
This would entail redeployment of “excess” staff into the wider Naspers group that is attempting to improve its online offering. The impact on a huge conglomerate like Naspers would be negligible from a cost perspective; however the experience of staff from M-Web could be invaluable in repositioning its larger websites. The value to the company is that retail experience in the industry offers a significant advantage in repositioning existing websites to have greater interactivity. This conclusion can be reached, (even though Naspers faces its own challenges, with retrenchments planned in its newspaper divisions and failed investments in Germany), that absorbing staff targeted for retrenchments could support the strategy of its online operations. It would be consistent with its strategy and announcements that it sees internet business growth as a key part of its strategy.

Option Two: Starting a new venture
This would involve creating a joint venture with affected staff. Assuming — as is suggested — that the affected staff have a set of portable skills, the potential for a start-up business could be significant. M-Web could retain some shareholding, with staff and a BEE partner holding shares. Potentially, this could influence the BEE scorecard, in respect of enterprise development, and in terms of its supply chain. For existing employees, it would offer an opportunity to move into an industry that is growing and where a small focussed company could potentially thrive and lead. Just imagine, the positive PR that could be achieved! But, looking further down the line, a successful company offering good services into the SME and consumers markets could offer significant value to M-Web, precisely because it is outside the bureaucracy of the modern corporation.

The story of these retrenchments indicate that sections of corporate South Africa are failing to think creatively and ethically. This affects not only shareholders — who could be achieving better returns by being brave and thinking out of the box — but the wider society. For instance, if a large ISP like M-Web is able to retrench, smaller players will follow suit. This might be seen as simply mimicking because bigger competitors are seen to have better market knowledge than smaller companies. However, it could send a signal that retrenchments — even in profitable companies, in industries that are growing, are acceptable. However, as a country, we must sent the opposite signal — retrenchments, especially in growing industries, are unacceptable. One hopes that President Motlanthe makes that phone call to decision makers at M-Web and Naspers. We can stop these retrenchments “just like that”, if there is the will.