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SA Companies Are Slow To Innovate – Shows Accenture Innovation Index

The index shows that only eight percent of companies are successfully managing to convert innovation into substantial bottom line growth.

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The pace at which South Africa is innovating needs to accelerate if the country hopes to continue to compete in the 21st century. This is according to the Accenture Innovation Index released at the Innovation Conference held yesterday in Johannesburg. The index shows that innovation has increased by four points in 2016, a pace not required to for a stable economic growth.

Analysis of the results puts the majority – 57 percent of companies surveyed that scored less than 52 points out of a possible 100 – into the innovation laggard category. Only 29 percent can be categorised as innovation leaders. However, there is one further category that is truly setting the pace – innovation value champions.

“Digging deeper into the research we found that eight percent of companies are successfully managing to convert innovation into substantial bottom line growth,” said William Mzimba Chief Executive of Accenture South Africa and Chairman of Accenture Sub-Saharan Africa.

“These innovation value champions are seeing returns on their innovations in excess of 40 percent and generate three times more value on their innovation investments than market average.”

“The innovation excellence of innovation leaders and value champions sets a benchmark for corporate South Africa. So, how can laggards close the gap to become leaders? And what is it that innovation champions are doing differently to achieve such impressive returns on their innovations? The first, most significant finding is that innovation value champions invest more in innovation,” said Mzimba.

“On average, South African companies invest 13.7 percent of their annual revenues in innovation and realising a 14.5 percent return. Innovation value champions invest 17.8 percent of revenues and their average return is 42.6 percent – almost three times higher than the market average.”

Mzimba further emphasised that investment is not the only factor that underpins their success. “A strong innovation culture is central to their innovation strategy, they use digital as a business enabler and as a revenue generator, and they leverage the power of ecosystems to gather intelligence and insights that help them differentiate their offerings in the market.”

In this year’s Accenture Innovation Index results, there are three stand-out dimensions of innovation maturity in which innovation leaders are gaining momentum: Engagement, Resources and Digital.

Engagement: Innovation embedded

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To achieve a truly sustainable innovation ecosystem, engagement needs to be encouraged and facilitated on all business and employee levels. Among South African companies surveyed, levels of engagement have increased by seven percent to 50 percent in 2016. This is driven primarily by innovation leaders who are acutely aware that for innovation to be embedded within their organisation it needs to be a persistent mindset among all employees.

Engagement is an important recurring theme in the 2016 Innovation Index with companies continuing to drive innovation from within their organisations. Notably, almost 70 percent of companies reported that their employees see innovation as an important part of their day jobs and believe it has the ability to enhance the life span of a company, its products and services.

innovation value champions see embedding innovation in their organisations as a cornerstone to their innovation strategy. Their talent development is directed at acquiring new skills to support innovation and they have a high success rate in terms of retaining top talent to support innovation, and attracting and acquiring new talent to drive innovation.

The Accenture Innovation Index results show that innovative businesses encourage their employees to be innovative and openly promote the use of interactive tools and digital platforms for employees to pursue innovation.

This is in line with Accenture’s 2016 Tech Vision report, an annual report that identifies technology trends essential to business success in the digital economy, which shows that 76 percent of South African businesses believe a more fluid workforce will improve innovation.

The index indicates that 95 percent of innovation leaders are giving more control to their employees to ideate and innovate, and are offering strong incentives and opportunities to encourage and cultivate innovation.

Incentives include professional development, varied work assignment opportunities, financial rewards and annual rewards programmes recognising innovation. 

The value of internal collaboration is also receiving strong attention – 85 percent of Innovation Leaders are making use of dedicated multi-functional innovation teams to generate new ideas, and have dedicated innovation teams set up to manage innovation. 

Resources: The power of the ecosystem

Along the innovation value chain, resources in the form of financial capital, human capital and partner relationships are needed to generate ideas, facilitate innovation and bring it to fruition.

In 2016, the Resources dimension of innovation maturity measured by the Innovation Index witnessed an impressive general increase of 20 basis points from 2014 to reach 55 points. This score was primarily driven by innovation leaders who increased their score in the Resources dimension by 32 percent to reach 77 points. 

In an increasingly competitive world, companies need to take advantage of a wide range of resources to innovate; they cannot rely on ideas to come only from within their organisation. Encouragingly, the use of Open Innovation, which is characterised by partnerships among a range of players in a global ecosystem, is a strong theme emerging under the Resources dimension in this year’s Innovation Index as a means to drive innovation agendas.

“Our results show that 66 percent of innovation leaders are proactively embracing innovative ideas that come from sources inside the organisation as well as platforms and channels located externally. Innovation value champions clearly see opportunities in leveraging a broader ecosystem: 71 percent look to academia, clients, customers and suppliers to crowdsource information to innovate rather than relying on traditional sources,” said Mzimba.

Digital: leading in the new

Innovation Leaders are using analytics to drive innovation – a successful strategy that laggards are not taking full advantage of. Big Data analytics enables companies to harness data and use it to identify new opportunities and more efficient ways of doing business, as well as speed up decision-making and attend to customer needs with precision.

Digital technologies are also being adopted by innovation leaders internally to support business process innovation and streamline operations. This translates into significant cost efficiencies within the business.

Digital technologies are also being used for process automation, with over half of South African organisations currently automating their core business processes, and eight in 10 innovation leaders moving to automate core business processes as part of their digital progress.

The digital environment makes a strong customer focus a competitive advantage. By leveraging digital, South African organisations can improve their cost-to-serve throughout each layer of the value chain.

Innovation Leaders are also strongly invested in reducing the time to respond to customer needs.

They are using digital technologies to improve their service delivery and, ultimately, customer satisfaction; social media for product and service promotion; and technology apps to improve route-to-market processes, ensuring market strategies are optimised for their business.

The journey from laggard to leader

Overall, South African companies understand the importance of open, collaborative innovation and the positive impact it can have on employee engagement and company performance. Accenture believes that South Africa needs to catalyse change to drive next steps.

The Innovation Index provides some insight into how the country’s innovation value champions and leaders are building successful systems of innovation. If South African companies can better mobilise their resources, engage their talent and leverage digital technologies, they can increase their innovation success.

However, the journey from innovation laggard to leader requires a new mindset and adequate investment in innovation and development. To become an innovation value champion, companies must take the next step, creating an innovation ecosystem designed to capture value and promote and reward risk-taking and performance.

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Entrepreneur Today

3 Stealthy Tax Hikes Payroll Managers And Employees Need To Take Note Of

By Rob Cooper, tax expert at Sage, and chairman of the Payroll Authors Group of South Africa

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“Dammed if you do and dammed if you don’t.” 

The adage summarises the difficult decisions government and the Finance Minister faced when balancing the country’s books, rescuing state-owned enterprises, and reviving the growth of our economy. Given the economic pressure that most taxpayers are facing, government ideally needed to achieve all of that without direct increases to personal income tax in the most recent Budget Speech.

Personal income tax has comprised at least a third of South Africa’s total tax revenue in recent tax years, despite growing unemployment. The 2019 Budget, presented in February, forecasts that personal income tax will account for nearly 39% of tax collected during the upcoming (2019/20) tax year. Given that we are in an election year and that the tax base is fragile, it’s not surprising that the Finance Minister and the National Treasury avoided direct increases to the statutory tax tables used to calculate PAYE for employees in the budget.

Nonetheless, government has made inflation work in its favour to impose some tax increases by stealth. Here are three ways government is raising more revenue without direct tax increases:

1. Bracket creep

The statutory tax tables used by payrolls and employers have not been changed for 2019/20, nor have the brackets been adjusted for inflation. This effectively amounts to an indirect tax increase that will yield a revenue saving of approximately R12.8 billion for government’s coffers.

It is not unusual for government to use ‘bracket creep’ to effectively raise more revenue. But unlike previous tax years, even low- and middle-income earners are not getting much relief. Rebates and the tax threshold are being increased by small amounts to allow some relief, but many people this year will feel the pain as inflationary salary increases push them into a higher tax bracket.

2. Medical aid credit not adjusted for inflation 

As proposed in the 2018 Budget, the Finance Minister did not apply an inflationary increase to the Medical Tax Credit, which allowed him to raise an extra R1 billion in revenue for the year. Surprisingly, these funds will be allocated to general tax revenue rather than ring-fenced for healthcare. In previous tax years, revenue generated from below-inflation increases on medical scheme credits was used to fund National Health Insurance (NHI) pilot projects.

There is still no clarity on how the NHI is going to be funded except for a general statement that the funding model is a problem for the National Treasury to solve, and that the principles of cross-subsidisation will apply. One wonders if any real progress will be made soon, given the fiscal constraints government faces.

3. Business travel deduction left untouched

The Budget leaves the per-kilometre cost rates used to determine tax deductions for business travel untouched. By not increasing travel rates to account for inflation, government effectively increases income tax collection at the cost of the taxpayer. This will be a blow for people who need to claim from their employers for business travel in their personal vehicles. This change has slipped through largely unnoticed and the budget does not provide numbers for the expected increase in tax revenue.

Closing words

Amid political turmoil and uncertainty, the Finance Minister presented a balanced budget for 2019/20 that offers hope for the future along with some tough love. With government taking steps to accelerate economic growth and improve revenue collection, we should hopefully see a steady improvement in government finances, which will translate into less pressure on the taxpayer in future years.

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Entrepreneur Today

SMEs: Staying On The Right Side Of The Taxman

Remaining SARS compliant can be a constant challenge for small- to medium-enterprises (SMEs), especially when they are trying to focus on growing their businesses and streamlining their operations.

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EasyBiz Managing Director, Gary Epstein, says submitting taxes can be a seamless process that does not have to take up more time than is necessary. “If business owners understand what is required of them and they put a few processes into place to deal with their tax submissions properly, their lives will be so much easier.”

What are the top three considerations for SMEs when submitting tax returns?

“Firstly,” says Epstein, “SARS returns must be accurate and submitted in terms of the relevant Act. Secondly, returns should be submitted and paid on time to avoid unnecessary penalties and interest, and thirdly, business owners must follow up on queries issued by SARS. “Do not ignore these queries, act on them as soon as possible”.

What are the major SARS submission deadlines for SMEs?

Epstein points out that small business owners need to adhere to various tax deadlines, each with their own particular dates for submission. “It is important that business owners diarise the dates (and set advance reminders for themselves) and/or enlist the services of an accountant or financial adviser to help them keep abreast of requirements.”

Value-added tax (VAT)

VAT payments need to be submitted in the VAT period allocated to the business, according to various categories and ending on the last day of a calendar month. This may mean making payments once a month, once every two months, once every six months or annually, depending on the category.

Provisional taxes

Provisional tax should be submitted at the end of August (first provisional) and at the end of February (second provisional) – for February year-end companies.

Employee taxes

In addition to submitting an annual reconciliation (EMP501) for the period 1 March to end of February for Pay-As-You-Earn (PAYE), Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF), employee tax, in the form of an EMP201 return, needs to be submitted by the seventh of every month.

When can SMEs get extensions and is it worth it?

Epstein says SMEs can apply for various extensions, but these are subject to the Income Tax Act and Tax Administration Act.

“It is best for SMEs to consult their tax professionals to get advice regarding extensions for their businesses.”

What is SARS not flexible about?

SARS is not flexible when it comes to late returns and late payments.

“I cannot stress enough how important it is for SME owners to ensure their tax returns are submitted on time. In this way, they will avoid the inconvenience and expense of additional fines and interest,” notes Epstein.

What skills do SMEs need in their organisations to be able to submit to SARS efficiently?

Business owners often don’t have the time or expertise to deal with tax submissions throughout the year. If the business cannot afford to employ a full-time accountant or financial services expert, it would do well to outsource its tax requirements to a registered tax practitioner.

“I would recommend that even if they are not submitting the tax returns themselves, business owners should have a broad understanding of the tax regulations and what is expected of them. There is a lot of helpful information on the various Acts and tax requirements on SARS’ website,” says Epstein.

How does the right software help SMEs remain SARS compliant?

SME’s (and their accountants’) jobs can be made easier by using reliable accounting software to calculate accurate VAT reports. These reports are only as accurate as the data entered into them, which means care needs to be taken when inputting data into the accounting programme. Epstein says a good accounting software package must be reliable, easy to use and functional.

“SMEs need to check that the software has thorough reporting capabilities and can interface with other software solutions. Of course, it is also important to find out whether the software is locally supported by the vendor or not.”

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4 Dangers Of Business Under-insurance

A common short-term insurance peril that many SMEs face when submitting a claim following an insured event is the risk of being underinsured.

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Malesela Maupa, Head of Products and Insurer Relationships at FNB Insurance Brokers says, many small business owners mistakenly believe that by merely having a short-term insurance policy in place they are adequately protected against unforeseen events.

“This is technically correct provided that the business is covered for the full replacement value of the items insured. However, in circumstances where the sum insured does not cover the full replacement value or material loss of the item insured, the business is underinsured,” explains Maupa, as he unpacks the dangers of business underinsurance:

1. Financial loss

The most common risk is financial loss on the part of the business. If the business is underinsured or the indemnity period understated, the short-term insurance policy will only pay out the sum insured for the stated indemnity period as stated in the schedule, with the business owner having to provide for the shortfall. This often leads to cash flow challenges, impacting profit margins or rendering it difficult for the business to recover following the financial loss.

2. Reputational damage

Should an underinsured business not have sufficient funds to replace a key business activity or critical component following a loss, this may impact its ability to fulfil its contractual obligations, leading to a loss of business or market share, and irreparable reputational damage in the worst-case scenario.

3. Legal action

A small business also faces the risk of customers or clients taking legal action against it, should it fail to deliver on goods and services following a loss or be unable to honour its financial commitments that they committed to prior to the loss.

4. Survival of the business

A catastrophic event such as fire, which could result in the loss of stock or company equipment and documentation, could threaten the survival of a small business that is not yet fully established, if the business assets are not adequately insured.

Working with an experienced short-term insurance broker or insurer is essential when taking up short-term insurance to ensure that business contents are covered for their full replacement value.

Furthermore, depending on the nature of the business or item insured, the policy should be reviewed on a regular basis to avoid underinsurance as the value of items often change overtime due to fluctuations in economic activity. Where it’s necessary, evaluation certificates need to be kept up to date.

“Lastly, SMEs should ensure that the sum insured does not exceed the replacement value, which would lead to over insurance. Should a business submit a claim following a loss, the insurer would only pay out the replacement value, regardless of the higher sum insured,” concludes Maupa.

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