Former Nampak CEO Erik Smuts is always up for a challenge – whether in life or in business. He is the kind of person who is intrigued by the unknown, instead of shying away from it.
After he completed his honours degree at the University of Pretoria in 1993, he joined Deloitte for his three years of articles. When the opportunity for a year’s secondment came around, he didn’t choose a familiar environment like the UK or US; instead he chose to join the Budapest office in Hungary to do computer auditing. Erik thought it would be an adventure because Communism had fallen in Eastern Europe just a few years before and the region was opening up to the rest of the world.
On a personal front, Erik also challenges himself and likes to ponder the many unanswered questions of life. In recent times, he has read up on theoretical physics. He doesn’t have a formal background in science, but he is fascinated by notions such as the speed of light and cosmology. He got into it during moments of professional crises when he was looking for intellectual stimulation unrelated to his line of work.
Back to his time in Hungary. He faced a lot of down time, because he needed a translator to scrutinise documents and there wasn’t always one available. Not feeling productive enough, Erik started shopping around for a different job. It wasn’t long before he got one at Nampak.
‘I’ve always been interested in business,’ Eric says. ‘This is what inspired me to pursue a CIMA [Chartered Institute of Management Accountants] qualification alongside my chartered accountant designation. With auditing you are merely commenting on other people’s business; you’re not in a position to own the results a company produced.’
Erik wanted in on the action. ‘I joined Nampak as a project accountant in the beverage canning (BevCan) division. My initial project was to oversee the implementation of the Hyperion software system and before long I was involved with inventory control and production planning.’
Working as an assistant for the sales and marketing director, Erik was later roped into negotiating terms with both suppliers and customers. That experience taught him that a proactive employee can structure his duties towards his skillset despite what his formal job description is.
In 2001, four years after he joined Nampak, he was appointed commercial director of the division, which allowed him to get experience in different parts of the business. Another four years later, he was appointed financial director of the division. He was responsible for their financial performance, although the financial reporting was handled exclusively by the financial manager. In 2009, he became the division’s managing director and by 2020 took over as group CEO.
Erik believes accountants who want to lead companies must make the call to become generalists rather than specialists. They are similar to engineers, who are trained to apply common sense, an essential quality for leadership. Both professions require proficiency in mathematics, a discipline that can only be understood by applying logic, and leadership is all about logical decision making in the search for solutions.
Accountants have an added advantage, though, because finance is the language of business. In his view, a finance qualification is therefore an accelerator for those harbouring ambitions of getting into the C-suite.
Adapting to stay competitive
During the time he headed BevCan, Eric saw an evolution in both the company and the industry. There has been consolidation through mergers and industry changes arising from some players going out of business. There has also been periods when there has been little investment in the business, which led to the local industry becoming uncompetitive.
However, pressure from multinational clients meant the business had to become more competitive. Following the first democratic elections in 1994, the South African market opened up and companies like Nampak have had to reinvent themselves to survive. In this adapt-or-die scenario, Nampak adopted high-speed aluminium production systems as part of their strategy to stay profitable.
Cans have also been under threat from plastics, which are increasingly used to bottle soft drinks. Furthermore, glass became a popular alternative for bottling of beers and other alcoholic products. To respond to these changes, Nampak has turned to the export market to keep up volumes. They also embarked on a strong marketing campaign to promote the use of cans under the ‘CAN DO!’ slogan.
‘In 2012, we set up a factory in Angola that was successful from the word go,’ Eric says. ‘We wanted to do the same thing in Nigeria, but because there was a newly built factory that suited our purposes, we decided to buy the premises instead. Both businesses started off well, but around 2014 the oil price collapsed and both countries faced economic collapse. Because of the currency crunch we struggled to repatriate funds and get sufficient foreign exchange to pay our suppliers.’
Although both businesses are efficient and profitable, Erik says the economic situation must improve before they can achieve greater profits. ‘We are often asked if we would consider an exit. We would, yes, but at the right price. We must consider the returns against the risks of keeping the businesses going.’
Marketing by competitors such as Consol (which sells glass) has re-energised both can and glass products. Lately, however, there has been capacity shortages of both products and Nampak is struggling to satisfy demand in the market.
The alcohol bans during the COVID-19 pandemic resulted in a glass shortage because the furnaces had to keep going and churned out glass waste when they weren’t allowed to produce beer bottles. In turn, this resulted in lost capacity and when the market re-opened there was insufficient stock to satisfy demand. Since then, the market has exploded.
‘Our businesses are affected by customer preferences. For example, today beer drinkers prefer the smaller, single-use bottles to returnable quarts. The smaller bottles and cans are in the same market, which has benefited us [because of the glass shortages]. There is a lingering perception that you can taste the metal when drinking from a can, but this is a false marketing narrative because all blind tests we have conducted prove otherwise. In fact, most test case respondents chose the sample in a can over that the one in glass.
‘Others think it’s cooler to be seen holding a bottle than a can, but in terms of the taste, a can would definitely be better. Beer is affected by light, which is why they sell it in dark bottles. Regardless of how dark the bottle is, the light will still get through. Cans do not have that problem.’
Building a culture of trust
In Erik’s view it is critical for a leader to understand the business they are running and what their role is. He says managers easily get trapped in doing something that is not their job. Leaders should also know their limitations: Erik may be the CEO, but he would never want to be put on the production line because he isn’t a can-maker. His job is to look at how things can be aligned and made easier for those who are the experts at their jobs.
You only have a certain number of hours a day and you simply cannot do everything, he says. Management is about aligning resources to leverage the skill of those you manage. If you do so, it will multiply the skill factor. In this regard, trust is key. ‘It doesn’t matter how much experience you have – if employees don’t trust you, they won’t respect you,’ he says.
‘In a business, employees need to feel like they trust their leaders and leaders need to feel that they trust their employees,’ Eric states. ‘As a leader, I don’t have to micromanage employees when I trust them. This is what brings about a multiplication factor, because we end up allowing people to do their jobs without interruption. We only need to monitor from time to time and identify areas where they’re falling short, and then we can give them tehi necessary support, which, in turn, will allow us to continue trusting them.’
Eric’s viewpoint links to what Stephen Covey says in The Speed of Trust about the benefits of having trust in a business. For one, trust relationships lead to better communication because it is far easier to understand someone you trust – like friends who understand each other much faster than when strangers communicate. Trust also helps to lower costs because a company will have to spend less on marketing if they have a product their customers trust. Similarly suppliers would not need to gather so much information from a customer to initiate a credit transaction if their relationship is built on trust.
‘Beyond trust, integrity and honesty are also important,’ Eric continues. ‘These are the values that should inform the business strategy. A strategy needs to focus on alignment and should not be too complicated. It is crucial for employees to understand what the strategy is and how they can contribute towards its success.’
As part of their strategy, Nampak has four categories of intervention, based on risk and growth.
The first considers debt management, currently Nampak’s biggest risk and which they are aiming to reduce. Secondly, their strategy aims to simplify the business portfolio and the processes within those businesses. Thirdly, they focus on optimisation, which entails improving how they use resources, streamlining throughput, lowering spoilage and optimising procurement.
Nampak can’t do much to differentiate itself on the ultimate product; they have to produce cans according to the customer’s specifications. Their last category of intervention therefore centres on driving innovation in the production process by improving the quality of the product, lowering costs and ensuring seamless service delivery.
‘All tasks centre around these four categories. When our graduates present projects to us, the first thing we do is to check what strategic category it fits into. In that way the entire business – from recruits to the most experienced workers – are aligned in terms of what we are aiming to achieve,’ Erik explains.
Focus on where you can make a difference
His first years as CEO weren’t easy. The COVID-19 pandemic hit soon after he was appointed in the executive role and the group has increasingly needed to carry high debt levels. This means Nampak is constantly working to get their balance sheet in shape and it will take many years to achieve.
However, there have also been highlights in his career, like when they reshaped the beverage can industry in sub-Saharan Africa. ‘We have been successful in the face of macro-economic challenges. Sadly, the bigger economic picture is out of our control and as a result we need to do some careful tap dancing given the risks in our constrained balance sheet.’
Erik knows not worrying about things beyond your control is easier said than done. ‘Unfortunately, when investors see bad results, they don’t care too much whether it’s because of your actions or because of circumstances beyond your control. That causes stress. But ultimately you have to concentrate on the areas where you can in fact make a difference.’
Like the BevCan slogan, Erik has a can-do attitude in everything he does. He is also an accomplished cyclist who has done mountain bike races across the world, including the Trans Andes, the Swiss Epic, the BC Bike Race in Canada and the Cape Epic. Level-headed and grounded yet curious to explore the unknown, he is always ready to cycle to the next hill to see what lies beyond.
This is a chapter from the book THE CEO X FACTOR – Secrets for Success from South Africa’s Top Money Makers – available here https://www.takealot.com/the-ceo-x-factor/PLID92980382
