Productivity Leader

OCTOBER 2010

OFFICIAL PUBLICATION OF PRODUCTIVITY SA

Focus on green productivity Productivity equals quality SA ups its competitiveness ranking

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CONTENTS

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CEO’s desk

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South Africa improves in world competitiveness rankings

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Productivity SA crucial

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If you focus on productivity you will get quality for free

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The need for entrepreneurs

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Balance of productivity lower than it should be

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Entrepreneurs are made – or are they?

Ed’s note Letters to the editor News • Labour productivity inches up in South Africa during difficult year • Cluster-Based Competitiveness Week • Productivity Month • The role of Productivity Awards • Events for Productivity Month

Case studies • Lenong General Road Maintenance • Another vital intervention by Productivity SA • Centurian Systems

Productivity SA Acting CEO: Bongani Coka

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Productivity SA Executive Manager: Iggy Sathekge Editor: Maupi Monyemangene

Tel: 011 883 4627 • Website: www.isikhova.co.za Design and layout: Joanne Brook, Isikhova Publishing

Sub-editor: Chris Whales

Advertising: Rui Victor Chirindja

Editorial advisory panel: Chris Whales, Justice Tshifularo,

Tel: 011 883 4627 • Email: communications@isikhova.co.za

Mario Govinder and Motlasi Gabaocwe Contributing writers: Michael Mabuyakhulu, Alwyn Nel,

Printing and reproduction: The Bureau

Michael Ade, Tor Dahl, Orrin Klopper, Zinhle Sokhela

All correspondence should be addressed to the Editor,

and Allon Raiz

Productivity SA, Reg no 1975/00044/08

Photography: Productivity SA and Photos.com, a division of Getty Images Productivity SA Physical address: International Business Gateway, Midrand, cnr New Road and Sixth Road Tel: 011 848 5300 • Fax: 011 848 5555

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Email: info@productivitysa.co.za Website: www.productivitysa.co.za

All rights reserved. No part of this publication may be produced, adapted, stored in a retreival system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Productivity SA. The views expressed in this newsletter are not necessarily those of the Publishers or its agents. Whilst every effort has been made to ensure accuracy of its contents, neither the owners nor the publishers can be held responsible for any omissions, errors, or for any misfortune, injury or damages which may arise there from. The same conditions apply to any advertising in the publication.

Publishers: Isikhova Publishing & Communications (Pty) Ltd Postal address: PO Box 651793, Benmore 2010

ISDN 1018-7227

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CEO’S DESK

CEO’s desk From time to time, when the daily grind of our duties accumulates and we tend to feel as if we are in some sort of a trance, we often seek to feel special in a bid to lessen the impact. At Productivity SA, we often find solace in the role we play in assisting companies to turn around their business, but even more importantly, the role the companies play in uplifting the economy of this country. The impact of productive companies aligns itself with government’s objective to utilise productivity growth as a crucial source of uplifting living standards.

However, the path to growth is not as smooth as it seems when companies are rewarded at deservedly glittering functions. Various factors can hamper the growth of productivity, but none so frequently as a lack of collective bargaining between employers and employees. These

two form a crucial key to the puzzle of productivity, and an effective and efficient bargaining system is important to foster the growth of productivity. The question is, how do the two resolve the impasse?

Disagreements between workers and employers hold the potential repercussion of slowing down the economy.

What approach would be most expedient to resolve the deadlock? Should the employers use the ‘big-stick method’ and adopt the threat of the ‘no-work no-pay principle’? Or would it be advisable to use the ‘carrot method’ and agree to workers’ demands? Are the demands of the workers consistent with productivity performance? Is the offer made by the employers justified?

Let us use the recent impasse between government as an employer and civil servants as employees as an example. Our chief economist, Michael Ade, indicates that Productivity SA reviewed the productive performance of the General Government Sector last year and concluded that there was a broad improvement in productivity in the sector, leading to an acceleration of the average annual growth rate of real output from 4.1 percent in 2008 to 4.2 percent in 2009.

Significantly, output growth in this sector accelerated from an annualised rate of 4.9 percent in the third quarter of 2009 to 7.0 percent in the fourth quarter. The average annual growth rate of both labour productivity and multifactor productivity (an all-inclusive measure of productivity) improved, and there was a consistent growth in capital productivity.

On the one hand, it is essential that employers must reward workers for work well done in striving to achieve further productivity improvement. Higher pay might increase employee productivity by attracting better workers, building employee commitment, and improve perception of equity in the workplace.

On the other hand, higher wages that are not informed by an increase in productivity lead to higher unit labour costs, which could be passed on to the consumers at a later stage. There is therefore a need to strike a balance.

Productivity SA reiterates its call for organisation seeking support on productivity related matters to utilise the services offered by Productivity SA. Thank you.

Bongani Coka Acting CEO: Productivity SA

october 2010 productivity leader

ED’S NOTE

Ed’s note Dear reader Change is often said to be the only constant. Despite our propensity to fear change, in essence, change often offers an opportunity to work smarter and not harder.

At Productivity SA, we are not adverse to change – more so if it enables us to reach out to you, our stakeholder, more efficiently, thereby creating an interactive relationship with you.

Those of us who are extremely cautious will say, ‘Why fix it if it is not broken?’; however, as the Productivity SA Goal Alignment tools would encourage, innovation should form part of any organisation’s goals. Innovation requires constant improvement.

We undertook research into our magazine and, after much debate, pondering and at times a shake of the head here and there, decided to change our design and come up with a publication that not only symbolises our readers but even more pertinently makes for an easy read. I thus officially welcome our new Productivity Leader magazine.

The changes that we have implemented in this magazine translate to a reader-friendly journal but, as they say, ‘the proof of the pudding is in the eating’, and we await your feedback with anticipation. You are most welcome to send a letter on your views. Whether praising or lambasting us, your letters are most welcome. However, this month we are going to shy away from modesty, for, as author Oliver Herford says, ‘Modesty is the gentle art of enhancing your charm by pretending not to be aware of it.’ Instead of pretending not to be aware, this month, in our letters page, we are splashing an oratory letter from the producers of the World Competitiveness Yearbook (WCY) 2010, which is published

by Switzerland’s Institute of Management Development (IMD) in collaboration with Productivity SA. Over and above patting ourselves on the back, we then move on to the more serious issues of informing you on productivity trends. We managed to get in touch with one of the world’s foremost thinkers on productivity, Tor Dahl, and on page 12 the affable strategist does not mince his words when he concludes that, ‘Productivity equals quality.’

Be sure you don’t miss his insights into the subject.

We then move back closer to home and on page 6 we inform you about Competitiveness Week which is aimed at ensuring that industry remains competitive. However, it is not our aim to only tell you the feel-good stories and on page 18 we are fortunate to have one of KwaZulu-Natal’s leading businesswomen, Zinhle Sokhela, writing for us and laying bare the shortfalls regarding productivity in this country.

We look at a more proactive approach in the form of articles on pages 16 and 19 by The Entrepreneurs’

Organisation members Orrin Klopper and Allon Raiz, who delve deeper into the subject of entrepreneurship. Read their incisive views on this topic.

We round off by looking ahead at Productivity Month.

October has been declared Productivity Month by Productivity SA and what initially started out as a week creating awareness on productivity and competitiveness has now developed into a fully fledged Productivity Month that has proved to be a landmark annual campaign.

Entering into its eighth year, Productivity Month is a yearly campaign that focuses primarily on the promotion of the importance of productivity to every South African.

The purpose of the month is to highlight the importance of productivity in the country and treating productivity as an enabling tool for transforming our economic growth and the creation of jobs.

Maupi Monyemangene Editor

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LETTERS

Letters to the editor Dear Productivity SA The 2010 edition of the IMD World Competitiveness Yearbook has now been published and distributed to all our subscribers and partners. The press coverage on the results has again been impressive all over the world and the interest in the competiveness of nations remains a key issue for governments and business leaders.

Therefore we would like to thank you very much for the involvement of your organisation in this 22nd edition of our study. Your outstanding support has widely contributed to its success. We have highly appreciated your help as well as the very efficient collaboration. For us, both recent and reliable hard data statistics and a good panel for the business opinion survey are important, since our study is based on two-thirds hard-data statistics and one-third soft-survey data.

The publication of the IMD World Competitiveness Yearbook (printed and online versions) could only be achieved with the help and the professionalism of all our partners; we have really appreciated your cooperation in the different phases of production. Again many thanks from all of us!

Indeed, South Africa needs to reap the benefits of hosting the World Cup long after the games have stopped. One of the issues that seem to have been neglected is planning around the feasibility of the stadiums. If media reports are anything to go by, it may well be that there was little or no proper planning on how stadiums are going to generate future income.

This brings to the fore the issue of productivity and proper planning. I believe that productivity has to be supported by proper forward planning.

Regards, Angeline Khunou, National Research Foundation Dear Angeline Without a doubt the planning of any event or operation requires immediate, mid-term and long-term plan goals. In my opinion, it might be too early to tell whether the stadiums will prove to be white elephants and at some point we will look into the topic once again.

Thank you for your letter and keep reading our publication.

With our best regards, Stéphane Garelli, Anne-France Borgeaud Pierazzi, Carin Grydbeck and Madeleine Hediger

Regards, Editor

Dear Anne-France,

Dear Editor

We thank you all for the letter of appreciation as it was a pleasure working with you as well. The 2010 edition of IMD WCY gives truth to the maxim that hard work and persistence usually pays off. We are also eagerly looking forward to teaming again for the 2011 edition.

The recent Cluster-Based Competitiveness Week summit, held in Gauteng has highlighted a very interesting concept in promoting competitiveness among South African companies.

Clustering can assist companies to increase their productivity.

If we can urge companies to make use of the Workplace Challenge Programme (WPC) then we would have walked half a mile in facilitating South Africa‘s competitiveness.

Regards, Michael Ade, Chief Economist, Productivity SA

Regards, Desmond Mabote, Department of Trade and Industry (the dti) Dear Editor Dear Desmond I found the article ‘Weighing up on the Soccer World Cup’ published in your May 2010 issue to be very interesting.

I must add my voice to the various comments made by your readers. I noted with interest that most people voiced concern about the impact of the Soccer World Cup on the economy going forward and long after the games had stopped.

Thanks for your letter. Please have a look on page 6 of this magazine where we provide coverage of Competitiveness Week.

Regards, Editor

october 2010 productivity leader

NEWS

Labour productivity inches up in South Africa during difficult year

By MAuPi MonyeMAngene Productivity SA has released productivity statistics for 2009 detailing the performance of key industrial sectors of the South African economy. According to the report, there was a deceleration of average annual growth rate in Multifactor Productivity (MFP) in 2009, reflected in the performance of almost all Main economy sectors. The Main economy sectors include Construction, Mining and Quarrying, Finance, insurance and Real estate Business, government Services, Agriculture, Forestry and Fishing, Manufacturing, electricity, gas and Water, Retail Trade and Catering and Accommodation.

Only four of the Main Economy sectors recorded positive average annual growth in MFP and these are Agriculture, Forestry and Fishing (9.9 percent in 2008 and 7.6 percent in 2009), Construction (5.4 percent in 2008 to 2.1 percent in 2009), Finance, Insurance and Real Estate Business (7.2 percent in 2008 to three percent in 2009) and the General Government Services (-0.1 percent in 2008 to 0,0 percent in 2009). In the private economy (excluding government) there was a decline in MFP from 1.8 percent in 2008 to -04 percent in 2009.

The Chief Economist at Productivity SA, Michael Ade, says the statistics are crucial in understating how an improvement in productivity in the private and public sectors could help spur the economy with benefits such as job creation. Ade says the challenge is to improve on our competitiveness position and ensure that the improvement translates to improved national productivity.

The report makes a comparison between the GPDs of South Africa and leading emerging markets such as the BRICM countries (Brazil, Russia, India and China and Mexico).

According to the report, in 2009 South Africa’s annual real GDP growth rate declined by -1.8 percent in 2008 compared to a 3.7 percent GDP growth in 2008.

South Africa’s 2009 GDP growth rate of -1.8 percent was greater than that of Russia, -7.9 percent, and Mexico, -6.5 percent, but less than that Brazil at -0.2 percent, India at 7.2 percent and China at 8.7 percent.

South Africa’s GPD growth rate compares favourably with comparators in emerging markets. Key productivity performances included the growth rate of labour intake in

the Private Economy which declined from 1.1 percent in 2008 to -1.5 percent in 2009.

Labour productivity grew by 2.7 percent from 3.5 percent in 2008. A positive growth in capital input utilised in the Mining and Quarrying sector was realised with a growth rate of 5.6 percent in 2008 and 5.8 percent in 2009.

This was accompanied by a fall in capital productivity from -7.9 to -11.5 percent.

The Construction industry experienced an average annual increase in employment which led to a decrease of 4.3 percent in 2009. This was linked to the completion of projects related to the 2010 FIFA World Cup. However, Labour productivity in the sector accelerated from 11.0 percent in 2008 to an impressive 13.6 percent in 2009.

The Finance, Insurance and Real Estate Business sector saw an improvement from 3.8 percent in 2008 to 5.6 percent in 2009. This was, however, accompanied by a decrease in employment of 1.0 percent in 2009 from 3.9 percent in 2008.

The Wearing and Apparel sub-sector of manufacturing registered the best MFP in both 2008 and 2009 with 14.4 and 11.3 percent growth rates respectively.

The Executive Manager Value Chains and Competitiveness at Productivity SA, Sello Mosai, says as South Africa seeks solutions to unemployment, crime, income inequality, overcrowding and housing, improved productivity and efficiencies and quality and sustaining competitiveness competitiveness could provide a solution to some of these issues.

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Cluster-Based Competitiveness Week There is a positive outlook for 2010 with expectations of growth in the economy, and there is hope that the envisaged positive growth trends will at least return to four percent by 2011. So said Sipho Zikode, Acting Deputy Director General of the Department of Trade and Industry (the dti), at the Cluster-Based Competitiveness Week held at Birchwood Hotel, Boksburg, Gauteng, from 1-4 June 2010.

The summit, which was convened by the dti in partnership with Productivity SA under the theme ‘Cluster-Based Industrial Competitiveness’, aimed to assist in the process of strengthening and broadening the Workplace Challenge Programme (WPC).

The WPC is a joint initiative of the National Economic Development Labour Council (NEDLAC) and the dti which is managed by Productivity SA. It is a world-class manufacturing, or best operating practice, programme aimed at helping manufacturing companies in South Africa to become more competitive. It is one of government’s measures to improve the productivity of South African companies and therefore their competitiveness. It assists companies by starting them on the journey to being world class by funding, on average, 75 percent of the best operating tools.

‘In order to achieve these levels of growth, there is a need for an increase in productivity performance and competitiveness. In this regard, the aim of government is to strengthen competitiveness and promote small, medium and micro enterprises as well as co-operatives for the creation of sustainable jobs,’ said Zikode He added that the dti continues to work on developing capacity and increasing the levels of competitiveness of South African firms with a renewed focus of increasing the capabilities of previously underdeveloped regions.

More than 70 participants from the three spheres of government, industry and academia, as well as cluster facilitators and regional managers of the WPC, attended the event.

Clustering is the process of linking different companies

Productivity Month

By MAuPi MonyeMAngene When the great bard William Shakespeare said, ‘ambition should be made of sterner stuff’, it was almost as if he knew what it takes to win the Productivity SA Awards.

Preparations for the 2010 version of the Productivity SA Awards kicked off last month with regional competitions taking place across the country.

The Eastern Cape Awards Ceremony set the ball rolling with the regional awards ceremony held on Thursday, 29 July 2010, at the Boardwalk Conference Centre. The

which are in the same or interrelated industries and providing them with the necessary support to enable them to increase their competitiveness in order to contribute to the country’s overall competitiveness and economic growth.

Speaking on behalf of NEDLAC at the summit, Executive Director Herbert Mkhize highlighted the imbalances of the productivity landscape in South Africa in that it is far from being ideal around the workplace. ‘Industrial action, “a co-determination in a workplace”, becomes a threat to productivity, and for productivity to happen there must be harmony around the workplace,’ said Mkhize.

The manager of the WPC programme, Justice Tshifularo, says the main focus of the four-day conference and workshop was to engage experts within the competitiveness fields, focusing particularly on competitiveness in clustering. The outcome of the conference was to discuss, brainstorm and workshop ideas around clustering, looking at various international models and experiences and placing them within the South African context.

The first two days were introductory by nature, where various speakers and presenters, both local and international, brought forward concepts, ideas and case studies on cluster competitiveness, setting the mood for the remaining two days of robust discussions that took place during the workshop phase. These presentations were the inputs inputs to further discussion during Competitiveness Week.

Western Cape, KwaZulu-Natal and Limpopo followed suit thereafter with the ultimate goal being representation at the National Awards to be held in Gauteng on 29 October.

The National Productivity Awards were first introduced in the late 1970s; the rationale behind the awards was to create additional awareness of the importance of productivity through the recognition of best performers.

By 1979, companies such as Sappi Forests (Pty) Ltd had been honoured, and Toyota SA and Iscor Limited were also some of the early winners. The aim and objectives of the Productivity SA Awards is to improve productivity and competitiveness in the workplace throughout South Africa.

The ceremony for this year‘s National Productivity Awards will take place in Midrand on the 29th of October.

october 2010 productivity leader

NEWS

The role of Productivity Awards

By MiChAel MABuyAkhulu Former United States president Herbert Hoover once said, ‘Competition is not only the basis of protection to the consumer, but is the incentive to progress.’

The Productivity SA Awards are a means to incentivise and recognise creativity, innovation and productivity in all sectors of our economic landscape.

The world is just emerging from the worst economic downturn in decades. The effects of the recession are still felt today, with businesses closing down, banks foreclosing on creditors’ assets as well as massive job losses. While we may have been spared the worst effects of the recession, comparatively speaking, we did not escape unscathed.

The rate of unemployment, for example, has grown unacceptably high, standing at 20.8 percent in the second quarter of 2010, up from 19.3 percent in the first quarter of 2010.

Accordingly, the number of officially unemployed people increased from 580 000 in the first quarter of 2010 to 622 000 during the second quarter. This does not take into account the 487 000 discouraged workers in the second quarter, which grew from 484 000 in the first quarter.

The recent economic downturn has brought into sharp focus the fact that organisations need to achieve more with less. Belt-tightening is no longer an option but a necessity for survival. Productivity is about all the principles of running

a business coming together and being applied diligently for the success of that business.

Productivity is not about time management, policy formulation, target setting, employee wellness, location and visibility or any other single factor. Productivity is about all these factors and principles combined and being lived by the organisation in pursuit of its objectives. This is a challenge objectives. that we all need to address, urgently.

This is an edited version of the address by the MEC for Economic Development and Tourism, Mr Michael Mabuyakhulu, on the occasion of the KwaZulu-Natal Regional Productivity Awards held at the Inkosi Albert Luthuli Convention Centre in Durban.

Events for Productivity Month DAte

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eVeNt

28 September

Eastern Cape PE

Business Performance Improvement Workshop

05 October

Eastern Cape PE

Business Performance Improvement Workshop

05 October

Gauteng

Productivity Statistics 2009 Release

07 October

Eastern Cape PE

WPC Milestone Workshop

12 October

Eastern Cape PE

Business Performance Improvement Workshop

12 October

Kwa-Zulu-Natal – Richards Bay

Turnaround Solutions Awareness Workshop – Zululand Chamber of Commerce & Industry

15 October

Northern Cape – Uppington

Turnaround Solutions Awareness Workshop – Northern Cape Chamber of Commerce & Industry

18 October

Mafikeng

Productivity Awareness Programme

20 October

Kwa-Zulu-Natal

WPC Regional Milestone Workshop

20 October

George

Launch BPIW Workshop

21 October

Gauteng

WPC Regional Milestone Workshop

26 October

Western Cape

Regional Awards Finalists Breakfast Workshop

29 October

Gauteng

National Productivity Awards Function

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South Africa improves again in world competi

By MiChAel ADe South Africa’s economic competitiveness has improved for the second consecutive year. South Africa improved from a position of 53rd two years ago to 48th last year and to an even better position of 44th in 2010, out of a total of 58 countries that were selected.

This progress is an indication of the resilient nature of the South African economy despite the impact of the global economic and financial crises last year.

The results are from the World Competitiveness Yearbook (WCY) 2010, which is published by Switzerland’s Institute of Management Development (IMD) with information provided through Productivity SA. The IMD’s WCY ranking is an annual report on the competitiveness of selected countries and is recognised internationally as the leading survey of competitiveness between nations. The detailed results are published in the 2010 edition of the World Competitiveness Yearbook.

‘Our strong competitiveness is being linked to the in-

creased level of portfolio investment assets and direct investment stocks inward, as investors divert their investments to emerging markets that were not too exposed to the financial crises in a bid to protect their investments.

The improvement is also due to better labour-market flexibility, an improved current-account balance, and a better inflation outlook and cost of living index,’ commented Mr Sello Mosai, Executive Manager of Value Chain Competitiveness at Productivity SA. This edition of the IMD annual yearbook rates the ability overall performance

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itiveness rankings of 58 industrialised and emerging economies ‘to create and maintain an environment that sustains the competitiveness of enterprises’. Country data was evaluated through 327 distinct criteria, grouped into four competitiveness factors: government efficiency, business efficiency, economic performance and infrastructure.

Of concern, however, is that South Africa declined further in employment creation, exports and GDP in real terms, although this is a result of the effects of the global recession in the second and third quarters of 2009.

There was also a reduction in business efficiency from 30th position to 31st position – the only competitiveness factor where South Africa performed poorly compared to the previous year. It is extremely encouraging to see that South Africa performed well in the other three competitiveness factors.

South Africa’s performance strengthened in government efficiency, where we improved five places from 26th to 21st, and in infrastructure, where there was an improvement of three places from 54th to 51st among the 58 countries

sampled. This shows that the investment of the South African government in energy, transportation and infrastructure development through its industrial and economic policies and interventions is making progress.

Comparing South Africa’s overall competitiveness ranking with the BRIC countries (Brazil, Russia, India and China), South Africa performed better than Russia (51st position), but poorer than China (18th), India (31st) and Brazil (38th). Among other comparator countries, South Africa performed better than Colombia (45th), Mexico (47th), Greece (46th) and Argentina (55th), but performed poorly compared to Australia (fifth), Malaysia (10th), New Zealand (20th) and Chile (28th).

Unemployment has been a major issue in South Africa, with a recent release by Statistics SA showing that the unemployment rate increased from 24.3 percent in the fourth quarter of 2009 to 25.2 percent in the first quarter of 2010, with a total of 171 000 jobs lost in the first quarter of 2010.

This statistic, coupled with the fact that unemployment among the youth in 2009 was 48.2 percent in a labour force of about 17.1 million, is cause for concern. Efforts are being made by government, labour and business alike to redress the deteriorating unemployment situation in the country and to create labour-intensive jobs. The main focus and top priority of the government is therefore to create sustainable jobs for the unemployed and particularly jobs for the youth, especially considering the fact that worsening unemployment could have a potential ripple effect and compound other socio-economic problems.

There is a need to intensify research and development, further education, training and internship programmes to up-skill graduates from universities and prepare them for the job market. The government, in partnership with the private sector, is building on the long-term skill base of potential graduates and more students are being enrolled Peer group rankings EuropE - MiddlE East - africa

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in strategic programmes that will be beneficial to them.

Other areas such as the retail, security, cleaning and informal sectors can be supported financially, as these sectors have huge potential for creating sustainable jobs for the less skilled. Furthermore, government support for companies with both strong backward and large employment multipliers will ensure that sustainable but less specialised and skilled jobs are created.

The importance of job creation in South Africa in particular and Africa in general was highlighted recently when the South African Minister of Labour hosted the African Employers Conference in Johannesburg. The event was attended by labour employer representatives from across Africa and the theme was to create employment for economies that were recovering from the global recession. An action plan for job creation and employment in Africa to be presented to a group of 20 (G-20) labour ministers was developed As Mr Sello Mosai further commented, ‘Coupled with the unemployment dilemma, South Africa is also faced with the challenge of improving its competitiveness and productivity, by further diversifying its export base and also attracting investment flows. As consumption gradually recovers, due to the global economic recovery, the challenge for South Africa is to create quality labourintensive jobs that will improve living standards, as our exports become more diversified and competitive.’

Mr Mosai concluded, ‘South Africa can improve on and even better its competiveness position next year, especially given the current economic conditions where there is

economic performance

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improved national and international demand for our products, a stable economic environment, reduced inflationary pressures, promotion of public and private investment to build capacity, imminent competition in key industries, encouraging a stable exchange rate, and further developing of developing skills of our people to expand our asset base.’

The rankings are drawn from a combination of hard data and the results of the Executive Opinion Survey conducted by the IMD in partnership with a network of partner institutions.

These include leading research institutes and business organisations in the countries covered by the report.

Business efficiency

infrastructure

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Education

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Technology Infrastructure

Basic Infrastructure

Attitudes and Values

Management Practices

Finance

Labour Market

Productivity & Efficiency

Societal Framework

Business Legislation

Institutional Framework

Fiscal Policy

Public Finance

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government efficiency

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economic performance

Domestic Economy

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GUEST COLUMN

Productivity SA crucial

By AlWyn nel Taking over the reins at Productivity SA as chairperson of the new board in the last two months of the financial year-end was like taking over the joystick of an aeroplane in mid-flight and navigating it on the path that the cockpit crew had charted. everything had to be done with military-style precision. This handover was made possible by the Minister of labour, Membathisi Mdladlana, and the Director general of labour giving excellent guidance to the board on its appointment as well as Productivity SA’s executive management team who have been a pillar of strength during this inaugural phase.

Outside of the normal functioning of Productivity SA, it is a fully fledged Department of Labour agency. In its preamble, it states, ‘whereas pursuant to section 9(2) of the Skills Development Act 37, 2008 (“the act”), the Minister of Labour established Productivity SA whose aim and objectives are to improve productivity and competitiveness in the workplace throughout South Africa’.

This process of giving productivity the face of world competitiveness is well under way, and for the board, the first priority was to get endorsement from the Parliamentary Labour Portfolio Committee for Productivity SA’s strategic intent and budget for the next financial year. Together with the new legal institutional framework, the funding model also changed and was resolved amicably with a time delay of only three months that could occur in the implementation of some of our programmes.

The year that was The past year was one of transformation and restructuring, and the introduction of need-based interventions related to productivity and competitiveness in alignment with government programmes on service delivery. The Switzerland-based Institute of Management Development (IMD) produced the World Competitiveness Yearbook (WCY) 2010, with information provided through South Africa’s Productivity SA. Recognised internationally as one of the leading surveys of competitiveness between nations, the WCY is an annual report on the competitiveness of selected countries.

Productivity SA over the past year has continued to serve the interests of government, organised labour and business (the tripartite alliance) by performing its key competencies with aplomb in monitoring and impacting on productivity promotion, employment opportunity creation, stimulating economic growth and alleviating poverty.

We are still leading the productivity initiative in Africa and collaborate across the spectrum with the SADC region and our international partners in global productivity leadership and benchmarking.

Productivity SA’s flagship programmes – Turnaround Solutions and the Workplace Challenge – remain vital to the organisation’s sustained and improved success in the future.

The Turnaround Solutions programme is aimed at turning around those companies that are in distress (heading for disaster and closure).

The Workplace Challenge programme is aimed at enhancing the productivity and competitiveness of companies by improving their employer/employee relations and developing world-class best operating practices.

Productivity as the future economic growth driver Productivity is a key enabling factor governing how society adds value through optimally mixing available resources (human knowledge and skills, technology, equipment, raw materials, energy capital and intermediary services).

As in all other countries, productivity-improvement programmes in South Africa will contribute to creating more jobs; will facilitate labour and management cooperation; and will encourage the equitable distribution of productivity gains, thereby leading to a reduction in poverty.

For South Africa to achieve the six percent economic growth it needs to substantially reduce poverty, it has to sharply improve its export levels. This can only be achieved by leveraging the potential of all productivity- and competitiveness-enhancing programmes to lift the quality of South African products to world-class standards.

Conclusion In a short space of time, a tremendous amount of work was completed. This was made possible by the selfless sacrifices that the board of directors, executive management and Productivity SA employees have made. In conclusion, I want to take this opportunity to sincerely thank my colleagues on the board for their support and guidance. the Thanks to you all.

The writer, Alwyn Nel, is the Chairperson of the Productivity SA board.

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If you focus on productivity, you will get quality for free

By ToR DAhl Productivity is defined as doing the right thing (effectiveness), in the right way (efficiency), all the time (occupancy). The only way poor quality can happen is if you do the wrong thing, or the right thing in the wrong way, or if you don’t do the right thing in the right way all the time.

It just seems such a waste if you don’t do the right thing in the right way all the time. Doesn’t it? Why in the world would you even consider it?

If you do the right thing in the right way all the time, you get quality for free. It is not the other way around.

A focus on quality is mainly a focus on removing variation in products and processes. It does not necessarily question whether or not you are doing the right thing. But that is the most important question anyone could ask.

We are producing endless amounts of the wrong things. Who cares if you are 100-percent efficient in producing the wrong thing, especially if you do it all the time?

Productivity improvement starts by eliminating the burden of doing the wrong things so that you can turn your resources fully towards doing the right things.

How do we remove this burden on our resources?

1. By getting rid of all that should be done, but should be done by someone other than you.

2. By getting rid of what nobody should do.

Once you have done that, you are left with what you should do. Now you have freed 35 percent your resources for other and better use.

Take it a step further. Better planning saves another 18 percent of your resources.

Then focus on efficiency and you free another 16 percent, if you’re average in this area. Finally, do the right thing in the right way all the time – no down time, no waiting time. That saves another 23 percent.

This is what ‘extreme lean’ truly means and, if you do it right, you will do all that you did before but with only about eight percent of your own resources.

Now you must get ready for the most incredible experience of your life: an increase in productivity that could be at least 1 150 percent! That would be 11.5 times more productive than you were before. This increase assumes that you use all 92 percent of the resources that you saved (35 + 18 + 16 + 23 percent) to expand the production of the eight percent that is perfect. Eight percent goes into 92 percent 11.5 times. If you know people who achieve 11.5 times what the average

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person achieves, now you know at least five reasons why.

What if we expand our focus beyond the core eight percent? What if we spend only half of the 92 percent of our resources that have been freed on improving the production of the right things so that they are done faster, better and more cheaply than before? Could we not then spend the other half inventing what no-one on earth is doing? This is what Deming, Juran, Crosby and many others suggested during the Quality Revolution. Since productivity declined over that period (from 1973 to 1995, productivity improvement fell to an average of 0.9 percent per year – lower than it was before the Industrial Revolution), it seems that the focus on productivity was lost in the United States.

Doing something better, cheaper and faster is achieving cost-effectiveness; doing something no-one else is doing is achieving temporary monopoly advantages.

Because no-one else can compete with us, we will have achieved temporary monopoly status. If we earn a monopoly advantage, we are able to set our own price. The higher we set that price, up to a certain point, the more money we’ll make.

But sooner or later, a free and competitive economy will come up with substitutes for what we do. That’s why any earned monopoly advantage is likely to be temporary. If we continue to focus on cost-effectiveness, however, we can make it difficult for a new competitor to gain entry in our marketplace. The route to market entry is quicker through the invention of a better substitute for our product. That is why the search for monopoly advantage is never-ending.

This indicates to us that productivity improvement brings about two powerful strategies for survival: costeffectiveness and earned monopoly advantage. Companies that focus on productivity leap ahead of companies that focus on something else – like quality, market share, quarterly profits or stock price.

Silicon Valley focuses on productivity. Its goal is to increase the speed or storage capacity of chips by 100 percent every 18 or so months. It has accomplished this for the past 30 years. That’s a productivity improvement of 67 percent per year, compared to two percent per year for the American economy. Note that the way this is done is by ‘unfreezing’ the production process every 18 months. The reason for this is the simple fact that the production process that doubled the speed and capacity of chips by 100 percent previously cannot double it again for the next cycle – a new and more powerful production process has to be invented for this to happen. Only then is it time to ‘freeze’ this new process in the same way that quality experts did before. But not until then! Silicon Valley’s ‘unfreezing and

freezing’ approach has brought about a level of productivity almost seven times greater than that which China has achieved annually since 1989 (China has the highest yearly productivity growth of any country in the world).

If the US and China continue on their chosen productivity paths, China will pass the US in GDP in this decade.

Can everyone become as productive as Silicon Valley?

We think so.

Investments in productivity improvements exceed 100:1 ROI. And since productivity-improvement methods improve all the time, we expect that this return will improve to 1 000:1 in the next decade.

But doesn’t this mean we’ll all be working harder? No. This isn’t about working hard.

Two-thirds of people’s stress and dissatisfaction at work occur when they are unproductive. To prevent burnout, employers usually hire consultants who teach their people stress management. That makes employees happy with non-productive behaviour. Why not get rid of all non-productive behaviours instead?

Silicon Valley shares the fruits of its productivity every year: it pays high wages, it lowers its prices by 7.54 percent per year, and it has produced more billionaires than any other economic sector.

The work of Silicon Valley truly is not about money. It is about improving the lot of its customers. It is about the excitement of lifting the productive contributions of everyone on earth. It is about knowledge, and learning, and growth, and it is about working for something larger than oneself. It is about managing people in a totally different way. And all this makes use of the hard-earned insights about what truly motivates people at work.

In the US economy, productivity – the only way to create new wealth – languishes. It constitutes a drag on the poten-

The developing world is full of enterprising individuals, but without tailored support most of these entrepreneurs have little chance of growing their ventures.

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tial of our country. Two of the largest and most important sectors of our economy, health and education, show negative productivity ‘improvement’ year in and year out. When productivity-improvement methods are used in education, performance leaps ahead. When they are applied in the health sector, productivity improvement becomes one percent per month – while the rest of the health sector shows a -2.6 percent ‘improvement’ annually.

On a gloriously sunny day in California in 1974, I had the good fortune of spending some time with Peter F Drucker.

I asked him what he thought would be the biggest challenge for the US in the years ahead. He did not hesitate for a second: ‘It will be to increase the productivity of knowledge workers.’

Economists estimate that 80 percent of all capital is human capital. Those employers who view workers only as cost items miss out on the contributions of human capital and work experience that go out the door with layoffs and firings. Also – and notably – they lose out on the potential cooperation of employees if those employees associate productivity improvement with loss of jobs. Productive companies grow. They don’t lay off workers. Productive companies invest in their human capital through training

and education which will be needed for the challenge represented by new growth. This is what made it possible for Google to go from zero to more than $150-billion in market value in only six years. Some 80 percent of the US economy belongs to the knowledge sector.

It does not require rocket science to improve the performance of an economy. It is a field that has its own laws, principles and, now, tradition. We ignore productivity improvement at our peril.

A while ago, we looked at the differences between US companies that focused on quality and those that focused on productivity. The difference was stunning.

Companies that focused on productivity produced higher profits, created more jobs and caused greater growth to occur than did those that practised ‘lean six sigma’ – the Toyota-inspired process that was embraced by Motorola, General Electric, General Motors, Chrysler and many other American companies.

The latter practice was a costly experiment and it provided a very expensive lesson. Productivity improvement requires variation – something must change for the better for productivity to increase over what it was before. When variation is removed, productivity improvement moves towards zero.

It is time to return to the eternal verities: Let us focus on doing the right thing, in the right way, all the time.

And do it now.

It will require a new awareness of how wealth is created in the knowledge economy. We must let go of what no longer works. We must focus on what is necessary to lift the productive contribution of every man, woman and child in America.

That, my friends, is the only way to raise the embarrassingly low growth rate that has become the biggest obstacle to the prosperity of this country. It is the only way to address and resolve our deficits, our debt burden and the problems with Medicare, Medicaid and Social Security. It is, for sure, the only way to put every American into a highpaying job.

Is it not time for banking and Big Oil, for the health and education sectors, and for all the other drag anchors in our economy to step up and do what they should have done in the first place? If they had, even with a growth rate half that of China’s, our economy would have been three times the size it is today, and most of our current economic problems would have been solved, if not averted.

The acoustic valve that was needed when the oil leak in the Mexican Gulf erupted would have been in place and secured the operation. There might well have been no leakage.

Doing the right thing, in the right way, all the time is an idea whose time has finally come.

And it is not a moment too soon.

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OPINION

The need for entrepreneurs

By oRRin kloPPeR, eo MeMBeR entrepreneurship is not the solution to all the problems that countries experience, but it is the solution to most.

Successful entrepreneurship is a major contributor to the alleviation of poverty and the creation of employment opportunities. economists believe that entrepreneurship has a positive impact on the growth of gDP and employment.

Furthermore, the role of entrepreneurship is stressed in implementing innovations. In the White Paper on National Strategy for the Development and Promotion of Small Business in South Africa (1995), it is stated that small, medium and micro-enterprises (SMMEs) assist hugely to address the challenges of job creation and economic growth in South Africa. SMMEs play a vital role in absorbing labour, penetrating new markets and generally expanding economies.

According to the Global Entrepreneurship Monitor (GEM) report of 2007, entrepreneurship in low- and middle-income countries is mostly need-driven, thus people are starting businesses despite having little or no business experience.

Only 3.6 percent of entrepreneurial businesses in South Africa show growth potential and most do not become

employers, indicating that a low entrepreneurial success rate is a problem.

Adding to the problem of low entrepreneurial success rates in South Africa is the tendency of entrepreneurs to focus on their own skill and core service or product, often ignoring the ‘science’ of business and operational management, bringing about a reactive management style.

Systems development is neglected and the owner remains the main survival factor of the enterprise. During the lifecycle of an entrepreneurial enterprise, the rapid growth phase is often followed by chaos, especially where there are no processes in place. The need for sound processes increases as the enterprise progresses to a rapid growth phase.

Entrepreneurship is a complex phenomenon with many variables impacting on the success thereof. Such factors include societal, strategic and entrepreneurial capabilities and the interaction of all the variables on each other. There is no simple recipe for entrepreneurial success. Successful entrepreneurs are able to adjust strategies according to their capabilities, the human capital available and the macro environment.

Entrepreneurial success can also be defined as the extent to which the needs of the stakeholders are met. Success can be sustainable or short-lived. Sustainability is achieved when the resources of the organisation are not depleted in the quest to satisfy the needs of the stakeholders.

Characteristics of successful entrepreneurs include alertness, vision, risk-taking propensity, knowledgeable, creative, innovative, ambitious, decisive, determined, dedicated, with strong values, adaptable and rewarding. Such entrepreneurs also have sufficient capital and resources.

But more than anything, entrepreneurs need support and a variety of resources. It is not possible to possess all the resources needed. It is therefore important for entrepreneurs to form relationships and gain support from a variety of sources. Support can be provided from sources such as capital investors, employees, the supply chain and financiers.

Initiatives of the EO like brandhouse™ Pitch & Polish are looking for entrepreneurs to render support to. While there will be cash prizes, the bulk of the prizes will be in the form of training and education.

Entrepreneurial education is considered one of the most important variables impacting on business success.

Two areas of education are to be considered: managerial training and entrepreneurial training will both influence the propensity to become self-employed. Entrepreneurial ability without managerial ability would not be sustainable.

Management and entrepreneurial skill and experience are the most frequently used selection criteria of venture capi-

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talists. Entrepreneurs who have invested in education are more likely to have a growth strategy and run profitable businesses. By developing capabilities through training and education, barriers will be created to being intimidated by competitors. Superior education will enable an entrepreneurial company to enjoy a sustainable competitive advantage.

A lack of entrepreneurial and organisational knowledge and experience, as well as a lack of preparedness will limit entrepreneurial success. A lack of financial knowledge will lead to failure to accurately estimate the cost of starting and running the business and a lack of technical knowledge will lead to the entrepreneur not gaining the competitive advantages provided by technology.

The brandhouse™ Pitch & Polish programme is providing free workshops with expert training and tips by Allon Raiz in five towns around the country to provide entrepreneurs with the necessary training to make a success in business. More details can be found on the website www.pitchandpolish.com.

Alongside brandhouse™ Beverages (Pty) Ltd, other sponsorship partners for Pitch & Polish are MTN, the City of Cape MTN, Town, RMB Private Bank and SA Tourism.

The Entrepreneurs’ Organization (EO) is a global network of more than 7 300 business owners in 42 countries. Members have to own or be part owners of companies with a turnover of more than US$1-million a year. Founded in 1987 by a group of young entrepreneurs, EO is the catalyst that enables entrepreneurs to learn and grow from each other, leading to greater business success and an enriched personal life. For more information, visit www.eonetwork.org or www.oecapetown2010.co.za.

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OPINION

Balance of productivity lower than it should be

By Zinhle SokhelA Balance-of-payment statistics over some period now have shown that as a country the value of our imports far exceeds the value of our exports. We are, in simple terms, not providing sufficiently for our own needs.

At the same time, imports are becoming increasingly attractive to retail customers because they are often less expensive. In addition, it seems there is a section of our consumer market that prefers to pay more for an imported item because its quality is perceived to be better.

South Africa’s productivity levels are known to be lower than they should be and this often makes it difficult for the country’s manufacturers to compete in the global market. It has to be remembered that the global market is not only in Europe or the Far East; it is also right here

where imported goods, especially in the clothing and textile sector, are often cheaper. The critical index for a manufacturer is cost per unit production. This determines the selling price. If it costs more than it should to make the item, it cannot be sold at a competitive price.

There are two exceptions. One is if the item is of such recognisable quality that consumers will pay the extra without flinching, and the other relates to the power of a brand. Some brands enjoy such fashionable popularity that consumers will pay more for them even if the quality is not superior. On this subject, it is a pity that our country has not developed indigenous brands that can command excessive prices.

A close examination of competitiveness and therefore productivity reveals that there are a number of significant factors which come into play. Among these are infrastructure, health and primary education, higher education and training, market efficiency, technology readiness, business sophistication and innovation.

South Africa‘s particular weaknesses, which severely undermine those aspects in which we fare pretty well in comparison to other countries, lie in the spheres of health and primary education. We are not a healthy nation and this contributes significantly to the cost of production.

This is not just through absenteeism, although this is a big problem – it relates also to the fact that people perform best at work when they are fit and well and adequately nourished. This also applies to children at school. One wonders how many cannot perform above a limited level because they have gone to school undernourished. Then, when they get there, in addition to any problems related to the curriculum, they find an environment where there is a poor work ethic. It should not be necessary for young people to have ‘work experience’ in order to experience a good work ethic – it should be part and parcel of their lives at school. Sadly, this is only infrequently the case.

So many teachers set appalling examples by their lack of commitment to their responsibilities and their absenteeism that the excellence of those who are true professionals is often overshadowed.

This is an issue that needs urgent attention, for even on our own continent, Africa, there are countries that perform better than we do, despite our considerable advantages.

Improvement in productivity by addressing the underlying causes is an urgent challenge for us if we wish to have a challenge successful economic future.

Zinhle Sokhela is an entrepreneur who has served as the president of the Pietermaritzburg Chamber of Business for two terms. Among various other roles, she is the chairperson of ACTISAT Investments (Pty) Ltd, Azi-Moyo Holdings MfundoThuto Investments (Pty) Ltd and also the founder and managing director of Sesifikile Booksellers.

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OPINION

Entrepreneurs are made – or are they?

By Allon RAiZ, eo MeMBeR By definition, entrepreneurs are people who are enterprising, willing to try new challenges and achieve their goals. The dynamics of starting up a business, regardless of its size, require organisation of thoughts, actions and a working plan. in order to succeed in business, entrepreneurs need qualities such as tenacity, patience, passion, determination, people skills and myriad more.

The debate as to whether an entrepreneur is born or made is ongoing. What can definitely be taught is how to handle customers, manage employees, maintain relationships and provide benefit for stakeholders, but when your entrepreneurial world is turned upside down and your business faces hardships, you’ll need something more to get you through the difficult times.

In South Africa, only five percent of adults attempt to start up their own businesses, and only a quarter of them survive for longer than three years. Where new small businesses are established out of necessity rather than genuine purpose, there is a 96 percent failure rate. The damage caused by this kind of failure is terribly destructive, as it usually means the loss of personal assets such as homes and vehicles, and great economic hardship for families.

In order to increase the success rate of entrepreneurship in South Africa, and in so doing positively affect the economy and alleviate poverty, there is more support required for entrepreneurs. It is not possible to possess all the resources needed. Entrepreneurs should form various relationships and gain support from various sources. Such support can be provided from sources such as capital investors, employees, the supply chain and financiers.

It is this type of guidance that the winners of the brandhouse™ Pitch & Polish initiative of The Entrepreneurs’ Organization will receive. There will be cash prizes, but the bulk of the prizes will be in the form of training, guidance and education, all of which will help the entrepreneur to be more fundable by formal financial institutions.

According to Praag and Vijverberg (2005), entrepreneurial education is considered to be one of the most important variables impacting on business success. Two areas of education are to be considered: managerial training and entrepreneurial training will both influence the propensity

to become self-employed. Entrepreneurial ability without managerial ability would not be sustainable. In addition, management and entrepreneurial skill and experience are the most frequently used selection criteria of venture capitalists. They found that entrepreneurs who have invested in education are more likely to have a growth strategy and run profitable businesses.

Surrounding entrepreneurs with appropriate guidance, someone who can speak from experience and has the skill to guide and advise on all the important business issues such as strategy, marketing, sales, accounting, legal requirements, staff management and training, is required to assist the entrepreneurs to make a success.

There are of course those who don’t believe in seeking outside help, thinking that they can achieve all that they strive for by themselves. Performance psychologist Toni Gaddie affirms that while a certain level of success is attainable without assistance, it has been found that one of the characteristics of champions is that they make use of both internal and external support.

Making a success of a business is never easy. When entrepreneurs take full advantage of their own internal capabilities as well as external assistance, they are not admitting failure but rather marshalling all of the resources at their disposal to reduce their chances of failure and maximise their likelihood of success.

The brandhouse™ Pitch & Polish programme is offering free workshops with expert training and tips by Allon Raiz in eight towns around the country to provide entrepreneurs with the necessary training to make a success in business.

More details can be found on the website www.pitchandpolish.com.

Alongside brandhouse™ Beverages (Pty) Ltd, other sponsorship partners for Pitch & Polish are MTN, Raizcorp, Raizcorp, the City of Cape Town, RMB Private Bank and SA Tourism.

Allon Raiz is the CEO of Raizcorp, the only privately owned small business ‘prosperator’ in South Africa, the only service provider with a head start of eight years in this field and the only Enterprise Development faculty with CHE accreditation.

In 2008, Raiz was selected as a Young Global Leader by the World Economic Forum. To find out more about Raizcorp’s entrepreneur support programme, telephone 011 566 2000 or visit their website at www.raizcorp.co.za.

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CASE STUDIES

Lenong General Road Maintenance By oRRin kloPPeR, eo MeMBeR

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Background Lenong General Road Maintenance was founded by Mr Collins Kubeka in 1997 in the Ekurhuleni Metro after identifying a niche market in road construction and maintenance.

Founder member and current managing director, Mr Kubeka (a qualified and experienced engineer), is able to network and successfully tender and secure projects from both the public and private sectors. Although Lenong actively takes advantage of opportunities presented by government’s enabling environment, for example the Preferential Procurement Policy Framework (PPPF), by tendering for government-related jobs, its main target is private-sector built environment and roads projects.

Lenong’s main business activities are general road maintenance, civil construction, plant hire, road-sign supplies and road grass cutting. A preliminary inspection of Lenong’s previous projects register revealed that since inception it had undertaken a number of medium-sized projects to the value of approximately R78-million over a 10-year period. Lenong’s financial statements, however, showed that the company was in decline. Despite the increase in turnover between February 2007 and February 2008, Lenong’s net loss situation had increased by 156 percent from negative R223k in 2007 to negative R571k in 2008.

A turnaround strategy was jointly developed between Productivity SA and Lenong’s Future Forum with a view to finding a long-lasting solution to the identified problems and more. The following interventions were developed and implemented as part of the Turnaround Solution: Performance Management/Labour Relations System A Performance Management System incorporating the Labour Relations policy was developed in accordance with the Labour Relations Act and Fair Labour Practices. The policy covered issues such as employer/employee relations, conditions of employment, recruitment and appointment procedures, and performance appraisal vis-à-vis employee productivity. The envisaged bottom-line impact was to reduce absenteeism by five percent, boost staff morale and foster corporate citizenship and employee engagement.

A holistic approach was taken by Productivity SA’s service providers involving in-depth analysis of the PPR results and a workshop with Lenong’s management.

Challenges The problems that led to the decline in Lenong’s operational and financial performance in 2008 included the following: • The wages and salaries costs were too high when compared to the industry norm.

• There was a mismatch between wages and salaries costs when compared to productivity.

• The company did not have any labour relations, financial or operations systems in place to operationalise and streamline the business; as a result, fixed expenses were unnecessarily high.

• Lenong did not have a full-time book-keeper; financial reporting was therefore slow and inaccurate.

• Most of the workers were not informed of how a business runs or how to manage a construction site.

Operations Model This model covered a wide array of modus operandi-related issues such as Lenong’s business model, organisational structure and reporting relationships, an update of Lenong’s target market, a review of the vision and mission statement, training and skills gap analysis, corporate governance structure, and more. The desired benefit of the Operations Model was to reduce time wastage due to unclear operational procedures and reporting relationships; for example, during the creativity session, it emerged that site-based employees were frustrated when it came to the allocation of projects and accountability thereof as projects were allocated in a haphazard manner that led to confusion and conflict. It was expected that with proper and clear operational procedures in place, Lenong’s fixed expenses would reduce by at least five percent while turnover would correspondingly improve by five percent because of quality enhancement and improved customer satisfaction.

Productivity SA’s approach A holistic approach was taken by Productivity SA’s service providers involving in-depth analysis of the PPR results and a workshop with Lenong’s management. Lenong’s Future Forum employed the ‘why-why’ analysis to get to the root cause of identified problems. A ‘why-why’ is conducted to identify root causes of a problem and to formulate solutions.

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the same time positioning Lenong to current and potential customers as an organised company that is capable of sustainably delivering a quality product on time and within the allocated budget.

Source Funding and Performance Guarantee Lenong had just landed lucrative projects from Ekurhuleni Metro valued at approximately R20-million. The threat, however, was that Lenong had no working capital to execute the jobs. The management of Lenong had approached the IDC for a performance guarantee of R2-million and financing of R5-million in order to begin working on the new projects.

The IDC’s requirements were that Lenong should develop a bankable business plan. It also insisted that Lenong have operational, accounting and quality systems in place, as without those checks and balances it would be difficult to advance any loans or guarantees.

Financial/Working Capital Management Systems review This review culminated in the formulation and documentation of a Financial Management Procedures Manual detailing the financial operational procedures and checks and balances for Lenong. The following areas were covered: finance department structure, summary of the functions of the department, major financial policies, debtors and cash control, expenditure control, documents control, creditors control, fixed assets control, payroll control, management accounting, financial reporting and budgetary control. In addition, Lenong employed a full-time accountant who immediately installed a computerised accounting package and streamlined the finance department as recommended in the new system.

Quality Management System One of the key success factors in civil construction (and in any business) is the quality of the product. Organisations that maintain a competitive edge are those that constantly endeavour to improve the quality of their products. Having realised that part of the problem at Lenong was caused by excessive re-works, a Quality Management System was drawn up on ISO9001:2000 standards. The IDC had also expressed concern when Lenong submitted an application for funding that there were no quality procedures and measures in place and it was therefore reluctant to risk its money.

Construction Management Procedures Manual The Construction Management Procedures Manual was designed to counteract problems by clearly stating how a site should be administered in order to operate profitably.

In conjunction with the Operations Model and the Quality Management System, the Construction Management Procedures Manual was designed to add to the bottom line through improved working methods that would lead to a decrease in both variable and fixed expenses while at

Training of senior managers in project management The purpose of including project management in the turnaround package for Lenong was to enhance senior management’s ability to multi-task and run Lenong’s projects profitably and to its clients’ satisfaction.

Results and impact Quantitative Impact Analysis: Table 1: Bottom-line impact Year

30 Nov 2009 (interim 29 Feb 2009 accounts)

29 Feb 2008

Turnover

R24.5m

R10.1m

R19.8m

Gross profit

R6.8m

R4.2m

R10.2m

Net profit/ (loss)

R1.0m

R1.2m

(R571k)

Number of employees

100

70

50

Additional information Productivity SA’s involvement came at an opportune time when Lenong was showing signs of decline, yet it had just clinched lucrative new projects. Lenong was facing a bleak future as it lacked working capital to execute the new projects because of the loss situation it was experiencing and the fact that the funders insisted on operations systems being in place before any funding could be extended.

Through Productivity SA’s involvement, Lenong was able to raise a loan facility of R16-million (including performance guarantee), which enabled it to successfully undertake new projects. The systems implemented gave assurance to the funders that Lenong was a fundable organisation and in turn Lenong was able to clinch more projects from Ekurhuleni Metro because of its good track record.

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Another vital intervention

by Productivity SA Company history Vital Health Foods is a registered pharmaceutical company which has been in the business for over six decades. The company was founded by Jack and Julie Grieve during the post-war 1940s, in the Boland country town of Wellington.

Over the years, the company established the health foods industry in South Africa and to this day remains the market leader. The company‘s head office is just outside Cape Town. Vital‘s product range is spread across vitamins, skin-care products, health foods and beverages. However, being a market leader did not deter the company from seeking continual improvement of its systems.

Implementation of the Productivity SA 20 Keys Programme Vital implemented the Productivity SA 20 Keys Programme and it has attempted to implement eight Keys at the same time with some excellent results.

The eight Keys are: • Key 1 (Cleaning & Organising) • Key 2 (Goal Alignment) • Key 3 (Small Group Activities) • Key 5 (Quick Change-over Technology) • Key 6 (Kaizen of Operations) • Key 10 (Workplace Discipline) • Key 13 (Waste) • Key 19 (Reducing Resources & Energy)

• Vital seconded people with the relevant technical insight to mini-business areas where a problem needed to be addressed.

Embracing the 3BL (Triple Bottom Line) approach Despite being front-runners, Vital did not rest on its laurels and prior to the Productivity SA intervention the organisation had always been characterised by its lean, flat structure and pioneering entrepreneurial culture. Vital has always believed in a safe environment whereby employees are part of the Vital family. Its Corporate Social Initiative (CSI) has always been solid and some of the projects the company has been involved in are: • Drakenstein Hospice Support – organising Vital Spring Classic golf day as a fund-raising event in aid of Drakenstein Hospice, which cares for patients that suffer from incurable diseases.

• Vital Vitality Programme for employees – on-site gym; subsidised on-site clinic; pilates and yoga classes during lunch hours; on-site corporate massage sessions; weight clinic and health screenings for employees.

• Water focus – by focusing on a ‘Green Policy’, Vital Health Foods achieved a saving of 20 000 litres of water per month by safely and effectively effectively recycling water in its manufacturing process.

Results • Vital appointed champions for each Key and a rep resentative Programme Team with representation from all of the functions which meets every two months.

• To assess progress, it has appointed six mixed Audit Teams of two people each, composed of representatives from the various functions across the company.

• It appointed a Programme Manager, whose purpose is to integrate productivity into the workplace and work with management.

• The company has learned the importance of continuous improvement. It based individual performance bonuses on the company’s year-end turnover percentage, so if the company does well, everybody gets a good performance bonus. If the company does badly, every employee also does!

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CASE STUDIES

Centurion Systems Background Centurion Systems manufactures and supplies electrically controlled gate motors to local and international markets.

The company first opened for business in 1986 and was unionised in 2007. Shortly before the economic downturn of 2009, Centurion Systems, which employs approximately 300 staff, undertook to move to larger premises to accommodate its growing business.

Despite the difficult operating climate it faced, as well as the added financial burden of higher premises overheads, the company made a commitment to its staff that every effort would be made to avoid retrenchments. Employees committed to delivering the highest levels of service and quality to afford the organisation the best chance of continuing to prosper against the economic backdrop.

Challenges Despite having sent middle and senior managers on various business-efficiency courses, the knowledge they gained was not being put to maximum use due to a lack of appreciation by the rest of the business of the value they now had to offer. Without full cooperation from all areas of the business, these managers were finding it impossible to effectively implement the new systems and procedures they had been taught, resulting in the failure of many of these initiatives.

The business realised that training in isolation was not the solution and a more holistic approach was needed to transform the culture and productivity levels of the company as a whole. This realisation was supported by the results of a company audit as part of the Deloitte’s ‘Best Company to Work For’ survey, which revealed that communications across the company were very poor.

WPC implementation and productivity approach In May 2007, Centurion Systems made the decision to introduce Productivity SA’s Workplace Challenge (WPC) programme. The programme is a world-class manufacturing, or best operating practice, programme aimed at

helping manufacturing companies in South Africa to become more competitive.

The Workplace Challenge is one of government’s measures to improve the productivity of South African companies and by doing this, improve their competitiveness.

This initiative represents a combined investment in which government support is dovetailed with company initiative and labour cooperation.

The WPC is a joint initiative of the National Economic Development Labour Council (NEDLAC) and the Department of Trade and Industry (dti).

The aims of the WPC are to actively encourage and support change in the workplace to improve company performance, productivity and job creation. This is achieved through a process of building worker participation, thereby empowering them to upgrade their skills and perform better.

The initial challenge facing the organisation was obtaining buy-in to the WPC by all staff and managers. While this remains an ongoing challenge for the company, it has made significant progress in getting the WPC accepted as a highly beneficial process for all stakeholders. A dedicated Change Facilitator was appointed and is fully involved in assisting where language and communication problems arise on the floor. A full-time training officer also conducts business and life-skills training.

Centurion Systems began its WPC intervention with the implementation of the Goal Alignment Toolkit, followed by the 5S Toolkit. The business now views itself as a series of inter-connected ‘mini-businesses’ each with its own targets and objectives, but all contributing tangibly to the overall performance of the company.

Results and impact As a direct result of undertaking the WPC, Centurion has seen significant improvements across various areas of its business. These include: • An improvement in attendance from previously high absenteeism rates to between 95 and 97 percent attendance on average. Employees also show a clearer understanding of the fact that absenteeism affects production within their mini-business and the company as a whole.

• An improvement in overall management attitude, as well as the completion of a positive culture shift initiative has contributed to increased employee motivation levels.

• A number of innovations have been introduced – most as a result of suggestions by staff.

• Intra-company communications are vastly improved.

The average WPC Process Audit Scores after the implementation of the Goal Alignment Toolkit was 71.5 percent, while the Cleaning and Organising Toolkit implemented in February 2009 saw the average score at 52 percent Both represent a steady improvement improvement from initial scores that were as low as 27 percent.

october 2010 productivity leader

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