presentation and feedback 03 september 2003 project lambda eskom enterprises (ee) transformation...
TRANSCRIPT
Presentation and Feedback
03 September 2003
Project Lambda
Eskom Enterprises (EE)Eskom Enterprises (EE) TransformationTransformation
Portfolio Committee on Public Enterprises
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Today’s Objectives
• To present a brief context of Eskom Enterprises’ transformation
• To present the positive implications of Eskom Enterprises’s new, chosen strategic direction
• To review the critical success factors of the new business case for Eskom Enterprises
• To provide feedback which should respond on the queries of the Portfolio Committee on the status of Eskom Enterprsises
• To highlight key challenges facing Eskom Enterprises
Setting the Context
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
EE Background
• Established in 1999 to carry out the non-regulated activities of Eskom inside and outside of Africa.
• Inherited numerous “businesses” and capabilities from Eskom, including aircraft, land surveying technologies, IT, telecommunications, primus stove manufacturing, engineering and construction, fleets of vehicles, etc. In total, 48 businesses and divisions!
• Core line of business include:
– Infrastructure development
– Energy business operations
– Specialised energy services
– Pursuit of key opportunities in related or strategy business (IT, Telecoms)
• Outside of South Africa . . .
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Morocco
WesternSahara
Algeria
Tunisia
Libya Egypt
Sudan
Eritrea
Ethiopia
Djibouti
Som
alia
KenyaUganda
MauritaniaSenegal
MaliNiger
Chad
TheGambiaGuinea-Bissau Guinea
Sierra Leone
Liberia
Côte
D’Iv
oire
Ghan
a
Burkina
Faso
Togo
Nigeria
Camer
oon
Central African
Republic
DemocraticRepublic
of the Congo
Rwanda
Burundi
Equatorial GuineaGabon
Republic of the Congo
Tanzania
Angola
Botswana
Zambia
Zimbabwe
Malawi
Moz
ambi
que
Namibia
Republic ofSouth Africa
SwazilandLesotho
Benin
Mad
agas
car
Mauritius
Zanzibar
Seychelles
Completed Projects
Ongoing Projects
Prospects & Ongoing Projects
Prospects
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
EE in the World
• Transmission network design and engineering in
– Vietnam
– India
– China.
• Possible O&M of Generation Utilities in Sri Lanka
• Invitations to participate in:
– Mexico
– Brazil
– United Kingdom
• In sum, a full plate. Management and resources were stretched!
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Media 22/1/2002
E E structure diagram
Eskom suppliedservices:— Internal Audit— Treasury— Confidential Investigations— Safety
FinanceManager
H / RManager
Co. Secr/ Legal
Committees of the Board:— Management— Audit— Remuneration— Investment & Procurement— Finance
H / O
Gvt Liaison
Esk EntAfrica Investment
Electricity Africa
EON Solutions
TSI Consulting
Trans Afr Projects
Rotek Engineering
RotekIndustries Commercial
Sapphire Exec Air
ALS
Amazing Amanzi
Telecomms
EE~KOM
ESI~TEL
TEL~ENG
Venture Development
Equity Management
EE Africa: Regions
EE Marketing
Primary Energy
Bonesa
Coal
Natural Gas
ELGAS
FBC
Mountain Comm’s
Tele-Com Lesotho
Golang Coal
IT Services
Arivia.kom
e-Commerce
SDCT
EE Global West Africa Ltd (Nigeria)
Roshcon Division
RVS Division
Roshprop Division
Roshcon
RVSDormant
RoshpropDormant
PBMR
Waste Energy
PTMGESCO
SKIEskom Energie
Manantali
HEM~KOM
TSI Operating
Lunsemfwa(Zambia)
Co-ordination, Marketing,Deal Making,Funding
#:
# #
Board of Directors
* * * * * * * *
: Execution*
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
421
556
13083 108
9
Gross Profit Net Oper. Income Net Profit
'01 '02
R’
mil
lio
ns
Revenue:
2001 – R2 370 m
2002 – R 2 906 m
EE Financial Performance
The Chinese describe “crisis” as a time of great danger and a time of great opportunity. We truly have the opportunity
to take EE into the future.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Current analysis shows net EVA “loss”
Rotek and Roshcon are the primary value creators while head office and the telecomms businesses alone destroy more value than is created.
-250
-200
-150
-100
-50
0
50
1 2 3 4 5 6 7 8 9 10 11 12 13Mil
lio
ns
EskomHead Office
PTN
Mountain Comms
Sapphire Exec Air & Helicopter
TSI ALS
Rest of BU’s
RotekRoshcon
Manantali EON Enerweb
2002 Results
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Transformation for Sustainability
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
We have now reached the end of the business analysis and transformation design phase
Business Analysis and Transformation Design (12 weeks)Scoping Analysing Implementation Planning
1 2 3 4 5 6 7 8 9 10 11 12
Strategy
OrganisationDesign and
Development
Transform. Enablement
Weeks 13
Business Unit Strategy
Corporate Strategy
Business Case
Value Analysis
Project Management
EE Initiative
Organisation Design
Management Profiling
Balanced Scorecard Development (Level 1 – 3)
Ongoing Communications Roll-out
MIS
Bal. Scorecard - Draft
EVA Analysis
Org Design Scoping
Mgmt Profiling Scoping
Comms baseline & readiness
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The implementation will require effort and focus for the next 12-18 months
Analysis & Design(12 Weeks)
Implementation(12-18 Months)
• Organisation Impact:– Organisation Design– Management Skills
• Enablers:– Balanced Scorecard – Comms & Mobs– (MIS)
• Strategy Implementation:– Focus on core business– Develop business unit strategies– Realise divest opportunities
• Organisational Implementation:– Populate new structure– Develop / align key business processes– Build new functions (NED&M, Globalisation)– Restructure corporate services– Develop required competencies and HR processes
• Strategy Analysis:– Corporate– Business Unit
• Value Analysis
• Transformation Enablement– Measurement and tracking – BSC implementation – Enabling infrastructure– Systems support– Communication & Mobilisation
We are here
Business Case for Change
Business Case Realisation
Strategy: Implications of EE’s chosen strategic direction
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
We have agreed some key principles by which to define EE’s strategic focus
Key Principles
• Eskom Enterprises must critically evaluate its core business and build focus around this
• The design, build, operation and maintenance of Generation, Transmission and Distribution infrastructure is currently EE’s core business
• We will focus on business segments where Eskom Enterprises can build strong strategic positions in attractive markets
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Going forward, EE should focus on core activities, and operate primarily within SADC, Africa and Middle East
Diversified
Electricity Allied
Electricity
Eskom SADC Africa ROW
Core, 2nd Priority, 3rd Priority
Priority 1 Priority 3Priority 2Core
SADC
SA / EskomGeneration
Transmission
Distribution
Des
ign
Bu
ild
Op
erat
e
Mai
nta
in
Core Business Focus
How should EE treat non-core businesses going forward?
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Analysis has shown that the further we stray from our core, the less likely we are to create value
Note:1. EVAs repeated across regions and not across segments; 2. An EVA calculation has not been performed for the SNO; 3. An operating profit has been used to size Enerweb and arivia.kom.
Despite investment attractiveness or performance, should we divest out of non-core assets?
Services vs. Markets
Negative EVA
Positive EVA
Eskom South Africa ROW
En
erg
yE
ne
rgy
Re
late
dO
the
r S
erv
ice
s
Meeting full potential in the core
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The capacity expansion
opportunity
The portion prior to 2010
The portion that is attractive to EE
The portion EE can currently do
• First wave of the capacity expansion is estimated to be worth R113bn
• Approximately R19bn will be spent prior to 2010
• R7,7bn of this is relevant to EE’s current business and clearly attractive adjacent sub-segments
• EE is currently positioned to perform about R4bn worth of this work
The SADC capacity expansion presents a huge opportunity for EE but highlights timing and capability issues
Source: Generation & Transmission Expansion Plan – Budget for Pre-feasibility and Feasibility studies – Bain McIntyre; Focus Interview with Steve Lennon & Andrew Etzinger.Note: An exchange rate of R8 to $1 has been used to estimate the cost of each project.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The upcoming capacity expansion could result in massive growth of EE’s defined core business
EE can potentially benefit from feasibility studies, design and project management relating to new builds and parallel refurbishment activity.
The first wave of the capacity expansion will result in build and refurbishment
projects worth R113bn.
First Wave of Capacity Build Projects
Source: Generation & Transmission Expansion Plan – Budget for Pre-feasibility and Feasibility studies – Bain McIntyre; Focus Interview with Steve Lennon & Andrew Etzinger.Note: An exchange rate of R8 to $1 has been used to estimate the cost of each project.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
EE currently enjoys strong market share positions in many of its core markets
Market Size and Share in SADC - 2002
Source: Gemini Analysis; Focus Interviews with Generation, Transmission, Distribution Procurement Managers.
Can EE maintain these market shares as new players enter the market during the capacity expansion ?
Generation Transmission Distribution
Mar
ket
Siz
e (
Rm
) Market S
ha
re (%
)
0
200
400
600
800
1000
1200
1400
1600
1800
2000
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Market Size
EE Market Share
Core businesses contribute 62% of EEs
current revenues
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Maintain & Refurbish
Operate BuildDesign
Pre-feasibility, feasibility, 1st-level design – not detailed design
Only project management Sales & marketing, waste management, EE uses ER resources for power station run contracts
Turbines, not boilers and auxiliary
TSI does 50% of ER work EE has lost most specialist expertise
Rotek does all turbine maintenance
TAP can do all Tx design Only project management Manage small parts of grid Transformers, not controls & instrumentation, not live line
ER does some internally Competitors and ER internal
Mostly done internal to ER Rotek dominates
EE can do all Dx design EE sub-contracts civils Revenue enhancement, some network management
Transformers, lines
EE wins most of this work but sometimes subcontracts outside of EE
Lots of BEE players Low barriers to entry, difficult to diferentiate
Roshcon does 56% of ER work
EE’s current weak position in generation design and build means we may not fully benefit from the SADC capacity expansion
The challenge is to identify the attractive services in the generation design and build segments and to build or buy required capability and capacity.
Gen
erat
ion
Dis
trib
uti
on
Tra
nsm
issi
on
% of the segment we’re active in
% share of the segment we’re active in
% of the segment we’re active in
% share of the segment we’re active in
% of the segment we’re active in
% share of the segment we’re active in
Percentage of Activity Offered, Percentage Share of ER Procurement in Offered Activities
Source: Gemini Analysis; Focus Interviews with Generation, Transmission, Distribution Procurement Managers and interviews with TSI, Rotek, Roshcon and TAP management.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
EE’s ability to grow is limited by a shortage of some critical skills
Ability to respond to the expansion programme
Ability to grow in other segments
• EE specialises mainly in coal
• EE has limited expertise in gas, fluidised-bed combustion and hydro-electric domains
• EE does not have the skills to extend its preliminary design work to detailed design
• In the build segment, EE has construction skills in Distribution only – not in Transmission or Generation
• EE has limited project management skills in Generation
• EE focuses on turbine maintenance – it does not participate in the maintenance of boilers and auxiliaries
• EE have limited skills in controls and instrumentation
• EE is reliant on ER resources for all business in the Operate segment
Not all service areas are necessarily attractive – EE must focus on adjacencies to current offerings and substantial, sustainable profit pools.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2003 2004 2005 2006 2007 2008 2009 2010
R m
illio
ns
Maintain
Build
Design
The phasing of these projects has implications for resource planning and our ability to commit to international projects
The core BUs will need to start ramping up capacity now to position themselves for the future, and sell any surplus capacity both within SA and internationally.
Phasing of Additional Capacity Expansion Projects
Start of construction of CCG1 & 2 projects
Start of construction of Braamhoek, Steelpoort
and FBC projects
After 2010, further growth will result from the Mepunda
Uncua and Western Corridor projects.
Source: Generation & Transmission Expansion Plan – Budget for Pre-feasibility and Feasibility studies – Bain McIntyre; Focus Interview with Steve Lennon & Andrew Etzinger.Note: An exchange rate of R8 to $1 has been used to estimate the cost of each project.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Feasibility studies, preliminary design, and project management are worth R7,7bn of the pre-2010 expansion
Spend in Sub-Segments and Adjacencies to EE’s Current Focus
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2003 2004 2005 2006 2007 2008 2009 2010
R m
illio
ns Refurbishment
Project Management
Preliminary Design
Feasibility Studies
Detailed design at 2% of the project costs equates to approx. R2.6 bn within
the same time period
These activities are closest to EE’s current capabilities and should be investigated for potential expansion.
Source: Generation & Transmission Expansion Plan – Budget for Pre-feasibility and Feasibility studies – Bain McIntyre; Focus Interview with Steve Lennon & Andrew Etzinger.Note: An exchange rate of R8 to $1 has been used to estimate the cost of each project.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
EE’s potential future revenue is made up of work covered by ER’s current level of operational expenditure and new project spend
Sources of EE’s Future Revenues (2004-2010)
R3,8bn
R4bn
R3,7bn
ER operational spend with EE1
Capacity expansion spend in EE’s current capability areas
Capacity expansion spend EE’s potential expansion areas
R6,5bn
Planned refurbishment and expansion
Sources
Rev
enu
es
1. Based on current spend values, as obtained from Gx, Tx & Dx Procurement, with no annual growth.
Meeting the full potential
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The SADC capacity expansion represents a major opportunity for the support services business of Eskom Enterprises
Opportunities Recommendations
• Maintain market share within a rapidly growing market:
– Pre-feasibility and feasibility assessment
– Up-front design
– Project management
– Maintenance services
• Understand the potential growth relevent to each BU, and how to position ourselves to take advantage of that growth
• Improve service levels and secure preferential contract for capacity expansion
• Understand build vs buy options / implications for entry opportunities
• Identify pockets of relevant non-regulated expertise within the regulated business and review options
• Identify a global partner to assist in managing capacity spikes and troughs and expertise gaps
• Understand areas where EE does not have current capability that are worth entering
Build business unit strategies describing basis for
differentiation and capability implications
Challenges
• Current skilled resources are already stretched
• Timing of demand will be volatile
• Building expertise internally will take time
• What to build internally vs. outsource
• How to utilise surplus capacity in the short term while preserving long-term capacity
Building a strong global partnership could dramatically strengthen EE’s position.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
International projects should be pursued to cover excess capacity in the short-term, allowing us to build expertise ahead of the curve
Rationale for international expansion Managing the impact on SADC business
• Allows EE to scale up prior to the capacity expansion
• Allows EE to sell excess capacity resulting from fluctuations in SADC demand
• Allows EE to exploit potential cost-base advantages it has over hard-currency based competitors
• Allows EE employees to gain knowledge of other markets and technologies
• Margins may be higher than in SADC
• These contracts require large investments to fund business development – potentially including the setup of local offices
• Business development requires local knowledge of customers
• EE is already short of key management and expert resources – international sales stretch existing resources
We must scale up while maintaining market share
Inte
rna
tio
na
l s
ale
s
of
de
sig
n,
bu
ild
a
nd
ma
inta
in
se
rvic
es
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
If the expenditure / action will … It should be referred to the EE Executive Committee
EE must take efficient central control of key business portfolio decisions for an interim period
• Result in expansion into a non-core area of business:
– Outside the ‘design, build, operate, maintain’ value chain
– Outside SADC
AND
• Result in a contractual obligation of greater than 6 months:
– Including new joint venture agreements / strategic partnerships
OR
• Result in cash outflows (investment or operational) of a sum greater than R500 000
OR
• Together with any related expenditure or action will result in one of the above
• Principles:
– Decisions must be driven by business cases and resource availability
– Core business must take priority (SADC design, build, operate and maintain; West Africa, and Middle East)
– Adjacency to the core business must be a key deciding factor:
Extent of leverage of existing resources and customer relationships
– All business cases must include appropriate risk assessment
– The decision making process time should be driven by due process and not act as a bottleneck
Business Case – Core Business
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Under these assumptions, core Support Services revenue will double by 2010
Support Services Revenues 2003-2010
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2003 2004 2005 2006 2007 2008 2009 2010
Ran
d M
illio
ns
GescoTAPTSIRoshconRotek
2003 2010%
Growth
Rotek R596mR1,271
m113%
Roshcon E&I
R397m R559m 41%
TSI R607mR1,182
m95%
TAP R70m R154m 120%
Gesco R102m R188m 89%
1. 50% in 2003, 100% thereafter.
1
Implications of strategic focus for Globalisation
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Strategy: ‘globalise’ in SADC countries in the short to medium term, West Africa and Middle East in the medium-long term
Rationale for international expansion Managing the impact
• Operate contracts result in annuity-type revenues
• Operate contracts often entrench Eskom, resulting in sales of other services
• These contracts require large investments to fund business development
• Business development requires local knowledge of customers
• Concessions require large up-front capital
• Risks are higher outside South Africa
• Power station operate contracts require resourcing from Eskom Regulated
EE can potentially support the capacity expansion programme by securing strategic interconnected ‘operate’ contracts.
Glo
ba
lis
ati
on
(o
pe
rate
se
gm
en
t)
Implications of strategic focus on the non-core portfolio
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Different strategies need to be adopted based on BU / segments performance and their fit with the EE portfolio
Strategic Options:• Invest and grow • Fix, and invest in building
capabilities
• Turnaround strategy
• Option to move back to Eskom Regulated or operate as cost centre on their behalf
• Keep with no further EE / EH investment
• Outsource with strong SLAs
• Sell (with strong SLAs in place) where multiple suppliers exist in market
• Close
Performing Non-Performing
Cri
tica
lN
on
-Cri
t ic a
l
Note: Performance has been determined by an EVA calculation, where no EVA has been done net operating profit has been used to determine performance.
No
n-C
ore
Co
re
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
For each business identified as a potential ‘sale’ opportunity, we followed a process to arrive at a range of realisable values
Understand
current financials
Identify external dataEstimate ‘possible’values1
Understand limitations / implications
Determinerange of
realisablevalues
• Turnover
• EBIT
• EBITDA
• Net profit
• Asset base
• DCF value (excluding debt)
• External valuation
• Previous offers made
• Industry PE ratios
• Multiple of EBITDA
• Multiple of net earnings
• Value based on assets
• Previous offers
• External valuation
• Contractual commitments (penalty clauses)
• Political commitments
• Best case
• Worst case
• Estimate based on current information available
1. Value benchmarks are calculated based on percentage ownership.
Business Case Summary
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Eskom Group has agreed to a capitalisation number for EE as a whole, based on key assumptions within each of the pillars
•Support Services takes advantage of major opportunities presented by ER build programme
•Additional capability is required:
– Develop internally
– Buy-in
– JV / strategic partnerships
Support Services GlobalisationNon-core Portfolio
(NED&M)Head Office Overheads
•EE will focus its globalisation efforts within SADC
•EE will continue to operate the projects already signed
•EE will divest from most non-core businesses
•Critical non-core services will be operated as cost centres (no cash effect)
•No investments in new business will be made
•Head Office costs are controlled and are assumed to be a fixed percentage of Support Services revenue
Capital required to fund growth in
short term
Capital required for new projects
Capital released through divestments
Cash required to operate+ - + =
Capitalisation Requirements
R
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Cash generated by core businesses and sale of non-core assets will be used to fund Globalisation growth
Total EE Projected Cash Flow – Base Case
Including Proceeds for Sale of Asset (Base Case)
-400
-200
0
200
400
600
800
1000
1200
1400
2003 2004 2005 2006 2007 2008 2009 2010
Ran
d M
illio
ns
Non core
Globalisation
Support Services
Head Office
cumulative cash flow
Organisational Implications
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The 3 pillars were defined in line with strategic developments and are supported by key corporate functions
Support Services Globalisation
• To provide support services for the Energy Supply Industry
• To identify potential opportunities for developing Eskom product and service offering internationally
• To manage the operation of these projects once they are operational
Corporate/ internal services
NED & M
• Identify “new” opportunities that leverage existing technologies, capabilities or assets
• To initiate and incubate the venture start-up for future handover or sale
CEO
• Finance
• HR
• Strategy & Transformation
• Legal & Compliance
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
We have agreed to move towards a single Support Services (Pty) Ltd.
Support Services(Pty) Ltd.
TSI (Division)Rotek Engineering
(Division)Roshcon(Division)
(RVS) (Roshprop)
This implies that non-core activities will need to be cleaned out, and other activities repositioned within Support Services.
• Focus on core business
• Clean out non-core activities
• Locate activities where they best belong
• Support the ER build program
The business model of Support Services will need to be aligned to serving Eskom as the primary customer.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
This Support Services structure needs to move away from traditional Business Unit lines and towards an integrated service offering
EE Support Services(Pty) Ltd.
Internal Services
Engineering Consulting
(TSI)
Maintenance (Rotek
Engineering)
Construction (Roshcon)
R&D (TSI)
• Conduct a complete review of policies and terms of employment for both EE and Rotek
• Clearly define criteria by which investment / selling decisions are made:
– Which products and services to which markets?
• Renegotiate long term enabling agreements with ER for guaranteed baseload
• Appoint the ED to act as a single point of control over all support services and take responsibility for the strategic relationship with ER
• Design and implement mechanisms for monitoring customer satisfaction and implementing corrective action
• Determine the strategic focus of Support Services, and stick to it
• Strip out non-core business and position it where it belongs
• Change board composition at Rotek to enable greater strategic direction and input from EE
• Collapse the dual board structure within Rotek (if Roshcon is to remain within Rotek)
• Review limits of authority and board mandates to ensure adequate control from EE
• Implement standardised reporting to enable measurement and alignment
Implementation implications:
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Globalisation will further the international aspirations of the Group, primarily focusing on the SADC region
Globalisation
Operational oversight
Deal structuring & closure
Opportunity analysis
Opportunity identification
Marketing and
relationship building
Market intelligence and IP management
• Market intelligence management
• Coordinate and manage intellectual property
• Document ‘Eskom Way’ and customise for other countries
• Focused business development
• Primarily driven by EH needs
• Develop operating methodology for target countries (e.g. tax, legal, HR, etc.)
• Maintain operational oversight of projects
• High level assessment
• Detailed business case:
– Coordinate multi-disciplinary teams with necessary expertise
• Coordinate the deal team with support from finance
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The high level structure for Globalisation is defined however it’s size will be determined by the Globalisation strategy and focus areas
Globalisation
Regional Business Development
Manager
Operations Oversight Manager
Intellectual Property and Market Intelligence
Manager
• The detailed Globalisation structure will be populated when the Globalisation strategy has been formulated and the business processes required to support the function have been defined
• Given the processes and the volume of work, the size of the team will evolve • Key processes to support this function will include:
– Resource allocation – Business case– Opportunity identification and identification
• These process will be designed as part of the implementation
Implementation implications:
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Other associated or adjacent business opportunities will be pursued by NED&M on a project basis, driven by Group opportunities and needs
New Enterprise Development & Management
Portfolio management
Deal structuring & closure
Opportunity analysis
Opportunity identification
• Incubate new ventures
• Manage assets for value as part of a balanced portfolio
• Implement investment / divestment decisions
• New ventures which leverage existing capabilities, assets and / or technologies
Market Intelligence input from
Globalisation
• Initial high level assessment and business case
• Assess the opportunity with multi-disciplinary team
• Coordinate the deal team with support from finance
• Identify and develop potential JVs and strategic partnerships
New ventures should be developed primarily for sale
or handover to other areas of the business
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Both Globalisation and NED&M will need strong corporate finance support in the structuring of new deals and projects
Globalisation
New Enterprise Development &
Management
Operational oversight
Deal structuring & closure
Opportunity analysis
Opportunity identification
Marketing and
relationship building
Portfolio manageme
nt
Deal structuring & closure
Opportunity analysis
Opportunity identification
Market Intelligence input
Corporate Finance
Market intelligence and IP management
• Deal structuring
• Negotiation
• Risk assessment
• Business case development and assessment
• Funding
• Tax implications
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Therefore a strong CFO function is recommended to provide traditional finance as well as a corporate finance capability
Finance & Control• Financial and management
accounting • Risk management • Tax and audit • Pension and provident
administration• Financial reporting
Corporate Finance• Business case-based opportunity
assessment • Risk assessment and
management • Deal structuring • Deal negotiation and closure
Treasury /Funding
Some of these skills will be accessed externally and coordinated by this office
due to the specialised, deal specific resources needed
Other functions• Third party relationship management • Financial system management
Chief Financial Officer(CFO)
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
We recommend a clear differentiation of Corporate and Operational services
NED & M
Trust and service orientation provide the foundation for the new operating environment.
HRGlobali-sation
Finance&
Services
Legal &Compliance
Internal Services
Head Office Operational Services
Corporate Services
Support Services
Strategy and Transformation
*
CEO
Balanced Scorecard (BSC)
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Scorecards have been defined, and will continue to be updated as the strategy is clarified
Progress:
• Level 1: CEO
– Vision, strategic intent and objectives defined
– Measures identified
– Will be reviewed to align with Visioning workshop output
• Level 2: Support Services, Globalisation, NED&M, CFO
– Draft vision, strategic intent and objectives defined
– Being validated in line with defined structure
• Level 3: Support Services:
– Generic scorecard for a business unit defined
– Work with interim manager to develop and validate
The focus can now shift to operationalising the scorecard framework in the business.
Vision &
Strategy
Financial
Learning & Growth
CustomerInternal
Business Process
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The Level 1 Scorecard will evolve in line with the strategic recommendations
To maximise value for
the Group and our
customers through
the provision
of total solutions
across the
energy industry value-chain
Strategic Intents
To maximise the life-time value of key customers, as well as grow the customer base, through the development of a global brand and corporate identity
To leverage technology and intellectual capital through best-practice processes that enable value-adding business decisions and efficient operations
To attract and retain the right people for an entrepreneurial and performance driven organisation
To achieve maximum EE enterprise value through the value-adding development and management of the EE portfolio of businesses
EE Level 1:
Fin
anci
al
Cu
sto
mer
s &
Mar
ket
Inte
rnal
P
roce
sses
Lea
rnin
g &
G
row
th
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Measures have been articulated and are in the process of being populated with data
Code Measure A Status Code Measure A Status
F1 Gross profit margin .. 1 C1 Customer satisfaction index .. 1
F2 Actual costs vs budget .. 1 C2 Num. of unsolicited enquiries (Brand awareness and value) .. 1
F3 Operating profit .. 1 C3 % of new (<1 year old) customers vs total customer base .. 1
F4 % revenue growth .. 1 C4 Market share (of addressable markets) … 1
F5 RONA .. 1 C5 … 1
F6 EVA .. 1 C6 … 1
F7 .. 1 C7 … 1
F8 .. 1 C8 … 1
F9 … 1 C9 … 1
F10 … 1 C10 … … 1
F11
Code Measure A Status Code Measure A Status
IP1 Re-use of intellectual property .. 1 P1 Employee satisfaction index .. 1
IP2 Process audit red flags .. 1 P2 Training days versus budget .. 1
IP3 Number of submissions to knowledge base .. 1 P3 Equity compliance (BEE, racial, gender etc.) .. 1
IP4 Number of products & services <1yr old (new) .. 1 P4 Days positions unfilled (Preferred employer) … 1
IP5 ISO compliance … 1 P5 Suggestions received, converted ( Innovation) … 1
IP6 Innovation (time spent as a % of total) … 1 P6 Compliance to performance management system … 1
IP7 … … 1 P7 % of succession plans in place … 1
IP8 … … 1 P8 Disabling injury incident rate (DIIR) … 1
IP9 … … 1 P9 Staff turnover (Unplanned) … 1
IP10 … … 1 P10 … 1
Financial / Stakeholder
Internal Business Processes
Customer
People, Learning & Growth
A number of measures are completely new and
measurement thereof will need to start as soon as
accountabilities are allocated
Review meetings around these measures can now be initiated.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
With the appointment of interim managers, Exco meetings incorporating BSC disciplines can now be initiated
Implementing a cycle of review meetings with clear accountability is essential to the success of the BSC process.
‘Disciplines’
Financial
People
ProcessesCustomer Vision
‘Measures’ ‘Accountability’+RACI
Roles & Responsibilities
Plan
Do
Review
Plan-Do-Review(PDR) Process
+
Communication and Mobilisation
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
We have completed Phase 1 with comprehensive communication to management
Activities and Achievements
• Launched project to the Executive at the Saxon
• Presented Project Lambda Overview to the executive
• Produced & displayed poster describing Transformation phases
• EE of the Future
• Set up Suggestion Boxes across EE with a suggestion management process
• Conducted Top 100 Drumming Workshop
• Advertised and conducted overview presentations and Brown Paper Fairs at:
– TSI
– Rotek
– Witbank
– Head Office
• Sent out regular communiqués on key issues:– Summary of project approach
– Announcement of interim managers
– Announcement of intention to communicate
– Announcement of interim reporting lines
• Produced and distributed E-Band Info Pack
• Set up walkabouts at TSI and Rotek and HO
• Held Team Building event for Project Lambda team
• Published Transformation Newsletter
• Published summary Newsflash at project end
• Distributed Project Overview letter to Bargaining Unit staff in partnership with the Unions
• Commenced Bargaining Unit Roadshow for:– TSI
– Rotek
– Witbank
– Head Office
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The Poster Campaign has helped the organisation understand the Phased approach as well as the high level vision for transformation
You may well have seen these posters around the EE offices.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The Suggestion Boxes have closed the feedback loop and a process has been established to ensure feedback to the organisation
It is vital that employees feel they have an opportunity to be heard.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Objective of Transformation Committee
We have also established the platform for successful union engagement during the implementation
• To comply with the recognition agreement
• To ensure that Bargaining Unit employees are fully informed of the transformation process and decisions that affect bargaining unit staff
Agreed Terms of Reference Way Forward
• Rollout of Overview presentation with Unions
• Monthly Transformation Committee meetings
• Decisions related to investment / divestment and changes to conditions of service to be discussed at NEEF
• Receive and distribute information
• Make recommendations to NEEF
• Observe confidentiality of information
• Respect current participative structures
• Joint coordination of roadshows and communication sessions
The Communications stream worked with HR to ensure the correct protocol was followed. This has ensured harmonious relationships on all fronts.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
There has been a significant improvement in Communications awareness but there is still uncertainty surrounding the vision
Sample size 29 in first survey and 38 in second, randomly selected
1 = poor10 = good
• Employees feel substantially more informed about the project
• They also feel that there has been a substantial improvement in the quality of project communications
• However, employees are still uncertain about the vision as reflected in the declining rating for question 1
Key to graph1. How well do you think you understand EE’s vision?2. How well do you understand the goals of the transformation?3. Do you feel there’s been enough communication about the vision?4. Do you feel that you are sufficiently informed about the project?5. How would you rate the communications that you have been exposed
to so far about the project?
Comparison of Survey Ratings
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
What people know… …and their key questions
The challenge moving forward is to communicate the right messages at the right time
• Transformation effort is underway
• The analysis and design phase is almost complete
• Three pillar structure is being implemented
• There will be changes
• When will we know what’s going to change?
• What is the corporate strategy?
• “Focus”, what does this mean?
• How will you communicate to those below ED level?
• Will people lose their jobs
The key question is, “what’s in it for me?”
Implementing the Transformation
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Objectives of the Implementation
• To realise the strategic objectives of Eskom Enterprises:– Optimise shareholder value
– Focus on core business and support the ER build program
– Provide support to EH strategy through expansion into SADC countries
• To implement an organisation structure that will support the strategy:– Operationalise the 3 pillars
– Develop appropriate skills
• To design and implement supporting processes:– HR (performance management, job analysis, succession planning etc.)
– Financial (business case, risk management)
– Business development (sales focus and coordination, team-based selling)
• To implement revised governance structures and processes:– Board structure and mandates
– Balanced scorecard (BSC)
– Management forums
• To mobilise the organisation around the way forward:– Behavioural and culture change
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
A typical transformation moves through 3 distinct stages
• Analysis driven
Analysis & DesignImplementation Sustainability
8 – 12 weeks 12 – 18 months Ongoing
• Building momentum
• Transferring ownership
• Building skills
• Centrally driven
• Realising benefits
• Line driven and monitored
• Audit reviews to ensure sustainability
We have now reached the end of Phase 1.
Transformation Project Managing the Transformed Organisation
Phase 1: Phase 2: Phase 3:
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
To achieve successful transformation EE needs an implementation project structured around six key areas
Ongoing implementationEmbed scorecard Define / revise detailed BSC
Track effectivenessRefine governance:- Board structures- Mandates
Implement interim governance structures
Implementation
Business unit strategy (meeting ER needs)- Clean-out ‘core’ businesses - Build vs buy- Competitive positioning- Globalisation strategy
Business Case Validation & Realisation
Track effectiveness and customer service levels
Update performance contracts and ongoing performance managementIntegration of Support Services
Stream 1 2 3 4 5 6 7 8 9 10 11 12
Months
Follow through Realise invest / divest decisions (NED&M)
Analysis Execution
Service optimisation within Support Services
Detailed Design Pilot ImplementOrg. implications
Roll out and tracking Design & implement key business processes
DesignPilot Implement
Implement structure
Track effectiveness and customer service levelsInternal services alignment
Organisation and Process Alignment
Strategy Realisation
Governance and Business Management
Process
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Three streams will support the core of the implementation
ImplementationAlign systems to business strategy and
processes
Ongoing communication
Strategic mobilisation
Pilot Roll-out
Project management
Ongoing development and monitoringSkills development interventions
Stream 1 2 3 4 5 6 7 8 9 10 11 12
Months
Compile mgmt. dev. plan
Plan, train, pilot Implement across business
Job Analysis
Embed and track effectivenessRefine &
implementPilot
Design key HR processes
Re-position HR
Ongoing development and monitoringLeadership development
Transformation
Enablement
Systems Alignment
Human Asset Optimisation
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The implementation will cover every aspect of the business
Governance and BMP Strategy Realisation Organisation and Process Alignment
• Implement interim governance structures (operational)
– Exco
– Finance / risk management committee
• Develop long-term governance:
– Board structures
– Board mandates
– Operational forums
• BSC implementation:– PDR / RACI
• Realise invest / divest decisions
– Detailed analysis
– Execution
• Develop Business Unit strategy:
– Clean up (focus on core)
– Understand implications of build program per BU
– Determine options to address capability gap (build vs buy)
– Define differentiation
Develop strategy for Globalisation
– which markets / products, EH goals
• EH / EE relationship building:– Build commitment and agree
SLAs
– Negotiate long term contracts
– Agree preferential sourcing
– Review non-regulated expertise within the regulated business
• Business case validation:– Recognise the financial impact of
the project on the business
– Review / update capitalisation requirements
• Optimise internal services within Support Services:– Review options, detailed design and implications– Agree functions, structure and SLA’s
• Design and implement key business processes, including organisational implications:
– Resource allocation– Opportunity identification and analysis– Business case development– Market intelligence and IP management– New business incubation
• Implement Internal Services (includes Finance and HR):
– Define processes– Define detailed structure, roles, functionality and SLAs– Define standard formats (business case, financial reporting)– Revise budgets / targets / cost centres
• Integration of Support Services:– Detailed analysis of terms and conditions, and migration plan to
normalise– Review legal ,tax, brand implicaitons of single (Pty) Ltd
structure– Detailed analysis within each division
Organisational implication of focus strategy– Implement legal and reporting structure– Renegotiate contracts, performance measures, targets and
budgets– Co-ordinate sales development effort
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The implementation will cover every aspect of the business (cont.)
Human Asset Optimisation
Systems Alignment Transformation Enablement
• Complete assessment of M-band managers
• Develop a plan and implement interventions to address generic and change management skills gaps
• Conduct job analysis of key job families to meet EH needs
– Conduct pilot
– Roll out across the business
• Define key HR processes to support required behavioural change e.g.
– Performance management
– Reward and recognition
– Succession planning
• Determine process for staff redeployment and possible exit:
– Negotiate, agree, implement
• Leadership development (after permanent appointments):
– Team building
• Align systems to business strategy and processes
• Understand information and reporting requirements between Eskom Holdings, Eskom Enterprises, Support Services (Pty) Ltd, Globalisation and New Enterprise Development
• Understand current EE systems and ability to support required operational decision making and reporting requirements
• Understand consolidation options e.g. – All onto one new segment?– All onto one existing system?
• Understand migration options for different areas of EE (e.g. Support Services vs businesses being divested)
• Understand competence and governance implications of system changes:
– People and skills– Policies and procedures (and link to EH)
• Management of migration:– RFI, RFP– Contracting– Implementation
• Strategic mobilisation:– Building commitment to EE of the future
• Continued communication
• Input to Transformation Committee
• Project management
The Management Challenge
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The challenge for EE is to harness the potential and skills of individuals and convert them into business performance
Potential
Individuals’ inherent talent to learn certain skills or display
certain competencies
Skills
Potential already
translated into skill through training and experience
CompetenceThe job-related
activities successfully completed by the individual based on his / her skill and
potential
PerformanceThe level to which the individual
leverages his / her competence to achieve job-related KPI’s
Barriers / Facilitators• Training & development• Experience• Individual interest &
career needs• Opportunity to develop
Barriers / Facilitators• Accurate person job
matching• Structure
Barriers / Facilitators• Incentives• Culture• Leadership style• Self-motivation
As individuals perform, so the overall business performance improves.
Translating Potential into Performance
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The cultural legacy in EE hampers optimal performance
The lack of accountability and effective performance management damages the business on a daily basis.
Source: Face-to-Face feedback with E-bands. Week 1 and 2 Focus Interviews.
Some cultural symbolsPossible interpretation by
employeePossible business
implications
Promotions based on implicit knowledge and politics rather than explicit knowledge and objective performance data
• Cautious participation in initiatives due to lack of trust
• Slow responsiveness to external environment
• Focus on political positioning rather than job performance
• Slow sharing of knowledge
Huge sums of money lost without individual accountability
• Attrition of high flyers• Embedding of ‘dead wood’• Financial losses
High and low performers get similar performance ratings and rewards
• Low motivation levels• Sub-optimal application of
competence• Sub-optimal business performance
Eskom do not retrench people • Unethical behaviour
Perceived incompetence of certain senior leaders
• Attrition of high flyers• Embedding of ‘dead wood’
“This is an unfair, biased environment. I have to watch
my back”
“Poor performance will be tolerated”
“It is not worth my while to put in the extra effort”
“I’m safe here once I’m in”
“I’m not learning in this environment. This company is
going down the tubes”
The culture is firmly entrenched. Average length of
service for E-bands is 16 years.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
HR processes are not currently driving the effective use of our human capital
Strategic HRSupporting Systems
• No common database• No skills database
Performance Management• Subjective and
inconsistent • Everyone ‘average or
better’• No audit to ensure
calibration
Reward & Recognition
• Inconsistent link between performance and reward
Training & Development
• Must be aligned to business needs
• Don’t understand what we’ve got
• Limited return on training investment
Career and Succession Planning
• Only at senior levels• Promotions perceived to be
‘political’
Job Analysis
• Incomplete• Subjective
Selection & Placement
• Poor job / competence matching
• No rigorous interviewing methodology
• Need to reposition HR as a strategic business partner
• Need for strategic HR planning due to resource constraints
Within technical firms people management remains a challenge. Line often abdicate
their HR management responsibilities
Source: HR Process Review Workshop.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
In order to build on strengths and optimise the capacity of senior management we need to implement supporting people processes
Stop Start Continue
• Appointing instead of selecting
• Investing in training unrelated to skills needs or the individual’s career path
• Ignoring unethical and uncommercial behaviour
• Disempowering employees through management style and bureaucracy
• Doing careful strategic HR planning
• Job analysis• Knowing your Human Assets:
(and acting on this knowledge)– Career needs– Potential– Skills
• Rewarding the right behaviour publicly
• Identifying successors• Mentoring for high-potential,
high-performers• Proactive retention strategy• Developing the ‘soft’ skills of
transformation leadership• Incentivising competencies
where we have shortages• Making and implementing bold
decisions
• Investing in training and development – but align with business needs
• Involving line in HR planning
• Measuring performance
• Communicating the strategy continuously
• Involving M-bands in deciding the business’ future
• Building on the existing HR processes foundation
• Implementing the HR scorecard
• Focussing heavily on communication and mobilisation as a change management strategy
Aggressive performance management and optimal person-job matches are critical to sustainable business success.
The Way Forward
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
The path ahead will be challenging, and will require commitment and focus for success
Critical Success Factors:• Leadership commitment to the stated strategic direction
• Commitment and support from Eskom Holdings and agreement on service contracts
• Competent EE management to drive the growth strategy
• Transparent and fair process
• Concerted effort to get the business involved
• Eskom Holdings commitment to EE as a centre of excellence for design, build, refurbish and globalisation
• Alignment of performance management, rewards and incentives with required behaviours and outputs
We already have the talent identified at the senior management level.
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Challenges facing Eskom Enterprises’ success Transformation
Challenges:• The SNO
– If not established by year end, EE must impair more than R1 billion of value
• Timely disposal of non-core businesses
• Ability to plough back proceeds from non-core disposals into business
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0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv21/04/23 2:26 PM
Ope
ration
alStrateg
ic
S = f
Project Lambda has been set up to manage the
transformation process. The name stresses our aim to achieve “Resonance” in EE
Are we on the same Wavelength?
Transformation is the business