project lambda

Presentation and Feedback

03 September 2003

Project Lambda

Eskom Enterprises (EE)Eskom Enterprises (EE) TransformationTransformation

Portfolio Committee on Public Enterprises

Metra Consulting (Pty) Ltd is an independent consulting company trading under licence from Cap Gemini© 2003 Cap Gemini - All rights reserved 2

0134_EE_EH_BusinessPlanInput_16Jul03_SVDrv20/04/23 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



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 . . .



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



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!



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*



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.



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



Transformation for Sustainability



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



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



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



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?



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



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.



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




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



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





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.



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.



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.




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.




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



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.



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



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



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



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



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



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



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



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



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



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.



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:



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



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:



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




• 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



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




Marketing and

relationship building

Portfolio manageme

nt




Market Intelligence input

Corporate Finance

Market intelligence and IP management

• Deal structuring

• Negotiation

• Risk assessment

• Business case development and assessment

• Funding

• Tax implications



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)



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)



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



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



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.



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



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



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.



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.



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.



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



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



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



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:



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



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



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



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



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



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.



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.



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



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.



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



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

project lambda

Documents