1. How To Use A Change Audit To Ensure Your Change Effort Is On The Right Course
2. The Mystery Of Family Firms
3. The Missing Link Between Learning & Performance Management
4. Press Release: Launch Of A New Journal In The Skills Development Arena
5. Book Reviews
6. Case-Law & Legislation Review: Procedural Fairness In Dismissal During Probationary Periods
7. Downloads: Talent Management - Challenges Of Small & Medium-Sized Enterprises
8. Making Competitiveness A Lever For Good In Africa
9. Skills Development Act Updates: Funding Regulations & Skills Development Levy Payments
10. Unsubscribe & Moving Soon

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1. How To Use A Change Audit To Ensure Your Change Effort Is On The Right Course*

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1. Introduction

A change audit assesses the current reality of your change initiative. It can provide accurate information about how well your change effort is set up to succeed and produce its results in a timely way. It also sends a clear signal to the organization that you are serious about this change succeeding!

An audit consists of three categories of assessment: your change strategy for how the change is being led, the organization’s capacity to succeed in the change, and leadership’s capacity to lead the organization through the change successfully. You may choose only one or two of the three areas, depending on the stage of your change, its urgency, and your priority concerns. Typically, a change audit is done in the first stages of a change, and it can be repeated to produce a continuous source of insight for streamlining your change.

You can design an audit in a range of ways. It can be informal and personal, using only a few targeted one-on-one interviews and an informal report, or be comprehensive and formal, with paper or electronic surveys, focus groups, and orchestrated feedback sessions. You can involve your stakeholders, targets of the change, and your change leaders and teams of all of the various initiatives underway. You can design your audit with the help of expert guidance and then carry it out yourself, or use external resources from soup to nuts. Again, your timetable, risk level, and capability will help determine which approach you take.

2. Benefits Of A Change Audit

What are the benefits to you for investing time and resources in a change audit?

Consider this: One of our clients recently had us perform a minimal assessment on their enterprise-wide change, then a year old, and having difficulty progressing. We were asked to spend five days interviewing key players on the change, and wrote a summary report about our findings and recommendations. For this small investment, the executives discovered a mountain of urgent issues.

They learned that their change had no clear governance and was floundering among the top 400 leaders.

They learned that what was happening was the source of tremendous angst within the management ranks because of the lack of leadership, no clear roadmap, embarrassing political maneuvering, and no honest communication.

They discovered that there was costly conflict between the running of the business and the execution of the change.

And they became clear that the change strategy and timeline they had created did not match the reality of what they were trying to do.

No wonder they couldn’t get aligned action! On the positive side, the leaders learned that the management and workforce were very excited about the possibilities for the new future, wanted to get on with the changes and increase their service offerings, and were waiting for clear direction. It was the perfect opportunity for the executives to step up to their change leadership responsibilities and course correct their change strategy. In this case, the executives sponsored the change audit out of concern for the change floundering, and (fortunately!) used it as a conscious intervention to get everyone back on a path to success.

The benefit to them, and in general, of doing a change audit, was to get accurate, objective information about what was happening, both good and bad, and clear guidance on how to realign their efforts to get back on a positive course as quickly as possible. These executives made the courageous choice to publicly bite the bullet of the "bad news" in order to reclaim their leadership of the organization and the change…and to model that they were ready and willing to do what was needed to make the change a success….in reality, not just in "lip service." Their actions saved them untold dollars, time, and unrest in the operations and their people…let alone the cost of failing at their change.

3. Strategic Uses Of Your Change Audit

As this case indicates, the change audit can serve many purposes. It can be a "bold action" to wake up your organization to the need to take the change more seriously. It can signify the importance of engaging your people in creating their new future in a way that works for them. It can reinforce leadership’s intention to involve and respect people’s input to the organization’s overall success.

A change audit can also be designed as one of your key participation strategies, and a means of two-way communications about the change, or as a status check on morale during the change. One key benefit is to use it as a way to help people through their initial reactions to the change. If your people are ambivalent or upset about the direction of the change, your audit can be an outlet for their concerns—a constructive vehicle for airing their reactions while simultaneously improving their actual experience of how the change is going! In such cases, it is essential that you inform the organization, or at least the people who inputted their reactions, of the themes from the assessment and the subsequent improvements to be made as a result of them.

Perhaps the most important use of a change audit is to discover what it will take for the change to be set up for success. Transformational change has so many unknowns and complexities that it is impossible to plan it accurately from the beginning. It is emergent, and needs to be course corrected organizationally, culturally, and behaviorally throughout the process. Your change audit, done once or periodically, can be your lifeline to establish true conditions for your success.

4. Contents Of A Change Audit

Let’s look more closely at what change audits can cover. We mentioned above that the three typical topics are your change strategy, the organization’s capacity to change, and leadership’s capacity to lead the organization through the change successfully. Here is an overview of each:

5. Assessing Your Change Strategy

(Note: The Change Leader’s Roadmap describes the purpose and components of how to build a comprehensive change strategy, especially when designed for a wide-scale transformational change. Review that discussion as a helpful expansion on this overview.)

An assessment of your change strategy would include whether or not you have communicated your case for change and desired outcomes clearly and the degree to which the stakeholders of the change support them. The audit would assess the accuracy of your scope of change, ensuring that your initiatives include both the organizational and technological changes as well as the cultural and behavioral ones. It would assess the effectiveness of your change process roadmap, your change infrastructures, communications, engagement strategies, consulting support, and your proposed timeline and resource base.

6. Assessing The Organization’s Capacity To Succeed In The Change

The organization’s ability to make this change successful is dependent on a number of factors that are already having an impact on your ability to make the change happen. These factors include the organization’s change history and track record with making this kind of change, the degree of understanding and felt need for the change throughout the workforce, your people’s readiness level for more change, the degree of skill and knowledge, present or needed, for succeeding, and the capacity of the workforce to take on the change as well as their ongoing workload. This area can also look at whether the existing systems and technology can support the change, and if your current culture is aligned with the change or will inhibit it like an "invisible marauder."

7. Leadership Capacity To Lead This Change Successfully

No matter how participative your organization is, your leaders must commit to, lead and model this change for it to happen. An audit can assess the level of leadership commitment and alignment with the change, the degree of skill and understanding of what it takes to lead a change of this nature, and how well the executive team is able to work together to make the change happen in a unified way. Executive decision-making can be assessed, as well as the political terrain.

You can also evaluate the leaders’ degree of openness to do the personal work to model the thinking and behavior required by the change. It is essential to explore the leaders’ existing mindsets and whether they are aligned with the requirements of the future state. Leadership mindset influences everything about the change—its direction, its plan, the way people are treated and engaged, how well the change is course corrected…the list goes on. This is a critical area to explore and address in your change strategy.

8. Success Factors for Your Change Audit

If you choose to use a change audit for any of the strategic reasons noted above, set it up for success! Be clear about what you want it to produce. Design it in a way that engages, builds trust, and adds to leadership’s credibility. Put your best resources to work on it, and be certain to communicate the value of the input received from the organization and how it influenced the change process to be better—for the people of the organization as well as the achievement of your results. Take the information generated to heart, and use it to help you consciously navigate the complex terrain of your change.

*Reprinted By Permission

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MANAGING FOR DIVERSITY WORKSHOP FOR SUPERVISORS & MANAGERS
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New and improved version of this workshop for supervisors & managers now available! Comprehensive facilitator's guide and participant workbook is now available as a download. Train as many groups as you like for the price of 1 download! Call Jeff Sacht on 082 4561049 for a preview pack and pricing details. Don't delay start today with your HR top team for the price of one download.

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2. The Mystery Of Family Firms

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Family firms have a reputation of being old-fashioned and badly in need of professional management. Yet, the data shows that family firms outperform public firms. Professors Danny Miller and Isabelle Le Breton-Miller were intrigued by this mystery and have spent the last several years studying the very best family firms—organizations like Michelin, S.C. Johnson and Timken, which have thrived for generations.

The Millers found that the great family firms don't follow some aspects of what is considered good management practice. They tend to be loyal to employees in an era where most companies argue that loyalty is dead. They tend to make large investments in people, brand, or research even when the payoff may be many, many years away. They don't treat their top talent—their senior management team—as special, with even the owners often having plain offices and stingy expense accounts. Finally, they don't worry too much about profits—they fail to keep their eye firmly on quarterly earnings.

Rather than aim for short-term profits successful family firms strive to fulfill some important mission. Michelin's mission is to make travel safe and enjoyable. Bearing manufacturer Timken's mission is to make industry more efficient by eliminating friction. S.C. Johnson's mission is to make consumer products that are demonstrably superior. These firms put their heart into achieving their mission, making the investments in people, research, equipment and relationships to make it happen. They believe that if they succeed in their mission the profits will follow—and history has proven this belief to be correct.

The Millers make two interesting theoretical observations that are useful to how we think about any firm, not just family firms. One is that they are sceptical of the idea of best practices. They argue that the important thing is that the configuration of practices works together. Organizations that strive to be innovators like W.L Gore (makers of Gore-Tex™) are quite different from firms that strive to be craftsmen like Timken and hence have different management practices. The starting point in an analysis of practices is not "what are the best firms doing" but "what are the practices that will support our mission."

The Millers' second insight is that what keeps great firms great is a balance of dynamic tension. For example, a mission to be innovative could lead to doing research simply for the joy of it, so great firms with a mission to innovate also stress connections to customers, which ensures that innovations remain relevant. We tend to think of organizations as being machines and in machines you rarely think of designing in forces that work against each other; but in social or political systems the idea of balancing forces is second nature. We can learn from this. It's not enough to just choose a goal such as "being great at customer service", organizations also need to determine how they can introduce countervailing forces to ensure that the focus on customer service doesn't run away out of control.

There is a danger of idealizing family firms. They can be demanding places to work and new hires that don't fit the culture are quickly pushed out. Yet, on the whole these firms provide better products, a better work environment and better returns than public firms. Managers should recognize that the lean-mean, bottom-lined focused firm is generally not the best design. Miller's ideas about the importance of commitment to a meaningful purpose, configuration of practices (instead of best practices) and building in dynamic tension are all valuable contributions to organization theory. Most of all good family firms should not be led astray by the chorus of criticism telling them that they need to be more like public firms.

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CALL FOR CASE STUDIES: HUMAN CAPITAL BEST PRACTICES

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3. The Missing Link Between Learning & Performance Management*

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1. Introduction

Every other month, we pose questions to Chief Learning Officer magazine’s Business Intelligence Board on a variety of topics to gauge the issues, opportunities and attitudes that make up the role of a senior learning executive. One of the most meaningful connections that can be made is between the learning experience and its effect on business outcomes. There are two parts to this. The first is the connection between learning and employee performance. The second is between learning and the overall performance of the business. This article addresses the learning-employee performance linkage.

2. The Technical Connection

The first area addressed was the extent to which learning and performance systems are linked within the organization. In many enterprises, employee performance is owned by the human resources function, whereas learning and development may not be connected to human resources organizationally. The second area of exploration was whether the linkage between the two is formal or informal. The third connection explored pertained to whether the linkage is automated. Interestingly, 48 percent of respondents indicated that the two areas are somewhat linked, but are neither formalized nor automated. This implies an informal exchange of data across the cubicle walls without much in the way of integration of the two functions. Twenty-three percent of respondents said that performance and learning are linked and formalized, but not automated. This is likely due to the fact that the majority of enterprises have not yet updated their older paper-based performance appraisal systems. Only 7 percent of respondents said that employee performance and learning are linked, formalized and automated. This indicates that there is ample opportunity for growth in the areas of both automating and routinizing the learning-to-performance value chain.

Speaking of Paper...

To fully understand the connection between learning and performance, and to learn about the degree to which the link might be automated, survey respondents were asked specifically about how performance is managed. If the link between learning and performance is manual, the culprit might have been likely to reveal itself as an under-automated performance management process. Responses bore this out. Of the respondents, 57 percent indicated that they still use a homegrown performance management system with little automation in place. Seventeen percent utilize either an HRMS or an enterprise resource planning (ERP) system that is separate from learning. Another 9 percent use a best-in-class performance management system that is distinct from learning. Only 5 percent of respondents have a single, integrated system in place that automates both learning and performance management.

For those that do not yet have a formal management system in place for performance, 35 percent indicate that they have plans to implement one—almost as many respondents said that they just don’t know, which demonstrates a potential disconnect not only at the system level, but also at the cross-functional communication level. Of the 35 percent that plan to implement a formal performance management system, there is a real mixed response in terms of how they plan to go about it, with responses pretty much evenly split across three out of the four options given. Only 13 percent plan to acquire a performance management system that comes from the same vendor as their learning management system. The balance of respondents plans, either to build the capability in-house (29 percent), to utilize their existing HRMS or ERP (28 percent) or to acquire a best-of-breed performance management tool and integrate it with learning themselves (30 percent).

3. The Functional Connection

Given the fact that there appears to be a relatively significant technical gap between learning management and performance management systems, it made sense to explore the connection and relationship between the two areas from a functional perspective. The results are somewhat encouraging in that the majority (60 percent) of respondents indicated that learning either serves in an advisory capacity or has an established and fully involved partnership with the performance management process. Only 19 percent indicated that they have little or no input to the performance management function. (See Figure 4.)

Of the 19 percent that have little or no input today, an overwhelming 92 percent of them believe the level of involvement should be higher. Suggestions for increasing the level of cross-functional involvement were too numerous to mention, but there were a number of common themes. One called for a more formalized goal-setting process for the enterprise. In this way, all functions have a common view of the end point and can lead both the learning aspects and the performance and reward aspects of workforce management toward the overall enterprise goals. Another common theme that surfaced dealt with competencies. Like common goals, a set of competencies can be used across both learning and performance to help assess and improve performance and deliver training where it’s most needed. As one might anticipate, a third common theme focused on the lack of communication between the functions. Progress on the goal-setting and competency-setting fronts could go a long way toward improving cross-functional communication.

4. The Competency Connection

The Business Intelligence Board also responded to questions about the use of competencies across the learning and performance functions. Somewhat surprising progress has been made in this area. The largest number of respondents (45 percent) said that they’re using competencies across both functions. As mentioned earlier, the majority of respondents (60 percent) have either advisory or formal input to the performance management process. A correlation between these two findings shows that the use of a common set of competencies is indeed one of the drivers enabling the linkage between learning and performance for this subset of the respondents. The remaining 55 percent of respondents are not yet using competencies across both areas, and 21 percent of respondents are not using competencies at all.

Of the 21 percent who do not use competencies at all within the enterprise, nearly half have no plans to do so. The common theme that ran throughout the feedback is lack of budget, time, management buy-in and the perception that deploying competencies is just too difficult.

5. What’s Next?

The good news is that more than half of respondents are at least somewhat satisfied with their enterprise’s performance management. The bad news is that the vast majority do not have automated performance management, nor do they have a formalized link between learning and performance. Integration across workforce functions is driven from the supply side, but the demand side is lagging.

It is common knowledge that 70 percent of enterprise costs are workforce costs. As executive teams invest in the workforce by offering learning and development, they will begin to demand an accounting for their investment. They’ll first look to see if their investment is having an impact on the performance of the workforce. If learning outlays can’t be correlated to performance outcomes, management may be less likely to increase this investment. Wise CLOs should ask themselves these same questions and take action to make this linkage a reality. Coming up with a common language, such as competencies, with which to assess performance and prescribe needed development is one place to start.

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4. Press Release: Launch Of A New Journal In The Skills Development Arena

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Launch of a new Journal in the Skills Development arena at the Department of Labour National Skills Development Strategy II Conference, Gallagher Estate, Gauteng, 3-4 March 2005

The National Skills Research Agency (NASRA), the research arm of the JOBWORX ESDLA, is launching the first edition of a new academic research journal - in partnership with the AusAid/SAVET and GTZ funding programmes.

The name of the journal is ‘Skills at Work: Theory and Practice’. It is targeted at a multidisciplinary audience, made up of practitioners and academics working in the field of Skills Development and related disciplines. For academics, the intention is to provide a platform to reflect on and demystify issues relating to practitioner-driven, applied research in Skills Development. For practitioners, the journal intends to provide theoretical frameworks that will complement their applied research knowledge; together with practical tools that they will be able to amend, customise or apply in their particular context.

In the Foreword to the new journal, David Ablett, Director of the AusAid/SAVET programme, writes: ‘It is a great pleasure to be able to support the new Skills at Work: Theory and Practice journal. The South African Vocational Education and Training (SAVET) Programme, funded by the Australian Agency for International Development (AusAid), is proud to have been involved from the outset in this groundbreaking and historical initiative in the Skills Development arena in South Africa. The new Skills at Work: Theory and Practice journal provides an important forum for practitioners and policy makers to engage with the politics and practice of Skills Development and is the first academic journal devoted exclusively to the topic of Vocational Education and Training (VET) in South Africa’.

Werner Heitmann of GTZ, who sits on the Editorial Board, comments: ‘It is my belief that the new Skills at Work Journal fulfils an important role, firstly through promoting a more holistic type of intervention and secondly through disseminating information that blends relevant theory with emerging best practices and lessons learnt’.

NASRA and JOBWORX are proud to be part of this groundbreaking initiative. For further information on the Journal, contact Fiona Farquharson, Project Manager and Co-Editor of the Journal, at fiona@JOBWORX.biz or 0829724112.

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5. Book Reviews

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# Managing for the Long Run: Lessons in Competitive Advantage from Great Family Businesses

By Danny Miller and Isabelle Le Breton-Miller, Harvard Press, 2005

Fidelity, Hallmark, Michelin, and Wal-Mart are renowned industry powerhouses with long leadership track records. Yet these celebrated companies are united by another factor not generally equated with competitive success: They are all family-controlled businesses.

While many view the hallmarks of family businesses-stable strategies, clan cultures, and unencumbered family ownership-as weaknesses, Danny Miller and Isabelle Le Breton-Miller argue that it is these very characteristics that create formidable competitive advantages for many such firms.

Managing for the Long Run draws from a worldwide study of enduring, family-run organizations-including Cargill, Timken, L.L. Bean, The New York Times, and IKEA-to reveal their unconventional success strategies and how these strategies can be adopted and applied in any organization. Miller and Le Breton-Miller show how four driving passions of family-run firms-command, continuity, community, and connection-give rise to a set of practices that defy modern management thinking yet ensure a company's long-term competitive advantage.

Outlining how these practices can enhance strategic efforts from operations to brand leadership to innovation, this book shows what every company must do to manage for the long run.

# The 7 Hidden Reasons Employees Leave: How to Recognize the Subtle Signs and Act Before It's Too Late

To buy this book click on:

By Leigh Branham, American Management Association, 2005

More than 85% of managers believe employees leave because they have been pulled away by "more pay" or "better opportunity." Yet, more than 80 percent of employees say it was "push" factors related to poor management practices or toxic cultures that drove them out. This gaping disparity between belief and reality keeps organizations from addressing the costly problems of employee disengagement and regrettable turnover with on-target solutions.

The 7 Hidden Reasons Employees Leave gives readers a deeper understanding of why conventional exit interviewing doesn't work, and what organizations can do to identify, prevent, and correct the root causes of these problems. This valuable book shows how to avoid job-person mismatches, how to align employee expectations with the realities of the position and the company, how to provide constructive feedback and coaching that breeds employee confidence, and much more. The 7 Hidden Reasons Employees Leave incorporates data from surveys of 19,700 employees performed by the Saratoga Institute, an internationally recognized research organization.

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# SUBJECT Procedural Fairness In Dismissal Probationary Periods

ISSUE: Once an employer has accepted an employee’s withdrawal of her resignation, they cannot some time later purport to not to accept the withdrawal- a probationary clause does not give an employer an automatic right to terminate an employee’s services at the expiration of the probation term - the employer’s failure to alert the employee of her failure to fit in and his failure to constitute a disciplinary hearing renders the dismissal procedurally unfair. The employee’s right to a pre-dismissal hearing was violated and she was awarded compensation

SUMMARY OF FACTS: The company was a newspaper publisher with its offices situated in Roodepoort. The employee commenced duties on 1 September 2004. She was appointed as a journalist at R3 340 per month. She was dismissed on 11 November 2004. At the time of the appointment the employee was aware that one of the requirements for the position was own transport, which she did not have and did not disclose. The employee also embellished her CV. As a result of the employer discovering that she did not have her own transport and giving her time to correct this until the end of October 2004, she offered her resignation verbally on 1 November 2004. She retracted her resignation within 24 hours. Her withdrawal was accepted.

On 11 November 2004 she received notice of the acceptance of her resignation.

SUMMARY OF JUDGEMENT: Where there is a probationary clause in an employment contract, employers are entitled to asses and evaluate an employee’s ability to perform and whether an employee will fit within the organisation. A probationary clause, however, does not give employer an automatic right to terminate an employee’s services at the expiration of the probation term. Employees are entitled to know whether their performance is satisfactory or not. They are equally entitled to be informed about their unsuitability in an organisation. Although employers are entitled to satisfactory performance, they are at the same time to point out an employee’s shortcomings. An employee who is not aware of his or her shortcomings has no opportunity to improve on her shortcomings. Management has an opportunity to raise concerns in the workplace through a process of corrective action.

The Commissioner found that the employee did embellish her curriculum vitae. Further that the employee could not get on with her immediate supervisor. The employer was in the circumstances under no obligation to make an indefinite appointment at the end of the probation period. The personality conflict between the employee and her immediate supervisor made continued employment impossible. The conflict was not conducive to a productive working relationship and prejudiced the employer’s business. The dismissal was substantively fair but the employer’s failure to alert the employee of her failure to fit in and failure to constitute a disciplinary hearing for misrepresentation renders the dismissal procedurally unfair.

AWARD: The employee was awarded four months salary. No order was made regarding costs.

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7. Downloads: Talent Management - The Special Challenges Of Small & Medium-Sized Enterprises

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Key Points:

1. Talent management in SMEs is different than in larger firms. They face some constraints that are not an issue in larger firms such as lack of specialized expertise, but have powerful advantages such as dealing with talent on a one-on-one, case-by-case basis.

2. Different firm have different paths to success in talent management.

3. Retaining and developing talent is a bigger challenge than attracting and selecting talent. While getting the right people matters, it’s what you do with them that really makes the difference.

4. The sense that "We are special" can be important in driving a talent mindset.

5. There is no reason why fairly small firms (e.g. 300 employees) cannot have sophisticated talent-management processes.

INTRODUCTION

This paper looks at talent management in small and medium sized enterprises (SMEs). Since the widespread recognition of the importance of human capital ("talent") in organizations, there has been an outpouring of articles and books on the topic. However, most literature is written for large firms. This is no small oversight, since according to the U.S. Small Business Administration, over half of the private workforce in the U.S. works for small companies. SMEs, which we define as firms from 100 to 3,000 people, face different challenges from very large firms, and that is what drives the need for this paper and the Human Capital Institute’s broader investigation into this topic.

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The Full PDF Text Of This Article Can Be Found At:

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8. Making Competitiveness A Lever For Good In Africa*

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1. Introduction

Malik Fal, Africa director of OTF Group consultants, says the principles of competitiveness can kick-start African economies. Extreme case in point: Rwanda.

It may seem the hardest of hard sells. Rwanda—a country that in many eyes is synonymous with genocide and destruction—has hit upon tourism as the key to rebuilding its economy. And in that regard it is already ahead of its financial targets forged three years ago, says Malik Fal, Africa director of OTF (On The Frontier) Group, a spinout of Monitor Group.

Rwanda is carefully and systematically applying the principles of competitiveness, he said, and its plan for tourism should improve the most important facets of any economy: the ability to provide jobs, income, and training to its citizens, a proper infrastructure, and hope and prosperity for the future.

Fal, who delivered a keynote address at the student-run Africa Business Conference at Harvard Business School on February 12th, said that unlike a lot of other countries in Africa, Rwanda has taken the principles of competitiveness to heart.

One of his practice's clients is the Office of the President of Rwanda, and Fal said Rwanda is now a good example of how a country, just like a company, can study an industry, analyze its potential customers, and pursue a niche with an "unbeatable product." In the Rwandan case, its unbeatable product is ecotourism based on its variety of primates, an asset unique in the world. Northern Rwanda is a habitat for mountain gorillas, and southern Rwanda is home to thirteen other types of primates as well as one of the last remaining high-altitude rainforests in the world.

How Rwanda is attempting to develop and market these assets says a lot about competitiveness as a focused discipline, said Fal, a Senegalese native who was educated in Africa and the West. If Rwanda can surmount its economic problems, there's no reason other impoverished countries can't.

2. Abandon misconceptions

Before describing what competitiveness is, Fal clarified what it is not. It is not about cheap prices, cheap labor, or lowering taxes, he said. Nor is it about access to markets. These elements are part of competitiveness, he said, but competitiveness integrates all of them toward one specific goal: the ability to produce and sell good-quality, high-margin products and services to demanding clients both at home and abroad. This in turn should lead to high-salaried workers.

The independence movement may have swept Africa forty years ago, but the battle now is for economic dignity, Fal continued.

Commodity prices have been going down … It is basic economics. "Political independence without economic independence is meaningless. This is the struggle of our lifetime."

As of now, most African countries' and companies' exports are basic commodities such as farm products. On any scale, countries that export basic commodities stay poor, he said. "When one looks at the trends in prices for commodities, whatever the timeline is—25 years, 50 years, 200 years—commodity prices have been going down. It is basic economics, simple supply and demand. When a country engages in natural commodities, other countries watch, and those that have similar natural conditions do the same thing."

This tendency is detrimental to Africa because competition based on price means that the only way to endure is by compressing the payroll, he said. "In order to survive in this mode of competition, the African countries have had to compete in a struggle about who can stay poorest the longest, who can maintain the cheapest labor costs the longest.

"Frankly, Africa needs to change its business model."

3. Build on basic commodities

Competition based on strategic choices is critical for Africa's development, he said. While it is not realistic to expect African companies to export fighter jets in ten years, it does make sense to think about ways to embed knowledge in basic products, even basic agricultural products. As an example, he said, Holland has shown the world that even a country with high-cost labor and no sunshine can become the world's number-one exporter of flowers. There are twelve research centers in horticulture in Europe, all twelve of which are in Holland. The Dutch custom-design flowers for different markets and the Dutch distribution system gets the flowers to market in a matter of hours.

"Good [Dutch] flowers in market can sell for sixty dollars a dozen; flowers from Kenya or Latin America sell for seven dollars a dozen.

"When [we] talk about sophisticated products, they don't have to be fighter jets," said Fal. Instead, they can be agriculture-based products that have knowledge and technology embedded in them as a result of scientific research.

4. Define the market

Another principle of competitiveness is about understanding customer needs, said Fal. "When you talk with African companies, producers, or farmers, they tell you, 'Well, I take my cows, my coffee, or my tea to Mombassa, and then after that I don't really know what happens. I go to the auction and sell it and that's it.'"

Frankly, Africa needs to change its business model.

Fal discounted the concept that "evil western countries" are preventing Africans from penetrating their markets. It is fine to petition for market access, he said, but the central issue is still about creating products and services that customers want and need.

"Otherwise, opening market access to the world won't do Africa any good," he said. "Understanding the customers, not the customers in the next village or the capital city but the customers overseas—and investing in knowledge of those customers—is how Africa will be able to increase its prosperity and share of trade of the world."

Another key to competitiveness is cooperation. In order to create good products and services, African countries, companies, universities, research centers, and NGOs all need to cooperate around an industry and find solutions to the production problems they face, as well as distribution and marketing, said Fal.

5. Seek competitive advantage

When countries attempt to articulate a national strategy for development, they should offer clear and tangible goals, he advised. Focus on a handful of priorities. Ask what the limits are in terms of human, financial, and constitutional resources. Mauritius, Botswana, and South Africa—three of Africa's most successful economies—all focus on a few clusters, Fal observed. In Mauritius, these are tourism, sugar, and textiles.

"Once those countries start making serious money and also start acquiring the relevant know-how, then they can take those surpluses, that know-how, and apply it to other industries. I'm not saying that countries should forget about all the other opportunities that they have. I'm saying, let's be methodical and systematic and start with a few industries and then go on and invest in the others.

"Making those strategies takes a lot of work. It takes a lot of work to really understand what it takes to succeed in that industry. What are the local dynamics? What is the history of that industry in the country? What is the level of competence of the stakeholders? What are the financial trends affecting that industry? Just doing the due diligence to understand the dynamic of an industry is very difficult," he said.

6. How Rwanda is making it work

Rwanda is on the right track because it has taken the time to understand the dynamics of tourism, said Fal. Its neighbors are countries that have all but invented ecotourism: Kenya, Tanzania, and Uganda. But it is clear those countries are all selling the exact same tourism experience—safaris. "Today Kenya, which invented that tourism model, has had to go down market … Kenya has ten times the number of visitors that Mauritius has, but the two countries have the same revenues from tourism.

"Tourism is not about number of arrivals; tourism is about receipts: how many people come, how much they spend, and how long they stay. Rwanda learned that success is not measured in the number of arrivals of visitors; it's in the receipts. ... Rwanda also learned that it could not compete on safaris. The natural assets in Rwanda are not nearly as beautiful."

So Rwanda's tourism could not be mainstream. It had to be based on something different. The starting point became the north, the habitat of mountain gorillas.

Basing tourism on gorillas alone was not going to build an industry that creates work for the average Rwandan. "But basing tourism on gorillas alone was not going to build an industry that creates work for the average Rwandan. So how does a country articulate and develop a product that no one else can beat them at and that makes money? … It was interesting to see how Rwanda developed a tourism product that would combine the gorillas in the north with the other primates in the south, and create a unique set of tours called the Primate Discovery Tour. There are also research centers there studying primates.

"The customer research I was talking about earlier? Most of the people who go there are passionate about primates. Rwanda's ecotourism product enables it to keep people in the country an average of seven days. They are targeting people who are not backpackers but surgeons from New York, et cetera. These are people who have the money to fly in on private jets." These ecotourism customers are demanding: They want to interact with scientists who understand the behavior of primates. The tourism product gives individuals and groups an opportunity to talk with scientists in the wild.

"Building such a product requires very tight coordination," Fal continued. "The north and the south have no roads connecting them. The [Rwandan] guides didn't speak French, English, or any other Western languages. So the guides were receiving guests who knew more about the animals than they did.

"All these components are important when we talk about infrastructure, training, and education," he said. The example set by Rwanda shows how business strategy led to the idea of a product that in turn led to decision makers coming together to coordinate with the private sector.

The Rwandan government has a clear role to play, he said, because it must connect training in languages and knowledge with the development of transportation. Universities have to teach students the science of flora and fauna so Rwandans can prosper by accentuating their country's assets, said Fal. "Competitiveness lies in all these components," he added

* Reprinted under license agreement from HBS Working Konowledge

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9. Skills Development Legislation Updates: Funding Regulations &

Skills Development Levy Payments

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# Funding Regulations for the Financial Year 1 April 2005 to 31 March 2006

In terms of the Government Gazette General Notice 151 of 2005 Sector Education and Training Authorities (SETA) Grant regulations regarding monies received by a SETA and Related Matters released on 1 February 2005, a number of changes to the SDL structure have been proposed. The regulations are not yet finalized.

Full details are provided in the Government Gazette (27240) headed "Seta Grant Regulations Regarding Monies Received by a Seta and Related Matters" and a copy of this document is available from the Government Gazette (27240): Seta Grant Regulations (Adobe Acrobat: 989 Kb) Some of these changes include:

>> The Workplace Skills Plan (WSP) for 2005/6 is proposed to be due on 30 September 2005 for the 2005/6 financial years only; thereafter it is proposed that the application will be due on 30 June for subsequent years.

>> The amount proposed for the WSP grant, in the 2005/6 financial year only, is 50%. For the financial years after 2005/6 the 50% grant would be due to employers submitting the combined WSP/ATR only, both due on 30 June.

>> Grant amounts are proposed to be paid quarterly by the Seta.

>> SETAs may choose the mechanism whereby SMMEs can participate in the Seta, or prescribe forms.

>> Employers who are IIP (Investors In People) compliant are eligible to receive their 50% grant without submitting a mandatory grant application (however the Seta may prescribe the information to be completed).

The draft funding regulations do not make provision for late submissions against the deadline date; therefore all late grant applications will be rejected. The only exception applies to new organisations that must begin to comply within 6 months of becoming registered.

The regulations propose the following equity targets in respect of claiming the mandatory grants: Minimum 85% black, Minimum 54% women, Minimum 4% people with disabilities, or higher Sector Charter Target. The % of Levy to be paid as mandatory grant differs depending on how many equity targets are achieved, and in terms of what % of the target. This target may change in the final regulations.

# Skills Development Levy Payments

The skills development levy (SDL) was introduced in 2001 to provide funding for the training and upgrading of skills levels of the workplace. Currently, SDL is payable by every employer in South Africa who: is registered with SARS for employees tax, or has an annual payroll in excess of R250, 000-00.

The amount on which the 1% levy is calculated, is the total amount of remuneration (as defined in the Fourth Schedule to the Income Tax Act) paid by an employer to its employees during any month, as determined for the purposes of determining employees tax, whether employees tax is deducted or not. Exclusions, amongst others, include: Amounts paid to independent contractors; Reimbursive payments to employees; Pensions paid; and Remuneration of learners under contract.

As part of the initiative to provide relief for small businesses and to reduce their compliance costs, it is proposed to increase the employer registration threshold to R500, 000-00 and to drop the requirement to register in the event that the business is registered with SARS for employees tax. This, if approved, comes into effect from 1 August 2005.