In This edition

1. Wishing Upon a Star: Hiring a CEO from Inside the Company Vs. Going Outside

2. Tackling The Challenge Of Aligning Pay With Performance

3. Government To Get Even Tougher On Employment Equity (So Says The Minister of Labour)

4. Systemic Design to Unleash Talent

5. Case-Law & Legislation Review: Unfair Dismissal: Double Jeopardy

6. Downloads: Harnessing The Elusive Asset: Developing Intangible Organisational Capital

7. Unsubscribe & Moving Soon

=========================

One Size Does Not Always Fit All

Offer Extended By 24 Hours

=========================

Subscribers out of the office and unable to take advantage of this once off have requested that the offer be extended. For the next 24 hours this never to be repeated offer will be available on a no questions asked basis. Scroll to the end of article 1 for this incredible offer.

=========================

NB: If your Internet service provider (ISP) or server administrator filters incoming e-mail, please add Equity Skills News & Views to your list of approved senders to ensure you receive this e-journal to which you are subscribed.

----------------------------------------------------------------------
1. Wishing Upon a Star: Hiring a CEO from Inside the Company Vs. Going Outside*

----------------------------------------------------------------------
When Robert A. Iger was promoted from president to chief executive officer of the Walt Disney Company on March 13, the proverbial water cooler conversations the next day concerned much more than the NCAA basketball brackets for March Madness. The appointment of Iger to replace embattled Disney CEO Michael Eisner raised a few eyebrows in the corporate world: It's highly unusual, succession experts say, for a company to select a number-two person to succeed the number-one executive when the company's shareholders are unhappy and the former chief was all but forced from office. Experts Wharton and elsewhere discuss the merits of hiring an outsider CEO vs. an insider, and agree that, in Iger's case, success will hinge on his ability to follow through on his own vision -- in short, his ability to behave like an outsider.

"It's an anomaly for a company under siege to pick an insider," said Dennis C. Carey, a consultant at global recruitment firm Spencer Stuart who specializes in the hiring of CEOs. "Without implying any criticism of Disney's decision, [Iger] is the equivalent of a field commander reporting to a general, when the general has been disgraced. It is a challenge. How can the field commander, who was responsible for carrying out the general's orders, distance himself? How can he put on a new set of clothes and toe a new line? For at least six months, Iger must refrain from being too critical but usher in a new era for Disney. It will be an interesting dynamic to watch."

Although the pros and cons of appointing an insider to replace an outgoing CEO can be debated, Wharton experts agree there are some definite positive results -- the first one being the message it conveys to the organization. "It sends the signal that there are ways to move up within the organization, that if you are number two you can become number one," said Wharton management professor Nicolaj Siggelkow. "It says: 'If you work hard, you might get promoted.'"

Wharton accounting professor Wayne R. Guay agreed: "In many organizations, being promoted to CEO is the big prize in the employment tournament. That competition creates incentives for executives to do a good job. Hiring from within is a way to continue that tournament structure, so that executives realize that fine performances will move them towards the final prize. Going outside shakes up the expectations of those executives. What are they competing for? What is the prize?"

Second, tapping an insider to lead the company can provide assurance to the second-tier of executives that they don't have to dust off their resumes and look for work, which often happens when an outsider is named CEO and brings in his or her own management team. "I would think that promotion from within makes people more comfortable," said management professor Peter Cappelli, who is director of Wharton's Center for Human Resources. Guay noted that this comfort level is something the new CEO should work to maintain, at least in the beginning: "If you are coming from the inside, you may want to continue with the status quo and not make radical shakeups, particularly if that is a mandate from the board and the shareholders."

A third positive result of promoting from within: Knowledge about the corporate culture and intellectual capital are preserved. "The person coming into these top jobs from within has all the tacit knowledge about how the place works," noted Cappelli. "He knows an awful lot about the organization, and the appointment maintains a continuity of culture."

"If you are a complex organization, a collection of diversified businesses, it is often difficult to find someone from the outside who has the skill sets and expertise to step in," said Guay. Siggelkow agreed, suggesting that firm idiosyncrasies and industry-specific knowledge can prevent an outside person from hitting the ground running. "I'm not saying that start-up time is a bad thing. But having a CEO come in from the outside would mean a longer learning period. And if you are from the outside, the question is, who do you turn to if you don't know the ropes? If you are from the inside, at least you have the information. You know what the agendas are."

Outside Hires Are Gaining Ground

According to Wharton management professor Martin Conyon, the vast majority of CEOs are appointed from within -- about three-quarters. In addition to Disney, well-known companies like The Vanguard Group, Procter and Gamble and General Electric have in the past promoted their second-in-command to fill the CEO slot. But CEOs who come from the outside are gaining ground. In the United States in the 1970s, Conyon noted, the number of external candidates to make it to the CEO's office was 15%, a figure that increased to 26% in the 1990s. Similar trends can be seen internationally. In the United Kingdom, the number of outside CEOs appointed in 1989 was 25%; by 1999, the number had risen to 35%.

Why the change? "There isn't a universally agreed-upon answer to that question," Conyon said. "But a general idea kicking around at the moment is that boards of directors of the last 10 or 20 years have become much more vigilant, along with a general increase in managerial quality over time. An active board can look around and decide to hire someone with top credentials but not necessarily firm specific ones."

And citing statistics from executive search associations, Cappelli pointed out that more than half of all companies with vacancies at the vice-president level and above retain executive search firms -- which means that the majority of boards of directors at least explore the possibility of hiring someone from the outside. Though boards and executive search firms are loathe to release executive search information, it is widely known that the Disney board had also seriously considered eBay CEO Meg Whitman for the job, before she took herself out of consideration.

Which begs the question: If more and more companies are considering outside hires, what are the problems raised by hiring someone from the inside?

According to Siggelkow and others, promoting from within eliminates a company's window of opportunity to hire someone who could import new ideas, different styles and renewed energy. "You potentially get someone with different experiences and capabilities," said Siggelkow, adding that this is often particularly important for companies that have experienced significant change in their industry and can't expect someone on the inside to keep up.

Another potential problem? When looking to hire a new chief, boards that recruit from the inside are implying that they are satisfied with the way the company is run, when in fact that may not be the case. "If you don't want the status quo," Guay said, "hiring from the inside definitely gives the wrong signal." Cappelli agreed: "You generally don't hire outsiders to be CEO unless the company needs a change in direction." As evidence, look no further than outside executive searches for troubled companies like scandal-plagued Tyco International, which hired Edward D. Breen from Motorola in 2002, or floundering WorldCom (now MCI), which hired Michael Capellas, then president of Hewlett-Packard, in 2002.

Promotion from within also tends to keep the previous CEO in the picture, in two different ways. If the CEO led the company for an extended period of time, "you might get into some entrenchment issues," said Guay. "The board, in many respects, feels beholden to the CEO and sometimes allows [him or her] to do things that are not in the best interest of the shareholders. If you hire someone from within who has been at the right-hand side of the previous CEO, you have the potential of continuing that."

And then there's the issue of how long the previous CEO remains at the company after the new CEO is announced. (In Disney's case, Iger is scheduled to take over on September 30, though Eisner may remain on the board until his term expires in 2006.) "The longer that person sticks around, the harder it will be," said Siggelkow. "If I'm coming from the outside and the number one stays on, it's a situation of equal power sharing. But if I'm number two and the number one stays on, I'm sort of a number one-B instead of a co-number one."

Though an inside appointment helps many employees feel more comfortable, it can also have the opposite effect on executive colleagues in similar corporate ladder slots. With their opportunity for advancement suddenly eliminated, they may panic and decide to move on. "There is plenty of evidence to show this pattern in the top management team," said Conyon. "If there are five candidates in line for the top job and one gets it -- given that the CEO is going to be the CEO for the next five years or so -- the others leave." SpencerStuart's Carey agreed: "If there is a number two who is young and gets promoted, it has a dampening effect on other, younger aspiring candidates," he said. "You often create a dynamic where you lose your bench strength."

Getting Rid of Old Baggage

An appointment from within raises issues unique to the line of succession and the fact that the new boss worked so closely with the previous boss: Is the new CEO under the previous boss's shadow, if not thumb? And if the previous CEO left under unfavorable circumstances -- from a management or shareholder point of view -- can the new CEO shake the former CEO's baggage? "I think that's going to be an individual-by-individual situation, but those are the dangers of bringing in the number-two person," said Guay. "If there is a succession plan, you would expect that the person would be quite similar to the person who trained him or her. Whether that is bad or not depends on the individual and the setting."

The Wharton succession experts and Carey all agreed that Disney's board faced an interesting conundrum as it wrestled with whether to pick an outsider or an insider as the new CEO. Carey noted that "given Disney's litany of problems" with Eisner -- a drop in earnings and shareholder discontent in the past -- "one would have expected them to take a fresh, new perspective from a new leader." But the chance to pick a new CEO surfaced just as the company had begun to rebound with strong earnings growth from entertainment and media, new hits at its ABC network and a growing theme park business. What better time to reward a well-known corporate insider like Iger, who has been at ABC for 30 years and, as president of Disney, figured prominently in the company's rebound?

In the year before his appointment and immediately afterwards, Iger has responded in a way that signals he more than recognizes the unique challenges. In short, he may be the consummate inside man, but he talks like a CEO moving in from the outside. He has let it be known that he will be a different leader than Eisner, one who delegates authority and encourages executives to be more entrepreneurial and somewhat independent. The board listened, and gave him the job a year earlier than planned. And the shareholders responded positively, to Disney shares rose 18 cents to $27.77 in early trading following the announcement, climbing to $28.37 by the end of the week.

Iger "understands that people are clamoring for change," said Carey. "He didn't do the wrong thing and say, 'I'm going to stay the course.' He showed a sensitivity to change, which was Mission Critical Number One, coming from not only the shareholders but from the board and the employees of Disney. They simply wanted a new chapter. Bob, to his credit, has staked out a claim for doing things differently, as any good outside leader would have done. The challenge for Bob is similar to most CEOs coming from the outside: Being his own man."

*Reprinted under license agreement from Wharton @ Work

-----------------------------------

One Size Does Not Always Fit All

Giveaway Offer Extended By 24 Hours

-----------------------------------
The "One Size Does Not Always Fit All" Giveaway Offer Extended By 24 Hours by request of those subscribers who were out of the office i.e. were unable to make use of this once-ff and never to be repeated offer to buy NQF aligned downloadable training without paying license fees!

----------------------------------------------------------------------

2. Tackling The Challenge Of Aligning Pay With Performance*

By Mercer Human Resource Consulting

-----------------------------------------------------------------------

There is no shortage of advice for compensation committees of publicly traded companies. The Conference Board, the National Association of Corporate Directors, the Business Roundtable, and many others are weighing in on the role of compensation committees, particularly when it comes to establishing executive pay programs to achieve a desired level of performance. The nature of the advice, however, has been more in the way of "guiding principles" than implementation instructions.

How should companies align executive pay with performance? Until recently, share price appreciation was the definitive guide for the "right" performance – that is, anything above the strike price – which explains the heavy reliance on stock options. But times have changed: options are falling out of favor in part because stakeholders perceive that executives are benefiting from market performance rather than underlying corporate performance. While there is no silver bullet for selecting measures and performance targets, a comprehensive and

rigorous approach can create a rational and defensible link between pay and performance.

This Perspective describes the tools and processes that compensation committees can use to answer the following questions:

# How should we define performance?

# What targets are appropriately difficult?

# How do we calibrate pay to performance?

Ingredients for a healthy pay-for-performance discussion

There are a number of analytical tools that can provide directors with information to help evaluate various metrics and performance levels and strengthen the link between executive pay (cash and equity) and corporate performance. These tools do not replace management’s input or directors’ judgment; rather, they help increase understanding and create greater insight. We believe that the best approach is a collaborative one among the committee, the committee’s independent adviser, senior management, and the company’s human resource and finance functions.

Healthy debate over the issues identified by analytical tools provides the basis for compensation committees to meet the test of reasonableness and the demands of effective governance, and senior management to motivate and direct the company’s workforce.

Identifying the right performance measures

The primary objective of most incentive plans is to drive performance so that over the long term the value of the entity to shareholders will increase. Selecting the right performance measures is one of the most important aspects of establishing the appropriate link between pay and performance. But determining what is "good" performance and selecting where an organization should focus its attention is not always so obvious.

There are two broad categories of measures – internal and external. Internal measures, such as financial results or operational objectives, are different from stock price or total shareholder return (TSR), which are external. Stock performance has long been favored, but for many

organizations it alone is rarely the best judge of an executive’s contribution to performance. Stock price is influenced by market factors outside of management’s control and does not reflect day-to-day decision-making. So, what role should equity and stock price have in executive compensation programs?

Performance Sensitivity Analysis (PSA) can help committees answer this question. Each company faces a unique risk environment in the capital markets. PSA analyzes thesource of volatility in a given company’s stock compared to a peer group of companies with similar industry or business profiles. This analysis gives directors insights into how firm specific behavior contributes to TSR as compared to industry and general market factors. PSA thus provides a quantitative basis for setting the degree to which equity performance – and the related risk – should be part of incentive compensation design. After a company has addressed the role and importance of equity and share price, the next decision requires an assessment of how to measure success from an internal perspective and ensure that performance measures are aligned with creating shareholder value.

Shareholder Value Analysis provides a basis for understanding how financial performance on selected internal key metrics relates to shareholder value creation. There is a wealth of historical data available on the performance of US companies and the market, often at a level granular enough to identify the key drivers of shareholder value. Through regression analysis, it is possible to identify how performance on a given measure or on multiple measures links to shareholder value creation over the short, medium, and long term. Of course, identifying appropriate performance measures goes beyond strong correlations and financial analysis of potential outcomes. Each company has a different business strategy, its own point on the maturity curve, and a unique culture. These factors, as well as common sense considerations about the measures – accuracy, reliability, simplicity, consistency across plans, and transparency – should influence the final selection of measures. But initiating the discussion with factual information about which measures drive shareholder value is often a valuable approach.

Setting targets

Setting appropriate performance targets to link performance measures to pay can be a difficult task, especially when new programs are expected to address multiple years. Management budgets and long-range forecasts are useful starting points for the discussion, but, given the difficulty of forecasting, they should not be relied upon as the only inputs into the target setting process. The key questions include:

# Are the performance targets meaningful (is there sufficient stretch)?

# Are they reasonably achievable (what is the probability of earning a payout)?

As with measure selection, a number of analytical tools can help evaluate the difficulty of performance targets.

Relative Performance comparisons are often an important component of performance target setting. Although not necessarily a predictor of the future, the company’s historical performance compared to its peers and the broader market can help directors assess whether targets are achievable and meaningful. Targets are often set within a range of historical peer performance, for example, at the 50th or 60th percentile for target payouts, and 70th to 80th percentile for upside performance. Other companies use these historical comparisons to set payout guidelines for achieving target levels of performance, for instance, for three out of five years.

Beyond peer comparisons, External Expectations Analysis can be used to determine if the selected performance goals are sufficient to meet expectations built into the company’s current market value. Stock analysts’ reports are an important external source for these insights. Their research often focuses on specific industry metrics and expectations that they consider indicative of success and provides some input into the target-setting process. Performance targets can easily be derived that are directly comparable to analysts’ projections of earnings per share (EPS) or cash flow.

Beyond analysts’ reports, the performance improvement expectations built into stock price can be directly analyzed. The value of current performance can usually be quantified with reasonable assumptions. Looking at the gap between the current value of operations and market value, future growth expectations can be identified and should be considered in evaluating targets. Finally, a Comprehensive Financial Picture looks at the interrelationships between measures and underlying performance drivers.

The board should first consider the broader financial implications of performance against a specific metric and then test the implications for one or more underlying measures before signing off on the incentive plan’s performance goals. This evaluation helps a compensation committee determine whether the overall performance required to achieve a range of EPS outcomes is reasonable.

Calibrating pay to performance

The final requirement in aligning pay with performance is putting the pieces together and making sure that "how much" is reasonable given the measures and performance targets. Neither boards nor shareholders like surprises. From a governance standpoint, boards have an obligation to understand how the incentive plan will operate at both anticipated and unanticipated performance levels. This is particularly the case if plan payouts are not capped.

Scenario Testing provides a basis for committees to understand the implications of actual payouts relative to performance. Payout levels against results should always be evaluated under a variety of potential performance scenarios. This testing often leads to discussions about the payout curve. A straightline payout between threshold, target, and maximum is common but may not be appropriate in all cases. The question is: does performance that is halfway between threshold and target goals warrant half the payout? The answer is at the heart of the calibration discussion. In some cases, the answer is "yes," and the straight line is appropriate. In others, it is a decided "no," and the payout curve between threshold and target may look like a hockey stick with minimal payouts until performance nears target.

Cost-Benefit Analysis helps to quantify the relationship between aggregate payouts and the underlying value delivered to shareholders. Two common approaches are to measure incentive plan payouts (1) as a percent of net income or other returns, and (2) as a percent of incremental performance improvement (for example, year-over-year net income growth). Regardless of approach, it is incumbent upon a committee to understand whether the costs of the program and the selected performance goals are commensurate with the results for shareholders. A note of caution: accurately benchmarking the cost-benefit analysis relative to other companies is very difficult, as there are significant differences between companies – even those in the same industry – in terms of organizational structure, staffing levels, pay mix, and incentive participation. Therefore, evaluating the cost-benefit is often a test of "reasonableness" rather than an exercise in explicit benchmarking.

A word about transparency

Transparency is one of the guiding principles for improving governance of executive compensation. This implies simplicity in design as well as comprehensive disclosure. Simplicity in design is a laudable goal but very challenging where the incentive plan is supporting complex business structures and strategies. A good test for whether a design is simple enough is if it can be communicated effectively – both internally and externally.

Boards should communicate openly with shareholders, investors, and employees when a plan is put in place and when payouts occur. The proxy statement provides the opportunity to discuss how the plan will operate, what the measures are (proprietary details need not be disclosed), and the potential range of payouts. After payout, the proxy statement should include a follow-up disclosure about the results and the payouts, and the company should consider a press release to provide context for the payouts. In fact, given the new Securities and Exchange Commission rules regarding compensatory arrangements, prompt disclosure of awards for named executive officers will be required.

Summary

Performance measurement need not become so complicated that it cannot be addressed effectively in the boardroom. But delivering a relatively simple plan design with pay and performance appropriately aligned requires rigorous factual analysis supported by appropriate tools and healthy debate. Ultimately, this approach both enables a committee to meet governance standards and equips senior management to use performance measures as a more effective management tool.

*Reprinted by permission. This article originally appear in The Perspective published by:

Mercer Human Resource Consulting 1166 Avenue of the Americas New York, NY 10036

----------------------------------------------------------------------

3. Government To Get Even Tougher On Employment Equity (So Says The Minister of Labour)

--------------

Government is to take further action to ensure that employers comply substantively with the Employment Equity Act, Labour Minister Membathisi Mdladlana announced on Tuesday.

Speaking during debate on his budget vote in the National Assembly, he said those opposed to the act "can shout as much as they want...but what they must know is that employment equity is here to stay."

Since the Act was passed, the department had been ensuring that employers comply procedurally with the Act by submitting their reports as required by the law.

"This focus has led to more employers submitting their reports than was previously the case -- from 6 990 employers in 2002 to 9 364 employers in October last year."

However, analysis of these reports showed the necessary progress was not being made in this regard.

Top and middle management in companies continued to be dominated by white males.

"We are therefore changing gear significantly in this financial year," he said.

"We are now going to ensure that employers comply substantively with the Act and are not just meeting the minimum standard of submitting reports without any equity changes in the workforce."

In an effort to strengthen monitoring and enforcement of the implementation of the Act and other legislation, a National Roving Inspectorate Unit would be introduced this year.

The key responsibility of this unit would be to conduct inspections that required expert talent at national level.

"The agility of this unit is expected to enhance the impact of inspectorate nationally and thus raise compliance levels.

"In addition to this, strategic partnerships will be explored to focus on administrative aspects of inspection work to allow inspectors to focus on the core business of the inspectorate.

----------------------------------------------------------------------
4. Systemic Design to Unleash Talent*

An Interview with Starr Eckholdt: Wake Forrest Babcock School of Management

By David Creelman who can be contacted at

----------------------------------------------------------------------
The current focus on talent often overlooks the fact that people work in a context. They work with processes, systems and accountabilities. If the underlying structure of the organization is badly designed even the best efforts of good people can lead to frustration and waste. Not many people are talking about design. Starr Eckholdt is an exception. He explains how to tackle the tricky subject of organizational design.

C: Let me ask the standard question: What is keeping corporate executives awake at night?

E: In corporate America there is an increasing urgency to do things better, faster, and cheaper. At the same time, there is a competing push to create organizations that will sustain themselves over the long haul. Shareholders are obviously interested in what happens quarter to quarter, but also in the long-term survival of the corporation.

C: What approach do executives look for to deal with both the short and long term?

E: Over the last 25 years of working with organizations I've found that they recognize that great organizations need laser focus, and that all the organizational systems need to be aligned. They understand there is more to running a firm than just cutting costs. If they are going to make a real difference they have to be able to design the organization systemically. To do so you have to understand how all of the organizational systems interact to create performance. The organizational systems are work processes, the structural system, the information systems, the people systems, the reward systems, and the renewal systems.

C: How do you approach the task of designing the organizational systems?

E: We help organizations assess and redesign their "design choices". There are two categories of design choices: those that focus the organization and those that align the organizational systems. A focused and aligned organization creates a high-performing culture, which creates sustained high-performing results. A lot of focus activities are traditional things like setting the corporate vision and values. It also includes answering questions such as, "How is our brand seen in the market?" "Do we have a growth strategy?" "Where is our competitive advantage?" and "What are the core organizational capabilities that will enable us to deliver on our strategy?" A lot of times these focus activities are just seen as exercises. Managers want to check off a box and say, "We did that." But they really provide the starting point for designing and aligning systems.

Alignment deals with the organizational systems that I mentioned. The place to start is with work processes. At the 30,000 foot level, "core processes" are the highest organizing level of work that the company can be aligned around. There are normally a handful of four to six core work processes that drive the business. These are things like strategic business planning, product-development, customer acquisition, production, and enabling processes like HR and finance. The first question to ask is which of these processes, at the moment, is critical to leveraging strategic advantage? Then we prioritize and map these processes.

Mike Hammer, with his work on re-engineering, got managers looking at work processes (inputs, throughputs, outputs). People would spend days mapping out hundreds of boxes and arrows, creating a spaghetti chart that covered the whole wall. That's all very well, but to improve processes you have to have an organizing framework, and for us that is what we call "state changes". A state change is a group of activities or tasks that produce a specific output (product or service). The output of one state change becomes the input to the next state change activities which produce the next output in the process.

For example, when you are baking a cake you start with the raw ingredients. Once they are mixed together you have something new-batter, and that's a state change, an irreversible change. When the batter is cooked it becomes a cake, and that's another state change. When the icing is put on that's another state change. All processes, whether in service or manufacturing organizations, have state changes.

Let's look at a business example. The state changes in Customer Acquisition might be as follows:

Each state change yields an interim or final product of the process. The quantity, quality, cost, and timeliness of producing these outputs can be measured. These are the breakpoints for creating the organizational structure because you draw boundaries at the state-change points. The work within these boundaries provides the structure of roles and responsibilities that give ownership and accountability to teams. From work processes the structure is defined and then on to aligning information systems, people, reward and renewal systems to complete the organizational design...

C: Can you tell me how this approach to systemic design played out in a specific firm?

E: I can share the experience of a large metals processing firm. Their business strategy resulted in a 10-year plan to open locations around the world, particularly in markets where they could get cheap power or labor.

One of their key decisions was that the company should develop the internal capability to do organizational design without dependency upon external resources or consultants. With this capability they would be able to continually design new and redesign existing facilities.

C: Can you elaborate on what the design choices are in the renewal system?

E: There are various renewal processes in organizations. One is continuous improvement, which almost every organization has to some degree through Six Sigma, Lean Management, or other total-quality processes. The other part, which is probably more significant, is breakthrough design. That's what this particular metals processing firm wanted to have. Breakthrough design involves periodically standing back and looking at the six organizational systems and creating alignment. Continuous improvement can get you maybe 5 per cent improvement each year, but it is the step change from breakthrough design that's required to leap-frog the competition. It creates a significant advantage to the firm if they have the capability to conduct dramatic redesigns.

To create this capability, the in-house team began a five-step process. First, they identified a cadre of internal change agents. Secondly, they put them through a two-day workshop to learn the concepts. The third step was for them to participate in a design process and later to lead the design process with a coach beside them. The fifth and final step was to lead an effort on their own. At this point they could really make the organizational design fit together, both socially and technically.

C: What was involved in understanding the work processes at this firm?

E: In this case, production involved a series of chemical processes. The industry traditionally broke work up into areas that followed a typical chemical transformation process. There were activities at the front end mixing and heating raw materials. Another set of activities separating the product, another group did the molding, and another group did the packaging and shipping.

What was unique in this case was that the design group looked at how the work changed state, as opposed to simply mapping processes. We were able to take portions of that work and align it differently than before, giving ownership to team members for end products along the way. Grouping the work that way had never been done in the industry; some experts said it was a radical approach but were willing to break out of the traditional mold.

They aligned responsibilities to one hand-off rather than multiple hand-offs and were able to accomplish a number of things. One thing was minimizing the variances between groups, getting more consistency in the final output and increasing unity across the process for accountability.

Another advantage was having one place to measure, track and control the product for quantity, quality, and cost. They were also able to create broader job descriptions, giving employees career growth opportunities, whereas in the past they had been stuck in specialized jobs. They then created a reward system that provided opportunities to pay not only for skills and knowledge, but also for performance. Pay was based on the results those groups produced as well as sharing success across the whole plant.

They got to the new structure by following several design principles. One of the critical ones was minimizing or eliminating hand-offs. Other principles included not recording information more than once, making decisions at the point at which they could be acted upon, and giving authority along with responsibility.

C: It's interesting to start bottom up from the work processes rather that top down in department design.

E: When organizations talk about redesign or restructuring, they typically start with the organizational chart and change the structure. But form ought to follow function and function is really the work process. Unless you structure the organization around the work you will miss opportunities for significant breakthroughs.

By the way, structure doesn't just mean work at the operating level; there is the coordinating work of middle management and there is also strategic work. I refer to it as "coordinating work" rather than just management to shift the mindset away from just managing people to coordinating and allocating skills, information and other resources.

There are a lot of senior executives who are doing coordinating work when they should be doing strategic work. It comes across as micro-managing. They often spend time on work they don't need to be doing, and the organization suffers because they don't understand their strategic role in the organization.

C: Tell me more about strategic work.

E: I once spent a number of weeks with an executive team at a utility company working on their strategic architecture. We spent two days a week for six weeks, and at the start a couple of them said they didn't have time to do it. But as we got about three weeks into the process, one executive said, "You know, this is our work. This is exactly what we should be spending our time on." That may seem obvious, but it's not as obvious to executives who feel too busy to sit down and design their organizations, to become organizational architects, if you will.

C: Are there barriers to some organizations taking this systematic approach?

Yes. One is mobilizing the leadership and engaging the workforce in this kind of effort. It needs to be a conscious strategy. Not every leader sees this. When HR is involved it can be seen as soft and fuzzy things. But changing work has a direct impact on the bottom line; it and the design effort is geared toward results, not just making people feel good. Today's current HR executives understand these concepts and are increasingly demonstrating bottom-line impact to their organizations.

Another potential barrier is what I call "microwave management". This work takes time. Some leaders think you just need to turn up the heat and cut the time in half. You can't bake a good cake that way, and you can't achieve sustained high-performance that way either.

C: How often would a company have to go through this process of really looking closely at the work design? If you do it now will you be set for the next 10 years?

E: The chemical company had a pretty significant breakthrough design. Once they had the design, it could be replicated. That became the foundation for the next facility built. They will probably find that 90 per cent of the new design will remain, but each time they'll probably find small ways to improve it.

C: What is the significance to HR?

E: By understanding the work process and critical elements of high-performance design, we find HR leaders understand where the bottlenecks are, the language of the organization, and they can articulate some of the nuances of the business that impact the bottom line. That adds tremendous credibility. I'm not talking just about the HR VP, but the whole HR organization. They have credibility that pulls them into the organization as resources, advocates, and valued consultants. That creates a powerful impact on the organization.

*Reprinted by permission of the Human Capital Institute (HCI); first published by HCI February 2005

----------------------------------------------------------------------

Case: Rakgolela and Trade Centre

Case No: GA42033/04

Award Date: 17 January 2003

Jurisdiction: CCMA: Pretoria

Commissioner: B van Wyk

# SUBJECT: Unfair Dismissal: Double Jeopardy

ISSUE: The employee was found guilty on charges of misconduct and dismissed. On appeal, that sanction was reduced to a final written warning. Three months later, the employee was charged again with theft and with giving false evidence at his earlier disciplinary inquiry and dismissed. The issue was whether the second disciplinary hearing of the employee amounted to "double jeopardy". Found that the company clearly used the "guise" of an alleged lie by the employee during the initial hearing to justify a second enquiry.

SUMMARY OF FACTS: The applicant was employed as a SBU ("Small Business Unit Manager") by the respondent during 1986 and at the time of his dismissal received a monthly salary of R4 500 per month. Three months earlier the employee was charged with misconduct regarding the removal and use of a cell phone. At the time the employee was dismissed but after an internal appeal, the IR Manager changed the sanction to a final written warning valid for 12 months. The employee was then charged with misappropriation of the said cell phone and "Gross dishonesty in that you gave false evidence at the hearing held on 18 May 2004 pertaining to the removal of a LG cell phone from the company premises on 9 May 2004" 3 months later and was then dismissed. The employer maintained that it did not violate the principle of "double jeopardy" in that new evidence was brought to its attention resulting from a criminal investigation. This "new evidence" was that the applicant had lied during his initial disciplinary enquiry, and this evidence, the company contended, justified a second disciplinary enquiry.

SUMMARY OF JUDGEMENT: At the initial hearing, the finding by both the chairman as well as the IR Manager was that the employee did indeed remove the cell phone from the premises of the employer and that he had lied about that. In the appeal, the IR Manager decided that, despite this lie, the employee intended to use the cell phone for business purposes and not to steal it and therefore he changed the sanction to a final written warning. The "lie" that is the subject of the second charge against the employee in the second hearing is that he never took the cell phone home.

The commissioner found that the substantive merits of the second disciplinary hearing remained identical. The company clearly used the "guise" of an alleged lie by the employee during the initial hearing to justify a second enquiry. This conduct was grossly unfair.

The commissioner went on to concede that an employer would have the right to hold a second disciplinary hearing if this was necessitated by fairness. In this case, however, the employer did not get the "desired result" of dismissal in the employee’s appeal hearing, and used evidence "obtained" by the SAPS as a "sham" to have a second enquiry conducted that resulted in the employee’s eventual dismissal.

----------------------------------------------------------------------
6: Downloads: Harnessing The Elusive Asset: Developing Intangible Organisational Capital*

By David C. Forman, Sage Learning Systems

Chair, Human Capital Institute Education Board

----------------------------------------------------------------------
There is virtually universal agreement that today’s economy is driven by the talent and intangible capital of organizations. The competitive strength of companies and even countries is not tied to physical resources but to the knowledge and skills of its employees. It is now clear, for example, that 80% of a company’s market value is not determined by buildings, cash or equipment but by its people. The "market to book" ratio of the Standard and Poor 500 companies reached a value of 6.0 in 2001. This ratio suggests that for every $6 of market value, only $1 represents financial and physical assets (Weatherly, 2003). This fact is not lost on CEOs and top executives who see managing intangible assets as one of the top three issues that they face (Hollis, 2004). Beyond this recognition of the primacy of talent, there has been little progress in developing language, models and systems that pertain to this new reality.

Our conventions, thinking and even accounting practices are based on traditional balance sheet entries and physical inventories that are decades old. It is, after all, much easier to deal with the tangible world. Most everyone knows what a building, gold mine or field of sorghum is worth. It is much more difficult to describe, let alone place a value on human capital, organizational culture and professional relationships. Arie de Geus (2002) in his influential book The Living Company relates findings of internal research done at Royal Dutch Shell on why most companies fail and have limited life expectancy. He believes that many contemporary companies have done a poor job at shifting priorities from optimizing capital to optimizing people, and proposes that we think of companies as living organisms that need to continuously adapt to their environment. Successful companies learn to survive and thrive; they don’t simply meet a quarterly financial statement. The keys to a dynamic, responsive, contemporary organization are not just workers or employees; but people who can think, work together, challenge each other and innovate. When learning stops, so do companies.

New ways of thinking, accounting and communicating are needed for organizations today. These should be based on current realities, the global economy and rapid change, not when companies were hierarchical, labor was interchangeable, and business was relatively static. They should also deal with interesting shifts in understanding from the tangible to the intangible world such as the fact that tangible assets get expended with use whereas intangible assets should get richer and stronger. These new ways of thinking should also not be limited to what has been easy to measure and record; these indicators are now outdated and largely irrelevant. This paper attempts to provide a language, framework, and guidelines so that a company’s primary source of wealth – its intangible capital – can be understood, grown, expanded and retained.

DOWNLOAD THE FULL TEXT OF THIS PAPER AT:

David C. Forman is President of Sage Learning Systems, Chair of the Human Capital Institute Education Board and member of the HCI Executive Board. He has written over 30 books and articles in the areas of performance improvement, metrics, and technology-based learning systems.

---------------------------------------------------------------------
7. Unsubscribe & Moving Soon
----------------------------------------------------------------------
UNSUBSCRIBE: Scroll to the end of the newsletter where you will find a code directly linked to your name. Click on the unsubscribe link. PLEASE DO NOT REPLY TO THIS NEWSLETTER TO UNSUBSCRIBE.

MOVING SOON: If you are changing your email address soon and would still like to continue receiving this newsletter, please email us your new or temporary email address to ensure that you do not miss out on the next edition.
------------------------------------
About the e-Journal/e-Newspaper
------------------------------------
Equity-Skills News & Views is a free bi-monthly newsletter for business owners, Line Managers, and Human Resource Practitioners (who support Line Managers) with the implementation of fair and developmental people management systems and practices.

The style of this e-Newspaper fits between the traditional email newsletters and printed professional trade journals & magazines. Subscribers will be kept up to date with the latest developments in the world of people management, receive handy people management tips, and feedback about labour court rulings that relate to the implementation of the key Labour Acts.

Please add equity skills news & views to your list of approved senders if your Internet provider, or server administrator filters incoming e-mail, to make sure you receive periodic e-mail alerts and this newsletter to which you are subscribed.
------------------------------------