The Capacity Crunch … Things we learn from Eskom

Of late, there has been a lot of candle lit dinner table conversation about “capacity management”, largely driven by Eskom’s imposition of load shedding. Eskom's current predicament is very clearly the consequence of them having performed capacity management rather poorly for an extended period of time. Talk has it that we are on the brink of experiencing similar problems with water provision. The sobering thought is that it’s not just governments and parastatals that struggle to manage capacity … the private sector routinely gets it wrong too.

Capacity is typically seen as a strategic enabler. You develop a strategy, the strategy has growth targets and you develop enough capacity to be in a position to support the strategy with a view to realising its growth targets. Sounds simple, doesn’t it?

The reality is that the management of capacity is typically hard work. There are two aspects to the exercise – maintain your existing capacity and develop new capacity.

Maintaining existing capacity

To return to the Eskom example, it is very clear that they have failed spectacularly to maintain their existing fleet of power stations. Lately, the portion of their fleet that is offline due to unscheduled maintenance exceeds the portion that is offline for scheduled maintenance, by a factor or two or three … a sure sign that they are losing the maintenance war. Eskom have recently admitted that they have neglected the performance of routine maintenance since 2010, apparently as a consequence of the 2010 Soccer World Cup. What can we learn from the Eskom debacle regarding the management of existing capacity? Some ideas follow:

1. The management of existing capacity is a long term commitment. 
2. You can’t afford to take a breather when it comes to managing existing capacity. There is no such a thing as a “cost holiday”. 
3. If you have taken a “cost holiday”, my deepest condolences. You will pay for it dearly at a later stage. 
4. The management of exiting capacity requires discipline, skill and needs to be driven from the top. If you don’t have the appropriate human asset, set about growing it or employing it. 
5. The management of existing capacity requires financial resource. Cutting back on routine maintenance because you “can’t afford it” is not smart poker, as the good folks at Eskom have found. 
6. The management of existing capacity requires a continued and disciplined focus on quality and root cause analysis. 
7. If you have neglected routine maintenance for a long time, it is going to take you a long time to turn the ship around. In short, if it took you five years to break it, you can expect to take five years to fix it. 
8. Don’t neglect to perform routine maintenance on your existing capacity because you have been seduced by the excitement of new capacity build initiatives. 
9. If you can’t afford to maintain your existing capacity, you can’t afford to pay big bonuses.

Developing new capacity

Talk has it that Eskom had presented demand projections and plans for the development of new capacity to the Government in good time. Unfortunately, the Government hadn’t settled their policy framework for power, and as a consequence were unable to provide Eskom with the requisite go ahead until it was too late. What can we learn from Eskom’s new capacity build efforts? Some ideas follow:

1. The delay in initiating the build of new power stations was a consequence of the Government not having strategic clarity on how it wanted to handle power generation going forward. While the Government was squabbling about the “privatise vs continued State monopoly” issue, precious time was being lost. Strategic clarity and Board commitment to the management of capacity is a key success factor … and the Government failed on both counts. 
2. New capacity development takes time. If poor strategy and / or planning have put you in a position where you need to bring new capacity on-stream in a shorter period of time, you generally land up paying more or compromising on quality. Oddly enough, in the case of Eskom, it looks like they may well land up both paying more AND compromising on quality … which points to poor leadership. The bottom line is that it’s not smart to start late! Check out the “Good, Cheap and Fast” blog article for some background reading on this principle.
3. New capacity development planning and execution must continually be performed across the short, medium and long term planning horizons. 
4. Successful capacity development requires the delivery of capacity that is workable, on time and within budget. The Eskom new power plant builds are overrunning, both with respect to cost and time. Further, there has been some question about the quality of the new plants that are being built. It’s perhaps best not to reward performance of this nature with bonuses as it encourages the type of practices that you would rather do without. 
5. Once again, the development of new capacity requires depth of skill and effective management. If you don’t have the appropriate human asset … set about growing it or employing it. 
6. It’s not smart to finance the building of new capacity by cutting down maintenance spend on your existing capacity. 
7. Large projects such as power plant builds tend to be hotbeds for corruption. Professional procurement contextualised by a solid value system is essential, particularly when your shareholder is the taxpayer. For example, clean procurement practices would never have allowed the Chancellor House / Hitachi issue to have arisen. It seems somewhat perverse that the ANC should both be ultimately responsible for the power crisis and be profiting from it.

When it goes wrong

When it comes to capacity, it’s fair to say that it’s easy to sell into surplus capacity, but it’s pretty tough to sell into undeveloped capacity.

Surprisingly, the new democratic dispensation inherited an excess of power capacity when they came into power. They did the right thing … they rolled power out to the previously disenfranchised. In business speak; they sold into the surplus capacity and they did so for in excess of 10 years. The problem arose when they were called upon to lead the development of new capacity. Sadly, capacity development simply wasn’t centre stage on their strategy.

The consequence of the Eskom debacle has been massive for South Africa. Although it’s very difficult to quantify the impact of the power crisis, conservative estimates suggest that GDP growth has been held back by somewhere between 30 and 60 basis points per annum by Eskom’s inability to keep the lights on. South Africa’s GDP would have been somewhere between 2.1% and 4.2% bigger right now if we had not run into a capacity crunch back in 2008. That translates into a lot of lost jobs for people that desperately need them.

What do we learn?

Capacity is the life force behind any organization. It is capacity that allows for the provision of goods and services to market and its often capacity that stands against you meeting your growth targets. In short … it’s the engine room behind what your business does. Take it for granted to your own detriment. Capacity management must be a key accountability of your Operations Team and should be in direct line of sight for your CEO.

Making the wrong capacity decisions for the sake of your next set of results will come back to haunt you in the medium to long terms. It is NOT in the best interests of your shareholders and it’s NOT sustainable. Don’t do it! Trust me … it’s not a good idea.

Your capacity is as strong as its weakest link. You should be continually monitoring for areas where your capacity is failure prone, performing root cause analysis and implementing corrective action. Focus on ensuring that your capacity is as robust and efficient as possible. Performing routine preventative maintenance is a far better option than living in a world where you are continually chasing around after the next “out of the blue” breakdown.

Treat your capacity well … and it will reciprocate. The alternative also applies.

Great leadership quotations

Leaders establish the vision for the future and set the strategy for getting there. ~ John P. Kotter

Example is not the main thing in influencing others, it is the only thing. ~ Albert Schweitzer

Leadership is the capacity to translate vision into reality. ~ Warren Bennis

Before you are a leader, success is all about growing yourself. When you become a leader, success is all about growing others. ~ Jack Welch 

The function of leadership is to produce more leaders, not more followers. ~ Ralph Nader 

As we look ahead into the next century, leaders will be those who empower others. ~ Bill Gates

The best CEOs I know are teachers, and at the core of what they teach is strategy. ~ Michael Porter

A leader focuses on shaping tomorrow. There is little or nothing you can do about yesterday. Learn from it but don’t waste a moment on it. Get on with tomorrow. ~ Jack Welch 

Servant leadership is the only leadership that ultimately works. ~ Dave Ramsey

Great innovation quotations

If you look at history, innovation doesn't come from just giving people incentives; it comes from creating environments where ideas can connect. ~ Steven Johnson

Innovation distinguishes between a leader and a follower. ~ Steve Jobs

The enterprise that does not innovate inevitably ages and declines. And in a period of rapid change such as the present … the decline will be fast. ~ Peter Drucker 

Most of us understand that innovation is enormously important. It's the only insurance against irrelevance. It's the only guarantee of long-term customer loyalty. It's the only strategy for out-performing a dismal economy. ~ Gary Hamel

Regular brainstorming is as critical to an organization as regular exercise is to your health. It creates a responsive, innovative culture. ~ Tom Kelley

Innovation is hard because "solving problems people didn't know they had" and "building something no one needs" looks identical at first. ~ Aaron Levie

Great Michael Porter Strategy Quotations

The essence of strategy is choosing what not to do. ~ Michael Porter

The company without a strategy is willing to try anything. ~ Michael Porter

The best CEOs I know are teachers, and at the core of what they teach is strategy. ~ Michael Porter

Sound strategy starts with having the right goal. ~ Michael Porter

So companies have to be very schizophrenic. On one hand, they have to maintain continuity of strategy. But they also have to be good at continuously improving. ~ Michael Porter

Strategy is about making choices, trade-offs; it's about deliberately choosing to be different. ~ Michael Porter

Strategy 101 is about choices: You can't be all things to all people. ~ Michael Porter

Winning through distinctive choices is the always-and-forever job of every strategist. ~ Michael Porter

Great Jack Welch Strategy & Leadership Quotations

If you don’t have a competitive advantage, don’t compete. ~ Jack Welch

In real life, strategy is actually very straightforward. You pick a general direction and implement like hell. ~ Jack Welch

Shareholder value is a result, not a strategy. ~ Jack Welch

Change before you have to. ~ Jack Welch

Before you are a leader success is all about growing yourself. When you become a leader, success is all about growing others. ~ Jack Welch

A leader focuses on shaping tomorrow. There is little or nothing you can do about yesterday. Learn from it but don’t waste a moment on it. Get on with tomorrow. ~ Jack Welch

If the rate of change on the outside exceeds the rate of change on the inside, the end is near. ~ Jack Welch

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Great Strategy quotes ... with a few on Leadership & Innovation for good measure

Leadership is the capacity to translate vision into reality. ~ Warren Bennis

The only real mistake is the one from which we learn nothing. ~ John Powell

Trying to do what your competitors are doing but basically a little bit better is probably not going to be the winning strategy. The problem is finding what your competitors wouldn't even consider doing. ~ Jamais Cascio

We need to stop thinking about infrastructure as an economic stimulant and start thinking about it as a strategy. Economic stimulants produce Bridges to Nowhere. Strategic investment in infrastructure produces a foundation for long-term growth. ~ Roger McNamee

The company without a strategy is willing to try anything. ~ Michael Porter

Success doesn't necessarily come from breakthrough innovation but from flawless execution. A great strategy alone won't win a game or a battle; the win comes from basic blocking and tackling. ~ Naveen Jain

Most of us understand that innovation is enormously important. It's the only insurance against irrelevance. It's the only guarantee of long-term customer loyalty. It's the only strategy for out-performing a dismal economy. ~ Gary Hamel

Innovation is hard because "solving problems people didn’t know they had" and "building something no one needs" looks identical at first. ~ Aaron Levie

Sound strategy starts with having the right goal. ~ Michael Porter

Living in the past is a Jethro Tull album, not smart poker. ~ Richard Roeper

What do you want to achieve or avoid? The answers to this question are objectives. How will you go about achieving your desire results? The answer to this you can call strategy. ~ William E. Rothschild

So companies have to be very schizophrenic. On one hand, they have to maintain continuity of strategy. But they also have to be good at continuously improving. ~ Michael Porter

80-90% of strategy is not about us; it's about figuring out what way the market is going. ~ Richard Fairbank

If the rate of change on the outside exceeds the rate of change on the inside, the end is near. ~ Jack Welch

Strategy Execution is the responsibility that makes or breaks executives. ~ Alan Branche and Sam Bodley-Scott

Creative without strategy is called "art." Creative with strategy is called "advertising." ~ Jef I. Richards

Wishing is not a #Strategy. ~ Seth Godin

A strategist’s job is to see the company not as it is, but as it can become. ~ John W. Teets

We build too many walls and not enough bridges. ~ Sir Isaac Newton.

A leader focuses on shaping tomorrow. There is little or nothing you can do about yesterday. Learn from it but don’t waste a moment on it. Get on with tomorrow. ~ Jack Welch

The way you treat your employees is the way they will treat their customers ~ Richard Branson
 
If you look at the various strategies available for dealing with a new technology, sticking your head in the sand is not the most plausible strategy. ~ Ralph Merkle

The best CEOs I know are teachers, and at the core of what they teach is strategy. ~ Michael Porter

Before you are a leader success is all about growing yourself. When you become a leader, success is all about growing others. ~ Jack Welch

Hope is not a strategy. Fear is not an option. ~James Cameron

There is nothing so useless as doing efficiently that which should not be done at all. ~ Peter Drucker

Example is not the main thing in influencing others, it is the only thing. ~ Albert Schweitzer

Complexity is your enemy. Any fool can make something complicated. It is hard to make something simple. ~ Richard Branson

Leaders establish the vision for the future and set the strategy for getting there. ~ John P. Kotter

I believe that people make their own luck by great preparation and good strategy. ~ Jack Canfield

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat. ~ Sun Tzu

Strategy is not the consequence of planning, but the opposite: its starting point. ~ Henry Mintzberg

Companies that grow for the sake of growth or that expand into areas outside their core business strategy often stumble. On the other hand, companies that build scale for the benefit of their customers and shareholders more often succeed over time. ~ Jamie Dimon

We can’t solve problems by using the same kind of thinking we used when we created them. ~ Albert Einstein

In marketing I've seen only one strategy that can't miss - and that is to market to your best customers first, your best prospects second and the rest of the world last. ~ John Romero

Strategy is about making choices, trade-offs; it's about deliberately choosing to be different. ~ Michael Porter

Strategy is buying a bottle of fine wine when you take a lady out for dinner. Tactics is getting her to drink it. ~ Frank Muir

Change before you have to. ~ Jack Welch

A person who never made a mistake never tried anything new. ~ Albert Einstein

Strategy 101 is about choices: You can't be all things to all people. ~ Michael Porter

If you look at history, innovation doesn't come from just giving people incentives; it comes from creating environments where ideas can connect. ~ Steven Johnson

A goal properly set is halfway reached. ~ Zig Ziglar

It always seems impossible until it's done. ~ Nelson Mandela

Your most unhappy customers are your greatest source of learning. ~ Bill Gates

If you can't fly, then run, if you can't run, then walk, if you can't walk, then crawl, but whatever you do, you have to keep moving forward. ~ Martin Luther King Jr.

Nothing is particularly hard if you divide it into small jobs. ~ Henry Ford.

Think about big things while you’re doing small things, so that all the small things go in the right direction. ~ Alvin Toffler

Execution is the ability to mesh strategy with reality, align people with goals and achieve the promised results. ~ Larry Bossidy

Your strategy for success must constantly move, change and evolve. ~ Zaid K Abdelnour

Building a visionary company requires one percent vision and 99 percent alignment. ~ Jim Collins and Jerry Porras

Shareholder value is a result, not a strategy". ~ Jack Welch

Obsessively specialise. No niche is too small if it's yours. ~ Seth Godin

Innovation distinguishes between a leader and a follower. ~ Steve Jobs

A satisfied customer is the best business strategy of all. ~ Michael LeBoeuf

Talent is the No. 1 priority for a CEO. You think it's about vision and strategy, but you have to get the right people first. ~ Andrea Jung

Worse than failure is succeeding at something that doesn't matter. ~ Jesse Lyn Stoner

In real life, strategy is actually very straightforward. You pick a general direction and implement like hell. ~ Jack Welch

You have to be fast on your feet and adaptive or else a strategy is useless. ~ Charles de Gaulle

We need to stop thinking about infrastructure as an economic stimulant and start thinking about it as a strategy. Economic stimulants produce Bridges to Nowhere. Strategic investment in infrastructure produces a foundation for long-term growth. ~ Roger McNamee

Execute! Get your people to execute! ~ Sam Geist

The enterprise that does not innovate inevitably ages and declines. And in a period of rapid change such as the present … the decline will be fast. ~ Peter F. Drucker

The secret of success is finding good people. ~ Richard Branson

Strategy, without information upon which it can rely, is helpless. ~ William J. Donovan

Winning through distinctive choices is the always-and-forever job of every strategist. ~ Michael Porter

Whether you think you can, or you think you can't - you're right. ~ Henry Ford

However beautiful the strategy, you should occasionally look at the results. ~ Winston Churchill

I don't know the key to success, but the key to failure is trying to please everybody. ~ Bill Cosby

The biggest risk is not taking any risk... In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks. ~ Mark Zuckerberg

Execution IS strategy. ~ Fred Malek

Regular brainstorming is as critical to an organization as regular exercise is to your health. It creates a responsive, innovative culture. ~ Tom Kelley

The essence of #Strategy is choosing what not to do. ~ Michael Porter

Strategy is buying a bottle of fine wine when you take a lady out for dinner. Tactics is getting her to drink it. ~ Frank Muir