Lenong Road Maintenance
1. INTRODUCTION
1.1 Background to Lenong
Lenong General Road Maintenance was founded by Mr. Collins Kubeka in 1997 in the Ekurhuleni Metro after identifying a niche market in road construction and maintenance. As a qualified and experienced engineer the Visionary, Founder Member and current Managing Director; Collins Kubeka is able to network and successfully tender and secure projects from both the public and the private sector. Although Lenong actively takes advantage of opportunities presented by government’s enabling environment like the Preferential Procurement Policy Framework (PPPF) through tendering for government related jobs, its main target is private sector built environment and roads projects.
The main business activities of Lenong General Road Maintenance is general road maintenance, civil construction, plant hire, road sign supplies and road grass cutting. A preliminary inspection of Lenong’s previous projects register revealed that since inception it had managed to undertake a number of medium sized projects amounting to approximately R78m over a ten year period. The financial statements of Lenong, however showed that the company was in decline. Despite the increase in turnover between February 2007 and February 2008, Lenong’s Net loss situation had increased by 156% from negative R223k in 2007 to negative R571k in 2008.
Challenges
The problems that led to the decline in Lenong’s operational and financial performance in 2008 included the following:
- The wages and salaries costs were too high when compared to the industry norm
- There was a mismatch between wages and salaries costs when compared to productivity
- The company did not have any labour relations, financial or operations systems in place to operationalise and streamline the business and as result the fixed expenses are unnecessarily high
- Lenong did not have a full-time bookkeeper, which situation leads to slow and incorrect financial reporting
- Most of the workers were not informed of how a business runs and let alone how to manage a construction site
3.1 PRODUCTIVITY SA’s APPROACH
A holistic approach was taken by Productivity SA’s service providers involving in-depth analysis of the PPR results and by conducting a Workshop with Lenong’s management and Lenong Future Forum employed the why-why analysis to get to the root cause of identified problems. A why-why is conducted to identify solutions to a problem that address it’s root cause(s)
A turnaround strategy was jointly developed between, Productivitysa and Lenong Future Forum with a view to find a long lasting solution to the identified problems and more. The following interventions were developed and implemented as part of the turnaround solution:
4.1 Performance Management cum Labour Relations System
. A performance management system incorporating the labour relations policy was developed in accordance with the Labour Relations Act and Fair Labour Practices. The policy covered such issues as employer/employee relations, conditions of employment, recruitment and appointment procedures, performance appraisal vis-à-vis employee productivity. The envisaged bottom-line impact was to reduce absenteeism by 5% and to boost staff morale and foster corporate citizenship and employee engagement.
4.2 Operation Models
.The model covered a wide array of modus operandi related issues like Business model of Lenong, Organisational structure and reporting relationships, an update of Lenong’s target market, a review of the Vision and Mission, Training and Skills Gap analysis, Corporate Governance structure, and many more.
The desired benefit of the operations model was to reduce time wastage due to unclear operational procedures and reporting relationships, e.g. during the creativity session it emerged that site based employees were frustrated when it can to the allocation of projects and accountability thereof as projects were allocated on a haphazard way that led to confusion and conflicts. It was targeted that with proper and clear operational procedures in place Lenong’s fixed expenses would reduce by at least 5% while turnover would correspondingly improve by 5% because of quality enhancement and improved customer satisfaction.
4.3 Financial cum Working Capital Management Systems review
. This review culminated in the formulation and documentation of a Financial Management Procedures Manual detailing the financial operational procedures and checks and balances for Lenong General Road Maintenance. The following areas were covered; Finance Department structure, Summary of the functions of the Department, Major Financial Policies, Debtors and Cash Control, Expenditure Control, Documents Control, Creditors Control, Fixed Assets Control, Payroll Control, Management Accounting, Financial Reporting and Budgetary Control. In addition Lenong employed a full-time Accountant who immediately installed a computerised accounting package and streamlined the finance department as recommended in the new system
4.4 Quality Management System
One of the key success factors in civil construction and in any business for that matter is the quality of the product. Organisations that maintain a competitive edge are those that constantly endevour to improve the quality of their products. Having realized that part of the problem at Lenong was caused by excessive re-works, a quality management system was drawn up on ISO9001:2000 standards. IDC had also expressed concern when Lenong submitted an application for funding that there were no quality procedures and measures in place and they were therefore reluctant to risk their money.
4.5 Construction Management Procedures Manual
The Construction Management Procedures Manual was designed to counteract that problem by clearly stating how a site should be administered in order to operate profitablyIn conjunction with the operations model and the quality management system, the construction procedures manual was designed to add to the bottom-line through improved working methods that would lead to a decrease in both variable and fixed expenses while at the same time positioning Lenong to current and potential customers as an organized company that is capable of delivering a quality product on time and within the allocated budget sustainably.
4.6 Source Funding and Performance Guarantee
, Lenong had just landed lucrative projects at Ekurhuleni valued at approximately R20m. The threat however was that Lenong had no working capital to execute the jobs The management of Lenong had approached the IDC for a performance guarantee of R2m and financing of R5m in order to begin working on the new projects.
the IDC’s requirements were that Lenong should develop a bankable business plan. the IDC also insisted that Lenong have operational, accounting and quality systems in place The IDC further stated that without those checks and balances it would be difficult for them to advance any loans or guarantees
4.7 Train Senior Managers in Project Management
The purpose of including project management in the turnaround package of Lenong was to enhance Senior Management’s ability to multi-task and to run Lenong’s projects profitably and the to the clients’ satisfaction.
5. RESULTS AND IMPACT
5.1 Quantitative Impact Analysis
Table 1: Bottom line impact
|
Year |
30 Nov 2009 (Interim Accounts) |
29 February 2009 |
29 February 2008 |
|
Turnover |
R24,5m |
R10,1m |
R19,8m |
|
Gross Profit |
R6,8m |
R4,2m |
R10,2m |
|
Net Profit/(Loss) |
R1,0m |
R1,2m |
(R571k) |
|
Number of employees |
100 |
70 |
50 |
5.2 Additional information
Productivity SA’s involvement came at an opportune time when Lenong was showing signs of decline yet it had just clinched new lucrative projects. Lenong was facing a bleak future since it lacked working capital to execute the new projects because of the loss situation just experienced and the fact that the funders insisted on operations systems being in place before any funding could be extended.
Through Productivity SA involvement, Lenong was able to raise a loan facility of R16m (including performance guarantee) which enabled it to successfully undertake new projects. The systems implemented gave assurance to the funders that Lenong was a fundable organisation and in turn Lenong was able to clinch more projects from Ekurhuleni Metro because of the good track record.
