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									A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY




                    BUILT TO LAST



                  A CASE STUDY OF THE

       JOHANNESBURG HOUSING COMPANY




                                  BY

                DAN SMIT AND EMILIA ARNERIUS




                   JANUARY 2007, JOHANNESBURG
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



Contents:

Built to Last: The Johannesburg Housing Company ........................................ 1
  1. Rich beginnings? ....................................................................................... 4
     1.1 Smart Subsidies .................................................................................. 4
     1.2 Smart Board ...................................................................................... 10
     1.3 Smart Leaders ................................................................................... 12
     1.4 Smart and Disciplined Operational Processes .................................. 15
  2. A Learning Organisation ......................................................................... 16
     2.1 Blazing a new trail in a difficult environment: Disciplined innovation as
     part of company culture ........................................................................... 16
     2.2 Incremental Learning ......................................................................... 21
     2.3 Learning From and Facing the facts ................................................. 23
  3. JHC’s Magic ............................................................................................ 24
     3.1 The JHC’s Hedgehog Concept.......................................................... 24
     3.2 Capital Plus: More on bringing the “social” into housing ................... 27
  4. “What next?” ............................................................................................ 31
References ...................................................................................................... 36
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



        Built to Last: The Johannesburg Housing Company


When Mary Mangema (not real name) came into the city of Johannesburg
looking for work, a better life and a future, she was fearful of what she would
find. Whilst in so many ways a place of opportunity, Johannesburg is also a
city that has a reputation as one of the toughest places in the world. On arrival
she set about trying to find a place to stay and on advice from friends she
sought and found a flat managed by a non-profit social housing institution, the
Johannesburg Housing Company (JHC). In the process Mary found an
environment quite different from what she expected. She found a caring and
trustworthy landlord. And she found it in the heart of an inner city
characterized by high levels of alienation and social pathology.

A few months after arrival Mary became ill and had to go into hospital for a
few weeks. As a result she was unable to make her rent payments. When
the JHC investigated the arrears they found a tenant in distress, but they did
not seek to evict her summarily. As a first measure, the financial department
helped her set up a stop order which freed her from having to go into a bank
to make a deposit every month. Because Mary had the reserves to sustain
payments through her illness the stop order arrangement solved the rent
payment issue. But she received other help as well. When she returned
home but was still confined to bed, Mary’s shopping was taken care of by JHC
staff, and she was visited regularly. The JHC helped Mary get through a
difficult period, and she is today a good and reliable tenant.

The assistance Mary received was not just because her case was handled by
a sympathetic official of the JHC who made an exception. Talking to tenants
in arrears is one of JHC’s standard procedures. Client contact usually starts
with the housing supervisor who is alerted on a monthly basis by credit control
and who will remind the tenant that s/he is in arrears. A community
development officer will also visit the tenant to help understand the reasons
the tenant is in arrears. As a matter of procedure the community development
officer submits a monthly report on visits to tenants in arrears and makes
recommendations to JHC management on how to handle difficult
circumstances.

Mary’s experience is not usual in Johannesburg. Nor is it usual in any South
African city. Yet the fact that the JHC has been able to establish a reputation
for itself as a caring landlord has been crucial to its overall success. A quote
taken from a book written when the company celebrated its 10 year
anniversary, Landmarks and Learnings: (2005), speaks to the importance and
the substance of this reputation

The key to the success of JHC is largely invisible. It lies in the company’s commitment to the
recreation of a social web of relationships, based ultimately on the re-establishment of trust.

Elaborating on this comment, the CEO of the JHC, Taffy Adler (2007),
explains that trust for the JHC stems not from a sentimental base, but rather
from a sense of reliability, predictability, delivering what you promise and


                                                                                    Page 1 of 38
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



doing what you say. As word of mouth spreads, the idea of trust offered by a
company in a difficult city gains root. In this way the JHC has become part of
the “street knowledge” of the inner city. In fact surveys undertaken by the
JHC indicate that 80% of JHC tenants hear about the JHC via “street-word-of-
mouth”.

However establishing a reputation at street level as a company to be trusted
is not the JHC’s only achievement. When most other social housing
institutions in South Africa have been failing badly in a largely hostile
environment, the JHC has prospered and grown steadily. A recent review of
social housing institutions in South Africa has revealed that all but three of the
forty-two organizations are in financial distress (EU Support Programme
2004). Such distress has not surprisingly also had a negative effect on the
ability of such institutions to provide good service and of course to build
sustainable communities.

The JHC on the other hand is in a sound financial position and this provides
the platform for it to pursue its social objectives. Moreover the JHC seems to
be delivering housing environments which appear to be in line with the
political aspirations of a country undergoing major change. Evidence of this is
the fact that politicians regularly avail themselves of the opportunity to open
new JHC projects. The President (on two occasions), the Deputy President
and several Cabinet Ministers have over the past 10 years visited the JHC or
officiated at one of its functions.

In terms of its housing mandate the following table details the JHC’s social
and commercial achievements in the first ten years of operation (JHC, 2005):

Social achievements over 10 years                      Commercial achievements over 10
                                                       years
Invested more than R220m in creating an                Mobilized more than R220 million for
additional 8% of housing stock in the inner city for   residential development in the form of
low and moderate income earners.                       equity, grants, subsidies, loans and
                                                       retained earnings
2651 housing units under management                    At no stage in its history has JHC
                                                       operated at a financial loss.
Support of over 8 000 tenants is demonstrated by       Achieved financial sustainability:
JHC’s low vacancy, low arrears and low bad debt        generated profits from a mix of
levels of below 5% for the last 10 years.              operating and investment income.
Established the first Tenant Hardship Assistance       Rental income of R56.2 million in 2006.
Programme in the country.
JHC is one of the largest residential clients of the   Total assets of R262 million (2006).
City of Johannesburg and pays a total of R9.5
million (2006) to the city by way of rates, water,
electricity, gas, sewer and refuse charges.
JHC’s annual management and maintenance bill is        JHC was the first organization to raise
R 6.6 million (2006), an indication of the             commercial debt for housing in
commitment to ensuring that buildings are properly     previously red-lined inner city areas.
maintained and remain an asset to the housing
stock of the inner city.




                                                                                                 2
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



From an economic development point of view 48%       Created a financial model which
of the contractors working on building management    attracted initial capital from grants and
and maintenance are PDI contractors. During the      subsidies, then successfully sought soft
last financial year (2005) JHC paid out a total of   loans with a view to attracting
R2.5 million to these contractors.                   conventional commercial loans when
                                                     profitability and scale permitted.
Approximately 82% of JHC management costs are        Maintained an arrears rate and a
paid to previously disadvantaged contractors.        vacancy level of less than 5% each over
                                                     the first 10 years.
Through its housing developments and with a
turnover reaching R36 million in 2005, and R55       Retained income in 2005 was R27.5
million in 2006 JHC has given rise to substantial    million. In 2006 it had risen to R40.5
demand for the services of small entrepreneurs in    million.
the building management and maintenance field.
JHC has grown in employment terms from 2 to 43
direct employees over 10 years, and gives indirect
employment via service provides to up to 2000
people.

In addition to the achievements listed above, the JHC is acknowledged as a
key player in the revitalization of the inner city of Johannesburg. It has been a
major catalyst of several regional and sector initiatives. Organizations and
visitors regularly pass through the front doors of its headquarters often in
search of advice and inspiration. Donors and financiers willingly support its
projects and programmes. The JHC is a success—there is little doubt about
that.

But the purpose of this case study paper is not to eulogize the JHC. Instead
the purpose of the paper is to explore what it is that has made the JHC
an example of a very successful double-bottom-line development
organization. Whilst the paper is cohered around trying to understand
the reasons for JHC’s success, a secondary objective is to simply tell
the story of the JHC . It is an exceptional story and there is much that the
development community in South Africa and abroad can learn from it.

The thinking advanced in the paper is influenced by theory contributions from
two main sources. The first is the work and thinking of the Development
Finance Forum (DFF) as articulated in an article published in January 2004
called Capital Plus. The DFF it should be noted originally funded this case
study and is a network which pioneers double bottom-line approaches to
development (with a particular but not exclusive focus on development
finance).1 The key underlying principle of capital plus is that effective poverty
alleviation and development requires much more than access to financial
capital. Access to other kinds of capital like physical capital (e.g. housing),
social capital, human capital and natural capital are equally important. In fact
it is the DFF’s acknowledgement of this that led them to support a case study
on a housing company. A second key source is the work of Jim Collins and
his team and which is documented in his book Good to Great (2001) and a
more recent monograph Good to Great and the Social Sectors (2005) which


1
 The DFF has sponsored a further case study “ The Johannesburg Housing
Company: Making the City Your Home” due to be published at the end of 2008


                                                                                              3
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



goes hand-in-hand with the book. This work focuses on what it is that could
make a good, mediocre or even bad company achieve enduring greatness


1. Rich beginnings?
1.1 Smart Subsidies

 In Capital Plus (2004), the DFF introduce the idea of “smart subsidies” and
argue that the use of subsidies (if smart) can be very beneficial to the
achievement of developmental objectives and do not necessarily lead to
inefficiency. Whilst in Capital Plus the notion is developed in relation to
development finance, it is apparent that the idea is pertinent in other
development sectors as well. In the case of the JHC it is apparent that grants
made to the JHC (by the European Union (EU) and the Flemish Regional
Government) and the “smart” way in which they have been used, have been
very important in accounting for the JHC’s success.

In 1995 the EU committed an amount of R 50 million (paid over 2 years) for
the JHC via a Development Trust - the Kagiso Trust. The Flemish Regional
Government similarly committed R17 million over a 5 year period via the New
Housing Company (NewHco) a not for profit housing developer. In this way
Kagiso Trust and NewHco (and by extension) the EU and the Flemish
Regional Government became the first major equity investors in the JHC.

The DFF (2004, p.57) categorises various costs that are “smart” to subsidise.
One such cost is start-up costs that seed new institutions. They go on to say:

      “If donors could see smart subsidy in a commercial way—as an
      investment despite the lack of a market-rate financial return, as long as
      the subsidy works for the right institutional benchmarks—then they
      would be more like equity investors. Good equity investors not only
      understand the companies they invest in, but also their business
      models, the general field, and the relevant data. They use their
      knowledge, capital, and relationships to help the firms they have
      invested in, are in for the long haul, and are able to remain patient and
      engaged during periods of business contraction as well as growth.”

 The EU, Kagiso Trust and the Flemish Regional Government (which has
considerable social housing and urban regeneration experience) and NewHco
did in essence perform roles quite closely allied to that of good equity
investors. EU officials (such as Wout Soer) brought both energy and critical
perspectives to the JHC (Board members 2007). Moreover, useful advice was
given on JHC’s first developments through exchanges and visits to and from
the Flemish Housing Association and the Dutch National Housing Federation
and its members (Adler 2007). JHC has since extended the scope of
exchange visits to embrace relationships with the Nottinghill Housing Trust,
East Thames Housing Association and Midland Heart Housing Association in
England, Mercy Housing in the United States, Toronto Community Housing in
Canada, and SPARC in Mumbai, India.


                                                                             4
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



                                                Box 1 - Douglas Rooms
The fact that the grants were
                                                The Douglas Rooms building was the first project approved
made was very important but just                by the Board of the JHC in May 1996. The 95-year-old
as important was the smart way                  building was the core of numerous social problems in its
                                                area. In 1990 the building fell into the hands of an
in which they were used. Board                  unscrupulous landlord who did not pay rates or service
members made the point that                     charges to the council, nor service his bond. Despite
                                                increases in rent from R94 a month to R350, the demand
they could have lost the grant                  for accommodation in the area meant that the building was
money quite easily. Moreover                    soon filled with tenants who sub-let their small rooms to
                                                pay the rent. Soon 250 men, women and children were
they pointed out that the funds                 living in a building designed for 100, placing huge
could at the outset have                        pressures on the communal services.
engendered        a     culture   of            The building became increasingly squalid as the council
“spendthrift plenty” as opposed to              cut off electricity supplies and only allowed an emergency
                                                water ration. As a result of non-payment, no maintenance
one of “thriftiness”. Instead the               was done and water leaked through rusted taps and pipes.
JHC was very conservative in the                A fire sparked by a candle in one of the rooms destroyed
                                                the roof of an entire wing. After a 2 year period of running
use of the grant money and the                  up considerable debts, including tenants’ deposits, the
Board was insistent that an ethos               owner absconded. The building then became a haven for
                                                druglords and housed 7 noisy drinking taverns.
of frugality ---- and financial
sustainability was to be a central              JHC was approached by a delegation of tenants, the
                                                bondholder, local councillors and concerned tenants to
cornerstone of company policy.                  purchase the building. JHC finally bought the building in
Thus the company was very                       1998 – 2 years after discussions had started. A slow
                                                process of turning a slum into a community of self-
careful with its grant financing.               respecting tenants, working through an elected committee,
                                                was then started. Over the next 2 years the building was
                                                restored from an overcrowded and dilapidated slum into a
One Board member (JHC Board                     dwelling where order, privacy and good neighbourliness
2007) said they treated grant                   are respected.
funding with the care they would The Douglas Rooms project captured all the challenges
give to their own personal presented by occupied slum buildings: dealing with the
                                                                tenants,
investments. And the fact that problems of existingtenants areco-ordinating the physical
                                        refurbishment while                still in residence, getting
this was the way the Board chose tenants who have lived in a culture of non-payment for
to     operate     highlights    the almost 2 years to accept the discipline of regular rent and
                                        service payments.
importance in all “start-ups” of
                                                              the
having the right quality of people Somewhat ironically,first most difficult project became the
                                        anchor for JHC’s           precinct development with the
in leadership roles. This is a purchase of 3 additional buildings within 1 city block. The
                                                            Village”, now
theme we will return to. renamed “DouglasRooms) and withcrèche under single
                                        65 in Douglas                      a
                                                                                 113 homes (up from

Investment       parameters       for management, not only provides the economies of scale
                                                         lower-rate rentals in Douglas Rooms, but
unutilised funds were set quite which subsidise JHC’s first experiment in a mixed use and
                                        also allowed for
early on.     Funds were to be mixed income project.
invested in entirely risk free                           From Forrest, End of the Beginning (2000)
instruments.          Despite      its
attractive returns during the
period, no funds were permitted to be placed in the stock exchange or equity
markets. Hurdle rates were set for any capital investments which required
that a project feasibility study identified both social and financial risk and
identified measures to deal with these. While the rates were generally lower
than what might be acceptable risks to commercial funders, the important
issue is that they were specifically identified and monitored.                                   JHC
development procedures require a project completion report to report on the
specific risks that were identified in the board approved feasibility study. The
board also required a monthly cash flow statement to be appended to the
management accounts. These are scrutinised on a monthly basis by non
executive directors at either an executive or a board meeting.


                                                                                                               5
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY




There were also reputation risks involved with prominent international
organisations which kept the Board very focused. The Board understood the
need to establish a trustworthy reputation as a custodian of other people’s
money – a reputation that has stood the company in good stead when they
have approached donors for grants and financial institutions for loans. And
reputation risk has never been conceived of as being only about acting as a
trustworthy custodian of grant finance. Instead it is understood in a layered
way. A reputation as a trustworthy and fair landlord is obviously very important
to the JHC’s business. So too is its reputation as a good and fair employer.
And throughout its history the JHC has sought to preserve and foster a good
reputation.

In essence the grant money was used to do two things. The first and primary
use of the grant was to put up the working capital for bricks and mortar
projects. The second use was to subsidize the initial staffing and set-up costs
of the organization. As far as the first use is concerned, the availability of
grant finance allowed the company a risk taking capacity from the very start,
which donors could tolerate and commercial institutions could not. In addition,
by having the cash upfront the JHC was able to move quickly when
necessary, without waiting for subsidy money to come through - a major
constraint for every other social housing institution.. Box 1 provides a flavour
of the challenges that the JHC encountered in Johannesburg’s inner city,
challenges which commercial enterprises would never have ventured near.

In the early the years, JHC financed its investment in buildings by using a
portion of its grant capital together with subsidies from government. In more
recent years as the scale of the JHC has grown, the JHC has had to look in
the direction of debt financing. Of course in order to do this the JHC has to be
able to convince lenders that it is creditworthy. And fortunately over time,
through a combination of sound business practices and the judicious use of
grant finance, government subsidy and retained income, the JHC has been
able to build the balance sheet strength to do precisely that. Today the JHC
sources its finance from a wide variety of institutions/players and is a sought
after and trusted partner by the financial sector.

The head of the Banking Association in South Africa has pointed out that the
four major banks in the country all know the JHC and are very keen to do
business with it (Coovadia 2007). He indicated further that banks wished that
there were many more organizations like the JHC in the country---
organizations that were able to do work with social impact and do it
sustainably. Their interest has of course been sharpened by the provisions of
a Finance Sector Charter in terms of which the financial sector has committed
itself to channelling large sums of money into the “transformational” arena (in
South Africa this means investment which promotes the life chances of the
historically disadvantaged). The major problem is that there are few projects
and organizations in the “development” arena in South Africa that the banks
can lend to responsibly and sustainably. The JHC is an exception. The JHC’s
Brickfields project alone represents a R121m investment of which R50m was
in commercial loans and the balance in subsidy, equity and soft loans. On the


                                                                              6
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



basis of the JHC experience it would seem that the use of up-front grant
money as a form of equity investment which can be rolled over and leveraged
continuously is without question a developmentally desirable route to go.

The second major way in which the up-front grant money was used was to
finance and subsidize the set-up costs of the organization in the early years.
In short this allowed the JHC to take on a much bigger staff complement than
would have been possible if such staff were to have been paid for out of yields
in the early days. The theory applied was that certain key staff members were
necessary to get the business going whose costs could only be covered when
the organization reached a certain threshold size in terms of numbers of units
under management. The JHC reached the “break-even” threshold in 2003,
and it no longer needs to subsidize staffing or organisational infrastructure
costs.

It should be noted that the JHC did not cover all of its staffing overheads out
of grant finance (even though they could easily have done so). One of the
early requirements of the Board was that each building should cover its own
direct costs based on the residential income alone. A contribution from each
building’s revenues to the head office management overhead was not
required because in the early years this was covered by interest earned on
the grant. However all direct costs associated with the building itself (e.g.
caretaker costs) had to be covered from each building’s own income. Any
commercial income (via leasing of space to shopkeepers etc.) was treated as
a potential bonus but was not figured into revenue assumptions in feasibility
assessments for the various projects. This was because in the early years the
inner city was seen as a high risk area for all kinds of commercial business
activities. The principle of making each building pay for itself and managing
risk carefully was part of an early discipline that the JHC established.
Whereas the building in of financial sustainability from the outset was
standard practice for the Board members drawn from business, it was a new
business model for those from an NGO background in both management and
the Board.

Some critics however argue that the JHC could have been a leaner
organization in the early years and still have achieved the same level of
output. And by extension they argue that in South African circumstances at
least, the subsidizing of set-up costs in social housing companies is not
necessarily smart. They point to the reality that in most other social housing
institutions where set-up has been subsidized, staffing-up has not been
followed by increased outputs. The quality and commitment of JHC leadership
is probably the reason that the JHC used its set-up grant well whereas others
did not.

There is for example an instance (albeit an extreme one) of a social housing
company that had a remunerated Board and a full-time staff for several years
without having a single housing unit under management. This was made
possible by an ill-conceived set-up grant that was poorly monitored. This
example notwithstanding it would seem that subsidizing set-up costs is likely
to be “smart” provided this is done within tightly prescribed parameters which


                                                                             7
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



demand and monitor specific outputs. More specifically such parameters
might entail the advancing of relatively modest set-up grants in a new social
housing institution’s first project with further set-up assistance only being
made available when performance (carefully prescribed) is demonstrated.
Moreover individual projects should achieve a yield in excess of what is
required to cover costs. Such additional “yield” becomes free “cash flow”
which in time can be used to finance the growth of the organization.

The grant income not only allowed the JHC to take on staff not yet covered by
their revenues in the early years, it also allowed the company to invest in
training and development of staff members. In the early years, the majority of
JHC staff members did not have any property management or property
finance experience, arriving instead with diverse set of backgrounds. For
example, a number of staff had trade union or community activist
backgrounds whilst others came from Box 2 – Developing Human Resources
backgrounds entirely unrelated to The Finance Manager, Ayesha Rehman, developed
either the social dimension or the from being a project finance officer to in essence being a
                                                             management staff. Now amongst
property dimension of the social key player on themanages bookkeeping investments, the
                                          other things she
housing business.      The CEO, Taffy payroll, deals with auditors and banks, gives financial
                                                   part of the management
Adler, is a case in point. His qualities input asreports to the Board. team and presents
                                          budget
as an intellectual and as a committed Debtors Controller, Debora Johnson, had to learn how to
                                                             social and tenant
activist were well known by virtue of become aware ofher previous job ofissues as she
                                          progressed from                       collecting debts
the profile he built as a leading trade from business to her current job at the JHC. She thrives
                                                                                        She is
unionist and he had some experience being part of a team that integrates people. a Chartered
                                          currently working towards a qualification as
in the housing field. But he had never Secretary and continues to complete various property
                                                                 since joining
managed a business before and his management courses previously a the JHC.
                                          Fawzia Ballim was                      bookkeeper before
exposure to social housing was progressing to becoming an accountant within the JHC.
                                                                      only grown in the
limited. Taffy Adler and many of the Fawzia’s work has not as she has watched volume of
                                          transactions and entries                         the JHC’s
staff he recruited had steep learning portfolio blossom from 500 to 2500 units, but her areas
                                                                             she is now responsible
curves to climb. The social housing of responsibility have grown asreports and accounts for
                                          for generating all management
industry in South Africa was also in its JHC, Mitja and Makhulong a Matala and manages the
                                                                                  of Social
infancy, so experienced staff could not accounts of the National Association Notting HillHousing
                                          (NASHO). In 2002, Fawzia won the                     award,
easily be recruited. Thus staff and traveled to the Notting Hill Housing Trust in London
                                                    of
development and training was crucial as part by an exchange programme. She was also
                                          funded        USAID to travel to Mercy Housing, an
to the organization and examples American organisation based in Denver, as a learning
abound of employees who were given sharing exchange. previously worked as a personal
                                          Ludwick Sebetola
the space, guidance and development bodyguard. When he was offered a job at the JHC he
                                                          as a
to grow themselves and their careers began work with the roving caretaker and 2001 and
                                          assistance to            leasing department. In
                                                                                             provided

within social housing and more in 2003 he won the opportunity to go on learning
                                                         with the Notting Hill Housing Trust in
specifically within the JHC (see Box excvhanges the Toronto Community Housing Company
                                          England and
2). And Adler was always open to in Canada. In 2005 Ludwick was promoted to the
                                                                                  Brickfields which
utilising the skills of others in the position of Portfolio aOfficer offor learnings in tenant
                                          manages 750 units as result         his
human resource field to give him the management, financial management and administration.
                                                                   housing
guidance needed in his areas of Teddy O’Brien was acompany supervisor for the JHC.
                                          His rise within the               has been extrordinary.
weakness. Lisa Lazarus and Sally During his first year with the company he won the
                                                                which sent him
Blaine, independent human resource Notting Hill Award His enthusiasmto Londonfocused
                                          exchange trip.                              and
                                                                                               on an

specialists      whose       experience responsibility was identified quickly and he was
straddled the business/NGO divide, subsequently brought into head office to beto Property
                                          officer. Within 3 years, Teddy was promoted
                                                                                           a portfolio

were extremely important in bridging Manager which is a senior management level position.
this particular gap.


                                                                                                  8
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY




A third key point needs to be made about how a substantial start-up grant
helped the JHC become a strong and vibrant social housing company and to
succeed where others have failed. In addition to providing working capital and
capital to subsidize start-up costs, the EU grant also provided the JHC with a
“cushion” against the inevitable “shocks” which social housing institutions
often have to deal with. Other social housing institutions have not had access
to the same kind of shock absorber and have suffered as a result. For
example a politically motivated (as opposed to service dissatisfaction
motivated) rent boycott in a project of a social housing company in Durban
imposed a major financial shock on the company. When a company is
relatively small the inability to collect rental revenues in a single project can be
devastating and this is precisely what happened to the company in Durban.

And of course there are many other kinds of shocks—some systemic (e.g.
interest rates and the state of the economy) and some specific to the area and
the company. We would argue therefore that a “shock absorber” subsidy in
the early years of a social housing company’s trajectory is a “smart” subsidy.
But once again substantial abuse of “shock absorber” grants is also possible
and much tighter parameters are required regarding their use than was the
case with the JHC.

What is particularly crucial to note however is that the grant finance provided
to the JHC was used well because the organization displayed business
acumen from the start that distinguished it from its peers. Comparisons
available to the Trust for Urban Housing Finance indicate that the JHC is as
cost effective as any of the commercial organisations they fund in terms of
running costs per unit. The JHC is a social sector organisation that focuses
on the bottom line and has turned itself into a sustainable business entity with
a strong balance sheet. As one Board member puts it, “the JHC succeeded
because it didn’t have an NGO mindset”. The importance of this point is that
the JHC has collapsed the distinction between business and social. It does
both together as part of the same thing.

Interestingly, in his book “Good to Great and the social Sectors”, Jim Collins
(2005 p1) comments as follows:

       “We must reject the idea – well intentioned, but dead wrong – that the primary path to
       greatness in the social sectors is to ‘become more like a business.’ “

Collins justifies his position in this regard by arguing that most businesses are
either mediocre or just good. Few are great. In short, what he suggests is that
being business-like is not the same thing as going for being great. Whilst
Collins is correct in principle, the JHC experience suggests that focusing on
market demand on the one hand and ensuring financial sustainability on the
other (both key characteristics of being business-like) has been absolutely
critical to the outcome that the JHC has largely succeeded where others have
failed. On the basis of the JHC experience being business-like in many (but
not all social sector enterprises) is a necessary if not sufficient requirement for
achieving “greatness”. This is certainly true in the social housing sector of


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A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



which the JHC is a part. The failure of most social housing institutions in
South Africa is large part due to their failure to focus sufficiently on financial
sustainability.

Before concluding this section on smart subsidies it is perhaps useful to briefly
describe the nature of the JHC’s financial model as it has evolved over time in
conceptual terms. In this regard it is important to clarify the thinking about
subsidies in the social housing sector. It is generally agreed in South Africa if
the intended “income” target market is to be reached then substantial
government subsidies are necessary. What has been less clear has been
what should be subsidized, to what extent and with what kind of efficiency
insurances. The JHC has pioneered the development of a model in which a
portion of the up-front “capital” costs of housing projects are financed via
grants/government subsidies but where the ‘running costs” of each building
and , over time, the organization as a whole, are covered by rent revenues.
Moreover rent revenues are also expected to cover the servicing of debt on
that component of the up-front capital cost not covered by subsidies. In short
then the “drive towards sustainability” in the JHC context has been about
covering capital costs and operations net of up-front capital subsidies applied
to buildings only. As already described staffing up costs have also been
subsidized but there has been a drive over time to eliminate such subsidies
and to cover staffing costs out of revenues.

Whilst the initial grant funding has been crucial many other things are
important in explaining the JHC’s success. And perhaps next in order of
priority are the respective roles of an outstanding Board and an outstanding
CEO.


1.2 Smart Board

The first Board of the JHC was put in place by the two not-for-profit entities
that set up the JHC – Kagiso Trust (a registered trust involved in development
work) and New Housing Company (a section 21 not-for-gain company
involved in the delivery of housing stock). Whilst there have been some
changes to the Board it has been remarkably stable with many of the current
Board members having been there from the beginning. External and internal
observers (Nell 2007, Crofton 2007, Coovadia 2007, Jackson 2007) point to
the quality of Board as a collective (“it hangs together as a team”) and the
quality of the individual Board members in their own right. The same
observers have also argued that the Kagiso Trust and the New Housing
Company deserved credit for the way they had assembled a highly talented
and committed Board. They also argued that the CEO of the Company, Taffy
Adler, also deserved a lot of credit for proactively using the capacities of his
Board.

The balance and mix of the Board also appears to have been crucial to the
JHC’s success. Forest, (2000, p12) describes the mix (which has remained
remarkably consistent) as follows:



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A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



        “There were Board members from the building materials supply sector, from
       churches, from property management companies, lawyers, housing and financial
       consultants, architects and members representing all the shareholders”.

Four particularly important skills were present from the outset: risk
appreciation and risk management skills (from the business sector); an
incremental, patient and inclusive approach to transition (from NGO, church
and union areas); a strong commitment to logistics, organisation and systems
(which was largely based on personality styles); and project management
skills (from the finance and construction industry) (Blaine 2007).

Overall what seems to have been really important is that an excellent overall
balance has been achieved with respect to political credibility/clout on the one
hand and hard skills (particularly financial and built environment skills) on the
other. Moreover from the beginning the composition of the Board has
projected the right “new South Africa” signs and symbols - the demographic
mix was right, the imagination was right, and the skills were right.

The importance of a “smart” Board in the context of a post-apartheid social
housing sector Africa needs some elaboration. As previously noted, most
social housing institutions are experiencing significant levels of financial
stress. Detailed analyses of these organizations has revealed that poor
corporate governance is one of the key factors contributing to poor financial
performance – and in this regard the fact that many such organizations have
weak Boards is highlighted. Many of these Boards managed to get “political
correctness” right but failed miserably when it came to actually exercising
political clout and demonstrating skills. In South Africa, most “social”
institutions are staffed by committed (and often young) individuals most of
whom are themselves drawn from the ranks of the historically disadvantaged.
In such a context a Board with skills has a more pro-active and more
important role to play than in other contexts.

Management of the JHC (Gollub 2007) speak proudly of a Board that does
not get involved in operational decisions but that supports the company at a
strategic level with decisions that are very sound. However, individual Board
members do get involved in providing hands-on support to staff when it is
requested. Chairpersons and Vice Chairpersons have had extremely valuable
and consistent inputs. One Board member with significant operational
experience is, for example, in almost daily contact with the CEO of the JHC;
another offers critical support with new development projects before they are
put forward for overall Board consideration; and yet another has provided
important input around property management and investment issues.
Employees talk about a presence, a group of dynamic individuals on the
Board who can be approached with ease. And staff tell the story of a rising
manager who was promoted from within the JHC, who was personally
mentored by one of the Board members: “It was really great to see him taking
the time to help one of the staff members – he wasn’t too big for the job”.

The creation of a “smart Board” for the JHC was underpinned by a few key
fundamental decisions/ achievements that the company was subsequently
able to capitalize on. First, and probably most importantly, before even


                                                                                11
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



making the decision that the company would need the “right people on the
bus” (Collins, 2001) in terms of staff, the right Board members were put on the
bus. Collins stresses that “the number-one resource for a great social sector
organisation is having enough of the right people willing to commit themselves
to the mission” (Collins, 2005, p.16-17). Second, a clear boundary was set up
between operational and strategic decisions from very early on. Finally and
probably most importantly in the early years, was the choice of chairman – the
Presiding Bishop of the Methodist Church for Southern Africa, Mvume
Dandala, fondly known as “the Bishop’’ - and the appointment of Taffy Adler
as the CEO.


1.3 Smart Leaders

The first chairman of the Board was critical to the development of the JHC.
Board members describe a man who knew how to handle people, who got the
most people, who listened to debates and understood the nuances, who was
able to raise issues and play devil’s advocate, who encouraged robust debate
while keeping unity of the members. Above all else he maintained a very high
social agenda for the JHC, which fortified the company’s strong sense of
mission. An excerpt from a speech he made in opening a JHC project in 2002
captures the point well:

      “Some eight years ago I was part of the group that conceived JHC, and piloted it
      through its feasibility stage. Many people said we were mad. The inner city was
      rough, uncontrollable, and unbankable and should be abandoned to “them”. I often
      wonder about the assumptions and consequences of following through this advice.
      For what was being advocated was the abandonment of billions of rands of
      investment in property and infrastructure. The term “them” was used to diminish
      literally thousands of people who had taken their futures into their own hands and
      moved from the physical and spiritual poverty of apartheid ghettos to the relative
      freedom and opportunity of the inner cities. Were we really being asked by the
      conventional wisdom of the day to consign this massive investment, this huge human
      response to political and economic opportunity, to oblivion? Who indeed was being
      mad?”

In a farewell note to the Bishop in 2003, Paul Mashatile, the MEC for Housing
ín the Gauteng Province, had the following to say on the Bishop’s tenure as
Chairman:

      “Through his leadership, Mvume has been enormously influential in guiding JHC from
      its early path-finding period through a process of significant growth that now sees the
      company as a financially sustainable organisation which is equally committed to
      social sustainability. Mvume has stood as a beacon and an inspiration both within the
      JHC and in the national housing arena. From this position he has motivated
      constructive partnerships - between JHC and the broader Johannesburg community,
      as well as internationally. And within JHC itself he has inspired the unified
      commitment from the Board, management and staff. It is a tribute to his leadership
      that I have heard from members of the JHC Board that they always looked forward to
      Board meetings at the company, because there would inevitably be some new and
      exciting debate and each meeting marked continuing progress – reinforcing their
      enthusiasm to contribute to this major force for regeneration in the inner city. As a
      result, the company presents an example of what good governance can mean in this
      new era of socially responsible capital.”



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Whilst the Bishop’s role has been central, the key leadership figure in the
organization is widely acknowleged to be its CEO -- Taffy Adler. The DFF
(2004, p.13) talk about pioneering leaders who orchestrate intangible assets
for their organisations, who demonstrate pioneering business and civic
leadership and who create systems and relationships, internally and
externally, for nurturing the right kinds of future leaders. Collins (2001, p.20)
describes a hierarchy of leadership types. Top of the ladder is a level five
leader who is described as someone who is a highly capable individual, a
contributing team member, a competent manager, an effective leader, but
most importantly, one who builds enduring greatness through a paradoxical
blend of personal humility and professional will. Adler is perhaps the epitome
of the kind of leader envisaged above.

Whilst Adler’s attributes are manifold, it is his remarkable networking
capacities and his overall “presence” as a committed “big-picture”
development practitioner that people generally mention first. The CEO of a
state owned enterprise that deals with the JHC describes Adler as a “brilliant
and highly principled operator who constantly keeps his eye both the big and
the small scoreboard and who tries to shape not only his own environment but
also the environment around him”. This capacity has created both tangible
and intangible benefits for the JHC including excellent relationships and active
links with influential players in all levels of government; links to experts in the
field internationally and nationally; and links to peers and other important
players in the social housing sector. Moreover, for over 16 years he has been
a major player in conceiving and setting up many initiatives and institutions in
the social housing sector. He has been and still is an extremely important
player in institutions such as the Trust for Urban Housing Finance, the Social
Housing Foundation and the National Association of Social Housing
Organisations and sits on the advisory panel of the National Minister of
Housing.

The dynamics surrounding the appointment of both Dandala and Adler were
are worth reflecting on because the choices made were not simply fortuitous.
Those involved in doing the recruitment were very significant players in the
development finance, business, housing and political environments. As
previously noted the JHC was initiated by the Kagiso Trust and the New
Housing Company. Involved with these organizations were Nkunko Sowazi,
Johan de Ridder and Matthew Nell --- all prominent professionals in the
housing and arena. Moreover individuals with strong political connections and
/or links to the property industry (such as Eric Molobi, Gerald Leissner and Ian
Robinson) were involved.

 All of these people had either (or both) political awareness/connections and a
track record in implementation. As a consequence they had a good sense of
what they were looking for and what was needed. And whilst Adler had spent
most of his professional life in the trade unions, he had spent the three years
prior to joining the JHC as the CEO of a housing related Land Investment
Trust (the LIT). Here he had rubbed shoulders with those closely involved in


                                                                                13
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



housing and development. In short Adler was identified by people in the know
as a potential champion and their instincts suggested that they should secure
his services. Dandala was recruited to the Board by Sowazi and Molobi who
had excellent political connections and liberation struggle credentials. In
hindsite both appointments were inspired. But it is important to note that the
involvement of both business and social/political people in the processes of
setting up the company and in finding the right champions was very important.
Herein lies an important lesson for double-bottom-line start-ups.

Whilst Adler and his senior management team have provided the JHC with
outstanding leadership, a recent audit/analysis (Regenesys 2006) of skills
development requirements in the company noted that one of the key
challenges facing the JHC is the creation of a stronger middle management
layer with leadership qualities. The audit commented on the fact that this was
quite usual in fast growing and successful companies. The audit makes
reference to the model posited by Charles Handy (1993) in terms of which a
company is led in the early years by a highly charismatic and almost “god-like”
character. However as the organization grows, a point is reached where this
central figure can no longer imprint his/her personal touch on every activity of
the company. In short a new culture of delegation is required. Moreover a new
layer of leadership has to be developed. The fact that the JHC commissioned
the audit in the first place and is committed to the creation of new leadership
cadre bodes well and is testimony to the senior management team’s
willingness to change their management style as the needs of the
organization change.

Over time the JHC has followed a practice of appointing middle management
from within the staff of the company. This practice focuses of growing staff
who have demonstrated their commitment to the “JHC way” through
consistent performance.       They will have also have demonstrated the
necessary leadership abilities and flair required to fill a management position.
The challenge that the JHC faces is that many of these staff come from
previously disadvantaged background and have a significant gap in their
numeracy and literacy skill levels. The JHC is attempting to address these
gaps through implementing a rigorous skills development programme for
these managers to support their development as managers in a holistic
manner. This involves inter alia supporting development of management,
technical, literacy, computer and numeracy skills (Chetty 2007).

The extent to which JHC seeks to recruit middle-management staff from
“outside” the organization is an increasingly debated point. At present
however the JHC remains committed to developing management skill from
within (O’Brien 2007). Lying behind this approach is a commitment to
developing South Africans and particularly those with historically
disadvantaged backgrounds. But it is an approach also informed by a belief
that that there is much to be gained from drawing middle management from
the ranks of those who are fully acculturated into the JHC and who share the
JHC’s sense of mission.. Collins (2004) in his empirical assessment of the
characteristics of “great” companies notes that in many such companies most
people in management have grown “through” the company rather than coming


                                                                             14
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



from outside. Whilst it is probably on the right track, the JHC will probably
continue to struggle with finding the right balance between developing from
within or importing skills from outside.


1.4 Smart and Disciplined Operational Processes

Over time, automation, processes, procedures and customer service have
become ongoing activities embedded in a highly disciplined JHC operational
culture. Adler elaborates as follows:

         “The increasing systematisation and automation of our operation required more
         reports, continual documentation of procedures to ensure continuity, increased scope
         of operation of individuals and higher skills, within a customer service framework. The
         seeds of this operational culture were fertilised by the grant funding which originally
         allowed us this luxury, which has now become a necessity.”

An example of smart and disciplined process in the JHC is the tenant life
cycle process. The table below shows how it has progressed from an 8 step
process to an increasingly automated and documented 21-step process.

BEFORE
1.   Tenant comes to the office and hand writes an application form.
2.   Leasing officer hand writes a pro-forma invoice.
3.   Tenant goes to the bank to pay.
4.   On his return with a proof of payment, officer hand writes parts of the lease onto a
     standard document.
5.   Tenant then goes to the building to receive the key, and is welcomed by the building
     manager.
6.   Between 7th and 10th of the month credit control processes start.
7.   Around 24th of month, dummy run of rental statements to check they are correct.
8.   Between 25th and 30th of the month, corrected statements are delivered to tenants.
NOW
1. Tenant application is captured electronically onto the system.
2. A pro-forma invoice is printed.
3. Tenant pays at the bank. JHC systems are linked with the bank and payment is checked
    electronically.
4. An automated credit check is completed at the discretion of the officer.
5. On authorisation of the bank and credit bureau, previously captured information is
    transferred automatically onto a lease agreement and printed.
6. Other standard documentation and a snag list are printed and handed to tenant.
7. A photo of the tenant is taken and stored on the system.
8. Tenant signs the lease agreement.
9. An electronically programmed access card is allocated to the tenant and handed over.
10. A pack of pamphlets related to house rules, maintenance procedures, the hardship
    assistance programme, safety and emergency procedures, subsidies, and access
    controls and exit procedures are handed over.
11. A welcome gift pack containing information brochures, cleaning materials and sweets is
    handed over to the tenant.
12. The tenant then goes to the building where he is welcomed by the housing supervisor
    and is handed keys for the unit.
13. The manager helps the tenant go through the snag list to ensure that the unit is in good
    condition.
14. Maintenance requests are triggered by any negative reports from the snag list.
15. After two months the tenant is asked to complete a customer service questionnaire. All



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A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



    questionnaires are compiled into a quarterly report discussed by JHC staff.
16. On an annual basis the tenant may be interviewed as part of an independent company
    wide customer service survey which is discussed by staff and the JHC board.
17. When the tenant leaves, an exit interview is held. All exit questionnaires are compiled
    into a quarterly report discussed by JHC staff.
18. By noon on 25th of each month a correct tenant statement is printed.
19. By the evening of 25th of each month, a statement is hand delivered to each tenant.
20. On 5th of every month, tenants in arrears receive an arrears letter.
21. Daily follow ups between 5th and 20th ensure minimal arrears by the following
    statement run.

Another example of systemization and automation are the extensive building
monitoring systems which record what is spent on the buildings and which
help identify improvements that might be necessary. Such processes are now
entirely automated.

Systemitization and automation bring not only increased efficiencies but have
also had important impacts on tenant attitudes. Tenants relish the order that is
afforded to them within the chaos that still reigns in many parts of the inner
city. Systemitization when allied to a respect for privacy, a respect for the
rights of children, noise control, cleanliness and constant maintenance,
contributes to the JHC’s success with low arrears and low vacancies. Some
quotes from tenants highlight these points:
        “This (place) nurtures you to become a human being” Jeppe Oval Tenant, Customer
        Service Survey 2004

        “Another important point is that JHC has got its own offices where you go for detailed
        explanations. You don’t pay at the gate....everything is organised, you just go to their
        offices where you are welcomed with unbelievable hospitality, you produce your ID
        and every necessary document. They don’t take your cash but instead they tell you to
        go and pay at the bank.” Jeppe Oval Tenant, Landmarks and Learnings, 2005

        “The rules are important. Those guys can’t just do what they want. They must respect
        the families and the children and all of us. We all pay our rent. This is ‘my home in the
        city’.” Brickfields Tenant, 2006

        “The place you stay in influences the way you think. We have peace of mind here.”
        Brickfields Tenant, 2006




2. A Learning Organisation


2.1 Blazing a new trail in a difficult environment: Disciplined
innovation as part of company culture

The JHC may indeed have had a number of things going for it at the
beginning, but as previously noted, early advantage does not necessarily
translate into success and sustained well-being. Moreover it should be
stressed that the environment in which the JHC started its business was a
very difficult one. To begin with post-apartheid national housing policy did not
give a great deal of emphasis to social housing for rental per se but focused


                                                                                              16
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



instead on incremental housing for ownership. There was no explicit policy
framework for social housing although subsidies could be accessed via a
related programme - the so-called institutional subsidy programme.

The institutional subsidy instrument was a blunt instrument with which to
tackle social housing and the difficulty that many social housing institutions
currently find themselves is in part due to this. The primary weakness of the
social housing subsidy however was that subsidies provided were too small in
relation to the incomes targeted and the aspirations regarding the quality of
accommodation to be provided. The situation has recently been rectified by
the adoption of a new national social housing policy which should make the
delivery of social housing a much more viable proposition in future. It should
be noted in this regard that the JHC was a key player in the process of getting
government to develop a new policy framework (with supporting financial
provisions) specifically for social housing and an important contributor to its
content. The primary problem relates to the unsustainable level of debt that
institutions catering to low income families have found themselves in as they
have taken on debt to deal with the under-funding via the subsidy mechanism.
JHC’s donor support allowed the company to escape this fate

However it was not only the policy environment that was hostile. During the
years of intense struggle against apartheid the liberation movement organized
people into active political opposition across a number of fronts – one of them
being the non-payment of rents in public housing estates (mostly in the
townships). Of course during these years of struggle the economy contracted
and unemployment rose steadily further underpinning a culture of non-
payment of rents. By the time a political settlement was reached and the JHC
came into being, public housing rental estates were in a state of collapse as
rent boycotts were almost total (J. Adler 2007). Government chose to address
this situation by selling off existing public rental stock (rather than trying to get
people to pay their rents). The provision of new public housing by government
was ceased and the vision was that rental housing would in future be provided
by semi-autonomous social housing institutions (similar to the Dutch and
British social housing associations) and by the private sector.

What is important to note however is that emerging social housing institutions
had to try to build a new business in an environment where ill discipline
regarding rental payments was the norm. In the inner city areas this ill-
discipline was equally evident in the private sector. In many buildings
landlords had simply walked away from their assets leaving a range of social
pathologies in their wake. Against this background the fact that the JHC now
runs a social housing company in which arrears amount to less than 1% of the
total rental bill must be seen as a very substantial achievement.

The successful building of a culture of providing “value-for-money
accommodation” within a predictable rule-based, normative environment
seems to have been crucial in dealing with anti-social type behaviours like not
paying rent. In the introductory section to this paper reference was made to
the importance of building “trust” -- not in the sentimental sense but in the
sense of doing what has been committed to. This applies as much to ensuring


                                                                                  17
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



that promised services are delivered as it does to following through on
sanctions on non-compliant behaviour on the part of tenants. As far as
achieving “low” arrears is concerned, it was absolutely essential for the JHC
to be “tough”, but within an overall context of being understood as “fair” and
“understanding”. Being tough extended in some instances to actually evicting
non paying tenants. However unpopular and open to politicization this was,
the JHC followed through on what it had promised to do in the case of rental
non-payment. This soon became “street knowledge” in the sense that the
word spread that the JHC would simply not tolerate non-payment. And after a
while not paying rent at the JHC became unthinkable. It should be noted
however that such “toughness” would probably not have been possible if the
JHC was not also seen at street level as “fair”, “empathetic” and committed to
progressive social change.

Local authorities and other regulatory agencies had little experience with non-
governmental social housing companies and the JHC found that a great deal
of its work in the early years was focused on removing or overcoming
regulatory and utility provision obstacles to the provision of affordable
housing. Thus, notwithstanding the fact that the JHC had been given a
generous grant by the international donors, it had to be a pioneer in a tough
environment. And as a pioneer it was constantly facing new challenges and
having to innovate. And a number of our interviewees recognised and pointed
this out in our discussions. In fact the JHC is seen in the broader social
housing environment as a trend setter. However the JHC penchant and
reputation for innovation was not necessarily born out of a pre-disposition for
new things—it was born out of learning from practice and out of necessity.
Interestingly, as the organization has made advances so an interesting
tension has developed between its innovative reflexes on the one hand and
the conservatising influence that systematization and discipline introduces.

In fact we are of the view that one of the key reasons for the success of the
JHC is because it has developed a particular mix of innovation and discipline
into a distinct business style which it has applied in all areas of operation: new
developments, property management, financial administration and community
development. Consultants in each of these areas indicate that working with
the JHC has often required them to operate differently than with other
employers. The JHC spends a lot more time, for example working on the
specifications of the brief and on ongoing project management. A lot more
responsibility is then put on the consultants to deliver on thoughtfully
constructed briefs.

 A former member of the management team, Paul Jackson (JHC’s first
operations and new developments manager), deserves a lot of credit for
introducing major innovations into the new developments arena, such as
moving the JHC from relying on turn key arrangements to the point where the
JHC has developed its own approach to handling “in-sourcing” and
“outsourcing” in development projects. In short this JHC approach involves a
much more active and hands–on role by the JHC in developing projects and
managing development risks, which over time it has learned to identify,
anticipate and manage. Another example of innovation in this arena is how


                                                                               18
A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



Jackson introduced a new engineering contracting approach which was based
more on commitment to values than on legal documentation. And then his
successor as new developments manager, Anton Gollub innovatively
redeveloped the template created by Jackson into a format which was
appropriate for use with smaller engineering works contractors doing the
refurbishment work on the high-rise buildings.

It should be stressed also that in the JHC new services and systems are
generally introduced as a result of reflection on existing programmes or
processes. For example the introduction of a hardship assistance programme
grew out of observed hardship experienced by a family where the
breadwinner/leaseholder died.      JHC introduced a benefit which gave
families/dependents the space to gather their resources in the wake of major
hardship events safe in the knowledge that their rent would be paid and that
funeral expenses would be paid. The benefit is costed into the budget of the
company as a whole based on an actuarial assessment of the risk and
compared with the cost of a commercial benefit provider/insurance company.
It is seen as a non contributory benefit and of course it also covers JHC (to
the extent that rental payments are guaranteed in periods where households
experience hardships). The need for the innovation came from the
experiences of the housing supervisors and community development
managers.


Before exploring this further it useful to sketch some highlights of the JHC’s
record as a pioneer/ innovator. The following “firsts” have been recorded by
the JHC:

      The first conversion of an office block into residential units: Tower Hill,
      1997
      The first new build in the Inner City for 30 years: Jeppe Oval, 1997
      The first inner city slum clearance in thirty years: Douglas Rooms, 1998
      The first social housing company to establish a community
      development division, 1999
      The first commercial loan for an inner city social housing project :
      Elangeni, 2000
      The first conversion of a hotel into residential units: Landrost, 2000
      The first residential landlord to formulate an HIV/AIDS Charter, 2001
      The first upgrade under the City of Johannesburg’s Better Buildings
      Programme: Lake Success, 2002
      The first residential landlord to introduce a Hardship Assistance
      Programme, 2003
      The first residential neighbourhood programme: eKhaya, Pietersen
      Street, Hillbrow, 2004
      The first solar energy installation in a high-rise residential building:
      Smitshof, 2005
      The first major inner city residential regeneration project: Brickfields,
      2005
      The JHC is the first social housing institution in South Africa to explicitly
      address environmental conservation. This is evident in several


                                                                                19
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       innovative projects such as the use of geyser blankets (to provide
       greater insulation and reduce energy wastage) in a number projects;
       the fitting of all JHC geysers with a ripple relay device which turns the
       geyser off during peak city demand periods so saving tenants peak
       electricity rates; the installation of a solar energy scheme in the 118
       unit Smitshof project; and the use of energy efficient light bulbs and
       day-night sensors (which turn public space lights off in the daytime)
       (JHC 2005).

The acclaimed economist Lester Thurow (1999) has articulated the tension
between innovation and discipline/systematization clearly. He argues that in
order for an innovation to yield fruit at scale it needs to be made ordinary. In
order to do this systems and discipline must be introduced. However, he
argues that discipline and systematisation carry with them the seeds of the
demise of innovation (e.g. the systematisation of the reliance on the
combustion engine is part of the reason for the success of the automobile as
we know it but it also the enemy of the electric or solar-driven car).

Working from an empirical base Jim Collins (2001) concludes that one of the
key characteristics of ‘great companies’ is that they develop a highly
disciplined business culture. This implies disciplined people, disciplined
thought, disciplined actions and disciplined focus on the building of greatness
to last. And it seems that the JHC has developed such a culture. Senior
managers (2007) of the JHC describe in detail how there is a business style
within the company that everything stems from, in an extremely disciplined
way. When describing this business style words such as values, belief
systems, work ethic and performance are all used. Part of the JHC staff’s
performance assessment is based upon employees exhibiting this business
style. Getting and keeping the right people within the JHC has also been
heavily linked to this style. As one senior manager pointed out if a new staff
member fails to fit into this culture they almost certainly will experience
discomfort and not stay on. Moreover senior managers point out that the
culture has become bigger than individuals. If Adler or any other individual
was to go - the culture would remain.

Not surprisingly innovation is part of this culture. But such innovation has to
occur within the discipline of the culture. And central to this culture are three
things. First is discourse. Any innovation must be thoroughly and
democratically discussed – be it with employees or consultants. Second is the
principle of not compromising the financial sustainability of the organization.
As previously noted a “business culture” predominates over an NGO
mentality. Third is the principle that the company’s social goals should never
be lost sight of.

Notwithstanding the discipline it is fair to say that the JHC remains a highly
innovative organization. And it seems that disciplined innovation will become
increasingly important in the future. Thurow (1999) for example argues that
the rate of change in the global environment has reached unprecedented
levels and “winning firms” will find the right balance between status quo
conserving discipline and “cowboy-like” innovation. Certainly the JHC’s


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environment is changing around it and rapidly. For example the rapid increase
in the price of inner city property poses a major new challenge. Moreover
changes in the policy and financial environment will demand innovative
responses.

Whilst JHC has at various times emerged with “big” new ideas out of
brainstorming sessions or inputs by external consultants, Adler describes
innovation within the company as being largely about recognising incremental
learning and then capturing and translating it into mainstream practice. The
JHC he argues learns most from reflecting on the process of doing. With
experience, the JHC has systemized processes, procedures and day-to-day
work, to get things right the first time. Thus above all else the JHC innovates
by learning.


2.2 Incremental Learning

A member of the senior management team said that the JHC “is not an instant
solution company.” Outsiders to the company see the output, which is the tip
of the iceberg, but they don’t see the broad base of how the company gets
there. There are lots of systems and procedures in place that help to monitor
how things get done. This has helped to create a learning organisation based
on a strong support system.

A member of the management team observed that while the JHC is grappling
and responding to issues, it suddenly realises along the way that it has just
been innovative in its thinking. By working through problems, the JHC
manages to push the envelope. An anecdote which describes the way Adler
stretches employees while also stretching the JHC helps highlight the point:

      “It’s so much fun to watch. He will be discussing the management accounts – which
      he doesn’t just read and expect the finance department to understand, he gets to
      grips with everything – and he’ll see that maintenance costs are the highest costs.
      Then he sees that plumbing costs are the highest of those costs. He doesn’t ask for a
      different way to do plumbing, he takes it one step further. He says, ‘how do we have a
      building without plumbing?’”

Management highlighted this as a key process for staff: they are included in
day to day decisions for the company. All decisions are spoken through,
throughout the whole business from the housing supervisors to the CEO.
Even if the decisions don’t feel right, they are spoken through until they work.

As the company has grown so the culture of discourse has been pursued
more systematically. For example the JHC has committed itself to an annual
strategic review which has been systematised and timetabled so that senior
management commences the process in December and January, a company-
wide workshop is held in early February and then the outcomes are
processed via senior management into a strategic plan which gets discussed
in April and presented to the Board in May. The final product is fashioned into
a budget which the company has started to discuss in various divisions before
it is finalized at a meeting in June, in time for the commencement of the


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financial year starting in July. Throughout the process there is ample
opportunity for staff involvement. It should also be stressed that whilst
systematization is meant to further embed a culture of discourse it is not
meant to be a substitute for it. It is recognized that the JHC’s culture of
encouraging and inviting discourse either within or outside of formal
processes is critical to processes of incremental learning and growth.

But the JHC has become more self-conscious in its processes of incremental
learning and takes conscious steps to ensure that practice is subjected to
critical evaluation and to ensure that key lessons are learned. An example of
such self-concious incremental learning is the new construction process which
requires interaction with housing supervisors, tenants and service providers
before a design for a new building is finalised, and which then requires a
completion report one year after the project has been completed which deals
with issues, problems, lessons etc.

Perhaps a key point that brings all these perspectives together is highlighted
by employees’ sense of excitement and appreciation at being a part of
building the future of the company. Employees love being a part of the
company and are champing at the bit to see it achieve its goals. However,
more importantly, one can clearly see the way the JHC has matured into a
company that is moving towards what the DFF refers to as triple loop learning
(DFF, 2005, p.5):


               Single Loop Learning            Double Loop Learning        Triple Loop
                                                                           Learning
 DFF           Learning about one’s            Learning about              Own perspectives,
 definitions   operational details,            reframing familiar          world views and
               products, the systems that      problems: e.g. the DFF      underlying values
               must be improved, and the       talks of how to alleviate   have been
               skills that staff should have   poverty in a sustainable    challenged and
                                               manner                      altered
 JHC in        The JHC has systems and         More than any other         Whereas initially
 practice      procedures in place to          social housing              the JHC had an
               monitor product offerings       company in the country      NGO’s world view
               and service; in addition,       the JHC is constantly       they have since
               Customer Service Surveys        reframing the questions     adopted the values
               and Staff Skills Audits and     it attempts to address.     and principles of a
               training sessions are           Integration of different    triple- bottom-line
               conducted regularly.            departments and a           organization.
               Meetings are often used to      community                   International
               reinforce existing systems      development based           exposure through
               and procedures, or to           perspective require         exchange visits
               develop new ones.               constant reframing of       constantly tests
                                               problems.                   assumptions and
                                                                           practices.




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2.3 Learning From and Facing the facts

Jim Collins (2005) argues that “great” companies are learning companies and
that a key component of this is a capacity to face up to the facts --- however
brutal they may be:

      “On the one hand, they stoically accepted the brutal facts of reality. On the other
      hand, they maintained an unwavering faith in the endgame, and a commitment to
      prevail as a great company despite the brutal facts.”

Collins (2005) talks about the key of turning information into information that
cannot be ignored. A number of JHC employees that we spoke to felt strongly
that the capacity to face the facts was part of the culture of the company. If
things are not going according to plan there is a stoic focus on ensuring that
everyone is on track and the seeds of the problem are rooted out and
addressed. Issues are not disguised or kept undercover.

A specific example was described by employees when the company realised
that an annual goal was not going to be reached:

      “We have goals every year to replenish and supplement our stock. I remember a year
      when we all suddenly realised that time was running out and it didn’t look like we
      were going to reach our goal. There was no hesitation in calling meetings with the
      managers to vent and bring out the facts. Fingers were pointed where necessary and
      people were held accountable. But then everyone put their heads together to come
      up with a solution. Within weeks there was a new focus that had come about as a
      direct result of teamwork and it was sorted out.””

Facing the facts in the JHC is strongly supported by the JHC tendency to talk
about everything a lot. As previously noted the JHC has developed a culture
of frank democratic discourse allied to a culture of drawing up agreements
and rules of behaviour (linked to the outcomes of the discourse). This
approach extends beyond the business approach into all spheres of the
organization. The following incident and the way it was resolved exemplifies
the point well.

      In 2001, the residents committee organised a joint party to celebrate Christmas. Each
      unit paid R50 towards the celebrations, which started on a Saturday afternoon, and
      the music and dancing carried on late into the night. That year, Christmas and
      Ramadaan overlapped, and Muslim residents asked that the party be stopped, as
      they required quiet over the fast. A conflict followed and the housing supervisor was
      asked by residents to resolve the fight. Christian tenants insisted on their freedom to
      celebrate, while Muslim tenants insisted that the party end in respect of their fast.
      JHC management met the following week and the Community Development Officer
      was tasked with resolving the simmering tensions in the building which continued
      after the celebrations. It was agreed by all residents that, should there be any fast,
      feast or celebration; other residents would be warned well in advance. It was also up
      to each group to educate the other about what they expected and required over
      religious festivals and other occasions. Following these consultations and
      agreements, peace returned to Carr Gardens.. }




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3. JHC’s Magic
3.1 The JHC’s Hedgehog Concept

A prominent urban development consultant (Matthew Nell), who had been
involved in the set-up of the JHC and who had watched its progress carefully
over the years, was asked whether he thought the organisation would
continue to prosper if Adler was to leave. His response was immediate and is
worth quoting verbatim:

       “Yes they will. The JHC has the profile, it has the formula, it has the magic.”

He argued that a job at the helm of the JHC would probably appeal to the best
CEOs of social housing companies almost anywhere in the world. And as we
spoke to others it became apparent to us that the JHC was building (or had
already built) an organization to last.

But what exactly is the JHC formula? And is it possible to further unpack the
underlying logic of its “magic”. Jim Collins’ notion of a “Hedgehog concept” is
particularly useful in this regard. In fact Collins describes the Hedgehog
concept as the pivotal idea in his book Good to Great. He describes it as
follows (Collins 2005, p17):
       “The essence of a Hedgehog Concept is to obtain piercing clarity about how to
       produce the best long term results, and then exercising the relentless discipline to say
       “No thank you” to opportunities that fail the hedgehog test.”

Piercing clarity (as applied in the Hedgehog concept), it should be noted, is
not the same as an organization having a vision and a strategy. Collins
argues that most companies have visions and strategies but only a few
become great. What distinguishes great companies from good companies is
that they spend time learning about and defining a core
ideology/formula/envisioned future that they then pursue with formidable
discipline. Developing this insight requires an understanding of three
intersecting circles:

1) What are you deeply passionate about?
2) What can you be the best in the world at, and
3) What drives your economic engine?

In a sequel to Good to Great, Collins (2005) considers the applicability of the
concept in the social sectors and concludes that the third circle should be
amended to “what drives your resource engine” because of the greater
dependence of the social sector on grant finance and other non-monetary
inputs.

Acquiring the piercing clarity referred to above is not something that happens
at a single strategy session. It generally requires an initial process of learning
by trial and error but also of intense questioning and discourse. The point has
already been made that the JHC is an organization in which such learning and



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discourse is a key feature.         And we would argue that they have in fact
developed such a concept.

To begin with there is no doubt that the JHC is passionate about what it does.
Certainly part of the passion relates to the provision of affordable housing to
the many that need it. This by itself would be plenty to be passionate about.
But a big part of the JHC’s passion has to do with the unique way in which it
combines housing provision with community building and in so doing
contributing to the revitalisation of the inner city and the building of the new
South Africa. The following paragraph from Bishop Dandala’s Chairperson’s
Report in 1997 captures the passion and vision well:

       “I believe it no exaggeration to claim that the JHC has become a beacon on the
       expanding canvas of social housing in our country. In doing so I am mindful that
       beacons embody two elements, stability and visibility. As regards stability, we are as
       yet a very young company, and much remains to be done before we can claim to be
       more than a flash in the pan. As regards visibility, I am reminded of the words of
       Proverbs 29, "where there is no vision, the people shall perish". The vision of
       Johannesburg as the Golden Heartbeat of Africa is what drives the hard work and
       measurable output of the JHC. To the extent that we contribute and live up to that
       vision, to that extent will we be successful. On the basis of our achievements to date,
       I believe we have provided one beacon on the long journey towards our vision”

In fact it is our view that a key component of the JHC’s formula has to with the
previously noted fact that they are one of the few organizations (whether
government, NGO or private sector) in the country that successfully achieves
the popular aspiration in respect of post-apartheid housing delivery. The JHC
achieves a mix of affordable and decent housing in a good location (the inner
city) and links it to community building in a way that no one else seems able
to do. Moreover unlike built environment creation elsewhere in the city and
elsewhere in South Africa, most of the JHC’s buildings have a mix of race,
class and religion, an outcome which is so difficult to achieve in practice
notwithstanding substantial political rhetoric in support of it. All of these things
are components of the popular political aspiration in respect of housing
environments and JHC is able deliver it in inner city Johannesburg better than
anyone else in the world.

And while JHC does focus on the inner city, it is important also to examine the
concrete economic and social processes which play themselves out in the
inner city and to which the JHC responds. As in many other parts of the world,
inner cities are often home to younger people with aspirations to root
themselves in the city and to grow economically. In the past Johannesburg’s
inner city was indeed a home for young aspirants (in the past mainly for young
whites), but as the inner city fell into decline so it seemed to lose this function.
However if one examines the JHC’s tenant profile it is apparent that significant
proportions are Black, single, young, better educated than average and
determined to make their way in the world. For young Black people – who
were denied access to the inner city in the past (because of Apartheid laws), a
move to the inner city is highly symbolic. It is also materially important as they
go in search of the realisation of their aspirations. The JHC helps them do this
by providing an affordable and appropriate rental housing option in a location
close to many opportunities. And it does so better than anyone else.


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It should also be noted also that from the very beginning the JHC has been
quite bloody-minded about not working anywhere but in the inner city of
Johannesburg. They have been under pressure to spread their wings often
but through discussion they decided early on that they were going to be better
than anyone else in the inner city and they have stuck to that position. Taffy
Adler speaks of the many opportunities that presented themselves during the
early trajectory of the JHC in other parts of the city. He had been tempted to
take them on, but his Board insisted that he stick to his “inner-city knitting”.

Turning to the resource engine component of the hedgehog concept we have
already made reference to the strong business ethic within the JHC and its
emphasis on financial sustainability. The JHC in the first instance depends on
its rental revenues to ensure its sustainability and it is geared in a way that
ensures that it collects its rentals and maintains low vacancy and arrears
rates. It is also by the far the best of the social housing institutions in the
country when it comes to winning the support of donors and securing grant
finance. So strong is the JHC on ensuring financial sustainability that it is
sometimes accused by its critics of losing sight of its social purpose.

This accusation stems in part from the fact that the JHC has avoided making
itself “subsidy-dependent” largely because of the uncertainty in gaining
access to subsidies given the risks associated with government prioritisation
and administration (of such subsidies). Moreover as previously noted until
recently social housing policy and subsidies have been entirely inadequate.

So JHC adopted a policy of aiming as downmarket as it could but looking
nonetheless to be able to survive without subsidies. Thus the JHC has in
some of its projects not reached as far down-market as it would have liked.
But there can be no doubt that it is still serving a mix of lower income and
upper low-income households for whom there are few alternatives in the inner
city. At present 12% of JHC’s rentals fall below R700 per month (which is very
low) and 50% of all tenants would fall within the current government subsidy
bands. However the JHC’s decision not become overly subsidy-dependent
has enabled them to develop and grow the organization smoothly whilst at the
same time government policy and subsidy administration has been erratic.
For example, the formulation and introduction of new social housing policy
has been some four years in the making and is not yet operational. When
this much more favourable (to social
                                               Box 3 – From tenant committees to paid
housing) policy is operational there is tenant volunteers
little doubt that the JHC will make use of
                                               Initially, the company’s experience was that
it and the more generous subsidies it tenant committees as representative bodies had
offers. But it is very unlikely that they will a temporary and cyclical lifespan. Committees
                                               often form around specific issues in a building;
ever      make      themselves      subsidy- however they tend not to remain permanent, with
dependent        and    therein      lies  a the burdens of daily life taking over from the
                                               activism required of a committee member. In
sustainability lesson for others.              order to allow for a regular channel of
                                                     interaction, the JHC established tenant
                                                     volunteers who get paid on an activity basis by
Being focussed on the organization’s                 the community arm of the JHC. They compile a
resource engine and not being subsidy-               monthly report and work closely with the resident
                                                     housing supervisor on issues of tenant concern.
dependent has also meant that the JHC


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has had to develop a nuanced understanding of the inner city market in which
it operates and which it understands better than anyone else. Whereas in the
early years JHC, like others in the low-income housing market,
subconsciously assumed that because the demand for housing so exceeded
supply (particularly in well located areas) they would have no problems in
finding tenants for their buildings if the price was right and irrespective of the
kind of product offered. What they learned very quickly was that just because
poorer people are poor, does not mean that they are not discerning or have a
well-developed sense of the product/price relationship.

For example the JHC learned from its first new build project, the Jeppe Oval
that the unit sizes they were providing were too small in relation to market
demand. Some tenants cancelled their contracts as a result and JHC’s units
aimed at the same target market are today much more generous in space
terms (JHC 2005). The learning achieved in the Jeppe Oval was built into the
design of the Carr gardens project which was fully tenanted within 17 days
after putting it out to the market. Over time the JHC has noticed that demand
in the inner city is highly variegated. And each year the JHC conducts an in-
depth survey of market preferences. Tenants are treated like discerning
customers – not as the “should be grateful” recipients of state largesse. There
can be little doubt that the JHC has developed an understanding of the social
housing market in the inner city and the product response to it that makes it
better at providing social housing here than anyone else..


3.2 Capital Plus: More on bringing the “social” into housing

As described above an important component of the JHC’s magic has always
been the way it has recognised that addressing poverty is about much more
than just providing affordable housing (however important this might be).
Initially the JHC focused on tenant participation and on promoting tenant
development, which as has had a trajectory within the company (see Box 3).

However, the JHC soon realized that they could not focus on creating islands
of privilege in Johannesburg inner city’s sea of exclusion and hardship
because of resentments that this may cause and because JHC resident’s
(and the JHC) have a material interest in the improvement of the
environments within which they are embedded. Moreover the JHC has
always seen itself as being about inner city revitalization and this is a central
component of its mission statement. Thus in recent years as the financial
situation in the company has become very solid so the JHC has consciously
shifted from a focus on their tenants to a broader focus on community
development. In fact, to give this shift real content the JHC have created a
dedicated community development subsidiary.

       The establishment of Makhulong a Matala as the dedicated community development
       arm of JHC gave focus and an increasing professionalism to community building
       within our homes. Under Makhulong’s wing, the eKhaya Neighbourhood Programme
       spread JHC’s mission into its first pilot neighbourhood in Hillbrow. eKhaya’s early
       achievements included a safe New Year’s Eve campaign and the organising of 25
       buildings in one street into a neighbourhood network. (Adler 2005)



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Makhulong, under the guidance of a trained social worker, Lindi Malinga,
focuses on a wide spectrum of activities to ensure that tenant needs are met.
The activities range from programmes aimed at building relationships within
the communities to stimulating economic empowerment of especially women
and young adults. There is a soccer and a netball league and teams from
each building get together every weekend to battle for the trophy which is
handed out at an awards dinner. Other activities are aimed at educating
tenants on their roles and responsibilities. A particular priority of Makhulong is
the future of young children which it enhances by investing in early childhood
development activities and related programmes. (www.jhc.co.za). Such a
focus on the development of the youth is, it should be noted, quite consistent
with JHC’s capacity to embrace aspirations. Many JHC parents have high
hopes for their children in a “new” South Africa (Malinga 2007).

At present Makhulong costs the JHC approximately R2 million per year. The
JHC is committed to covering all overhead costs associated with running
Makhulong. However financing for specific projects has to be sought from
donors. Moreover Makhulong is set up as a tax friendly entity which allows
donors to claim tax breaks off any donation given. This allows the JHC to take
advantage of the specific South African Black Economic Empowerment
provisions where commercial companies will make grants/investments in
order to earn required charter points. In fact Makhulong has recently become
financially independent by virtue of one such a deal – the Apexhi deal in terms
of which Makhulong will get a capital grant of R18.7 million.        The specific
deal is not one which is replicable outside of South Africa. But it does point to
the advantages of understanding the opportunities that local environments
provide. Moreover it highlights the importance of having people on board who
are actively involved in business and who know of and how to exploit
particular opportunities. The Apexhi windfall would never have happened if
such people were not involved on the JHC Board.


When employees of the JHC speak of community development, they focus on
very tangible benefits that they too can see and feel. Such initiatives like the
financial component of tenant training that assists tenants with budgets and
how to deal with their finances, doesn’t only help tenants with a very real and
daunting aspect of their lives, but indirectly helps the JHC keep its arrears
down.

Board members spoke of the educational training as a fundamental part of
community development:

       “Tenants must know their rights, but also their obligations. They are not there to be
       exploited.”

The following two diagrams taken from the JHC’s Ten Year publication show
the number of tenants who have undergone training since 1998, with a more
detailed description of training in 2005:




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                                                   29
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The JHC currently has an annual customer service survey which looks at, the
profile of tenants (adults & children), their first contact with the JHC, the
application process, the installation process, their experience of general
services provided by JHC, perceptions on frontline staff performance,
perceptions of the quality of accommodation offered and the experience of
living in a JHC building. The results of the annual survey are analysed keenly
each year and where necessary adjustments are made. There is also a
regular tenant newsletter called On-Track that ensures tenants are kept
abreast of what the company is doing and what is happening in the JHC
community.

The 2006 Customer Service Survey shows a high level of satisfaction
amongst tenants with regards to the services provided by the JHC. Overall
there is however a decrease in perceptions of excellence regarding service,
where fewer respondents rated the service excellent, and more rated it good.
However some tension is to be expected. This tension between the service
the JHC offers tenants and what the tenant’s want was described by a Board
member as natural, especially in a city with a damaging history as far as
tenant /landlord relationships are concerned. :

       “A lease is a conflict document. The landlord wants a reasonable return and the
      tenant wants everything for nothing. We offer rental accommodation which is
      transitional accommodation. As soon as the tenant finds his or her feet, they will want
      to move out, move on and buy something.”

A “good morning” or a “how are you” are the little things that have endeared
tenants to living in a JHC building. The sense that they feel comfortable to
knock on a neighbour’s door to ask for help or a ride to work, are tell-tale
signs of a community in the making. And while it is difficult to create a
community within transitional accommodation, this is one of the key focuses
of the JHC and Makhulong a Matala.

When employees and tenants were asked about whether there were networks
of trust within the JHC, a clear indication was given of bonds that existed, and
those that the interviewees wished existed (Carr Gardens Tenants 2007;
Brickfields Tenants 2007). Employees spoke about pockets of social capital in
the company. They spoke about politics that exist in almost every working
environment but they also spoke about a “safe feeling” that existed which
allowed them to rely on their peers for support, for help and for information.
They described high levels of employee solidarity as evident in activities such
as wearing JHC branded shirts, supporting each other’s events and providing
support even outside of the workplace.

When contemplating social capital for tenants, employees felt that the network
of services provided for tenants affords them benefits that make up a type of
social capital. Perhaps the most important form of social capital that the JHC
provides is a form of social governance. There is an understanding from
tenants and from the JHC that people want some sort of order in the chaos
that is Johannesburg. This is demonstrated through a desire from tenants for
stability, strong security and clear-cut house rules to manage the buildings. In
fact it is such social governance, or more correctly the lack thereof, that is


                                                                                         30
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increasingly being identified as a key problem in South Africa’s diverse
housing environments. Adler for one often ponders whether or not the JHC
could bring its community governance skills to other kinds of housing
environments--- such as informal settlements.

Whilst involvement in informal settlements is perhaps straying too far from its
core business, the JHC’s involvement in broader community initiatives, which
we referred to earlier, often take the form of governance initiatives. This much
is evident in Adler’s comment about the Hillbrow initiative – where the JHC
becomes active in the governance of not only its projects but of whole
neighbourhoods:

       “At the end of the first year of the eKhaya Neighbourhood Programme (Hillbrow) we
      are gratified to report that this initiative is making steady headway. Through the
      successes of small projects (“Our safe eKhaya New Year” campaign, Lane
      Management), a body of stakeholders is showing its determination to establish a
      sterling example of co-operative, organised action to bring about an environment in
      which people are comfortable to live well and productively in our inner city. We are,
      each one of us, essential building blocks in the eKhaya Neighbourhood community.”

While it will be interesting to do an audit of this project in 5 years time the
following excerpt from a press release marking a rare peaceful and enjoyable
New Years Eve in 2006 for tenants of Hillbrow and Berea suggests that the
project is already a resounding success.

      The perception of Hillbrow as hosting Johannesburg’s annual festival of violence and
      mayhem may continue but the truth is that those days are over. Seeking likely
      explanations for this, one comes across push and pull factors working together to
      create an inner city which seemed only a distant dream a decade or so ago. Not only
      is the SAPS and City Council striving for a clean, safe and user-friendly inner city, but
      neighbourhoods are drawing together to make the inner city their home. The
      collaborative efforts and projects organised by building owners, housing managers
      and caretakers, city departments and policing officials over the past three years, are
      bearing fruit. “It’s nothing like it was in previous years” said one Hillbrow building
      owner as he recalled the gunshots that came from neighbouring buildings, and the
      streets strewn with broken glass.




4. “What next?”

In “Good to Great” (2001), Jim Collins and his team of researchers defined
the difference between a “good company” and a “great” company in terms of
results achieved (to make the ”great” category a company had to outperform
stock-market returns by an average of 6.9 times over a 15 year period). There
was as a consequence no debate over whether or not a company should be
classified as “great” or not. They either made the quantitatively defined cut or
they didn’t. In “Good to Great and the Social Sectors”, Collins (2005)
acknowledges that it is more difficult to measure “greatness” in the social
sector. In the social sector he argues that the critical question is not “how
much money do we make per dollar of invested capital” but rather “how
effectively we deliver on our mission and make a distinctive impact, relative to
our resources.” Furthermore he isolates the three key dimensions of


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“greatness” as: superior performance relative to resources; distinctive impact;
and lasting endurance. It is crucial to note that “greatness” needs to be
measured in terms of outcomes achieved not in terms of “inputs”. This is
important because there can be little doubt that the JHC exhibits many of the
input characteristics of “great” companies – discipline, disciplined leadership,
the right people etc. But as noted above “greatness” cannot be assessed in
terms of the quality of inputs

So can the JHC be considered a “great” company?

The JHC is making a highly distinctive impact. It seems to be one of few
social sector organizations in South Africa that actually delivers on the “New
South Africa” aspiration in respect of low income housing and that this is a key
part of its success formula. And reference has been made to the distinct
impact it is making in terms of contributing to the development of entire
neighbourhoods and to regeneration of the inner city as a whole. There is
also little debate about whether or not the JHC is a company which has and
will continue to contribute over an extended period.

But where there is a question is in relation to whether it has delivered superior
performance in relation to its resources. A number of external observers
(Mapisa 2007, Crofton 2007, Jackson 2007) have indicated that the only thing
that has disappointed them about the JHC’s performance is the scale of their
impact given the resources that they have had (in particular the R50 million
grant from the EU). There is a feeling that the JHC should have done more –
both in terms of quantitative delivery of social housing units but also in terms
of geographic impact. There is also a view that the JHC had been a financially
very conservative organization and could have been much more
entrepreneurial (Jackson 2007, Crofton 2007). An example that has been
mentioned by more than one observer and which has been referred to before
is the JHC’s failure to purchase an extensive portfolio of buildings when the
opportunity presented itself.

As far as geographic impact is concerned a number of the external observers
feel that the JHC should have established a national presence by now, with
social housing being delivered by them in all of the major cities of the country.
Other observers (e.g. Nell 2007) do not agree. Nell uses an analogy of the
two kinds of supermarkets in South Africa to make his point. Thrupps is a
highly successful supermarket serving a niche market in a predominantly
Jewish neighbourhood in Johannesburg. Pick-and-Pay on the other hand is
an equally successful supermarket chain with a presence in every town and
city in the country (and also in several countries abroad). Nell (2007)
expresses the view that the JHC is a Thrupps and not a Pick-and –Pay. He
points to the fact that Thrupps has recently attempted to spread its brand to
Cape Town, but that the venture had not been successful. Thrupps’ success it
seems is based on a local formula.

Nell (2007) argues that the JHC has a symbiotic relationship with the inner
city of Johannesburg and that they have been right to avoid being seduced
into foreign waters. It has also been argued in this paper that a focus on the


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A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



inner city of Johannesburg has been part of the JHC’s “Hedgehog Concept”
and by extension a crucial component of its success. If the JHC is to spread
its wings at all, it seems that it would prudent of it to focus only on inner city
environments in the other major cities in the country. More conservatively it
should focus on achieving greater scale in the inner city of Johannesburg.

Interestingly when the Pick-and-Pay/Thrupps metaphor was suggested to
Adler, he further extended the metaphor with reference to yet another South
African supermarket – Woolworths. He feels that whilst Woolworth’s is a
chain it has the same aspirational qualities regarding the creation of a new
South Africa as the JHC has. It also makes clear choices about product, focus
and location. Moreover they are strong on customer service, staff training,
BEE (Black economic empowerment), and branding and packaging. He feels
that to the extent that the JHC can achieve scale outside its current
geographic base, it will be on the Woolworths model. But it is clear that Adler
believes that growing the scale and reach of the JHC is both possible and
desirable. Adler believes that the JHC can easily grow at 500 units per
annum for the next 5 years and at a faster rate thereafter.

In further considering whether or not the JHC has delivered superior
performance in relation to its resources, it is useful to perhaps examine where
they are in their growth trajectory (since it is scale of impact that seems to
bother some observers). Again some concepts drawn from Jim Collins’ (2005)
work are useful. Collin’s argues that companies and social institutions that
have achieved “greatness” generally beaver away with great discipline trying
in the first instance to get a flywheel to move. Later they progress to getting
one entire turn of the flywheel…. And then two turns... And then sixteen... and
then a hundred… until eventually the flywheel flies forward with almost
unstoppable momentum. By focussing on their Hedgehog Concept with
unwavering discipline these companies build results. These results in turn
attract more investors or donors whose inputs are used to build an even
stronger organization. The stronger organization then delivers better results
which in turn attract more resources and commitment.

The JHC has for a decade worked incredibly hard at implementing its
Hedgehog Concept and that it has succeeded in getting the flywheel to move
incrementally. In getting their first building going they got the first movement in
the flywheel, and they have continued to move the flywheel as the company
has grown steadily. Then with the recent completion of the hugely ambitious
Brickfields project (which took the JHC into unprecedented scale in a single
project --- almost doubling the number of units they have under management)
the JHC has certainly got the flywheel spinning and moved rental income from
R36m to R55m in one year. But it is our view that JHC’s flywheel has not quite
yet reached the point where there is an unstoppable momentum. But they are
close. Very close. And when they do reach the threshold there will be no
concerns about scale of delivery.

However whilst the JHC’s conservative attitude to debt has served it well in its
formative years and into early maturity, a more aggressive approach will be
necessary to achieve the unstoppable momentum referred to above. The JHC


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A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



has in its Brickfields and other projects demonstrated that it can manage
enormously complex financing arrangements. And it has become a medium-
sized business in South African terms. As of June 2005 the JHC was
generating a rental income of R36 million and closed the year with a net
operating income of R11.5 million (JHC 2005). Net reserves in 2005 were
estimated at R27.7 million. The JHC now has both the balance sheet and the
free cash flow to support substantial debt.

However, comments about scale of delivery notwithstanding, many observers
consider the JHC a “great” social sector organization already. It is an excellent
example of a sustainable double bottom-line social institution. And there are
few others in South Africa. When writing about social sector institutions
Collins (2005) argued that great companies can help a nation become good.
But great companies on their own cannot make a country “great”. For that to
be achieved a country has to have both great companies and great social
sector organizations. South Africa has its fair share of great companies. But it
has a dearth of “great” social sector organizations. And in a country which
inherited enormous deprivation and income equality this is a matter of great
concern.

       “Only the social sector, that is, the nongovernmental, nonprofit organization, can
       create what we now need, communities for citizens — and especially for the highly
       educated knowledge workers who increasingly dominate developed societies. One
       reason for this is that only nonprofit organizations can provide the enormous diversity
       of communities we need—from churches to professional associations, from
       organizations taking care of the homeless to health clubs—if there are to be freely
       chosen communities for everyone. The nonprofit organizations also are the only ones
       that can satisfy the second need of the city, the need for effective citizenship for its
       people. Only social-sector institutions can provide opportunities to be a volunteer, and
       thus enable individuals to have both a sphere in which they are in control and a
       sphere in which they make a difference.” (Drucker, 1998, p.10).

Perhaps the key issue in thinking about the JHC’s future is the recognition
that it is likely to choose the right path simply by virtue of the quality of its
leadership. And in drawing this case study to an end it is worth noting that
whilst there are many factors which have contributed to the JHC’s success,
one factor seems to stand out in very sharp relief. This factor is of course the
crucial importance of getting the right people on the bus. In the section on
smart subsidies it was noted that the JHC’s experience with set-up subsidies
could and should be replicated but only if disbursed in stages linked to
performance. The reason for arguing this was that there was experience in
other social housing institutions in South Africa where the provision of
generous start-up subsidies had not translated into delivery and
organizational success. But in the case of the JHC it did. It is hard therefore to
escape the conclusion that the only thing that really matters is to get the right
leadership structure (Board, CEO) in place. Of course this conclusion
highlights the central importance of social entrepreneurs or champions with
the kind of qualities described by the DFF in its section on governance in
Capital Plus (2004) or by Jim Collin’s (2005) in his description of level five
leaders.       And perhaps this is the lesson of all successful start-ups—
commercial or social. A committed and sustained management with the
capacity to make appropriate judgements seems to be central. There is a set


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A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



of slides that Adler often uses in discussions with his management team that
is worth quoting from.

“ Success is nothing more than a few simple disciplines practised every day. Failure is
nothing more than a few errors in judgement, repeated every day”




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A CASE STUDY OF THE JOHANNESBURG HOUSING COMPANY



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   31. www.jimcollins.com




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