Strategic Management: Managing in a New Millennium Essay

Different strategies adhered by companies to run their different operation levels depend on the several factors and over and above financial factor and the current market and economic position. The case study depicted here shows that the company has defied all the conventional approach towards the organization towards formation of the new organization based on the psychological perspective of the manpower. Its foundation lies on the principles of integrity, fair, fun and social responsibility whereby power is not only in the hands of the management or in the higher hierarchy level but also at the plant level and every one is responsible for his or her actions. This system was very useful and made the AES leading corporation yet the crises at the economical level in various nations shook the financial stability of the company and they had to adopt their conventional approach of managerial system yet maintaining their integral system contact.

For the new corporations and the business world, the new millennium has provided with ample opportunities and space for change. With the number of market initiatives open for the world environment, technological developments and the worldwide regulation and privatization with the increase in the freedom of trade following the Uruguay round of creation of the World Trade Organization; the new set of competition has emerged. Pressure is stiff among the major players for maintaining the shareholders return, and adjustments to turbulence.

Since 1990, companies have shifted their strategic priorities in response to the two main problems facing senior managers.First towards the gain they can earn from cost cutting process and corporate restructuring and secondly focusing on the short term earnings manipulating the financial statements in order to enhance their stock market valuation. (CSAC 2007: 448).

The best example is AES Corporation. The companies main strategy was not just the focus (this was not the case after 2001 – so there’s no need to mention it here) profit motive and towards the social values like “honesty, fair dealing, adhering social responsiveness and integrity”(Grant 2008: 2). The company adopted these strategies what according to the principles in the management process and also labeled by Robert Waterman, as “empowerment gone mad.” (Grant 2008: 2) In the management process, there are neither schedules of function of the staff nor any corporate departments and the functions traditionally held by the management team would be entrusted to workers at the plant (Wernerfelt 1984: 172).

Company believes that open commitment is the best way to encourage these set standards among its workers. Though workers at AES acknowledges the fact that they are not being fully able to hold these beliefs practically but by holding accountable to these shared values, they are following all the ethics. (this sentence sounds contradicting – shorten it anyway) AEC has also made its practice to conduct surveys at each of their business locations to keep abreast of welfare of the workers and the way workers are adhering to these principles. These surveys are useful to understand and comprehend any failures and helping them to deal with the same. This practice motivates employees to overcome any failures, increasing in their capabilities and in meeting the targets (International Business Strategy & Management Lecture 9).

AES believes that success can only be attained through empowering its manpower and since its commencement in 1981; the company has continued to grow and attain success. The company is in the process to grow and expand the business through its manpower and strong operations. As said by Roger Sant, the Co-founder and Chairman of AES, “the more authority figures you have above you, the more likely it is that you won’t make decisions yourself.” (Wetlaufer 2001: Online) The fellow founder and former CEO at AES too agree to the fact that by empowering employees they are making employees to take on big challenges without considering the need to get approval from seniors. In this case both Sant and Bakke states that ultimately “people will rise to the level of trust and dignity you invest in them” (Wetlaufer 2001: Online).

It also implies capability to motivate by committing itself towards the social cause. According to the press release 17 April 2006, company planned to invest more than $1 billion over the three-year period for expansion in the alternative energy business whereby technologies will be introduced to reduce the greenhouse gas emissions. It would likely to expand alternative energy services in wind power generation and development of the liquefied natural gas terminals. It had planned to invest in the technologies that would reduce the greenhouse gas emissions under their process known as Clean Development Mechanism. It had also committed to generate more than 17 million tones of Carbon for reduction of credits through 2012 (Business Wire 2006: Online).

The strategies adopted by AEC were quite contradictory to the traditional management systems are based on. It is amply true that whole staff of AES is neither merely the means of economic resources nor the tools of the corporations but are very well part of the decision making process and even abide by the same. AES Corporation is structured in the way that it could help individuals to make difference in the world.

In short, how the AES is different than the other companies is reflected in the following points; Firstly, in the conventional organizations, more than 95% of decisions are taken by the leaders, management staff and by the board members of the organization where as in AES, 99 per cent decisions are taken by non leaders. Secondly employees have fixed expenditure limitation above which they should obtain previous approval, whereas in AES no approval is required for expenditure but they should take advice. In other companies, there is a prescribed chart and duties for each work but in AES there is no job description. Under control environment large organizations needs 12 layers of management whereas in AES only five supervisory layers between CEO and the entry level worker is required. Besides the management teams undertake all the other tasks of dealing with the employees whereas even the management tasks including managing of the financing, assessing of the risks and new developments of the business process are the important components of each person. It does not mean to say that AES had informal structure rather than it has three organizational layers between the front-line employees and the CEO and in each plant there are seven areas or families headed by superintendent. The company also had no other department like human resource etc.

AES referred to its organizational structure as a “honeycomb.” The basic thinking is that organization needs not to be managed. A honeycomb is a body of hexagonal wax cells generally built by the honeybees in their nests where they contain larvae and also store honey and pollen. The shape of honeycomb is hexagonal and three dimension in the same way self -organization groups are three-dimensional. They are self-management teams just like cells in the honey who would cooperate with each other most efficiently and without any directions from the central level. As Bakke too said that upper management team only gives advice and guidance to the lower team helping them in making their own decisions and then conforming to these decisions. The structure of honeycomb includes many teams of workers who are responsible for the effectiveness of the organizations making the space for small and effective corporate management.

CEO of the company has made estimation that the company has raised their share to 3.5 billion dollars to construct ten new power plants. 300 million dollars came from his personal account while remaining amount for investment was offered by empowered teams. The company also adopted the decentralization process, which was performed by the teams of non-specialists. This process helps in speeding of the decision-making process, preparation of the bids and in completing the projects. With the decentralization the thought process of all employees is also involved and bring out the concise decision. If the decisions are also made at the workers level then naturally there would be more efficiency and the work would be delivered in speed.

With expected approach that AES would not be able to have an access over the capital markets in 2002 to gain additional borrowings, it would be forced to depend on the internally generated cash flow for providing fund to the operations and meeting all the capital expenditures. To meet the changing demands and finance crises, company was forced to make changes in the organizational structure, stabled an executive office comprising Bakke appointed as CEO with other newly appointed chief operating officers at each AES four lines of business. Each COO has direct responsibility for the management of the company diverse networks. Besides, it has established Cutting Office and the Turnaround Office to manage and coordinate the expenses of the company and to make improvement or disposing of all the business, which company thinks it is under-performing and to report to the executive office. This system is against the decision- making and the values and management systems, which the company has adopted to since 1981 (pls state clearly the year) and had to downplay “integrity, fairness, fun, and social responsibility” (Grant 2008: 2).

With the increase in competition, complicated arising out of the complex financial structure and the risk management process, company decided that the whole functioning would he handled at the head office. But in 2001 despite AES Corporation being declared as one of the world’s largest independent power generator, it had to suffer from four major shocks, the first one was the power crises of 2001 at California, secondly by December, Enron collapse making AES having bankrupt by $15 million. Besides economic slow down in Argentina, Crises of Venezuela, after effects of September 11, 2001 attacks on World Trade Center had increased further uncertainties. Moreover, their investment in Pakistan and Kazakhstan, has increased the chances of physical risk. These factors brought share price to in February 2002, which increased the strain on the finances of AES. The company could opt to what is known as Process based Organization. In this, process organizations need to adopt bottom up process for workers to create new ideas for the production process. It also relies on competence building process whereby the role of the top management is just not to frame the policies for increasing the competency level and defining it but also creating environment where the management is itself involved deeply into the process.

AES’s original organizational structure was very unique and their novel management system and corporate structure has made them highly efficient and capable in their procurement of power supply contracts across the globe. Yet with the changing time and the hurdles faced in the economies of their operational areas there modification and change is the need of the hour, which they successfully did it. The major part of the success of the AES was dependent on the existing market conditions during the era of 80s and 90s. It was able to survive when there was the deregulation process in the power sectors. The founders had involved themselves in the process for drafting of PURPA and were the first one to find out the importance and scope for the power generators, which could be obtained at the cost structures at much lower rate. It was able to use the deregulation, privatization, internationalization process for its own advantage especially capturing the markets of India and China.

In the future too it is very possibility that AES would be able to maintain its organizational structure while maintaining new challenges and approach. However there was every chance that the values and principles on which management is built would change as companies main objectivity is a survival through financial goals and expectations of the share- holders. The economic recession at the global level, 9/11 attacks, and negative publicity had an adverse effect on the performance of AES, which was all due to the result of the failures of other companies for e.g. Enron. All these factors we can call as external factors, which did not have any relation with the internal structure. The form of honeycomb structure had been originated in the past and there is very little chance for the decentralized structure to go down. With more and more organization coming up in the restructure process, AES is heading in each step of the competition process.

Many companies like Apple and Kellogg had tried to bring in the changes in the traditional form of the shareholder-oriented capitalistic corporation to the process of the relationship building and society friendliness but they could not achieve success. In the same way happened with AES. Its whole purpose of a public corporation is the creation of the shareholder value. If the process of the AES does not bring about any change then the company would not be more oriented towards profit, they would not have substantial shareholders willing to invest. Companies’ only way would be the process of retrenchment and not any process of growth whereby it was found that the AES’s capital financing had been cut off and then they were forced to use the system of the internal cash flow for the purpose of funding new practices.

Other challenges, which confront the company, are managing its diverse workforce and tackling the aging workforce problem. Hiring the high-quality desired employees regardless of their varying backgrounds is first step, as the next important step is that the valuable employees stay with the organization. Providing a flexible and supportive environment, emphasizing on learning and development as well as providing effective system of rewards and recognition, as every employee wants acknowledgement for his services, can retain a diverse and high-quality workforce. Employees should be provided with the quality of work-life, leadership and diversity training, professional development and training opportunities and safe and productive environment.

The different approaches, which the company can adopt for dealing its mature workforce, are flexibility, i.e. accommodating age difference; phased retirement i.e. providing middle path between full-time working and retiring full-time; career management i.e. providing advancement opportunities; supervisor training i.e. avoiding age-bias and managing as well as understanding older work force through effective conversations with them on the issues of their careers, performance, and future plans; identifying the effectiveness of mature worker’s current performance and fixing the shortcomings; and by conducting workshops on retirement planning and its financial aspects which may result in realizing the employees the need to continue for a longer period thus benefiting the company in retaining them (Young, Piktialis & Rappaport 2007: 61-62).

To maintain its growth and scale new heights, the company has to overcome the challenges posed by the receding world economy, its organization structure and its diverse and mature workforce.

Reference List

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