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Background and History (1)AES Corporation (Applied Energy
Services) was founded by Roger Sant and Dennis Bakke in 1981. The
firm began operating its first power plant in Houston in 1986 and
went public as AES in 1991.A list of AES operating facilities,
their size, and fuel source, is provided in the Exhibit 1. The
company vision is to be the global power company and as its mission
supplying electricity to customers world-wide in a socially
responsible way.
Corporate Performance Management
Background and History (2)The electric power generation business
has always been very competitive and the competition was
increasing. Many subsidiaries of large oil and gas companies,
organizations with substantial financial resources, were entering
the business. The business itself was complex. Building or
purchasing existing power plants was a process that was heavily
influenced by governmental decisions and actions, and took two
years at least to complete. AES owned and operated its plants under
a number of different financial arrangements. Some plants were
wholly-owned by AES. Others were owned under various joint venture
arrangements.Corporate Performance Management
Core Assumptions on AES peopleAES people are:Are creative,
thinking individuals--capable of learning and making decisions,
like to control their environment and can be trusted; Are
responsible--can be held accountable Are fallible; Desire to make
positive contributions to society, associate with a winner and a
cause, like a challenge; Are unique persons, deserving respect, not
numbers or machines.
Corporate Performance Management
Performance MeasurementAES performance measurement:Shared
Values--How did the company do in having an organization that is
fun, that is fair, that acts with integrity, and is socially
responsible?Plant Operations--How safe, clean, reliable, and cost
effective were the company`s facilities. Assets--What changes
occurred in the company assets, including AES people, during the
year? That is a measure of our project development and construction
progress and an indicator of future earnings potential. Sales
Backlog--What happened to our backlog of contract revenues during
the year? This is one indicator of success in business development
activities."
Corporate Performance Management
Revenue GrowthAlthough AES Corporation refrain pursuing profits
or maximizing shareholder value as the primary objective, AES has
105% revenue growth.
Corporate Performance Management
The Thames, Connecticut Plant (1)The Thames plant is located in
Uncasville, Connecticut, near New London, and around 45 minutes
from Providence, Rhode Island. The plant is located on seven acres
and is in close proximity to neighboring houses. The plant cost
$260 million to construct and uses coal for fuel. It began
commercial operations in March, 1990, supplying 181 megawatts of
electricity to Connecticut Light and Power and up to 100,000 pounds
of steam per hour to Stone Container's paper recycling plant that
is adjacent to AES-Thames. The plant has operated on average at
over 95 percent of capacity since it opened, compared to 83 percent
for the industry as a whole.Corporate Performance Management
The Thames, Connecticut Plant (2)The plant organization has
three levels (the plant manager, the seven area superintendents,
and the front-line people). Because the facility operates
continuously, there is some shift work. After some experimentation,
people now work three twelve-hour shifts and then have three days
off. They then rotate between the night and day shifts. The first
shift is from 6:30 in the morning until 6:30 at night, and the
second shift is from 6:30 P.M. to 6:30 A.M. Maintenance has a
standard 40 hour week but the individuals have pagers, and they
rotate responsibility for off-hours coverage.Corporate Performance
Management
The Thames, Connecticut Plant (3)AES-Thames has an extremely low
turnover rate, as does AES generally. The reasons are:AES is a
different and special place and people know it and value that fact.
To be written about in the Wall Street Journal and other
publications, to receive many visits, reinforces the pride and
feeling of uniqueness that AES people share. People do often move
within the company. Out of perhaps 70 people who were in the Thames
plant when it began, only 4-5 people have left the company in seven
or eight years. As one person put it, "we all have the ability to
expand what we do."Corporate Performance Management
The Thames - HiringThe flowchart of the hiring process at the
Thames plant:StartEvaluate ResumeGood?One on one
interviewsHirePass?Telephone interviewPass?Group
interviewPass?Sales pitch interviewPass?YNYYYYNNNNCorporate
Performance Management
The Thames Hiring (2)Hiring was done without the support of any
Human Resource staff.Hiring process takes from one week up to a
month and a half.Interviewers typically did not ask technical
questions, because the people at AES believed that technical skills
could be learned.Corporate Performance Management
The Thames Compensation and BenefitsThe salary was benchmarked
with other companies and other people in the AES plants.AES did not
pay the highest for its jobs because they wanted people to stay
there because they like the place, not because of the salary.Raises
were given once a year based on the performance evaluation by the
superintendent. 3 forms of incentive pay:Individual bonusesPlant
performance bonusCorporate wide bonusCorporate Performance
Management
The Thames Compensation and Benefits (2)The total bonus was
between 20% - 25% of the salary.Retirement system put about 20% to
25% of the salary mostly in AES stock. That way, people feel as the
owner of the company and responsible to make the stock price
rise.The retirements five year vesting period (instead of the more
typical ten-year period) was done to give more freedom to the
employee.Job vacancies for promotions were always posted. Anyone in
the Thames plant or from other plants could bid for a job. Most
promotions were filled from within the company.Corporate
Performance Management
The Thames Training And DevelopmentThere was no centralized
training (because there was no training staff), and no coordination
of individual training activities.Individuals were responsible for
determining what training and development activities were most
appropriate to benefit themselves and the corporation.No formal
career path -> emphasize on flexibility.AES had a tuition
reimbursement program. Individual receives 80% of the tuition money
in advance, the another 10% if they got B score, and another 10% if
they got A.Corporate Performance Management
The Thames Employment SecurityNo formal policy of job security.
Security was in the skills and abilities that people developed
while they were working at the company.Reductions in staffing were
made as voluntary as possible. The key was to treat people with
respect.The staffs in the Thames plant were reduced from 70 people
at start-up to about 60 people at the end of 1996.Minimize the
usage of contract employees -> only during outages when the
workload increases.Corporate Performance Management
The Thames Work OrganizationAES-Thames organized and managed
work based on trust.All-salaried system -> no one was paid by
the hour.Decentralization in decision making.All Thames people were
involved in discussing and setting the budget at an annual meeting
held in the fall.Budgets were not set unilaterally by the plant
manager or the superintendents.Budgets were seen as guidelines, not
as hard and fast rules.Corporate Performance Management
The Thames Measurement and InformationInformation on the
performance of the company was widely shared.SEC categorized all
AES people as insiders due to the openness of information in the
company.Monthly communication meeting -> sharing financial and
operating performanceMeasurement was focused more on plant-wide
measures of performance.AES tried to look at performance globally
and focus on a few key measures.Corporate Performance
Management
The Thames Other Cultural ElementsThe Thames plant has no union,
just like the majority of AES plants in US.Many social events for
the employee and their families.The strong cultural values in the
Thames plant: open and frequent communication, asking questions,
and learning from each other.Other value of the Thames
people:Innovation and taking on new thingsTaking prudent
risksLooking at the long-termChallengeCorporate Performance
Management
Human Resources (HR) at AES (1)Proofs that AES ever did HR:There
was a person whose responsibility was to track the 401k retirement
plan benefits and to send out the necessary reports.There were a
few people who could recall at one time having a full-time human
resources person.There were some copies of an employee handbook
with policies that governed vacations, sick days, and other
personnel policiesCorporate Performance Management
Human Resources (HR) at AES (2)Johns views in relation with no
HR Department (1):He, as plant manager, could do contract
negotiations because there was no a labor attorney.Other companies
have salary ranges, but AES does not have to have them.Other
companies use management of objectives, but AES could use reviews.
These reviews would put a lot of responsibility and accountability
on the people who are giving out increases.Corporate Performance
Management
Human Resources (HR) at AES (3)Johns views in relation with no
HR Department (2):Instead of written employee policies governing
aspects of employee relations, in AES, people were encouraged to
simply use their discretion and good judgment. By doing this, AES
tried to get everyone to be reasonable, act responsibly, and use
their own discretion.AES avoided putting in rules that would
hamstring everyone just to cover the one or two percent who were
exceptions and needed such rules.Corporate Performance
ManagementOrganizational Design And Management Principles
(1)Organizational structure in AES:Only have five hierarchical
levels (three in the plant, a set of regional presidents or
division managers, and the CEO)The divisional layer was added to
obtain more interaction between headquarters and the
plants.Division managers should be in each plant at least once a
month.All functions were represented in every division so that
there was no centralized corporate staff. Each division had
responsibility for strategy and business development.
Corporate Performance ManagementOrganizational Design And
Management Principles (2)
Corporate Performance ManagementOrganizational Design And
Management Principles (3)Organizational management principles in
AES (1):Honeycomb (relatively small, flexible, interrelated teams
of people working on projects and activities and learning a lot in
the process)No formal job descriptions and individual
responsibilities were very fluidGive people the ability to innovate
a little bit more by not using systemization. AES encouraged people
to do new things and to seek variety and challenge.Widespread
diffusion of both knowledge and responsibility
Corporate Performance ManagementOrganizational Design And
Management Principles (4)Organizational management principles in
AES (2):Coordination across the work teams or communities through
sharing of information, making people responsible and accountable
for results, and numerous ways informal communication across
various internal organization boundaries.Decentralization and
delegation throughout AES in order to emphasize synergy.
Corporate Performance Management