Case Study - AES Corporation

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GRADUATE SCHOOL OF BUSINESS STANFORD UNIVERSITY
S HR-3 FEBRUARY 1997

HUMAN RESOURCES AT THE AES CORPORATION:
THE CASE OF THE MISSING DEPARTMENT
Dennis Bakke, the CEO of AES, a company that develops, builds and operates electric power plants, sat in his office late in 1996 and thought about the question that was perennially posed to him: could AES, soon to have some 25,000 people located literally all over the world following a recent purchase of power plants in Kazakhstan, continue to operate with virtually no staff functions and, specifically, without any human resource staff anywhere in the corporation? The absence of centralized staff — or, for that matter, much staff at all — had been one of the themes guiding the design and operation of the corporation since its founding. The company, in addition to having no personnel department, had no public relations, legal, environmental, or strategic planning departments. Its chief financial officer, Barry Sharp, saw his job not so much as running a centralized finance function but rather as helping all the AES employees as they made important decisions about financing and investments in a very capital intensive business.

But the company was becoming much larger and increasingly geographically dispersed. Perhaps those early decisions needed to be rethought. Could what worked for so long continue to work as the corporation grew and operated increasingly on a global basis? Could the advantages of flexibility and having virtually every employee feel responsible for almost all aspects of the corporation's operations continue to outweigh the costs of an absence of specialization and the need to have people always learning new tasks and new things? Was this continuous learning of new things really a disadvantage at all, or as Bakke thought, how one created a real "learning organization?" What Bakke recognized was that AES was different from most other corporations. How different should and could it remain? And if it remained different, how should it deal with the strains that growth and geographic differentiation would inevitably place on an organization that had always been managed by a strong set of values and a shared culture? This case was prepared by Professor Jeffrey Pfeffer as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Support for this case was provided by the Human Resources Initiative of the Graduate School of Business. The author would also like to acknowledge Robert Waterman for his introduction to the company. Copyright 0 1997 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved.

Human Resources at the AES Corporation SHR 3 _______________________________________ Page 2

BACKGROUND AND HISTORY AES (originally called Applied Energy Services) was founded in 1981 by Roger Sant and Dennis Bakke. Originally supplying consulting services to the energy industry, the company began operating its first power plant in Houston in 1986 and went public as AES in 1991. By the end of its 1995 fiscal year, AES was selling electricity to customers in the United States, England, Northern Ireland, Argentina, and China, and had plants under construction in Pakistan. A list of AES operating facilities, their size, and fuel source, is provided in Exhibit 1. The company saw itself as "the global power company" and had as its mission "supplying electricity to customers world-wide in a socially responsible way."' 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 was also complex. Building or purchasing existing power plants was a process that was heavily influenced by governmental decisions and actions, and often took two to four years at least to complete. AES owned and...
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