Eskom Case

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Eskom Case

Background
Eskom, an electricity provider in South Africa, has recently undergone a series of changes in the way that the industry operates, including reconfiguring from a government department to a company. The company aims to be the lowest cost electricity producer in the world, and thus has implemented a Productivity Accounting focus (see Exhibit A). The company has come to a crossroad where it must decide if continuing this focus will further their new objectives.

Problems
At the root of many of Eskom’s dilemmas is the switch from a governmental agency to a company. Maximizing shareholder value does not always coincide with what is best for the country. Eskom has stated goals such as hiring 50% black South Africans, protecting the environment and electrification of 1.75 million homes. These goals are difficult to achieve when striving to be the lowest cost electricity producer in the world. The focus on productivity lead management to create an annual bonus based on that year’s productivity gain. The lower levels of employees often do not know what this bonus is based upon or how they can contribute to productivity. The total productivity bonus is essentially divided evenly over every employee, rather than rewarding specific departments for their specific contributions. Eskom is also having difficulty acquiring and attaining quality employees. The private sector pays considerably more, and thus skilled labor is difficult to find. Additionally, outsourcing has caused many experienced employees to retire early. Managers are frustrated with trying to meet productivity goals when the company cannot supply skilled and knowledgeable labor. Outsourcing has also brought about the concern that the company is merely “window dressing” the poorly performing areas of the company. Strategic decisions were made to outsource particular functions to effectively utilize assets. To some this seems to be avoiding the issue of trying to make...
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