Transformative Organizations Response Books_3 potx

62 TRANSFORMATIVE ORGANIZATIONS the organization exist (the ownership problem; the formative challenge), by whom should the organization be defined in terms of vision and values (the integration problem; the normative challenge), and of whom the organization would assume responsibility (the boundary problem; the fulfillment challenge). These challenges are best understood in the context of the organization as a democratic citizen, seeking to sustain and further the democratic spirit of the international society. By focusing on supporting exchange among the stockholders and other stake- holders, multiple local institutions, and diverse contributors to the organizational functioning, the transformative organization can better fulfill its formative and normative roles, without necessarily favoring one constituency over the other, and one institutional system over the other. We showed how the evolutionary perspective invokes the concept of mutation as a God-given gift in order to explain the formative force in effective organizational design. We underlined that this God-given gift can be cultivated through learning conversations about the mission and vision of the organization within the pioneering group, and then enhanced through normative development that brings the organization into the mainstream. The final test of the organiza- tional effectiveness is highlighted by the summative evaluation, which captures the milestones achieved by the organization. Our case analysis of the Wesman Group in the State of West Bengal in India showed that the firm has reached tremendous milestones in terms of its market position and respect by the international partners. However, from a normative perspective, the commitment of its top management was not strongly related to the optimism about the organizations future, though both were moderately and equally positive. Though neither top management commitment nor top management optimism were part of the firms formative vision, the current CEO had become increasingly aware over time about the need to give space and freedom to the employees, and the role of the top management in this respect. To ensure effective performance, the firm identified common values and their shared meaning through conversations at various levels of the organization. These initiatives were inspired primarily by the feedback from the grassroots level, and thus resulted in strongest performance enhancement at that level. The middle management, which was the source of disenchantment at the grassroots levels, actually saw some deterioration in its performance. While the core values reflected the top management vision, and their operational meaning was identified using the grassroots conversations, no explicit effort existed as yet to discover and integrate the middle managerial values. In general, the role of the middle managers has come under increasing scrutiny around the world with the rise of the downsizing and the horizontal organizations during the 1990s. With empowerment and multi-skilling at the grassroots level, and the spread of information technology at the mass level, the control and information transfer role of the middle managers has lost much of its relevance. Yet, middle managers represent a valuable resource for the organizations, since their distinctive expertise is to codify and balance the more abstract knowledge and values of the top management, and the highly diffused knowledge and values at the grassroots. Such an expertise is uniquely appropriate to the role of A MODEL OF THE TRANSFORMATIVE ORGANIZATION 63 promoting exchange in knowledge and values, not only across different levels in the organization, but also across different radii of commitment outside the organization, multiple stakeholders of the corporation, and the varying local and national institutions. It is only by re-discovering the relevance of each resource, including middle managers, that the organizations can become truly transformative and perform most effectively. That is the essential challenge for the organizations in the 21st century democratic societies. References Bartlett, C.A. & S. Ghoshal (1991). Managing Across Borders: The Transnational Solution. Boston: Harvard Business Publishing. Bhola, H.S. (1990). Evaluating Literacy for development projects, programs and campaigns: Evaluation planning, design and implementation, and utilization of evaluation results. Hamburg, Germany: UNESCO Institute for Education. Blair, M.M. (1995). Ownership and Control: Rethinking Corporate Governance for the Twenty-first Century. Washington, DC: Brookings Institution. Boisot, M. (1998). Knowledge assets: Securing competitive advantage in the information economy, New York: Oxford University Press. Breen, M.P. & C.N. Candlin (1980). The essentials of a communicative curriculum. Applied Linguistics, 1(2): 89111. Business Line (2000). Wesman to make oil, gas-fired cremators, October 10, Calcutta, India: The Hindu Group of Publications. Chambers, D.E., K.R. Wedel & M.K. Rodwell (1992). Evaluating Social Programs. Boston: Allyn and Bacon. Chandler, A.D. (1990). Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge, MA: Harvard University Press. Cyert, R.M. & J.G. March (1955). Organizational Structure and Pricing Behavior in an Oligopolistic Market. The American Economic Review, 45(1): 129 139. Donaldson, T. & L.E. Preston (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications, Academy of Management Review, 20(1): 6591. Drucker, P.F. (1999). Management Challenges for the 21st Century, New York: HarperBusiness. Freeman, R.E. (1984). Strategic Management: A Stakeholder Perspective, Boston: Pitman. Gupta, V. (1998). A Dynamic Model of Technological Growth: Diffusion of Japanese Investment Networks Overseas. Unpublished Ph.D. Dissertation, The Wharton School of the University of Pennsylvania. Gupta, V., I.C. Macmillan and G. Surie (2003). Entrepreneurial Leadership: Developing and Measuring a Cross-cultural Construct. In press, Journal of Business Venturing. 64 TRANSFORMATIVE ORGANIZATIONS Jensen, M.C. & W.H. Meckling (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3: 305360. Katz, R.L. (1974). Skills of an Effective Administrator. Harvard Business Review, 51(5): 90101. Kogut, B. (1983). Foreign Direct Investment as a Sequential Process. In The Multinational Corporation in the 1980s, C.P. Kindleberger and D. Audretsch, (eds.), MA: MIT Press. Perrow, C. (1984). Normal Accidents: Living with High Risk Technologies. New York: Basic Books. Pine, B.J. (1993). Mass Customization: The New Frontier in Business Competition. Boston: Harvard Business School Press. Porter, M.E. (1985). Competitive Advantage: Creating and sustaining superior performance. NY: Free Press. Prahalad, C. and G. Hamel (1990). The core competence of the organization. Harvard Business Review, 68(3): 7991. Richardson, G.B. (1972). The Organization of Industry. Economic Journal, 82: 883896. Saloner, G., A. Shepard & J. Podolny, J. (2001). Strategic Management. New York: John Wiley & Sons. Stake, R.E. (1983). Program evaluation, particularly responsive evaluation. In George F. Madaus et al. (eds.), Evaluation Models: Viewpoints on Educational and Human Services Evaluation. Boston: Kluwer-Nijhoff Pub., 287310. Weick, K. (1969). The Social Psychology of Organizing. Reading, MA: Addison- Wesley. Weiss, H.B. & J.C. Greene (1992). An empowerment partnership for family support and education programs and evaluations. Family Science Review, 5(1&2): 131148. Weston, C., L. McAlpine & T. Bordonaro (1995). A model for understanding formative evaluation in instructional design. Educational Technology Research and Development, 43(3): 2946. Williams, M. & R.L. Burden (1994). The role of evaluation in ELT project design. In English Language Teaching Journal, 48(1): 2227. Williamson, O.E. (1975). Markets and Hierarchies: Analysis and Antitrust Impli- cations. New York: The Free Press. ROLES OF PRINCIPAL PLAYERS DURING RESTRUCTURING 65 4 Roles of Principal Players during Restructuring The Orissa State Electricity Board Thillai Rajan A. l V. Anand Ram The provision of electricity has become synonymous with economic development and social progress today. The Electricity Supply Industry (ESI) is one of the largest industries and it occupies an important position in the world economy. Over the past decade, several countries worldwide have taken steps to implement reforms in the ESI (Joskow 1998; Berg, 1997; Munasinghe, 1997; and Bates, 1997). Most studies of these reforms have not focused on the transformative process within an organization (Rajan Thillai, 2000a; Pollitt, 1997). In this chapter, we study the role of principal players during restructuring using a process framework that looks at the sequences of events, actions and activities (Rajan Thillai and Anandram, 2001). Literature Review: Privatization Restructuring Any privatization results in a new environment for the firm which is characterised by changes in the markets (capital and product markets according to their relevance), introduction of new threats (competition and regulation), and reduction in politically imposed constraints. Prominent changes expected in the external environment after privatization are: 1. Budget Constraint: Public ownership is based on the notion of a soft budget constraint (Rowthorn and Chang, 1993). The losses incurred by a corporation were made up by the government, either by way of subsidies or direct grants. After privatization, the firm will not be able to depend on this kind of comfort from the government. 2. Political Intervention: Under state ownership, public corporations are subject to direct political control (Ferner and Colling, 1993). This political control gives ministers more diffuse means of exerting informal pressure on the management either through arm twisting methods or direct intervention in management decision-making over a range of issues. But after privatization, the corporation 66 TRANSFORMATIVE ORGANIZATIONS is more subject to market forces (competition or regulation as the case may be) and less influenced by political or administrative control (Ramanadham, 1988). 3. Capital Market and Consumer Discipline: Privatization would expose the firm to the discipline of the capital market as it needs to address the concerns of the new shareholders for future resource mobilization. The privatized firms would also need to be more customer conscious as they are required to respond to market demands rather than political constraints (Clarke, 1993). To function effectively in the new environment, appropriate changes are required in the internal mechanisms of the organization (Parker, 1993; Woodward, 1988). Literature indicates several changes in the internal environ- ment of the organization following privatization. Hammer et al., (1989) say a firm under transition from a public sector to the private sector would require a change in their corporate culture. Salama (1995) says that for the firms to function effectively in the new circumstances following privatization, the firm must possess appropriate skills to manage in a market economy. She also says the introduction of entrepreneurial behaviour is required to provide ex-state enterprises with the dynamism needed for the expected transformation in the firms efficiency. After privatization, a firm is forced to function differently from the state government enterprise. Wallis (1995) describes these changes in PowerGen, which was privatized from the Central Electricity Generating Board of the UK. He states, The extent of change needed was enormous. Whereas the Central Electricity Generating Board had been risk averse, PowerGen needed to be innovative. Whereas the Central Electricity Generating Board had been engineering-led, PowerGen needed to be commercially driven. Whereas the Central Electricity Generating Board had no concept of the customer, the customer needed to be PowerGens main focus. And whereas the Central Electricity Generating Board had been slow moving and bureaucratic, PowerGen needed to be flexible and responsive. In their study on the privatization of British utilities, Ferner and Colling (1993) note that the management of privatized companies strive to adapt an organization culture to a more market-driven environment, by making it more responsive to customer demands and more innovative and flexible in the face of competitive pressures. Simnett (1997) also indicates that several measures were taken by National Power, the privatized generation entity of the UK to overcome the legacy of a nationalised industry workforce and inefficient plant. Some of the measures taken were reduction in the workforce, increased employee training, performance- related incentives for employees, and improved IT systems. Parker (1993) attempts to identify various changes in the internal environ- ment of the organization following privatization by studying 10 organizations ROLES OF PRINCIPAL PLAYERS DURING RESTRUCTURING 67 in the United Kingdom that underwent privatization. He says that the organization structure changed from a rule bound bureaucratic one to one that was less hierarchical, less centralised and less rule bound. Salama (1995) studied the effects of privatization on culture change in five companies that had been privatized in the UK and Brazil. Her results indicate that it is not just ownership that triggers a culture change. The top managements perceptions about the changes in the business environment were the conditions for the process of change in the firms investigated. New CEOs were appointed to prepare the organizations for the new environment; they modified the core mission (bringing in profit orientation) and organization structure (decentralisation) in the organizations. The need for change was communicated to the employees at all levels in the organization. During the process of culture change, all companies under investigation modified their personnel practices regarding managerial careers. The study also found that after privatization, the managers started to learn and embrace new ways of doing things. Davidson (1994), while studying the developments in two privatized utilities in the UK, found that after privatization, the organizations move towards contract labor from direct employment. There was a separation of various activities into independently accountable profit centers, which must buy and sell services from and to other departments or profit centers within the organiza- tion. She also notes that these organizations adopted new accounting practices and performance-related pay for its executives. Nelson and Dowling (1998) have studied the commercialization of Tasmania Electricity using the contextual method developed by Pettigrew (1987) and Dawson (1994). They conclude that though the environmental forces do have an impact on organizational plans for change, the difficult thing for management is to control the unfolding events, as much as possible, as change progresses. Some studies suggest that the performance improvements that occur after privatization can be traced to changes in the organization following privatization. Newbery and Pollitt (1997), for instance, note that the productivity increases that occurred following the privatization of the British electricity sector are not just derived from plant closures, reduction in employees and fuel switches, but also as a response to a different management style. Research Design Case study is an appropriate strategy when there is no control over behavioral events and the research focuses on contemporary events (Yin, 1984). The restructuring of the Orissa State Electricity Board (OSEB) in India has been used as a case in this research study. The restructuring of OSEB was a part of the larger reform program that was implemented in the Orissa power sector. Restructuring of OSEB was chosen for the study because: 1. OSEB was the first utility in India and South Asia to undertake reform and restructuring. 68 TRANSFORMATIVE ORGANIZATIONS 1 Circular No. 7786/E, Department of Energy, Government of Orissa, Bhubaneswar, dated April 20, 1995. 2. The restructuring program had the active involvement of multilateral lending agencies like World Bank, DFID, Asian Development Bank, and several leading management consultants. 3. Several other utilities in India and elsewhere were planning to restructure more or less on the lines of OSEB. Therefore the experience of Orissa would be important to other states, in policy or practical terms. ORISSA POWER SECTOR REFORM PROGRAM: A BRIEF OVERVIEW Orissa was the first state in India and also in South Asia to implement a compre- hensive power sector reform program. Prior to reform, the responsibility for power sector management and development in Orissa was vested in the following organizations: l Department of energy, Government of Orissa; l Orissa Power Generation Corporation; and l Orissa State Electricity Board (OSEB) OSEB obtained the required power for distribution either from its own generating stations, generating stations owned by the department of energy, or from other power generators. By using its transmission and distribution network, it supplied power to the end consumers. The process of power sector reform started in November 1993 when the Orissa government had discussions with the World Bank to improve the operational and financial performance of OSEB to enable Orissa to attract private investment for power development. These discussions resulted in an agreement between the Orissa government and the World Bank to implement power sector reform to secure funding for the sector. The reform program was subsequently reviewed and approved by the chief minister and council of ministers of Orissa. 1 The Orissa power sector reform program comprised the following components (World Bank, 1996): l Restructuring of OSEB by corporatization and commercialization: Unbun- dling and structural separation of generation, transmission and distribution into separate services to be provided by separate companies. l Privatization: Private sector participation in hydro generation and grid corporation, and privatization of thermal generation and distribution. l Competition: Procurement of new generation through competitive bidding. l Separate Regulation: Development of an autonomous power sector regulatory commission. l Tariff Reform: Reforming of electricity tariffs at the bulk power, transmission and retail levels. ROLES OF PRINCIPAL PLAYERS DURING RESTRUCTURING 69 OSEB was vertically unbundled into separate companies for generation, transmission and distribution. All the hydro power generating plants were vested with Orissa Hydro Power Corporation. The transmission assets were vested with Grid Corporation of Orissa. Though the Orissa government initially owned Grid Corporation and Orissa Hydro Power Corporation, they were gradually expected to attract private participation. New legislation was enacted to govern the power sector of Orissa after reform. An autonomous regulatory commission, called the Orissa Electricity Regulatory Commission, was constituted to ensure operational, managerial, and financial autonomy of the new utilities and to promote transparency, efficiency, and economy. To ensure autonomy of the regulatory commission, the commis- sion members were chosen on the basis of their ability, integrity, knowledge, and experience in dealing with various problems relating to the power sector. After the regulatory commission was constituted, the role of the Orissa govern- ment was restricted only to policy making and planning for the sector. Four zones were created for power distribution in Orissa. As a first step towards privatizing distribution, Grid Corporation of Orissa entered into a management contract called the Distribution Operations Agreement, with Bombay Suburban Electricity Supply Company, a private sector utility, to take over the power distribution in one of the zones on October 1, 1996. Under this arrangement, the private utility was responsible for distribution of energy, maintenance of the distribution system, and collection of electricity dues in the Central zone. Though the initial distribution agreement was for three years from October 1996, Grid Corporation of Orissa cancelled the agreement in April due to drawbacks in certain contractual provisions in the Distribution Operations Agreement. After the failure of the Distribution Operations Agreement, the Orissa government decided to privatize distribution forming the four zones as separate distribution companies. The four companies were incorporated as subsidiaries of Grid Corporation in November 1997 and four new managing directors were appointed for these companies in March 1998. 2 Privatization was introduced in distribution by offering 51 per cent of the equity in these companies to private investors. The investors were selected through international competitive bidding on the basis of their financial and technical capability, track record and commit- ment to the improvement of the electricity distribution system. Though the investors were to be given full managerial autonomy, they were required to honor the terms and conditions of employment of employees of the distribution companies. After privatization, Grid Corporation held 39 per cent of the equity in the distribution companies, while 10 per cent of the shares was held by the employees trust. The privatization process for the distribution companies was completed in the first half of 1999. There was an unfortunate setback to the process of reforms when Orissa was ravaged by two devastating cyclones in quick succession following the 2 The GRIDCO Newsletter, March 1998. 70 TRANSFORMATIVE ORGANIZATIONS privatization of distribution. The damage caused to the transmission lines and sub-stations in the state had been estimated at Rs 3000 million ($ 65 million). However, there have been some indications of improvement in the quality of service and revenue collections 3 . DATA COLLECTION AND ANALYSIS The data collection methods for the study included documentation, field observations, and from in-depth interviews. Such multiple sources of evidence helped in developing converging lines of inquiry. Any finding or conclusion in a case study is likely to be much more convincing and accurate if it is based on several different sources of information, as this leads to a within-method triangulation (Denzin, 1978:301). Documentary evidence was collected from various sources such as: l letters, memoranda, and other communiqués; l agendas, announcements and minutes of meetings, and other written reports of events; l administrative documentsproposals, progress reports and other internal documents; l newspaper clippings and other articles that appeared in the media. These documentary sources helped to construct the chronology of events in the reform program, and also provided information about various decisions taken during the period and the rationale behind those decisions. The gaps after the study of documentary evidence also provided further insights that were probed in greater detail during the interviews. As indicated by McCutcheon et al., (1993), observations made during field visits serve as another important source of evidence in a case study. The main form of data collection for this study was through in-depth interviews with key people involved during different stages in the restructuring process. The partici- pants for the interviews were chosen based on their involvement and contribu- tion to the implementation and planning of the Orissa power sector reform program. The interviews were semi structured where the broad area of informa- tion needed from each respondent was determined before the interview was taken. On an average each interview lasted between 90120 minutes. FRAMEWORK FOR ANALYSIS A processual framework developed based on the various events that took place has led to an emergence of three conceptual phases in the restructuring process, with each phase being characterized by different sets of activities and tasks (Rajan Thillai and Anand Ram, 2001). 3 Anecdotal evidence on this is given in the various Grid Corporation of Orissa newsletters between the period MayDecember 2000. ROLES OF PRINCIPAL PLAYERS DURING RESTRUCTURING 71 The three conceptual phases and their definitions are as follows: 1. Impetus Phase. It is defined as that period during which the momentum for change originated and got strengthened, thereby providing a definite thrust for reforms. An analysis of the causal factors of Orissa power sector reform program has been published elsewhere (Rajan Thillai, 2000b). 2. Reorganization Phase. It is defined as that phase of the reform program that was characterised by structural changes in the power sector, resulting in a new industry structure. 3. Consolidation Phase. It is defined as that phase during which the new organiza- tions created by restructuring were strengthened to make them financially and commercially viable companies. A description of the different strengthening measures undertaken has also been published earlier (Rajan Thillai, 2000c). Impetus phase, Reorganization phase, and Consolidation phase incorporates the temporal element of the restructuring process. It starts with a phase during which the momentum for change originates, and ends with a phase during which the new organizations are strengthened to make them financially and com- mercially viable organizations (Rajan Thillai, 2000a). PRINCIPAL PLAYERS IN UTILITY RESTRUCTURING The principal players in the restructuring process are the government, top management of the utility, the lending agencies, and the consultants. The reasons for identifying them as the principal players are as follows: Since the government has a statutory role in overseeing the power sector, therefore, any change in the sector will, ipso facto, involve it. The restructuring of the ESI and its subsequent privatization will require several changes in the internal environment of the organization. The top management will play an important role in implementing these changes. The poor financial position of the utility and the inability of the state government to support the sector results in the utility seeking external assistance. In such conditions, the lending agencies will stipulate reforms before providing assistance to the power sector. Consultants will assist the host utility during the restructuring process. They would also co- ordinate with the host utility in implementing the restructuring process. The following paragraphs summarise the role played by the principal players in the three phases identified in the restructuring process. IMPETUS PHASE R OLE OF THE GOVERNMENT The power sector of Orissa accounted for a significant and increasing share of the state governments resources, both in terms of planned investment and subsidies. Such large spending on investments and subsidies in the power sector had contributed to the fiscal deficit of the state and had also affected the [...]... that the reforms yielded a positive net flow to the state government.’ 80 TRANSFORMATIVE ORGANIZATIONS Conclusions This study indicates that the government, the lending agencies, the top management of the utility, and the consultants play a key role in the implementation of restructuring and change process of the public sector organizations in emerging markets such as India As the process moves from... persuaded the government about the necessity of such regular tariff increases to improve OSEB’s financial performance Such tariff reforms later became an integral component of the reform program 74 TRANSFORMATIVE ORGANIZATIONS REORGANIZATION PHASE R OLE OF STATE GOVERNMENT The reorganization phase witnessed a lot of political activity in Orissa The Orissa power sector reform program was initially approved... compensation to the consumer If a complaint is not answered within one hour, then the company has to pay a fine These things we cannot adapt here easily There the growth rate is very low, as already 76 TRANSFORMATIVE ORGANIZATIONS most of the consumers have got electricity connection But our growth rate is high, as significant electricity connections are yet to be made.’ Consultants had to take these factors... on the basis of commercial principles, without government guarantee and on market determined terms 3 Its prices are set by the market, or if the enterprise is a monopoly, through regulation 78 TRANSFORMATIVE ORGANIZATIONS Broadly the consultants had two objectives during the consolidation phase First, to ensure that the various change measures that were planned actually get implemented Second, to sustain...72 TRANSFORMATIVE ORGANIZATIONS government’s spending in social sectors like health and education To reverse this situation, the government had taken a number of initiatives and policy changes since 19914  The leading... legislation, and transfer of assets to the new entities Further, in the consolidation phase, the consultants helped design measures to strengthen the new entities While doing this, the consultants 82 TRANSFORMATIVE ORGANIZATIONS took steps to ensure appropriate transfer of expertise to the host utility, so that the employees of the new entities could adopt and continue with the change process initiated even... of Prof R Srinivasan “Snail mail to email: The postman goes virtual, India Post: Where do you want to go tomorrow?”, http://www.zdnetindia.com/news/features/stories/21112.html, Jan 22, 2002 86 TRANSFORMATIVE ORGANIZATIONS Fig 5.1: Main Telephone Lines per 100 Inhabitants † in Selected Asian Countries   † Eddie Cheung, Asia’s Telecommunication Infrastructure: An Overview, http:/ www.emarketer.com/analysis/easia/20010522_asia.html,... context of the Indian Postal Service is described and the distinguishing elements of the business model for ePost highlighted Interestingly, there does not appear to be anything special about 88 TRANSFORMATIVE ORGANIZATIONS India—Growth of Internet India—Growth of Internet (Projections) Fig 5.3: Growth of Internet in India * * “Internet Survey”, http://www.nasscom.org/it_industry/int_survey.asp, Jan... website, http://www.indiapost.org/, Jan 22, 2002 Expenditure Reforms Commission Fifth Report 7 March, 2001, http://expenditurereforms.nic.in/ vsexpenditurereforms/fifthrep.pdf, Jan 22, 2002 90 TRANSFORMATIVE ORGANIZATIONS metro and mini-metro cities And a lot of these are being used not merely for the retail purpose but also for the administrative and accounting functions While the retailing activity... all operations of the bureau, the most important being http://www.indiapost.org/News and Events.html#speednett, Jan 22, 2002 http://www.indiapost.org/International Money.html, Jan 22, 2002 92 TRANSFORMATIVE ORGANIZATIONS l maintenance and nurturing of philately deposit accounts, receipts, sales, dispatches and accounting Suvidha—a customer care application package with customised reports with bilingual . structure. Journal of Financial Economics, 3: 30 5 36 0. Katz, R.L. (1974). Skills of an Effective Administrator. Harvard Business Review, 51(5): 90101. Kogut, B. (19 83) . Foreign Direct Investment as. Macmillan and G. Surie (20 03) . Entrepreneurial Leadership: Developing and Measuring a Cross-cultural Construct. In press, Journal of Business Venturing. 64 TRANSFORMATIVE ORGANIZATIONS Jensen, M.C each resource, including middle managers, that the organizations can become truly transformative and perform most effectively. That is the essential challenge for the organizations in the 21st century democratic