Human Resources at the AES Corp.

: The Case
of the Missing Department Harvard Case
Solution & Analysis
Introduction
Applied Energy Services (AES) was founded in the year 1981 by Dennis Bakke and
Roger Spat. The main business of the company is to supply consulting services to
the energy industry. The first plant for the company was installed in 1986 at
Houston. The company AES went public in 1991. The company is set to have almost
25,000 employees by the end of 1996 with the purchase of power plant in
Kazakhstan. The company operates in the United States, Ireland, England, China,
and Argentina and has a plant in Pakistan also.
The organizational structure of the company is quite unique and different as
compared other rivals around the world. AES has a decentralized organizational
structure, where the decision making is done by the individuals regarding all
matters and affairs. This has been the unique attribute of the company where each
employee has the authority to participate in strategic decision. AES does not have a
human resource department, legal department, environmental department, etc
which is considered a necessity for such a large scale company. However, without
these departments, AES has been performing quite efficiently.
Problem Diagnosis
The problem identified in the case Human Resource at the AES Corporation: The
case of a missing department indicates that since, AES has been expanding
globally, the business model of being a decentralized organization can be a great
deal of risk for the company. Along with this, the CEO Bakke realized that AES was
quite different, but moving forward how will the company be able to manage
geographical expansion and other constraints by being a decentralized
organization.
Bakke is convinced that the current business model is the core identity of AES.
However, Bakke is thinking how the company should operate with the continuous
growth and increased competition in the future. With the industry rapidly growing,
it is necessary for Bakke to have a strong organizational culture which can lead to
successful transition of AES.

Analysis
HRM Strategy: Warwick Model
To analyze the current situation of the company and to look upon the future
strategic decision making Warwick Model has been used. The model basically helps
in identifying the business context, the inner context, human resource context and
human resource content. The model over here is used to analyze the situation
where the company AES currently stands. As for now, the business context of the
company is to provide consultancy services to the energy sector. To achieve the
objective of the company, AES operates in local and intentional market where it
forms partnerships, mergers & acquisition, etc. depending upon the market and
the company.
The inner context of the company AES is a rather decentralized organizational
structure. The company does not have separate departments for the business; in
fact decision making is generally done by individuals who are not specialist in the
field. This is how the inner context or the business model of AES operates and
works. The human resource context is quite effective at AES currently. The reason is
simple; employees who perform extraordinary are given just rewards and
compensation. Along with this, the turnover rate within the company is also next to
minimum which indicates the overall atmosphere at AES. In fact, employees are
given stock options at all levels to motivate employees.
Finally, it can be said that currently the human resource context of AES is quite
effective with the decentralized structure. However, moving forward, it might not
work in favor move the company, therefore, a change is necessary within the
human resource context. The company needs to become a more centralized
company with the rapid expansion it has been a part of. To maintain its pace and to
stay ahead of the competitors, it is necessary to alter within the human resource
context of the company.
Conclusion
The conclusion with the use of Warwick Model is to suggest AES to introduce a
rather centralized organizational structure within the company. By having standard
and specialized departments for each function of the company, it is highly expected
that the overall performance of the company will rise and the internal problems of
the company discussed in the case will resolve rather sufficiently
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AES develops and operates power plants around the world, and by the end of 1996,
has about 20,000 employees. But, the corporation does not have the human
resources personnel, or the corporate headquarters in Arlington, Virginia, or any of
its manufacturing facilities. In addition, the company has very little centralized staff
at all there is little or no strategic planning or environmental protection
department, and almost no legal staff. Question: Can and should the company
continues to work the same way, with a small specialized staff, as it continues to
expand and geographic diversification? Another question: as if the organization was
able to be so successful without developing and building on the specialized
expertise of Hide
by Jeffrey Pfeffer Source: Stanford Graduate School of Business 27 pages.
Publication Date: February 1, 1997. Prod. #: HR3-PDF-ENG