Case Analysis on

Human Resources at the AES Corporation

In the partial fulfillment of

Talent Management Course

Submitted to
Prof. Renuka Hodigere
On
Dec 04, 2016

By: (Group 04)

Amit Bhagat (144011)
Kuntal Dekha Baruah (155064)
Mukesh Kumar (155073)

Situation Analysis:
AES (Applied Energy Services) is a company that develops, builds, and operates electric power
plants. The company began operating its first power plant in Houston in 1986 and went public as
AES in 1991. AES vision is to be a global power company. AES mission is to supply electricity
to customers world-wide in a socially responsible way. By the end of 1995, AES had facilities,
either operating or under construction, in the United States, England, Northern Ireland,
Argentina, China and Pakistan. Some plants were wholly owned by AES while others were
owned under various joint venture arrangements.
AES is a company which is focused on developing human resource competencies compared to
earnings growth. The primary goal of AES is to continue their successes to meet the needs of the
society which can achieve by having the impressive HR (human resources)-minded culture that
all their employees perform. This is reflected in its core values which is consist of integrity,
fairness, social responsibility, and fun. These values had continuously implemented in the form
of various policies and practices that oriented on principles of decentralization and
empowerment.
Since there were not any HR department in AES and company's refusal to use the headhunter
services, most human resource programs ranging from hiring, staffing, training and development,
employment security are managed independently by employees of the company. For example, in
the hiring process, people volunteered to look at resumes, make a telephone interview, and
arrange one-on-one interview and also group interview. The company had provided the guideline
for each hiring step. Interviewing was done by a cross section of all of the levels, not just the
plant manager or superintendents. In the compensation and benefits process, pay was determined
by looking at what others were being paid, both inside and outside company. The company
involved employees determine their own salary based on individual performance review.
The corporate culture and organizing principle came to be called honeycomb, which captured the
idea of relatively small, flexible, interrelated teams of people working on projects and activities
and learning a lot in the process. People were encouraged to simply use their discretion, good
judgment and should try some new activities. Most financial decisions were made by AES
project teams comprised largely of people with no formal training in finance. AES had both

knowledge and responsibility as its significant competitive advantage. The organizing principle
of decentralization and delegation was taken very seriously throughout AES, not just within the
plants. To assess the effectiveness of the company's performance, each year AES administered a
60 to 70 item questionnaire to all employees that assessed their perception of AES and how well
they thought the company was living up to its value.
Although eschewing the pursuits of profits as the primary objective of the company, the
company was nonetheless financially very successful. The company enjoyed a 105 percent
growth in revenues between1991 and 1995. During that period, its earnings per share grew 113
percent while its total assets grew almost 70 percent and its shareholders equity grew 289 percent
Problem Statement:
Given the continuous growth into more diverse markets around the world, should AES
Corporation incorporate Human Resource Department. If Yes then How?
Options:
1.
2.
3.
4.

Continue without HR department

Implement HR department in all the plants
Implement HR department in the acquired plants
Implement unique HR department in every geography

Criteria of Evaluation:
1. Replication in other countries
2. Cost of implementing HR department across AES plants
Evaluation of Options:
1. Continue without HR department: One of the most important advantages of the AES
system is that it permits speed in decision making, preparing bids, and completing
projects. AES abounds with a folk history of teams and individuals given huge
responsibilities or thrust into unique and unexpected situations. Instead of trying to work
backwards like many companies do by hiring different people and then trying to
incorporate the firm culture into them, AES has a more natural approach of hiring people
that already live by the same principles and values as AES. That way they dont have to

constantly monitor people and make decisions for them. Every AES person has been
encouraged to participate in strategic planning and new plant design for the Company.
The Company has generally organized itself into multi-skilled teams to develop projects,
rather than forming staff groups (such as a human resources department or an
engineering staff) to carryout specialized functions. Issues such as hiring practices leave
periods, and promotion criteria, which in more conventional companies would be spelled
out in a Policies and Procedures handbook, are left at the employees discretion. AES
tries 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.
As such, continuing with the current structure, AES is not only engaging the employees
in the various decision making roles, but also cutting down their cost on the extra man
power in HR department.
2. Implement HR department in all the plants: If HR department is implemented in the
organization; extra cost would be incurred in recruiting the employees and also to
compensate them. But in the present scenario, new talents are recruited by the current
employees and are a very tedious process. A single hiring process can take a month or
two involving interviews with multiple current employees from various departments. All
these processes take up a lot of time and thus hampers in their efficiency. Instead if a
dedicated department is there to take care of all these processes, the recruiting time will
reduce drastically and also the employees will be able to focus on their jobs better. The
main trait that they look for in a candidate is the cultural fit, which can be done by the HR
dept. Also implementing this department in all of its plants, the company can bring all the
employees in the same page, in terms of compensation, leaves, training, grievance
redressal, etc. For e.g., in AES there had been instances where employees had issues in
the compensation structure. If there had been an HR dept., the employees would have had
a platform to address their issues. Also after hiring candidates, they are not given any
kind of training prior to working in the plant. Any kind of mishap can happen which may
lead to severe injuries or loss of lives. Having an HR dept. takes care of all these issues
and also serves as a proper medium for the company to address any political or legal
issues that may arise in setting up a new plant in a new area.

This is why they should have an HR department in their company across all the plants.
3. Implement HR Department in all the acquired plants: All the acquired plant of AES
has different organizational structure. This organizational structure has evolved over the
time. There is synchronization in structure, processes and people. This synchronization
has resulted in required organizational productivity. Any disruptive transformation in
structure would bring internal resistance. Not only this, it would create desynchronization
in structure, processes and people. Take the simple case of knowledge management in
AES. AES had little explicit knowledge and mostly tacit knowledge. Tacit knowledge
was with the employees based on personal experience, rule of thumbs, intuition and
judgement. Professional know-how and expertise, experience and individual insight, and
creative solutions were not codified. It was transferred to the employees through
individual knowledge sharing. Now question arises whether it could be replicated in other
countries where acquisition by AES had been done. Organizational structure, processes
and people are greatly influenced by organizational ecosystem. Ecosystem in turn is
influenced by socio-political factors. Take the case of China, standard of life is dependent
on govt. structure. If AES starts operating any plant in China after acquisition, whether it
could be operated only by expatriates and only lower level employee could be from
China. Given current ecosystem in China, it is impossible to replicate AES culture in
other geography. In the eastern geography, there is power distance between supervisor
and subordinates. Subordinates could not question the supervisor. Subordinates

and

supervisor were raised in the same socio and political environment and both of them had
accepted the existing system without any resistance. Introduction of highly liberal
structure in the existing structure of acquired plant could create problems for supervisor.
As there is complete absence of requisite structure and even if it is implemented in the
phased manner, supervisor and subordinate raised in a particular ecosystem might find it
difficult to accept. Organizational productivity may be at stake because of
implementation of AES culture. Any unwanted circumstance arising out would be blamed
for AES culture. Another criterion of evaluation is the cost of implementing HR
department across AES plants. Primarily all the existing plants without HR department
are functioning well. Non-existence of HR department has evolved over the years. In
absence of HR department, current practices like hiring, training and development, work

organization are all aligned. There are anomalies or inefficiencies in all these processes,
but these are all tackled through core values based on the core assumptions about the
people. Take the case of current participatory recruitment process; it might have problems
like an iota of subjectivity, time consuming process, lack of trained recruiters, recruitment
solely based on cultural fitment. In spite of all these inefficiencies, current recruitment
process is acceptable to all the stakeholders and it is also giving the requisite
organizational productivity based on the core assumptions about the people. Drastic step
of initiation of HR department would have huge cost to AES. Firstly it would completely
spoil the existing huge repository of tacit knowledge. People who are accustomed to work
without formal job description would find it difficult to accept. It would create internal
resistance and complete destruction of tacit knowledge repository. There is complete
absence of codified knowledge presently to act as guiding principle. So, firstly AES
should codify the processes before even thinking of implementation of HR department.
4. Particular system to different geography: Currently AES has same structure, processes
and people across the plant and they are all aligned. With inorganic growth after
acquisition, it has now become difficult to adopt same structure and processes across the
geography. If AES adopts different structure and processes for different geography, then
there is conflict between core values and core assumptions about the people. Current
assumption about the people is that people are creative, thinking individuals responsible
and desirous for positive contributions. People were attracted towards AES based on
these core assumptions which provided them fairness, fun at workplace, integrity and
social responsibility. If AES adopts different structure and processes, then transfer of
people from some geography to other may not be possible, based on the assumption that
people would be unwilling to change. Based on the criterion that

Recommendation and the way forward:

AES should not implement HR department in the existing plant. It is based on the assumption
that prevailing structure, processes and people are aligned. This has resulted in the huge
repository of tacit knowledge. So, need of the hour is to codify the vast repository of tacit
knowledge for future eventuality. A system should be devised to codify professional know-how,
individual creativity and insight, personal institution and experience. This is a sort of preparation
for way forward. This repository of knowledge can also be leveraged by the acquired plant. Now
the question arises whether current culture of AES without HR department could be transferred
to the acquired plant in other geography. As there exists huge cultural differences in west and
east geography, so implementing a borrowed system from other culture may not be acceptable to
people. The cost of transferring the culture would be so huge that it would not commensurate
with the gain obtained from adopting the existing culture. No one can predict the time required to
do acculturation. First step in acculturation is enculturation which is the process of learning the
culture. Codified knowledge can aid in enculturation and could at least make people understand
in acquired plant about AES culture. Even though in acquired plant AES should adopt HR
department as in most acquired plant there existed HR department. In such plant acceptance of
HR department would not be a problem as AES would be in dominant position after acquisition
and it could deal heavy handedly.