Emerald Emerging Markets Case Studies

Downsize or rightsize? Changing KESC to K-ELECTRIC (Case A)

Nyla Aleem Ansari,
Article information:
To cite this document:
Nyla Aleem Ansari, (2016) "Downsize or rightsize? Changing KESC to K-ELECTRIC (Case A)", Emerald Emerging Markets
Case Studies, Vol. 6 Issue: 1, pp.1-26, https://doi.org/10.1108/EEMCS-01-2015-0014
Permanent link to this document:
https://doi.org/10.1108/EEMCS-01-2015-0014
Downloaded on: 23 April 2018, At: 16:13 (PT)
References: this document contains references to 3 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 194 times since 2016*
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

Users who downloaded this article also downloaded:

(2016),"ICON stores: managing a new business venture", Emerald Emerging Markets Case Studies, Vol. 6 Iss 1 pp. 1-20 <a
href="https://doi.org/10.1108/EEMCS-03-2015-0030">https://doi.org/10.1108/EEMCS-03-2015-0030</a>
(2016),"Cost of employee loyalty@Anand Finance", Emerald Emerging Markets Case Studies, Vol. 6 Iss 1 pp. 1-26 <a
href="https://doi.org/10.1108/EEMCS-05-2014-0138">https://doi.org/10.1108/EEMCS-05-2014-0138</a>

Access to this document was granted through an Emerald subscription provided by emerald-srm:569474 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service
information about how to choose which publication to write for and submission guidelines are available for all. Please visit
www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more
than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products
and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics
(COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.

*Related content and download information correct at time of download.

 Downsize or rightsize? Changing KESC
to K-ELECTRIC (Case A)
Nyla Aleem Ansari
Nyla Aleem Ansari is
Assistant Professor and
Academic director at the
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)
Department of
Management, Institute of
Business Administration,
Karachi, Pakistan.
The author is thankful to
Harvard Business Publishing
team for allowing the
reprinting of exhibits from the
change management
simulation (by William Q.
Judge and Linda A. Hill).
Disclaimer: This case is written
solely for educational
purposes and is not intended
to represent successful or
unsuccessful managerial
decision making. The author/s
may have disguised names;
financial and other
recognizable information to
protect confidentiality.
DOI 10.1108/EEMCS-01-2015-0014
There is no way we go back to what we have already decided!” – Asir Manzur, Chief HR
operating officer, K-ELECTRIC, Karachi.
It was 9 a.m., a usual business day on a cold mid-January morning, when Asir Manzur, the
new chief human resource (HR) operating officer (CHRO) entered his office. Winter that
lasts not more than a month in Karachi, is a time to enjoy tea or coffee. One could almost
see everyone at the coffee corner, socializing with each other. It was 10:30 a.m. and Asir
was still in his office. He looked at the clock and got up to look out of the window. Guards
on duty, cars parked, people entering the office [. . .] all looked fine. Realizing that today he
had not taken his cup of tea, Asir left his room, walked through the hallway, when he saw
a security guard running toward him. Breathlessly he started to announce loudly; “Sir, sir;
a huge crowd is gathering outside the office and trying to enter the building”. This news was
not a complete surprise to the officer and his team, as they were expecting a reaction in
large numbers from among 4,459 workers of K-ELECTRIC who had been laid off recently.
So this was not a usual day! Whilst almost everyone had an idea of an adverse reaction
from the retrenched lot, the newly hired staff, especially women, seemed panicky; a few
trying to peep through the windows to witness what the guard just announced.
However, Asir and some seniors warned everyone to stay away from the windows to
avoid trouble [. . .].
According to the CHRO; “that particular day of hue and cry was a manifestation of an action
we had already taken!”
Asir joined K-ELECTRIC in the HR department in 2009 with an experience of 29 years of
cross functional and cross-industry expertise in PepsiCo, Coca-Cola, Union Bank and
Mashreq Bank (UAE). This was Asif’s third year at K-ELECTRIC in the HR department, still
grappling with the company’s most sensitive touch points such as the workforce
management.
The company had asked for protection measures from the law-enforcing agencies (LEAs),
against several possibilities, rationalizing K-ELECTRIC to be an essential and central
service to Karachi. Anything was possible; a strike by the workers, blocking the office and
people inside it, a shutdown of K-ELECTRIC electricity plants or its service network.
Therefore, the company did expect the state’s intervention to protect the company’s
building, its installations and people working in it. It came as a big surprise to the
head-office people, when a crowd of 3,000 gate crashed into the compound of the office
building, pushed aside the office security guards, broke nearly all windows of the office
including those of the cars parked in the lot; to destroy company’s property to the full.
Police with shell gas and the armed rangers, far from sight; they hardly noticed and stood
aside as if they were crippled. Trapped inside, all employees including the CHRO watched
VOL. 6 NO. 1 2016, pp. 1-26, © Emerald Group Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES PAGE 1
 this thriller of noise, scream and anger, right from their own offices; this went on for a good
25 min. The management tried reaching higher authorities of the city and the state for
assistance but, according to them; “nothing worked” [. . .] Nobody received the phone
calls, no emails or text messages were answered. By this time, at least 1,500 people had
already made their way to the reception area to finally barge into the offices, where office
security guards continuously struggled to push them back from entering into the offices.
This push and pull continued for at least an hour when two men who claimed to be the
leaders of the labor union came forward and announced their next move, a structured
protest. The crowd assembled outside the building; tents were up, Daris (large-sized rugs)
were laid as the workers declared a dharna (strike). After a few minutes, several cars,
(reported by the media) were burnt down in the office parking lot.
According to the HR chief, “it was euphoria that did not last even 24 hours”.
This reaction was against the introduction of a voluntary separation scheme (VSS) offered
to 4,500 workers to reduce the non-core workforce of the company. The company justified
this decision as a common Golden handshake scheme offered by the state privatized
organizations to their leaving employees. In early 2010, out of 4,459 employees, only about
300 accepted the package
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

Privatization of state-owned enterprises in an emerging economy

Empirical evidence from all parts of the developing and emerging countries shows low
productivity and ineffectiveness of the “state-owned enterprises” (SOEs), compared to
privately owned companies. Businesses may decline or become stagnant, eventually
affecting their overall survival and growth. On the other hand, privatization in the past three
decades has proved be effective as a function of efficient allocation of resources,
innovation and quality production. However the results can be disastrous without
government intervention in regulating and monitoring the market to promote healthy
competition, offering security of life and property, setting rules and environment to enable
investment in human development and infrastructure. Privatization, therefore, must be
understood in its specific context of the roles of the state and markets in a particular region
or country. One of the most important reasons to privatize is to let experts look after the
business instead of the governments running them. The role of the government may be
emancipatory, who lays down the ground rules for businesses to operate and monitor.
There can be a strong conflict of interest when the government as the owner itself is
creating disorder, as there will be no neutral person to regulate the business.

Privatization in Pakistan
Privatization in Pakistan started in early 1990s to accelerate the rate of economic growth
and to ensure sustainable development. The privatization commission was responsible for
selling the government property, for example: share in banks, public utilities, transport
companies, industrial units and infrastructure service providers to private companies. One
of the objectives of this policy was to reduce the fiscal deficit due to losses in the public
sector organizations (8.5 per cent of gross domestic product in 1987-1988) and to increase
their efficiency levels. Private producers were found to be flexible and willing to reduce
costs to a minimum for their survival; however, public firms’ investment decisions were
influenced by political interference. Hence, they were not under any pressure to ensure an
acceptable return to their equity shareholders. Other objectives of privatization focused on
fostering competition among the private companies, broad-basing the ownership of equity
capital by selling shares of the public firms through the stock exchange. Another significant
impact of privatization specifically in Pakistan was the up-gradation of skill; selection on
competence and merit, compared to selection procedure; and appointment by the state
that may take years to terminate someone if needed. As a result, the appointee continues
to draw perks and salary till his termination is documented.

PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 1 2016

 Karachi Electric Supply Company (KESC) faced a series of problems as a public service
utility including the lack of continuity of the top management that impeded company’s
strategy and execution for an efficient and consistent service to the citizens of Karachi.

Background of the state-owned Karachi Electric Supply Company

Employees in most of the state-owned enterprises in Pakistan are habitual to workplaces with
hierarchical structures, ambiguous roles and job descriptions, delay and role conflict; this often
leads to corruption and malpractices at work. At K-ELECTRIC (formerly known as KESC), the
situation was not different, where the organization was over-staffed; for example; two
individuals were hired for one vacancy. An equal partner to this vicious circle were other
stakeholders in the state-owned institutions, whose representatives got hired in such institutions
for their financial and political interests. Due to political pressures, the managers became
demotivated and anxious to secure their own jobs and therefore spent their energies and time
lobbying political leaders rather than actually performing their duties. Those who resisted, were
removed from the job and the cycle continued due to uncertainty power theft (kunda system),
load shedding and outstanding electricity bill payment by the government agencies, to other
agencies (circular debt) were some of the chronic issues at K-ELECTRIC. Kunda system is
worth mentioning, where the consumers believed it to be their right to steal electricity due to the
next-to-no service in many areas of Karachi. As a result, theft continued due to lack of trust in
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

the ability of the state and the company to provide the service. Due to the company’s weak
financial standing and infrastructure, its management processes failed to provide quality
service to its consumers. On the other hand, the employees experienced a loss of motivation
due to the traditional system of workforce management and authoritative leadership. The
company’s image and reputation was at stake as a result of years of neglect in nearly every
area of its performance.
This culture of encouraging politics with disregard to efficiency, merit and fairness, had
seriously affected the work environments in most of the public-owned corporations and
universities in Pakistan where both labor and student unions have become disconnected
with the purpose and objectives of the organizations that nurture them.
The Government of Pakistan decided to sell off K-ELECTRIC (formerly KESC) to Abraaj
group of companies in 2008, as a result of a decision to sell off the poorly managed and
loss-making public sector companies to the private sector (see Exhibit 5). This was clearly
stated by one of the HR managers at K-ELECTRIC:
All privatized state institutions have managed performance and growth in their organizations with
least interference of the government and any disputes within unions and with outside agencies/
stakeholders may be settled by the courts in line with the regulating laws and regulations.

The company’s management suggested that the placement of the unemployed may be
catered by Benazir Income Support Program or other government employment projects in
addition to a reasonable VSS package offered to them in the absence of placement
agencies, counseling and employment resources. However, a strong and adverse reaction
from the workers was expected in the shape of strike and resistance due to the fact that the
scheme forced the workers to quit their place of work, a public-owned company that had
offered job security for a lifetime.

History of Karachi Electric Supply Company

KESC, now called as K-ELECTRIC, is principally engaged in the generation, transmission and
distribution of electric energy to industrial and other consumers under the Electricity Act 1910,
and NEPRA (National Power Regulatory Authority) Act 1997, as amended to its licensed areas.
The company supplies electric power to Karachi, a metropolis with a population of over 23.5
million and one of the most populous cities in the world (Annual Report, 2013).
The organization has been serving Karachi for one hundred years now, grown from a small
coastal town into one of the largest metropolitan cities of the world. Today, K-ELECTRIC

VOL. 6 NO. 1 2016 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3

 serves over 2.3 million power consumers, more than 60,000 industrial units, hospitals,
educational institutions, commercial outlets and several sensitive installations and
organizations in Karachi. (Annual Report, 2013) Being one of the oldest companies in
Karachi, it was incorporated as a limited liability company on September 13, 1913, under
the repealed Indian Companies Act of 1882 (now companies ordinance 1984).
With a sudden surge in population and increased demand of power supply after 1947,
KESC was nationalized by the Government of Pakistan to facilitate the much needed
investment in its infrastructure. To meet the growing industrial, commercial and residential
demand, eight new generating plants were added with a total capacity of 513 MW. The
company went under WAPDA’s (Water and Power Development Authority) control and later
was taken over by the Pakistan army. In November 2005, KESC was privatized with the
transfer of 73.0 per cent Government of Pakistan shares of the company to the consortium
of KES Power Limited (71.5 per cent), a company incorporated in the Cayman Islands, and
the others (1.5 per cent). In 2008, KES Power Limited (KESP) entered into an agreement
with Abraaj Management Limited and consequently Abraaj acquired equity stake in KESP.
The Abraaj Group is a leading private equity investor operating in the growth markets of
Africa, Latin America, Middle East, South Asia, South East Asia, Turkey and Central Asia.
In May 2008, Abraaj capital agreed to invest US$361mn for a 50 per cent stake in KES
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

power – the holding company that owned 72.5 per cent of KESC – with the aim of finally
realizing the power company’s goal of implementing a turnaround and growth plan.
Over the next few years, more than US$1bn was invested in the KESC, adding 1,010 MW
of generation capacity, enhancing the company’s transmission and distribution capabilities
and renewing its focus on customer service (Annual report, 2013).
A new vision and identity of the company was envisaged to make it an efficient private-owned
organization, with the business model aligned to the HR practices (Exhibit 1).

The new company

K-ELECTRIC, now looked after by the new management since September 2008, was
equipped with a significant number of experienced professional managers and other large
companies who joined K-ELECTRIC with a promise to turn it into one of the best utility
service organizations.
The company, on April 13, 2009, entered into an Amendment Agreement with the
Government of Pakistan for increased public–private partnership in previously state-held
institutions.
At present, the management of K-ELECTRIC is run by a professional management team
headed by Tayyab Tareen as the Chairman of the company’s board of directors, effective
November 27, 2014 (Exhibit 2). The directors are professionals and senior executives with
both national and international exposure and experience.
Management in action
The CEO of K-ELECTRIC said: “Right from the onset, we were cognizant of the fact that we
had a big responsibility to transform an entity that is vital for the socio-economic growth and
a sustainable development of our city and country”.
With the new management and K-ELECTRIC vision intact, to provide affordable, reliable
and uninterrupted power supply to the citizens of Karachi, the company embarked on new
infrastructure projects of electricity generation (Annual report, 2013). Online bill/e-bill,
corporate intranet, the HR portal, monthly overtime and absence recording and primary
and disaster recovery management are some of the examples.

The human resources challenge

HR was one of the biggest challenges that the organization had to address at the time of the
takeover, especially after the episode of the defunct labor union with hunger strikes, lockouts

PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 1 2016

 and damage to the company’s property and offices. The workforce was not properly organized
and the management and non-management structure was lopsided. There was also lack of
cohesion within the work groups. Absence of ownership was further leading to de-motivation,
which was complicated by the fact that a performance-oriented culture was missing. Hiring
during KESC’s earlier days was politically aligned and there was a distinct divide between
compensations during various periods of KESC’s operations. Promotions were based on
seniority rather than performance, and corruption was an endemic issue. The organization
structure was too rigid, with many layers and an overlapping and unclear chain of command.
Job descriptions were either not defined or, where available, were often found inconsistent and
misaligned with actual practice. Relevance of qualification was ignored in hiring, and a majority
of employees were working on jobs that did not match their skill set.
Because one of the company’s goal is life/career advancement of its employees, it believes
in its people as the only resource to bring creativity and innovation to the company’s
strategy, vision and mission. The HR team at K-ELECTRIC therefore, claimed to play a very
crucial role as change agents of thoughts, feelings and behaviors to enhance employees’
potentials to their highest level of performance.

The impact on performance

Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

Former governor of State Bank of Pakistan and Dean and Director of IBA, Dr Ishrat Hussain
said:
I am the first one who keeps telling the KESC senior management that they have a long way to
go and there are many milestones they have to reach. But at least the direction is set. A
competent and dedicated management team is in place. Shareholders are continuously
monitoring and keeping a vigilant eye over their performance. Investment plans in generation,
transmission and distribution are at various stages of execution some of them having been
partially achieved. Systems and procedures are being put in place. Intelligent use is being
made of technology to manage load distribution and peak demand allocations. Customer
services units with their staff trained and retooled have been empowered to solve problems
facing the complainants. Voluntary separation scheme, despite lingering difficulties for a
prolonged period, is beginning to align manpower supply with the demand. Financial controls
have been strengthened and recovery of dues had been stepped up. Theft and T&D losses, still
high and in unacceptable range, are being vigorously tackled.

The citizens of Karachi would feel satisfied when they get uninterrupted supply of electricity at
affordable rates. This would require efforts of fuel switching, innovative and creative solutions to
minimize theft and T&D losses, greater efficiency in generation and addition of new capacity.
(Hussain, 2012).

The company has recorded the lowest electricity losses (Annual Report, 2013) in the past
18 years along with a record profit in 2011-2012 for the first time in 17 years (Exhibit 6).
K-ELECTRIC is listed on all three of Pakistan’s stock exchanges – the Karachi Stock
Exchange, the Lahore Stock Exchange and the Islamabad Stock Exchange – and currently
employs around 11,300 people.

Human resource performance overview

Our focus is the restructuring of HR as they are a critical conduit in the final delivery of results.
Over the past three years, the people management situation has improved. An emphasis on
performance, reinforced through a performance management system, has led to improved
motivation levels, while promotions and transfers through internal hiring, keeping in view the
individuals’ skills and capabilities, has led to greater ownership and reversal of brain drain.
Infusion of new bloods and management professionals has enriched the cultural harmony, while
transparency in systems and operational efficiencies infuses the energy and trust needed to
take us forward toward a sustainable future (K-ELECTRIC sustainability report, 2009-2012).

VOL. 6 NO. 1 2016 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5

 The new contract
By 2009, the Abraaj team had started to develop the company’s new vision, its future goals
along with strategies needed to deliver the desired objectives on a timeline. This was the
time when HR function needed to be redefined and linked to other business functions. The
organization at this stage was around 30 per cent overstaffed in the non-technical areas,
and around 10 per cent understaffed in the technical domain with a total strength of 17,439
employees (see Exhibit 3). Therefore, all (non-core) jobs held by drivers, riders, peons,
back-office executives and security were contracted out to the third parties to obtain more
efficient services at a better cost. Thoroughly scrutinized and wetted by the company’s
legal team, the Golden handshake scheme was drafted to retrench the non-management
staff comprising 4,459 workers; most of these workers held non-technical jobs and were
representatives of political parties. K-ELECTRIC’s goal has been to establish a leaner,
more efficient organization that focuses on personal development and career
advancement. The organization has been suffering in the past because of an imbalance in
the resource structure, as most of the non-management strength of the organization was
based in non-core functions. The organization decided to outsource the non-core function
to third-party service providers to ensure more efficient workforce, quality of service and
financial gains. The workforce was reduced by 64 per cent, while the monthly
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

compensation cost was reduced by 80 per cent (Exhibit 4).

Despite this, the severance package offered was rejected, followed by a very strong public
protest, especially by those in the company’s distribution network. The workers did have
some support of the public, media and politicians to their cause (see any Pakistani
newspaper during those times); however, their past behavior and the physical attack on the
head office, had already cost them in the courts.
The CHRO states:
The union has not been able to take a single stay order in the court against K-ELECTRIC’s
management decisions after the protest. It has already lost 14 suits decided in favor of the new
management. To date there is practically no credible workers union at K-ELECTRIC[1].

On August 29, 2011, given the relatively poor law and order situation in the city, the union
made another attempt to protest. Another round of illegal physical damage was done to the
company’s head office. However, the LEAs were quite responsive this time round, and they
arrested a number of culprits and sent them to jail.
However, serious challenges were faced by the management, the government and the
consumers. Retrenched workers were now without jobs and their families would suffer as
well. Power supply had to continue, which meant that the offices could not afford to close
down, although there was a serious threat to the lives of those who worked for the company.
Lastly, this could also mean that the consumers would be without electricity. The
Keywords: K-ELECTRIC team and Mr Asir need to act now.
Change,
Private equity,
Crisis management,
Note
Resistance, 1. Interview with Mr Azir Manzur, February, 2013. Subsequent quotations are from the author’s
interviews unless otherwise noted.
Voluntary separation

References
Annual Report, K.E.S.C. (2013), available at: www.ke.com.pk/pdf/financialdata/20131008_Annual-
Report-2013.pdf

Hussain, I. (2012), “Impact of privatization on sustainable development: keynote address at KESC

thought leaders forum held at Karachi”, September, available at: www.facebook.com/notes/iba-
institute-of-karachi/impact-of-privatization-on-sustainable-development/10151376618555101

K-ELECTRIC sustainability report (2009-2012), available at: http://www.ke.com.pk/pdf/financialdata/

AR-2015/AR%202015%20(complete).pdf

PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 1 2016

 Exhibit 1. Our vision, mission and values

Figure E1
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

VOL. 6 NO. 1 2016 EMERALD EMERGING MARKETS CASE STUDIES PAGE 7

 Exhibit 2. Board of directors

Figure E2
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

PAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 1 2016

 Exhibit 3. Head count

Table EI Head count 2008

Employee subgroup Total

Management 1,877
Non-management 15,380
Grand total 17,257

Table EII Head count October 2012

Employee subgroup Total

Management 5,525
Non-management 5,668
Grand total 11,193

This indicates 36 per cent change in the overall headcount. The difference (6,243) till now
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

has been released based on performance, retirements and voluntary separations. 4,500 of
5,797 were discharged in January 2011 when their services were outsourced to cut back
costs. These 4,500 were non-core workers (not directly involved in the core business of
generating, transmitting and distributing electricity), leading to approximately 78 per cent
cost cutting.
Prior to 2009, the management to non-management ratio was lopsided. It stood at 1,899:
15,537 respectively. In April 2009, 3,500 non-management employees were shifted to the
management cadre to even out the system, making it approximately 5,525:5,668
(management to non-management) till October 2012.

VOL. 6 NO. 1 2016 EMERALD EMERGING MARKETS CASE STUDIES PAGE 9

 Exhibit 4

Figure E3 A comparison of old workers’ and outsourced parties’ compensation

expenses
Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

PAGE 10 EMERALD EMERGING MARKETS CASE STUDIES VOL. 6 NO. 1 2016

 Exhibit 5

Figure E4 A Rationale for privatisation of KESC

Downloaded by Universidad Autonoma de Yucatan At 16:13 23 April 2018 (PT)

Exhibit 6

Figure E5 A snapshot of return on investment at K-Electric after the Abraaj takeover

Corresponding author
Mrs Nyla Aleem Ansari can be contacted at: nansari@iba.edu.pk

VOL. 6 NO. 1 2016 EMERALD EMERGING MARKETS CASE STUDIES PAGE 11