Organizations As Systems

The focus of this case assignment is to determine the usefulness of identifying organizations as socio-technical systems. Organizations labeled as socio-technical systems establish the framework for evaluating the social and technical elements of an organization and determines their level of integration. As with any business organization, the social and technological elements must be balanced and tailored to work together to sustain effective operations. The AES Corporation serves as an excellent example of a socio-technical system that drifted out of balance. Detailed below are the social and technical elements that impacted the rise, fall, and subsequent solutions undertaken by the AES Corporation.

The AES Corporation is a global power company that experienced extreme organizational changes in the past few years. Founded in 1981, AES made its entrance into the power market with its Texas plant. Over the next 20 years, AES went on to establish international markets in the United Kingdom, Argentina, Pakistan, Hungary, Brazil, West Africa, and Central America.1

Unprecedented growth rates afforded the company the opportunity to pioneer its efforts in new and emerging markets. As business revenues escalated throughout the 1990’s AES’s leadership began to lose control and was forced to implement drastic financial and organizational restructuring to save the organization.

Since its inception, AES was known for utilizing a decentralized management approach. Relatively flat organizational structure removed many of the supervisory tiers associated with contemporary organizational structures. This pushed decision making to the lowest possible managerial level, allowing lower level management to enact change without interference from higher echelons within the structure.

AES was structured into independently operating business teams. According to the Effective Leader Newsletter, “Employees are organized into teams of well-rounded generalists. AES has no marketing division, no HR department, no finance groupвЂ"each team has members who perform these functions.”2 The culminating effect was a shift of control from Rosslyn, Virginia based headquarters to each business team and decision making on the lowest level. “AES headquarters had been a place where relatively few employees hung out; the emphasis was having people in the field. At the end of 2001 AES had more than 38,000 employees worldwide but only 80 of them in the head office in Rosslyn.”3

AES used job enrichment and job rotation to create an empowered multi-dimensional workforce. “Team members are encouraged to learn all aspects of the firm’s operations, often through job rotation from team to team and plant to plant. The company’s commitment to learning is evident in Sant’s remark, “...we try to reinvent the wheel every time we get a chance. The process of learning and doing is what creates engagementвЂ"fun.”4 Job rotation created a multi-dimensional workforce and decentralized management empowered employees on the lowest level by placing decision making in their hands. Former chairman Roger Sant comments, "We took our own model to an extreme. We took it to an exaggerated level.”5

The “loosely” managed structure allowed AES to increase operations and number of employees at unmatched levels. By empowering employees there was accelerated growth for each business team. Rapid decision making was essential in AES’s growth. They were able to adapt to a volatile market while their competitors were hindered by their taller organizational structures.

Initially, decentralization proved to be effective for AES. However, AES’s growth was too rapid for their organizational structure to remain effective. Both social and technical elements of AES eventually grew to be ineffective, it is the social element that was the major cause of necessary restructuring. The loosely managed structure removed much of the accountability for ineffective decisions. Business teams began to lose focus on the collective success of AES and shift to an individual success of their team. Lines of communication to headquarters were degraded by the blurring of command and control channels, and eventually the strategy that was initially identified as the contributor of successes proved detrimental.

With decision making occurring on the lowest managerial level and limited intervention from AES headquarters, fiscal decision making and relaying those decisions became extremely ineffective. “Multibillion-dollar decisions were made on the ground, in such places as Argentina and Brazil and England, where projects were being developed, and not always by those who had the best training, experience or company-wide perspective, AES officials said in recent interviews.”6 The emphasis seemed to center on each business team, not on the collective success of AES.

The solution for the projected lackluster future of AES was developed by Richard G. Darman, new chairman for AES. Darman comments, “The challenge is to add what needs to be added without losing the strengths of the past, the culture has shown some of its own strength in adapting to adversity.”7

Darman sought to improve the social element by maintaining some of the autonomy via the business team structure, however he bolstered headquarters personnel three-fold which resulted in increased command, control,