Developing Business Competence: A model based on Viable Systems

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Seminar on “Organisational Restructuring of SEBs” D.V. Ramana increase of the tariff for the ultimate consumer. Post reforms, the State has profit making generating companies with loss making transmission and distribution companies. Devolution of revenue management Approaches to reforms in the public sector have traditionally supported the idea of a strong centralised executive office, which would serve to rationalise the public policy processes, adopt a system-wide perspective. However, the public sector experienced unprecedented levels of change during 1980s and 1990s. Such pressures came from the entire range of stakeholders viz. from governments (both central and state), and from the local consumers and communities, to develop a “public service” orientation, involving the provision of demand-led services and be responsive to the needs of those being served 5 . The same period has also seen the emergence of a populist search for managerial and corporate improvement largely <strong>based</strong> on the <strong>model</strong>s adopted by the private sector enterprises. This resulted in a move from traditional bureaucratic modes of administration to more flexible and customer-oriented management 6 . A core element of this new managerialism is the adoption of decentralised budgetary management systems with managers at the lowest level having more authority over resources; greater scope for decisions; accountability for achieving agreed targets 7 . More recent reforms have abandoned hierarchy in favour of market-driven management systems, which reflect private sector management private sector practices and values 8 . These practices and values were developed and proposed for addressing the inefficiencies of the public sector by Osbrone and Gaebler (1992) 9 . In Orissa along with the unbundling of the business, efforts were made to decentralise the revenue management. A conscious effort was made to improve the commercial function of the company. OSEB was managed principally by engineers, therefore, the management had a strong technical bias and it was a standard practice for engineers to undertake commercial, administration and other non-engineering jobs. Therefore, one of the major organisational changes introduced during the early days of the reforms was to bifurcate the field level activities into engineering and commercial functions. The commercial function comprised of revenue management, accounting, customer management and, the engineering function comprised of system operation, repairs and maintenance, and other technical activities. Coupled with the bifurcation, commercial procedures were implemented. This small intervention improved the business environment at the division level. The concept of profit centre accounting was introduced in the distribution companies. Under the new practice, each division was treated as a profit centre and was required to earn profit. Each division was put in charge of an executive engineer (re-named as divisional manager to drive in the importance of the commercial aspect of the business). Each division was further divided into three/four sub-divisions. The divisional manager was made responsible for the performance of the division. As a control measure, the divisional manager was required to make a presentation of monthly performance at the head-quarter. The chairman and managing director of the company reviewed the performance. Such changes resulted in the following: • Stressed the commercial aspect of the utility business. • Developed interrelationship between technical and finance executives. • Enabled the divisional managers to understand the financial implications of the various activities undertaken. • Involved the field personnel in various managerial decisions. 4
Seminar on “Organisational Restructuring of SEBs” D.V. Ramana • Established an authentic database for important business parameters like billing, collection, T&D losses etc through a well-developed management accounting system. • Increased accountability at the division level. • Improved the performance at the division level. and • Made the top management aware of the field problems However, with the privatisation most of these activities came to standstill. Since most of the devolved activities were undertaken with an active support of the consultants, once the consultants were withdrawn from the process, it was difficult for the field staff to carry on the work. Privatisation Orissa is the first State to privatise the distribution business by divesting more than 50% of the government stake. Following were salient features of the privatisation process: � The distribution zones were corporatised, which gave birth to Wesco, Nesco, Southco, and Cesco in November 1998 as 100% subsidiaries of Gridco. � As per the transfer scheme of the Government of Orissa, distribution fixed assets and corresponding equity were transferred to the distribution companies. In doing so, a relatively clean balance sheet was established for each of these companies, albeit, it had some negative effect on Gridco � More than 50 parties (both national and international organisations) had shown interest in the initial stages of the process. However, 12 companies/JVs submitted the required papers and of which 11 were pre-qualified by Gridco. � To provide information about Gridco and the distribution companies an Information Memorandum was given to the interested parties. Gridco also appointed separate committees for the evaluation of the technical and financial bids. � Only three bids were received for three companies viz. Wesco, Nesco, and Southco . For Cesco, a second round of bidding was invited. � The process ended by transferring Wesco, Nesco, and Southco to BSES and Cesco to AES & Jyothi Structures limited. Even after two years of reforms there is no significant improvement in the distribution companies’ performance. Some of the observations are as follows: � Though billing as percentage of the input increased marginally during the April- March 2000, still it was less than the OERC’s approved 65%. Overall billing was 56.8% of the input in the year April –March 2000 against 54.0% in the previous year. So the T&D loss remained in the range of 45-46%, which is still considered to be very high. 5
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Developing Business Competence: A model based on Viable Systems

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