I recently rediscovered the wonders of television through fantastic programs offered on Public Broadcasting Service (PBS). I especially love Independent Lens, which showcases documentaries and dramas made by independent filmmakers.
The other night I watched “Power Trip” on PBS World. It’s a powerful film about an American energy company and its attempt to operate an electric company in the former Soviet Republic of Georgia. Of course, the title suggests a power struggle for control and this was certainly the case, but there are also other management lessons that can and should be learned.
The film documents the ongoing challenges that AES (the American energy company) face in running AES-Telasi (the electricity distribution company in Georgia’s capital city, Tbilisi). While the film does a nice job of highlighting the problems of corruption, lack of infrastructure, local poverty, etc. one thing that it failed to mentioned was the ingrained culture against which a foreign company faces when it attempts to run a business in another part of the world, and whether it possesses enough power to ensure success.
Throughout “Power Trip” those working for AES talked about the theft of electricity, but considering the state of poverty the Georgian people were in, they were stuck between feeding themselves or stealing electricity. Of course, even when local people did pay it wasn’t a guarantee that they would actually get electricity because Georgia’s corrupt leaders often stole electricity for themselves or their relatives.
Here are the numbers:
- Average monthly wage in Tbilisi: $15
- Average monthly bill prior to AES-Telasi: $0
- Average monthly residential electricity bill from AES-Telasi: $24
- Time in Georgia: January 1999 to September 2003
- Amount of money AES-Telasi spent improving power lines and meters in Tbilisi: $90 million
- Estimated daily loss at AES-Telasi: $120,000
- Total loss at AES during its time in Georgia: Over $200 million
In the end, the Enron scandal in 2002 caused energy stocks to nosedive. AES took a financial hit, and unable to support its Georgian operation, was forced to sale AES-Telasi in 2003. The lone buyer, a Russian state-owned company, called United Energy Systems (UES). It, too, encountered the same issues that plagued AES – corruption, poor infrastructure, and financial hardships. AES’ CEO, Dennis Bakke, resigned in the summer of 2002.
While Russia, like China, is viewed as a huge opportunity, there’s also caution that “severe political and social problems still persist in Russia and in many of the former states of the Soviet Union (like Georgia)” (Nickels, McHugh, & McHugh, 2005, p. 93).
Perhaps, in hindsight, had AES studied the history and current social, political, and economic climate of Georgia, it might not have been so hasty in wanting to set up shop. After all, how could the locals afford the average electric bill (which totaled about $24 each month) if their salary was $15 US dollars a month (yes, a month)?
Most importantly, I believe Pfeffer and Sutton (2006) offer the best wisdom. Although their suggestion is about implementing internal organizational changes, I think it’s quite applicable to this case. One question they recommend asking is:
“Do you have enough power to make the change happen?”
Have you figured out the power dynamics, the internal and external politics, as well as the overall political landscape?
As the case of Jim Walker, who was brought on to assist Nomura Securities Asian operation in Hong Kong in the late 1990s, illustrate when a leader fails to “appreciate the political nature of the environment” (Pfeffer, 2010, p. 9) in which he works, the consequence is opposition, rivalry, lost of control, and ultimately surrender.
In AES’ case, the CEO failed to appreciate the political nature of the Georgian environment and how it significantly reduced his own and his company’s power to run AES-Telasi and provide electricity to the people in Tbilisi. Had AES considered this question, it would have realized that power was never within its own control but rested, instead, squarely in the Georgian social and economic systems which were controlled by those at the very top of Georgian politics.
Nickels, W.G., McHugh, J.M., & McHugh, S.M. (2005). Understanding business (7th ed.). New York: McGraw-Hill/Irwin.
PBS. Independent Lens. POWER TRIP.
Pfeffer, J. (2010). Power: Why some people have it-and others don’t. New York: HarperCollins.
Pfeffer, J., & Sutton, R.I. (2006). Hard facts, dangerous half-truths, and total nonsense: profiting from evidence-based management. Boston: Harvard Business School Press.