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TERMS OF REFERENCE FOR MANAGEMENT CONSULTANCY

Table of Contents
Foreword.. Background.. LESCO. Existing Organizational Structure. A Vision of Organizational Health. Organizational Analysis.. Objectives of Organizational Development... Establishing the Direction... Human Resource Management Performance Appraisal Systems Reward and Pay Systems 2 3 4 5 9 10 11 12 12 13 14

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Foreword
Power distribution companies are in state of chronic despair on account of skyrocketing tariff and their operational inefficiencies and they are finding it difficult to coupe with. Line losses which constitutes of technical loss due to poor and sluggish infrastructure and the commercial loss due to theft of energy, both are adding to their troubles. Central to their underperformance is lack of system to plan ahead the rehabilitation works resulting in brownouts due to damaged transformers, frequent faults and overloaded network. Moreover, the companies do not have mechanism to isolate technical losses from commercial losses and therefore can neither channelize efforts to target high loss making segments of the network nor able to identify the consumers involved in theft. Inventory stock outs are common across the DISCOs resulting in delayed installation of new connections making consumers more frustrated. In the midst of loadshedding, power outages due to faults in the network are also taking toll on consumers and seriously questioning the credibility of companies. The management and the employees are not only dissatisfied with the remuneration which is not commensurate with the private sector and does not keep pace with the inflation but also with the slow promotion policy. A young engineer is kept at the same position for more than 15-20 years leaving him demotivated and . The financial issues are rooted in the fact that the cost-recovery tariff determined by NEPRA is not applied to the customers. Thus the government bears the differential as a subsidy. Losses and costs excluded from the tariff formula also accumulate at the power distribution companies level. The lack of financing leads to arrears for the power generation and fuel companies. Timely payment to these companies, essential for the sectors reliability, has become increasingly difficult, partly because of increased dependence on imported fuel, which is subject to wide price fluctuations. The cost of (oil-based) power generation in the country escalated by almost 40%. Despite steep increases in tariff and fuel price adjustments, customer tariffs remain below cost recovery, requiring large government subsidies to keep the system operating. The focus on massively increasing spending on power subsidies, reforms and efficiency measures has been unable to remedy the circular debt in the system.

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Background
Water and Power Development Authority(WAPDA), was created in 1958 as a semi-autonomous body for the purpose of coordinating and giving a unified direction to the development of schemes in water and power sectors, which were previously being dealt with, by the respective electricity and irrigation department of the provinces. The local areas electricity distribution service was performed by various regions of WAPDA. Then the Area Electricity Boards (AEBs) were established under the scheme of Area Electricity Boards in 1982, in order to provide more autonomy and representation to provincial government, elected representatives, industrialists, agriculturalists and other interest groups in functions of the AEBs. In order to promote fair competition in the electricity industry and to protect the rights of consumers as well as producers and sellers of electricity, the Government of Pakistan has enacted act the Regulation of Generation, Transmission and Distribution of Electric Power regulation Act, 1997. Under this act the National Electric Power Regulatory Authority (NEPRA) performs three main regulatory functions i.e., licensing of generation, transmission and distribution of electric power, tariff determination and prescription of standards and rules for conduct of business. The vertical disintegration of WAPDA was begun in the year 2000 as part of the countrys new electricity market restructuring and liberalization program. WAPDA was broken down into fourteen separate units: four generating companies, nine distribution companies, and one national transmission and despatch company. However, the envisaged privatization of these independent generating and distributing companies is proving difficult, because they often operate at a loss due to line losses, unpaid bills and sub marginal electricity tariffs. Since October 2007, WAPDA has been bifurcated into two distinct entities i.e. WAPDA and Pakistan Electric Power Company (PEPCO) . WAPDA is responsible for water and hydropower development whereas PEPCO is responsible for the management of all the affairs of WAPDAs fourteen public limited companies in the areas of thermal power generation, transmission, distribution and billing. These fourteen (14) corporate entities are: o Four Thermal Power Generation Companies (GENCOs)

1. Southern Generation Power Company Limited (GENCO-1) head quarter at Jamshoro district Dadu near Hyderabad Sindh. 2. Central Power Generation Company Limited (GENCO-2) head quarter at Guddu district Jacobabad Sindh. 3. Northern Power Generation Company Limited (GENCO-3) head quarters at TPS Muzaffargarh district Muzaffargarh Punjab. 4. Lakhra Power Generation Company Limited (GENCO-4) Headquarter at WAPDA House Lahore. o One National Transmission & Power Dispatch Company (NTDC) o Nine Distribution Companies (DISCOs) as under:

Page |4 1. Lahore Electric Supply Company (LESCO) 2. Gujranwala Electric Power Company (GEPCO) 3. Faisalabad Electric Supply Company (FESCO) 4. Islamabad Electric Supply Company (IESCO) 5. Multan Electric Power Company (MEPCO) 6. Peshawar Electric Power Company (PESCO) 7. Hyderabad Electric Supply Company (HESCO) 8. Quetta Electric Supply Company (QESCO) 9. Tribal Electric Supply Company (TESCO) LESCO Lahore Electric Supply Company (LESCO) is the largest among the nine distribution companies in terms of sales of electricity and the third largest in terms of number of consumers. It is responsible for the distribution of electricity to 2.9 million consumers across 5 districts of Punjab i.e Lahore, Shekhupura, Okara, Kasur and Nankana with an annual peak demand of 4006 MW. LESCO purchased 16.9 billion energy units during 2010-2011 and sold 14.7 billion units of electricity which accounted for sales of approximately PKR 138 billion. The leakage of 2.2 billion units was primarily due to Transmission and Distribution losses and the monetary deficit tantamount to be PKR 20 billion(13.26%) which was borne by the government in terms of subsidy. This huge quantum of losses which is growing over the years reflects the lousy picture of operational inefficiencies deeply rooted in the conventional practices of the distribution company. The other challenges are not indifferent from those faced by the power distribution companies as a whole detailed earlier. Dissatisfaction of employees from the current salary structure and slow speed perpetual career management are big impediments to operational efficiency and productivity. Training of employees and their exposure to global best practices in energy sector is something which had never been underpinned.

Existing Organizational Structure Being a large corporation with an expanded infrastructure stretching over the 5 districts of Punjab, LESCO does not have a pure functional or a pure divisional structure rather two types of hybrid structures are found in the entire organization. In one hybrid form, the key functions narrated above that require economies of scale and specialization are centralized and located in headquarters and in other hybrid form, geographical region based divisional structure is overlaid and superimposed to facilitate coordination across functions. By combining characteristics of both structures, LESCO is taking advantage of both technical expertise within the functions and horizontal coordination across functions; an arrangement tailored to achieve organizational goals with coherence. However, it would be appropriate to say that there is no silver bullet, every structure has its own strengths and weaknesses and there is always room for improvement in any structure especially within an unstable and varying environmental pressures; LESCO does have some functions which are not vertically integrated within the region based divisional structure resulting in inhibition of working relationship, polarization and a little

Page |5 communication flow across divisions & functions. This state has created high walls among various functions and led to little cross-pollination of ideas which are critical to continuous improvement. Under the leadership of CEO, Technical director is acting as Chief Operating Officer responsible for coordination with 4 functional Chief Engineers (Operations& Maintenance, Planning &Design, Transmission Line & Grid stations and Project Developments) and 6 Directors which include Human Resource Director, Customer Service Director, Finance Director, Director Surveillance & Investigation, MIS Director and Legal Director. On the basis of geographical regions, LESCOs operations have been divided into 6 circles with each circle further subdivided into 5 Divisions and each division is consisted of 5 subdivisions. There are 6 Circle Managers (operations) and 2 Managers for Project Construction and Meters &Testing who report directly to Chief Engineer (O&M).Each Circle Manager (operations) has representative for each functions such as; one Deputy Director(Technical) for coordinating with 5 operational Divisions; Deputy Commercial Manager for coordinating up with CSD and down with 5 Divisional Revenue officers on billing & collection affairs. Each Division under the Circle Manager has 5 operational subdivisions, one Revenue Officer(representative of CSD for billing & collection of data) and one Divisional Accountant(representative of FD for financial matters).The subdivision is the fundamental SBU which is responsible for all the operational functions such as recording & billing of energy, installation & replacement of meters, maintenance of network, collection of payments and augmentation of network, surveillance & monitoring , resolution of Consumer Complaints and CRM which are implemented through Line Superintends and their crew(Line-men).

Strengths of hybrid Organizational Structure (Functional + Divisional) in LESCO:


1. The division managers and the functional managers have equal authority within the organization, and employees report to both of them and most of the employees will have dual assignments and dual reporting relationship. The subdivisions record and report the energy consumed to Revenue Officer(RO) with Divisional head(Deputy Manager) acting as an integrator. Line superintend(recovery) ensure timely collection of payments and report both to SDO & RO for vertically bottom up reporting to CSD through DCM. 2. Resources can be flexibly distributed and shared between functions and divisions in the form of scheduling or priorities to meet multiple demands. Deputy Managers (P&D) in coordination with sub divisional staff and by utilizing their resources work for future planning and network capacity enhancement. Similarly, Deputy Manager(S&I) uses the subdivisional resources for carrying out anti-theft practices. 3. This structure is well suited to complex decisions and frequent changes in unstable environment. Since functions such as billing & collection and Finance require extremely effective linkages in both vertical and horizontal directions, therefore this set up helps the employees to be exposed to range of activities either functional or general management skills and at the same time provide a well defined functional career path. 4. There is a dual authority structure from two dimensions i.e function and region enabling to instill a balance of power. DCM is answerable to both Circle Manager(operations) and CSD while RO is accountable to Divisional manager and DCM on billing & collection affairs. 5. The divisional structure at the middle and lower level tiers of management help to improve accountability, budgeting, planning and responsiveness. The Circle Managers and Division Managers are responsible for quantifiable Key performance indicators for each function and they

Page |6 are always focused in meeting the targets assigned. A culture of cooperation and cohesion nurtures among the divisions and the top management is being able to spend less time addressing day-to-day operations of the organization. 6. The activities where functional structure is vertically coordinated in bottom up manner facilitates sharing of valuable expertise by superiors and the performance management systems promote the visibility of individual skills helping the employee in career development. Billing & Collection, Operations and Finance & Accounts are integrated in both vertical & horizontal dimensions.

Weaknesses of hybrid Organizational Structure (Functional + Divisional) in LESCO:


1. There is a problem of determining responsibility & authority relationship between functional and divisional managers. There is also lack of jurisdictional clarity. An individual who reports to two bosses is always caught in a conflict. Here, SDO and Revenue Officer keep on shuttling between Divisional Manager (operation) and DCM Officer for Cash recovery affairs. 2. Here a great deal of time is expended in attending the meetings called upon by Divisional heads or some functional senior management .In a month, SDO and Revenue Officer had to attend more than 10 meetings chaired by either Divisional middle management or senior functional management providing them with the ability to influence which dimension gets more attention in different situations. At times there are a number of conflict resolution sessions. 3. The dual reporting relationships and assignments cause role ambiguity, hamper career development and weaken ties with professional reference groups. As a result, managers do not adopt to information and power sharing required by this hybrid form and usually rely on vertical authority in decision-making. Thus, employees are not learning to work in collaborative fashion since one side of authority i.e Divisional authority under the functional Chief Engineer(Operations & Maintenance) dominates. The support functions representatives such as the visiting P&D,S&I and legal experts are treated as aliens in the division. 4. Conflicting demands of those functional heads whose specialists have not been vertically and horizontally integrated and shared in the divisions result in inequitable resource allocation. For instance, P&D,S&I,M&T and legal experts have no representation in the divisional structure and their services are centralized and are allocated upon special requests from divisional managers subject to availability. This slows down the decision making process and trigger antagonism between the divisions. 5. The divisions in LESCO are not being treated as profit centres because the information velocity is not well integrated among the various functions. Therefore, the divisions and the subdivisions have started to play games with its numbers in financial statements to meet financial objectives. The divisional managers are not trained to run divisions as investment centres because the P&D and legal functions are not decentralized preventing the managers to have a holistic view. 6. This structure also demands great effort to maintain power balance between the Divisional heads and functional heads and the managers are always stressed with varying demands of different functions. Organizational effectiveness is the measure of the extent to which an organization realizes its goals:

Page |7 The structure narrated above needs to be fine tuned and aligned with the goals of LESCO by eliminating the inherent weaknesses i.e Grow Revenues and shrink all forms of loss

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A Vision of Organizational Health:


At the heart of an organization is a vision and core set of values. That vision and those values help shape the organizations mission, which, in turn, informs its program strategies, systems and structures. An organizations effectiveness depends on a shared understanding of, and commitment to, the vision, values and mission. In effective organizations, the vision, values and mission derive from the convictions of people in the organization and inform all other components of the organization. When the core components listed below are in alignment with the vision, values and mission, they are more likely to be in alignment with one another and lead to effective work and a sustainable organization.

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LESCO identified the following core components of effective organizations which need to be revisited and aligned with the business strategy. Vision, Values and Mission Governance Strategic Thinking and Planning Program Development and Implementation Evaluation, Learning and Accountability Human Resource Management Organizational Culture Management Systems and Structures Legal Compliance, Fiscal Management and Public Accountability Resource Development Constituent Relationships Collaboration

P a g e | 10 Organizational Analysis

7-S Model developed by Mckinsey & Company can be a useful framework for analyzing and improving LESCO because in order to be effective there must be a strong fit and alignment among all the seven Ss so that a change in one will have a ripple effect on all the others. The Consultant is required to examine all the Ss and try to gauge the gap and not only suggest but also formulate a road map towards the effectiveness. During the planning phase, all 7 factors should be analyzed and the eventual plan should address each one. This project should, at the very least, have a formal stakeholder analysis and a communication plan. Both must consider internal and external stakeholders. If the decision phase revealed significant Change Management challenges, then the plan should include real and concrete deliverables to address these issues. Some examples would be: Creation of materials to explain the new model, culture or vision. Opportunities for senior management to visibly sponsor the change and demonstrate it through role modelling. Time and opportunity for staff at all levels to learn about and work through the proposed changes. The use of pilot groups. A plan that is more exploratory than linear, each step building on the lessons of the previous step. Regular temperature readings on the state of the factors through such mechanisms as surveys, focus groups, meetings, absenteeism, customer satisfaction and process efficiency. A mechanism to spot and report early successes. A mechanism to spot and deal with problem areas.

P a g e | 11 While doing the SWOT analysis, it is suggested to please keep in view the following: o o o o o o Has our organization been financially competitive? Scrutinize financial statements Were our strategic marketing objectives achieved? Strategic corporate objectives Are our prices and costs competitive? Value chain analysis What are our distinctive competencies & resources? Personnel, structure, physical resources, departments How strong is our competitive position relative to other DISCOs? Competitive assessment with key success factors How well are our present strategies working? Competitive, corporate, functional

Objectives for Organizational Development: 1. Align the organization through shared objectives which include increasing capacity and financial strength; building talent and our reputation. 2. Cascade objectives across the organization. 3. Build supporting action plans. 4. Assessment of exceptions. Following model may be useful in establishing the direction:

Capability: What processes must be optimized to ensure future success? Which Strategies would be tied to the capability? Which key success factors would be indicative of success and failures? How the factors would be measured and managed? Growth: How do we strengthen our financial position? What strategies would be formulated for business growth? What would be the KPIs and how would they be managed?

P a g e | 12 Relationships: How do we improve stakeholders satisfaction? What strategies would be undertaken to foster reputation and relationship? What would be the KPIs and how would they be managed? Human Capital: How do we fill leadership gaps? How the leadership skills and knowledge would be institutionalized in current employee base? How to identify the high potential employees? What development plans would be put in place? Competencies may kindly be mapped. Profile the company ,functions and jobs. Define the desired state. Define the current state. Suggest how to build required competencies. How to encourage excellence ?

Human Resource Management: A complete overhaul of the HRM functions would be proposed addressing each component and functions of Human Resource Management: 1. Recruitment & Placement: i. The Legal Environment: It includes clearly outlining the laws and regulations that significantly shape HRM policies. Many of these laws enshrined human rights acts, Labour code etc Human Resource Planning: It determines and forecast the staffing needs by category in each department besides knowing the operational and strategic goals. Effective HR planning facilitates replacement and succession planning, recruitment and selection strategies, as well as contributes to the attainment of organizational mission. Job analysis: It includes determining the skills, knowledge, abilities other essential characteristics required for effective job performance. Recruitment: Locating, attracting and obtaining the qualified individuals in adequate numbers, at the right place and time , to enable the organization and individual to select eachother.

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2. Training And Development: i. ii. Orientation, Socialization and Training would be designed to increase employee engagement and satisfaction. Management Development: Programs may be suggested for high-potential managers so that they acquire skills and abilities to effectively manage and lead in highly competitive and dynamic business environment.

3. Compensation , Protection and Motivation: i. ii. Motivational factors are supposed to be identified. Compensation: Financial rewards are to be determined to induce desired behavior.

P a g e | 13 iii. iv. v. Performance Rewards may be designed to enhance productivity, increase efficiency and job satisfaction. Employee benefits should be fine tuned to provide protection against risks such as attrition and health hazards. Quality of Work Life Programs may be designed to improve life style of employees.

4. Employee Rights, Safety and Representation: i. ii. iii. Employee and Management contractual rights may be revisited. Employee Health and Safety standards may be reviewed and upgraded. Labour-Management relations platform would be developed to settle affairs.

5. Performance Appraisal and Career Management: i. ii. Evaluation of the individuals past and future development potential activities would be streamlined. Define appropriate channels of career management such as planning, development and management to facilitate the attainment of employees career aspiration.

Performance Appraisal System Performance Appraisal is critical to improving motivation at work. Apart from administrative considerations, it is suggested that employment development considerations should be considered while crafting a new or improved system. Following factors would be central to the appraisal system: i. ii. iii. Who should do the appraising? What performance standard is expected? Which tools would suit the given environment? Such as Graphic rating scale, Forced distribution, Behaviourally Anchored Ratings Scale (BARS), Management by Objectives(MBO) or some hybrid form. A special care would be taken to avoid halo effect, the central tendency, the leniency or strictness problem, the recency effect, the similiarity effect and supervisory bias. Critical incidents can also be recorded to cater for specific explanations. Arrangement be made so that the subordinates view the appraisal fair. Specific method for conducting performance appraisal interview may be defined. Standard operating procedures may be defined for the interview for giving an equal chance to the subordinate. 360 degree kind of appraisal systems may also be discussed with the employees and response would be determined. Improvement goals should be clearly embedded in the appraisal system.

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P a g e | 14 Reward and Pay System i. ii. Determining of Pay level according to job and skill evaluation. Pay for performance may be employed but careful consideration should be given to a) Measurement of performance in some acceptable way. b) Defining performance inclusively. c) Difference in pay between good and bad performance be substantial. Pay for performance systems would be based on individual , group and organization performance. Determine which one of them would suit LESCO? Whether profit or productivity sharing would be employed? How the gains would be divided? Who would share in the gain? What percentage would go to various groups? Who should participate in the design of the system? What level of participation would be desired to maintain transparency? \What would be the size of the unit and whose performance is being judged?

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