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Published: November 30, 2006

 
 

The Company That Anticipated History

But one doesn’t have to be government-owned, or African, to find inspiration in Eskom’s story. These days, every company’s performance is in some way tied to the social and political environment in which it operates. If Eskom is a model for companies facing such enormous changes as global warming and soaring health-care costs, then the most effective approach is not risk management as usual. Eskom thrived by anticipating the course of history and stepping out in front of change, thereby building its capacity to lead. Its example suggests that any other company can do the same.

Balances of Power
by Louis van der Merwe

Eskom is a microcosm of the core values that characterize the emerging South African nation: proud, innovative, and self-sufficient. The company’s greatest strength has always been its keen recognition of the way electricity enables educational and economic success. As the power industry thrives, so do the people.

But ensuring the health of any company in the electric power industry is no easy matter. The long lead time required to bring capital projects online leaves power companies like Eskom vulnerable to the inevitable cycles of shortages and gluts.

Some power companies have relied on governments to stabilize and sustain them during times of oversupply, when they would have otherwise had to downsize. Some have followed market disciplines, expanding or shrinking to fit customer needs. Eskom has always had to combine these two strategies. Today it continues to do so, while faced with a new set of challenges.

I joined Escom (as it was then spelled) in 1975. By the early 1980s, it was entering a period of shortages. Both the skills of its people and the capacity of its plants had been allowed to atrophy. The government, meanwhile, forecast 5 percent annual economic growth, assuming there was enough electricity. I remember going on massive shopping trips overseas for information technology equipment while my colleagues avidly bought turbines. In 1982, we purchased 60 percent of the power generation equipment sold in the West.

When growth slowed dramatically during the late 1980s, Eskom had far more capacity than it needed. That factor gave us the breathing room to build a different type of capacity. We trained black people to be technicians, engineers, and managers of the company. It was not unusual at that time to find people who had leapfrogged from rural or tribal life into Eskom and studied their way through to post-doctoral levels; many are now among South Africa’s top business executives.

In 1994, when apartheid ended and the transition to a multiracial, democratic society began, it seemed at first as if there would be more than enough electric power. But demand soared unexpectedly with the rise of a new black middle class and the sudden opening of the economy to world trade. This “economic miracle,” as we called it, put unprecedented strain on the electrical power system. It took several years for Eskom’s leaders to catch up with the imperative to expand. Now Eskom is rapidly building capacity again.

Eskom is worth watching because it tends to face up to difficult challenges earlier than most. Today, the three most pressing imperatives for power companies, or any company for that matter, can be expressed as “people, prosperity, and planet.” (This is also commonly referred to as the triple bottom line, which will almost certainly be used to measure the success of companies in the future.) Eskom has mastered its people issues: Its internal staff composition is very close, demographically, to the composition of its customer base. It is forging ahead with its plans to provide power to everyone, including the difficult task of rural electrification. Eskom is also figuring out the ecological balance it needs to strike in coming years. It is diversifying away from coal toward an energy mix that uses renewable power sources (wind, solar, and fuel cells), nuclear, pumped storage, and other low-emission forms of energy. If its history is any guide, this company will also rise to a leadership position in the environmental domain.

Louis van der Merwe (louis@cil.net), former head of management, performance, and development for Eskom, is currently director of the Centre for Innovative Leadership (CIL), www.cil.net, a consulting firm with offices in Johannesburg, Dublin, and Amsterdam. He is also an adjunct professor at the Leadership Centre in the University of KwaZulu Natal, South Africa.

 
 
 
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Resources

  1. Anton Eberhard, “The Political Economy of Power Sector Reform in South Africa,” working paper no. 6, Program on Energy and Sustainable Development at the Center for Environmental Science and Politics, Stanford Institute for International Studies, April 2004: Context for Eskom’s challenges as the primary electricity supplier in South Africa. Click here.
  2. Linda A. Hill and Maria Farkas, “A Gentler Capitalism: Black Business Leadership in the New South Africa,” Harvard Business School working paper no. 06-057, 2006: An informative profile of another South African company’s effort to recruit and develop black managers. Click here.
  3. Charlayne Hunter-Gault, New News out of Africa: Uncovering Africa’s Renaissance (Oxford University Press, 2006): The respected American journalist provides fresh perspective on pre- and post-apartheid South Africa, and prospects for the continent.
  4. Reuel J. Khoza and Mohamed Adam, The Power of Governance: Enhancing the Performance of State-Owned Enterprises (Pan Macmillan, 2006): The former chairman of Eskom offers views on governance of state-owned enterprises and on the narrowing gap between public- and private-sector management.
  5. Ian McRae, The Test of Leadership: 50 Years in the Electricity Supply Industry in South Africa (EE Publishers, 2006): Eskom’s former chief executive tells his story. Click here.
 
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