The Process and Experience of Implementing Performance Contracts: a Case Study of Kenya Power & Lighting Co. Ltd

Abstract

Global trends in globalisation, liberalization and deregulation have led to sustained pressure from the citizenry demanding better services by public sector enterprises thereby forcing governments to initiate public sector reforms especially in developing countries. Most economies have responded to these threats by privatizing public enterprises. But where privatization as an alternative public sector reform strategy is not feasible or palatable, some developing country governments have sought to improve performance by negotiating performance contracts with the managers of public enterprises. Whereas performance contracting has been successful within the private and public sectors in most developed countries, experiences within the public sector in developing countries have been marked with mixed results. This has been due to country and industry specific environments. Kenya Power and Lighting Company Ltd is public utility company operating In a monopolized power distribution industry in a developing country. It was among the public enterprises subjected to performance contracts by government in October 2004. The study sought to determine the processes, procedures and techniques adopted by the company in implementing performance contracting concept in public sector and the challenges encountered. It also sought to establish the employees' experiences and perceptions of the process. The study was a descriptive research that targeted all the 1508 management staff who undertook performance contracts within the first cycle of its implementation. A stratified random sampling method was used. A sample size of 250 employees was selected. Two different sets of questionnaires were used. One set was administered to corporate level executives and the other to management staff depending on whether they were involved in conceptualising the concept or just experienced it during implementation. A response rate of 84% was achieved. The data collected was analysed using descriptive statistics.

The study findings indicate that majority of respondents were male, of the level of middle management, had graduate degree education, had worked with the organization for between 5 to 10 years and on permanent terms of service. Major research findings show that the process was moderately successful with the government, customers and other stakeholders moderately involved though customer and employees surveys were not done regularly. Although the organization structure supported the process, existing performance culture and behaviour inhibited it while the reporting structure were not reformed adequately. Performance incentives were also not motivating since employees were not aware of them at the time of signing the contracts while the mitigating circumstances were also moderately factored into final performance assessments. Performance evaluation system moderately attempted to balance between financial and non-financial measures as the company attempted to adopt a conceptual performance framework incorporating both private sector 'best practices' and the government's generic signaling type of performance contracts. The process also only moderately achieved the establishment of a performance accountability atmosphere. The major challenges to the process included resistance to change by employees and managers, internalization of the new concept of performance contracting, development of a conceptual performance framework, lack of buy-in and lack of autonomy and empowerment. Of critical importance was the subjection of the Company to the State Corporations Act and Public Procurement Procedures, which affected the company's corporate autonomy and its ability to procure and provide resources to employees ill order to meet their performance contract targets. The main limitation to the process was that the Company had just undergone one cycle of implementation of the concept.