The Effect of Turnaround Strategy on the Performance of Kenya Power Lighting Company PLC

Abstract

This study investigated the effect of a turnaround strategy on the performance of Kenya Power and Lighting Company (KPLC). The energy sector, particularly in developing economies like Kenya, faces multifaceted challenges ranging from operational inefficiencies, a lack of management autonomy, bureaucracy, and financial instability that cause its performance to decline. The study aimed to establish the specific turnaround strategies that KPLC adopted when its performance declined and assess their correlation with the observed changes in performance indicators over a five-year period. The study anchored on two theories: the Stage Theory of Successful Turnaround and the Stakeholder Theory. The study employed a case study research design and used interview guides to collect data. The respondents were six senior managers of KPLC based at the company’s headquarters in Nairobi. After being subjected to content analysis, the gathered data was written up and presented. Cost Reduction, Revenue Generating, Reorganization, Distribution Efficiency Improvement, and Customer Focus were identified as the turnaround strategies adopted by KPLC to improve the performance of the company. The study found that although the turnaround efforts of KPLC successfully improved their short-term financial performance, external factors such as the delay in approval of a cost-reflective tariff, a subsequent 15% tariff reduction, the direct and indirect effect of COVID-19 on the broader economy and business, and the depreciation of the Kenya Shilling against major foreign currencies hindered sustainable or long-term recovery. This adversely impacted the desired performance, with a negative variance of 80% of the performance targets set. The study concluded that the turnaround strategy fell short of comprehensively addressing the multifaceted challenges contributing to the company's performance decline. The study recommended that KPLC should develop a new, agile strategy that incorporates lessons learned, embraces innovation, and aligns with the evolving energy landscape. Additionally, it suggested that KPLC should review its approach to power purchase contracting to mitigate the significant foreign exchange exposure. This is important considering that KPLC's entire revenue is in local currency, while 84% of its debt portfolio is denominated in foreign currency. This should include engaging existing power generators for sustainable currency-related solutions that will resolve the accumulation of overdue obligations.