Industry turmoil stirred up by deregulation, a spate of mergers, and the involvement of a myriad of consultants hovering over change management efforts, have focused the attention of utility management on positive change. For the most part, executives of utility suppliers have gotten the message too. It is questionable however; whether the foot soldiers that regularly interface with customers understand the degree of innovation required. Some have, others still think it is business as usual.

Too often, those closest to the customer offer no more than the possibility of modest inventory reduction and somewhat lower administrative costs. They may not adequately understand their own business’s cost structure, economics, breakeven point, production scheduling, and processes well enough to imagine the kinds of significant win-win cost savings that are possible with design change, production scheduling optimization or other techniques. They may feel justified on this slow uptake because they see that their utility counterparts’ behavior is still inhibited. Even when familiar savings are offered, they are often tentative and do not always meet expectations.

On the utility side, companies may be unwilling to do what is necessary to achieve the kinds of material savings that they should insist on. Even if the CEO, COO, and/or CFO are willing to consider drastic changes to achieve drastic savings, the front line personnel in a position to recognize these opportunities at a practical level may lack the skills or be unwilling to undertake the actions required. On the other hand, they may be willing and skilled but stymied by “standard procedure,” organizational structure, or lack of readily accessible sponsors and mechanisms to advocate and support change.

I have observed many organizations over the years through various roles including, public accountant, auditor, consultant, utility manager, and officer in industry and professional associations. Whether by direct observation or through discussion with others in connection with benchmarking or other activities, certain problems seem to be endemic to the utility industry, and probably industry in general. Their occurrence is corroborated time after time.

My experience is primarily with Supply Chain buyers and sellers, but also with others such as standards engineers and operations personnel, and suggests that the following list of shortcomings keep companies from achieving very significant improvements in their bottom line. Until these handicaps are remedied, other initiatives will be very difficult. Listed below are the ten common problem (P) areas, underlying “worst practices” (WP), and suggested solutions (S). These themes may seem familiar, but the problems persist. Is it possible too much effort and money has been invested in cosmetic temporary solutions instead of eliminating root causes? Most of these solutions require management insight, credibility, and determination more than massive amounts of money.

1. (Problem) Employees lack the communication, reporting, and presentation skills needed to convince key decision makers and implementers to take appropriate action enthusiastically.

   (Worst Practice) There is a tendency to spend excessive amounts on outside consultants while cutting the training and travel budgets of internal staff. Internal expertise is overlooked leaving staff feeling minimized and demoralized.

   (Solution) Staff must develop the skills needed to lead and collaborate to achieve positive change. Use consultants when needed for their unique resources and outsider perspective. In addition, internal employees need to be nurtured. Their roles continue long after the consultants leave. They will be the implementers of change. Give them a good foundation and watch them grow. These skills can be developed through formal training, mentoring, assignment to special projects and team efforts.

   I have encountered many instances of good ideas generated by workers that, for lack of effective communication voice or channel, never saw the light of day until a consultant discovered them and helped articulate them. That capability needs to be present day in and day out for any organization to capitalize on its inherent talent.

    

2. (P) Employees lack the technical skills to understand the financial model and economics of their suppliers business, or for that matter, their own.

   (WP) Hiring, retention, and personnel development are perfunctory and not viewed as the potential lucrative investment that they can be. Cross-functional efforts are not required or even supported. Skills and knowledge are not shared, productive relationships and networks do not flourish, and inappropriate internal competition exists.

   (S) Eliminate the “silo” organization where each group minds its own business and is reluctant to call on other internal experts (such as the financial group) for assistance. Eliminate the fear of admitting one’s ignorance or the fear of being second guessed. Encourage and orchestrate brainstorming with objective parties contributing.

   One effective way of breaking the ice and fostering on-going synergy is to explore opportunities using properly coached cross-functional teams. Their first order of business is to develop a strategy that addresses common objectives. Do not formally or informally anoint one group as superior, allowing it to summarily override ideas from others. For example, if standards engineering is given too free a hand, they may preempt innovative options for cost saving solutions and opt for the comfort of status quo. Where possible, it is wise to write specifications for performance, not exact design. This would allow the necessary leeway for suppliers to work with engineering, supply chain and users to create new solutions. Give credit to all who participate in problem-solving and help develop a solution. Do not ask, “Why didn’t we see this before?”

    

    

3. (P) Employees lack the authority make necessary changes without building an excessively wide consensus at the cost of monumental and heroic effort. (Input is good if reasonably circumscribed.) Getting necessary approvals is too slow and too difficult. Anybody with an axe to grind or a personal bias can delay or undermine efforts to change. Don’t allow the strategic direction to be beset by tactical complexity.

   (WP) Intimidating layers of approval and misplaced or excessive reliance on inefficient forms of internal controls squelches ingenuity and fast action.

   (S) Reduce the confusion over who does have the authority and within what bounds. Even when cross-functional teams are used, each member may think decisions are the other person’s call. This is not a contradiction of the advice on item 2. It is a question of degree. Needing too many and too formal approvals is different from productive networking.

   Clarifying the breadth and bounds of an individual's authority and measuring results after-the-fact can often be more effective than multiple layers of approvals. Parties that are so removed from the transaction that their concurrence adds little value should not hold up progress or discourage initiative. They should not feel obligated to perform unnecessary and time-consuming evaluations. More efficient computerized analytical methods to monitor patterns of activity can often be substituted and increase the likelihood of disclosing irregularities and imprudence.

    

4. (P) Key employees lack the support staff to perform the brainstorming and analysis needed to discover savings possibilities and create effective implementation plans and measurements. Brainstorming is a process that combines science and creativity and benefits from some preparation, encouragement, training, structure, and effective facilitation techniques.

   (WP) Time and resource constraints as well as rigid organizational structure prevent imaginative employees from pursuing good ideas and programs.

   (S) Eliminate the penny-wise pound-foolish approach to budgeting. Eliminate the inflexible budgeting process whereby this year’s budget is equal to last year’s plus or minus 5%. Allow some degree of funding for special projects/research. Where an excellent candidate has been identified, allow them to be hired if they will produce a good return on investment.

   To maximize the utilization of talent without adding to head-count, do what you can to enable personnel to move more freely within the company so they may find a home where their talents can find expression. That means eliminating barriers to this kind of transfer such as the “we only promote from within” doctrine. Newcomers ask good questions if allowed to challenge the status quo.

   Encourage sharing of talented people among departments with reciprocity, and/or create a group of analysts that can be “on call” to any group that needs temporary project support. This is an efficient method to create and spread in-house expertise, which improves and expands as each succeeding project is completed. More routine duties can fill time when these “experts” are not on assignment. The Internal Auditing Department can serve as their home base. There is plenty of ongoing work there and schedules are more flexible than in many other groups.

    

5. (P) Buyers and others perceive that the company (or at least their middle management) is unwilling to share savings with a supplier or offer some form of incentive to the supplier/contractor that will get the suppliers’ attention.

   (WP) Management exhibits the “business as usual, but get major improvement” expectation.

   (S) If you expect great things of those people who are close to the action you must empower them and allow them to use resources, make some mistakes, and experiment within clearly understood bounds. If you lecture about wanting quantum change, walk the talk.

   Demonstrate this willingness through empowerment with accountability! Remember though, training and risk management practices are pre-requisites to successful empowerment.

    

6. (P) Supply chain personnel do not have access to the right executives at the suppliers’ offices to cut through resistance or lack of comprehension of new concepts at lower levels.

   (WP) Key supply chain people are not sufficiently elevated or supported.

   (S) Eliminate these barriers to access by overtly showing suppliers and contractors that Senior Management does in fact support and empower the people who regularly interface with them.

   Senior management should annually convene a “Supplier Summit” with the help of their purchasing professionals and make clear their expectations, their willingness to try new things, and their confidence in their key staff. This would be an occasion to highlight (at least in general terms) success stories of the past year. Invite blunt feedback from suppliers and handle it diplomatically. Whether “allegations” are warranted or not, listening is the first step in clearing up misunderstanding. Get suppliers to compete on good ideas, not just price.

    

7. (P) Systems, even after tens of millions of dollars invested, do not provide workers or managers reliable basic information needed to discover opportunities, measure results, track purchases, or respond quickly.

   (WP) System development is poorly planned and executed without sufficient input and thorough definition of needed deliverables. A so-called team leader runs rough shod over representatives that will actually use the system to perform their jobs.

   (S) Reduce the recent tendency to buy “off the shelf” systems without adequate customization. Believe it or not, even the most expensive systems have some shortcomings. Off-the-shelf systems can be good. However, make sure those who have much at stake in system results fully develop their requirements before implementing a multi-million dollar system. For example, supply chain efforts are thwarted if the system cannot tell them what the company as a whole spends on a given commodity. It is hard to negotiate price and service without that knowledge! Knowledgeable users, those who really understand underlying business and technical principles, should be involved throughout. Be sure easy to use data retrieval and report writer software is a part of the finished product. Stick to time and budget constraints, but not at the expense of good input.

    

8. (P) the system (ERP and/or Accounting-Budgeting) is capable but the processes confound the collection of vital data.

   (WP) Some of these problems result from the excessive and misplaced emphasis on decentralization at the expense of corporate governance or uniformity, not the system itself. One example I have seen time and time again is where an expensive materials management system is foiled because each local operation is allowed to chose it’s own identifier and unit of measure for a given piece of material or equipment. In addition, lack of timely entry of receiving information foils vendor measurement models. How is one supposed to calculate product usage, economic order points, inventory levels, or measure supplier performance in this situation? Remember, computers still operate mathematically by adding numbers grouped by uniform codes…not by interpreting language.

   (S) Require uniformity in coding and processing, and expect disciplined and timely data entry in accordance with clearly documented standards. Centralize decision-making on standards where uniformity is needed to produce useful management information.

    

9. (P) Employees are apathetic, confused, and burned out just when you need them to be at their best. Feeling their status or even employment have been threatened over long periods of time, or with frequent upheavals leaves them too fearful to perform, much less innovate.

   (WP) Some companies are in what seems to be a perpetual reorganization mode leaving employees over stressed and unable to get up to speed on one job before they are moved to another job, another special program, another supervisor, another set of rules, a different set of colleagues, more overtime, etc. A never-ending stream of disruptive change and/or restructuring initiatives may be an expensive exercise in procrastination and obfuscation of accountability that only camouflages underlying weaknesses.

   Perpetual turmoil may be used to keep up the superficial appearance of progress. Yet, the fundamental measures of financial success (over more than the short run) or quality, or job satisfaction do not show improvement. Workers loose interest because they experience disruption and frustration rather than pride in accomplishment and the satisfaction that goes with it. When momentary improvement is achieved, the organization quickly relapses into entropy.

   (S) Of course positive change is good, but it must be for legitimate reasons widely understood throughout the organization. Major initiatives should be chosen judiciously and spread over enough time so that participants can assimilate new processes and acquire the skills and experience that enable them to achieve peak performance. With that will come the confidence that they can undertake further changes when called upon. Permanent and self-sustaining growth is an evolutionary process of adaptation, not a perpetual series of fits and starts with a pendulum effect.

    

10. (P) Groups that should work together for the common good of the Corporation (as defined by a clearly communicated strategy) are working at cross-purposes optimizing the reward for the group at the expense of the Corporation.

    (WP) Poorly designed measurement systems and internal billing systems pit one group against another.

    (S) Emphasize that a prerequisite to group rewards is the achievement of Corporate goals. Use value stream mapping or similar tools to identify and illustrate where the focus needs to be and how conflict and overlap drain productivity. Practice “portfolio” management where some arbiter can decide how to settle disagreements in favor of the corporate whole. Do not back-charge administrative costs to units that really cannot, or should not, undertake to perform those duties on their own. This just distracts business units from areas where they can make a difference, and encourages duplication of effort. For example, staff with specialized expertise is better suited to perform certain functions such as information technology, purchasing, legal, and human resources. Not everyone can be expert at these things, and amateurs can make costly mistakes. They often do not know what they do not know!

You might have noticed the strong emphasis on people and their environment. I believe it is important to invest in all the people who make a company what it is…not just those at the top. Mission statements and vision statements won’t get traction unless teams of employees are effective in improving processes and products, as only they can, while completing day-to-day operations with a high degree of efficiency and quality.

It would be useful for utilities to structure an employee orientation designed to stimulate their thinking about what stands in the way of achieving management and their own personal expectations. Assure them that creative thinking will not be penalized. Explain that even ideas that do not “make the cut” are valuable in that they can foster other ideas or at least allow further exploration. Promise of anonymity may help.

Key suppliers could be surveyed along with employees at different levels within the organization. It would be interesting to see how suppliers rate the utility’s receptiveness to ideas and how easy it is to do business with them. Gap analysis of the differences between groups (ex. standards engineers, buyers, operations people), organization levels, and suppliers should be revealing. Some of these gaps are currently being measured and studied by the Utilities Purchasing Management Group (the electric and gas utility forum of the Institute of Supply Management), http://www.upmg.com.

Eliminating bad practices is daunting enough, but it may be easier than a dramatically new approach, or something perceived to be a painful change, or one that employees see as another cliché of the month to be waited out. Offer instead the elimination of something that currently prevents them from achieving what they believe they are capable of. What could be more attractive?

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