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Marketing and Competing

Fortnightly Magazine - July 1 1997

to execute the process. This winning combination did not come from out of the blue.

A core competency is more than a simple strength or expertise. In their groundbreaking Harvard Business Review article, "The Core Competencies of the Corporation," professors Prahalad and Hamel identify three requisite tests that determine a true core competency.

• Test 1:

It provides access to a variety of markets.

• Test 2:

It should contribute to perceived customer satisfaction of the product.

• Test 3:

It must be difficult for competitors to imitate.

If the above definition holds true, then several utilities have misdefined the competency idea. "We do a lot of billing, making that one of our core strengths," states one senior manager. Yet, compare a bill issued by most utilities to that of American Express. Utility bills are typically inscrutable and inflexible, while the American Express invoices dispense information, telling customers where and how they spent their money. These value-added pieces of paper help the consumer understand usage patterns or change their buying habits.

Other misconceptions exist. Some utilities have identified a key technology without integrating the process or expertise throughout the corporation. Some have interpreted a competency as outspending your opponent in an area of strength, rather than improving that strength, such as increasing R&D spending. Still others have sought to outsource technology development, leaving them without knowledge of the process itself. But the worst misconception concerns time. It takes years to strengthen and capitalize on a core competency. It is a long-term commitment, embraced by the entire corporation. The yearly return-on-investment numbers cannot measure the success or failure of a core competency.

"To a certain extent, we are losing the ability to innovate and think medium- and long-term," states Shalom Zelingher, director of research and development at the New York Power Authority. "There is not enough patience to wait around for longer-term results, which would actually be better for the health of the company. ... We are limited to making incremental improvements rather than how to break through and really make a difference."

The wave of utility reorganization into strategic business units, or SBUs, generally does not promote this long-term view. No single SBU will feel responsible for maintaining a competence. Talent often gets locked up within SBUs and is not shared among them. Budget allocation frequently wins over talent allocation, preventing the sharing and growth of core competencies throughout the organization. The result: Competencies likely will atrophy or suffocate.

The regulatory environment has hampered the growth of core competencies within the electric utility industry. Regulations have long rewarded companies for compliance, not competitiveness. Regulators have only asked utilities to compare their efficiencies against other utilities. ("Which dinosaur is faster?" might be the question the regulators were forcing the industry to focus on.) Finally, the regulations kept competitive pressures at bay, denying recovery of costs needed for development of service/product offerings.

Betsy Krieg, director of R&D planning at Pacific Gas & Electric describes how the regulatory, double-edged sword is now eroding the utilities technological and market strengths. "Regulatory constraints drive us to focus on cost. It