(September 2006) Consistent performance over time is the Holy Grail of corporate management, and a focus of many of the executives who made this year’s Fortnightly 40 ranking. Who...
How to Achieve High Performance
Lessons from the top 40 utilities.
linked directly to the ability to drive ROE and ROIC (which are most highly correlated to TRS) and require the right organization, processes, governance, access to information (not just data), and decision-support tools.
• Regulatory Management: Obviously essential in reaching a win-win regulatory compact. We also found a strong correlation between customer satisfaction scores and financial returns, suggesting direct linkage between customer focus and regulatory settlements.
High Performance in 2017
In analyzing EPS growth forecasts for the top 40 utilities, we found that the average fiscal year (FY) 07 to FY08 forecasted EPS growth rate is 8 percent, while the five-year EPS growth rate for the group is 6.6 percent. In an industry where fundamentals grow at 2 to 3 percent, costs continue to increase and regulatory compacts and allowed ROEs are increasingly tight, meeting a long-term 6.6-percent EPS growth target will be extremely difficult without a fundamental transformation in the strategy and operating model. Compounding these aggressive earnings targets are a number of significant and disruptive challenges, such as an aging infrastructure; a maturing workforce; increasing environmental pressure and regulatory uncertainty; entry of private equity; continued commodity volatility; and rising customer expectations (often prompted by other industries).
Over the last two years we have started to explore, with a number of progressive utilities, the defining attributes of the high-performing “utility of the future.” In so doing, we have identified ten key traits that we believe will differentiate high performers 10 years from now (see Table 1) .
1. Manufacturing-like Performance Culture
Although the utility industry is focused on benchmarking, application of cross-industry benchmarks and comparisons is limited. When comparing utility performance against cross-industry benchmarks, we identified measurable gaps in operational efficiency. For example:
• Utility crews average just under five hours of productivity per day. Best practice in other industries is close to seven hours per day.
• Call-center self service approaches 70 percent in many industry sectors; utility best practices are in the mid-40-percent range.
• Utility supply chain capabilities do not yet rival those of an Amazon, FedEx, or UPS.
• Asset-management capabilities lag those of many of the oil majors.
We believe that one of the keys to achieving superior operational performance and unlocking the value potential inherent in the utility value chain will be a methodical and intense focus on performance measurement and management, combined with a focus on end-to-end process standardization and optimization. This focus on metrics will apply from the C-suite to the front line, combined with a culture of continuous improvement. Companies like KeySpan and PG&E have started this transition.
Toyota’s production system exemplifies this type of performance mentality. The Harvard Business Review article, “Learning to Lead at Toyota,” highlights how a new trainee sent to one of the established plants in Japan was asked to identify 50 improvements to an established production line in three days, or one every 22 minutes. The example is extreme, but many utilities are uncovering the potential of process orientation and a metrics focus on their bottom line.
While we can debate the root cause of the performance