(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.
differential (likely a combination of inadequate regulatory incentives, the structure of the industry, company-specific traits, and the nature of a must-serve industry), we believe that this performance gap against cross-industry leaders will close over the next 10 years.
2. Simple on the Inside
Utility operations have evolved gradually over decades, adding capabilities in an incremental manner, often without a fundamental operating model rethink. As a result, many utilities experience significant complexity and unnecessary human intervention across the value chain. Numerous processes are understood often only by long-standing employees who are likely to retire within 10 years. While some employees thrive on this complexity, a simplification of end-to-end processes will be essential to become a leader in the industry and to address the issue of a maturing workforce that will retire within a decade, affecting 50 to 60 percent of a utility’s institutional knowledge.
3. Differentiated on the Outside
The advent of the smart grid and advanced metering infrastructure will allow utilities to differentiate their value proposition further and provide tailored offerings that currently do not exist or are reserved for only the largest of industrial customers. The combination of traits 2 and 3 is illustrated in Figure 4.
4. Proactive Enterprise
By nature, the utilities industry is a reactive one: Utilities react to outages (often after being informed by customers), billing issues, and equipment failures. While most utilities excel in “crisis mode,” the industry will shift to a more proactive form of operations under which utilities can predict and foresee an outage long before it occurs; mine customer behavior; find ways to increase customer satisfaction; and maintain an asset to a predicted failure point as opposed to a pre-defined schedule.
5. Real-Time Information Intensive
The utilities industry is data intensive, and actionable asset information is essential in driving returns on investments. Leading utilities will undergo a significant shift in the quality of the information they store and mine about their assets and customers and the corresponding decision support tools and processes. Over time, utilities will migrate to real-time information through increasingly ubiquitous sensor devices.
6. Shaping the Energy Future
Leading utilities will be at the forefront of the environmental agenda. A European survey of public attitudes revealed that less than 3 percent of the population trusted corporations on environmental issues. Clearly, many utilities, such as Sempra, Duke, PG&E, KeySpan, PSEG, National Grid, Pepco Holdings, and others already are pursuing an aggressive environmental agenda.
7. Operations Technical Mastery
An analysis of R&D spending shows that while utilities represent 5.23 percent of U.S. capital spending, the industry only represents 0.067 percent of U.S. R&D spending. We do not advocate that utilities should build fully fledged R&D capabilities and recognize that much of the R&D is performed by equipment manufacturers and academic centers. Utilities will, however, need to take greater control over the evolution of technology. This is especially challenging in light of the fragmentation of the industry, but it is necessary if utilities are to move toward a “smart grid” requiring standards and interoperability. Utilities will need to pick a few select areas that