The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
Strategies for surviving the industry’s transition.
makes sense when considering the importance placed on utilities conforming to utility commission regulations and authorizations. Smart-grid programs, however, will require a much higher level of collaboration and counseling. This will require an ability to listen to customers to resolve potential privacy concerns, advise them on usage issues, and uncover new program opportunities. Overall, such changes run counter to existing service processes, by reversing trends toward greater self-service and less customer touch.
Finally, whether a reflection of a field-mission orientation or some other factor, most utilities have well-defined and rigid hierarchies. Examples abound; in unionized utilities, negotiations are more likely to favor field workers than office staff who are considered to have subordinate interests. Likewise, engineers typically have a directive role and are commonly found in senior management positions at most utilities. Further, the hierarchies tend to reinforce a command-and-control management style.
With smart grid, however, many of the functional roles and relationships potentially have to change. The call-center representative role, for example, will have to shift from a reactive, order-taking and complaint-resolution focus to a full-service adviser role and possibly even a marketing job. Likewise, load-following analyses potentially will give way to customer readiness, and asset managers likely will find the insights of customer-service reps a useful source of ideas for better balancing supply-and-demand requirements. And all the employees involved with smart-grid technologies and programs will need to take greater responsibility and accountability for the customer experience.
So, will utilities be able to take on the attributes of a more market-sensitive operation while retaining an asset focus? Will the underlying values that have made one group more important than another, whether among employees, communities versus corporate, or customer versus assets, be able to be reshaped? And how supportive will regulators be of the massive cultural transformations required? These are important questions that again should occupy utility boards and regulatory commissions in the months ahead as smart-grid program designs begin to move forward.
Although they face considerable difficulties, utilities can draw on useful lessons of others in managing integration, adaptability and cultural changes.
First, leadership will be key. Utility leaders need to define clear objectives to improve functional integration, the adaptability of their organizations and their cultures. This might appear to be easiest with a major change in leadership teams, but that also would create a significant amount of stress that usually slows down the change process.
Instead of replacing people, successful leadership programs have several common characteristics. First, low leadership team turnover is extremely important. As author and management consultant Jim Collins notes, first get the people “on the bus” who will lead the change, and then stick with them. This is especially true for the most senior leader who needs to be prepared to stick with the change agenda for at least three, and ideally five or more, years—in other words, to the end.
A laser-like focus by the senior team on what it’s trying to achieve also is important. This requires a determined leader who can see beyond espoused public pledges to ensure concrete actions are taking