"Utility mentality" has become synonymous with a clinging dependence upon regulation to protect an organization from risk and competition. It also denotes momentum planning and management (em that is, using past performance to project future performance. This way of thinking made sense when companies could count on regulators to shield them from market forces and competition. The current regulatory trend, however, encourages competition as a means of reducing costs to energy utility customers, as it did in other industries (em notably, oil and gas production, gas transmission, airlines, and long-distance telephone.
Reports of the death of utility mentality are greatly exaggerated. A number of utility executives have merely paid lip service to the competitive transformation of their companies. They await a return to a more regulated, less competitive atmosphere. They ignore the worldwide trend to reduce government control and increase competition. They fail to recognize that their industrial rates compete globally, not just regionally. They forget that capitalism founded the world's standard of living (and the wealth that accompanies it). Government control and ownership, on the other hand, have retarded progress. The logical progression is toward more open markets, and the pendulum is swinging. Companies must either move forward or die.
As in the case of any entrenched institution, a utility's fate may take several forms:
s Old Age (em The company suffers a slow, lingering death, often exhibiting dementia.
s Homicide (em Vitality fails and the company's final demise is brought on by disgruntled shareholders or an acquiring company.
s Born Again (em The company leaps into the competitive business world with an integrated, managed, planned, and controlled action that revitalizes the organization.
Old Dog, Old Tricks
A company dies of old age because it refuses to give up the old ways. It fights the regulators, fights competitors through regulatory ploys, and makes relatively mindless periodic personnel cuts to reduce costs without considering its other objectives. Such a company will not successfully acquire another because the risk is too high for the cost. Such a company sees cost-cutting opportunities only in the reduction of personnel costs, never in new markets.
A dying company does not realize its need for a major shift in direction. To appear innovative, such a company may try to dip its toes into competitive waters by adding a market affiliate or appliance service business, or by buying into oil or gas production. These minor forays into competitive business usually produce mediocre-to-dismal performance because the aging utility manages to avoid risk and competition. In short, they run them like utilities. And when these enterprises fail, the company feels vindicated: See, getting into a competitive atmosphere is bad business.
This company may enjoy good financial results for a short time, despite its decline, by maximizing its regulatory advantages. It will, eventually, sink into mediocrity or worse. If the stockholders and/or competitors do not "kill" it, the company will in time replace its old-school managers with others who have "grown up" in the new competitive
environment. The company will have "aged" into a new era company, and utility mentality will have faded away.
Not Smart Enough by Half
A company destined for homicide resembles its aged counterpart, with the difference that it realizes the need for change. As a result, it keeps revamping its organization charts and cutting large numbers of employees at once. It may discard unsuccessful attempts at being competitive by selling those parts of the company. It may acquire other companies with the mistaken idea that sheer size provides protection from competition and/or makes it more efficient.
Nevertheless, this company still does the same things the same way (em just with a new structure and fewer people. Where individual employees prove exceptional and enjoy the freedom to act relatively independently, such a company may avert its fate. Unfortunately, the employees of such a "reengineered" organization are most often confused, understaffed, and only motivated to perform the minimum necessary to keep their jobs. They lack a comprehensive plan to follow, or any direction other than improved financial targets. Finances prove disappointing; growth in assets as well as growth in the return on those assets often approach an equal level or worse. Customer service decays. The better employees flee to companies with better atmospheres.
When reengineering falls short of its touted potential, a surprised management regroups, and a few years later the need to reengineer resurfaces. (Will "rereengineer" become the new buzzword?) Amidst the turmoil of this weak moment, either the board of directors will oust company management, or an outsider will acquire the company from grateful shareholders.
Rising to the Situation
The future need not prove so bleak, however. A company that approaches change proactively and positively can find itself "born again." Such a company honestly diagnoses its situation and the tools at hand. It then determines how best to employ its strengths and mitigate its weaknesses.
Such a company gives its workforce a comprehensible plan that focuses on realistic, coordinated objectives. Everyone pulls in the same direction. Necessary reductions in personnel are viewed as part of the plan, not as a periodic episode of stockholder appeasement. Innovative applications of company strengths stimulate growth and present more opportunities. The company improves customer service while reducing costs. Employees want to belong to the organization, and turnover decreases. Finances constantly improve. Stockholders reward the
company with a higher multiple. The company surveys weaker companies in its industry, looking to acquire and then improve their performance. The company thrives by discarding the utility mentality in favor of enlightened management.
As most readers might imagine, the "born again" companies form a rare minority (em the long-term survivors of the utility industry. But rarer still will be companies that age gracefully into competitive entities. Shareholders or competitors are unlikely to leave potential unrealized for long.
Quite possibly, the future holds utility service suppliers but no utility companies. Only those companies able to think and act "out of the box" will thrive in the even more competitive environment of the future. As in the jungle, strong companies will become the predators, while the aged and weak fall prey. t
Jack Reinhard runs a strategic planning and management company in Dover, DE. Mr. Reinhard (em who has over 20 years' experience in utility, engineering, construction, and government operations (em also worked in various capacities for Chesapeake Utilities Corp. and for Southern Union Gas Co. He has a BS in Civil Engineering from the University of Texas in Austin and an MA in Economics from the University of Texas in Arlington.
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