Strategic Leadership

Deck: 

Get ready for fundamental changes.

Fortnightly Magazine - May 2010

In almost all business and non-profit environments, change is occurring at an accelerating pace. In the electric industry—which used to be stable—we are seeing major changes too. Utilities face growing ambiguity as well as increasing paces of change, uncertainty and complexity. As Irene Sanders stated in Strategic Thinking and the New Science, “[t]hat the future will be different from today is given. What we struggle with is our desire to know how it will be different and what we can do to influence it.”1

For organizations, strategic leadership is defined as enhancing an organization’s sustainable competitive advantage or enduring success.2 Strategic leaders must first understand change before it occurs. When change comes as a surprise, it takes enormous energy and resources to identify and implement an effective response. Surprise changes also create some huge disconnections throughout an organization. What’s needed by strategic leaders is foresight. As Sanders states, “[f]oresight is the ability to see what is emerging—to understand the dynamics of the larger context and to recognize new, initial conditions as they are forming. With foresight, we see the future as it is taking shape.” Strategic leaders have the ability to influence the future by responding to, and influencing, what’s emerging.

What key trends will the electric utility industry see during the next five to 10 years? The answer is that we can expect many changes and challenges in workforce and talent acquisition, energy supply, customer needs, globalization and organizational focus.

Talent Acquisition

Utility executives already know that more than 50 percent of the industry’s workforce likely will retire in the next 10 years. This goes along with 46 million baby boomers in the United States retiring in the next 20 years. Unless companies take action, these workers will leave and take with them their collective experience, wisdom and knowledge. Futurist and consultant James Canton suggests making a serious commitment to using technology and mentoring programs to capture the wealth of wisdom in these retiring baby boomers.3

EES North America

Talent—skilled, innovative, high-technology savvy people, irrespective of nationality—will be the lifeblood of every organization. Talent will become the most important strategic asset. Finding that talent will become more difficult as many utilities already are experiencing that problem. In the United States, talent shortages will be worst among managers and skilled people in technology, science and other innovation and service jobs. Already there’s a shortage of electrical engineers. Canton predicts the biggest challenge will be finding high-tech, skilled people from a global talent pool. Employers will find it necessary to go outside the United States to find the right workers, unless immigration doors open.

Strategic leaders in the utility industry will assess their entire work force to see where talent shortages will emerge. They will determine what innovations will drive businesses in the future, and will make plans to secure the needed, talented people. That includes stepping up efforts to work with universities to ensure they’re offering the needed programs and attracting the right students, including those from other countries. It also means making companies more attractive to minorities and women. Finally, leaders will adopt people-first strategies that have proven successful for other companies.4

Fueling the Future

The United States won’t run out of fossil fuels in the next five to 10 years, but leading energy companies are taking serious steps to develop non-fossil forms of electricity production and new and innovative approaches in delivering this electricity to customers. Based upon current production and consumption trends, civilization today might not possess energy resources and production means to sustain growth, security, quality of life, and productivity by 2040.5 In the long run, the United States must eliminate dependence on Middle Eastern countries and lessen the electric industry’s impact on the environment. As Canton explains in his book, energy resources determine the ultimate prosperity and security of nations, corporations and even individuals. This is no small matter. Developing nations need reliable and cost-effective energy to defeat poverty, install democracy, develop the middle class and grow their economies. New energy sources must be abundant, reliable, renewable, clean, affordable and secure.

This issue is much bigger than our industry, but electric utilities have an important role. They can move forward with building smart grids, in order to support distributed, small scale, person-to-person electricity generation, as such generation will be more sustainable in the future. Smart grids also enable provision of more services to help customers make their energy usage more efficient. Utilities can pursue or encourage wind energy development, especially off-shore wind farms where the potential for significant electricity production exists. They can innovate to address the intermittent characteristic of wind generation. They can develop the infrastruct- ure necessary to bring wind energy to market. Companies that pursue with authenticity an environmentally friendly strategy will see profits increase, as there is a trend toward renewable, clean, nonpolluting, and sustainable values. Finally, utilities can pursue business strategies that help bring energy to developing nations, where there exists enough stability and growth potential to support investment.

Changing Customer Needs

In the future, customers will be less tolerant of interruptions, even intermittent ones resulting from recloser operations. Customers will accept help in their use of energy, but utilities shouldn’t expect them to alter their lifestyles or become active in managing their energy use every day. Customers will look for stable prices and long-term price arrangements that reassure them—and tools that allow them to control costs without their ongoing intervention.

To address these changing needs, leading utilities will continue to maintain and improve electric delivery systems to avoid interruptions. This requires the need to: 1) maintain transmission systems by staying ahead of reliability standards; 2) consider putting most urban distribution facilities underground; 3) develop interfaces with customers that help them use electricity more efficiently and during lower-cost time periods via smart meters, smart appliances and smart energy-management systems; and 4) develop ways for customers to store electric energy during low-cost periods for use during higher-priced periods. With the decline and eventual elimination of fossil-fueled generation, utilities must be able to offer customers the price stability they desire.

Accelerating Changes

The world is changing at an accelerating rate. In fact, according to an IBM survey, almost 70 percent of utility CEOs consider substantial change to be inevitable in the near-term future.

The pace of change presents challenges to leaders, as they are responsible for their organizations being designed properly, and ensuring that the design correctly focuses people’s work and shapes responses to customers and other stakeholders. It’s imperative that the various parts of the organization work well together to achieve goals.

Leaders create innovation and change, while keeping followers comfortable and engaged. They do this by creating a nurturing culture; having an organizational structure that encourages innovation and is able to make quick and frequent changes; and including people in the change process.

A culture that encourages innovation and change is one in which people are valued and nurtured, where they don’t feel at risk for job loss or risk taking. In a nurturing culture, leaders and managers care deeply about customers, stockholders and their people. They strongly value people and processes that can create useful change. It’s where leaders and managers pay close attention to all their constituencies and initiate change when needed to serve the organization’s legitimate interests, often by taking large risks. In such organizations, people consider the whole organization to be more important than its parts, boundaries between groups are minimized, and equality and trust are primary values.

Modern organizations were created to resist chaos, complexity and uncertainty, and as a result they have structures and rules that resist change. Leaders have been firmly in control. This served well when organizations didn’t have to change frequently, but that’s no longer the case. Organizations need to make a shift toward horizontal structures, with teams of front-line people who are empowered in self-managed teams, and where innovation is greatly encouraged across the organization. The horizontal structure fosters decentralization, employee freedom and empowerment, and encourages innovation and new ideas.

People are more motivated to change if they have an opportunity to contribute, if they believe in the purpose and if they understand the wider implications of their work. As a result, the best way to keep followers comfortable with change is to involve them in the change process.

The electric utility industry will see significant change and challenges during the next decade. Those organizations that have strategic foresight, and are innovative and flexible, will see opportunities and prosper. Those that don’t will struggle and likely will be absorbed into successful entities.