In the wake of the economic downturn, many utilities face reduced near-term revenue projections combined with significant cost pressures from large-scale capital and operations and maintenance commitments. In this context, executives are looking to achieve significant budget relief through capital programme deferrals, programme reductions or organisational and process streamlining. Without immediate and significant action, the most critical strategic and financial objectives of many utilities (including meeting key financial ratios) are believed to be at risk.
Single minded focus on meeting short-term cost savings without also considering how to improve operations to maximise long-term performance, however, can have a sustained negative impact on an organisation. Results from PA Consulting’s Managing Uncertainty survey of 200 business leaders, for example, found that companies which adopted a disciplined and moderated approach to cost cutting showed a stronger shareholder return than those which cut costs excessively. This is despite 82% of companies looking to reduce costs as a result of the downturn. Unfortunately, in many instances, cost reductions are pursued without an over-arching performance management programme supported by a culture of continuous improvement. Without such a programme, many streamlining initiatives are ‘siloed’ solutions, not managed in a comprehensive and integrated manner.
A comprehensive performance management programme allows an organisation to achieve near-term savings goals while also taking the steps to build a framework for long-term success.
PA’s extensive work with utilities internationally – optimising asset-maintenance decision-making and improving back-office and treasury support functions among others – has helped us define the key aspects of a long-term performance management programme:
Assessing core business processes
Core business processes should be assessed to ensure they are integrated across the organisation and that people are critical to making them work. Utilities must evaluate the business as a total system of interrelated activities, as opposed to a series of individual processes.
Focusing on customer value and eliminating waste
Utilities must focus relentlessly on enhancing customer value and eliminating waste. By dedicating resources to these two areas they will see long-term increases in organisational capacity, effectiveness, and efficiency. This was demonstrated by our Managing Uncertainty survey, which showed that organisations that concentrated on enhancing relationships achieved more success than those that concentrated on cost-cutting alone.
Empowering ‘process owners’
An effective performance-improvement programme means engaging and empowering the ‘process owners’, those which perform the day-to-day work of the utility itself, to identify improvements. It is essential to avoid ‘command and control’ process change, detached from the reality of the working environment, and which can result in more waste and service-delivery challenges. Results from PA’s Managing Uncertainty survey found that the organisations that managed the best focused not only on removing inefficiencies, but also on empowering staff.
Considering current state
The current state of the organisation must be assessed routinely. For example, performance-improvement managers must constantly ask how they can improve performance and how the organisation will look after the targeted improvements have been implemented. They should also question what constitutes the organisation’s ‘aspirational state’. Rather than considering this to be a one-time project, they should drive a culture of continuous assessment and improvement when designing and evaluating performance initiatives.
Increasing the capacity to take on work
Organisations should look to define, measure, and analyse their performance to continually increase their capacity to take on work. This involves creating key performance indicators and reporting measures to assess the most critical aspects of the business, achieve the goal of increasing organisational capacity and align operations with corporate objectives.
To find out how PA can help you develop an effective performance-management programme, please contact us now.