Breaking down the walls
SILOS IN BUSINESS ARE FAMILIAR BARRIERS TO effectiveness, particularly when change drives an organization's agenda.
Yet achieving desired outcomes requires focus, and focus often is expressed in organizational units for many good reasons. Departments are comprised of people with relevant knowledge and skills, inevitably leading to separate missions and cultures between departments.
New challenges in the power industry such as the new focus on customers and the grid modernization that supports it raise the issue of how to promote cross-functional collaboration for the sake of the entire organization.
Solutions to this perennial challenge often invoke eye-glazing management-speak or the sorts of disingenuous shenanigans that might make an episode on "The Office." What are effective utilities actually doing to eliminate silos and produce quantifiable results?
The Sacramento Municipal Utility District (SMUD) and Toronto Hydro-Electric System Limited have both implemented seismic organizational shifts for overall success, raising transparency and shared accountability while lowering the silo walls.
SMUD's "reason to exist": customers
SMUD's journey began more than a decade ago when the municipal utility focused on driving satisfaction for its 600,000 metered customers in California's capital, according to Paul Lau, assistant general manager, power supply and grid operations.
"As a community-owned municipal utility, if we cannot satisfy our customers' needs, we have no reason to exist," Lau told me recently.
That fresh focus meant re-evaluating every aspect of the utility's business and operations, aligning them with customer needs. That involved shifting a traditional, vertically organized company to a more horizontal one that could meet its mission via "the shortest distance between two points," as Lau put it.
Process re-engineering provided foundation
SMUD initially used a third-party facilitator and software to develop new processes and key performance indicators for its realignment. The utility followed tenets for process re-engineering developed by Michael Hammer in the late 1990s and early 2000s. Concepts that guided the resulting changes included such notions as "process ownership" and "shared accountability."
The first concept - "process ownership" - took the notion of governance from responsibility for outputs to responsibility for end-to-end processes. The second idea meant that performance evaluations included emphasis on joint goals and metrics, with compensation tied to the achievement of common goals.
One innovation was the creation of a group dubbed "Enterprise Workforce Services," according to Gary King, chief workforce and technology officer at SMUD. That group works to ensure that cross-functional processes tap resources from each business unit to improve integration and collaboration-and keep that line straight from point A to point B. Organizational development specialists in that group serve as internal consultants who work with operating segments of the business to facilitate alignment between efforts and outputs, King told me.
Every business unit, from customer service and operations to engineering, had to work in cross-functional groups to ensure that the process for delivering customer satisfaction followed that straight, short line from A to B. In the case of the old IT-OT disconnect, organizational changes placed both departments directly under one executive.
Measuring customer satisfaction
The external measure of customer satisfaction inevitably falls to third-party J.D. Power and Associates. To drive those results, SMUD also instituted outreach via its "Forty Days and Forty Nights" program that holds public meetings to explain its evolving direction and conduct customer focus group meetings. Using third-party facilitation, SMUD conducts focus groups, monthly customer surveys and market research on every customer touch point, from power reliability to tree trimming. The organization scrutinizes every project from start to finish based on its evolving sense of customer-focused mission and accomplishment.
SMUD recognized that "emotional connections"-a passion for organizational success-were needed, and needed to be tracked. Gallup, the survey organization, annually assesses employees' engagement, and results are shared with fellow employees and supervisors. That results in "impact plans" that drive prioritized engagement practices.
Nearly four years ago, SMUD's successful application for a Smart Grid Investment Grant from the Department of Energy drove renewed efforts to institutionalize these adaptations. That brought responsibility for SMUD's distribution engineering, IT and customer service (including programs such as energy efficiency and renewable energy) all under one executive, the assistant general manager.
Transparency and metrics in DNA now
"Smart grid is a way of life, not a project," Lau said. "How could we internalize that to accommodate the new, two-way paradigm with a customer role in distributed generation, solar photovoltaics, electric vehicles, energy storage, demand response and pricing programs and integrate them into our distribution, transmission and generation systems to deliver maximum benefits to our customers? We are realigning our organization again to optimize the customer experience and operational excellence.
"The fact is, our sense of value to the customer never changes," Lau concluded. "That has become our driver. We don't talk process re-engineering anymore. We have realigned our organization. Transparency and metrics are in our DNA." Yet the dedication to maintaining that straight line from A to B requires constant, consistent efforts.
"We can never say `we're done,'" King added. "The pace of change is increasing. We need to be nimble to adapt to that change."
Asked for lessons learned, Lau cited traditional ones such as executive buy-in and leadership, discipline and "don't underestimate the effort required by change management." He cautioned that an organization must have the appetite and urgency for productive change.
"Do you have the fortitude?" he asked rhetorically. "Expect pushback. Understand the internal `emotions.' And be brave."
Tracking change in Toronto
Toronto Hydro-Electric System, which serves a city with 705,000 metered customers, began life in its current form in 1999 when six small utilities merged. That industry restructuring and amalgamation resulted in workforce consolidation, followed by a drive for business transformation that was initiated in 2000 and remains a fundamental value today.
Toronto Hydro followed the principles of a Management Control and Reporting System, or MCRS, which brought the discipline of standardized management practices to the organization. The principal discipline was to impose short-interval controls on all end-to-end processes that would henceforth be measured in days, weeks and months, Rob Wong, vice-president, information technology and strategic management, told me.
That effort has been paralleled by a leadership development program that has played a role in nurturing executive talent among those who understand that organizational outcomes trump departmental successes.
Becoming a performance-oriented organization
"We place a lot of emphasis on organizational development," Wong said. "Collaboration is the key criteria, as are internal and external stakeholder management. Are we 100 percent there? No. There's always room for improvement.
"But we've become a performance-oriented organization," he added. "We use a `balanced scorecard' system that depends on key performance indicators. A large part of executive compensation is dependent on those KPIs. And we have rigorous systems in place that track this stuff. We manage down to the individual."
At a strategic level, the utility's "balanced scorecard" rests on four pillars-customers, financials, operations and people-that compose the corporate KPIs. Common business case templates are applied across the organization for projects to ensure that benefits and outcomes are strategically aligned with those four pillars.
Wong echoed Lau at SMUD when he emphasized executive buy-in-with a twist. The organization's five core business processes are each owned by an individual executive, so that "everyone has skin in the game," Wong said.
Change management and process engineering sometimes require succession policies to complete the de-siloing process, Wong noted. For instance, in Toronto Hydro's case, that IT-OT divide didn't fully fall until like-minded executives who agreed on organizational imperatives were promoted to enforce such changes.
You've heard the term "continuous improvement," typically followed by jargon. At Toronto Hydro, performance trends are analyzed and baselines established, from reportable injuries to attendance, from operating cost targets to net income. System reliability is defined by familiar metrics such as the frequency and duration of outages, and that analysis extends to the feeder level for greater transparency on actual impacts to customers. Beyond familiar metrics, "stretch targets"-harder-to-attain goals-are identified as new challenges year-over-year.
Initially, all this business transformation was achieved with help from a third-party consultant and software applications, Wong said. As the organization internalized the processes, the MCRS principles became a standard for management practices.
One initial issue for other utilities on a similar path may be how to best select a third party to assist.
"For me it's a matter of a cultural fit," Wong said.
Keeping the lights on through change
And then there's risk involved with degrees and speed of change. A utility has to keep the lights on while it breaks down those silo walls.
"Every organization is different," Wong said. "What's your level of preparedness? How much change can you live with? Sometimes there's just too much effort for the benefit. You want to avoid a point of diminishing returns."
In a rough analogy to SMUD, Toronto Hydro has an executive whose bailiwick encompasses organizational development, including leadership development and change management. That's Ave Lethbridge, vice president of organizational effectiveness and environmental, health and safety, who focuses on "people systems."
Over the past dozen years, since the merger of six utilities into one, that work has focused on managing to achieve goals, measured by KPIs.
"That doesn't happen overnight," Lethbridge cautioned. "Begin where the organization is experiencing the most pain."
Advantages include shared accountability
Organizationally, a simpler, flatter structure has advantages, she said. Tying common goals across process lines brings shared accountability, which when tied to compensation can level the walls that once housed silos.
The uncertainties wrought by change can be overcome when replaced by executives' and workers' confidence that there's rigor around achieving goals and a consistent system for rewards and recognition, according to Lethbridge.
It appears that, at Toronto Hydro, "organizational development" is akin to "staff development," in that hiring and promotions are driven by the same values. The "fit"-that is, the recognition of the organization's emphasis on collaboration and the ability to address it-is more important than technical qualifications, Lethbridge told me. Those who consistently demonstrate their ability to contribute to the organization's core performance metrics, working collaboratively with a focus on customer value, get promoted. Lethbridge called these "behavioral competencies."
Accountability means not just achieving results, but how you achieved them, she said. Employees are rewarded for both the "what" and the "how" goals are achieved.
In her decade with Toronto Hydro applying this thinking and evolving a platform to support it, Lethbridge has seen the importance of sustainability-remaining flexible, responsive and true to its alignment with its goals over time. After all, Toronto Hydro, like other utilities, faces generational turnover and strives to consolidate its hard-won gains.
Facing a new challenge
Toronto's work in driving organizational transformation today faces new challenges: an aging workforce and need to replace aging distribution structure while facing external pressures on electricity rates.
That may be another lesson learned. If you don't know what's coming down the pike, you'd better be prepared for anything. Determining organizational success and aligning people and processes to achieve it increasingly looks like an effective way to prepare for the unknown challenges ahead.
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