Human Resources Transformation for Power and Utilities Companies

 

by Victor Reyes, KPMG LLP

Work force demographics in the power and utilities industry are undergoing a transformation. An estimated 30 to 40 percent of the industry’s 400,000 workers across job categories will be eligible to retire by 2013, according to the Society of Human Resource Management, and the industry has faced difficulties in attracting younger workers over the past decade.

According to the National Commission on Energy Policy, Task Force of America’s Future Energy Jobs, this has created gaps in key positions and skills, and the industry will need to expand hiring and training programs to maintain the level of qualified workers required to operate existing facilities.

The business impact of this unprecedented shortage of skilled workers is a matter of public and national interest. Industry surveys, however, have indicated that most utilities do not have a formal process for projecting future work force needs based on their organization’s strategic plan.

The coming retirements and the skills and experience gap have been issues in the power and utilities industry for some time. Companies usually addressed these issues through several traditional stopgap methods.

The recent economic downturn, however, has added a level of complexity that has created new challenges and presented an urgent agenda for human resources (HR) transformation.

Companies are at different planning stages for strategies to mitigate these challenges and enable work force change. Companies must consider innovative strategies in developing a road map for dealing with these urgent work force issues.

Work Force Management Issues, Impacts

Traditionally, changes in the national and local business and regulatory environments have had the greatest influence on utilities. Current work force issues and those emerging over the next three to five years, however, are having an increasing influence. These issues include:

  • Massive retirement across all ranks and skill sets,
  • Recruitment challenges from less interest in the power and utilities sector among new graduates,
  • Declining numbers and quality of middle management,
  • Wide division between ages of workers and changing worker expectations,
  • Inadequate educational infrastructure to support industry needs, and
  • Lack or narrow focus in work force planning.

Work force management issues are particularly difficult for power and utilities companies because these companies require specialized skills. For example, electrical engineers and system operators as well as analysts who cover regulatory, load profiling or settlement issues require specific skills and training.

Companies often have difficulty finding workers with the necessary skills to fill these roles.

To complicate matters, some roles unique to the power and utilities industry require skills that have not been in high demand recently and are becoming scarce even in the utilities work force.

For example, many utilities have multiyear settlements with public utility commissions.

As those settlements expire, companies often face a shortage of management with experience in rate cases because many managers who worked on the prior multiyear settlements retired in the intervening years.

Similarly, if significant nuclear power plant construction resumes in the United States, companies likely will face a shortage of experienced engineers and project managers because they are retiring rapidly.

Companies often addressed these challenges through stopgap measures such as hiring retirees as contractors and consultants, outsourcing for critical skills or through an adjustment in work force planning.

Stopgap strategies are not always sustainable, however, because contract workers eventually will retire. In addition, regulation, strong community ties and a public service mission often constrain what power and utilities companies can do concerning some conventional solutions.

A tradition of lifetime employment, competitive compensation and generous benefits also pose constraints.

Urgent Work Force Issues and Impacts

The recent economic downturn also has created several more urgent HR management challenges and opportunities that power and utilities companies should address in more innovative ways. Emerging challenges and opportunities include:

  • Distressed work force. Although the economic downturn initially lowered attrition rates, the recovery can create new retention challenges. The work force can be stressed and distrustful, and power and utilities companies often have increasingly limited resources to retain workers.
  • Increased labor supply. Restructuring in response to the economic downturn has increased the labor supply and has delayed planned retirements. This has created a pool of displaced workers that represents an opportunity for power and utilities companies.
  • Technological change. Significant technological change across the utility industry is changing the required skills portfolio. For example, smart grid technologies are changing areas such as meter operations, meter data management and outage management. New generation technologies such as wind, solar and energy storage gradually are becoming a more important part of the energy mix. As a result, some skills are becoming obsolete and others are in short supply.

What Can Power, Utilities Companies Do Now to Address These Issues?

These new challenges present power and utilities companies with an opportunity to rethink parts of their businesses. Addressing work force challenges from a businesswide perspective instead of solely from an HR functional perspective facilitates the creation of sustainable strategies.

  • Power and utilities companies have a tendency to be traditional, hierarchical organizations. A possible approach to the scarcity in middle management is to flatten the organizational structure. Restructuring can be an opportunity to redesign roles and consolidate levels of accountability, giving new opportunities to talented workers. Flatter organizations can help accommodate generational differences, including learning and management styles.
  • Changing demographics and new HR initiatives will require companies to undergo extensive cultural change. A change management program focused on preparing the company for work force changes and innovative HR management is important to effectively execute a new work force strategy.
  • Companies should use internal talent as effectively as possible before looking at external markets, which often are unpredictable. Identifying critical competencies and focusing investments in talent development can be effective.
  • Evaluating the viability of outsourcing certain roles can help bridge the skills and experience gap between older retiring workers and young hires.

A businesswide perspective for addressing these work force challenges will support the development of a comprehensive talent-management program, focusing investment in talent development on retaining people in critical roles and building meaningful career paths for them.

A successful program will align with all stages of the employee life cycle, from talent identification to talent retention, and enhance the organization’s ability to attract, develop and retain critical resources.

  • Clear but flexible career paths for top talent as well as continued career discussions throughout the downturn can ease work force stress and facilitate employee exit and re-entry at junctures in their careers. Companies also should create or strengthen alumni networks.
  • Companies should help older workers reassess retirement horizons. This could include re-evaluating benefits to provide flexible postretirement work options.
  • Investing in creative knowledge transfer and management strategies can aid succession plans.
  • Companies should identify the development needs of senior leadership and provide support to help them manage the business through turbulent times. They should provide training for new skills and new tools to enable employees to do their jobs in a leaner environment.

While traditional HR strategies are essential elements, companies should incorporate innovative HR management strategies into their overall enterprise talent development and work force planning approach.

The possible approaches include internal strategies, which include new training and flexible career paths, organization restructuring and cultural change management, as well as external strategies for acquiring talent, which include changes in recruiting criteria and sources.

  • If companies look externally for talent, they should consider a re-branding program to attract talent from unconventional sources. Creating a strong employer value proposition that differs from the image of a conventional power and utilities company can open up new talent streams and rekindle existing talent streams.
  • Broadening recruitment strategies to incorporate re-hires, contractors and returning or deferred retirees is another effective strategy. Adopting the approach to recruit for attitude and train for aptitude can help companies find needed talent. This requires companies to change from recruiting for specific skills to recruiting for willingness and ability to learn over a longer time.
  • Companies should consider hiring high performers with substantial management experience from across different industries.
  • Presenting new value propositions to bargaining units working to mitigate the impacts of the economic downturn is another effective strategy.

Addressing these issues in more innovative ways can help power and utility companies manage the business impact of work force changes as the economy recovers.

An organizational transformation lead by a work force transformation can help power and utility companies realize greater benefits from addressing these challenges and opportunities.

This article represents the views of the authors only and does not necessarily represent the views or professional advice of KPMG LLP.

Author

Victor Reyes is a principal in KPMG’s people and change advisory practice and has spent the majority of his career working with power and utility companies. Reach him at vjreyes@kpmg.com

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