In our society “mature” connotes aging or growing old. Some consultants tend to view the energy industry as mature and lacking dynamic market potential and, therefore, unable to sustain the same growth as younger industries. Interestingly enough, mature was exactly the term that many economists applied to the U.S. marketplace in the mid-1980s and boy, were they wrong.
There is growing evidence that the U.S. economy is in the early stages of a powerful resurgence. On the leading edge is information technology, which permeates every sector of the economy and a groundswell of innovation that will carry well into the next century. As one economist said recently: “There is going to be a fundamental change in the global economy unlike anything we have had since cavemen started bartering.”
The big switch
Those within the energy industry reject the notion that our industry is over the hill. Every day we face issues ranging from stranded costs to risk management, legislation and the challenge of new technologies, to mergers and acquisitions and international expansion opportunities. Are we a mature, lethargic industry? Not for those dealing with these critical issues.
In addition, deregulation and convergence are demanding that both the energy industry and corporate America develop new ways to look at each other. Corporate America sees deregulation as a method to view energy expenditures no longer as a fixed cost, but as an operation cost. With convergence, the industry sees fuel and power assets integrated within flexible revenue strategies.
In response to customers who demand more, utilities and other energy firms are on a quest to endear previously undiscovered markets by becoming the customer`s energy partner. The energy partner`s job is to save a business money by procuring electricity and natural gas at the lowest possible price, and by improving the efficiency of the firms` energy consuming equipment and the information systems that monitor that consumption.
Some executives wait for all the evidence before acknowledging a major business shift or a new competitive reality under way. They rely on macroeconomic indicators saying we are in a relatively harmless period of disinflation. Other executives sense an impending threat. They believe prices are headed down, and they are ready to take action to deploy creative and winning strategies.
Wise managers, including those in the energy industry, have seen all they need to see. They possess the honesty to confront new market realities and are responding on six fronts: pricing, market response, cost, allocating resources, flexibility and communication. Let`s look briefly at these responses:
– Pricing: A sales force that cannot sell will typically call for lower prices, but in an environment where building volume is desperately tough, that is the last thing you want to do. Holding your volume demands that you add value in unique ways, enabling you to restructure prices. Remember that your customer is under pressure to reduce costs and become more efficient. If you can help your customer, your value increases.
– Market response: Amid declining prices, it is vital to gauge customer attitudes faster and more frequently than your competitors. If unpopular or badly delivered products or services remain in the market just a little too long, you will lose market share. The key is to position quickly to eliminate products not in demand.
– Cost: Every margin has two sides, and cost is as important as revenue. Today the name of the game is to decrease costs faster than prices fall. Purchasing departments are as important as sales and marketing.
– Reallocating resources: When prices fall, it is critical to shift money and resources away from support staff and weak products and into improving the sales force, training customer service staff and getting more from your most efficient work center.
– Flexibility: The economy moves at a fast pace and can worsen or change course abruptly. Our new economic environment has made it critical to have the right people in place as quickly as possible to share best practices and experience.
– Communication: These five issues cannot be addressed without fast, smooth communication. Technology solutions such as universal e-mail and shared databases are essential for people who serve the same customers.
Achieving such business goals requires access to a range of talented managers who possess vision, leadership, knowledge and experience. It is less practical, however, for companies to permanently engage the changing lineup of skills and expertise they need to solve evolving demand. Fortunately, there is a management solution that can address the challenge and offer flexibility.
Interim solution to the rescue
Interim management first became a popular strategy in the late 1980s when widespread downsizing and workplace reorganization freed up large numbers of talented and experienced executives. Just think back to how deregulation around the banking, telecommunications and airline industries created troubled operations where problems ranged from minor to critical.
It is often difficult for companies to attract permanent top management to address a tough temporary situation. Interim managers, by contrast, are comfortable taking on turnaround assignments to address performance or operating problems.
A utility can engage interim expertise not only to evaluate a troubled operation and establish a way to improve performance, but also to turn it around, lead it to growth and provide mentoring leadership. Such management at first limited in commission, may go far beyond the project at hand to use their knowledge to assist the company in a wide variety areas.
The challenge is not to think of today`s environment as a problem, but an extraordinary opportunity for those who want to secure strategic strongholds in distribution channels, service outlets, customer service and branding. These challenges are the new reality and for those energy providers who embrace them in a positive way, success will follow.
For some in the energy industry, contract or interim managers have proven a salvation in addressing these challenges. Contract managers are flexible experts who have become invaluable resources to utilities throughout the United States. Utilities find that they can use interim project managers discreetly though every phase of business plan development, marketing and sales strategy or acquisitions analysis to help with everything from due diligence to market feasibility studies, turn around ailing operations, resolve acquisition or post-merger integration projects and implementing exit strategies.
For example, a major utility required rapid development of a business plan for its deregulated business unit. Management needed the plan to be completed in four months and also requested a concurrent assessment of entry strategies into the local telecommunications business. After a careful search, IMCOR placed two interim consultants with extensive industry experience at the company. Both projects were successfully completed within four months and one consultant was offered and accepted the position of director of sales and marketing for the deregulated company. His initial responsibility was the implementation of the plan that he had developed for the utility. In this role he helped them better understand where the company was and where it should be going relative to its deregulated sales plan.
The interim director had an MBA degree and had started as a business analyst in the cable industry, with ever increasing assignment responsibility, which included sales and marketing and general management. He explained how industry-specific skills can be a blessing on this type of assignment, “Without a doubt, everyone`s comfort level goes up when they know you are on home turf because you are operating in a similar industry to the one you grew up in.”
Interim managers can prove invaluable during every phase of the business cycle. Interim managers allow companies to augment the management teams that must resolve each of the challenges the energy industry now must face: pricing, market response, cost, reallocation of resources, flexibility and the underlying infrastructure requirements including technology implementation.
Growth through mergers & acquisitions
If the telecommunications industry is any indicator, the energy industry should be in for a roller coaster merger and acquisition ride over the next decade. Utilities must grow or risk being taken over in the marketplace. Interim managers can support these roll-up strategies by helping to identify and execute new transactions, or by fixing operations in preparation for a merger or acquisition.
When a division of a major manufacturer wanted to increase market share, it engaged an interim CEO to focus on improving operations in preparation for a merger with a competitor. With his experience, he strengthened processes, reduced management and improved profits all within nine months.
Bringing two energy companies together creates a mass of integrated projects, as the merging companies seek to establish common systems and procedures. This might include the rationalization and consolidation of facilities, information technologies, financial reporting systems and compensation and benefits programs. Operations problems subside eventually, but initially they can demand enormous amounts of time and energy, disrupting current management and pulling them away from core business issues.
During a recent merger involving two major leading money center banks, there was concern that clients using one of the bank`s global payment services would require some assurance that the merger would not impact service levels. The bank retained an interim marketing project manager responsible for a six-month assignment to implement a public relations and communications plan that focused on giving customers the information they needed to have confidence in the new system.
Even years after an acquisition, when most post-acquisition challenges have been resolved, projects that require top-level expertise can arise. As an example, companies are currently utilizing interim executives to implement organization upgrades that include:
– Process reengineering of distribution and transmission systems.
– Synchronizing supply chain process requirements.
– Updating information systems, as they relate to financial management/reporting, deregulation mandates and customer service.
– Expanding sales and marketing programs to capitalize on deregulation.
– Devising market and competitive compensation and benefit programs.
The energy industry is dynamic. Managers must be able to redesign business processes driven by ever-changing regulations, customer and stockholder demands. Managing time, talent and technology is the essence of the challenge and interim management offers flexibility. A company is no longer limited to hiring permanent staff or high-cost consultants. Hands-on expertise and experience are now available on demand. Interim project managers provide the opportunity to “lease” talent when needed. n
Jack Walsh is managing director of IMCOR, an interim executive placement firm based in Stamford, Conn.