Looking at Utility Assets in a New Light
By Wendy Bleiweiss, PeopleSoft Inc.
The deregulation of the utilities industry proves to be more of an ongoing evolution than a new permanent state. Adjusting business practices and policies to the proposed new environment is not a one-time task. Utilities, therefore, need to set their strategies for a continuing series of bold and creative initiatives employing all of their assets.
One strategic approach, where utilities can be aided by multi-functional and industry-specific enterprise software applications, is to view the enterprise as a whole containing at least three crucial assets: workforce, customer base and traditional capital assets.
Employees Are Assets
Historically, utility employment was characterized as a stable, slow-growth environment. Now, corporate down-sizing or right-sizing, mergers and acquisitions, and blossoming of new entrants into regional markets frequently disrupt the “from hire to retire” employment tradition in utility families. If all those factors haven`t exactly thrown the workforce into turmoil, they certainly will bring about a more mobile, cross-functional workforce. The effects on utilities are twofold:
An increased need to retain the employees who will run the organization in the future
Growing importance placed on the new skills and competencies employees need in an open-market environment
Why regard employees as a corporate asset? Simple, think of the value lost if several experienced managers or technicians opt for new jobs elsewhere. Think of value never attained when employees aren`t re-skilled in functions essential to today`s competitive market.
Offering the “right” pay, competitive benefits, and other incentives isn`t just good employee relations these days but a requirement to compete in the new business environment. Remember that there are now other companies in your market who need good, experienced utility employees.
An employee lost means losing the organization`s investment in training plus the value of his or her accumulated business knowledge and technical experience. Then, factor the cost of finding, hiring and training a new worker, which can be greater than that of retaining the person on board, and the costs to the competition become staggering.
A utility also faces the prospect that many existing employee skills might not meet the realities of the new competitive era. Longtime employees may be specialists in one task or responsibility, but a changed utility market requires that they take on new jobs and become far more flexible.
At a minimum, many employees will need to cultivate marketing and customer-retention skills–something little needed in the less competitive past. Now, they not only face selling tasks but they must become articulate in whole new lines of business and service offerings by utilities.
Customers Are Assets, Too
Much the same as with employees, utilities haven`t always looked upon their customer base as a true organizational asset. Customers were an entitlement in the former tradition. Regulated service territories strictly defined a utility`s market; it rarely had to worry about losing customers.
Deregulation is scrambling this comfortable pattern. The utility now needs to differentiate itself from competitors. In regional markets diffused by customer “churn”–enticement-induced voluntary switching to competing service providers–the traditional carrier must focus on retaining its good customers. Further, established utilities need to address customer acquisition themselves in other geographic areas, since they`re no longer bound to limited territories.
Generally, however, retaining present customers is easier than going out to find new ones. Utilities know who their best customers are. At least, they should know; they have all the data: what products they use, the normal or average revenue from each product and customer, and whether customers pay in full, on time.
When a customer calls–about moving, changing service, a power outage, a billing question –the utility receives valuable information about customer needs. Analysis of this information can enhance the effectiveness of sales and service employees. The service representatives can relate to the customer`s previous call, the reason or need and the result or solution.
With customer information, utilities can gain insight into the importance of certain business decisions. What categories of customers should be targeted for special marketing plans? Which, if any, channels might be de-emphasized in future marketing programs? Or, which of a utility`s marketing approaches proved most effective in retaining good customers? In recovering traditional customers who had gone to other utilities? In acquiring new customers, and for which type of service or special product?
Capital and Physical Assets
Now we come to the traditional part of utility financial management–physical assets. Nothing`s changed, right? Think again. Pending deregulation and competition will impact utilities in several areas where understanding and effective management of capital and physical assets is required. Mergers and acquisitions and the new competitive environment will have a profound effect on the management of capital and physical assets. Reaching business goals depends on reducing operational costs and utilizing capital and assets to the fullest.
Many facilities were built in a regulated environment when a guaranteed rate of return on those assets could be assumed. Now, as nimble competitors enter the market reselling services, the incumbent utility must focus on the costs of doing business–building and maintaining assets, purchasing and stocking materials and delivering services to customers. With power moving toward a pure commodity sold almost entirely on price, whatever mechanisms a utility can exercise to lower these prices will have positive effects on the bottom line. This includes effective maintenance management techniques and technologies.
For companies looking to divest a portion of generation assets, the issue of pricing the asset becomes a challenge. Investment and disposition of assets requires an understanding of the fair market value of assets and the embedded costs in relation to the existing asset base. For utilities retaining generation assets, understanding the prices for alternative power sources–the addition of new generation capacity, the purchase of power from other companies–is required when determining whether to repair or replace existing generating capacity.
While utilities have always had an eye on providing data to regulatory bodies, good financial management involves more than good financial reporting. It involves planning and budgeting, project tracking, profit and loss analysis, risk management and enterprise performance measurement. Methods such as activity based costing and profitability analysis support a utility by showing where costs are incurred, where revenues can be gained, where investments should be made and where risk can be minimized.
Someone once said that utilities possess very little information–but phenomenal amounts of data. The idea is to turn the data into highly valuable information. Customer, financial and human resource data are assets to be shared across the enterprise. The key, in an effective enterprise, is to create links among all forms of information.
For example, should you hire and train your workforce to offer a new service or should you invest in or acquire a provider of that service? What payment programs, at what cost, should you offer to customers who have trouble paying their bills? What is the best channel, at what cost, to promote your new product offerings to your current customer base? How can you cut materials management costs and what should you do with any returns you receive from cost-cutting programs? What resources are available to support employee retention programs?
Used together, customer, employee and financial information can aid in formulating strategies for salient business and financial decisions, to position the utility in today`s and tomorrow`s marketplace while optimizing all elements of the organization.
Wendy Bleiweiss is PeopleSoft Inc.`s Industry Product Strategy Manager for Utilities. PeopleSoft, Pleasanton, Calif., is a worldwide developer and vendor of enterprise solutions.