By Rick Hollenbaugh, Everest Management Consultants Inc.
The significant value that utility vegetation management adds to an electric utility and its stakeholders is well-documented—particularly in the wake of the Aug. 14, 2003, blackout and subsequent blackout investigations. But, because most utility vegetation management organizations operate from a highly traditional perspective, the opportunity for performance improvement is often not entirely realized. To extract the maximum performance improvement value opportunity, utilities must apply progressive best-practice vegetation management strategies. When successfully executed, these strategies have the potential to revolutionize the utility vegetation management industry as we know it today.
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There are five key business strategies that will fundamentally shift the utility vegetation management paradigm from traditional to progressive. They are: asset management, strategic sourcing, business process reengineering, performance management and project management. Successful utility vegetation management organizations of the future will incorporate and integrate each of these strategies into their management, operations and work culture.
Asset management methods and techniques have been around electric utilities for a while, but only recently have some of the more progressive utility companies taken advantage of their application and resulting value. Succeeding in the future will require electric utility companies to strike a fine balance among achieving acceptable financial results despite potential revenue decreases, meeting higher system reliability standards and other regulatory requirements, and meeting increased demands for superior customer service. A select few utility companies are beginning to achieve this important balance by strategically optimizing the use of scarce resources. Such an approach goes beyond the application of a new business model to a fundamentally new way of managing the delivery business.
Several leading utilities—American Electric Power, Toronto Hydro, Conectiv and PPL Utilities, for example—are using similar approaches to manage certain maintenance programs and to allocate funds within those programs, especially within vegetation management. Because of the size and scope of vegetation management programs, they are frequent targets of corporate budget cuts and efforts to achieve short-term earnings improvement. Applying the concepts of asset management to vegetation management allows utilities to make better funding decisions, and more consistently meet regulatory, customer and shareholder needs.
Strategic sourcing is the next progressive utility vegetation management strategy. Electric utility supply management organizations often struggle with optimizing their supplier base of vegetation management contractors, primarily due to the feedback from and interaction with the vegetation management organization subject matter experts. Traditionally, utility vegetation management personnel are very attached to the “three bids and buy” philosophy and, more often than not, lead the supply management organization down this path during annual contracting strategy sessions. Stories of failed alliances and fear of one large contractor taking over the system permeate the discussions.
However, the good news is that new utility managers recognize the value of strategic sourcing initiatives, have committed to learn from those who have struggled and have a firm commitment to achieving success. More and more power delivery leaders are taking the cue from their fossil and nuclear generation peers who have been successful in strategic sourcing initiatives and are bringing this utility best practice back to their power delivery organizations.
There are a few excellent examples of successful strategic sourcing initiatives within utility vegetation management. In 1992, Portland General Electric established one of the first vegetation management alliances in the country. The company created a win/win relationship with its vendor that was fundamentally built on trust. In 2001, American Electric Power established one of the largest vendor relationships to manage approximately 200,000 distribution line miles. This initiative was successful due in part to the vision of AEP’s asset management organization and the thorough planning and contractual arrangement. In 2002, Southern California Edison implemented an alliance focused on maintaining the strict regulatory compliance requirements of the California Regulatory Commission. United Illuminating has maintained an excellent managed relationship with its vegetation management partner that is based on performance and mutual trust. In 2002, Northeast Utilities implemented an alliance across its three-state service territory. The company has been successful in many areas and is working together with its alliance partner to strengthen other areas. Finally, FP&L established an alliance and is proactively working with its partner on continuous performance improvement initiatives. The goal is to make a good program that much stronger.
Utility vegetation management strategic sourcing offers one of the most exciting cost reduction and performance improvement opportunities available to an electric utility. Direct cost savings of 6 percent to 18 percent, crew productivity improvement of 10 percent to 30 percent, quality assurance of 95 percent and service quality levels of 90 percent are all achievable.
Progressive utility vegetation management strategies would not be complete without business process re-engineering, which often occurs simultaneously with strategic sourcing implementation. So often, utility vegetation management organizations are fixed on operating under traditional practices and organizations. Operational performance improvement is usually hidden by the traditional operational work practices and cannot be fully realized until an organization can break out of its traditional paradigm and challenge itself to strive for continuous improvement. Utility vegetation management personnel and their strategic partners openly commit to each other to develop, implement and maintain each key business process so that the highest total value can be extracted. This is when you begin to see the value and power of progressive strategies taking their full effect.
Business process re-engineering has equal or greater unrealized value than its strategic sourcing counterpart. What makes this process even stronger is that it is much easier to extract the total value when the utility is working with fewer vendors to accomplish the available synergies. At least half of any performance improvement opportunity resides in your partner across the table. Why not embrace a progressive vegetation management culture and realize the opportunities?
The next key progressive strategy is performance management. Traditionally, this has been one of the most under-utilized tools available to the utility vegetation management organization. Executive management has been focusing on this area in recent years, but the key success factor of any performance management system is to ensure that the performance is clearly linked throughout all levels of the organization. The common theme is that for any performance objective to have real meaning, everyone must be in alignment and focused on achieving those goals. Everyone must row in the same direction. One of the most powerful tools that a progressive utility vegetation management organization can have is a comprehensive performance management system.
The final area of progressive utility vegetation management strategies is that of project management. The value of project management emerged a few years ago when the methodologies took the information technology industry by storm. The best-practice utility vegetation management organizations of the future will strictly apply project management principles and methodologies to manage their business in a more effective fashion. There are three main project management areas that represent the greatest opportunities to initiate a project management organization. They are the project management office, change management and communications planning. Together, these three areas will bring together executive management, program management and operational levels and drive a synergy within the utility vegetation management industry that has never been demonstrated previously.
Challenging the Status Quo
To shift the utility vegetation management paradigm from that of traditional to progressive requires significant change from all key stakeholders. All stakeholders must embrace the value that progressive strategies hold. They must seek to first understand the value, then assess how the strategies can be applied to their organization, then proactively and aggressively implement the new strategies.
While there is no silver bullet to ensure sustainability of progressive strategy implementation, there are critical success factors that an electric utility organization can utilize as a foundation for success. When implemented, these items will transform an organization beyond the limiting traditional paradigm and create dynamic results. To ensure success of a progressive strategy implementation:
- Executive management must assume a proactive sponsorship role in coaching and mentoring their programs. This highly interactive and supportive leadership linkage is critical to creating a dynamic synergy throughout the organization.
- Executive management must set an elevated level of performance expectations. These expectations must be based on focused return on investment (ROI) decisions that leverage calculated cost-benefit analysis.
- Lean and highly structured organizations must focus on a single point of accountability to drive total value optimization. This will maximize the business orientation, create strategic vision and problem solving from a root-cause perspective.
- Centralized organizations must rapidly implement business strategies in a highly efficient and consistent fashion. This will result in greater executive management confidence, lower operating costs, and focused and specific performance improvement.
- Stakeholders must view vegetation management organizations as dynamic and business-driven programs led by a team of progressive and highly skilled professionals. The image will emulate business savvy leadership and project management principles of the highest competence.
- Top-quartile organizations must leverage and develop dynamic strategic sourcing initiatives with their vendors. This powerful synergy will catapult both organizations into a mutually beneficial relationship that will ultimately reduce long-term costs and optimize performance through innovation, continuous improvement and consistent operations execution.
- Best-practice organizations must utilize a comprehensive business plan as their primary foundational cornerstone. This plan will be the strategic platform for all business planning decisions. It will contain historical and future performance data, funding levels, and strategic and tactical initiatives that will be used to ensure corporate and department goal and objective linkage. It will be the document that executive management utilizes to ensure that the corporate ROI is optimized.
- Synergistic cooperation must exist among key stakeholders, including utilities, municipalities, railroads and the state department of transportation to reduce work scope, maximize ROI and improve customer satisfaction. The formation of these strategic relationships is paramount to significant performance improvement breakthroughs.
- Calculated and quantifiable risk management strategies must proactively recognize, rapidly assess and strategically execute corrective actions. This will be the key to minimizing risk exposure and will ensure safety, improved reliability and customer satisfaction.
- Executive management must demand and expect a consistently high performance level focused on strategic business planning, disciplined project management execution and an asset management philosophy that leverages progressive and innovative strategies. These programs must be capable of rapidly adapting to corporate strategy changes associated with mergers and acquisitions.
- Top-quartile programs must proactively assess their opportunities and applications and rapidly capitalize on installation of the latest information technology and systems integration tools. Advancements in Internet, geographic information systems (GIS) and data management systems that spatially represent information will provide quantum levels of improvement in operational areas such as work scope management, information management and communications.
- Top-performing companies must utilize performance management benchmarking tools that normalize comparative data to manage their programs. This information derived from these systems will instill a higher level of executive management confidence and quickly separate the top performers from the rest of the field.
- Business process reengineering must become an operating norm for companies that are seeking to extract the maximum possible value from their organizations.
Utility vegetation management programs that are committed to excellence will use these critical success factors to mold their organizations into top-quartile performers in cost, reliability performance and service levels.
The Path to Progressive Vegetation Management
The road to performance improvement does not occur through a single event. It is a well-planned journey that is continuously refined. It is a work culture that is committed to success. It is a belief that anything is possible through hard work. This is an important fact that must be considered as you begin to implement the progressive strategies outlined above.
A new age of utility vegetation management is emerging in the electric utility industry. It is very clear that traditional work practices and methodologies are ineffective and produce unacceptable performance levels. The electric utility industry has a significant opportunity to resolve the traditional challenges of budget stability, resource allocation and system reliability specific to vegetation management. As mergers and acquisitions, deregulation, financial earnings and regulatory pressures all continue within the industry, the use of progressive vegetation management strategies will ensure the power delivery system’s long-term viability.
Because executive management has raised performance expectations, utility vegetation management organizations and electric utilities as a whole must embrace progressive strategies. Organizations must overcome fear of the unknown, learn to embrace change and realize that being uncomfortable means that you are pushing your organization toward higher performance.
Rick Hollenbaugh (firstname.lastname@example.org) is the founder and president of Everest Management Consultants Inc., (www.everestmci.com, office: 888-813-8400) an organization specializing in progressive business-driven electric utility vegetation management solutions.