The aging workforce: What can you do about it?

John Juliano & Michael Valocchi, IBM Business Consulting Services

Part 2 of a three-part series

In the first part of this series (EL&P, December 2003), we underscored the need to act quickly to prevent the loss of critical knowledge as the aging workforce retires. The “QUICKLY!” workforce planning framework developed by IBM Business Consulting Services’ Energy and Utilities Practice can be an effective way to evaluate the severity of these problems and the effectiveness of solutions. QUICKLY! address-es focus areas that must be addressed as core strategic issues by executives in the coming two to three years to prepare for the impact of wide-scale retirements:

“- workforce metrics;
“- executive development and succession planning;
“- knowledge retention;
“- outreach programs and recruitment; and
“- employee training.

The first three of these will be discussed in this segment in the context of a strategic program that Tennessee

Valley Authority (TVA) Nuclear forged. This program is now seen as a leading practice in preparing for the looming workforce changes, and won them the Nuclear Energy Institute’s highest honor for top industry practices in 2003, the B. Ralph Sylvia Best of the Best Award.

Integrated staffing plan

Like other utilities, TVA cut its nuclear workforce drastically in the 1990s. To minimize layoffs, incentive programs were enacted for voluntary retirement, and experienced hiring and college recruiting were all but abandoned. At the time, these moves were prudent and in line with

the changing needs of TVA’s assets. However, as described by Ed Boyles, TVA’s manager for workforce planning, longer-term consequences of these actions weren’t immediately apparent.

By 1998, TVA’s average age of craft, engineering, and operations staff was 47–and their average retirement age was 55. Incentive programs had been frequently taken by younger, more mobile employees. Since new hiring was minimal, training that would have been filling the buffer against future staff departures had lapsed. Boyles stated, “We recognized then that we had to develop a long-term strategy.”

Workforce metrics

Quantifying the impact of retirements on institutional knowledge and understanding resultant knowledge retention and recruitment needs are critical to ensuring a smooth generational transition, as TVA learned. “We recognized right away that we were going to have a lot of retirements, but we wanted to know what classification of employees we were going to need to focus on and when replacements would be needed,” Boyles explained.

However, historical retirement data didn’t give TVA an accurate picture of upcoming retirement patterns. With full support from the employees and unions, TVA designed a voluntary annual survey in which employees are asked to share their projected retirement plans. About 80 percent of the employees responded, giving TVA a more accurate basis for retirement patterns and restaffing needs. Boyles reported, “Forty-five to 50 percent of our projections are within plus or minus three months of when we thought they were going to occur.”

Recruitment and training programs are pegged to these dates. In addition to ensuring that internal replacements are ready when the retirements occur, TVA’s program saves the company a significant amount of money. “If you recruit too early, you’re going to end up with a larger group of pipeline employees that don’t match attrition projections,” he explained. “If you recruit too late, you may have to supplement your workforce with a more experienced workforce and more contractors. That’s going to cost you.”

Executive development and succession planning

For several critical positions in the nuclear organization, TVA instituted a Key Leadership Development program. This program focuses executives’ attention on high-potential individuals to whom development plans and mentors are assigned. “The focus is on developing successful teams,” Boyles explained. “We’ve been able to fill the majority of our key positions internally–this is another way we can avoid having to do external searches that would be very costly. We can have people ready to ensure continuity of operations, while still producing cost savings for the company.”

Early and visible identification of future leaders is critical to building a robust executive development and succession program. This will protect key positions and ensure a performance-driven workplace that attracts the best and brightest to the organization.

Institutional knowledge retention

Effective knowledge preservation plans have four common principles, illustrated in the accompanying figure. At TVA, the first two are executed in a formal risk assessment that assesses both the timing of the attrition and the position’s criticality. The attrition factor comes directly from the employee surveys, and the criticality factor is assigned by the line organization. Each is assigned a numerical score. These are combined to get an overall risk score; if it exceeds a certain threshold, a plan is executed well in advance to retain essential knowledge.

Click here to enlarge image

The preservation of institutional knowledge ensures that today’s commitment to safe and effective operation will be maintained well into the future. There are many effective techniques for knowledge retention, but Boyles cautioned, “you can’t use a cookie-cutter approach to retaining knowledgeU you have to customize the plan to the individual.” He noted that a standardized knowledge transition plan may specify mentoring or written documentation, but the knowledge expert may not be skilled in or comfortable with the specified type of knowledge transfer. TVA’s program allows managers flexibility in choosing techniques that best fit the needs and skills of the future retiree.

Keys to success

A key to TVA’s success, Boyles believes, is that this wasn’t viewed as simply an HR initiative–it had active support from the highest levels of the organization. “From the very beginning, this was not something we had to go sell to our management team. This was something they were asking for, and having a lot of input.” Another success factor is that TVA tracks the cost savings that accrue from the initiative and reports these figures to management. He believes that “it’s important to show your senior management team that you’re not only preparing your workforce for attrition in the future, but you’re doing it in an economically sensible manner.”

TVA has shown that, while the problems posed by the loss of senior skilled workers are complex, they can be handled successfully under a well-structured, well-executed program. TVA’s experience shows an award-winning implementation of the quantification, understanding, identification, and knowledge elements of the framework. In the next segment in the March issue of EL&P, we will explore the implementation of outreach, recruitment, and training programs that cover Community, Learn-ing, and Youth.

Juliano and Valocchi are consultants with IBM Business Con-sulting Services specializing in the Energy & Utility industry. Juliano may be reached at 240-355-6847 or at john. juliano@us.ibm.com. Valocchi may be reached at 610-578-2577 or at f.Michael. valocchi@us.ibm.com.

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The aging workforce: What can you do about it?

John Juliano & Michael Valocchi, IBM Business Consulting Services

The statement that a wave of retirements over the next decade threatens to seriously impact utility operations within the next five to ten years shouldn’t be a shock to any reader of Electric Light and Power.

As utilities peer into the horizon from year-end 2003, the warning signs are clear.

In June testimony before the U.S. House of Representatives, Angelina Howard, executive vice president of the Nuclear Energy Institute (NEI), said that the nuclear power sector expects to see “the first wave of retirements in the next three to five years,” with a “more significant number of retirements seven to ten years from now.” And these concerns are not unique to this sector; this crisis will hit all parts of the industry, some particularly savagely. In fact, the increase in retirements is already underway, though cutbacks in utility staffing may be temporarily masking its magnitude.

While staffing is currently sufficient to ensure safe and reliable operation of utility assets, the impact of the decline in the experienced workforce is already being felt in some ways, such as the ability to retain valuable institutional knowledge. Robert Paley, manager-work management for PP&L’s Susquehanna plant stated, “Some procedures that were accomplished ‘as written’ for many years by members of the long-term experienced workforce, are now less than adequate when placed in the hands of new operators, mechanics, and electricians. Unwritten skills, knowledge, and techniques were not fully documented in the written procedures. This gap only becomes apparent when a new member of the workforce attempts to follow the procedure.”

Utilities need to prepare now, or face serious long-term difficulties in operating power plants, transmission and distribution lines, and support services. For utilities, skilled workers at all levels of the organization are the “building material”–the “lumber”–for the future (though decreases in supply of these over the past two decades create a dire need to start “planting trees” anywhere from three to ten years in advance). The irreplaceable assets are the knowledge, expertise, and training captured in the minds of today’s workforce.

Some are taking decisive action now, and others will wait to see what pattern the retirements take. Both will ultimately rebuild. But, the former will have retained their irreplaceable assets and secured the timber required to rebuild, and the latter will be having a tough time trying to work with what little remains.

The aggressive stand that the nuclear utilities are taking, marshaled under a series of initiatives NEI has coordinated over the past few years, provides a glimpse of what can–and must–be done in preparation for the retirement boom. As pointed out by Carol Berrigan, coordinator of NEI’s Workforce Issues Task Force, “a lot of the things we’re doing can reach beyond nuclear; so many of our member companies are not just nuclear operators. It’s possible that what we do within this community could be used in other operations.”

This is part one of a three-part series. The next part of this series (Jan./Feb. 2004) will focus on strategies and best practices to effectively prepare for this crisis. Then, the final article in this series (March 2004) will use the results of a survey which is mapping part of the crisis: an NEI Workforce Issues Task Force effort to document the demographics of the existing workforce, the timing of expected retirements in specific areas, and the adequacy of the pipeline for filling the gaps created by the retirements.

Juliano is a consultant with IBM Business Consulting Services specializing in the Energy & Utility industry. He can be reached at john.juliano@us.ibm.com. Valocchi is a partner with IBM Business Consulting Services specializing in the Energy & Utility industry. He can be reached at f.michael.valocchi@us.ibm.com.