by Kevin McCarty, West Monroe Partners
The U.S. Department of Labor says nearly half of the energy utilities workforce consists of baby boomers. As they will be nearing retirement in the next 10 years, a manpower shortage looms. Forward-thinking energy utilities have the opportunity to plan initiatives now to address this impending problem while separating themselves from sheer tactical competitors. This article offers an overview of critical issues and some possible approaches.
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The aging workforce in the energy utility industry has been well-documented, and the fear of losing skilled labor is serious and real. According to the U.S. Department of Labor, the energy utility industry averages the second-highest average employee age among 54 industries studied. Nearly one-fifth (19.2 percent) of industry workers are within five to seven years of retirement. The most alarming statistic involves age distribution, as illustrated in Figure 1. The average age of an energy utility employee is steadily rising; since 1995, the number of industry workers age 55 and older has increased 225 percent.
How did this happen?
With the threat of new competition at bay, deregulation spurred an industry-wide movement for operations consolidation. Organizations employed cost-reduction tactics such as hiring freezes and downsizing. Efforts to recruit college graduates and entry- to mid-level employees ceased while natural downsizing favored more experienced, longer-tenured employees. In addition, the industry wholly experiences little voluntary turnover. Promotions are frequently made from within, and often years or decades of on-the-job training are invested in each senior employee.
I guess this is goodbye?
The first concern is loss of physical headcount. Average age, average tenure and age-distribution statistics indicate that energy utilities are either not actively recruiting or are not retaining young talent. Public perceptions of an antiquated industry do not aid these efforts. Customers don’t perceive the industry to lead in technological innovation—after all, power is power; it is a commodity; what has changed about it over the years, right? And, issues such as pollution and high or increasing rates almost escalate the perception of employment to the unenviable level of an Internal Revenue Service accountant.
But once a person joins the staff, he or she stays. Promises of frequent promotion potential, great pay and benefits packages entice employees to stay. In 2006, the energy utility industry boasted a median tenure of 10.4 years—the highest average by more than three years among industries analyzed by the U.S. Department of Labor, Bureau of Labor and Statistics.
Longer tenure, however, signifies a higher capacity for industry-specific skill sets and critical intellectual capital that people possess. It is the loss of this technical know-how and critical knowledge that dominates the minds of executives—more than dwindling manpower numbers. In addition to addressing a potential labor shortage, energy utilities must find ways to collect retiring workers’ institutional knowledge before it leaves with them.
Forward-thinking energy utilities have the opportunity to plan initiatives now to address this impending problem, while separating themselves from sheer tactical competitors. Through strategic re-branding efforts and technological investment, energy utilities can obtain, mentor and train the young, technically savvy talent saviors from baby-boomer retirement doom.
If you build it, they will come.
Hiring young talent offers the most potential for addressing this issue. But there is a major barrier: Young workers today have little desire to work for energy utilities.
Young workers view the industry as old, antiquated and hierarchical. They seek vibrant cultures, challenging opportunities with tremendous upward-mobility potential, diverse environments, and cutting-edge ideas and technology usage. Many don’t think they can get this experience at a utility company.
Have you ever seen the show “Extreme Makeover”? Welcome to the “Energy Utility” episode.
The industry must address this image problem by looking in the mirror and changing virtually everything that does not appeal to Millennials, those born between 1980 and 1994. Or, at least, it must change Millennials’ perception of the industry.
The banking industry offers an appropriate role model for this effort. In an industry once known for stodgy, pale-colored interiors and as a career destination for “lifers” who never expected to change jobs and assumed to climb the corporate ladder, pioneering banks took some key steps. They made things fun and lively, promoting diversity, collaboration and career development. They changed everything from the career model to the physical structure to appeal to young talent.
A prime example of creating such an environment is Umpqua Bank’s exceptional growth from a 40-person community bank to a 128-branch entity with a strong presence in the western United States. In his book, “Leading for Growth: How Umpqua Bank Got Cool and Created a Culture of Greatness” (co-written by Alan Shrader), Ray Davis explains how his creative leadership approach facilitated this success, including hiring a cutting-edge design firm to revamp the retail layout and modernize its appeal. Employees were required to answer the phone with a cheery “World’s greatest bank,” which invoked a fair amount of criticism amongst industry counterparts. This gesture, however, was just one small step in the transition to a positive, winning corporate culture. Not liking the conventional methods of training bank tellers, Davis sent his employees to Ritz-Carlton to learn customer service. His appreciation for employees and dedication to change redefined retail banking. While this is an industry-specific example, the premise behind Davis’ approach was to challenge the current thinking, find new ways to motivate employees and, ultimately, attract customers.
Energy utilities will also need to address Millennials’ dedication to preserving the environment. Millennials are passionate about saving the earth. One recent study shows that 78 percent of Millennials think that companies have a responsibility to join them in efforts to better the environment, and nearly 80 percent of Millennials want to work for a company that cares how it contributes to society.
Energy utilities must promote their investments in technologies that preserve the environment, not to mention their efforts to generate more energy through renewable sources. Millennials may at first dismiss the notion of such companies contributing to a greener globe, but they can be convinced. If they want to dedicate themselves to a job where they can contribute to the environment, then they can become utilities team members who build business cases to increase investment in renewable energy sources.
Can’t we all just get along? Bridging the gap.
Once young talent has been recruited, it must be retained and a massive transfer of technical- and industry-specific knowledge must occur before baby boomers retire. Ideologies, preferences, motivations and general attitudes differ greatly between Millennials and baby boomers. Closing this divide is critical to successfully transitioning key information.
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Management must nurture a close-knit interaction between the two groups, and career-hungry Millennials will need to pick the brains of baby boomers. Facilitating a dynamic, new culture will require a serious change management effort.
This change effort must increase the awareness of differences between Millennials and baby boomers, enable each group to appreciate the strengths of the other, and manage the differences effectively. For Millennials, companies may consider redesigning office space to encourage collaboration, assigning projects to groups of employees who are evaluated as a group for reaching a goal, and establishing a mentoring program. At the same time, companies must continue to connect with baby boomers through steps such as emphasizing the importance of respect, facilitating face-to-face conversations and re-teaching the corporate history to all employees.
Millennials are eager to absorb industry knowledge. With a newly created comfort level between the two groups as well as some coaching, they can effectively drill into the business processes and secrets of the baby boomers’ daily operations, thus capturing industry knowledge before the mass retirement movement.
The future is now: technological empowerment.
Once Millennials and baby boomers have closed the gap, the company can extract core and previously undocumented business processes from workers’ minds, then analyze and streamline them to reduce costs and create efficiencies. Tools such as enterprise content-management applications can help preserve intellectual capital, socialize process changes and bring other advantages.
New technologies also back up companies’ commitments to preserve the environment:
- Smart grid consists of a transformed electricity transmission and distribution network that uses two-way, broadband communications, advanced sensors and computers to improve the efficiency, reliability and safety of power delivery and use.
- Advanced metering infrastructure (AMI) is a system to measure, collect and analyze energy usage from advanced devices such as electricity, gas and water meters through various communication media on request or on a predefined schedule. It reduces gas emissions by requiring fewer trucks dispatched to read meters.
- Renewable energy solutions have become popular as concerns rise about the exhaustion of fossil fuels, as well as environmental, social and political risks of extensive use of fossil fuels and nuclear energy. Efforts to extract oil from even deeper reservoirs are increasing and the costs of renewable energy technology have been shown to fall with increased investment and expansion of capacity.
Consolidation with similar organizations also provides a path for addressing aging workforce issues. While it does not offset the need to recruit and retain young talent, consolidation gives companies the opportunity to address the loss of utility-specific labor and intellectual capital by pulling the best parts from multiple entities—lessening the blow of the retirement boom.
In fact, the industry currently is experiencing some consolidation attributable to rising fossil fuel prices and increased competition from deregulation. But every major industry player faces aging workforce issues; even if one company acquires another and doubles its employee base, it is essentially doubling its boomers and potential for mass retirement.
A final option is importing young talent from overseas. If young domestic workers do not want to work in the energy utilities industry, then the only other opportunity to add young talent is through international avenues. Working for a U.S.-based corporation continues to be a very attractive opportunity regardless of industry perception, and advantages exist with lower expected salaries. This strategy, however, presents the same need to “bridge the gap” that exists with Millennials—and combining potential cultural issues with political attitudes in this traditionally conservative industry means the gap could be as wide as the Grand Canyon.
Shut the drain and fill the sink back up.
All signs point to a mass retirement movement within the energy utilities industry, but top-tier organizations can minimize the exodus of industry-specific talent and critical knowledge. Those that maintain a strategic vision to integrate intelligent solutions into their core operational procedures, prepare their people to succeed in a new environment and maximize technology to support the enterprise will be in the best position to face the looming obstacle.
For more on the aging workforce, listen to the new Currents podcast online, Episode 12. Click on the “Currents podcast” button on the homepage: www.elp.com.
Kevin McCarty, cofounder and executive vice president of West Monroe Partners, offers more than 15 years of global business and technology consulting experience across multiple industries. He serves clients as a solutions executive and architect combining strategy, financial, people, process and technology elements to deliver technology-enabled business change. West Monroe Partners helps organizations address cultural changes and prepare workforces to achieve business objectives. For more information, e-mail McCarty at email@example.com.