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  • 1. 4 Operations WRITTEN BY The Big Shift Change John Juliano and Marietta Lee IBM Business As veteran employees prepare for retirement, it is not too early to begin succession Consulting Services planning to mitigate the loss of critical operational and corporate knowledge. John Juliano is a consultant with the Energy Strategy practice of IBM Business Consulting Services. He has 15 years Let us look at one situation with two very squad arrives, they quickly move to finish the job experience in the utility industry, different endings. Reliable operations, employee of putting out the fire. The damage is done, but it most recently including the safety, and corporate profitability are all at is fairly localized, thanks to Rick’s quick reaction. development of strategies for stake. This is not a dinner theater gimmick, plant operations, maintenance, but rather a way to illustrate a utility industry The Critical Difference engineering workforce optimiza- predicament to which immediate attention must In our scenarios, both Rick and Jim are bright, tion, and generation asset be paid at the highest levels of utility manage- capable individuals who have great pride in and management. He has also ment to avoid serious problems down the line. commitment to their job. Both Rick and Jim have evaluated business por tfolio received the mandated levels of training for their value management strategies for integrated energy companies and Scenario One: Jim Burton job and the proper certifications. The difference is defined key measures to evalu- A fire breaks out in the generator at one of that in Scenario Two, Rick is a 56-year-old veteran ate the effectiveness of strategic your small generating units. Alarms go off in the with more than 25 years’ experience at the plant. initiatives for profitability and control room indicating that a fire is in progress. Plant operations are practically a reflex for him shareholder value improvement. Jim Burton, an operator on duty during that now, and years of exposure to various situations shift, springs to action. He carefully studies the has prepared him well for the fire that broke out. Marietta Lee is a principal consultant with IBM Business control panel for a minute to see if there are In Scenario One, Jim is a 27-year-old opera- Consulting Services. She has any signals lit that would indicate other prob- tor who was brought in to fill Rick’s position 25 years of experience in human lems; there are none. Having recently received when he opted for early retirement, and he had capital management, where she training on control room procedures, he three months of experience when the fire broke has focused on the attraction, consults the emergency procedure manual out. He knew procedurally what to do, but didn’t retention, and motivation of appropriate to the situation. have the instincts to diagnose the situation cor- organizational top-quality man- After a few minutes, Jim has the affected rectly. He looked for lights that would indicate agement across industries and systems shut down and isolated as required. The additional problems, but didn’t realize that the global geographies. fire squad is called and arrives at the scene of a failure of a light to be on was an indication of a spectacular fire. After spending hours extinguish- serious problem. ing the fire and inspecting the damage, the fire Under a great deal of stress and having never squad radios back to the control room that the yet experienced a serious problem at the unit, he fire is out but the unit is a total loss. By the way, made what human reliability experts call an error they ask, why wasn’t the fire suppression system of omission – inadvertently skipping a critical activated before they arrived? step in a written procedure. He had scanned the emergency procedures and saw the instruction Scenario Two: Rick Wise “Check to see if fire suppression system has A fire breaks out in the generator at one of been activated,” and assumed it had been your small generating units. Alarms go off in the because there was no warning light to indicate control room indicating that a fire is in progress. that it had not been activated. Rick Wise, an operator on duty during that shift, In his rush to make the situation safe, he springs to action. He glances at the control pan- failed to read the statement right under that that els with which he has grown so familiar over the clearly said “Indicators 355A and 355B should be years to find, to his dismay, that the lights that lit; otherwise, manually activate fire suppression would indicate that the fire suppression system system using switch directly under indicators.” has come on are not lit. Human reliability experts in the nuclear power He instinctively activates it manually, shuts industry estimate that a novice operator under down the appropriate systems carefully using the high stress is 10 to 50 times more likely to make emergency procedure manual appropriate to the an error of this type. Here, the results were devas- situation, and notifies the fire squad. When the fire tating and costly. This article originally appeared in Leadership in a Shifting Market published by Montgomery Research, Inc., 2003. 134 w w w. U t i l i t i e s P r o j e c t . c o m
  • 2. The Big Shift Change The Big Shift Change for key operational, engineering, and techni- This allows the driver to make the move Right now, many operations, maintenance, cal positions, and as high as 75 percent for forward in the safest, most efficient manner administrative, executive, and finance posi- key management posts. when the opportunity presents itself. Similarly, tions are probably held by people like Rick What’s worse, the well of potential the utility executive will need to put a lot of Wise – sharp functional experts in operations, replacements for these workers is disturbing- focus on the “holes” which will open in the maintenance, finance, accounting, and so on ly dry. Colleges and universities have seen a organization as retirements accelerate. The who have a crystal-clear view of how the world 50 percent decline in the number of graduat- time to do this is now, not once the retire- works in the context of their specific utility. ing engineers over the past 15 years. On ment parties are under way. The most effective But by 2010, people like Jim Burton will prob- top of that, the utility industry is not one to way to do this is to develop a formal succes- ably be the norm within your organization at which young and mid-career technical and sion planning process that looks several years all levels (if you can find these people at all). managerial employees are flocking, in part forward in a structured, strategic way. A massive transfer of plant and job-specific because the industry is not seen as high- Succession planning has been traditionally knowledge out of the industry is slowly but tech nor as rapidly growing as many other defined as a process by which one or more steadily occurring, and it will take years to fields, and also because the utility industry successors are identified for key positions, rebuild that expertise. At the same time, the tends to lag in terms of compensation. with career moves and development carefully pool of technical and engineering talent avail- able to fill critical jobs is quietly shrinking, meaning filling slots opened by retirements is becoming increasingly difficult. These facts Human reliability experts in the nuclear power industry estimate may already be having an impact on safety, reliability, and profitability throughout the that a novice operator under high stress is 10 to 50 times more industry, in any of the following ways: • Increases in the duration of planned out- likely to make an error. ages as the new hires gradually build the expertise and efficiency in their jobs that For example, information from the 2001 planned for these successors. It has tradition- the current workforce possesses. IEEE Salary Survey shows that the median ally been used in the context of positions in • Increased frequencies of forced outages annual income for an engineer in the energy the executive suite, but with the impending and accidents caused by human error as delivery industry is nearly 20 percent less exodus of technical expertise, it will require a highly experienced operators retire, since than the median income for electrical engi- much broader scope of execution across a human error rates would be expected to neers in their area of technical expertise and much broader segment of the workforce. significantly decrease with experience. more than one-third less than the most-highly Some of the elements of the type of • Falling productivity in areas of mainte- compensated engineers. succession planning process necessary to nance or operations that require physical If that scenario is scary enough to make meet today’s urgent needs will include: strength, agility, and durability. As a trans- you consider taking your own company’s early • Well-defined plans for recruiting new mission company executive succinctly retirement plan and getting out before the staff, par ticularly those just star ting points out, “Most 47-year-old linemen situation becomes unmanageable (personally their careers simply can’t perform the same work as exacerbating the flight of expertise out of the • Forecasts of vacancies in the organiza- easily as a 27-year-old one.” Also, when organization), you’re not alone. However, it’s tional structure as senior staff at all older workers get hurt, their work time not too late to begin taking steps to mitigate levels retire lost in recovery is much greater; from the problem and oversee a smooth, safe, and • Identification of successors to current ages 19 to 29, the average days lost is profitable change over the next decade. The staff at all levels 10.4, but the average days lost for those key is to make succession planning an area • Plans for documenting and transferring age 50 to 59 is 47.5, according to of strategic focus over the next several years. the existing knowledge base Stephen G. Minter’s recent report in • Development of formal programs for Occupational Hazards. Watch the Holes identifying, mentoring, and rewarding The problem is particularly acute in areas One of the authors of this paper is a veter- high-potential employees and providing such as transmission and distribution and an of navigating the crowded streets and training and clear development plans for nuclear generation, where highly specialized highways of Boston, where the road signs skills are required, and the statistics and have safety messages like “Death Before demographics highlighting the current situa- Yielding” and “Please Decrease Speed WEBlink tion set off more alarm bells than a generator After Hitting Pedestrians.” This author has, fire. The approximate average age of the work- while driving these streets, explained to Read about restructuring supply chains to reduce costs and improve efficiency in force at nuclear power plants is 47 years old, many a dashboard-gripping passenger that Thomas Tillis’ paper “Standardizing the according to various sources. the key to making progress while driving on Supply Chain After Enterprise Estimates of potential retirements over these roads is to focus more on the holes Reorganization” at the Utilities Project the next five to 10 years in some parts of that develop between the cars than on the Web site: the utility industry are as high as 50 percent cars themselves. w w w. U t i l i t i e s P r o j e c t . c o m 135
  • 3. Operations them and closely tracking their effective- On the technical and professional side • Determine how these future leaders will ness using measurable metrics of the company, college internship pro- be rewarded and on what basis. • Definition of strategic skills needed to grams are often excellent ways to introduce accomplish current operations as well as the young workforce to the utility world. Passing the Torch future initiatives, how they will be kept In a tight job market, internship positions Verifying expertise is retained within the in-house if they are already in place, and will be targeted more and more by practical organization will involve extensive work by how they will be obtained if they are not undergraduates looking to get a leg up on and cooperation among the company’s HR, in place at the levels needed. their peers in the post-graduation job hunt. training, engineering, operations, and mainte- The job of succession planning across the A truly effective internship program targets nance departments. Formal training has long enterprise has often been left to the human undergraduates from competitive education- been a staple of utility HR programs, but for specialized technical, engineering, and man- agement positions, the scope of knowledge needed is too narrow to be met effectively through this means exclusively. In an ideal The leaders of each business unit and the executives at the world, mentor/coach programs would be the answer to this problem. While they can be highest level of the utility must cooperate to formulate a plan to expensive in terms of labor productivity, the strategically attack the “Big Shift Change.” financial and safety benefits are likely to far exceed the initial costs. A technique sometimes used successfully resources department in isolation, but to al environments, excites interns about is to bring retirees back in the specific capac- stave off the impending crisis, HR, the the future of the industr y, and provides ity of mentor to a junior technical specialist leaders of each business unit, and the execu- operational exposure over a broad range or executive. If a traditional mentoring pro- tives at the highest level of the utility must of geographies and functions. With these gram had begun in earnest prior to Rick’s cooperate to formulate a plan to strategically elements in place, a key pipeline for new retirement, the experiential learning that Rick attack the “Big Shift Change.” talent exists. had built over the years could have been A cross-organizational leadership team The craft labor force will have to be rebuilt transferred to Jim. The cost incurred in, for that willingly, openly, and honestly discuss- as well, and working hand-in-hand with unions example, having Jim shadow Rick for a year, es the capabilities and per formance of all to attract new blood is critical to maintaining even at fully loaded pay, would have been a staff and develops a career and succession craft skills. One utility, for example, has fraction of the costs of the consequences of plan for identifiable high-potential individuals worked with its local union to create a pro- Jim’s inexperience. across all segments of the organization, gram in which temporary help can be brought While the type of worst case seen in without regard to functional ownership, will on part time to fill peaks in workload and Scenario One isn’t likely to happen every- ultimately develop a succession plan fully eventually, as they become more experienced, where, it is a near certainty that a mentor/ capable of keeping critical knowledge capi- can actually enter the workforce as journey- coaching program, on average, will pay for tal within the organization and effectively man apprentices. This tactic has already itself over time by increasing technical knowl- documenting it and transferring it across resulted in several new hires into positions edge, decreasing errors and accidents, and the company. vacated by retiring workers. ramping up the learning curve for jobs with Engaging in turf wars over high potential Planning to bring the new workforce into specialized skills. staff, failing to identify the key skills needed the company is the obvious need. However, However, given the very short time until the to meet the organization’s strategic plans, before this next generation of utility employ- retirement of many key staff, parallel efforts or failing to pass knowledge on to the next ees is on board, it will be incumbent on utility should be undertaken to formally document generation could impose huge costs on a management to initiate several actions that any knowledge critical to operations, mainte- company in the long term and even, as we may be less obvious. nance, engineering, or administration. Other have seen above, in the very near term. • Develop training programs that will than in the nuclear sector, where such rigorous facilitate the passing of expertise on documentation is largely mandated, the level The Next Wave from the current generation of employees of critical knowledge that exists only in the In the past 15 years or so, careers with to the next. expertise of certain individuals is astonishing. utilities have not been high-profile targets • Develop other processes to fully docu- Looking forward to upcoming retirements, of large numbers of college students in the ment existing technical knowledge in managers in all of these areas should begin to way that, for example, high tech, biotech, the workforce. get work processes identified and developed. and financial services have. But now that the • Develop processes to identify high The work planning and content manage- dot-com dust has settled and utilities have potential staff and guide them in shaping ment modules of many of today’s enterprise become more competitive, a creative HR their careers. asset management software packages pro- department can position a utility career as • Monitor these programs closely and include vide an ideal place for much of this informa- offering significant opportunities for advance- experiential training for those whose devel- tion. In working with many of our clients, we ment and an exciting career path. opmental needs have been identified. have found, however, that many of the capa- 136 w w w. U t i l i t i e s P r o j e c t . c o m
  • 4. The Big Shift Change bilities of such software that could be used once they have walked in the door. An above-target financial per formance can give to retain existing knowledge are unused, essential part of the “next wave” planning the illusion that conflicting messages are underutilized, or misapplied. With the large process, then, is to commit to a planned and being given to employees in some par ts of investments many companies have in such objective incentive, reward, and recognition the industr y where factors other than information technology systems, a review of program. This program should be character- strict financial per formance control public how effectively they have been used to ized by measurable criteria and achievable, perception (e.g., nuclear plants). capture this knowledge would be a prudent. time-bound goal-setting that pave the way for Legitimately valuable incentive programs meaningful internal promotions. that appear to focus exclusively or too heavily High Potential and Performance The issue of compensation is obviously on financial measures may send poor Widespread implementation of corporate an important one, but geography, competition messages to regulatory bodies, governmental enterprise management systems has also from other key local industries, and competi- organizations, and the public as a whole, made it easier to identify those employees tion from other utilities will play the largest implying that profit is being pursued with with the skills, competencies, capabilities, role in determining overall compensation inappropriate attention to the public good. and interests to take on critical roles. Most of levels required. There is not a lot that can be A well-defined balanced-scorecard approach the major enterprise management software done about the first two. to assessment of staff and organizational packages available to utilities today contain Without a doubt, a draftsman, lineman, or performance is often effective in avoiding this a set of HR modules with functionality that accountant in New York or Los Angeles will trap, as it explicitly shows all stakeholders allows skill-matching database queries of a require a considerably higher salary than one how employees are rewarded for breakthrough centralized employee database. in rural Kansas. The key is to monitor levels of performance in safety and culture as well as Using tools like these, the competencies the third factor across the industry (adjusting financial profitability or operating performance. and capabilities required for the key jobs for local economic realities) and determine that within the organization can be specifically compensation for an employee’s skills com- Long-Term Benefits profiled and the ideal candidate for these pares favorably with similarly skilled employees By integrating succession planning with the roles identified. When a key position becomes at other utilities (particularly nearby ones). other key elements of an organization’s strate- vacant due to a retirement, promotion, or Any effort to be above the median should gic plan, a utility will have the potential to: other reason, the company is easily able to be a conscious one, and this philosophical • Develop effective processes for identify- identify in-house resources that fit the stance should be transparent to the staff and ing future competency requirements for required competencies and capabilities. all internal and external stakeholders. Making strategic positions. However, this is not an off-the-shelf this a well-publicized goal of the company is • Define and use consistent approaches application of information technology. Serious the best way to obtain the intended motiva- for matching existing high potential thought and planning must go into the defini- tional effect of keeping compensation levels employees to key future vacancies. tion of profiles to determine that they are competitively high. • Effectively use in-place information tech- nology resources to allow executives and managers ready access to succession planning information. When a significant percentage of the workforce is getting ready to • Determine whether compensation and career packages offered are sufficient to retire, failure to plan early could spell disaster. attract and retain top talent, and make adjustments if necessary. well-defined, allowing the company to easily Incentive compensation can be another • Put in place consistent processes for find the best individual to fill the vacant tool for motivating employees to work at their identifying competency requirements for position. Database applications must be highest level, but it is a tool that must be all new positions and roles. developed that capture information about an used carefully. If high achievement is not • Make plans for filling intermediate-level employee’s training, education, and career sufficiently differentiated from the average positions from which high-potential goals, and that permit matching of these performance, the motivational need to aug- employees have been promoted over profiles to verify the ability to identify the right ment performance is not clear, and there is a and above the traditional executive-level person, for the right job, at the right time. very real danger of an incentive pay program succession planning process. Now is the time to do this, since once the evolving quickly into a sort of entitlement. When a significant percentage of the need becomes evident, too much time will be In heavily unionized operations, where workforce – and the specialized knowledge required to acquire the information that will group expectations play a huge role, this needed to keep plants and transmission be necessary to achieve this objective. message must be tempered by the realization and distribution lines in operation – is If the activities listed above can be that an employee that is highly motivated may getting ready to retire, failure to plan early successfully accomplished, the welcome mat encounter a hostile environment in trying to could spell disaster. Reliable and safe for the high-potential utility employee of the achieve more if it conflicts with informal work operations, continued profitability, and a future will have been laid. The final piece of group expectations. leadership role in the industr y will be the the preparation is to determine how their Finally, there is the danger that the ultimate payoff for those well-prepared for performance will be measured and rewarded concept of rewarding incentive pay for the Big Shift Change. s w w w. U t i l i t i e s P r o j e c t . c o m 137