Better management in a competitive environment.

• Author: Lewis, Tom
• Position: Rural electric cooperatives

Bernie Reznicek, former CEO of Boston Edison and the Omaha Public Power District, identifies six keys for better managing cooperatives in an increasingly competitive environment and his thoughts for understanding and embracing competition in an interview with Tom Lewis. Tom also adds his thoughts to these topics based on his 13 years of teaching for NRECA.

I have been teaching courses for the NRECA for over 13 years. I have served as an instructor in the Management Internship Program [MIP] and in the Advanced Financial and Analysis Program, both conducted in Lincoln, Nebraska. I have also been a speaker at the last six or seven National Accounting and Finance Conferences. Before I began working with the NRECA, I had no experience in the utility industry.

In July of 1994, the Creighton University College of Business hired a new Dean, Bernie Reznicek. Most business deans come from an academic background. Reznicek's background, interestingly enough, was in the electric utility industry.

Prior to becoming Dean at Creighton, Reznicek served from 1987 to 1994 as Chairman, President, and Chief Executive Officer of Boston Edison Company, Boston Edison provides electrical service to Boston and 40 other communities in eastern Massachusetts. The company, which is traded on the New York Stock Exchange, has over 650,000 customers with over $1.6 billion in sales.

Reznicek earlier served from 1981 to 1987 as President and Chief Executive Officer of the Omaha Public Power District [OPPD]. He held several managerial and executive positions during his almost 30 years with the company. OPPD provides electrical service to Omaha and over 50 communities in eastern Nebraska.

Reznicek, who received his undergraduate degree from Creighton University and his MBA degree from the University of Nebraska-Lincoln, serves on the boards of State Street Bank & Trust Co., Guarantee Life Insurance Company, and Stone & Webster, Inc. He has kept active in the utility industry, serving on the Board of Directors of CalEnergy Company, Inc., and on the advisory council of the Electric Power Research Institute in Palo Alto, California.

It seemed silly to me to have such a unique resource as Reznicek working in my college and not trying to "pick his brain"on what he thinks is happening - and is going to happen - in the electric utility industry. This article is the result of several sessions I had with Reznicek where we discussed the electric utility industry. The article is not limited to statements that Reznicek has made to me. I have expanded on some of the things Reznicek has said; and, of course, I have added my own thoughts on certain of the topics.

The article first discusses six keys to better management in a competitive environment and then discusses what is necessary when facing this new, more competitive environment in which generation and transmission companies [G&Ts] and rural electric cooperatives are operating.

SIX KEYS FOR BETTER MANAGEMENT

There is no "secret grail" for effective management. Effective management, whether it is managing the entire organization or managing a small department within the organization, is "an art, not a science." There are six keys, however, that are outlined here that should make everyone within a company do a better job of managing in a new, more competitive environment.

Pay attention to the strategic direction

When Reznicek came to Creighton as Dean, the first thing he did was have the college go through an extensive strategic planning process. Like many managers, Reznicek feels you can't plan for the short run unless you know where you are headed in the long run. Reznicek also placed great emphasis on strategic planning when he served as CEO at Boston Edison and OPPD.

Strategic planning is not a simple process of stating where you would like to be in five to seven years. It involves assessing environmental factors, analyzing the strengths and weaknesses of the organization, setting long-term objectives, then setting short-term goals based on the long-term objectives, and finally setting short-term strategies to achieve the short-term goals.

Reznicek feels that it is in this strategic planning area where a cooperative's board can be very helpful. "It is essential," Reznicek says, "that a board makes certain there is a strategic plan for the organization and an annual plan that supports the strategic plan." Reznicek also feels that the board should have confidence in the cooperative leadership, but monitor it. "A board should stay out of the day-to-day planning and decision making, but monitor what the leadership is doing. If management does not meet expectations, the enterprise could be at risk.

"If the leadership is meeting expectations, the best thing the board can do is deal directly with the CEO to make sure he or she implements that annual plan. The board should do board governance and board oversight, not management and not operations.

Get control of your costs

In the past, cooperatives faced little competition because cooperative members had few places to go for alternative power. "With no competition," Reznicek says, "cost was not an issue. Today, you must understand your costs, get control of them, and then reduce them."

This is where the concepts and tools of activity-based costing [ABC] should be helpful. ABC allows an entity to...