Leveraging business acumen for utility success.

• Author: Jennings, Fred

There's a perfect storm brewing. And it's headed our way.

In organizations that are responsible for delivering utility services, the business side of the equation is often overshadowed by the technical and operational components. The reason is simple: customers notice when the lights go out or water stops flowing, but rarely take the time to question the effectiveness of the business behind the utility. That is, until there is a rate increase or some other event that prompts an investigation. For this reason, many utilities can be slow to change and often harbor basic inefficiencies that impede everything from procurement to maintenance to customer service delivery. This is especially true when it comes to ingrained business processes in the organization. As long as the process seems to function and generates some result, the impetus to take on the formidable task of change usually disappears. But today, storm clouds are on the horizon. The need for business acumen, that is, the ability to make smart business judgments, has never been greater than in today's increasingly demanding environment. For example:

* Billions of dollars in stimulus funds appear to be available, but these will require final accountability;

* The industry seems almost frenetic in its drive to create all or some elements of a smart grid;

* Many jurisdictions are mandating initiatives that ultimately will result in dynamic pricing;

* Customers are increasingly vocal in their expectations of their utility to bring robust technologies to their disposal, and

* The broad range of stakeholders are pressuring for rate stability while the utility faces increasing power purchase costs.

It is not surprising that multiple stakeholders are urging utilities of all types and sizes to achieve maximum efficiencies and effectiveness. With huge sums of capital funds being deployed combined with the current focus on transparency in governance, all areas of business decision-making are subject to after-the-fact critique. Electric cooperatives and utility providers across the country are recognizing the need to address the less visible business issues that underlie organizational effectiveness before a critical need for action arises.

Addressing those obscured business issues requires looking for ways to impart business intelligence into the core business attributes. And implementing that intelligence, that sharp-edged business acumen that separates average from exceptional organizations, yields the greatest benefits when it is integrated into processes so as to 1) make a notable difference and improvement, and 2) yield sustainable improvements.

Capital Optimization Meets the Criteria

One particularly applicable opportunity for directing business focus into a process--that is, inculcating business acumen into the organization--is the process for evaluating and deploying capital investment. This is because improvements in capital deployment processes hold great potential to conserve scarce resources at the same time enabling the organization to meet its mission with maximum organizational benefit. Capital resource deployment is crucially important now as utilities cope with competing investment needs for new generation, green-house gas reduction, aging electrical system replacement, smart grid initiatives and new enabling technologies. And some of these investments, like smart grid, reflect strategic decisions that affect future cost efficiency and operational effectiveness for decades to come. Atop all these needs, the American Reinvestment and Recovery Act stimulus package funding will direct $16 billion for energy efficiency and renewable energy projects alone. The pressure to spend funds on both large and small projects together will be unprecedented in the utility industry, and the approach to deploying capital investment against these competing needs requires a strategic focus.

While virtually all utilities employ some...