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<title>Customer Driven Processes Provide Utilities with Bridge to Deregulation</title>
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<td width="75%" valign="top"><p ALIGN="left"><strong><big><b><big>Customer Driven
Processes Provide Utilities with Bridge to Deregulation</big></b></big><br>
</strong></p>
<p ALIGN="left"><strong><font FACE="Arial">� 1998 by John Feather and Richard Sasdi<br>
<em>Corporate Renaissance, Inc.</em></font></strong><br>
<small>(<em>originally published by PMA OnLine Magazine: 05/98</em>)</small></p>
<font FACE="Arial"><p>The New England utility industries, gas and electric, are currently
scheduled for widespread deregulation in 1998. Whether the marketplace is fully
deregulated by the end of the year, unbundling of utility services and market competition
are unavoidable realities. As local utility companies are required to unbundle their
generating, transmission, and distribution services, they are being forced to make
important strategic decisions. These decisions may help to ensure their survival or
implicate their demise in the "new world" of utility deregulation. Utility
companies that are slow to move may be left behind as more aggressive, innovative
competitors flood the market.</p>
<p>What this means is that utilities must uniquely blend product and service quality into
a blueprint for success in the future. In order to identify new market opportunities,
utilities will now have to understand how to meet customer expectations in order to
survive. </p>
<b><p>Developing a Process Orientation</p>
</b><p>In order to prepare for the future, utility companies should understand that they
can no longer stand pat and expect to remain industry leaders. One of the keys to a
successful transition to a deregulated environment is the acknowledgment that the new
world is fuzzy and uncertain. With this in mind, utilities should take action to position
themselves for quick responses to unexpected changes in the deregulated marketplace.
Utilities may do this by developing core and strategic processes that are flexible enough
to effectively and efficiently handle such unexpected market changes. </p>
<p>For example, through careful analysis of one of its existing strategic processes, a
Massachusetts utility company found that only 3% of its time in a particular area was
being spent on activities which a customer would consider to be value added. The remaining
97% of the time was spent on non-value added activities like moving the work from one
place to another, checking and rechecking it, or fixing numerous failures. None of these
activities provide value from the customer’s perspective nor do they promote getting
the job done right the first time. </p>
<p>The company proceeded to take a hard look at what inefficiencies it could remove from
the process as well as what its customers in the deregulated environment would require of
it. </p>
<p>In the end, the company reinvented the way in which it would deliver value to its
customers. The company designed new processes that focused on providing a broader range of
value added services, all from the customer’s perspective. This was a radical
departure from the traditional environment that focused on providing only basic utility
services in conjunction with government imposed requirements. </p>
<p>The new process was designed with customer expectations in mind. The result was a
20-fold improvement in providing value to the customer. This dramatic improvement places
the new process in a world class status. </p>
<p>But, it is only a beginning. Companies need to continually evaluate and redefine the
processes that will enable them to operate successfully in a competitive environment.
These processes run the gambit, ranging from billing activities, to marketing, to
investment strategies. While this type of regular process evaluation may be more familiar
to companies that are well versed in intense competition, it is a relatively new concept
for utility companies, many of which will be facing competition for the first time. </p>
<b><p>Shift from Good-Old-Utility</p>
</b><p>From a customer’s perspective, the historic utility marketplace has had
limited success fostering competitive growth and innovation. This is not unusual in an
industry that has traditionally been monopolistic, vertically integrated, and heavily
regulated. Geographic boundaries have helped ensure reliable product and service delivery
but, because profitability has been controlled, so to has utilities’ incentive to
develop and offer innovative options to its customers. </p>
<p>In the historic marketplace, customers had no choice as to their utility providers. As
long as the lights and heat went on, they were relatively content to pay their monthly
bill. Because of this environment, it was beneficial for utilities to vertically integrate
themselves so that they could maintain control over the entire chain of product or service
delivery. Regulation ensured that they could recoup the costs associated with their
substantial capital investment base. However, with deregulation, customers will seek out
the greatest value. This implicates issues such as price, product options, reliability,
and customer service. Each customer may be looking for a different package of these
attributes. The companies that are best suited, and flexible enough, to offer these
different packages will prosper. A monopolistic, vertically integrated, and heavily
regulated business mindset is inconsistent with the characteristic of flexibility, an
anticipated mainstay of the new marketplace. </p>
<b><p>Transition of Utilities</p>
</b><p>The future is uncertain. Utility companies, which have long been conditioned to
maintain the status quo, need to be prepared to shift and adapt to the new environment.
Utilities must be prepared to respond to a range of marketplace outcomes, from remaining
the "good old utility" to assuming responsibility as the landlord of the local
"utility shopping mall." In order to respond to future market needs, utilities
need to remain flexible. To remain flexible, their processes must be flexible and
responsive to constantly changing customer requirements. </p>
<p>The way a company does things, its processes, are what drive everything else in the
organization. The companies that are leaders in their industries have processes that match
their particular business strategy. For example, Federal Express’ mission is all
about delivering small packages and letters to and from business centers throughout the
world faster and more reliably than alternate carriers (their motto is, "absolutely,
positively overnight"). It is clear who their customers are and how they are going to
service them.</p>
<p>Processes which work in a monopolistic, vertically integrated, highly regulated
industry are not necessarily transferable to an environment where there are numerous
competitors, horizontal integration, limited regulation, and most importantly: customer
expectations. </p>
<p>Deregulation will radically change the face of the current marketplace. Deregulation
implicates major questions about who will be the utilities’ customers in the new
world, what will those customers want from the utilities, and how can the utilities meet
those customer demands competitively and profitably. Long-standing strategic objectives
need to be revisited and realigned with the shift in the market. Thereafter, the processes
that are needed to support those objectives will have to be redesigned to meet them
effectively.</p>
<b><p>Determining the Correct Approach</p>
</b><p>How do you know if you are providing the right level of value to the customer?
Unfortunately, many companies still take an internal view when attempting to look at the
value they provide to their customers. What is needed is a method that: <ul>
<li>focuses on the right strategic processes; </li>
</ul>
<ul>
<li>takes an external view of value added activities; and,</li>
<li>determines the correct design approach. </li>
</ul>
<p>Companies must first focus on processes that are doing the ‘right things ‘
based on their strategy. Next they must insure that their processes are delivering a high
percentage of value added to the customer. Lastly, they must determine whether a
breakthrough or incremental improvement effort is required to close the gap between
customer requirements and what the process delivers.</p>
<p>Processes have a tendency to evolve and fragment over time and lose touch with
customers. Due to strict regulatory requirements, utilities have not had to be as
concerned with the different types of customers and meeting their requirements. Utility
companies will be faced with this dilemma as they move closer towards deregulation.</p>
<p>What’s needed is an approach that helps to focus on the customer. A proven
approach to help focus on process improvement initiatives and design new processes based
on customer needs.</p>
<p ALIGN="CENTER"><img src="../images/image3.gif" border="0" align="center" WIDTH="490" HEIGHT="108"></p>
<b><p>Discover </b>new opportunities in markets, products, and services and where value<i><b>
</b></i>is created in business processes.</p>
<b><p>Inspire</b> new ways to think about the process utilizing design principles and
process benchmarks.</p>
<b><p>Design </b>innovative core processes that will encourage people to behave
differently.</p>
<b><p>Realize</b> the potential of the organization through rigorous attention to
implementation details, including balanced scorecards.</p>
<i><p>Figure 3</i> illustrates some basic guidelines to follow and the appropriate design
approach required based on the range of value added time to the customer.</p>
</font><div align="center"><center><table BORDER="1" CELLSPACING="2" CELLPADDING="5" WIDTH="382">
<tr>
<td WIDTH="25%" VALIGN="TOP"><font FACE="Arial"><b>Value Added Time</b></font></td>
<td WIDTH="33%" VALIGN="TOP"><font FACE="Arial"><b>Status</b></font></td>
<td WIDTH="42%" VALIGN="TOP"><font FACE="Arial"><b>Design Approach Required</b></font></td>
</tr>
<tr>
<td WIDTH="25%" VALIGN="TOP"><font FACE="Arial">0% - 40%</font></td>
<td WIDTH="33%" VALIGN="TOP"><font FACE="Arial">Low Performing</font></td>
<td WIDTH="42%" VALIGN="TOP"><font FACE="Arial">Radical</font></td>
</tr>
<tr>
<td WIDTH="25%" VALIGN="TOP"><font FACE="Arial">41% - 50%</font></td>
<td WIDTH="33%" VALIGN="TOP"><font FACE="Arial">Average Performing</font></td>
<td WIDTH="42%" VALIGN="TOP"><font FACE="Arial">Radical</font></td>
</tr>
<tr>
<td WIDTH="25%" VALIGN="TOP"><font FACE="Arial">51% - 60%</font></td>
<td WIDTH="33%" VALIGN="TOP"><font FACE="Arial">High performing</font></td>
<td WIDTH="42%" VALIGN="TOP"><font FACE="Arial">Incremental</font></td>
</tr>
<tr>
<td WIDTH="25%" VALIGN="TOP"><font FACE="Arial">> 60%</font></td>
<td WIDTH="33%" VALIGN="TOP"><font FACE="Arial">World Class</font></td>
<td WIDTH="42%" VALIGN="TOP"><font FACE="Arial">Incremental</font></td>
</tr>
</table>
</center></div><font FACE="Arial"><p>For example, if your value added process time is
lower than 40%, a radical overhaul of the process is necessary in order to bring it up to
competitive levels. An incremental approach here will not deliver the expected results and
will only create frustration on future process improvement efforts.</p>
<p>This technique is used to provide a quick method of identifying gaps in meeting
customer requirements, determining what design approach would be most appropriate, and
where to focus the efforts.</p>
<b><p>How to Determine Value-Add to the Customer</p>
</b><p>As with any process improvement effort, the first step is to determine where
opportunities for improvements in performance exist. <ul>
<i><b>
<li>Identify & Select Strategic Processes</b></i></li>
</ul>
<dir>
<p>Three questions need to be asked when trying to determine where to direct process
improvement efforts:<dir>
<p>1). Does the process support the business strategy? </p>
<p>2). Is the process effective? <dir>
<p>3). How significant is the process? (Either in terms of cost, quality, revenue
potential, or perhaps risk to the business.) </p>
</dir>
</dir>
</dir>
<ul>
<b><i>
<li>Measure the Level of Value Delivered to Customer</i></li>
</ul>
<dir>
</b><p>Once the strategically significant process is selected, the next step is to
determine the level of value that is being provided to the customer. Next, a combination
of Business Process Mapping complete with workflow quantification and value analysis needs
to be completed to determine process performance gaps.</p>
</dir>
<b><p>Who will Emerge Victorious?</p>
</b><p>The utility companies who pay attention to the beat of the marketplace and are
truly intent on serving the customer should emerge victorious. This also means that these
companies, in some cases, may need to redefine who the customer is in this new world.</p>
<p>Throughout history it has been proven time and again that successful businesses are
customer focused. Companies in a competitive environment have often lost sight of the
customer and have paid the price over time. Companies like Harley Davidson, General
Motors, and Wang Laboratories have all suffered instances of significant market share loss
due to a lack of customer focus.</p>
<p>Some, such as Harley Davidson, have hit bottom before realizing this lesson and
bouncing back. Today, Harley Davidson is an enormous success story in focusing on the
correct strategic processes and delivering value to the customer. General Motors, although
much stronger, still has not recaptured all the market share that they lost during the
1970s. Wang Laboratories has emerged from near bankruptcy as a totally new company with a
redefined business strategy and a growing customer base.</p>
<p>Within the telecommunications industry, themselves part of massive deregulation,
opportunities have arisen which allow upstarts such as World Com to attempt a buyout of
MCI. Much of this has to do with being focused on a business strategy. That is not enough
however. Delivery systems that excel at providing value added goods and/or services to the
customer must be in place to execute the strategy. There are many lessons that the utility
industry can learn from those that have tried and been successful as well as from those
that have failed. Those that do will be the winners in the new world.<b> </p>
<hr width="98%" color="#FFFF00" size="1">
<p align="center">About the Authors</p>
</b><blockquote>
<p><small>John J. Feather is a partner with Corporate Renaissance Inc., a firm located in
Concord, MA which focuses on business process design and integrating the customer
experience with workflow, technology, and workforce ideas for measurable results in
performance. John has 20 years of experience in the area of business process design and
improvement in various industries such as Utilities, Telecommunications, Insurance, High
Technology, and Financial Services. He has an MBA from New Hampshire College and also
holds a B.S. from the University of Lowell. He may be reached at (978-681-8898) or <a href="mailto:[email protected]">[email protected]</a>.</small></p>
<p><small>Richard Sasdi is a consultant with Corporate Renaissance. Richard has done
significant business process design work in the utility sector, helping prepare companies
for a competitive marketplace. Richard holds an MBA from the F.W. Olin Graduate School of
Business at Babson College. He also holds a Juris Doctorate from the Northeastern
University School of Law and a B.S. from the University of Massachusetts at Amherst. He
may be reached at (617) 965-9819 or <a href="mailto:[email protected]">[email protected]</a>.</small></font></p>
</blockquote>
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