Improving Productivity

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Information about Improving Productivity

Published on February 18, 2014

Author: scottmadden



Electric and gas companies continue to be faced with: attrition or slow growth, at best, volatile commodity prices, uncertain demand, shrinking margins, and continued competition from evolving technologies. This report examines the tools and techniques used to improve and manage productivity.

Improving Productivity “Focusing the organization’s resources on the right things and doing those things the right way” February 2014 Copyright © 2014 by ScottMadden, Inc. All rights reserved.

Introduction  Electric and gas companies continue to be faced with:  Attrition or slow growth, at best  Volatile commodity prices  Uncertain demand  Shrinking margins  Continued competition from evolving technologies  Addressing these issues can be challenging, particularly for companies with a traditional utility mindset and investments often steeped in the legacy of a 100+ year-old company  Taking a fresh look at what you do, and how you do it, is good for shareholders, customers, and employees  Shareholders benefit from improved operating efficiencies and a more competitive cost structure  Customers benefit from improved customer service and lower (or more slowly increasing) rates  Employees benefit from additional opportunities and improved tools and by becoming more engaged in a new culture where continuous improvement is the objective and it is okay to try new things and change  Companies tackling these issues from a productivity improvement perspective, i.e., getting more out of existing company resources, have seen immediate, significant, and sustained results in three areas—financial performance, customer service, and employee engagement 1 Copyright © 2014 by ScottMadden, Inc. All rights reserved.

Example Productivity Inputs and Outputs Productivity is defined as the output of a process per unit of input: Output Examples  Accomplishment or duration of a task, activity, or job  Number of units produced, e.g., MWh  Volume of output, e.g., invoices processed  Financial value of output  Number of customers served  Number of jobs completed Productivity = Output Input 2 Copyright © 2014 by ScottMadden, Inc. All rights reserved. Labor staff required or man-hours, man-days  Labor cost  Material weight, length, or cost  Volume of material used  Area of land or facilities space  Time  Input Examples  Unit of energy consumed

Methods for Improving Productivity Productivity improvements increase the amount of output for a given set of inputs used, i.e., getting more for the same or less input. Productivity Improvement Method Change in Input Change in Output Example Increase output while input remains the same Modifying or upgrading a plant’s control system to improve heat rate Decrease input while output remains the same Automating the accounts payable process Increase input resulting in a very large increase in output Investing in regional transmission infrastructure to secure additional alternatives for off-system sales Decrease input by a very large amount with a resultant small reduction in output Restacking and consolidation of facilities/real estate 3 Copyright © 2014 by ScottMadden, Inc. All rights reserved.

“It’s Not Just About Cost Reduction” Productivity improvements can be made to all resources available to an organization. People and Labor Materials  Use appropriate and/or better process and communication tools, systems, and applications  Utilize less-expensive and/or alternative materials  Streamline and standardize work processes, procedures, and policies  Utilize less-expensive sources  Improve working conditions, e.g., lighting, ventilation, work station/office layout, etc.  Improve material utilization  Match material specifications to job requirements Plant and Equipment  Optimize and standardize maintenance processes, procedures, and policies Other Capital  Reduce working capital  Upgrade/modify existing equipment  Restack and consolidate real estate  Reduce and/or improve floor or workspace  Enhance and improve compensation, reward, and recognition programs  Enhance and improve training and development programs  Optimize recruiting and on-boarding processes Productivity improvement is about focusing the organization’s resources on the right things and doing those things the right way. 4 Copyright © 2014 by ScottMadden, Inc. All rights reserved. Energy  Implement/install energy efficiency programs and equipment  Reduce or minimize waste

Free up Resources for Other Critical Initiatives Illustrative Organization’s Resources Augment with contractors or overtime Strategic or Other Special Initiatives Underway Productivity Improvements Organization Core Activities Resource Utilization prior to Productivity Improvements 5 Copyright © 2014 by ScottMadden, Inc. All rights reserved. Productivity improvements reduce the organizations core activity workload requirements, i.e., “they remove work” Initiative Backlog Strategic or Other Special Initiatives Underway Capacity Available Resources Strategic or Other Special Initiatives Underway Organization Core Activities Organization Core Activities Resource Utilization after Productivity Improvements Required Resource Utilization Absorb with existing resources or reduce resources if no backlog

Change Management Considerations  With productivity improvement comes change, i.e., the way people perform their day-to-day jobs  Change management is a critical component for developing, implementing, and sustaining productivity improvements  A successful change initiative begins with clarity about goals, objectives, and rationale, i.e., Why are we doing this? And what are we trying to achieve?  Productivity improvements should be linked to the organization’s strategy and business plans so that they become the new normal  The approach must be balanced to address hard and soft components, e.g., initiatives/plans/accountabilities versus cultural change  Leadership commitment and role clarity (sponsors, stakeholders, etc.) are essential for achieving the desired change  Employee engagement and involvement are critical for building grassroots support and sustaining changes  A comprehensive communication plan is necessary to help build buy-in and strengthen grassroots support 6 Copyright © 2014 by ScottMadden, Inc. All rights reserved.

Lessons Learned  Ensure commitment to productivity improvement starts at the top; this will bear fruit  Corporate executive participation and strong, visible support (there should never be any question about how important this is)  Appropriate resource allocation: a lot of people, cross-level and cross-function, the best and brightest, significant time  Start broad by soliciting ideas for improvement from across the company—all ideas are fair game—then narrow focus to a fixed list in a number of defined areas  Big enough for business impact, not so big to be unmanageable  Provide focus by assigning each group one area for review  Choose an ambitious number of projects (“10”) so that enough people are involved to catalyze cultural change  Communicate early and often  Initial kickoff meeting with all participants  Formal communication plan, including recurring updates  Choose skilled project lead(s) who will be engaged and passionate about the project; dedicate full time  Create teams that have strong players, but maintain a balance between detailed analysis, subject matter expertise, and global perspective; involve both those in the process/function and those who are outside it to create practicality and perspective  Develop an overarching plan, but maintain flexibility to modify the plan subject to business needs  Create and use templates to ensure consistency in analytics and presentations 7 Copyright © 2014 by ScottMadden, Inc. All rights reserved.

How ScottMadden Can Help There are myriad tools and techniques used by leading practice companies to improve and manage productivity. Work Management  Graphical process map (electronic or paper) Sourcing Management Organizational Management Performance Management  Pre-work meetings and war rooms  Engineered standards  Cost to manage  Strategic framework  Strategy and execution team  Management ratio  Competency matrix  Work management/ scheduling system  Governance council  Complexity analysis  Published scorecard or road map  Risk analysis  Layers analysis and diagnostic  Comprehensive business case  Long-term contracts and alliances  Performance incentives (financial/non-financial)  Benchmarking  Performance metrics and dashboards  Gap-based business planning and root cause analysis  Visual aids  Strategic continuous improvement teams and processes  Tactical “work out” teams ScottMadden has experience assisting its clients with these tools and techniques. 8 Copyright © 2014 by ScottMadden, Inc. All rights reserved.

Proven Client Results Client 1 Client 2  A leading utility utilized our Business Process Improvement (BPI) process to improve productivity  Annual operating income/employee improved from $48K to $84K  The fact that this figure continues to increase is a testament to the environment of continuous productivity improvement that has been ingrained in the company Operating Income/Employees ($000s) $100 $84 $80 $60 $60 $59 $64 $73  Another leading utility utilized the BPI process to make productivity improvements with direct impacts to customer service, operating efficiency, and culture Customer Service Operating Efficiency Culture $48 $40 $20 $0 2003 2004 2005 2006 2007 2008  Key accomplishments included improved customer care, shortening the read-to-bill cycle, improved strategic sourcing performance, and improved workflow and response times via GPS technology Project Launch “BPI was a springboard for our future…there is no way (culturally, teamwork, open and honest communication, etc.) that we would be where we are today without it.” – BPI Team Member; April 1, 2008 BPI Reunion Luncheon 9 Copyright © 2014 by ScottMadden, Inc. All rights reserved. “Our focus on continuous improvement at the utility is the catalyst that drove improved operational efficiency throughout the year.” – Chairman, President and Chief Executive Officer; October 29, 2010

Contact Us For more information on organizing to improve productivity, please contact us. Dan Kohut Director ScottMadden, Inc. 3495 Piedmont Road Building 10, Suite 805 Atlanta, GA 30305 O: 404-814-0020 M: 214-663-1654 10 Copyright © 2014 by ScottMadden, Inc. All rights reserved.

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