Change will be challenging . . .
Because M&As are inevitable, plant managers need to prepare for them. In Capgemini's view, the management challenges managers will face will test their skill sets, which were entirely suitable for the past but not necessarily so for the future. Among the key issues that plant managers may have to deal with are those that follow.
Asset optimization management (AOM). Merged utilities must create business value and reduce their operating costs by maximizing some plant metrics, such as reliability and availability, while minimizing others, like equivalent forced outage rate and unit heat rate. Fortunately, AOM is compatible with predictive maintenance (PdM), a strategy that many plants have used successfully to anticipate and plan for plant and equipment failures. If integrated with an enterprise asset management and/or an integrated supply chain management (ISCM) system, AOM techniques offer even more opportunities for reducing O&M costs and driving inefficiencies from the plant's operations and supply chain.
Portfolio management. As utilities consolidate, fewer plants will operate independently. At standalone utilities, all O&M decisions are made by the plant manager, engineers, and on-site planners, who typically enjoy considerable freedom—as long as the plant meets its financial targets. Once one utility merges with or is acquired by another, this approach will be shelved; maintenance and run/no-run decisions will be made at the fleet level, on a holistic basis.
Supply chain management. Large retailers like Wal-Mart and Dell have proven that there are tremendous savings to be realized from integrated, rationalized supply chains. To succeed, any new mega-utility will have to integrate its supply chain as tightly as possible.
Optimizing inventory. Does every plant in a fleet need to have on-site replacements for parts that rarely fail or break? Wouldn't it be more cost-effective to store such parts at a central location, rather than scatter them among plant warehouses? ISCM systems will revolutionize the theory and practice of plant inventory management.
Even more "back to basics." Encouraged again by Wall Street, merged utilities will rely even more heavily on business process outsourcing (BPO)—a common practice in other industries—to help meet their financial goals (see box). Front-, mid-, and back-office operations will be scrutinized even more closely for value. Non-core (necessary, but not mission-critical) functions such as billing, customer service, IT operations and support, and human resources will be farmed out to BPO providers. Their state-of-the-art technology platforms and expertise will execute those functions at a lower cost than the utility could.
Workforce management. In most cases, a merger or acquisition makes it even harder for a utility to keep its experienced hands from retiring or moving elsewhere. The exception would be an acquisition by a company with a reputation as a great place to work. Because older employees are inherently more resistant to change, plant managers whose company has merged may find themselves scrambling to make sure that their staff has the size and expertise to keep the plant running. Retraining may help, but the wholesale changes and the emphasis on cost-cutting and plant productivity will make the plant manager's lot an unenviable one.
M&As will definitely require plant managers to change how they do business. The distractions of coping with rapid and fundamental organizational change and uncertainty will make it difficult to keep their plant running at peak form. As leaders, they will also have to address the significant cultural and operational changes impacting their employees and redefining their operation. As if that weren't enough to deal with, plant managers may be asked to produce near-real-time reports using metrics that may be foreign to them but that are vital to decision-making in the new organization.
. . . but rewarding as wellHaving listed that litany of downsides, the authors believe that plant managers who decide to embrace the inevitable (with a minimum of kicking and screaming) can expect a host of rewards. Here are just a few.
A fresh start. Becoming part of a larger company gives employees an opportunity to become excited again about a job or workplace that may have become hamstrung by fiscal constraints and limited investment and opportunity. The new company will reward leaders who step forward and become champions of the new order of business.
New knowledge. New learning opportunities will give plant managers and their staff increased access to best practices and better systems and technologies. In many cases, the new knowledge will be delivered by BPO organizations and hosted service providers, via advanced planning and scheduling applications.
World-class resources. Smaller utilities typically cannot afford the hardware and software that give their larger peers a competitive edge. Becoming part of a larger organization typically gives plant managers access to world-class resources that previously could not be cost-justified on any basis.
Fewer distractions. Because most merger plans call for increased BPO, plant managers can expect responsibility for non-core functions (such as IT system integration) to be taken off their plate. This will allow them to use their core skills and competencies to focus on the job at hand—generating electricity inexpensively, cleanly, and reliably.
Improved reliability. Sophisticated systems and technologies able to track equipment and performance both plantwide and fleetwide in real time—and even to predict failures before they occur—will become standard at large, merged utilities for a positive impact on costs and efficiency. Exemplifying the industry's transition from reactive to predictive maintenance, these centers of excellence will deliver the right information at the right time to all of the utility's decision-makers—including plant managers.
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