Operational excellence (OpEx) is a holistic approach to business change that requires small, ongoing modifications capable of producing significant effects. Within power operations, this approach can be used to improve crucial day-to-day procedures, such as shift handover, and address deviations from the norm, for example, market conditions.
It is important to acknowledge that OpEx is applicable to every single person across a power enterprise. OpEx works at its optimum with a well-defined transformation strategy and a shared culture of improvement that, when implemented properly, is clear, concise, practical, actionable, and teachable. In return, achieving sustainable OpEx can yield greater efficiency with reduced costs and increased customer satisfaction for a more competitive business.
While the process sounds straightforward and feasible to implement, due to variations in interpretation and implementation, organizations must work hard to develop a viable and sustainable plan with the appropriate level of execution to achieve it.
Hexagon explores some of the triggers that may spur an organization’s OpEx journey, the role a healthy culture of continuous improvement can play, and what can be done to develop and nurture a sustainable OpEx organization for long-term success, giving special consideration to the cyclical nature of commodity-based industries, including power.
The Key Drivers of OpEx
Reliability and resilience in the power and utilities market are essential for economic stability and growth, and maintaining the normalcy in everyday life.
Due to the significant impacts still resonating from the unprecedented COVID-19 pandemic, such as lock downs, halted travel, and the closure of schools and businesses, interesting changes in electricity demand over the last two years have been evident. Starting in March 2020, shifts in consumer behavior with residential loads increased, partially offsetting steady declines in commercial and industrial demand, according to an Electric Power Research Institute (EPRI) presentation. However, fast forward to the end of 2021, and projections for overall total global demand for power are expected to rise 23% by 2040, as noted by the International Energy Agency.
“The value of electricity resilience has increased as the economy and citizens have become more reliant on it. The COVID-19 pandemic has underlined this value as electricity powers the health response, communication, research, and manufacturing that underpin the global response. It also broadens the resilience challenge, adding secure, remote operation of power systems to the immediate agenda, along with the increasing need for business-quality electric and communication services at homes,” EPRI said.
Bundle this increase in the value of electricity with the projected global rise in energy demand along with the typical business pressures faced by the power and utility market—such as managing costs, decreasing cycle times, reducing waste, and eliminating errors and variances in processes and distribution—and the requirement for OpEx becomes vital to long-term operations survival.
According to the report “The Global State of Operational Excellence: Critical Challenges & Future Trends” by the Business Transformation & Operational Excellence Summit (BTOES), there are three key drivers pushing transformation in operations: customers, competition, and technology.
Customers. Power customers are wide-ranging, from end-users, such as businesses and households, to environmental regulatory bodies, and company stakeholders and investors. These customers all require an uninterrupted delivery of service and/or a transparent relationship with the power operator.
Any experience perceived outside of the customer’s respective expectations can cause a negative reaction. A full understanding of who the customer is, their requirements, expectations, and concerns, is critical. This can be achieved through consistent engagement to provide information that fits within their expectations. As mentioned by PwC, the “customer’s role is shifting in two aspects; they are becoming more active participants on the energy markets through their prosumer role and on the other hand by increasing service level expectations and the way utility companies are iterating with them.”
Without understanding the roles and the non-financial drivers of all stakeholders, power companies will find it hard to develop their resources and workforces to operate their plants in an efficient and competitive way. In addition, with the shift from fossil fuels to renewables, power and utilities organizations are faced with the industrial decarbonization challenge—this industry is moving faster to decarbonize than many other sectors. However, Deloitte suggests they need to understand the material impacts that their decarbonization goals will have on their valuations, operations, employees, and markets.
Competition. As organizations move to meet customer expectations, competition continues to grow as new providers enter the market and emerge alongside incumbent operators to vie for market share and resources. In addition, in a post-COVID-19 and green new world, the global shift to reduce carbon emissions and increase investment in renewables will provide new opportunities.
Power companies that sharpen their focus on environmental, social, and governance (ESG) issues can strengthen their license to operate (LTO) and boost competitive edge in the fight for capital. It is likely that if companies don’t work to change their focus they will be potentially squeezed out of the market. Those determined to move forward, even if starting from square one, will reap the benefits. Today’s amplified competition underlines the importance of OpEx. Unfortunately, lack of strategic vision is one of the most common reasons why OpEx implementations fail.
Technology. If we have learned anything in the last two years from COVID-19, it’s that the disruptive impact caused by it highlighted the benefits of various technologies, such as automation, artificial intelligence (AI), and blockchain, to help ensure business continuity.
“Advancements in digital technology, such as the Internet of Things (IoT), blockchain, digital twins, and AI-enabled energy-management and trading platforms, also promise to boost efficiency and drive costs down across both conventional and renewable energy value chains,” the Deloitte report says.
More than 73% of companies have reported that digitalization—the advancement of Industry 4.0 technologies such as the Industrial Internet of Things (IIoT), smart sensors, digital twins and threads, machine learning, AI, and cloud solutions—is accelerating their ability to deliver sustainable OpEx. The ability to harness “Big Data,” and connect previously siloed information, allows organizations to make better and more timely decisions along the value chain.
The decreasing cost of implementing applications, hardware, and cloud computing has encouraged organizations of all sizes to move away from costly, manually intensive, risk-laden, and non-digital processes, and instead, to boldly and rapidly embrace digital initiatives, such as digital twin technologies, connected worker solutions, cloud computing, and automation. By seizing this opportunity, companies are realizing the benefits and return on investment in digitalizing operations to remain competitive, lower operational risk, reduce downtime, improve safety, increase worker productivity, and facilitate compliance with important regulatory requirements.
A Culture of Continuous Improvement
To reap the greatest rewards, it’s essential that the key drivers of OpEx are supported across the organization. The most vital component of any OpEx program is building a culture of continuous improvement—doing the right thing, the right way, every time—from top to bottom within an organization.
According to Jeffrey K. Liker in The Toyota Way: “More important than the actual improvements that individuals contribute, the true value of continuous improvement is in creating an atmosphere of continuous learning and an environment that not only accepts, but actually embraces change. Such an environment can only be created where there is respect for people.”
The role of management here—and arguably its sole purpose—is to engage personnel to work as a team. To achieve the company’s common OpEx goals, management must clearly articulate what the goals are, why they are important, and how the organization will get there.
Ultimately, OpEx is not simply about reducing costs or increasing productivity in the workplace. It is about creating a company culture that allows you to produce valuable goods and services for customers and to support long-term sustainable growth; a people-first culture, where an individual who faces an issue can identify the problem and is then empowered to act to confidently resolve the issue at hand without fear of reprimand.
Changing mindsets throughout the company is usually the first and most difficult challenge encountered by those attempting to drive forward OpEx strategies. According to a BTOES survey, 40% of companies stated that they had an enterprise-wide OpEx program. However, 53.1% of respondents named changing and improving company culture as their top critical OpEx challenge.
Some of the main difficulties faced by those implementing improvement programs have also been outlined in the BTOES survey, illustrating where the most prominent obstacles are encountered on the road to OpEx.
Lack of leadership understanding and buy-in was the biggest threat for many. Without this buy-in, there is an absence of role models, budget, resources, and long-term commitment to the OpEx program.
For others, sustaining the improvements made through OpEx was another key factor, with many organizations tending to move on to the next challenge once they felt an improvement had been successfully implemented, despite the lack of a plan to sustain it.
In the report, a third of the companies felt they faced major difficulties in driving an end-to-end business transformation, even though they knew the failure to do this would lead to sub-optimal results. Therefore, achieving buy-in across every level of the organization is essential to achieve OpEx. According to a Gallup 2013 survey, companies with highly engaged workforces outperform their competitors by 147%.
OpEx is also closely linked with increased digitalization. Only by achieving the greater level of data insight that digitalization provides can companies make better, more informed decisions and implement them quickly. Thus, allowing organizations to rapidly identify the vital yet small improvements that will make a big difference to performance, and build confidence in the program across the company.
Achieving OpEx requires a conscious decision to embark on a continuous journey of improvement that involves every aspect of an organization. However, this process does not come without challenges. Some of the common obstacles encountered are:
- Detachment. People are often not connected enough to the broader business needs. It is common for employees to not understand the business strategy or see how their role contributes to customer value.
- Lack of Progress. People may be working very hard, but are tasks underway that are moving the needle on growing the business? Do leaders make room for growth-related activities?
- Lack of Adaptation Appetite. Organizations need to be able to adapt their infrastructure to change quickly and efficiently. Many organizations don’t change courses in time to keep up with their competition.
- Overly Complex Data. More data is better, but only up to a point. When data becomes too complex and difficult to understand, people begin making decisions without it.
- Siloed Management. Systemic thinking is a principle of OpEx, but unfortunately, it is somewhat rare. Many organizations don’t have a management plan in place to bridge the gaps between processes and functional areas.
These are the issues that can deter staff and management from fully buying into OpEx. To overcome them, many organizations use a business methodology such as lean manufacturing, Six Sigma, kaizen, or total quality management (TQM).
Whether or not an organization chooses one of these models or develops its own, OpEx can be achieved when the principles become part of an organization’s DNA.
Demonstrating small improvements will also engage people throughout the organization and help them to understand the value of the cultural changes required.
In the second article of this two-part series, we will highlight the milestones on the road to OpEx, the role of leadership and change champions, and mechanisms you can use in your power operations for sustained and continuous improvement.
—Bob Hooper and Peter Wilson are senior industry consultants with Hexagon, a global leader in digital reality solutions, combining sensor, software, and autonomous technologies.