The Big Shift Change

Let us look at one situation with two very different endings. Reliable operations,
employee safety, and corporate profitability are all at stake. This is not a dinner
theater gimmick, but rather a way to illustrate a utility industry predicament
to which immediate attention must be paid at the highest levels of utility management
to avoid serious problems down the line.

Scenario One: Jim Burton

A fire breaks out in the generator at one of your small generating units. Alarms
go off in the control room indicating that a fire is in progress. Jim Burton,
an operator on duty during that shift, springs to action. He carefully studies
the control panel for a minute to see if there are any signals lit that would
indicate other problems; there are none. Having recently received training on
control room procedures, he consults the emergency procedure manual appropriate
to the situation.

After a few minutes, Jim has the affected systems shut down and isolated as
required. The fire squad is called and arrives at the scene of a spectacular
fire. After spending hours extinguishing the fire and inspecting the damage,
the fire squad radios back to the control room that the fire is out but the
unit is a total loss. By the way, they ask, why wasn’t the fire suppression
system activated before they arrived?

Scenario Two: Rick Wise

A fire breaks out in the generator at one of your small generating units. Alarms
go off in the control room indicating that a fire is in progress. Rick Wise,
an operator on duty during that shift, springs to action. He glances at the
control panels with which he has grown so familiar over the years to find, to
his dismay, that the lights that would indicate that the fire suppression system
has come on are not lit.

He instinctively activates it manually, shuts down the appropriate systems
carefully using the emergency procedure manual appropriate to the situation,
and notifies the fire squad. When the fire squad arrives, they quickly move
to finish the job of putting out the fire. The damage is done, but it is fairly
localized, thanks to Rick’s quick reaction.

The Critical Difference

In our scenarios, both Rick and Jim are bright, capable individuals who have
great pride in and commitment to their job. Both Rick and Jim have received
the mandated levels of training for their job and the proper certifications.
The difference is that in Scenario Two, Rick is a 56-year-old veteran with more
than 25 years’ experience at the plant. Plant operations are practically a reflex
for him now, and years of exposure to various situations has prepared him well
for the fire that broke out.

In Scenario One, Jim is a 27-year-old operator who was brought in to fill Rick’s
position when he opted for early retirement, and he had three months of experience
when the fire broke out. He knew procedurally what to do, but didn’t have the
instincts to diagnose the situation correctly. He looked for lights that would
indicate additional problems, but didn’t realize that the failure of a light
to be on was an indication of a serious problem.

Under a great deal of stress and having never yet experienced a serious problem
at the unit, he made what human reliability experts call an error of omission
— inadvertently skipping a critical step in a written procedure. He had
scanned the emergency procedures and saw the instruction “Check to see if fire
suppression system has been activated,” and assumed it had been because there
was no warning light to indicate that it had not been activated.

In his rush to make the situation safe, he failed to read the statement right
under that that clearly said “Indicators 355A and 355B should be lit; otherwise,
manually activate fire suppression system using switch directly under indicators.”
Human reliability experts in the nuclear power industry estimate that a novice
operator under high stress is 10 to 50 times more likely to make an error of
this type. Here, the results were devastating and costly.

The Big Shift Change

Right now, many operations, maintenance, administrative, executive, and finance
positions are probably held by people like Rick Wise — sharp functional
experts in operations, maintenance, finance, accounting, and so on who have
a crystal-clear view of how the world works in the context of their specific
utility. But by 2010, people like Jim Burton will probably be the norm within
your organization at all levels (if you can find these people at all).

A massive transfer of plant and job-specific knowledge out of the industry
is slowly but steadily occurring, and it will take years to rebuild that expertise.
At the same time, the pool of technical and engineering talent available to
fill critical jobs is quietly shrinking, meaning filling slots opened by retirements
is becoming increasingly difficult. These facts may already be having an impact
on safety, reliability, and profitability throughout the industry, in any of
the following ways:

• Increases in the duration of planned outages as the new hires gradually
build the expertise and efficiency in their jobs that the current workforce
possesses.

• Increased frequencies of forced outages and accidents caused by human
error as highly experienced operators retire, since human error rates would
be expected to significantly decrease with experience.

• Falling productivity in areas of maintenance or operations that require
physical strength, agility, and durability. As a transmission company executive
succinctly points out, “Most 47-year-old linemen simply can’t perform the same
work as easily as a 27-year-old one.” Also, when older workers get hurt, their
work time lost in recovery is much greater; from ages 19 to 29, the average
days lost is 10.4, but the average days lost for those age 50 to 59 is 47.5,
according to Stephen G. Minter’s recent report in Occupational Hazards.

The problem is particularly acute in areas such as transmission and distribution
and nuclear generation, where highly specialized skills are required, and the
statistics and demographics highlighting the current situation set off more
alarm bells than a generator fire. The approximate average age of the workforce
at nuclear power plants is 47 years old, according to various sources.

Estimates of potential retirements over the next five to 10 years in some parts
of the utility industry are as high as 50 percent for key operational, engineering,
and technical positions, and as high as 75 percent for key management posts.

What’s worse, the well of potential replacements for these workers is disturbingly
dry. Colleges and universities have seen a 50 percent decline in the number
of graduating engineers over the past 15 years. On top of that, the utility
industry is not one to which young and mid-career technical and managerial employees
are flocking, in part because the industry is not seen as high-tech nor as rapidly
growing as many other fields, and also because the utility industry tends to
lag in terms of compensation.

For example, information from the 2001 IEEE Salary Survey shows that the median
annual income for an engineer in the energy delivery industry is nearly 20 percent
less than the median income for electrical engineers in their area of technical
expertise and more than one-third less than the most-highly compensated engineers.

If that scenario is scary enough to make you consider taking your own company’s
early retirement plan and getting out before the situation becomes unmanageable
(personally exacerbating the flight of expertise out of the organization), you’re
not alone. However, it’s not too late to begin taking steps to mitigate the
problem and oversee a smooth, safe, and profitable change over the next decade.
The key is to make succession planning an area of strategic focus over the next
several years.

Watch the Holes

One of the authors of this paper is a veteran of navigating the crowded streets
and highways of Boston, where the road signs have safety messages like “Death
Before Yielding” and “Please Decrease Speed After Hitting Pedestrians.” This
author has, while driving these streets, explained to many a dashboard-gripping
passenger that the key to making progress while driving on these roads is to
focus more on the holes that develop between the cars than on the cars themselves.

This allows the driver to make the move forward in the safest, most efficient
manner when the opportunity presents itself. Similarly, the utility executive
will need to put a lot of focus on the “holes” which will open in the organization
as retirements accelerate. The time to do this is now, not once the retirement
parties are under way. The most effective way to do this is to develop a formal
succession planning process that looks several years forward in a structured,
strategic way.

Succession planning has been traditionally defined as a process by which one
or more successors are identified for key positions, with career moves and development
carefully planned for these successors. It has traditionally been used in the
context of positions in the executive suite, but with the impending exodus of
technical expertise, it will require a much broader scope of execution across
a much broader segment of the workforce.

Some of the elements of the type of succession planning process necessary to
meet today’s urgent needs will include:

• Well-defined plans for recruiting new staff, particularly those just
starting their careers
• Forecasts of vacancies in the organizational structure as senior staff
at all levels retire
• Identification of successors to current staff at all levels
• Plans for documenting and transferring the existing knowledge base
• Development of formal programs for identifying, mentoring, and rewarding
high-potential employees and providing training and clear development plans
for them and closely tracking their effectiveness using measurable metrics
• Definition of strategic skills needed to accomplish current operations
as well as future initiatives, how they will be kept in-house if they are already
in place, and how they will be obtained if they are not in place at the levels
needed.

The job of succession planning across the enterprise has often been left to
the human resources department in isolation, but to stave off the impending
crisis, HR, the leaders of each business unit, and the executives at the highest
level of the utility must cooperate to formulate a plan to strategically attack
the “Big Shift Change.”

A cross-organizational leadership team that willingly, openly, and honestly
discusses the capabilities and performance of all staff and develops a career
and succession plan for identifiable high-potential individuals across all segments
of the organization, without regard to functional ownership, will ultimately
develop a succession plan fully capable of keeping critical knowledge capital
within the organization and effectively documenting it and transferring it across
the company.

Engaging in turf wars over high potential staff, failing to identify the key
skills needed to meet the organization’s strategic plans, or failing to pass
knowledge on to the next generation could impose huge costs on a company in
the long term and even, as we have seen above, in the very near term.

The Next Wave

In the past 15 years or so, careers with utilities have not been high-profile
targets of large numbers of college students in the way that, for example, high
tech, biotech, and financial services have. But now that the dot-com dust has
settled and utilities have become more competitive, a creative HR department
can position a utility career as offering significant opportunities for advancement
and an exciting career path.

On the technical and professional side of the company, college internship programs
are often excellent ways to introduce the young workforce to the utility world.
In a tight job market, internship positions will be targeted more and more by
practical undergraduates looking to get a leg up on their peers in the post-graduation
job hunt. A truly effective internship program targets undergraduates from competitive
educational environments, excites interns about the future of the industry,
and provides operational exposure over a broad range of geographies and functions.
With these elements in place, a key pipeline for new talent exists.

The craft labor force will have to be rebuilt as well, and working hand-in-hand
with unions to attract new blood is critical to maintaining craft skills. One
utility, for example, has worked with its local union to create a program in
which temporary help can be brought on part time to fill peaks in workload and
eventually, as they become more experienced, can actually enter the workforce
as journeyman apprentices. This tactic has already resulted in several new hires
into positions vacated by retiring workers.

Planning to bring the new workforce into the company is the obvious need. However,
before this next generation of utility employees is on board, it will be incumbent
on utility management to initiate several actions that may be less obvious.

• Develop training programs that will facilitate the passing of expertise
on from the current generation of employees to the next.
• Develop other processes to fully document existing technical knowledge
in the workforce.
• Develop processes to identify high potential staff and guide them in
shaping their careers.
• Monitor these programs closely and include experiential training for
those whose developmental needs have been identified.
• Determine how these future leaders will be rewarded and on what basis.

Passing the Torch

Verifying expertise is retained within the organization will involve extensive
work by and cooperation among the company’s HR, training, engineering, operations,
and maintenance departments. Formal training has long been a staple of utility
HR programs, but for specialized technical, engineering, and management positions,
the scope of knowledge needed is too narrow to be met effectively through this
means exclusively. In an ideal world, mentor/coach programs would be the answer
to this problem. While they can be expensive in terms of labor productivity,
the financial and safety benefits are likely to far exceed the initial costs.

A technique sometimes used successfully is to bring retirees back in the specific
capacity of mentor to a junior technical specialist or executive. If a traditional
mentoring program had begun in earnest prior to Rick’s retirement, the experiential
learning that Rick had built over the years could have been transferred to Jim.
The cost incurred in, for example, having Jim shadow Rick for a year, even at
fully loaded pay, would have been a fraction of the costs of the consequences
of Jim’s inexperience.

While the type of worst case seen in Scenario One isn’t likely to happen everywhere,
it is a near certainty that a mentor/ coaching program, on average, will pay
for itself over time by increasing technical knowledge, decreasing errors and
accidents, and ramping up the learning curve for jobs with specialized skills.

However, given the very short time until the retirement of many key staff,
parallel efforts should be undertaken to formally document any knowledge critical
to operations, maintenance, engineering, or administration. Other than in the
nuclear sector, where such rigorous documentation is largely mandated, the level
of critical knowledge that exists only in the expertise of certain individuals
is astonishing. Looking forward to upcoming retirements, managers in all of
these areas should begin to get work processes identified and developed.

The work planning and content management modules of many of today’s enterprise
asset management software packages provide an ideal place for much of this information.
In working with many of our clients, we have found, however, that many of the
capabilities of such software that could be used to retain existing knowledge
are unused, underutilized, or misapplied. With the large investments many companies
have in such information technology systems, a review of how effectively they
have been used to capture this knowledge would be a prudent.

High Potential and Performance

Widespread implementation of corporate enterprise management systems has also
made it easier to identify those employees with the skills, competencies, capabilities,
and interests to take on critical roles. Most of the major enterprise management
software packages available to utilities today contain a set of HR modules with
functionality that allows skill-matching database queries of a centralized employee
database.

Using tools like these, the competencies and capabilities required for the
key jobs within the organization can be specifically profiled and the ideal
candidate for these roles identified. When a key position becomes vacant due
to a retirement, promotion, or other reason, the company is easily able to identify
in-house resources that fit the required competencies and capabilities.

However, this is not an off-the-shelf application of information technology.
Serious thought and planning must go into the definition of profiles to determine
that they are well-defined, allowing the company to easily find the best individual
to fill the vacant position. Database applications must be developed that capture
information about an employee’s training, education, and career goals, and that
permit matching of these profiles to verify the ability to identify the right
person, for the right job, at the right time. Now is the time to do this, since
once the need becomes evident, too much time will be required to acquire the
information that will be necessary to achieve this objective.

If the activities listed above can be successfully accomplished, the welcome
mat for the high-potential utility employee of the future will have been laid.
The final piece of the preparation is to determine how their performance will
be measured and rewarded once they have walked in the door. An essential part
of the “next wave” planning process, then, is to commit to a planned and objective
incentive, reward, and recognition program. This program should be characterized
by measurable criteria and achievable, time-bound goal-setting that pave the
way for meaningful internal promotions.

The issue of compensation is obviously an important one, but geography, competition
from other key local industries, and competition from other utilities will play
the largest role in determining overall compensation levels required. There
is not a lot that can be done about the first two.

Without a doubt, a draftsman, lineman, or accountant in New York or Los Angeles
will require a considerably higher salary than one in rural Kansas. The key
is to monitor levels of the third factor across the industry (adjusting for
local economic realities) and determine that compensation for an employee’s
skills compares favorably with similarly skilled employees at other utilities
(particularly nearby ones).

Any effort to be above the median should be a conscious one, and this philosophical
stance should be transparent to the staff and all internal and external stakeholders.
Making this a well-publicized goal of the company is the best way to obtain
the intended motivational effect of keeping compensation levels competitively
high.

Incentive compensation can be another tool for motivating employees to work
at their highest level, but it is a tool that must be used carefully. If high
achievement is not sufficiently differentiated from the average performance,
the motivational need to augment performance is not clear, and there is a very
real danger of an incentive pay program evolving quickly into a sort of entitlement.

In heavily unionized operations, where group expectations play a huge role,
this message must be tempered by the realization that an employee that is highly
motivated may encounter a hostile environment in trying to achieve more if it
conflicts with informal work group expectations.

Finally, there is the danger that the concept of rewarding incentive pay for
above-target financial performance can give the illusion that conflicting messages
are being given to employees in some parts of the industry where factors other
than strict financial performance control public perception (e.g., nuclear plants).

Legitimately valuable incentive programs that appear to focus exclusively or
too heavily on financial measures may send poor messages to regulatory bodies,
governmental organizations, and the public as a whole, implying that profit
is being pursued with inappropriate attention to the public good. A well-defined
balanced-scorecard approach to assessment of staff and organizational performance
is often effective in avoiding this trap, as it explicitly shows all stakeholders
how employees are rewarded for breakthrough performance in safety and culture
as well as financial profitability or operating performance.

Long-Term Benefits

By integrating succession planning with the other key elements of an organization’s
strategic plan, a utility will have the potential to:

• Develop effective processes for identifying future competency requirements
for strategic positions.
• Define and use consistent approaches for matching existing high potential
employees to key future vacancies.
• Effectively use in-place information technology resources to allow executives
and managers ready access to succession planning information.
• Determine whether compensation and career packages offered are sufficient
to attract and retain top talent, and make adjustments if necessary.
• Put in place consistent processes for identifying competency requirements
for all new positions and roles.
• Make plans for filling intermediate-level positions from which high-potential
employees have been promoted over and above the traditional executive-level
succession planning process.

When a significant percentage of the workforce — and the specialized knowledge
needed to keep plants and transmission and distribution lines in operation —
is getting ready to retire, failure to plan early could spell disaster. Reliable
and safe operations, continued profitability, and a leadership role in the industry
will be the ultimate payoff for those well-prepared for the Big Shift Change.