Academic journal article Management Quarterly

The Improvement Imperative: Benchmarks Can Help Utilities Enhance Operational Efficiency

Academic journal article Management Quarterly

The Improvement Imperative: Benchmarks Can Help Utilities Enhance Operational Efficiency

Article excerpt

A white paper from Compass and UtiliPoint International, Inc.

Most utilities and energy companies are not operating as efficiently as possible. Facing extraordinary pressure to optimize operational efficiency, reduce costs, and demonstrate transparency in management practices, utilities are turning to benchmarking to facilitate performance improvement.

The fundamental challenge of utility operations is to deliver service at an ever lower cost at ever higher levels of quality. This challenge is complicated by decades of continuing deficient public investment in infrastructure, lack of consistent regulatory framework, and, at times, a lack of institutional accountability.

Regulatory commissions, boards of directors, and consumer interest groups consistently demand that utility rate increases are justified by market conditions, through schemes such as Cost-Plus and Performance-Based rates. In response, utilities are undertaking rigorous analyses of business operations to identify opportunities to drive performance improvement, and to demonstrate that management practices are in line with--and ideally ahead of--industry standards.

Benchmarking and comparative analysis are highly effective methods to gauge operational performance, identify gaps, reduce costs, increase quality and productivity, and define and implement leading practices. An effective benchmark initiative drills down into sub-process performance drivers and yields insights into root causes of performance gaps and helps define strategies to address them.

Another benefit of benchmarking is to provide an objective, quantifiable, and auditable analysis of operational performance. By ensuring transparency among all parties involved, such a perspective is particularly critical to regulatory reviews of utility operations.

This article examines the role of measurement and comparative analysis in a comprehensive performance improvement strategy that utilities and energy companies can apply to IT systems as well as to business process and operations such as customer care and billing, finance and accounting, human resources, and supply chain management.

A specific focus explores how detailed analysis of cost and productivity drivers makes it possible to identify root causes of performance issues and to define actions to address them. The article also discusses how this approach can be applied to various IT service towers and to core utility and energy company business.

Benefits of Utility and Energy Company Benchmarking

Benchmarking of utilities and energy companies should be driven by in-house interest to improve performance and satisfy customers. Internally motivated benchmarks are not only an effective diagnostic managerial tool, but also a process by which the organization gains critical knowledge and experience.

Rather than targeting any one discrete business unit, utilities and energy companies with the most aggressive approach to improvement are pursuing a portfolio approach. This involves changing business practices as well as organizational culture. By focusing improvement efforts on processes with the largest potential for improvement, and on those that are most critical to meeting future business requirements, successful utilities and energy companies are effectively turning business processes into a "best practices."

Measurements of improvement are also critical. Utilities that quantify performance gaps and measure improvements before, during, and after transformation reap significant rewards. Benchmarking defines key measurement inputs and, more importantly, the process measures needed to successfully implement a change strategy.

Benchmarking & Root Cause Analysis

Performance analysis and improvement involves collecting data (quantitative and qualitative) in the target areas, and establishing a hierarchy of metrics to represent the operations or processes. …

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