Quanta Technology Blog
Doing It Over Again
Posted on: May 28, 2015
Twenty years ago, I did an interesting project for a friend who had just become COO of a new and rapidly growing cable TV company. He asked me to look at how his cable and internet services company operated and compare its organization, operating procedures, efficiency and responsiveness to “the best electric utilities.” That COO had prior experience only in the beverage and railroad industries, and no background in cable or electric power, which he said was part of the reason he had been hired. He was expected to bring a fresh perspective and tighten up operations in a company that had “just sort of grown, often much too fast for its own good.” Electric utilities, he thought, did something very similar to cable companies, but had been doing it for nearly a century longer. Perhaps they had something to teach his company.
My friend was not the first, nor the last, person to note the long list of similarities between cable TV companies and electric utilities. Both obtain their product from a rather limited number of “central stations” or sources, and distribute to orders of magnitude more businesses and homeowners. Both operate systems divided into bulk transmission and local distribution, with the bulk being more of a network and the distribution being predominately radial. Both systems are composed of wires that have to have absolute connectivity, and hub equipment that has to function flawlessly and dynamically in order to provide satisfactory service. Both are vulnerable to a host of “product quality” problems when that doesn’t happen. And both serve customers who expect near perfect service reliability and pay monthly bills that, at least in the residential sector, are roughly the same. Overall, these two types of companies do very nearly the same job with very nearly the same budget per customer. Of course, there were important differences with regard to “generation cost”, regulation, safety, competitiveness, etc., but on balance it seemed a reasonable approach for a cable company to look at an electric utility. Companies like my client’s that grow in a hurry often invent their processes and organization as they go along. At the time, I expected there would probably be a lot my friend’s company could learn.
I was right. My final report made a number of recommendations about how that cable company could improve its operations by adopting electric utility cost-control, budgeting practices and system design methodologies. Electric utilities may be too close to their own operation and not familiar enough with practices in other industries to see the distinction, but the best of them are masters at tracking and holding down operating costs. The methods and processes they use are not common to many other industries. Not to say that it is always done perfectly or to their satisfaction, but consistent, balanced cost reduction is a skill built into and throughout electric utility organizations, procedures and culture, to a greater extent than in many other companies. By contrast, cable companies (at least at the time of the project) were focused almost exclusively on providing extra features and lots of “customer choice and control”. Such customer focus was necessary at the beginning of that industry in order to get a leg up on other start-ups and purchase market share. But in the long run, only lean processes and cost-reduction will make a cable company strong enough to survive the inevitable shake-out that occurs in all new industries.
Of course, there were substantial differences between electric and cable systems and customer-buying habits that did not translate. Key among them was that cable companies had to keep the focus on a diversity of offerings from which a customer could choose; survival in their market demanded it. As a result, many practices from the utility industry had to be modified slightly. Safety was also a key driver behind many utility practices that were not applicable to cable. So were some significant regulatory and competitiveness issues and revenue by customer class (the ratio of industrial to residential electric use was much higher at an electric utility than it is at this cable company).
But all in all, electric utilities had a lot to teach cable companies about how to operate in a lean and cost-efficient way, while still hitting satisfactory goals for offering and delivering customer choice, service reliability and profitability. I worked with that cable company for several years, as those lessons were taken to heart and changes were made. The company prospered for a while and survived the inevitable industry shake-out. After a turbulent another decade, it emerged from a series of mergers and acquisitions as a major part of one of the big three cable and internet providers, and is still standing today.
At the time, twenty years ago, there weren’t a lot of “inverse lessons” that cable companies could teach electric utilities, no “big lessons” that I felt a top-quartile electric utility would find worthwhile by learning how start-up cable companies had innovated. But that has changed... Today, electric utilities are facing disruptive distributed technologies that provide competition to traditional utility service and increasing create “unilateral choice” for electric consumers. There is a lot an electric utility can learn by looking at how and why those cable companies managed to widen their choice of the products and services they offered customers, stay competitive as to price and pricing schedules, and still make sufficient profit to stay in business. Perhaps the most obvious and meaningful difference I see is with respect to customer databases. Traditionally at many utilities, they were called the “billing database” and they were all about billing and only billing. At cable companies, customer databases, while used for billing purposes, were and are viewed primarily as sources of information on customer needs, uses, preferences and wants – demographics used for marketing and system tuning to deliver optimum satisfaction. These databases were treated as treasured assets, not just as costs and billing platforms, but used a lot in both strategic and tactical business planning. They are often the core of processes that drive these companies’ business plans. As a result, there is a great deal for the 21st century electric utility to learn about how to offer and make most appealing a wide range of optional services, while pricing them in an attractive, even irresistible, manner and still operate in a lowest-cost-possible manner.
After decades of very slow evolution, even periods of stagnation, the electric power industry is facing major and quite sudden change. It may be time for utilities to go back to school and consider that they need a “do-over” of their organization, processes and focus. Taking a hard look at cable/internet provider companies and how they work today would not be a bad place to start.
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