New way of working in the West

Western Power operates in Western Australia, Australia’s biggest state and one of the world’s most challenging environments for a transmission and distribution utility. The company services about 10,000 square kilometers, which is home to just two million customers with a peak electricity demand of about 4,000MW. To put that in perspective, for each kilometer of cable, most electricity distributors have thousands of customers — Western Power has approximately 10.

Time to transformWhen Paul Italiano was appointed CEO of the utility in 2012, he knew Western Power needed to change to meet the expectations of customers, stakeholders and regulators.

The utility’s key internal challenges were:

• A capable but incohesive workforce

• A focus on specialist, technical skills that did not meet the function of the business

• Key processes that had become inefficient and ineffective

• Decision-making that was not driven by business acumen

• Lack of clarity about the needs of customers and stakeholders

New way of working in the West

Everything’s bigger in Western Australia, including the challenges that were facing electricity utility Western Power. New CEO Paul Italiano worked with EY to develop a new way of working that transformed the company’s culture and business outcomes. Ian Rakich reports.

Western Power was also dealing with significant external pressures, including negative media coverage and regulatory difficulties.

Italiano embraced an ambitious approach to addressing these issues. With EY’s help, he embarked on a significant transformation program designed to improve key operational processes and work practices and realize cost savings of more than AUS$25m (US$22.2m) in the 2012–13 financial year.

Systematic approach to changeBeginning the transformation meant developing a strategic plan for 2013–17 to act as a roadmap for the ongoing change. The plan, developed by Western Power’s executive leadership and Board, set out three phases of development:

1. Improving business structure and processes

2. Changing culture and capacity

3. Building branding and customers

With EY’s help, Italiano and his team began planning for the development of a new operating model, based on the company’s core purpose: connecting people with

electricity. The Western Power/EY team agreed that the operating model should be based on these principles:

• Make sure that the future design addresses all aspects of the case for change

• Resolve conflicting stakeholder priorities

• Design the business from an outside-in perspective to deliver customer and stakeholder outcomes

• Continue to enhance the operating model to make it “future proof” by monitoring external factors and responding to them

• Develop a low-cost business through focusing on simplicity and aligning spending to value drivers

In addition, it was agreed that the change process would aim to:

• Integrate across the business with common end-to-end processes

• Incorporate (where possible) requirements of other strategic themes

• Be bold in design by developing high-impact ideas in addition to low and moderate options

2 | New way of working in the West

Ian Rakich Partner, Advisory, Western Australia Power & Utilities Leader ian.rakich@au.ey.com +61 8 9217 1205

Ian has more than 25 years’ experience delivering enhanced business performance through business transformation and improvement

projects for leading P&U companies, including Western Power, Synergy, TruEnergy, Horizon Power, Country Energy and National Grid. He is also a regular presenter and contributor to EY’s thought leadership on business transformation, shared services, outsourcing and off-shoring.

The team’s next step was to identify Western Power’s three key value drivers:

1. Stakeholder management: understanding what stakeholders want and managing their expectations

2. Spend management: securing funding, prioritizing work and allocating spending

3. Delivery execution: effectively and safely delivering integrated business services to meet stakeholder expectations

These drivers helped the team envisage a value chain that would be tightly aligned to these value drivers. This value chain highlights end-to-end processes that always focus on customers, an integrated business that facilitates rapid responses to external pressure, and the development of common processes that drive low costs to maximize financial return.

Only at the end of this extensive planning process was the operating model developed. This strategic and systematic approach enabled the model to be streamlined, process-centric and designed to deliver a safe, reliable and affordable supply of electricity (see Figure 1). Importantly, this model kept the customer in sight at all times and focused on the management of the utility as a whole, rather than on particular technical functions. It applied to both Western Power’s transmission and its distribution functions in order to provide the economies of scale that would be lost if the functions were separated.

Leader-led approach For this transformation to work, Western Power also had to change the mindset of its workforce and the company’s entire internal culture. In simple terms, this meant thinking less like a public utility and more like a private enterprise. The key challenges were encouraging a more collaborative way of working, introducing

a more defined structure (which, inevitably, included job cuts) and creating a more diverse leadership. Previously dominated by electrical engineers, Western Power’s executive team now includes people with experience from diverse industries.

Encouraging staff to embrace these major changes required skillful communication. Italiano explained: “One of the rules that we established early on was that people will not find out about a change in their role electronically or in writing. They will hear about it from their manager — in person. And I think that 99% of the time we’ve achieved that.”

Western Power also took a “leader-led” approach that focused on changing culture and mindset at the top and letting this trickle down through the business. Under the new model, managers’ success is ultimately measured in terms of the delivery of leadership and required changes, rather than technical outcomes.

The changes hark back to the “back to basics” approach now driving Western Power. Explains Italiano: “We try to remind people that our job is to connect people with electricity, that the only things that customers should experience are safety, reliability and affordability. We’re here to provide a service to the community — and to customers — rather than focusing on the network or the technology.”

Next stepsWhile it is early days for Western Power’s change journey, the company is already seeing tangible results from the new strategy (see inset box). “It’s amazing what happens when you actually get a clearer focus on what’s core to the business,” says Italiano. “And when you do that, performance does start to improve.”

Western Power’s focus now is to initiate programs that will improve work practices by mapping current performance and benchmarking this against global best practice. There are three main areas for improvement:

1. Planning and scoping work

2. Scheduling work

3. Field force productivity

And, as the transformation continues, Italiano says that success will be measured not just by hard metrics, but also by how well customer needs are met. He explains,

“Like any other company, we will know that we’ve been successful when the customers perceive that they are getting value for money for the service that we offer.”

In 2012–13:• 24,000 new customer connections

• 96% more reinforcement of ageing wood-pole infrastructure

• 50% less time lost to workforce injury

• 4% reduction in operational expenditure

Source: Ian RakichSt

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Figure 1. Western Power’s operating model

Shifting perspectivesVAT changesNot just a tax concern

Born to be digitalPreparing for transformation

Volume 6 │ Issue 1

Providing insight and analysis for business professionals

Read more about Western Power’s transformation

3 | New way of working in the West

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About EY’s Global Power & Utilities Center In a world of uncertainty, changing regulatory frameworks and environmental challenges, utility companies need to maintain a secure and reliable supply, while anticipating change and reacting to it quickly. EY’s Global Power & Utilities Center brings together a worldwide team of professionals to help you succeed — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant sector issues. Ultimately it enables us to help you meet your goals and compete more effectively.

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