Document View | | | Print | Email | Copy link | Cite this | Mark Document | Translate document from: |
Other available formats:
Abstract
Full Text
Full Text - PDF (2 MB)
Find more documents like this:
Subjects:
Balanced Scorecard
Electric utilities
Studies
Safety standards
Customer satisfaction
Cooperatives
Success factors
Classification Codes
9190 United States
2310 Planning
8340 Electric, water & gas utilities
9130 Experiment/theoretical treatment
5340 Safety management
2400 Public relations
Locations:
United States--US
Author(s):
Tim Sullivan
Henry Cano
Document types:
Feature
Case Study
Publication title:
Management Quarterly
More options ↓ | | close ↑
INTRODUCING A BALANCED PERFORMANCE SCORECARD FOR ELECTRIC COOPERATIVES: A TOOL FOR MEASURING AND IMPROVING RESULTS
Tim Sullivan, Henry Cano. Management Quarterly. Washington: Winter 2009. Vol. 50, Iss. 4; pg. 12, 16 pgs
Abstract (Summary)
Currently, many electric cooperatives have difficulty systematically measuring their performance in the "mission critical" areas of reliability, safety, cost control and member satisfaction. In part, this is because benchmark data -- particularly for safety and reliability -- has been difficult to come by. Yet, survey research and field experience show that many best-in-class cooperatives already measure their results in these critical areas, often using some form of a Balanced Performance Scorecard. Scorecard for all electric cooperatives. Using the new scorecard, electric cooperatives will, for the first time, be able to benchmark performance in all four mission-critical areas against their goals, peers, and best-in-class performers. The information has been compiled and presented on Cooperative.com. Using the new Balanced Scorecard and related Web site, you can compare your performance against others by quartile rank, by region, by size, and by density. The Balanced Performance Scorecard Web site is your new home for mission-critical benchmarking information. » Jump to indexing (document details) Full Text (3918 words) |
Copyright National Rural Electric Cooperative Association Winter 2009
Introduction
"We deliver safe, reliable, affordable energy for the benefit of our members." Thus reads a typical mission statement for most electric cooperatives. It's the essence of what we do.
Yet how do we really know if we are accomplishing our mission? What measures do we use to determine success or failure? How do we interpret results and identify improvement strategies?
Currently, many electric cooperatives have difficulty systematically measuring their performance in the "mission critical" areas of reliability, safety, cost control and member satisfaction. In part, this is because benchmark data - particularly for safety and reliability - has been difficult to come by. Yet, survey research and field experience show that many best-in-class cooperatives already measure their results in these critical areas, often using some form of a Balanced Performance Scorecard.
Consequently, Touchstone Energy Cooperatives has teamed up with NRECA and CFC to develop a new Balanced Performance Scorecard for all electric cooperatives. Using the new scorecard, electric cooperatives will, for the first time, be able to benchmark performance in all four mission-critical areas against their goals, peers, and best-in-class performers. The information has been compiled and presented on Cooperative.com. What will you find?
* A standardized set of 10 metrics to measure reliability, safety, cost control, and member satisfaction for electric cooperatives
* An on-line database where reliability, safety, cost control and member satisfaction information can be easily accessed and obtained
* A Balanced Performance Dashboard, which can be used to help your co-op set goals and evaluate performance
Using the new Balanced Scorecard and related website, you can compare your performance against others by quartile rank, by region, by size, and by density. And you'll be able to download your own draft Scorecard Dashboard to begin to invest your Board, staff, and employees in the effort to systematically measure and report strategic performance.
Here's an example of what you will find: | Enlarge 200% | Enlarge 400% | |

Figure 1: All Scored Cooperatives |

|

Background
Why develop a Balanced Performance Scorecard at all?
To quote the old saw, leaders and employees pay attention to what is measured. Conversely, we typically do not manage well what is not measured. This limits the ability to gauge the impact of our operating decisions on actual outcomes. To truly understand how well we are serving our members, we must first know where we stand, and we do that through measuring key aspects of the service we provide. Then we can improve.
Consider:
* The challenges of measuring whether plant investments actually pay off in increased reliability.
* The challenges of measuring whether the rising cost of power significantly impacts member satisfaction.
* The challenge of knowing whether investments in safety education pay off in better safety performance, particularly when compared to other cooperatives.
* The need to understand the relationship between the critical performance areas - how they impact each other - and their overall impact on the cooperative's ability to achieve its mission.
The following diagram (Figure 2) outlines the four recommended performance areas and associated measures necessary to successfully achieve the electric cooperative mission.
Each performance area has a direct influence on the others. Together, they present a balanced view of success. Improved reliability pays off in higher member satisfaction. Controlling costs also lessens the impact of rate increases, which in turn helps member satisfaction. There is also a direct correlation between high safety performance and overall organizational efficiency, cost, and quality. | Enlarge 200% | Enlarge 400% | |

Figure 2 |

|

Let's review each performance category and their associated metrics, in turn.
Critical Performance Measure: Member Satisfaction
In a non-profit, member-owned organization, is there a measure of success more important than member satisfaction? Delivering electric service to the satisfaction of our members lies at the center of our mission; it is why we were formed and why we exist today. Studies show that organizations which systematically measure and act upon consumer satisfaction information achieve higher levels of performance.
The Value of Member Satisfaction and Loyalty
Delivering member satisfaction is the gateway to a more significant pay-off: member loyalty. High member loyalty delivers many practical benefits for cooperatives. For example, consider the critical importance of member loyalty when your co-op needs to:
* sell energy efficient products and services
* build a new power plant
* build new transmission
* appear before a local or state regulatory body
* be involved in contentious litigation
* win acceptance of a rate increase
* explain reliability problems
* generate grassroots support for legislative positions
In short, achieving member satisfaction and loyalty is central both to our overall mission and to the ongoing success of our business.
Measuring Member Satisfaction Performance:
Touchstone Energy Cooperatives measure member satisfaction through the use of the American Customer Satisfaction Index or ACSI. The ACSI is the most recognized customer satisfaction index in the nation, a joint project of the University of Michigan Business School and American Society for Quality. It measures customer satisfaction for 16 major industries and 190 leading corporations, from Nike to Southwest Airlines and from FedEx to Campbell's Soup. ACSI Survey results are published quarterly in the Wall Street Journal and on the ACSI website at www.theacsi.org. The results are developed through the answers to just four survey questions and are comparable across industries. Touchstone Energy Cooperatives has partnered with ACSI since 2002.
The benefits of using the ACSI are several. It will:
* Provide immediate feedback about your cooperative's level of member satisfaction.
* Allow you to benchmark your cooperative against competitors and peers, including the nearest IOU and other Touchstone Energy cooperatives.
* Help your cooperative set member satisfaction goals and engage your employees by giving them a clear performance measure.
* Improve the effectiveness of your member communications through the use of third-party (ACSI) performance reports, and
* Allow you to compare your cooperative's performance to other well-known businesses like FedEx, Ford, Nike, Southwest Airlines and dozens of others, if you are so inclined.
Consumer Satisfaction Measurement for Non-Touchstone Energy Systems
For non-Touchstone Energy systems, it is more challenging to find an objective measure of consumer satisfaction against which to benchmark. Short of the ACSI, the best recommendation for these systems is to ask the same consumer satisfaction questions on your survey over several years, so at least you can benchmark relative to your own history and to your own objectives. If you do not use the same questions over time, you cannot reliably compare consumer satisfaction over time.
Recognize that an ACSI score alone, or, indeed, any customer satisfaction measure, does not make your co-op good or bad. It is simply a measure of consumer satisfaction for a single moment in time. The key value of this tool is what you actually do with the information - the changes and improvements you make as a result. Hence, once your cooperative has secured valid customer satisfaction data, it can then put it to work:
* Use the results of your regular member surveys to identify and diagnose areas for improvement. For example, are consumers most concerned about your reliability, costs, or service? Are they satisfied with your water heater program? What is the perception of the quality of your communications? What about your reputation in the community? Are you a trusted supplier or do consumers have doubts? Once you understand the specific areas where you are perceived to be strong or weak, you can begin to improve.
* Develop an action plan to address your performance gaps. Request, evaluate, and act on employee recommendations for improvement. Also: consider the important role of communications. Perhaps you don't have a performance issue at all but a perception issue. Look at your benchmark data. Does your challenge genuinely lie in lagging performance or does your challenge lie with communicating actual results to your members?
* Communicate your plan, execute your plan, and hold everyone accountable for the results. Once you've determined a course of action, explain the plan to your Board and employees. Set specific measures for each of your performance objectives. Insist on regular updates concerning the plan's implementation. Most importantly, let everyone know the results will be measured and reported again and that everyone - employees, management, Directors - will be accountable for the results.
Critical Performance Measure: Safety
Studies show there is a direct correlation between safety performance and organizational success. Effective management of workplace safety adds significant value by reducing the extent, severity, consequences, and costs of work-related injuries. Moreover, cooperatives which perform well in safety measures typically have organizational discipline that translates into other performance areas as well. Consider the fact that effective safety programs prevent accidents and also improve the bottom line for cooperatives. Accidents have a direct impact on controllable costs in terms of increased workers compensation, the cost of accident claims, disability insurance costs, absenteeism and lost productivity. In addition, generally speaking, a more reliable distribution system is a safer distribution system - both for employees and the public. Finally, research shows that members are more satisfied with cooperatives perceived to be strong proponents and practitioners of safety. The bottom line: safety performance is critical.
Effective leadership is the key to attaininghighsafetyperformance. This means leadershi which promotes safety and productive work as mutually inclusive, not mutually exclusive- Effectlve organizations also have leaders and front-line staff who recognize and reward the desired safe behaviors. Consequently, top performers reinforce safety as a core value within the organization and promote it as an essential prerequisite of a successful organization.
Measuring Safety Performance
The measures chosen for the Balanced Performance Scorecard include the standard safety reporting metrics used by the Federal Government and most insurance companies. They include:
* All injury incident rate (total OSHA recordable incidents per 100 employees)
* Days Away Incident Rate (total number of OSHA recordable incidents per 100 employees resulting in lost work days or restricted duty)
* Severity Incident Rate (average number of work days lost due to OSHA recordable injuries)
How do we use these metrics in the context of safety? Most importantly, take care not to be driven by a single, specific number. Trends are more important indicators of safety performance than individual accidents.
When comparing performance don't associate good or bad - but focus on analyzing the operations, activities, behaviors and safety program for improved performance. Consider all three safety performance measures in order to understand total performance, and then recognize opportunities for sustaining continuous improvement.
Critical Performance Measure: Reliability
We exist so our members can keep the lights on. Studies show there is a direct correlation between a distribution cooperative's reliability performance and member satisfaction. High reliability tends to suggest strong organizational discipline, which often translates into strong performance in the areas of cost control, service quality, and overall member satisfaction.
But how well are we actually performing in reliability, particularly compared to our goals, our peers, and our competitors?
In the past, measuring and comparing distribution system reliability performance has been difficult, because utilities historically have measured reliability performance in different ways. The good news is that Institute of Electrical & Electronics Engineers (IEEE) , a leading developer of international standards for a broad range of existing and emerging technologies including telecommunications, information technology and power generation, has now established industry terms and definitions which can be used to establish uniform, standard reporting indices and practices among utilities. Introduced in the 2003 edition of this IEEE Standard, the working group has included a statistics-based methodology for identifying outlying performance (otherwise known as Major Event Days or MEDs).
These new IEEE standards and définitions are the foundation for the reliability measures included in the Balanced Performance Scorecard. They include:
* Total Yearly System Average Interruption Duration Index (SAIDI)
* Yearly SAIDI excluding major event days (Day-to-day Performance)
* Yearly SAIDI excluding major event days and power supply interruptions
* System Average Interruption Frequency Index (SAIFI) (Day-to-day Performance), and
* Customer Average Interruption Duration Index (CAIDI) (Day-to-day Performance)
As with the critical area of safety, it is important to take care not to be driven by a single, specific number. Trends are more important indicators of reliability than individual yearly values. When comparing performance, don t associate good or bad - but focus on analyzing the operations, activities, behaviors for improved performance. In addition, consider all three reliability measures to understand the total performance, and recognize opportunities for sustaining continuous improvement.
Critical Performance Measure: Cost Performance
Electric cooperatives are highly capital intensive businesses, requiring careful attention to the stewardship of member-owners' money. To ensure good financial stewardship, cooperatives should use sound financial business practices. Sound business practices promote the long-term health of an organization and monitor dayto-day expenses and investments.
Equity is the measure of a cooperative's financial strength over time and an equity target should be part of a cooperatives' strategic plan. As part of mortgage covenants, TIER, DSC, OTIER and MDSC are also important measures and must be tracked. But Equity, TIER and MDSC do not provide the necessary day-to-day information needed by management to operate a cooperative as a sound business. Control of expenses, both expensed and capitalized, is critical to provide members with the best value for their money.
Those expenses that can be defined as controllable (Distribution Expense: Operation, Maintenance, Administrative and General, Consumer Accounts, Customer Service and Information and Sales Expenses) should also be measured and reviewed in the same financial performance review. Particularly in the current challenging financial times, cooperatives must take care not to simply reduce these expenses as a goal. Arbitrarily reducing them without thoroughly considering the consequences first may well hinder performance. For example, reducing right-of-way clearing in times of financial difficulty may negatively affect reliability, safety, and consumer satisfaction. Instead, cooperatives should effectively evaluate and measure against set goals so that sufficient dollars are spent in the appropriate areas. Even with a proper business case and good results, cooperatives should manage their controllable expenses so that they do not rise faster than other, similar cooperatives.
Strong financial performing systems are the result of effective leadership. They monitor and control all expenses through effective strategic planning, budgeting, financial forecasting and review of the financial results.
Measuring Financial Performance:
Financial performance can be measured using the following standard industry metrics. Each measure points to outcomes that provide a snapshot of the organization state of performance.
* Average cost per kWh sold
* Average annual percent change of controllable cost (less power cost) per consumer
* Average annual percent change of plant investment per mile of line energized
These standard metrics can then be utilized for:
* Tracking the cost of power per kWh and comparing to other members of a similar power supplier allows the cooperative to evaluate possible ways to control power costs.
* Tracking total utility plant divided by total miles energized provides a means to evaluate how effective the cooperative is in adding plant. Materials, labor and other costs are rising but sound business practices call for evaluating and controlling costs through proper work plans, construction practices and use of labor forces.
* Tracking controllable costs per consumer on a percentage increase basis also allows the evaluation of all costs.
* Remember that it is a balancing act between controlling costs and maintaining all the other performance measurements. Elimination of maintenance, safety programs or other similar programs just to meet financial targets or goals is discouraged.
Steps for Measuring and Improving Performance Results
As important as measurement is, measurement is a means, not an end. The goal is actual organizational improvement. With this in mind, we recommend the following six-step process for any cooperative looking to improve its performance: | Enlarge 200% | Enlarge 400% | |

Figure 3 |

|

Step 1: Measure Performance
Using identified metrics, the first step is to measure each critical performance area. Consider building trend graphs to assess performance over time. Communicate and post the performance results for all employees. It is important that all employees clearly understand the measures, the link between the critical performance areas, and how improving each will help achieve the cooperative's mission.
Step 2: Understand and Compare Performance
Create understanding among employees of the current level of performance. Compare performance with other industries, regional groups or similarly-sized groups of cooperatives, and best-in-class performers. This comparison should emphasize the opportunities to achieve better results. Recognize the balanced view of success and the relationships of all the performance areas to each other.
Step 3: Analyze Performance
For each critical area, analyze the business processes and identify the underlying drivers affecting performance. For example, what are the high cost drivers affecting controllable costs? What are the major factors affecting reliability? What practices are affecting outage duration? What are the root causes to the number of accidents and injuries? What are the key factors impacting member satisfaction? It is important to drive analysis within the organization, focusing on the important factors impacting performance, and to identify possible improvement opportunities and strategies.
Step 4: Identify Improvement Strategies
Based on the organizational analysis of each critical area, identify the related improvement strategies. Formulate clear descriptions of the selected strategies for improvement. Pursue efforts to obtain buy-in, support and commitment.
Step 5: Improvement Goals and Targets
Establish improvement goals and targets. Communicate to employees both the overall improvement strategies and the goals and targets. It is especially important for employees to recognize how their specific contributions align with the overall improvement program.
Step 6: Implement Improvements
Develop specific improvement plans with clear roles and responsibilities. Goal and targets will not be achieved simply because they have been identified. Indeed, the cooperative must launch a set of action programs that will enable the targets for each measure to be achieved. Insist on discipline when executing the improvement strategy.
Successful execution involves three components, as follows: | Enlarge 200% | Enlarge 400% | |

Figure 4 |

|

The essence of the above model is that you can't manage what you can't measure and you can't measure what you can't describe. The first critical step, then, is to define, through clear description, the strategy and/or actions to be measured. Then and only then can there be accurate measurement and effective management.
Conclusion: Achieving Success Using The Balanced Scorecard
The following are key points to consider when using a Balanced Scorecard:
* The primary emphasis should be on understanding and improving performance, not on criticism. Launch improvement initiatives in each performance area.
* The Balanced Scorecard itself is a tool, and provides a means to an end, not the end itself. The organization should focus primarily on its initiatives (operational analysis, business process improvements etc.)
* Be careful regarding the use of incentives. Consider:
- Incentives may drive behaviors in one area at the expense of another.
- Incentives require careful alignment to provide any meaningful improvement.
- The Balanced Scorecard should be used to challenge and motivate teams to improve performance for the sake of all stakeholders.
* Take care not to induce unhealthy competition. The purpose of a Balanced Scorecard is to improve teamwork and communications, not to create competition within a team or between teams, a move which can build barriers and reduce effectiveness.
In sum, the Balanced Performance Scorecard is an essential tool to help you understand, report, and improve your cooperative's performance in mission-critical areas. The Balanced Performance Scorecard website is your new home for mission-critical benchmarking information. Use both, and chances are your cooperative can say: mission accomplished.
Balanced Performance Scorecard Case Study: Blue Ridge EMC (NC)
The good folks at Blue Ridge EMC in North Carolina are no strangers to use of the Balanced Performance Scorecard - nor to the powerful, ongoing organizational improvements it can unleash. They've been using a Balanced Scorecard at the co-op for almost 1 5 years, ever since CEO Doug Johnson read an article about them in the Harvard Business Review (HBR) in 1995.
"I was looking for a way to drive optimal performance within our organization," Johnson recalls. "We needed some kind of tool to help us embrace continuous improvement."
After reading the HBR article, Johnson ordered the related kit and video, a move which helped the co-op establish its first Balanced Scorecard, featuring race cars to track performance. Later, the race cars changed to gauges, which later evolved into a simple grid-type scorecard system. A recent copy of it is shown on page 26.
More importantly, Blue Ridge's Scorecard reflects the central objectives of the cooperative's Strategic Plan and measures success using Key Performance Indicators (KPI's), or objective metrics. Like the Balanced Performance Scorecard tool developed by Touchstone Energy, NRECA, and CFC, Blue Ridge measures member satisfaction using the ACSI, reliability using SAIDI data, safety using a broad safety index, and cost control using KWH cost for consumers. The Blue Ridge Scorecard also includes measures for innovation and learning and is tied to an employee incentive plan. | Enlarge 200% | Enlarge 400% | |

BLUE RIDGE ELECTRIC MEMBERSHIP CORPORATION | 2009 Critical Success Factors and Key Performance Indicators |

|

The results speak for themselves. Over the last several years, Blue Ridge has increased its ACSI member satisfaction score from an 83 to an 86, reduced their total cost of service to 13 percent below the statewide average, made substantial improvements in reliability, and in 2008, recorded the best safety record in the state. Johnson stresses that these results were achieved because the entire organization - from the Chairman of the Board to senior staff to linemen and the receptionist - know what is expected of them and the co-op as a whole.
Each year's goals are not developed primarily in the board room. Instead, they are generated based on feedback solicited from every level of the organization. From there, senior staff shapes and prunes the recommendations before presenting a final set to the Board of Directors. Once approved, the goals are added into the Scorecard Dashboard and communicated throughout the organization. Progress against goals is reported to everyone at least quarterly, and large-scale Scorecard Dashboards are hung in a public place at headquarters and at each of the co-op's four district offices. No one can escape the message: we know what we want, we are measuring progress, and everyone is accountable for the results.
Each February, a Committee reviews and confirms annual performance for each KPI during the prior year and makes a final report to the Board. Since Blue Ridge's results are tied to its employee compensation plan, the Board decides what the final employee payouts will be. Johnson then holds an employee allhands meeting at each district office, reviews the organization's performance during the prior year, and shakes the hand and thanks each employee for their contributions. In addition to looking back, Johnson talks about what needs to be accomplished in the new year.
How helpful is the Balanced Performance Scorecard to Blue Ridge? "I believe it's the most valuable single tool a leader can use to get everyone on the same page and to seek the next level of incremental improvement each year," says Johnson.
Any advice to others looking to take the plunge? "Be candid and communicate often both with the Board and your employees. We don't always reach our objectives but the Scorecard keeps everyone focused on what is most important. In the end, we believe using the Balanced Scorecard leads directly to a better experience for our member owners." [Sidebar] | Effective leadership is the key to attaining highsafetyperformance This means leadership which promotes safety and productive work as mutually inclusive, not mutually exclusive. |

|

[Sidebar] | Trends are more important indicators of reliability than individual yearly values. |

|

[Footnote] | Footnotes | 1 www.cooperative.com/InterestAreas/ceoresources/BalancedScorecard/Pages/ default.aspx | 2 IEEE 1366-2003 (Guide for Electric Power Distribution Reliability Indices) |

|

[Author Affiliation] | Tim Sullivan is Director of C&I Business Development for Touchstone Energy Cooperatives. Henry Cano is Senior Principal, Strategic Practice, NRECA's National Consulting Group. |

|

Indexing (document details) Subjects: | Balanced Scorecard, Electric utilities, Studies, Safety standards, Customer satisfaction, Cooperatives, Success factors | Classification Codes | 9190 United States, 2310 Planning, 8340 Electric, water & gas utilities, 9130 Experiment/theoretical treatment, 5340 Safety management, 2400 Public relations | Locations: | United States--US | Author(s): | Tim Sullivan, Henry Cano | Author Affiliation: | Tim Sullivan is Director of C&I Business Development for Touchstone Energy Cooperatives. Henry Cano is Senior Principal, Strategic Practice, NRECA's National Consulting Group. | Document types: | Feature, Case Study | Document features: | Tables, Diagrams | Publication title: | Management Quarterly. Washington: Winter 2009. Vol. 50, Iss. 4; pg. 12, 16 pgs | Source type: | Periodical | ISSN: | 00251860 | ProQuest document ID: | 1933428161 | Text Word Count | 3918 | Document URL: | http://proquest.umi.com/pqdweb?did=1933428161&sid=5&Fmt=4&clientId=6298&RQT=309&VName=PQD |

Print | Email | Copy link | Cite this | Mark Document |