Creating a Process-oriented enterprise at Pinnacle West Case Solution

1. What challenges does Brown face in creating a process-oriented organization?

At the moment, Brown’s process-oriented strategy is standing at the crossroads because of various reasons. Arizona Public Service (APS) is facing key challenges due to certain external environmental issues; its power generation and distribution organizations require a continuous improvement in reliability. The issues of an aging workforce, aging distribution infrastructure, and increased employee turnover were there. To make Pinnacle West Capital Corporation (PNW) a process based organization is the goal of Denny Brown as he believes in modifications. Given the success of Information Services organization and Palo Verde Nuclear Generating Station, he now aspires to formulate a strategy for a broader rollout throughout the entire company and decide if the larger enterprise is prepared for such strategy implementation. A number of concerns that need to be considered and weighed are change management, buy-in of senior leaders or managers, and resource availability. Besides, the growing fuel cost and commodity price, increased investment per new customer, massive capital investment, and certain environmental concerns such as the global recession, money requirement for the power generation and distribution competences are contesting Brown’s efforts. A thoughtful decision is required as he doubts that any slip up can overturn his prudently achieved plans for bringing a process-oriented approach to managing at PNW.

2. What are the requirements for creating a process-oriented culture in an organization? To what extent does Pinnacle West address these requirements? Where is it lacking?

Safety along with reliability in company’s operations and formal processes to escape from silos are required to create a process-oriented culture. Technology or automation is the last requirement of the process foundation. At Pinnacle West, there was made a steering committee to supervise the process alterations, to manage and control the demand for process improvements, and to avoid losing focus. In order to communicate these aims to the organization’s workforce, various techniques were employed by Site Programs for training and development. Training by the CPE group, an internal website enlisting the key initiatives and resources for process improvement practices that include for instance lean, six sigma, facilitation, and problem solving abilities, brown bag sessions to share life experiences of major functional leaders, coordination with web council to have web links from other websites, and sending sixteen workers to Arizona State University come under PNW’s efforts for training and development. Measurement of performance is done by internal assessments, and other monitoring and control measures like diagnostic tools to evaluate current processes and diagnose zones for improvement. Progress is reviewed monthly by Jim and Senior Vice Presidents. Facilities are provided to enable the implementation of process-oriented strategy. The two lacking elements of this strategy are compensation or rewards and career paths.

3. Should process transformation always occur in response to major events and/or failures? If not, why do organizations seldom embark on major transformations when there is no "burning platform"?

Process transformation is actually a typical mindset or a frame of mind that gives rise to a management philosophy as to how a corporation’s operations are managed, and how these are aligned with firm’s mission, vision, and core values. Process transformation doesn’t necessarily require a burning platform and major failures; instead it can be implemented when everything in a specific firm goes good. It can either be stimulated by the external or internal pressures, and by present-day demands or future trends. Organizations displaying good financial health and robust market share may embark on significant transformations in order to achieve more financial growth and sales increase. As in the case of PNW, Brown takes action after comprehending the demand of both his Information Services organization and PNW’s customers who asked for ‘more for less’; the customers were demanding more services but at a lower delivery price. Such demands triggered the implementation of a formal, organized, integrated, and standardized process structure at PNW. Therefore, the process based management is necessary for an added value for the major company’s internal and external stakeholders. Improved customer care, better clientele support, operational efficiency, enhanced organizational capabilities and competencies, employee empowerment and development, and better outcomes are among the few successes that any company can achieve by embarking on process-oriented strategy.

4. How well do you think the grassroots strategy is working at Pinnacle West? Do you think it is sustainable?

The grassroots strategy at Pinnacle West is doing well as is evident by the remarkable financial figures. Within the maintenance organization, productivity improvements in planning were admirable. Response rate of the survey, which provided feedback of crew members on the work package, reached almost 100%. After the process modification endeavor, reactivity of work orders was brought down to 20% from 80%. Unlike before, APS encountered or exceeded each of the reliability metrics by 2007. In 2008, there was a considerable 34% decrease in outages per customer, and a 14% reduction in the average outage duration per customer. The KPI’s showed clear improvements from 2007 to 2008; open work orders decreased to 200 from 1000 while the average age of work order reduced to 100 days from 450 days.

Along with the success of meeting and exceeding operational goals, process innovation in the form of Transformer Oil Analysis and Notification (TOAN) System bestowed APS the 2008 Edison Award, which was the highest honor of the utility’s industry. APS was ranked to be one of the top 10 U.S companies for IT innovation, and the number one energy utility for IT innovation in 2008.

For sustainability, CPE is looking at the bigger scope as it facilitated process infrastructure strategy by an Enterprise Modeling tool and training programs.

5. Is Brown's hesitation in pushing the top-down agenda justified? Or should he be more aggressive in pushing his agenda throughout the enterprise?

Yes, Brown’s hesitation is justified because it’s strategically significant to understand that processes should be improved and managed continuously and in a disciplined way. It’s an ongoing event requiring structure and commitment for expanding and sustaining the process improvements. Denny Brown has been successful in well managing the individual processes, which have shown good performance. The CPE group has earned a level of recognition while TOAN, Westwing venture, and the Edison award make Brown feel at the crossroads. Business model is heading towards a change. At one side, distribution organization was having a revival of commitment on some projects like TOAN that would stretch APS on resources and on the other side, challenges of distributed generation and renewable generation were popping up. Brown aspired to get a long-lasting impression of his process-oriented strategy by managing PNW’s portfolio of processes in an integrated manner. Opportunity knocks at the door just once; this viewpoint has made Brown cautious in pushing down the top-down agenda. Environmental threat in the form of recession was hitting the U.S economy; no burning platform exists at PNW, and gross profit has increased, but gross profit margin has decreased from 32.66% to 28.17% from 2003 to 2007.