PÖYRY POINT OF VIEW BLOG / 3 Nov 2016
The hidden value of operational excellence in energy?
Energy companies are going through a tough period. Lowering demand and new decentralised technologies have squeezed an industry traditionally lacking genuine competition.
As a result, statutory labour negotiations and cost cutting exercises have swept through the industry. In most competitive industries, where it has been necessary to optimise everyday operations for decades, these savings would have been made through operational efficiencies. For most energy companies, their interest in unlocking the hidden value in their business – known as the execution gap - through Operational Excellence (OE) has only just begun.
What are energy companies missing out on?
Across industries, the improvement potential offered by OE is at least 3% of net sales. This figure rarely goes higher than 8% as the operational inefficiencies would be so significant that some corrective measures would already have been carried out. Because of the local aspect of operations and historically limited competition in the energy industry, the improvement potential in the energy sector often settles at the top of the aforementioned range, or even above it. Diagnostics conducted recently regarding Nordic district heating companies have revealed that the potential has been roughly 8% of net sales on average. So far, this improvement potential has been seen in all of the companies analysed, regardless of their ownership base. In practice, this implies that there are significant improvement opportunities waiting for capture in energy companies.
So, where can energy companies improve?
1. People and processes
Energy companies are known to give individual employees a lot of responsibility for organising and executing their tasks. Whilst laudable, this inevitably creates a lack of standardisation e.g. in maintenance. Similarly, management teams monitor result indicators on a monthly level but indicators that would measure performance at any given time have not been set at the operational level. In this case, the focus of OE should be on monitoring operational performance indicators and targets , and on activities carried out according to them; after all, it is no longer possible to affect the previous month’s results.
2. Big data, little information
Energy companies are currently either not measuring indicators of operational performance or vital information is drowned out in the massive flow of data, with management not feeding information to operational employees, who can impact the actual performance of the company. Furthermore, the possibilities offered by “big data” have not yet been widely recognised in the energy industry. Using different analysis methods, it is possible, for example, to detect recurring process control errors in a complicated system or any differences between shifts and to understand how different defects occur. Even though customisation and investments are needed to utilise all of the possibilities, it is possible to get started quickly without any high initial investments.
3. Turn the focus away from central operations
The potential for improvement usually increases as operations become more complex. Similarly, potential increases the farther we go from the key company operations which employees are most familiar with. In the case of a district heating company, the most significant improvement potential is in three main segments: operation (of the power plant and the district heating network), maintenance and procurement.
How can we help?
Our global team of specialised management consultants and technical experts partner with our clients to deliver rapid and sustained results through our unique approach to operational process management. If you are interested in working side by side with us to close the execution gap and find the hidden value in your business, contact our experts today. www.poyry.com/oe