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Feature

posted 1 Feb 2000 in Volume 3 Issue 5

Connecting isolated islands

Following a major review of its business structure in 1996, TXU Europe has achieved its aim of uniting separate plants into one synergetic environment of knowledge sharing. In this article, Eddie Hyams & Kim Jankowski analyse the practicalities of linking KM to this challenging business strategy.

Background to TXU Europe Power Ltd.

TXU Europe Power (TXUEP) Ltd  formerly operating as Eastern Generation - is part of The TXU Europe Group (TXUEG). It is the fourth largest UK generator and the largest merchant Coal-fired generator in the UK. It has 7000 megawatts of generating capacity in England and Wales and represents 10% of the generating market. TXUEP owns five coal-fired Power Stations, along with a number of gas and combined heat power plants (CHP) and wind turbine generators. Its overseas activities include Finland, Czech Republic, Poland and India. There are approximately 1000 staff within the whole of TXUEP and 6000 within TXUEG. The company acquired its five coal-fired power stations from National Power and PowerGen in 1996 as part of a divestment process. These stations were combined with TXUEP's two existing gas plant stations to form a diverse portfolio of plants. Uniquely, these plants were purchased without a substantial Head Office support function and so there was an immediate need to share knowledge as a requirement for continued operation.

The plant had previously been organised to operate largely independently and had sufficient internal resources to plan and organise maintenance programmes, investigate and cost plant modifications, as well as run all the supporting internal systems such as Finance, HR and Purchasing. Whilst this gave an initial transition advantage, it was apparent that in order to gain the maximum efficiency of operation in a more integrated competitive market, there was a need to look at the principles incorporated into the organisational design. We needed to ensure that they were not acting as barriers to knowledge flow across the portfolio.

The knowledge required to operate the plant, much of which was built in the late sixties and completed during the seventies, is vested in a small number of operators and professional engineers. As we have progressively sought to reduce the number of staff on a station this knowledge has become increasingly held by only a chosen few, and there is a real possibility that we might lose this valuable tacit knowledge altogether.

Management Theorist Peter Drucker expresses 'knowledge' as the 'key resource' of the world economy. BackWeb (1999) also share this view: 

'The traditional factors of production ... land, labour and capital ... are becoming restraints rather than driving forces ... knowledge is becoming the one critical factor of production.'

We needed an efficient knowledge management system to enable us to continue to improve the operation of the plant, whilst containing our costs, to be the current market leaders. Using KM as a tool is a commercial necessity as well as giving our business a vital competitive edge.

Changing the Organisational Structure of the business to complement KM practices
Our Inherited Structure

The structure inherited in early 1997 contained a series of semi-autonomous business units competing for limited resources to ensure that it could continue to operate. A central function was in place to co-ordinate activities and ensure a consistency of approach across the company.

This proved to be ineffective when determining investment decisions, and more importantly, in the sharing of best practice across all areas of the business, such as Operational, Maintenance and HR. It led to unnecessary 'reinventing of the wheel' , working against efficient KM sharing.

There was a tendency for each management team to regard their own 'patch' as having a primary need for continued investment so that decisions across the portfolio were difficult to attain. In addition, there was a culture of not accepting good ideas from other sites as well as reinventing policies and procedures to needlessly tailor them to local practices. On some occasions, sites also took their own initiatives, not looking for synergy across the portfolio, or learning from the experiences of other station teams.

There was little synergy with no cross company working and this meant insufficient use of potential leverage with suppliers.

With increasing competition in the sector we urgently needed to reduce costs and establish leading best practices.

Strategy - where we wanted to be by 2000

Be recognised as having a market leading flexible low cost base

Become innovative and improve continuously

Lever the skills and experience of staff across the portfolio

Deliver maximum profits to the rest of the Group

Strengthen links with TXU Europe's Trading function

Support TXU Europe Power's strategy of European expansion

Knowledge Management - The key to achieving the strategy

One of the main challenges that has faced TXUEP since it's formation in 1996, has been to bring together the stations and staff from very different company and cultural backgrounds, to form a cohesive organisation with common goals, objectives, practices, culture and conditions of employment . This needed to be achieved in order to create a company which was capable of meeting the challenges ahead, to help it operating successfully in a highly competitive market. To facilitate this a major review of the business was commissioned in June 1998.

Following a complete review of the organisation, new structures are now in place which look across the portfolio, giving far more responsibilities across the whole portfolio to support functions.

Senge (1999) suggests that learning must be matched by the appropriate organisational structure, and within TXUEP new posts have been developed where Managers have multiple site responsibilities. This has provided an environment that enables and encourages knowledge sharing across a portfolio.

An example of this working effectively is within Maintenance, where we have a Maintenance Manager East, having overall responsibility for two Power Stations and a Maintenance Manager West who has overall responsibility for three Power Stations in place of 5 separate functions. These Managers work closely together and can facilitate the transfer of staff and/or spares equipment across the organisation to ensure that we utilise our resources efficiently and effectively.

This was demonstrated earlier this year with a member of staff being seconded to another location to assist with the implementation of an Advanced Plant Management System (APMS), an advanced computer control tool. This benefited the receiving Station and meant that the knowledge learned could be utilised when the same system was installed at his own location later on in the year.

Following a dramatic fire at our Ironbridge Power Station last year, spares and resources were instantly made available from another Station. These were not eventually required, but if they had been needed, it would have saved the company several of days generation - typically this could be worth tens of thousands of pounds per day.

We strongly encourage 'Centres of Excellence' across the portfolio - these traditionally exist in main function areas, such as Operations, Maintenance and Efficiency and involve nominating a 'Specialist' from each Station. The meetings are held at least twice a year and at alternate sites to allow staff to experience different environments. This concept has been hugely successful and has allowed staff to discuss problems and share best practice, so capitalising on an initial investment and eliminating unnecessary 'reinventing of the wheel' syndrome.

TXUEP inherited a Performance Related Pay scheme at three of its locations which rewards individual performance, and has proved to be detrimental to team-working and knowledge sharing and promotes a KIP (Knowledge is Power) culture.

TXUEP's reward structure is currently being re-negotiated and we are looking to implement a Competency-Based Pay scheme with a bonus payable at company level. One of its aims will be to encourage team working and knowledge sharing across the organisation. Competencies for knowledge sharing are also being investigated.

Teams on the stations are focused on the operations of the plant and short/medium term maintenance issues. Investment, professional engineering decisions and maintenance programmes strategy is now focused into a small central team and decisions are taken on a portfolio basis.

HR, Purchasing and Finance operate as process streams across the organisation, which means that we can realise the full benefits of staff expertise in different areas of HR, leverage our buying power and centralise finance practices, such as invoicing to ensure that we have highly efficient business practices. However email and Internet systems mean that staff are located as virtual teams, located throughout our operating units.

Our aims were:

1. Identify areas of improvement and examples of good practice across the portfolio and find efficient ways of sharing this information Two particular KM opportunities identified were:

Sharing specialised maintenance knowledge across sites, to provide common leading practice systems and standards.

Easy access to information for both the HR community and line managers, providing a platform to share best practice, standardise procedures and offer on-line guidance from particular specialists, eliminating the need for staff to need to 'reinvent the wheel' .

Where 'Specialists' have been identified via our 'Centres of Excellence' these contacts will be accessed via our intranet.

We wanted to improve our commercial and competitive advantage by ensuring efficient knowledge transfer. As BackWeb (1999) suggests: 'The financial metrics used to evaluate companies will change. The Stock Market will place more value on companies who are able to make good use of knowledge, based on the earnings ratio.'

We needed to develop our capability to lever KM across Europe as a mechanism to attract potential alliance partners

We developed a new Operating Model to support these aims

Key Features of the Operating Model

The Operating Model established an Asset Management function whose main function is to develop strategic and asset plans across the portfolio of plant. They provide a link with the strategic external organisations and continually monitor the external market, co-ordinate outage strategy, ensure that policies and procedures reflect best practice and 'cutting edge' techniques across the portfolio and provide engineering advice as needed.

The model identifies interfaces and information flows across the business and demonstrates where some business functions have been centralised, bringing teams together wherever possible, e.g., HR, Finance and Procurement. Day-to-day maintenance and operations remain at each plant. 'Virtual' offices and teams have been established for some groups of staff, which has alleviated the need for unnecessary relocation. However, flexibility in terms of hours, locations and skills is key to the success of the model.

How did we intend to measure the success of linking KM to business strategy?

By achieving:

Less duplication of effort leading to direct cost savings in terms of time and effort

Procurement leverage reducing contract costs

Easy access to relevant business information and indicators

Sharing and adopting of internal and external best practices across TXUEP

Increasing our competitive advantage

An increased rate of innovation.

Nonaka and Takeuchi (1995) write that within Japanese companies it is the 'Knowledge Creation' which in turn leads to continuous innovation and so provides competitive advantage:

1. Knowledge creation

2. Continuous innovation

3. Competitive advantage

The 'Journey'

Our change initiative 'journey' was a three-stage process:

Phase I Generating new ideas and change proposals

Phase II Testing proposals against existing practices

Phase III Implementation

We operated with a Project Management Board and nominated Senior Managers to champion the change initiatives to ensure commitment and ownership. A careful cost control and measurement system was established to track the savings and a small dedicated team were appointed to ensure that implementation was owned and actioned.

The action plan

The action plan was divided into three key areas:

People
Technical focus groups were established, chaired by members of the Asset Management team. Organisation structures and role profiles were developed in all function areas. Terms and Conditions have been standardised wherever possible, and are in the process of negotiation, to aid the process of moving towards a common culture, where flexibility in terms of hour's, skills and location will be vital.

New reward systems will be focused to compliment the portfolio and KM culture.

Processes
A new Finance and Procurement system has been implemented and key business targets will be monitored. A corporate Intranet will be utilised to transfer information. We are committed to looking for best practice internally and externally in related and non-related industries. We will continue our valuable links with Industry good practice organisations, such as the Electricity Generators Welding Panel.

Technology
The intranet, which incorporates a common document management system, has been launched to all staff for access to all company policies and procedures. The intranet will provide a platform for KM - allowing us to organise our intelligence. It is intended that this will also be extended to include on-line specialists within each of the business functions, such as an on-line support for managers in HR matters. Each function will have their own web area to share best practice, new ideas and benchmark approaches.

All staff have access to an electronic mailing system, laptops are supplied to staff who need remote access facilities and video conferencing provides an efficient means of communication, eliminating the need for excessive and unnecessary travelling and expenses.

Conclusion - In practice

Maintaining site loyalty but ensuring a wider perspective is difficult - however, effective networking is improving and has, for example, allowed spares to be quickly located and transported between sites, which saves generating time. Also, encouraging knowledge sharing in previously competing business units requires a shift in attitude - we need to eliminate the 'knowledge is Power' attitude. Benefits can be demonstrated within the Maintenance organisation where realised savings are estimated at around £0.5m annually by utilising technical knowledge and expertise when determining contract strategies across the portfolio. Benefits have also been realised where staff have been temporarily seconded to another Station to assist during a period of maintenance, which has meant that staff have been better able to resource this peak workload.

With this in mind, we need to continuously review the Operating Model and the associated strategy. Although IT does not guarantee KM (Cope et al), there is a strong reliance on the implementation and performance of new technology to deliver some of our KM objectives - we have recently introduced an Operations knowledge based system, which provides the following advantages:

Consistent environmental reporting

Reduces the costs of plant monitoring for life investigations

Reduction in efficiency losses

Plant investigations are easier, realising efficiency savings, plant damage is reduced and failures can be accurately analysed.

The change has affected everyone and effective communication was a big component of the change plan

• When implementing KM we needed to ensure that the necessary people, process and technology systems were in place - all three needed to be in place to succeed.
• By promoting a culture that assumes that it is normal to access knowledge before embarking on any new ventures, this will eliminate the 'reinventing the wheel' syndrome and demonstrate a respect for the work of others. (Mayo 1994)
• KM is an effective way to create long term growth because it provides a climate for innovation and continuous improvement
• There are still many opportunities to explore at all levels, we need to ensure that we carry on capturing the knowledge that is abundant within our organisation.

'A company's value derives not from things (assets), but from knowledge, know-how, intellectual assets, and competencies - all embodied in people.' Hamel 1995

BACKWEB. 'Overview of Knowledge Management' , 24/04/99 http://www.backweb.com.km.overview.html