26 ELECTRIC PERSPECTIVES

Great
Expectations
As they compete for new business,
consultants find that electric companies are
demanding smaller, more experienced teams
and measurable—really measurable—results.
By Eric Krell

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or the past four years, the phrase “back to basics”
has described the prevailing strategy among most
shareholder-owned electric utilities. For many,
the current environment of rising fuel costs and
growing operating costs may continue to make
that approach necessary, but the vast majority of consul-
tants who serve the utilities sector suggest that an exclu-
sive focus on cost-reduction is no longer sufficient.
“In the last year or so, there has been a realization
among utility executives that we can’t shrink our way to
greatness,” notes Paul O’Rourke, a vice president and co-
head of the energy and environment practice with CRA
International. “That realization has sparked some strate-
gic soul searching: What do we want our company to do?
How do we get back on a growth trajectory? What is our
strategic vision for the next 10 years?”
A variety of issues—new high-level decisions. For
infrastructure investments, The bets example, almost every
rate cases, environmental project Navigant Consult-
are big-
controls awaiting imple- ing currently conducts for
mentation, and pressure ger, the utility clients features a
from investors, to name a risks are regulatory aspect or con-
few—make easy answers higher, the sideration (and the firm
hard to come by. does not provide specific
“The implications of choices rate-case advisory ser-
a particular decision are are nar- vices). “You can’t have a
more far-reaching and rower, and conversation about regula-
more significant than tory strategy and not have
we’ve previously seen be-
the chal- a conversation about cor-
cause the bets are bigger, lenges are porate strategy,” points out
the risks are higher, the greater. Dean Maschoff, a manag-
choices are narrower, and ing director with Navigant.
the challenges are greater “They are really one and
from a public policy perspective,” the same.”
explains Tom Flaherty, a Booz Allen Not the same is the relationship
Hamilton senior vice president in the between consultants and electric
firm’s energy practice. “The industry’s companies—in fact, it’s much differ-
responses tend to require more skills ent from what it was in the late 1990s,
integration, so consulting firms need to early 2000s, or even last year. Buyers of
offer a more complete perspective: You consulting services continue to grow
want to combine financial, regulatory, more sophisticated and demanding;
competitive strategy, and operational some consulting fees, such as those for
performance expertise when trying to services easily replicated (or delivered
evaluate appropriate decisions.” from offshore locations) continue to
Call it the “ripple effect;” the decrease; and other consulting fees,
ramifications of one high-level deci- such as those for highly customized
sion influence the dynamics of other strategic advice, are increasing.
In a sense, as they look for growth,
Eric Krell is a business writer in Austin, TX. utilities are going back to basics with

28 ELECTRIC PERSPECTIVES

consultants, ensuring their companies
get the most bang for their consulting
buck. Consultants are responding to
those expectations, and that means that
service offerings are changing. (See the
sidebar, “Consulting Confidential.”)
Consulting Market Snapshot
Most of the consulting firms vying to
help utility clients develop and exe-
cute strategies to address the complex
30 ELECTRIC PERSPECTIVES
combination of pressures confront a
unique set of pressures of their own.
The overall consulting market contin-
ues to expand, although closer scrutiny
indicates that the polarization of the
profession into highly successful firms
and firms struggling to survive, a trend
that emerged during the last recession,
continues.
In aggregate, the typical consulting
firm grew by an average rate of 2 per-
Masterfile / Paul Eekhoff
Less IT than before. Few firms are promoting
systems integration initiatives or large tech-
nology projects.
cent in 2004, according to Jess Scheer,
editor of Kennedy Information’s Con-
sultant News. Scheer expects the aver-
age growth rate for 2005 to increase
slightly, somewhere between 3 percent
and 6 percent.
Yet, classifying a consulting firm as
 “typical” these days is risky business.
Boutique firms that specialize in rate
case expertise are booming, as are se-
lect strategy firms that manage to dif-
ferentiate their services as unique or
“higher value.” Few, if any, firms ag-
gressively promote systems integration
initiatives or large technology projects,
with the exception of automated meter
reading (AMR) initiatives. Even consul-
tancies traditionally known as informa-
tion technology (IT) firms don’t quite
sound like IT firms in their positioning;
rather, they are promoting transforma-
tional projects, process-improvement
initiatives and, in some cases, out-
sourcing. Transformation now comes
in several different forms including out-
sourcing, post-merger integration and
smaller, more manageable initiatives

Consulting Confidential
hat do consultants want from their utilities clients? In a word, commitment.

W Brad Kitchens, president and CEO of ScottMadden, notes that his firm and top competi-
tors are moving toward what he describes as an “outside general counsel model.” Under
the arrangement, strong client relationships fuel an ongoing relationship in which clients regularly
call on the firm to handle issues both large and small. If the firm cannot assist with a highly focused
request, it directs its client to other firms that can solve the problem.
Other consulting executives who work in the energy sector express a preference for the sort of
model Kitchens describes. In private, they also identify what they don’t want from clients.
For example, one consultant confides, “I can’t tell you how many times we’ve said, ‘If they would
just let us put two more people on this project, we’d have a better outcome’.” The consultant ac-
knowledges that the desire is self-serving, but he also emphasizes that his firm puts forth highly
efficient project teams: He doesn’t want to break his client’s bank, but he wants them to focus more
on the value his firm’s service delivers and less on cost.
He’s not alone. “I’m constantly challenged by being compared to competitors that really don’t pro-
vide the same quality of work that we deliver,” says another consulting veteran. “We try to sell a very
sophisticated approach and try to differentiate ourselves. But a utility can pay a lot less for a similar-
sounding offering. The problem is that you’re going to get what you pay for. At the end of the day, it
probably won’t provide them with what they really need.”
In private, consultants frequently speak in the conditional tense: If the client would only have kept
us around for the first phase of implementation planning, or let us knit performance measures into
the project, or let us work with their program management office for a bit longer…
Those lamentations may fail to generate much sympathy from longtime buyers of consulting ser-
vices with vivid recollections of the consulting profession’s high-flying days in the 1990s and early
2000s when most consulting fees were high and more than a few deliverables (such as enterprise
software implementations and guidance on new investments) were of questionable value.
Firms that did not ride those product and services waves, particularly those that included expen-
sive it components, like to point out that their competitors cashed in on those trends. On the other
hand, non-strategy firms tend to dismiss strategy-firm deliverables as forcing a “white paper” or a
PowerPoint presentation on a client on the way out the door. To the extent that any firm owns up to
questionable decisions in the past, their principals tend to brush aside those activities as youthful
mistakes; their message is “We’ve learned. We’ve improved.”
Consultants hesitate to engage prospects and clients in candid discussions about past consulting
failures and about how certain purchasing approaches can, in some cases, prove more detrimental to
the client than the consulting firm.
Buyer-beware still applies (but less now than five years ago), and electric companies should focus
on cost value when buying a unique service. A more balanced approach seems to be emerging, but it
will take time to restore mutual faith and confidence.
“Companies look at consulting offers and ask: Am I getting real value for the cost, and how do
I measure that?” notes George Rickus, executive search consultant with Preng & Associates. “And
consultants are asking a similar question: How do I present and deliver real value for the cost of my
services?” That trust must be present if mutually valuable long-term relationships are to take hold.

32 ELECTRIC PERSPECTIVES
 Corbis

Corbis
best described as “transformation lite.” What type of product is he selling? Highly
Instead of an outsourcing transforma- customized and intellectual-capital-heavy or
tion that involves most back-office ac- off-the-shelf?
counting processes, companies seem
more likely to start by outsourcing a “It almost seems as if eight differ-
single accounting process (such as ac- ent professions are emerging,” Scheer
counts payable). Process improvement adds. “Firms competing on price are
and operational improvement initia- really struggling because the world is
tives also tend to be more getting smaller.”
focused and less expansive.
Seasoned, highly focused
Seasoned Balancing Bargain Hunting
energy-sector expertise is energy-sec- with Smart Shopping
in high demand—but so is tor exper- The dynamics of the con-
the need for new thinking, sulting profession seem
tise is in
fresh ideas, and a broad col- less foreign to utilities to-
lection of diverse expertise. high de- day than they were in pre-
Despite a distinctly mod- mand, but ceding years, thanks to the
est overall growth rate, 30 so is the significant number of con-
percent to 40 percent of sultants who have joined
consulting firms are thriv- need for electric companies.
ing, posting annual growth new think- “More often, we’re sit-
rates above 10 percent, ac- ing and ting across the table from
cording to Scheer. Another a former consultant on
30 percent to 40 percent of
fresh ideas. the client side,” Maschoff
firms are struggling. reports. “That was not
For his research, Scheer divides the the case a number of years ago.” That
consulting industry into four sectors “been-there, done-that” perspective
according to their primary offerings: has helped many, but not all, utilities
IT, human resources (HR), strategy, and hold consulting firms more account-
operations management. In addition, able for delivering value and better
each of those categories appears to be rates, according to many consultants.
splitting in two, with several firms that “Purchasers of strategic consulting
offer unique, highly customized, intel- seem less interested in theory,” notes
lectual-capital-heavy products occupy- Omar Abbosh, Accenture’s London-
ing the top half and the firms whose based global managing director for
services are quickly becoming a com- utilities. “They really want tangible
modity occupying the lower half. examples, metrics, and demonstrable

34 ELECTRIC PERSPECTIVES

benefits.” Buyers of IT services also
expect more accountability up front
and prefer customized offerings rather
than cookie-cutter approaches be-
cause the latter, which were popular
during the late 1990s until the reces-
sion, are generally perceived as adding
questionable value if not as outright
failures. In the operations consulting
area, Abbosh notes that clients want “a
deep, proven track record and genuine
36 ELECTRIC PERSPECTIVES
commitments in the contract to deliver
outcomes that they can measure.”
Former consultants have increased
the rigor of selecting, hiring, and man-
aging external consultants, but their
outside perspectives tend to fade over
time. According to George Rickus, a
long-time consultant with executive
search firm Preng & Associates, former
consultants can bring several assets to
electric companies, including exper-
Courtesy: A.T. Kearney, Inc.
Show me. Buyers of consulting services are
demanding more accountability for delivering
value and better rates.
tise in addressing the same problem
within many different organizations
and, often, a healthy breadth of experi-
ence. The downside, he adds, is if their
background is strictly consulting, they
may not have had to live with their de-
cisions and recommendations.
 Corbis
Rickus has witnessed a shift in how Everyone wants to see results—but buyers
utility clients work with external ser- shouldn’t overlook the value of relationships,
vices providers. Generally, utilities are say consultants.
looking for more measurable results
earlier in the consulting process and Responding to Client Demands
are looking to pay in stages, he explains, The polarization of consulting means
noting that many clients currently treat that it is not necessarily a buyer’s mar-
retained search services in a ket or a seller’s market.
similar fashion. “Clients are The consulting firms per-
saying, ‘Rather than paying
Utilities forming the best—those
your fee up front, I want to are looking approaching or exceeding
pay one-third initially, one- for more double-digit annual growth
rates—can charge higher
third after you give me a
measurable
qualified list of candidates, rates than they did in the
and one-third after accep- results ear- past two to three years.
tance,’” Rickus says. “The lier in the Firms below the sector’s
emphasis is on paying for consulting average 2-4-percent growth
tangible results.” rate are likely charging the
Most consultants agree, process and same as they charged dur-
as long as that empha- are looking ing the past several years,
sis does not obscure the to pay in or lower. However, even
benefits of long-term rela- the firms that suffered least
tionships or let the demand
stages. during the recession and
for lower costs overshadow performed best in the past
value. “Buyers should dig in deep and four years have responded to clients’
figure out which firms have the exper- demand for deeper expertise, lower
tise they need,” says Stephen Becker, a cost, and more manageable engage-
principal consultant in PA Consulting’s ments.
energy practice. “They should focus on Abbosh notes that client-side pro-
cost, but also on quality.” curement processes have grown more

38 ELECTRIC PERSPECTIVES
 sophisticated and clients expect con-
sulting firms to contractually spell out
their accountability for deliverables
and, in some cases, specific results.
“Over time clients get more demand-
ing because they rightfully expect us to
get better over time,” he says. “Frankly,
the firms that don’t do that don’t stick
around.... Any of our offerings essen-
tially has to pay for itself.”
Consultants emphasize that the size
of the consulting invoice should be
dwarfed by the amount of cost savings
or value that the service and advice
produces. Yet electric companies hold
increasingly pointed opinions about
how the services and advice should be
delivered to better ensure a satisfac-
tory return on their consulting invest-
ments.
“As a consultant, you have to contin-
ually sharpen your value proposition,”
says Maschoff. For example, many
consultants say that clients no longer
tolerate large teams staffed
with fresh-faced business faddish skills as opposed
school graduates with only
Consultants to baseline skills. Consult-
a seemingly loose grasp of say that ing firms have to be careful
the sector’s challenges and clients no about painting the wrong
picture. We have to ap-
pressure points. “Clients re-
longer tol-
ally want to hire a focused proach [our business] from
team of senior people who erate large the industry perspective
understand the client’s is- teams rather than just the skills
sues and who understand staffed with perspective.”
the context in which util-
ity executives need to make fresh-faced Beyond Back to Basics
very, very difficult deci- business Given the energy sector’s
sions,” says CRA Interna- school complex and interwoven
tional’s O’Rourke. challenges, and the chang-
Utilities, like most clients,
graduates. ing relationship among
also expect lean-and-mean, utilities and their advisers,
fast-working project teams. “Once how have consultants adjusted their
firms are engaged,” Maschoff adds, offerings?
“companies typically see several pref- By rethinking and reconfiguring
erences, including a desire for smaller cost-reduction approaches to help
project teams, project teams that are electric companies plan for future rate
more integrated with the client’s inter- cases, generate more revenue, leverage
nal project teams, and shorter assign- merger and acquisition (M&A) opportu-
ments with quicker deliverables.” nities, implement more sophisticated
In response, consultants appear to enterprise risk management capabili-
be focusing on experience. “As trends ties, shed valuable (but no longer nec-
emerge, consultants are famous for hir- essary) assets, and lessen the risk of
ing up certain kinds of skills to surf the outsourcing initiatives. That’s the long
opportunity wave,” Flaherty explains. answer. The short answer is by moving
“But as soon as the wave crests there beyond, but not entirely away from,
is no need for those skills. Those are a back-to-basics approach and into

40 ELECTRIC PERSPECTIVES
 A call center in Bangalore, India. Most consul-
tants agree that the use of outsourcing by utili-
ties will increase.
strategic planning. Generally, the ap-
proaches fall into four categories.
Back to basics plus. In an era of rising
costs, cost reduction remains crucial,
but several consultants have added
some major adjustments to that ap-
proach. “There are better gains to be
had by improving asset effectiveness,”
notes Vance Scott, vice president, part-
ner, and head of A.T. Kearney’s utility
practice.
For example, by improving the
output of generation assets and the
reliability of transmission and distribu-
tion networks, companies can boost
revenue and, potentially, sell excess
megawatts in nonregulated markets.
Decisions to pursue those sorts of
initiatives tend to fall out of strategic
Corbis
planning, and several firms report a
spike in demand for their strategic
planning advice.
O’Rourke and Scott also note that
an exclusive focus on cost reduction
may prevent utilities from taking full
advantage of M&A activity. Mergers and
acquisitions predicated solely on the
opportunity to cut costs through con-
solidation rarely satisfy expectations.
By looking at mergers as an opportu-
nity to leverage a variety of process im-
provements, electric companies can
gain more value from consolidations:
Larger companies can apply operating
efficiencies to the target company and
vice versa. “That approach delivers the
best value to shareholders,” Scott adds.
“We think that’s a better strategy than
just a pure, back-to-basics approach.”
Variations on transformation. Large
consulting firms love the “T” word, but
transformation seems to be undergo-
ing some changes. A little more than a
handful of electric companies are cur-
J U LY / A U G U S T 2 0 0 6 41
 rently involved in massive, enterprise-
wide restructuring initiatives. Firms
that assist with transformation report
that demand is increasing, but others
disagree.
“My gut reaction is that many of our
utilities did that in an aggressive way
during the period of price caps and
rate freezes when the benefits would
flow to the bottom line,” notes Branko
Terzic, global and U.S. regulatory pol-
icy leader of Deloitte Services’ energy
and resources practice. “My feeling is
most utilities may have cut too deep in
some areas. I’m not convinced there is
a lot of that left.” A former utility CEO,
Terzic also acknowledges that clients
tend to listen when consultants offer
new ways to be more
efficient and notes
that new methodolo-
gies and technologies
always arise.
Pilot program, anyone?
Many utilities are using
a measured approach for
adopting AMR.
42 ELECTRIC PERSPECTIVES
But Accenture’s Abbosh and others
note that transformation is driven by
a wide range of forces, including M&A,
new regulations, leadership turnover,
and financial hardship. Those forces
are unlikely to abate any time soon,
and the right mix tends to be pres-
ent before a company launches such
a major initiative. “Every single one
of the large M&A transactions is driv-
ing significant transformation within
core operations,” he says. When elec-
tric companies embrace transforma-
tion, they ought to do so at a measured
pace, notes Shelly Fust, senior client
partner in the global industrial mar-
kets practice of executive search firm
Korn/Ferry International. She counsels
Courtesy: Itron
utilities to identify which clients to take a thought-
areas of the organization Utility ful approach to outsourc-
have the greatest need executives ing. He advises utilities
for transformation rather considering outsourcing
than trying to accomplish and manag- to ask several questions
everything at once. Imple- ers have and sidestep a common
ment the changes in one generally pitfall. First, ask what the
or two areas first, she sug- leadership team wants the
gests, to demonstrate the
become company to achieve in the
approach’s success before more next three to five years.
tackling more ambitious el- informed If operational improve-
ements of the initiative. ment is a priority, consider
buyers of
The outsourcing question. whether an outsourcing
Most consultants agree outsourcing provider can perform some
that the use of outsourcing services. processes more effectively
by electric companies will than they are performed
increase. ScottMadden’s in house. Second, identify
Kitchens confirms that forecast but the company’s strategic priorities. Out-
also advises utilities to “dip their toe sourcing can help cut costs or reduce
in the water first by outsourcing selec- debt. Those objectives should figure
tively.” prominently in choosing a provider.
Amin Bishara, vice president and Finally, define how the outsourcing
North America utilities development relationship will be managed before
leader for Capgemini, also counsels signing the contract.
“Most utilities make the mistake by
not fully understanding what gover-
nance model they want to use to man-
age the relationship,” Bishara says. “The
governance model is more critical than
a contract. Companies should conduct
due diligence with other companies
or request that outsourcing providers
show them what kind of governance
models are available and to identify the
pros and cons of each approach.”
Some electric companies already
apply that sort of discipline to their
outsourcing-related decisions. Richard
Charles, senior vice president of busi-
ness development with Alliance Data
Systems, notes that utility executives
and managers have generally become
more informed buyers of outsourcing
services for two reasons. First, more
outsourcing-related information—in
the form of white papers, articles, and
practice-sharing—exists today than
was available even two years ago. Sec-
J U LY / A U G U S T 2 0 0 6 43
 ond, several new advisory The final characteristic
firms—or new practices in Consultants relates to business pro-
existing consulting firms— tend to cess outsourcing ( BPO )
specialize in helping clients agreements. Charles says
select outsourcing provid- focus more he would seek an “opera-
ers. on the tions mindset” and a track
“The playing field has benefits of record of continuous im-
leveled,” Charles notes, provement (efficiency im-
AMR while
“which is helping to pro- provements the firm deliv-
vide stronger outsourcing clients ered to other clients and
agreements.” spend more the time frame in which
Charles advises utili- they were delivered) in a
time scru-
ties to seek three primary BPO partner.
qualities in an outsourcing tinizing the Less IT , but more AMR .
partner: domain expertise obstacles. Perhaps due to incentives
(which includes experi- in the Energy Policy Act of
ence in the utility sector as 2005, or new determina-
well as the functional area the electric tion about energy efficiency and de-
company is interested in outsourcing); mand reduction, or the fact that recent
expertise with any information sys- utility financial strength has helped
tems involved in the agreement (i.e., if them get over the distaste (left over
the utility outsourcing billing runs an from the mid- to late-1990s) for ex-
off-the-shelf billing system, the out- pensive large-scale technology proj-
sourcer should know how to run the ects with little return, many utilities are
same application; or, if a legacy system looking for AMR experience. Preng &
is involved, the outsourcer should be Associates’ Rickus points out that con-
prepared to hire, or “re-badge” in out- sultants tend to focus much more on
sourcing parlance, some of the electric the benefits of AMR while clients spend
company employees who run and sup- more time scrutinizing the obstacles.
port the legacy system); and process Still, there are signs of increasing adop-
experience. tion—though there is caution, too.

Rate Case Warning

onsulting firms that specialize in support and advice for rate cases are doing brisk business

C these days. And while utilities should carefully select the most qualified and appropriate
rate-case advisors and experts, a greater rate-case risk may lurk inside their organizations.
Branko Terzic, global and U.S. regulatory policy leader of Deloitte Services’ energy and
resources practice, has participated in rate cases as a utility CEO, a regulator (as a member of
the Federal Energy Regulatory Commission and as a state public service commissioner), and
a consultant. He encourages utilities to select outside help based on track records, previous
testimony, and an expert’s ability to withstand brutal cross-examination among other crite-
ria. However, he also urges utilities preparing for rate cases to put participating employees
through mock rate case hearings and train them in the art of testimony. Electric companies
also should ensure that individuals contributing information to the rate case clearly un-
derstand how the information fits into the overall case. Many studies, forecasts, and other
documents are produced throughout the year, some of which cover similar subjects or boast
similar titles, which can cause errors during the information-gathering process.
“The last thing you want is one of your witnesses on the witness side to say the company
has forecast this to be X, and then have counsel for the opposition produce a different com-
pany-produced report for a different purpose that purports to show that same factor is forecast
as Y,” Terzic explains. “That raises a question as to whether you tried to hide the other study
or purposely selected the more favorable information.” Those discrepancies can be explained
in most cases, but the discrepancy could weaken the utility’s case.

44 ELECTRIC PERSPECTIVES
 Sharpen your value proposition. Utilities
expect lean-and-mean, fast-working project
teams that produce tangible results.

“Companies are buying consulting on

the front end, investing in a pilot pro-
gram with a series of meters, and then
evaluating the results,” says Rickus.
“They are not buying $4 million worth
of meters at once.” That measured ap-
proach helps companies spread out
the cost of the investment and justify it
to their boards, customers, regulators,
and shareholders.
The term “measured” may well
define the balance that utilities seek as
they respond to rising costs, increased
rate cases, and the need to grow. Yet,
measured responses may also prove
insufficient given the growing magni-
tude of the pressures bearing down on
electric companies. If that is the case,
healthy consulting relationships will

Corbis
grow even more valuable. ◆

J U LY / A U G U S T 2 0 0 6 45