Power to Your People, Right On

By Raymond Green

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Educating a workforce about the concept of business acumen—going beyond financial literacy and developing a true understanding of what it takes for an organization to make money—is the key to producing real, bottom-line results.

Today’s energy companies find themselves in an unprecedented position—forced to deal with an endless series of intertwined challenges that have made “business as usual” anything but.

A sluggish economy, rising fuel costs, an anticipated scarcity of future resources, skyrocketing operational expenses, increasing environmental demands from the government and public-interest groups, competitive threats, and security issues—combined with a growing customer demand for low-cost energy and few opportunities to raise base rates—have conspired to create quite the Gordian knot. Try hard to loosen the rope, yet everything remains tight.

Ultimately, the effects of these challenges are seen at the bottom line. For energy companies, where the industry average profit margin is less than 10%, according to Yahoo! Finance, even the slightest impact on the bottom line seems especially magnified. So it’s imperative for every employee to make the smartest business decisions possible.

All too often, they don’t and feel they can’t. That’s why energy company executives must do their part by making sure that employees are equipped with the proper knowledge to make good decisions. Training programs and educational offerings must be aligned with the organization’s strategic objectives.

That’s not an easy job. Managers must help employees understand the company’s goals and develop the skills and motivation to contribute to them. At the most basic level of alignment, they must make sure that every employee understands how the company makes money. That includes understanding what drives profitability, how assets are used, how cash is generated, and how day-to-day actions and decisions, including their own, affect success.

Developing business acumen is fundamental to business alignment. Consider Xcel Energy, the Minnesota-based provider of electricity and natural gas for more than five million customers in eight states. As is the case with other energy companies, Xcel’s constant challenge has been to meet customers’ growing needs while keeping a rein on the increasing costs of producing energy, reducing environmental impact, and adding value for customers, communities, and shareholders.

There are thousands of power companies in the U.S., but only 48 made the 2008 Fortune 500 list of America’s largest corporations. Xcel Energy, which enjoys a reputation throughout the power industry for innovation and sustainability, is ranked No. 260 (and 242 for the May 2009 report) and is among the top 30 in terms of profit as a percentage of revenue. So consider this: If it buys the same fuel and equipment as other power companies and pays its employees competitive wages and benefits, what’s the difference between Xcel (my client) and others of similar size and circumstance?

Unlike some other energy companies, Xcel Energy’s executives have made efforts to involve employees in the company’s financial results by giving them the tools—the educational fortification—they need to understand what the financial numbers mean and, more important, helping to link everyone’s decisions and actions to the bottom line.

Certainly there are other factors that contribute to Xcel Energy’s success, but it’s difficult to ignore the positive impact of an approach that develops the business acumen of all employees and managers so that they can contribute to the overall success.