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Massive Hydro-Electric Plant Construction:
The Critical Role of High-Performance Culture
The construction of a hydro electric plant is a daunting task in any circumstance. The engineering alone requires several months to complete and it’s difficult to determine if it delivers the promised performance until nearly the end of the contract date, (when non-conformance gets expensive costing $100k per day) to correct. Not only that, but all the components are sourced from different parts of the world, put on ships, trains, and trucks and delivered to a remote site, then assembled by other people they’ve never met – all of whom speak different languages.
Problem: The CEO of a $2B EU Hydro Electric plant is faced with relatively flat margins over the past three years and can’t afford to reduce headcount to offset climbing costs. Raising prices on major components isn’t an option while lowering them to get more volume will incite a price
war. The only proven way to recover margin is through aggressive ‘claiming’ at the end of the project. But that breaks trust, making it harder to win future projects. To top it off, you need to commit another portion of razor thin margins for keeping customers satisfied during the warranty
period. How in the world do you increase margins? Easy. You decide to “think differently.”
Solution: Thinking differently for this CEO came in the form of taking culture as the principal strategy for competitive differentiation and increased profitability. After a three-year investment in reshaping the culture, ‘Large Hydro’ harnessed a vital cultural trait they lacked: resilience. Resilience ensured they could reliably deliver on promises to customers Armed with this cultural trait, they soon were leading the industry in profitability, without raising prices, no longer reliant on aggressive claiming.
How did they do it?
Analysis: Looking through the lens of Business Ingenuity’s Strategic Framework (Figure 1) Large Hydro’s key problem was in the lack of alignment between PRODUCT and OPERATIONS. The PRODUCT, a ‘turn-key’ power plant, was just what owners wanted – it provided accountability for the guarantees they needed – at a margin that Large Hydro’s board could approve.
A careful review of recent contracts revealed a recurring pattern of deficiencies in OPERATIONS, (Figure 2). “Handing over” from sales to execution was a particularly stressful period where Project Execution repeatedly found themselves challenged to “do the impossible” after a careful analysis of contract documents and projected margin. Boosting margin required intense high-level design and reworking of sourcing packages (commonly referred to as ‘Bills of Material’ or BOM). But this early phase of the project was an uphill affair with nasty fights about what could and could not be done, invariably concluding in a sour mood and shroud of distrust that set the tone for the rest of the project.
Plant turnover was another high stress period. This came near the end of the project when time was not on their side. Large Hydro would feverishly conduct batteries of ‘dry’ and ‘wet’ testing of the end-to-end system – before contractually allowing the client to conduct their own extensive ‘reliability tests.’ Failure to meet contractually specified performance by the agreed date invoked heavy penalties – ranging up into +1ooK EU per day (up to a capped amount of approximately 20% of contract value). Hence, a ‘Commissioning Engineer’ was assigned and given enormous authority to lead a team to ‘make it right’. Invariably, heroic effort was needed to save the day, requiring rounds of intense engineering at the site (meaning plane loads of engineers and hotel bills for several weeks) and a flurry of unplanned for expedited parts at premium prices.
Large Hydro’s resilience was suffering from the lack of a ‘common language’ for getting work done within and across the various disciplines of sales, engineering, purchasing, manufacturing, and field assembly. Instead, they had a variety of “local languages” and disjointed processes that resulted in a steadily climbing trend in Cost of Poor Quality (COPC) – i.e., costs that were deemed avoidable.
COPC was recognized as the principle Key Performance Indicator in Large Hydro’s Strategic Framework. Embedding a common language throughout the end-to-end processes and in the hearts and minds of the workforce was the strategic thrust for increasing resilience and in turn, profitability.
Intervention
Fortunately, the CEO, in a previous assignment, had experience with a common language based on the Flores-Winograd 4 phase action cycle (also called the ‘accountability loop’, or more commonly, ‘the loop’). He was convinced the loop was the common language that could simplify Large Hydro’s very complex technical work as well as provide a more direct way of improving accountability in daily cross-functional interactions.
Careful interviews with subject matter experts from the various disciplines pointed to the major process flaws shown in Figure 3. The diagnosis made a compelling case that was recognizable to all -- world class engineering was not the problem; world class coordination was. To that end, a ‘universal language-action vocabulary’ that worked within and across the various disciplines was readily accepted.
A hand-picked cross-functional team, reporting directly to the CEO, went to work constructing a comprehensive set of processes based on the language action distinctions and principles. The details contained within process descriptions were focused on accountability – making clear what was expected
by each performer and customer at every point – including how key meetings should be conducted and the kinds of decisions expected as outcomes. Careful attention was given to finding the right balance between making expectations explicit without going so far as to be off-putting or handcuffing common sense.
The ensuing ‘play book’ contained a multi-leveled set of process maps, stemming from high-level maps like the one illustrated in Figure 4.
Once reviewed and accepted by the CEO and his senior executives, the Core Team was mandated to take the Play Book out across all global regions, ensuring adequate understanding of basic principles of the common language as well as familiarization and correct use of the blue book.
Results: The impact of having a common language brought about the desired improvement in OPERATIONS. Project teams were no longer faced with ‘handover’ problem; the execution team could start from a position they had confidence in, because they were included in defining it. Components came to the site at the right time and when assembled, components and systems proved to be ‘harmonized’ i.e., integrating well with other systems. Commissioning and plant acceptance became a time for celebration and pride.
By infusing the organization with a common language, Large Hydro strengthened resilience, reduced COPC, and improved net profitability.
But in so doing, it also reshaped its culture from ‘tribal’ to one that was poised to become ‘synergistic.’ As illustrated in Figure 6, (above) attainting a synergistic Culture State requires another key cultural trait – adaptability. Achieving that requires focusing on the ecosystem to make timely adjustments to their Strategic Framework.
To read more case studies, blogs and to learn more about Resilience, Adaptability and BI’s Strategic Framework, visit our website.
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