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1993 Managing Change Optimas Award ProfileBRPhiladelphia Electric Co

April 1, 1993
Related Topics: Managing Change, Career Development, Employee Career Development, Featured Article
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Into the life of every company, some rain must fall. Sometimes it's just a light rain. Other times, it's a downpour. For Philadelphia Electric Co., 1987 was a hurricane. The storm came in the form of a shutdown and was ordered by the Nuclear Regulatory Commission (NRC) of Philadelphia Electric's Peach Bottom Atomic Power Station in Delta, Pennsylvania.

During an inspection, NRC inspectors alleged that they found an employee "inattentive to duty" in the control room at Peach Bottom. Philadelphia Electric, based in Philadelphia, had previous warnings from the NRC about operations problems. Because the problems weren't corrected, however, the NRC took drastic action; it ordered the Peach Bottom plant closed in 24 hours.

Philadelphia Electric management initially thought that the plant would be closed only for a few weeks. As it turned out, the plant was closed for more than two years, costing the utility millions of dollars in lost revenue. The shutdown on March 31, 1987, caused a domino effect throughout the organization and ultimately resulted in a change of leadership, company culture and the management-development process.

During the past six years, Philadelphia Electric's culture has changed from entitlement-based to skills-based. No longer can employees move up through the company based on seniority alone; now they must prove that they have management potential and demonstrate their abilities.

The utility's human resources department has played a significant role in supporting and executing many of the changes in management development, thereby helping the organization regain its position as one of the leaders in the utility industry. For its successful strategy in managing change, Personnel Journal has awarded Philadelphia Electric Co. the 1993 Personnel Journal Optimas Award in the Managing Change category.

Philadelphia Electric grew complacent.
Philadelphia Electric is a monopoly in a highly regulated industry. The organization has 79 locations, responsible for generating electricity and serving 3.7 million customers in southeast Pennsylvania and northeast Maryland. Its service territory is 2,475 square miles, and the company has operating revenues of close to $4 billion a year. In 1991, 70% of the organization's business came from its nuclear operations. The utility is nonunion, although a union campaign is currently under way.

Until the shutdown of 1987, a lot had been going well at Philadelphia Electric. It's a mid-size electric utility that had a history of performance excellence, especially in its nuclear business.

The original Peach Bottom Unit 1 plant featured a 40-megawatt, helium-cooled nuclear reactor — the first of its kind. Unit 1 was developed in 1966 by a group of 53 utilities and was operated by Philadelphia Electric until 1974. It served as the prototype for the commercial generation of nuclear power in the U.S., according to a Philadelphia Electric spokesperson.

By 1986, the organization had set several records for outstanding boiling-water-reactor (BWR) performance at its other nuclear power station, Limerick Generating Station, which is located in Limerick, Pennsylvania.

More than 100 years old, Philadelphia Electric Co. has a culture that embraces many second-and third-generation employees — workers' children who followed in their parents' footsteps by coming to work at Philadelphia Electric. The company is family-oriented and has less than 2% turnover per year, including turnover from retirements.

"Before the shutdown, we were a utility with a traditional culture that focused a lot on procedure," says Beth Rubino, manager of management development, who has worked for the organization for seven years. "There were some really good things about that," she says. The company was safety-conscious and cared about being a reliable source of energy to its customers. Rubino explains, however, that the organization didn't worry about how much money was spent in pursuit of these goals in relation to what it spent in other areas of the business.

"Everything became focused on the technical end. Anything that was technical got lots of attention and money thrown at it. When something broke, we would write a new procedure to fix it, instead of looking at why it was broken and what we could do differently," says Rubino.

Management saw little reason to question the way it ran its business. It saw no need for such innovations as continuous improvement, TQM or management development. Because the Peach Bottom facility had done so well, upper management was funneling more time, effort and some of its better personnel into the Limerick plant — its other nuclear facility — so that it, too, would achieve world-class status.

Limerick did well. Peach Bottom, however, was falling behind. "Over the years, things started to deteriorate," says Rubino. "We became complacent about how we managed Peach Bottom. Finally, the NRC came in and shut it down. This was after lots of people at the station were crying for help but really weren't being heard by the corporation. We threw contractors at all of our problems instead of managing our problems."

Rubino adds: "I believe it was the first time in the industry that a plant was shut down for human resources reasons."

Philadelphia Electric's top management thought that Peach Bottom's shutdown would last only a short time, not realizing that the organization's problems were more widespread than that of just an operator sleeping on the job.

"After the shutdown, we painted the plant, planted shrubs and did all kinds of cosmetic things, thinking we would be back on-line within two months," says Rubino. "We conducted some training for our operators, and tried to keep the focus and the blame on Peach Bottom."

Meanwhile, criticism poured in from other business units within Philadelphia Electric and from other utilities in the industry. In addition, criticism came from the NRC and INPO — the Institute of Nuclear Power and Operations. INPO governs the nuclear industry's training programs and ensures that quality and safety issues come first. "INPO said that we were an embarrassment to the industry, that we had much bigger problems than just Peach Bottom and that we had better look past our noses," says Rubino.

"We went through a whole period of denial similar to the Kubler-Ross model," says Kathleen M. Cook, who was the director of training and development for Philadelphia Electric until September 1992. She worked for the company for eight years. Cook now is the assistant VP of corporate training for The Vanguard Group, located in Valley Forge, Pennsylvania. She remembers what happened in the early stages after the plant shutdown. "Initially, we thought we were no worse than anyone else in the industry, and we wondered why they were picking on us," Cook says.

A cause analysis leads to solutions.
Philadelphia Electric management called in an outside consulting team, Management Analysis Co. in King of Prussia, Pennsylvania, to analyze what went wrong and what the utility could do to fix it. Philadelphia Electric was faced with producing a restart plan to submit to the NRC. The plan had to detail what it would do in order for the company to operate the nuclear facility safely and responsibly. The cause analysis revealed that there were four causes for the problems at Philadelphia Electric. One was a lack of strong leadership and support from top management. Another was poor management skills. The other two problems were technical in nature.

While analyzing Philadelphia Electric's problems, Management Analysis benchmarked Philadelphia Electric against cutting-edge companies in other industries in terms of organizational structure, management structure and HR development. Philadelphia Electric had done little benchmarking before the shutdown. "We either didn't benchmark at all, or if we did, we compared ourselves to other utilities, and that's just like comparing yourself to another dinosaur," explains Rubino. "Benchmarking against other companies helped us broaden our perspective." The benchmarking process took more than six months.

Members of the company's middle-management team in nuclear operations worked with Management Analysis to develop the restart plan to submit to the NRC. Some members of the Management Analysis team also served as organization-development and management-development consultants to the senior management team of Philadelphia Electric, but the consultants recommended that the organization eventually bring those resources in-house.

At the time, there was only a small human resources group that consisted mostly of technical specialists such as compensation and benefits people. There was no management-development or organization-development staff. "We had an old-school, autocratic, Theory X management style. This helped us break out of that mold and look into the concept of empowering and developing people," says Rubino.

HR was the catalyst for change.
Philadelphia Electric submitted a restart plan to the NRC and began to implement some of the recommended changes, such as breaking the nuclear organization off into a separate organization. "We also created a management and professional-development section that was separate from, but reported on a dotted-line matrix to, the corporate human resources department," says Cook. She previously served in the corporate HR department, but was asked by a VP of the new nuclear organization to head up the organization-development section.

During this time, Philadelphia Electric lost its CEO and experienced a management change throughout the business, including the nuclear operations, as a result of the plant shutdown order. The utility also went through downsizing in terms of retirement-related attrition and reduction of the contractor work force. "I think it was the rockiest transition period that any utility company in this country has ever seen," says Cook.

Joseph F. Paquette Jr., who previously had been with the company for 30 years, came back as CEO. Corbin A. McNeill Jr. joined the organization as the executive vice president of nuclear operations to help Peach Bottom get back on-line. McNeill now serves as president and COO. Under their direction, Philadelphia Electric embarked on a painful but challenging journey that focused on long-term strategic planning, to become a high-performance, high-commitment and high-energy organization.

During McNeill's first few days on the job, after he read the restart plan and saw that it identified the lack of leadership and management skills as some of the causes of the problem, he wanted to know where the management training organization was.

"That's when I found myself in McNeill's office," says Cook. "I'd been on the job for maybe two months. He pulled my organization out of services, and instead I reported directly to him."

McNeill and Cook discussed what the most pressing problems within the nuclear organization were and how the new management-development team should address them. They settled on developing their first-level supervisors, who are responsible for managing the individual contributors and teams in the operation of the nuclear plants. These individuals directly affect line operations, so improvements would be noticed quickly. "That was where we'd get the biggest bang for our buck," says Cook. By making sure that good leaders got into the pipeline at the first level, in time the company would have its best leaders in supervisory positions throughout the organization.

Cook worked with the executive nuclear team for three months to develop a three-year strategy for the selection, training and development of first-level supervisors, as well as management development and career planning for senior-level managers.

Philadelphia Electric had an inflated number of management levels. There were 10 to 12 management levels between first-level supervisor and senior management. "One of the first things we did in nuclear operations was to do a job analysis and to pare down the leadership jobs so that we would have five to eight reporting levels instead of 10 or more," says Rubino. The development staff invited industrial psychologists from Pennsylvania State University to help with the job analysis.

The management development team also helped senior management design a targeted-selection process for the company's higher-level positions. Two levels of management are involved in the targeted-selection process: middle-and senior-level managers.

For middle managers, targeted selection involves a review of technical and behavioral skills that are designated as necessary to mid-level management positions. For senior managers, targeted selection is called executive assessment, which requires senior managers to be reviewed by a third-party consultant. The process involves a review of past performance and a detailed analysis of leadership abilities.

Targeted selection for upper management was part of the assessment process before the crisis of 1987. However, it was limited, says Rubino. Now it's much more formalized. "That was a major cultural shift for the company because, up until then, seniority alone was what got you promoted," Rubino adds.

To achieve the goals for first-level supervisors, the company developed an assessment center, which puts first-level supervisor candidates in simulated settings to evaluate how well they deal with real-life management situations. They also initiated an eight-week Supervisory Development Academy (SDA), which gives the necessary management skills to the individuals who pass the assessment-center tests.

Because no one at Philadelphia Electric knew how to create an assessment center, the utility employed the help of Pittsburgh-based Development Dimensions International Inc. (DDI) to get the basic design for the center. "For organizational reasons, once DDI gave us the design, we became certified ourselves. We wanted to administer the assessment so that if it didn't work, we couldn't blame it on someone else," says Rubino.

First, Philadelphia Electric, with the assistance of the industrial psychologists from Penn State, did a job analysis of all first-level supervisory positions in all nuclear operations. In three months, more than 200 supervisor tasks were identified. From that list of tasks, the management-development team decided on 15 core-skill clusters or "dimensions" that Philadelphia Electric wanted the "new" first-level supervisors to have. The 15 dimensions included such skills as analysis, attention to detail, leadership and organizational sensitivity. These became the focus for the assessment-center testing.

The focus of supervisors' jobs had to change. "We needed to transform managers from technical experts into people developers," says Cook. It wasn't unusual for individuals to be in technical training for half a year. "We needed supervisors to stop being messengers and become decision-makers, and we needed to empower them to do that," she says. People were promoted on the basis of seniority, rather than on competency. "We needed to be able to select the most-qualified individuals," adds Cook.

DDI and Philadelphia Electric's management development team started developing the assessment center in December 1988. DDI helped the company administer the center only for the first six months, to make sure that all assessments were done in an unbiased way, and that it was done as a quality intervention.

The assessment center was on-line in May 1989 — about the same time as the reopening of one of the Peach Bottom units in April 1989. There were three levels of first-level supervisors in the nuclear operations: sub-foreman, assistant maintenance foreman and maintenance foreman. Upper management determined that the assistant maintenance foreman position would be eliminated because there were too many supervisory levels within the organization. Therefore, the company invited all incumbents for the maintenance foreman position to participate in the assessment center. "They didn't have a lot of choice because their positions were going away," Cook explains. The assessment center also evaluated individuals for the positions of health-physics supervisor and control-room-operations supervisor within the nuclear operations.

The assessment-center testing was held at the nuclear headquarters in Chesterbrook, Pennsylvania, for one-week periods. Starting with these groups of first-level supervisor candidates, the assessment center engaged participants for three days in such simulated exercises as one-on-one performance counseling and working in leaderless group meetings. Each exercise simulated one of the 15 dimensions. After a week of training to become certified, line managers from the nuclear organization observed the participants as assessors because the line organization wanted to own the process.

In the first three assessment centers that evaluated individuals for the maintenance foreman positions, approximately 200 people competed for 75 openings. Nearly half (49%) of the potential supervisors failed the assessment-center testing process. The other half (51%) went on to the SDA for further management training. Those who successfully completed the SDA would be in line for supervisor jobs.

Morale among those who didn't pass the assessment-center tests, or who were friends or relatives of those who didn't pass, fell to an all-time low. "Things were changing in the company. It wasn't as predictable as it used to be," explains Rubino. "Over the long term, however, morale actually improved because people felt more responsible for themselves and they felt more in control of their own careers."

"Initially, it was incredibly painful for them," says Cook. Each candidate who failed the assessment-center tests received individual counseling about his or her performance, including the areas in which he or she needed development.

"HR really took on a coaching and consulting role and had line management sit down and have those conversations with their people," says Rubino. "It was faster in terms of getting them to realize that this was the reality, and it wasn't going to change. It gave them time to get over it and then get on with the next step." They either stayed with the company in their previous jobs, left the organization, retired, or improved their skills in preparation for future assessment.

Those individuals who didn't pass were invited to come back for assessment in a year. They were on their own, however, to come up with a developmental plan to gain the skills they lacked so that they could pass the assessment-center tests the following year. They could get coaching from the management-development team, but they had to ask for help. It wasn't automatically given.

As a direct result of not passing the assessment-center tests, some people left the organization altogether. Many employees took an early retirement. "All of the people who were competing for the first 75 positions and didn't pass the assessment-center tests felt as if they were demoted," says Rubino. "They were next in line for those jobs and then didn't get them. They felt like they were passed over." Others improved their skills and passed the assessment-center tests the following year. The percentage of those who pass the initial assessment-center testing today remains the same. About 49% pass and about 51% fail.

The Supervisory Development Academy gets started.
In June 1989, the training-and-development organization was chartered with the development of the SDA. In September 1989, it was on-line. The SDA was where potential supervisors went to make the transition from hourly worker and technical expert to supervisor of hourly workers. "The whole program was trying to create a cultural shift so that they would come in feeling like technical experts and tool handlers, and leave feeling like leaders," says Rubino.

Classes consist of 25 people and run for eight weeks. The first and eighth weeks of the program are in residence. During these two weeks, the academy takes place at two off-site facilities: American College in Bryn Mawr, Pennsylvania, and the Sugarloaf Executive Conference Center associated with Philadelphia's Temple University. The program starts on a Sunday, and SDA participants aren't paid overtime. Mc-Neill usually gives a kickoff talk about his vision and expectations for the organization and the SDA class.

The SDA, like the assessment center, also focuses on the 15 dimensions. SDA class members take the Myers-Briggs test, participate in exercises to gain personal insight and supervisory skills and participate in simulations that center on teamwork, collaboration and competition. The SDA still is part of the selection process, which makes it an integrated approach with the assessment center. SDA students also must complete the academy successfully before they're recommended for supervisory positions.

Another aspect of the program is that every SDA class member's boss comes to the academy about twice a week for two hours at a time, to discuss how they will work together after he or she graduates from the academy. Five management-development staff members work with each group. Each class is given a project — a real organization issue — during the second week. The class studies the problem and at graduation makes recommendations for solving it to Philadelphia Electric's senior team.

For example, one class suggested that the organization incorporate a continuing-education program for students once they graduate from the SDA. As a result of the group's recommendation, now SDA graduates receive one week of training each year to emphasize and strengthen their leadership skills.

Most of the suggestions are incorporated into company policy. "Classes get a lot of sponsorship from the top," says Cook, "and a lot of recognition."

By 1991, the SDA training already cost nearly $5 million. "If we were going to spend all this money, and we really wanted them to be leaders, we had to put our money where our mouth was," says Cook. "Change is expensive."

In an interview published in Nuclear Plant Journal (September-October 1991), Dickinson M. Smith, senior VP, nuclear, talks about the success of the SDA: "This is a very intensive, extensive and expensive course, but I think we've gotten a payback from it. We think that while we can't measure it precisely, there has been clearly improved morale, and we think teamwork has improved. We mean to continue it and we hope it sticks."

Quoted in the same article, McNeill says, "I think we're beginning to realize that the human component of our business is a key ingredient. How we handle, manage and facilitate our people, giving them the requisite resources to do their jobs properly, is a key to organizational success. I think our supervisory-selection program, or anybody's supervisory-selection program, has got to be a principal element of that. I know that we're delighted with the progress we've made so far, but we're probably 10% of the way down a long journey of changing our whole company culture."

When the first few groups of SDA graduates finished their training and went on to become supervisors, they had new skills but didn't necessarily have managers who understood the new supervisor style of team management.

"We learned this by sending people back into the organization. Many of them got no support there and were getting clobbered," says Cook. She says that the management-development team fixed the problem by developing a new intervention program called the Leadership Exchange Series. The leadership exchange is a one-week program designed for the managers who have SDA graduates reporting to them. It focuses on the organization's new competitive vision and on teamwork.

Philadelphia Electric regains the competitive edge.
Within three years after the assessment center and the SDA were created, Philadelphia Electric won a "best practice" award in 1991 from INPO — the same company that had criticized the company after the shutdown for its nonexistent development activities. "In about three years, Philadelphia Electric went from what was considered the bottom of the barrel to the top of its field," says Cook. Many other utilities have sent representatives to Philadelphia Electric to see the program in action.

The program was deemed to be so successful and necessary to building the business that the assessment center and SDA were rolled out to the rest of the organization in February 1990. All first-level supervisors throughout the organization now are going through the assessment center and SDA.

Much of the success data is anecdotal. Many behavioral improvements, however, have been noted among the supervisors, such as increased ability to plan, better interpersonal skills and interdepartmental collaboration. SDA graduates are better-prepared to enter supervisory jobs. "Generally, the managers feel freer to do their jobs as opposed to worrying about every little thing. They now have confidence in their first-level supervisors," says Cook.

After the training changes were made, the Limerick plant gained the world record for the most number of consecutive days of continuous operation — more than 500 days. In terms of the HR contribution, the company's new senior VP of HR, William J. Kaschub (he joined the organization in June 1991), is leading the department toward a function that's more focused on the link between what HR does and how it supports the business. Human resources used to deliver services on an individual basis. "It was one-by-one problem-solving; let's fix this and move on," says Kaschub. "Whether it be a job evaluation, an employee survey or adding flexible benefits, what we're trying to do is spend more time determining what we should work on, then spend more time in program development and make sure that it goes into the organization consistently."

For example, Kaschub says that the company's overall training costs are extremely high, especially compared with other similarly situated utilities, and although the management-development program has been monitored closely and is successful, much of the other training the company provides isn't centralized. Whether it should be centralized is a question the function is considering.

In 1992, HR at Philadelphia Electric benchmarked itself against other utilities, as well as companies in other industries, in the compensation area with a companywide job-evaluation and market-pricing system. "The company previously hadn't had one," says Kaschub. "As a consequence, many of the pay rates were way out of line, not only with other utilities, but certainly way out of line with what other similarly situated companies were paying for similar jobs." As a result, HR put in place a new compensation plan that decreased the number of rate ranges from 206 to 12. Salaries also now have a maximum cap.

"It's classic of the utility industry that it isn't usually a leader of innovation," says Cook. "That's largely because it hasn't been a competitive environment, so there was nothing to drive change. Now, with possible deregulation, utilities are realizing that they have to start thinking and managing more competitively."

Philadelphia Electric seems to be changing its competitive stance in the U.S. business arena. If deregulation is the next big storm to hit Philadelphia Electric, it seems likely that the company will be better-equipped to deal with it.

Personnel Journal, March 1993, Vol.72, No. 3, pp. 112-122.

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