A power and utilities sector perspective

Transcription

1 The DNA of the COO Time to claim the spotlight A power and utilities sector perspective

2 The DNA of the COO provides much-needed insight into what it takes to be a chief operating officer (COO) today. It explores the expectations and aspirations of those in the job, along with the skills, capabilities and relationships that they need to master in order to succeed. It is one of a series of EY thought leadership programs that seek to understand what it takes for C-level executives to take control of their evolving roles. This EY report is based on our global analysis of 306 COOs, including 48 from the power and utilities sector. A further 43 respondents from across the C-suite were also polled to give their perspective on how the COO is perceived by the rest of the management team. Finally, a program of in-depth interviews with leading COOs and other C-suite peers allowed us to explore the distinctive qualities of this community of professionals. Power and utilities: rethinking the mix Given the unique structure of firms within the power and utilities sector, the COO title is often a misnomer. Especially within larger organizations, there are usually at least two or three powerful executives who have the equivalent of this role, but typically with varying titles, depending on the part of the business they fit within: vice president, EVP, managing director or similar each handling either the generation and trading unit, or transmission and distribution or the retail arm of the business. Despite the split into various functions, these executives manage operations that are easily as large and complex as an individual COO s remit within other businesses. In particular, they are responsible for capital expenditure budgets that run into the multiple billions of euros or dollars and that stretch out over many years, all while ensuring zero tolerance for operational failure. At a wider level, these operational leaders (collectively referred to as COOs for this research) must operate within a sector that is undergoing significant change and which is under increased pressure. They need to make considerable bets on what power sources will be best suited to the future, given shifting concerns over both price and the varying consequences of different fuel sources. These are major decisions: according to the International Energy Agency, the global power and utilities sector will collectively invest some US$16t by As part of that, COOs must deal with close regulatory scrutiny, not least over growing pressure to introduce more sustainable power sources into the mix. This needs to be achieved while sticking to a mandate that requires a stable power supply at a reasonable cost to the consumer.

3 The DNA of the COO The role of the COO within the power and utilities sector is typically defined according to the part of the business it resides within. As with other COOs, the job s specific responsibilities are defined closely in tandem with the individual needs and goals of the chief executive officer (CEO), as well as other variables, such as the size and focus of the business. Despite this, there are common themes and concerns that cut across everyone in this position. What we find is a breed of executive who combines deep operational knowledge with broad strategic insight, and who is often positioned as a future CEO. Yet we also find a role that is fraught with challenges, not least thanks to the vast change under way in a sector more typically known for being staid and slow moving.

4 One of the C-suite s toughest roles Few operational leaders are handed responsibility for mapping out and implementing vast capital expenditure programs in the way that many power and utility executives are. This alone would be enough to ensure a challenging senior position, but it is made far more so by the changing dynamics of the industry. As with their peers elsewhere, COOs here acknowledge increased complexity as the single most important shift in the role over the past five years. This manifests itself in a number of ways. While traditionally a sector focused on long-term planning and stability, executives are having to grapple with profound questions about what mix of energy sources will be best fit for purpose in future. Equally, while pressure rises to curb emissions and embrace renewables, there is increasing difficulty to contain costs. These challenges require strong leadership to catalyze and implement the strategic agenda. In many companies, COOs are ideally placed to lead this charge. But doing so is far from easy: 38% of COOs strongly agree 1 that their role is one of the most difficult in the management team the highest of any sector polled. Thriving on the adrenaline of complexity and change For power and utility COOs, the inherent challenges of the job are part and parcel of its appeal. Overall, 54% say that the complexity and diversity of the role is fundamentally what makes it worthwhile for them, while 52% point to their ability to strongly influence the direction of the overall business. And, as might be expected, the talented candidates who are able to cope with such challenges are highly regarded internally. This positive perception, the highest of all sectors polled, and the clear potential to influence corporate strategy, form the two core reasons of why COOs in the industry find their job a fulfilling one. 33% percentage of COOs who think their role has become more complex in recent years 48% proportion of COOs strongly satisfied with the perception of the role 1 Whenever we refer to terms such as strong/strongly or major, we refer to those respondents that chose 9 or 10 on a scale from 1 to 10, where 1 is low and 10 is high.

5 A COO role in its own right Given the wide-ranging competencies of COOs in any industry, the global majority (40%) of those polled aspire to be promoted to CEO within the next five years. Within the power and utilities sector, this proportion is lower at 35%, but not through any lack of ambition. Rather their role, whether in running the power generation side of the business, the transmission and distribution or the retail end, is for all intents and purposes the equivalent of a CEO position in its own right. Given this, a higher proportion (38%) are satisfied to remain within the job they already hold. This is also reflected in the fact that the sector s COOs are typically more satisfied with almost all criteria of their roles than their peers elsewhere, but especially regarding the freedom they have to decide on strategic investments and influence corporate strategy. Overall, involvement with the board on strategic decision-making is the highest of all sectors, at 67%. Still, for those who aim to push higher, to take on the CEO role as part of their career evolution, they recognize the need to do even more on the strategic aspects of the role. Leadership and communication skills vital, but confidence here lags COO responsibilities differ, but one theme remains constant. To perform the role well, 88% of COOs say that highly developed leadership qualities and interpersonal skills are the most crucial attributes. Indeed, many admit that soft skills were an essential part of their career development, second only to hard work, which is a baseline assumption of any C-suite role. The reason is simple: COOs have to interact with almost every function in the business and find compelling ways to communicate to, and influence, a large and diverse workforce of specialists. Furthermore, 38% rate their ability to guide and manage their employees as a key part of what makes their job worthwhile, the highest of all sectors polled. But in this, many COOs within the sector recognize the need for improvements. When asked about the areas in which they most need to bolster their skills, the majority (56%) admit to the need to improve their communication and influencing skills, while a further 54% say they want to sharpen their leadership ability. 46% COOs that are strongly satisfied with their career development potential 9.5/10 the average level of agreement among COOs that leadership and people management skills are key to their performance, above all else

6 A master networker Another key facet in achieving success within the COO role is the ability to draw on a strong pool of key relationships, in order to get the job done. In this regard, power and utility operations leaders are well ahead of their colleagues in other industries, not least thanks to the fact that 4 in 10 have been in their position for a decade or more. About 7 in 10 (69%) of those polled hold a strong relationship with the CEO, compared with 55% globally. And given the huge amounts of capital they are responsible for deploying, 56% are also close to the CFO, as opposed to an average of 46% of COOs in general. Furthermore, with the increasingly common shift towards a smart grid infrastructure, links with the CIO are also decent: 42% say they have close ties here. Overall, though, this network of relationships is typically regarded as an essential part of how they got to the role they did, and what will continue to propel them along. You need to have complete trust, transparency and openness to make the relationship work, says Ngurah Adnyana, COO of PLN. A lack of visibility harming potential When asked about the biggest barriers to the career development of the COO, far more respondents point to a lack of acceptance or understanding as their number one concern, well above the global average. Furthermore, despite their importance to the overall business, far fewer COOs in the sector are represented at a board level than their peers in other industries. In some places, this represents difficulties in overcoming differing backgrounds: in an engineering-led culture, it can be challenging for an executive with an MBA mindset to gain acceptance, for example. More generally, though, this highlights a common issue for such executives: a lack of visibility. When operations are running smoothly, they rarely get the credit for keeping the lights on, but often only become noticed when outages occur. A similar challenge applies in external relationships. For the most part, it is the CEO and CFO who are visible to the media, investors and regulators, while the COO remains behind the scenes. Especially for those COOs who aspire to the CEO position, it will be essential to make their input more visible to both internal and external stakeholders. Few other C-suite roles are as closely linked to the overall leadership of the business as that of the COO. In this sector, in particular, the role is big enough to be a de facto CEO position. But to keep pace with change in the industry, and fulfill their future ambitions, stronger efforts will be needed to bolster specific skills and increase their visibility. This report seeks to provide a toolkit that maps out what needs to be changed, where the stumbling blocks lie, and how best to prepare. 48% proportion of COOs who agree that they have a strong network of C-suite relationships, among the highest of all sectors 42% percentage of COOs who think that a lack of corporate understanding of their role is the greatest obstacle to their career development

7 A snapshot of today s typical power and utilities COO Basic characteristics The average power and utilities COO is 50 years old, and is more likely than not to be male. He has typically been in his job for seven years, the highest of all sectors. Given the nature of the job, engineering backgrounds are more typical here: 38% hold a bachelor s or master s-level degree, compared with 25% of COOs in aggregate. More also hold MBAs than the average: 17% versus 11% overall. 50% have a board-level position within the company. Skills and focus As with other sectors, leadership skills are seen as crucial (selected by 88%). Related to this, the ability to communicate and influence is also seen as especially vital: 83% regard this a key, compared with 74% of COOs overall. This latter ability, the soft skills around how to communicate effectively with others, is also seen as an area in need of development: 56% believe they have to work on such skills, the highest of all options, and above the norm. Relationships Seven in ten power and utility COOs (69%) say their CEO links are strong, compared with 55% of COOs overall, and while ties with the CFO (56%) and CIO (42%) are less tight, they re well above average. Career Compared with other sectors, power and utility COOs are almost equally happy to see their role as a final destination, or to shoot for the top CEO job (35%). This reflects the wide reach and importance that their role typically holds already, given the nature of the sector. For those that are keen to push on to even wider horizons, operational excellence in their domain clearly tops the list to achieve the next step in their career (48%), while the ability to prove their strategic thinking features above the overall average (27% versus 24%). For further information about this report please visit ey.com/dna-coo, speak to your EY contact, or send an to coo@ey.com. To learn more about the EY COO program please visit ey.com/coo.

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