Leading in a Time of Increased Expectations
Traditionally, big energy companies focused primarily on power generation, not customer-centricity. But that’s changing — and today’s digitally empowered customers have opinions about everything from where their energy should come from to when their bills should arrive. Lynn Good, CEO of Duke Energy Corp., reflects on guiding her company through this transformation.
When you lead one of the world’s largest electric utilities, you deal with a rather interesting set of challenges. For example:
A large percentage of your workforce is nearing retirement, yet your industry does not seem to hold the attractiveness of the dynamic technology companies you must compete with for young talent.
You manage stakeholders who often have opposing interests, which means whatever you do to satisfy one risks alienating another.
After decades of stability and uniformity, your customers’ expectations for service, choice, and customization have dramatically transformed and diverged.
Your industry is exposed to changes in public policies that are under continual debate — at the local, national, and global level.
And while nature is literally the source of your power, it can also be your most vicious enemy, especially when huge swaths of your customers live in hurricane zones like the Carolinas and Florida.
Meet Lynn J. Good, chairman, president, and CEO of Charlotte, North Carolina-based Duke Energy Corp. Good, whose calm and upbeat demeanor belies the very long set of complex tensions she faces every day, met with MIT Sloan Management Review editor in chief Paul Michelman at Duke’s headquarters in Charlotte, with further exchanges via email. What follows is a condensed and edited version of their conversation about leadership, strategy, and an industry undergoing dramatic transformation.
MIT Sloan Management Review: The first topic I’d like to cover is industry transformation and the nature of competition. You wrote recently that the transformational change the electric industry is undergoing “is surprisingly intense.” What are the key drivers of this surprisingly intense transformation?
Good: I point to three things: customer expectations, technology, and public policy. What’s surprising is that all three of them are changing at the same time. To have rapid advancement on three distinct dimensions simultaneously makes for an extraordinary transformation.
Let’s look at how our customer relationships have evolved. And to do that, we have to look at where our industry has come from. We are engineers who built big networks. We manage assets. We maintain the reliability of those assets. Our traditional focus was on the network, not the customer. And then you have today’s world of empowered consumers, who expect choice, convenience at their fingertips, and to have their questions answered in real time. Historically, we have not invested in the ways necessary to keep pace with their expectations.
Now that’s changing. The amount of capital that we’re deploying around new solutions for customers is more than it was five years ago — and a lot more than it was 10 or 15 years ago. We have to keep up with what customers expect from an experience: information, control, convenience, and choice. People expect that from their energy provider just as they do with all the other services in their lives.
So what are some of those investments? What are some of the dynamics of the new relationship?
Good: First, there’s mobile. Customers today care deeply about where their power comes from. They may want a fully green solution. They expect choice about how to pay their bill. They want access to data on their usage. People are accustomed to having unique customer-specific information about the products that they’re buying. Mobile apps are the centerpiece of giving customers access to the data and options they are seeking.
And then we are putting new devices on our systems: smart meters, sensing devices, and communication technologies that allow the network to gather and deliver all this information.
And we need to address our legacy IT [information technology] systems. Our legacy customer system was pegged to a meter. It didn’t know if you had a telephone number. We didn’t have your email address. We knew the customer as simply a meter. Well, that doesn’t work anymore. Those legacy systems weren’t built for the customer expectations and functionality we’ve been discussing. We need to invest to bring them up to date.
Given the complexity of your industry relative to the other industries that consumers interact with, how reasonable or unreasonable are customer expectations?
Good: Well, I’m not sure it matters, because there’s no customer who thinks they’re unreasonable. They have expectations, and it’s my job to meet them. If someone has an expectation that the delivery or service window should be two hours and we’re telling them eight hours, which means they have to take a day off of work, we need to adjust that.
So here’s another example. We bill you when we read your meter. We run a big network, and we tend to do things on our own timeline. Now, think about a senior citizen who has a monthly check that comes the first week of the month. They want very much for their electric bill to come the first week of the month, too. It helps them manage their life. Why can’t we send the bill the first week of the month? Or why can’t we provide an option where they can send us a prepayment on the first of the month? It’s a reasonable expectation and something that other industries accommodate for customers all the time.
So we’re not solving rocket science problems here. No one is asking me to explain how the nuclear reactor works. What people want is to be able to pay their bill when they want. They want to know how much energy they’re using. They want to know how it compares to last year. They want to know if they’re about to go over their budget. Those are things that we should be able to enable, but it takes investment.
Presumably, customer expectations are a moving target, particularly now, with new smartphones coming out every year with new abilities, right? How do you think about keeping pace?
Good: It’s a really important question for us. Think about the big legacy systems we operate. Historically, we have worked with long development windows. Define requirements, design it, test it, and roll it out. It might take five years. Now, we are shifting toward agile methodologies, so we’re delivering customer solutions much more quickly. We’re testing, piloting, getting feedback, and continuing to move forward. We can’t live with a five-year cycle.
That’s not to say that we’re necessarily going fast enough, but we’re trying to keep pace with what we know to be a rapidly developing set of expectations.
There’s a cultural element to this. We are trying to foster an environment where flexibility, change, and agility is the way we do business. And this is where you start to see some of the tensions with the complexity of our business. We have safety and reliability to be concerned with; we manage big equipment. It takes us a long time to do things at times. But nonetheless, we have to be an organization that embraces change and is agile enough to keep moving.
So I see that agility at two levels. It’s not only products and services and trying to keep pace with customers, but it’s increasing the metabolism of the organization to embrace change internally more readily.
As the organization’s top leader, how do you talk about this?
Good: Over the last year, I have been working to define for the organization what I call our leadership imperative. I’m trying to paint a picture of what it means to lead at Duke Energy.
There are five elements of the imperative. The first one is “live our purpose,” which is nothing more than a way to say that we have a very important mission. People count on us 24 hours a day, seven days a week, all seasons, all times. I’m looking for personal conviction and commitment. I won’t get the discretionary effort I need — think about our Hurricane Irma response — if our leaders don’t feel a clear connection between their purpose as a leader and the big mission of Duke Energy.
The second is that you must be a leader who understands how to lead change. You can set a vision and you can lead your organization toward the vision in an agile, flexible way. You embrace all of the things we are talking about here that are transforming in the business.
The third is to deliver results the right way. We can sit in this conference room and talk about all kinds of good things, but we need to deliver an outcome to our customers, an outcome to our stakeholders. And it has to be the right way — with safety, integrity, and customer service.
The fourth, “work as one,” is our term for how we go about working together in this big, siloed organization with our nuclear professionals and distribution employees and legal experts and regulatory managers. The outside world doesn’t see us that way. They want one solution from Duke Energy. If you are a leader wrestling with a problem that requires you to go across the company, the company needs to support you. We need to show up as Duke Energy, not as leaders of siloed organizations. That requires great collaboration, joint problem-solving, and enterprise leadership.
And finally, “inspire our employees.” We can’t be successful in any period of change or transformation unless we have absolutely every employee aligned and getting up in the morning with enthusiasm about how they’re going to add to the future of the organization. This part of the imperative means embracing inclusion — embracing different cultures and generations, from millennials to people who are nearing the end of their career. It’s leading across geographies. The focus on inspiration emphasizes that we win as an organization when all 29,000 of us are moving in the same direction.
I talk a lot about these leadership imperatives. We’re developing leaders with these qualities in mind. We talk about leaders as being strong in one quality and not as strong in others. We look at what competencies underlie the imperatives. How do we put those into a leadership academy for developing leaders? They are a part of ongoing performance discussions so that we are translating the ideal of what we want into actual applications in the ways we behave.
It sounds like you are emphasizing behavior and activities that may be hard to quantify and measure.
Good: There are plenty of things to quantify around here. We are flush with metrics. Whether it’s earnings or reliability or capacity or generation or turnover rates, we’re a metric-rich environment. We’re accustomed to running the business by metrics. But I don’t think running the business by metrics alone gets you through a period of transformation.
Has your approach to planning evolved?
Good: Over the past five years, I’ve probably spent more time on planning than in the previous 10 years combined.
We are dealing with so many more variables today. We’ve talked about a number of them already. Then there is the focus on renewables and curtailing our reliance on fossil fuels; deregulation; and changes in market structure. These changes can incent lots of different, even conflicting, behaviors and decisions.
So we undertake an ongoing assessment of all of these trends to develop the Duke point of view. And then we plan scenarios in which we are wrong. What happens if there is no more shale gas or there is a regulatory mandate to go 100% in a new direction? Amidst the scenarios, we need to identify where we believe — under the majority of the circumstances -— it’s going to make sense to invest.
You can have a horizon probably through 2020, maybe 2025, on that basis. I think renewables that are cost-effective are a good investment. Investing in our grid makes sense — to accommodate renewables, develop more storm-resistant infrastructure, and address all these customer expectations we’ve talked about. Cybersecurity is another.
And we believe natural gas is a good place to invest, at least in the medium term, since we don’t have a set of technology solutions that will make reliance on 100% renewable energy possible. Meanwhile, I know coal is under pressure. I know nuclear is challenged. What else do I have in my portfolio of choices that complements the renewable, lower-carbon solutions and that I believe could allow me to keep delivering reliable 24/7 power?
We’re constantly testing our assumptions. We have signposts that we monitor — prices, adoption rates, regulatory trends, public policy, what’s happening in the [U.S. Department of Energy’s] National Labs. What’s happening in Europe, Australia, and other markets that may be ahead of us on some of these issues? We are challenging our view of the future.
How frequently do you revisit your assumptions and objectives?
Good: Very frequently. In our business, as in many, you’re always challenged on both the short and long term. How much time do I spend on quarterly earnings versus the longer horizon?
We are trying to manage that through process. First, my weekly leadership staff meeting focuses on current events: What’s coming at us right now; where are we on the current year plan? And then, every couple of months, we take a day to a day and a half to look out further. We discuss 2018, 2020. We revisit renewables and what’s going on with battery technology. We’ll bring in an outside speaker — for example, someone who has embraced agile techniques. And then we bring those topics in at the board level, so that every board meeting has a longer-term topic.
We take a similar approach to strategy. We set up a framework that articulates what we believe are foundational elements to success in this dynamic industry. I’ll give you several examples: meeting customer expectations, being very good at stakeholder engagement, and operating with excellence — which we absolutely must do. We have to deliver safe, reliable, environmentally responsible power, day in and day out. If we don’t do those things well, it really doesn’t matter what we’re investing in.
Let’s talk about people. As your workforce ages, how do you recruit young talent to a very mature industry that might not match their idealism?
Good: I actually do think our industry taps into that idealism, because we do something that matters. Help us figure out how we’re going to embrace a 100% renewable future. Come help an industry that matters so much to survive for another 100 years. It will take your creativity and agility to do that.
Energy is a part of the conversation everywhere, so we have a good story to tell young people. And we put them to work with the skills they bring; they are technology-literate, interested in sustainability and innovation, and willing to embrace change. When we complement that with experience, support, and intensive knowledge transfer from our more senior employees, you’ve got a combination that can work.
Given the earlier part of our conversation about customers’ expectations being driven by their experiences with other services or products in their lives, has that led you to think more broadly about where employees come from?
Good: We recently named a chief customer officer from outside the industry, someone who has a background with Disney and United Airlines, to help create the picture for what customer relationships should look like.
In our customer organization, we already have more segmentation experts, more data analytics professionals, more service-oriented people who understand how we can make a better connection with the customers. We’ll continue to look at new initiatives through that lens, and I think that will lead to more differentiated hiring over time.
How do you think about finding the right balance between generating cleaner energy and meeting other demands like affordability?
Good: We sit at an intersection of affordability, reliability, clean, safe. We can’t afford to run down any single path all by itself. We can’t just say we’re going to produce the cheapest power no matter where it comes from. Or that we’re going to spend all the money in the world to make sure your power never goes out. Or that we’re going to drive carbon emissions down to zero in the next four years. It’s impossible to do. No one has the resources to accomplish that. So we are constantly trying to strike the balance. We have targets and expectations around each.
Affordability is really important, whether you are a consumer with low discretionary income or you’re an industrial company that’s competing against Georgia or China or Latin America. If you’re in heavy manufacturing, the cost of power is one of the top three factors that makes you competitive. So we can’t walk away from affordability.
We can’t walk away from sustainability, either. We need to demonstrate that we are reducing our carbon footprint, that we’re being good stewards of water, we’re being good stewards of solid waste and recycling, and doing all of the things our customers expect, and frankly, I expect. The communities we operate in expect us to be responsible.
Our carbon emissions are down 30% from 2005. We’re working toward 40%. It’s going to take a combination of renewables, natural gas conversion, and energy efficiency for us to continue to move in that direction. Some stakeholders may argue we’re not moving fast enough. Others may argue that we are prioritizing sustainability over lower prices.
And that’s just one part of the business. We are always trying to work with stakeholders to find common ground — to manage the tensions between different priorities and to keep the business running, affordable, safe, reliable, clean.
I’d like to hear your thoughts on where we are with the number of women leading large organizations.
Good: I believe great progress has been made. Now, great against a low base, right? But if you look at our industry in particular, there are more women CEOs than certainly when I started in the industry. I look at the executive ranks here at Duke. Our general counsel is a woman, my head of administration is a woman. We have very important leaders at the next level who are women.
The question is generally, is it enough? Is it fast enough? Are we on a curve that’s going to lead to percentages that are more consistent with percentages entering the workforce? When do we get to 50/50? When do we get to 30%? I think that’s the challenge for diversity in general. How do you continue to recruit, promote, develop, and mentor an increasingly diverse population?
And I think the business imperative for this is undeniable. We absolutely must do it. The way we think about it at Duke is that it’s a pipeline issue first. We need to make sure that we see enough diverse candidates in our hiring practices. And that we have intentional development programs and mentoring programs directed at helping people be successful.
Are there other levers that we can be pulling?
Good: I wish I knew what the other ways were. I don’t think there’s a single solution to this. To get to the C-suite, you need to put together 25 to 30 years of career. There are a lot of things that could happen in 25 or 30 years. The objective is to get a lot of diverse talent in the pipeline so you’re building a robust set of candidates with that type of experience.
When it comes to recruiting, we’ve been trying to cast broader nets. We’ve done more sourcing — where we go find people, as opposed to waiting for them to come to us. We’ve tried recruitment boot camps for our field crews in diverse communities to try to increase the interest and understanding of what our job opportunities are. There’s a lot of work to do to continue that pipeline development.
And what about board representation?
Good: I think it’s a similar issue. There’s been some discussion by certain institutional investors of trying to get to 30% board representation for women.
Board recruitment is challenging. You want diversity, but you don’t want people who are “over-boarded.” You should sit on one or two boards — three maybe, if you’re retired. There’s a lot of demand for director candidates who will increase the diversity in a boardroom, so there’s a pipeline issue there, too. If we can get more diversity in the C-suites of corporations, the diversity of the boards will improve as well.
I’m a believer that diverse perspectives are very valuable. You think about the complex world we’ve been discussing. Wouldn’t you love to have different points of view on how we deal with these really tough business issues? Diversity is a business imperative, just like good capital stewardship.
Paul Michelman is editor in chief of MIT Sloan Management Review. He tweets @pmichelman.
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