Implementing a Culture of Performance Improvement at RPU

1. Implementing a Culture of Performance Improvement at RPU Sue Parker, Director Corporate Services Rochester Public Utilities Presentation at the Rochester Area Quality Council May 5, 2009

2. Today’s Agenda & Topics • Who we are? • Timeline • Our Case for Change • Business Model and Strategy Development • Major Initiatives • Leadership Engagement • Improvement Framework VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

3. Today’s Agenda & Topics (cont’d) • Management Engagement • Employee Engagement • Balanced Scorecard • Leveraging the Challenging Economic Environment • What’s Ahead • Critical Success Factors • Questions, Comments and Discussion VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

4. RPU – Facts & Figures • RPU is a community owned utility serving 47,400 electric customers and 36,400 water customers • Annual combined revenue budget for 2009 is $182 million • Largest single expense for the electric utility is purchased power from SMMPA of about $90 million • RPU supports City operations by contributing about $9 million a year in lieu of tax payments • Our water utility reliability was increased due to adding 1 million gallons (8%) to our storage capacity • Our electric utility reliability achieved an eight year high in 2008 with a reliability index of 99.99% VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

5. Timeline Late 90’s: Deregulation a possibility in Minnesota 2004: Initial case for change 2005: Refocused business model and strategy 2007: CCS implementation and process improvement 2007: Vision and core values 2008: Shift from projects to continuous improvement 2008: Developed improvement framework 2009: Scorecard and goal setting 2009: Leveraging challenging economy 2009: Employee improvement training 2010: Business Unit and Departmental Scorecards VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

6. Case for Change • Deregulation in late 1990’s • Threat of being sold to private investors • Need for focus VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

7. Business Model and Strategy Development • Mission: We serve our customers by providing the highest quality services and products. Our experience and resources are used to enrich people’s lives, help business prosper and promote the community welfare. • Business Model: Customer Focus Model • Five Strategies: Culture of Customer Focus, Financial Management, Organizational Structure, Business Information, Infrastructure VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

8. VISION: We will set the standard for service. CORE VALUES: Safety - Integrity - Service Stewardship - Accountability - Skill VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

9. Major Initiatives • CCS Implementation – driven by “customer centric” business model • Realigned the organization • Introduced process thinking • Targeted process improvement initiatives VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

10. Leadership Engagement • Challenge for leadership: • Shift from project driven opportunistic improvement to strategic improvement • Implement a culture of continuous improvement where every employee is focused on improvement every day • Engage managers and involve employees • Avoid “flavor of the month” • Keep it connected, don’t change the main message VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

11. Improvement Framework Vision & Strategy Improve Performance to achieve Vision Develop Core Values & Objectives Aligned With Vision Develop Scorecard & Measures Aligned with Core Values Identify Areas of Improvement Measure Performance against the Goals Set Goals for Each Measure VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

12. Management Engagement • Engaged managers to develop the scorecard and the measures • Conducted multiple facilitated sessions with the RPU wide Management Team • Management Team owned the organizational scorecard • As a result, the scorecard already had enterprise wide support VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

13. Employee Engagement • Designed “cascading communication” • Starting from the top – every person with direct reports held a team meeting to discuss the scorecard – first Directors, then Managers, Supervisors & finally Team Leads • Communication came from the immediate supervisor • Everyone used a common set of materials and format VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

14. Employee Engagement (cont’d) • Scorecard was discussed – every measure explained • Discussions were encouraged – Feedback was noted • Why implement a scorecard? • How is this aligned with our core values? • What actions impact each of the measures? • How can this team improve the measures? VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

15. Organizational Scorecard • Strategy driven, mission aligned and a reflection of our core values • Not just financials – balances our priorities among all our core values • Stronger in common purpose - aligns all departments towards common goals • Encourages everyone to be part of the solution VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

16. Financial: • Gross Margin • Controllable Costs • Operational: • Average Interruption Duration Index • Plants Capacity Factor • Employee: • Recordable Incident Ratio • Customer: • American Customer Satisfaction Index • Stewardship: • CO2 Reduction VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

18. Leveraging the “Urgency” of the External Environment • Making the scorecard real by setting 2009 goals for each measure • Analyzing, rationalizing and reprioritizing projects and spending to meet those goals • Re-forecasting 2009 and 2010 • Involving employees to lead improvement initiatives “Million Dollar Challenge!” VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

19. Million Dollar Challenge • Encourages employees to submit their improvement ideas and measurable impact • Managers work with employees to develop an implementation plan • Employees become part of the solution • Encourage – not to settle for “we have always done it this way” VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

20. Million Dollar Challenge (cont’d) • Ideas are not just cost reduction but improvement in any of the measures • By improving the non-financial measures – like safety, capacity factor and RAIDI – employees directly and indirectly impact financials • By improving the non-financial measures – the cost savings become permanent VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

21. What’s Ahead • Improvement training for the managers and employees: • Providing an improvement “tool kit” • Lean six sigma • Kaizen events • Facilitation • Project management VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

22. What’s Ahead (cont’d) • Celebrating the Wins • Sharing the early wins and success stories • Recognizing the early adopters • Make the scorecard visible everywhere • Communicate progress against the scorecard goals – post the results • Communicate progress on Million Dollar Challenge – post the progress • Employee contest and improvement showcase VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

23. What’s Ahead (cont’d) • Developing next level - business unit and departmental - scorecards • Internalizing the scorecards and making them part of the planning process • In addition to the departmental budgets – develop an annual improvement portfolio aligned with departmental scorecards VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

24. Critical Success Factors • Establishing a Case for Change for the Leadership • Behind the Scenes Leadership Engagement • Making it “Middle Out” – Engaging Managers • Mindful Employee Engagement • Connecting it All - Not Changing the Main Message • Leveraging the “urgency” of external economic environment • Constant and consistent messaging VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill

25. Implementing a Culture of Performance Improvement at RPU Questions, Comments and Discussion VISION: We will set the standard for service. CORE VALUES: Safety Integrity Service Stewardship Accountability Skill