Rural public utilities have a long and distinguished history serving a limited customer base across broad swaths of geography. Favorable regulatory treatment enabled them to provide essential services cost-effectively while preserving their financial integrity. Yet shifting market forces threaten this delicate equilibrium:
- Demand for traditional services has leveled out or declined slightly.
- Competitors erode the customer base while exerting downward pressure on rates.
- An aging infrastructure requires billions of dollars in investment at a time when debt and equity markets have become less hospitable toward public utilities.
- An uncertain regulatory environment compromises the ability to sustain profits and build for the future.
The next generation of leaders faces these challenges with strong customer relationships and a solid track record of performance. A range of innovative strategies from an operations, technology or business perspective can help them diversify their revenue streams while scaling back on costs. However, they’ll need the following core competencies to take advantage of forthcoming opportunities.
Senior leaders need to keep their fingers on the pulse of the market forces that impact their current and future success. They need to stay abreast of federal regulation and legislative priorities to assess the impact on their service offerings, profitability and sources of funds. They need a grassroots understanding of their customers’ evolving needs and preferences to plan for future product and service offerings and ward off competitive incursions. They need ready access to a network of subject matter experts to help them keep pace with the breadth and depth of technological innovation in the industry. And they need to watch the industry’s innovators to see how their strategies and successes shed light on future possibilities.
Mergers and acquisitions (M&A) have long been strategic options to achieve economies of scale, reduce operating costs and bolster the balance sheet in a way that attracts capital for infrastructure investment. Yet there are other options to consider.
For example, a group of like-minded leaders could form a multi-company administrative services company to provide accounting, human resources and IT services at substantial savings for all parties. An electric co-op might partner with a telco to build a broadband network to benefit the co-op’s customers by leveraging its right-of-way and access to financing and the telco’s technical expertise and support capabilities.
Even so-called competitors might find common ground on which to build a business that benefits them both. Next generation leaders should invite the exploration and be open to new modes of operation.
Despite the need to evolve with changing environments, astute executives continue to render dispassionate assessments of all new business opportunities. They have the discernment to what questions to ask (or “gotchas” to avoid) when new initiatives get on the drawing board for discussion. Among the areas they consider:
- Market demand for new products and services as well as the competitive environment in which they will be offered.
- Core competencies each partner brings to the table and the synergies created through their combination.
- Gaps in skills and experience that could impede success and how they will be addressed.
- Financial stability of the affected entities and the impact of the new venture.
- Sources of capital under the new scenario.
- Tax implications for the businesses and their owners or shareholders.
Strategic investments in new or existing businesses require a detailed understanding of the underlying economics. Next generation leaders ensure they have access to sophisticated cost analyses that create distinctions between profitable businesses and those that drain the company’s resources. They ground their projected revenues, expenses and cash flow in reality. They structure financing in a way to maximize their organizations’ long-term viability while taking full advantage of government incentives and tax savings opportunities.
Emerging leaders make sure their organizations have the right internal control systems and data analytics capability to manage their operations efficiently and effectively. They define performance metrics consistent with their business strategy and use them to make tactical adjustments, as needed. They also take cybersecurity very seriously and institute the appropriate protections and processes to minimize their risk of attack.
Strong Organization Skills
The corporate landscape will witness a changing of the guard as baby boomers give way to millennials at all levels of the organization. Astute leaders know how to honor boomer contributions and extract their tribal knowledge while paving the way for a cultural shift with the younger generation. They are also adept at managing relationships across organizational boundaries to make strategic partnerships, joint ventures, mergers and other business arrangements successful. And they institute change management practices to help their organizations adapt to new circumstances.
The ever-changing landscape of public utilities poses a challenge for many organizations, but, when addressed with the right capabilities, these challenges become opportunities for growth. By excelling in the competencies above, organizations can stay relevant and become an example of next-generation leadership in their industry.
Meet the Author
Scott Daniels, CPA
Aldrich CPAs + Advisors
Scott leads our communications and utilities niches at Aldrich. He oversees the assurance services to our clients and consults with them on a variety of regulatory matters. He also acts as a business advisor to these organizations providing guidance on strategic planning, financial analysis, and system assessments. He is an Oregon Board of Accountancy Peer Review…
- Accounting and assurance services
- Certified Public Accountant
- Strategic planning, financial analysis and systems assessments