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Communications and marketing case study: consolidated electric.

NRECA's first annual CEO Communication Leadership award went to a CEO/ President who emphasizes communication and does not hesitate to use unconventional approaches. Given the situation at Consolidated Electric Cooperative of Mt. Gilead, Ohio, these past few years, there may have been little choice but to be very good at communicating.

Editor's Note: Brian Newton was selected as the first winner of the CEO Communication Leadership award. This case study by Jody Severson examines the changes to the communication and marketing programs at Consolidated Electric Cooperative. Following the case study is Brian Newton's first hand account of why changes needed to be made.

When Brian Newton became CEO in 1998 CEC was, in attitude and practice, four largely separate organizations under the same roof-two cooperative offices and two subsidiary companies. "Us versus them" was the name of the game--if they even knew each other's names.

How Newton led his co-op employees, directors, and constituencies to a more unified organization both internally and externally is an instructive case for any cooperative trying to manage diverse employee groups and services while coping with major structural change like the merger.

Two years before Newton arrived, Consolidated had been created by the merger of Delaware Electric Cooperative, which lay in metropolitan Columbus' path of growth, and Morrow Electric in the next county north. The Delaware service territory was growing fast, perhaps beyond the co-op's means. Although Morrow served a less affluent, more rural area with a static economy, the system was in better shape fiscally and physically. It seemed a good fit; the merger was amicable.

When Newton arrived, the board was in transition. Seventeen directors from the combined board had not yet been winnowed to nine. The board may have been in the same room, so to speak, but employees were not. With the co-op's headquarters now located at Morrow, Delaware employees felt that they were not first class citizens in the organization. There were separate employee meetings, separate operations, and the usual "two sets of everything" that accompany a merger, especially two separate mindsets.

The merger brought with it a subsidiary that had begun as a C-band satellite venture with about 6,000 customers and that in turn had branched into an Internet service provider business that was having trouble keeping up with the demand. "People kept getting busy signals. We couldn't add new capacity fast enough," said Newton. Called Bright Choice, the communications subsidiary was yet another unique character on the Consolidated stage with its own customs, culture, marketing, communication, and employee mindset.

As if things were not already sufficiently challenging, the co-op had tacked on yet another subsidiary, Bright Energy, the year before Newton's arrival. At the time it was largely an economic development move to put natural gas distribution lines in a few key places. It counted just a few hundred customers, but offered the potential to help encourage development in the northern portion of the service territory where the economy was not as robust. A year after Newton's arrival, another subsidiary was added. It was a local HVAC firm with approximately 20 employees. The firm was going to close down upon the retirement of its owners, which would have been an economic blow to the area and its development prospects. The marriage of the co-op and the HVAC company offered needed trenching services to the cooperative and maintained jobs and valuable services in the economically down-turned community. In 2001, still another subsidiary was added to the mix. Metered propane service was added in response to member frustration about poor service and limited price options provided by national chain propane distributors. "We were new to the gas business, but that didn't stop us.," said Newton. "Metered propane made this service more affordable to more people because they pay monthly for only the propane they use that month, thus eliminating the need to pay a large bill for having a tank filled. Metered propane wasn't available from any other propane company in the area. It made sense to begin offering this service to a portion of our service territory where money was tighter, and expanding to the entire membership in a couple of years."

Together the cooperative and its subsidiaries had a long laundry list of products and services. They are listed in the sidebar, "A Big Menu."

Newton could hear grumbling among his employees. They thought that they were in the electric business and wanted as little involvement with the subsidiaries as possible. They didn't want to help market the subsidiaries. They didn't want to talk about them. They didn't want anything to do with them.

Consolidated Electric and its subsidiaries offered, or planned to offer, the following products and services:

* Combined billing

* Budget billing

* Security lights

* Surge suppression

* Uninterruptible power supply

* Automated Meter Reading

* E-billing

* Credit card / bank draft billing

* Operation Round Up

* Long distance

* Appliance warranties

* Long term care insurance

* Dual fuel/heat pump rebates

* Geothermal rebates

* Water heater rebates

* Water heater monthly credits

* Dial up internet service

* Broadband internet service through wireless, DSL, or satellite

* NitroDial Internet Accelerator

* C-Band satellite TV programming

* Health monitoring service

* HVAC sales and service

* Natural gas service

* Propane service

While all of this was going on, Ohio was moving toward deregulation. The California Effect finally did kick into gear, but not until the state's electric co-ops had been put through their paces.

To that add the pressure of a rapidly growing and rapidly changing membership. In one part of the service territory are more rural and blue-collar members in a slow-growing or flat economy. Many of them commute out of the territory to work, but for the most part they resemble traditional co-op members. In another part, a rapidly increasing suburban and outer-suburban membership that is younger, more well educated, more affluent, harder to please, and unfamiliar with cooperatives.

Newton's summary: "We had a lot of people going in a lot of different directions."

THE EXTERNAL CHALLENGE

If things were that confused internally, imagine what it must have been in the public mind. Until Newton's arrival, the co-op had elected to let the subsidiaries pursue their own directions. While there is something to be said for that approach, consumer surveys revealed that mere fractions of the membership understood the links between the cooperative and its subsidiaries, much less the extent of their product and service offerings.

Indeed, member recognition of the new co-op's very name was also in need of improvement. Newton believed all would be stronger if they marched together.

The cooperative adopted a mission statement explicitly stating that it is in business to offer products and services beyond the core energy business so as to improve the area's quality of life and to make Consolidated Electric the first choice energy provider.

Newton then tackled the job of getting his various publics to see the cooperative and its subsidiaries as a whole. That meant integrating five, or perhaps even six (if you count the ghost of Delaware Electric), separate marketing and communication operations.

The key step, he said, was persuading the board to hire a full-time marketing person. "We knew we would have to put a lot more resources into it than you typically see at a co-op with 14,000 members," he said.

It does not take long with Newton to realize that he is a natural-born salesman. The board approved the new position, and a reorganization of marketing and communication functions soon followed. Customer service and key accounts functions were moved into the new department for a total of 11 employees and one staff position.

Newton chose Teresa Staats for the job in part because she brought in a fresh perspective. "We had plenty of DOUGs around here already," said Newton. Dumb Old Utility Guys who resist change. "We needed fresh blood." At the first opportunity, Newton sent Staats to NRECA's weeklong Strategic Marketing and Communications Academy in Lincoln, NE, which gave her a solid basis for cooperative functions and standard methods of operations.

Staats and Newton crafted marketing plans intended to raise awareness of Consolidated and its subsidiaries, to unify their marketing and communication efforts, and to create employee awareness, acceptance, and ownership of the unified vision.

The biggest lesson learned in that process? "You can't do this from the top down. If you don't go out and listen to people at the subsidiaries, if you don't let them shape the plan, you can just forget it," said Newton. "If they don't feel it's their plan, it's just going on the shelf and things will be back to business-as-usual very soon."

That first co-op marketing plan is now nearly two years old and heading for its first major overhaul. It provides a detailed recitation of the co-op's recent corporate history and the challenges it faces. Then it describes a series of strategies that place heavy emphasis on research, business development, improving customer satisfaction, improving load management, and leveraging alliances with Touchstone Energy and Buckeye Power, the G&T. And selling. Newton's belief is that every member contact is a sales opportunity--it's a chance to be of service to members by making sure they're aware of the wide variety of products and services available through the cooperative and its subsidiaries. It's an opportunity to educate members that the cooperative is dedicated to the community and making it a better place to live.

Newton is also a big believer in market research. Through Buckeye, Consolidated and its sister co-ops participate in annual member opinion and satisfaction telephone survey. In addition, the market plan calls for ongoing research into new products and load management options. Ongoing measurement Of customer satisfaction is another component, as well as research (and a marketing plan) done before any new product or service is added to the existing lineup.

"You should give them the warm fuzzy about the cooperative and you should always be telling them about products and services," he said. "I want all employees to take every opportunity to cross-sell for our subsidiaries. A lot of doors open for us because we are the utility, and that creates opportunities that intertwine," Newton said.

He noted with pride how one electric employee had recently tipped the HVAC operation to a new subdivision bidding opportunity that otherwise would have been missed. "It won't be the biggest sale of the year, but it sure made my day when it happened."

What happens to co-op values when the CEO is so sales driven on behalf of its non-electric subsidiaries?

"We set up the subsidiaries to operate like cooperatives, too," Newton responded. "We want them to provide the best service at the lowest possible cost, and we do not believe in operating our subsidiaries in a for-profit mode when the parent is a non-profit. That sends mixed signals to the members. Our mission is service, service, service. Service to the members who own us. We are here to improve the quality of life for them, so before we get into something, there has to be more of a reason than merely making money."

He cited as an example consumer discontent with the national propane distributors operating in the territory. "People were unhappy with the service. They made customers buy it by the tank, and for a lot of people that's a hardship. They gave no choices and bad service. That's what motivated us to get into it."

Newton and Staats developed a matrix early on to better identify products and services that fit the cooperative, its members and the community. The matrix, along with customer research, guides the cooperative in the selection of those products and services.

Newton sees marketing a broad range of products and services as being synonymous with the co-op message and mission.

THE INTERNAL CHALLENGE

Before that unified front could appear externally, first it had to occur internally. One of Newton's first moves was to have all employees from both of the electric cooperatives to meet regularly. He killed the practice of separate employee meetings. That involves considerable time and travel expense, since the two pre-merger headquarters are 30 miles apart and the old Delaware office now functions as a district office with fewer employees.

The change made a huge difference and will be permanent, despite the cost. "There's really no choice," said Newton. "If you don't do it this way, it's always going to be us and them."

Joint staff meetings soon followed the joint training sessions.

Managers from the non-electric subsidiaries now attend staff meetings monthly. "It has given the electric folks a chance to hear what it's like out there in the subsidiaries. They get to hear some of the horror stories. And our subsidiary managers also get a chance to see that's it's not easy working within a cooperative either. Now that people have walked a little in each other's shoes, they have a better feel for what it's all about and they're far more tolerant," said Newton.

To keep internal communication flowing, Consolidated has two internal newsletters. "Plugged In," a bi-monthly, is the organization's employee newsletter. It is circulated to employees and board members, and in addition to the usual personnel chatter, it contains information to promote cross-selling of products and services. Last year, this publication was expanded to include subsidiary employees in an effort to encourage a team atmosphere throughout the entire organization. Recently, the publication's creation was turned over to a committee composed of members from each of the subsidiaries and the cooperative.

"WATTS UP" is a monthly publication that recaps co-op communication activities and upcoming promotions and helps employees see what the member is seeing. It is circulated to all employees and was just recently added as a section of "Plugged In."

The cooperative also has an extensive intranet site where employees can find maps, handbooks, newsletters, emergency plans, phone numbers, rates, marketing and engineering information, and details about all the products and services.

Employee pay envelopes include copies of the statement stuffers that will be going out in the next billing cycles. The cooperative also uses internal email blasts to keep everyone updated and holds regular employee meetings which are structured to provide an informal, casual back-and-forth style of communication.

Newton tries to break down communication barriers by frequently resorting to mini-teams, small groups of employees who are assigned to specific tasks based on their competencies rather than upon their location on the organizational chart.

Newton has an open door policy for all employees, too.

Sound like a bit much for an organization with 43 co-op employees and 35 subsidiary employees? Not in Newton's opinion.

"We're still not all singing from the same sheet all the time, though we have made huge progress," he said. "You have to constantly keep telling people how much we need each other. The more you do, the more communication you need to keep everyone in the loop. It never ends."

Heading into his next round of strategic and marketing planning, Newton has a new tool that he believes will fortify internal communication. A year ago, Consolidated unbundled its cost accounting system. Rather than accounting for their time using simple department codes, employees (after a day of in-service training) switched to a more detailed schedule of more than 100 cost element codes to report their activities. Accounts payable are also dovetailed into the new codes.

"For the first time, we're going to know what we are spending on dual fuel, and how much time is going into surge suppression or bill collection, and so on," said Newton. "As a group, we're going to be able to look at what things really cost and together we can figure out the smart way to proceed. This also shows staff and management how intricately all functions of the co-op are intertwined and reinforces how important it is to work together toward common goals."

A CHANGING MEMBERSHIP

A changing, younger, more prosperous, more educated, more affluent, and more demanding new membership is the co-op's next big challenge. "We're still trying to figure out how to reach them," said Newton. "What we know for sure is that we can't reach them through the customary channels if we want to teach them that they are members."

For starters, the co-op is overhauling its annual meeting. For years it had been a business meeting held at a local high school on a weeknight. Light entertainment, door prizes, and a $5 bill credit. Half of the attendees were over age 65.

The meeting has been moved to a Saturday morning at the fairgrounds and will take the form of an energy and health fair, with Internet/computer training along with carnival games, magic shows, balloons, a great free lunch, and a 30 minute business session. Also displaying at the event will be many local organizations and agencies including the local hospital, health department, sheriff's department, extension service and others.

The goal is to attract 1000 members, more than double the normal turnout. The co-op will use billboards, a take on the old Burma Shave road signs, its website, bill inserts, counter signs, monthly newsletter, and heavier radio and newspaper advertising to promote the event. Newton has also instituted a change to the co-op's methods of capital credit distribution that allows new, younger members to personally see the value in being a co-op member through a credit on their electric bill. Capital credits were typically distributed based upon the rotation method. Newton realized the value of helping to educate younger co-op members about the value of being a cooperative. The co-op's capital credits distribution is now based on a percentage method that can also be combined with rotation to better maintain the financial health of the co-op and educate the younger co-op members as well.

"We're also going to try to change the way people think about purchasing electricity," said Newton. "Even in these more affluent suburbs, a lot of people live paycheck to paycheck. We're going to offer them a prepayment system and try to get them to think about electricity the way they think about gas for their cars. Nobody blames the gas station when they run out of gas."

This can help us eliminate the negative customer service experience that can occur due to disconnects for nonpayment. Prepaid electric service will offer an alternative payment option to everyone, but especially to those experiencing budgeting problems, which can sometimes be the new family just starting out. "What a great way to introduce a new member to the cooperative! A new option that fits their lifestyle," he adds.

Consolidated will also employ a more basic approach. The marketing plan outlines a number of steps to improve customer satisfaction when the co-op is contacted. The plan includes a number of operational improvements whose purpose is to reduce a member's need to call in the first place, and then to reduce the number of calls required to solve a problem.

"Market research tells us that customer satisfaction goes down the more often they have to call you," said Newton. "We've taken that finding to heart. We've already dramatically cut the number of calls it takes to solve a problem."

Customer service reps are now able to handle a majority of calls on a one-call basis without bouncing members from one department to another. The reps are also cross-trained to handle basic questions about subsidiary products and services. Consolidated is also working on a new website that is more interactive, to take some pressure off the phones by answering typical questions, and encouraging email contact for basic customer information changes such as phone numbers, and even electricity signup and requests to disconnect.

One other change, now that dereg is in retreat. They've changed the name back. Once again it's called the Member Service Department. Anything that helps people realize they're members helps to improve customer satisfaction with the cooperative. And everything done--even an employee title change--can help to improve that rating. It's all about creating a unified organization, both internally and externally, both within the cooperative and in conjunction with the subsidiaries. It's about embracing change as a challenge to grow, even if it takes unconventional methods.

Jody Severson is a political and marketing consultant who lives in the Black Hills of South Dakota.

Since 1987, he has been helping electric co-ops face difficult challenges such as hostile takeovers, municipal annexations, municipal takeovers, diversification issues, franchise acquisitions, mergers, municipal takeovers, and local controversies.

He was involved in the formation of a new cooperative on the island of Kauai in Hawaii to purchase an investor-owned electric utility. His role was to help the cooperative overcome well-organized local opposition and demonstrate broad public support for the cooperative.

Severson also played a major role in the creation of the Communication Planning Toolkit that NRECA began providing to member systems in July, 2003.

Severson provides strategic consulting, political advice, poll interpretation, database analysis, and marketing and communications consulting for electric and telephone cooperatives as well as numerous commercial businesses and political clients, including U.S. Senators, Representatives, Governors, and state legislators.

Jody Severson, Severson and Associates
COPYRIGHT 2004 National Rural Electric Cooperative Association
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Author:Severson, Jody
Publication:Management Quarterly
Date:Mar 22, 2004
Words:3501
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