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Management strategies for electric cooperatives for the 1990s.

Rural electric system are facing many challenges. The author has categorized some of these challenges as ones relating to board composition, leadership abilities of management, territorial challenges and the need to make mergers and consolidations work for the benefit of the consumer.


It has become trite but no less true to say that the '90s will be characterized by unprecedented changes. Management guru Tom Peters, in his book Thriving on Chaos: Handbook for Management Revolution reports that futurists see the '90s as a period of "... stunning technological innovation, unprecedented economic activity, surprising political reform, and great cultural rebirth ... !The impending year 2000^ is amplifying emotions, accelerating change, heightening awareness, and compelling us to reexamine ourselves, our values, and our institutions" (Tattle, 1991).

Managers of electric cooperatives must face the challenges of this decade and beyond by reexamining everything about their organization and industry. This includes their mission statements, customer relationships, technological changes, employee relationships, and most of all, the management process itself. Old ways of doing things may have worked in the past but they are not likely to continue working through the 1990s and beyond.

Electric cooperatives have a rich heritage of providing electricity to those small out of the way places that no one else would serve. They have succeeded in their original mission to "electrify rural America?" but now that America is "electrified," is there a greater mission for electric cooperatives than simply fulfilling a legislative mandate?

In most small towns the rural electric co-op was viewed as a "savior." But now, those same people "just expect" electricity whenever they flip the light switch. Those same "expectations" clearly indicate a changing role for most rural electric cooperatives. Given time, population, and economic changes in rural America, most electric consumers are devoid of loyalty to any specific electric company. Service at a good price is the standard. If the local rural electric cooperative can't provide both service and a good price, consumers are prone to look elsewhere (Parker, 1990).

The tendency of so many rural electric systems to revel in their past successes, to rest on their laurels, and to position themselves as a quintessential part of the rural "establishment" makes a mockery of the rural electric's proud history as innovators and pioneers. It flies in the face of the changes that are remaking our nation and the world. The rural electric manager of the future will either embrace and lead these changes or be swept aside by them (Smith, 1990).

Many cooperative directors and managers have expressed concerns that perhaps too much of the early mentality which assumed, "Low REA loan rates will last forever," remains and obstructs the cooperatives' vision of the future. They fear such a mentality may lead some to procrastinate in adapting to current and future market conditions (Reddish, 1990).

Like the dinosaur, any business that refuses to adapt to change may well be hastening its own extinction. For example, John Naisbitt's Megatrends tells the story of the American railroads, who, at the turn of the century, assumed a rigid and arrogant attitude that trains were the only means of transportation. At the same time. Henry Ford was producing a new automobile every 93 seconds. Orville and Wilbur Wright, among others, were attempting to refine a seemingly ridiculous machine that wasted time flying] What happened to the railroads? They had defined themselves too narrowly. Had they envisioned their primary function boldly as transportation, rather than just trains and tracks, they might have continued as a major transportation business. They simply defined themselves too narrowly. Exit the railroads from the arena of major influence. Exit any business that falls prey to narrow thinking (Parker, 1990).

Now, you could challenge me and say that people will always need electrical power. You could smugly scoff at the railroad example. Surely, at least for the foreseeable future, people will need electrical power. But, you may be missing the point. You may be issuing the wrong challenge. The issue isn't a product question, it's a service question] In other words, electricity isn't the primary concern because someone will produce it. The real question is who will provide il to the customers? Thus, the 1990s fundamental issue for electric cooperatives may be service-oriented (Parker, 1990).

America's rural electric systems will find themselves squarely on the cutting edge of social change in this decade. Like it or not, rural electric management will be forced to deal with increasing demands from consumers, employees, and society-at-large to preserve and, wherever possible, to enhance the quality of life in the rural community. A complacent, business-as-usual philosophy just won't cut it anymore (Smith, 1991).

In their book Megatrends 2000, John Naisbitt and Patricia Aburdene state that "Each year since 1979, the United States has used less energy than the year before. That's the new trend."

While this may be great news for humanity in general, it is small comfort to those REC boards of directors and managers who are counting on a strong recovery in the oil, gas, mining, and/or agricultural sectors to stimulate their systems' sales of power and energy. Moreover, the authors predict that:

"During the 1990s, the cost of photo voltaic cells, which convert sunlight directly into electricity, will drop to a point where they will be used commercially to generate electricity on a large scale. The average price could go down to $1.50 per watt by the year 2000."

Does a shift away from traditional agricultural and extractive industries toward the new "information economy" mean that rural America will dry up and blow away? Not at all. To the contrary, Naisbitt and Aburdene assert that:

"In the United States, for the first time in 200 years, more people are moving to the rural areas than urban, many more. In the Northeast, West, Great Plains, and Southwest, everywhere, people are moving from cities and suburbs to rural areas. They are abandoning cities for quality-of-life reasons: low crime rates, comparatively low housing cost, recreational opportunities, and perhaps, most of all, a return to community values."

The authors call this rural renaissance "New Electronic Heartland" and say that:

"... (it) will be peopled by individuals who are not location dependent, not location-bound. They will be software writers and engineers, stock and bond traders, transcribers, and translators, artist, composers, writers of every stripe who can do what they want anywhere and look for agreeable places to do it. ... In many ways, if cities did not exist, it would now not be necessary to invent them."

From a utility' standpoint, the ramifications of this "New Electronic Heartland" are clear: a great many rural electric systems are going to be getting a lot of new members who will have high expectations in terms of service quality and reliability. It also seems likely that we will see growing interest on the part of competing utilities in acquiring at least some of the more profitable of these new "growth areas" (Smith, 1990).

The typical rural electric manager of the 1990s will have to cope with:

* increased member, public, and media scrutiny of co-op operations:

* an influx of new members who are essentially unfamiliar with the cooperative form of enterprise, who expect nearly perfect system reliability and excellent service in general, and who are environmentally "aware";

* the realization that almost all energy issues are, in essence, environmental issues (whether related to PCBs, acid rain, electromagnetic fields, nuclear power, least-cost planning, global warming, land use planning, etc.) and America appears to be "greening" at a breathtaking pace:

* increased competition from other energy sources and, in some cases, direct assault in the form of hostile takeover attempts

* higher capital requirements in order to maintain, replace, and expand aging utility plants-coupled with the likelihood of diminished federal government support;

* a smaller, less well-trained labor pool from which to replace seasoned veterans and increased competition among employers {or skilled workers;

* increasing demands from employers for better and more flexible compensation packages, for enhanced opportunities for advancement, and for fair and equitable treatment on the job;

* the dilemma of balancing the potential economic benefits of merger or consolidation against the potential loss of member support, if in the process the cooperative loses its identity as a true community-based organization (Smith, 1990).

If the futurists are correct, and by all indications to this point they are, the rural cooperatives are going to become the territorial battle ground for the hearts and minds of their consumers. The Investor Owned Electric Utilities (IOUs) and the Municipalities are hungry to take over the more urban areas of the cooperatives' service territory. In 1991 the Supreme Court for the Fourth District made it easier for them to do this by giving the Municipalities the sole right to decide who will provide electric service in their newly annexed areas. One of the keys to the cooperatives' success in this struggle may be how well they position themselves as a service-oriented, community-based, truly democratic institutional.

Board Challenges

With the changing demographics and the shift from an urban to a more rural society, one of the major challenges of the cooperatives will be for the Board of Directors to change its makeup along with the rural population.

The recent attitude surveys of rural electric leaders conducted by AHP Systems Market and Opinion Research indicates that almost 75% of directors are either retired or farmers/ranchers. Compare this with a previous NRECA member attitude study it indicated that only 12% of the consumers served by rural electric systems were full-time farmers or ranchers. We need to figure out ways to diversify our board so they're more representative of the changing composition of the membership, more representative from the standpoint of occupation, gender, age, race, etc. (Kabat, 1990).

A second challenge in the board area relates to the fact that managers will increasingly have to deal with a board which will challenge more, question more, accept fewer things because "that's the way they have always been done," and take less for granted. We'll have fewer passive boards in the future. They'll want to be more involved. The challenge will be how to do that in a productive, non-adversarial way (Kabat, 1990).

Management Challenges

Successful business enterprises demand managerial clarity, vision and flexibility. "The times they are a changin" isn't just an old Bob Dylan song, that phrase capsulizes the 1990s, especially for electric cooperatives (Parker, 1990).

The managers of the 1990s will be different from the managers of the past. In most cooperatives the manager use to come up through the ranks. They had a good background in the hands on working of the cooperative but not many had a college education or post-graduate work. In the AHP study mentioned above, they found that 63% of all managers today arc college graduates or have post-graduate training.

Any well-trained person could be a manager but for the cooperative to survive they are going to need leaders on their board of directors and especially as managers. "A leader is an individual who builds followership by ethical conduct and by creating an environment where the unique potential of an individual can be actualized" (Smith, 1990).

What's the difference between "efficient" and "effective" management? In their book Leaders, Warren Bennis and Peter Nanus provide us with some insight: "Managers are people who do things right. Leaders are people who do the right thing." Unfortunately, many businesses develop an inability to adapt; traditions become unquestioned laws of the company. Routines are mastered and perpetuated by, perhaps, generations of employees. Yet, no one ever questions whether or not these very same routines should be done at all. Leaders change routines as needed in a changing business environment. Traditions and routines that worked yesterday, may not work today (Parker, 1990).

Leadership at any level is not for the timid. Most changes require far more thought than money. While many may disagree. I believe that, at a fundamental management level, no company or utility can merely "buy" itself into better management. Good management results from dedicated work, not necessarily increased expenditures (Parker, 1990).

Keeping people excited is the leader's job. In this regard, small business has a great competitive advantage over large companies. People in smaller companies are able to maintain a more positive attitude (Smith, 1990).

Flexibility should become the motto for personnel policies in the 1990s ... creative leave policies will help employers keep seasoned employees, who would otherwise have to be replaced from a dwindling labor supply (Smith, 1990).

The '90s manager must deal with employee issues such as chemical dependency, smoke free environments, stress management issues which are clearly personal but impact productivity as well. Today's business must deal with parental leave, not maternity leave, turning the issue away from a medical one to a family or personal one (Nubson, 1991).

A manager for the '90s must be a skilled negotiator, a manager able to deal with increasingly important community relations, relations with local political officials and also with diverse community groups in commercial and industrial development, all of which require a high level of negotiating skills (Kabat, 1990).

In the 1990s we'll face an increasing challenge of communicating effectively with a changing membership. To do this you must know the demographics of your membership so you can take this into account in your newsletters, inserts in statewide publications, bill stuffers, annual reports, etc. If your membership is composed primarily of retired people and blue collar wage earners, the emphasis in your publications should be very different than if the members are primarily farmers/ranchers (Kabat, 1990).

There is, however, no pat formula for managerial success in the rural electric program. Even with all the futurists' predictions, the attitude surveys, management surveys etc. there is simply no one management style, personality type, or grab bag of technical skills that will guarantee success as a manager of a rural electric cooperative. "What works at one system can be a prescription tot disaster at another and vise versa" (Smith, 1990). Managers must be willing to face the coming changes head on and unlike the railroads not define their cooperatives or their industry to narrowly.

Territorial Challenges

As was mentioned earlier, one of the greatest challenges facing cooperatives today is the issue of holding onto, or in some cases expanding, their service territory. Many cooperatives fear larger IOUs or municipalities because they feel that because they are so small they cannot compete. This fear has led some rural electric cooperatives to inaction and a loss of both history and vision. These companies literally become immobilized, and like the earlier described dinosaur, merely await doom in some vaguely defined business ice age. "Our competitors are too large" argue these managerial dinosaurs while passively awaiting their fate (Parker, 1990).

The question must be asked, is the size of any business truly determined merely by its assets and number of employees, or is size determined by some measurement of the company's ideas and adaptations? (Parker, 1990)

To compete in this environment the cooperatives are going to have to do more of what they are good at. They have been built around doing what's good for the consumer. They can do this better than the large IOUs because they truly care about the communities in which they serve. This means we have to develop stronger political ties locally, be more active in our communities, not only in economic development but in community service or outreach to show the community we care, that we want to help solve their community problems (Kabat, 1990). This is what the cooperatives were built around.

On the local level, rural electric cooperatives can also compete against larger electric companies, through leadership and vision, which ultimately requires the cooperation and pooling of talents among various rural electrics. This local and regional networking seems only a logical consequence given the nature of, and demand for, increased electrical power (Parker, 1990).

Managers, key staff, and directors will have to get much more involved in county, city, and town political relations because increasingly decisions made in "city hall" will affect us (Kabat, 1990).

Obviously we'll be dealing with a younger membership, one that cares less about past but rather about what you'll be doing for them today in quality of service, rates and other services which can't be met as well by others, e.g., power conditioning equipment, home security equipment and monitoring, water and waste water, economic development to create jobs, etc. (Kabat, 1990).

To develop support of the members of the '90s the system will have to emphasize service excellence, where every customer contact is a "moment of truth" as Scandinavian Airline chairman Jan Carlzon characterizes it. This may help us overcome some tale disparity. It is interesting that in the AHP survey of rural electric managers, 78% said that service quality was more important than price in maintaining customer satisfaction, and 84% said their rural electric system can outperform their neighboring IOU in service quality (Kabat, 1990).

Mergers and Consolidations

In the 1990s we will have to look even harder at mergers and consolidations, not just for the cost savings to be achieved but to improve the quality of service we can provide (Kabat, 1990).

The Shearson-Lehman-Hutton study of March, 1990. "Electric Utilities: The Case for Consolidation," shows 139 electric utilities consolidating into 52 groupings with annual cost savings of $3.613 billion, an average annual savings per customer of $49.66, and average cost reduction of 0.193 cents per kilowatt-hour and a one-time savings from surplus asset liquidation of $15.9 billion. The study states:

* The competitive forces that were germinating in early 1988 are increasingly apparent. Utilities large and small are cutting back and paring down, but how far can small companies go? Bidding to construct new generation is a way of life in 30 states, and more are sure to follow ...

* Transmission access has been part and parcel of recent FERC decisions ...

* Importantly, the new FERC chairman, Martin Allday, recently encouraged industry to propose changes to increase wholesale transmission access ... (Kabat, 1990).

While the amount of cost savings will vary according to consolidation choices, most savings will still emanate from lower costs associated with generation pooling, more efficient plant maintenance and retirements, and more efficient processing of customer accounts (Kabat, 1990).


The 1990s and beyond will be a time of tremendous management challenge for the rural electric cooperatives. It will be a time when our very existence will be questioned. Have we outlived our legislative mandate to "electrify rural America"? Will we be forced out of business or taken over by the municipalities and IOUs? Will we be able to stay competitive with the municipalities or IOUs in our rate structure? Will we be able to continue to get quality labor from a shrinking labor force?

These are all tough questions but questions that must be forced by the cooperatives. I think the cooperatives are up to the challenge if they don't become narrow-minded. We have a long history at courage and back-breaking struggle to draw upon. We have been built around serving the community and meeting the needs of the community. These are the things that we do better than the IOUs.

However, being community-minded will take us only so far. As was stated earlier, consumers will tend to be less and less loyal to our industry. They will be more and more concerned with price. Cooperatives will have to develop a strategy for measuring performance and controlling cost. This has never been a great issue in the past because there was never as much competition. If we are going to survive in the long run we will have to have competitive rates.

Every new day brings us into a world of greater competitiveness. Investor-owned utilities and municipals are now wanting the cream of the cooperative territory. In some cases, this is the only way they have left to expand their consumer base. In order to compete, rural electrics will have to find methods to create greater efficiencies within their operations (Boatman, Petersen, Hedburg, 1990).

The methods available to be competitive and minimize cost are as numerous as they are creative. A few ways of containing costs are through mergers, both at the G&T and distribution levels; through increasing kilowatt hour sales per consumer; through load control programs through merging or acquiring businesses (generally other utilities) such as telecommunications, gas and water companies, that can use common facilities and staff; and through pursuing economic development efforts to bring new business (Boatman, Petersen, Hedburg, 1990).

* Scott Shepherd serves as Manager of Information Systems at Berkeley Electric Cooperative, Inc., located in Moncks Corner, South Carolina. Berkeley Electric serves 50,000 consumers in southeastern South Carolina. Scott is responsible for all data processing functions including billing, capital credits, accounts receivable and management information reporting.

Shepherd began his career at Berkeley Electric in 1980 as a member service representative. Before being named manager of information services, he also served as district office manager. He received his bachelor of arts degree in psychology from The Citadel in 1980 and is currently working on his MBA at Charleston Southern University.


Boatman, Jim Petersen, Sheldon Hedberg, David. The 1990s, Competition and You. Management Quarterly, Spring 1990, p. 12.

Kabat, Robert L. The Decade of the '90s: Meeting the Critical "People" and "Thing" Challenges, Management Quarterly, Fall 1990. pp. 8-12.

Nubson, Dar. The Feelings Manager. Management Quarterly, Spring 1991, p. 21.

Parker, Ben L. Management Excellence: The 1990s Challenge. Management Quarterly, Winter 1990, pp. 4-7.

Reddish, John R. 1990. The Four Stages of Business Growth (and what that means to NRECA members). Management Quarterly, Fall 1990, p. 4.

Smith, Geoffrey. Megamanagers: Rural Electric Executives for the 1990s and Beyond. Management Quarterly, Fall 1990, pp. 33-37.

Tuttle, Thomas C. Strategic Performance Measurement. Public Power, 1991, p. 16.
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Author:Shepherd, J. Scott, Jr.
Publication:Management Quarterly
Date:Sep 22, 1992
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