Solutions for Leadership Development and Organizational Change

 

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The Tennessee Valley Authority's

new leader understands that one  of the first steps 

towards changes involving employees in the process

 

By Roger L. Cole, Ph.D. and Larry A. Pace, Ph.D.

 

 

When Marvin Runyon was sworn in as the Tennessee Valley Authority's chairman, many hoped he would be the knight in shining armor that would save the agency from financial ruin.  Runyon had been a successful automobile executive at Ford.  When he took over the TVA, it appeared that nothing short of a superhero could turn the agency around.

 

The Tennessee Valley Authority was created in 1933 by an act of Congress with the mission of improving navigation on the Tennessee River, controlling destructive floods, producing electric power, planning for the proper use, conservation, and development of natural resources, providing for agricultural and industrial development, and promoting economic and social well-being.

 

Its noble mission began to fizzle when in the early 1970s, TVA begin an overly ambitious program to construct 17 nuclear power plants.  Almost 20 years later, of the 17, only two were on line with plans to restart another unit.  The $15 billion nuclear program had absorbed much of the agency's capital and led to an $8 billion construction debt. Nearly 40% of TVA’s power assets were tied up in unfinished nuclear plants.

 

In addition, TVA’s12 coal-fired steam plants were suffering from sporadic breakdowns because of insufficient maintenance.  A long drought in the Tennessee Valley had seriously reduced the capacity of the utility to produce hydroelectric power from its 30 dams—forcing the country's largest power system to buy more than 10% of its power from nearby utilities.

 

Because it had been forced to raise its rates an average of 4.5% a year since 1985—most of which was passed on to its industrial customers—TVA faced the threat of losing many customers to utilities that could offer lower rates.  In addition to these power-related problems, TVA's management was perceived as weak, bureaucratic, and short-sighted. Because TVA is a government agency, its ceiling for salaries is mandated by Congress. That made it difficult to attract top managers, who in private utilities could easily make four times more.

 

Clearly TVA needed to change the way it did business.   Runyon was appointed to lead that change.  Soon after becoming TVA's ninth chairman, he wasted no time outlining steps towards change that he and the board felt were needed in the coming months.

1. To re-examine TVA’s purpose and establish a clear plan for the future

2. To restore TVA’s nuclear program

3. To seek laws that would help TVA operate with the flexibility of private enterprise, and

4. To improve leadership, teamwork and communication.

 

The signs of change

 

One of the first changes began soon after Runyon’s arrival when he created a management committee consisting of 20 executives. The group began to meet weekly in order to plan and manage operations at TVA.  One of the conclusions that Runyon reached early in the assessment of the agency was that there were several "TVAs," each going its own way without a sense of cohesiveness and teamwork.  He envisioned that one of the primary roles of the new committee would be to get everyone working together as a team, to have a common mission and goals.

 

At the first offsite meeting, the management committee worked to determine the future direction of the agency and to arrive at ways in which TVA could best meet its objectives and serve its customers.  The major goals of TVA were reviewed and an action plan was developed for each. The management committee also developed a plan for guiding the restructuring of the agency.

 

Within three months, Runyon reported to the entire agency via satellite on the outcome of the offsite meeting.  He conveyed his theme of a "new way of doing business" as he spelled out how the agency would reach its goals.  He also announced a painful change: the workforce would be substantially reduced by October 1 of that year.

 

Runyon also mentioned that six task forces would examine the major issues facing the agency. For employees, this was the beginning of anxiety regarding their own job futures. It was also the beginning of a rumor mill that for the next three months would feed everyone's anxiety levels.

 

The reorganization was announced.  The new structure resulted in name changes of organizational units, new reporting relationships, the consolidation of some offices, and the elimination of others.  For example, the office of employer relations became human resources, the office of policy planning and budget became finance, and all programs funded by Congress were consolidated into resource development.

 

To convey a businesslike approach that would more closely resemble private industry, the general manager became an executive vice president, office managers became senior vice-presidents, and division directors became vice presidents. Runyon hoped the changes would result in greater responsibility and accountability in moving decision-making to the lowest operating levels possible.

 

Runyon confirmed that restructuring would eliminate programs and jobs. Job insecurity was a reality in varying degrees.  Many felt a sense of powerlessness and uncertainty regarding the future.  Observations and conversations with employees left little doubt that the TVA workforce had their minds on things other than their jobs.  That may have resulted in a drop in productivity.

 

RIF incentives

 

The reduction-in-force (RIF) process was announced along with an announcement of double severance pay incentives.  To encourage employees to leave the agency voluntarily, people who had worked full-time for TVA for five years were offered a days of severance pay for every year of TVA service.  At the same time, a comprehensive outplacement effort was mounted.  It included outplacement training (resume writing, letter writing, and job search skills), resource centers, job fairs, and a computerized job bank.

 

For some employees who were near retirement, the RIF repackage was a welcome incentive. Those who were unhappy and frustrated in their jobs also welcomed the RIF since it gave them an opportunity to look for other jobs on TVA time and at TVA expense.  But many others suffered various emotions including denial, disbelief, frustration, anger and depression.

 

Just five months after Runyon became chair, he announced the layoff of 7500 TVA and contract employees.   In addition employees were informed that management benefits such as paid health insurance premiums would be eliminated.

 

The following 90 days were difficult for both the “victims” of the RIF and “survivors”.  Productivity appeared to be at an all-time low.   The several thousand who had been laid off spent much time and energy looking for new jobs.   The survivors had to try to regroup and identify roles, relationships, and responsibilities.

 

After the August layoff announcement, all senior managers met together for the first time.  This not only brought together about 220 senior-level managers, but also demonstrated the new TVA was ready to move ahead and not languish in the past.  The purpose of the meeting was to solicit input from the new team of top managers regarding their perceptions of major concerns about TVA's future.   Runyon hoped that the agency was ready and able to let go of the past and move on.

 

Throughout the reorganization and layoff process, the management committee met regularly. The management committee and the board orchestrated the entire process with the help of internal and external consultants.  The consultants’ role was to establish and facilitate the weekly meetings and the off-site ones.

 

At the second off-site gathering, management committee members developed key performance targets for the six focus areas:

1. Organization performance management and accountability

2. Competitive power system

3. Morale and teamwork

4. HR management systems

5. Public image

6. Mission

 

Before the meeting, the management committee asked the senior managers to identify performance targets for each of the six focus areas.  Then the committee members developed some critical organization-wide performance targets.  They also discussed TVA's current business situation and what it would take to hold firm on power rates for the next three years. They decided that the senior managers would be best qualified to identify ways to cut expenses.

 

At their second meeting, the 200+ senior managers did just that.  They focused on group problem solving—how to reduce fiscal year expenses by $154 million. The managers were divided into seven small groups.  Each group was assigned to one of the following topics for brainstorming ideas to save money:

1. Resource development

2. Hydro and coal power

3. Nuclear power

4. Transmission expenses

5. Customer accounts

6. Fuels

7. Administrative and general

 

Each group reported the results of its discussion listing what could be done and how much money the suggestions would save.

 

Participation model

 

Runyon had brought with him a reputation for a participative management style.  By soliciting input from senior managers, he was providing a model for them.  This new way of doing business engendered a feeling of hope for the future of the agency despite the pain of the past few months.

 

Nine months after Runyon’s arrival, TVA begin anew as the last of the RIF’d employees walked out the door.  Over the next several months, the remaining employees tried to settle into their new roles and relationships.  Next Runyon discussed with the management committee TVA's new mission statement.  The statement was aligned with the original mission and was designed to provide a common direction for the agency.

 

The new mission statement did not put an end to the confusion and role ambiguity.  Many departments had to do the same amount of work as before but with half as many people.  Smaller corporate staffs needed to develop new working relationships with decentralized field staffs.

 

Over the course of the next several months, the composition of the management committee began to change.  The new senior vice president for nuclear power was hired and a new vice president of human resources came on board.  During the next several months, many of the names and faces at the top level positions would change, particularly in nuclear power.

 

A significant effort began to take form that had potential for changing the entire corporate culture of TVA.  During previous meetings the management committee had informally recommended that the agency move to increase employee involvement.  A task force had been assigned to study other companies and to develop a recommendation for implementing such a program.

 

Despite the efforts of the task force, the program was put on indefinite hold. The committee agreed the time was not appropriate for implementing a new corporate program.  Still the agency would encourage and support the local employee involvement efforts within organizational units.  Other topics discussed at the third offsite meeting included human resources issues such as training and development, labor relations, compensation, employee information systems and EEO/AA.

 

The next senior managers’ meeting allowed key managers to participate in small workgroups to give input on 11 topics.   Each group discussed the important issues related to its topic (mostly human resource and other issues related to business performance).  Groups came up with specific action plans to address the problems.

 

About 15 months into Runyon’s tenure, TVA experienced another major change:  3000 more employees would have to be laid off over the next 18 months.  This again stirred up feelings from the previous summer—uncertainty, confusion, and frustration.  It also reminded employees that TVA was not yet a stable organization.  Employees continued to adapt to changes in job responsibilities, but little evidence showed that they had truly internalized TVA’s new goals and values.  An essential ingredient seemed to be missing which was trust.

 

Many employees did not trust top management.  They felt that management did not value their contributions.   Of course, all this contributed to low morale.  Because employees still lacked a clear sense of direction, duties, and responsibilities, they did not appear able to continue moving through the change process to reach the final stages of acceptance, involvement, and commitment,

 

Over the course of a year and a half, there had been significant changes and turnover among senior managers.  In almost every case the changes involved bringing in managers from outside the TVA, usually from the private sector.

New vice presidents at the corporate level included new vice president for finance, information services, strategic planning, communications, and minority resources.  Many of these positions were filled either by a minority or a woman—a reflection of TVA's commitment to workforce diversity.

 

Recent events In TVA

 

TVA’s hallmark during this period had been a commitment to becoming the most competitive and best managed utility in North America and the most efficient and productive agency in the federal service.   Various events and activities were evidence of that:

• The refinancing of long-term debt which would lead to substantial savings

• The approval and implementation of a growth credit program to encourage industrial development and expansion

• A 2 year achievement of no rate increases for power

• An emphasis on strategic planning and setting an agenda for the next decade

 

Most of TVA's employees were still adapting to doing more with less. Employee morale overall had improved despite a great deal of uncertainty and confusion.  Senior managers looked ahead early, but many members of the rank-and-file were still having a difficult time letting go of the past—they had not reached the level of complete buy-in into the new TVA.

 

Becoming a business

 

Runyon wanted to establish a more businesslike organization; a visible sign of this was the refinancing of more than $6 billion in long-term debt by issuing bonds in the agency public debt market.  This was the largest public sale of securities ever undertaken by a United States utility and one of the largest underwritten public debt sales ever.

 

Before the changes, more than a third of TVA's expenses had gone to paying interest on borrowed money.  The refinancing at a lower interest rate was projected to save the agency more than $100 million a year.

 

The board approved a growth credit program that offered discounted rates to industries that located or expanded into the Tennessee Valley.  More than 75% of the agency’s distributors registered for the program indicating their commitment to TVA as a source of power for the next 10 years.

 

The agency was committed to a third year without rate increases in order to meet the goal established almost 2 years ago. And key managers said that a fourth year of rate increases was not only desirable but attainable.  Because of the rate freeze, more than 900 businesses announced plans to expand or move into the Valley region.

 

The new business was projected to bring $7.5 billion in investment and more than 55,000 new jobs to the region.  It would also help reduce the chances of losing distributors particularly on the borders of TVA service areas.  One of the agency's largest distributor announced that it would extend its contract with TVA.

 

A great deal of time and attention had been directed toward strategic planning and mapping out TVA's agenda for the next decade.   The following five strategic areas were identified:

• Environmental leadership

• Economic growth

• Excellence in customer service

• A high-quality workforce and workplace

• Excellence in TVA’s nuclear power operations

 

TVA would seek ways to demonstrate environmental leadership by going beyond basic compliance with laws regulations.  This meant solving environmental problems in innovative ways such as developing new pollution-control technologies. TVA would also direct its energy towards encouraging economic growth and creating jobs.  This would be accomplished largely through keeping power rates stable.

 

A "consumer first" philosophy would be stressed throughout the next decade.  That meant providing reliable, inexpensive power.  Another goal was to maintain a high quality workforce and workplace by stabilizing the workforce and expanding employee involvement.  New compensation policies and plans to offer a flexible benefits package as well as dependent care programs and fitness centers demonstrated that commitment.

 

Finally, TVA hoped to achieve excellence in nuclear power operations through safe, efficient and high-quality generation of power.   Runyon said by focusing on these areas, TVA could meet its goal of becoming the most competitive electric utility in North America.