November, 2001,Business Consulting Providing Management Consulting Services to the Power Industry in China,1,Agenda,Section I. The Situation in China and the Challlenges for Power Companies II. The Opportunities for Improvement II. Implementing BPR and ERP,2,I. The Situation in China and the Challlenges for Power Companies,3,The major stakeholders evident in other power markets are yet to fully develop in China,Utility,Government,Customers,Employees,Environment,Shareholders,Captive customers cannot choose their supplier of power Low expectations of service Low consumption per capita,Employees are captive with little choice to move between employers Staff Turnover 1% in most companies,The PRC government is yet to enforce major environmental regulations as are evident in most other deregulated markets,Few power companies are fully privatised No provincial utilities privatised,Plans for reform have been spoken of, but no concrete decision yet made,Regulators,Effective “self regulation” through SPCC No independent regulatory body,4,From our work with a number of provincial utilities, we observe a number of areas where opportunities exist to significantly improve operating performance,Inability to accurately account for different functional segments (Generation,Transmission, Distribution and Retail) Lack of quality financial information generally and inadequate management reporting Management to technical KPIs and some financial ones, but a broad group of performance measures not used Excessive duplication of effort between business units (eg. accounting, purchasing conducted at multiple locations) Duplication of data entry through lack of integration of technology Excessive manual processing of major transactional tasks, and some areas completely lacking any form of technology (ie. paper-based records) Non-standard processes (driven by differing uses of technology within the same organisation) Remuneration based on standard national salary scales impacting ability to reward employees based on performance,5,III. The Opportunities for Improvement,6,What is a “World Class” or “Best Practice” utility?,The transition to becoming a “Best Practice” power company is an “evolution” driven, in most cases, by the deregulation of the market and the introduction of competition The evolution starts with operational excellence, and develops into innovation and a customer focus, to a focus on creating value from multiple business activities,Operational Excellence,Focus on Shareholder Value,Innovation and Customer Focus,Obligation to Serve,Monopoly,Competitive,STATE OF DEREGULATION,MANAGEMENT FOCUS,7,From.,To.,Functional ManagementManage business functions as defined by regulatory accounting categories to comply with authorised expense budgets.,Process ManagementDevelop and manage business processes linked directly to the utilitys outputs to focus resource allocation priorities, improve quality, and control cost.,Budget ControlNegotiate costs with government and then conrol expenditures to achieve authorised earnings.,Strategic Resource AllocationAplly capital and operational, and non-financial resources to achieve competitive advantage consistent with strategic objectives.,There are a number of shifts in general management practices required to meet “Best Practice”,Booking financial performance or contribution to governmentAchieve earnings targets as required by government revenue contribution needs.,Creating Shareholder ValueIncrease cash flow, reduce risk, and retain or pay out cash based on available investment opportunities.,8,There are a number of shifts in general management practices required to meet “Best Practice”,Regulatory AccountingCollect and report information primarily to comply with regulatory controls and government accounting standards.,Management ReportingCollect analyse and report information necessary to support management decision making and performance tracking.,Monopoly DevelopmentDevelop geographic territory by promoting load growth.,Business DevelopmentDevelop profitable new markets or services that leverage of existing business assets and core competencies.,Employee administrationEncourage comparability of compensation among employees, maximise company experience through seniority, and avoid labour relations-based service interruptions.,Human resources developmentDevelop and maintain a focused, agile and effective workforce operating in a culture that supports continued competitiveness.,From.,To.,9,Below we have provided a high-level summary of Best Practices that Andersen sees employed in leading utilities,Best practice utilities are: Focussing on Asset Management practices that optimize capital and operational expenditure by better understanding customer requirements and applying more rigorous planning methodologies Focusing Finance activities on adding value to the business, and putting non-core services into a Shared Services model to improve service delivery and cost, and to standardize processes Optimizing their Supply Chain through better supplier management, focussed procurement strategies, and using web-enabling technologies to streamline the purchasing and logistics process Developing Human Resource Management activities away from transaction processing and towards strategy and change management Measuring and monitoring performance through Performance Management frameworks that integrate corporate and business unit performance targets to ensure company objectives are met Employing state-of-the art Technology to support business decision making through provision of real-time financial and operational information,