Strategic alignment and systems control of processes: the case of JEA: how a municipal utility implemented a process-based organizational structure and
Author: Management Accounting Quarterly
EXECUTIVE SUMMARY: Since the early 1980s, many organizations have implemented information systems to manage activities--a major step forward from managing on a functional basis. The development of activity-based costing and, later, activity-based management systems facilitated this transition. More recently, the focus has shifted to managing activities within the context of processes and subprocesses. For example, process-based costing (PBC) systems have been developed specifically to support process management. If managers focus on improving individual activities rather than an entire set of activities within processes and subprocesses, suboptimization can occur.
This article describes how JEA, a municipal utility based in Jacksonville, Fla., implemented a process-based organizational structure and supporting cost management and other models, which include PBC. JEA's general strategic control approach is a paradigm that can be generalized and adapted to other types of organizations.
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Since the early 1980s, many organizations have implemented information systems to help manage activities. The development of activity-based costing (ABC) and, later, activity-based management (ABM) systems facilitated this transition. Overall, it has been a major step forward--in contrast to managing on a functional, silo basis, using traditional management accounting information systems.
More recently, managers have shifted their focus to managing activities within processes and subprocesses. If they are focusing on improving individual activities rather than the entire set of activities within processes and subprocesses, suboptimization can occur. Often, the output from one activity is the input to another within the same process or subprocess. A cost saving or improvement in one activity may cause problems and inefficiencies in downstream activities. For example, efforts to reduce the time to process paperwork in one activity may result in more errors in subsequent activities, reducing efficiency and productivity. Recently, James A. Brimson proposed that a "process performance statement" be added as a fourth financial statement, with a focus on the future, including target outcomes for each process to complement the historical emphasis of the traditional income statement, balance sheet, and cash flow statement. (1)
Process-based management models include process value analysis and process reengineering. Cost management models that support process improvement efforts include recent developments in ABC/ABM models that have more of a process focus. (2) Interestingly, a process emphasis has been a common feature of German ABC systems since 1989. (3) Also, process-based costing (PBC) systems have been developed specifically to support process management. (4) PBC systems manage activities in the context of processes as the following quotation indicates:
Process-based costing does not make ABC obsolete. Rather, process-based costing modifies it and provides an overall framework within which ABC fits. (5)
In the following case study, we describe how a municipal utility implemented a process-based organizational structure and supporting cost management and other models, which include PBC.
JEA, A MUNICIPAL UTILITY
JEA is a municipal electric, water, and wastewater utility in Jacksonville, Fla. (6) The company has been remarkably successful financially while having electricity rates that are among the lowest in the United States. (7) In 2001, JEA was the eighth largest municipal electric utility in the nation in terms of number of customers. (8)
JEA's long-run vision is to be "the best service provider in the nation by 2007." Its intermediate goal was "to become the best utility service provider in the nation" by 2004--according to the American Customer Satisfaction Index (ACSI). (9) The official ACSI cumulative results for the third quarter of fiscal year 2004 place JEA solidly in second place among all major U.S. utility companies.
To help achieve its ambitious goals, in 2001 JEA implemented a lean, process-oriented organizational structure to replace its functional organization. (10) The ongoing implementation steps were:
* Key processes, subprocesses, and activities were mapped.
* Key performance indicators were defined.
* Performance targets were established for each performance indicator.
* Managers trained to become certified Six Sigma "Green Belts."
* Unit managers assumed responsibility for continuous improvement within their process segment.
Now the new organizational structure is more compressed, has fewer hierarchical levels, and aims to reduce the number of managers it needs by 20%. Displaced managers either elect to retire or are redeployed to other positions within JEA.
To further help achieve its goals, the company has developed "The JEA Way" of doing business, which is a strategic alignment and systems control model based on Stephen Covey's workshop, "The Four Roles of Leadership[R]." The four roles are: Pathfinding, Aligning, Empowering, and Modeling. (11) The JEA Way groups the four roles into three clusters: (1) Strategic Path (Pathfinding), (2) Processes and Systems (Aligning and Empowering), and (3) Leadership Excellence (Role Modeling), as depicted in Figure 1.
[FIGURE 1 OMITTED]
In the next two sections we discuss the JEA Way's strategic alignment and systems control of processes.
STRATEGIC ALIGNMENT OF PROCESSES
The three components of the JEA Way are aligned strategic systems, as shown in Figure 1. First, the Strategic Path systems establish the long-run vision, goals, and strategies, which form part of the company's strategic plan. Second, the Leadership Excellence systems promote management leadership that is committed to excellence in achieving JEA's goals and objectives. For example, Employee Development is a program that trains potential new managers to be future leaders and teaches new employees about the culture and tools needed to be successful. Third, the Processes and Systems programs promote continuous improvement in the performance of ongoing processes and systems in order to attain the operational short-run and long-run goals that support the Strategic Path goals and strategies. For example, process reengineering (called WorkSmart) and Six Sigma (called TargetSmart) programs have been used to improve the way work is performed in JEA's processes.
The systems control mechanisms to monitor processes, which we discuss later, identify gaps in actual performance versus the planned performance levels. Gaps in JEA's strategic plan are handled by the Strategic Path system. Human performance gaps are addressed by the Leadership Excellence feedback systems. Performance gaps caused by design and/or organizational problems have been handled within Processes and Systems by the TargetSmart or WorkSmart systems. Performance gaps are usually caused by a combination of human, design, and organizational problems, which result in the involvement of more than one program to close the gap. For example, a performance gap may be the result of a leadership issue and a process design problem. The Leadership Excellence and Processes and Systems that help prevent and close such performance gaps are presented next.
Leadership Excellence
JEA conducts comprehensive in-house training courses on the cultural, technical, personal, and organizational developmental required for different levels of management and different types of jobs. The courses help train employees and managers for the competencies and leadership skills required for their present and future positions in JEA. Topics covered in the courses include quality, cost, cycle time, product, and customer issues. Course participants have reading assignments, and instructors use Microsoft PowerPoint slides and a variety of other pedagogical tools and techniques to present course material. To ensure that learning objectives have been achieved, course participants are tested on the material covered.
Processes and Systems:TargetSmart (Six Sigma)
Six Sigma is a continuous-improvement methodology developed and first used at Motorola in 1986. (12) It is a systematic set of tools and processes aimed at driving out defects from operating systems within organizations and reducing cycle-time, with the paramount aim of improved customer satisfaction. Six Sigma projects are used to significantly increase the profitability of organizations through the reduction of direct costs and improving quality, as defined by customers. In addition to Motorola, AlliedSignal, GE, and other major companies have successfully implemented Six Sigma programs to reduce the variability of processes and improve the profitability of their respective operations.