Capital Power Corporation "Demerger": The creation of a new company

Speaker A Our presentation at this point is from Capital Power and I want to introduce two people and mention a third. So first of all, I want to send the regrets from Brian vaggio, who's the CEO. He was hoping to attend along with Peter, but is not able to. I'd like to introduce Scott Bratley. Scott, could you just stand up, please? Scott is a Director of Human Resources who was really integral in terms of the whole implementation process. So if people have questions, certainly Peter here is a fount of information. But Scott also has good firsthand information and was an important part of that process. I'd like to introduce Peter Arnold. Peter is the Senior Vice President of Human Resources and some other things, I.

Speaker B Believe environment, health and safety.

Speaker A There you go. Okay, so what we're going to do this afternoon with this presentation is the kind of process that was used here was the same as the one this morning in terms of doing an assessment and implementation, so on. So we're not going to get into that stuff. What we're going to do is try to focus on some of the parts of this that were unique and different and haven't been talked about as much so far in the day. So we'll touch on some of the pieces that have been talked about, like aligning positions and matching people to positions and so on. But I think there are some other parts to this that are unique and will provide some added value in terms of the discussion. So my role is going to be more just simply asking Peter some questions, and this is going to be Peter's show in terms of the discussion. So, Peter, maybe as a starting point, you could just talk about Capital Power, but also talk about EPCOR and the relationship between EPCOR and Capital Power. Good.

Speaker B Thanks, Ron. Maybe what I'll do is I'll start with EPCOR first because we're sort of a demerger. We've heard of a lot about acquisitions and integrations this morning. We're the exact opposite. So EPCOR is a very unique organization. It provides the water and wire services now for the city of Edmonton, but it also has a huge water operation that's across North America, including such places of Phoenix and such like that. So they also had another arm, and that was the Generation Arm. I guess it was really about four years ago. The organization was thinking about its long term plan and strategy, and what they were attempting to do was grow the company both from the water side and the power generation side. And in order to do that, you needed capital. And for those folks that don't know how EPCOR is structured, it's a very unique and it's probably the best model I've ever seen as a city owned utility in probably North America. It operates like a publicly traded company. It has its obvious business, it has its executive management team, but it reports to blue chip board of directors. And then the board of directors has one shareholder and that's the city of Edmonton. And all they do is write a check to the city of Edmonton every year for a dividend. So it just runs like a for profit organization and has no interference from the politicians in Edmonton other than a normal shareholder vote. So, excellent model. So what the executive wanted to do with EPCOR four years ago is grow the business both on the water side as well as the power side. But in order to do that, you need capital and obviously being owned by the city and they're one shareholder, you just can't go and get capital from the citizens. So they came up with a strategy to spin off the power generation business through an IPO, and that was the creation of Capital Power. So EPCOR was probably 3000 people operating about 50 water and power operations across North America. And the Capital Power ends up being about 1000 employees. And I think we've got about 16 power generation opportunity or operations across North America. We operate in obviously Alberta. We've got wind farms in BC and Ontario as well as Alberta, and we also have operations in the northeast US as well. So we're across the northern part of the US. In terms of power generation. So that's an overview of EPCOR and capital power. But the key point here, and maybe Ronald, I don't want to jump into your questions, but the spinoff of Capital Power was a strategic decision in order to grow the power business. And it also had another key element, part of its business, and that's the energy trading. And I don't know if any of the organizations here have power trading, gas trading, parts of their organizations. That's a very unique business and risk. And it was also decided that's something that the city of Edmonton shouldn't have to take on is the risk element. So we're sort of derisking EPCOR, but also raising capital to grow the company. So now it's a publicly traded company. Capital Power can raise capital through share.

Speaker A Okay, great, thank you. Peter, going back to the beginning, you personally made a decision that you thought doing organization design work would be good and part of it was, I think, related to the organization, but part of it was also related to human resources. So I think it would be interesting if you could maybe start at the beginning in terms of your thinking and what the process was in doing that.

Speaker B It was a very interesting way we got into the organizational design as an organization. This is back starting at Epcore days. So actually it really started at a board meeting. Actually one of the dinners after the board meeting and one of the directors took me aside and we're just chatting and he said, what do you see as the biggest challenges from a people standpoint in EPCOR? And I thought about it for a second and we just chatted, but I came up with a couple thoughts. I said, the first thing that struck me is that we have an awful lot of different job titles across the organization, we have an awful lot of levels in the organization and we don't have a very good method to move people into senior roles when they become open. And I relate a story to them was the way they did it in the wire side is when a senior role came open, they got that management team, that business units management team together and they looked at each other and said, who's got the most seniority in the group? I guess he gets the job. So that was their method of moving people into the senior role. So that didn't make a lot of sense. So that was sort of the genesis of us looking at organizational design. So he actually gave me the name of Ron and he said, well I've worked with this organization out of Toronto called Capella Associates on Organizational design. You should take a look at them and give them a call. Which I did. And I think we probably talked back and forth, Ron, for probably several months. And just so I could understand the whole concept of organizational design, and once I got an understanding of it, took it to our CEO at EPCOR and talked to him about it. And he had a mild interest, so we didn't get too far. We had a few more conversations. Ron met him and given some information on the process, he got certainly interested, but he wasn't prepared to initiate a company wide project on organizational design. And actually he was sort of drifting back of not doing it, but from an HR standpoint I felt that was the right thing to do for the organization. And I went to him and said, we really got to do this. And he said, no, I don't think I want to do it. So I said that's not good enough. So what I did is I went back to one of the key business units in the organization who was led by an individual who was a bit of a risk taker, like to do things a little differently. And I talked to him about organizational design and he got quite excited about it, so he was willing to be a pilot in the organization. And so I went back to our CEO and talked to him about that. And so he was prepared to let me use one group as a pilot and he jumped into it, the business unit lead jumped into it both feet and implemented organizational design. We went through all the processes you heard about this morning and it was successful and that was my opportunity to move it into the organization as a whole. So once our CEO saw that and the results, he was prepared to endorse the implementation of the organizational design project across the organization. And I guess that's one of the key points that I'd make is without the CEO support, this initiative would not have gone. He started to understand it and really supported it. And without that support, we would not have been successful. HR, we were the catalyst in making it happen, but without the executive support and CEO support, we just wouldn't have got it off the ground. I don't know if you want me to talk about the surprise or do.

Speaker A You want me to let's leave the surprise. There'll be a surprise coming. But maybe you could also just add I remember when you talked about this before, Peter, you also talked about that you wanted human resources, the human resources function, to have a more strategic impact on the organization. So that was also part of the motivation. Could you talk about that a little bit?

Speaker B Very much so. And it's part of my personal philosophy from the HR perspective, is I just didn't want the HR team at EPCOR just being, I'll call it a total support or services group, I needed and wanted them to be a key part of the business and participate in the decision. So that was part of the driver. And what more strategic input can you have in organizing, helping get the organization structured properly to deliver on its business objectives? And that was a key point. So we actually moved from, I'll say more of a pure services group into the executive suite and into actually helping run the business. And that was a key driver of thank you.

Speaker A Peter. Got the support from the CEO. So we went ahead. So we did an assessment of the total organization, wrote a report. We were in the process of talking about the report. The executive group was saying that, yes, this is a good thing and we want to move ahead with it. And at that point in time, there was a surprise. Peter, do you want to talk about the surprise?

Speaker B So unknown to Ron and even myself at that point, there's about three or four people in the organization that's obviously the CEO and the Chief Operating Officer and the Chief financial officer were working on the divestiture of the power business. And we were probably, what, two, three months into this project. I say Ron wrote the report and all of a sudden at one point, they brought us into the fold and said, well, you know that report and recommendations that Ron put forward, we're going to split the organization. And we both looked at each other and said, well, wow. But interestingly enough, the report was really the foundation and the tool we use to, as we say in the article, demerge the organization. And without it, we would have had a very difficult time spinning off the power industry into the IPO. And it was a very excellent resource and allowed us to really build two organizations. So we got two for one, and Ron didn't even charge us double.

Speaker A I blew that one. One of the differences was instead of EPCOR being a stratum seven organization, it shifted into creating two stratum six organizations. So there were some differences at the top. I think it would be fair to say that in terms of the decision making on the operation side, it was easier because you've got the water business here and you got the power generation business there, and splitting those aren't as difficult. It's more the support services, finance, HR and so on that become more difficult in terms of doing that. Maybe, Peter, you could talk a bit then about the implementation process. So we were thinking about doing one implementation process, but in fact we ended up doing two that were synchronized and in parallel. One for the old EPCOR and one for the new Capital Power. Maybe if you could shift into that.

Speaker B Sure. As I say, that was ron's recommendations were very key in helping drive the organizational structures in both organizations. But one point I want to make, to give you some context, is we kind of made the decision to split the organization in January. We brought Ron into the fold in probably February as he was writing his report in March, and the rest of the organization was not advised until probably the March time frame that we were going to split the organization. And then the actual split occurred in July. So talk about a mad dash. And so we had to split the organization. So the process we went through is that we actually got the organization aligned in terms of the positions vertically and horizontally. The blueprint was there for both sides of the organizations. But the key use of the principles was in how we split up the organization in terms of the people and aligning the teams. So how we did it and I'll use HR as an example because I'm obviously more familiar with that. So how we went about splitting up the team or the organization is we got our organization structured right. Myself. I went with capital power and the VP of HR remained at EPCOR. We sat and got our organizations structured, the senior level roles in HR based on the recommendations from Ron and how we were putting the teams together. But how we went through selecting the people, we used the various information we got out of the organizational design in terms of the IPC, skilled knowledge and application. We use that as really the criteria to select the people. And the good news was, both the other VP and myself, we knew the people, so we didn't have the challenges of integrating a separate new organization. So we had the knowledge of the people and we used those principles as our method of selecting the people. And then once we sort of split the people based on those principles, we actually sat and then talked to the individuals and said, okay, would you want to go to Capital Power, which is going to be a publicly traded company, growth oriented, more entrepreneurial, or would you rather stay in EPCOR, which will be more of a regulated utility? And some people thought that they wanted to go to Capital Power because it's a different culture, different environment, but there were a lot of people who had been in EPCOR for a number of years and they just wanted to stay where they were. Thank you very much. So we actually engaged the people in the decision once we split the teams up and then we swapped some people back and forth based on the individual input.

Speaker A Peter, could you also talk about the time press? Because this IPO was coming out, a lot had to be done in a relatively short period of time to get things aligned before the IPO hit the street, right.

Speaker B We had a very compressed time frame, as I mentioned, and I think I like the suncore explanation this morning. We weren't aiming, aiming, aiming a lot, we were firing, firing, firing a lot, and we knew we weren't going to get it right, but we got it probably 80% right, and we went back after we got the people in the roles and the structure and then adjusted it. But interestingly enough, we didn't have to make a lot of changes. And I think that's one of the benefits of going through the organizational design process that got it right an awful lot of the time and that's one of the big benefits.

Speaker A Thank you. In terms of the implementation, then two parts were, and we've heard about that this morning, two parts were you get the positions aligned and you match the people to the positions and you've talked about that and that had to be done, and that had to be done quite quickly. There were some other pieces here as well that were interesting in terms of the implementation. One of them was spending some time aligning teams. Could you talk a little bit about that?

Speaker B So we had the teams primarily from the shared service groups. As Ron mentioned, the operations components were pretty easy to split up, but aligning the teams in both organizations was a bit of challenge and we just made sure we wanted to make sure we got the right buckets filled, if you want to say that. But I'll using HR as an example. We used the recommendations to actually merge some of the activities that were in separate groups before into new teams. So it was very helpful in getting an efficiency in each of the functional areas as well.

Speaker A Great. And then actually you also spent some time in terms of team building with the new teams, didn't you? In terms of expectations and so on and so forth.

Speaker B That really came as part of my mind anyway, as part of putting the teams together, because you're all aware you cascade down, you get the top of the organization right and then you bring in we actually were a Stratum Six organization. Then bringing the Stratum Five, so bringing the Stratum Fours together in each of the areas and having them engage in the selection and building of their organization and their team, that was very helpful. And then the threes got to the twos and such like that. So that was very helpful in building that team concept.

Speaker A Great. One of the interesting parts of this, and something that's a little different, I think, is aligning, deliverables, and part of it is taking strategic planning and business planning and performance management systems and creating one system and the other is creating an accountability framework that's cascaded down the organization and Stratum specific. And I think that was a really key part of the work and the sense of success in terms of the change you've had. Could you comment on that?

Speaker B Sure. There's actually two pieces that I really wanted to comment on that, and one was the Cross functional accountabilities and then the business planning process. So the Cross functional accountabilities was really quite interesting. We got the organization right, we got the right structure, we got the right people in the jobs, and that's kind of what we heard this morning. That's very key and very important to me. The real success in my mind is using the Cross Functional accountabilities. And Scott can attest to. This is when we got the organization together. We were a little confused, if you want to say it, among the various parts of the organization on what their accountabilities were, be it from finance to operations to HR to legal to regulatory. There was some confusion across a lot of different organizational lines. And it was really getting to the point where it was impeding our success. So Scott actually organized a session with all our Stratum Four leaders and we actually brought them into a room like this with the CEO and the executive. And Scott's team spent an awful lot of time in advance defining those rub points. And we actually had I don't know how many lists, there's probably 50 of them or more, I don't know how many, but we actually listed them up on the screen and went through them point by point. And when the two groups couldn't get alignment, the CEO made a decision and said, it's going here, you got the accountability, you got the accountability. And to me that was a real watershed, is getting the accountabilities clarified. And that process worked very well. Some people weren't happy, some were, but we got the accountability and the alignment, which was really important. So that was one of the key successes we had from the Cross Functional. But the other area that I think has really been a real win for us as an organization is the whole business planning review process. And that consists of really three big buckets and there's obviously a lot of work under the three buckets. One is the strategic plan for the organization. The second is the budgeting process, and the third is the performance appraisal, performance management process in an organization. And this is I think we've taken it very let me back up again. Our CEO of capital power, he was totally on side with the organizational design once he got sold, if you want to call it that, on it. He drank the kool aid, if you want to call it that, and he was the one driving it, not HR anymore. We kind of transitioned the ownership to him, which was just outstanding from an HR standpoint. We didn't have to drive it. And so he really looked at the whole business planning review process and was totally engaged. So we started off with the strategic plan, which really turned out, and is his business plan. And so he owned that. And obviously, working with the executive and the board, we got the strategy approved. And then what we did is drove that down into the business plans. And so what he would do is he took the big chunks of the strategy business, or the company strategy, is his business plan. And then they were delegated down to us as s, five s, and we had to take those big chunks and break them down into a handful of deliverables that we would deliver on. And then we had some secondary deliverables, and those deliverables were then passed down to, in our case, to the stratum fours. And they built their business plan out of it, and again, using the same process where they had deliverables and interim deliverables, which were time span driven, like all of them, like obviously the CEO's objectives were out seven, 8910 years. The stratum five s were in that five yearish time frame, and the stratum fours, and that three to five and such. So the deliverables had to most of the deliverables had to go through that time span, and then obviously you chunk them down into annual deliverables, and those were actually then integrated into our performance management system. So we have a big alignment right from the strategy document, the company strategy, right down to an individual's performance appraisal. And that to me, has been one of the biggest successes we had. It's taken us a couple of years to get it. This is our third year at it. We're getting much better at it, but it took us three years to get there. But it really now aligns the person in stratum one or level one, level two, to what we're doing as an organization, and then we've aligned that to actually the compensation process as well, because obviously your performance appraisal will drive part of your compensation and short term incentive plans.

Speaker A Great, thank you. Peter, could you talk about the one of the things in terms of an organization design change is making the change, but the more important thing I think is can you sustain it and what are some of the ways that you can sustain it so that the organization can get the value over a longer period of time? Could you talk a bit about that?

Speaker B The sustainment is something that's critical in my mind to make this a living part of the organization. And really in my mind how to sustain it is have it weaved into your processes in the organization. I'll give you a couple of examples. One I just did is on the whole business planning process. So right from this business strategy right down to the performance appraisal, but we've also had it integrated into other parts of the organization as well. We've integrated into our compensation systems. We align the levels or stratums to our short term incentive targets, our long term incentive targets. So it's integrated into the compensation, we've built it into the performance appraisal system. We've also, as part of our new employee orientation, we have a number of information, it's a web based program and a number of components on it, obviously for new employees about the company, what do we do as a business, how do we make money, organizational structure and such, but we're building a component in on organizational design. So when a new employee joins your organization, they will have a high level overview of what organizational design means. So they're going to be familiar. When you talk about stratums or levels or in the organization, you talk about business process reviews and such like that. So we've actually integrated it into a number of our initiatives that allow it to have a life of its own. And so we've been fairly successful I think, in getting that integrated.

Speaker A And the other piece related to sustainment that I'd appreciate you spending a few minutes on is at this point in time, several years later you are looking at further opportunities to re energize the system and keep the momentum going. So again, sometimes people think that you do an assessment, you do an implementation and then you're just done in fact that's not true. It's like anything, if you don't tend to it in some ways, you run the risk of it dissipating in some ways. So could you talk about some of your more recent activities in terms of kind of reenergizing keeping the energy going?

Speaker B Sure. As I mentioned, we've been now as capital power, we're three and a half years old and of course when we spun off there was a lot of energy around the organizational design and there was a lot of energy around getting some of the new initiatives put in place, like the business planning review process. So once those things are in place, it can tend like many programs to drift off and sort of be put in a binder, put on the back shelf and really never referred to again. So actually we've done a couple things and it's really under Scott's direction right now. But a couple of things I thought was interesting. We actually have taken one of our high potential employees, actually, out of the she's an engineer. What a scary thought, bringing an engineer into HR. But we brought her in as one of high potential, and she's been on a year assignment, actually working with Ron's team to sort of build an inventory or a library or educational component of organizational design in terms of the various aspects of it. And we'll be using that to roll out across the organization probably in next year, first quarter next year. But we'll also be using it for any integration of any acquisitions as well. So we've been doing some work to keep it alive. I think she's working on a handbook as well. It'll be put on the web portal for people to access. So we're keeping it alive and keeping it refreshed.

Speaker A Great. Thank you. Peter, what I'd like to do is to shift at this point, we've got about ten minutes left. So what I'd suggest is if you could take about four or five minutes at your tables just to talk about this presentation relative to your experience and share some of your experiences at the table, any questions or comments that you might have. And then we'll spend the last five minutes with a couple of questions that people might have.

Speaker C Question on your deselection process. I don't know what I'm going to call it. As you were setting up your two organizations, if I understood correctly, where you had the right level of capability, how did you also make sure that you had the right skills in place to be able to operate both organizations? So, for example, in HR, sometimes you don't have two people that know Comp and Ben as an example.

Speaker B It's a very good point. We actually ended up, as a result of this demerger at Capital Power, we ended up probably hiring another 75 to 100 people, and EPCOR probably did something similar to exactly your point is when you're splitting up an organization, you don't have a lot of the same skills. We did have to go out and actually rehire people into the organization. So that's kind of how we got around it.

Speaker A Okay, good. Thank you. Any other questions or comments people might have?

Speaker B Thanks. Peter. Did you also use the three tier layering and the manager once removed role in your organization? Very much so. We used all those concepts when we put together that organization, and the Manager Once Removed was really one of the factors we took into place in putting that structure in place. Just so there was points where we had actually some compression as well that we had to live with. So we did use those concepts and very helpful in making the decision on how to put the organization together.

Speaker A Good, thank you. Any other questions or comments?

Speaker B Yes, I had a follow on.

Speaker C I'm not clear whether. You were trying to be cost neutral or what some of your metrics were. So could you explain maybe?

Speaker B So again, because of the compressed time frame, we didn't have a whole lot of metrics. When we put the organization together, they came after the fact. And so when we got the two organizations put together and the structure in place, we got the right people in the right roles. We took a breather for probably six months or so, up to a year, and then we jumped into the business planning review process. And to me that's where the real metrics came in, in terms of setting how we wanted to measure our success. And did we have hard metrics right off the bat? No. But what we did do in terms of alignment and I think the process was very interesting when I say the CEO's business plan was the business strategy and then it was driven down to the Stratum Five who then set their objectives. That was where we, I'll call it informally got the metrics because we would all put forward our business plans and then they would be challenged by the other parts of the organization. And so it wasn't hard numbers we had in place. We did it through more collaboration and alignment.

Speaker A Thank you. One more question please.

Speaker C Hi Peter, I was wondering if you could talk a little bit more about that meeting that you had with you described it as the executives of the Stratton, board leaders and everyone the operations was with all the support groups and you shared accountabilities and got clear on accountability. Just tell us a little bit more about what was powerful about that session because to me it sounded like that was a big breakthrough.

Speaker B It was. That was our cross functional accountabilities meeting and step back on that. So how we got to that point, we went through the process of defining the cross functional accountabilities. Each area did them, but interestingly enough, we took us, maybe we were a little slow in our learning, but we continued to do that in silos. So HR did theirs, Finance did theirs, operations did theirs. Oh great. We probably got 80% because they're pretty easy to figure out the accountabilities. If you're in the legal function, you got a legal accountability. But there was probably 2020 5% that were cross functional and we built them in silos. And then when we started to work through that, we said, oh, we think we missed, we blew that one. So that's when we got them all together in a room for a day and actually highlighted each area where there was a rub point, put their case forward. And in a lot of the cases they were worked out because this is the first time they really talked about it and they got some clarity. So after those discussions, a lot of them fell out, but there were still a couple that no one would move on and that's when the CEO said, well, good, this is where it's going. And to his best judgment. So that was one of the learnings out of it. You got to be careful when you're even doing cross functional accountabilities. You don't do it in silos.

Speaker A Okay, Peter, thank you very much. And would everyone join me in thanking Peter Sam?