DETROIT EDISONHow the outside forces changes the company culture
SUMMARYThis case shows how a company altered forever the assumptions by which the organization had been managed for the past 50 years. The company has to change and adapt to the new culture and environment, driven by the forces outside the organization to stay in the business. The three changes (the energy crises, the nuclear power plant and the affirmative action) were the result of forces that were beyond the control of the organization. The company had to cope with a complex, multifaceted environment that was changing rapidly. The forces that would determine the future of the Detroit Edison organization now lay outside the company, rather than within.
BACKGROUNDDetroit Edison operates in a highly regulated environment : rates, profits and capital investment must all be approved by the Michigan Public Service Commission. This kind of regulation and oversight as well as the historical development of the organization, have helped create a distinctive management style and organizational culture. This company is a leader in the industry and led by several legendary executives who were closely involved with the evolution of public utilities nationally and internationally. Edison grew rapidly along with Detroit and the automobile industry from the 1920s through the early 1970s. with a predictable 7 percent annual growth, the most important management function was to plan the continual construction of generating stations and distribution systems.
But by the early 1970s, all of this changed. All represented changes driven by forces outside the organization and they altered forever the assumptions by which the organization had been managed for the past 50 years.
THREE MAJOR CHANGES
First Major Change :It begins with the oil embargo in 1973, fuel prices skyrocketed, the growth in demand declined to 1 to 3 percent per year. The energy crisis also threw Detroits automotive industry into chaos and led to further decline in the region. Second Major Change :Meanwhile its nuclear power plant get the final approval completed in January 1988. This make the estimated costs have risen to more than $4 billion. The companys future now depends on keeping the plant on line at full power. Edison was once an organization that prided itself on engineering expertise. Construction of conventional plants had been carried out by the company itself and represented an important source of vitality, dynamism and pride. But, with the experience on its nuclear power plant Fermi 2, Edison tended to increase the companys dependence on outsider rather than demonstrate its independent engineering expertise and leadership.
Third Major Change :Black Edison employees charged the company with racial bias in hiring practices. The court decision ordered that the 8 percent proportion of blacks in the company be raised to 30 percent and that the company pay $4.25 million in damages to the victims of discrimination. The company was also ordered to undertake a court ordered affirmative action program, which stipulated that one black must be hired for two whites who were hired, and that one black employee must be promoted for every white employee who was promoted. After this, the company leadership of the time began to adopt a pragmatic approach toward integration and later became more progressive. Change at the top however was easy compared with change throughout the rest of the organization. The company changed quickly at both the top and the bottom but very slowly in the middle. The middle management protested as they saw the affirmative action as a major threat for them. This situation also altered the strongly paternalistic culture and sense of family that had characterized the company for years. It created racial barriers within an organization that had traditionally held a set of remarkably egalitarian customs for informal socializing both on the job and outside of work.
THE DETROIT EDISON CULTUREThe traditional stability of the work force and the long tenure of many employees ; Employees saw themselves as a family memberHighly paternalisticThe employees socialized outside work, pleasant and respectful manner of interactionIssues that might raise conflict often have been avoidedMale culture, dominated by engineers The engineers vs politicians dynamics within Edison provide a classic example of conflicting subcultures. The logic of the technical core often contradicts political and social considerations.Career tracks in Detroit Edison are quite clearly defined and managers often know well beforehand what their next position will be. High level of stability and predictability both in organization and in individual careers. All upper management positions within the company were filled by insiders.
During the 1970s, the company began bringing outsiders at very high levels in an effort to make itself more responsive to external factors. Slowly, the newcomers began to change the style of top management and achieve integration of the organization with the community and the state. These changes occurred through recognition that many of the most important decisions of the future were going to be made by those outside the company. Edison has great skepticism about innovative human resource practices. They point that culture and internal organization are irrelevant to the company and that such things were best left alone. The organization favored a conventional human resource function, concerned primarily with selection, training and performance appraisal.
EffectivenessDetroit Edison is a relatively high cost producer and generally falls in the next to lowest quartile when compared to a national sample of utilities. That is because most fuel must be imported into the state, and the regions wage rates are relatively high. These performance issues are beyond the managers and executives control, yet the general trend persists. One response to the low growth environment has been to try to diversify for profit subsidiary named Syndeco. Syndeco has attempted to diversify by building on the organizations expertise and resources and by forming new service based companies to provide an alternative to a totally regulated environment. Syndeco is an interesting study in the clash between an entrepreneurial culture and the traditional Detroit Edison culture. The potential of deregulation also requires Edison to begin to consider adapting to a changing future. Deregulation could change the regional monopolies to competitive situation, where non Edison producers of power to sell to customers on the Edison system. This innovation would provide customers with choices that they do not now have.
THE CULTURE & EFFECTIVENESS MODELInvolvement :At the early years, Edison has enjoyed conditions : rapid and steady growth in the demand for its product and no competitors. And its engineering based culture met these demand extremely well. Today, Edison appears to be a low involvement organization. It is true in the highly stable operating organization, which is no longer challenged by the growth and construction of the early years. The top management has changed considerably in response to outside forces, and it appears to have developed a style that incorporates diverse viewpoints, values, innovation and contemplates the impact that regulatory decisions may have on future business.
Consistency :The consistency of the organizations culture has changed appropriately to reflect changes in the organizations environment, but the balance must necessarily continue to shift toward diversity to adapt to future demands.Adaptability :For years, adaptability simply meant responding in a timely manner to predictable linear growth in the demand for electricity. But now, adaptability has come to mean responsiveness to outside influences and accommodation of the needs of a larger set of stakeholders. In the future, as demand for adaptability and responsiveness to outside influences continue to grow, adaptability at all levels of the organization will become more important. For now, the organizations ability to adapt and change appears to be the most critical factor limiting its future performance.
Mission :Edison missions has changed. These changes in mission can be directly traced to a changing definition of what it means to be a public utility. Being a public utility meant adding capacity in a predictable and efficient manner. But, now being a public utility meant responding to the publics demands, represented through the political system, for cost effective options and safeguards. Old mission : Maximizing capacityNew mission : responding to the public demands. The difficulty is that the first mission is still alive and well in the hearts and minds of many of the organization members. Some of the systems are compatible with both the old and the new mission, but many are not.
LESSON LEARNEDCulture and effectiveness at Detroit Edison is the tremendous inertia that a culture can develop over a long period of time. The culture in this case has many roots, and engineering occupational culture, a long period of stable growth, monopoly situation, a paternalistic organizational family company. This case analysis has pointed out, the 1970s were a decade of incredible turbulence, and challenged nearly all these basic assumptions. The energy crises, nuclear power, affirmative action and the end of construction required that the company adapt to influences by those outside the company. With such inertia, change could occur only through great pain and turmoil. Cultural changes in this organization did not occur without massive change in the organizations business environment.
Culture is like any object with i