TXU's turnaround CEO

C. John Wilder is the CEO of TXU, a US power company that has gone through a remarkable transformation since the electricity industry was de-regulated in 2002.

by McKinsey Quarterly Online
Last Updated: 23 Jul 2013

It was easy to see some of the big inefficiencies once the protection of a regulated market had been removed. For example, the firm's price for natural gas had been set far too low to cover the fixed costs most of the time.

Therefore, TXU cut out $1 billion in fixed costs. Second, the transformation project worked because the famous '38th floor' meetings brought together a wide range of people such as finance modellers and business teams to discuss ideas. There was also a very clear focus on the 5% of activities that produce 95% of the 'economic rent'.

Wilder also sought out untapped management talent, preferring to have excellent managers over mediocre ones. A good part-time manager performs better than a modest one on double time, he said. They had to commit to a pay freeze in exchange for what Wilder termed 'turnaround equity'.

By focusing on the key components of the business and what it needed to make it successful, Wilder knew how to make it grow, who to develop partnerships with and what to get rid of.

The firm sold off its natural gas distribution business to a company that specialised in it. The economic measure, getting people and businesses to their 'highest and best use' is the right framework for running a business, he believes.

Wilder's demanding management style meant that managers were expected to be top performers who would be able to evaluate the viability of new business ideas quickly. He also liked to test out a variety of options by suggesting the opposite of what people seemed to be thinking.

Source:
Leading change: An interview with TXU's CEO
Warren L Strickland
The McKinsey Quarterly

Review by Morice Mendoza

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