How to transform breakdowns into breakthroughs? Nick Hasell investigates how one ailing company found a new source of energy.
Tony Capp is in the midst of explaining his functional new management structure when the office lights flicker, the table judders and the low hum of the air conditioning is drowned by a steadily growing roar. A few seconds later his speech falters and grinds to a halt. Capp, the small, energetic manager of Nuclear Electric's Hartlepool power station, is quite clearly agitated. He rises from his chair, walks over to the window and peers through the blinds. Ten yards away, a valve on the roof of the neighbouring building is venting steam as if from a vast pressure cooker. 'That', he remarks, as he turns around, 'is exactly the bit that I have to cut out.'
The 'bit' to which Capp curtly refers, after this numbing interruption, is the unplanned shutdown of one of Hartlepool's two advanced gas-cooled reactors (AGRs). Here, the cause was minor - a faulty contact in a relay during a control rod interlock test - but the effect devastatingly expensive. A trip such as this immediately halves Hartlepool's contribution to the national grid. The station would lose two days of generating and a minimum of £800,000 in revenue. 'It's unfortunate,' observes Capp, with massive self-restraint.
Away from the billowing steam, the deafening roar and the grim economics, Capp may take comfort from a few salient facts. First, the number of trips at the station has fallen by half over the last three years, largely due to a series of technical improvements. Second, and perhaps more encouraging, there has been a detectable change of attitude among the staff. 'A few years ago a cheer went up when one of the reactors tripped,' recalls Neil Picken, a member of a four-strong team in charge of organisational restructuring. 'It was a chance to string the job out and get as much overtime as you possibly could.' These days, he reflects, things are different. 'People just get upset.'
To trace the origins of the Hartlepool workers' metamorphosis you need to turn, ultimately, to Whitehall and the events surrounding the privatisation of electricity in November 1989. As originally conceived, the market for generation was to be split into two unequal parts, PowerGen and National Power, with the latter, larger company including what was then the nuclear arm of the Central Electricity Generating Board (CEGB). When it became clear that private sector investors were not willing to bear the heavy costs of decommissioning older nuclear plants, the Government was forced to reconsider. With few other options and time running out, nuclear power was withdrawn from the sale.
An eleventh-hour climb-down, though embarrassing, relieved the Government of a major political headache. For those in the nuclear industry, however, it came as a severe blow, not least to their self-esteem. Failure to privatise inevitably drew attention to the industry's methods of auditing, in particular to the way in which it accounted for its massive back-end costs. Critics of nuclear power seized the opportunity to accuse its masters of concealment, obfuscation, 'fairyland economics' and financial half-truths. Equally as damaging internally was the public loss of face. In the run-up to the intended sell-off, those in senior positions had been busy extolling the virtues of privatisation and developing an identity which would make them an integral part of National Power. Just a few months later those same managers had to explain to staff that, no, they didn't quite make the grade and that privatisation wasn't such a good idea after all.
Thus it was that on 31 March 1990, with staff morale at an all-time low, Nuclear Electric plc was vested as a separate entity. Despite the new name, the new logo and the brave words, few - either inside or out - were wholly convinced. It was, to all effects, an unsaleable rump, a commercial oddity - a government-owned company in a competitive environment where all its competitors had been privatised.
Worse was potentially still to come, for within Nuclear Electric's terms of incorporation there lurked a longer-term crisis. In its days under the CEGB, the nuclear division was sustained by an opaque system of internal subsidy. In the new, transparent world of post-privatisation electricity generation this subsidy was to be handed to the operators in the form of an annual levy, currently £1.3 billion. The catch, however, was that this levy was to steadily decrease until 1998, when, in an ultimate demonstration of faith in the market, it would disappear altogether. Somehow Nuclear Electric had to leap from a pre-levy operating loss of £869 million in 1990/91 to a sustainable profit in 1998. If the British experiment in civil nuclear power, started at Windscale in 1947, was to have any commercial future then something radical would have to happen.
To see exactly what has happened, and just how radical, you need to return to Hartlepool where, three years on, the lengthy overtime has gone and the staff no longer cheer when they hear the rush of steam. Now, when a reactor trips, they busy themselves to find the cause and swiftly return the unit to service. The reason, be assured, is partly self-interest, for a system of performance-related pay now rewards staff - engineering, industrial and clerical alike - for meeting the station's target output (the final amount of which also takes into account individual attendance, safety standards and good housekeeping). In 1992/93, for example, the first year of its operation, every member of staff received a bonus payment of £1,675. Unsurprisingly, absenteeism has fallen too.
Yet financial incentives alone cannot explain Hartlepool's dramatic gains. Last year the output of the two reactors reached a record 7.3 terrawatts, an increase on the previous year of 40%, while income from the sale of that output rose by 31%. Taken together with sizeable reductions in costs, Hartlepool's overall contribution to Nuclear Electric's coffers rose last year by 88%.
Part of the answer, both to the gains at Hartlepool and across the company as a whole, can be found in what appears a familiar tale of corporate re-habilitation - one of tightening belts, of lopping heads, appointing consultants and importing a lexicon of commercial imperatives. But the more extraordinary part embraces a phrase that has become something of a mantra in contemporary management: culture change. How did an unpopular, loss-making public sector utility seeking to free itself from divisive and hierarchical ways reorganise its work along the unfamiliar path of teamwork and participation? Change here was not a matter of enlightenment. It was a question of competitive necessity - of survival.
To drive through its programme, Nuclear Electric brought in management consultants Kinsley Lord in mid-1991. It focused its efforts on two stations - Wylfa on the Isle of Anglesey, as a pilot for its eight older Magnox reactors, and Hartlepool for the newer generation of AGRs. The latter sits in the midst of an area already well-acquainted with change, albeit of a lugubrious sort. The shipyards and steelworks for which the town was once known have almost all disappeared, replaced by a rust belt of empty wharves and derelict buildings. Wages are low, unemployment is high - a jot under 20%. The local industrial base has contracted to such an extent that, with 650 staff (600 by 1994), Hartlepool power station is now the town's largest employer. But the area's bleak aspect conceals fertile ground.
Perhaps more than any other UK region, the North East has been at the forefront of a revolution in working practices. Waves of inward investment have brought a wide range of foreign start-ups and, with them, different ways of doing things. For the staff at Hartlepool, site visits to companies such as Nissan, Black and Decker, BASF and Perstorp Ferguson provided powerful lessons in teamwork, especially as their evident success was solidly based on a north-eastern workforce.
Hartlepool's power station, however, had problems all of its own. Since 1967, when the foundations were inauspiciously laid on the site of a council rubbish tip, the station has been plagued by difficulties. Unhelpfully, each of the UK's five AGR stations were built to different designs. Successive delays due to subsequent modifications, tighter safety standards and poor labour relations meant that Hartlepool was 16 years in construction. 'The building had gone on so long that, in a way, people had got used to living with the difficulties that sort of environment created,' notes Clive Smitton, Capp's predecessor. Due to the technical problems associated with a prototype, it had also never generated at anything like full capacity. There was a certain fatalistic acceptance, notes Smitton, that this was the way it had to be.
The station's technical difficulties were exacerbated by the administrative legacy of the CEGB - systems that were centralised, hierarchical and excessively bureaucratic. Numerous signatures were required to authorise even the smallest item of expenditure - even to send a fax. If Capp wanted to appoint any member of staff above a certain grade - and that fairly low - he had first to seek approval from the centre. Similarly, all procurement was carried out by the head office. In effect, Capp acted as a local administrator of centrally agreed budgets. As might be expected, there was a distinct lack of financial awareness.
The immediate task was to convey that change was inescapable in a station that was en route to losing £72 million that year. Ordinarily, as Capp reflects, Britons pride themselves on being good in a crisis. The feeling often is, he says, that 'if you can create a crisis that lasts 365 days a year then you're getting there'. The peculiarity of his crisis was that it exceeded that time span. 'Ours was an intangible, long-term crisis. I couldn't suddenly go out there and say I'm going to shut half the plant down because there isn't the demand. There is the demand. I can sell every watt that we generate and the workforce knows that.' Capp took his crisis downwards, sharing the problem with small groups of staff until the entire workforce was as familiar with it as he. Capp combined his increased visibility with measures to ensure that all staff were regularly updated. Now TV monitors dot the site, broadcasting a constant flow of information on the station's current performance.
Simultaneously, at the urging of the consultants, he addressed the central problem of any change programme based on participation: the higher up people are in an organisation, the less they can see of what needs to be changed. The view from the bottom invariably offers a better perspective. So Hartlepool witnessed the levels of authority being pushed inexorably downwards. This was accompanied by a number of symbolic changes. The blue overalls of the industrial staff and the white of the engineers were replaced with a single colour. The partition separating the managers' dining room from the staff canteen was demolished and the parking spaces for the senior management blow-torched out.
It was a dual process of devolution - externally, from the head office to the stations and, internally, from the senior management to those below. Hartlepool's board was reshaped to resemble that of a company with a £250-million turnover. Three departments became seven (to incorporate additional functions such as finance and human resources, previously handled centrally) and the structure beneath divided into 23 separate sections. Planning is now done on the basis of a system of quarterly reports fed up from the sections to the board.
Slowly and experimentally, a new, participative way of working emerged. Take, for example, the annual outage, the statutory period when the turbine generators are shut down and maintained. Previously, all preparation had been handled by the station manager in conjunction with the engineering staff, who, in effect, are the station's middle management. Last year, an outage team was formed, with representatives of all levels from mechanical fitters to senior engineers. The station manager was now only involved to authorise expenditure and set the target time for completion. The team was sent to Sweden to observe how a similar shutdown was handled there and given the freedom to implement new procedures as they saw fit. The results were impressive. What had previously taken 17 weeks was reduced to 10. Seven weeks additional generation brought in revenue of £11.6 million.
The success of the outage spurred on other initiatives. A full-time team is now looking at procedures in all departments and the potential gains of work restructuring. Its attention is currently focused on the fuel route - the path that the fuel takes through the station from its first arrival to its eventual dispatch for reprocessing. In its existing form, much of the process relies on the skills and services of staff from a range of different departments. Work frequently comes to a halt for hours at a time until someone from another department is free to perform a 10-second task. The solution? Seek the views of those involved, map out how the job actually gets done and bring together in one team all the skills needed from beginning to end. As a result an estimated 59,000 man-hours a year will be saved. Not only do those on the team claim a sense of ownership, but they proudly boast of pre-empting the management. Capp is proud of being pre-empted: 'More and more people are showing us ways of how we can get more out for less.'
Many of those now at the forefront of the programme admit to having been sceptical at the start. It was only when they saw the 'wrong' sort of people getting involved - what one describes as 'the management's yes men' - that many realised that they would lose out if they did not participate themselves. Yet the greatest hurdle still remains - that of redesigning the work of the plant's 180 engineers. The broad theory of the redesign is that a large proportion of the work done at any particular level could be done just as well, after a period of training, by the level immediately below it. Under the existing structure the industrial staff are effectively prevented from doing all that they could by demarcations between levels. If the skills of the industrial staff can be broadened, it is claimed, they will then be able to relieve the engineers of much distracting and repetitive work.
Many see change as a sinister exercise in squeezing the middle. Advocates dispute this, claiming that the engineers currently suffer from a confusion between what are effectively technically-specialised jobs and those involving straightforward tasks of man management. In a culture where authority is, to some extent, still measured by the number of people you have reporting to you, trying to alter that structure is proving to be difficult. But the declared intention is that around 80 staff will be released from day-to-day activities to work on long-term strategic projects.
Not all staff have been convinced. There is a sizeable lobby of those who dispute that gains in performance are the direct result of the programme (rather than the gradual removal of design faults) and rue the shift of power away from the engineers to those with broader management skills.Yet if the engineers feel aggrieved by this new, more egalitarian order then they might seek solace from the fact that the centre, too, has had to change. Two head offices have been swiftly knocked into one and the number of staff radically reduced.
For those who seek a rationale, the reception of Nuclear Electric's now singular head office is adorned with a floor-to-ceiling reproduction of the company mission statement. It declares teamwork to be the key to good performance and pledges that staff will be given the authority to match their responsibilities. Upstairs sits chairman John Collier, who, having worked with Kinsley Lord at the Atomic Energy Authority, was behind the decision here to use consultants to accelerate change. This autumn, Collier will put to the Government the case for Britain's nuclear future. It will be the most thorough review of the industry to date and could be Collier's greatest challenge. Yet, perhaps conditioned by the necessity for managerial inconspicuousness in a climate of change, he is disarmingly modest about the role of the centre. Instead he points to the success of the stations: 'All we produce is a lot of hot air and a lot of paper. They actually produce quite a lot of electricity.'