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Developing people through

decision-making
Introduction CURRICULUM TOPICS
• Decision making
• Types of decisions
RWE npower is a leading energy company in the UK. It is part of the German-owned RWE, • Values
one of Europe's leading utilities. Part of RWE's strategy is to deliver cleaner, affordable, secure • Organisational structure
energy supplies for the UK while improving profitability.
GLOSSARY
RWE npower has over 11,000 employees across 60 sites in the UK. It provides more than Profitability: money which is
10% of all electricity in England and Wales. In the UK, RWE npower provides electricity and earned in trade or business,
especially after paying the costs of
gas services to both B2C (business-to-consumer) and B2B (business-to-business) markets
producing and selling goods and
through its retail brand, npower. In 2007, npower supplied over six million residential services.
consumers and 400,000 business customers. Business customers included large corporations B2C market: where businesses
such as BT, Ford and Wembley Stadium. Service organisations, such as schools and hospitals, sell goods and services to private
consumers.
also rely on npower. The UK energy market is highly competitive. Both private and business
B2B market: business to
customers can choose from several suppliers to get the best service and price. business markets, also known as
industrial or organisational
RWE npower relies on its engineers taking appropriate and timely decisions at all levels. The markets. In these markets, firms
supply not the general public but
company encourages all employees to become involved in decision-making. An example of other firms e.g. with raw materials,
this is the ‘Strategic Spare Parts Project’. The project was initially set up by RWE npower’s manufactured components.
parent company RWE, as a strategy to minimise the risk of supply failure. npower Cogen, one Lean production: an approach
to production that seeks to
part of RWE npower’s business, is responsible for implementing this strategy in the UK.
minimise waste and inefficiency.
npower Cogen generates combined heat and power for large organisations like oil refineries
and chemical plants. The project aims to improve availability of vital spare parts for
equipment to reduce plant availability costs. This project illustrates the concept of lean
production, which uses resources more efficiently to lower costs and improve service.

This case study explores the way in which RWE npower delegates responsibility to extend the
capabilities of its employees. Jay, a young graduate engineer, has been at RWE npower a
relatively short time. He is responsible for the decisions that will achieve the required Strategic
Spare Parts Project targets. As a mechanical engineering graduate, he has been involved in
many different areas of work, ranging from preparing tenders and contract management to
hands-on work activities that include routine maintenance, plant inspections, overhauls and
improvements. In his words, ‘Working at RWE npower as an engineer is very different to the
usual view of workmen in overalls. Engineers at RWE npower can be involved in anything from
new build projects or existing plant site activities to office based work and/or projects.’

The decision-making process

Businesses need to make decisions for different reasons:

To create To choose To find

an opportunity which direction different ways
or solve a the business of doing things
problem will take (innovation)
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All decisions have some degree of risk involved. For example, choosing the colour of paint
for the office walls carries much less risk (and cost) than choosing the site of a new office.
Decisions may be strategic, tactical or operational. These relate to levels in the organisation.

Strategic

GLOSSARY Tactical
Hierarchical structure:
structure that has a number of
levels and a chain of command Operational
by which decisions are made.
Strategy: long-term business
plan of an organisation, giving a
business a general direction.
An organisation’s structure affects how and where decisions are made. In large organisations, a
traditional hierarchical structure is typical. Authority for decision-making is concentrated at the
Tactical decision: decisions
based upon strategic policy higher levels among few staff. Each level of management possesses different levels of authority -
decisions, affecting shorter-term directors decide strategy; managers decide how to achieve the strategy, i.e. make tactical
issues within the organisation.
decisions; employees carry out instructions. A matrix structure, using people with different
Matrix structure: An
organisational structure involving
skills and abilities in project-based teams, allows more freedom and speed of decision-making.
more than one line of
communication, often operated RWE npower’s corporate values link the way it carries out its business to its strategic objectives:
with employees working in teams.
Values: what a company stands
for.
Trust

Forward
Thinking Reliability

Performance Customer
Focus

Its culture of trust in its people and its emphasis on forward-thinking allow RWE npower to
delegate decision-making to all levels through the organisation. This means that young,
developing staff are encouraged to use their talents and abilities to deliver the desired
performance and customer focus. This benefits RWE npower as it utilises all employees in both
decision-making and how the business operates. Each decision relates to business objectives.
RWE npower’s objectives focus on reliability and consistency of energy supply. If industrial
customers requiring combined heat and power (CHP) to meet their process demands lose supply,
production may be affected. Spare parts are vital to sustain energy supply. npower Cogen
maintains a stock of spare parts. The questions needing to be asked were: are they the correct
spares when considered against availability loss? When considering the cost of spare holdings, is
the value of stock right?

Jay needed to make decisions based on an assessment of the risks linked to making changes
or not doing anything at all. He had to evaluate which Cogen spare parts were ‘critical’ and
what was the best way of managing the supply of these.

Jay’s work involved:

• looking at the range of Cogen parts kept in stock
• assessing the costs of maintaining and re-ordering this stock
• comparing these costs to the costs of breakdown and loss of supply.

The project required him to use a wide range of skills including gathering and analysing data,
listening to stakeholders, managing his and other people’s time and budgets, and
communicating with engineers and senior managers in preparing and presenting his findings.

ACTIVITY: In pairs, consider the advantages for npower in delegating decision-making.

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Strategic decisions
Strategic decisions are those which affect the long term performance of the business and
which relate directly to its aims and objectives. They are usually taken at the highest levels of
management and carry higher levels of risk. However, effective strategic decisions bring high
levels of reward.

The strategic decision to undertake the ‘Strategic Spare Parts Project’ was taken by directors
at the highest level in RWE npower in order to support its objective of reliable supply. The GLOSSARY

expected rewards from the project were fewer availability losses leading to reduced costs Availability losses: times when
the plant is unable to generate
and improved customer satisfaction. energy.
Competencies: areas of activity
The decision to give this project to Jay to project manage illustrates the way that RWE npower‘s in which a firm is particularly
culture supports the delegation of decision-making powers to staff at all levels, using their known strong, e.g. research and
development, product innovation.
skills and competencies. Jay is a graduate engineer and has worked with Engineering and
Maintenance staff across RWE npower's portfolio. This experience meant he understood how
equipment and the work of other engineers helped operations. He communicated with relevant
staff, using his knowledge and experience, and obtained the necessary information to assess the
project. A wide range of staff were involved in the project:
• Jay consulted with the Senior Asset Manager and his team to obtain financial data relating to
insurance costs should they fail to meet their contractual obligations.
• Site Managers and engineers gave information on what spares were stored on different sites
and at what cost. They also shared the availability losses arising from past problems with not
having necessary spares.
• The Operations Procurement Manager negotiated the most cost effective deal for the
company.
• Jay found that for 75% of spare parts, there was sufficiently low risk to allow time for
normal ordering, purchase and installation and that 25% of spare parts were essential for
effective energy supply.

Jay concluded that the majority of spares for npower Cogen could be sourced as and when
needed without greatly affecting the power supply. However, if the essential spares were not
available, heat and power supplies could be affected for a long period of time. These items
were confirmed as ‘critical’.

With this information, Jay concluded that it was possible to find an alternative way of
managing the spares process and make improvements. He went on to investigate the best
ways to achieve these improvements.

Tactical decisions
Tactical decisions are medium term decisions. Whereas a misguided strategy could take a
business in entirely the wrong direction and lead to failure, a misguided tactic would have a
more limited impact. Strategies are usually in place for a long period of time; tactics tend to
be more changeable.

The leaders of the Spares project created a strategy for managing spares, based on
categorising parts into ‘critical’ and ‘non critical’. Within the strategy, various tactics were
designed to implement it. The key tactic for this project was for Jay to consult with and involve
staff at a number of levels. By getting first hand data, outcomes become more predictable.

If a tactic fails to achieve outcomes it can be adjusted or changed. Jay was trusted, given
responsibility, but he was also accountable. He needed to present a convincing case that a
new system was good business sense. Jay’s tactical decisions included choosing:
• which employees to consult with – the managers of each area, the people carrying out the job
• what channels of communication to use – group discussions, one-to-one meetings
• how much time to spend on each aspect
• what levels of improved reliability and therefore availability or reduced downtime for
equipment will show that the investment was worthwhile.

Jay’s findings will eventually be reported to directors. They have the final decision on whether
high levels of investment in the project are worth the cost. This decision will seek to balance
the risks with the costs of a significant investment in the strategy.
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Operational decisions
Operational decisions occur on a daily basis and are made considering the risk to the business.
Often these decisions are administrative in nature and can be implemented quickly and tend to
carry little risk. At RWE npower, employees at every level take operational decisions daily. An
example might be when to re-order a particular item of stock. Another could be to determine
how many operative staff will be required to complete a task.

GLOSSARY
Operational adminstrative decisions may be smaller-scale, but are nevertheless important
Empowerment: giving
responsibility for making decisions
choices that people have to make to fulfil their roles. As RWE npower employees work in an
to lower levels within the open culture, where there is exchange of information and mutual trust, they feel empowered
organisation. to take decisions. This sense of empowerment means that the organisation benefits from speed
of decision. Open lines of communication encourage free flow of accurate information.
Together, these things lead to better, informed decision-making at all levels.

In all levels in a business, there are constraints on decision-making. Jay for instance cannot
decide to make an unlimited financial investment in the Spares Project. There may also be
technical reasons why an action is not advisable. Constraints on decision-making are
sometimes organisational. Some people at some levels cannot have authority to decide
because they lack the knowledge or skills. At other times there are economic, political,
environmental or legal constraints.

The culture of trust in RWE npower means that even at the operational level, staff can propose
to make changes to how they do their job. The over-arching constraint is that such decisions
must be in line with company aims and objectives. At an operational level, decisions must
support the strategic direction of the business. All job roles carry specific responsibilities. At
RWE npower, decision-making powers are delegated throughout the organisation. This means
that people do not necessarily have to await a decision from a higher level. For example, an
engineer dealing with an equipment fault is able to decide what is wrong and how to put it right
without necessarily seeking authority from a manager. In this way, tasks can be completed more
quickly and efficiently which is better for the business and the customer.

ACTIVITY: Write a statement comparing tactical decisions with operational ones. Try to
use examples from a real business you are aware of.

Conclusion
All decision-making involves elements of risk and reward. For every decision there are risks.
Many organisations are structured so that major decisions are taken at the highest levels. This
is because decisions at the top can have major effects for the whole organisation. At the
tactical and operational levels, the risks are smaller.

At RWE npower, people at all levels are encouraged and empowered to make decisions
informed by accurate information. By using the skills of people like Jay and by giving ongoing
support and training, RWE npower is able to rely on good quality decision-making at all
levels. The ‘Strategic Spare Parts Project’ project has the potential to create a more secure
power supply and guarantee greater customer satisfaction.

Questions
1. What are the skills and abilities that assist in the decision-making processes within
npower?
2. What are the major differences between strategic decisions and other kinds of decisions in
npower?
3. Analyse the benefits for npower in appointing a young graduate engineer to take charge
of an important project such as the ‘Strategic Spare Parts Project’.
4. In your view, what are the advantages and potential problems in adopting a policy of
www.npower.com delegation and empowerment of staff at all levels within npower?
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