Commonwealth Energy Systems: Stakeholders and the Changing Energy Game
This is post 20 of 23 in a series on “Systems Thinking: Managing Chaos and Complexity” by Jamshid Gharajedaghi (ISBN 978-0-7506-7973-2).
Previous: The Marriott Corporation
The Setup
Chapter 11 opens with a real company facing a real problem. Commonwealth Energy Systems, or COM/Energy, was a utility company in Massachusetts that distributed gas and electricity. A group of board trustees, the CEO, and senior executives came together with outside consultants (including Gharajedaghi himself) to redesign the company from scratch.
Not a small tweak. They started with the assumption that the entire company was destroyed overnight, but the world around it stayed the same. Then they asked: if we could rebuild this thing from zero, what would we build?
What Do Stakeholders Actually Want?
Before designing anything, the team had to figure out what every group connected to COM/Energy expected from the company. Gharajedaghi defines a stakeholder as someone directly affected by the system’s performance who can also influence its future. That second part matters. It’s not just about being impacted. You also need to have some power to shape what happens next.
Here’s what each group wanted.
Shareholders had historically treated utilities like a savings account. Safe, boring, reliable returns. But the ground was shifting. The old promise of guaranteed returns was fading. Investors were starting to expect either real growth or higher returns to justify the growing risk. The “safe bet” identity of utility stocks was eroding.
Regulators were stuck in a classic catch-22. On one side, politicians and environmentalists pushed them to include social costs in energy rates. On the other, the public screamed for lower rates. Regulators couldn’t raise prices to fund social programs and cut prices to help consumers at the same time. They were basically looking for anyone who could offer a creative way out of this impossible position.
Employees knew the game was changing. They valued job security, career growth, and the good working environment COM/Energy had historically offered. They’d shown loyalty, and in return, they expected to keep their jobs. But the national economic trends were making them nervous. The interesting insight here is that this anxiety actually made them more willing to cooperate with management on big changes. Fear is a weird motivator. Sometimes it makes people dig in. Sometimes it makes them open to new ideas.
Customers wanted cheaper energy. Period. They felt the cost-plus monopoly system was outdated and unresponsive. Industrial customers were especially frustrated because outside suppliers were promising lower prices if only regulations would let them in. Customers also wanted more than just gas or electricity delivered to their building. They wanted integrated energy solutions. Help with conservation, energy management, the whole package. But the utility model only offered one narrow thing.
Suppliers were dealing with their own uncertainty. Oversupply and new competition made their future feel shaky. They wanted to be treated as real partners, not just vendors. They wanted a seat at the strategic planning table. They were ready to take entrepreneurial risks, but only if the rewards were shared honestly.
The public, especially environmentalists, wanted a cleaner energy system. Less pollution, more conservation, a company that projects a “green” image. But they also believed all of this could happen without raising prices. European utilities were already doing it, and the American public was starting to expect the same.
What strikes me about this stakeholder analysis is how everyone wanted something slightly different, and some of those desires directly contradicted each other. Shareholders wanted growth and returns. Customers wanted lower prices. Employees wanted stability. The public wanted environmental investment. Regulators wanted all of it at once. This is the kind of mess that can’t be solved by picking one side. It has to be dissolved. That’s the whole point of systems thinking.
The Energy Industry Was Changing Fast
The design team mapped out how the entire energy industry was shifting. The list reads like a before-and-after of an industry getting flipped on its head.
The industry was moving from cost-plus regulated pricing to competitive benchmarking. From peaceful coexistence among utility companies to a zero-sum fight for market share. From a simple business environment to a crowded field of pressure groups. From the stability of regulation to the chaos of open markets. From a uniform customer base to a fragmented one with very different needs.
Two shifts stood out to me. First, the move from offering “discrete solutions to independent problems” to “integrated solutions to interdependent problems.” That’s systems thinking applied to a product strategy. Second, the shift from capital-intensive infrastructure to knowledge-based services. The value was moving from the pipes and wires to the people who knew how to use them.
COM/Energy’s Specific Problem
For COM/Energy specifically, the future was unclear but the past was definitely over. Their franchise area was small and saturated. Growth within their existing territory was basically done. And their whole cost structure assumed growth. Without it, the math stopped working.
Internally, limited growth would break the built-in cost increase system. Externally, the peaceful coexistence between utilities would collapse. Companies that used to respect each other’s turf would start competing head-to-head.
But here’s the thing Gharajedaghi points out. Deregulation was actually good news for COM/Energy. Their franchise was “land-locked.” They were stuck in one geographic area. But if the market opened up, consumers were everywhere. A small, agile company with real energy expertise could go places a bigger, slower utility couldn’t.
The Three-Pronged Strategy
The design team landed on a strategy built around three activities along the value chain.
Regulated Businesses. Keep the existing gas and electricity distribution running, but make it as efficient as possible. This was the foundation. The cash cow that needed to be protected and improved. They knew retail distribution would stay regulated even if the rules changed, so they committed to being the best at it.
Customer-Oriented Businesses. This was the growth play. Move beyond the franchise area and offer integrated energy services. Stop treating gas and electricity as separate things. Combine them. Solve real customer problems. They planned at least two new entities: one for residential and commercial services, and another for industrial customers.
The key insight is that the traditional separation between gas and electric expertise was self-imposed. By combining these knowledge areas, COM/Energy could see opportunities that single-lane companies would miss.
Technology/Supply Businesses. COM/Energy was a major buyer and supplier of oil, natural gas, and electricity. These markets were becoming increasingly interconnected. Other companies were forming alliances to simulate the integrated structure COM/Energy already had naturally. The plan was to build on that advantage through alliances with energy suppliers and technology providers.
Core Values and the Architecture
The design team also defined a set of core values. A few stood out to me.
“Be a proactive organization capable of reinventing itself.” That’s not a corporate platitude in this context. They literally just designed themselves from scratch. They mean it.
“Change the nature of control from supervision to learning and early warning.” This is a huge shift. Instead of managers checking if people followed the rules, you build a system that detects problems early and helps people learn. That’s a fundamentally different relationship between management and workers.
“Simultaneously exploit the advantages of both centralization and decentralization.” This is the classic systems thinking move. Don’t pick one or the other. Find a way to get both.
The general architecture had five components: an executive office with a core knowledge pool, regulated business units (gas and electricity), customer-oriented business units, technology/supply-oriented business units, and shared services. Every unit except the regulated ones was expected to be self-sufficient and operate on target costing instead of target pricing. Target pricing means you set prices based on your costs plus a margin. Target costing means the market sets the price and you figure out how to make money at that price.
Each unit was also measured not just on its own profitability but on what it contributed to the rest of the system. That prevents the silo behavior that kills organizations from the inside.
My Take
This chapter is systems thinking applied to a real company with real constraints. The design team didn’t pretend the contradictions between stakeholders could be wished away. They didn’t pick shareholders over customers or employees over the public. They built a structure that tried to dissolve the conflicts by creating more value for everyone through integration.
The three-pronged strategy is smart because it doesn’t put all the eggs in one basket. Stability from regulation. Growth from customer-oriented businesses. Strategic advantage from technology. And they all reinforce each other through shared services and knowledge.
Whether it actually worked in practice is another question, but as a design exercise, it shows how to think about organizational redesign when the old game is ending and nobody knows exactly what comes next.
Next: Commonwealth Energy Systems - Business Units and Shared Services