Business Process Management in Energy

Forced to deliver expected shareholder returns in stagnant markets, energy
utilities are turning their attention to performance improvement. The drive
for operational excellence is forcing energy companies to optimize complex processes
spanning several lines of business. Business process management, with its compelling
value proposition (to automate and optimize business processes across the enterprise),
holds promise to significantly affect corporate effectiveness. However, early
steps can be burdened with organizational and technological challenges.

BPM for Operation Excellence

Pressure to achieve earnings growth rates considerably larger than the sluggish
native customer/load growth rates is forcing energy companies to explore performance
improvement as their growth engine. After an initial focus on the low-hanging
fruit of cost reduction, energy companies are now turning to innovation through
business process automation/ optimization. Consequently, business process management
(BPM), with its promise to orchestrate and optimize complex utility business
processes (end-to-end), based on relevant information obtained through real-time
analytics, is gaining more attention as a means to increase corporate agility.

Although optimization of complex business processes spanning numerous lines
of businesses (LOBs) offers the largest improvement opportunities, it also poses
the greatest technical and organizational challenge. Because fragments of an
end-to-end business process tend to be enabled with compartmentalized LOB applications
tied together with custom, static and inflexible interfaces, such an environment
does not enable the adaptive process modification needed to quickly respond
to environmental changes. In addition, such processes lack clear ownership across
the enterprise, making end-to-end process automation an organizational/labor
issue. Energy companies, in their quest for process improvement (e.g., Six Sigma,
Lean, TQM) to achieve higher adaptability, efficiency and effectiveness, must
adopt and nurture process orientation as a strategy instituted from the CXO
level. To create a technology platform for performance improvement and facilitate
energy enterprise sense-and-respond behavior, energy IT organizations (ITOs)
must embrace service orientation as an enabling architecture. Using service-oriented
architecture (SOA), compartmentalized applications (or their modules) that support
components of the fragmented end-to-end business processes (wrapped in the Web
services envelope) can be exposed to BPM tools for optimal process choreography.

Leading energy companies are starting to embrace process orientation, while
embarking on process-improvement exercises, to increase organizational efficiency
and effectiveness. This initial adoption phase is frequently riddled with unclear
ownership of BPM initiatives (e.g., is it an LOB or ITO endeavor?). Myriad software
providers using the BPM moniker are adding to the confusion, resulting in compartmentalized
projects driven by localized business needs and owned by a particular LOB. In
most cases information technology organizations are on the sidelines trying
to control proliferation of the niche BPM tools and vendors.

As the emerging BPM market starts to consolidate, the process model will become
widely accepted, standards-based engines will replace proprietary ones; bigger,
safer players (e.g., IBM, Microsoft, SAP, BEA) will fully develop their BPM
platforms; and BPM initiatives in energy will be raised to the enterprise level.
This change will help clarify the role of the ITOs (and CIOs) as custodians
of the IT infrastructure, enabling corporate transformation in an adaptive and
more agile enterprise with BPM capability as one of the key requirements for
energy companies focusing on performance improvement and innovation.

The BPM Dichotomy

BPM’s dual nature (business and technology) creates a dichotomy responsible
for unclear ownership of its initiatives as well as two types of roadblocks
to successful implementation.

In vertical industries such as energy, numerous examples exist of specific
end-to-end business processes that are not automated with standard enterprise
systems (e.g., ERP). The simplest means of creating value in this circumstance
is to use process automation to automate manual portions of business processes
and their interfaces to enterprise applications and systems. LOBs view BPM tools
as an end-user technology that should be owned by the business to facilitate
process automation and replacement of manual processes, such as exception handling,
which are not tracked through formal automation systems embodied in the enterprise
application. Although this approach can provide significant cost reduction and
reduce errors inherent in those tasks, the scope of this automation is not the
complete process; it is only a portion of it reflected in these manual steps.

On
the other hand, energy ITOs are seeking new methods for developing software
and system automation. The convergence of Web services (promising universal
connectivity) and model-driven development and architectures (promising technology-neutral
system development) paints a compelling vision of the future of system development.
This future will be process-oriented, with systems created by using a process
model to direct the interaction of various systems and human actors. The systems
will be accessible because their functions are exposed as services, and the
process engine will be sophisticated enough to capture all the semantics of
the business process at various levels. In this vision, energy ITOs are seeing
BPM as an orchestration engine/platform deployed and owned by the ITO, which
will enable transformation into Web services and SOA.

The dichotomy of BPM is also reflected in the types of organizational and technology
roadblocks energy companies face. The main business challenges for successful
BPM deployment are ownership and stewardship of business processes. Unless an
energy company has taken an aggressive, process-oriented view toward its business
there is often confusion about process definition and ownership. Because the
processes where automation can provide the most value often span functional
areas, there are usually no individuals with responsibility for the overall
process. Instead, there are functional managers, each with individual responsibility
for the subprocess performed by their areas. Effectively automating these processes
requires the creation of new channels of communication as well as new decision
processes to enable the organizations involved to reach agreement about how
to handle the processes.

The technical challenge comes primarily from the fact that it is an emerging
technology based on Web services, which are not complete. Although substantial
progress is being made regarding the standards for and interoperability of Web
services, the practical use of Web services within energy companies and vendors
provisioning niche applications is in its early stage. The universal connectivity
that is required to link a process execution engine with the various actors
and systems in the environment requires a substantial investment in integration
technologies, and minimal integration among various components in the infrastructure
demands a substantial investment in the software platform. It also requires
legacy applications and vendor-delivered, commercial off-theshelf software to
be retrofitted (by componentizing and wrapping modules in Web services envelopes)
to be able to operate in an SOA.

BPM and Composite Applications

The breakdown of U.S. energy market restructuring (epitomized by Enron’s “creative
accounting” on the wholesale side and California’s deregulation debacle on the
retail side) has forced North American energy companies to curtail “risky energy
ventures” and get back to basics. Correspondingly, this has created a trend
toward rebundling the retail and network distribution businesses into entities
covering both the regulated retail and distribution segments, with operational
excellence as the key value discipline.

Our research indicates that current commercial, off-theshelf applications in
energy, developed to support the need of unbundled retail/network companies,
cannot adequately support an operational excellence pursuit. To achieve operational
efficiency after harvesting the low-hanging fruit of cost reduction and process
automation, integrated distribution companies need applications that can be
orchestrated beyond automated work flow into crossdepartmental process optimization.
Ideally, the goal of complex process optimization should be achieved by leveraging
existing applications rather than by creating the next generation of monolithic
ERP-like environments (which energy companies, driven by the sector’s low credit
rating and access to capital problems, are not likely to pursue). Users aiming
to achieve operational excellence through cross-departmental process optimization
must explore BPM technologies as vehicles that will transform current application
portfolios into a service-oriented architecture.

Energy companies, enabled by recent developments and projected trends in enterprise
application integration, Web services, business process management, business
performance management, business intelligence and next-generation analytics
architecture, which supports real-time analysis of key performance indicators
(KPIs), will begin the transformation into real-time enterprises. During that
time business process management will play the key role among technologies enabling
energy companies’ sense-and-respond transformation. In this phase, leading energy
application vendors will facilitate BPM use to orchestrate and optimize complex
cross-departmental processes by “beefing up” analytical architectures and exposing
KPIs for process optimization (e.g., “real-time” SAIDI and SAIFI determined
by the number of customers currently affected as an input into crew scheduling
during outage restoration). Following the emergence of mature retail restructuring
models during and maturation of Web services technology, we expect leading vendors
to disaggregate monolithic applications (such as customer information systems)
into services and rebundle them into composite application environments using
a combination of native functions and external services (e.g., Web services
across enterprise and business partner environments). The BPM capability within
the composite architecture environment will be one of the key requirements for
energy companies focusing on operational excellence.

BPM Components

The following are BPM functional components energy companies need to consider:

  • Process modeling: This component provides a graphical tool for modeling
    energy business processes in the as-is and to-be states. Models can also be
    tailored to depict best practices for exception handling or be prepackaged
    to reflect energy industry-specific needs. The visual representation (e.g.,
    swim-lane diagrams, UML models) must enable a business user (not a developer)
    to model the process from a business, not a programming, perspective. Different
    tools support various business process description semantics (i.e., proprietary
    approaches versus emerging standards such as BPEL, BPML and BPSS). Process
    modeling is often bundled with a process orchestration engine.
  • Process improvement methodology: Aligning the energy company enterprise
    business strategy with a process improvement program is a critical success
    factor. Many modeling tools have incorporated support for business-oriented
    improvement methodologies (e.g., Six Sigma, lean thinking, business process
    integration and management, CPI, Balanced Scorecards).
  • Process orchestration engine: A process orchestration engine (POE) takes
    runtime instructions from a process model. To date, these engines have been
    fairly proprietary. Many are migrating to support emerging description and
    execution standards (e.g., BPML, BPEL4WS), yet few of these are commercially
    available. In general, POE vendors cover one or more of the automation categories
    (see Figure 2):
  • Business rules engine vendors: Most of the business POE vendors provide
    lightweight business rules engines embedded in their tools. In other words,
    the execution engine uses business rules as input (i.e., its runtime instructions).
    Business rules represent decision choices that a user or a system will make
    based on a set of conditions. The basic technology has evolved so that user
    decision points in work flows are surfaced (often via a graphical model or
    alerts sent to a user).
  • Integration servers: These tools bind the abstracted business process to
    the data, documents, business logic, messages and events needed by the process.
    Adapters connect the integration server under the orchestration engine controller
    to structured data and logic in the underlying applications, unstructured
    data from the content management environment, search terms (vocabularies)
    from a taxonomy library and messages/events from message queue managers. The
    transformation capabilities of these tools provide semantic reconciliation
    across components as required. In addition, these tools provide basic transport
    and routing of information and events through the process.
  • Process monitoring and analysis: The primary function of these tools is
    to enable the analysis of live data as it moves through the process. There
    are two aspects to this real-time activity monitoring and analysis: 1) analysis
    of the process itself for optimal design (completeness and bottlenecks); and
    2) monitoring the operational process’ performance for predefined KPIs and
    notifying users of out-of-tolerance limits. This provides the opportunity
    to define and initiate corrective actions. The tool may also provide an end-user-facing
    dashboard with graphics in a visual display of KPIs for decision makers.
  • Process simulation/optimization: These tools are used to simulate the business
    process through multiple options, discovering bottlenecks and creating alternatives.
    Allowing the previously mentioned analytics to be captured and used as input
    into the simulation creates a more efficient process (via both design and
    runtime feedback). Some products allow a process to be simulated against production
    conditions to provide feedback.

Conclusion

The drive for operational excellence and improved financial performance will
force energy companies to integrate and optimize business processes across functional
areas while using existing legacy applications. Leveraging Web services, emerging
composite application architectures and efforts to define common semantics across
energy domains, BPM – with its inherent capabilities to integrate, orchestrate
and optimize complex business processes – will start transforming energy companies’
legacy applications into SOA environments. Energy companies must adopt process
orientation and work on establishing clear ownership of complex end-to-end business
process improvement initiatives. Energy IT organizations must establish a lasting
partnership with the business to create a corporate performance improvement
IT platform based on BPM technology.