Business Process Management in Energy by Chris Trayhorn, Publisher of mThink Blue Book, May 15, 2006 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 BPMs 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 Enrons creative accounting on the wholesale side and Californias 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 sectors 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. Filed under: White Papers Tagged under: Utilities About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.