Introduction

The restructuring of the utilities industry is now a global phenomenon.
Many utility companies are recasting business strategies to meet the uncertainty
of the new, evolving regulatory environment. IBM’s own market research
indicates that utility companies are focusing on the elements within the
utilities value chain (generation/gathering/processing, transmission,
distribution, trading, and retail) and considering a range of strategic
options, as described in Figure 1.

Acquire Others

When utility companies merge, IT savings are often identified as a major
element of cost savings, yet post acquisition, few companies move aggressively
to consolidate those savings beyond amalgamation of data centers and IT
departments. An e-business strategy, implemented at the start of the merger
of the enterprises, goes beyond simple “overhead savings” and identifies
how operational savings will be made and the target systems to be used.

Figure 1
No matter what strategies a utility embarks upon, e-business is vital
to the implementation and success of that strategy.

New Unregulated Ventures

Pursuing a retail strategy often requires the invention of a new business
to compete against new Internet-based retailers working on razor-thin
margins, while at the same time leveraging existing investments in energy
trading skills and generation capacity. e-commerce and an integrated Web-enabled
fulfillment process are critical to maintain the broad reach and low overheads
required for profitability.

Global Expansion

National and international expansion requires the ability to quickly
and efficiently transfer knowledge and skills, as well as to extend operational
platforms while limiting the costs to support a larger business structure.

Cut Costs

Cutting costs is a constant for all enterprises. For both the new unregulated
ventures and re-regulated operations, cutting costs and sustaining service
levels is fundamental for survival and superior returns to shareholders.
Initiatives such as e-procurement, Web-based customer service, e-commerce,
pervasive and wireless computing, and online learning can greatly reduce
operational costs and improve customer service.

The State of e-business in the Utilities Industry

Market research conducted by IBM has found that companies across many
industries follow a similar pattern of e-business adoption. Figure 2 depicts
these common adoption stages and where the “early majority” from each
industry are positioned.

Figure 2
The common adoption stages of e-business.

Overall, mainstream utilities have passed the initial “brochureware”
stage where marketing information simply is published on a website; they
have now started to link customers with existing business processes. For
example, enabling utility billing systems with e-business capabilities
to provide customers the ability to make service requests, view account
information via the Web, and make simple business requests. Transactions
like these address the growing demands of today’s savvy consumers while
helping the utility company to reduce service costs.

Companies making this transition have overcome a major challenge known
as the “security chasm.” As an organization opens up its internal systems
to the outside world, it is concerned not only about potential security
issues but also about exposing inefficient processes. As a company progresses
in its adoption of e-business, another set of challenges, the “business
value chasm,” needs to be addressed in order to justify significant process
transformation and integration.

Further work by the Meta Group1 indicated that while many utilities companies
have made small investments in e-business, most invest-ments have been
limited to customer-facing processes and that most back-office and operational
systems have yet to be considered within e-business strategies.

To date, utilities investments in e-business can be characterized by
ad hoc investments in discreet business processes. Enterprises have gained
experience in deploying technologies but in many cases have yet to make
significant investments that will transform business processes, reduce
costs, and improve competitiveness.

Implementing the Next Stage of e-business

There is no doubt that e-commerce is a driving force for the adoption
of e-business projects within utilities. Forrester Research predicts that
by 2004, utility business-to-business commerce alone will surpass $240
billion.2

e-business however, is more than e-commerce. e-business provides the
greatest value when applied to the transformation of business processes
that drive out inefficiencies by integrating across operational units.
Through linking processes from customer to supplier and reinventing processes,
organizational performance is enhanced through lower cost structures and
quicker, more informed decisions. e-commerce is often one of the tools
used to meet a greater strategic goal.

The recent move toward the creation of B2B e-markets, the adoption of
e-procurement, and Internet-based customer enrollment processes to support
retail competition, are examples of external initiatives that can cause
utilities to undertake large e-business projects with significant organizational
change impacts.

Consider the opportunities for implementing e-procurement. One approach
is simple automation of existing processes. This enables the procurement
organization to purchase items quicker, and at a lower transaction cost.
An alternate e-business approach is to restructure the internal processes
between procurement and operational business unit. The e-procurement project
would rationalize and leverage the spending power of the enterprise, optimize
the supply chain, capture usage data to support continual improvement,
and ultimately use e-commerce to conduct the final transactions. The benefit
to the enterprise from this e-business strategy is considerably more than
the limited savings from cost reductions in the procurement process and
potential discounted prices from online purchases. In addition, the enterprise
has gained value through:

• Reduced costs through leveraging enterprise spend.
• Reduced inventory costs.
• Increased productivity through enabling users to order and track equipment
  items, and to coordinate their work schedule appropriately. This capability
  is extended to the field through a range of wireless and computing devices
  such as WAP-enabled phones, two-way pagers, Palm or Windows CE devices.
• Increased productivity through closer integration between the operating
  units and strategic suppliers.
• Providing real usage information to allow disposal of excess items,
  and purchasing of “virtual inventory” using e-markets.

The e-business initiative described above may employ a number of technologies
typically labeled as e-commerce, workflow, e-procurement, pervasive computing,
and business intelligence. The modularity and openness of e-business allows
such an initiative to be imple-mented in stages to match corporate capability,
however the strategic intent and broader value requires a more coordinated
management approach.

While ad hoc management of early e-business projects may have sufficed,
the organizational impact of the next phase of e-business requires a broader
organizational commitment. Experience shows that companies that transition
to the next stage of e-business, but maintain ad hoc management practices,
are unlikely to capture the full benefits of strategic initiatives. They
dissipate organizational energy and resources through failure to integrate
and reuse organizational, process, and technology skills and infrastructure.
Ultimately this management approach will result in escalating technology
support budgets and increased operational risks to new “always open for
business” applications.

Put simply, e-business is not something a utility does – it is what a
utility becomes.

Managing the e-business

No single e-business expert with all the answers exists today. Instead,
there is a wealth of collective experience. IBM has established an impressive
track record in becoming an e-business. By capturing our own experiences
and leveraging the knowledge, experience, and insights drawn from working
with a broad range of clients, IBM has found that a key element to achieving
e-business success involves creating an “e-business management system.”
The system is based on pragmatic answers to real e-business issues.

IBM’s e-business program has enabled the company to achieve considerable
business performance. In 1999, IBM:

• Completed Web-based sales worth $14.8 billion.
• Provided 42 million Web-based service transactions.
• Enabled online support and services to over 14,000 business partners.
• Procured $13 billion in goods and services over the Web.
• Reduced the costs of employee training by over 25 percent through
  Internet-based training and education.

These initiatives alone allowed IBM to avoid $250 million of expense
every quarter.

When IBM began its e-business transformation, we discovered that simply
immersing ourselves into e-business was not enough to make it operationally
or financially successful. We needed to build a model to control and manage
our e-business strategy and investments. We knew that simply controlling
e-business was not the answer. We also needed a way to leverage and incubate
e-business for it to prosper. We found that an e-business management system
construct helped us coordinate better and move faster in implementing
successful e-business initiatives.

The concerns and issues related to e-business are remarkably common.
You can probably relate to the following company issues which are composites
of comments from a variety of clients:

“Our senior management team does not understand this new technology,
but if they don’t get involved in these decisions, we won’t have the leadershipor
the clout that we need to be successful.”

“We have an idea about how we want to approach e-business, but we
don’t know the best way to begin implementing it at our company. We want
to make sure that our efforts are profitable and effective, but we also
know that we could stifle e-business if we control it too closely. What
is the right balance?”

“I wonder how implementing e-business will impact our organization’s
current processes. Also, are there new processes we need to implement
that are specific to e-business?”

“Who should own this initiative? Who should be making the decisions?
Who should be taking what action? What types of people should I look for,
and how will I know if they have the right credentials?”

“I struggle with knowing how well we are really doing with our e-business
initiatives. I know that some of our current metrics won’t apply to this
new way of doing business, but what is the right way to gauge our effectiveness
and justify our investments?”

The e-business Management System: A Tool for Better Decision-Making

The e-business management system, shown in Figure 4, supports both a
company’s e-business strategy and the initiatives required to deploy that
strategy. Essentially, the e-business management system seeks to achieve
a workable balance between simultaneously controlling and nurturing the
e-business effort. The e-business management system also acts as the single
point of convergence between various e-business efforts and the operations
of the broader enterprise. This includes the efforts and involvement of
key internal and external stakeholders in the enterprise.

Figure 3
e-business management systems.

Critical Considerations for Establishing an e-business Management System

Generally, companies must address two fundamental questions to establish
and run an effective e-business:

• How are we going to organize around the need to manage our e-business
  efforts?
• What measures do we need to take to ensure that we are moving forward
  swiftly and effectively in creating an e-business environment?

While each company’s approach is unique, several critical considerations
dictate how the e-business management system should be established. IBM
– along with our clients – has uncovered seven components necessary to
create an effective e-business management system:

• Mission: Purpose and approach to nurturing and managing e-business
  within the enterprise (including its extended-enterprise components).
• Organization: Structure, reporting relationships, and connections
  between the e-business resources and their counterparts in other areas
  of the enterprise.
• Roles and responsibilities: Definition of work requirements
  mapped tothe groups and individuals who will perform them.
• Processes: Predefined activity flow for the necessary e-business
  actions and creation of e-business outcomes.
• Measures: Accountability mechanisms for e-business at the
  enterprise, operating, process, group, team, and individual levels.
• Policies: Predefined e-business decisions with associated boundaries,
  standards, and latitude.
• Content model: Definition of consistency in content and its
  portrayal on websites so that decentralized execution of content management
  can be performed in a coordinated, well-planned manner, as shown in
  Figure 5.

Figure 4
Component alignment throughout the e-business management system is critical
to the success of the enterprise’s e-business efforts.

To address both the organizational and operational needs of an enterprise,
these components must be structured to work together as a system. IBM
has evolved, over time, an understanding of these components and how to
best configure them, both from our own experience as an e-business and
from working with our e-business clients.

Internally, our e-business management system of today is very different
compared with when we started e-business management in 1997 with IBM Enterprise
Web Management (EWM). We also know that different clients have different
needs and that there is no single answer to every problem. There are fundamental
differences that must be addressed. Simply replicating another company’s
experience is not likely to be successful. Tailoring systems to each unique
situation is vital to achieving e-business success and requires evaluating
every client’s management objectives against the seven system components,
as shown in Figure 6.

Figure 5
Managing the business of e-business.

Lessons Learned: How to Avoid Common Problems Faced by Companies New
to e-business

In addition to its own transformation, IBM has completed a range of e-business
strategy and implementation for utility companies and companies from other
industries. Regardless of the industry or e-business goals of our customers,
key e-business lessons that these companies emerged are:

• Launch and learn: Swift, innovative implementation, with the
  understanding that the solution must constantly evolve, will ultimately
  provide a better outcome than working to develop precise answers to
  issues. We call this “launch and learn,” and we know it is often difficult
  to implement. It is important to set the expectation that these decisions
  will change, both incrementally and significantly, and that changes
  will occur more frequently than in the past.

• Define roles and responsibilities: The organizational structure
  for an e-business management system is often complex, so it is vital
  that roles and responsibilities are clearly defined to avoid problems
  of role overlap or role gap. This is especially true with activities
  where multiple groups or individuals participate.

• Commit to invest: Although it is important to steer e-business
  efforts toward a clear path of return on the company’s investment, a
  premature focus on the financial aspects may thwart the development
  of innovative initiatives. Often, the best initial focus is speed or
  learning through the quick and broad dissemination of information company-wide.

• Explore policies: Make sure policy issues are explored and
  that policy-related decisions are communicated company-wide. Website
  audits have uncovered embarrassing and illegal materials. Unfortunately,
  this is not uncommon and most companies are unaware of the full extent
  of their exposures. Access to technology and content is pervasive, and
  this has led to difficult situations for many companies.

• Design for Web use: Strategically reducing website content
  often increases site use and revenue. Rather than read content word
  for word, users scan site information. Making the most relevant content
  quickly and easily accessible is the secret to a valuable and profitable
  website. The content model helps focus a company on these important
  aspects.

• Re-examine funding: Funding may be found by re-examining a
  company’s entire list of initiatives and projects. The most successful
  companies have been willing to decommission some initiatives that were
  underway in order to free up needed funding, resources, executive leadership
  capacity, and organizational capacity for change.

• Focus on business goals: Remember the “business” in e-business.
  Transformation to e-business is not a technology issue. If you treat
  it like a technology effort by failing to establish effective reporting
  relationships and business-executive involvement, it is less likely
  that your organization will make the fundamental shifts necessary for
  e-business success.

• Make resource commitments: Consultants are limited in the amount
  of aid they can provide their clients regarding important managerial
  issues. The organization must provide adequate resources for its effort
  from the very beginning. Without the proper resources, both in terms
  of organization and numbers, only slow progress will be made in the
  e-business space.

Conclusion

The global utilities industry is changing to meet the new competitive
environment. By becoming an e-business, utility companies can implement
new business strategies, be they delivering the synergies from mergers
and acquisitions, capturing cost savings from regulated business, or improved
competitiveness in deregulated business.

The value of e-business is captured through organizational commitment
and management. e-business is not what an enterprise does, it’s what an
enterprise becomes.

The principles of the e-business management system are paying great rewards
for IBM and for our clients. Undoubtedly, e-business is radically changing
the way business is done. New e-business models are enabled by emerging
technologies that allow companies to more effectively unite with customers,
partners, and suppliers. Utilities that can successfully leverage these
new technologies and ways of doing business will position themselves for
unprecedented growth.

Footnotes

1 Meta Group, Energy Information Strategies, e-business survey results,
January 2000

2 Forrester Research, E-Marketplaces Boost B2B Trade, February 2000.