On Better Business Intelligence

Utilities are working hard to address new financial control and reporting requirements,
making progress on significant cost reduction and revenue enhancement initiatives
and improving the management of financial and operational risks. But some key
performance management process, technology and organizational hurdles are making
these efforts far more difficult than is necessary. To clear the hurdles, companies,
including IBM, have developed and successfully implemented a comprehensive business
performance management (BPM) approach that helps utilities avoid many typical
problems with performance reporting and analysis and increase focus on improving
financial and operational performance, driving bottom-line benefits for both
customers and shareholders.

BPM Challenges for Utilities

More than ever, utilities require access to accurate, timely data and the ability
to perform powerful financial and operational analyses. One obvious driver of
these changes is the increased reporting requirements resulting from Sarbanes-Oxley
legislation. Utilities are also facing pressure to manage costs more effectively,
enhance revenues and increase profitability, all of which require close monitoring
and analysis of operational and financial performance. At the same time, financial
and operational risk measurement and management remain a high priority for both
regulated and unregulated utility businesses. Utilities that excel in each of
these areas will be among the industry leaders over the next decade, but many
utilities must first face some fundamental challenges in BPM data collection,
reporting and analysis.

One BPM challenge is the need to better align all activities in the utility
with the strategies and performance goals of the company as a whole. While many
utilities understand what drives their business performance at a high level,
they have not built this understanding into their detailed reporting systems,
analysis tools and performance metrics. The result is that incentives don’t
necessarily drive staff to contribute to better bottom-line performance, and
reports don’t focus on the most important financial and operational performance
measures. Additionally, analysis of the linkages between financial and operational
performance measures is limited.

Another BPM challenge is the excessive effort currently required to access,
validate, analyze and report performance data. Many utilities still have groups
of analysts that provide support to executive, finance and operations groups
by building and modifying custom spreadsheets and other ad hoc reporting and
analysis tools. These manual processes require substantial resources and take
those resources away from the far more valuable work of providing historical
analysis, performing scenario planning and developing professional insights
on what is happening and how to deal with it.

A related BPM challenge is the lack of integration among corporate planning,
functional groups and operational business units with respect to budgeting,
forecasting, analysis and reporting tasks. This results in the need for additional
analyst resources to pull together disparate data and to manually link unconnected
processes, creating yet another distraction from more important and valuable
planning and analysis activities.

The final BPM challenge is that utilities simply have an overload of data.
Due to regulatory requirements and a historical emphasis on engineering analysis,
utilities typically have more financial and operational data than companies
in other industries, resulting in utility staff, managers and executives who
are simply bludgeoned with raw data. Utility management is unable to effectively
sort through data, extract the information they need, analyze performance in
their areas of responsibility and use this analysis to efficiently decide on
actions required to improve that performance.

Comprehensive BPM Vision

BPM addresses all of these challenges. As presented in Figure 1, BPM integrates
three process areas that are fundamental for utility success:

  • Business planning and simulation;
  • Performance analysis and improvement; and
  • Portfolio optimization.

Although these three process areas are fundamental, it’s the BPM enablers that
are the keys to BPM vision, since these are designed to overcome the BPM challenges
that most utilities face.

Each of the BPM enablers shown in Figure 1 is necessary, but three are particularly
important:

Alignment of Strategy and Measures

Utilities effectively have dual goals: deliver value to shareholders and meet
regulatory requirements. Managing a utility involves striking a careful balance
between these two sometimes competing goals. To be successful, utilities must
achieve measurement balance, enabling performance in all business units and
at all staff levels to drive toward success. With this balance, each employee
understands how to contribute to all of the company’s strategic goals, and how
that contribution will be measured.

Consistent Processes and Information Delivery

This is at the center of Figure 1, and it is at the center of successful BPM
as well. Substantial utility resources are currently devoted to overcoming BPM
process disconnects, and closing these gaps will help enable managers and executives
to spend more time on analyzing the important performance issues and developing
action plans to address them. Consistent information will help eliminate confusion
and reduce the challenge of sorting through mounds of data to find what is important
and useful.

Support for Infrastructure

The infrastructure for performance data collection, reporting and analysis
at many utilities is fragmented, heavily labor-intensive and difficult to maintain,
creating the need to revamp much of their infrastructure to better enable the
three BPM process areas. The good news is that investments in this area can
actually pay for themselves directly through reduced BPM costs by eliminating
manual and ad hoc operations and the heavy data correction and filtering processes
that they currently require.

Four Elements of BPM Execution

With a clear vision for comprehensive BPM capabilities, we can turn to how
to make BPM a reality in today’s utility environment. For utilities, there are
four critical elements for executing a BPM program:

Relevant Content

Different utility stakeholders require different BPM content to understand
performance in their business area and to make effective decisions within their
area of focus. It is important that the content of their reports, analysis and
personal performance measures be relevant to that focus. For example, the CEO
and other C-level executives are focused on strategic issues, and should be
receiving reports and analyses that address those strategic issues rather than
distracting them with unimportant details and an irrelevant volume of information.
In contrast, line managers are focused on day-today operations, and should be
presented with operational performance measures and information on how their
part of company operations is contributing to the company’s overall bottom line.

The need for relevant content may seem rather obvious, but we have found it
to be a considerable challenge for utilities. Instead, utilities often follow
the “more is better” approach, resulting in the presentation of far too much
information, personal performance evaluations based on too many factors and
an overall lack of performance focus.

Efficient and Integrated Processes

Installed BPM processes in utilities are often very inefficient, resulting
in substantial waste of resources and difficulty in obtaining and analyzing
information on a timely basis. Successful BPM execution depends in part on the
application of numerous best practices for the three BPM processes, and the
careful integration of those processes across the company. Table 1 highlights
some of the best practices found in each process area.

Enabling Technology

Technology supports nearly every aspect of BPM, ranging from data collection,
transformation and warehousing to information analytics and report presentation.
Given this importance, utilities need to assess their existing technology strategy,
tools and standards and to understand the problems they may be causing with
BPM activities. Such an assessment typically leads to a future state blueprint
for BPM technology that is founded on the BPM vision, leverages current assets
and employs standardized tools and protocols to facilitate reuse and scalability.

The data architecture supporting BPM is a key part of the enabling technology,
and needs to clearly determine the logical and physical data stores needed to
support the BPM environment, including operational data stores, data marts,
data warehouses and online analytical processing. Another vital part of BPM
enabling technology is the analytical tools, including both generalized planning
and forecasting systems and the specialized models used by utilities for generation
dispatch, portfolio optimization and long-term system planning. The technology
framework needs to support access to and operation of these analytical tools,
and allow for flexibility and scalability, as utilities are adopting sophisticated
analytical tools and techniques more common in the financial services industry.

Organization and Culture Change

Organizational and cultural issues are often overlooked when executing BPM
improvements in any industry, but utilities in particular need to carefully
address these concerns. With its strong traditions in engineering excellence
and long history of regulation, the utility culture is very good at focusing
on operational performance. But this focus often distracts managers, and sometimes
even executives, from attention to financial results. This is especially the
case with middle managers in operations, creating a needed success factor of
BPM execution: changing the cultural mindset to strike a better balance between
financial success and operational excellence.

Fundamental culture change takes time, but it can be accelerated by helping
to ensure that managers and executives have a balanced scorecard that shifts
the performance weighting toward financial performance, and by basing the performance
weights on a rational evaluation of the contribution of operational excellence
to the bottom line. While these accelerators will help, they will not guarantee
the change to a performance-based culture. Senior executives need to recognize
that culture change in utilities requires a strong and sustained push from the
highest levels of the company.

Getting Started on Building Better BPM Capabilities

The first step in building BPM capabilities for a utility is to perform an
assessment of the current situation, minding the four elements of BPM execution.
Typical initial questions for each BPM execution element are presented below:

Relevant Content

  • Is your code block being used consistently and efficiently across the company?
  • Do you have the right financial measures at a meaningful level and do they
    match your business organization and hierarchy?
  • Are you capturing and analyzing the external and internal drivers of your
    financial performance?
  • Are all of the information needs of your internal and external stakeholders
    being addressed?

Efficient and Integrated Processes

  • Is your budget cycle too long and/or too resource-intensive?
  • Are measures and targets being applied consistently across the planning,
    budgeting and reporting activities?
  • Is there consistency and alignment between long-term planning and short-term
    forecasting activities?
  • Is your close cycle too long, and can you get estimates of financial performance
    prior to the regular close date (i.e., an “early close”)?
  • Does report development require excessive analyst and/or IT support?

Enabling Technology

  • Are your business and reporting applications scalable and flexible enough
    to meet your changing business demands?
  • Are you using the right tools for the job, such as relational reporting
    tools versus multidimensional reporting tools?
  • Do you have the tools needed to transform your data for analysis?
  • Have you integrated financial and operational performance measures with
    customer data using an enterprise data warehouse?

Organization and Culture Change

  • Have you aligned individual performance measures and compensation structures
    with your enterprise performance measures?
  • Has a formal owner of BPM been assigned within your company, and do you
    have the right skills in-house to fully leverage valuable BPM information?
  • Does your organization resist change, and how will you ensure that your
    BPM vision is accepted and integrated throughout the company?

The answers to these initial questions will help identify the problem areas
in BPM for the utility and should be followed by development of a long-term
vision for BPM that addresses those problems. The next steps are to build on
this vision to develop a conceptual design for the BPM capabilities with details
on each of the four elements of BPM execution and then to plan for and implement
the new BPM capabilities. Typically, the recommended implementation method is
a staged approach, especially when there are significant technology or cultural
challenges to overcome.

Conclusion

Executing a comprehensive BPM vision can help utilities reduce costs, increase
earnings and shift to a culture that is more focused on financial performance.
Several utilities are now strengthening their BPM capabilities, and having solid
BPM capabilities is an increasingly important part of being a successful utility.