This report is brought to you by Utility Week Intelligence in association with Wipro and ServiceNow
Time for a digital renaissance
Utilities need to refresh their approaches to digital transformation as major challenges hit home. Senior representatives debated the challenges and opportunities involved at a Utility Week event.
Introduction
The phrase “digital transformation” has been a common feature of business vernacular for well over a decade, across industries and geographies. Yet for all the longevity of the term, many organisations, not least in the utilities sector, feel they still have a long way to go in realising the benefits of the digital age.
Of course, in part this can be explained by the ever-increasing rate of technological innovation. The pace at which emerging technology fields are maturing and making their presence felt in real-world applications has the potential to make a keen technophile who embraces the “next big thing” at breakfast feel like a luddite by dinner time.
But the dynamism of the tech industry can’t entirely explain away a strong feeling observed by Utility Week across a number of industry forums and focus groups, that there is significant untapped potential for digital transformation across the energy and water sectors and that companies need to make a concerted effort to pick up the pace of change.
The drivers for this renewed sense of urgency on digitalisation are varied, spanning new regulatory expectations and reporting requirements, downward pressure on operational costs and changing service level demands.
Nevertheless, the overarching and most compelling argument for a renaissance in digital transformation in the utilities sector is the existential threat of climate change. This is demanding the creation of much more dynamic infrastructure operations which can provide real time insight into the environmental and carbon impacts of decision making, as well as optimising supply and demand for better resource management.
At a recent debate, hosted by Utility Week in association with Wipro and ServiceNow, senior industry representatives discussed the challenges they are encountering as they seek to push digital transformation forward in their organisations, managing associated risks and maximising rewards.
This report outlines core insights from that discussion with anonymised quotes from the individuals who took part. Our guests represented regulated energy and water utilities and held expertise across a range of functions, from cyber security to operations and data management.
Insights have been grouped under the following core themes, with concluding remarks provided by industry experts from Wipro and SerivceNow.
Participants said:
“Many don’t feel they have captured the benefits they were aiming for in digital transformation programmes.”
“[Barriers to digital progress] are something boards need to address. We need digital transformation to deliver the service levels that are demanded.”
“Saying ‘no’ to [digital innovation] introduces new risks – risks of not realising big benefits.”
“We need to maintain focus on the long term. Stand back and look at the bigger picture of what you are trying to achieve and what the digitalisation enables.”
Scaling solutions
In October last year, a leading technologist from the digital industries trade body techUK suggested utilities “lack ambition” when it comes to embracing the potential of digital transformation, adding that many companies do not seem to have “grasped the essence” of what it could do for them, and their sector.
But discussion at this industry meeting seemed to suggest that ambition is not so much lacking, as frustrated. Several participants talked about their experiences of seeing the potential of innovative and successful digital pilots go to waste, because they are not at taken forward at scale.
Often, the blockers come from cyber security departments who are happy to see experimentation with data and digital tools in tightly contained environments, but not to see these expanded. While this is understandable, one operational leader commented: “We need to get better at preparing for success in digital pilots.”
More broadly, it was agreed there is a natural cultural divide between operations and cyber security functions which needs to be bridged, supporting “mutual understanding for the gravitas of roles” and alignment of objectives.
With this aim in mind, our group agreed that clearer articulation of the pain points that digital initiatives are seeking to resolve, with robust “pounds and pence” articulations of the potential rewards for the business would be helpful. As would greater transparency and education about the cyber threat landscape, along with a democratisation of cyber risk management skills.
A senior cyber risk leader from an electricity network was broadly accepting of these points. Certainly they advocated for a demystifying of the cyber function which, they said, is too often assumed to “have a handle on the situation” and can be seen as something of an ivory tower.
However, they also pushed back on a suggestion that cyber functions are resistant to data sharing – an increasingly central tenet in digital transformation. Instead, they pointed out that an opening up of data and access to more data sources is absolutely in the interests of effective cyber risk management and mitigation.
“The only way you can have a handle on systemic risk is to see data from the bottom up… If we can harness the power of integrated data, we can get a much better handle on the true likelihood and impact of different risks and eventualities.”
Clarifying the cyber outlook on data sharing, the same leader explained that security concerns are centred around how to ensure the integrity of data which is shared, not about confidentiality of data. “We need to be confident that data shared by and shared with us is not manipulated or corrupted in a way that would allow it to impact our operations or process.”
Some further discussion around the benefits of robust trust frameworks, for example drawing on lessons from Open Banking, showed that many companies are alert to this requirement and are making strides to unlock the potential of a democratised data and digital ecosystem which can support transformation and innovation at scale.
Participants said:
“There is appetite for risk at proof of concept … But, having done the checks and balances required for this, when we have success, we then come up against challenges for rolling out.
“We need to get better at preparing for success in digital pilots and be ready for the eventuality that we will want to scale-up those benefits.”
“The only way you can have a handle on systemic risk is to see data from the bottom up.”
Building business cases
Closely aligned to the above challenge of scaling up successful proofs of concept for digital innovation was debate around how to effectively pull together business cases for investment.
Assuming security criteria are met, it was agreed the industry as a whole still struggle to put together compelling representations of the business benefits associated with large-scale digital investments. The siloed nature of business and islanded responsibility for key service and performance outcomes is largely to blame.
Echoing challenges Utility Week has heard discussed elsewhere, this group shared their experiences of seeing the benefits of digital investments in one business area accrue in parallel parts of the business. Because these holistic benefits don’t tend to be effectively captured, this can lead to a perception that there has been a failure to achieve ROI, with the consequence that further digital investment or development is not approved.
There was unanimous agreement that this needs to change to allow a faster pace of digital transformation with bigger rewards. “Digital is a non-functional requirement,” stated one technology leader at this meeting. “It’s about building capability.”
Seconding this view, another leader observed that utilities will struggle to unlock significant improvements in their performance or the experiences they offer to customers and employees “unless you can orchestrate across all environments.”
Participants said:
“Costs and benefits don’t always align in digital transformation. A need to drive performance improvements in, say customer service, may require significant digital investment to be funded by the department. But the efficiency benefits might actually be realised in reduced costs for field operations.”
“There’s inertia around attempting digital transformation at scale...It’s very challenging to set up a business case that can show how returns will fall out across the board.”
Regulatory constraints
The above discussion about becoming more adept at building holistic business cases for digital investment is all well and good. But it’s not necessarily in the gift of utilities to achieve.
Deep frustration was expressed by multiple participants about the limiting effects of regulation on digital investment and the perverse outcomes that are driven by a squeeze on OPEX expenditure.
One leader with responsibility for operational optimisation at a large water company explained the situation. “As an industry we are being asked to drive down OPEX at the same time as becoming digital enterprises. Those things aren’t aligned.
“It is super hard to ask for a share of someone’s really constrained OPEX budget to fund a digital project which will stop things breaking six months or a year down the road when they are struggling to fix six things that are broken today with the same pot of money.”
The same leader continued to suggest that the regulatory accounting framework is “stifling digital transformation” and discouraging utilities from adopting the best commercially available software as a service (SaaS) and cloud-based solutions because “these are not capitalisable costs and must be treated as OPEX expenditure, which is under pressure.”
Other event participants empathised with these frustrations.
A network operations leader commented: “Data and digitalisation are part of our vernacular – they are talked about all the time. But from a regulatory perspective, we can’t actually call data an asset and capitalise it.”
“It’s not that way in other industries,” they continued. “Data should be on the balance sheet. It has a value, which can depreciate and it can be sold. We shouldn’t be different.”
A power network director added their voice to the discussion, saying boards need to be more alive to these perverse outcomes from the regulatory frameworks and the companies must “lobby regulators on this point and educate them.
“We can’t bury our heads in the sand,” they emphasised.
Participants said:
“As an industry we are being asked to drive down OPEX at the same time as becoming digital enterprises. Those things aren’t aligned….full digital transformation is intrinsically unpalatable in terms of OPEX expenditure.”
“The capabilities we need to develop for digital innovation are cloud-based. Cloud is not a capitalisable cost. It is absolutely a challenge.”
“It’s up to us to lobby the regulators on this point and educate them. We can’t bury our heads in the sand. There’s only so long you can go on being ‘creative’ as a way to resolve this.”
Concluding remarks
Concluding remarks
Representatives from Wipro and ServiceNow offer their reflections on the back of a rich and thoughtful industry discussion.
There’s no doubt that utilities still have a lot to gain from broader and deeper digital transformations of their organisations and infrastructure. While our energy and water companies of today are extremely different enterprises to those of a decade ago, the adoption of tactical point solutions across siloed business functions leaves a huge opportunity for new digital value to be unlocked with more holistic thinking.
Investment in digital transformation is all about building and enhancing capability – not about commodity solutions. This cuts across business functions, and indeed across organisations and sectors.
As utilities step up to mounting pressures to raise service levels, find efficiencies and deliver unprecedented renewal and growth in sustainable infrastructure, they need digitalisation to support dynamic optimisation of operations, resources, communications and more in real time. This can only be achieved with high levels of integration and automation across OT and IT environments. Utilities need to raise their heads above hubbub of everyday pressures in their businesses and acknowledge this potential. When you bring automation to bear, you invariably get better experiences, at lower costs.
This direction of travel need not run counter to security interests – which is correctly a key concern in a landscape of rapidly evolving threats where critical national infrastructure and essential services present a prime target. On the contrary, integration of data in environments with high degrees of control and digital transparency allows far more latitude for proactive risk management and response.
Utilities may feel that achieving this level of digital transparency and cross-functional orchestration feels a far cry from their existing capabilities. But its well-worth noting that, for utilities who are all likely to have invested substantially already in enterprise software solutions, its likely they have untapped potential in their existing systems which is waiting to be unlocked.
Enterprise technology providers typically invest billions of dollars a year in system development. This can be hard for users to keep up with, but it is well worth undertaking a review of the capabilities that teams are accessing on a regular basis to ensure the full value of licenses is being realised. By leaning on technology and integration partners, utilities may well find that unlocking new digital transformation rewards comes easier than they might imagine.
Thank you to all the industry leaders who took part in this discussion group. We look forward to repeating and growing similar forums for peer-to-peer learning, in partnership with Utility Week, over the coming year and beyond.
Tim Goddard, utilities general manager, Wipro
Ankit Sharma, utilities account executive, Wipro
Richard Ellis, sales director, ServiceNow