How Utilities Can Achieve Business-IT Alignment
By Kent Landrum
As explored in my previous article addressing 5 Technology Trends for Utilities in 2017 the industry is undergoing significant change, forcing companies to rethink their traditional business model. Electric utilities of the future may operate more like energy service providers, engaging in non-traditional activities to provide added value to customers. In this dynamic environment, IT executives have a key role to play in creating and sustaining alignment between business and IT stakeholders. How can IT leaders ensure that they’ve got the right people, doing the right things, the right way to create the most enterprise value?
Finding a rigorous and repeatable way to ask and answer the following questions is the key.
- Who will we be as a utility in the future?
- What business capabilities will we need to introduce or enhance to succeed?
- What combination of programs and projects will be necessary to create or support these abilities?
- Which technologies do we have or will we need to acquire in order to enable these initiatives?
- How should we go about delivering and supporting these solutions?
The five-step cycle described below systematically develops a response to each of the questions above in turn. It represents an amalgamation of time-tested tools and techniques from experts assembled and integrated here to better meet the needs of contemporary utility IT leaders.
Step 1: Vignette-based Strategy
The first step is to develop a simple, one-page strategy at the enterprise level based on vignettes or scenarios. A vignette should be a brief evocative description of a future state environment and how the energy firm will succeed within that construct. Simply put, can you describe who you will be as a company on one slide?
Important elements of a vignette include:
- Description of the regulatory, economic, and operating environment
- An outline of the utility’s basic aims & assumptions
- Determines a destination and sketches a path forward
- Highlights fundamental keys to success
Since they are quick to create, it can be helpful to prepare three or four such scenarios to address edge cases at each extreme as well as a likely scenario somewhere in between. Don’t be afraid to pose bold questions. “Will we still have any coal fired generation assets in 5-7 years?” “Will we lead our community’s smart city initiative(s)?” “What happens if battery storage technology matures in half the time we think it will take?” Nothing should be off limits. These vignettes should be authored in such a way that they could be handed to almost anyone in the utility and be readily understood. They are most powerful as communication and alignment tools when most managers and individual contributors in the organization can connect to the themes and envision the role they might play in the vision they articulate.
Leading energy companies such as Royal Dutch Shell have been using scenario planning to great effect for 50 years as highlighted in the HBR article Living in the Futures by Angela Wilkinson and Roland Kupers from the May 2013 issue. This article does a very good job of articulating the principles of the process that has stood the test of time.
Step 2: Capability Model
Once the joint business-IT leadership team has settled on a preferred set of strategic vignettes it is time to start breaking down the capabilities that your utility will need to survive and thrive in the future world you’ve envisioned. Consider specifically (1) what will be entirely new to your organization, (2) what capabilities will need to be extended or enhanced, (3) which may play less of a role, and (4) those that may no longer be needed at all. To streamline this process, I recommend that companies leverage an existing capability model.
Key things to consider when picking a capability model:
- Start with an industry-specific or standard model and adapt it to your needs. This will also simplify benchmarking and comparing leading practices with peers and consultancies as you work towards fulfilling your strategy.
- Keep it functional in nature and structure, not based on your organizational chart. Org charts change but the basic functions of the utility will be more stable over time and this will allow you to focus clearly on the capabilities that need to change.
- The model should focus on what is done, not how it is done.
- The framework should be inclusive of people, process, and technology elements.
There are several benefits that can be derived from utilizing a capability or process model in this way. The model provides a common language to all team members throughout the organization that are working on related initiatives, and when an industry-standard model is employed, it bridges to others at peers across the industry. Most standard models are fully decomposed to a granular process or activity level, and that can save your team significant time vs. developing these kinds of tools and templates in-house. When represented graphically, these frameworks can make it straightforward to visualize maturity and relative investment across the enterprise.
There are several very good capability models available. The APQC® Process Classification Framework (PCF) – Utilities is an excellent place to start as it was developed to be an open standard. APQC® maintains these frameworks in cross-industry as well as industry-specific variants. Their research and benchmarking initiatives are tied back to the PCF to facilitate comparative analysis.
Step 3: Program, Portfolio, and Project Governance
Now that the team has clearly identified and prioritized the new capabilities the organization must develop, those that must be enhanced, and the ones that can be reduced or eliminated the work of identifying and structuring the initiatives necessary to affect those changes within the utility can begin in earnest. By following this type of an integrated process that ties strategy all the way to tactical execution you will be able to maintain traceability throughout the lifecycle.
Most utilities already have a relatively robust governance structure in place for the domains of program, portfolio, and project management. There have been thousands of books published on these topics so we’ll not explore this step in much detail. PMI®, ISACA® (COBIT®), ITIL®, and others are well established and all offer considerable resources for practitioners across these domains.
The framework selected should:
- Provide for centralized management of one or more project portfolios
- Bridge the gap between strategic planning and project execution
- Contemplate the incremental business value of the integrated portfolio, not just the sum of the individual projects
- Evaluate risks inherent in the combination of projects included in the portfolio
If nothing else, the structure you choose will need to answer the question, “How will we prioritize and initiate programs & major initiatives?” in a consistent and repeatable manner. Traditional corporate finance methods evaluating return on investment (ROI) or internal rate of return (IRR) may be entirely adequate but another powerful technical tool that might be applied here is real option analysis (ROA). Researchers from The University of Texas at Dallas and IBM looked into how ROA could be used to properly account for the flexibility and interdependency inherent in most IT investment decisions based on a utility case study.
Step #4: Solution Portfolio Management
In many ways, Step #3 marks the crucial intersection between business strategy and IT program & project management. By the time we get into this fourth phase of the alignment cycle we are deep into enterprise architecture territory. The objective of this process is to match the initiatives enumerated by the previous step with the best-fit technology solution considering all viable alternatives including emerging innovations, established tools that would be new to the utility, as well as incumbent solutions that could be expanded or enhanced to satisfy the identified requirements.
Solution portfolio management is an evolution of a concept that was created by Gartner® in the 1990s and began life as Application Portfolio Management (APM). There are many templates and tools available to assist with structuring and managing the work. Regardless of the mechanical process utilized it should address the following:
- Comprehensively catalog IT/OT solutions owned by the utility
- Map all solutions to underlying business capabilities to articulate and extend the business-IT alignment value proposition
- Tier solutions based on solution use and rate of change
- Identify owners, lifecycle, utilization, cost, and other important attributes
The solution portfolio management framework should evaluate each technology in the environment and/or under consideration for implementation on two primary dimensions: (1) business value delivered, and (2) technical condition of the platform. Using a common scoring algorithm and plotting the result for each solution will assist in sorting solutions into those that should best be retired, maintained, enhanced, or be introduced into the solution landscape. The concept of pace layering posted by Gartner® and their associated visual representation aids in understanding the third bullet above in terms of placing solutions into tiers.
Step #5: Delivery Framework
Today we are fortunate to have access to a wide variety of proven delivery methodologies: waterfall, traditional IID, Agile/SCRUM, Lean, citizen development, bimodal, etc. The days of a one size fits all approach to managing these kinds of initiatives have long past. The imperative now is to expertly match the methodology to the fundamental nature of the project under consideration to maximize the probability of a quality product and minimize the delivery cycle so the enterprise can begin to accrue value sooner.
Considerations for selecting a delivery framework for a particular project:
- Evaluate the tier of the solution to be delivered. Systems of innovation lend themselves well to iterative delivery models such as agile and citizen development. Systems of record pair well with traditional waterfall or iterative and incremental development (IID).
- The methodology selected must be mapped to the company’s overall IT general controls scheme to ensure compliance.
- Determine framework fit with the culture, work styles, and knowledge of the project delivery team.
- Use common methodologies as a starting point and remember that significant effort and education will be required the first time a new framework is applied.
In CIO by IDG, Moira Alexander offers some valuable insights in How to choose the right project management methodology based on a best practice Methodology Assessment Process (MAP).
Given the tremendous rate of change in the utilities industry, the importance of achieving and sustaining business-IT alignment cannot be understated. Employing an iterative approach based on a combination of well-understood and proven methods from the likes of McKinsey & Company, Gartner®, PMI® and others will help to structure the conversation between senior business and IT leaders.