IT in Equilibrium
"As is customary in the energy sector, IT was a pure "enabler", a support function."
Decentralized organizational structures and heterogeneous business processes often push IT costs way above the industry average. At the same time, the cost and efficiency pressures faced by IT are growing all the time. The CIO's task is to somehow reconcile these conflicting trends. It's his or her job to ensure that IT meets the industry's increasingly specific requirements, while at the same time making a contribution to cutting costs.
A European utility has shown that this can be done. The company's structures and processes had grown historically and were highly decentralized as a result of its origin as a state enterprise and rapid, inorganic growth in recent years. It had more than five national companies and served the entire value chain itself: from generation to retail, from distribution via the grid to sales. As is customary in the energy sector, IT was a pure "enabler", a support function. This resulted in a complex IT environment with several separate systems for the same business function. IT costs made up 3.5 to 4% of sales, well above the industry average of about 2%.
At the end of 2008, the public utility launched a project to structure its IT functions more efficiently. Its goal was to become the industry benchmark for process and IT harmonization and IT cost effectiveness. To do this, the company standardized its processes between business units and national companies and eliminated overlapping and redundant systems, thereby creating synergies.
The project consisted of four phases. First, the business functions along the value chain were examined and mapped according to a standard system. This made the processes in all units transparent for the first time. Then the IT applications in each business function were added up, together with their costs. This provided a complete overview of each national company's IT environment – and of each one's IT cost drivers. Finally, a comparison of process and IT environments between the companies yielded information on potential savings and/or ways in which the complex structures could be harmonized.
The results of the first phase revealed, for example, what the centralized systems of machine maintenance and standard equipment purchasing for all national companies could be and how they would have to be implemented in practice. As for IT, three categories were found to offer potential synergies: simplifying the IT environment, strengthening pan-European cooperation, and optimizing IT structures.
A European utility has shown that this can be done. The company's structures and processes had grown historically and were highly decentralized as a result of its origin as a state enterprise and rapid, inorganic growth in recent years. It had more than five national companies and served the entire value chain itself: from generation to retail, from distribution via the grid to sales. As is customary in the energy sector, IT was a pure "enabler", a support function. This resulted in a complex IT environment with several separate systems for the same business function. IT costs made up 3.5 to 4% of sales, well above the industry average of about 2%.
At the end of 2008, the public utility launched a project to structure its IT functions more efficiently. Its goal was to become the industry benchmark for process and IT harmonization and IT cost effectiveness. To do this, the company standardized its processes between business units and national companies and eliminated overlapping and redundant systems, thereby creating synergies.
The project consisted of four phases. First, the business functions along the value chain were examined and mapped according to a standard system. This made the processes in all units transparent for the first time. Then the IT applications in each business function were added up, together with their costs. This provided a complete overview of each national company's IT environment – and of each one's IT cost drivers. Finally, a comparison of process and IT environments between the companies yielded information on potential savings and/or ways in which the complex structures could be harmonized.
The results of the first phase revealed, for example, what the centralized systems of machine maintenance and standard equipment purchasing for all national companies could be and how they would have to be implemented in practice. As for IT, three categories were found to offer potential synergies: simplifying the IT environment, strengthening pan-European cooperation, and optimizing IT structures.
Potential synergies in three categories
Potential in IT
The analysis showed that the heterogeneous IT environment made it almost impossible to integrate systems across the borders between the national companies. For example, each of the five national companies had its own version of SAP ERP. Taking account of regulatory requirements in some countries, the number was reduced from five to just one group-wide ERP system. In addition, six different CRM solutions were operating in Germany alone. The optimization process reduced this number to two. The study also revealed several possibilities for improvements in the field of IT support. One subsequent project was to develop the exchange of knowledge on major projects, e.g. in the SAP environment, between the national companies. Moreover, a group-wide competence center for SAP customizing in the nearshoring field was created and an international IT project-management platform installed to improve international capacity coordination. The internal IT structures were also harmonized throughout the group. To meet future requirements as well and efficiently as possible, the company also started centralizing departmental IT and building up a central IT service with country-specific units.
The analysis showed that the heterogeneous IT environment made it almost impossible to integrate systems across the borders between the national companies. For example, each of the five national companies had its own version of SAP ERP. Taking account of regulatory requirements in some countries, the number was reduced from five to just one group-wide ERP system. In addition, six different CRM solutions were operating in Germany alone. The optimization process reduced this number to two. The study also revealed several possibilities for improvements in the field of IT support. One subsequent project was to develop the exchange of knowledge on major projects, e.g. in the SAP environment, between the national companies. Moreover, a group-wide competence center for SAP customizing in the nearshoring field was created and an international IT project-management platform installed to improve international capacity coordination. The internal IT structures were also harmonized throughout the group. To meet future requirements as well and efficiently as possible, the company also started centralizing departmental IT and building up a central IT service with country-specific units.
Success factors
Success factors for harmonization projects
The most important factor for success in the case described was the close cooperation between IT and the business units. Business processes can be changed only in close consultation with the departments affected. Management wholeheartedly supported the harmonization process and thus made success possible. Another decisive factor was the clear and regular communication on the project objectives and the implementation process throughout the entire project. To do this, the company used a centralized system of process and IT governance and requirements control for future process changes and system adjustments. This meant that reforms were not restricted to one-off actions, so that the implemented optimization was also able to have a long-term, sustainable effect. In this way, the company permanently ensured that the whole group would always use the most efficient solution. Each individual department defines its own process requirements in this context. These are then centrally pooled, evaluated and perhaps implemented throughout the company. The analysis of the processes and IT environment is a task that requires several steps. Workshops to ensure coordination and subsequent improvement are necessary in order to obtain a coordinated result when analyzing the current status. Clearly defined milestones are needed so that the progress of the project can be checked at all times.
In this way, the public utility company has succeeded in standardizing processes and IT systems across national boundaries. The next stage will be to improve the overall field of international cooperation. The first step was a harmonized IT environment. The goal defined at the outset has not changed – industry benchmark.
The article was written by Jasmin Eichler, consultant in the InfoCom Competence Center. It was published in the CIO magazine.
The most important factor for success in the case described was the close cooperation between IT and the business units. Business processes can be changed only in close consultation with the departments affected. Management wholeheartedly supported the harmonization process and thus made success possible. Another decisive factor was the clear and regular communication on the project objectives and the implementation process throughout the entire project. To do this, the company used a centralized system of process and IT governance and requirements control for future process changes and system adjustments. This meant that reforms were not restricted to one-off actions, so that the implemented optimization was also able to have a long-term, sustainable effect. In this way, the company permanently ensured that the whole group would always use the most efficient solution. Each individual department defines its own process requirements in this context. These are then centrally pooled, evaluated and perhaps implemented throughout the company. The analysis of the processes and IT environment is a task that requires several steps. Workshops to ensure coordination and subsequent improvement are necessary in order to obtain a coordinated result when analyzing the current status. Clearly defined milestones are needed so that the progress of the project can be checked at all times.
In this way, the public utility company has succeeded in standardizing processes and IT systems across national boundaries. The next stage will be to improve the overall field of international cooperation. The first step was a harmonized IT environment. The goal defined at the outset has not changed – industry benchmark.
The article was written by Jasmin Eichler, consultant in the InfoCom Competence Center. It was published in the CIO magazine.
Language
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