Sharing the Risk of a GIS Investment
By Glenn E. Montgomery, Convergent Group
The combination of a competitive marketplace, flat growth projections, shareholder demands and regulatory initiatives are forcing electric utility executives to make tough decisions when it comes to making technology investments and allocating scarce dollars. The days of cost-plus regulation, franchise-protected service territories and the notion of the customer as “ratepayer” are virtually gone.
In today`s environment, an investment must not only generate an attractive internal return, but also improve utility operating efficiency and employee productivity, generate savings and contribute to strategic business objectives. Even if it meets these criteria, however, the investment must still present a minimal or shared risk. The search for risk mitigation is of critical importance given the change from the sheltered waters of regulation to the stormy seas of marketplace competition.
Historically, sharing the risk has been perhaps the most difficult objective to achieve. After all, “let the buyer beware” has been the unwritten rule for electric utilities throughout North America that were making an investment in technology. This has prevented many geographic information system (GIS) projects from being successfully implemented.
Indeed, executives who survey their utility`s existing technology investments typically find little coordination among the costly, often isolated systems. They realize that an array of stand-alone systems–automated mapping and facilities management (AM/FM), GIS, work management systems (WMS), computer-aided drafting and design and customer information systems–cannot help but be less effective at meeting strategic objectives than an integrated solution. At the same time, the managerial complexity and high cost of integrating the systems may discourage even those executives who realize that the systems can function better through integration.
Taking stock of the fast-changing utility business climate and the need to support strategic executive decision making, UGC Consulting, EDS Corp. and Graphic Data Systems Corp. came together in April 1994 as affiliates to form Convergent Group. The company`s objectives are to provide and implement appropriate technologies (based in AM/FM/GIS) that will improve utilities` efficiency, enhance their competitiveness, and share and manage the risk of implementing these technologies. Convergent Group pursues these objectives through CoSourcingsm, a business model pioneered by EDS and used successfully in private industries and
public agencies that are undergoing substantive technological change.
CoSourcing enables a partnership through which the utility partner contributes its knowledge and expertise about its business situation while Convergent Group contributes its knowledge and expertise in applying computer-based solutions to business challenges.
An integral part of Convergent Group`s role is its responsibility for managing the risk associated with implementing the technology. In essence, it becomes the general contractor responsible for managing and overseeing the project. Unlike most general contractors, however, Convergent Group will make portions of its compensation conditional to the project`s successful completion and delivery where it is appropriate. In this way, compensation is based largely on sharing the tangible benefits the technological solution created. In short, CoSourcing ensures not only that the utility`s up-front capital investment is reduced, but that compensation is linked directly to the project`s success.
CoSourcing was first introduced in the realm of GIS, a technology particularly well suited for use by utilities, which have substantial fixed assets that can be mapped and managed using the technology. These mapping systems can be linked to or integrated with other computer systems including trouble outage entry/analysis (TOE/A), customer information systems and work management systems. Once integrated, the systems allow utility personnel to meet customer demands and emergency situations with an effective and coordinated response, critical in an increasingly competitive marketplace.
For example, Kentucky Utilities is pursuing just such an integrated approach to its core technology. The program, which began last fall, will use Convergent Group and AM/FM as an underlying technology and is being designed to integrate TOE/A and WMS with other information technology systems. Kentucky Utilities is pursuing this integrated technology to remain a low-cost provider and improve trouble outage management and service quality while it continues to meet customer growth and industry challenges of the 1990s.
Glenn E. Montgomery is co-chairman and CEO of Convergent Group, a leading GIS consulting and system integration firm serving the utility industry throughout North America.