Systems Integration the Link to Success or the Weak Link?
By Teresa Hansen, Managing Editor
In today`s fast-paced world where regulations, technology and consumer expectations are constantly changing, utilities must be agile and resilient. It is no longer enough for utilities to be merely efficient. While control over costs is a very important key for success, utilities are learning that they must continually re-engineer their processes and periodically re-invent their business models to stay in the game.
Perhaps one of biggest challenges for utilities is finding a way to respond to technological changes. Information technology (IT) is critical. It has become a key enabler of business change. However, IT can also be one of the biggest reasons for failure due to the large number of disjointed systems many utilities are operating.
Integrating the diverse applications used by utilities is currently one of the largest IT challenges. According to Jay Britton, Xtensible Solutions Inc., ad hoc growth of connections between applications has produced a complex and ineffective result. In his paper, “An Integration Architecture for Electric Utilities,” which was presented at the 1998 DistribuTECH Conference and Exhibition, Britton said the general starting condition for the “integration problem” is similar everywhere.
Britton pointed out that most utilities have already invested in many applications for the various parts of the business. These systems were purchased at various times, specified and built by different teams or vendors, and designed primarily for their local purpose, largely independent of any global architecture. They typically run on many different platforms.
Another factor challenging today`s IT staffs is the fast pace at which both hardware and software are changing. This pace has changed not only what systems can do, but also the way they are implemented. System development has had to take place in shifting sands where, even before a project is completed, changes have occurred, rendering work obsolete. In addition, systems have typically been developed to address one functional area only, with little regard for process integration and management information requirements. Therefore, incompatibilities abound, depending on when systems were implemented and the standards then in force.
Help Has Arrived
Even with the challenges, there is hope. Utilities have deployed extensive high-speed networking infrastructures, together with desktop suites for their employees, said Britton. Therefore, the good news is that the basic infrastructure for connecting systems and personnel is already in place.
Another positive note is that utilities are not alone in their search for ways to connect their scattered islands of information. According to the Gartner Group, 35 to 40 percent of all programming effort in a typical computing environment is devoted to developing and maintaining the extract and update programs whose only purpose is to transfer information between different databases. Gartner Group refers to the complex, unstructured integration of disparate applications as “inter-applications spaghetti.”
While it is easy to identify the problem, finding a solution is far from easy. A good product does not in itself guarantee success. The product must be part of a larger project that can be implemented quickly, not only to save costs, but also to enable the utility to begin generating revenue as soon as possible. Many utilities are currently looking for or implementing what they hope are cost-effective, viable solutions.
ScottishPower is one utility that has successfully tackled its complex integration requirements and made itself “merger ready.” In September 1995, the utility initiated an innovative project called “Information Exchange” (IE), designed to leverage technology to create a more flexible IT infrastructure that could quickly respond to market changes and competitive pressures, including the deregulation of the electricity supply market. The goal of IE was to be able to quickly and effectively integrate all application and business management systems–new and old, home-grown and acquired–including billing, collections, meter reading, call center and market applications, in order to boost revenue through cross-selling and reduce costs through elimination of redundant operations.
After setting strict criteria for its IE solution, ScottishPower selected a product from Constellar Corp. and began initial implementation in April 1996. Having successfully completed its task, the IE implementation project disbanded one year later, in April 1997.
According to results of a recent study undertaken by Ernst & Young`s Utilities Group, ScottishPower`s return on investment, achieved by implementing the Constellar product, called Constellar Hub, was 237 percent with a pay back period of one year. The Information Exchange process, including interface specification, development, testing and day-to-day operations, is run by a team of 14 people. The report indicates that this is less than would be expected in a group of equivalent size and complexity, indicating that ongoing savings will be achieved beyond the period evaluated in the study.
In addition, a consistent message from the people that Ernst & Young spoke to at ScottishPower was that the non-financial benefits of the implementation were of even greater significance than the financial.
ScottishPower, formed from the former South of Scotland Electricity Board, was privatized in June 1991. At privatization, the company maintained its vertical integration, with responsibility for the generation, distribution and supply of electricity to customers in the central belt of Scotland.
Since then, the company has expanded through organic growth, acquisition and the development of new services. It is now a multi-utility group with a turnover in 1997/98 of à™¡.1 billion (approximately $5.4 billion). It has 1.8 million customers in Scotland, to which it has added 1.3 million customers in the North West of England and Wales from the takeover of Manweb, a regional electricity company. Another 1.7 million customers were added from the takeover of Southern Water, which covers Kent, Sussex, Hampshire and the Isle of White (Figure 1).
The utility operates shops and superstores throughout the United Kingdom, selling brown goods (electronics, such as televisions, videocassette recorders, etc.) and white goods (appliances, such as refrigerators, washing machines, etc.), and is the United Kingdom`s third largest electrical retailer.
ScottishPower has also moved into telecommunications. ScottishTelecom supplies advanced telecommunications and on-line information services to residential and business customers. In 1998, ScottishTelecom bought Demon, the largest independent Internet service provider in the United Kingdom.
The utility`s success has put enormous pressure on its systems, which have had to be developed, implemented, upgraded and replaced. Major developments include the introduction of a central call center in Glasgow and preparation for full competition in electricity supply. The pressure will continue as competition develops in ScottishPower`s core markets and the group continues to expand, both within the United Kingdom and internationally.
ScottishPower recognized that the highly centralized structure it inherited from its pre-privatization days was impeding the implementation of its strategy. The company undertook a major business review in 1995, but it became clear that the new programs resulting from this review could not be fully implemented with the utility`s traditional, mainframe systems. Therefore, David Jones, ScottishPower`s information systems division managing director, initiated a major information technology change program, resulting in three main objectives:
1. Removing mainframe systems;
2. Upgrading the information technology infrastructure; and
3. Implementing an “Information Exchange.”
The IE project team set strict guidelines, requiring that any solution they proposed would have to satisfy certain criteria. The solution had to make minimal changes to the packages implemented. It had to be “plug and play,” and relatively easy to set up, yet integrated and flexible. In addition, as the business units would select systems, any solution would need to cope with interfaces that were continually added, removed, exchanged and enhanced. Data and technical architectures would be different, as would the service level required of different interfaces. The last criteria required all systems to be interfaced to a central point that could be properly managed.
Having established the criteria, the team looked to the marketplace. IBM was selected to be the interfacing partner, but neither IBM nor its competitors appeared to have a product that could meet the criteria. At that point, the team became aware of Constellar and its enterprise application integration software solution, Constellar Hub. The product passed ScottishPower`s proof of concept for a systems integration and interface management tool and was consequently selected as the basis for the IE project. Initial implementation began in April 1996 and by the time the implementation task was successfully completed in April 1997, nearly 400 new interfaces were running through the Hub.
Ready for Competition
Besides the return on investment mentioned earlier, several other business benefits, resulting from the IE initiative, have been identified. Perhaps one of the most important is ScottishPower`s ability to rapidly respond to competition.
The new system was a significant factor in ScottishPower`s claim to be the first company ready for the introduction of competition in U.K. electricity supply, and to be one of the only four companies ready by the original deadline of April 1998.
The utility`s ability to respond quickly to competitor strategies and embrace consumer demands is made possible by the “plug and play” architecture, which improves system flexibility. Business improvements can be made using existing systems and then individual enhancements or new components can be “plugged in.” Meanwhile, the overall integrity of the enterprise architecture is maintained.
In addition, the use of a standard approach to interface development allowed ScottishPower to develop over 400 interfaces in two years using the 14-member team. This standard approach reduces the time and risk for system projects. Planning is enhanced because interfacing issues are not ignored until they become major problems–they are tackled up-front.
The ability to replace packages or applications without having to change systems or build new interfaces provides the flexibility to support business agility. It also enhances speed to benefit and reduces development costs (Figure 2).
The fact that interfaces can be developed, operated and maintained by a small team of staff working to common standards enables fast and reliable time/resource estimating followed by quick and consistent delivery of critical interfaces. It also significantly reduces the dependency on particular individuals with specific, usually undocumented, knowledge when changes have to be made in the future.
Another key feature of ScottishPower`s new IE system is that it provides the ability to integrate systems from acquired companies rapidly. Scalability–a key feature for the utility–allows increased transaction volumes from major acquisitions to be absorbed with minimal disruption. For example, IE has successfully integrated the billing system at recently acquired Manweb, which runs on an MVS DB2, with ScottishPower`s distributed UNIX systems.
The IE project has also greatly enhanced data consistency, as data cleansing and transformation is routinely carried out. This means managers can now place greater reliance on the information they receive. In addition, accurate operational and management information is available when needed.
Another major benefit is that ScottishPower is not tied into any specific hardware/software architectures. Integration and interfacing can be achieved without the need for major software changes, which again means results are seen quicker. The ability to accommodate different system solutions within an IT architecture also provides users with flexibility, allowing them to select software that can meet their business needs.
Keys to Success
While a good product helped ScottishPower achieve success, a disciplined integration environment was also critical in achieving the project goals. The project established certain key principles that contributed to success:
The interfacing process had to be owned by the business, not IT. Therefore, from the beginning, the team insisted that the source holders and target data had to agree to the business rules that would determine the interface specification. IT acted as an enabler, not an owner.
The project would deal with near time interfacing only. If real time interfacing were required, it would have to be developed and paid for separately. Although managers tended to assume initially that interfaces needed to be real time, this proved not to be the case and virtually all new interfaces are “near time.” This has significantly reduced the interfacing environment`s complexity.
Data needed to be transformed, not just transferred, as it moved between systems. The capability to do this was a critical piece of product functionality and has been built into the standard interface specification and build process.
The IE project has been a success in meeting its initial objectives, and in delivering financial benefit to ScottishPower. This was achieved through a combination of product and organization. The utility is able to add, delete, modify, scale up and scale down systems and know that systems integration can be achieved in a rapid and controlled manner.
Managers can no longer afford to be at the mercy of technology. If a solution doesn`t work quickly and reliably, its value has to be questioned. ScottishPower`s experience proves that solutions are available. n
Authors Note: Much of the information for this article was obtained from Ernst & Young`s report, “Financial Analysis of Enterprise Application Integration, Constellar and ScottishPower: Achieving Business Benefit.” Contact Melanie Flanigan, Constellar Corporation, at 650-631-4863 or www.constellar.com for a complete copy of the report or more information about the project.