A decade or so ago, utility companies ran many different software products to support business functions such as finance, billing, human resources and maintenance. Driven by deregulation, companies started replacing these products with SAP, a product that promised to improve the efficiency of the business, and support the greater levels of accountability and auditing requirements, which arose from deregulation.
SAP in utilities is by no means a new trend. Michael Lewis, utilities industry principal, at SAP, says that utilities have been running SAP for almost 10 years. Some businesses began running SAP in the early-to-mid-1990s when the utilities were being deregulated. "There has been a steady take-up, particularly in the water and energy sectors." SAP also saw more demand for its software from utilities as the companies raced to make their old IT systems Y2K-compliant.
This involved every business checking all the software they ran to ensure they would be able to cope with the Millennium date change. Most business software ran on mainframes and was programmed with only two-digit dates, like "99" instead of the full four digit "1999" date. At the time IT experts predicted that the software would fail at the turn of the millennium because computers would read 2000 as year 00.
Many businesses took the opportunity to replace the old software with Y2K-compliant software. So SAP was able to provide Y2K-complaint software at this time for utilities that wanted to replace their old non Y2K-compliant software.
It has mainly been used within finance. However Lewis says that utilities are now using SAP to support other business operations. "Field engineers can use work management and scheduling modules in SAP. This is a natural extension of the back office, finance software."
Globalisation is the other major driver for the adoption of SAP in the utilities sector. "There is definitely a trend towards utilities using SAP," says Ray Wang, principal analyst at Forrester Research. "As the utilities industry has consolidated, companies have become national and multi-national, which increases the need for accurate financial reporting" Wang has also noticed that utilities are increasingly updating their old mainframe customer billing systems with modern, SAP software.
So deregulation in the utilities sector, globalisation and Y2K-compliance have driven utilities to use SAP. But why choose SAP over other products? Oracle is the main alternative, but while many utilities buy its data and business intelligence products (in fact SAP is often used in conjunction with an Oracle database), few utility companies in the UK have chosen to run Oracle eBusiness Suite, the company's enterprise software alternative to SAP. That said, Oracle says that 44 utilities around the world implemented its Oracle Utilities application in 2007. Scottish Water, for instance, is using Oracle's Customer Relationship Management and Oracle's PeopleSoft Enterprise Finance Management applications.
On the other hand, Thames Water has chosen to replace its Oracle PeopleSoft Financials, Oracle HR, and the in-house Capital Management System and Customer billing system with SAP. Thames Water has also implemented SAP Portal technology in early 2007, replacing the previous company intranet. Following this in the summer of 2007 a suite of financial reports from SAP Business Warehouse were implemented. This allows managers to view financial information currently held on financial ledgers in PeopleSoft through the portal. The long-term aim is to replace all back office, work and asset management as well as customer billing and customer relationship management systems with an integrated SAP system.
Capgemini is one of the IT services companies which have a practice for implementing SAP in utilities. "SAP is a major software company which has made a commitment to the utilities sector and stayed with it," says John Waymire, vice-president at Capgemini. He says SAP Industry Solution of Utilities, has been specifically tailored to meet the needs of the utilities sector. "SAP has a strong [product] for managing metering in the utilities sector."
Why is it so strong? Waymire says the software is able to integrate various business tasks in a way that improves efficiency. For instance customer relationship management at a utility concerns dealing with customer queries on their bill or calling out engineers if there is a power cut or the water mains has burst. The seemingly trivial task of taking a call from a customer and responding to the request requires the call centre operator to use several pieces of software. By integrating these, the SAP software is able to automate workflow and so allow a request taken from the call centre's CRM application to initiate a series of tasks culminating in an engineer being sent out.
The so-called end-to-end business process integration from the call centre operator to the engineer available with SAP means that utilities do not need to buy extra, third-party software, according to Jon Brooke, head of utilities at Capgemini.
What about the drawbacks? Until last year SAP did not provide web portal software so utilities had to buy non-SAP web software in order to create web portals for employees and websites that enabled customers to access their bills, update meter readings or report a problem.
SAP cannot do everything for a utilities business. "There will always be areas of the business SAP will choose not to support," says Dudley Feather, SAP business development manager at CSC. For instance, SAP does not provide software for telemetry. Nor does it offer a geographical information system, which is available from a specialist software company like Intergraph.
SAP really should be run without any need to tailor it to the specific business. Feather said companies used to ask for their SAP systems to be customised. Now they no longer ask for modifications. "You have to map the business onto what the software can do." CSC tries to change business processes to work the way SAP works.
Senior executives may balk at the idea of changing how the business runs to make the company work better with SAP. Yet SAP has become the preferred choice for utility companies because all the individual software products in an SAP IT system are already integrated to work together. Even so, there's a lot of work required to get it going, says Chris Boucher, director of information services at Anglian Water. "We are the first water company to put SAP across the whole business from asset management to customer billing. The software from SAP is still relatively new. You have to make a lot of modifications to the SAP system to make it work in the water industry. We implemented it to work for us, specific to the industry processes of our company."
Boucher believes that the techniques used to implement SAP at Anglian Water could be used in other water companies struggling to get SAP working. "We have created a template which IT services company Capgemini is selling to other water companies." Capgemini pays Anglian Water a commission for each implementation of SAP that uses this template. "SAP is bloody difficult to implement, so why do it yourself," he says.
Mike Russell, a senior executive in the utilities practice at IT services company Accenture has worked in the utilities sector for more than 15 years. He says, "When I began working in the utilities sector in 1993, we used best of breed software (individual software products to support a specific business function). These would have required a lot of effort and heavy customisation of the software to make the various products work in an integrated way."
SAP sells various products tailored to the utilities sector. Its software portfolio includes SAP PM, for plant maintenance, PS for project management and MM for materials management. With SAP, these individual software products are pre-integrated, which means Russell spends less time creating software that links the software together and more time now focusing on how his clients can improve efficiency by helping them implement more optimal business processes powered by the SAP system.
In his experience, "Utilities need work and asset management software and SAP is one of the best products available to support this requirement." One of the energy companies Russell is currently working for is looking to build a single database of hundreds of millions of assets such as substations and pylons, some of which have been in operation for 70 years or more. "This power company needed to be able to track the maintenance and replacement [schedule]. It also needs the latest software to help it sweat assets.
By way of an example Russell says with SAP, a field engineer called out to replace a meter is able to use a ruggedised laptop to order and update information about the meter, which feeds directly into the materials and finance systems of the utility company.
Last year SAP introduced the Industry Value Network (IVN), which includes specialist software companies in advanced metering infrastructure such as Itron and Landis+Gyr, plus asset management companies like LeT Systems, along with IT services companies including Accenture, Atos Origin, Logica and IBM.
It is probably too early to see the long-term business benefit for SAP users in the utilities sector of this partner network. But going forward, it is clear that more and more companies will be looking for tighter links between the various pieces of software that support business processes. In time, SAP and its IVN may well be the standard software purchase for the utilities sector. Alternatively Oracle could strengthen its utilities software and become the preferred choice.
This article first appeared in Utility Week magazine