Fit for the future

Fit for the futureTransforming the global energy sector is expected to cost almost US$17 trillion1 by 2035. But with money tight and investors cautious, the power and utilities (P&U) sector must be sure it targets investment wisely to get maximum value for its spend. Jens Grabow, Al Galiunas and Henry Kinler report.

Globally, utilities are facing tough times, juggling competing priorities amidst difficult market conditions. The sector must make hard decisions now to ensure they are lean, clean and ready to meet the demands of the future.

Waking up to the new normalImitation may be a form of flattery, but it can also be a smart and strategic way to get ahead. As utilities work to improve their performance, many are looking to more successful peers and considering how they might adopt — or adapt — some of their processes. By using comparative analysis, utilities can review the processes that will make their transition to new business models smoother, faster and more efficient, and, at the same time, review methods and approaches that can be amplified or modified to better suit particular needs. Ernst & Young’s Power and Utilities Maturity Model and Architecture (PUMMA) does just that by offering our global view of the process value chains, maturity models, risk and controls, key performance indicators (KPIs) and IT systems environment typically found in power, gas and water organizations.

Blueprint from the bestPUMMA is a blueprint for the future. Developed in conjunction with our global clients and in response to market demands, it is a pool of constantly updated data that utilities can use to drive their own positive transformation.2 By outlining the exact processes and process flows being used by some of the world’s top utilities, companies can save time and help ensure their investment is targeted to achieve maximum benefit. PUMMA classifies practices from basic to leading, helping utilities gauge exactly where they are on the journey and what they need to do to reach their next steps and, ultimately, their goals.

Ernst & Young’s PUMMA

Maturity models

KPIs and benchmarks

IT systems environment

Risks and controlsProcess

PUMMA

PUMMA sits on top of existing business models, providing a map to the desired future state by helping identify potential weaknesses in existing workings. It also pinpoints just where to put things right — limiting the risks of detours or misguided expenditure.

How can I use PUMMA?PUMMA is a versatile methodology that can be used on single or multiple processes. For example, a utility concerned about the reliability of its distribution network assets might use PUMMA to benchmark its process maturity against the industry’s top performers. PUMMA helps the utility take an objective look at its “as-is” network processes and identify where they might become more competitive. PUMMA can also be used in a wholesale approach to systematically benchmark a utility’s sophistication across all end-to-end processes to identify deficiencies, strengthen underlying architecture and bring its entire process performance up to industry-leading standards.

1International Energy Agency, World Energy Outlook 2012.2 Data is derived from Ernst & Young professionals’ experience with power and utility companies around the world, leading industry practices and information from the American Productivity & Quality Center (APQC), a third-party organization focused on benchmarking, knowledge management, measurement and process improvement.

2 | Fit for the future

Targeted transformation PUMMA is especially useful in these very traditional businesses, such as utilities, where legacy practices, built up over a number of years, may need to be unwound, simplified and recalibrated to fit a future-looking model. PUMMA is designed to help businesses objectively assess existing capabilities and make choices about what needs to change in order to move forward in the industry transformation in a strategic and profitable manner. And given the cash demands on utilities, PUMMA can help guide investment, highlighting those areas with the widest maturity gaps and those with the most potential for high-value returns.

Unlike other models, PUMMA defines the operational risks inherent in specific processes and the controls that top-performing utilities typically employ to mitigate or prevent them. This means that utilities do not need to re-invent the wheel but adopt, adapt, modify and replicate proven practices and controls to capture leading insights and best protect their operations.

PUMMA is a global model that implements leading functional practices from across the world and the entire P&U sector, consolidating in-depth professional experience from leading P&U companies.

Time to make a differenceIn short, PUMMA is a tool that helps to accelerate the journey from A to B. As a core element of Ernst & Young’s service delivery, it enables a utility to:

• Explore what it needs to improve and by how much

• Discover and address performance issues in a more expedient and profitable manner

• Prioritize investments so money is spent in the best way

• Identify and minimize gaps in risks and controls to extend ROI

• Highlight opportunities for ongoing improvement

Results can be relatively quick due to the elective nature of the PUMMA approach. Utilities seeking to measure the maturity of specific operational processes and implement improvements can expect to realize benefits in a matter of weeks. Changes to risks and controls will take a little longer, while a wholesale assessment and realignment of the underlying architecture as a foundation for utility-wide improvement should be viewed as a long-term project.

In the meantime, PUMMA is constantly updated with global knowledge gleaned from client engagements and other metrics. Clients can confidently test the maturity and sophistication of their own performance and target investment appropriately as they progress through the industry-wide transformation and emerge fit for the future.

Read How P&U is facing up to transformation change in Performance — Volume 5, Issue 1

Jens Grabow is a manager in Ernst & Young’s Advisory practice and is part of our Global Power & Utilities Center. Jens has been with Ernst & Young for seven years and is a co-author of PUMMA.

Jens Grabow Advisory, Dusseldorf + 49 160 939 10170, + 44 741 579 3021 jens.grabow@de.ey.com

Al Galiunas is a senior manager in the Advisory practice of Ernst & Young LLP. Al has more than 20 years’ experience in the utility industry and has a detailed understanding of the applications and functional processes required to support utility organizations from production through the consumer side of the value chain. He has extensive experience in the planning and implementation of complex systems integration projects related to the utility industry.

Al Galiunas Advisory, Houston + 1 713 750 8201 al.galiunas@ey.com

Henry Kinler is a senior manager in Ernst & Young’s Advisory practice. He has 29 years of experience in IT and Power & Utilities and has focused on Ernst & Young’s Power and Utilities Advisory practice for the past two years. He is a co-author of PUMMA.

Henry Kinler Advisory, Memphis + 1 901 528 7569 henry.kinler@ey.com

What is driving transformation?Utilities all over the world are transforming the way they operate. These process changes are being driven by multiple drivers that help companies re-energize their businesses, create more efficient operations and extract value from existing resources to increase profitability and competitive advantage. These drivers include:

• • Regulatory and government policies

• • Cost pressures

• • Competition from existing and emerging players

• • Innovation challenges

• • Merger and acquisition opportunities

3 | Fit for the future

About Ernst & Young

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About Ernst & Young’s Global Power & Utilities Center

In a world of uncertainty, changing regulatory frameworks and environmental challenges, utility companies need to maintain a secure and reliable supply, while anticipating change and reacting to it quickly. Ernst & Young’s Global Power & Utilities Center brings together a worldwide team of professionals to help you achieve your potential — a team with deep technical experience in providing assurance, tax, transaction and advisory services.The Center works to anticipate market trends, identify the implications and develop points of view on relevant sector issues. Ultimately it enables us to help you meet your goals and compete more effectively. It’s how Ernst & Young makes a difference.

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