For many years, we have heard about the benefits of moving key enterprise applications to the cloud. The story goes: cloud providers can pass along cost savings, leveraging massive scaled infrastructure, such as servers and database storage, shared across multiple clients.
Cost savings are important; however, there are far more substantial and impactful benefits to be realized by migrating to the cloud. These benefits address many industry challenges including:
- Aging, inadequate infrastructure
- Distributed generation and the instability it brings to the grid
- Transition to renewable energy resources
- Pressure to digitally transform and deliver customer-centric capabilities
- Rapidly retiring workforce that’s taking key utility industry knowledge with them
In short, rapid evolution of critical business platforms is essential to support the speed of transformation required by utilities. Note that it’s also important to choose the right cloud strategy and provider that embeds and scales cybersecurity to ensure you maximize benefits of the cloud while also having the best cyber defense.
In this blog, I examine four key benefits of an effective cloud strategy for electric utilities. It is important to note that an effective cloud strategy typically includes managed services, outsourcing the maintenance of certain processes and functions to a trusted and capable partner.
Rapidly changing businesses are better supported by nimble, evolving cloud platforms
Cloud is a key enabler for quickly transforming enterprise platforms. Most utilities delay upgrades from software vendors until they are forced to do so, either contractually due to a maintenance expiration date or as part of a hardware refresh. This typically means that major enterprise software is only upgraded every five years or so. As a result of the elapsed time and the amount of change in the software during that period, these upgrades inevitably are major and costly to carry out. Furthermore, in the time between upgrades, the organization is unable to effectively implement new business processes and adapt to the quickly changing market environment.
Leading-edge vendors have noticed this trend and are able to address it effectively, but only if the software is in a hosted and managed environment. From here, vendors can stream new features into applications for customers at a frequency far exceeding the five-year cycle many see today. During these deliveries, customers have complete control over when features are turned on and can govern the timing of business impacts. In fact, monthly or quarterly releases are easily achievable. Couple that with the ability to provide feedback directly to the vendor, and utilities can start to envision an ecosystem where evolving business needs are rapidly supported by the platform.
Cloud managed solutions enable the use of favorable accounting rules to capitalize more and reduce O&M expenditures
Utilities earn a rate of return on capital equipment, such as transformers and poles, but not on operation expenses such as salaries and maintenance services. These expenses come out of a limited operations and management (O&M) budget and do not earn a rate of return. As a result, utilities must manage these O&M expenses rigorously to avoid overspending and eroding earnings. A cloud strategy offers the opportunity to capitalize costs that might otherwise be classified as O&M.
To do this, the cloud software solution is treated as a “digital asset,” which can be thought of like a leased car. In this scenario, if a utility is using cloud-based software to manage the development of capital-intensive projects, such as the building of a power plant or the construction of transmission lines, the leasing costs are attributable to a capital project and can therefore be represented as a capital cost on the balance sheet. When software primarily supports capital projects at the utility (work management software, for example), you can shift significant spend from the O&M column to capital under a cloud strategy.
In short, utilities that use a cloud strategy can capitalize costs more than they could using the on-premises software hosting model by choosing to “lease” rather than “own” its software.
An effective cloud strategy allows you to better leverage your IT organization as demonstrated by the pandemic
Utilities’ IT organizations are stretched thin. Operating a complex patchwork of IT applications requires significant resources and a broad array of skills. Including managed services as part of a comprehensive cloud strategy can reduce the burden of the IT workload, as well as bring highly specialized skills to bear from the relevant software vendor. This provides the benefit of freeing up resources to focus on more strategic initiatives.
Furthermore, with the pandemic, many organizations are struggling with new remote work models as they adjust from an onsite workforce to one that is broadly distributed. Migrating to the cloud can alleviate this situation. It shifts the onus to the vendor who will be contractually obligated to deliver on the defined service levels, regardless of work model. Many cloud managed services providers are already very familiar with the remote work model, and have been operating it effectively for many years. While the utility maintains ownership of their solution and data, the value add is they don’t need to be skilled in the day-to-day operation and can leave that to the vendor.
To sum up, employing a cloud strategy—one that also bakes cybersecurity into everything you do—enables an IT organization to focus on more important strategic initiatives, while offloading the demands of operating multiple complex platforms to others.
An effective cloud strategy can enable a broader set of business capabilities through a data platform strategy
Enterprises often embark on a journey toward application rationalization. It is the process of simplifying the application stack, reducing the numbers of vendors involved, and identifying and resolving data overlap across multiple applications that are barriers to finding a “single version of truth.” These are all worthy goals with significant benefits. However, the industry is starting to acknowledge just how challenging — and expensive — it can be. It quickly becomes an impossible “boil the ocean” exercise.
A more pragmatic approach is to create a data platform strategy. Rather than boiling the application ocean, pick the most relevant, important and value add information for the enterprise, and create a duplicate, but pristine cloud-hosted version. Cleanse and standardize the data as it comes into the cloud so that it is pristine. The footprint of the data the enterprise selects to duplicate, cleanse, store and use will vary based on its priorities. For the electric utility industry, a good starting point will be any data about the grid. Applications that source this data will likely include, but are not limited to, work, asset and outage management, and supply chain and distribution management systems.
At this point, many of you are envisioning a data warehouse. Close, but a critical difference in this strategy as compared to a data warehouse is that it is operationally focused. In other words, the selected data stored in the cloud is managed on a platform upon which new operational business capabilities can be built. It is not simply an analytical or reporting engine. It is truly a starting point from where a digital transformation strategy can be built.
There are many reasons to consider migrating to a cloud strategy for electric utilities beyond just cost savings and increased efficiencies. It can also power your digital transformation. Contact me to learn how we can help you take advantage of the benefits and transform your business through our cloud strategy services.