Enterprise resource planning (ERP) software allows an organization to use a system of integrated applications to manage and automate many business functions related to operations, technology, services, and human resources. However, it can be challenging to upgrade legacy systems. Some best practices are offered here.
The last decade has seen the utility industry tipped on its head. Consumer behaviors and expectations have shifted the role of a utility from transactional to one focused on engagement and experience. A slew of outside factors—non-traditional players, newer technologies, and industry and climate regulations—are impacting the way organizations operate, service customers, and create and deliver energy. Business models are likewise shifting under these pressures, transforming legacy, delivery-focused models into ones that orchestrate and derive revenue from data and services.
Responding to these pressures is an ongoing challenge that the industry will continue to grapple with and adapt to, but there is one clear path that all utility companies will have to follow: Digital transformation will be at the heart of every successful approach. Of course, this is no small undertaking, particularly in the midst of ongoing business changes; it requires careful planning to develop products and services that not only meet changing consumer preferences, but also accommodate changing energy requirements. But the simplicity and transparency of a unified system is the only way a utility can understand and anticipate demand, manage costs, and build the new tools needed to continue to weather these changes.
This is a path that AES Corp. has already embarked on. As a Fortune 500 global power company, AES has been anticipating and responding to the new needs of its environmentally and digitally savvy consumer base by investing in technology and creating a smart utility.
AES’ Digital Transformation Journey
To meet the new demands of its business, AES Corp. embarked on a digital transformation journey in 2016, which included a massive data migration undertaking in 2018. As a first step, AES recognized the need for a uniform enterprise resource planning (ERP) system. The company was operating on several ERPs at the time and knew data was integral to enabling digital capabilities for the future.
In 2016, the company began consolidating its ERPs in accordance with its enterprise architecture principles. As part of this process, AES selected SAP S/4 HANA as its standard, becoming the first utility to go live with the platform (Figure 1).
Like many utility organizations, this happened in the midst of several significant business changes. In addition to transitioning from traditional energy sources to renewables, AES is also in the midst of a business strategy overhaul rooted in a rationalization of asset operations. While the company maintains global operations in 14 countries, it has divested most of its facilities in Asia and Europe since 2011 to concentrate on its American presence.
While AES made significant progress in the following years, data migration, or the process of transferring data from a legacy ERP system to another, remained a significant technological challenge. By 2018, AES had yet to migrate two of its largest business units—Indianapolis Power & Light (IPL), which serves more than 500,000 residential customers, and Dayton Power & Light (DPL), which serves 600,000.
IPL and DPL were running on aging legacy systems that were not adhering to the global AES template for business processes, master data, and auditing. Recognizing that these systems no longer met its agile business needs, AES weighed its options: it could either merge IPL and DPL onto a new ERP platform, or migrate the business units into its global S/4 HANA system.
While a non-SAP ERP may have been less disruptive to the business, AES recognized the value of simplicity that could only be achieved through adopting a common set of tools. Prioritizing long-term agility, the company opted to merge IPL and DPL to its global platform, which would impact 1,100 users between the two business units. On April 1, 2019, AES successfully completed its data migration project (Figure 2).
Outcomes of a Successful Data Migration
Less than a year in, AES has already realized a variety of significant business improvements resulting from an effective data migration.
Driving Consistency in Business Processes. First and foremost, AES achieved consistency-driven business processes that benefit both the company and the customers it serves. AES’s asset management team was immediately relieved of complexity, as data aggregation relied on fewer sources. This upgrade centralized all administrative and operational functions, enabling easier management of the company’s global operations—from Dayton to Hanoi. The new efficiency also translates into lower operating costs, spawning a better return on investment for end customers.
Lowering Total Cost of Ownership. The successful data migration reduced the complexity of AES’ technology landscape with hardware reduction, as well as maintenance and software license elimination. Meanwhile, the company reduced the total cost of ownership (TCO) through leveraging global Shared Service Centers that support multiple businesses. Located in Argentina and Bulgaria, AES’ global service centers manage the company’s financial and supply chain management operations via its global ERP. The organization can now provide support for global employees and eliminate costs associated with managing tasks across each locality. With a significantly lower TCO between technology and employee support, AES can ultimately pass these savings onto its customer base.
While the benefits speak volumes, AES’s successful digital transformation didn’t come without its challenges. By their very nature, data migrations in the utility sector involve an enormous financial investment, many stakeholders, unprecedented complexity, and regulatory red tape. Having successfully completed its ambitious data migration, AES’ IT team can offer several best practices for other utility companies considering a digital transformation in 2020 and beyond.
Prioritize Team Building. AES’ 18-month data migration undertaking tapped approximately 40 full-time AES employees, in addition to an IT support team of about 40 part-time consultants at any given time—many of whom traveled in from out of town. PwC was brought in as the principal integrator, while SAP managed the data migration conversion process. Meanwhile, AES’s power plant staff was tasked with overseeing asset validation and tax requirements.
Given the sheer volume of players involved, AES recognized the need to drive team chemistry and foster collaboration to ensure that the project was completed as efficiently and painlessly as possible. With that in mind, management sought to arrange a series of offsite activities focused on forming a sense of camaraderie outside of the work environment.
One of the best relationship-building activities turned out to be a soccer league where project participants got together for a weekly match on warm summer nights. Not only was this more engaging than your typical team dinner, but it also provided a shared sense of purpose and had a real impact on team chemistry, which proved invaluable.
Integrate Agile Processes into Your Approach. Given the various parties involved in the transition, AES was challenged to implement a process that kept everyone on the same page, while ensuring the project was completed on time and on budget. The team ultimately elected to utilize a waterfall approach, wherein the project was divided into phases with specific roles assigned to each participant.
In an effort to make the waterfall approach more agile, teams were intentionally integrated to ensure no one was waiting around for a certain aspect of the project to be completed before they could get to work. AES also employed a unique “roadshow” testing model with the goal of demonstrating solutions ahead of the formal testing cycle.
AES worked with consultants to build solutions quickly, showcase the technology to relevant teams, and collect feedback in real-time. This process allowed the team to make changes with plenty of time to spare, instead of waiting for the formal testing process to begin.
Ensure Ongoing Business Engagement. Data conversion was a significant effort that would have benefitted from better engagement with the business. Once the global ERP solution went live, AES fielded several questions from the core business team surrounding where the data lived and how it was transformed. As such, the team could have given the business a more active role in the data validation process to not only avoid confusion down the road but also to release the technical team for other tasks.
From a training perspective, AES created a set of training sessions and tools to get everyone up to speed on the new system. While these resources were largely effective, the team also would have benefited from creating a network of experts in various processes and technologies to address any follow-up concerns.
As customer and employee experiences become more and more important as we enter a new decade, we can expect to see utility companies increasingly prioritize digital transformation to meet new demands. In fact, since AES’s successful digital transformation and data migration, the company has already filled several reference calls from other utilities in the process of exploring the business capabilities made possible by a global ERP system.
While transformations require significant resources, the benefits far outweigh the challenges and the course forward will only become more efficient as best practices are shared. ■