cloud adoption in utility industry 2016

1 JUNE 2016 UTILITY WEEK

associated with cloud computing

out of 10:

TOPRISKS

7.6

92%

The difference between public and private cloud computing is most important to energy network operators

AN EXCLUSIVE RESEARCH REPORTIn association with


CLOUD ADOPTION AND UK UTILITIES Contents 1 22 3 4 5 6

1 Executive summary

2 Introduction

3 Cloud adoption

4 Drivers and benefits

5 Implementation and challenges

6 Debate backs research findings

Concluding thoughts7

7


CLOUD ADOPTION AND UK UTILITIES Executive summary 1 2 3 4 5 6 7

Opportunity aheadWhat to make of all this? One obvious conclusion: there is an opportunity for the utility sector to benefit from gaining a better understanding of best practice in managing cloud technology’s complexity and challenges.

Simply put, the utility sector needs help to first of all understand how best to approach and plan the migration to cloud technology. Then it must undertake the implementation and ongoing management of cloud platforms.

As this report highlights, there is little doubt among utility companies about the potential value that cloud technology could deliver to their businesses. The challenge lies in overcoming some of the barriers that stand in the way of achieving that value.

The prize on offer is a significant one. And given the importance of utilities to the economy, the environment and society at large, it is a prize that utilities and their trusted advisers should endeavour to attain.

Cloud technology is disruptive. Out go vast ‘on-premise’ data centres, in

come applications served from the cloud – often under innovative pay-as-you-go ‘software as a service’ licences.

Put another way, out go the large chunks of capital expenditure associated with physical data centres, together with software licences bought in utility-sized volumes. In their place: month-by-month rental costs, paid for out of operating expense. Nor is cloud technology delivering just any old applications. Increasingly, software vendors are adopting ‘cloud first’ or even ‘cloud only’ deployment models.

And to the surprise of some observers, the utility sector is genuinely embracing the cloud, placing mission-critical applications and core business processes in data centres run by third parties.

But – critically – utility companies are not embracing the cloud in the same way, or even for the same reasons, and to the same extent. Look closely, and there are significant differences in the ways companies perceive, approach, and adopt cloud technology.

Why? A partnership between Utility Week and Tata Consultancy Services sought to find out by probing utilities’ take-up of cloud technology, and their perceptions of the challenges and opportunities that it provides.

“ There is little doubt among utility companies about the potential value that cloud technology could deliver to their businesses. The challenge lies in overcoming some of the barriers that stand in the way of achieving that value. The prize on offer is a significant one”


CLOUD ADOPTION AND UK UTILITIES Introduction 1 2 3 4 5 6 7

But one by one, these objections have been swept away. Today, analysts regularly affirm what was once unthinkable: compared with on-premise computing, the cloud has higher uptime, better security, and offers more control, not less.

And yet the revolution is not complete. Yes, as this research highlights, the utility sector is embracing cloud computing. But not universally, not at the same pace, not for the same set of imperatives – and not with the same shared sense of cloud technology’s risks, rewards, and ROI.

Why? This research, carried out in March and April 2016, sought to find out by probing utilities’ take-up of cloud technology, and their perceptions of the challenges and opportunities.

Key decision-makers in the utility sector were targeted, first in an online survey, and then with a follow-up telephone contact. In all, some 31

85%And the parallel is apt, because just

as a handful of industries – among them financial services and the utility sector – clung to the mainframe long after the rest of the corporate sector had switched to client-server, cloud computing too promises to herald a period of equally polarised attitudes.

And yet, as this exclusive research from Utility Week and Tata Consultancy Services highlights, history is not repeating itself. To the surprise of some observers, the utility sector is embracing the cloud, and placing mission-critical applications and core business processes in data centres run by third parties.

As little as five years ago, that would have seemed remarkable. Mention the cloud, and a predictable litany of objections would have been raised – loss of business continuity, security, loss of control, and so on.

individuals from across the sector shared their insights. Sixteen per cent were directors or board-level directors. Half were functional chiefs or heads of department, 65 per cent worked in their organisation’s IT division, and 85 per cent were manager grade or more senior.

They represent 19 of the largest and most significant players in the sector, drawn from across the gas, water and electricity industries. In the roll call of leading brands and businesses surveyed were names such as British Gas, Severn Trent, SSE, National Grid, Welsh Water, Centrica, EDF, First Utility and Western Power Distribution.

Together, respondents contributed a unique insight into the state of cloud technology adoption in their organisations – an insight that began with an evaluation of the present state of cloud technology in utilities.

From a corporate perspective, few IT developments have been as transformative

as cloud computing. Indeed, it’s probably necessary to go back to the adoption of client-server technology in the early 1990s to find technology quite as disruptive to the status quo.

Profiling the contributors:

The research incorporates contributions from 19 organisations from across the sector

Managers or more senior

65%

50%

16%

Chief/head of department

Work in the IT division

Director/board director

Source: Utility Week Cloud Technology April 2016


CLOUD ADOPTION AND UK UTILITIES Cloud adoption 1 2 3 4 5 6 7

Present state and future prospects

How extensive is the utility sector’s adoption of cloud computing? Respondents were asked to characterise their use of cloud technology at home and at work as ‘none’, ‘partial’ or ‘complete’.

Respondents were slightly more likely to use cloud applications at home, with 97 per cent reporting partial or complete use of cloud technology at home, compared with 83 per cent at work.

Overall, across the sector, respondents from most organisations – 76 per cent, or just over three-quarters – of respondents reported ‘partial’ adoption of cloud technology. A further 7 per cent went further, describing their adoption as ‘complete’, making 83 per cent in total.

KEY FINDINGS 83 per cent of utilities report at least some use of

cloud technology – but 17 per cent, almost one in five, report no use at all.

38 per cent of utilities report that their cloud migration is either already complete, or will be complete over the next two years. But 26 per cent see a complete cloud migration being at least five years away, while 28 per cent report that cloud migration ‘will never be complete’ in their organisations.

According to respondents, this slow pace of adoption is often the result of the sheer complexity of the move, because of the sector’s legacy systems and the need for appropriate due diligence, especially in the context of the systems’ impact on critical national infrastructure.

This seems a fairly ringing endorsement for cloud technology – and yet 17 per cent of organisations – just under one in six – report no use of cloud technology at all.

Clearly, across the sector, there is some polarisation of perspectives on cloud technology: a significant majority is happy to exploit it, and a small but by no means insignificant minority – of almost one in five respondents – is either reluctant to exploit cloud computing or still looking for ways to do so.

“From what we see in the energy sector, the IT departments of big utilities have a lot of power and influence – which can make it challenging for the commercial business to move ahead quickly working with, say, third party cloud technology vendors,” observed Andy Bradley, director of business development at Delta Energy & Environment. “Yes, there are a lot of legacy systems, but there is often a ‘not invented here’ culture too.”

The environment appears to affect the adoption of cloud technologyQ: Which of the following best describes your current use of cloud technology?

Figure 1

Complete Partial None

Home Work Water Energy company Energy network

3%17% 15%

23%

10%

87% 76%75%

77%77%

7% 8%

25%




Taken together, said respondents, the inevitable result is that complete migration to the cloud will take a long time. Consider, for instance, the views of those respondents anticipating a timescale of five years or so.

“It takes a long time for due diligence to be carried out and decisions to be made,” reported one respondent. “There’s the complexity of the estate to consider, regulatory requirements to take into account, and existing third-party contracts in place,” added another. “There’s a huge legacy environment to transition, a regulatory model that favours capital investment rather than service-based offerings, and security considerations in

At the other extreme, some 56 per cent of respondents – over half, in other words – see cloud migration as a more distant prospect. Twenty-six per cent think a complete cloud migration is at least five years away, and 30 per cent report that cloud migration ‘will never be complete’ in their organisations.

Why such a slow pace of adoption? The prime reason cited by respondents is the sheer complexity of the move, not least because of the sector’s legacy systems and the need for appropriate due diligence, especially in the context of cloud-based systems’ impact on critical national infrastructure.

PACE OF CHANGEThat said, respondents’ collective views of complete migration again highlight the polarisation in the sector. Utilities are either close to completing their cloud migrations (or have already completed them), or they believe completion is only attainable in the long-term future.

Taken together, a third of respondents report that cloud migration is either already complete, or will be complete over the next two years, with the majority – 22 per cent – expecting migration to be completed in the latter half of that period.

WATER COMPANIES LEADING THE WAYDrilling down industry-by-industry into this overall response to cloud technology, the reasons for this apparent polarisation become a little clearer.

The water industry, in short, is leading the way into the cloud, with no water industry respondents reporting ‘no’ use of cloud technology, and about a quarter of respondents reporting that their adoption of cloud technology is complete.

Energy networks – both gas and electricity – take almost exactly the opposite standpoint, with almost a quarter (23 per cent) of energy network respondents reporting ‘no’ adoption of cloud technology, while some 77 per cent of respondents reported ‘partial’ adoption.

In between lay energy companies (generators, retailers and vertically integrated companies). Here, a smaller number of respondents – 15 per cent – reported ‘no’ use of cloud technology, while almost one in ten organisations (8 per cent) reported a ‘complete’ migration to the cloud.

The immediate opportunity: 44% expect to fully migrate within the next four yearsQ: When did your organisation complete its full migration into a cloud environment?

Q: Do you ever anticipate your complete organisation being migrated into a cloud-based environment?

Figure 2

Within next 12 months Next 1-2 years Next 3-4 years At least 5 years away Migration will never be complete

100% Of fully migrated organisations, completed within the past two years

11%

22%

11%

26%30%




respect of critical national infrastructure services,” added another.

Perhaps more troubling are the views of those respondents who considered that their cloud migration would never be complete. Here, the view seemed to be that cloud technology was simply inappropriate for the task in hand.

“Specific data types will always either be constrained by security risks, or the need to be accessible on-premise, making them unsuitable for a complete migration to a cloud platform,” explained one respondent. “It’s critical national infrastructure, and likely to always remain in-house,” added another. “Security”, observed another, simply. And “these are

bespoke and mission-critical services that cloud technology is just not appropriate for at the moment”, emphasised another.

But clearly these are judgements, rather than absolute facts. Some utilities are taking the slow road to the cloud, but many others – as we have seen – have come to a different conclusion.

To see why, we turn next to utilities’ views on the business case for cloud technology. What imperatives are urging utilities towards the cloud – and what benefits do they expect to get from the move?

TCS VIEWPOINT...While utilities have historically approached the cloud and other digital technologies in moderation, TCS believes this is going to change. A fundamental shift in focus from capex-based spending to opex-based will help shift the industry towards adoption of cloud-based technologies in particular. These will help spur the rapid innovation cycles that are mandatory for the utility industry to tackle the multitude of challenges facing them. Elasticity in computing power gives CIOs a more effective way to handle seasonal spikes in IT infrastructure demand, or additional capacity to deal with crises. And indeed, business functions in utilities see adoption of point cloud-based solutions as a mechanism to ‘bypass’ IT to get that functionality they want quickly. However, without an overarching strategy to integrate these point solutions into a seamless end-to-end process, many times business are disappointed when their ‘cloud based investment’ does not yield the efficiencies they set out to achieve. The cloud also has a huge potential for processes, where the volumes are changing significantly and future volumes are uncertain. For example IVR and exchanges are becoming digital and volumes are moving to digital channels. The area is rapidly moving to the cloud, freeing utilities from the threat of stranded infrastructure.

On the other hand, for some processes cloud adoption is constrained by an inability to handle volume-intensive processes such as large nightly batches for billing. More mature solutions around this space will help accelerate adoption in this area.

TCS's experience working with this industry shows the adoption has started. Security and complexity concerns would still be barriers to the cloudification of operational systems, but increasingly non-operational technologies are getting roadmaps that enable some sort of movement to the cloud using IaaS, SaaS or PaaS models.

“ There’s the complexity of the estate to consider, regulatory requirements to take into account and existing third-party contracts in place”


CLOUD ADOPTION AND UK UTILITIES Drivers and benefits 1 2 3 4 5 6 7

T here was near unanimity in respondents’ views on the key drivers for cloud adoption in

their respective businesses.Respondents were offered ten

potential drivers and asked to nominate the most important three. Overall, across the sector as a whole, the three that emerged scored far more highly than all but one of the remainder, and by a considerable margin.

The key drivers in question? First, cost pressure; second, the drive to improve a company’s quality of service; and third, a goal of reducing the company’s infrastructure footprint through platform consolidation.

Put another way, in two out of the three industry groupings in the sector – water companies, energy generating and retailing companies, and energy network companies – these key drivers featured, differing only in respective rank. In the third industry

grouping – specifically, energy networks – the driver of technology adoption displaced improved quality of service as an imperative.

Moreover, industry by industry, the relative rankings of the top three drivers say a lot about the pressures that the sector is under.

In two of the three industry groupings – water companies and energy companies – cost pressure comes second to the drive to improve quality of service, reflecting the drive for customer satisfaction under way in both sectors. Only among energy network companies is cost pressure the top driver, with quality of service featuring not at all.

What’s more, in all three industry groupings (as in the sector overall) the third-placed driver is an operations-led objective rather than an overall strategic priority of the businesses – namely, the

drive to reduce IT infrastructure footprint through platform consolidation.

To those who would argue that the UK’s traditionally conservative utility sector has simply failed to appreciate the opportunity offered by the cloud, this is a compelling rebuttal.

Whatever else cloud technology offers, the opportunity to take disparate systems running on disparate servers and mainframes, and condense them onto one scalable, low-cost and efficient cloud platform is undeniable.

And individual respondents certainly weren’t blind to this in their comments. Cloud technology, said one, “offered flexibility and scalability”. Another said the technology had benefits when used intelligently alongside on-premise capability: “A blended cloud model delivers the right mix of agility, efficiency and reliability.”

KEY FINDINGS The key drivers for cloud adoption are: cost pressure,

the drive to improve a company’s quality of service, and to reduce the company’s infrastructure footprint through platform consolidation.

The key benefits of cloud technology are customer relationship management, billing, supplier relationship management and people management.

Respondents were generally clear about how cloud technology could benefit IT-specific and operational aspects of their businesses. There was less consensus on strategic and organisational issues.

The sector largely agrees on the key driversQ: What are the key drivers for cloud adoption in your business?

Figure 3

Overall Top 3

Water Co

Energy Co

Energy Net

1. Cost pressure2. Improving a company’s quality of service3. Reducing company’s infrastructure footprint/platform consolidation

1. Improving a company’s quality of service2. Cost pressure3. Reducing company’s infrastructure footprint/platform consolidation

1. Improving a company’s quality of service2. Cost pressure3. Reducing company’s infrastructure footprint/platform consolidation

1. Cost pressure2. Technology adoption3. Reducing company’s infrastructure footprint/platform consolidation




Finally, among water companies, human resources, customer relationship management, finance and accounting, and field deployment were jointly seen as the most likely areas to benefit, jointly voted so by three-quarters of respondents.

Underpinning this, though, is a more subtle point, and one that has less to do with parts of the businesses themselves, but with the opportunity presented by cloud technology to deploy cutting-edge software quickly and at different scales.

Simply put, not only are some of the world’s most popular, powerful and market-

finance and accounting (38 per cent), and human resources (25 per cent).

Among energy generation businesses, though, a very different set of areas of respondents’ businesses were expected to benefit: scheduling and billing, and supplier relationship management came joint top, with 67 per cent of respondents expressing this view, followed by areas such as human resources at 33 per cent.

At energy networks, field deployment was the area most likely to benefit (36 per cent), with areas such as human resources (27 per cent) and contact centres (27 per cent) following behind.

Drivers by sectorIf these are the drivers, which aspects of utilities’ businesses will they affect? Here, perhaps predictably, differences reflected respondents’ industries’ differing needs and priorities.

Among energy retailers, for instance, customer relationship management was seen as the area most likely to benefit from adopting cloud technology, with 88 per cent of energy retailer respondents expressing this view. Next was billing (63 per cent), followed by areas such as workforce management (50 per cent),

leading software systems more quickly implemented and upgraded when deployed on the cloud, but some such systems are only available in cloud-based versions.

“Water companies have large workforces, and cloud technology helps provide a connection to that workforce,” observed Jacob Tompkins, managing director of water industry body Waterwise, commenting on the research. “Especially in a field maintenance context, the cloud is an enabler for the smart connectivity that water companies know they ought to be striving for.”

There is a strong bias towards people management in network and water businessesQ: Which areas of your business would you expect to benefit most from the adoption of cloud technology?

Benefits are wide ranging but focused on CRM, billing and people managementQ: Which areas of your business would you expect to benefit most from adoption of cloud technology?

Figure 5

Figure 4

HR

CRM

Finance/accounting

Field deployment

Billing

Business development

Other ‘planned maintenance’

Field deployment

HR

Finance/accounting

Contact centre

Asset management

CRM

Capital planning


Supplier relationship management

Other*

CRM

Billing

Energy mgt

Workforce mgt

Finance/accounting

HR

Field deployment

Pricing

Energy settlement


Demand-side mgt

Asset mgt

Energy procurement

Other

Scheduling and billing

Supplier relationship mgt

HR

Billing

Finance/Accounting

Field deployment

Commercial contract mgt

Billing and settlement

Asset and work mgt

Plant control system

Central data

Meter data

Energy networks Water networks

*Other: “Back office and desktop services”, “Integration of data from new sourcing technologies”, “All areas would collectively benefit”

*Other: “Customer engagement”, “Analysis and optimisation”

Energy retailers Energy generators

67%67%

33%

36% 75%

75%

75%

75%

50%

25%

25%

27%27%27%27%

18%18%

36%9%9%

88%63%

50%50%

38%25%25%25%25%

13%13%13%13%

25%

33%33%33%33%33%33%33%33%33%





statement shrinks to 15 per cent. The proportion actively disagreeing is 12 per cent, while 19 per cent – almost one in five – could neither agree nor disagree.

Can cloud technology facilitate mergers and acquisitions? Again, the proportion that agreed drops sharply, to less than half (46 per cent). Those unable to agree or disagree rises steeply (to 35 per cent), and active disagreement reaches 18 per cent.

Does cloud technology create opportunities for flexible scaling, to cope with infrequent periods of unusually high demand, for instance? Ninety-two per cent of respondents agreed (69 per cent strongly so), with just 8 per cent able to neither agree or disagree. Furthermore, no respondents at all disagreed.

Similarly, 85 per cent of respondents agreed that cloud technology enhanced business agility and flexibility, although just 35 per cent felt strongly that it did so. And although 3 per cent disagreed with that statement, most of those who did not positively agree fell into the middle ground, and said they were able to neither agree nor disagree.

Likewise, a broad majority of respondents – 77 per cent – were able to agree with the statement that the on-demand, self-serve, and rapid elasticity capabilities of most cloud providers creates an opportunity for businesses to have greater operational control. That said, the proportion of respondents that actively disagreed with the statement was 19 per cent, or virtually one in five.

Move the focus even more towards strategic and organisational issues, however, and the consensus erodes quite sharply. Although respondents can see the value of cloud technology from an IT-specific and operational point of view, they are far less convinced when it comes to issues closer to the boardroom.

Does cloud technology help facilitate changes to the business model, for instance? While 69 per cent – just over two-thirds – of respondents agreed, the proportion that strongly agreed with the

Benefits of cloud technologyFinally, to build a picture of the utility sector’s viewpoint of a number of potential benefits commonly associated with cloud technology, respondents were asked to indicate how much they agreed – or disagreed – with a number of statements about cloud technology. By design, the statements embraced cloud technology’s potential impact on a selection of the strategic, organisational, operational and IT-specific challenges facing utilities.

Generally speaking, the picture this provides is one in which respondents are clear about whether or not cloud technology will benefit IT-specific and operational aspects of their businesses – with most, in fact, agreeing that the impact was beneficial.

Put another way, when it came to IT-specific and operational issues, respondents had an opinion, with the number of respondents neither agreeing nor disagreeing with a particular statement being relatively few.

Significant agreement across the majority of potential benefits of cloud technologyQ: To what extent do you agree or disagree with each of the following statements?

Figure 6

Finally, respondents were even less convinced that changing business processes with cloud computing would remove barriers between business and IT resources. Just over a third (35 per cent) agreed with the statement, while almost as many – 31 per cent – disagreed. Once again, those who neither disagreed nor agreed amounted to just over a third (35 per cent).

TCS VIEWPOINT...Getting rid of infrastructure for commodity applications like HR, email, etc, and moving to the cloud seems a no-brainer for the industry. But utilities are still trying to figure out how best to use the cloud to differentiate themselves from the competition. While cost is the easiest win for cloud adoption, other benefits of transferring applications to the cloud should not be overlooked. Indeed, in our experience, at times the cloud is not the cheaper option. Hence it is important in any cloud adoption strategy to also look at other reasons for moving to the cloud, such as increased agility and dynamic scalability, which ultimately improve the time-to-market for innovation.

There is a global trend in the utilities sector to phase out traditional on-premise ERP-CRM or works management applications in favour of cloud-based options. As a result, the largest solution providers are either completely cloud based – Salesforce.com – or fast adopting the cloud as a deliberate strategic direction – SAP AG.

On the other hand, dependency on in-house IT is diminishing as employees, customers and business partners look towards self-serve capabilities free from the shackles of the IT function. The ability of these point solutions to give the user increased control over operations is a key driver of cloud adoption. However, the need to integrate the point solutions into the core ERP for a seamless process has been an issue. It is our view that eventually the benefits will be increasingly coming from cloud-based self-service intelligence and operations applications rather than cloud-based personnel and commodity services.

Changing business processes with cloud computing will remove the barrier between business and IT resources

Cloud technology helps facilitate mergers and acquisitions

Cloud technology helps facilitate changes to the business model

The on-demand, self-service and rapid elasticity capabilities of most cloud providers create an opportunity

for business to have better operational control

Cloud technology enhances business agility and flexibility

Cloud technology creates the opportunity for flexible scaling to help cope with infrequent periods

of unusual high demand

Strongly disagree Disagree Neither agree/disagree Agree Strongly agree

% agree

34%

47%

69%

77%

85%

92%

15% 15%

31% 35% 19% 15%

15%12% 19% 54%

12%35%35%

31%15% 46%

35%50%12%

69%23%8%

4%



CLOUD ADOPTION AND UK UTILITIES Implementation and challenges 1 2 3 4 5 6 7

PUBLIC OR PRIVATE CLOUD?Take, for instance, one of the most fundamental decisions facing any cloud computing initiative: public cloud or private cloud? Overall, it appears that the utility sector does indeed draw a distinction between the two, with most respondents – 56 per cent – reporting that their businesses did differentiate between the two.

That said, fewer than one in five respondents – 19 per cent – said they did not differentiate between public and private cloud operators. Instead, a significant proportion of respondents – 25 per cent – reported that they simply did not know if their organisations differentiated or not.

These perspectives on private versus public were not shared across the sector. Water and energy networks had broadly the same perspective: half of respondents reported that their organisations did differentiate between public and private, with the other half more or less evenly split between ‘no’ and ‘don’t know’.

Only in energy companies – retail and generating – was there a more distinct polarisation. Almost two-thirds of respondents – 62 per cent – reported that their organisations differentiated between public and private cloud operators, while just 7 per cent of respondents reported that their organisations did not differentiate. Even so, almost a third of respondents – 31 per cent – acknowledged that they did not know their organisation’s stance in this respect.

KEY FINDINGS The biggest risks associated with cloud technology

were those related to the migration of safety-critical and mission-critical applications, and data security.

With more than three-quarters of respondents who use cloud technology already managing two or more cloud providers, the difficulty of managing multiple suppliers was rated as ‘moderate to high’.

Respondents were concerned about the risks associated with cloud technology, especially in areas such as data security and business continuity. But these concerns were highest in utilities with the least exposure to cloud technology.

Respondents rated the ease of building a clear ROI and business case for cloud technology at just 5.5 out of 10.

Four out of five respondents felt that the regulatory regime had an impact on the adoption of cloud technology. By a small margin, the majority felt that the regulatory regime was an inhibitor to the adoption of cloud technology.

How are utility companies implementing cloud technology? What barriers and risks have they encountered? Where do the

challenges of implementation lie? The concluding part of the research probed respondents’ views on these issues.

Energy companies are the most likely to differentiate between cloud operatorsQ: Does your business differentiate between private cloud and public cloud operators?

Figure 7

Yes No Don’t know

Overall Water Energy company Energy network

56% 50% 62% 50%

25% 25% 31%20%

30%25%19% 7%




skills, capabilities and functions,” said one. “There will be a lot more lawyers,” suggested another. “Roles will change, and there will be efficiency improvements,” added yet another.

More subtly, said a final respondent, the different nature of the work in the IT function will bring about changes to organisation structure to reflect changed work practices. As businesses transition towards buying cloud computing as a service, the need to resource internal IT capital delivery teams will also diminish.

That said, it was clear that respondents were far from sanguine about the prospect of managing their cloud providers. Seventy-eight per cent of respondents using cloud technology – over three-quarters – already managed two or more cloud providers, with more than half (52 per cent) managing three or more. Moreover, when asked to rate the difficulty of managing multiple cloud providers using a scale from one to ten, the average rating was 6.7, indicating a challenge perceived as ‘moderate to high’.

But again, the pan-sector view disguises differences between different types of utility. Water companies, for instance, were broadly unequivocal about the need for organisation changes, with three-quarters expecting to make such changes, 25 per cent were unsure, and not a single respondent answered in the negative.

Among energy companies and energy network operators, though, a very different viewpoint emerged. Among energy companies, for instance, almost two-thirds of respondents – 62 per cent – responded in the negative, and half of respondents did so among energy networks. The proportion of respondents that reported in the affirmative was commensurately lower, as was the proportion of respondents who said they were unsure.

What sorts of changes were respondents anticipating, though? And why were organisational changes likely to be needed in the first place? In their own words, respondents talked through their rationales.

Moving to cloud technology would mean not only a smaller IT department, said many respondents, but also meant that a different skills profile would be necessary. “Managing commodity cloud services requires different

ORGANISATIONAL CHANGESWill the adoption of cloud technology mean changes to utilities' organisational structure? Across the sector generally, opinion was broadly split – 48 per cent of respondents did not expect cloud technology to necessitate any change to their organisation's structure, 45 per cent expected that cloud technology would require such changes, and just 7 per cent were unsure.

Water companies most likely to be looking to implement structural changesQ: Do you believe the adoption of cloud technology necessitates changes to your organisation’s structure?

Working with multiple cloud providers is creating challenges for the sectorQ: Does your organisation have one or multiple cloud providers?

Figure 8

Figure 9

“ Managing commodity cloud services requires different skills, capabilities and functions”

2.3

6.7

Average number of providers

Average challenge rating of working with multiple providers

Overall

Water

Energy networkEnergy company

75%

25%

7%

45%

48%

38%

62% 50%

10%

40%

Three+

52%

One

22%

Two

26%

Yes No I don't know Source: Utility Week Cloud Technology April 2016Source: Utility Week Cloud Technology April 2016

Q: On a scale from 1 to 10, how challenging do you find it to manage multiple cloud providers?



BUSINESS CASE AND ROIFinally, how easy is it to build a clear ROI and business case for cloud adoption – and is the regulatory regime a driver or an inhibitor when it comes to making that journey? Once again, respondents had firm views. And views, moreover, that were not necessarily of comfort to cloud providers.

When building a business case, for instance, respondents placed the ease of building that ROI and business case more or less in the middle of a scale of one to ten.

business continuity, quality risk factors, and changes required to update management processes.

“There are clear advantages to cloud technology, but also clear risks – and opinion among CIOs varies, with the jury still out,” said Susan Furnell, founder at strategy consultants Furnell Consult. “They know they won’t lose their job through doing more of what they’re already doing – but that they might lose it they migrate everything to Cloud and end up with a disaster.”

PERCEPTIONS OF RISKNor were respondents sanguine about the risks related to cloud technology and cloud technology adoption projects. Asked to rate a number of such risks on a scale from one to ten, where one represents zero risk and ten represents an extremely high risk, respondents across the utility sector had relatively few concerns about the quality of cloud provision (rated 3.9 on average), or of a loss of transparency (rated 4.0 on average).

On the other hand, data security was a major concern (rated 6.5 on average), with the risks associated with the migration of safety-critical and mission-critical applications being rated even higher, at 7.6 on average. In the middle ground, rated 4.5-4.7, were risks such as a loss of

Migration and data security are the greatest perceived risksQ: On a scale from 1 to 10, what is your perception of the following challenges arising from cloud technology?

A combination of complex business cases and regulation will potentially delay migration plansQ: On a scale from 1 to 10, how easy is it to build a clear ROI and business case for the adoption of cloud technology?

Q: Is regulation a driver or inhibitor for the cloud journey? 15% believed it was neither/neutral“I’m neutral really on this question. I think regulation could drive or inhibit and can’t really see any impact at the moment.”

Figure 10

Figure 11

Risks associated with migration of safety-critical and mission-critical applications

Data security

Changes required to your organisation’s change management processes

Quality risk factors (functionality, performance, manageability, security and user satisfaction)

Business continuity

Losing transparency

Quality of cloud provision

“ It is noticeable that in every instance, energy networks rated risks higher than their peers in other utility industries”

That said, as we see below, these perceptions of risk are bolstered by the more cautious energy network industry, where respondents have typically rated risks more than two points higher on the scale of one to ten – in effect, perceiving a risk rated at three by other utilities at just over five. It is noticeable, for instance, that in every instance, energy networks rated risks higher than their peers in other utility industries.

But is this perception justified? Referring back to utility industries’ actual use of cloud computing, there are signs that indicate an inverse correlation may be at work.

Energy networks use cloud computing the least, with no respondents in that group reporting ‘complete’ adoption of cloud technology, 23 per cent reporting no use, and 77 per cent reporting only partial use. Yet this is the industry group that perceives the highest risk. On the other hand, respondents from water companies and energy companies – retail and generating, where a body of real-life experience with cloud technology exists – generally perceived risks as being much lower.

The inference is clear: there has to be at least a suspicion that with limited first-hand knowledge of cloud technology, respondents tend to overstate the perceived risks of such technology compared with those that have first-hand experience.

Average risk rating

1= no risk at all, 10 = extremely high risk

Driver Inhibitor

Overall Water company

Energy network

Energy company

Overall Water company

Energy network

Energy company

7.66.5

4.74.7

4.54.0

3.9

54% 50% 62% 44%

46% 50% 38% 56%

5.5 5.94.8 5.3





respondents seeing the regulatory regime as an inhibitor. In fact, only in one industry group in the sector – energy networks – was the most commonly held perception that the regulatory regime was not an inhibitor.

That said, a complex variety of reasons underpinned each sentiment, with little overall consensus. Among those who considered the regulatory regime an inhibitor, for example, respondents most commonly cited data protection regulations and a pricing environment that pushed utilities towards capital expenditure rather than operational expenditure. In the case of those who thought the regulatory regime was a driver, respondents spoke of a growing shift towards pricing environments based on totex, and a continued downward regulatory pressure on costs.

A similar message is seen in respondents’ perceptions of the impact of the regulatory regime on cloud adoption. A minority of respondents – 15 per cent – believed the regulatory regime had no impact either way on utilities’ cloud journeys. But the remainder – 85 per cent, or more than four out of five – did perceive an impact, with the prevailing sentiment pointing to the regulatory regime as an inhibitor.

In fact, some 54 per cent of respondents with an opinion expressed this view, as opposed to 46 per cent who took the opposite stance, and believed that the regulatory regime acted as a positive driver of cloud adoption.

And in the case of energy companies – retail and generating businesses, in other words – this view was strongly held, with no fewer than 62 per cent of

Given the prominence of cost pressures and improvements to quality of service among the factors cited by respondents as drivers for cloud adoption, an overall score of 5.5 for building a business case and ROI seems surprising – and to cloud proponents, hardly encouraging.

Granted, some industries – energy companies, for example – found it slightly easier, but the fact that each individual industry response was more or less within 10 per cent of the overall sector average highlights what appears to be a fairly widespread perception.

“Look in detail at cloud technology’s benefits, and it isn’t always easy to quantify the ROI,” observed Eric Woods, research director at utility and energy specialists Navigant Research, commenting on the research. “The operational reasons for moving to the cloud are one thing; the financial ones quite another.”

Christine Easterfield, principal consultant at analyst firm Cambashi, said: “The calculation of where ROI cost savings are coming from can be complex in a utility context. While savings on infrastructure are a given, areas such as on-demand licences and access are more problematic. There are savings – but there can be comparable savings in a non-cloud context too.”

“ A minority of respondents – 15 per cent – believed the regulatory regime had no impact either way on utilities’ cloud journeys”

TCS VIEWPOINT...For utilities, the ROI of the cloud needs to be looked at from an overall totex perspective, as opposed to an opex vs capex perspective. Utilities need to be prepared to move to a world of not just one cloud, but multiple clouds – and a world where these multiple clouds need to interact among themselves and with on-premise applications to deliver seamless end-to-end business processes.

The lack of orchestration between clouds was a huge oversight by the early adopters of SaaS and PaaS solutions. This led to IT functions having to clear up behind the business using multiple point-to-point interfaces to manage varying data integrity, security and business rules issues between edge applications.

Utilities were only moderate adopters, so they have a significant advantage in being able to apply best practice learnt elsewhere to evolve architectural changes around the fabric of data, security and integration management. TCS’s view is that utility CIOs need to lay the foundation to an outside-in architecture. This would allow the business to tap into sustainable innovation, leveraging a broader ecosystem – which underpins the API economy we are entering. This will allow them to mobilise external third parties as a natural extension of their on-premise applications to explore opportunities through new operating and business models.

This will mean that cloud management IT functions have to introduce new capabilities around this space. One of the key capabilities is cloud orchestration and cloud brokerage functions , which can be critical in setting up the outside-in architectures.


CLOUD ADOPTION AND UK UTILITIES Debate backs research findings 1 2 3 4 5 6 7

“The benefits of the

cloud are around its processing power – it is not just about data storage.”

In late May, Utility Week and TCS hosted a roundtable debate with operational and information

technology professional and smart strategists. Attendees represented a wide range of utility sectors, including water companies, DNOs and energy suppliers.

The views they expressed during this debate largely corroborated the findings of this research report. In particular, they emphasised that energy networks are far more reluctant to place key systems and data in the cloud. As network participants at the debate clarified, where cloud offerings can deliver cost-effectiveness in commodity IT services, they are viewed as useful. But all core operational information is considered

far too sensitive to be placed in the cloud. A breach of security for an energy network could, after all, lead to catastrophic failures in critical national infrastructure.

More broadly, cloud computing was seen as essential in the transition to smarter utility services. Their ability to provide flexible processing power for the influx of enormous deluges of data was seen as highly valuable. Cloud computing was also seen as an essential part of the strategy for future customer and workforce engagement, since the next generation of consumers and workers will have ingrained expectations about their ability to freely access data and to receive responsive, real-time services.

As with respondents to this research, the biggest risk associated with using cloud

“Utilities have approached the first round of cloud adoption in moderation,

and this gives them an opportunity to leverage the learnings from other industries for the next round. They could lay the foundation for the API economy by setting up an outside-in architecture to enable sustainable innovation in a broader ecosystem.”

“When cloud providers have outages

they tend to be big and they would have a significant impact on a utility.”

“It would be very brave of a utility to use the cloud for

critical infrastructure and services. The transformation deployment and selection of various cloud models, in conjunction with existing on-premise technologies, will help the industry to move forward.”

“ The cloud

has got its place for commodity IT services… but for niche or bespoke requirements in our business we’re some way off.”

“Fundamentally we just couldn’t move our electricity network

control systems into the cloud at this stage. They are our lifeblood for our business and our customers.”

computing more widely was seen to be security, and participants talked at length about their strategies for selecting carefully the data that could be made available in the cloud. The merit of ‘hybrid-cloud’ solutions or ‘private cloud’ solutions in helping mitigate security concerns while still allowing the benefits of flexibility, accessibility and cost were also discussed.

Of all attendees present, the only individuals who confidently stated that their businesses had moved completely to the cloud were new entrant energy retailers, which saw themselves as “technology companies first” – not energy companies.

Here’s a selection of quotes from the roundtable discussion:

“The rise of smart metering and smart networks will drive a

requirement for greater processing power that we will struggle to meet on-premise.”

Rishabh Arora, director, GTM Solutions,TCS Utilities Business Unit

Aninda Mukherjee, enterprise architect – utilities transformation, TCS Utilities Business Unit

Jeremy Heath, innovation manager, Sutton and East Surrey Water

Ian Ballantyne, infrastructure and telecoms tower manager, UK Power Networks

Chris Welby, head of regulation, Bristol Energy

Paul Geddes, head of IT and telecoms, Electricity North West


CLOUD ADOPTION AND UK UTILITIES Concluding thoughts 1 2 3 4 5 76

TCS CONCLUSIONFor utilities, the reality is that they will continue to operate in a hybrid

world made up of on-premise and cloud-based applications. Hence the evaluation and finalisation of cloud adoption strategies has to be carefully designed in conjunction with business and technology innovations occurring in the entire ecosystem. It is equally important to understand the transformation deployment and selection of cloud environment models (IaaS/PaaS/SaaS) in conjunction with existing on-premise technology. Hence it is good practice to build the components to orchestrate the cloud today, so you can better adopt more compelling services as the market develops. One way of doing this is to consider a cloud-based integration platform-as-a-service application to complement traditional EAI.

Moving forward the cloud ecosystem will help the industry design new service models and devise usage-based chargeback models. However, just the adoption of the cloud by itself will not ensure that new market entrants, enriched with digital technology, can be countered. Developing sustainable competitive advantage requires disruptive thought leadership. Cloud bursting or predictive real-time analytics are some of the groundbreaking disruptions that the front runners in the utilities sector around the world are leveraging in order to develop new operational and business models.

W hat then to make of all this? Several points stand out.

Broadly speaking, the sector agrees on the benefits of cloud technology, and the drivers underpinning its adoption.

What are those key drivers? First, cost pressure; second, the drive to improve a company’s quality of service; and third, a goal of reducing the company’s infrastructure footprint through platform consolidation.

And – especially on an industry-by-industry basis – the relative rankings of the top three drivers say a lot about the pressures that the sector is under, in particular the pressure to improve quality of service versus the regulator-driven push for cost savings.

In two of the three industry groups – water companies and energy companies – cost pressure comes second to the drive to improve quality of service, with cost pressure perceived as the top driver only among respondents from energy network companies.

Although conviction about the drivers for cloud adoption was clear and unequivocal, respondents still had to be convinced of

the merits of the cloud when it came to some of the more strategic claims made for cloud technology. Put another way, respondents can see the value of cloud technology from an IT-specific and operational point of view, but they are far less convinced when it comes to issues closer to the boardroom.

The third point to make is that despite the importance of these imperatives, the sector is holding back from a rapid and extensive adoption of cloud technology. Partial migration is the norm – and for many, full migration remains years away.

Why such a slow pace of adoption? The prime reason cited by respondents was the sheer complexity of the move, not least because of the sector’s legacy systems and the need to undertake appropriate due diligence, especially in the context of cloud-based systems’ impact on critical national infrastructure.

Fourth – and finally – an examination of the challenges and risks of cloud technology adoption makes it clear that there is an opportunity for utilities to gain a better understanding of best practice in managing the complexity and challenges.

Simply put, the utility sector needs help to understand how best to approach and plan the migration to cloud technology, and then undertake the implementation and ongoing management of cloud platforms.

These broad areas can be broken down into a need for support and assistance when it comes to:

Overcoming the complexities of cloud migration.

Tackling the challenges posed by utilities’ legacy environments.

Addressing the – very real – security concerns raised by cloud technology, especially in a data protection and regulatory context.

Building better and more compelling business cases and prospective ROIs.

Dealing with the challenges posed by managing multiple cloud technology suppliers.

As this report has highlighted, there is little doubt among utility companies about the potential value that cloud technology could deliver to their businesses. The challenge lies in overcoming some of the barriers that stand in the way of achieving that value.

The prize on offer is a significant one. And given the importance of utilities to the economy, the environment, and society at large, it is a prize that utilities and their trusted advisers should endeavour to attain.

“ Simply put, the utility sector needs help to understand how best to plan the migration to cloud technology, and undertake the implementation and ongoing management of cloud platforms”