It’s been a rough few months for the utilities and energy industry. Oil prices have been volatile, National Grid settled a costly lawsuit with Wipro over its SAP failure, and PG&E announced earlier this week that it is filing for bankruptcy protection.
As one of the largest US gas and electric utilities, which services over 16 million customers in California, PG&E’s struggles are a big deal in the utilities industry. The company filed for bankruptcy largely because of its liabilities to settle legal issues related to wildfires caused by its equipment. Technology can’t solve all the world’s problems and disasters, but part of me wonders if a better digital transformation could have saved PG&E.
Here are a few digital transformation questions that may have helped – and still could help – PG&E:
Could predictive analytics and business intelligence have helped avoid its operational risks and financial liabilities?
By combining the right geospatial, fixed asset, maintenance and repair data across its field assets, it is possible that PG&E could have proactively addressed some of the equipment failures that caused the California wildfires that the company is now liable for. Predictive maintenance technologies can determine which assets are most likely to fail based on age, usage, and past maintenance patterns.
Armed with that information – and business processes and organizational roles to act on that information – utilities can often use technology to know when and where to replace or repair its field assets. Who knows if the wildfires could have been completely avoided, but my first reaction when I heard the news was “I wonder if they had a flawed predictive maintenance and repair function?”.
Did PG&E’s Oracle and SAP failures inflate its capital costs?
Media reports have suggested over the years that PG&E had problems with its SAP implementation. In addition, PG&E’s Oracle ERP implementation was also largely considered a failure. I have spent much of my career as an independent digital transformation and ERP consultant in the utilities industry, so I know how complex, costly, and difficult these types of transformations can be in this vertical. The time, cost, and operational disruption impacts of ERP failures are very costly, which may have inflated its already high fixed cost structure.
Utilities companies generally have a web of disparate systems and processes – much more so than the average industry – that must somehow tie together. In addition, they have a unique complexity with assets, field crews, inventory, and data that are spread out over large geographic areas. This often results in a spaghetti diagram of systems integrated to a core back-office ERP system, such as GIS, meter readings, billings, outage management, and mobile workforce systems. This all adds up to higher capital costs, more complex processes, and a harder to maintain system architecture.
Could a more effective digital strategy have increased PG&E’s efficiency and profitability?
In addition to increasing initial implementation costs, troubled SAP and Oracle transformations have a number of secondary impacts on companies. For example, ongoing maintenance costs are often higher, while employees suffer from lower morale. Customer service and revenue is often impacted. This all adds up to lower revenue, higher costs, and lower profitability.
The best digital transformations not only avoid some of the challenges faced by PG&E, but they truly transform a business to make it more profitable, nimble, and effective. Based on limited information from the outside looking in, I suspect there may have been an opportunity for a more effective digital strategy to drive the company’s profitability. This might have offset some of the financial duress it is facing now. (This assumes that the company’s rates to customers wouldn’t have been capped by federal regulators to limit the company’s profitability).
Conclusion: Digital Transformation Should Center on Your Business, not Technology
If anything, PG&E’s situation should be a reminder of the volatility inherent in many of our industries. When we embark on digital transformations, we should be doing so for the sake of transforming our businesses into something better, more effective, nimbler – and more profitable. We shouldn’t just be doing it for technology’s sake.
Best case scenario, we can use digital technologies to make our companies wildly more successful. Worst case scenarios, perhaps we can use technology to avoid more significant business failures like the one experienced at PG&E.