Founded as recently as 2008, First Utility has become something of a poster child for energy deregulation, with a customer base of more than 700,000 consumers making it the UK’s largest independent energy company.

However, the company has also gained a reputation for technology innovation. It was the first utility to roll out smart meters, for example. Yet to the wider world of business, it is arguably First Utility’s approach to enterprise IT that is gaining it the most plaudits because First Utility has also become something of a poster child for cloud computing.

“By design, a significant amount of our IT infrastructure is in the cloud – in fact, it’s our first choice,” says First Utility chief information officer Bill Wilkins, a veteran technology executive. “Whenever a new application or technology comes along, we always ask: can we host it in the cloud or buy it as a hosted service?”

When Wilkins says “significant”, he means it. Around 60-75 per cent of the company’s enterprise IT footprint is in the cloud, spread across remote servers belonging to Amazon, Google, and Salesforce – the seeming imprecision of the 60-75 per cent range because it depends whether the measure is applied to the number of transactions (placing First Utility’s cloud footprint at the upper end of the range), or depth of functionality, where it would fall at the lower end.

If you talk to proponents of cloud computing it’s not difficult to explain First Utility’s “cloud first” preference.

“There are tangible benefits for utility companies in using cloud technology,” says Simon Ormston, head of utilities at BT Global Services, part of telecommunications giant BT. “Cloud technologies are available on a pay-as-you go basis, which reduces risk for companies by minimising the need for large upfront capital investment.

“They are also scalable, meaning that services can be flexibly adjusted to cope with the peaks in call volumes often experienced by utility call centres during times of crisis or when new pricing or offers are announced.”

Yet among utilities, First Utility’s use of the cloud is somewhat unusual. Many utilities have yet to make any use of cloud computing, let alone to the extent of First Utility.

“The industry is lagging far behind other sectors in adopting cloud computing, although there are signs that this is slowly changing,” says Stuart Ravens, principal analyst for energy and utilities technology at analyst firm Ovum. “Utilities aren’t really ever ‘first movers’ in technology, and cloud computing is no exception.”

So why is the industry so reticent to embrace a technology platform that so many other industries have adopted?

Globally, for instance, Salesforce’s market-leading cloud-based Customer Relationship Management (CRM) application has more than 100,000 customers, including thousands of small and medium-sized British businesses. In the supply chain, OpenText GXS Trading Grid is the world’s largest cloud-based trading partner integration platform, managing more than 12 billion transactions for some 550,000 companies.

Meanwhile, British businesses as diverse as Jaguar Land Rover, Rentokil Initial, Pearson, and Telegraph Media Group are all users of Google’s cloud-based Google Apps for Work, an integrated email, calendaring, document management and collaboration tool. These are names with clout .

Talk to those close to the issue, and various reasons are put forward to explain the utility sector’s apparent aversion to the cloud. Data privacy concerns in respect of customer records, for example, seem to be a factor that has historically held back cloud adoption in the sector – a sector which is struggling to re-establish consumer trust after a continual stream of scandals about mis-selling.

“There’s a lot of sensitivity about placing customer data in the cloud, which has in part been fuelled by the US’s Patriot Act, and recent revelations about America’s National Security Agency eavesdropping on email traffic and internet activity,” notes Wytse Kaastra, a managing director in Accenture’s CRM Utility practice. “It’s more a fear than a reality, but it’s something that clients do ask us, especially in countries such as the Netherlands and France.”

That said, he adds, most of the major cloud service providers have taken to opening European data centres, in part to get around such concerns. Salesforce, for instance, opened its first European data centre in the UK in October 2014, reported to be one of three such centres planned to go live by the end of 2015.

A more substantive barrier to cloud adoption, it seems, is that posed by the regulatory environment and specifically, pricing controls that are linked in part to wholly-owned assets. Assets, furthermore, that for the utility sector are easier than most to acquire, thanks to its relatively strong cash flows and ability to secure long-term finance at attractive rates.

“When utilities have data centres within their regulated asset bases, they’re allowed to make a regulated return on those assets,” explains Ovum’s Ravens. “On the other hand, pay a monthly fee to eliminate the data centre, and rent the equivalent functionality, and they can’t make the same return on it. So in contrast to other industries, where there’s been a move to replace capital expenditure with operating expenditure, in the utility sector there are pressures moving in the opposite direction.”

A similar view comes from David Mills, European regional vice president at Salesforce, who characterises utility spend on computing as “capex heavy; opex light”.

“The view seems to be that utilities prefer to invest upfront in IT assets, through capital expenditure, and then depreciate those assets over time,” he notes. “Likewise, they prefer to minimise operating expense on IT, with the result that cloud providers encounter headwinds when arguing the benefits of cloud-based enterprise IT models, even when those cloud-based enterprise IT models would operate to reduce overall enterprise IT costs.”

It is not without irony, then, that some observers of the utility industry wonder if the marketing approach adopted by cloud providers needs to be tweaked to explicitly address this pricing issue.

“Should cloud providers be marketing to the utilities themselves, or to their regulators?” asks Ovum’s Ravens. “It’s a very legitimate question.”

That said, First Utility’s Wilkins is at pains to point out that for First Utility at least, the advantages of cloud for enterprise IT outweigh any regulatory pressure to prefer capex-based assets over opex-based assets.

“It’s not really a conversation that we have,” he explains. “We like to keep things simple, and low-cost, and that’s a model that has worked very well for us.”

So what could see an easing of the barriers to cloud adoption? Observers point to two separate developments as likely candidates for at least opening up the debate. Both developments, intriguingly, point to cloud-based CRM as the way in which cloud applications can begin to gain a foothold in the sector.

The first is intensifying competition. Quite simply, says Accenture’s Kaastra, there is a direct link between the intensity of competition in a given market and the likelihood that utilities will see CRM as a necessary tool for helping to deal with it.

“Especially in highly deregulated markets such as the UK, the Netherlands and the Nordic countries, utilities are seeing CRM as a strategic capability to help them understand their customers, and improve their customer engagement,” he points out. “It’s most noticeable in deregulated markets, where customer churn rates are the highest, but it’s spreading right across the sector, irrespective of geography.”

The second development is the rollout of smart metering, where again the result will be to focus utilities on the need to improve their customer engagement.

“Perhaps more by chance than design, the UK smart metering rollout will put a lot of pressure on utilities to better understand their customers, as well as provide them with the granular consumption data with which to do this,” says Ovum’s Ravens, the author of a recent report entitled Customer Analytics: The Lessons Utilities can Learn from Retail.

“Historically, utilities have not had sufficiently rich data to replicate the customer-focused analytics used in the retail sector. CRM can provide a lot of information about customers, helping to develop different tariffs for different niche customer profiles.”

More than that, he adds, the combination of smart metering and CRM can also lead to cross-selling and upselling opportunities of add-on services, separate from the core energy product being supplied.

“New products can also be targeted at different groups – for example, a high use of gas could indicate an inefficient boiler, which the utility can offer to replace, or bring under a maintenance contract,” he says.

Some observers, however, worry that the utility sector lacks the skills and cultural bandwidth to effectively translate these opportunities into profitable revenues.

“There’s no doubt that smart metering is going to be a massive revolution, but the challenge for the sector is to make sure they have the capabilities to deliver these new products and services with their existing go-to-market approach to customers,” points out Richard Wilding, professor of supply chain strategy at Cranfield University School of Management. “The corporate culture in the sector isn’t always outwards-facing enough, and capitalising on smart metering like this is going to call for a whole new set of customer-facing skills and competencies.”

Which, as it happens, was precisely what led Scottish water utility Business Stream to CRM, and to the cloud-based CRM offering of Salesforce, back in 2008. Having just been spun out of Scottish Water as a separate entity, in order to serve the non-domestic and business market, the company was keenly aware that it faced a challenge.

“We needed to be able to show our customers that we were the right supplier for them,” recalled Mark Powles, the-then chief executive of Business Stream. “But with zero brand awareness and the mindset of a monopoly provider, we didn’t have the culture we needed to be successful in a competitive environment.”

Neither, for that matter, did it have the technology tools. Recognising that its billing system was not up to the job of managing customer interactions, asset management and workflow, Business Stream began using Salesforce to fill the gaps.

“There was some nervousness about moving away from on-premise servers, and going to the cloud, but the benefits more than compensated,” says Simon Driscoll, Business Stream’s sales and contract support manager. “Finally, we’ve got that single view of the customer, without which we’d have lots of people going into lots of different systems. Instead, we have the information that we need, housed in a single place, with a single point of contact.”

Moreover, he adds, customers also benefit from that single point of contact, being able to access the system remotely, and seeing in one place all the information that Business Stream possesses about them, as well as view their bill, and raise – and progress – service cases.

“Today, we can sit in front of customers, in customers’ offices, and access all the information we need to hold a dialogue with them,” he says. “It’s all there, and it’s all up to the minute, which would be much, much more difficult to do with an on-premise system, operated and maintained by ourselves.”

It’s impressive stuff, and something that many other utilities can only dream of. As they look to catch up, the cloud beckons.

 

Playing to win

Salesforce’s David Mills says the more competitive a sector becomes, the more it needs the edge offered by the cloud.

IT analyst firms don’t come more influential than America’s Gartner Group. Consequently, its prediction earlier this year that most businesses would soon move to a scenario where their core enterprise IT applications were divided between in-house on-premise servers, and servers located in the cloud, carries clout.

You don’t have to look far to see the move to hosted servers already happening. Around the world, huge numbers of businesses rely exclusively on cloud enterprise IT applications offered by the likes of SAP, Oracle, Salesforce, NetSuite, and Google.

Many of these cloud offerings are best-in-class applications. In the world of Enterprise Resource Planning (ERP), for instance, there are SAP’s Business ByDesign and NetSuite’s ERP products. Human resources? That would be Oracle HCM. And Customer Relationship Management (CRM)? Look no further than Salesforce, relied upon by 100,000 organisations worldwide. Or, for that matter, at Concur’s travel and expense management application, Click­Software’s field service management offering, and SAP’s Ariba B2B procurement platform.

So it’s a matter of some regret to David Mills, European regional vice president at Salesforce, that this wholesale move to cloud computing seems to be leaving the UK’s utility sector behind. To address this, he is currently hard at work on two fronts.

First, persuading utilities to take a serious look at cloud computing. And second, trying to interest them in seeing cloud-based Salesforce as the answer to their CRM needs – needs that are likely to become ever more pressing as competition in the utility sector intensifies, and the UK’s smart metering rollout gathers pace.

“As consumers, we all consume cloud computing all the time,” says Mills. “Twitter, Facebook, Google search, Google apps, Amazon, eBay – interact with these, and you’re interacting with the cloud. Not only that, but some of these companies are also leveraging their cloud expertise and selling cloud capabilities and cloud platforms in their own right. Any number of businesses, for instance, buy cloud computing from Amazon and Google.”

Moreover, he adds, just as Facebook, Twitter and eBay have become ‘must have’ apps for consumers, huge numbers of businesses have their own ‘must have’ cloud applications. In short, opting for the cloud is not a leap into the unknown.

Yet indisputably, utilities remain for the large part very much outside the fold of businesses exploiting cloud computing. Why?

The reasons are complicated, says Mills, starting to tick them off on his fingers. Corporate culture, for one. Concerns over customer perceptions of data held on third-party cloud sites, for another. Security and uptime considerations. And, of course, a regulatory regime that acts as a brake on moves towards an asset-light enterprise IT model.

All of which, he adds, is interesting, but largely history. Because a slew of developments – some very recent, others less so – are set to upset the apple cart. Cloud computing may not have proved hugely attractive to the sector in the past, but that may be about to change.

“The key is competition,” he stresses. “If you look at sectors and industries where cloud computing has been widely adopted, they’re all characterised by intense competition. Fast moving consumer goods, for instance. And media. And life sciences. When businesses find themselves in very competitive environments, they don’t want to be constrained by their IT infrastructure when wanting to adopt best-in-class technologies and applications.”

Put another way, when you look at the benefits that cloud computing has provided to early adopter industries, you see a list of characteristics that are on the wishlists of many utility chief information officers. Sooner or later, they’re going to realise that remaining firmly wedded to their in-house, on-premise servers and data centres simply isn’t the fastest way to achieve those objectives.

“Agility and scalability. Access to mobile technologies. Best-in-class applications. A lower cost of computing. And the ability to demonstrate a rapid return – early adapters can point to all these and more,” says Mills.

So how, exactly, is this greater competitiveness going to play out in the utility sector? And how will cloud computing help? Three broad trends are already apparent, says Mills.

“First, the regulator continues to make markets more competitive, forcing utilities to better understand their customers in order to compete effectively. Second, smart metering: that’s a game-changer, giving utilities much more data with which to shape customer offers. And third, competition is going to focus management attention on the higher costs of on-premise computing. Maybe utilities won’t rush to put billing systems in the cloud, but they’re surely going to look at the cloud for new applications.”

And chief among those new applications will be CRM, deployed as a direct consequence of the tougher competitive paradigm that utilities will be facing.

“If you look at where we at Salesforce have been most successful, it’s where competition has been toughest,” says Mills. “And as competition intensifies, we expect more utilities to look at CRM, and to look at the cloud as the best way to deploy CRM.”

Indeed, he adds, look at utilities such as Business Stream and First Utility (see accompanying article), where just such a competitive paradigm prompted far-seeing management to make the jump to cloud-based CRM.

“The point about both these businesses is this: that by being early adopters, and leveraging CRM in their marketplaces, they have put themselves in the perfect position to benefit as those markets become more and more competitive,” sums up Mills. “And for the sector’s major players – the very largest utilities – the message is that they too can also achieve equivalent ideal positioning.”

But will they? Time will tell, of course. But in the meantime, remember that prediction from Gartner Group. You can bet against Gartner Group and win, but it’s more usual to lose.