Empowering utilities through effective application managed services

See how utilities can enhance efficiency and innovation by strategically adopting application managed services for a sustainable future.

In brief

• Advancements in technology and renewable energy are prompting utilities to adopt managed services for improved operational efficiency and data management.
• Clear communication protocols and service level agreements are vital for utilities to maintain budget control and operational oversight.
• A collaborative culture between utilities and AMS providers enhances knowledge transfer, aligns business operations and promotes continuous value delivery.

While utilities can realize many benefits by adopting an application managed services model, without safeguarding through proactive management and strategic talent planning, they can experience significant, yet common, challenges.

The energy landscape is undergoing a rapid transformation. This is creating opportunities for power & utility (P&U) companies as they embrace application managed services (AMS) to navigate an environment that continues to evolve.

In the United States, a strong focus on decarbonization is driving a shift toward renewable energy sources like wind and solar, which require advanced applications for energy management and grid transformation. Regulatory changes promoting sustainability are influencing utility operations and necessitating enhanced application services for data management and reporting.

Additionally, the latest EY Future of Energy Survey reveals a compelling trend among utilities: An overwhelming 90% of those surveyed say they plan to invest at least a moderate amount in digital technologies.

Digital transformation, fueled by investments in artificial intelligence (AI), is improving operational efficiency and customer engagement, with managed services playing a key role in deploying and maintaining these technologies. Rising cybersecurity threats to digital infrastructure make robust security solutions from managed services essential. At the same time, a growing emphasis on customer-centric models encourages utilities to utilize AMS for improved data analytics and communication platforms.

Globally, the transition to renewable energy is driving utilities to adopt managed services that support complex energy portfolios and integrate distributed energy resources (DERs). Smart grid technologies enhance grid reliability and efficiency, with managed services essential for their implementation and maintenance.

Each stage of the effort is essential to fully realize the benefits of managed services while mitigating risks and operational disruptions. Here are three recommendations for P&U clients to ponder as they work with AMS providers to develop IT solutions:

1. Optimize collaboration to maintain budget and operational control

One of the biggest challenges utilities face when engaging AMS providers is the diminished control over the operation of support for specific applications.

While the team that is accountable for these efforts is made up of company employees, the majority of the day-to-day responsibilities are likely driven by team members from the AMS provider.

These team members may be located on the other side of the world from the company they support, leading to concerns such as different time zones and language barriers that can hinder effective communication and aligned decision-making between the company and the AMS.

This lack of connection can also lead to less visibility into costs incurred in support of the AMS provider’s work. For example, if there is an issue that occurs with an application, and the AMS provider makes a decision to address it that ends up costing a significant amount of money, the company will be liable to cover that cost. This is true whether they consented to the solution or not. Furthermore, rate spikes and/or changes in staffing on the part of the AMS can lead to significant growth in AMS costs over time.

Avoiding this problem begins with collaborating with the AMS provider during the solution design phase to co-create an operating model that meets the enterprise requirements and then aligning the contract language to those parameters. To help reduce ambiguity in operational processes, utilities should focus on prescriptive clauses around communications and status reporting expectations; they should also incorporate definitive escalation paths for low, medium, high and critical issues identified.

The protocols around issues, such as the one described above where a complication arises and the AMS provider implements an ultimately costly solution, should leave little room for the AMS to interpret what it should do and/or how much cost it can incur to resolve a given situation.

Additionally, advancements in technology, such as generative AI (GenAI) and automation, will allow the AMS provider to deliver services more efficiently over the term of the contract and should be addressed proactively. Understanding how the financial impact of reducing service delivery costs will affect contractual rates and terms will ensure alignment on expectations and investments.

Finally, documenting relevant service level agreements (SLAs) that drive stable operations and general risk avoidance will provide consistent operating protocols and unanticipated costs. These SLAs should be matched to industry and application standards and can also be taken one step further to tie into unique business key performance indicators (KPIs) that are co-developed between the AMS provider and business and IT stakeholders. This additional level of service performance reporting will allow IT to directly communicate how the AMS provider’s services are impacting important business organizational goals.

When AMS providers are achieving their SLAs, which are tied to actual business performance outcomes, operational anomalies should be few and far between. When anomalies do occur, they will typically be the result of an extraordinary circumstance, and provisions in contracts can explicitly state how these irregularities should be handled.

2. Encourage open communication to strengthen knowledge transfer

As utilities engage AMS providers, a lack of collaboration between the AMS provider, the business, and IT can quickly create problems. To address this concern proactively, consider the benefits of a “One Team” culture, a unified approach in which all parties agree to work collaboratively toward shared goals. The goal is to break down silos that often hinder effective communication and alignment.

Integrating the AMS provider into the application implementation process — ideally during the testing phase — facilitates a comprehensive understanding of the systems within the context of the business operations. This early involvement not only promotes knowledge transfer, but also allows the business team to partner with the AMS provider for an extended period, fostering collaboration and a strong team culture.

However, it is important to recognize that AMS providers may have established processes and methodologies that may have to be adapted to the unique needs of the utility to be sure that both contractual SLAs and business goals can be met. If the AMS provider lacks adequate context about the business, it may result in increased involvement from the business in issue resolution, creating additional strain on resources. 

Moreover, the lack of visibility into the AMS provider’s activities can exacerbate these challenges. Clients may know at a high level that an AMS provider is supporting a certain system, but details about what defects are being resolved or enhanced can often be unclear. This lack of transparency reinforces the separation between the AMS provider and the business, making cohesive collaboration difficult.

It’s crucial to establish clear lines of communication and visibility into the work being done.

Without an understanding of what work is being prioritized and how it ties into organizational goals, it becomes difficult for the business to work cohesively with the AMS provider.

The recommended approach for the client is the “One Team” culture concept, a collaborative approach between the AMS provider, IT and the business. By bringing the AMS provider into discussions with key business stakeholders and onto the implementation prior to testing, they will have enough time to truly understand the systems in the context of how the business operates. This integration allows for a shared understanding of objectives and drives collaboration.

Hosting visioning sessions and utilizing collaboration tools such as EY wavespace™ can facilitate early collaboration and commitment to the AMS goals.

Comprehensive change management efforts that communicate the AMS’s role within the existing operating model will further enhance understanding and collaboration.

If an AMS provider is brought in separately from an implementation, conducting thorough training on the current business and IT operations is vital. This investment in knowledge transfer will enable the AMS provider to better support the organization and contribute to a more effective partnership. By addressing these potential challenges proactively, utilities can ensure a smoother transition and a more effective collaboration with their AMS providers that will drive continued business benefit throughout the term of the contract.

3. Align AMS operations with business objectives for greater impact

The misalignment of AMS operations with business goals can lead to significant challenges for organizations, including wasted resources, missed opportunities, and diminished overall performance. This disconnect often arises when AMS providers operate without a comprehensive understanding of the strategic objectives that drive the organization.

The challenge is further compounded when organizations themselves are uncertain about where to direct their focus. In fact, the EY Future of Energy 2024 Survey found that 40% of respondents identified central coordination of digital technology adoption as a major challenge.

To address these issues effectively, businesses should implement a framework for continuous alignment on key business goals. This should enable both AMS operations and broader objectives to be harmonized, and involves establishing a governance structure that includes key stakeholders from both the business and AMS teams. Regular review meetings can facilitate open discussions about evolving business priorities and ensure that AMS initiatives remain relevant and impactful.

Additionally, organizations should develop a set of guiding principles that outline how AMS solutions can support strategic objectives. This framework can serve as a reference point for both internal teams and AMS providers, helping to clarify expectations and responsibilities.

Another critical aspect is the establishment of a feedback loop. By soliciting input from various business units, organizations can gain insights into how AMS operations are perceived and their effectiveness in meeting business needs. This feedback can inform adjustments to AMS strategies, ensuring they are continuously aligned with the organization’s goals.

Addressing the misalignment of AMS operations with business goals requires a proactive and structured approach that emphasizes collaboration, clear communication, and ongoing feedback. By building a culture of alignment, organizations can enhance the value derived from their AMS partnerships.