SSEPD: Corporate IT Benchmarking Revie · SSEPD: Corporate IT Benchmarking Review 323481/TNC/TCS/01/01 4th June 2013 Q:\SSE IT benchmarking\SSE Benchmarking Report - version 1 0 FinalLJ.docx

$Page 1: SSEPD: Corporate IT Benchmarking Revie · SSEPD: Corporate IT Benchmarking Review 323481/TNC/TCS/01/01 4th June 2013 Q:\SSE IT benchmarking\SSE Benchmarking Report - version 1 0 FinalLJ.docx$
SSEPD: Corporate IT Benchmarking Review

4th June 2013


323481 TNC TCS 01 01

Q:\SSE IT benchmarking\SSE Benchmarking Report - version 1 0 FinalLJ.docx

4th June 2013



4th June 2013

Mott MacDonald, Victory House, Trafalgar Place, Brighton BN1 4FY, United Kingdom

T +44(0) 1273 365 000 F +44(0) 1273 365 100 W www.mottmac.com



323481/TNC/TCS/01/01 4th June 2013 Q:\SSE IT benchmarking\SSE Benchmarking Report - version 1 0 FinalLJ.docx

Revision Date Originator Checker Approver Description Standard0.1 1.0

21/05/2013 03/06/2013

Adam Harwin Paul Sutherland

Paul Sutherland Helen Shapcott

Richard Hewlett Paul Sutherland

Draft Final

Issue and revision record

This document is issued for the party which commissioned it and for specific purposes connected with the above-captioned project only. It should not be relied upon by any other party or used for any other purpose.

We accept no responsibility for the consequences of this document being relied upon by any other party, or being used for any other purpose, or containing any error or omission which is due to an error or omission in data supplied to us by other parties.

This document contains confidential information and proprietary intellectual property. It should not be shown to other parties without consent from us and from the party which commissioned it..




Chapter Title Page

Executive Summary i

1 Overview and Context 1

1.1 About Benchmarking ________________________________________________________________ 1 1.2 Benchmarking Approach _____________________________________________________________ 2

2 Benchmark Results 3

2.1.1 Annual Revenue Expenditure Benchmarks _______________________________________________ 3 2.1.2 Capital Expenditure Benchmarks _______________________________________________________ 5 2.1.3 IT Staff and User Benchmarks _________________________________________________________ 7 2.1.4 General Industry Changes in Corporate IT Expenditure ______________________________________ 8

3 Conclusion 9

Appendices 10

Appendix A. All Benchmarks for SSE Corporate IT __________________________________________________ 11 Benchmarks for SSEPD Corporate IT _____________________________________________________________ 11 A.1 Objectives ________________________________________________________________________ 11 A.2 Metrics __________________________________________________________________________ 11

Contents


i /TNC/TCS/01/01 4th June 2013

Background

Scottish and Southern Energy Power Distribution (SSEPD) is the licenced electricity distributor

for central southern England (trading as SEPD Limited) and Northern Scotland (trading as

SHEPD Limited). SSEPD is part of the SSE Group PLC which is involved in the generation,

transmission, distribution and supply of electricity; in the production, storage, distribution and

supply of gas and in other energy services.

Scope

Mott MacDonald was commissioned by SSEPD to carry out a high level benchmarking study on

the company’s Corporate (Non-Operational) Information Technology Operations, to support

SSEPD’s RIIO-ED1 submission to Ofgem. The period reviewed was the year to 31/03/2012, with

comparator and industry data from the appropriate period.

Conclusion

� SSEPD’s Corporate IT benchmark for 2012 expenditure against revenue is 1.09%, which

places it favourably when compared to both a basket of 2,295 other companies, and other

Distribution Network Operators (DNOs) and Utility companies. The DNO comparator median

performance was 1.39%1

� The benchmark for the cost of Corporate IT compared to SSEPD’s operating expenditure is

2.5% which is significantly below the utilities sector benchmark of 3.4%2

� SSEPD is in the top quartile for low capital expenditure, this is despite the fact that during the

year an Oracle based Enterprise Resource Planning (ERP) system, called “Harmony”, was

commissioned into service.

After reviewing for qualitative measures such as fitness for purpose and user satisfaction, it is

apparent that SSEPD are investing sufficient capital to both maintain and improve their Corporate

IT offering. However, this is work in progress with significant future benefits still to be realised

both within IT and potentially across other corporate business functions.

SSE has recently invested heavily in Corporate IT, after a period of lower investment, and this

renewed commitment is on-going as new functionality largely focused around its ERP system

1 Source: Proprietary Mott MacDonald DNO IT benchmarking study 2012, using Info tech Group "measureIT" tool utilising a small

sample of Utility companies.

2 Based on Gartner Key Metrics 2013 which analysed 106 Utility Companies.

Executive Summary


ii /TNC/TCS/01/01 4th June 2013

“Harmony” will be brought on stream. Additionally, there are other corporate projects such as the

Microsoft Desktop Rollout, and a major IT Security programme both in train.

IT as a function is undergoing a cultural change as it aims to transform from an overhead

department to a customer services orientated business partner, in line with industry best practice.

Again this transformation is deemed by all we spoke to, to be on-going. SSE’s and SSEPD’s

focus on IT investment mirrors Utilities behaviours in the wider benchmark group where

investment is also increasing.



1

In April 2013 Mott MacDonald was commissioned by SSEPD, part of SSE PLC, to carry out a

benchmarking study of the company’s Corporate Information Technology. The study will support

SSEPD’s RIIO-ED1 submission to Ofgem. As a separate piece of work Mott MacDonald was

also retained to provide analysis and benchmarking of SSEPD’s Operational Information

Technology. For the benefit of clarity, this information will be delivered under separate cover and

is not part of this report.

1.1 About Benchmarking

Benchmarking can be a useful method of analysing cost and performance; however it is

important to understand the differing forms of benchmarking and their inherent limitations.

Benchmarks form a snapshot of a particular section or sub-section of a company’s operations,

and as such these metrics are liable to be distorted by any number of factors. Thus, it is true to

say that whilst they can be valuable as a yardstick, their benefits increase when repeated over

time, and the movement of benchmarks can be tracked. Benchmarking can be performed at both

high (strategic benchmarks) and low level (process benchmarks) with differing aims and outputs.

Mott MacDonald was asked to provide a high level Corporate Information Technology

benchmark, which will give an indication of top line metrics. We were also asked to compare

SSEPD to similar entities.

Additionally, we provide contextual information to give a comparison across industries. This

enables the reader to assess performance relative to both other similar businesses within the

utilities sector and to business as a whole.

More detailed benchmarking can break down areas of work within companies to individual

departments and highlight the cost of individual processes within each function. This enables

assessment of the operation in relation to best practices, and affords the opportunity for better

performing departments within or across functions to assist in improving those performing less

well, thus it assists in enabling target investment. This level of benchmarking was not attempted

at SSEPD, due to limitations of time, resources and required scope.

To provide validation and context for SSEPD, a selection of high level IT benchmarks are

provided at the SSE Group level, in order to position SSEPD Corporate IT within the context of

SSE PLC as a whole.

1 Overview and Context



2

1.2 Benchmarking Approach

� Mott MacDonald met with IT staff in Perth and Havant on a video conference on 23rd April

2013. At this meeting the time period to be studied was agreed to be the year from 1st April

2011 to 31th March 2012, individuals were identified who could supply relevant information

and a revised scope was discussed and agreed to be as follows:

– To determine “the present state of key IT spend metrics against market averages”;

– To “compare current IT operating costs… …against previous years”; and

– To provide “evidence of IT spend efficiency and value for money by benchmarking against

like-sized cross-industry peers”.

� Information was supplied from a number of individuals in SSEPD, (including Finance and IT).

This was reviewed by Mott MacDonald and initial benchmarks were produced by cross-

referencing with industry information and proprietary data collected by Mott MacDonald.

� Queries were followed up with SSE staff and where appropriate additional information was

supplied by SSE.

� A draft report was produced, along with a table tracing the source of benchmark input data

and this was validated through a series of meetings with client staff for accuracy and

reasonableness. In some cases, the information provided was not clear or complete and this

was reviewed face to face at a meeting with IT in Havant on 9th May 2013.

� A number of interviews with key IT staff were undertaken in the period to 30th May.

� Once all data points had been agreed the initial report was produced and findings were

discussed with SSEPD management.

� The draft report was reviewed by Mike Taylor (Service Delivery Manager); Karen Brett (IT

Performance Manager) and Frank Burton (Technical Services Manager) on 31st May 2013.

� The final report was presented to Landel Johnston, Head of RIIO-ED1 Project Team on 4th

June 2013.



3

2.1.1 Annual Revenue Expenditure Benchmarks

SSE Group Level

SSE does not capture total IT spend as an easily accessible internal metric, as operational IT

appears to be spread through the organisation on a company and unit by unit basis. Looking at

Corporate IT alone, SSE PLC returns an extremely low benchmark of 0.16% as a proportion of

revenue when compared to the Gartner dataset of 106 Utility companies which has a benchmark

of 1.1%. SSE returns a very low benchmark here, due largely to its high revenues.

Considering the alternative benchmark of “Corporate IT as a proportion of operating

expenditure”, SSE’s result is 5.7% compared to a Utilities average of 3.4% and an ‘All industries’

average of 4.4%. This seems slightly high and may reflect the impact of multiple regulatory

obligations, at a time when compliance is high on SSE’s agenda. (For example, it is notable that

Governmental Organisations within this benchmark come in at 9.2%)3. However, there also

appears to be room for improvement in this area.

SSEPD Company Level

SSEPD’s Corporate IT benchmark for revenue expenditure is 1.09% which places it favourably

when compared to other companies as a whole, and other Distribution Network Operators

(DNOs) and utility companies. The DNO comparator median performance was 1.39%4.

Corporate IT spend to Company Revenue – 2012 DNO comparators

Lowest Median Highest SSEPD

Corporate IT OPEX to company revenue 0.46% 1.39% 8.11% 1.09%

3 Source: “Gartner IT Key Metrics Data 2013”, published 14

th Dec 2012.

4 Source: Proprietary Mott MacDonald DNO IT benchmarking study 2012, using Info tech Group “measureIT” tool.

2 Benchmark Results



4

The benchmark for the cost of corporate IT compared to SSEPD’s operating expenditure is 2.5%

which is significantly below the utilities sector benchmark of 3.4%

Cost of Corporate IT to company OPEX

Utilities Average SSEPD

Cost of Corporate IT to company OPEX 3.4% 2.5%

Qualitative Observations

However, low IT benchmarks alone do not provide evidence of “value for money”, as value has

other elements as well as cost, such as fitness for purpose. For example, it might be the case

that SSE/ SSEPD are under-resourcing Corporate IT, if users felt the system was unreliable or

was seen to be performing in an unsatisfactory way by SSE staff. To this end we examined such

qualitative data as was available and found no evidence that this was the case. These findings

have been confirmed by discussions with staff/ users.

Internal satisfaction metrics collected by IT indicate that circa 97% of faults raised are fixed within

SLA targets, and this increased over the period for which data was supplied to us. Additionally,

review of user satisfaction is a measured and monitored KPI which is reported to senior

management at monthly performance review meetings. The annual “tartan tablecloth” survey is

also used to gauge IT’s relationship with the business (and vice versa).

These measures are useful tools that will support the cultural change occurring in IT, i.e. the

move from “an overhead” to a “customer services focused” organisation.



5

Source: SSE internal KPI measurements.

Thus, the conclusion is that SSEPD is providing value for money in Corporate IT, though through

comparison to best in class, it is apparent that this is currently not optimised.

2.1.2 Capital Expenditure Benchmarks

SSE Group Level

SSE Group IT Capital Expenditure for 2012 was £30.7m giving a benchmark of 0.1% when

compared with Group Revenue. Again, due to the high gross revenues in SSE this is not as

useful a metric as a comparison against operational expenditure which returns a benchmark of

3.5%. This places it at the high end of this benchmark, when compared to Utilities and DNO’s

indicating a high level of capital investment when compared to direct comparators. This view is

consistent with feedback from SSE staff who confirm recent focus on, and an on-going

investment in, Corporate IT.

SSEPD Company level

Looking at SSEPD company level Corporate IT Capital Expenditure, this is 0.47% of Company

Revenue. This figure includes a large ERP programme to install an Oracle based system called

“Harmony”. This measure can be seen as representing the cost of maintaining IT capital

infrastructure that is used to “run” the business.



6

Corporate IT CAPEX to Company Revenue (2011/2012)

This metric takes the SSEPD’s portion of Corporate IT Capital expenditure (£4,174,974) and

shows it as a proportion of the Company Revenue (£881,000,000) and compares this against the

results of the same metric applied to other utility companies. As can be seen, this places SSEPD

in the top quartile for low capital expenditure, this is despite the fact that during the year SSE

completed the installation of an Oracle based ERP system, called “Harmony”. The capital cost of

this in 2012 was circa £14m, (SSEPD’s share was £2.7m).


Corporate IT CAPEX to company revenue 0.23% 0.67% 3.21% 0.47%


SSE have a 5 year IT Applications Strategy that aims to rationalise business applications from

circa 700 to around 200, making more use of enterprise-wide applications where possible.

Additionally, there is further investment that can be applied to draw out the value of Oracle

Harmony to leverage its benefits and value, for example global risk control, and self- service

employee reward schemes.

However, it is unclear whether this investment is sufficient to “transform”5 the business. It may be

that additional strategic and targeted investment in new technology is required to further improve

current infrastructure and to deliver business transformation.

This being said it appears SSEPD are investing sufficient capital to both maintain and improve

their corporate IT offering;

5 Gartner classify Capital Expenditure into segments which “run”, “grow” or “transform” the business. Assessment of projects allows a

business to understand effort involved in these different areas, this is something that is beginning to be done in SSE.



7

2.1.3 IT Staff and User Benchmarks

SSE has 663 staff in IT of which 512 are deemed to support Corporate IT. There are 19,489

employees in the company; this gives a benchmark of 2.6% which is in alignment with Utilities

benchmark averages of 2.6%6. This metric takes SSEPD’s Corporate IT OPEX (£9,639,406) and

divides it by the number of users (1,8967 – after removing “field” staff who are considered by

SSEPD to be non-users) and compares this against the results of the same metric applied to a

sample of 106 utility companies.

Cost per IT User SSEPD


Corporate IT OPEX to total number of users (adjusted) £1,924 £4,920 £16,127 £5,084

SSEPD is very similar to the median figure within our sample of peer companies, indicating its

spend per user is in line with similar entities. Arguably, it could improve this metric were it able to

supply service at reasonable cost to the additional 2,620 field staff (58%) who are currently

largely non-users of these systems. Allocating across all staff would, for example, bring the user

cost down to £2,1358 which is comparable to best in class. However enacting this would be

dependent on business needs. Current mobile technology projects may assist in delivering some

corporate IT access to field staff. In SSE out of a total headcount of 19,489 staff, only 13,741 are

deemed IT users (71%) and of these only 9,612 (70%) are deemed corporate users for recharge

purposes. Thus across SSE as a whole, only 49% of staff are deemed Corporate IT users.

6 Derived from Gartner metrics - assumes 40% split (as per Gartner) of 6.6% all IT staff FTEs as % of employees.

7 1,896 users is derived by taking 4,516 total users and subtracting 2,260 field users. Source Corporate IT apportionment

methodology schedule..

8 There are likely to be additional costs of doing this.



8


SSEPD Corporate IT is undergoing a change in the way it works with the business, it has

adopted a partnership approach aimed at creating and maintaining the value IT provides. In line

with industry best practice, IT staff roles are now more focused on relationship and stakeholder

management into the business. This is alongside educating the business so that it is becomes

an ‘intelligent customer’. Evidence of this on-going change, can be seen in the length of service

of many key staff; many of the people we came across were relatively new to the organisation.

2.1.4 General Industry Changes in Corporate IT Expenditure

Across a basket of all businesses IT expenditure rose by 4% in 2012 (Utilities 5%) and is

expected to rise by another 2.9% in 2013. Two of the highest areas where IT expenditure growth

is outpacing revenue growth in 2012 are the Energy and Utilities sectors.

Across the sample of 2,295 businesses, Capital Expenditure on IT as a proportion of IT costs is

also generally increasing. In 2010 this was 25% of IT costs; by 2012 it has risen to 28%,

illustrating an increasing focus on investment.

SSE PLC increased revenue IT spend by 9.4% in 2011/12, and increased Capital spend by 4.5%

during the same period, evidencing the increased prioritisation of IT in SSE. SSEPD’s allocation

returned figures of 20% and 13% respectively.



9

In Conclusion:

� Both SSE’s and SSEPD’s Corporate IT revenue, capital and cost per user benchmarks are at

the higher performing end of the scale when measured against both a basket of 2,295

general businesses, 106 Utilities companies, and specifically other DNO comparators:

– SSEPD’s Corporate IT benchmark for operational expenditure against revenue is 1.09%

which places it favourably against the DNO comparator median performance of 1.39%9.

– The benchmark for the cost of Corporate IT compared to SSEPD’s operating expenditure

is 2.5% which is significantly below the utilities sector benchmark of 3.4%.

– SSEPD is in the top quartile for low capital expenditure, this is despite the fact that during

the year an Oracle based ERP system, called “Harmony”, was commissioned into service.

– SSEPD’s cost per user of £5,084 is just above the industry median of £4,920.

� Corporate IT has a growing awareness and sensitivity to the user perception of its

performance, has a KPI measurement system in place which it assesses itself against, and is

improving its performance.

� SSE is working to both an overall Corporate IT plan and strategy, and has a portfolio of

projects which aim to both sustain and improve business activity.

– SSE has a strategically aligned corporate level applications strategy and is developing a 5

year applications roadmap to deliver its applications strategy.

In summary, based on the financial and qualitative data reviewed by Mott MacDonald it appears

that SSEPD’s Corporate IT function is providing value for money.

Corporate IT is part way along a journey to transform itself and provide greater value to the

business, careful adherence to strategy and good portfolio delivery will be required to ensure

benefits to SSE and SSEPD are managed, maintained and delivered in the longer term.

9 Source: Proprietary Mott MacDonald DNO IT benchmarking study 2012, using Info tech Group "measureIT" tool.

3 Conclusion



10

Appendices

Appendix A. All Benchmarks for SSE Corporate IT ___________________________________________________ 11



11

This appendix provides the reader with further insight into the analysis carried out by Mott

MacDonald and the metrics produced.

Benchmarks for SSEPD Corporate IT

A.1 Objectives

SSEPD identified three key objectives of the study, namely:

� To determine “the present state of key IT spend metrics against market averages”;

� To “compare current IT operating costs… …against previous years”; and

� To provide “evidence of IT spend efficiency and value for money by benchmarking against

like-sized cross-industry peers”.

A.2 Metrics

The following metrics address the objectives identified in section A.1:

Metric 1: Corporate IT OPEX to company revenue

Reviewing a company’s expenditure relative to revenue provides an indication of how sustainable

(I.e. affordable in the long term) the current expenditure is.

SSEPD versus the six utility companies in the comparative sample:

The table and chart below show SSEPD’s Corporate IT OPEX (£9,639,406) as a percentage of

the Company Revenue (£881,000,000) relative to the utility companies in the comparative

sample. As can be seen, SSEPD sits favourably relative to the median which suggests the

company is successfully keeping this area of expenditure to a better than average level.

Appendix A. All Benchmarks for SSE Corporate IT



12


Corporate IT OPEX to company revenue 0.46% 1.39% 8.11% 1.09%

SSEPD 2011/ 2012 versus 2010/ 2011:

The table below shows how the result of this metric has changed when compared with SSEPD’s

2010/ 2011 figures. Although the 2011/ 2012 result is good, the 2010/ 2011 was lower. SSEPD

should continue to monitor its Corporate IT OPEX spending if it wants to maintain current

performance.

Median

(2011/ 2012) SSEPD

2010/ 2011 SSEPD

2011/ 2012

Corporate IT OPEX company revenue 1.39% 0.93% 1.09%

Metric 2: Corporate IT OPEX to total number of users

This metric takes the SSEPD’s Corporate IT OPEX (£9,639,406) and divides it by the number of

IT users.

SSEPD has two measures for the number of IT users:

� A count of all IT users (4,516 for 2011/2012).

� The count of all IT users adjusted downwards to compensate for staff that SSE refers to as

“Field” (engineers on the road, etc.) who do not use corporate IT (1,896 for 2011/2012).



13

All IT Users

SSEPD versus the utility companies in the comparative sample:

This metric takes the SSEPD’s Corporate IT OPEX (£9,639,406) and divides it by the unadjusted

number of users (4,516) and compares this against the results of the same metric applied to the

utility companies in the comparative sample.


Corporate IT OPEX to total number of users (not adjusted) £1,924 £4,920 £16,127 £2,135

SSEPD 2011/2012 versus 2010/2011:

The table below shows that the same metric run for SSEPD’s 2010/2011 figures gives a result

that is better than the 2011/2012 median. This therefore reiterates the point made by the

Corporate IT OPEX to company revenue metric, above - SSEPD should continue to monitor its

Corporate IT OPEX spending.



14

Median (2011/ 2012)

SSEPD 2010/ 2011

SSEPD 2011/ 2012

Corporate IT OPEX to total number of users (not adjusted) £4,920 £1,788 £2,135

SSEPD versus SSE Group:

For the financial period 2011/2012, the result of the equivalent metric at SSE Group level was

£3,691 per user. For the financial period 2010/2011, the result is £3,054 per user.

Cost per IT User (Adjusted for “Field” non-users)


This metric takes the SSEPD’s Corporate IT OPEX (£9,639,406) and divides it by the number of

users (1,896) and compares this against the results of the same metric applied to the other utility

companies in the comparative sample.


Corporate IT OPEX to total number of users (adjusted) £1,924 £4,920 £16,127 £5,084

SSEPD is spending slightly more per user on Corporate IT OPEX than the median within our

sample of peer companies.



15

SSEPD 2011/2012 versus 2010/2011:

The table below shows that the same metric run for SSEPD’s 2010/2011 figures gives a result

that is better than the 2011/2012 median. This therefore reiterates the point made by the

Corporate IT OPEX to company revenue metric, above - SSEPD should continue to monitor its

Corporate IT OPEX spending.

Median

(2011/ 2012) SSEPD

2010/ 2011 SSEPD

2011/ 2012

Operational budget to total number of users (adjusted) £4,920 £4,238 £5,084

SSEPD versus SSE Group:

For the financial period 2011/2012, the result of the equivalent metric at SSE Group level was

£5,276 per user. For the financial period 2010/2011, the result is £4,979 per user.

Metric 3: Corporate IT CAPEX to company revenue

During 2011/2012 the SSE Group made some significant capital investments on special projects,

most notably a large Oracle based ERP system referred to as “Harmony”. These capital

investments greatly impact the following metric and as such the metric is shown below, first with

these special projects excluded and then included.

Special Projects Excluded


This metric takes the SSEPD’s Corporate IT CAPEX and shows it as a percentage of the

Company Revenue (£881,000,000) and compares this against the results of the same metric

applied to the other utility companies in our comparative sample.



16

SSEPD’s Corporate IT CAPEX for 2011/2012, excluding the special projects, was £1,306,957.

SSEPD’s Company Revenue for 2011/2012 was £881,000,000. The table and chart below show

how SSPEPD compare to the other utility companies in the sample in terms of IT CAPEX spend.


Corporate IT CAPEX (excluding special projects) to company revenue 0.23% 0.67% 3.21% 0.15%

Special Projects Included


SSEPD’s Corporate IT CAPEX for 2011/2012, including the special projects, was £4,174,974.

SSEPD’s Company Revenue for 2011/2012 was £881,000,000. The table and chart below show

how SSPEPD compare to the other utility companies in the sample in terms of IT CAPEX spend.


Corporate IT CAPEX (including special projects) to company revenue 0.23% 0.67% 3.21% 0.47%

Documents

SSEPD: Corporate IT Benchmarking Revie · SSEPD: Corporate IT Benchmarking Review 323481/TNC/TCS/01/01 4th June 2013 Q:\SSE IT benchmarking\SSE Benchmarking Report - version 1 0 FinalLJ.docx