Making change effective3 November 2002
IT systems are available to support change, but too many systems do not deliver enough business benefit. By Bill Doig and Rory Quigley
In 1994-5 British Energy (BE) was making final preparations to become the first nuclear electricity company to become fully privatised. The cost of BE's product would have to compete in a developing open market, with no subsidies, and be subject to the external market pressure of a government-appointed regulator.
The route to a privatised company had been a process of more than a decade. The manpower structures and spatial layout of BE had their roots in the state-owned Central Electricity Generating Board (CEGB). This body controlled all forms of electricity production and distribution under a government mandate to "keep the lights burning at all times". No commercial criteria were mentioned and costs to consumers with government investment costs began to rise above other competing industrial nations. Under the Thatcher government a wholesale privatisation of the state sector took place.
The original intention of the government was to break up and privatise the electricity industry by 1989. Finance markets, however, baulked at the uncertainties associated with the cost of decommissioning of nuclear plant and the nuclear generation (SNL in Scotland and Nuclear Electric in England & Wales) was withdrawn from the privatisation package to enable the other portions to proceed.
As a consequence of this decision, in 1990 nuclear electricity became a state-owned industry run on private sector accounting principles. The structures of departmental control and management remained the same. We had to keep doing what we had always done - but more efficiently.
By 1994-5 efficiencies had been made: staff had been reduced by 23%; unit operating costs had been reduced from 3.2p/kWh to 2.54p/kWh; and productivity stood at 7.3GWh per employee. It was now considered viable to privatise the most modern AGR and PWR stations to form the British Energy fleet.
In 1996 the seven most modern AGRs in Scotland and England (Dungeness B, Hartlepool, Heysham 1&2, Hinkley Point B, Torness and Hunterston) together with the newly-built Sizewell B PWR were privatised under the ownership of British Energy. This combined fleet had a 13,000MWe generating capacity.
At first the performance base seemed viable. However, the initial formation of the market was "generous". The stated approach was to create conditions whereby consumers and suppliers would eventually, through the market structures, reach an acceptable equilibrium. Like all statements of philosophy it attracted a range of interpretations as to what this meant. Certainly the predominant sentiment at that time was that prices would remain attractive to the supply side of the equation. In consequence there was a spate of gas-fired station applications and approvals (the so-called "dash for gas"), takeovers with high overseas investment and high cost refurbishments.
The consequence of this period was to build up electricity production to create a 20% overcapacity in the UK market. This position remains with us today. The market conditions were continuously tightened to a point whereby the original expectations of the 1995/6 conditions could no longer be sustained. It can be argued that the regulator unduly depressed the market, as no known investors in any new form of conventional plant can now be found.
It was within this climate that BE questioned how it could change (whilst maintaining safety) in order to survive in the UK market.
The Challenges within
The challenges confronting the company often came from within. Although the share value had markedly decreased and most financial writeups were negative or neutral there was a temptation to ignore market signals.
This position is somewhat understandable if the historical structures of the industry are considered. The nuclear industry is unique in the technical and safety complexities in addition to the requirements of regulation and public perceptions. The nature of nuclear technology means it has an inflexible profile that cannot be tampered with. Yet on the other hand BE was operating in a competitive market, it was financed by capital (which will always forward buy to the greatest reward and least risk), with those outside the industry making financial judgements as to the efficiency and worth of the company.
It was traditional and easier to stick to technical issues and structures with which we were familiar. In addition there were different cultures, approaches, operating styles and structures in two countries (Scotland, and England/Wales) and eight different plants with two headquarter sites to consider in any initiative.
The historic development of individual departmental systems resulted in structures and processes that were run in a segregated manner.
At the time of divisionalisation there were some 173 different "systems" running within the fleet and the main office centres. Any attempts to create flexibility and change was faced with structures that could review their own peer disciplines but were unable to review other disciplines to form a coherent change.
It became apparent that the demography of the nuclear workforce could not be sustained against the anticipated life cycle of our business. Naturally, in that climate, new recruitment of good-calibre people to train was proving difficult. Since constant change had been going on since 1990 - some useful and some a total waste - we had reached a point of "initiative fatigue"
Two key points emerged from our deliberations. First, to reduce costs within a complex decision-making structure you must link the methodologies, processes and management to a total coherency of purpose. Second, a continuously adjusted "balance of practicalities" can only extract efficiency from these factors. Once the information base exists to manage a suite of tasks - spares, resources, equipment, permits, documentation, engineering approvals, risk assessment, drawings, work order cards, budgets - it must be used. There is little point in planning for a maintenance activity and issuing a work order card to find that an inventory item is not available and has at best a four-week lead time.
CREATING A MANAGEMENT TOOL
The company came to the conclusion that the best way of meeting the challenge was to create a coherent management tool, designed to the best practice within our organisation and within our US partnership.
Our aim was to replace a high percentage of our legacy applications with one operational system. This would cover in a totally coherent and integrated manner all aspects required to operate a major nuclear facility. The tool, called Vanguard, would contain the facility for:
• Electronic drawings and documentation, including configuration management, instant secure text retrieval and secure electronic signatures and a managed library.
• Plant asset management work management, including exposure, safety management, risk assessment, inventory management, engineering change, personal qualification data, procurement engineering, document management and action tracking.
• Finance, including commitment accounting, budgetary issue and control, all ledgers payments and receipts, and station finance management.
• Human resources, including employment history, qualifications and succession planning.
• Procurement, including both automatic procurement control and innovative market shaping solutions aimed at cost reduction.
It will come as no surprise that we did not find an application that would meet these requirements tailored to a nuclear environment. However after some false starts an in-depth world assessment led us to conclude that there were three products on the market which, with further design work, would provide us with the tool we required. Two - Indus and Oracle - were US companies with a strong European presence. Cimage NovaSoft is a UK company with US presence.
Before developing contract strategies, written agreements were obtained at the most senior levels in these corporations committing them to creating a fully functional single system.
Some nine months were spent in the USA with PECO Nuclear of Pennsylvania and Indus, redesigning the elements of the Indus Passport product in order to provide an enablement within their system to what we had determined was best practice.
When the "in-principle" design was completed the company assessed the risk of achieving our vision. The conclusion was that to go down the paths we formerly pursued would not provide appropriate benefits.
To do nothing was not an option. This would be the largest single project investment made by the company and world statistics show that major projects of this type fail to deliver the anticipated scope in 80-90% of cases (in fact the latest US government survey shows a 93% failure rate).
The company however was persuaded that the commitment in the British Energy Project team (led by a former senior station director), the total sign-on to partnership inclusive of risk/reward and accountability by Indus, Oracle and Cimage all contained within one controlling contract - provided the confidence to proceed.
OPERATING THE PROJECT
Our agreements provide for a life-cycle security of system performance for at least ten years. In major software systems the initial outlay of cost may represent only some 25%of the true life-cycle cost unless appropriately considered.
This then is what British Energy set out to do. Where are we now?
The fully integrated finance/human resources/procurement system has been running smoothly for nearly three years. Indus decided that to meet the best practice redesign within their Passport product would take two issues.
Release 8 had all the modules except material safety data sheets and total exposure. Release 9 has been delivered to time and extensively tested over a six-month period in a simulated station environment. By late 2002 there were some 39 minor bugs to be rectified from some 10.2 million lines of code.
Release 8 was rolled out to four sites in early 2002, with all interfaces fully functioning. Our lead sites have confirmed the anticipated benefits. All external costs and deliverables came in to time, scope and budget. Four sites received Release 9 in early July, fully tested to all the interfaces originally envisaged.
Our sites practise the balance of practicalities through a balancing system called Work Week Manager. On a fifteen-week cycle every aspect of work is preplanned (the breadth of necessary information now available) so effort and priority are readjusted in harmony to the week in which activity will take place. This results in a cyclical week of work being planned in which every one concerned knows what has to be completed and are sure that all the supporting aspects are available including documentation, drawings, components, correct skill levels and appropriate signoffs. In each week therefore all effort is directed at doing the activity "right first time".
The Clinton plant in the USA (which took Releases 8 and 9 from Indus) employs this method. They have moved from below average in performance to become one of the top performing plants in the USA!
What of the British Energy commercial performance? Recent market events may give the impression that British Energy's cost is very high but in fact it is now in striking distance of the lowest cost production for fossil fuels. The interim results for 2001/2002 were: average FTE employees 4,800; unit operating costs now 1.67p/kWh; productivity 13.6GWh/employee.