The Cart and the Horse – Planning for Success

The energy markets have been a roller coaster of change over the last decade, a journey marked by rapid accelerations in growth and even more rapid decelerations. The collapse in prices of many energy commodities in recent years has been particularly difficult and often deleterious to the financial and organizational wellbeing of many energy producers and traders.

Most energy companies have processes and organizational capabilities that reflect the sometimes painful but necessary adjustments made in reaction to these persistently difficult market conditions. Staff losses, an aging workforce, budget reductions (including technology spending), mergers, divestitures and reorganizations have taken a significant and continuing toll on a number of companies. And, unfortunately, times like these rarely offer opportunities for periods of self-reflection or business process realignment exercises.

These same rapid organizational and process changes also take a toll on businesses’ critical systems. Without continual realignment and adjustments for these and other changes, the fitness of any of these systems, including your ETRM system, grows increasingly out of alignment with user needs. This is particularly true in businesses that have no clearly defined, delineated and documented processes, where employee losses and turnover can result in loss of institutional system knowledge that cannot otherwise be accurately conveyed or transferred. Without that knowledge transfer, user satisfaction and internal system support will suffer, leading to an increasing loss of productivity.

Though your ETRM system may have been a perfect fit at the time the system was implemented, without near constant updates and adjustments for technology advances, changes in regulatory requirements, business process changes and adjustments to your asset mix, the system’s functional capabilities and basic configurations move incrementally farther from those the business and the users require. Under such conditions, these once highly capable systems can become an anchor that slows commercial progress as users struggle to model new types of agreements, as businesses combine via merger and acquisitions, as the business adds or divests assets or as new regulatory requirements emerge.

As the once well-configured capabilities of an ETRM system drift away from the evolving requirements of its users, the natural inclination is to invest in a significant – and expensive – technology upgrade in hopes that the new system may meet the users’ and business’ current needs. Unfortunately, this inclination – to fix the business issues by “fixing” the software – is rarely, if ever, the best approach. While of course it is possible that your business has outgrown your current system, no software can fix a business unless that business truly understands its own processes and the requirements those processes demand of the software.

Reacting to the changing market

With the modest improvement in energy commodity prices since the first of this year, many companies can again make investments in new software to replace aging systems that have been in place for five to 10 years. However, given events during the same time period, most of these companies considering upgrading their technical capabilities have significantly changed since they brought their current systems online:

  • Downsizing – Budget cuts or asset divestitures may have led to downsizing, including the loss of key business users with primary responsibility for an ETRM-related process, such as modeling complex deal agreements, scheduling difficult or complex pipelines, or writing key business reports. The loss of experienced and system-skilled personnel can cause vital processes to fall into disrepair, resulting in awkward and manual workarounds, like spreadsheets.
  • M&A Activity – Corporate mergers can result in the newly combined entity having two or more overlapping ETRM solutions, requiring expensive and time-consuming reconciliations and consolidations to join them into a single solution. Often, companies will defer such efforts and investments, choosing to continue running those overlapping solutions until business conditions improve or until it feels better positioned to select an entirely new solution.
  • Asset Acquisitions – Acquiredassets may have been modeled differently than those that existed when the system was initially implemented. As a result, reports may not be accurate across all the company’s assets and may require additional steps and workarounds to ensure accuracy and consistency.
  • Desk and Book Reorganizations – Reorganizations of desks or books undertaken to reflect changing business priorities can result in inconsistent deal treatment and valuation methodologies.
  • Expanding to New Markets – For companies that opportunistically acquired distressed assets outside of their core business operations – such as producers buying wells or producing fields in a new region, or a power retailer buying the books of competitors – existing software may now be functionally undersized, and new trading, management and reporting processes required by those new assets may not be fully incorporated and matured within the existing business infrastructure.

The horse should always go before the cart

Hoping to address these types of complex business issues by purchasing a new system is placing the cart before the horse: New software cannot fix broken or strained business processes. Buying new software based on the needs of a business with poor processes can result in an ill-fitting system that doesn’t address current and future needs; an implementation process that essentially “bakes in” inconsistent and suboptimal processes; and workarounds or customizations that can introduce increased costs, complexities, risks of errors and poor user adoption.

Ideally, any company contemplating acquiring a new ETRM system should look first at its processes, particularly those whose business has changed significantly since the current system was first implemented. Nonoptimized processes may, in fact, cause many of the problems associated with the current system; with improvements in those processes, a wholesale system change may be unnecessary. If, after completing a process evaluation and adjustment exercise, the company determines that a system replacement is the best course, the resulting comprehensive process mappings will assist in the identification of business requirements and ensure the company quickly identifies the best-fit system – one that aligns optimally with the users’ current needs and the company’s growth strategies.

Capco’s approach to ensuring lasting success

Leveraging almost two decades of experience in the energy markets, Capco has designed a process and set of deliverables specifically designed to help our customers identify any inefficiencies and realign existing and/or define new optimized processes and systems architectures that address both current needs and future growth based on the company’s strategic goals.

The core principles we employ and that guide this effort are:

  • Aligning process and operations with the strategic vision, redefining metrics to drive the desired changes
  • Focusing on reducing waste, eliminating unnecessary complexity and realignment of organization to optimize efficiency
  • Defining core processes to align the highest value tasks to the highest value resources
  • Transforming the current state processes through opportunities identified in workflow, systems, tools and functional alignment
  • Empowering process owners to make continuous improvement focused on reducing cost to serve and increasing the value of the business

Just as your business is, at its core, a living organism, your processes must continually adapt to change. Our methodology not only acknowledges that, but ensures that our deliverables are themselves living documents, providing the guidance and road map for continual improvement as your business grows and evolves.

Throughout our process, from the initial detailed assessment to the implementation plan for transitioning from the current to the future states, our goal is to increase your company’s agility, helping it operate at optimal efficiency now and positioning it to continue to do so as it grows in scale and market breadth.

Capco’s deep experience and exposure to the business of the energy markets, from generation to production, power transmission to gas transportation and trading to retail, provides our consultants with the knowledge and insights to help our customers identify those process issues and inefficiencies that have slowed their businesses or increased their operational and financial risks. Addressing these issues prior to the ETRM selection process ensures the selection of a best-fit technology infrastructure that addresses current and future needs without “baking in” the inefficiencies and poor processes that will constantly undermine the value of your technology investments.


About the Author

Mayank Moudgil

An Associate Partner and industry thought leader, Mayank leads the Trading & Risk Management (TRM) practice for Capco, Energy Solutions.

Mayank has worked for a wide variety of energy, commodities and financial services clients across the globe, acting as a trusted advisor by helping to drive organizational efficiencies through a blend of transformative programs and innovative strategies. He is also regarded as a subject matter expert on multiple technologies and TRM platforms, and has proven experience in developing and supporting large scale software and services projects.


The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco.