Recently Copperberg hosted a webinar presented by Michael J. Frank, the CEO at Uniper, an energy company with 100 years of experience behind it. Mr. Frank has gained extensive knowledge working first as an engineer and then as a top manager of a large-scale coal-fired power station. In the webinar, he analyzed the latest research findings on digitalization and combined them with his insights in the field. The result is an extraordinary analysis that covers the digital transformation in a nutshell, with a special emphasis on the human factor and other challenges on the way.
Uniper, a global energy company based in Dusseldorf, Germany, generates, trades, and markets energy on a large scale. The company procures, stores, transports, and supplies commodities such as natural gas, LNG, and coal as well as other energy-related products. Following the spin-off from E.ON, Uniper has become a rather young company on the stock market, but its business story started more than a hundred years ago. During the time, the company went through many challenges of reorganization and digitalization that helped them to establish a modern company with an extensive commodity trading business in today’s energy environment.
Michael J. Frank, CEO of the Anlagenservice GmbH, describes the company’s diverse scope of work: „We are active across and along the whole value chain of energy generation and trading – We operate assets across all technologies from gas-fired, wind, coal-fired plants. We do energy storage, operate pipelines, liquidation, regasification, and nuclear plants in Sweden, and we are one of the operators of hydroelectric power plants in Sweden and Germany. “
Working in an industry that has one of the slowest digital transformation records, Uniper is a company that sets a positive example. With its business processes being about 85% digitally transformed, Uniper has not only gone a long way but has also developed its own software for asset management, which is now being used in other companies as well. The company’s own Enerlythics IIoT Platform is described as the “vital stepping stone to agile power asset management and maintenance”. The CEO explains that there are a lot of challenges that have to be identified and appropriately addressed in order for a company to fit the market needs.
The competitive pressure as a driver for change
When talking about the digital transformation process, there is an important difference to be made between the meaning of two words. To digitize means the conversion of text, pictures, or sound into a digital form that can be processed by a computer. It is simply the process of transforming analog to digital. On the other hand to digitalize stands for the use of digital technologies and of data (digitized and natively digital) in order to create revenue, improve business, replace/transform business processes (not simply to digitize them) and to create an environment for digital business, whereby digital information is at the core – the change process.
When this transformation was about to start within his company Mr. Frank was not so reluctant. Despite that, the conditions on the market dictated the way as he explained: “We are always competing with the companies that are probably cheaper than we are. We have this big group, utility backgrounds, and our cost structures are probably not super competitive, so we have to be better. We would be out of work if we were not digitalizing. The pressure leads us in that direction.”
If competitive pressure leads the way then under what kind of pressure are the companies when going to the digitalization journey? Mr. Frank thinks that the acronym VUCA (short for Volatility, Uncertainty, Complexity, and Ambiguity), can describe a lot when it comes to the current situation in the energy industry when it comes to digitalization: “Where are we as an industry? It is indeed a bit VUCA. It is not so encouraging. It is actually a bit worrying”.
Digitalization in the energy landscape
The research findings that Mr. Frank gathered in Germany raise even more doubts in the preparedness of the management team across the sector:
• Only 30% of managers and specialists see their own company as well placed and prepared for the challenges of digitalization
• Only 21 % of them see their own leadership is well prepared for the digital journey
• 83% of the top management (Board members and MD’s) see themselves well prepared
Such a large share of the top managers seems to be ready but they are really not, giving the fact that only 27% of the companies have a proper digitalization strategy, according to the research.
On top of that 60% of the top management (board members and MDs) see their business models not at risk through digitalization. The high number of leaders who don’t think that their businesses are at risk actually worries Mr. Frank, who comments:
“Wow, indeed, I agree with them as long as they’re operating swimming pools or selling ice cream. I think these businesses are probably at risk of digitalization… This is a massive challenge.”
Another interesting fact is that almost all companies (94%) in logistics, engineering & construction and automotive business state they have a central digitalization unit: “I think they were talking about their IT departments, and logically who sees himself as the driver of all these digitalization projects, well you can see here it is mostly the CIO or Chief Digital Officer, but in very small extent it is the business itself. The technical departments don’t see themselves in a driving role. Anything you do has to be owned by the whole business, and it has to fit the business purpose, the IT can build the infrastructure.”
The McKinsey consultancy team was called to come to Uniper-s thermal power generation business and conduct research. When asked where they see the thermal power generation industry in comparison to other businesses in the sector and their digitalization path, they confirmed what the CEO has already experienced first-hand: “It is more or less at the end of all the other industries. When you are in it you are not really surprised when you see that”.
The chart shows the so-called digital maturity of the sector and its evolution over time
The fear of Big Brother and other challenges
Being a top manager, Mr. Frank distinguished three cultural factors that can prevent the companies to successfully implement the digitalization plans:
1. “We have always done it like that” mindset
Uniper has 100 years of experience, and although this may sound exceptional, at the same time it is a big challenge: “It is great to have that experience but we have to know that it (the old way) is not the right approach. The Energy industry is at the bottom when it comes to readiness to change”.
2. Fear of The Big Brother
Employees do not feel comfortable when introducing new systems and technologies, there is the fear of being monitored and replaced: “Is this technology actually used to monitor me? Is it going to replace me? Is this going to take over my job? Am I going to be replaced?”
3. A lack of trust in the system
The modern and beneficial technologies can be rejected when there is a lack of trust and where the right way of implementation is missing. Mr. Frank remembers the situation when Uniper’s condition monitoring system (that was previously developed by their in-house team) gave a false alarm, which immediately triggered many negative reactions which ultimately showed a lack of trust in new technologies and in new ways of doing things.
“Poorly handled digital implementations can lead to resistance, which can lead to failure and ultimately rejection.” Employees may ask themselves how can a computer help them to do their jobs and is another new software really needed? If there is nothing wrong here, why change? However, once the new systems are implemented correctly and when they really start to help employees in their work and eventually help them to avoid some serious malfunctioning, then there is more trust and employees feel more comfortable.
After the initial negative response, the advance fault detection system was able to contribute to multi-million-dollar savings.
Don’t digitalize everything you can but only what you need
Doing things in the Uniper way means that all the transformation initiatives have to be owned by the business, not by IT or any other entity within the organization, but by the business owners who are the ones that have to see the benefits. This includes the optimization of all processes, as well as the truly data-driven, front-to-end digital management of the generation portfolio.
What has been digitalized in the first place was the flow of information and this is the most important thing that Uniper has done: “When you look individually at the modules of the front-to-end digitalization you will see that it starts with individual asset strategy, the maintenance strategy, criticality analysis – things like that digitalized our whole risk management procedure which started much earlier that the digital journey”. The whole Capex and Opex planning are done based on the individual asset strategy, the market, energy prices, individual assets condition and other. They are linked to each other and fuelled by one common data infrastructure.
This is how the Digitalisation of asset strategy and the procedures has been clearly defined at the Uniper. Six different modules make the whole digitalization roadmap:
1. Individual asset strategy
2. Maintenance strategy
3. Risk Management
4. Capex / Opex planning and budgeting
5. Operations, condition monitoring and day to day risk management
6. Maintenance execution & contractor management
IV Performance evaluation
7. Performance monitoring
8. Management review
9. Audit, compliance and action tracking
10. Maturity assessment and continuous improvement
11. Resources & Competencies
12. Document control
“This didn’t happen overnight and it is still happening as we speak”, says Mr. Frank: “Our implementation status is about 85%. It is excessively rolled out through the whole of Uniper., and continues: “We have found massive potential for savings in maintenance, that doesn’t mean that they are jeopardizing the asset reliability, but making it more reliable and making it basically more fun to work with”. The figures clearly show the results:
• 10-15% reduction in outage & overall expenditure
• 56% internal rate of return (IRR) payback in approx.. 6 months
• 10 – 20% reduction in capital expenditure (CAPEX)
• 15 – 30% fuel savings per startup
• 5% decrease in energy cost (LCoE)
• 1% Efficiency gains
The success factor is the defined and well-communicated roadmap purely based on business cases. The bottom line is – don’t digitalize everything you can but only what you need, you have to focus on what the business needs are, not what’s possible. There is a lot more that is possible but companies might get lost in there.
The main building blocks of digitalization
The digitalization starts with business processes. Mr. Frank suggests that the companies should go back to basics and optimize the process landscape first. Only when the operational excellence comes first a company can start to digitalize processes. The spin-off from E.ON helped Uniper to start from scratch and gain a lot of freedom to cut loose from the old system, and eventually build a self-developed, central data platform called Enerlytics.
Here are the main 4 building blocks that helped the company to realign and establish a system that works:
· Standardization and harmonization
· Reduce waste, increase efficiency
· Clear instructions
· Single point of truth
· Strict IT governance
· Cloud architecture, secure and performing Network
· Data Historian (PI) and Asset Framework
· Cloud-based data storage
· IoT, Smart Sensors
· Mobile devices
· ACM/machine learning
· Tableau / PI Vision
· Enerlytics IIoT software (developed by Uniper)
· Identify talent
· Build inhouse analytics & data science capabilities
· Accept uncertainty
· Keep it simple / be agile
· Top management must be fully committed
The data infrastructure and hi-tech solutions stand equally next to the people who work at the company. “In the old world, the best ideas came from the bosses, that is not true anymore in digitalization”, describes Mr. Frank: “They go home in the evening and their 13-year-old daughter tells them how to use mobile phones.” The search for the right talent, the digital champion is not easy. The companies have to try to identify them and discover some great ideas: “Take them on board and you will see your business really taking off. These people will feel empowered as a part of the whole story”.
Transformation of the culture
“Five, six, maybe ten years ago, there wasn’t only a firewall around the power station”, Mr. Frank goes on explaining how power plant managers were not willing to connect and share the data. As he says, there were very high walls that were virtually built by the power plant managers who were free to decide not to share any performance data with different units, even not with the headquarter, and they thought it was a legitimate point of view: “I don’t want to be compared to other plants and it is entirely my set all data and I am not going to share it”. As he remembers that was a widespread mindset.
To overcome that kind of behavior, they needed to introduce a lot of measures. Some of them were very harsh, like replacing some people. It was very important to understand that a company can’t manage the fleet of assets without sharing the data.
Moreover, in order to accommodate ever-increasing quantities of data from disparate sources at high speed, Uniper has developed Enerlytics that enabled a holistic view of a power plant’s assets. Now, when someone asks who owns the data within Uniper, the answer is that it is certainly not the individual plant anymore, and it definitely is not the OEM. “It is this single point of truth, it is our data lake with Uniper and we have defined so-called data stewards who look after data that comes into that data lake to make sure that the property rights are observed. You can also imagine, particularly in Germany, that in this environment where we have a very strong determination and work councils that they also really look after the data”.
Nowadays in Uniper, it is really the organization that owns the data, and despite the fact that this may seem like a generic answer, there definitely isn’t an individual owner anymore.
Additionally, Uniper’s Enerlythics is now available externally for other companies to use. For the time being the power generation has the biggest share of Enerlythics customer pool, from renewables solar to nuclear energy providers. “We have quite a happy customer base here that is using our platform, most of them in the energy business but we are also extending it into other industries as we move on. What we bring to the market is our experience that it is incorporated in the software solutions. We are not by any means a software company, we are operators and asset managers, we developed the software as a tool to improve our assets”.
After the Copperberg webinar, Michael J. Frank went to meet a German pharmaceutical company. The company was looking into improving their assets using Uniper’s software solutions. Uniper is now exploring other industries and discovering how they can benefit from the tailored solutions that they offer. Not only that the digital transformation changes the business culture and the companies’ processes, it opens a whole new level of services as well as an opportunity for a cross-sector, cross-industry collaboration.
 Studie Fuehrung un Digitalisierung, DFK 2019. Befragung von 15000 Fach und Fuhrungskraften in Deutschland “Luenendonk” – Studie 2016, 103 Unternehmen >250m EUR, Umsatz Studie Beschaeftigtenbefragung Monitor Digitalisierung 2019, Stiftung Arbeit und Umwelt der IGBCE https://www.uniper.energy/enerlytics/about/how-enerlytics-works