ITALIAN UTILITY LEAPS INTO THE FUTURE
... and Executes an Award-Winning SAP Implementation
ACEA employees spent generations comfortable in the way they worked: rising in the morning, meeting at the dispatch office for a cup of coffee, walking the same route, and seeing familiar, friendly faces each day. With the introduction of SAP, field employees would be given iPads that would set their most efficient route each morning – no coffee with colleagues, no predictability. Working with Kotter, ACEA engaged their workforce to embrace, own, and lead the transformation.
The Digital Transformation of a Multi-Utility *
* Summary of the English translation of the Harvard Business Review Italia article, ‘Digital Transformation of a Multi-Utility: Technology and People, Key Factors of the ACEA Experience,’ by Luca Giustiniano and Andrea Prencipe. A full, translated version of the HBR case study is available on request.
THE METERS ARE RUNNING, AND WILL CONTINUE TO RUN
‘The meters are running’ is both a mantra and a cultural trait that embodies the foundation of ACEA’s organizational structure – a reflection of the regulated context in which it operates. After all, electricity, water, and gas are consumed continuously, without interruption, regardless of the actions of the companies that are tasked with managing their supply. What’s more, competition is minimal within regulated economic sectors in Italy – that is, if there is any competition at all.
This case describes the moment when Kotter met ACEA – at a time when none of the ingredients necessary to spur radical innovation seemed present. Yet ACEA’s top management disobeyed – in a positive way – the rules of an industrial sector that feels static and not very competitive. They invented a competitive pressure which triggered the creation of a sense of urgency for a pervasive organizational change: ACEA 2.0.
ACEA 2.0 was a business strategy developed precisely for the creation of value through the redesign of processes and a massive deployment of technology. If done well, it would enable increased service quality and decreased costs. The goal was for information to flow more efficiently, to optimize service delivery and customer relationships, and to eliminate inefficiency and redundancy from the front end to the back office.
The entire initiative was characterized by the selectivity in choosing partners. The redesign of the operational model and support processes was developed with SAP – the catalyst of what was much more than just a digital transformation. The same amount of selectivity was employed in selecting the partner that would accompany the launch of the organizational change triggered by ACEA 2.0. The aim was high, and the choice fell on Kotter. Together, we began an extraordinary digital transformation involving every level of the organization from the bottom up, creating shock waves to the status quo.
In 2014, ACEA was 7,000 employees strong - a national leader in the water sector serving over eight million people, one of the main national players in the distribution and sale of electricity, and an operator in the waste-to-energy sector. In December of that year, after six months in the role, new CEO Alberto Irace presented the traditional Christmas wishes to executives, an event that is generally lived as a routine, with many smiles, handshakes, and cheers to the good work done in the past and many good wishes for the incoming new year. The usual (semi) known themes are brought up – “innovation,” “focus on the individual,” “environment,” “collectivity.” Nothing really new. No real threat to the comfort zone of most people… until the new “organizational approach” was presented. A new work force management plan was a clear U-turn away from the dominant top-down logic. The new bottom-up approach started from a dramatic redesign of the work done in close contact with the general public, and coherent with the organizational processes directly involved.
The entire re-design was presented as “The Big Opportunity” to meet the needs of customers whose habits and expectations had shifted – even if those were not immediately understandable. After all, the sector is regulated; therefore, why worry? Why the hustle? The presentation slides described vision “to be the first utility to respond to the new needs” with the sentiment of “we cannot wait.” This Big Opportunity and the clear logic inversions of the past – passing from top-down to bottom-up – would severely undermine the comfort zones in the organization at that moment.
THE HUMAN FACTOR
Fear, confusion, and discouragement, as anticipated by Irace in the Christmas presentation, were the widespread feelings and emotions during the early months of 2015. With the plan conceived in partnership with SAP to recover value otherwise lost in twists and turns of the organization, and The Big Opportunity set forth, the Kotter team facilitated the organization of an Urgency Team – a group of employees coming from different legacy companies who voluntarily accepted the challenge of creating a sense of urgency to realize the opportunity across the entire company. They shared their vision as “men and women who do not settle for their condition, and want to improve it.” Their message to others in the organization was to be yourself, and have the will to build, today, your future. Most of all, they shared the concrete possibility of improving their collective work conditions, and to build a stronger and more dynamic modern company. For a project aiming for widespread digitalization across the organization, the deliberate engagement of as many people as possible that Kotter’s work set in motion affirms the undeniably central role that the human factor has in achieving success with such an endeavor.
A number of other fixtures of Kotter’s methodology followed the creation of urgency within ACEA. A Guiding Coalition of 38 volunteers from different parts of the organization coordinated eight initiatives of their own design, and managed by the volunteers recruited by the Urgency Team who had responded to “the call” and accepted the challenge to roll up their sleeves in service of the change. Local Action Teams were born, enabling volunteers to contribute to achieving The Big Opportunity in the context of their own different local realities. Acceleration Teams were organized as innovation engines, setting and achieving ambitious goals in 90-day time frames. The first teams were formed in March 2015 around four projects: “Let’s get to know our customers better,” “Let’s improve payment options,” "Let's reduce our Accounts Receivable and improve our cash flow position," and Let's take on the impossible data cleansing task for SAP." These Acceleration Teams allowed ACEA to appreciate the power of short-term wins, of the impossible becoming possible.
TRIGGERING AN UNSTOPPABLE PROCESS OF PROGRESS
One win of epic proportions served as a key accelerant for the digital transformation. Although the company had previously announced – a year and half in advance – the arrival of the new SAP system, in September of 2014, for various reasons, the preparation had slowed significantly. The customer database had to be completely rebuilt, and the project had become nothing short of a fiasco. Kotter supported the alignment of senior executives around the criticality of this element of the transformation – and the urgency needed to accomplish it quickly. Kotter then helped ACEA organize themselves to tackle the customer data “clean up” required for the pilot test site, responsible for the distribution of drinkable water, in a timeframe that the company considered technically impossible. And they had good reason for believing so, as ACEA had tried to outsource this data clean up task to external providers, who had all declined the proposal and refused to take the money to even try. It was an impossibility to verify and update – within such a short time frame – all the customer data: phone numbers, addresses, meter numbers, meter readings, etc. According to them, it couldn’t be done.
In spite of that, a selected team of volunteers, determined to spread their enthusiasm to the organization, set the incredibly brave goal to clean the customer data of the test division in just 90 days, at any cost. 85 volunteers agreed – 85 people who were so convinced that the transformation was right, positive, and necessary, that they dedicated themselves to this short-term initiative in addition to their day jobs. This group quite literally demolished walls in order to find hidden meters, obtained information by calling customers on evenings and weekends, and combed through Rome municipal areas block-by-block, home-by-home, in order to get an address, a phone number – whatever was needed.
The camaraderie uniting these colleagues was unprecedented. The symbolic power of reaching a goal deemed impossible culminated in a celebration where the team shared with others in the organization the tremendous work they’d done – 150,000 clean data points in 90 days. Initial wins such as these become the molecules of success to show skeptics that things really can be done. When they are repeated, as they then were at ACEA, a culture based on trust emerges. Alongside this was the realization that, even here, you can realize – and sustain over time – effective change.
WE DID SOME SIMPLE THINGS
The potential offered by SAP, coupled with the contagious power of Kotter’s work, pulled 3,500 people into action during the first phase of change. Initial wins gave a credible idea of what the organization could do together, despite the characteristics that seem to always make big productive changes harder: the heavy presence of trade unions, control by the government, sector regulation, etc.
CEO Irace stated, “When I arrived at ACEA [in June 2014], you could not pay utility bills online and not even at an ATM… Now we have enabled online services, and you can pay through the app.” Many wins were made possible by the creation of urgency where there was no urgency, and through the establishment of mechanisms within the organization to amplify the value of the SAP tools now at their disposal. Evidence of the results was undeniable when ACEA closed 2016 with “the best results ever,” with a net income almost 50% higher than 2015 and an EBITDA increase of 22%.
From an equally important micro-perspective, today around 3,000 technicians make use of the new technology and new processes with performance up to three times higher than was experienced before. But, “after all, we didn’t launch satellites in space, we did some simple things.” And simple things, executed masterfully and consistently, can change the DNA of an organization.
It was a rousing success from SAP’s perspective as well, citing that the entire process – from when the customer calls customer service to notification to the technician and then to the intervention – is 100% paperless. ACEA’s 7,000 SAP users represent one of the extensive implementations of SAP in Europe. As Bill McDermott, CEO of SAP, phrased it, “ACEA’s management understood that people are at the heart of the company and digital transformation requires a cultural shift. If employees do not embrace the technology, the results will not last.”
A rather extreme case from a methodological perspective, the story of ACEA 2.0 is capable of teaching, even to those operating in a more traditional context, that determination and coherence can bring radical changes even with stable worlds which are, for their nature, not so reactive to external stimuli. It’s a case study that tells the story of managerial courage and institutional leadership rising even out of a context in which “the meters keep on running.”
As ACEA looked to deploy SAP, one thing was abundantly clear: they had incomplete data. Massively incomplete data. They tried to hire firms to clean the data for them, and each came back with the same message: The damage is too severe; you cannot fill in the gaps in your data. Every firm passed on the project.
Leveraging the urgency effort and the power of the opportunity in front of them, 85 volunteers worked around the clock to fill in every missing data field. In 90 days, they had cleaned 150,000 data points... something all of the vendors had said couldn't be done.
This is their story. In the way only ACEA can tell it.