Power Partners

Xcel Energy's six-vendor strategic advisory board takes collaboration to a new level.

Lots of CIOs talk about "partnering" with technology vendors. But Xcel Energy Inc. CIO Ray Gogel has given the term new meaning.

Late in 2001, Minneapolis-based Xcel began evaluating how it could apply IT to help rearchitect business operations. But an off-site meeting with the power company's six biggest technology vendors in Denver three days before Christmas 2003 set the stage for its dramatic transformation.

The previous August, Gogel and his top lieutenants had held preliminary discussions with senior executives and product-design managers from six companies, including IBM, Mercury Interactive Corp. and Itron Inc. They discussed how to help Xcel apply technology to support a set of business improvement initiatives as part of an effort known internally as the "utility of the future."

The vendors came back to Gogel and his team two months later with 49 discrete project proposals, nearly all of which were focused on landing each of the vendors a particular project.

It was precisely what Gogel didn't want to hear. "I told them they weren't getting the message," says Gogel, a Computerworld 2005 Premier 100 IT Leader honoree. "We wanted them to put aside any concerns about intellectual property and nondisclosure agreements and brainstorm with us on ideas to help change the business at a higher, more strategic level."

When the six representatives met in December, there were no discussions about intellectual property (IP) and nondisclosure agreements. Instead, the vendors talked about projects they could work on together to help Xcel improve its field service and internal business operations.

"It was the coolest thing I've been involved in ever since I've been in business," says Gogel, who runs the business systems division from Denver. "It's the anti-Nicholas Carr thing: Let's see what we can do with IT to help change the business." (See related story.)

"It's almost like we had opened up these new channels at a development and IP level," adds Michael Carlson, vice president of business transformation and customer value at Xcel.

Xcel Energy CIO Ray Gogel

Xcel Energy CIO Ray Gogel

Image Credit: Patricia Barry Levy

Getting to Work

Once the direction was set, 45 people from Xcel and the six vendors worked together on design development for nine business improvement projects from February to May 2004. The seven Xcel representatives in that group included one IT executive, a few business analysts and a couple of field operations managers, says Carlson. The projects cut across three areas: field operations automation, customer support and asset optimization.

Getting vendors to work closely together on projects is always tough, but Xcel's IT outsourcing relationship with IBM helped, Gogel says.

Gogel, who worked at IBM before joining Xcel in 2000, says large outsourcing contracts tend to focus on cost containment. "They are usually overlaid with implications of transformation, but few companies actually get there," he says.

But Xcel's relationship with IBM has taken a different path and is more focused on achieving business results, says Gogel. The second generation of the Xcel-IBM contract, which was revised in 1999, focuses on optimizing synergy savings from mergers and providing business transformation services to help Xcel's business units develop their business-IT plans, he says.

So when Xcel tapped IBM to join other vendors to form the strategic advisory board, it didn't have to amend its contract. "However, we did craft a preamble, or 'social contract,' to the master agreement, which stated explicitly how we would work together to drive transformation," says Gogel.

Another largely unanticipated benefit of working with IBM on the strategic advisory board was that the other partners were able to leapfrog the often slow process of establishing business relations with IBM and start at the top with the very senior IBM executives that sat on the board, says Gogel.

IBM has also shifted some sales, general and administrative expense funds that were earmarked to support Xcel's IT operations into software development investments, says Dave Marley, a managing director at IBM in Denver who sits on Xcel's strategic advisory board. Marley is awed by what the collaboration has achieved. "I've been around this business for 20-plus years, and I've never seen anything like it," he says.

Breaking the IP Mind-set

Another key element in making the strategic advisory board work was Xcel's decision upfront not to try to own any of the IP that came out of its development efforts with the vendors. "The companies that try to facilitate these types of arrangements typically want to own the IP," says Gogel. "Instead, we're trying to take advantage of being the first [customer] to do it and leave the IP to the vendors."

Xcel's decision to allow its vendor partners to own the IP that comes out of their joint business-IT projects "was visionary on their part," says Marley, because it gave the vendors a huge incentive to invest in the projects. "Where else are you going to find a company -- much less a utility -- that gets $10 million in [development and labor] investments from its business partners?"

"There aren't a lot of Ray Gogels in the world who understand partners and business so well," says John Woolard, vice president of strategy and business development at Spokane, Wash.-based Itron.

Woolard, who also sits on Xcel's strategic advisory board, says each vendor in the group has learned a great deal about how to partner better. "It's very difficult to partner with just one company, and to do it with six is just phenomenal," he says.

Since systems built for Xcel might eventually be sold to other energy customers, it wouldn't be unreasonable to expect a lot of haggling among members of the strategic advisory board over legal issues such as IP and revenue sharing. But Gogel, Carlson, Marley and Woolard say that hasn't been the case.

"The legal agreements took longer to iron out than any of us thought they would," says Woolard. "But it was never contentious. It was more about trying to explain to the lawyers what we were trying to accomplish from a business standpoint."

The resourcefulness of the strategic advisory board has made believers out of Xcel's business executives. Tim Taylor, vice president of field operations at Xcel, who is responsible for electric and gas distribution, says the group's work has already helped improve the company's business operations. "We've had an incredible improvement in auditability -- knowing when we received a trouble job, when we were on-site for a trouble job, when it was completed," he says.

Taylor has sat in on some of the strategic advisory board sessions and says he has found them fascinating. "Everybody put some skin in the game," he says. "They didn't have boundaries around their own products."

The accomplishments of the board "have exceeded my expectations," says Richard C. Kelly, Xcel's president and chief operating officer. "For this first year, I thought it would be focused on procedures and who does what. But I've been totally wrong. They rolled up their sleeves right away."

Zarko Sumic, an energy industry analyst at Gartner Inc., says he's aware of a few comparable initiatives where utilities are tapping vendors to help them with business transformation efforts. Among them is a consortium of energy companies such as BC Hydro and Wisconsin Power and Light Co. that have bonded together to work with vendors on developing next-generation power-distribution technologies.

"The difference here is that Xcel Energy is taking more of an enterprise approach and they're strongly encouraging their solutions providers to see how they could work together to deliver that vision," says Sumic.

That's no easy task, he adds. "Vendors are like small kids -- they don't know how to share."

Sumic says that Gogel has been able to get the six vendors on Xcel's strategic advisory board to work together in part by luring them with promises of potential revenue from products that are developed by the group.

Gogel himself credits the board members for the success of the board, and he explains it this way: "They saw something coming out of trusting each other."

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Copyright © 2005 IDG Communications, Inc.

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