Everywhere you look today, the impact of data analytics is becoming more apparent. Examples abound. You see data analytics in play when you watch IBM's "Watson" beat Jeopardy's human champions, when you see how Billy Beane and "MoneyBall" have changed Major League Baseball, when you receive grocery store receipts with coupons on the back targeted to your buying habits, when Internet search results reflect your Web surfing history. Analytics are changing the way we live. Therein lies value for many businesses, including the power industry.
(For an example of how analytics are being used in revenue protection, read "The Promise (and Application) of Data Analytics" and replay our webcast "Research Revealed: Analytics in Utilities Market Outlook and Forecast." Download the slide deck here.)
The Wall Street Journal, one of the best gauges of where business is today and where it is headed, has recently been featuring more analytics in its coverage. For example, the Journal recently reported that XO Communications experienced a cost savings of between $9 million and $13 million from a single analytics application geared toward reducing customer turnover. And in a recent article titled, "So, What's Your Algorithm?", the newspaper cited how The Schwan Food Company, ubiquitous in my northern California hometown with their colorful delivery trucks, increased revenues by 4 percent after four straight years of flat sales by applying analytics to customer spending patterns.
Utilities, too, are now beginning to realize the power of getting beyond data management to leveraging that data into a more powerful business tool. At the Utility Analytics Institute, every day we are seeing more utilities moving along that learning curve from managing data to extracting value from it. In fact, research conducted during the last quarter of 2011 and published in the Institute's Market Outlook & Forecast indicates that the market for utilities analytics will grow from approximately $500 million in 2011 to nearly $2 billion in 2016. The Market Outlook & Forecast identifies drivers and hurdles to applying analytics and also breaks down this growth across four layers of detail: utility size, type, application area and hardware/software/services spending.
But exactly what are analytics in their many forms? Put simply, analytics are technologies and applications that enable utilities to transform data into actionable insights. This process includes three key areas:
- Collecting, managing, cleaning and storing data
- Extracting and analyzing data
- Reporting results
Nuances abound. Analytics include leveraging real-time data sources, bringing together multiple data sources, predicting (not just reporting) and merging new and existing data sources. The ability to predict the future with a degree of certainty is perhaps the most game-changing aspect of analytics.
A few examples leap to mind when considering how utilities are transforming their business with the use of analytics, improving their grid and customer operations both internally and externally.
First consider how utilities manage their customers. With historically data-rich customer information systems (CIS) and the more recent advent of smart meters, utility customer executives have a wealth of data to apply to improving their internal customer operations while also providing more benefit and choice for their customers. We recently interviewed an executive from a CIS solution provider that is building a robust analytics service capability. The company recently worked with a client to improve the client's debt collection processes. The collaboration yielded an annual bottom line improvement to that single business function of $4 million. That is a tangible business change that ought to get your attention.
A second area where the predictive characteristics of analytics are being applied is in managing assets across transmission and distribution infrastructure, which is costly to maintain. While most utilities have been using some type of enterprise asset management (EAM) system for years to help manage these maintenance and operations tasks, the roll-out of the smart grid is providing new opportunities for improvement as the infrastructure becomes smarter. We are starting to see examples at utilities where leveraging newly available data into predictive, condition-based decision making can save millions of dollars each year. The typically expensive management of transformer assets is emerging as a favorite application.
To learn more about how utilities are applying analytics in their organizations to drive business performance and value, I'd like to invite you to attend the Utility Analytics Institute Summit 2012 on February 15-16, 2012 in Orlando, Fla.
Mike Smith is the Vice President of the Utility Analytics Institute. Contact him at firstname.lastname@example.org.