Applications Drive IT Spending in Utility Sector

May, 2012

From a technology standpoint, today’s gas and electric utilities bear little resemblance to those of 10 or 20 years ago. The sector has entered a new age and is making a substantial investment in IT, both internally and for its customer base.

The sector is undergoing a significant modernization, much of it driven by state and federal mandates for smart meters, smart networks, smart grids, and other efficiencies geared toward significantly reducing energy use, especially during times of peak demand. As such, utility companies are increasingly supporting new technology initiatives that enable them to improve service delivery, increase efficiency, and reduce overall power demand.

As such, utilities have some unique attributes that are important to understand when benchmarking IT spending in this sector. In our study, Comparative Analysis of IT Spending by Energy Utilities, we take a special look at IT spending and staffing in the utility sector by comparing key, high-level metrics against a broad sample of organizations. This comparative benchmarking analysis enables us to assess the sector’s specific attributes.

The study has four key findings:

  • Utility companies have above-average IT intensity. They spend considerably more on IT than the composite sample, as measured by total IT spending per user and spending as a percentage of revenue.
  • Utility companies spend a significantly higher portion of their IT budgets on business application software and a slightly higher portion on network infrastructure than the typical company. They spend correspondingly less on data center operations, IT management, and end-user support. Some utilities include industrial control systems in their IT budgets, which could account for the higher average spending on application systems and networking.
  • The size of the application support staff as a percentage of total staff is comparable to the average for all organizations, indicating higher spending on applications is not related to internal support costs. In addition to deploying specialized production systems, utilities rely more on commercial packaged software and associated vendor support than the typical organization, which may help account for the high spending on applications.
  • The staffing mix for utility companies is similar to other organizations and can be benchmarked against similar-size organizations across all sectors. However, utilities should adjust for slightly higher requirements for end-user support and slightly lower requirements for network support and IT management staff.

In the full study, we present three measures of IT intensity: IT spending as a percentage of revenue, IT spending per user, and application spending per user. To determine where utility spending differs from the composite sample, we break down IT spending into five functional areas: IT management, applications, data center, network, and end-user support. We also examine IT staff headcount by those same functional areas. We conclude with our assessment of where utility organizations can focus their efforts to improve IT performance.

This Research Byte is a brief overview of our report on this subject, Comparative Analysis of IT Spending by Energy Utilities. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).