December 2017, IDC #EMEA41791917

IDC PERSPECTIVE

Welsh Water Executing for Its Digital Future

Gaia Gallotti Roberta Bigliani

EXECUTIVE SNAPSHOT

FIGURE 1

Executive Snapshot: Welsh Water Executing for Its Digital Future

Source: IDC Energy Insights, 2017

Analyze the Future

Thks IDC Perspective analyzes how Welsh Water, a regulated water and wastewater company. embarkedon a jou mey to completely overhaul its IT. and subsequently enhance its business operations, with thesupport of its strategic partner, Infosys. This report highlights the foundational elements of its first majortransformation, vihich included a complete migration of its IT infrastructure, arid the modernization of itsentire network to unleash business value and unlock innovation across different areas of its business.

Key Takeaways

• The foundation work carried out by the team to document \Wish Waters IT estate was fundarnental toenable the subsequent transfomiation.

6 Corporate IT landscapes must be properly and completely documented, and individual resources mustnot be exclusively relied upon for insights into applications and IT infrastructure.

• Maintaining connectivity between legacy and target datacenters in one netWork is a key enabler to a low-risk, low-impact migration of services.

ecomrnended Actions

• If a relationship is outgrown_ and no longer meeting desired outcornes, have the courage to start...Mlover. It is unrealistic to expect that what worked until now will work in the future.

• Give appropriate attention to forging a cohesive team, including your partners, a team that has the sameobjectives in mind. Do not underestimate the need for cultural alignment, especially when newrelationships are forged.

• Once the foundationat work has been taken care of, don't just digitize, digitally transform. Digitaltransformation is not onty about digitizing the existing processes. It is about leveraging digitaltechnolociies to do different Melds.

©2017 IDC #EMEA41791917 2

SITUATION OVERVIEW

This IDC Energy Insights case study focuses on Welsh Water, a regulated water and wastewater

company in England and Wales, which embarked on a journey to completely overhaul its IT, and

subsequently enhance its business operations. This report highlights the foundational elements of

its first major transformation in this journey, which included a complete migration of its IT

infrastructure, and the modernization of its entire network to unleash significant business value and

unlock innovation across different areas of its business.

IDC Energy Insights' Case Study Series

IDC Energy Insights' case study series provides utilities with fact-based, comparable, consistent,

and independent views on interesting projects implemented across geographies. The focus is on

new business models, digital transformation initiatives, IT and operational technology (OT)

solutions implementations, and, more broadly, energy technology initiatives that contribute to

innovation and sustainability. Collaborating with utility companies and vendor personnel directly

involved in the projects, IDC Energy Insights analysts gather all relevant information and analyze

the approaches taken and the solutions' success in meeting their stated goals. Case studies are

assessed against the four criteria that IDC Energy Insights believes are critical to generating

additional value: contribution to operational effectiveness, degree of technological innovation,

transformational impact on the company's businesses, and, more broadly, the utilities industry

value chain.

Why This Case Study?

This case study was selected as an example of how a regulated, not-for-profit utility, which

recognizes that a proportion of its customers are unable to pay, realized that the only way it could

better serve society, the only "shareholder" it is accountable to, was to invest today to save more in

the future. This case study demonstrates how Welsh Water found the courage to turn a page after

years in an innovation deadlock, to effectively transform itself to become an innovation-driven

company.

Company Overview

Welsh Water is one of the 10 regulated water and wastewater companies in England and Wales.

Specifically, it is the sixth largest, serving all of Wales and part of Northeast England. The company

is responsible for serving 1.4 million homes and businesses, supplying over 820 million liters of

water per day. With its 3,000 employees, the company manages 26,500km of water mains and

over 30,000km of sewer mains, providing over 3 million people with a continuous, high-quality

supply of drinking water, as well as taking away, treating, and properly disposing the wastewater

that is produced.

Welsh Water is owned by Glas Cymru (since 2001) and is a not-for-profit company. Different from

companies that are profit-driven, Welsh Water's responsibility is toward the society it serves and

the environment.

In the absence of shareholders, any financial surpluses Welsh Water generates are reinvested in

the business for the benefit of customers. Additionally, its customers are occasionally summoned

to help decide where investments should be made; most recently, over $45 million worth of

investments were voted on.

To date, financing efficiency savings have largely been used to build up reserves to insulate Welsh

Water and its customers from any unexpected costs, as well as to improve credit quality, so that

Welsh Water's cost of finance can be kept as low as possible in the years ahead.

©2017 IDC #EMEA41791917 3

Between 2010 and 2015, Welsh Water's investment program reached $2.31 billion. Every five

years, Welsh Water develops a detailed business plan, which is subject to an extensive customer

consultation exercise before being submitted to the Water Services Regulation Authority (Ofwat)

for England and Wales as part of the price review process. The current business plan runs until

2020, after which the new 2020–2025 period will commence.

Business Needs

When considering to completely transform its IT, Welsh Water sought to address several business

needs, some more common than others, including improving customer service and asset

stewardship. Additionally, the technical debt of its IT had become unsustainable, and was

preventing the company from capturing the opportunities of newer technologies and innovation.

Welsh Water aspired to put its IT at the heart of its business transformation.

However, Welsh Water also faced a rather unique issue; specifically, a portion of its customer base

is not able to pay, or struggles to pay its water bill (circa 250,000 customers in Wales). Given its

not-for-profit nature and social calling, Welsh Water was strongly driven to support these

customers with social tariffs to help them pay their water debt. Welsh Water counts some 100,000

of its customers on its "HelpU" tariff. Restructuring its IT was deemed one of the most effective

ways to unleash savings to put, for instance, toward the Welsh Water Affordable Bills program.

"Welsh Water is committed to the society it serves. This transformation journey was imperative to

support social tariffs like the Affordable Bills program," said Carl Taylor, Head of Business

Information Services of Welsh Water.

The Approach

Project Background and Objectives

Before deciding to take action in 2015, Welsh Water spent several years studying what it needed

to change, and how to go about it, considering that its then status quo had prevailed for 15 years.

In 2015, Welsh Water decided it needed to radically transform its IT to be able to best serve its

business and operations, considering the profound changes the utility industry is facing, and the

changes the digital transformation is unleashing.

Specifically, Welsh Water was looking for a partner that would provide ongoing support to its

business users through dedicated resources, and together tackle the problems they faced. An IT

service provider would no longer suffice to Welsh Water, as the company was seeking a partner to

which it could bring a series of problems it was facing to brainstorm together new ways of solving

them. Welsh Water was forced to carry out significant preparatory work in the market, prior to

kicking off the actual sourcing process, to demonstrate to the potential providers that it was indeed

serious to change direction completely.

The six-month sourcing process that ensued was long and intense, and the request for information

led to 10 companies being short listed. The request for proposal phase, which itself lasted a year,

short listed four companies. Interestingly, companies that had little or no experience in the U.K.

water market were not excluded by Welsh Water off the bat. Welsh Water recognized that despite

this shortcoming, which was compensated by its own deep understanding of the U.K. water

business and industry, these bidding companies might, nonetheless, be best fit to serve it in the

areas it needed most.

Interestingly, Welsh Water was eager to have a single partner, vertically integrated across the

stack, in order to have clear accountability for outcomes.

©2017 IDC #EMEA41791917 4

At the end of the long sourcing process, Infosys was selected as the new IT services partner.

Despite its limited credentials in the U.K. water market, Infosys demonstrated its capabilities by

drawing parallels to other industries, providing strong client references, and showing extreme

passion and hunger for innovation. Additionally, the Infosys Connected Model, which addressed

Welsh Water's need to have ongoing support and resources onsite, was recognized. The nature of

the relationship led to significant anticipation on both sides on the innovation they could deliver

together, investing together.

Infosys was selected as the partner to support a broad range of services under the ICT Outsourced

Services agreement spanning from datacenters, to networks, to unified communication and

collaboration, and to business applications across various lines of business.

Like many other utilities, Welsh Water's key sourcing objectives and strategy revolved around

three macro areas: customer, cost, and compliance.

Customer. While being in a monopoly business, Welsh Water understands the importance

of providing an effortless customer service. Not only was customer service elevated to be on the board's agenda, but one of the largest programs Welsh Water is running companywide is around customer service, specifically a new contact center transformation

program.

From an IT perspective, this entails: addressing historic pain points by introducing new

and improved technologies; adopting agile solutions to effectively respond to customer

requests; and establishing a platform to deliver innovative solutions.

Cost. The company's approach to cost is based on its willingness to spend in order to save, which will allow Welsh Water to invest in its future. So far, thanks to the ongoing transformation with Infosys, Welsh Water has saved over $25 million in the current

business cycle, which runs until 2020. These initial savings will be reinvested by Welsh

Water to build its digital future, always prioritizing the society and environment.

From an IT perspective, this entails: transitioning to resource-efficient datacenters, consolidating infrastructure for optimization, and adopting cloud-based solutions where

appropriate.

Compliance. Along with information security and cybersecurity, compliance to regulation is also a board-level agenda point. Welsh Water was eager to get support from its partner,

with a new delivery approach and service model, to exploit modern technologies in an

innovative way to help meet its compliance objectives.

From an IT perspective, this entails: refreshing equipment to maintain security, adopting a platform to minimize the risk of transition, and setting up an efficient and

modern backup solution to preserve information integrity.

Project Description — Starting with a Transform-First Approach

The initial transformation project lasted one year and was completed in June 2017. Because of the

intensity of the project, many onshore resources were needed, leading to the creation of a core

team with a peak size of 130 people, of which around 60 were from Infosys.

The team was tasked with implementing a state-of-the-art technology platform, migrating all the

services and the businesses to these services from the legacy systems and platforms currently in

operation. This would be the basis onto which Welsh Water will build its future IT landscape. The

first phase of the transformation was to be rather straightforward: plan, design, build, migrate, and

operate.

©2017 IDC #EMEA41791917 5

However, the first hurdle the team faced was the lack of documentation for the existing IT

inventory. In fact, Welsh Water had limited documentation of its current IT landscape, and had to

rely on a handful of experts that had been running its IT systems for the past 15 years.

Hence, the first step became discovering and analyzing Welsh Water's entire IT estate. By

inventorying all the technologies and their respective tasks, the team deciphered how the

technologies interacted with one another, for each individual business workflow. Additionally, the

team figured out how each business workflow was deployed, and how they interacted with one

another to deliver specific business services to the Welsh Water end users, as the business

workflow was what needed to be migrated to the new datacenters. Recreating the myriad

technology components, from WAN, datacenter, application, and how they interact with one

another to create each business service, was the most difficult aspect of the migration.

A Risk-Mitigating Migration

Once Welsh Water's entire IT estate, based on business workflows and business services, was

established, the migration onto the new technology platform was tackled. Because of its risk-

adverse nature, Welsh Water required a low-risk, low-impact transition, with minimal acceptable

downtime or loss of resilience during the migration. Consequently, the migration was detailed step

by step, calculating all the risks and the processes and governance for decision making in the

event of an exception. Overall, the migration — which involved 100 people from 10 companies

working together, including Welsh Water, Infosys, and a series of Infosys network, software and

hardware partners — took one year to complete.

To measure performance and success, Welsh Water hired PwC to independently audit and assure

the work done for the IT program. PwC's role extended beyond auditing of the IT program, and

became part of the actual working team, providing ongoing support to the transformation. At the

end of the migration, the downtime experienced was limited, and the business impact was minimal.

In all, through more converged infrastructure and optimization of computing, the number of racks

necessary reduced from 51 to 18. The new racks are running from two datacenters that have

industry-leading power efficiency levels, which are very important for Welsh Water's sustainability

agenda.

A Modern WAN for Greater Resiliency and Capacity in the Network

Another aspect of the first transformation project was updating Welsh Water's network. While not

being very large, Welsh Water's network is exceptional because of the geographic characteristics

of Wales. A significant proportion of the ~150 sites across Wales are in areas that are difficult to

reach with high-bandwidth technologies.

Additionally, Welsh Water's network was point to point. As part of the transformation, Infosys

moved Welsh Water to new generation multiprotocol label switching technology, improving its

resiliency and capacity.

Furthermore, new IP addresses had to be introduced, as the previous IT service provider had kept

ownership, which restricted the existing IP addresses from being transferred to either Welsh Water

or Infosys. During the IP address replacement process, the team realized there were numerous IP-

to-IP hard-coded connections that were not resolved through a logical DNS. It took another 3–4

months for the team to inventory the 40 companies that were interacting with Welsh Water at an IP

level. The upgrade enabled the network to be built to handle distributed denial of service, which is

a fundamental component of Welsh Water's cybersecurity approach.

©2017 IDC #EMEA41791917 6

Getting fiber to the last mile in these remote locations was more difficult than expected, but it was

crucial to empower the new generation network that connects Welsh Water's corporate IT with its

operational technologies (SCADA, telemetry, GIS, and so forth). Welsh Water now runs both its

corporate data and operational data on the same core network, but leveraging innovative

technologies, the data is isolated and protected. From an IT/OT perspective, everything is now

running on the new network Infosys implemented for Welsh Water.

Telephony Goes IP-Based

Welsh Water's legacy corporate telephony system, based on 19 private automatic branch

exchanges (PABXs), was replaced with new generation IP telephony. This set the foundation for

fixed mobile convergence, a cornerstone of Welsh Water's unified communication approach going

forward, while unleashing significant savings.

An important aspect of the first transformation phase, considering Welsh Water's high

environmental standards, was decommissioning of old technologies, phasing out legacy

equipment, powering everything down, and disposing of it in a secure way. This included, but was

not limited to, shutting down 18 of Welsh Water's PABXs.

Business Value

The benefits of the first transformation undertaken by Welsh Water were numerous and

transcended the financial gains experienced, which, nonetheless, amounted to $25 million. "So far,

thanks to the ongoing transformation with Infosys, Welsh Water has saved over $25 million in the

current business cycle, which runs until 2020," Taylor said.

Notably, Welsh Water succeeded in significantly reducing the technical debt of its IT, and put IT at

the center of its business transformation. The company is now in the position to explore myriad

angles of innovation around services, which it was previously unable to even consider. Several of

the subsequent transformations Welsh Water is currently carrying out, which are described below

in the Next Steps, are led by the lines of business, in lieu of the IT department.

Additionally, Welsh Water's cybersecurity capabilities were greatly enhanced, and made fit to

tackle the cyberattacks threatening utilities' IT, as well as physical infrastructure. While they are

new, datacenters received green credential for their energy efficiency, which directly supports the

company's mission to serve the environment. Also, the extensive effort of consolidating and

integrating its entire IT estate has enabled Welsh Water to benefit from self-healing capabilities

through advanced automation and orchestration.

All around, the extensive work carried out support Welsh Water's ambition to place the IT at the

heart of its business transformation. Starting by changing the way the business perceives the IT

department, internal customer satisfaction was raised from 30% before completing the first

transformation to a very satisfactory 66%.

Lessons Learned

With any project or new experience, the lessons learned can be numerous and vary significantly.

With its first major transformation, not only did Welsh Water face significant technical challenges,

but it was also facing them with a brand-new partner, Infosys. The relationship was a fresh start for

both companies, but it also meant that there was a period of acclimatization. Welsh Water

considers the creation of a single-entity team as a critical success factor. "A critical success factor

of the transformation was the creation of a single-entity team with resources from Welsh Water,

Infosys, and other key stakeholders," said Nial Grimes, Head of Infrastructure and Architecture of

Welsh Water. This one team approach supported the realization of common goals, and resolution

of issues that arose in the most collaborative manner. Since June 2016, an ambassador travel

©2017 IDC #EMEA41791917 7

program has been run every quarter to foster the team's growth. Welsh Water's operational

resources travel to India with the Infosys team and spend two weeks working together and co-

developing. Interestingly, over the past year, Welsh Water has internalized numerous Infosys

resources, created new IT roles, and evolved the relationship to enable even better interaction

between the two companies.

An additional lesson learned, which was attributed to the success of the IT-wide transformation,

was the extensive communication and training the IT department carried out to engage the

business side. Prior to the transformation, application management of business systems was a sort

of gray IT area; for instance, core billing applications were run by the retail business unit. Following

the migration, many business systems were returned to the stewardship of the IT group.

Next Steps

The first transformation project was completed after one year in June 2017, and was the stepping

stone for wider transformation across Welsh Water. The engagement with Infosys has evolved into

managed services, and today, there are around 40–45 Infosys resources supporting Welsh Water

in a number of new projects covering:

Customer experience transformation

Data and analytics

IT transformation

Customer Experience Transformation

An additional element of Welsh Water's customer experience transformation program is the

implementation of a completely new omni-channel system for customer engagement. Following a

competitive selection process, Genesys was selected to provide the core platform. To meet Welsh

Water's accountability requirements, the new omni-channel system will be licensed by Infosys in

"services plus software." This project is expected to run for 14 months, beginning in June 2017.

Data and Analytics

Data and analytics are without a doubt an area utilities are growingly eager to explore, given the

abundance of data they have available. For many, it is a long road to data monetization, and, as is

the case with Welsh Water, the starting point is analyzing the operational data they were collecting.

Data is being provided in a controlled and governed environment for data management and data

exploitation, yet one of the current hurdles is understanding what data is available, how it can be

discovered, and how it should be exploited. To address this, Welsh Water not only relies on its

ecosystem of partners but has also invested in its own handful of data scientists. "In addition to its

data science team, Welsh Water is building the capability to scale analytics across the entire

organization," Grimes noted.

This Welsh Water transformation project is based on a new Azure data platform, and leverages

Infosys Nia and partner exploitation technologies (Waterline + Trifacta + Tableau). Interestingly, it

is not run by Welsh Water's IT but rather directly by the company's lines of business. One of the

most promising use cases for this data project is asset investment prioritization, along with

predictive asset maintenance.

IT Transformation

With a solid IT infrastructure foundation, Welsh Water has now moved on to carry out the more

futuristic aspects of its IT transformation. As part of the second phase of IT transformation, Welsh

Water has engaged Infosys in a software plus services deal for Panaya, which they plan to use for

change impact simulation and cast automation. For instance, an artificial intelligence (AI)-led tool

©2017 IDC #EMEA41791917 8

specific to the SAP CRM system is being used, for which Panaya will be the AI engine giving

indication on what to test, and how to measure the related impact. Additionally, Panaya is being

integrated to a test automation system that will be able to automate and execute.

Currently, Welsh Water is running around 60 business applications, some of which are being

managed by third parties. Moving forward, Welsh Water plans to replace more and more of its

legacy business systems, as it is currently doing with its GIS system. To its advantage, the utility

company does not have duplication of systems; however, the manner in which the applications are

in some instances connected, how they contributed to specific business processes, and the

visibility into the data generated will be optimized in the future. Modernization and consolidation is

steadily happening, and, for instance, the numerous different applications in the contact center will

be rationalized and move to a common strategic platform.

ADVICE FOR THE TECHNOLOGY BUYER

Project Impact Assessment

Figure 2 presents IDC Energy Insights' impact assessment of Welsh Water's transformation, to

date, based on its operational effectiveness, technological innovation, and business and industry

transformation potential.

FIGURE 2

Welsh Water Executing for Its Digital Future: Project Impact Assessment

Source: IDC Energy Insights, 2017

Operationa[ Effectiveness

Technological innovation

Business Transformation

Industry Transformation

Low High

©2017 IDC #EMEA41791917 9

Essential Guidance

Given the strategic nature of the program, its transformational impact on the organization and its

processes, and the criticality of the systems involved, any utility approaching a similar

transformation should consider the following:

Fully align the technological program and the business strategy. Ensure that future

business systems will support the overall business strategy. Work on a precise definition of the expected value from the transformation program. Set major key performance indicators and then do all the process and technical design around those. Ultimately, for each and

every technical implementation in the program, a precise business requirement has to be

put forward, and precise targets have to be implemented.

Phase the program. "Big bang" transformations maximize the impact but leave little room for error and make project management very complex. Once the final architecture has been designed, a phased rollout will limit the fallout should issues arise. Be sure to budget

enough time for each activity, be it analysis or technical implementation. Never trade

quality for speed.

Consult and engage the business early. Getting advice and taking on board concerns fromvarious business functions will help deliver a solution that meets the needs of its users. This is the ultimate test of a successful solution; it also helps build a network of champions

that will be crucial when it comes to deploying the solution.

Run a thorough change management program. Getting employees who are accustomed to

legacy IT systems and a certain modus operandi to embrace the new can be a challenging proposition and can be met with resistance. Developing a behavioral change program to run in parallel with an IT implementation will help get buy-in and ease the rollout and

uptake of the solution.

Don't just digitize, digitally transform. Digital transformation is not only about digitizing the

existing processes. It is about leveraging digital technologies to do different things. Successful digital transformers have a bold approach to their strategies and can leverage

market and technology discontinuity to bring real change to the business.

LEARN MORE

References

Interviews with:

Carl Taylor, Head of Business Information Services, Welsh Water

Nial Grimes, Head of Infrastructure and Architecture, Welsh Water

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Business Strategy: CLK Enerji Sets an Ambitious Tone for Business Transformation in the Turkish Energy Industry (IDC Energy Insights #EMEA41687416, August 2016)

©2017 IDC #EMEA41791917 10

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©2017 IDC #EMEA41791917 11

Synopsis

This IDC Perspective analyzes how Welsh Water, a regulated water and wastewater company in

England and Wales, embarked on a journey to completely overhaul its IT, and subsequently

enhance its business operations, with the support of its strategic partner, Infosys. This case study

was selected as an example of how a regulated, not-for-profit utility, which counts a portion of

customers as unable to pay, realized that the only way it could better serve society was to invest

today to save more in the future.

"The need to radically change to succeed in the digital transformation is putting pressure on

regulated industries, just like competitive ones," said Gaia Gallotti, research manager, IDC Energy

Insights. "This case study demonstrates how Welsh Water unleashed myriad projects to

completely overhaul its IT operations and department, really putting IT at the heart of its business

transformation."

About IDC

International Data Corporation (IDC) is the premier global provider of market intelligence, advisory

services, and events for the information technology, telecommunications and consumer technology

markets. IDC helps IT professionals, business executives, and the investment community make

fact-based decisions on technology purchases and business strategy. More than 1,100 IDC

analysts provide global, regional, and local expertise on technology and industry opportunities and

trends in over 110 countries worldwide. For 50 years, IDC has provided strategic insights to help

our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading

technology media, research, and events company.

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