Reference no: EM131230138

AUSTIN ENERGY'S BILLING SYSTEM CAN'T LIGHT UP

Austin Energy handles electrical, water, and waste disposal for the City of Austin, Texas, and surrounding counties, serving more than 1 million residents. It is a publicly owned company and an arm of city government, and returns its profits to the community each year. The company has provided $1.5 billion in dividends back to Austin since 1976, which help fund city services such as fire, police, emergency medical services, parks, and libraries. Austin Energy has one of the largest renewable energy programs in the country, but its legacy billing systems did not integrate with smart meters and other newer technologies. It also lacked newer customer assistance options, like the ability to choose the time of the month that a customer prefers to pay bills. To modernize the billing system and to bring its information systems up to date with newer energy conservation methods, Austin Energy contracted with IBM in 2009 to create a centralized billing system and to run the system for five years. Austin agreed to pay IBM $55 million, with $38 million allocated for building and installing the new billing system, and $17 million for operating the system for five years after its completion. The new billing system was slated to handle electricity, water, trash, and recycling. Austin was optimistic that a successful installation would eventually pay for itself in savings. To date, the project has been a disappointment at best. The system was supposed to go live in early 2011, but is still not fully operational. Software bugs have led to errors in thousands of bills. Over 65,000 customers never received a bill, and another 35,000 have received inaccurate bills. For example, one business that owed Austin Energy $3,000 was instead charged $300,000. Although Austin Energy was able to identify affected accounts and work with customers individually to correct the problems, the company was ill-prepared to handle the outpouring of customer dissatisfaction with the new system, and their customer service department was in danger of being overrun. According to Austin Energy manager Larry Weiss, "Instability issues . . . continue to have serious and costly impacts on our business and our customers." Persistent system errors prevented the company from billing apartment residents for water, balancing its books, and filing audit reports. Without the ability to bill for utilities properly, the City of Austin was losing revenue. Officials with Austin Energy put the blame for the project's woes squarely on IBM. Austin Energy's CIO Alan Claypool stated in an interview that "we have yet to reach a stable system (and) we are extremely disappointed and continue to have serious concerns about the quality of service we have received from IBM to date." He noted in a September 2011 message that IBM was repeating mistakes as it tried to implement the system. Two separate errors by IBM cost the project 37 hours of delay, and one of the errors was the same type of error made by the same team in December 2010. "We continue to be gravely disappointed in the delays and seemingly ad hoc methods toward managing this project," Claypool stated. The company now plans to include provisions in future contracts with IBM that guard against similar mishaps, with a particular focus on system availability, and Austin is withholding $3.8 million in payments currently owed to IBM until the system meets baseline performance benchmarks. Claypool and other Austin Energy executives have made numerous direct appeals to IBM officials, ranging from the managers of the billing system project all the way up to then IBM CEO Sam Palmisano. Claypool first wrote directly to Marc Lautenbach, the head of IBM's Global Business Services unit in North America, which was responsible for the billing system project. He explained that thousands of customers required one-on-one assistance to access their accounts or correct billing errors. Lautenbach was then replaced as Global Business head by Frank Kern, who wrote back to Austin and described a fivestep plan to fix the problems with the billing system. Kern's plan was to improve communications on business impacts caused by known defects, to ensure that problems with the system are delegated to the correct people, to implement best-practice processes to ensure repeatable success, to work more closely with third-party vendors like Oracle, and to identify gaps outside the project's scope and recommend solutions. Since that time, Kern has retired, and Claypool wrote back to IBM yet again to report that no progress had been made since the five-step plan was first developed for Austin Energy's billing system. Austin Energy officials also objected to IBM's suggestion to add more powerful servers to help fix the problem because that would force the utility to pay more than originally planned on the project. Despite all of the blunders, Austin Energy continues to hold out hope for a successful and amicable solution to the problem. Austin Energy has a relationship with IBM dating back several years, when the companies contracted together to develop an inventory management system for the city. Though that system also experienced problems, they pale in comparison to the billing system fiasco. Austin Energy also claims that IBM's errors have cost the company $8 million since the project's outset, so switching vendors might simply make matters worse for Austin Energy with so much invested in IBM's project development already. When asked for comment, IBM has only said that it is working with Austin Energy to resolve the billing system issues. IBM has successfully managed other projects like this one in the past. The IBM billing system consists of Oracle databases running atop IBM's WebSphere middleware and Tivoli management tools. The problems with the system have not stemmed from one root cause. The new billing system is complex, with 73 different interfaces, and getting them all to work seamlessly with one another has been an arduous process. Customers have been unable to access the system's online portal, and Austin Energy employees have described their experience with the system as if they are "alpha testers," meaning they have encountered bugs and issues that should never have made it to a live version. Roughly one in four Austin customers has had problems with IBM's system. Some customers had their accounts canceled and could only correct the errors after several phone calls. The billing system woes have come at a bad time for Austin Energy, which was preparing to institute its first rate increase in 17 years. In the wake of the public relations disaster brought about by the botched billing system, the company has had to rethink those plans. As of February 2012, most-but not all-of the billing system errors had been fixed. Claypool remained hopeful that Austin Energy would be able to maintain an amicable relationship with IBM and finish the work successfully. IBM has been responsive, Claypool noted, but Claypool felt its response was too "incremental. . . . We would like to see a faster response." Going forward, Austin Energy's outsourcing contracts will include stronger penalties for vendor nonperformance, including the question of system availability.

Case Study Question

1. Is the Austin Energy project a failure? Explain your answer.

2. Describe the business impact of the faltering Austin Energy project.

3. To what degree was IBM responsible for the problems countered by the Austin Energy billing project? Was Austin Energy at fault for the problems? Explain your answer.

4. What were the specific organizational or technical factors as well as management factors involved in this project failure?

5. Describe the steps Austin Energy and IBM should have taken to better manage this project.