THE MANDATE

Hitachi Global had to build and operate the £16bn Wylfa and Oldbury nuclear power plant in the UK. For this purpose, they had vertically integrated as a fully owned subsidiary the JV Horizon Nuclear Power: a British Engineering Procurement Company (EPC) experienced in the delivery of nuclear Capital Projects. This was done to take advantage of the EPC’s local know-how, long standing relationships with construction materials suppliers and contractors (to deliver higher value for the money from their negotiated deals), familiarity with local stakeholders demands and liaising style (British indirect communication style and attention to the words’ non-literal meanings), UK regulations and legislation (also in terms of H&S and HR), and experience in a foreign market unfamiliar to Hitachi Global ‘s Japanese leadership.

When our resource, Cristina, joined this engagement (whilst working for Ernst & Young) her initial assignment was to conduct benchmarking research concerning Target Operating Models (TMO) for Hitachi's JV Horizon Nuclear Power (Hitachi's fully owned EPC entity, established in 2009 as a JV between EON and RWE Npower).


THE SOLUTION

To support the design of the JV Horizon’s Target Operating Model - and the translation of its commercial, operational and corporate strategy to functional and department strategy - our resource, Cristina, sourced and analysed data of companies of similar size and industry, considering the several stages of maturity development Hitachi's JV was going to reach when growing over time, in order to also shift from the capital project builder to operator.

Hitachi's JV needed a TMO for each maturity stage in its aimed development roadmap, to accelerate the set up and development of the organization: this had to be done through a prioritised set of processes linking people, finances, systems, and through the right configuration of its joint departmental structure and roles for each, to achieve operational effectiveness without duplicate roles or functions, while delivering operational agility and best governance. The latter was in fact necessary to enable decision making in the joint entity, preparing the structure of how the flow of information underpinning them is coordinated, escalated, reported, and reviewed, also establishing the modality of these processes.

The initial data source that our resource leveraged was the EY proprietary database called PUMMA: this contained guidance, insights, and case studies about the current best practice for energy global companies’ maturity models to target as exemplar and advisable, to design processes and to measure their efficiency, and also in order to design the business architecture systems to enable their execution. PUMA basically integrated EY’s experience-driven insights in this area, derived from its decades of advisory [ME21] to power and utilities organisations globally.

Additionally, our resource also had to benchmark per each proposed developmental stage of the joint entity the forecasted implementation cost for the functioning of the JV at each future maturity stage, and the number of recommended resources to hire for each function and department (considering the FTEs - full time equivalent hours - required to carry out each sub-department's processes, calculating the advisable headcounts from the FTEs). To do this, Cristina used other EY proprietary knowledge databases from which she could derive costs and FTEs per function for similar companies, considering their stages of development according to their level of revenue and maturity level.

The analysis and findings of our resource, Cristina, enabled the development of a first Target Operating Model (TOM) to validate and refine in a workshop with Hitachi, to gather further insight from the strategic group sessions with them and better understand also their technical and operational requirements from their point of view. The collaborative workshops aimed in fact to engage Hitachi in the definition of the TOM solution to adopt, to get their buy-in about the organizational change to implement, and their inputs about the definition of the initiatives for the delivery of the new TOM. This had to do with a level of detail that arrived at defining collaboratively the best KPI to assess their departmental processes’ effectiveness and performance.

Our resource, Cristina, also drafted the slides-deck to use for the workshop of two EY directors with the Hitachi Global's leadership.

The proposed operating model framework included the configuration of the new organisational structure by departments and sub-departments, starting from the setup of the essential Shared Services for the back office functions to support the organisation (finance, HR, IT) and of all other capabilities the joint entity needed in order to manage the business (e.g. to manage communications and relationships, property, security, facilities), to deliver the capital project by building the nuclear plant (e.g. by managing its life cycle, resources, planning and decision making, also by establishing our proposed best practice governance) and all functions and capabilities to operate the plant in future, in order to deliver 2.9GW of energy per year.

Our resource, Cristina, contributed also on the definition of the proposed organisational structure and governance, from board level to project level (the Level 1 of the organisational design) and helped with the proposal of the next steps for processes and procedures, and business architecture to enable their execution (Level 2 and 3). The target data model (Level 4) and target infrastructure architecture (Level 5) underpinning the Level 1 to 3, was not part of this engagement, as it was left to further advisory contracts with the EY IT Advisory department.



THE BENEFITS

Hitachi Global operated successfully in the UK through its fully-owned JV, Horizon Nuclear Power, progressing in the delivery of its capital project until January 2019, when its development operations were placed on hold due to lack of funding. However, until then, the EY proposed Targeted Operating Model was essential to the smooth running of the various phases of this mega capital project construction: from its initiation to its design, procurement of materials and plant construction, although it is now suspended until new funds are allocated to it.