Digital transformation – 3 things every utility should know


Metering & Smart Energy International spoke with Perry Stoneman, head of sectors for Capgemini, about the drive to transform utilities and the three pillars of transformation.

The drive to digitally transform any business must be led by a business transformation. And while the digital transformation will be about technology, at the heart of that transformation are people. Affecting all levels of an organization, digital transformation is only valuable if it leads to improved productivity and competitive advantage.

According to Stoneman, the main focus areas for any transformation would encompass either one or all of the following pillars:

  • Customer experience
  • Operational process
  • Business model

graphic1Customer experience:

By understanding customers through analytics based segmentation and socially informed knowledge, a utility has unique insights into how each customer uses power, water or gas. The benefits derived from this analysis would enable better cross-channel coherence across media channels such as mobile, Internet and social media, and provide customerservice and self-service options to a utility customer base.

Operational process:

Digitising and speeding up the work process by providing insights to the workers in the field through the provision of digital tools such as tablets, real-time information etc, provides utilities with a real advantage over less agile competition.

Business model:

The third level of transformation is around building and developing a new business models. This recognises the need to compete or defend against new rivals, to the point of redefining how a utility operates; even going so far as considering a ‘digitally designed, or builtinthe-cloud’ model.

Stoneman says he is aware of utilities for which rewriting their current retail and operations models and starting from scratch, using cloud-based and digital technologies is an option. In some cases, it’s an opportunity to build a platform that will make it hard for another company to compete against from a cost and performance perspective; in others, a way of diversifying and adopting a technologically innovative culture.

But how open are utilities to this transformation?

Across the various elements of the utility structure, support for the transformation process varies, even if the understanding of the drivers is understood.

For the most part, board members and senior management are very aware of the need for digital transformation, but are not always sure of the best route to follow. People in the middle management layers of the utility see the need, but they, of course, are the ones who will need to physically drive and motivate the transformation and they are often not sure how to proceed.

Obviously, other industry players, such as vendors, see and understand the transformation and many believe it is akin to the telco transformation of 20 years ago.

For many utility executives, while the concept of ‘three pillars of transformation’ is agreed in principal, many feel they can only afford to focus on one of the three pillars at a time. However, Stoneman confirms: “Not many have said ‘let’s take the redefine everything model’.”

He continues: “40% of the people we talk to say ‘let’s do customer experience’, 40% say, ‘let’s do network operations and efficiency’, but only 20% are currently thinking of redefining themselves.”

While this is a small number, it’s a start that has some impressive results to back it up.

Dutch utility company Eneco are such a transformation story. They have undertaken the transition from being a utility to an energy services company with sustainability as the core of their transformation story.

graphic2Agility and the ability to compete

Where to begin is the question many utilities would have when considering a new business model. “We start to develop a new business model with our customers from the premise of ‘what is the kind of service do you want to provide?’ and working back from there Stoneman says.

“The cost to operate is about 50c on the $1. If you can become that lean, you become that much more competitive and agile – you can adjust or bring new products to market extremely quickly and be more competitive and additionally – easily move into new territories or geographies.”

Importantly, because developers of cloud technology are not tied to bricks and mortar, their ability to set up shop in other territories is exponentially increased in comparison to more traditional business or utilities. In some cases, they are looking to franchise their operations to other utilities – they don’t want to necessarily attack their industry, but they do want to grow their business by being an early adopter and innovator.

Cloud-based applications provide service providers a platform to add or remove energy services more easily, while also allowing utilities to defend against potential revenue erosion. If such revenue erosion has already occurred, it may also provide the opportunity for a utility to add back to its customer base through the provision of new services.

Innovative services being offered by utilities include examples from PG&E in California, which invested $60 million into Solar City. Back in 2010, one of the Californian solar success stories. “They are now looking at how storage can be added onto the grid to make the grid even more cost effective to operate. If you put the right sized storage in some of the right locations, that grid will become more resilient, you’ll have less outages and it will extend the life of certain assets,” says Stoneman.

He cites the example of Tuscon Electric in Arizona, who fought for the right to sell solar to their customers in order to mitigate the potential loss of customers to the new raft of solar businesses operating in the area – and through this have not only prevented erosion of revenue, but in fact have opened their doors to new energy services and customers.

Again, Eneco – who by way of example have 120,000 homes with smart thermostats and water heating controls – are branching out to all sorts of smart energy products. “Their goal is not to just deliver to the house or the roof, but to get involved with delivering energy services to the house,” Stoneman enthuses.

Naturally, anyone who is successful in the business of delivering home energy services, will have a myriad of information available on appliances, energy consumption, consumer behaviour etc, and will have the opportunity to monetise that data, assuming that proper protections and controls are in place to manage consumer privacy and data protection.

What is preventing utilities from pursuing a new business model?

Stoneman believes that the ability to experiment through trial and error and learn as a result, is important, but says he believes most of the innovation is happening in the larger utilities because these utilities have the luxury of a more eclectic Board make up; and an ownership structure that thrives on these new avenues. Their size allows the luxury of thinking about new avenues, but due to their diverse management structure, they also have people inside their organisation who realise they cannot ignore the changes.

The scary part of the story is that utilities are being cut out of their traditional playgrounds and markets.

In what Stoneman calls ‘Uber for electricity’ he talks about the influx of non-traditional players. He adds that as storage becomes more cost effective, it will start to make the business models even more interesting for observers, but also more stressful for utilities. “Utilities have the opportunity to rethink their business – maybe offer customers some storage, some solar, the ability to be connected to the grid, but also feed back into the grid – for many people, that would be an appealing prospect,” he believes.

What’s customer engagement got to do with it?

As utilities are trying to become thus modern, relevant and transformed, engagement with their customers is becoming ever more important – but “as an industry, we still have a long way to go,” Stoneman observes.

The digital maturity model still puts the utility sector in the conservative quadrant. ‘The truth is, utilities haven’t moved much along the spectrum in the last four years, even though there is a growing awareness among utilities of the need to change customer engagement models.”

For instance, while many utilities provide a mobile app, there is a question as to how effective many of these actually are. However, Stoneman believes that even though there may be room for improvement, the intention to provide better, more effective customer service is a genuine one.

Concluding thoughts

Stoneman believes that the transformation is going to happen with, or without active utility participation and planning. “In the next few years, you will see some early movers, but in 10 years from now there won’t be a utility CEO who doesn’t have a transformation plan on his agenda,” he concludes.