Utilities find themselves in an interesting place – stuck between the need to provide a reliable service and the pressure to innovate – and in some cases, managing these dual objectives can be something of a challenge.
“Utilities are under pressure from disruptive elements from all sides, says Julia Lundin, director of product marketing and strategy at Oracle Utilities, in an interview with Metering & Smart Energy International. “Competition, new technologies, customer expectations – there are a lot of things pushing the industry that create the need for change and rethinking the utility business model. But at the same time, for most utilities most of their revenue is going to be from their existing business for a while yet and they have to balance the need to consider their existing business and the responsibilities they have to deliver on today, without losing sight of what the future of their business may look like.”
In order to get a better understanding of which technologies will help drive innovation and drive an innovation mind-set, utilities need to optimise both current and future business prospects, while balancing the conflicting needs of innovation and reliability.
“Reliability and agility are contradictory: the conservative culture that has been built around regulatory requirements for reliability engenders a fear of failure. For a utility, failure typically means an unplanned outage or poor customer service. However, failure and, more importantly, how a company deals with failure, is an inescapable element of innovation, and must be embraced. Many utilities struggle to overcome the illusion that all failure is bad. And many struggle to run an organization that can focus both on agility and reliability.”
This is the message from the Utility Innovation Blueprint report, a collaboration between Oracle Utilities and Navigant Research. Commissioned by Oracle with research undertaken by Navigant, the report focuses on how utilities are able to manage and succeed despite these contradictory priorities, citing examples of utilities which are embracing innovation and creating the space for agility to become part of the utility culture.
In order to ensure this journey is undertaken with the minimum of challenges, the report proposes a dual innovation model whereby the utility is able to focus on continuing to operate in a reliable, efficient manner, while providing an environment whereby agility and new business opportunities can be explored.
Part one of this challenge is to maximise core business efficiency and resilience with automation, while the second part relies on the development of new business models to power future growth.
As pressure increases to keep operating costs lean in order to reduce or delay price increases, efficiency can help improve profit margins, “or free up capital to be invested in innovation projects.” Digitalisation will help utilities unlock value in existing operational and customer data, allowing them to deploy smarter, more automated business processes.
It is uncertain what the utility business will look like in the future, and disruption levels are still significant enough to keep industry insiders and experts guessing, but the sentiment is clear – it won’t look anything like it does today! Some experts suggest that utilities will move from a supply-based business model, to one which is firmly service driven, “supported by energy management solutions, solar generation, storage, and smart appliances. In some competitive markets, electric utilities are already predicating their strategies on a future where there is more value in helping customers consume less electricity than in supplying power.”
As the lines between traditional utility businesses blur – as network operators increasingly become involved with system operation for instance – traditional utility roles are going to be changing. With the refocusing of many business cases to a more customer-centric model, utilities are also accepting that competition is going to become more and more of a reality within their ecosystem. Of particular importance is the fact that much of this competition could come from non-traditional sources, from new, agile entrants who already have a customercentric approach to business. Never before has the threat of competition had such a direct impact on the need to innovate and adopt technology earlier and faster than before.
In order to provide context to the transformation process, strong examples of best practices were utilised to create a Utility Innovation Blueprint in which priority areas were identified and expanded upon.
Why innovation matters
“Innovation is a topic of interest to all of our utility partners,” Lundin explains.
“There are so many levels of innovation taking place in the utility business and there are parts of the markets that are under more pressure than others. For example, where there are more disruptors, more change is happening and utilities are competing and need to innovate faster.
“We also heard a lot from smaller utilities who are leading the way and there were some good examples of utilities outside of the electricity field who are really driving innovation and that are forward thinking. We are seeing the need for innovation across the industry and wanted to explore this further.”
Innovation as a part of your business.
“Many utilities operated innovation as a separate silo from the traditional business,” Lundin says. “They focused on 10-year plus shifts that would happen in the market – until they realised that they were missing out on short term opportunities that could impact their business today and that they had difficulty, once that innovation team came up with something, in integrating that into the business and getting value out of it.
“Incorporating innovation into your current business is the crux of our processes section and it was a big part of our research. ‘How do you embed innovation into your core business?’ There is definitely a shift within the industry from a situation where a utility had an innovation team that was solely focused on innovation. This is partly because they have realised that this made it hard to scale projects because of the isolation of the team. Many have now moved to a model where they have fewer people dedicated solely to innovation but have spread that mandate across the business.”
This creates a structure whereby utility staff can think about the type of innovation that they’d like to see, or explore new business models and short-term or long-term return on investment. The utility can drive an entire portfolio of innovation, some owned by business, some owned by the innovation team – but with all of them providing a sense of continuity across the utility. “This is really key in getting value out of innovation and being able to scale the things that work and feed them back into the business.”
The use of technology
Central to the utility innovation challenge is the need to optimise efficiency in the core business while maintaining reliability. Step one in that process is to digitise and incorporate more automation across the business in order to drive more productivity outside traditionally manual processes.
Lundin continues: “Digitisation came across as foundational and one of our respondents [Eesti Energia] put it very well when they said that ‘digitisation is not an IT project, it’s an opening up of potential within business units’ units.’ I thought that was really apt as it reflected what a lot of utilities were saying. Many seem to feel that digitisation is the first step in re-orientating their business but also setting them up to get the most out of their business in the future. They aren’t thinking about it as an IT project, but as a way to unlock the potential of the rest of their business.”
Being able to automate enables manpower to be more productively directed or tasked elsewhere.
Cultural shifts foundational
“One of the findings I found surprising related to driving a cultural shift,” Lundin reports.
“In terms of the people elements of cultural shift there are always top-down and bottom-up elements and I was encouraged to see the precedent being set from the top down to encourage people to innovate – but even more so to see the number of grass roots initiatives to drive innovations such as crowdsourcing or innovation challenges to empower employees. I thought it was interesting that embracing new organisational perspectives was already a strategy some of the utilities were pursuing in order to help their employees think outside the box.”
This included initiatives such as bringing in external sources of innovation and thinking, exposing employees to other industries that are at the forefront of innovation – for instance retail or telecoms – or sending employees to technology events and conferences, even if they weren’t utility technology focused.
One of the initiatives highlighted involved utilities getting a lot more engaged with their customers as a source of innovation. Rather than coming up with products and services, they are bringing customers forward earlier in the product process and co-developing with them or with a representative sampling of customers.
A very interesting example from Australia relates to the Yarra Valley Water utility and the strides they have made to put in place a customer driven framework. Utilising what they call a “citizens’ jury” made up of 30 customers which is a representative sampling, they reviewed all of Yarra Valley’s innovation projects and long-term planning over a three-month project. This was also shared on social media so that other customers could follow along and also be involved.
When it comes to cultural shift the report examines what the necessary conditions are to drive this kind of culture and determines that it comes down to three things: securing executive sponsorship, embracing new organisation perspectives and empowering your people.
In utilities and the core requirement of reliability, failure is essentially the absence of reliability. Thus, the absence of reliability is not an acceptable outcome in a traditional utility environment. However, innovation and agility must have, as an element of their make-up, an environment where the ability to fail is a core component of the culture. So, it’s quite interesting to consider how you rethink a culture and incentives and rewards that employees have and how you change that risk aversion mindset.
“Of course,” Lundin continues, “reliability is still a priority and this feeds back to the innovation challenge and the conflict between innovation and reliability and putting in place a culture that allows people to fail.” MI
Image Credit: 123rf.