Recent trends in the electric utility industry signal a transformation toward a more dynamic and advanced “3.0” industry structure, which is presented about in further detail in Disrupted: A Brief History of Recent Electricity Industry Transformation, our first post in this series. The Energy 3.0 environment will be characterized by two types of players: the traditional utility company and the new agile entrants. These key distinctions are discussed in The New Horizon: Changes Defining a New Era for the Electric Utilities Industry, our second post in the series.
The transition to an Energy 3.0 environment will provide massive opportunities for those who are prepared to embrace the future. For those who aren’t, alternative strategies must be adopted should they wish to remain in the traditional utility domain. Our third and final post in this series provides practical advice and recommended actions for utility leadership teams to take to assess their organization’s current position and readiness and ability to transition to a 3.0 environment.
History shows that major disrupters to an industry don’t always spell disaster. In fact, they often create a major shift that forces an improved marketplace. Consider Amazon disrupted the traditional brick and mortar store, causing a shift in the entire industry toward digital sales channels. While many traditional retailers struggle to keep up, those that embraced the challenge are more innovative, and are offering new and improved experiences for consumers. Read more about how to create this mindset from our blog post 10 Ways Industry Champs Can Preserve the Challenger Mindset.
Actionable Insights for Utility Leadership Teams
- Don’t downplay the competition. Ensure that a mechanism exists within your organization that is responsible for tracking and reporting on competitive activity. If your industry is so saturated that you can’t keep track of the competition, stay alert. That’s when your market position is the most threatened. Always be on the lookout for new players and how they’re innovating. Most importantly, never underestimate their potential. For utilities, this is especially true in states where there are incentives for customer-sited generation and renewables are at or below grid-parity, or where state policy favors their rapid development.
- Be humble. Too many industry giants fall prey to challengers simply as a result of arrogance. They assume their huge stature means no one can knock them down. Just look at Hostess. Despite consumers’ transition from highly processed foods to cleaner eating, Hostess continued churning out the same unhealthy foods. This led the company to shut down in 2012. While utilities are clearly different in that many serve regulated territories, some are having their margins squeezed or are losing revenue to new generators or customer-owned distributed generation. Recognizing threats before it’s too late is key to keeping pace and identifying approaches for various business scenarios that could unfold.
- Don’t just compete; answer a need. Although the phrase “Kodak moment” endures, these moments almost certainly won’t be captured on Kodak film. The company failed to address the market need. With the proliferation of smartphones and digital camera, it quickly became irrelevant. Swift startups like GoPro were able to capitalize on digital imaging and consumers’ desire to capture action shots. Utilities face the challenge of keeping pace with customer demands for more control over their energy sources (i.e. green power purchasing), consumption (energy efficiency and monitoring solutions), and communication channels (increasingly moving to digital channels). If utilities don’t effectively answer the needs of their customers then competitors will increasingly fill the needs with alternate products and services.
- Look outside your industry. Some of the most innovative ideas are tested approaches re-envisioned in a unique way for a different customer base. For example, we placed a consultant who has helped improve the manufacturing process for an automobile plant on a team that’s helping a hospital client improve emergency room efficiency. There are many principles in common between these business challenges— the magic is applying them in uncommon ways.
Call to Action for Utility Leadership
A key problem for leadership teams is understanding whether or not the cultures and competencies of two divergent environments – agile and traditional utility - can coexist in the same organization. Utility leadership teams will benefit from asking themselves the following questions to determine how ready their organizations are to address the challenges and capitalize on the opportunities of a transition to the Energy 3.0 environment.
- How do we embrace the ‘new world’ model when our organizational competencies are embedded in traditional offerings?
- If we do participate, how might that be achieved and what value proposition makes our organization unique?
- What organizational structures need to be established to achieve the outcomes and shareholder returns that we desire?
- How can my organization create an environment that attracts the investment funding and regulatory incentives and policies required to achieve desired outcomes?
- How can we structure the business and create business models that deal with the cultural differences between a traditional utility and a new-style, agile utility?
- How do we develop stakeholder management skills to manage a diverse set of interested parties?
The industry transformation to an energy 3.0 environment presents an exciting opportunity for those utilities that are ready to think and act differently for the benefit of their employees and customers. Utility leadership teams must be prepared to fundamentally question the operating environment as it exists today and re-assess their business models, value proposition, products and services, and workforce skills and competencies to affect the necessary changes to successfully transition to Energy 3.0. Change won’t come easily, so leaders must be willing and able to part with conventional wisdom and think creatively about the challenge at hand. These insights and lessons from other industries can serve as catalysts for new ways of thinking about your business and the leadership actions necessary for change.