Executive Insight, Smart Grid

Industry Disruptors and the Imperative for Dual Innovation

Increasing environmental pressures.

A rapidly evolving customer relationship.

Growing use of big data technologies in grid operations.

Restricted revenue growth and pressures to grow margins.

Utility industry consolidation in the electric and gas sectors.

Enterprise cyber security concerns.

Changing utility regulations.

In the past decade, these industry trends and issues have placed increasing pressures on utilities to transform their enterprise operations. And those aren’t the only pressures in play: The industry is also being disrupted in a dramatic way by digital transformation, new technologies, outside competitors entering the market, and—in the case of electric utilities—distributed energy resourcesIn this rapidly changing environment, utilities are facing a dual innovation challenge: the need to incorporate innovation into core business processes while also innovating around new processes and services.

Unsurprisingly, the need to cut costs is a key driver in core business innovation. This is a recurring theme, one that the industry experienced in the 1980s and the 1990s. Today, we’re seeing it again: revenues are basically stagnant around the world. The industry used to be able to plan for two percent or three percent growth, but that’s no longer the case. Revenues are flat. As a result, there is a strong movement within the industry to cut costs in order to grow margin. If you can’t grow the top line in periods of stagnant growth, then you need to create margin. Innovation within your core business processes provides you with the means to run your daily business more efficiently than ever to drive costs down.

But, while you need to continue to innovate in order to optimize efficiency across your entire core business value chain, you also need to simultaneously explore new business value opportunities for the future in order to grow the top line and move the needle for your business. As the utility industry continues to be disrupted, it’s not an either/or choice—both are essential to sustaining healthy business growth.

Striking a balance between core and future business innovation

In the face of this complex challenge, it is necessary to strike a balance between these vastly different types of innovation projects. This requires a parallel, or dual, innovation approach. Put simply, core business innovation maximizes efficiency within the existing value chain, while future business innovation builds the value chain in new ways. While the culture is different for the two types of innovation, technology facilitates them both.

Core business innovation

Let’s focus first on core business innovation. As noted earlier, utilities are being pressured to increase efficiency, cut expenses, and invest in different capabilities—all with an objective to eventually improve the bottom line. The goal with core business innovation is, therefore, to maximize core business efficiency and resilience in your existing business through digitization, machine learning and automation; integrating systems of record; and utilizing cloud and analytics technologies to unlock further business productivity.

Cloud services are particularly important to this effort. The cloud allows a far better deployment of digitization through technology applications—increasing core business efficiency. It also takes advantage of the scale of commodity IT infrastructure, which can reduce IT staff maintenance budget commitments by between 70 percent and 75 percent, according to reports. This frees  up both IT finances and human resources to recalibrate around future business innovation projects.

Finally, core business innovation will also provide the platform for future business innovation.

Future business innovation

Future business innovation is centered around building the utility’s value chain for the future, the business processes, products and services you add to continue to incent your customers and grow revenue. Applications provide the agility for this type of innovation. They are modular, allowing you to iterate and test new business models quickly, and giving you “fast-fail” agility: if the new business innovation project isn’t working out, you can end the project quickly and reallocate those resources to another project.

One of the big business values to this approach is in creating a layer of agile applications that are modular, and can easily be laid on top of your core systems of record. Customer experience, or CX, channels are one good example of this, as stickier CS sets utilities up for the future to sell new products and services to its customers. In Accenture Consulting’s 2017 consumer survey supporting its New Energy Consumer research, those interviewed clearly indicated that a seamless customer experience that is consistent, effortless, and intuitive; products and services that are personalized to fit each consumer’s needs and preferences; and products and services that are specific to that consumer’s lifestyle are ranked highest in impacting consumers’ willingness to buy additional goods and services from their utility.

The new products and services you ultimately offer to your customers will depend upon the particular needs and demands within your service territory. There is no cookie-cutter, all-encompassing approach to future business innovation. But, by using agile apps, you can move quickly to decide what works and what doesn’t, and keep doing that as a matter of routine moving forward.

Yet again, reinvention–supported by technology

Reinventing the utility business is not new to this industry. We have gone through numerous innovative changes over the past century—particularly in the electric utility industry—since Edison, Tesla and other industry founders came up with the brilliant idea of developing the electricity grid and enabling different types of generation. Even in 2017, we’re just beginning to scratch the surface of what is imaginable.

The utility stakeholder universe—from stockholders and board members to regulators and customers—will need to be on board for future business innovation to take hold. The consumer is already there. Consumers want change, and they want change from their utility that is similar to what they are seeing in the other industries with which they do business. Numerous industry analyst studies over recent years have borne this out. We’re also seeing support for innovation from utilities, and even from some regulatory bodies.

The good news is, technology is ready to play a vastly larger role than ever before, providing utilities with an ever-growing cornucopia of options for innovation. But if technology is going to be a bigger driver going forward, utility stakeholders need to begin looking at the industry differently. Utilities and regulators will need to align to evolve the regulatory compact, and the financial community will need to look differently at the ways in which they determine utility risk profiles. Utilities understand that if they’re not focused on innovation, they are gong to quickly fall behind. It’s time for radical, innovative change on the part of utility stakeholders, as well, to fully nurture this utility industry transformation.

About the author: Rodger Smith is senior vice president and general manager, Oracle Utilities. He is responsible for leading a worldwide team in sales, services, product development, R&D, industry strategy, and marketing for mission-critical applications and services designed for the utilities industry. Prior to joining Oracle, Smith was president of the Enterprise Management Solutions division of Black & Veatch, which included Black & Veatch Management Consulting and the infraManagement Group, an operations and management provider for utility assets.