by David DuCharme, Capgemini
Everywhere you look, the digital movement is decimating business models. Even in the traditionally conservative utilities sector, companies are using software, sensors and Internet technologies to get smarter, faster and better connected with customers and communities.
Large organizations have found that when they apply digital transformation techniques and solutions to their work, employees collaborate better. Manual processes and operations are managed automatically.
Put to use, practical innovations extend products and services in ways never before possible. According to 78 percent of respondents of a 2013 survey Capgemini conducted with the MIT Center for Digital Business, achieving digital transformation will become critical to their organizations within the next two years. That time has arrived. Leaders across the industry are placing technology and information at the top of their agendas to find new ways to move faster, smarter and in a more customer-centric manner.
What Does Digital Transformation Mean for the Utilities Industry?
The utilities industry might seem an unlikely target for massive digital transformation. We operate in a somewhat constrained, conservative environment compared with other commercial sectors. Given the high costs of our asset-intensive and highly regulated industry, our options might be less than flexible. Change is expensive; however, digital transformation is our future, and new solutions are creating a stronger argument for change.
With its roots in conservatism, the utilities industry has much to gain from new investments in digital transformation. How will your organization reap the radical yet practical improvements new solutions provide? What areas within your business are ripe for change?
The business case for change grows stronger every day. Utilities are not immune from competition. New entrants and disruptive energy technologies from startups and established firms across other industries threaten our existence if we stay the same.
According to an August 2014 Time story, technology giants Apple, Comcast, Google and Samsung have invested in home automation startups, whether focused on security, controls or networking. Retailers such as Best Buy and Staples, as well as home improvement stores Home Depot and Lowe’s, have growing assortments to help consumers find and implement alternative utility sources.
Innovations and competition also are affecting the other end of the value chain: generation, transmission and distribution. Samsung and other well-funded commercial businesses are investing deeply in solar. Tesla batteries are claimed to have the potential to power a house for days.
The future direction of all this disruption is clear. Consumers will deepen their relationship not only with brands they trust, but with brands they perceive as most likely to serve their needs.
Given the new utilities landscape, staying conservative is being replaced by going aggressive with competitive zest. Utilities are not too big to fail. As The Economist noted last year, several European utilities have lost trillions of euros and are in danger of demise, not only through new competition from renewables, but also from an overinvestment in new facilities.
The Benefits of Taking Action
As new and potential competition looms, utilities should take a proactive stance and not embark on a digital transformation journey with a reactive or defensive mindset. There’s no time to hesitate or second-guess next steps. Meanwhile, utility leaders must hold strong to the thought that cultural inertia is their biggest competitor. That’s why it’s important to lead change and assess the potentially positive impact of digital transformation across the extended value chain.
Where to start? The opportunities are endless, but clear answers can be elusive. Gaining greater operational insight across the value chain might be a good place to begin your search for digital directions and solutions. Keep in mind:
- As energy moves from generation to transmission to distribution, friction builds, causing lapses in the transition, which can cost time, money and customer loyalty. Deeper insight into those areas of friction can beget solutions for agility.
- A search through massive troves of available big data also might bring bigger rewards. Analytical insight can help leaders spot and prepare for predictive measures.
- Automation can replace manual, paper-based processes that waste time and are error-prone.
- Siloed software applications such as enterprise asset management, ERP, GIS and others might lack integration, which limits the ability to aggregate for accurate information.
The biggest advantage of going digital is the connected information it affords. The more information that’s collected, the better the insight. Virtually any digitized process or operation can be analyzed for insight, from consumer information and utility usage to compliance issues. With rich analysis in hand, better marketing, retention and relationships can result.
But the value of digital transformation doesn’t stop there. Consider the rewards by gaining insight into areas previously impossible to probe.
What if utilities offered an unparalleled level of reliability and affordability that incented businesses to move into their service territory? What can be gained by digitally engaging with customers to build brand loyalty levels normally associated with companies such as Apple or Google? Imagine the positive impact on loyalty by offering intelligent apps or services to help consumers attain higher energy efficiency, such as remote thermostat control? Consider the value of online chat with customers rather than a reliance solely on voice. This would not only boost customer engagement and convenience but enable more simultaneous interactions with your customer service reps, making them more productive and supportive.
The digital journey should pervade every corner of a company. Whether identifying new ways to create revenue, improve operations or introduce approaches that speed the compliance and audit process, utilities can build confidence at every turn.
Hallmarks of Success
Utilities that are moving toward digital transformation tend to share common characteristics: They have supportive board members who’ve witnessed transformation firsthand in other industries. The banking industry’s move to enable check deposits via smartphone photos is just one example.
In addition, internal executives have learned to evangelize a culture of innovation by painting a clear picture of the dire future if the company stays put. The ramifications of inertia are many while innovation brings hope and feeds a positive, forward-looking, customer-centric culture.
For many utilities, a conservative stance is a detriment to attracting and retaining the best young talent. In our work in the industry, we’ve talked to CEOs who view a move to digital as a way to attract millennial employees.
One of the great fears when plotting strategy is, “You don’t know what you don’t know.” Data can help close those gaps. The utilities industry has thrived for more than 100 years because it’s engineered itself for superior levels of reliability. That’s a good thing. But what if industry players could apply smarter analytics to determine where overengineering is nothing more than expensive overkill? What if they could rethink their approach to maintenance by applying real-world, informed analytics to predict and prevent rather than just preserve?
As we’ve discovered by working with utilities large and small, players needn’t always engage in new-technology overload to derive benefits. Big results can be found in more simple solutions. Here are a couple of examples:
- A utility in Australia, using aggregated data from its smart meters and meter infrastructure, identified potential transformer failures by assessing load levels and extreme temperatures. This proactive approach to maintenance delivered strong performance rewards previously unattainable through a reactive stance.
- After Italian utility Enel embarked on a four-year project to roll out smart meters and integrate its infrastructure more tightly, it reduced operation costs 40 percent and increased reliability 60 percent. Analytics from the integrated system improved its supply chain, warehouse inventories and truck rolls. This is an example of a simple digital effort that virtually any utility can deploy.
The utility industry finds itself at a significant inflection point in its storied history. With the onslaught of digital solutions, utilities have an opportunity to rethink how they do business.
Consider what the utilities industry does best: managing potentially risky assets spread out among a population. Safety is paramount. Asset management is essential. Utilities can extend the same mindset that drives power station management to new areas such as solar panels and microgeneration facilities. Sustaining old ways with truck rolls and technicians no longer applies. New sensor technologies and the Internet of Things have reached practical status, and the ability to analyze sensor data for insight can support not only utility operations but provide customers information, too. All combined, the industry opportunities are endless.
The time to respond is now. In this traditionally conservative industry, those who innovate first will gain and maintain the biggest advantage. Done well, digital transformation can help utilities respond to change and forever transform the critical services and value our industry provides.
David DuCharme is vice president and North American energy practice lead for Capgemini.