Point of View

Utilities Are Fighting a Battle for Survival

August 23, 2018

The utility industry is experiencing a period of unprecedented change. After a good century of relative stability, the last two decades have plunged the utilities industry into turbulence. This is only the beginning of a more significant transition in the way the world produces and consumes energy, particularly electricity. 


Utilities across the globe are struggling to drive growth and profit. Power demand is growing on a global scale, but locally—especially in Western nations—demand is flat or decreasing. Establishing consistency between objectives and desired business outcomes is a critical step in ensuring the success of digital transformation initiatives.


This Voice of the Customer POV report presents how utilities are dealing with the current situation in terms of prioritization of business transformation objectives, and  the levers used in digital transformation efforts.



Why transform? Utilities firms cite bottom-line profit growth as the top objective


Digital transformation is at the top of the agenda for utility executives. It has emerged as the panacea to help solve their growth woes through modernizing business processes and developing new digital offerings. This transformation is altering the landscape of the utilities industry at an accelerating pace.


In a recent survey of IT and business operations leaders within Global 2000 firms, HFS queried respondents about their top objectives for business operations transformation over the next three years. Their answers show us the big picture reasons for why enterprises are pursuing digital transformation, as shown in Exhibit 1. Respondents from the utility industry overwhelmingly identified bottom-line profit growth as the priority far more often than other sectors did. Other industries are focused on growing top-line revenue. Improvement of customer experience is the second-most important driver and goal of business transformation for utilities, on a par with other sectors.


Exhibit 1: Top objectives for digital transformation—utilities versus other industries 



Source: HFS Digital Transformation by Industry 2018, utilities n= 30, other sectors n= 318; other sectors include manufacturing, energy, BFS, healthcare, pharma, retail and CPG, high-tech, insurance, telecom, and travel


Utilities’ survival hinges on better relationships with customers


HFS queried respondents to discover which business outcome is most critical to achieving their transformational objective. Exhibit 2 shows aligning front-, middle-, and back-office operations to improve customer experience is twice as critical for utilities than it is in other industries.


This focus demonstrates a link to the top priorities for business transformation—improve bottom-line profit and improve customer experience. Customer acquisition costs and customer service costs are substantial cost categories impacting utilities’ bottom lines; utilities can influence these cost areas directly by improving processes and aligning operations. All other sectors cite driving down operating costs as the critical outcome for achieving transformation objectives.


For utilities, two other objectives stand out. The first is improving the quality of operations talent, a top priority for almost one in five utilities. Another one in five sees improving decision making to be more proactive as the top priority.


Exhibit 2: Top business outcomes needed to achieve transformation objectives—utilities 



Source: HFS Digital Transformation by Industry 2018; Utilities n= 30; Other sectors n= 318; Other sectors include manufacturing, energy, BFS, healthcare, pharma, retail/CPG, high-tech, insurance, telecom, and travel


How will you achieve transformation? Utilities focus on Internet of Things, blockchain, augmented reality, analytics, and cognitive agents as key levers


Enterprises in the utility industry are leveraging a variety of change agents to help drive transformation. With so much hype and focus on digital change agents, it’s sometimes natural to assume that they are all mature, well-tested, and have proven business results. The reality, though, is that many change levers are still in the planning, pilot, or implementation stage. We asked businesses about their implementation of several change agents; exhibit 3 shows the results.


Exhibit 3: Utilities’ use of change agents to drive digital transformation 



Source: HFS Digital Transformation by Industry 2018; utilities n= 30


IoT, blockchain, augmented reality, robotic process automation (RPA), smart analytics, and cognitive agents are the leading focus areas for planning and pilots. Notably, 60% of utilities indicate they have pilots underway exploring blockchain technology. Despite initial privacy-related worries and regulatory challenges, cloud is conquering ground in the utility industry.


Utilities companies see augmented reality as an up-and-coming technology; an example is using augmented reality to support field force personnel with digital twins of power plants and transmission and distribution infrastructure. Many utilities are planning or piloting augmented reality and virtual reality.


A staggering 27% of utilities report no plans for using RPA, with only 6% implementing RPA or having it in the production environment. This is a meager percentage compared to other industries.


Innovation is top of mind for provider selection


To rebalance internal and external capabilities in the new age of digital technologies, utilities need service providers that understand the radical changes in the industry, that help innovate internal processes, and that provide external plug-and-play services. We asked utilities about their top criteria for selecting an external service provider. The top three criteria are the quality of service delivery, the ability to provide innovative solutions, and an existing relationship, as shown in Exhibit 4. This is on par with other industries.


Exhibit 4: Utilities’ selection criteria for utility operations service providers 



Source: HFS Digital Transformation by Industry 2018; Utilities n= 30; Other sectors n= 318; Other sectors include manufacturing, energy, BFS, healthcare, pharma, retail/CPG, high-tech, insurance, telecom, and travel


Bottom line: You are in a fight for survival; align business objectives with technology and execution to accelerate your transformational journey


Why are you transforming? What are you going to achieve? How are you going to do it? Utilities firms, suffering from lagging growth and profit performance, are crystalizing their core objectives for digital transformation: increased bottom-line profit and better customer experiences. Evolving customer expectations and shifts in the regulatory landscape are combining with the continuous flow of emerging technologies to make the utilities industry a hotbed of transformation. Firms should prepare for radical change in operating models along with changes in the utility value chain.


Utility companies should be clear about their expectations from service providers when it comes to innovation; they should determine which service providers could be an integral part of the transformational journey and bring not only operational efficiencies but also deep industry expertise and capabilities. Service providers need to step up to the plate to drive innovation for utilities clients.

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