Digital transformation: focus on the utilities industry

Utilities energy conceptAmong the industries facing big challenges and having tremendous opportunities in digital innovation and transformation is the utilities industry.

For utility firms the challenge is not just to review, optimize and transform existing processes and business models. It is to find completely new ways to conduct their business across numerous areas and functions. Obviously there are many players in the utility chain so the challenges, evolutions, technologies and transformations are not the same for all components of that chain. However, new revenue models and sources, as well as opportunities of process improvement from various possible angles are universal across the utility chain.

Forward-thinking IT firms know that in some industries the future growth and evolutions are far more interesting than in others. And the utility industry is certainly one of them. Here you have a normally rather slowing mover in technology adoption that clearly is an early mover when it boils down to digital transformation, the IoT, anything with the predicate “smart” and Industry 4.0.

The challenges of utility firms

While the government “industry”, for instance, is interesting from many perspectives, certainly in countries where it drives the innovation, in other countries it can be a hard market with very slow decision processes and quite some politics. It’s not universal obviously but still.

Different story in the utilities industry. The challenges utility firms are facing can’t be tackled in slow ways. And in this extremely competitive and sensitive market with many fluctuations in the broader ecosystems, thinking ahead and grasping the benefits of “new technologies” is key to survival.

Utility industry in digital transformation

Among the (really many) challenges facing the utilities industry overall (and making abstraction of regional differences):

  • Regulatory challenges. In many regions, energy, water and other utility companies in the short term focus on regulatory initiatives that in some regions are changing the market big time.
  • The fact that natural resources are not endless (and we feel it more than ever, just look at the underlying causes of many geopolitical evolutions).
  • Heightened competition. As a result of some (recent) regulatory changes in several regions, competition has increased. Furthermore, with so-called disruptive players entering (parts of) the utility industry, business models as such are under pressure, mainly from a digital customer experience perspective.
  • Macro-economic and geopolitical. We mentioned geopolitical before but there’s more. In recent years it has become clear that energy has become more than a weapon and is not just used as one but also the cause of many conflicts. Some of these recent conflicts are reshaping the way countries are sourcing their energy and reviewing existing dependencies while others forge partnerships challenging balances that have existed for a long time.
  • Technological challenges. As is often the case, digital technologies and evolutions are both challenge (e.g. demands of the digital consumer) as opportunity. And in the utility industry we tend to look at technology far more as an opportunity and enabler. We’ll tackle some of the technologies but it’s clear that Big Data (or smart/actionable data), the Internet of Things and big data analytics (adding insight and action to the avalanche of unstructured data) are among them.

The technology picture

So, let’s immediately look at some of these technological evolutions playing a crucial part in the utilities industry. And it’s clear that two in particular stand out.

  • The Internet of Things. It’s obvious that IoT (smart meters, smart grid, energy efficiency management etc.) is big in the utilities industry. According to Gartner’s Jim Tully there are 299 million IoT units installed in the utilities market, making it rank second after manufacturing.
  • Big Data (read: analytics and actionable intelligence). Along with the rise of “smart devices” but also because of many other reasons, including the crucial role of data in an industry where data matters a lot from all perspectives, dealing with the amount of data generated and especially turning all this data into competitive benefits, gained efficiencies and customer-facing advantages is a key priority in utilities. Content analytics plays a key role here.

There are of course more technologies and digital evolutions in the utility industry (cloud, mobile,…) but we focus on the overall digital transformation picture.

Digital transformation across the utilities value chain

When looking at the broader utility industry ecosystem, it’s important to break up the “chain” and see the various challenges and opportunities per element of the value chain as energy, water etc. are such complex ecosystems.

Accenture did a tremendous effort in this regard and summarized it all in a great infographic on the “digital utility”. The company sums up the business imperatives, challenges and solutions in three segments:

  1. Supply. Where the ‘resources’ get generated and trading occurs. Let’s say the source.
  2. Network: where all the transmission and distribution happens.
  3. Retail: what you and I meet the utility in our capacity as consumers, business owners and/or managers.

The infographic and where digital technologies, the digital landscape and transformational initiatives fit in, speaks for itself so check it out.

Utilities - digital transformation and opportunities across the value chain - via Accenture - click for full image
Utilities – digital transformation and opportunities across the value chain – via Accenture – click for full image

Customer experience and commercial models

At the occasion of Oracle Open World 2013, Jonathan D. Loretto and Michel van Zupthen, both from Capgemini, made a presentation of the emergence and transformation of digital utilities in the “smart” era.

Smart is indeed the word we stumble upon in all aspects of digital within a utility industry context and overall service economy context: from smart meters to smart cities (where utilities come into play as well, smart grids) and smart parkings.

The presentation focuses a lot on the customer experience, as often mentioned today de facto a key driver in the bigger digital transformation picture. However, the dimensions of operating models, technology architecture and – last but not least – commercial models are mentioned as well as you can check out below (with some cases too).

The commercial model is also one example of how utility companies need to and can go beyond optimizing “what is” but truly review business models, for instance with alternative pricing models.

Top image purchased under license from Shutterstock