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How Utilities Can Maximize their Digital Investments

The oft-heard mantra in the utilities industry these days is that utilities need to deploy digital technologies and apply innovation, not only to existing operations, but also to developing new products and services to meet new demands in areas ranging from distributed energy resources (DERs) to electric vehicles to storage.  If utilities do not make the digital transformation, they run the risk of losing market share to non-traditional competitors. 

However, the path to digital is not getting easier. Indeed, our research indicates that only a select few utilities obtain the return they expect on digital investments. 

To find out why, we zeroed in on a critical transitional phase for large, innovative organizations: when and how they move from a successful digital proof of concept (PoC) to scaling that pilot across their firms for growth and profit.  Included in the overall research base of over 1,350 industrial companies were more than 100 utilities in North America, Europe and Asia-Pacific.

We found that utilities are scaling nearly 60% of all digital PoCs, but only about four out of 10 companies are doing it successfully. 

The results presented a few surprises.  First, we did not expect to find that many utility companies trying to scale.  And, we found that Asia-Pacific companies had the highest percentage of “champions” who are successfully innovating for digital transformation.  Over a third (36%) of Asia-Pacific utilities in our sample ranked as digital champions, versus just 12% in the United States and 34% in Europe. 

The smaller percentage of digital champions in North America is attributable, in part, to the fact that investments are closely overseen by state regulators, making it harder to scale up without a lengthy approval process and rate increase.    

Like the champions uncovered in our overall research, utility industry champions think strategically and leverage four management best practices, first to identify the value they seek to create, and then to change not only their approach to digital but their entire organization.  

All the companies in the best-performing sample cluster tend to take four specific actions to drive the scaling-up of their innovations: 

  1. Defining the value that will guide innovation efforts: Champions assess the opportunities before them, and, at the senior-most levels, narrow in on the market opportunities they want to pursue. They then use that clarity to communicate with middle management, addressing two key challenges — “Digital value driven from the top down” plus “Innovation that’s stuck in the middle” — and direct their innovation efforts to secure expected returns.
  2. Focusing on external value and internal change: Champions blend technology transformation efforts with organizational change to avoid a divide between the two — effectively creating what Accenture calls an “ambidextrous” organization. 63% of champions said explicitly that this was an objective for them, while only 54% of the other groups said the same.
  3. Enabling innovation in each business function: The research data shows that champions are masters at matching investments to innovation requirements.  They are very good at directing “enablers” — like data analytics platforms, new ways of working, or new models of functional collaboration — to those business functions that need them the most and will use them best.
  4. Building in-house innovation factories: Rather than spinning off new profit-driven entities to accelerate innovation, champions prefer building in-house innovation factories. These organizational units are then put into the service of already existing business groups, which can work with them to innovate and scale new solutions.

In addition to these actions, we found that champions tend to prioritize certain capabilities, and then invest heavily in them.  For example, champions in North America are inclined to invest in strategic digital alignment, along with reskilling for digital, while European champions tend to favor as-a-service business models and mainstreaming digital.  Asia-Pacific champions, in comparison, seek to invest in strategic digital alignment and in integrating hardware and software. 

With their investments in smart meters, smart grids, the industrial internet of things  and other innovations, utilities were relatively early participants in digital transformation.  However, the process of successfully scaling digital investment is complex and incorporates many different elements, including leadership and culture, ecosystem partnerships, skillsets, technology and platforms.  Above all, utilities need internal alignment, with top management fully supportive of digital initiatives and willing to put pressure on middle management to move quickly.  

From distributed generation to cyber-security to climate change to an aging workforce, utilities face multiple challenges.  Making the right decisions about digital investments and scaling such investments quickly and effectively is an essential part of meeting and overcoming these challenges. 

 

Maikel  van Verseveld's picture

Thank Maikel for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Oct 24, 2019 1:26 pm GMT

The smaller percentage of digital champions in North America is attributable, in part, to the fact that investments are closely overseen by state regulators, making it harder to scale up without a lengthy approval process and rate increase. 

This is an interesting point-- are the North American markets really that much more regulated than elsewhere in the world? And if that's the case, what's the best solution-- is there a better way to work within existing regulatory processes, or is there reason perhaps to push for a carve out to make it easier to become a 'digital champion'?

Maikel  van Verseveld's picture
Maikel van Verseveld on Oct 29, 2019 6:13 pm GMT

In various European and Asian countries, the regulation is an integrated responsibility across both Transmission and Distribution regulation, which leads to a more homogenous vision and goals in line with country policies. With the strong growth of both renewables and EV, many regulators have understood to focus more on the output thru innovation within a multiyear framework than on prescribing the ‘how to’.

Especially with the dynamics across the different power networks, the integrated response to tackle the challenges is becoming more important.

The concept of performance-based regulation (PBR) is also in place in some states like Illinois and New York and slowly being adopted across 15+ more states in the US – which I believe will help with the adoption of new digital capabilities.

Matt Chester's picture
Matt Chester on Oct 29, 2019 10:03 pm GMT

Really interesting to look at the global perspective-- thanks, Maikel. 

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