There has been a lot of talk about utility industry disruption and transformation in recent years, as recurring trends such as pressure to grow margins are joined by new ones—evolving customer relationships, big data technologies in grid operations, environmental pressures, cybersecurity incursions, and flat growth—forcing change in the utility world.
Rodger Smith, senior vice president and general manager of Oracle Utilities, didn’t mince words in his remarks for the utilities track of Oracle OpenWorld 2017, held in San Francisco last week. In the opening session, Dual Innovation: A Blueprint to Navigate Through the Disruption, he plainly stated the utility case: “Revenues are basically stagnant around the world. It used to be that we’d plan for two percent to three percent growth. We’re not seeing that globally any more. Revenues are flat. So, as a result, what we’re seeing is huge movement to cut costs in order to maintain margin. And what are we going to do to gain revenue? We’re going to start looking for new energy solutions.”
But that presents a complex business challenge, Smith noted: “You have to run your daily business, but you have to do that better than you ever did before. You’ve got to be more efficient; you’ve got to drive costs out of the business because you’re being asked to create margin. The banks are putting pressure on: if you can’t grow top line, you’d better grow margin. So, you’ve got to run your core business as efficiently as possible to generate margin, and to set the platform for whatever new innovation you’re going to add to incent your customers.”
While the utilities industry is no stranger to exploring new business value opportunities to build growth, this time there is a dual imperative: “Efficiency is going to keep growth per customer down, so you have to add more customers or other opportunities,” he said. “So, you have two things you have to focus on: core innovation, because you’ve got to create margin, and new business innovation to grow the top line beyond the traditional ways you have grown revenue in the past.”
The solution: A dual approach that includes both core business innovation and future business innovation simultaneously. In the core business, utilities will need to innovate with automation, analytics and cloud services to increase business productivity. “If you’re spending 80 percent of your time just maintaining your systems, you need to get out of that business. You need to spend 80 percent of your time innovating on new systems,” Smith cautioned. “Do you think your IT group is going to be moving as fast as they need to move on machine intelligence if they’re spending 80 percent of their IT spend on maintaining old systems? You’ve got to change that paradigm.”
For future business innovation, apps will be where it’s at, he added: “You have to be able to move quickly and fail fast.” Utilities will be able to use a modular approach to digitization, using technology to look for new revenue streams. By layering applications on top of existing systems of record, it is possible to quickly stand up, iterate and test new business concepts, decide what works and what doesn’t, and repeat the process moving forward.
Jack Azagury, Accenture’s senior managing director—resources, for North America, echoed Smith’s sentiments. Accenture, which sponsored the Utilities Track for this year’s OpenWorld, has done comprehensive research on the utility consumer for nearly a decade, and Azagury focused on a handful of recent trends utilities need to heed. These included:
In the end, Azagury said, transitioning to the next utility model is an extremely complex process, but can be boiled down to four key steps. The first is to transform the core: get more efficient in what you do today. The second step is to grow the core. “The core is 90 percent or 95 percent of your earnings, and if you want to deliver 6 percent growth, you can’t afford for that core to shrink. So investing in the core has to happen, even though in 10 years you need to be somewhere else,” he said.
The third step is to scale the new. “You have to think about new businesses and you have to innovate. You have start creating that innovation environment,” he said. “And we can have that debate: should that be separate from the core of the company? Will the core of the organization or the core of the company destroy that innovation engine? Or do you keep it close to the core? But you have to innovate.”
Finally, the fourth step is the “wise pivot”: How do you make the change, especially when you’re dealing with a transition that is 10 to 20 years long? “Every company is going through this. There is no company who is immune,” he concluded.