How utilities can look to other industries to transform

Around the world, utilities have joined in on cross-industry efforts to digitalize their operations in order to position themselves for future success. Despite the immense effort that goes into digital transformation, Oliver Wyman estimates that nearly 80 percent of utilities don’t achieve the desired impact of increasing customer satisfaction and retention, whilst also lowering costs. On average, utilities only reach an estimated 50 percent of the potential offered by digitization. This is true for digital sales funnels, customer portals, and digital marketing activities.

Comparable established industries that have embraced digitization with a more radical approach are significantly further ahead. Successful players in the retail sector, shaken up by the rise of e-commerce, are regaining consumer trust and market share by revamping their digital presence and technology delivery capabilities. Similarly, car manufacturers seemed behind the curve in this area for some time but are now turning the tide to their advantage by combining existing supply chain capabilities with ambitious information technology capabilities and goals. And large media companies emerged to new heights by adapting to the new digital reality and creating new business models that fit consumer preferences and habits.

To successfully emerge from the complex landscape of digital transformation, utilities need to look beyond the information technology function, embrace a customer-centric mindset, and take cultural factors into consideration. Their local consumer trust, deep expertise, and existing infrastructure mean they are positioned well, making it possible to catch up by taking decisive and ambitious actions.

The challenges at hand

First, a fundamental lack of customer-centricity — rooted in decades of building processes and technology around meter numbers rather than customers, the people who own them, is still prevalent. This mindset leads to digital solutions often being designed with traditional processes rather than real life customer needs in mind. For instance, utilities often choose to reproduce existing paper-based forms provided by the regulator — often hardly comprehendible and thus not customer friendly — into the digital space or simply upload the PDF forms, thus integrating it into a customer journey that has not been fully thought out. Thus, solutions are often not widely adopted by customers because of something as simple as a digital sign-up. This, in turn, makes the customer journey too tedious and incomprehensible and does not achieve high usage rates and scaling effects that would reinforce the viability and benefits of digitization to the end-user.

Since customers often don’t express interest in adopting a digital journey, companies showing too little ambition in their digitization efforts often end up having to run both the old analogue process and the digital process simultaneously. This effectively disables the promise of digitization to lower costs and can lead to less satisfied customers who are confused over what channels they should be using. For instance, introducing a chat bot that is not fully developed and thus not yet helpful, whilst still sending bills via post and providing the option to contact customer service via customer portal, contact forms, but also phone and sometimes fax, is an unintentionally confusing but often observed scenario.

Second, rather than putting business owners who own the customer interaction such as sales functions at the forefront of digital transformation, utilities often treat digitization as solely an issue to be handled by the information technology department. Key questions such as how to design the future IT architecture, how to set up data management and analytics, and of the best IT delivery model to adopt are all too often answered only by technical departments, with little thought and consideration given to what is relevant for the business. For instance, initiatives led by the IT department to roll out customer management software and customer-facing digital channels can have negative consequences on sales personnel’s ability to engage with customers and sell effectively. Enabling the employees closest to the customer to co-design customer journeys, which is traditionally a guiding principle, is often ignored, often as a result of the fear of making major changes to established IT delivery models.

Third, utilities need to embrace the cultural changes necessary to enter the digital age. Foremost, they need to establish a unified view on customers, that employees across the firm can empathize with and build solutions for. Then, they need to help employees to embrace change by reducing fear around uncertainties and risks associated with transformation. Key to successfully enable these is moving to the core — a culture based on co-creation and trust across departments and levels. Only this will enable a concerted effort. Traditional delivery models based on detailed requirements documents and vendor-focused IT management will have to be re-organised into cross-functional teams. Likewise, pure top-down design and decision-making will have to make way for solutions that are designed by everyone, with and for the customer with a shared responsibility for success and trust in the overall vision. A fundamental revamp is needed to avoid simply focusing on the current state of affairs and operations and to avoid missing the opportunity to take on a step change. This will also help to develop a clear overall vision as opposed to starting multiple small initiatives.

A look forward

It is becoming increasingly clear that lacking a clear and ambitious vision for digital transformation will lead utilities to experience the troubles/challenges that other sectors such as traditional financial institutions, are going through. In this instance, large incumbents believed that barriers to entry were too high for their business models to be thoroughly challenged. Likewise, established utilities tend to be very slow at responding to the upcoming threats — leading them towards challenging times. The quick and significant growth of new, purely digital players that employ cutting edge technologies consistently across functions has taken the market by surprise.

Now that their presence and continued growth in the business-to-consumer space has become increasingly common, it is evident that even areas such as power generation — until recently clearly lead by established players — will be tackled by these digital players with surprising pace. Innovation, often stifled by slow changes in regulation and removal of red tape, is clearly gaining pace — not just in business-to-business and business-to-consumer sales, but also in areas such as trading and generation that were long believed to be harder to break into.

As many examples show, only courageous digital transformation effort truly pays off. Utilities need to face up to the challenge ahead of them. An ambitious vision and concept of the future business and operating model is key as a starting point. They need to sustainably build up the capabilities to learn the trades of digitization as proven successful in other industries, such as retail and e-commerce, where after being heavily disrupted by new market entrants, some key players have caught up and used their local brands and expertise to re-gain consumer trust and market share. This was accomplished through actions like building delivery services and partnering with local players from related industries to offer new service, thus unlocking synergies.

Most importantly though — regardless of the vision — it needs to be achieved by establishing trust across all levels and functions of the organization that the chosen path will lead to a better future for the entire customer value chain. The only way utilities can achieve this is by abandoning decades of habits and convictions and start co-creating innovative solutions for customers and the organization itself. This requires a fundamental shift away from pure top-down decision making at waterfall implementation. Instead, utilities need to involve stakeholders across the organization in all phases of the transformation, from high-level strategy, to detailed concepts and implementation. The division between decision-makers and implementers needs to be dissolved. Paired with the realisation that digital transformation is about people and their needs — not IT systems — will lead to a solution that creates value.

Christopher Sohn, Principal, and Leopold Zangemeister, Engagement Manager, also contributed to this article.