How the utilities industry can stay competitive in the digitalized market
Utility companies are facing new competitors from the technology industry. Tech giants such as Amazon or Google are already tapping into the energy market with their smart home devices, delivering insights on the energy usage and trends to the consumers. And yes – utilities have some homework to do.
Michael E. Porter, the founder of modern business strategy, identifies two ways that an organization can achieve competitive advantage over its rivals: product differentiation and cost optimization. While cost optimization is a universal concept, product differentiation isn’t commonly associated with the utilities industry (particularly when the historical uni directional view of energy services is applied).
Many of the challenges faced by the industry have been well documented: consumers becoming “prosumers”, increased cybersecurity concerns, poor asset utilization, resiliency challenges in the face of regional or global events, accelerated sustainability demands, geopolitical risks, and stiff regulatory requirements.
The most impactful, however, may be the fundamental change in the profile and expectations of the average consumer. They are either digitally-native or digitally-influenced, and demand a level of personalization and value-realization exponentially greater than that expected ten years ago. These are consumers who prefer to obtain information through digital content vs. traditional advertising, and who rely on the recommendations of their peers and trusted organizations.
Energy utilities haven’t tapped into the smart home market yet. Whereas tech companies such as Google and Amazon are already converting the customer data they collect into energy usage insights that are valuable to their consumers. This is a source of value that energy utilities must control if they want to truly differentiate themselves and maintain product differentiation advantage. Ceding this ground to Google or Amazon is very dangerous, particularly since the smart home market is estimated to exceed $47 billion by 2025. Once unthinkable, energy companies could lose their market position as energy experts.
Far-fetched? Hardly. Utility Dive published an article in 2021 that noted Amazon Web Services has an oil and gas division (with BP and Shell as clients). Additionally, Microsoft has partnerships with ExxonMobil and Chevron, and Google has a relationship with Schlumberger for its oil and gas petrotechnical software. So-called tech companies could be energy providers sooner than you think.
This means that utility companies must do three important things, now: define and execute upon their digital ambitions, put customers’ needs and wants first, and speed up the pace of change.
- Digital ambition: An organization’s digital ambition, as defined by Gartner, is the extent to which it will leverage digital technologies and approaches to improve its results. Utility industry players, should thoroughly re-examine and re-define their service value proposition, maximize operational resiliency, embrace data-driven decision-making, and identify game-changing advanced technology use cases supporting all aspects of the business. Utility companies need to realize they are no longer just power-generators.
- Customer-centric approach: Having a customer-first attitude seems obvious. However, many companies do not understand what that means, or just how important it is. It is not simply providing good service. These days, it has more to do with the means, frequency, content, effectiveness, and value of communicated information. This is where traditional customer service gives way to customer experience management. EY found that businesses with superior Technology plays a huge part in the success of customer experience management, leveraging AI and real-time analytics on huge volumes of structured and unstructured data.
- Speed up the pace of change: Finally, with respect to pace of change, market participants can no longer sit back and assume that time is on their side, particularly when they are competing against new market players who are “born digital”, meaning that digital concepts are second nature and not introduced as something fundamentally new that must be learned, accepted, and implemented. Moore’s Law aside, the pace of technological change has accelerated at faster rates. COVID-19 fast-tracked cloud adoption by three to five years. Today, companies can implement next-generation ERP technologies such as SAP S/4HANA in mere months, as opposed to several years back in the 2000s and 2010s. Procrastination and analysis paralysis will result in a loss of market share, revenue, and customer attention.
First, research what leading global utility companies have done to implement disruptive change to their service offerings, operations, and analytical capabilities. SNP has been instrumental in accelerating the transformation of utility companies all over the world including NorthWestern Energy, Distrocuyo, Energie AG, Conergos, Nebraska Public Power District, and Siemens Energy.
Second, assume that the old way of doing things is no longer appropriate. With respect to digital business optimization, sometimes it’s easier to identify what isn’t digital. Here are some examples of what to avoid:
- A greenfield implementation of your new S/4HANA digital core when greenfield isn’t the only answer.
- A sequential approach to projects.
- An assumption that regulations inhibit transformation.
- An irrational fear of the cloud.
Third, if you are not ready to start overhauling your processes and analytics, there are plenty of preparation activities you can start that can result in measurable cost savings:
- Consolidate your SAP systems
- Remove unused or unneeded data
- Archive historical data to the cost-optimized location of your choice
- Decommission your legacy read-only SAP systems
- Complete your S/4HANA pre-projects
- Move to any cloud
Fourth, and finally, contact us! We can show you a better, faster, safer way to plan and complete your data-related SAP transformation projects.