One of the biggest hurdles utilities face in embracing digital transformation is a resistance to change. For established organizations, adopting digital as an enterprise-wide business model is far more challenging compared to new market entrants that have a digital-first, customer-first mindset embedded in their organizational culture.
According to the 2016-2017 CGI Global 1000 outlook, over 70% of the 1,000 business and IT leaders we met with face-to-face noted that implementing change internally is their top challenge. This, in fact, poses a much bigger challenge than overcoming the rigidity of legacy IT systems.
So, how are utilities addressing this culture and change management challenge and what should they be doing?
Some utilities are creating smaller affiliates to focus on new business models, services and ways of relating to and engaging with consumers. Some may even go as far as creating a new brand, totally distinct from the parent company to address specific segments of the market. These smaller and more agile business units can hire new people and attract the kind of digital talent required to think differently. They are also more open to developing partnerships and engaging with start-ups and innovation centers. Moreover, these business units are not constrained by legacy systems, as in many instances they can select modern systems that are more flexible and agile in order to move faster to market and support truly real-time-based operating models.
In other cases, utilities are acquiring equity stakes in start-ups. In fact, there is increasing evidence of this trend, particularly around disruptive grid edge technologies. One of the most active utility investors in this space is E.ON Venture Partners. The company has 15 investments listed on its website, of which the top five include utilities from North America. These investments allow utilities to accelerate change by bringing in external innovation, whose creation they have influenced, to better meet their needs.
This trend reinforces the findings of the CGI Global 1000 outlook, where 51% of the utility executives interviewed clearly highlight the importance of collaborating across organizational boundaries to create new business and operating models, and deliver new value-added services to their customers. These alliances—either in the form of equity stakes, partnerships or other collaborative models—are recognition that innovation and additional capabilities are the need of the hour, and that they often might be better found outside the organization. This outside-in thinking—bringing in from the outside new ways of doing business—is critical to accelerate cultural change and innovation, and is a key trait of digital-first leaders. In the CGI Global 1000 findings, the utilities executives that see themselves as more “digitally mature” say they make extensive use of an external IT workforce. Of the total number of respondents seen as leaders in this category, 42% have more than 80% of an external IT workforce, compared to just 13% of the respondents seen as followers.
Some progressive utilities also recognize that to create a more customer-centric culture and business model, this transformation will need to be steered and driven by an enterprise-wide digital strategy—led from the top. Three quarters of the utilities executives interviewed in the CGI Global 1000 outlook say they do not have a transformation strategy in place, although most of them are leveraging digital technologies by deploying discrete point solutions as a way to optimize the business.
However, “bolting-on” digital technologies in a fragmented way without an end-to-end business process approach will not support the creation of new business designs and processes. Utilities that are most successful in driving cultural change are the ones that bring together technology and business to develop new ways of operating and doing business. CIOs of these utilities are key enablers of digital transformation. They are moving away from the traditional model where the business defines processes and then IT follows through with technological solutions to implement them. There is strong evidence of this cultural shift as more network utilities move toward OT-IT integration. According to a 2016 IDC survey, though the traditional separation of IT and operations still prevails across half of the European utilities, 26% have already brought OT and IT under the same COO.
The urgency to become digital is pushing organizations to act, but technology alone is only a part of the solution. In order to adopt digital as an enterprise-wide business model, organizations need to put their customers at the center of everything they do, and the only way for it to happen is through people.
About this author
As the Global Utilities Industry Lead, Ana Domingues is responsible for the portfolio strategy and growth of CGI’s global utilities business. In this role, Ana drives executive discussions and decision making on industry strategies at both the global and local levels, steers investments in growth ...
Utilities being typically risk-averse and therefore change-averse by their nature, it is a challenge for them to embrace any business change let alone adopt the kind of change-centric culture as might be seen in commercial organizations. It makes sense that technical change has to be driven by and embedded within wider business change; and that this is achieved often by adoption of external ingredients such as start-ups or subsidiary affiliates.
Utilities industry is indeed more risk adverse than the typical consumer intensive industries. As a start they have a critical mission of keeping the lights on all the time using a commodity, electricity that is not easy to store and has to be all the time in balance. This is a good reason for a strong attraction for what is proven and to move slow in changing. Also, only until recently have utilities been subject to (stronger) competition not only within the utilities industry but more recently from other industries. It is hence essential that Utilities build knowledge on how the new technologies can help them and the value they can actually bring by experimenting them. We recommend that they do this with a holistic approach given the increasingly interconnection enabled by digitalization and that they be more customer centric in all they do in alignment with an empowered consumer.