Digital transformation

In exclusive research by Utility Week and OpenText, utility stakeholders were asked to identify the biggest barriers to digital transformation – and whether radical change is imminent.

The UK utilities industry is experiencing an intense period of disruptive change. Macro-economic and political trends are impacting heavily on both asset-heavy monopoly utilities and their competitive counterparts in retail markets, influencing regulatory regimes and perceptions of legitimacy and changing expectations regarding utility roles and responsibilities as well as acceptable levels of profitability.

However, alongside these strategically critical market dynamics, utilities are also grappling with the implications of myriad and interlinking technological innovations for their businesses.

These innovations, especially where they relate to digital technologies, could play a central role in enabling utilities of all stripes to respond positively and proactively to the wider pressures bearing down on the sector. A well-honed digital transformation strategy could allow a utility company to keep pace with – or even outstrip – rising service and efficiency expectations, demonstrate exceptional transparency and position them strongly for regulatory outperformance or competitive advantage.

But do UK utilities fully realise these opportunities, and are they moving to grasp them? To better understand the way in which the UK utilities perceive the scope for digital transformation, Utility Week partnered with enterprise technology provider OpenText and, together with our market research partner Harris Interactive, interviewed 35 senior individuals from the energy industry.

The resulting insights from that research were collated in a report, Understanding Digital Transformation in UK Utilities, to help shed light on the pace of change digital technologies are expected to drive and their potential ramifications.

The findings highlight: the business activities most ripe for digital disruption, the most important outcomes that digital investments should achieve for utility companies, which technologies are considered to be the most strategically important in the near term and what barriers might prevent utilities from achieving their digital transformation goals.

Executive summary

The results of the digital transformation survey reflect a UK utilities sector torn between a desire to be ambitious in the pursuit of digitally-enabled opportunities and the realities of a tough business environment in which investment is hard won and key policy and regulatory frameworks are in flux.

While the survey findings show a high expectation that digital transformation will drive “radical” changes in utilities’ organisation, this tended to be over the longer term, with respondents largely reluctant to suggest radical change is on their doorstep.

Industry commentators on the findings were divided when it came to expressing empathy with this longer-term change scenario, with some saying it is right and reasonable for utilities to take an incremental approach to digital transformation and others objecting that a failure to become digital native companies within the next five years will render utilities irrelevant.

Whether digital transformation is characterised as abrupt and disruptive or incremental, survey responses suggested it will drive significant structural changes within utility organisations – for example, by rebalancing required skill sets and potentially decentralising IT functions.

This expectation was endorsed in industry commentary, with some contributors going further, to say digital transformation will drive wider change to industry supply chain and contracting arrangements.

Such changes will not be realised, however, before certain key barriers are overcome. Utility Week and OpenText’s survey found that a significant proportion of respondents are being obstructed in creating the digital change they would like to see in their organisation because of difficulty in securing investment – this was especially the case for retail-focussed utilities.

A secondary barrier was identified as weak digital strategy, while political and regulatory change were also seen as disruptive. The finding around investment struggles sparked particularly animated contributions from commentators. While some could not understand how a clear business case linking digital investment to core business outcomes could be ignored – for example, its potential to deliver improved customer service and engagement – others strongly empathised with the investment issue raised in the survey.

Speculating as to which kinds of companies were most likely to find it troublesome to secure investment, commentators were again split in their opinions. Some suggested small retailers and new entrants are most likely to struggle, because of the level of investment needed to significantly upscale core IT infrastructure and digital platforms in order to accommodate growth.

Others, meanwhile, felt that large organisations with inflexible legacy systems, unsuited to iterative change and integration of spot digital solutions, are more likely to be on the back foot. Asset-heavy utilities were considerably less likely to find digital investment a challenge, and commentators suggested this is due to strong regulatory incentives which create clear and attractive business cases for investment.

It was no surprise to see customer service rated by respondents as the business area most ripe for digital transformation, nor that enhanced customer engagement was identified as the most important outcome from digital investments by asset-heavy and retail-focused utilities alike – though one contributor was sceptical as to whether this ambition is really true for incumbent energy suppliers who they said are still reliant for large proportions of their revenue on disengagement from customers sitting on expensive tariffs.

But while customer-oriented outcomes were unanimously agreed to be the primary driver for digital investment, commentary returned varying views on which investments are best designed to deliver these.Key findings

Download the full report here