Focus your energy on operational efficiency

Sanjay Yadav pinpoints the trends driving change in the utilities sector and says only those who master operational efficiency will be in shape to respond to them.

The utilities sector is replete with a number of challenges such as fluctuating commodity prices, scrutiny from the public and watchdogs, as well as regulatory changes. It is also facing falling consumption, with the average person in the UK now using 10 per cent less electricity than five years ago. It also became a key part of the political debate in the run up to the general election with political leaders vowing to force energy companies to cut tariffs to reflect the falls in oil and gas prices last year and the ongoing CMA investigation will keep the sector, and associated issues around cost transparency in the headlines for osome time yet.

These price pressures and potential changes in legislation have enabled several low cost competitors to enter the market while forcing existing utilities to cut their bottom line. Under such imposing conditions utility providers need to keep ahead of the curve and deploy suitably disruptive solutions that can improve operational efficiencies and ensure healthy profit margins can continue.

Here are just some of trends to look out for in the sector:

Machine to Machine (M2M) advancements will transform the utilities sector. In the process, it will put a lot of useful information in the hands of utility companies. The data collected by M2M technologies, Smart meters, smart grids etc., will include real time, cleaner and granular specifics such as customer usage by source (solar at home vs. electricity from utility providers), details on time of consumption and usage by appliances.  The utility companies that leverage this data to drive operational efficiencies will deliver on bottom line and value to their shareholders.

The energy supply chain will see much transformation. Customers are increasingly opting for cheaper, environment-friendly energy sources and are conscious of the energy they use, right down to the light bulbs in their houses. European utilities have seen their consumers produce their own electricity from rooftop solar panels. A traditional energy supply chain that looked like a pyramid (single source and multiple consumers) will transform into an hourglass (traditional sources, clean energy sources, renewal sources, and multiple consumers). Utility companies will need to manage the supply chain by accurately predicting the energy supply and demand based on usage of home grown energy, type of source, weather and multiple other aspects. An accurate prediction of the demand will enable companies to purchase the right quantity at right time and right price, thus leading a cost effective purchase of power.

Customer expectations of utility companies will continue to ride high. Customers are now looking for services from utility companies rather than mere delivery of the commodity. Enhancing services will drive customer satisfaction and thereby customers’ lifetime value.  There is an interesting parallel between the utility companies now versus telecommunication companies a couple of decades ago. Utility companies can learn from the transformation that the telecommunication industry went through. They will need to understand customer’s preferences such as energy usage patterns from the smart meters and equip the customer with choices to choose a suitable plan. Setting up a platform that provides insights into customer behavior and leveraging these customer insights to deliver custom services will drive value for utilities.

Data analytics will be key in improving customer relationship and reducing churn. Traditionally, a customer’s relationship with a utility company was restricted to paying bills and escalating issues. The new age customer is looking for guidance, insights on how to lower their energy usage on a day-to-day level.  In a competitive environment and with a growing consumer urge to stay informed, a customer’s relationship with their utility provider and their reaction to issues is changing. Customer retention costs will go down through digital transformation and advancements of M2M technologies if utility companies can take advantage of this transformation and deliver these beneficial insights to customers as well as use the insights for their own benefit. Taking advantage of the data to build relationships essentially means building a CRM platform and using analytics to understand the right communication at the right time through right channel to the right customer. Such CRM platforms will enable utility businesses to lower churn and increase margins.

The sector is going through change and those utility businesses that can come up with initiatives to drive operational efficiency during this transition will be better equipped to deliver on promises made to their customers as well as their shareholders. Institutionalizing data-driven decision-making across all departments is a key part in empowering them with the means to deliver on those pledges. Furthermore, taking advantage of customer insights to transform from commodity provider to services provider will prove a deciding factor in differentiating those leading the field in driving operational efficiency.