Market view: Digital transformation

The computerised world is changing the relationship between suppliers and consumers by handing power to customers. Nicola Anderson explains what this means for utilities.

The proliferation of digital technology in the utility market is radically changing the energy and water industries’ relationships with their customers by handing increased market power to customers.

This transformation is enabling customers to make informed decisions about their energy supply, coming at a time when competition in energy has lifted off and the water industry is preparing to open up a market for business users.

Technology-driven incentives

The benefits that digital technology promises the customer are fuelling utilities’ eagerness to adopt the same technology in their operations. In a recent presentation, Centrica chief executive Iain Conn points to developments in the world’s leading digital technology firms that could put utilities head-to-head with the likes of Google, Amazon and Samsung.

“This is a transformational moment for the energy industry, which bears comparison to the revolution we have seen in the communications sector over the past 20 years,” said Conn. “It’s difficult for governments to grasp the implications of these changes and challenging for businesses like ours to manage them.”

Northumbrian Water chief information officer James Robbins says the advent of competition will open up a significant role for digital technology. “The benefits in technology are tilted in favour of the customer. The shareholder will benefit but not as much as the consumer,” he says.

Robbins forecasts that advances in technology that focus on customer benefits will be the frontline in a competitive water market. Examples include bespoke billing formats, call centres that offer advice based on video images sent by customers from their to smartphones, and precise network mapping.

Technology is typically seen as handing new entrant utility players an instant advantage over incumbents, borne out of the newcomers’ freedom from legacy systems. Robbins points out that the agility of the incumbents’ new rivals is offset by the established players’ experience in operating at the scale required for success in the utility game.

“We’re good at scale. We already deal with big data. New entrants often underestimate the pace of growth required,” he says.

First Utility chief technical officer and information officer Bill Wilkins agrees that digital technology brings short-term advantages for small players, which can use it to “look as functional as a more mature company”. But the flip-side, he says, is that “the big six have stable, optimised business processes, while some smaller players have yet to achieve an understanding of the causes of error and the costs inherent in the industry. We’re now through that”.

Wilkins says a commodity market such as energy demands that competitors differentiate on price and service. “You have to make sure the customer gets great service and experience. Beyond service, utilities have to differentiate themselves and there is no better way to do that than through a digital offering,” he says.

“It’s less of a nice-to-have and actually becomes a retention tool. If you want to disengage your customers, then sending them an estimated bill once a year, as is the case with some of the larger firms, would be the way to do that,” he adds.

There is a growing pool of digitally skilled workers to add pace to the digital transformation in utilities. EDF Energy has set up its own “innovation accelerator”, dubbed Blue Lab. The company has located Blue Lab near Brighton where there is, according to EDF Energy director of innovation Jean-Benoit Ritz, the highest proportion of creative small and medium-sized enterprises in the UK.

“By combining these local digital skills with our knowledge and experience in energy, we’re excited about what we can achieve,” says Ritz.

Making life simpler

Digital growth is predicted to be particularly strong in utilities, with forecasts including a prediction that two-thirds of all new connected devices will be in energy and water provision. As utilities migrate to smart metering, accommodate growth in localised generation and make greater use of connected devices, customers from all categories will be drawn to take advantage of digital services.

GoCardless vice president of sales Robert Whiteside says: “Anything that gives the customer the confidence and capacity to take part in a market will stimulate the market to produce the goods for the customer. Customers can expect ease rather than frustration when dealing with their energy supplier.”

Digital transformation is making life easier for consumers in many markets, including the utility sector. The quickest firms to adopt technology to offer flexibility, transparency and simplicity to their customers will be best equipped to lead the current pack. They will also be the first in line to take on possible big-hitting new rivals from the digital technology sector.