Why utilities need to make the digital transformation

Digital technologies offer new opportunities for better customer engagement, new products and services, and more efficient operations. Jason Glickman and Arnaud Leroi explain how.

Can utility executives, who are used to planning 5, 10 or 20 years out, learn to move at a faster, digital pace? We think they must – or risk watching others get between them and their electricity customers.

Other industries such as banking, retail and media are already a decade into their industries’ digital transformations. Utilities may be getting a late start, but as digital innovations take root in the electricity sector – with online customer engagement, smart sensors and better use of analytics – they are beginning to adopt and adapt, motivated by a range of forces, including digitally savvy competitors, new regulations, innovative business models and evolving consumer preferences.

Utility executives are probing for value and identifying areas where new competitors are starting to take bites out of their business. These executives want to know how digital can strengthen relationships with customers and guard against being disintermediated by new competitors. And they want to understand where technology can help them improve operations and develop top line opportunities, including new products and services. Bain & Company research identifies three areas where digital technologies are showing potential.

Customer engagement

Mobile, social and web interfaces create opportunities for closer communication with customers and for new products and services. Customers get a better view of their energy use and can manage it more effectively. Utilities get a more detailed perspective on how customers use electricity, allowing them to create more tailored rate plans.

European energy retailers were among the first to identify these new models, with companies such as NEM in the Netherlands and Lampiris in Belgium and France developing pure online commercial models that provided a lower-cost way to serve customers. In the southeastern US, Entergy launched a service in 2009 allowing customers to text them to report an outage, a service that has helped improve Entergy’s customer satisfaction scores.

Products and services

Digital technology also enables new energy products and services, but utilities will need to change the way they operate to make the most of them. Smart homes are a good example: utilities are in a good position to offer energy management services, and data from smart thermostats and sensors will reveal more detailed information about consumption patterns that will help them plan and price electricity more effectively. But utilities will probably need to partner with media and security companies to deliver compelling offers. Smart thermostats will also allow utilities to offer energy efficiency solutions to industrial and commercial customers, and for these, many will want to partner with industrial solution providers.

Operations

Digital technologies can improve planning and reveal opportunities to make operations more efficient. For example, Europe’s generators typically sell their expected production up to three years in advance. Pricing can be tricky, since energy entering the grid from intermittent renewable resources varies substantially. To regain an edge, one western European utility generator applied advanced analytics to real-time data on weather conditions and electricity demand. This provided enough market intelligence in the short term – sometimes only minutes or hours – to improve its pricing and generate tens of millions of euros of additional earnings from intraday trading. Digital and mobile tools are also a boon to field forces, which can improve productivity by adopting new technologies such as tablets, fleet telematics and bar code scanners.

Successful transformations begin with a diagnostic that explores how digital is changing the utilities industry, including how customers’ expectations are changing. This initial diagnostic should take into account the organisation’s own digital initiatives and capability gaps, along with some evaluation of the execution risks and the organisation’s ability to deliver.

With this fact base, executives can prioritise their digital initiatives for customer engagement, new products and services, and optimisation of operations, acting on those most likely to be effective. Most utilities will need to invest in new talent and capabilities, and the transformation is likely to take several years, even if the goal of the effort is to acquire the ability to innovate in much shorter cycles and deploy new products and services more rapidly.

Jason Glickman and Arnaud Leroi are partners at Bain’s Global Utilities practice