The digitization of utilities: There is a will, but is there a way?

Pierre Péladeau, Jens Niebuhr, Mohssen Toumi
September 8, 2016

Executive summary

The rapid advance of digital technologies presents a transformational opportunity for the utilities sector. Innovations already used in many other industries, such as decentralized production, real-time analytics pulled from big data, sensor networks, and mobile computing, will change the contours and competitive balance of utilities over the next few years. The result? Power generation and distribution, electrical grids, connected homes and businesses, customer relations, operations, and workforce processes will all be in flux as utilities navigate a course through a changing landscape.

But as much as digitization is an opportunity for utilities, it is a threat as well. It fully alters the capabilities that a utility needs to succeed, greatly lowers barriers to entry for technology and other digitally savvy competitors, and is a catalyst for products and services that are raising customer expectations but that have never been offered by utilities before.

Not surprisingly, digital transformation is top of mind for utility leadership; our research finds that most utility company senior executives believe digital technologies such as data mining and mobile customer engagement are strategically critical. The problem: Among utilities that call themselves digital leaders, more than half concede that their investments in these new technologies are at best medium and often low.

To sort out these contradictions and provide a reasonably clear picture of digital integration in the global utilities sector, Strategy&, PwC’s strategy consulting group, spoke to senior-level executives including chief digital officers responsible for digital strategies in 29 leading utilities in major North American, European, and Asian markets.

We found a sector that has considerable digital ambition but suffers a mismatch between those aspirations and its digital vision, investment, culture, and capabilities — a will to embrace the future, but no way forward. With the rapid pace of technological change already under way, the immediate period ahead will be crucial in determining whether utilities will stop playing catch-up and actually implement effective digital strategies that create difficult-to-challenge competitive advantage.

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How to implement a digital strategy

Given the rapid acceleration of technological change, increasing competition, and speedier innovation, the immediate period ahead will be crucial in determining whether utilities can move forward as digital businesses or risk being cast adrift. Utilities should ask themselves five questions to determine where their digital strategy currently stands:

  • Is our digital strategy ambitious enough compared with that of our competitors and of best-in-class players in other industries?
  • Are we investing sufficiently to match our digital goals?
  • Have we engaged a broad plan covering all six digital transformation pillars (new products and business models; customer relationships; operations; data and IT infrastructure; organization and governance; and digital culture and change management) with initiatives in execution mode?
  • Are we building the necessary capabilities to fully exploit the potential offered by data?
  • Have we begun a full-fledged organization-wide cultural change to align with the digital transformation?

If the answers to all of these questions are not a clear and undeniable “yes,” urgent work is needed in your organization to develop a digital strategy that not only responds to the activities in the industry but supports customer growth and financial performance initiatives going forward.

To define this strategy and manage the transformation, we have created the following seven-step Digital Maturity Framework:

  1. Identify digital levers that impact the business across the six pillars (new products and business models; customer relationships; operations; data and IT infrastructure; organization and governance; and digital culture and change management).
  2. For each lever, determine best practices to achieve performance goals, and then define the maturity scale for each lever working back from best practices.
  3. Assess both current digital maturity and projected maturity in the near term of each lever from basic, to standard, to advanced, and to best in class.
  4. Define the target digital maturity for each lever.
  5. Bring the executive team together for a “digital immersion” to review target goals for each lever and prioritize them based on difficulty of achieving the goal and its business impact.
  6. For the priority levels, detail initiatives and projects that will be required to achieve the target digital maturity.
  7. Monitor regularly, at least annually, progress being made toward the digital maturity goals for each lever, adjusting the digital transformation program accordingly to match realistic expectations and the ability to meet ambitious targets.

The struggle that utilities are experiencing in matching their digital ambitions with actual investment is somewhat ironic for an industry whose pioneering innovations included the electrification of the world, starting with Thomas Alva Edison’s first power station on New York City’s Pearl Street on September 4, 1882.

A little more than 130 years later, utilities must learn to innovate again, this time through digitization rather than electrification. Which companies will succeed and which will fail seems very much an open question, judging by our survey results. The good news: The utilities themselves recognize the importance of the moment. They have the will. Now they must find a way.

Methodology

Researchers at Strategy&, PwC’s strategy consulting group, interviewed 29 executives of power and utility companies in person and by phone between April and September 2015. The interviews included executives from major power and utility companies in Denmark, Finland, France, Germany, India, Italy, Norway, Russia, Spain, the United Arab Emirates, the United Kingdom, and the United States.

The topics covered included:

  • Digital ambition and vision
  • Resources allocated to digital
  • Digital organization/governance
  • New business opportunities around customer operations
  • Digital customer relationships
  • Digital in engineering and asset operations
  • Value from data
  • Talents and culture

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Contact us

Dr. Pierre Péladeau

Partner, Strategy& France

Jens Niebuhr

Partner, Strategy& Germany

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