U.S. utility companies confront an array of difficult challenges that will make their industry more complex and bring on more disruptions with each coming year. From low demand growth and increased regulatory pressure to emerging technologies, reliability issues, and new generation decisions, these thorny problems must be addressed with new approaches — something that many utilities are simply not prepared for. Breaking away from old business models is essential for utilities to find pathways for profitable growth in a more competitive environment than the industry has ever experienced before.
An approach that we call Fit for Growth* offers a solution. This strategic model provides a series of steps that a utility can take to coherently address significant questions about generation mix, the use of distributed generation, the optimal structure for owning assets, and innovative opportunities for better returns. Once a Fit for Growth program is embedded in an organization on a strategic level, a tactical road map for performance improvement can be implemented that involves developing fresh capabilities, applying intelligent cost discipline, and establishing a targeted growth plan that smartly balances capital investment with realistic returns.
Successfully executing a Fit for Growth initiative requires focus and coordination throughout the organization. Six elements are particularly important for companies to focus on. Each element is equally important during one of the two key stages of the project: planning and execution.
Many utilities have been paralyzed by the changes in their industry and have found shifting the strategic approach and operational models of their organizations to be a difficult effort, like turning a battleship. But the power industry is evolving so fast now, and regulators are altering the rules so quickly, that profits and returns on assets are under severe pressure for traditional utilities. Consequently, a somewhat radical overhaul of these businesses is called for — an approach that combines new capabilities with smarter cost management and a disciplined strategic growth plan.
Utilities are still in a position to take advantage of unique opportunities that changes in the industry offer. But power companies that choose anything less than a substantial strategic makeover built on a credible and coherent growth plan may find themselves in a few years unable to catch up to where the industry has gone.
*Fit for Growth is a registered service mark of PwC Strategy& LLC in the United States.