Monitoring the Utility Transformation: Part 1

Companies across the utility sector face a unique set of challenges in 2020. While the full financial, strategic, and operational effects of the coronavirus outbreak have yet to be realized, they will influence how utilities plan for and adapt to disruptions in the long term. Meanwhile, many utilities continue to face tests to longstanding strategies in the form of aging infrastructure (and the resulting requirement for large-scale capital investment), increasingly stringent regulatory requirements, growing cyber and physical security concerns, and rising customer resistance to rate increases. 

At the same time, the utility sector is undergoing an unprecedented transformation, facilitated by the introduction of disruptive technologies and the consideration of new and innovative business and revenue models. At the center of this transformation is the fundamental shift in the way electricity is generated and distributed and the evolution of the traditional relationship among stakeholders across the electrical grid, particularly between utilities and their customers. Linear value chains supporting one-way power flow from centralized generation to end customers are giving way to a more sustainable, highly digitized, and dynamic energy system. Moving toward a multidirectional network of networks and away from a linear hub-and-spoke model, this system will support two-way energy flows in which customer choice (optionality), clean energy, innovation, and agility command a premium. 

This is the first blog in a three-part series discussing the significant challenges facing utilities to meet multiple complex objectives.

Utilities Must Transform – and Drive Efficiency 

These forces are pushing two agendas inside utilities: Drive efficiency throughout the existing business (realized through verifiable reductions to operations and maintenance) and transform the operating model for the business of tomorrow. These agendas are further amplified in today’s pandemic environment as utilties face declines in demand, more uncertainty in revenue collection through traditional operating models, and heightened resistance to rate increases. Delivering on both objectives challenges decision makers, as pursuing strategic transformation and operational efficiency necessarily impacts and redefines a utility’s way of working. How these dual objectives are achieved is critical, given that a utility’s core services, its stakeholders, business processes, organizational design, workforce and talent management, and other facets of human capital are all altered as a result of these efforts. 

Continuous Improvement and Program Management Is Critical 

Utilities require the ability to continuously improve performance while also identifying and successfully delivering on programs that achieve the desired transformation across all planning horizons. When designing a programmatic approach to achieving desired results, with line of sight into performance versus key objectives, the following questions must be considered:

• Identification: What set of initiatives are required? 
• Prioritization: Which initiatives are most critical? Which initiatives will be most successful given the internal and external environment?
• Coordination: What is the proper phasing of our efforts? 
• Integration: How do we integrate the new and ongoing initiatives?
• Evolution: How do we promote change across the portfolio of initiatives?

In many instances, the best utility capabilities will be central to achieving the desired results in both efficiency and transformation efforts. For instance, continuous improvement will play a significant role in helping utilities do more with less. This discipline will also help utilities transform to address new technologies, regulations, and other disruptive forces. In addition, strong program management, stakeholder awareness, and change management will be central as utilities evolve to new operating models and ways of working. The second blog in this three-part series will discuss the importance of bringing utility staff and key stakeholders along in the middle of significant change.