4 common missteps to derail a utility's digital transformation effort
The following is a Viewpoint by James McClelland, senior global marketing director of SAP's energy & utility industry vertical.
So, digital transformation is high on your company's to-do list for 2019.
Maybe that means rolling out a new mobile-enabled customer portal with chatbots and home energy management apps. Perhaps it's launching an online store where consumers can shop for energy-efficient appliances or even a solar panel installation. Or maybe it's a more modest series of steps to lay the groundwork for a broader initiative later.
Whatever the case, there are compelling reasons for utilities to transform their operations and systems with digital technologies.
Doing so, according to the business consulting firm McKinsey, "can create substantial value: a reduction in operating expenses of up to 25%, which can translate into lower revenue requirements or higher profits. Performance gains of 20% to 40% in such areas as safety, reliability, customer satisfaction, and regulatory compliance are also achievable."
Capturing gains of that magnitude requires utility companies to be strategic in where they focus their resources, and mindful of the potential missteps that could undermine a transformation effort.
Here are four potential pitfalls to be particularly mindful of on the road to digital transformation:
The misstep: Not getting buy-in from the top for a digital transformation initiative.
However modest or ambitious a utility company's digital transformation initiative, it is critical that the effort be supported from the top, down, with full buy-in from the C-suite. Digital transformation likely will touch every facet of your business, so be sure all relevant stakeholders within the business are onboard with, and engaged in, the initiative.
Utility leadership can serve as the catalyst to organization-wide buy-in by recognizing the import and the impact of the initiative, then taking the necessary steps to empower their people to address it. The leadership at Mercury, a power producer and retailer in New Zealand, took exactly this type of all-in, inclusive approach with its recent two-year Cloud migration initiative, and the results to this point have been positive.
The misstep: Forgetting that digital transformation ultimately should be about improving the overall customer experience.
Utility customers love the convenience of being able to pay their bill via their mobile device. But when they have to pay even a menial extra fee for that convenience, or the chatbots a customer encounters during an online inquiry make the interaction more confusing and time-consuming, not less, the experience can quickly turn sour.
In the most successful utility digital transformation initiatives in which I have been involved, every aspect of the digital transformation is designed with the end customer in mind.
Given how resource- and time-intensive these initiatives can be, it's easy to focus too heavily on internal priorities. One way to maintain focus where it belongs, on the customer experience, is by involving customers in the digital transformation effort — soliciting their input and feedback on key customer-facing aspects of the initiative, and using it to inform how you move forward.
The misstep: Focusing too heavily on traditional shorter-term ROI modeling instead of viewing digital transformation as an ongoing effort that requires a more patient mindset.
The short-term, three- and six-month financial key performance indicators (KPIs) on which enterprises often rely in their traditional lines of business may be too confining to accurately measure or project the true value of a digital investment. While ROI generally remains a relevant metric, because digital transformation is a longer-term, ongoing proposition, companies need to find more appropriate digital KPI sets to gauge return on those tech investments.
That might include metrics related to adoption (the extent to which people inside your organization are using the digital tools they're provided), time to develop and launch new products/services and percentage of revenue from these new products/services.
Customer acquisition cost or rate, as well as productivity or revenue per employee, can serve as solid yardsticks for digital transformation, as can metrics related to the customer experience — percentage increase in customer engagement in digital channels, change in customer behavior over time across channels and the time it takes for customers to accomplish things in your digital ecosystem.
Companies also need tools to track, analyze, visualize and act upon the findings from these metrics.
The misstep: Clinging too tightly to traditional business models.
The fall of companies like Kodak and Blockbuster shows what can happen when a business fails to evolve in the face of digital disruption. Rather than dwell on these notable flame-outs, however, utilities may be better served looking around them, to how some of their peers are adapting in an energy marketplace where consumers increasingly favor suppliers who can deliver choice, convenience and service, not just a commodity.
Digital technologies are enabling utilities around the world to explore entirely new lines of business and new "energy (or water) as a service" models involving renewable and non-renewable sources.
As part of a broad digital transformation initiative, Australian Gas Light, for example, has developed a customer portal where users can accumulate points just for paying their bill, then use their points to buy goods and services from AGL vendor partners. Another AGL platform gives customers access to personalized usage reports and the ability to develop custom energy management plans.
The returns from these initiatives have been encouraging. "By delivering personalized, actionable energy information to its customers, AGL has boosted customer engagement, retaining existing customers and attracting new ones," a case study on the initiative reports.
"Mobile access has opened new doors to on-the-go, busy customers who value the chance to connect via smart phone. By developing an integrated platform with strong design and scalable cloud technology, the new AGL website is nimble and responsive, and can quickly accommodate changing requirements and market demands."
Now, as it travels further along the transformation journey, AGL is building out a residential solar business and piloting a new online marketplace for residential consumers to trade solar "tokens."
"Under the right conditions," explains Nick Ruddock, AGL's general manager of energy management, "a buyer could buy tokens at a lower price than buying energy from the grid, while a household with solar could sell excess solar tokens at a higher price than the solar [feed-in tariff], and these trades would ultimately be reflected in the customer's electricity bill."
That's the kind of outcome that utility customers are coming to expect, and through a well-executed digital transformation initiative, utilities are becoming increasingly able to deliver.