Industry Disruptors and the Imperative for Dual Innovation
In the past decade, these industry trends and issues have placed increasing pressures on utilities to transform their enterprise operations. And those aren’t the only pressures in play: The industry is also being disrupted in a dramatic way by digital transformation, new technologies, outside competitors entering the market, and—in the case of electric utilities—distributed energy resourcesIn this rapidly changing environment, utilities are facing a dual innovation challenge: the need to incorporate innovation into core business processes while also innovating around new processes and services.
Unsurprisingly, the need to cut costs is a key driver in core business innovation. This is a recurring theme, one that the industry experienced in the 1980s and the 1990s. Today, we’re seeing it again: revenues are basically stagnant around the world. The industry used to be able to plan for two percent or three percent growth, but that’s no longer the case. Revenues are flat. As a result, there is a strong movement within the industry to cut costs in order to grow margin. If you can’t grow the top line in periods of stagnant growth, then you need to create margin. Innovation within your core business processes provides you with the means to run your daily business more efficiently than ever to drive costs down.
But, while you need to continue to innovate in order to optimize efficiency across your entire core business value chain, you also need to simultaneously explore new business value opportunities for the future in order to grow the top line and move the needle for your business. As the utility industry continues to be disrupted, it’s not an either/or choice—both are essential to sustaining healthy business growth.
Striking a balance between core and future business innovation
In the face of this complex challenge, it is necessary to strike a balance between these vastly different types of innovation projects. This requires a parallel, or dual, innovation approach. Put simply, core business innovation maximizes efficiency within the existing value chain, while future business innovation builds the value chain in new ways. While the culture is different for the two types of innovation, technology facilitates them both.
Core business innovation
Let’s focus first on core business innovation. As noted earlier, utilities are being pressured to increase efficiency, cut expenses, and invest in different capabilities—all with an objective to eventually improve the bottom line. The goal with core business innovation is, therefore, to maximize core business efficiency and resilience in your existing business through digitization, machine learning and automation; integrating systems of record; and utilizing cloud and analytics technologies to unlock further business productivity.
Cloud services are particularly important to this effort. The cloud allows a far better deployment of digitization through technology applications—increasing core business efficiency. It also takes advantage of the scale of commodity IT infrastructure, which can reduce IT staff maintenance budget commitments by between 70 percent and 75 percent, according to reports. This frees up both IT finances and human resources to recalibrate around future business innovation projects.
Finally, core business innovation will also provide the platform for future business innovation.
Future business innovation
Future business innovation is centered around building the utility’s value chain for the future, the business processes, products and services you add to continue to incent your customers and grow revenue. Applications provide the agility for this type of innovation. They are modular, allowing you to iterate and test new business models quickly, and giving you “fast-fail” agility: if the new business innovation project isn’t working out, you can end the project quickly and reallocate those resources to another project.