Not by chance, last year IDC Energy Insights predicted that by 2018, a very large share of utilities worldwide (70%) will have launched major digital transformation initiatives. In fact, companies like EDF, Enel, Engie, E.ON, and RWE (to name but a few of the continent's top multinationals in the business) are already in the midst of myriad transitions: decarbonizing, revising their business models, perfecting operational excellence, and incubating innovation.
Today, the new normal is a reality with all its implications: persisting economic volatility; falling demand, decreasing revenues, excess capacity, and pressure on profitability; decarbonization, energy efficiency, and resource conservation targets. Distributed energy resource integration, decentralization of value, and disintermediation of traditional utilities; and changing consumer expectations – these are only a fraction of the issues facing the industry today.
Digital transformation is a European utility's only option to survive in the face of all these challenges. Out of the five dimensions IDC sees as the pillars to digital transformation (leadership, omni-experience, information, operating model and worksource), utilities' focus is foremost clustered around information, omni-experience, and operating model transformation. On one hand, utilities feel the pressing need to respond to customer expectations that are formed in more digitally mature industries, making the experience simple, engaging, and individualized. On the other hand, they continue to invest in connected systems to fuel new revenue streams and ensure operational excellence – a necessity in an asset-based industry. The ability to leverage information for competitive advantage, or information transformation, is the cornerstone supporting both trends.
Alas, the majority of European utilities are still in the beginning phases of their digital transformation journey. The evolution of demand and the industry's innovation may be gradual, but no one can deny they are happening. One way to gauge the pace of change in the industry is the expected rate at which new revenue streams are created and new business models are introduced. In fact, according to a recent survey, European utilities expect that by 2020, their companies will generate around 40% of their revenues outside their traditional business. When it comes to digital transformation, European utilities have grasped that it is more than doing things differently. It's about doing different things.
Customer experience transformation
As previously highlighted, omniexperience transformation is one of the digital transformation dimensions that is getting most attention at the moment. But, what is omni-experience transformation? IDC defines omniexperience transformation as the ability to continually attract and grow loyalty with customers, partners, and employees by creating interactive experiences. For European utilities, at present, the most important aspect of omni-experience transformation is customer experience transformation.
European utilities agree that no significant reduction in the cost to serve and churn rate or uplift in service revenues can be achieved without customer experience transformation. On the other hand, they realize that a simple, engaging, and individualized experience will eventually become as important as price or the service itself, if not more so. According to an IDC Energy Insights survey, making customer experience painless is a clear priority on the utilities' customer strategy agenda, with mobile apps, simplification of digital user experience, and self-care as the top three investment areas for customer acquisition and retention.
A European utility executive recently told us that "customers don't compare utilities as much as they judge them against what they feel should be the 'right' customer experience."
The mind-set and people challenge
A European utility executive told us "The speed of technological innovation surpasses the speed at which complex organizations learn. So, during periods of disruption and transition, the issues facing organizations are often about culture and rarely about technology."
Transformation is impossible without the right people and mind-set, and utilities are living a two-fold transition: digitization and a revision of their business models. For some, digital transformation is going hand-in-hand with a profound overhaul of the company's vision, cultural identity, and corporate objectives; an entirely new organizational matrix; and in some cases a new brand.
However, these more advanced initiatives are little more than sporadic, and many are still in their infancy. The lion's share of the European utility industry will still grapple with the obsolescence of internal skills and struggle to win new talent in the face of competition from other data-intensive or more digitally mature industries.
According to IDC Energy Insights, this year, 70% of utilities will need to externally source talent from the ecosystem to make use of advanced analytics, cognitive systems, cloud, and cybersecurity. In conclusion, the evolution of demand and the industry's innovation may be gradual, but no one can deny they are happening. According to IDC Energy Insights' survey, while only 20% of European utilities considered themselves "innovative in 2015," this year the share of utilities that define themselves as innovators skyrocketed to 65%, indicating a significant shift in perception and mindset in the industry.
Roberta Bigliani is associate vice president and head and Gaia Gallotti is research manager for Europe, Middle East and Africa for IDC Energy Insights.