Utilities: Understand Your Business

Utilities need to understand what business they are in as it will help define the arena in which it competes.
Published: Fri 21 Mar 2014

It is critical for the utility to gain a clear understanding of the dimensions that define where it operates and how it is performing in relation to its customers and competitors.

Defining competitive position and opportunities

A clear-eyed view of a company’s position, relative to its competitors, can reveal strategic possibilities.

Competitive analysis may reveal capability gaps in each segment. Gaps include technical expertise, resources and appropriate regulatory environments. These gaps should be filled before a company attempts to further develop its business model.

Locate the opportunities to develop repeatable models

Companies that are most successful at both their core and in their adjacency moves typically develop a repeatable model for their moves, and then execute them one after the other.

Successful companies search for growth initiatives repeatability since a repeatable model generally leads to lower costs, less complexity, better implementation and faster decision making.

A utility can harness the power of repeatability in other ways too. An example of this is the UK utility Centrica. Centrica is a leading practitioner of the Net Promoter® system, which aims to generate growth by focusing on improving customer loyalty. Centrica uses its Net Promoter system to provide closed-loop feedback to the front lines of its business—a critical element of repeatable business models. This has translated into breakthrough results in businesses like British Gas Services’ home heating installation, which turned around from a shrinking revenue base to a 30% growth rate in less than three years.

Be prepared

Utilities are using data and trend analysis to predict future states. Threats and opportunities on the basis of these scenarios are then assessed. While these task may seem daunting, the idea isn’t to cover every possibility. Rather, the aim is to identify the most likely disruptions to the current business model, assess their impact as accurately as possible and then monitor the critical variables over time so that decisions can be adjusted accordingly and when necessary.

The first step in predictive analysis is to identify trends that can be isolated into specific variables that will impact the business. For instance, regulatory trends include changes in environmental and regulatory incentives regarding carbon emissions, increasing openness to competitive suppliers, or the likelihood of feed-in tariffs. Technology trends might include developments in distributed generation, central station renewables or the demand for plug-in hybrid electric vehicles. Input cost and supply trends could include labor costs, commodity supply and prices and plant construction. Consumer demand trends include changes in raw demand, demand by customer type and service area and per-capita demand.

This kind of planning allows the utility to develop a set of strategic options to both drive the core to full potential and pursue adjacency growth.

Strategic options roadmap

Given the long investment time horizons and the potential for major changes in policies, technologies, input prices and customer preferences, it’s critical for utility companies to develop strategic options.

A strategic options roadmap proactively identifies emerging changes to the environment that should prompt a utility to adjust its strategy. For instance, the widespread adoption of distributed generation systems would be highly disruptive to many US utilities businesses. A utility can proactively scan the environment and make adjustments to its strategy by monitoring the trend.

Developing a robust strategy

Developing and executing a robust, flexible strategy is not a small task since it is complicated by challenging economics, shifting markets, potentially disruptive technologies and regulatory uncertainty.

Utility companies that focus on maximizing the performance of their core business by proactively monitoring and responding to changes in the environment, have a tremendous advantage.

It is a long-term, but flexible strategy that will help the utility business remain viable in a highly competitive market.