“The challenge facing utilities is how to maintain reliability while simultaneously creating the agility necessary for innovation,” states a new research paper
The quote from ‘Utility Innovation Blueprint: How to manage the challenge of dual transformation’ neatly sums up what Oracle and Navigant Research term the ‘dual innovation challenge’.
On one hand, utilities must find ways to improve existing business processes while on the other, create new products and services.
Innovation creation - better in-house or out?
This duality means that different types of innovation projects require different approaches towards time to value, funding models and staffing, finds the research paper released in October 2017.
For example, a project that focuses on improving efficiency in a maintenance team with a short time to value is likely to be best performed within the business.
While a project to develop a transactive energy platform - which could take years to come to market - is better done in an innovation centre, states the paper.
So a single approach will not produce the intended results as one utility executive interviewed for the study commented: “It’s [too] narrow to think that the only way we can create value is through the creation of a new start-up business, an investment fund, or an external company.”
There is indeed a downside to running an innovation unit separately from the business divisions it is designed to help, states the joint research.
Some of the 16 utility executives interviewed for the paper, which included from Avista, Exelon, National Grid, UK Power Networks, Eesti Energia and Yarra Valley Water, said they had overcome this barrier by making strong interconnections between business units and innovation.
Some have employed staff as a liaison between innovation and the rest of the business.
How to innovate - laying a foundation with processes
Understanding time to value is part of the foundational layer of Oracle’s Utility Innovation Blueprint.
A utility will also need to establish processes to balance finance with the risk of each project.
A key factor on risk level is time scales. The shortest projects are typically funded and delivered by the business with projects needing to show a rapid return on investment.
For high-risk projects, some utilities are choosing to share risk, costs, distribution channels and marketing by pooling investments with their peers. One example is the UK-based Energy Innovation Centre. Alternatively, utilities opt for an investment fund to bankroll innovation projects.
The next step is constantly to monitor progress. “An organisation should not hesitate to pull funding from a project if it looks as if it will not deliver its expected benefits,” advises Oracle.
Technology deployment for faster innovation
The next prong of the Utility Innovation Blueprint is to accelerate projects with technology by digitising distribution networks to increase automation as well as extracting more value from data to be able to iterate on new services.
The third way to manage the challenge of dual transformation is to instigate a cultural shift that accepts failure is a byproduct of innovation.
One utility executive told the researchers: “The structure of the traditional business model punishes failure. It drives out employees that want to innovate and can’t. It’s a very big problem because that sort of environment breeds a risk-averse culture.”
The report, which also draws on Navigant’s ‘State & Future of the Power Industry’ study, suggests there are two distinct approaches to innovation - top-down and bottom-up.
The CEO must create a culture in which innovation can thrive. Meanwhile, “many great ideas will come from the shop floor, so employees must be encouraged to innovate”.
In summary of the research paper, Rodger Smith, Senior Vice President and General Manager of Oracle Utilities, said: “We believe the framework for dual innovation described in this paper provides an actionable model for utilities to respond to disruption.”