Driving growth in adversity
Times are tough, but high-performing utilities are managing to grow beyond their traditional products and services and seize new opportunities in new markets. What’s their secret to thriving when others are just surviving? Alain Bollack reports.
The financial crisis changed the game for power and utility companies (P&Us), with many battling to secure capital to fund new investment in volatile economic conditions.
But some high-performing utilities (HPs) have managed to actually grow beyond their traditional markets to secure new customers, enter new markets and develop new products and services.
Four drivers of success
In our latest report, we examined how these HPs have been more successful in identifying and responding to opportunities.
We found that their ability to out-perform their peers comes from executing against the four drivers of competitive success:
- Operational agility: moving beyond a commodity service
- Cost competitiveness: focusing on all cost and revenue drivers
- Stakeholder confidence: telling the right story in the right way
- Customer reach: extending from tax payer to valued customer
Fresh faces bring agility
When focusing on improvements to their operational agility, high-performing P&Us are making changes to their core business model. An industry once dominated by engineers and technicians is beginning to understand that thriving in the current environment requires a broader skillset.
HPs are investing heavily in people, bringing in innovators, marketers and those with extensive financial services experience. They are also building an “eco-system” of business partners to ensure they have well-rounded knowledge and skills.
While not neglecting the fundamental technical skills required to “keep the lights on,” utilities are shifting their mindset to go beyond providing a basic service to thinking more creatively and responding quickly to changes.
Competing on cost more challenging
Achieving differentiation based on cost competitiveness is more challenging for P&Us than for companies in many other sectors. Most of the costs that make up the end-user price – the costs of buying or generating energy, transporting and distributing it, and taxes – are beyond the control of most companies.
This makes it more important that utilities seek to execute against the other three drivers of success.
Boosting stakeholder confidence
According to our research, HPs are communicating more effectively to internal and external audiences, using engagement to boost stakeholder confidence.
This confidence within and about the organization is more important as the industry endures its “perfect storm” of multiple, large-scale changes that will require significant investment and consumer support.
The ongoing transformation of the power and utilities sector (through, for example, infrastructure upgrades and smart meters) cannot take place if external and internal stakeholders are not on board.
HPs are boosting shareholder confidence through:
- Going beyond minimal compliance requirements and giving more information on risk, investment and operational performance
- Engaging with their workforce to motivate and foster feelings of ownership
- Being open and transparent about potential problems, but only if and when the plan to overcome the problem is clear
- Backing up words with actions
Customer is king
Customer reach may be the most relevant and challenging driver for P&Us, particularly retail and sales businesses.
A March 2013 EY survey revealed that just 20% of customers trust their utility provider.1 This represents a key challenge to growth, even in regulated markets where utilities are evaluated and rewarded based on their performance against customer service standards.
This customer dissatisfaction comes at a time when P&Us face:
- Mounting infrastructure investment needs
- Competition from new market entrants
- Increased regulatory pressure
- Rising energy prices
They are also dealing with today’s “know it all, want it all” customers who demand more from their utilities. These empowered customers expect:
- Better and more services
- Transparent and competitive pricing
- The power to control their own interactions with their provider
We are finally seeing some utilities adopt the “customer is king” mindset to their advantage. HPs are out-performing their competitors by recognizing that the customer relationship is key to addressing current challenges and positioning themselves for future success.
These HPs are:
- Investing significantly in customer relationship management solutions
- Implementing customer service improvement programs to “get the basics right” – such as answering queries and resolving complaints quickly, simplifying transactions and adding transparency
- Adopting smart meters early to provide customers with more transparency around consumption and improve customer satisfaction levels
- Educating their installation crews and technicians to ensure they adopt customer-friendly practices
- Rewarding customers when they stay loyal to the company, rather than when they first join
- Working with customers to co-develop new products and services tailored to their needs
By taking these actions, HPs can broaden their customer reach, not only to maintain and attract utility customers, but also to offer new services in areas including:
- Energy management technologies
- Remote monitoring of smart appliances
Utilities are the best-placed, both technically and in terms of capacity, to capitalize on these opportunities. They must do so if they are to move beyond energy supply and serve customers’ additional needs.
Until they do this, they risk losing customers to the in-sector and new market entrants that step in to fill the gap.
Act now, don't “go slow”
Even if the current volatile market conditions stabilize, P&Us cannot expect to go “back to normal.” The sector is witnessing massive transformation that will change the way companies operate and determine which utilities will succeed.
HPs are acting now to seize the opportunities presented by these changes and play an active role in reshaping their sector. By resisting the urge to go slow, high performers drive their own growth.
They know that further changes and challenges are to be expected and by addressing the four key issues, they will be best positioned to respond and succeed.
|Read our paper “Growing Beyond: how high performers are competing for growth in difficult times” here.|
- 1 Richard Postance,"Trust: the energy industry at a crossroads...," The Raconteur, 1 May 2013.