The energy mix of tomorrow will be different from the energy mix of today. So how do we get there, and what do we do when we get there, wherever there may be? What can energy companies do to prepare for a new and different energy future?
There’s a lot to think about, but a good start to becoming the energy company of the future is an honest assessment of core competencies and how they fit into the new energy value chain with the biggest returns.
Core competencies are basically what a current company does best. Since their beginning, oil, gas and power companies have been in the supply business. They know how to produce and deliver large quantities of commodity energy to consumers. To be sure, the international oil companies (IOCs) have vast networks of retail outlets, and utilities own the customer interface at the meter, but the biggest part of their value add comes before the customer drives up to the pump or the power goes through the meter.
How do those core competencies work in the new energy future? One version of that future is large-scale adoption of solar energy and lots of solar panels are likely to sit in the consumer’s home and behind the meter. If companies focus on the manufacturing of solar panels and the batteries that pair with them, they may find a niche that fits within their core competencies, i.e., production and supply. Access to retail markets is essential, but doesn’t require ownership of the customer interface. A distributer model that provides access to the customer but doesn’t require us to operate the retail outlet might work best.
It comes down to execution: there’s a lot to accomplish, but we’ve distilled it to four categories.
Strategy is the intersection between what the market will want and what a company does well. There’s no substitute for a little speculation on the subject of what the market will want. A bet or collection of bets will have to be made depending on a level of certainty and appetite for risk. It might include funding new technologies or expanding into new geographies. Whatever the choice, companies must ensure they have a sustainable competitive advantage. Secondly, one shouldn’t pay too much for acquired businesses, and ensure they have a solid exit strategy if the wrong bet has been placed.
Technology and business process
Business processes are driven by business models and it’s probably best to step out into business models where existing processes can be bent, but not broken. The same statement applies to the technology chosen to support the business processes. There should be small technology steps, not giant leaps, to get the systems needed from the systems in place today.
People and culture
Execution is all about people making the right decisions and taking the right actions while doing both of those things in the right time to make a difference. The culture of utilities and oil and gas companies tends to be deliberative. Capital discipline is rewarded, learning from failure is not. That may not work in businesses where there are a lot of turning points and the time horizon is measured in months instead of decades. Hiring, organizational structure, and incentives matter.
Brand and reputation
Consumers today want the best, and without post-purchase dissonance. You’re not the best unless customers believe that you are. Utilities are branded for regulators. Oil and gas companies are branded to guard against regulation and taxation, but price and convenience almost always overshadow reputation when we figure out where to fill up our car. To the extent that succeeding in renewable energy rests on a relationship with the government, that approach probably works. To the extent we’re trying to convince customers we share their concern for the planet’s future, it’s going to be challenging to sell fossil fuels and renewables under the same brand.