Navigant Research Blog

Exploiting Continuous Improvement to Achieve Transformation and Efficiency Goals: Part 2

— June 21, 2018

In my last blog, I discussed the forces at play that are fundamentally transforming the utility industry. At the center of this transformation is the shift in the way electricity is generated and distributed, and the evolution of the traditional relationship among stakeholders across the electrical grid, particularly between utilities and their customers.

In this environment, many utilities are adopting programs focused on innovation, understanding that new and bold thinking is required to successfully address these forces of transformation. In a recent survey, the ability to “market new energy and products and services” and to “radically improve ability to innovate” were among the top-ranked capabilities that utilities should develop to meet future challenges.

How Can Utilities Implement Innovation?

However, while many utilities have a familiarity with and muscle memory for Continuous Improvement and the pursuit of incremental quality, fewer are comfortable with the process of rapid innovation. Historically, utilities have not been paid for innovation; the legacy utility business model and regulatory framework has emphasized stability and risk aversion, exemplified by the rate of return financial construct. While the need to deliver safe, reliable, and cost-effective services will always remain at the core of every utility’s responsibility, how those objectives are achieved is undergoing a fundamental evolution that will require innovation in multiple dimensions.

There is much that utilities can learn from companies in the automotive, consumer electronics, publishing, and other sectors when considering how best to successfully adopt innovation practices. The speed of transformation in these and other sectors confirms that innovation efforts must be designed, deployed, and yield real benefits within a new business model. Because adopting an innovation practice is a question of culture change, it is important for utilities to consider the internal resources it has available when seeking to implement an innovation process. And here is the linkage between Continuous Improvement and innovation: Continuous Improvement practitioners can be a driving force for successful adoption of new innovation practices. Here’s how:

(Source: Navigant)

The core tool kit of Continuous Improvement practitioners can be essential to the design, development, and integration of innovation practices into utility operations—and can help those programs yield results.

In my next blog, I will consider how Continuous Improvement in utilities will need to evolve to meet the demands of a rapidly changing sector. Change management, agile, scrum, “outside in,” and other techniques and ways of thinking will be required to ensure success. These and other topics will be considered at the Change Management for Utilities (West) and Process Excellence for Utilities (West) Conferences.

 

Exploiting Continuous Improvement to Achieve Transformation and Efficiency Goals: Part 1

— May 22, 2018

Utilities are facing a complex set of challenges in today’s environment. Aging infrastructure (and the resulting requirement of large-scale capital investment), increasingly stringent regulatory requirements, growing cyber and physical security concerns, and resistance to rate increases are prominent examples of factors that influence utility planning and decision-making.

At the same time, the sector is undergoing a significant and unprecedented transformation, facilitated by the introduction of new and disruptive technologies and the consideration of new and innovative business and revenue models. At the center of this transformation is the fundamental shift in how electricity is generated and distributed, and the evolution of the traditional relationship among stakeholders across the electrical grid, particularly between utilities and their customers. Linear value chains supporting one-way power flow from centralized generation to end customers will give way to a more sustainable, highly digitized, and dynamic energy system. Moving toward a multidirectional network of networks and away from a linear hub-and-spoke model, this system will support two-way energy flows in which customer choice (optionality), clean energy, innovation, and agility command a premium.

Redefining How Utilities Work

Transforming the business to deliver on both objectives is presenting decision makers with a challenge. Importantly, both strategic transformation initiatives and operational efficiency programs necessarily impact and redefine a utility’s “ways of working.” How these dual objectives are achieved is critical, given that a utility’s core services, its stakeholders, business processes, organizational design, workforce and talent management, and other facets of human capital are altered as a result of these efforts.

In this environment, utilities must be able to continuously improve performance, while also identifying and successfully delivering on programs that achieve the desired transformation results across all planning horizons. The discipline of Continuous Improvement will play a significant role in helping utilities to do more with less—and also in helping them transform to address new technologies, regulations, and other disruptive forces. Existing Continuous Improvement teams, methods, and infrastructure can help utilities address key transformation questions, including:

  • Identification: What set of initiatives are required?
  • Prioritization: Which initiatives are most critical?
  • Coordination: What is the proper phasing of our efforts?
  • Integration: How do we integrate the new—and ongoing—initiatives?
  • Change: How do we introduce change techniques across the portfolio of initiatives?

Join Navigant at the Process Excellence and Continuous Improvement for Utilities Conference (West) to learn more. During the conference, we will discuss the role of change management in successfully implementing business process and technology innovations (among other topics). Meanwhile, look for our next blog, in which we will discuss the differences—and linkages—between Innovation and Continuous Improvement.

 

High Stakes Blockchain Applications Are a New Frontier for Cybersecurity

— November 30, 2017

Blockchain-Based Systems Are Only as Strong as Their Weakest Link

On November 16, the US Patent and Trademark Office released a patent filed by Nasdaq that describes a blockchain-based architecture that could be used to track the ownership and transaction of stock market assets.

Nasdaq is part of a wave of big name organizations globally—including banks, utilities, and the Pentagon—that have announced plans to experiment with blockchain to determine whether it can help their organizations run more smoothly, efficiently, and securely.

As the hype train charges onward and expectations skyrocket, there is a real risk that in the rush to generate solutions to increasingly complex high stakes problems, adopters will forget that simply adding blockchain doesn’t make a system bulletproof. Before integrating blockchain into keystone systems like stock exchanges or electricity grid operations, it’s important to understand where blockchain brings security to a system, where it doesn’t, and how it interacts with other pieces of the puzzle.

Blockchains Are Built on Security and Cryptography Principles

Blockchain architectures are considered a robust and highly secure means of storing information for several reasons:

  • The blockchain is stored across a decentralized and distributed network of many computers, creating a redundant record with no single point of failure.
  • Network nodes use a resource-intensive cryptographic process to reach majority consensus on the chronology and validity of transactions between nodes.
  • The full record of information stored on the blockchain is auditable by any node in the network.

In combination, these properties make the blockchain ledger itself resilient to attacks. Indeed, despite soaring valuation that provides a $140 billion incentive for hackers, the underlying architecture of Bitcoin has never been broken.

Determined Hackers Will Work Around Unbreakable Cryptography

Rather than attacking the blockchain itself, hackers have repeatedly exploited weakness in the hardware and software components of the system—the personal computers and devices that make up the nodes of the network and the software applications that enable autonomous transfers and digital contracts. It’s the cryptographic analog of identity theft: a thief doesn’t need to smash their way into a bank vault if they can clone your credit card.

White hat hackers used exactly this principle to gain irreversible control of users’ Bitcoin wallets by exploiting a hole in cellular text messaging protocols. A hacker famously exploited errors in an Ethereum smart contract to steal $31 million  from early backers of a startup. The blockchain preserves an immutable open record of the thefts for all to see, but it also makes them irreversible.

Planning Ahead

The electricity system is a frequent target of cyber attacks backed by powerful antagonists. To date, no blockchain architecture has yet been subjected to a stress test of the magnitude we might expect if it were supporting, say, the automated demand response capabilities of a microgrid in an urban financial district. Potential applications in these systems are among the most transformative opportunities for blockchain, but will also be among the most prone to cyber attack and the hardest to field test at scale.

Until a set of comprehensive security standards for blockchain-based systems is developed, Nasdaq and any organizations seeking to adopt blockchain-based solutions must recognize that blockchain does not inherently provide end-to-end security. For blockchain to be part of the solution requires thoughtful implementation and proactive design that maximizes security at the ends of the chain. Every link of the system must be evaluated for security and potential vulnerabilities, and adopters should be especially cautious about entrusting critical systems to the technology.

 

China Cements Its Role as the Undisputed AMI Leader

— November 30, 2017

In terms of volume, China continues to preserve its status as the undisputed global leader in advanced metering infrastructure (AMI). Since 2012, State Grid Corporation of China (SGCC) has been deploying smart meters to each of its customers at a feverish clip. SGCC has installed more than 400 million smart meters across China over the past 5 years as part of this unprecedented project.

While utilities in countries like Italy and Sweden have succeeded in converting all their electromechanical meters to smart devices, the scale and execution of China’s nationwide project are truly unmatched. It is worth noting some of the unique characteristics of SGCC’s project and what’s in store for the future of the overall Chinese smart meter market.

How Is This Possible?

When looking at the Chinese market for smart meters, it becomes clear that all meters are not created equal. More often than not, smart meters deployed across China lack the full capabilities of a basic smart meter common in Europe or North America, such as hourly interval measurements or reasonably symmetric two-way communications. Yet, the Chinese meters still provide significant capabilities beyond traditional automated meter reading systems, including very low speed or potential short-range communications.

These limited capabilities are one of the primary drivers behind the radically different price points of Chinese smart meters, which are typically around 50% less than typical US or European prices. In addition, the monopolistic nature of Chinese utilities leads to high volume purchase orders from domestic suppliers, further reducing average meter costs.

What Is Happening on the Ground?

Over the course of 2016, SGCC deployed 70 million new smart meters, with the installed base reaching approximately 400 million devices. SGCC expects full deployment by the end of 2017.

China Southern Power Grid, the country’s other state-owned electric utility, was primarily involved in pilot-scale projects prior to March 2016, at which point the utility began its large-scale commercial deployment. China Southern expects full deployment by 2020, which should account for more than 80 million meters.

Improving Technology Shows Promise for the Market

While initial indications would suggest a significant market downturn in 2017 and 2020 given the rollout conclusions, the emerging second-generation smart meter market should help placate any potential concerns. According to China’s national regulations, meters must be replaced every 5 to 8 years. With the lifespan of SGCC’s deployed meters running between 1 and 5 years, the mega-utility will now begin looking into second-generation upgrade meters, which often carry a higher cost along with increased capabilities.

This emerging second-generation market is expected to help sustain the strong revenue and growth profiles that have characterized the Chinese market for years. As other major markets like Brazil, Egypt, India, and Turkey begin their forays into large-scale smart meter projects, lessons can be learned from the impressive scale and execution of China’s rollouts.

 

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