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.

 

Utilities Will Rely on Vendor Ecosystems to Support the Energy Transition

— November 10, 2017

Until recently, I often introduced presentations or blog posts with a warning that the utility industry was about to enter the most disruptive decade in its century-long existence. That is no longer true, because I believe the industry has now entered that decade. Okay, the timing for different countries may vary, as will the length of the period of disruption. In fact, some countries—Germany and Denmark in particular—have experienced significant disruption already. But for most markets, the rumblings, threats, omens, and rumors have only recently turned into action.

Navigant Research has a significant volume of commentary on future energy markets, all based around its concept of the Energy Cloud—where energy becomes more distributed, clean, intelligent, and mobile. The old business model of centralized generation will shift to a decentralized, customer-centric value chain, where energy services become far more important than energy supply. Navigant Research also identified an additional $1 trillion of new value created in the Energy Cloud by 2030.

There Will Be No Energy Transition without a Digital Transformation

It is important to note that the energy transition is as much a digital revolution as it is an energy revolution. The $1 trillion of new value identified by Navigant Research will likely be created through the provision of digital energy services, from automated demand response to transactive energy. None of this value will be delivered without access to vast quantities of data from an enormous and heterogeneous array of devices. None of this value can be delivered without a robust IT infrastructure to support digital energy services.

As part of thought leadership, Navigant Research has identified seven platforms that are critical to the delivery of digital services within the Energy Cloud. Additional white papers are on the roadmap to discuss these platforms in further detail. Next up is a white paper on the neural grid platform, which describes—among other things—the devices, communications, and analytics that will underpin all other digital services in the Energy Cloud.

Vendor Ecosystems Will Help Manage the Complexity of the Energy Cloud

Navigant Research’s upcoming Neural Grid white paper will shine a light on the sheer complexity of the IT infrastructure required. There will not be any plug and play platform for the foreseeable future. The market is new, moving rapidly, and different utilities have different requirements. As a result, over the next decades individual utilities will deploy many platforms that rely on many datasets created by many devices communicated over many networks using many protocols stored in many locations supplied by many, many different vendors.

It is critical for the success of the Energy Cloud that vendors cooperate within official and unofficial partnerships and work toward their customers’ common goals. Join us on November 14 at 2:00 p.m. EST for an Intel-sponsored Navigant Research webinar. We’ll explore in more detail how the energy transition and associated digital transformation requires strong vendor ecosystems and gain some insights from Intel, which sits at the heart of one of the largest smart grid ecosystems.

 

Innovation Aplenty at the European Utility Week

— October 10, 2017

From October 3 to 5, the European energy industry converged on Amsterdam for European Utility Week, an event I have attended off and on since 2009. In a conservative, slow-moving industry, previous events have felt a little like the utility technology equivalent of Groundhog Day. This year’s event was far from it.

The 2017 exhibition is an excellent barometer for the current speed of industry change. And how things have changed. In 2009, the event was known as Metering, Billing/CRM Europe. This far from catchy title was somewhat misleading because metering and other electrical hardware companies ruled the exhibition floor, with a handful of billing vendors and nary a mention of CRM. Virtually all the exhibitors had many decades’ experience in the utilities industry.

Back to the Future

Fast forward to 2017. The exhibition is now 4 or 5 times larger and the focus has shifted from hardware to software. The hardware vendors of old have expanded their focus to offer a suite of products from the traditional metering business to communications, data, and analytics platforms into services. There is now a profusion of software vendors that would have looked out of place at the event of 2009. This reinforces the message that the energy transition is not just about a shift to smarter, cleaner generation, but a shift toward software that will manage future networks and enable new business models.

However, the most marked difference between this exhibition and those of previous years was the existence of many small booths for startups and several EU-funded Horizon 2020 demonstration projects. Nine years ago, startups in the energy industry were few and far between. Innovation was typically led by a utility that would develop solutions with a long-term partner that would, in turn, create products around these innovations and bring them to market. But how things have changed. Innovation does not have to occur with a utility’s blessing. The shift to software means entry costs are significantly lower, and startups are developing products that can just as easily compete directly with a utility as be adopted by them.

Disruption at the Edge

If this exhibition-as-bellwether idea runs true, utilities should raise their competitive threat levels a notch or two. Disruption at the edge is a key indicator of future disruption at the core, yet most companies fail to closely monitor startups chipping away at non-core parts of their business. The industry has entered the most disruptive decade in its century-long existence. Many utilities are planning for a more distributed, competitive future. Those that don’t run a real risk of becoming irrelevant in the not too distant future.

 

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