to prepare for upheaval, according to 45% of industry executives.
utilities now active in "behind the meter" market.
Decarbonization, decentralization, and digitization are compelling utilities to evolve faster than ever before. So, how are they responding to this new, three-dimensional challenge?
We analyzed the strategic actions of the world’s largest utilities by market capitalization. Our report highlights the different ways these heavyweights are navigating the road ahead and forging a new industry. We zero in on the strategies and capabilities that big utilities will need to succeed in an uncertain future. One finding is clear: Most utilities need to speed up the pace at which they develop and execute strategy.
Utilities are working hard to create winning strategies amid the most significant transformation in the sector for decades. The majority of their strategic effort is focused on five key areas:
Reducing exposure to conventional power generation, particularly coal
Redirecting investment into networks and renewables
Increasing activity in energy solutions and services
Developing dedicated innovation facilities
Restructuring and repositioning their businesses for market opportunities
Some utilities are embracing even more radical change. These leaders have begun to reinvent themselves, aggressively pursuing business model innovation and entering new markets for energy solutions and services. They are targeting new value pools in areas as diverse as energy management, electric car charging, and home automation.
Watch out for externalities
Not only are utilities dealing with a world where markets, customers, and strategies have transformed, the GT40 must come to grip with another challenge: The externalities that influence their operations are becoming sharper.
Interest rates – and therefore the cost of capital – is rising
Technology is shifting from analog, centralized, and standardized to digital, distributed, and personalized
Customer needs are starting to outpace what the sector can deliver
Utilities face a growing number of “unnatural competitors” in the form of highly admired global brands
A path forward: Think like a “non-utility”
Over the next few years, we expect to see a gap emerge between the most enterprising utilities companies and the rest. Leading players are learning from the way nontraditional competitors approach contested or new markets. They are thinking about shorter time horizons, innovative business models, and managing across multiple value chain segments. In other words, they are thinking like a “non-utility.”
These four steps provide a blueprint for utilities to act on now and set themselves up for future success.
Define business models
Build agile capabilities
Speed up the pace
Define where you will compete and develop the business models to do so.
Utilities cannot look to their peers for new business model concepts and designs; instead, they need to scan the competitive marketplace for successful models. A single business model is not likely to be sufficient for success in future markets. It is more likely that utilities will have to maintain multiple business models tailored to the needs of the markets they elect to compete in and how integration is valued in those markets. Accordingly, they need to be adept in managing across multiple value chain segments, each of which could adopt distinct business models to meet discrete market requirements.
Think and act commercially, rather than as a market incumbent.
As utilities learn to compete in a marketplace of broader products and services, they will find that many customer offerings do not fit in a traditional regulated business. Consequently, they will need to provide not just products or services, but a portfolio of offerings to customers. Product and service pricing, therefore, needs to be a core capability. Utilities must dramatically elevate their thinking about how to act commercially, rather than as an unsophisticated regulated incumbent. A commercial mind-set is fundamental to demonstrating value and meeting customer expectations.
Develop the capabilities for agile strategic actions.
Going forward, it will be strategically inadequate to respond passively to markets as the sector has historically done. For utilities to develop great ideas into commercial products, they will have to think like the FAANGs (Facebook, Apple, Amazon, Netflix, and Google). They will need to the capacity for continuous market sensing, constant innovation, a commercial mind-set, aggressive branding, and quick decision making. These are traits utilities are only now beginning to nurture.
Speed up the pace of strategy development and implementation.
Forget three- to five-year windows for commercialization: Strategy development needs to emphasize near-term readiness and offerings over long-term preparation and piloting. Several players in the GT40 need to speed up the development and pursuit of their strategies or risk falling behind. A recent survey revealed that 90% of industry respondents believed they had as long as five years to prepare for upheaval. About half thought they had three. We think it’s even less than that.