Utility Week

UTILITY WEEK | 1ST - 7TH NOVEMBER 2019 | 29 Customers Market view T oto, I've a feeling we're not in Kansas anymore," said Dorothy in The Wiz- ard of Oz a er being transported via tornado from her family's black-and-white Midwest ranch to the improbable technicol- our dreamland of Oz. For traditional energy utilities in the UK, - nding themselves in today's disrupted and increasingly digitalised marketplace must leave them feeling just as displaced. The world was a very di‚ erent place when the big six - rst began. The market was carved up between a - xed number of players, customers were guaranteed, and investments in technology were hardly a priority. Fast-forward 100 years and the mar- ket has opened up, digitally savvy challengers like Bulb, Ovo Energy and Octopus have entered the ring, and traditional players are struggling to compete. And if ongoing rumours of Amazon entering the energy market come to fruition, things will only get harder. The transformed marketplace Challenger players enjoy a leaner, cloud- native architecture, compared with the age- ing, unwieldy IT infrastructure of the more established players. Not only does this help them operate more e‹ ciently, it also sets them up to provide a better customer experi- ence. Their digital backbone allows them to deliver faster, more e‚ ective customer ser- vice and their robust customer intelligence helps them propose more personalised o‚ ers and add-ons. As if this wasn't enough, a shi ing regu- latory environment is setting traditional utilities back even further. Just look at the recently delayed smart meter rollout. Origi- nally slated for completion by the end of 2020, the deadline has now been pushed back to 2024. This is a problem for the tradi- tional players who have invested signi- cant sums in meters that will now be outdated by the time the scheme is fully implemented. For traditional utilities, the challenge is to retain or grow their customer base and lower their cost-to-serve without disrupting their day-to-day operations. The key lies in transforming their IT backbone – the ques- tion is"how. There are many transformation path- ways traditional utilities can take, and we've seen many di‚ erent – equally successful – approaches from our own energy clients. The - rst option is to start again from scratch, building new systems from the ground up. This has delivered mixed results for energy companies, although it is a favoured route by many of the traditional utilities we work with. However, if utilities decide to take a more staged approach, the ques- tion is where to start. Here at Avanade we have con- tributed to some research that helps to shed light on this topic. Con- ducted by the Center for Information Sys- tems Research at MIT Sloan School of Management (MIT CISR), the research exam- ines several common transformation path- ways, weighing up the pros and cons of each. It provides an interesting basis for utilities to decide how to launch their own programme. Starting with the customer experience Most energy utilities choose to start their transformation journey with the customer experience. Usually prioritised by organisa- tions operating in a highly competitive mar- ket where di‚ erentiation is essential, this approach generally begins with the simula- tion of an integrated back-end. Australian energy utility AGL, for exam- ple, implemented just such an approach. Looking to reduce customer churn, AGL decided to improve customer experience by consolidating 50 independently managed websites into one cloud-based platform. Not only did the company bene- t from a more e‹ cient and scalable IT platform, it also experienced a 47 per cent increase in website tra‹ c, with improved customer acquisition and retention. Although the MIT CISR research shows this approach typically yields a rise in NPS [net promoter score] metrics, it can also eat away at margins overtime. A less popular, but perhaps more e‚ ec- tive, approach is to tackle operational e‹ ciency - rst. This typically involves untan- gling the "spaghetti" of legacy systems, consolidating applications and increas- ing automation. Centrica Energy Trading recently implemented a transformation programme just like this. By rationalising applications and automating back o‹ ce pro- cesses, it was able to speed up change within the production process by over 90 per cent. MIT CISR's research found that this trans- formation pathway is the most likely to succeed. Shown to deliver signi- cant mar- gin improvements, it does however risk a loss of market share during the long term if competitors are more focused on customer experience. The "staircase" approach In some cases utilities decide to take a more blended, staircase-like approach, a com- bined strategy to improve both customer experience and operational e‹ ciency. How- ever, this is a complex pathway, requiring a strong level of governance to keep the pro- gramme from veering o‚ course. This pathway is not usually one to be rec- ommended for established utilities, and the MIT CISR research backs this up, showing it results in the lowest success rate. When it comes to transformation, know- ing where to start is key. But the important thing to acknowledge is that change never stops – energy utilities can't transform all aspects of their businesses overnight, but change can't be one-sided or one-o‚ either. Utilities need to chip away at transfor- mation gradually, starting with the aspect that will yield the greatest return for them. And as regulatory and other external factors continue to evolve in the background, trans- formation will remain a steady and ongoing process. Mark Corley, head of digital, Avanade Playing digital catch-up Challenger brands have made headway against the big six, but it is still possible to remain competitive against these digital competitors, says Mark Corley. " "Tackle operational effi ciency typically involves untangling the "spaghetti" of legacy systems, consolidating applications and increasing automation."

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