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Utility Week 4th May 2018

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UTILITY WEEK | 4TH - 10TH MAY 2018 | 19 Policy & Regulation "For utilities operating in the UK, digital transformation offers an unrivalled opportunity." I ncreasingly, in recent years we've seen the interdepend- ence between core business goals and technology recognised at the highest levels in utility companies – and across sec- tors. Furthermore, we've seen a recognition that a wide-ranging digital technology suite has an essential role to play. It is no revelation to say that digitisation offers huge scope for driving operational and service improvements in utilities, from supporting the standardisation and automation of business processes to enabling diverse new communications channels for customers. By partnering with Utility Week for this research project, however, we hoped to create a better shared understanding among utilities and key partners to the sector – like ourselves – of just how powerful a force digital transformation could be and how companies are approaching it in the UK. The results from our online survey and feedback during qualitative research have not disappointed. They show a sector full of optimism for the positive impact that digital inno- vation could have on competi- tive positioning or companies' ability to outperform regulatory settlements. But most impor- tantly, they show optimism that digital transformation can allow utilities to create more value for customers. Across retail-focused and asset-heavy utilities, delivering enhanced customer engagement and understanding custom- ers better topped the list of desirable outcomes from digital transformation. Customer service was universally identified as the business function most likely to be radically transformed in the near term. Turning this vision of digitally-enabled customer service excellence into a reality, however, will not always be easy. As this report relates, fund- ing digital investment can seem very demanding and can create disruption during implementa- tion – perhaps highlighting the need for significant organisa- tional restructuring in order to optimise technology benefits, for example. What we would observe, from the perspective of a company that works globally, is that UK utilities have an almost unrivalled market environment in which to take advantage of all that digital transformation has to offer. The current liberalised energy market, which promotes customer choice and the princi- ple that competition is the best way to deliver customer value, provides a strong business case for investment in technologies that help to drive out waste, and enhance customer value. Meanwhile, for monopoly utilities, regulatory regimes have made an assertive shi towards outcomes-based frameworks which offer attractive incentives for companies that can reduce costs while increasing the value delivered to customers, and oen, digital investment is the best way to do this. While further challenges to a digital transformation jour- ney may well arise – whether via disruption to the sector's policy and regulatory regimes or changing data standards like those looming under GDPR (the General Data Protection Regula- tion), UK utilities have a bright digital future if they are ready to reach out and grasp it. For the full report Understanding Digital Transformation in UK Utilities, visit: utilityweek.co.uk Comment Martin Richards Senior director for energy industry solutions, OpenText Key findings Digital transformation is under way and growing in impact. Just under a fih (17 per cent) of respondents expect radical transforma- tion within the next five years as a result of digital technologies being adopted. This rises dramatically on a 15-year horizon, with digital technology expected to drive radical transformation in 77 per cent of respondents' companies by the early 2030s. Appetite for adopting new technologies is relatively strong. Almost three-quarters (73 per cent) of UK utilities identify as "fast followers" when it comes to adopting transformative technologies, rather than pioneers or slow followers who require technology to be mainstream before considering investment. Digital transformation will drive structural changes in UK utilities. Almost a third (30 per cent) of respondents said digital technolo- gies will drive significant changes to organisational structure in the future, with a further 67 per cent saying digital technologies would contribute to structural changes, alongside other factors. Funding digital investment is a challenge, especially for utility retailers. Just under a quarter (24 per cent) of respondents said lack of funds for investment in digital technologies is a critical barrier to achieving organisational transformation goals. However, this concern was significantly higher for utility retailers than asset-based companies such as energy networks and water wholesalers. Forty- two per cent of retailers identified funding as a barrier compared to just 12 per cent of respondents from asset-centric utilities. Policy interventions and regulatory change are putting digital trans- formation at risk. Government intervention in the utilities market was identified as an "extremely high risk" which could derail digital transformation plans by 38 per cent of respondents, while regula- tory change was identified as an extremely high risk by 31 per cent. Clearly defined digital transformation strategies are lacking. The second highest barrier to digital transformation was identified as the lack of a holistic strategy to support the change process. This was identified as an extremely high barrier for 17 per cent and a mid-range barrier for a further 30 per cent of respondents. Retail- focussed utilities were more likely to rate it as a critical barrier. Customer service is ripe for digital transformation. Customer service is the business activity most likely to be radically transformed as a result of digital technology within the next five years, followed by operations and asset management – unsurprisingly, asset-focussed utilities expected much higher levels of change in relation to the latter than retail-focussed utilities. Enhanced customer engagement is the most important outcome. 70 per cent of respondents said achieving enhanced customer engage- ment is a "very important" outcome for digital transformation in their organisation – for asset-focussed businesses, the importance of this outcome was even higher (78 per cent). Data analytics is the priority technology. An overwhelming 85 per cent of respondents say they expect significant organisational investment to be made in data analytics solutions within the next five years. This investment intention was equally strong across both retail-focussed and asset-focussed utilities. GDPR is not seen as a key driver or barrier to digital transformation. The introduction of the stringent new data regulations, GDPR, in May this year are not a key concern for utilities in relation to their digital transformation strategies. A third (33 per cent) of respond- ents said achieving compliance with the new regulation is a key outcome – making it the seventh most important outcome identi- fied. Meanwhile, zero respondents identified GDPR as an extremely high barrier to digital transformation and just one in 10 rated it as a mid-range barrier. Brought to you in association with

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