Senior leaders at global energy and utility companies have the vision and passion needed to make innovation happen. Yet they do not often enough see their efforts as being successful in driving growth, according to recent industry research. Only 38 percent of leaders in energy and utility companies believe that recent innovation was successful in driving growth. And when compared to a cross-sector group of “successful innovators,” (those surveyed who said that 100 percent of recent innovation has driven growth), the energy and utilities sector seems less confident in the results innovation can stimulate. So what can companies in the energy and utility sector do to drive more innovation, see results, and communicate to the organizations why this is important?
When we think about why innovation isn’t driving growth in the energy and utility sector, there are a few major lessons that can be learned. We’ve examined global companies that have succeeded in achieving innovation success, both within and outside the energy and utility sector, and identified three main similarities. Here are three steps that energy and utility leaders should follow in order to drive innovation in their companies:
- Listen to your customers’ needs today, and plan for the future
Be like Elon Musk. The automotive innovator is a strong example of a leader who is listening to his customers, while always considering innovations to reshape the future. In mid-August, Musk spent time responding to Tesla customer tweets personally, addressing concerns about steering wheel issues, and headrest positions. And this isn’t the first time Musk has taken time out of his day to listen and respond to his customers.
Musk is also focused on enhancing the world and solving some of our greatest challenges. He has said that the overarching purpose of Tesla Motors is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy. He has made heavy investments in solar battery facilities and worked to get solar roofs on top of American’s houses. While other automakers have been busy making small and steady improvements in their gasoline and diesel vehicle models, an innovative company like Tesla is not just making highly desirable cars, but in the process, it is breaking new ground and opening up a whole new market for electric vehicles. This steady focus on the vision of the future has made it possible for Tesla to transform from a company that made the US$100K Roadster, which catered to the niche luxury sports car market, to developing the US$35K Model 3 that caters to a broader customer base, and growing revenues at the same time. While the utility sector, in general, has some work to do in this area, some utilities like San Diego Gas & Electric (SDG&E) have engaged customers in their strategic planning process. For example, SDG&E has talked directly to customer groups to complete journey mapping to inform allocation of resources, development of technologies, and ultimately future vision development. - Develop a “design for innovation” culture
We are also seeing that an interest in “design for innovation” separates the most innovative leaders from the rest of the pack. It enables companies to meet and exceed customers’ needs through superior customer experience. The design for innovation approach necessitates a culture shift and focus on R&D not only to improve existing products but also to develop products that open up whole new markets. An example is Apple’s success with the iPod. The backbone of this success was the ecosystem provided by Apple that made it easy to purchase music through the iTunes store and sync it with your iPod via your computer with little effort. Before Apple created the iPod, the only way to buy and listen to music was through the purchase of CDs, where consumers had to buy the entire album even if they were interested in one song. With the iPod and the iTunes store, Apple disrupted not only the CD player industry but also the entire way in which the music industry operated. In essence, Apple used the principle of design for innovation by starting with the customer experience and then worked backward to develop the technology. Currently, as the race is on to create a similar customer experience of a “connected-home” through proliferation of home management devices by Amazon’s Alexa and Google’s Nest, opportunities might lie for utilities to take advantage of these developments.
- Create partnerships outside the industry to build capabilities where necessary
Partnerships are a quick way to enhance your innovation capabilities. Take for example a current microgrid project in Canada, where a consortium of utilities and technology companies are working to create a transactive marketplace by linking three widely dispersed microgrids in Toronto, Nova Scotia, and upstate Maine. A startup called Opus One is providing the core technology that will help monitor, analyze and manage distributed energy resources down to the feeder level in real time, and serve as the basic framework for the transactive marketplace. Through partnering with companies such as Opus One, utilities are a step closer to a transactive marketplace that could have thousands of independent energy actors, from central power plants to dispersed solar panels, batteries, smart thermostats and other grid edge assets, all telling each other what their energy needs are and what they’re willing to pay for them.
Conclusion
In the end, we’ve seen that being an innovation leader pays off. An innovation-focused culture can yield financial rewards and growth from innovation. Look at 3M, a company which operates in a capital-intensive industry like utilities, and has been responsible for some of the best-known products ever manufactured, including Scotch Tape, Nexcare health products, and Post-it Notes. The company is constantly recognized for its innovations, and has even won the National Medal of Technology and Innovation award. Over the last 10 years, 3M’s net profit margin has averaged over 15 percent while the rest of the industry has hovered around 8.5%. Why is this? Perhaps because 3M’s leadership team is focused on creating smartly designed, useful day-to-day products. Their success is seen in the nearly double net profit margin compared to their industry competitors – being truly innovative pays off.
Innovation can be a game changer for any industry. In a nutshell, the more successfully a company can utilize innovation the further they can pull away from their competitors. Within the global energy and utility sector, there is ample room for growth and profit through innovation. Leaders need to learn from successful innovative peers. The time for energy and utility companies to garner growth from innovation is now.
About the Authors
Shaswat Anand graduated with a master’s degree in mechanical engineering from MIT before joining PA Consulting as an energy and utility expert. He also holds an undergraduate degree in mechanical engineering from the University of Delhi and had a three-year stint at a global steel manufacturing company, Tata Steel Ltd between his two degrees. He has worked on various Six Sigma projects dealing with process improvements and quality control. He is also an expert in the fields of optimization, supply chain design, manufacturing systems and processes, product and machine design, and statistical process control.
Pranav Shanbhag is an energy and utilities expert with the PA Consulting group. He has expertise in utility strategy, utility operations, and utility finance through experience such as M&A due-diligence work for energy investors and various process improvement projects for electric and water utilities. Shanbhag is passionate about helping utilities drive lasting improvement and is currently focused on delivering complex initiatives within utilities. He has attained a unique global business perspective through work and study across three continents. He holds a master’s degree in engineering management from Duke University and has completed his undergraduate studies in mechanical engineering from the University of Bristol.
