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Perspectives

What Energy and Utility Companies Must Do Now to Advance Their Digital Maturity

2020-06-03


The pressure is on the energy and utilities industry to embrace and optimize advanced technologies and approaches for business performance. Our extensive study offers insights on what energy and utilities leaders are doing to move ahead.

Until recently, energy and utilities (E&U) organizations had the luxury of moving slowly into the digital economy. This was due to the industry’s very regional nature, brand value acquired over the years and the fact that operating models were tightly aligned with how these companies traditionally conducted their business.

As we move beyond the early days of the digital economy, however, the timer is going off. With the increasing availability of distributed energy resources, E&U businesses face competition from new market entrants equipped with the latest digital technologies, processes and organizational models that cater to the needs of the energy consumer. E&U stalwarts also need to increase the agility of their operating models so they can offer energy choice, enable consumer self-selection, and develop new energy trading models. Success in that arena will depend on digitally enabled processes, as well as modernized IT infrastructure and data architectures.

In this newly urgent environment, crucial questions arise about how E&U businesses can move forward. What’s working? What’s not? What investments are paying off, and what are the optimal next steps?

Look to the leaders

As many E&U enterprises wonder where to start with their digital initiatives and investments, we believe the activities and investments of industry leaders provide a clear-eyed view. To that end, we surveyed 2,491 business and technology leaders from multiple industries globally (including 191 E&U organizations) that collectively account for about $21.6 trillion in annual revenue. We also interviewed senior executives who are knowledgeable about advanced technology initiatives within their companies. (To learn more about our study, including its methodology, see our white paper, “Energy & Utilities Under Pressure.”)

Using our findings, we distinguished leaders from laggards to better understand what organizations look like at any point on the digital maturity curve and what it takes to make progress on that journey. Our research reveals how much businesses should be investing in advanced technologies as a percentage of revenue today and in the near future; which investments are yielding the greatest returns; the next best areas to focus on; returns that can be expected at various points on the maturity curve; and more.

The findings reveal that while E&U organizations lag behind other industries in key measures of digital maturity, they are already seeing results from their initiatives to improve the customer and employee experience. By looking to their more mature peers, E&U businesses can determine where to invest first to gain the highest payback.

Among all respondents in our study, data management stood out as a particularly high-payback investment. Across industries, the same percentage of respondents whose organizations have made moderate or substantial investments in data management (60%) have realized moderate to high returns. E&U leaders have not yet seen these results; 45% of leaders say they’ve made high levels of investment in data management, and only 29% have realized moderate to high returns (see Figure below). That means there’s plenty of upside still to be realized.

Data is a hidden advantage that legacy companies have against digital-native competitors. Finding, mining, managing and using existing reams of market and customer data — in an ethical and transparent way — is paramount to success. It’s also the foundation for strategies pertaining to predictive maintenance of energy assets and anticipating customer needs.

Where leaders place their bets

As we zoom in on industry leaders, we find that top areas of investment for E&U companies farthest along the digital maturity curve provide additional insight into where other players can gain the most from technology expenditures. In our study, the areas where the most mature E&U business are both making the greatest investment and seeing the highest payoff are mobile technology/apps, cloud, cybersecurity, the Internet of Things (IoT) and robotic process automation. Except for mobile and cybersecurity, the investment gap between leaders and beginners is large.

  • Cloud. When it comes to the cloud, E&U businesses at the earlier stages of digital maturity are particularly cautious about migration, and are apt to view cloud as a double-edged sword. Even with the agility benefits offered by the cloud, many are concerned about the introduction of unknown cybersecurity risks. For these organizations, we advise a selective approach to cloud deployment that would slowly but surely increase organizational agility and transparency while minimizing risk. A good start would be to focus on applications with the lowest-risk workloads or those with minimal customer data or sensitive information.

  • Cybersecurity. It’s not surprising to see cybersecurity at the top of both beginners’ and leaders’ lists. Because leaders are more apt to have established and benefited from a digital strategy, it’s also not surprising that over three-quarters consider cybersecurity to be a high-payback investment. A well-crafted roadmap would help to understand not just where to invest but also how to do so while minimizing security risk.

  • IoT. The instrumenting of devices that sit on operational infrastructure with IP addresses is the most effective way to gather information for disaster intelligence or predictive maintenance. It’s notable that a fairly close percentage of leaders have invested substantially in both IoT (82%) and artificial intelligence, or AI, (76%), as the two technologies often go hand in hand. While IoT initiatives signal a move toward collecting data that matters, full maturity means integrating data, analyzing content, understanding what data matters most, and using AI to predict and prescribe the best actions. We’ve seen leaders embark on IoT/AI initiatives to inform customers of potential outages and predict natural disasters before they happen.

Beyond technology: Starting with processes

Determining the highest-impact digital investments should be a function of reimagined business processes that enable the organization to become more operationally advanced. When we examined the top three processes in which respondents across industries see impact today and expect a bigger impact in the next three years, two strategic points stand out:

  1. Process investments with the best payoff are largely oriented around work directly touching customers. The truth about the modern economy is that as we become more technically enmeshed, the human experience will become even more of a value driver.
  2. Business decision-makers have already started mining the seams of value in their middle and back offices. The vast majority of processes expected to deliver value based on new technology will stay the same over the next three years.

Don’t skimp on strategy

In our analysis, businesses will realize different returns on any given investment depending on their digital maturity level. Across industries, a key investment for businesses in the earlier stages of maturity is in the digital strategy itself. For E&U organizations in particular, uncertainty about digital technologies among less mature organizations may result in an old-school approach that could put the business even further behind. Concerns regarding cloud security, for instance, have pushed at least one of our clients to invest in building a new data center rather than taking a more modern and agile approach.

A well-planned digital strategy can also go a long way toward reducing the risk of unintentionally creating cybersecurity holes. By filling in knowledge gaps, E&U businesses can set up a digital roadmap that will help them anticipate security issues. It’s telling that of all the elements in our maturity framework, digital strategy is where E&U leaders consider themselves to be most mature.

The road ahead

E&U organizations are striving to prepare for future challenges and advance their digital maturity. To meet these goals, we advise the following steps:

Focus on processes, not technology.

Taking a process-first approach provides needed context for technology investments. The best place to start is determining how transactions should be conducted in the business based on changes in the marketplace and whether current processes are supporting them.

Prepare a digital roadmap.

For regulated E&U organizations in particular, it’s essential to develop a strategy that outlines which digital investments will be prioritized over time. Doing so enables these businesses to present a structured view of what they intend to implement and the intended outcomes.

Keep cybersecurity risks in perspective.

It can feel risky to pursue strategies involving advanced technologies and techniques; however, it’s vital for E&U organizations to push beyond their comfort zones. By focusing on processes that would benefit most from a digital upgrade, E&U decision-makers can take a laser-like approach to what’s best for the business while minimizing security gaps.

E&U organizations that invest in digital technologies and approaches could potentially see hefty benefits to the bottom line, with revenue outstripping initial costs on a cumulative basis. With the 21st century now 20% gone, it’s high time for the E&U industry to catch up.

To learn more, read our report, Energy & Utilities Under Pressure,” visit the Utilities section of our website or contact us.

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What Energy and Utility Companies Must Do Now to Advance Their Digital Maturity