Driving growth in adversity

The financial crisis of 2007 to 2009 changed the game for power and utility companies (P&Us), with many battling to secure the capital they needed to fund new investment in volatile economic conditions. But some high-performing utilities have managed to defy the doom and gloom and actually grow beyond their traditional markets to secure new customers, enter new markets and develop new products and services.

Four drivers of successIn our latest report on these high performers, we examined how these companies have been more successful in identifying and responding to opportunities to maximize their potential market. We found that their ability to outperform their peers comes from executing against the four drivers of competitive success:

1. Operational agility: moving beyond a commodity service

2. Cost competitiveness: focusing on all cost and revenue drivers

3. Stakeholder confidence: telling the right story in the right way

4. Customer reach: extending from tax payer to valued customer

Fresh faces bring agilityWhen focusing on improvements to their operational agility, high-performing P&Us are making changes that strike at the very heart of their business model. An industry once dominated by engineers and other technicians is now beginning to understand that thriving in the current environment requires a broader set of skills. High performers are investing heavily in people, specifically to bring in innovators, marketers and those with extensive financial services experience. They are also building an “ecosystem” of business partners to ensure they have

the well-rounded knowledge and skills necessary to achieve their ambition. While not neglecting the fundamental technical skills required to “keep the lights on,” utilities are shifting their mindset to go beyond providing a basic service to thinking more creatively and responding more quickly to changes.

Competing on cost more challengingGrowth in tough economic conditions requires focus on all cost and revenue drivers, and a flexible approach to pricing, costs, cash and capital across the organization and its entire supply chain.

Achieving differentiation based on cost competitiveness is more challenging for P&U companies than for companies in many other sectors. Most of the costs that make up the end-user price of energy — the cost of buying or generating the energy, the cost of transporting and distributing energy, and taxes — are beyond the control of most companies, making it difficult to create real price differentiation. This challenge regarding cost competitiveness makes it even more important that utilities seek to execute against the other three drivers of success.

Boosting stakeholder confidenceMost utilities know they must tell — and sell — a story to stakeholders, but some are doing it better than others. According to our research, high performers are communicating more effectively to internal and external audiences, using engagement to boost stakeholder confidence. This confidence within and about the organization is more important than ever as the industry endures its “perfect storm” of multiple, large-scale changes that will require significant investment and consumer support. The ongoing

Times are tough, but high-performing utilities are still managing to grow beyond their traditional products and services and seize new opportunities in new markets. What’s their secret to thriving when others are just surviving? Alain Bollack reports.

Driving growth in adversity

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transformation of the P&U sector (through, for example, infrastructure upgrades and smart meters) cannot take place if external and internal stakeholders are not on board.

High performers are boosting shareholder confidence through:

• Going beyond the minimal requirements of compliance and giving more information on risk, investment and operational performance

• Engaging with their workforce to motivate and foster feelings of ownership

• Being open and transparent about potential problems — but only if and when the plan to overcome the problem is clear

• Backing up their words with actions — intentions are no longer enough to satisfy savvy stakeholders

Customer is kingBut while all four drivers are important for successful, sustainable growth in difficult times, customer reach may be the most relevant and challenging for P&Us, particularly retail and sales businesses.

A March 2013 Ernst & Young survey revealed that just 20% of customers trust their utility provider.1 This is an issue for utilities, wherever they are in the world, and represents a key challenge to growth, even in regulated markets where utilities are evaluated and rewarded based on their performance against customer service standards.

This customer dissatisfaction comes at a time when P&Us face mounting infrastructure investment needs, competition from new market entrants, increased regulatory pressure and rising energy prices.

They are also dealing with the emergence of today’s “know it all, want it all” customers who demand far more from their utilities. These empowered customers expect better and more services, transparent and competitive pricing and the power to control their own interactions with their provider and engage with them on their terms.

The notion that “customer is king” has been slow to reach the P&U sector but we are finally seeing some utilities adopt this mindset to their advantage. High-performing companies are

out-performing their competitors by recognizing that the relationship with the customer is key to addressing current challenges and positioning themselves for future success. These high performers are:

• Investing significantly in customer relationship management solutions

• Implementing customer service improvement programs to “get the basics right” — such as, answering queries promptly, resolving complaints quickly and simplifying transactions and adding a level of transparency

• Adopting smart meters early to provide customers with more transparency around consumption and improve customer satisfaction levels

• Educating their installation crews and technicians to ensure they adopt customer-friendly practices, such as cleaning up after in-home visits

• Rewarding customers when they stay loyal to the company, rather than when they first join

• Working with customers to co-develop new products and services tailored to their needs

By taking these actions, high performers can broaden their customer reach, not only to maintain and attract utility customers, but also to offer new services in areas including energy management technologies, security, the ability to monitor smart appliances remotely and telehealth.

Utilities are not only the best-placed, both technically and in terms of capacity, to capitalize on these opportunities — they must do so if they are to move beyond energy supply and serve the additional needs of their customers. Until they do this, they risk losing customers to the in-sector and new market entrants that step in to fill the gap.

Act now, don’t “go slow”No one should underestimate the ongoing volatility of the current market and, even if and when conditions stabilize, P&Us cannot expect to go “back to normal.” The sector is witnessing massive change that will change forever the way companies operate and determine which utilities will succeed. High-performing utilities recognize this and are acting now to seize the opportunities presented by these changes and play an active role in reshaping their sector. By resisting the urge to go slow, high performers instead drive their own growth through making future-focused operational changes; clearly communicating to stakeholders; competing where possible on cost; and putting the customer at the center of everything they do. High performers know that further changes and challenges are to be expected and that, by addressing these four key issues, they will be best positioned to respond and succeed.

Alain Bollack Director, Global Power & Utilities Center abollack@uk.ey.com + 44 20 7951 7147

Alain is a director in our Global Power & Utilities Center and is responsible for driving the global growth of our advisory business in the areas of smart metering and Smart Grid. Alain has almost 25

years of experience supporting clients as they transform their business.

What is a high-performing utility?

High-performing utilities (HPs) take charge of their own destiny and are first to respond when this industry changes. The way that HPs have been pursuing the current customer transformation has created opportunities for them to grow beyond their traditional markets.

Read our paper “Growing Beyond: how high performers are competing for growth in difficult times”

For more information

1 Richard Postance, “Trust: the energy industry at a crossroads …,” The Raconteur, 1 May 2013.

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