A look at the future challenges and how to tackle them; Action agenda for the utility sector
The utility sector plays an important role in our society, providing part of the basic resources we need to be able to enjoy the comfortable lives we live. This sector is also undeniably being affected by major developments in society such as digitization, the energy transition, the circular economy and growing customer empowerment.
As management consultants, we support utility companies to become aware of and prepare for these major developments, and we do this using customised approaches based on our local and international knowledge and skills. We shared and further developed these approaches, knowledge and skills at the Utilities Summit organised by the Cordence Worldwide (CWW) partnership in November 2018. During this summit, member firms Twynstra Gudde, Oresys, Horváth & Partners and Alfa Consulting worked with their clients to identify the future challenges the utility sector will face in the coming decades and ways to tackle them.
Young professionals help utility companies become future-proof
We, the Young Professionals Network of CWW (YPN), accepted the challenge presented during this summit to explore how the utility sector might look in 2050. Working back from 2050, we identified the potential issues utility firms will face in the future and ways they can prepare for these future challenges. In this blog, we’ll take you through the steps of this backcasting method and give you an insight in the action agenda that we created.
Backcasting, how does it work?
In order to examine the future needs of utility companies, we set our starting point in the future: the year 2050. We then took four steps to create an agenda with actions through which utility companies can become future-proof. The illustration below shows the four steps and the key question asked at each step. We followed the four steps chronologically.
Step 1- Quick scan: What are the major trends we see now that will affect how the utility sector will look in 2050?
Instead of trying to cover everything in the quick scan, we gave our impressions and answers to broader research questions such as: What trends will define the utility sector in 2050? Who will utility companies have as customers in 2050? What will utility companies’ needs be in 2050?
From this, we identified four major trends that will greatly affect how the utility sector will look in 2050 (see below). The full quick scan can be downloaded at the bottom of this page.
Step 2 & 3 – Futures and issues: What are the possible futures of the utility sector based on these trends? Which critical issues do utility companies need to overcome to become future-proof?
The aim of sketching possible futures is to get an idea of how the utility sector could look in 2050 based on the results of the quick scan. In essence, it’s an amplified version and a combination of the trends that we identified. In step 2, we answered questions such as: What is the societal impact of these trends? What will politics be like? What kind of economy and governance will there be? And in what way will there be a technical transformation?
From this, we identified three possible futures for the utility sector, outlined in broad strokes below to give you a quick impression.
Power to the people
Imagine that the production, supply and storage of utilities has been fully decentralised. Customers themselves are energy and water suppliers, thereby increasing competition on the energy market and threatening the position of current large-scale utility companies. In this possible future, questions arise on the reliability and capacity of the network.
Imagine that Google, Apple, Facebook and Amazon get involved in the utility sector. With access to a multitude of big data – much more compared to traditional utility companies – and the innovative use of these big data, these companies are able to fine-tune energy supply to customers’ needs and more, controlling any given customers energy and water supply and managing it based on assumed needs.
Climate change explodes
Imagine a 4°C increase in global temperature. Arable land becomes scarce and cities overpopulated. Clean fresh water is only available to those who can afford the high prices. Energy supply is unreliable due to a combination of high peak demand and low storage capacity. The utility sector fails to meet the needs of its customers and hasn’t managed to adapt to a changing climate.
Working back from these three futures, we identified various issues that utility companies need to overcome. These critical issues are illustrated in the figure below, along with the three futures.
Image: Result YPN Wake-up Call 2018 by Mei-Li Nieuwland Illustration
Step 4 – Action agenda: How can utility companies overcome the issues they will face?
Brainstorming the three futures and their issues, we came up with over 30 actions that utility companies could undertake to tackle these issues and prepare for the future. Below a teaser of two of these actions.
Introduction – The perspective from which the two actions are drawn
The developments that are taking place in modern society demand big decisions and solutions from utility companies and governments. These decisions and solutions tend to be highly complex, often unknown (future innovations) and costly, and demand high levels of collaboration with others (private sector, citizens, etc.). This means that utility companies and governments risk choosing solutions that are neither feasible nor affordable. As a result, the necessary transition to sustainable energy systems and circular economies may not happen fast enough or at all, with severe results such as global warming of more than 2°C. This begs the question: how can utility companies help governments make decisions regarding our water and energy systems that are feasible and affordable?
Action 1: Adapting your workforce to the digital age
Utility companies in the digital age are changing from artisan organisations based on tacit knowledge to data-driven organisations based on big sensor data. Utility companies that have made the transition to become a data-driven organisation have been able to reduce costs and improve the efficiency and effectiveness of assets, and so increase revenues.
The transition into a data-driven utility is not limited to implementing new infrastructure and IT systems. Above all, the transition into a data-driven organisation is a transition in workforce competences. New competences are required to develop, maintain and implement OT and IT innovations in the organisation. How does a utility adapt its workforce to meet the needs of a mature data-driven organisation? We listed some do’s and don’ts to start successfully managing this workforce transition.
Take into account
With every transition, it’s essential to consider the process your organisation is in. Don’t expect your revenues to soar a year after your start. In practice, you’ll probably see costs rising following the first few steps of the transition. A transition to become a data-driven organisation is a process that requires initial investments, with the benefits set to follow later. The benefits of a data-driven organisation will only show when a certain level of maturity has been reached across all relevant departments. To monitor your transition, we recommend using a maturity model to monitor your progress in relation to your strategic intent.
Action 2: Build alliances with tech start-ups and giants
Nowadays, utility companies are increasingly noticing the effects of the digital age. Some of these effects are promising and stimulating, for instance clients asking for more self-management of their energy usage. Other effects are terrifying and depressing, for instance hackers breaking into utility companies’ digital systems and gaining control of the public water supply. If utility companies want to keep on being relevant now and in the future, they need to be able to deal with and benefit from emerging technologies.
This is easier said than done for a company that doesn’t have digitalisation and technology as its core focus. As such, to learn how to deal with and benefit from emerging technologies, utility companies need to partner with tech companies who do have this focus and are already able to do this.
Take into account
When building partnerships between public and private entities, there are some key topics to consider, such as:
- Which conditions do you need to set for a fruitful partnership?
- How do you align the interests of utility companies with (semi-)public institutions and private companies at a regional, national or international level?
- And how do you ensure the results are accepted and implemented within a utility company?
These are key questions that generally need customised answers within each partnership.
Are you tackling the issues of becoming future-proof? Do you believe our action agenda could help you?
If so, then please contact us. We’ll be more than happy to provide you with more information and help you further.