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Digital transformation in utilities, something more than posing

23 May 2018

In a few years, and almost without realizing it, the way we work, communicate and consume has changed radically. Yet, for this to happen, the business models of telecommunications operators, the media, banks, travel agencies, health or public administration have had to transform beforehand.

One of the sectors in which this transformation is being deeper is that of utilities. These companies are responsible for managing large critical infrastructures through which basic services are provided to both organizations and households. Traditionally, the networks of these companies have remained isolated, without a direct connection with their customers, suppliers or competitors. This is no longer possible in the new digital environment, and therefore, its transformation process is perhaps becoming more drastic than in other sectors.

The utilities sector manages millions of daily transactions and manages the data of millions of people. A cyber-attack targeting the facilities of an energy company could put the lives of human beings at risk and could also lead to the theft and fraudulent use of your personal data. This is why consumer safety plays a leading role in the transformation processes of utilities, since governments and regulatory bodies define and demand new intelligent measurement systems, greener standards and strong data protection measures, especially now with the entry into force this week of the new GDPR.

This changes the environment, changes the client, everything changes

In an environment that lives permanently under change, the great challenge that arises is to boost efficiency, improve productivity and, of course, to look for new lines of business that are more sustainable, from the point of view of economic profitability, but also from the perspective of environmental sustainability. The utilities sector should bet on a greater control of its operations, something that will undoubtedly affect a substantial improvement in the quality of the service provided to citizens.

Be that as it may, this new digital paradigm, or, rather, the changes that this new way of seeing and doing business and, of course, of rendering services to the citizen, has led to, for example, that renewable energies are increasingly, more and better valued by consumers, especially by youth, those who see clean energy not solely as a trend, but as an inescapable commitment.

“Tendencias globales en la inversión en energías renovables 2018” (Global trends in investment in renewable energy 2018)   ,   published by the  Program for the Environment   ,   the Frankfurt School and    Bloomberg New Energy Finance ,   places the world investment on this type of energy, between 2007 and 2017, at 2.7 billion dollars. The global share of electricity generated by wind, solar, geothermal, marine, biomass or by waste conversion, as well as that obtained through small hydropower plants, increased from 5.5% to 12.1%.

Effectively, renewable energies are changing, both in its generation and distribution and, in view of this, new business models are being defined that, through intelligent networks, or what is equivalent, the brain that is sheltered behind the switch allows directly linking supply with demand; consumers can now also be producers, what is known as prosumers and, in addition to generating the energy they consume, they can donate their surpluses to the network. It is a disruptive model that empowers users, as it happens in other economic environments.

Thus, in the new digital scenario, the user demands a more personalized service and excellent experience. Customers want to have the ability to choose the provider and the type of service that most interests them at all times. In addition, customers have the option to produce and sell their own energy, so the traditional business model is radically modified. But, above all, demand a healthier development and a more sustainable exploitation model and, respectful with the environment. According to the previous Report, the proportion of electricity generated by this type of “clean” energy has prevented emissions into the atmosphere of 1.8 gigatons of carbon dioxide. Therefore, that must be, the way forward.

Sustainability and respect based on innovation

Utilities, on the other hand, see how a series of trends and technological solutions, such as Big Data, Artificial Intelligence, IoT, Social Networks, APIs, Blockchain, etc., facilitate the possibility of undertaking new business models and accessing new income sources, as well as giving them the ability to optimize their processes, making them more agile, profitable and competitive.

This reality means that the digital transformation in the utilities sector is translating into something more than a simple posture with which to fuel the marketing strategies of their companies. So, according to the report Worldwide Utilities 2018 Predictions of the IDC analyst, in 2019, 85% of the utilities included in the Forbes G2000 list will have created a new business unit with its own financing and governance which will be responsible for accelerating innovation and business transformation.

The same study says that currently 50% of IT budgets for utilities related to the user experience are destined to the start-up of new digital channels or the design of new customized products, in order to capture millennial users, something that shows that the war for customers is a new battlefield in which organizations in this sector have to deal with, for which they have had no choice but to learn to necessarily adapt the tactics used by the leading companies in the digital environment, such as Google, Amazon or Facebook.

But how can a utility optimize its efficiency, improve its productivity and the quality of its services, launch new lines of business, collaborate with other companies or learn to communicate appropriately with its new customers? How can it, in short, successfully address its digital transformation?

On the transformation path that all organizations in the utilities sector must necessarily go through, there are four basic pillars to consider:

  • The first one has to do with the organization and corporate culture. Digital transformation is not just about processes or move IT infrastructures to the cloud, but it goes from creating new organizational structures that allow adapting in a fast, agile and efficient way to market demands. That is, to compete in a digital environment, you must first be a digital organization.
  • The second pillar has to do with the client. Companies need to have a greater knowledge of its customers, encourage interaction with them to have the ability to provide them with new and better services… Improving customer experience will translate -for sure- into an improvement in the income statement.
  • Third, technological transformation. The amount of data that needs to be managed grows exponentially and utilities must treat this information in real time to take advantage of all the value it can bring to the business. In addition, they have to be able to share this information with customers or with other providers through multiple channels and take advantage of the possibilities offered by new emerging technologies.
  • Finally, efficiency, that is, allowing to reduce costs and streamline all processes.

The digital transformation process of each company is unique and must respond to a strategy embodied in concrete and well-planned initiatives. Do not forget that digital transformation is not an end, but a means to achieve certain business objectives. It is possible that many companies feel lost in some portions of the journey. In these cases, to count with the timely advice of experts to clearly mark milestones along the way may be the best option to ensure success.

Patricio Novoa

Country Manager VASS Chile

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