While already exposed to disruptive forces today, utilities are even more susceptible to disruption in the years to come—a condition Accenture Research classifies as “high vulnerability.”1 This is particularly true for traditional utilities that face the threat of commoditization, experience declining margins in their core business, and find it difficult to capture growth via additional services. These are the utilities that should be upping their investments and pursuing new business models and revenue streams. But right now, they are not.
The Utilities industry, collectively, continues to exhibit an overly conservative reaction to uncertainty. That is reflected in their timid approach to investments. Accenture Research revealed that from a sample of 96 utility companies, investments grew only 4.3 percent annually between 2006 and 2016. And while capital expenditure relative to revenue has recently gone up, research and development levels remain low.2 In fact, only 38 percent of utilities aggressively invest in future growth.3
Generally, utilities hesitate to act decisively because of two investment challenges. The first is Capacity, a function of having liquidity, cash replenishment capability and financing. The second is Velocity, which concerns the speed and direction with which they shift investment into future businesses. Only 2 percent of utility companies are confident they have “sufficient investment capacity to pursue all change activities.”4
Rotating to the new
Utilities require a new approach to organizational change that enables them to make a wise pivot successfully. The aim is to transform and grow the core business to drive investment capacity and sustain the fuel for growth. In parallel, they need to scale the new businesses by identifying and ramping up new growth areas quickly.
Industrial companies, including those in the utility sector, have been concentrating most of their efforts on core transformation and core business growth, with less attention paid to developing new capabilities. This stands in contrast to, for example, software companies. While they have done little to transform their core, they have much higher innovation capabilities, with high “scale the new” scores that compensate for the need to make their core business leaner.
Rotation best practices
Accenture Strategy analyzed the most advanced companies in the execution of their rotation plan across different industries to identify best practices that may help utilities achieve a successful pivot:
Making a case for new businesses often demands multi-year investments in innovation, assets and skills. The commitment to create new businesses, therefore, starts with top leadership. Leading executives define and broadly communicate a new direction, ensuring investments in new businesses are deliberate―especially those in areas of opportunity enabled by emerging technologies. They define and architect the “utility of the future” from the inside, even though the core business may not be under imminent pressure. Getting targeted offerings to the market quickly is critical in securing market share in those pockets where utilities have a trusted customer relationship and a license to grow.
Synergies across the core and new businesses create confidence and fuel growth. To pivot wisely, utility executives should create an operating asset mix that supports both the core and new business ideas concurrently. Bundling and repurposing relevant core assets, while creating management incentives to ensure that new capabilities coming out of company innovations are also introduced back into the core.
Ecosystem partnerships can help utilities exploit and scale new commercial opportunities.
With the assistance of network-funded capital sourcing models, utility executives can scale intelligently. To do so, they need to develop a clear commercial ecosystem strategy for new opportunities or ideas, create financial mechanisms to lock in innovation from the ecosystem, and know when to walk away from unprofitable or non-strategic endeavors.
The key question to answer now is how well your utility stacks up against each of these best practices. Is your company going to stand still? Or will it pivot wisely by strategically rotating to the new?
1Accenture Research, Disruptability Index, 2017.
2Accenture Research, Wise Pivot Diagnostic, 2018.
4Accenture Research, Rotating to the New, 2017.
5Accenture Strategy, Ecosystems research, 2018.