How can utilities scale digital transformation?
July 15, 2021
Utilities are taking charge and playing a more central role on the path to net zero, which requires new capabilities, a broader, a more diverse set of partners, and entry into new sectors like transport and the industrial sector.
How do utilities meet customers’ increasing demands for net-zero solutions, and generate these new value pools? Replacing yesterday’s technology with advanced and emerging technologies will help utilities to innovate at scale, at speed, and generate value alongside their ecosystem partners.
While utilities may face some unique challenges, the imperative to digitally transform is far from unique. All industries are undergoing digital transformations. In 2019, Accenture undertook research on enterprise technology strategies and their impact on performance. In light of the Covid-19 pandemic, and the widespread acceleration of digital investments, we repeated this research. The results are telling: companies that invested heavily in digital transformation are now reaping rewards. They also give some great insights into where utilities sit on the adoption curve against other industries. The research identified Leaders and Laggards in digital transformation, and analyzed their relative financial performance.
Leaders adopt innovative technology sooner and reinvest more frequently. They make smart tech investment decisions and direct their IT budget toward innovation. They create value with partners, and invest in employee training and employee experience. For example, during the pandemic, more than 50% of Leaders across all industries doubled down on tech investment and created broader stakeholder value. 68% of Leaders increased tech investments in cloud and 70% in IoT. In contrast, many Laggards invested in newer technologies for the first time during the pandemic just to keep their companies operational.
How does this translate into financial performance? Before the pandemic, Leaders across all industries grew 2x faster than Laggards. But after the pandemic struck and Leaders doubled down on their tech investments, they grew 5x faster than Laggards.
During the high levels of uncertainty in the pandemic, companies that made previous investments in digital infrastructure were able to more quickly pivot to new revenue streams, while their competitors had to invest in new technology just to survive. Likewise, the utilities that are best prepared will create the resilience and flexibility to successfully navigate the uncertainties of the energy transition.
There are a number of Leaders in the utility industry, leading the charge, scaling digital transformation with innovative tech strategies.
Where are Leaders making investments? Future Systems that support the energy transition will, in many instances, be based on cloud-based analysis of real time IoT data. Global Leaders’ investment in other industries are well in advance of the average utility. For example, 19% more are investing in hybrid cloud; 18% more in real time data analysis, 10% more in IoT.
As we saw in the pandemic, with the right infrastructure in place, companies from any industry were able to grow in challenging times. For utilities just starting this journey, there is much cause for optimism. Our latest research identified a new subset of companies, which we call the Leapfroggers. In industries such as health, life sciences, or software, many companies are outperforming their peers and closing the gap with Leaders. Despite the difficulties of the pandemic, Leapfroggers are breaking through previous performance barriers and rapidly transforming their operations.
Leapfroggers have two distinguishing attributes. First, their enterprise IT exhibits “Systems Strength.” They have adopted advanced and emerging technologies and scaled them across their enterprises. Second – and this is important for the utilities industry – they have a large “Flip Size.” In contrast to the 30% share we usually see spent on innovation and the 70% spent on operations and maintenance, they reverse that split entirely.
Unsurprisingly, this investment reaps significant returns. Leapfroggers grew 4x the rate of laggards between 2018 and 2020.
The utility industry is evolving and evolving quickly. Covid-19 has accelerated utilities’ technology adoption. During the pandemic, utilities’ adoption of certain technologies was above the global average (although behind Leaders’ adoption). These investments in IoT (65%), streaming data (56%), edge computing (54%), bottom-up AI (54%), and trust-based architecture (53%) will provide a springboard for future leapfrogging.
Utilities can emulate the Leapfroggers’ model for advancing innovation to grow financial strength. What is this model? Our research shows that, like Leaders, Leapfroggers accelerate transformation by implementing three powerful strategies:
The energy transition is an unstoppable force. It compels utilities to digitally transform. Our research shows that the industry is making progress. It also highlights a common strategy to accelerate digital transformation. By flipping the script and investing heavily in innovation, utilities can shape the energy system of tomorrow. Contact me to learn more.