Once upon a time, the utility industry was a relatively simple place to be. It was all about the safe and consistent generation and distribution of energy with good capacity planning, minimal outages and happy customers.
Then it all changed. Climate change happened. Infrastructure got older. Governments and industry bodies got busy with new legislation and regulation. Utility companies were faced with new energy sources, new generation methods and new competitors. And, everything got smarter: smart cities, smart grids, smart meters and even smarter customers.
Utility companies have to become smart to succeed. This starts by driving excellence through all parts of their operations – not just in terms of how well they operate and manage assets, but also how they respond to rapidly changing customer demand and market conditions. Operational excellence can deliver the cost savings, efficiency improvements and enhanced customer experience required, but only if companies can unlock the value in their information.
Three key challenges to operational excellence in utilities
In an industry where efficiency and effectiveness has always been front-of-mind, there is significant pressure to reduce costs while improving performance and reliability. There are three major challenges that all utility companies face when building their operational excellence programs:
1. Changing energy landscape
Renewables have consistently become the fastest growing energy source, topping the list in both 2016 and 2017. In addition, Forbes suggests that the cost of renewables are falling so fast that renewable energy will be consistently cheaper than fossil fuels by 2020. This has led to the rise of the Distributed Energy Resources (DERs) and the ‘prosumer’ – a customer that both consumes and produces electricity mostly through renewables such as solar panels. GTM Research predicts ‘explosive growth’ for distributed energy which is set to double in the US by 2023. At the same time, energy consumption patterns – at least in developed countries – are declining. US domestic consumption dropped 7% between 2010 and 2016.
Utility companies need to react to these changes in consumption and generation patterns. While DERs can represent a threat to the business of traditional utility companies, they also offer some relief for grids that have been operating often very close to capacity. In this context, smart grids and smart meters can act as a challenge to operational excellence but are also a significant opportunity. By encouraging customers to take more control over consumption, the utility company can improve customer satisfaction while gaining a much greater view of individual consumption patterns, enabling better capacity planning and development of performance-based rates where pricing can be used to incentivize energy use.
2. Changing customer expectations
For an industry that has always been largely consumer-focused, the utility sector has a poor record for customer satisfaction. Industry magazine Utility Week reports that the sector has consistently ranked second worst for customer experience, and bottom for reputation. In addition, recent research found that the utility sector offers the worst digital experience to customers of all industry sectors. Yet the need to properly and positively engage with customers has never been greater.
Offering a superior service through operational excellence – including individual, tailored rates and minimal outage time – is essential. However, PA Consulting points out the customers don’t require perfect reliability but they expect proactive and ongoing communication. Customer experience can be enhanced through customized personal communication and self-service functionality but, like the retail industry, that depends on being able to deliver consistent, omni-channel engagement.
3. Coping with an aging infrastructure
A key focus for operational excellence will always be around optimizing the performance of assets and facilities. Companies have to increase operational efficiency, minimizing production downtime and service outages while ensuring safety and regulatory compliance. This is set against a backdrop of aging infrastructure and a traditional ‘run-to-fail’ model of asset utilization. According to US Energy Information Association, utility companies are spending $51 billion annually on their distribution infrastructure, with many assets over a quarter of a century old.
To manage risk, control costs and drive performance, utility companies need much greater visibility into their operations. This includes maximizing asset availability by reducing planned downtime and making more accurate ‘repair or replace’ decisions based on better, real time, asset monitoring and predictive maintenance strategies. Companies have to digitize their assets to create the digital workflows that enable the level of visibility they require.
Unlocking the value of information for utility companies
No utility company is short of data but very few are using it effectively. In many cases, a great deal of effort is made to gather the data that is then placed in information silos. Famously, McKinsey found that less than 1% of data gathered from the oil and gas rigs they studied was made available to the people who make decisions.
The same is true for the utility industry, and utility CIOs understand that they need to exploit the data they have to drive operational excellence. In fact, research shows that operational excellence was the key driver to invest in data analytics for 75% of utility executives. In research OpenText™ conducted with IDG, we found that 89% of energy executives saw data silos as an issue and 98% were already applying advanced analytics.
To deliver an operational excellence program that meets the three challenges – market conditions, customer demands and aging infrastructure – analytics by itself is not enough. Companies need an Enterprise Information Management (EIM) platform that combines analytics with content services, customer experience management and B2B integration. This is the most effective way to ensure they release on the value in their information and they engage more effectively with customers, suppliers, partners and contractors to transform all parts of their operations.
If you’d like to know more about how OpenText can help improve operational excellence in your organization, please contact us.