Digital transformation in the energy sector

Dec 10, 2018

Digital transformation is something that has become a common trend, and it is one that has reached the Power & Utilities sector, moving rather quickly.

Recent studies show that power and utilities companies are taking more interest each year in digital transformation. Previous studies had shown that whilst most energy companies are paying attention, there is still a lack of adoption across the sector and a need for CIOs to embrace a digital strategy across the entire business.

One of the main drivers for this is due to competition for customers shifting to the online channel; the Internet of Things promises new product and management options. Entrants from the digital economy are disrupting the industrial landscape, while governments and regulatory bodies seek to encourage smarter measuring systems and greener standards for generation and consumption.

CIOs should be aware that these transformations are pushing the IT organisation to undergo a significant renaissance themselves to emerge as a more agile, innovative, proactive, and consultative business partner to enable the business to navigate the new industry landscape.

The digital utility value chain

To thrive amid these challenges energy companies need to invest in fully digital processes. This means that today’s utilities face a digital transformation of their organisation. This can begin with quick moves to improve efficiency and expand the customer base. As the transformation builds momentum, it should open deeper digital opportunities across a wide field.

Improvement at every level – digital improvements can be made all along the power-industry. Retail customers are already feeling some improvements. Many utilities have launched mobile applications for bill notification, consumption, and payment, as well as for outage management. Before long, mobile applications will extend into smart homes and connected buildings. Digital management of distributed energy resources, from individual sites to entire systems, has already begun. Many projects within the utility industry have a digital focus and are using techniques of the digital economy, such as agile development.

Digital transformation and the future – The changing landscape of the power and utilities industry is resulting in new expectations for IT and shifting imperatives for senior managers across the business. Many power and utilities IT organisations have embarked on an IT transformation program.

Automation of back-office process – Administrative processes in customer management and billing (including changes in provider, address, or product) are proliferating. Distributed generation and multiple channels are resulting in more convoluted and error-prone processes. The rewards of process standardisation and automation are therefore growing.
Process-efficiency opportunities are also evident in the significant variation among retail providers in cost per customer, the cost of resolving errors, and billing inquiries. In one case, a company digitised a single core process and cut process costs by 20 percent in the first year, while also improving customer satisfaction. The key drivers were higher-quality data and effective process automation.
Digitisation is changing industry boundaries and dynamics. In articulating their digital vision, companies must first identify the position they want to occupy on the digital terrain, with respect to data, services, and devices. More precisely, this means finding the points in the value chain where digitisation would make the largest revenue contribution in the next year or two. By systematic analysis, companies can learn the value opportunity of each area and the feasibility of attainment. With clarity on the expected changes, companies can develop a digital blueprint and lay the groundwork for its successful implementation.

Digital transformations focus on key action areas

IT transformation often begins with a core business changes. Adapting to digital trends means improving the planning and operation of distribution networks beyond traditional measurement and control actions. The greatest imperative for this change seems to be the need for cost efficiency and increased agility. The top two reasons for adopting cloud technology were for improving agility/ responsiveness and saving money. With cloud adoption growing, many companies are seeing another transformation within their company. As they outsource application and infrastructure governance, they’re able to have a renewed focus on data governance.

Digitization has demonstrable impact on utility earnings

Improving productivity and efficiency – Digital opportunities to improve operations and increase flexibility are available throughout the value chain. Conservative estimates supported by analysis of real-life cases suggest that digital optimisation can boost profitability by 20 to 30 percent. Utilities can realise most of this potential by three means: smart meters and the smart grid, digital productivity tools for employees, and automation of back-office processes.

This all comes together in a cohesive IT transformation program by setting the focus on a new target operating model: the Broker-Integrate-Orchestrate model.

Broker – IT functions as a service broker bringing buyers together with sellers (business unit and service providers). This approach is based on increasing commoditisation of technology and enables IT to leverage the growing ecosystem of cloud-based services.

Integrate – Services for solutions. Brokering solutions from multiple sources shifts the focus from building to integrating. Architecture, methodologies, and standard processes will become important core competencies.

Orchestrate – In a world where services are multi-sourced and the service supply chain can be complex, IT’s responsibility changes from just delivering services to the end-to-end performance of services. IT’s role is to make complexity invisible to the business.

CIO’s are managing risks as their organizations transform by providing safe, reliable, and secure services in a world with increasing threats, while delivering value for every IT penny spent. Safeguarding company assets and reputation will continue to be a high priority of importance. In order to address this emerging trend of digital disruption, most CIO’s in the energy sector are responding by contracting assistance (28 percent) or partnering (27 percent); 23 percent are retraining their people, and 15 percent are hiring. The trend toward digital disruption is likely to catch fire in the power and utilities industry due to the explosive growth of digital, connected, electronic devices.

To see how E-Sign can assist with your digital progression, and to see how we can benefit your organisation by improving your operational processes, please get in touch

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