Utility Week Live highlighted the disruptive changes hitting utilities from a multitude of angles as big picture trends in customer behaviours, political interventionism, climate and – not least – technology come to bear.
Content around all of these issues provoked thought and inspiration at the exhibition, seminar programme and keynote conference, making it a stimulating first year for the event, which has grown out of the long-standing Iwex exhibition.
The following pages distil some of the most pertinent messages for leaders across the water and energy sectors that emerged from Utility Week Live. The themes of change and leadership are central, arching over the perennial difficulty of creating a dynamic and innovative skills base for the sector and running alongside the contextual challenges of regulation and climate change.
Share the vision
A keynote conference roundtable on leadership for change found uncertainty clouding strategic vision.
The need to address the challenges of leading change comes at a time of enormous upheaval for utilities across deregulated energy markets and regulated monopolies.
Regulator-driven water and network companies are being pushed to drive down costs while putting customers at the heart of their business plans. Meanwhile, deregulated energy firms face the threat of an increasingly hostile political environment and rising competition from smaller “challenger” retailers.
Utilities need to “consciously take a winning mindset”, said analyst Mark Thomas, a strategy and marketing expert at keynote conference sponsor PA Consulting.
In the roundtable debate, senior members of the big six companies, leading analysts, and supply chain firms agreed that the need for change was clear: conventional generation has traditionally been at the heart of these companies but as the “money has dropped out of the generation business” the need to engage better with customers has grown.
Three clear points emerged from the discussions about trying to lead change:
The old guard is blocking progress
Previously, one roundtable delegate said, a big six utility knew who it was competing with, “the other five”. Now, the net effect of multiple small new entrants is cutting into market share and increasingly decentralised energy solutions emerge. Further in the future, disruptive change-makers such as Google could emerge as a real threat to traditional energy companies, others added.
“What can a utility do to defend itself against a world where anyone can do your job?” one roundtable member said.
Shifting political pressures promote reactivity, not proactivity
The uncertainty of future competition is met by the more pressing uncertainty of the regulatory environment. Political heat on the energy sector has forced many industry leaders to rethink their strategies, but they also risk basing their strategy on a reaction rather than a proactive and authentic approach. On the other hand, with the energy sector’s competition probe rumbling on, companies face a danger of putting off important leadership decisions which could cost them a competitive advantage.
In a separate roundtable on the same topic, leaders from the water industry countered this problem by insisting that a customer-focused vision should always remain constant, while the shifting demands of Ofwat will fall within that unified focus.
Everything to play for
Both energy and water sectors face similar challenges in implementing change in companies that often have a long history of inefficiencies and unchallenged approaches to problem solving. But PA Consulting’s Thomas urged delegates to embrace the opportunity posed by the changing environment in the same way that today’s strongest firms embraced the opportunities presented by the economic recession.
None of the challenges faced by utilities are existential, and advancing technology is on our side, delegates added. Leaders should drive change now, before threats become imminent, and while there’s still everything to play for. JA
Recruiting talent takes talent
The issue of skills and talent management inevitably comes in the wake of debate about leadership for change.
A lively roundtable debate and successive presentations at the Utility Week Live Keynote conference tackled the challenge of recruitment head on and brought some refreshing insights to the fore.
There was the usual emphasis that businesses must engage early with schools to nurture interest and understanding in the wide range of careers available in the sector. But alongside this there was firm agreement that a focus on developing training frameworks and technical qualifications, which will remain relevant in a world of fast-changing technology, can distract from the fundamental importance of recruiting for “cultural fit”. “Hire for attitude, fire for attitude,” was the mantra taken up following a presentation from Andrew McMillan, former head of customer service at John Lewis.
That said, discussion soon made it clear that existing HR policies and recruitment structures can stand in the way of this ambition. “Tick-box” requirements for candidates to fill certain qualification criteria can cause potentially worthy individuals to be discounted without being subjected to more qualitative assessment.
Attendees from specialist recruitment organisations said HR representatives should not be responsible for the interview process – but there was also a desire expressed by operations management to receive training and development for interview skills. It was felt this would help them recruit the diversity and character-driven talent they know is required to see their organisations through times of radical change.
The ability of organisations to cope with change via appropriately skilled employees was a very present concern at the conference – following an acknowledged period of underinvestment in education engagement and training programmes.
Even with this issue back at the top of the strategic agenda, however, and displaying essential long-termism, utilities face some immediate talent deficits that will not be met fast enough by apprentice and graduate recruits.
Giving “upskilling” and “continuous professional development” programmes more resource was one answer to this imminent shortfall, but it was also raised that experience and transferable skills could be exploited to better effect. One delegate gave insight into the Talent Retention Solution, an initiative set up in 2011 to repurpose the abilities of ex-service personnel in the then-budding UK automotive manufacturing sector.
The skills plug provided by these individuals has played a role in helping the automotive industry regain, and exceed, its historical volumes in the UK, and similar benefits could be enjoyed by utilities, it was suggested. Key to doing this, however, will be nuanced recruitment messaging and robust knowledge of skills initiatives across engineering sectors – and perhaps beyond.
Building skills matrices and managing a strategic approach to talent for change was therefore agreed to be a task that should not be underestimated or dismissed as a basic administrative function. Rather, it is one that itself requires talent and firm recognition in broader business strategy. JG
Regaining trust is essential
With trust in utilities in the doldrums, leaders need to do more than simply inspire ambition and productivity in their organisations. They must model integrity and fight back, carefully, against external forces that undermine the recovery of consumer trust, said participants in a roundtable debate at Utility Week Live.
Failure of leadership
It was felt that leaders in many organisations are a weak link in the effort to rebuild trust.
While considerable focus has been applied to training frontline staff to display certain character traits and behaviours when interacting with the public, it was observed that there is little accountability laid on leaders to model these behaviours.
This was felt to be particularly true at a middle management, and in some instances senior management, level.
Voter versus consumer
With increasing political intervention in the market, roundtable participants saw utilities having diminishing control over the way they are perceived by the public. They also observed that individuals often hold “contradictory” opinions about the trustworthiness of utilities, depending on whether talking from the position of a voter or a consumer, and were dubious about whether the Competition and Markets Authority inquiry could do anything to improve trust.
Political intervention was not the only source of the “contagion of reputational risk”, however. Outsourcing and contracting were also partly to blame.
Participants welcomed suggestions from keynote speaker Andrew McMillan, former head of customer service at John Lewis, that suppliers and contractors be held to account on cultural and behavioural measures as well as traditional service level agreements. They also agreed that more could be learnt from other sectors where outsourcing is successfully used without reputational damage.
Getting recruitment right
Investing in staff training is obviously beneficial, but it was suggested that if the wrong person is recruited the wrong results will ensue, regardless.
It was felt that utility recruitment processes could be more robust (see Recruiting talent takes talent, left). JG
What we learnt about: totex
While some delegates to Utility Week Live grappled with the subjective challenges of leadership, talent management and culture, others focused on the more definable requirements of new regulatory frameworks.
With totex, the old division of capital and operational expenditure has been swept away. As Northumbrian Water network manager Dennis Dellow told the Water Theatre, having that one pot of money allows companies to think more holistically about issues such as leakage.
This may mean putting a sticking plaster on the problem for now, keeping the asset running for as long as possible, or it may be building that asset anew. Making the right decision about which approach to take will become increasingly important as budgets begin to dwindle in the final years of a price control period.
Some have labelled this decision-making challenge a big worry for water companies in AMP6. However, while totex may mark a significant shift for water, delegates said it should not be hailed as revolutionary. There is plenty to learn from industries where totex approaches are well embedded.
A fundamental lesson in getting totex right is to understand that “the best way not to save money is to not spend it at all and find another solution”.
One delegate suggested that “it’s about sweating the assets”, and though this interpretation had negative connotations for many, it is undeniable that water companies are being encouraged to “use the assets that were needed and built under previous price controls”. Technology will be key in this.
A principle concern remains about the potential for running out of money during the price control period and being forced to make do with a “sub-optimal solution until the start of the next price control period”.
So totex, to sum up, is seen as a potential game changer by many in the water sector, a trigger for creating more efficient and smarter utilities – provided lessons can be learnt, and tactical decisions for short-term financial gains can be avoided. MB
Innovation: embraced or smothered?
Innovation emerged as a key strand running through most headline topics at Utility Week Live. Whether sessions focused on future strategy, trust or the resilience of infrastructure and assets, conversation gravitated toward the need for innovation.
Despite this, there was an overwhelming sense that change-hungry individuals within traditional utilities are finding their ambitions frustrated by the conservatism of their organisations, which, it was observed by several seminar delegates, have little interest in seeing an overhaul of the establishment.
This is not to say that incumbent leadership actively avoids or quashes radical change. Rather, leaders find their attention channelled ruthlessly on meeting the expectations of shareholders and regulators – leading to risk aversion.
Without active promotion of innovative thinking and behaviours at the top, there is limited trickle-down. This was recognised as a major limitation and delegates looked enviously to fast-paced companies in other sectors where innovative thinking was valued, supported and implemented within business as usual – not as a hived-off function.
Of course, the ability of utilities to learn from sectors like manufacturing and digital technology is limited by the heavy hand of regulation. Schemes and funds to stimulate innovation are supplied by regulators, but their effectiveness was doubted.
Perhaps the overriding message on innovation across sessions at Utility Week Live was that business model innovation must be embraced alongside technology innovation.
Conversation and presentations proved that while the renewal of the UK’s ageing utilities infrastructure with smarter, connected assets and customer touchpoints is a big challenge, it is a technical one which the engineering minds of sector experts are far more comfortable with than the struggle to reroute value streams.
That said, there was insight at Utility Week Live into projects like Triangulum in Manchester where partners are now simulating potential revenue models for the new energy business ecosystems. JG
Disruptive innovation
Are utilities being blinkered by continuous improvement mindsets?
One roundtable debate challenged the utility sector’s approach to innovation and struck on some key issues which, if addressed, could enable it to face the future with greater confidence of profitability.
Sponsored by global technology leader HP, the debate reached some key findings.
Risk and regulation
Running critical national infrastructure systems must be done with responsibility and safety at front of mind. However, in a time of rapid technological and social change, accompanied by a wave of assets requiring replacement, participants agreed that utilities need to find ways of overcoming their natural risk aversion.
Two major hurdles exist before reaching this end. The first is the traditional, hierarchical structure of incumbent utilities, which was not seen to foster truly innovative thinking or to allow room for disruptive ideas to be channelled into business as usual.
The second is the highly regulated environment in which utilities work and a lingering “parent-child” relationship between companies and their regulators. One delegate described the focus on their regulator as “preventing us from looking to left or right” for innovative ideas that could change operations and business models.
It was also observed that where the regulators do supply incentives for innovation, they require defined outcomes in term of projected benefits to the consumer. This is understandable, but defined outcomes are contrary to the premise of disruptive innovation or “blue sky” thinking.
Immature innovation cultures
Attendant utilities and representatives from their supply chains were very aware that their organisational cultures do not provide fertile ground for disruptive innovation when compared with non-regulated sectors.
There was a general consensus that great value could be derived from looking to other sectors for innovation models, however there was little evidence of observations or learning being transferred into utilities’ business as usual.
One delegate said that innovation environments in utilities were managed in a way that would only ever result in continuous improvement, or “sustained innovation” as the HP host described it. While this was agreed to be valuable, it would never achieve step change thinking about competitiveness or the delivery of utility services.
A critical outcome of the debate was the consensus that technology innovation and the adoption of new technologies was relatively straightforward compared with business model innovation – but that only through combining the two would utilities achieve the disruptive innovations required.
The role of collaboration
Collaboration has become a buzzword constantly associated with innovation. However, as Nick Wainright, director of open innovation for HP’s European Research Labs, pointed out, “collaboration should not be seen as an end in itself”. It must have a clear role in accelerating value creation.
Participants in the roundtable agreed that there was not always a clear purpose to either internal or external collaborative partnerships. They agreed, however, that it would be useful for the industry to have a common platform for collaboration and innovation. Critically, it was agreed that the regulator should have a seat on this platform.
A possible aid to more purposeful collaboration between utilities, their supply chain and the regulator, was identified in Innovate UK’s Catapult network. Wainwright highlighted the role of the Digital Catapult in providing an innovation “sandpit” for testing technologies and modelling their impact.
This month’s launch of the Energy Systems Catapult was also acknowledged as a prime opportunity for utilities to embrace disruptive change. JG
Extreme weather events
How well can you prepare to respond to the unpredictable?
The devastating impact of the Christmas 2013 storms is still fresh in the minds of those utilities which fought hard to restore power and water supply amid intensely hostile conditions, matched only by the political backlash that followed.
A roundtable discussion on managing severe weather events identified three key considerations for UK utilities to avoid damage to both assets and reputation.
Understand long-term forecasting
Event sponsor the Met Office made no bones about saying that climate change is an observable trend that will increase the frequency of severe weather events.
However, while its forecasting tools improve every year, risk remains in predicting the likely impact a weather event might have. For example, weather that is less “severe” could result in consequences just as devastating as historically severe conditions if it is followed in close succession by storms of a similar scale.
A cumulative effect could also be felt if the weather events occur in close geographic succession, which could have particular implications for external utilities contractors working within a specific region, which may find its resources stretched. Taken to an extreme, a utility could face real weather-related problems even without extraordinary weather. After all, a drought is just a very long period of ordinary days with no rain, the Met Office noted.
For historic weather events the Met Office is able to give advanced warning which, at between two and five days out is very accurate, but utilities need to have action plans in place long before then.
Think long term
The five to eight-year regulatory periods enforcing innovation can cause water and network companies to take a shorter-term approach than is desirable to develop an adaption plan of long-term trends like climate change, it was agreed.
In addition, trends in population distribution and housing development (often in flood plains) also generally occur at broader timescales than the regulatory periods.
Prepare for multi-impact threats
A severe storm would have big implications not only for networks and water companies, but also for road, rail and emergency services and include the need for reaction from the Environment Agency and local councils. At present, plans for adaption to climate change are “siloed” to each service provider.
The roundtable agreed that perhaps the biggest problem is a “head in the sand” attitude to the worst case scenarios. Customers are unlikely to be sympathetic to companies that fail to anticipate severe weather, they agreed. And they are unlikely to accept excuses about the unforeseeable nature of specific events. JA
What we learnt about: cutting carbon
It is clear that our outdated electricity system is ill-equipped to deal with the current rate of change. By imposing a great many rapid changes on to a slow-moving and fragmented electricity system, like an overworked donkey the network will undoubtedly collapse, causing extensive power outages and blackouts. As Mott MacDonald’s group strategic development manager Simon Harrison warned, this is “the sort of thing that brings governments down”.
At the heart of the problem is the disparity between different paces of change. The speed of the power industry is slow and the speed at which people develop is much faster. The speed of technology is, however, a whole order of magnitude faster still.
Facing up to the increasing complexity of decarbonisation will mean greater collaboration and a drive toward “whole-system integration”, as John Scott, director of Chiltern Power explained.
The general consensus in the energy industry is that the new “smart world” needs modelling techniques that are not currently in place. Simon Harrison, chair of Institution of Engineering and Technology’s Energy Policy Panel, advised industry and government to build new ways of modelling the “phenomena that are going to emerge in this changed world” in order to ensure that different elements of the energy system are “seamlessly interoperable and secure”.
As for gas, Utility Week Live delegates firmly believed that gas will be around for many years yet and will play an important role in decarbonisation – despite its networks being viewed as the poor.
That said, the just as electricity generation will diversify with decarbonisation, so it is expected that gas technology will expand. At the moment a great deal of renewable gas in the UK is used to generate electricity through combined heat and power. National Grid’s gas distribution network strategy director David Parkin advocated a more efficient use of the resource: injecting biogas straight into the network and then using it in condensing boilers in people’s homes. LV
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