Something unexpected is happening in UK utilities. With levels of customer satisfaction at a low, and a growing band of challenger companies hoovering up market share, a sector not known for its entrepreneurial zeal is signalling that it is ready for a change. Enterprising start-ups are making inroads, and centres of innovation are taking shape within the larger, more traditional corporations.
Whether the buzz is around product innovation or customer service improvements, a new wave of entrepreneurialism in the air.
“New entrants will do new things, potentially better than you. You have to be open, to look at it and to consider how customers react. Can we match it or go a step further?” says Will Morris, SSE managing director, retail. “It’s a really, really great thing for this sector to be seeing so much new entry, to dispel the myth that the market’s closed, and to make it more dynamic.”
Among traditional utilities striving to break new ground, one of the big success stories is Hive, the spin-off brand from British Gas. Offering remote control thermostats through Hive Active Heating, connected light bulbs through Hive Active Lighting, and Hive Sensors, motion and contact censors that automate home functions, it has won 350,000 customers and is growing rapidly with sales of 5,000 units a week.
However, Hive had a bumpy start in life (see box, p22), and it took a newcomer to utilities, British Gas chief information officer Dave Cooper, who had previously worked at TalkTalk, to point out that the business lacked the product people to make it work.
According to Adrian Heesom, Hive chief operating officer: “[Cooper] quite rightly said: ‘This is not a tariff-type innovation, this is not service innovation, this is product innovation – it’s hardware, electronics, software.’ It’s a different mentality. It was really early in the Internet of Things in 2011, but he had the foresight to say: ‘We don’t have these people in our organisation, this is not a core competency of British Gas.’ So they went and found somebody that did.”
Cooper’s insight was crucial in clearing the way for a new, more entrepreneurial culture to flourish, and for a characteristically entrepreneurial focus on product to develop.
“An entrepreneur finds something, a product or service, that customers want, creates a mission to provide it, and collects a group of people to sell it and to make it meaningful to customers,” explains Charles Spinosa, director at Vision Consulting, a specialist in business transformation. “Entrepreneurialism frequently comes with innovation, because innovators tend to want to share their ideas with people, but there’s a big difference between entrepreneurialism and innovation. An entrepreneur is a culture changer; an innovator comes up with and develops new ideas.”
Northumbrian Water Group (NWG) is flexing its entrepreneurial muscle in support of its three strategic aims around energy: reducing usage or improving efficiency; generating renewables or maximising the benefit of renewables; and minimising the cost of energy procurement (see box, right). In pursuit of these goals, it wrested control of its water network from the hands of operators and gave it to a computer system, saving £1 million a year in energy costs; became one of the first water companies to turn 100 per cent of its sludge into methane, saving £3 million a year; and has improved water quality by reducing discolouration.
“Over that period our net promoter score, which started off in the high 20s, improved to 49 per cent, which in the utility sector I am pretty proud of,” says Maxine Mayhew, NWG commercial director. “We do have an entrepreneurial streak, and it’s probably a little bit unusual in a steady, regulated business that is quite rules bound.
“We work with a lot of partners, universities and SMEs in the region, effectively using them as part of our team. We don’t have all of the ideas, we’re a water company, so tapping into different sectors and ideas is really important.”
NWG held a hackathon in March, allowing external people access to its data in a controlled way, with a view to developing new perspectives on how it can use the data. “That to me was a very entrepreneurial thing to do, and something that we would never have done in the past. It’s what more entrepreneurial businesses do all the time when they don’t have resources. By doing it, we’re building a culture where innovation is the norm. It’s the way we do things around here,” says Mayhew.
The upshot is that employees are more engaged, creative and service-focused. NWG technical support adviser Ray Armstrong came forward with a prototype for a new product, the “porcupine”, a rag-catching device that cleans sewers by collecting rags and other debris. It is now rolled out across NWG’s network.
Hive’s culture is also one that understands and consciously nurtures entrepreneurial behaviour. “We have a team of really entrepreneurial product thinkers, people who are very skilled at talking to customers about their problems and what they do in their house every day, trying to extract that little essence of an idea that we might then be able to serve in some way,” says Heesom.
However, changing the culture of a large corporation to allow entrepreneurial spirits to thrive is a challenge, and corporate entities are frequently bad at harnessing the entrepreneurial energies of their staff.
“That poor old project [the original Hive] was squashed to death by what I call ‘corporate antibodies,” says Heesom. “The way a large organisation like British Gas has to work means that management behave a certain way. It’s risk averse and controlling in nature, and if you set up a new thing in a corner somewhere and ask it to behave in an entrepreneurial fashion, or in a fast and agile fashion, eventually the corporate antibodies seep out, they don’t like it, and they kill it.”
To give Hive the best chance to grow, it was set up as a separate operating business from British Gas, with a shiny new brand, and a safe pair of hands behind the scenes in the form of finance director Colin Gard, who transferred over from another British Gas business unit. That allowed the start-up the best of both worlds: enough distance from the corporate to avoid its potentially deadening hand; and an arm’s-length association with a familiar consumer brand.
Striking a balance between the passion that naturally radiates through a start-up, and the steadier energy of a more established business is also a challenge for those once new market entrants that are now reaching a significant size.
“It’s certainly a challenge. We can’t all crowd around a few desks any more, so we have to cascade messages to staff in different ways,” says Justin Haines, customer services director at Ovo, a challenger energy company that has grown rapidly to around 410,000 customers in six years, and which proudly tops Which? 2016 customer satisfaction survey with a score of 82 per cent.
“We work hard to ensure that each person knows how important their contribution is. Leadership is important. Senior managers frequently hold focus groups, and we still have a monthly town hall meeting where the whole company comes together. By adapting how we work… we can maintain that start-up feeling for a while longer,” says Haines.
Ovo generated a huge amount of goodwill among customers through its focus on fair pricing and customer service, picking up thousands of new accounts each time founder and chief executive Stephen Fitzpatrick spoke out about energy pricing. Such pinpoint accurate understanding of customer sentiment is a common characteristic of highly successful entrepreneurs.
“Entrepreneurs tend to know the details of their business top to bottom and they can shift their businesses around as they see customers and markets shifting. They have that enormous attentiveness to the market,” says Spinosa.
At SSE, on the other hand, Morris says he is “quite conservative and cautious about entrepreneurialism. If by entrepreneur you mean innovative and open to change, dynamic and effective, then yes, we want to be that. But our approach and the way we handle customers is not at all entrepreneurial. Entrepreneurial companies tend not to be customer centric, they tend to be start-ups, and very commercial”.
Whatever the subtleties of how entrepreneurialism may manifest itself in different organisations, the effect of the new entrants has been to sharpen the focus of utilities on understanding and communicating with their customers. “The upstarts are like Leicester City Football Club,” says Billy Glennon, chief executive of Vision Consulting. “Money and tradition will not beat them. An incumbent has to master the zeal of such an upstart.”
Morris has been out on the frontline watching and listening as SSE plans its approach to the upcoming rollout of smart meters into customers’ homes.
“I went out with one of my boiler engineers last year into a customer’s home. He was very polite and did all the work and then, at the end of it, the customer popped their head round and the engineer said: ‘It’s all done, all fine.’ And the customer left the kitchen. Then he turned to me and said: ‘Well, I’ve done this, and that, and I’ve checked this and checked that’ – some really reassuring comments. I said: ‘Why didn’t you tell the customer that?’ He said: ‘Would they be interested?’ Of course they would, that’s the peace of mind and quality and reassurance you want around all things electrical and gas. We’re trying to heighten the awareness of the different installers as to how valuable what they’re doing is to the customer,” says Morris.
NWG has developed a way of working and a language of service that it calls ‘Our way’. “From top to bottom in the organisation we all communicate directly with customers. Be it a guy out fixing a leak talking to a customer on the street, somebody in our call centre, myself at a conference, or the communications team, this style and approach is embedded across everything we do,” says Mayhew.
Further, the way that organisations are structured can play a significant role in supporting, or squashing, any entrepreneurial drive.
Severn Trent Water (STW) recently invested in a new enterprise project and portfolio management platform, Bubble Innovator, to help the business in prioritising research and development projects according to more sharply defined commercial criteria than in the past, and to support the development of an open innovation model. Open innovation encourages organisations to use external and internal ideas to develop their technology.
Projects will now go through a more rigorous evaluation process before getting the green light, and by using the new platform, STW will have “much better visibility as to what projects are worth to the business, and will be able to forecast the impact of the investment,” says Justin Bailey, STW research and development commercial manager. The company is in the process of recruiting a team to support the upcoming transformation.
But perhaps the most important element in maintaining the entrepreneurial buzz that makes an organisation come alive to customers is staff passion and energy.
A big part of Ovo’s customer satisfaction success reflects the company’s focus on finding the right personalities to fit the business and its values. “We recruit against our values rather than for length of experience and industry knowledge. In fact, we recruit very few people with industry experience – we prefer people with great values from great brands with a reputation for excellent service and use of technology,” says Haines.
When true entrepreneurial zeal is present there’s no mistaking it, and customers can naturally feel the internal company enthusiasm that’s behind the offer. Says Heesom: “We have a partner in Texas, Direct Energy, and they’re fully rolled out on smart meters that report every ten seconds. At that level of granularity they’re able to detect certain appliances: if you turn the kettle on, it has a certain profile. So in real time, on a mobile phone, we can say: ‘We believe you’ve left your straighteners on.’ Or: ‘You’ve left the iron on.’ That is what’s next. That is the really exciting stuff.”
Liz Bury is a freelance journalist
Power from poo: How Northumbrian Water slashed its energy bill
The things we’re doing are not novel, but how we’ve applied them is a little bit different. Water and wastewater are heavy to move, so every time you add another process unit, you’re adding more cost into your value chain, and using more energy. Our annual energy bill is £40 million, and treating wastewater accounts for more than half of that.
We take 100 per cent of our sludge and turn it into energy. We very deliberately talk about this as ‘power from poo’, to help our employees, our customers, and our stakeholders understand what we’re doing.
When you are asking your customers to support a massive shift in strategy, and spend £35 million building a new plant, it’s really important that they buy into it and understand it, and for us that’s been incredibly successful.
We treat 2 million m3 of sludge each year and generate 10MWh a day of electricity. That’s enough to power 30,000 homes. We reduce that 2 million m3 of sludge down to about 150,000 m3 of sludge, thus reducing the cost of energy required for transport.
Digestion’s been around a long time, but our approach has been a little bit different. Our focus on every wastewater treatment work is to maximise the amount of sludge we produce. We have 430 treatment works and take all the sludge into six hubs
for de-watering, and then to two industrial-scale plants.
Having it on such a large scale, and thinking about it regionally and strategically, has allowed us to get as much energy as we possibly can out of sludge, ultimately reducing our overall electricity bill by about 20 per cent.
Anaerobic digestion is great for freeing energy from sludge, but it’s only about 45 to 50 per cent effective in terms of energy recovery. It’s far more effective to take that gas and put it straight into the national gas grid. We’re putting gas into the grid equivalent to powering 7,000 homes. That has helped us to drive another £3 million of efficiency. Ultimately all these things help to keep our bills low.
There is huge potential to reduce the cost of pumping water, to make more of our reservoirs, to pump when energy is cheaper, and to make the most of the cheapest water sources. Managing that is incredibly complicated. A couple of years ago we took a very brave step to stop our people operators from managing our water network and to give all of that control to a computer system. Our operators found that to be a massive challenge in terms of cultural change. We now have 28 treatment works, 64 pumping stations, 97 service reservoirs, and a plethora of control valves operated by a system called Acrobat. If a part of the plant fails, or we take something out or have an incident, it rethinks and makes sure that we’re always operating at an optimal level. That’s helped us to drive down energy bills by £1 million a year.
We didn’t stop there. We’ve worked with researchers at Sheffield University on discoloured water, diving efficiencies and improving the quality of water in customers’ taps. Working with Newcastle University, we’ve had a trial plant running for a year, the first in the world to run on real wastewater, and it has produced hydrogen throughout that year. If we can tap into that energy inside wastewater and derive hydrogen as a clean fuel, it has the potential to be a game changer.”
Maxine Mayhew, Northumbrian Water Group commercial director
Third time lucky: how Hive came to life
Hive is a success now, but it failed twice. In 2009, AlertMe, a small technology firm from Cambridge, came to British Gas with a set of remote plugs, motion sensors, and contact sensors for security purposes. The powers that be created a project, threw cash at it, and hoped that it would be a success. They spent £7 million, end to end, and bought 20,000 units of stock. They sold 740 units at £149 each.
My post implementation review said the product’s fine, the technology’s really good, and the idea’s a sound one, but fundamentally the project was squashed by being put in the IT headquarters. I said if you’re going to do this kind of thing you need to do it separate from the main business.
That wasn’t want they wanted to hear. So in 2011 when AlertMe knocked again with a thermostat, they repeated the same mistake, and spend £5 million this time. But they had a bit of luck towards the end. The standard way that British Gas promotes new products is through the call centre network. At the time, the call centres were inundated because of price fluctuations. So in a last ditch effort they gave the stock to the field engineers. They hadn’t seen new thermostat since 1985, and got rather excited, and shipped 20,000 units.
It didn’t break even, but when they came to reviewing what happened the then managing director Phil Bentley, asked the question: ‘What do customers think about it?’ We had net promoter surveys from British Gas and there was an overlap of about 8,000 customers. There was a plus 50 point difference in the customers that had bought this £200 thermostat.
The response was: ‘You’re telling me that customers who bought a £200 thermostat now feel more positively about British Gas. That’s transformational.’ At that point the penny dropped, and Bentley said: “Look, if we’re going to do this and to do it properly, how do we do it?’
The new CIO, Dave Cooper, who had arrived from the telco industry, quite rightly said: “This is a product innovation and it is not a core competency of British Gas.” So they went and found somebody: Kassir Hussein, who was working at Sky on Now TV.
He came with a few riders that have served us well. The first was to be based in London, because this type of resource is in high demand and it doesn’t want to move to Staines. The second was the freedom to hire and fire fairly rapidly, so a separate HR team. The third was a new brand. This was a big step. There are 30,000 people in British Gas and we’re all staunchly proud of that big blue brand.
But to be known as an innovative tech-type company, we had to differentiate. The first year in 2012 it was Hive by British Gas, because the customer research said that while people thought brands like Sky or Apple might bring out new technology, when it came to putting it into their homes, they liked the British Gas engineer who turns up in a nice van and a nice uniform. So that was a masterstroke.
Hussein wanted two things from the mothership: someone on the inside from a finance perspective to satisfy the need for management information. And someone to help integrate the technology back with the mothership; that was me.
It started off in 2012 with four of us in an office in London we’d borrowed from an advertising agency. Hussein recruited a bunch of people he’d worked with at Sky, who had this entrepreneurial spirit, and weren’t going to be bound by a corporate view of how tech should be done.
It was a culture shock. I came across thinking I was the smartest guy in the room, and it took me a good six to eight weeks to realise that I was miles behind everybody else, and that their thinking was a lot quicker and more agile than mine.
We hired quite rapidly in that early stage. We took the product and made it scaleable, that was the hardest part from a technology perspective. With the Internet of Things, as soon as you go to a model where you have concurrent communication with more than about 20,000 households, the physical technological infrastructure needs to be quite substantial.
We started with a thermostat, and now have three types of product. First, control-type products, which are things like Hive Active Heating, namely a thermostat; second, remote diagnostics, the big one is Boiler IQ, which we launched in March through British Gas Services; and third, insight products, working with British Gas Energy and smart meter data. The aim of that product is to recommend behavioural changes back to the customer, to help customers understand how to save money. We can break it down for you and make recommendations based on what kind of heating you have, what kind of cooking you do. That’s applied stuff.”
Adrian Heesom, Hive chief operating officer