DISRUPTION AND CUSTOMERS

...They're always right
 

UWL18 Special Report #5: Disruption & customers
Published 04 May 2018

The role of the customer is evolving. Today’s customers have more information at their fingertips and therefore more choice. They are frequently becoming more proactive – for example, by generating their own power via solar panels, rather than just passively consuming. This trend for proactive consumers, or ‘prosumers’, to use the buzzword, is expected to continue apace, driven by economic and environmental concerns, and enabled by new and emerging technologies.

For monopoly utilities such as water companies and energy networks, attracting and retaining customers isn’t the issue: customers have no choice but to use their services. But they ignore the changing expectations and concerns of customers at their peril. As monopoly service providers know only too well, maintaining legitimacy in the eyes of customers is critical, and losing it brings down a storm of political and regulatory intervention that is itself hugely disruptive.

For energy suppliers operating in the open market, the power of prosumers is even clearer. Increased competition continues to force providers to up their game to both win new customers and retain existing ones. And with pricing largely flat across most suppliers, brand values and overall customer experience are now more significant factors in purchasing decisions.

Many challengers in the utilities market are already using brand identity and customer experience as key competitive differentiators over more established providers (strategies formerly largely unheard of in the utilities industry)

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– but failure to keep up with this rapid pace of change is likely to prove extremely damaging for even the largest organisations, a phenomenon that’s been seen in other sectors recently (see Airbnb and Uber).

And our research shows that other sectors should be a key area of concern. It found the most disruption to the industry is expected from consumer-facing organisations such as Tesla, Google and Amazon, as identified in our recent Disruption and Companies report. Notably, it was thought that these companies would have the most disruptive impact on networks and energy generators, where changing habits of supply and demand were also high-impact disruption factors.

Here, we look at the top five customer-led disruptions to the industry in the next five years, according to the results of our exclusive survey, conducted in association with Harris Interactive.

1. High expectations for speed and ease of communication

This came out head and shoulders above the rest, and with good reason. Many large organisations struggle to cope with the rapid pace of technological change, in part due to costly legacy systems, which are expensive to maintain, update and replace. But not keeping pace with the technological change customers are seeing elsewhere, such as in retail and telecommunications, risks leaving them angry and frustrated – the last thing any monopoly provider wants. In the competitive markets, failing to meet customer service expectations leaves larger operations vulnerable to disruptive new market challengers.  

Although high customer expectations were noted across the board, it was the water sector which considered these expectations to be most disruptive, rating them 6.5 out of a possible 10. As vertically integrated monopoly utilities (aside from the non-domestic retail market), water companies have to marry their traditional engineering and asset-based wholesale businesses with more nimble, agile and customer-centric retail operations – a battle many are finding hard. This no doubt plays into the current legitimacy debate, being led by Ofwat and environment secretary Michael Gove.

D I S C O V E R   T H E   R E S T:

2. Distributed generation and mass take-up of electric vehicles

Consumers generating their own power and using it to run EVs are two issues that go hand in hand, and have been top of mind for our survey respondents throughout the disruption series. This long-expected trend has the potential to disrupt existing business models within the energy value chain on a grand scale: first, it will require a huge rollout of new infrastructure, and second, it will potentially see consumers become much more active in their energy transactions, generating, storing and using their own power in electric vehicles that double up as mobile batteries. These much more localised, two way energy distribution patterns will require wide ranging changes in how the energy system is structured and operated.

However, despite the hype about electric vehicles, they have yet to hit the streets of the UK in numbers that would justify a massive infrastructure spend. Given the government’s recent announcement that new traditionally-fuelled cars will be banned from 2040, it seems inevitable that a tipping point will come. The only question now is, when?

3. Growing awareness of environmental issues

This was of most concern to our water respondents, who voted it 5.9 out of a possible 10 in terms of the disruption they thought it would cause to their business in the next five years. This is particularly interesting in light of the upcoming PR19 periodic review, which is due to set water companies far more challenging targets on leakage than they have experienced before. This is driven by growing customer awareness of water resources issues including leakage and consumption, and customer irritation at seeing leaks go unrepaired. Growing awareness of environmental issues is also driving a trend for water metering – often a controversial process for water companies – and abstraction reform.

4. Community energy models

Community energy initiatives are on the rise across Europe. In the UK alone at least 5,000 community groups explored the opportunity between 2009 and 2015. These communities – coalitions of consumer groups, businesses, local governments or simply groups of neighbours – are mobilising around the generation and distribution of their own energy.
Energy networks understandably considered this to be most disruptive to their business in the next five years of all the sectors surveyed, voting it 6.0 out of a possible 10.
Utilities observing the disruption in other industries – transport and hospitality, for example – know regulators will struggle to protect the status quo. Moreover, there could be net benefits to “getting in front” of this new model, both business and technical.
There is a definite a shift in customer mindset when it comes to the consumption of community energy. A focus on energy affordability, combined with technological advancements and growing expertise, means that energy supply is no longer the reserve of the traditional players. Utilities would do well to consider ways they can shape and profit from the new opportunities available.

5. Falling trust

It’s a sad indictment of the current reputation of utilities that falling trust was rated an average of 6.2 out of a possible ten across the sectors, in terms of the level of disruption it is expected to place on the industry in the next five years. The trust issues facing energy retail are well documented, and have now been joined by legitimacy issues in water companies and energy networks, thanks to high profile rows about profits and transparency in those sectors.

The sectors’ ongoing challenges around customer service don’t help, and nor does the ageing infrastructure and requirement for massive new investment. Our respondents don’t just acknowledge that trust is falling today – they expect it to be disrupting their business for at least five years to come. Expect more political interventions, regulatory overhauls and stringent price reviews in response – and perhaps even more reaching structural changes to the industry.

Making sure the public interest is not lost in translation

By Sharon Darcy, director, and Francesca Moll, writer, at environment think-tank Sustainability First

“Before we create the energy and water systems of the future, we have to ensure we’re all on the same page. How do we hear the public interest voice in the energy and water sectors?  It isn’t always easy to have a constructive discussion.

Rightly or wrongly there is a feeling that voices of ‘ordinary people’ remain unheard at the heart of the energy and water industries. Companies faced with this charge may see things through another lens; how best to meet the challenges of climate, socio-demographic and technological change whilst operating under an intense political spotlight and delivering a significant amount of policy and regulatory change. Government and regulators may have a different perspective again, often focussed on the need to address short-term affordability pressures within electoral and regulatory cycles.

Given such divergence, how do we find a way forward? What does fairness look like? Who is responsible? And how do we ensure we’re future-proofing our energy and water systems so that they continue to serve majority needs in the future? Fairness, after all, is relevant not only within generations but also between generations.

And these questions have never been more vital. Energy and water face huge upheaval. With the technological revolution represented by digitisation and the smart energy meter rollout, a polarised political mood, the need to prepare for a low carbon future and the risks represented by climate change, it is clear that the stakes are high.

To navigate through this, society needs to agree some basic definitions, develop a common language and begin to build consensus on broad directions of travel. 

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Without this, misunderstandings can result and it can be difficult to make progress. With this in mind, how discussions about energy and water are framed is crucial.

If framed narrowly (e.g. in terms of the challenges facing each sector separately and a particular group of consumers at a particular point in time), the challenges that both energy and water sectors may need to tackle as part of more complex systems, and people may also face as citizens living in communities, may go unrecognised in key deliberations. The risks and opportunities revealed will clearly be influenced by the time-frame applied and scope of the discussions that take place.

In periods of significant transition, such as that being experienced currently in the energy and water sectors but also in society more widely, when existing ways of doing things are being questioned and new approaches are coming to the fore, it is important that all relevant perspectives on an issue are heard.  If debates are framed in a limited way, they may be seen as excluding those that may have a legitimate interest in the area being discussed – and potentially self-serving for existing players and institutions.

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Taking a more inclusive approach to change also enables the revisiting of what have traditionally been seen as the social and environmental ‘externalities’ that characterise the energy and water sectors. It can lead to fresh insights as to how we as a society overcome the tragedies of the commons and of the horizon.

It was with this in mind that Sustainability First set up our New-Pin project in 2015. We brought together citizen, consumer and environmental representatives with regulators, government representatives and energy and water companies, to encourage frank and constructive discussion on the hard topics in the sectors today.  We wanted to bring the disparate voices with an interest in the sectors together and to share experiences.

These different interests can sometimes find a win-win solution. 

However, this is not always possible. It’s important to recognise that there will sometimes be conflicting interests and that these need to be balanced in a manner that is as transparent and fair as possible.

To begin this process, we started with a ‘Straw Man’ definition of the public interest: The public interest is the aggregate well-being of the general public, both short and long-term. It comprises the combined interests of consumers, citizens, the environment and investors for both today and tomorrow.

Over the course of three years and ten New-Pin workshops, we have tested and refined this definition with our participants, and through a process of deliberative engagement, further developed it into a New-Pin Public interest dashboard. This sets out desirable long term public interest outcomes, featuring both typically ‘consumer outcomes’ (towards the left) and ‘citizen outcomes’ (towards the right). Consumer outcomes include quality of service, value for money, and efficiency, while citizen outcomes involve thinking about long-term environmental sustainability, resilience, place/community based well-being and fairness issues.

New-Pin has started to build consensus around a public interest ‘voice’ for water and energy. However, this is something that needs to be continually worked at. As our energy and water systems and indeed society go through significant transformation, maintaining a continuing public dialogue as to what the long-term public interest is in the sectors and how public interest outcomes are best delivered will be vital so that change happens with people rather than being done to them.”

A utility of consequence for the digitally empowered customer

By Mukundhan Sampathkumar, senior consultant at WNS, a global management company

“The current push-and-pull situation in the utilities landscape couldn’t be more demanding. Both energy consumption and revenues have declined due to technological advancements and the shift towards less energy-intensive industries. 

Yet, there is an important dimension that utilities need to quickly take note of — innovations and enhanced customer-centricity. The explosive growth in data and digital technology has empowered consumers who are very clear about what they know and what they want.

Utilities have traditionally focused on the operational areas of demand and supply, and woven customer service around these aspects. Today, incentives and penalties are directly linked to customer satisfaction. Processes, frameworks and tools are constantly evolving towards this goal. Marketing and brand reach, hitherto not taken very seriously, are becoming top priorities.

Utilities aiming for superior performance should set their priorities around anticipating customers’ needs, simplifying transactions (including self-service), and extracting deep and intelligent insights from their customer data.

The growing momentum in smart metering will only add to the huge volumes of customer data that companies already possess. But the critical question is whether utility companies can interpret this data to meaningfully and effectively segment their customers. High performance aspirants need to quickly master this data to drive customer-centric performance and identify new products & services to address the emerging needs of consumers in different markets.

 

New customer-centric business models

The marketplace is witnessing a multi-pronged disruption — in business models, regulatory mandates, innovation, alternate energy sources, energy demand, grids and data. Additionally, a far more complex ecosystem is emerging where customers have the option to generate, store, use and trade their own electricity in a ‘connected home’ scenario spurred by home automation solutions.

The change from a product-centric to a customer-centric culture calls for newer retail-like business models built around the deep understanding of customers. Such models will need to embed business processes, systems and platforms that deliver superior and seamless customer experience across all touch points in the customer lifecycle. Customer experience journeys that are simple and cohesive need to be designed to bring value to the customer and deliver measurable business benefits.

Technology will be a critical differentiator in this journey. Specifically, solutions based on data, analytics, online self-service tools and cloud computing are set to become game-changers.

For instance, energy use among multiple devices may be analysed to help consumers prioritise energy-savings. Mobile apps and portals that provide alerts, customized insights and information on energy efficiency will invite better interactions and engagement. Social media channels can make consumers comfortable in engaging with their utility providers, thereby promoting interactive communication. And effective social media listening tools and platforms can extract valuable context to enable insights-driven and customer-centric decisions.

Billing is another critical area where investments in IT and bolt-on tools/products can have a huge impact on the bottom lines of utilities. As billing remains one of the main reasons for dissatisfied customers, flexible and customized solutions/products can help utilities pull up their customer satisfaction scores.

The road ahead

 

The optimisation of customer-facing business processes and systems will be critical for utilities to achieve best-in-class customer-centricity. They need to know where they stand in the journey, what their maturity level is and what steps they need to adopt.

Utilities will find it difficult to go it alone in building all the necessary expertise and resources, but collaborating with partners and service providers with strong capabilities and experience in serving other customer-centric industry segments will help the industry build a differentiated, customer-focused, market-based and technology-driven model for success.”

 


 

Sponsored by WNS, the Customer Solutions theatre at Utility Week Live will  will explore the challenges and opportunities which lie ahead for utility companies seeking to deliver better value and service to customers.


CUSTOMER SOLUTIONS AGENDA

Attend Utility Week Live 2018 to understand how these disruptive technologies can be best utilised in your business, and meet the organisations and innovators developing the next generation of tech and product solutions:

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Liked this report? Read more in the series of special reports:

REPORT #1: DISRUPTIVE COMPANIES
REPORT #2: DISRUPTIVE TECHNOLOGIES
REPORT #3: DISRUPTIVE REGULATIONS
REPORT #4: DISRUPTION & THE SUPPLY CHAIN

The last in our series of disruptive reports will be available exclusively at Utility Week Live in our official show guide. You can pick up your copy by registering for free

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