Today’s electricity executive is faced with two equally important imperatives:
You must sustain your company’s financial and operating performance. Stockholders demand it. Customers and regulators require it.
Why Develop a New Business Model?
For decades, the electricity industry’s business model has remained relatively stable, controlled end-to-end by federal and state regulation. Electric utilities have used their monopoly position in beneficial ways, producing reliability and affordability for consumers while undertaking public service programs that have won ongoing community praise.
Advancing technology is now ending this long and stable era. Strides in gas-turbine efficiency, co-generation, distributed generation, and —looming on the horizon — fuel cells have convinced many large industrial and commercial users that they are paying too much for electricity. Their threats to leave the regulated electricity grid have driven initial stabs at lowering prices through competition.
No matter how many false starts and disasters accompany our first deregulatory steps, one fact remains clear: Technology is a genie that cannot be put back into the bottle. Look at the probable future in California, for instance, where many appear to believe that electricity deregulation has dropped dead in its tracks. It has not. Over the next five years, as fuel cell prices drop, and as Californians discover they can power their computers and air conditioners with a natural gas line and a box in the back yard, re-regulatory attempts to force consumption of grid-based electricity will almost certainly collapse. Any attempt to “outlaw” self-generation for larger users, should it survive the laugh test, would likely lead to a mass migration of power-hungry business out of the state.
The New Business Model: Facing Two Ways
There is no way to return to the regulated monopoly’s business model — not for utilities, and not for competitive companies that have long fed into and supplemented the regulated industry. At the same time, the regulatory business model cannot be completely discarded. Competition is not arriving overnight. The constraints and opportunities inherent in a monopoly business structure remain, to a greater or lesser extent, in most parts of today’s electricity marketplace; and their longevity is undetermined.
The only relative certainty in today’s electricity marketplace is that as each fragment of monopolistic practice ends, the window to switch to a new business model will be short — probably far shorter than the time companies have taken in the past to introduce and improve new business processes, products, or services. Put another way, the window of opportunity required to introduce to the market a new model for doing business is increasingly shorter than the cycle time to improve business processes to the limit of their operating excellence.
Let’s take a practical example. For years, you’ve been trying to increase efficiencies and reduce costs in your call center. But almost overnight, the Internet has enabled businesses to provide customer account management functions directly to the user. If you put bill-paying, balance-queries, service scheduling, and similar information on-line, you have little need to increase call center volume. Yesterday’s business imperative evaporates in the face of today’s transforming innovation. At the same time, you must still get performance from your call centers that continue to handle the substantial number of customers not yet using the Internet.
The Internet is just one of dozens of examples of change now invading the electricity marketplace. Add them up, and you come to an inevitable conclusion: To ensure success in this complex and unstable environment, companies must focus on maintaining and evolving a relevant business model rather than on becoming adept at operating within the prevailing business model. Companies that fail to do so run the risk of becoming operationally excellent in obsolete business models and processes!
Leaders Needed
How can you help your company and your staff accept the inevitability of a TransFormanceSM business model — one in which they will be expected to constantly innovate and reinvent while at the same time maintaining top-notch ongoing services and solid financial performance? How can you promote a culture in which staff, committed to excellence, still deploys new business models and develops the new skill sets to support numerous visions of the future?
In this demanding environment, successful executive leaders increasingly exhibit most or all of the following traits:
About the Author:
Joanne Kelley heads the TransFormance Group, a division of SPL WorldGroup that helps companies implement the TransFormanceSM business model by developing people, processes and technology to enable and foster innovation and change in response to rapidly evolving business models.
TransFormance Group and TransFormance are trademarks owned or licensed by TransFormance Group, a division of SPL WorldGroup Inc.
You must sustain your company’s financial and operating performance. Stockholders demand it. Customers and regulators require it.
- You must transform your company into one that meets the challenges of emerging markets, regulatory change, competitive supply, price volatility, and an open-ended future in technology, products, and services. Developing a culture, organization and technical infrastructure to promote innovation, as well as business efficiency, is the only way to succeed given today's business climate, where change and unpredictability reign supreme. The task is made even more difficult by the fact that your window of opportunity for making these dramatic changes is far shorter than the timeframe your organization has likely used in the past to effect performance improvements.
Meeting the demands of performance and transformation simultaneously requires a new approach to the corporate enterprise that we call the TransFormanceSM business model. It permits companies to do several things simultaneously: - Respond with vigor and innovation to the increasing pace of business evolution.
- Retain and grow a customer base.
- For investor-owned enterprises, maintain positive positioning in capital markets.
Why Develop a New Business Model?
For decades, the electricity industry’s business model has remained relatively stable, controlled end-to-end by federal and state regulation. Electric utilities have used their monopoly position in beneficial ways, producing reliability and affordability for consumers while undertaking public service programs that have won ongoing community praise.
Advancing technology is now ending this long and stable era. Strides in gas-turbine efficiency, co-generation, distributed generation, and —looming on the horizon — fuel cells have convinced many large industrial and commercial users that they are paying too much for electricity. Their threats to leave the regulated electricity grid have driven initial stabs at lowering prices through competition.
No matter how many false starts and disasters accompany our first deregulatory steps, one fact remains clear: Technology is a genie that cannot be put back into the bottle. Look at the probable future in California, for instance, where many appear to believe that electricity deregulation has dropped dead in its tracks. It has not. Over the next five years, as fuel cell prices drop, and as Californians discover they can power their computers and air conditioners with a natural gas line and a box in the back yard, re-regulatory attempts to force consumption of grid-based electricity will almost certainly collapse. Any attempt to “outlaw” self-generation for larger users, should it survive the laugh test, would likely lead to a mass migration of power-hungry business out of the state.
The New Business Model: Facing Two Ways
There is no way to return to the regulated monopoly’s business model — not for utilities, and not for competitive companies that have long fed into and supplemented the regulated industry. At the same time, the regulatory business model cannot be completely discarded. Competition is not arriving overnight. The constraints and opportunities inherent in a monopoly business structure remain, to a greater or lesser extent, in most parts of today’s electricity marketplace; and their longevity is undetermined.
The only relative certainty in today’s electricity marketplace is that as each fragment of monopolistic practice ends, the window to switch to a new business model will be short — probably far shorter than the time companies have taken in the past to introduce and improve new business processes, products, or services. Put another way, the window of opportunity required to introduce to the market a new model for doing business is increasingly shorter than the cycle time to improve business processes to the limit of their operating excellence.
Let’s take a practical example. For years, you’ve been trying to increase efficiencies and reduce costs in your call center. But almost overnight, the Internet has enabled businesses to provide customer account management functions directly to the user. If you put bill-paying, balance-queries, service scheduling, and similar information on-line, you have little need to increase call center volume. Yesterday’s business imperative evaporates in the face of today’s transforming innovation. At the same time, you must still get performance from your call centers that continue to handle the substantial number of customers not yet using the Internet.
The Internet is just one of dozens of examples of change now invading the electricity marketplace. Add them up, and you come to an inevitable conclusion: To ensure success in this complex and unstable environment, companies must focus on maintaining and evolving a relevant business model rather than on becoming adept at operating within the prevailing business model. Companies that fail to do so run the risk of becoming operationally excellent in obsolete business models and processes!
Leaders Needed
How can you help your company and your staff accept the inevitability of a TransFormanceSM business model — one in which they will be expected to constantly innovate and reinvent while at the same time maintaining top-notch ongoing services and solid financial performance? How can you promote a culture in which staff, committed to excellence, still deploys new business models and develops the new skill sets to support numerous visions of the future?
The Energy Transformation Window
In this demanding environment, successful executive leaders increasingly exhibit most or all of the following traits:
- They thrive on change. They mount multiple strategic horses and prepare to substitute one for the other as market directions clarify.
- They value innovation. They look beyond people, processes, and skills to ensure a structure that recognizes and promotes new ideas. They ensure that staff direct their talents at a vision of where the company wants to be in the future, not at where it was in the past.
- They seek partners. Joint ventures, mergers, and flexible arrangements with vendors can produce innovative and practical solutions that support emerging strategies and changing priorities.
- They reject the cumbersome, monolithic information technology systems of the past. Many energy companies stagger under the weight of homegrown, legacy financial and information systems that can be modified only through Herculean staff undertakings. Executives in tune with the TransFormanceSM business model know that companies cannot afford to limit product and service diversification simply because billing for the innovation requires weeks or months of computer-system design and testing. They opt instead for third-party IT systems comprised of multiple components that can be swapped in or out to accommodate entry into emerging markets without slowing transactions for ongoing products and services.
- They replace chains with bricks. The traditional electricity business model regards business processes as a long value chain of services that start with acquiring generation fuels and end with processing a monthly bill. The successful executive replaces those chained links with independent bricks — componentized groups of business processes that can be replaced or reconfigured without affecting the entire superstructure. Componentization allows for much more rapid and effective introduction of new products and services with far less disruption to parts of the business successfully contributing to the bottom line.
- They require follow-through to ensure that new business strategies, philosophies, and procedures penetrate all parts of the organization.
- They measure results against a solid business case. Metrics, in fact, frequently define the line between success and failure.
- How long does it currently take you to develop products and services, and how much more quickly do you need to move to ensure that your time-to-market positions you favorably? You need numbers to prevent under-or over-investment in change.
- How does your customer service rate against industry benchmarks, and where is the break point at which you see customer defection? Numbers can help you analyze the results of questions you’ve never had to ask before.
- Are you maximizing customer intelligence to retain customers and sell more products and services? Measuring your internal procedures against external benchmarks can give you an idea of what’s going wrong, and what’s going right.
- They value customer relationships. “Customer-centricity” is rapidly becoming the key battleground in the new business paradigm, requiring analysis and innovation in customer strategy, customer-facing processes, and the costs of service. Without positive long-term customer relationships, there is little point to goals that require your staff to cross-sell or up-sell to those same customers in the future.
No one corporate leader is likely to demonstrate all these traits at the optimal level. But an executive team certainly can — especially a team chosen not on the basis of seniority but instead for their ability to manage change. Successful adoption of the TransFormanceSM business model rests on the vision and clarity of leaders who encompass a holistic strategic view in which neither the present nor the future suffers at the hands of the other.
About the Author:
Joanne Kelley heads the TransFormance Group, a division of SPL WorldGroup that helps companies implement the TransFormanceSM business model by developing people, processes and technology to enable and foster innovation and change in response to rapidly evolving business models.
TransFormance Group and TransFormance are trademarks owned or licensed by TransFormance Group, a division of SPL WorldGroup Inc.
