The force of digitization is sweeping through industries across the board, dramatically transforming long-established ways of doing business. While virtually every industry today is facing change on an unprecedented scale, the particular opportunities and challenges associated with digitization can vary significantly from one sector to another.
A recent article from McKinsey & Company takes a closer look at the unique ways in which the digital revolution is impacting an industry that many of us take for granted: utilities. Read on to learn about the main highlights of the article.
A new landscape
Virtually every aspect of the landscape in which the power industry operates is changing. Legacy business models and regulatory frameworks are being turned upside down by the advent of innovations such as increased renewables, distributed generation, and smart grids. Data collection and exchange are becoming an increasingly important part of day-to-day power operations, creating expanded opportunities and demanding greater security. More customers are shifting their relationship with utilities to online channels and taking advantage of new energy and utility products and management options made possible by the Internet of Things. Industries served by utilities are finding their operations disrupted by new digital companies and models, and they are consequently having to adjust what they need from a utilities provider. Moreover, an increasing focus on sustainability means that more governments and regulatory bodies are introducing greener generation and consumption standards and requiring smarter measuring systems.
Against such a backdrop, it’s easy to see that utilities are facing what amounts to a drastic transformation in their organization and business. Fortunately, as McKinsey analysts explain, there are many actions that utilities can take to launch a digital transformation, which can then be expanded and deepened to encompass new opportunities as the transformation builds momentum.
Opportunities along the value chain
Digital transformation opportunities can be found throughout the entire power-industry value chain. The multiple access points help utilities to think comprehensively about digital integration and develop digital transformation plans that encompass everything from distributed generation to customer relationship management. Areas with strong digital potential include:
Distribution—Due to the insights provided by big data, utilities can better align supply and demand, thus leading to a more effective distribution of energy resources.
Back office—Back-office processes in the utility sector are becoming increasingly automated. This not only streamlines operations and boosts efficiency, but it also generates greater amounts of data, which leads to more informed decision-making.
Asset management—Asset-intensive industries such as utilities can realize significant performance improvements through digital asset management strategies and solutions. Predictive maintenance and outages are particularly effective in reducing downtime and improving reliability.
Digital tools—Utility workers in the field can now have mobile access to a wide range of digital tools to help them do their jobs better, including maps, data, and real-time updates and expertise.
Smart grids—Through the use of automated controls that allow a grid to think for itself and respond to changing conditions, the network’s overall resiliency, safety, and efficiency is greatly enhanced. This is especially important when it comes to load balancing at peak hours.
Customer relationships—Consumers are starting to expect the same customer experience from their utility provider as they do from any other business. This means that utilities must leverage insights from analyses of customer journeys and segmentation to deliver personalized, responsive communication.
Greater productivity and efficiency
The McKinsey article identifies productivity and efficiency as the first “developmental wave” of digital transformation for utilities. Digital optimization of operations can quickly increase profitability by up to 30%, so it’s not surprising that this is an area of digital development that many utility providers are tackling first. For the most part, utilities aim to realize this potential in three chief ways:
Smart meters and the smart grid—For the digital utility of the future, these smart innovations form the foundation on which all other digital transformation is built. Not only do smart grids bring greater efficiency with less capital investment, but the massive volumes of data they generate enable data-based analyses, planning, and diagnostics. In turn, smart meters furnish credit and collections algorithms with the necessary data to identify and help potentially defaulting customers.
Productivity tools for employees—Employee mobile enablement has had a profound impact on employee productivity. Now that the core process of work management can be digitized through a smartphone platform, tasks such as asset management, engineering, scheduling and dispatch, and job closeout can be performed far more efficiently and consistently. Furthermore, by incorporating all work into a single view that can be accessed by everyone in the organization, all employees—regardless of their location—can ensure that they are on the same page in real time.
Back-office process automation—All kinds of back-office processes are becoming increasingly automated. However, one process that is having the greatest impact is customer management and billing. Since distribution and multiple channels are becoming more commonplace for utilities, processes are becoming increasingly convoluted and prone to error. When these processes are automated and standardized, however, they can not only cut process costs, but also improve customer satisfaction.