back

Make, Buy, or Partner: New Business Model Innovation for U.S. Utilities

February 2018

Go back

In the midst of the energy transformation, holding onto a “business as usual” agenda can put incumbent utilities at risk of disruption, if not obsolescence. Discover three new business model innovation paths that can help your utility take advantage of change and optimize opportunities.

Look around—it’s a wild new frontier. With rapid increases in distributed energy, an upsurge in electric vehicles, and the advent of big data, U.S. utility executives today are facing multidirectional disruption. While incremental improvements to processes and product offerings may help ensure survival and relieve margin pressure, both are short-term solutions in a landscape where change is the rule, competition is fierce, and margins are continuously eroding.

Today, the way to stay competitive is clear: Embrace business model innovation.

For many incumbent utilities, business model innovation can feel like an uphill battle. After all, it entails creating novel ways of delivering value outside of standard operations. In reality, business model innovation could be as simple as a move from selling commodities to marketing services.

The question is not whether new business model innovation is necessary (it is), but what’s the best business model innovation strategy for your utility? What are the risks and rewards? When do you know it’s time to press “go”?

 

 

MAKE, BUY, OR PARTNER

To future proof your utility, there are three strategic routes worth considering. You can “make” new models and revenue streams from within your utility; you can buy other companies to acquire new models, or you can partner with businesses up and down the energy value chain, and beyond. Here are innogy Consulting’s recommendations as to the “how’s”:

“MAKE” | PREPARE FOR THE TOMORROW THAT YOU CAN’T ANTICIPATE TODAY

The aphorism goes that a company can’t disrupt itself. However, through careful structuring of resources, utilities can see success from owning the process of business model innovation.

Cultivating innovation from inside your organization—as through an innovation hub—requires a few key components. First, it’s necessary to create a separate operational approach under separate management and establish a dedicated execution team. Second, it’s important to give internal business model innovation efforts longer runways for testing and verifying their value.

As with any innovation agenda, there’s a risk associated with open-ended ideation. However, you can mitigate this risk by looking at underutilized assets and channeling ideation around them. For example, innogy Consulting worked inside a German utility and helped it build a new predictive maintenance system for wind turbine developers and operators. The system created operational efficiencies, but the new business model innovation came in the form of mining and monetizing the data collected along the way.

BUY | CATCH UP TO—OR JUST OWN—YOUR COMPETITION

New business model innovation isn’t just about creating new products or services from scratch. It can also involve buying a company in an adjacent industry or shares in a company.

Though acquisition is a quick path to market share (and catching an innovation train that has already left the station), it’s a big commitment. It’s critical to consider asset integration when taking in a startup or a growing business with a unique model and culture. If an acquisition is part of your utility’s plan, consider allocating resources to set up your new ventures for success, whether through co-branding, sales team training, or central management. Note that this strategy may work best if your utility has a track record of integrating new assets or businesses. Alternatively, you can seek out a partner experienced in integration.

For example, innogy Consulting helped a utility client with its post-acquisition innovation efforts, successfully building a unified, innovation-led organization (all the while reaping $100 million in annual synergies).

PARTNER | THE TIME AND THE PRICE ARE RIGHT…NOW

In addition to creating new business models or acquiring them, consider partnerships. When vetting the possibility of any partnership, it’s good to ask: What are our core competencies? Where can a partner complement our model, or help us capture new value?

One possible venture might be to partner with specialized startups or new market entrants to expand your utility’s product offerings. Partners benefit from your utility’s scale and reach; your utility benefits from collective knowledge and exposure to nimble approaches. It has also become increasingly common for utilities in rural areas to partner with other utilities to own and operate power plants, pooling their risk.

If you do partner, keep in mind that you’re opening up your business model. Though the rewards come in value creation, you’re no longer completely in control.

While deregulated utilities have more incentives to innovate now, both regulated and deregulated utilities can reap the many rewards of new business model innovation. Often, the biggest hurdle is simply overcoming that initial resistance to change.

Evaluating the timing, risks, and rewards entailed in introducing new business model innovation in your utility, or ready to make your move with an experienced strategic partner? Reach out, and let's have a conversation.

Go back

© innogy 2019