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Why is it so difficult to understand your customers?

March 2019

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Why is it so difficult to understand your customers?

For our industry, there is one fact about facing the future that should be self-evident to us all: understanding customers and putting them at the heart of the organization should be the first priority for every business.

And yet it’s a fact that seems to get overlooked. To complicate matters, according to this 2018/19 research report: “The key challenge facing Operational Excellence programs remains squarely around changing and improving company culture, with over 53.1% of companies citing it as their top critical challenge.”

According to the report, a lack of ability to quickly adjust to customers’ demands and needs ultimately had a profound impact on utilities’ business models. Whether it has been misjudging the market for residential solar PV or not agile enough to grapple with the flood of small, highly tailored, digital suppliers, the utility industry has been struggling. 

Utilities have focused on well-known tools, such as classical lean management and cost efficiency, but they have done little to prepare the business for the unknown unknowns of innovation and novel customer demands. Indeed, it didn’t seem necessary for an asset-heavy business to cultivate an innovative company culture and concentrate on the customer experience.


All change in the 2010s

The energy revolution – moving away from conventional power such as coal and nuclear toward renewable energy – became a game changer for many large utilities. For more than 100 years, they have successfully delivered products and services across the entire value chain: exploration, conventional power generation, grid and infrastructure, and retail business. But the paradigm shift caused by the energy revolution and digitalization requires a new modus operandi.

Since the realization around 10 years ago that the game has changed, traditional companies that refuse to adapt must wonder when their Kodak moment will end and they will no longer be relevant to customers.

The same old solutions simply do not work the way they used to. After more than a decade of fostering operational excellence and lean principles within the energy industry, I have seen many classical lean or efficiency improvement programs and methodologies that simply didn’t succeed. 

That is especially obvious when I look back at the turbulent and dramatic changes that we experienced during the last few years in the European energy industry.

These changes challenged us to develop a new way of working, and the story of how we did it is detailed as follows.

How innogy responded to the energy revolution

Today we can proudly say that innogy, one of Europe’s largest utilities, has transformed from a traditional, fully integrated utility to a multifaceted, innovative company focusing on customer needs, operational excellence and lean principles. We have established a culture of continuous improvement and empowering employees. And most importantly, we developed a leadership style that is focusing on sustainability and systemic change. 

Based on our experience, a combination of operational excellence and systemic perception was crucial to successfully shaping our company and the entire energy industry by getting closer to the customer. By systemic perception, I mean having a sense for what is going on in your team and in the organization on a deeper level. To achieve it, plus the necessary level of operational excellence, requires a corporate transformation.

There is evidence that such major transformations are only successful if two factors have been considered: the “what” and the “how.” “What” means having the right strategy in place to achieve the financial goals that have been set. “How” relates to systemic perception, values of customer orientation, outward orientation, performance culture and empowering people.

Combining “what” and “how” is the key to success

At innogy we established a program called New Way of Working that combines operational excellence and lean philosophies with systemic change management and the ability for systemic perception. It aims to put customers at the heart of the business, drive financial performance and give employees at all levels a greater voice. It consists of four main principles that are closely linked: 

  1. Customers: improve customer satisfaction
  2. Financials: increase operating cash flow and reduce costs
  3. Leadership: empower and support leaders
  4. Employees: empower employees and improve employee satisfaction

Whereas classical lean methods tend to focus on shop floor performance and end-to-end process improvements, we think of this approach as too narrow for today’s complex and interlinked value chains. To provide sustainable solutions for our value chain, including administrative and cross-functional departments, other qualities and abilities are crucial. A shift to a new value proposition toward customers was necessary.

innogy’s Operational Excellence Program is driven by our philosophy of “measure, learn and improve.” It aims at continually improving performance targets that are challenging and ambitious. But they are realistic. They are designed to be achievable by teams and to motivate them.

Once implemented, innogy’s transformation program changed daily work and the relationship between leadership and employees, continuously promoting and improving practices.

Our main levers for success

In my opinion, the factors that determined our success are: 

  • Standardizing our way of working and building up capabilities that lead to a changed mindset and transform customer experience into quick, high-impact and low-cost operations
  • Prioritizing speed and execution over perfection – which requires agility in delivering products to customers and quickly learning from them
  • Driving the management system, advancing lean leadership – focusing on results, being supportive, seeking different perspectives and solving problems effectively
  • Bringing out the best in people, capability building at scale and increasing the value employees can contribute

 

What we achieved with our new way of working

The implementation of this philosophy and approach helped to generate more business across Europe with continuous improvements. More than 70 projects have been conducted following our new approach, covering generation, grid, infrastructure, renewables, administration and cross-function businesses in Central and Eastern Europe. More than 26,000 employees along the entire value chain have been empowered. With 300 directly trained experts and a developed central academy to ensure sustained and continued learning, we hand projects over to the clients once they become self-sustaining. 

Today, innogy is the world’s third-largest offshore operator, Germany’s second-largest grid operator, and a leading integrator of renewable energy and EV charging. innogy is also the top energy retailer in four core markets with a total of 23 million customers across Europe. Our partner RWE is an international leader in conventional power generation and energy trading. 

There is still room for improvement and we still have plenty of energy for further challenges. We enjoy the opportunity to question the status quo, to further improve customer satisfaction, and in turn improve our business, our teams and ourselves. 

So next time you are in a boardroom, ready to make key decisions about the future of your business, just remember: you really can’t go wrong by focusing on the customer to drive the change you need in your organization. It has worked for innogy, and it could work for you, too.

Today, even other businesses come and talk to us to find out more about our journey and how to adopt ideas for themselves.

Are you inspired to shape your industry through operational excellence and systemic change? Do not hesitate to reach out and get in touch.

 

About the Author 

Stefan Schmidt

Associate Partner & Lead of Operations and Lean Practice, innogy Consulting

Stefan Schmidt is an associate partner at innogy Consulting, one of Europe’s largest in-house consultancies. He is responsible for the Global Operation Practice, which advises clients both within the innogy Group and beyond. Check out his LinkedIn page.

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© innogy 2019