[BETA] Fortnightly

Identifying a core competency is not as easy as it seems.

Utilities have developed a "Gold Rush" mentality. That is, they have begun to chase after the latest (em and sometimes fleeting (em opportunities, often abandoning their roots and their long-held strengths in the process. Supposedly, this first-in-market race will allow traditional utilities to remain competitive. Yet, all this racing has caused strong regional players to enter markets blindly, without the competitive knowledge or strategic underpinnings that will allow them to succeed in the long term.

"Utilities are trying to substitute core competencies with products and services. ... 'Give me a low rate and don't ever let the power fail,' is really what the customer wants but then we tend not to believe him and develop other things like alarm systems, cable TV and telecommunications." These are the frank words of Bill Guyker, a planning and compliance consultant with Allegheny Power System. His concerns were echoed many times at a Massachusetts Institute of Technology Electric Utility Program forum this past winter.

In this sprint toward investment, utilities have gone in three directions. First, utilities have homegrown new ventures, such as IPALCo's development of new distributed generation and energy storage technologies. Second, they have bought into other ventures, as Western Resources is attempting to do with the security system firm ADT. Third, they have established alliances, as Southern Co. developed with Hewlett Packard to create better metering and data analysis capability.

Many of these mega-deals that have hit the press are the result of premature decisions. Such blind moves could strip away the unique resource of a utility, known as their core competency. However, a utility can enhance its strategic position by identifying that core competency and working to enhance it. The most productive way a utility can develop this competency is by benchmarking its strength against that of best-in-class operation and deciding which of the three directions to take (em make, buy or ally.

Shedding Expertise?

Harry Roman, a senior consultant with New Jersey's Public Service Electric & Gas, acknowledges the changes: "PSE&G no longer performs traditional utility type R&D, but emphasizes transfer and implementation. In the past there were 90-plus people involved in a centralized R&D function. Now, six perform technology transfers as well as monitor and assess emerging technologies for the company, with the major business segments themselves responsible for actual implementation. The R&D function has been dispersed to the operating groups within the company."

By losing this historical technology development base, PSE&G runs the risk of undermining its technological prowess.

As competition enters, utilities will make a variety of investment decisions. These decisions include selecting investments for R&D dollars, deciding which markets to protect and which to ignore and identifying how to streamline and harness their own resources without crippling them. Deciding will become easier once a utility chooses the ultimate service or product they expect to deliver in years ahead.

This is the Make-Buy-or-Ally juncture at which we find most utilities today. To preserve these core competencies, these concerns need to know themselves well enough to realize they