Off Peak

November 15, 2000

Rx for IOUs: Slim Down

 

To an industry whose mantra of late has been "diversify and conquer," a prominent utilities consultant has some startling advice: Slim down and focus on your core strengths.

According to Etienne Deffarges, global managing partner for utility strategy at Andersen Consulting, a utility's survival in the deregulated U.S. market will depend on narrowing its business focus and achieving scale. That's because the industry is migrating to one comprised of three tightly focused segments of companies-energy merchants, retailers, and transmission and distribution companies. Deffarges describes this emerging utility business model in his new report, "CEO Challenges in a Competitive Power Industry." New Tactics for Creating Value.

"Today what we have is a very fragmented industry, companies that are very small in absolute terms compared to other industrial concerns, and also compared to their peers in Europe for example," explains Deffarges. "If you're small and you're in multiple businesses, you're never going to have the critical mass that allows you to learn and allows you to develop scale economics and allows you to be at the forefront-it's just not going to happen."