Like a physician with her stethoscope at the outset of a check-up, astute shareholders and directors should use the level and trend of a utility’s market-to-book ratio (MtB) as one of the first...
The Innovation Imperative
Adaptive companies stand the greatest chance for success.
globalization opportunities. Unfortunately, utility CEOs can influence these to only a limited degree, leaving those who would like to make bolder strides toward becoming truly globally integrated enterprises feeling a bit boxed in.
Looking across the years rather than industries, the study found utility CEOs are less confident in their companies’ ability to manage a more rapid pace of change than in 2006. Looking at just the elements of the study mentioned above ( i.e., consumers, CSR, globalization), the lower confidence is understandable—an honest CEO will not predict sure success for the company in a game in which the rules have not yet been written fully. For example, having established a history of environmental leadership, utilities increasingly will be pressured to solicit and address customer concerns on the wider spectrum of CSR issues, and raise the performance bar across all of them. Emerging global expectations and new rules in these areas will force the industry to address a disproportionate quantity of emerging questions and take bigger risks than most other industries. Similarly, when utility CEOs see globalization taking hold in all of their business touch points—with customers, suppliers, innovation, and, increasingly, regulations and some competitors—frustration is natural when significant barriers prevent them from doing the same.
How can confidence be restored? The results of the CEO Study , combined with research over the past two years, suggest that a renewed focus on innovation in utility business models will play an important role in clarifying the path forward.
The rapid pace of technological improvements across all industries is driving companies to consider changing their business models. The foundation work in basic research, design, engineering, and technology development phases might take years or decades, but once these advances are positioned to generate commercially-viable innovations, trial applications or deployments will move forward. These trials will allow the industry (or some relevant subset) and its customers to assess and quantify the benefits of new technologies. This will lead to an early round of new businesses that quickly will separate winners from laggards.
If this sounds familiar, it should—it is exactly where the utility industry stands today with a huge number of emerging technologies across the value chain, from distributed and dispersed generation through grid automation and analytics and into home and business applications. But utilities’ own self-reporting in the CEO Study revealed that they are about half as likely as the average across all industries to have focused on revenue or enterprise-model revitalization to adapt to the changes now underway.
Because the pace of the initial deployment and new business formation is an order of magnitude faster than the research and development phase, those who can most quickly and creatively adapt existing business models—or create entirely new ones—will take the lion’s share of benefit of this renewed growth (see Figure 2) .
When new business models evolve out of these technological leaps, utilities will find the greatest value in taking a rigorous analytical view of changes underway, evaluating a range of change scenarios and pathways, and balancing costs and opportunities of various business model