Tom Flaherty is Senior Advisor to Strategy&, part of the PwC network. Steve Mitnick is Editor-in-Chief of Public Utilities Fortnightly and President of Lines Up, Inc.
Today's electric and gas utility managements are actively seeking to capitalize on what incipient technologies can provide as sources for growth, customer value and grid modernization. They are not overawed by technologies as threats, rather they see opportunity in disruption.
For the last several years, utility CEOs have made reinforcing the importance of innovation a priority for their companies. These CEOs have accepted the challenge of moving from discreet encouragement to the vanguard of innovation leadership.
During June's Edison Electric Institute annual convention in San Diego, Tom Flaherty of Strategy& and Steve Mitnick of Public Utilities Fortnightly were joined by four chief executive officers for a virtual roundtable: Patti Poppe of CMS Energy, Scott Prochazka of CenterPoint Energy, Connie Lau of Hawaiian Electric Industries and Ben Fowke of Xcel Energy.
These CEOs were energized about what they have accomplished in harnessing the power of employee ideas in just a couple of years. They proudly described the progress they have made in building an innovation mindset within their companies. Graciously, they parlayed their experience into thoughtful suggestions that can help peer companies with their own innovation journeys.
Customers at the Forefront
The CEOs start from a premise that a primary purpose of innovation is to enhance the value customers receive from their incumbent utility. This value premise is fundamental to how the CEOs frame their desired innovation outcomes.
This enriched customer experience can be measured as affordability, value, commitment, offerings, sustainability, or engagement. These attributes cause the CEOs to seek to continually improve how their companies interact with customers, anticipate their needs, convey accurate information and, solve the problems they face every day.
These CEOs are highly cognizant of how companies around them are influencing customer expectations and attitudes. The new consumer monoliths, for example, Amazon, AT&T and Apple, among others, are creating a new awareness in customers of how other entities simplify and heighten the value of engagement.
These entities are reshaping the standards for customer value as they continuously devise innovative ways to create more points of contact and speed the resolution of transactions. The CEOs understand that the customer value bar is rising continuously.
The companies represented on this roundtable have been active in establishing and leading their respective innovation efforts over several years. Some were borne out of necessity, while others were the result of perceived opportunity to unlock internal creativity.
These CEOs collectively believe that innovation is not about a program, process or initiative - it needs to be more sustaining. It's instilling a mind-set that permeates the organization and establishes an environment of creative thinking and individual enterprise.
Formalization of internal innovation efforts has increased with companies adopting alternative approaches that incorporate enterprise-wide contests on ideas, collaborative centers for performance enhancement and breakdown of barriers to surfacing new ideas. These may be coupled with external alliances involving think tanks, incubators or university labs.
The CEOs recognize that quality ideation forms within the business rather than conceived at the top of the organization. Consequently, they are creating an internal environment that nurtures ideation and encourages involvement across the business.
The CEOs know that changing a hundred years or more of legacy company tradition does not happen rapidly. It takes visible and sustained leadership and demonstrated commitment to changes and outcomes.
Shifting the philosophy on how incentives are established has been a difficult effort at many utilities given their historical practices.
Making it easy for employees to see and feel their contributions are both valuable and needed is a fundamental underpinning. Sending the message that leadership values thoughtful creation allows employees to take a risk, even though their ideas may not come to fruition.
But more formality in incentive design and reward is required to fully support sustained changes in how companies utilize incentives. Direct alignment between innovation outcomes and incentives definition, evaluation and reward would further support leadership's objectives.
The CEOs recognize the need to realign current metrics and messages in support of these expectations and more variability in incentive approaches, employee and team assessment and award flexibility are important.
Lessons Along the Way
The CEOs have individually experienced a range of challenges as they have pursued the stand-up of an innovation mind-set within their companies. While helping an organization to embed this conviction is a multi-year undertaking, some short-cuts exist for other companies at different points on their innovation journey.
All the CEOs inherently recognize that success starts with their employee base. Accordingly, they focus their efforts on creating messaging that is both aspirational and inspirational. And they continue this messaging to ensure it is heard, understood and reinforced.
These CEOs also understand that successful long-term innovation is continuous, not episodic, and supported by creating and embedding a culture that relishes change. Continuous innovation is enabled by emphasizing the new critical capabilities, for example, advanced data science, that informs strategies and actions.
Organizationally, these CEOs believe over-structuring innovation, that is, establishing a particular group with this responsibility, is not the right approach. They believe successful innovation comes from within and is best encouraged through enterprise level engagement, not through organizational roles.
Utilities are still early in their journey of creating a sustainable innovation mind-set. Incorporating the experiences of these CEOs may not solve all the challenges companies face, but it can simplify elements of the voyage.
Four CEOs on Innovation Interviews: