As digitization steadily permeates our society, the utility industry is facing its fair share of challenges. The old business model is crumbling, and the power industry is being coerced to adopt new operating models that could better cater to the needs of customers and society.
As a matter of fact, the notion of digitalizing the utilities sector is quite compelling, with research elucidating that it could increase potential long-term earnings by 25%. Naturally then, it comes as no surprise that many utility players are now actively seeking their own digital transformation paths. But they must be wary of the challenges they will encounter along the way.
1. Business Disruption
We’ve seen how industries heavily reliant on paper-based processes and services have faced several challenges in keeping up with digitization. The utilities industry is no different in the context of having relatively less appetite for change and adoption of innovative solutions – the case in point being automation. The transition from the old to the new, therefore, will be complicated by internal resistance and external competition. This is why utilities must act decisively and fast-track their digital transformation initiatives.
2. Technological Integration
It’s one thing to be reluctant to change and another to not have the requisite resources at disposal to accommodate the same. Considering the fact that electric, gas, or water utilities are such large and complex organizations, integrating new technology can be challenging. The sheer volume of data that needs to be collected and analyzed makes it difficult for any one person or team within an organization to manage the process seamlessly. No single person in the organization is entirely cognizant of everything that needs to happen to realize successful digital transformation.
3. Security & Privacy
Analysts at McKinsey outline three major vulnerabilities in the operational flow of the power industry:
- Expansive attack surface due to geographical complexity
- The sophisticated link between physical and cyber components
- The proliferation of hackers and cybercriminals
The data these institutions collect and manage is often sensitive, even if it’s not considered personal information (for example, meter readings). And that data is often collected from thousands or millions of people. That makes it a prime target for exploitation.
4. Changing Workforce Environment
The current workforce is aging, and there is a shortage of skilled employees. The issue is fueled by the fact that older employees find it difficult to adapt to new technologies, while younger employees are more likely to be attracted by the opportunities away from the power industry.
5. Stringency and Uncertainty of Regulations
It’s no surprise that the utilities sector is highly regulated. The regulations and legislation are often too rigid to accommodate the changes that digitization is bringing with it. This leads to a situation of constant clashes between regulators as they try to keep up while utilities desperately seek ways to innovate. Therefore, it’s essential for regulators to keep up with the trends and make the necessary changes.
6. Financial Constraints
Of course, the innovative technologies that create the potential for savings and improved operational efficiency require an upfront investment. This can be difficult for cash-starved utilities, especially when the economic environment is unstable and they are not able to raise funds.
7. Data Silos
The siloed nature of data in the power industry is a major challenge. Most institutions have a lot of data; however, not all of it is useful. Utilities, in particular, have been slow to adopt digital technologies, in part because they’ve had limited access to the data that they need to make decisions.
Take the example of an electric utility company that wants to reduce its carbon footprint by encouraging customers to install solar panels in their homes. A customer service representative might want to know whether a new customer has solar panels installed so they can be offered rebates on energy bills. But there’s no way for this representative to get this information without contacting the customer’s utility department directly, which will likely take some time to elicit a response.
8. Lack of Customer-Centric Focus
The customer-centric focus is the key to success in any business. It is also the most challenging part of digital transformation – especially in the case of utilities. Customers are not interested in how energy is produced or distributed; they want it delivered at a reasonable price and on time. This means the utilities must understand what their customers want and anticipate their needs. Again, this entails a much greater sense of urgency than in most other industries.
9. The Utility of the Future Needs to Be Smarter
With renewable energy interventions like solar panels being employed on the customer end, the traditional utility business model is being challenged. The utilities of the future will have to be smarter about how flexible they are, what is their operating scale, what makes them relevant, and how to differentiate through the services they offer.
Digital transformation of utilities cannot happen overnight. It would take a concerted effort from the institution’s leadership and managers, as well as significant investment and operational change. Regulators, too, will have to be more knowledgeable and aware of the trends and challenges utilities are facing, not just from a security perspective but also from an operational one.
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