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Innovation in a data-soaked, customer-led market

Digital business, Energy industry - March 17, 2015

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Downstream 2015, the annual strategic forum for New Zealand’s energy sector, defined our energy market through changing technology and disengaged customers. Most people think that innovation will save the day, but how? Creative companies that deeply understand and engage their customers through true digital business models will thrive.

Panelists and presenters throughout Downstream widely agreed on a number of trends changing the industry. Products like photovoltaics, electric vehicles, and smart appliances are appearing in ever-greater numbers, and they’ll lead to larger changes. How will load distribution and management work when customers generate power for themselves? What will dynamic pricing do to consumption and profitability?

We noted two characteristics shared by the trends that occupied Downstream. Most obviously, the changes the industry is preparing for are all technological. They’re also occurring where people consume energy, not where it’s generated or moved through the grid. An industry that has evolved to engineer big, central solutions to big, central problems now needs to change the way it innovates. And within that industry, some companies will learn - and succeed - faster than others.

“We don’t communicate very well. We come from an industry of engineers...and we forget about customers.”

- Albert Brantley (Chief Executive, Genesis Energy)

Albert Brantley was far from alone in recognising the importance of customer focus. But changing a company’s long-held, and successful, culture isn’t easy. It is possible though, and there are rewards in store for energy companies that become successful digital innovators. As Mark Binns, Meridian’s Chief executive, told the Leaders’ Panel, moving to a customer-led world is crucial, “so we can all survive”.

“What if we could turn distrust into pride?”

- Murray Streets (Director of Strategy, Saatchi & Saatchi)

Retail customers are demanding better service, and are difficult to engage. Meanwhile, Downstream contained some striking examples of commercial customers innovating for themselves.

NZ Steel’s Energy manager, Alan Eyes, saw “limited value-add from retailers”, so his company has stopped dealing with them. Lisa Richardson, KiwiRail’s group procurement manager, explained the value her organisation gets from its own close analysis of usage data, although “you need the internal resource to understand it”. Scott Noyes (EMANZ chairman and energy management specialist at Schneider Electric) convincingly described energy management information systems (EMIS) as “essential business tools”.

In the commercial setting, better decisions are coming from people using high-quality technology and committing full-time resources to understanding data.

In residential settings, customers “want to set and forget” (in the words of Rogan Clarke of AMS) rather than actively manage their energy use. They dislike dealing with power companies and switch providers more often than consumers in comparable energy markets. Murray Streets (Saatchi & Saatchi) described the “distrust and confusion” of the typical consumer.

So how will energy companies find ways to serve increasingly self-sufficient commercial customers? And how will they bring the energy- and cost-saving being realised in the commercial sector to residential customers? The short answer is, ‘through innovation’. The hard part is innovating in an industry that’s increasingly defined by data.

“We need to make it easy for the customer to consume and understand data.”

- Rogan Clarke (General Manager, AMS)

There is no escaping the proliferation of data in energy management. A two-year tech experiment in three homes, performed by PowerCo and described by business R&D manager Jamie Silk, has produced around 300 million data points. Sensors are only getting cheaper, so the data creation boom is set to continue.

The sources of such data (like meters, solar panels, networks, vehicles, and appliances) will multiply and create new opportunities. But above all the cohesive and productive use of information, wherever it comes from, will decide who leads in the industry, and who follows.

The first test will be capturing this data - structuring, storing, and managing it in useful and convenient ways. The second test will be presenting that data back to consumers in the form of useful, actionable insights, or even taking effort away from customers and making smart decisions for them. Done well, this will increase satisfaction and retention.

We’ve already learned that simply presenting data back is not enough. As Melanie Lynn, Meridian’s programme director, digital strategy, puts it in our case study, “only so many people want graphs and spreadsheets”. How do you find out what most people want?

“Retail competition is the best way to drive long-term innovation.”

- Simon Coates (Director, Concept Consulting)

Consumer technology is disrupting any number of industries, so there are lessons to be learned from what’s worked elsewhere. We’ve seen what it takes to thrive. The companies that succeed will adopt digital business models, and will learn the art of creative innovation. When you’re built to think through new problems creatively, and when digital sits at the center of your business, you’re ready for whatever opportunities arise.

“There will be big impetus to shift our back office systems”

- Craig Hackett (New Business Manager, Metrix)

Digital business models place technology at the centre of a business, and shape everything else around it. It’s a company-wide mindset that puts digital first. Information is a digital business’ biggest asset, so technological decisions become strategic business decisions. Products, services, and customer engagement models follow.

Energy is not the first industry to see start-up competitors with digital business models start to disrupt a long-established market. While they are constrained by scale (for now, at least), there is space for larger companies to shift to digital business.

The digital business approach satisfies customers who expect everything that you offer to be available digitally. It prepares your business systems for a world of commoditized, changing, connected devices. It combines all your data to make clever, quick decisions. It makes your company more responsive, and more robust.

“We lead with user experience and designers, rather than business and systems analysts.”

- John Ascroft (Chief Innovation Officer, Jade Software)

A business built on the right digital foundations is ready to create better customer experiences. We’ve found that creative innovation produces better products and services. Our Chief Innovation Officer, John Ascroft, spoke about creative innovation at the Downstream gala dinner. By blending ‘left-brain’ and ‘right-brain’ thinking, and engaging with customers rather than systems, digital work can produce outcomes that delight people, and even fulfil needs that they might not have known they had.

Creative innovation values teamwork, empathy with customers, curiosity, and optimism. Ideally companies adopt these principles at the strategic level, rather than ‘switching them on’ in the solution phase. Approached in this way, problems are better defined. More solutions are considered, and elegance - pairing function and beauty - is designed into new products from the ground up.

The energy industry is strong when it comes to analytical work. Innovation is easier when that is combined with a design-led approach to problems. And you can gain even more by working with your customers as you look for new solutions.

“What customers want is not what engineers think customers want.”

- Fraser Whineray (Chief Executive, Mighty River Power)

Simon Coates of Concept Consulting memorably referred to “the democratisation of energy”. Customer-led innovation works because your company doesn’t have all the answers. It makes sense to let user experience research play the role once filled by business analysts. Knowing which questions to ask people, and listening empathetically, are key skills.

Working with customers - quickly trying new ideas in iterations, receiving feedback, and repeating the process - is faster and more efficient than designing systems behind closed doors. It’s also the best way to learn. Try new ideas on a small scale and quickly expand the ones that resonate best.

Be ready for surprises. No matter how well designed a new system is, putting it in the hands of real-world test subjects always throws up new questions and useful insights. To follow the leads that user testing offers, being flexible is crucial.

Involving customers as you innovate leads to products and systems that are more useful, and more likely to succeed. Obviously, this will improve your standing with customers as well as engagement and satisfaction.

“Someone is going to break rank. Then it’s game on.”

- Rogan Clarke (General Manager, AMS)

Downstream 2015 saw clear agreement that the energy industry’s future lies in changing the way customers and companies interact, and in improving the role that data plays in interactions and business decision. Technological change will be a constant part of the market environment.

Companies that combine a strong digital business model with creative innovation will have adaptability as a strength. They’ll have effective systems for innovating and solving problems. They’ll be ready for unknowns - a sure competitive advantage. And the more they operate in this way, the better they’ll know their customers - a crucial benefit that will grow the company’s confidence, improve its response to future change, and let it keep thriving.

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