TODAY’S STUDY: CUSTOMERS TURNING ON UTILITIES

The New Energy Consumer Handbook

June 2013 (Accenture Energy Consumer Services)

Executive Summary

Consumer, technology and regulatory changes are creating an increasingly complex energy ecosystem—one that is testing utilities’ ability to evolve. Energy providers will continue feeling the effects of critical trends in product innovation, shifting interaction paradigms, innovative partnerships and the changing role of data in consumers’ daily lives. Successful providers will focus on establishing new competencies while perfecting the operational basics that enable high performance.

Utilities have largely delivered on the core purpose of the energy value chain: to provide safe, reliable, low-cost energy. While that purpose remains important, achieving it is no longer enough to drive success. Around the world, utilities are facing fundamental changes. Energy consumers’ expectations are increasing, technological advances are creating exponential step-change, and regulatory and market forces are fueling complex, sometimes contradictory, priorities for providers. In short, marketplaces are transforming and creating new strategic challenges and operational pressures that cannot be ignored.

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Energy consumerism and technology advances are creating a powerful force of change

Recognizing the fundamental shifts underway, many providers have begun the journey to becoming more consumer focused. While there has been success in certain areas of the business, for many utilities, step-change transformation remains elusive. Nevertheless, energy consumerism is on the rise, with consumers seeking smarter solutions for home energy management and other lifestyle products and services.

As consumers increasingly turn their attention to products and services enabled by renewable energy advances and beyond-the-meter technologies, the evolving energy marketplace is taking different shapes and forms around the world. Regardless of geography, the challenge is clear. To address the needs of the New Energy Consumer, utilities must bring focus and discipline to current operations while finding ways to continue building the next-generation competencies that will define “business as usual” in the future.

Consumers are advancing as well, becoming more mobile, more social and increasingly interconnected. Around the world, mobile and Web adoption is not only fundamentally shifting channels of interaction, but also enabling entirely new value propositions centered on convenience-oriented “set-and-forget” solutions. Social media has also matured to a point where it has become a viable tool for marketing, sales and service.

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Innovative utilities and vendors are engaging consumers through social media and building a next generation of applications that bring together new channels, new technologies and deeper consumer insights to create a social and entertaining energy experience.

In large part, technology is the primary driver for increasing consumer expectations, as it has unleashed exponential change in functionality and information available to the energy industry. For example, smart technology is enabling a new era of mobile applications and integration with emerging channels for consumer communications. Accenture analysis and experience suggest that 40 to 60 percent of core meter-to-cash processes will need to be redesigned with the introduction of a full suite of inhome smart technology and supporting consumer programs and services. Smart meter rollouts are continuing globally, with regulation driving large rollouts in such markets as the United Kingdom and France. High-profile challenges with consumer engagement in some regions have underscored the need to develop, communicate and deliver on compelling consumer value propositions for smart metering investments. Intertwined with smart metering, “big data” has emerged as another disruptive force. Big data requires utilities to develop innovative new approaches to analytics and data architecture. It also creates opportunities to monetize information.

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Changing regulations and a new sustainable mindset are quickly changing the energy landscape

Partly in response to consumer demands and emerging technologies, regulatory and market forces are also influencing the landscape. Regulators are seeking to balance requirements to upgrade and invest in infrastructure with the cost impact on energy consumers. In some geographies, a wave of market liberalization likely will bring new entrants and new innovations. In other regions, pressure from consumer groups and governments is leading to new rules that likely will spur energy providers to refocus on consumer engagement and satisfaction.

Sustainability is gaining momentum on regulatory, government, consumer and corporate agendas—so much so that it is increasingly woven into the fabric of business as usual. The shift toward renewables and increasing adoption of distributed generation by both commercial and residential consumers is creating a wave of new opportunities for utilities. It is also straining infrastructure and creating a need to shift the revenue mix away from what has long been the core product: energy.

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Industry convergence is bringing new competitors while extending the energy value proposition

Industries are beginning to converge, driven in part by shifts in consumer behavior, technology trends, regulatory demands and the rise of sustainability.

In noncompetitive energy markets, other providers are entering the beyond-the-meter market with products and services designed to complement the commodity provided by the regulated utility. In competitive markets, energy companies are competing against each other, individually vying for a broader share of consumer spend. Some nontraditional providers are eyeing energy as a means of increasing their share of spend and customer retention. Across markets, new entrants—including consumer goods and telecommunications companies—are making bold moves into the home, offering energy audits and advice, integrated home monitoring solutions and home energy generation packages.

As a diverse set of new entrants emerge in many markets, they are competing for value with energy-related products and services (see Figure 1). In some cases, the challenge from new entrants is product- or service-oriented; in others, it stems from the strength of their brand reputation and consumer relationship.

Regardless of the offerings or roles these organizations pursue in the energy marketplace, it is clear that many have the capabilities and experience to attract and retain consumers and create innovative new energy-related value propositions.

Today, utilities remain consumers’ first point of contact regarding energy and energy-related purchases. As beyond-the-meter opportunities increase, competition across commodity providers will increase:

• Commercial retailers can combine the sale of energy-related products with installation and management services. These providers generally have strong physical retail footprints, which they can leverage to educate and engage consumers on products and services. By nature, these companies have customer-centric operations and strong brand awareness among consumers. Because mind share will be important, these retailers pose a credible challenge to utilities.

• Home service providers are adept at using high volumes of data to create consumer profiles and target products accordingly. In some markets, these providers are already emerging as competitors, selling energy at discounted rates in order to expand their share of consumer spend and increase customer loyalty.

• Manufacturers see opportunities to help build ubiquitous network access and interoperable communication devices.

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Market currents are shaping a marketplace of accelerated change and disruption

As a range of market forces redefine the energy marketplace, market trends are also redefining the playing field. These currents of change highlight disruptions shaping future key challenges and opportunities. In many ways, response to these disruptions will define how utilities will evolve and the kinds of energy providers they will be in the future.

Delivering on consumers’ need for 24/7 access and increased choice will reshape product offerings and further blur lines between the commodity and additional products and services. As utilities evolve, they will need to strengthen their focus on innovation, product development and consumer insight while developing a diverse set of partners that enable renewed relevance and value creation.

To be successful in the evolving energy marketplace, utilities will need to take deliberate action. They must embrace a bold vision in reformulating their strategies and understanding, reaching and engaging new energy consumers.

In many markets, small changes may not be sufficient. Instead, energy providers will need to determine if new business models are required to respond to the emerging opportunities and challenges. By doing this, providers can take proactive steps to shape the energy marketplace and stake a claim to increasingly sought-after opportunities.

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Core competencies are emerging that will define who will succeed in creating and capturing value

As the marketplace is being redefined from the outside in, so must providers redefine themselves from the inside out. Indeed, in many cases the way utilities have been built has made it increasingly difficult to respond effectively to the change and disruption that defines the evolving marketplace. The status quo for many utilities is accelerating dissatisfaction among consumers.

Siloed business units, rigid processes and fractured customer experiences are increasingly visible. In fact, Accenture believes that many providers could reduce controllable operational spend by as much as 30 percent simply by addressing the critical consumer “dissatisfiers”—an approach we call the economics of dissatisfaction.

Furthermore, as the scope of customer operations expands to include new programs, products and services, complexity will increase. This will magnify operational challenges and drive a vicious cycle of added cost and stagnated customer satisfaction.

Increasingly, business as usual is not an option. However, facing a marketplace filled with disruption and uncertainty has made developing long-term strategies and practical next steps challenging. Within this environment, utilities should look inward to unravel years of operational history that have often led to layers of complexity. Going forward, providers should relentlessly focus on simplification, flexibility and agility. Using this lens, providers will need to build four core competencies that will create a basis for success regardless of how the evolving marketplace unfolds.

While there is no single “right” roadmap, Accenture believes that focusing on delivering operational excellence, optimizing consumer interaction, creating lasting consumer engagement and extending the value proposition will holistically define successful energy providers of the future. These competencies are key to remaining relevant and profitable and to delivering on the shifting expectations of consumers, employees, regulators, governments, shareholders and society at large.

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Tapping into new talent and becoming “change capable” will enable energy providers to excel in the face of disruption

Change is not a simple process, particularly for established utilities with a long, successful history of reliable energy delivery and customer satisfaction.

However, disruption and the need to change are seemingly omnipresent in the energy marketplace, with no signs of a slowing pace. Thus, evolution is not only inevitable, but also brings a need for new types of talent. Indeed, there is a widening gap between the skills of today and the skills that will be required in the future. As providers look to engage consumers, leverage big data and become more than commodity providers, a new set of employees will emerge. These workers require greater skills, greater specialization and more education. In many cases, they will represent a new generation with different expectations of their employers. Evolving to meet changing consumer demands will also mean evolving to meet different talent demands. To that end, providers need to explore new talent pools and work quickly to attract and retain the high-value talent of tomorrow—individuals who may not view the utility industry as their first choice for employment.

Changing talent, changing technology, changing consumers—as utilities work to respond to the forces shaping the marketplace and to develop new core competencies, they must take a truly methodical approach to establishing agility and flexibility within operations. In the past, change programs were often part of large system implementations and were designed to be one-time initiatives.

Facing a cycle of continuous change, providers must embed change and make it part of everyday operations.

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Engaging the untapped middle

Not as large as commercial consumers, but also not the same as residential consumers—small and medium businesses (SMBs) are often a “neglected middle” for utilities. But as utilities look for growth opportunities and new strategies to drive step-change improvement in consumer engagement, SMBs are emerging as a key opportunity. Accenture’s 2013 global research, Delivering the New Energy Consumer Experience, shows that SMBs have a range of unique values and preferences when it comes to energy.

In fact, SMBs report that they expect solutions from their energy providers targeted to their businesses, and although they do not feel they are receiving them today, many would be willing to pay for such solutions. To engage SMBs and capitalize on the opportunities they offer, utilities must move quickly to define and deliver value for this sometimesoverlooked group of consumers.

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The retail renaissance is upon us

The long-awaited renaissance of competitive retail energy markets is now upon us. Spurred by innovative new value propositions for energy and other products and services, competitive energy marketplaces are driving renewed consumer engagement and expanded revenue opportunities. However, extending into new areas requires new capabilities and a nimbleness to compete with a diverse group of new entrants in the energy marketplace. At the same time, consumer and government pressures have also brought a renewed focus on simplicity and transparency.

So while the opportunities are great, so too are the challenges, not least of which is achieving profitable growth in a time of squeezed margins and fierce competition. While many providers have already begun to explore new products and services, going forward, success will increasingly be determined by speed to market. Competitive energy providers must continue to build nimble consumeroriented organizations that can quickly identify and react to new opportunities.

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Conclusion

A new, more dynamic energy marketplace continues to take shape. More active consumerism, advancing technologies, regulatory shifts and a focus on sustainability are changing the industry as we know it. Industry convergence is bringing new competitors but also creating new value propositions with the potential to redefine how consumers use energy and interact with their providers.

In this environment of disruptive change, utilities have incredible opportunities to become dynamic, consumer-focused organizations at the leading edge of shaping a new energy marketplace. But this is a pivotal point and the decisions made today will define the role of energy providers in the future. Hanging in the balance is not only the energy consumer relationship but also the longterm relevance of energy providers.

Developing a roadmap for the future in the face of uncertainty and disruption is a significant challenge. Providers must work to establish operations, technology platforms and a workforce that can respond with speed and agility as opportunities emerge. Ultimately, this requires new competencies for reinventing the consumer-facing organization and delivering on the promise of a new era of customer operations.

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