Cognizant—Smarter Utilities Survey 2018 · groups exploring new utility business models. Electric utilities expect charging of electric vehicles (EVs) and conversion of natural

Smarter Utilities Survey 2018 – The Hitchhiker's Guide to the Digitally Enabled Utility

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FOREWORD ..............................................................................................................................................................................3

INTRODUCTION ......................................................................................................................................................................4

CHANGE IS INEVITABLE .......................................................................................................................................................4

UTILITIES ARE LOOKING AT ALTERNATIVE FUTURES AND TRYING ON NEW BUSINESS MODELS .......................4

EARNING OPPORTUNITIES WITH NEW BUSINESS MODELS WILL DRIVE CHANGE IN OPERATING MODELS .......................................................................................................................................5

ADVANCEMENTS IN TECHNOLOGY WILL CONTINUE TO PLAY A SIGNIFICANT ROLE IN DISRUPTION ............................................................................................................................................................6

UTILITIES FALL SHORT IN PREPARING FOR THE FUTURE ..............................................................................................7

LEADERSHIP AND ORGANIZATIONAL STRUCTURE ARE OLD SCHOOL .......................................................................8

STAFFING STRATEGIES ARE PIECEMEAL AT BEST ...........................................................................................................9

MORE INVESTMENT IN FOUNDATIONAL CAPABILITIES IS REQUIRED .................................................................... 10

CONCLUSION: TO MEET THE FUTURE, COMMIT TO ENTERPRISE-WIDE CHANGE .................................................. 11

CREATE ORGANIZATIONAL STRUCTURES TO EXPLORE NEW BUSINESS AND OPERATING MODELS ................. 12

FUTURE-FORWARD BUSINESS UNITS ...................................................................................................................... 12NEW LEADERSHIP ROLES..................................................................................................................................... 12CENTERS OF EXCELLENCE .................................................................................................................................... 13

DEVELOP A CAPABILITY STRATEGY .......................................................................................................................... 13CONTINUOUS CAPABILITY MODEL DEVELOPMENT ........................................................................................ 13CYBERSECURITY ..................................................................................................................................................... 14

ADDRESS ACCESS TO TALENT .................................................................................................................................... 14READY THE ORGANIZATION TO BE NIMBLER AND MORE HUMAN ..................................................................... 14NURTURE INNOVATION .............................................................................................................................................. 15

METHODOLOGY ................................................................................................................................................................... 16

Contents

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ForewordThe utility industry is in the midst of a major global transformation. The rapid pace of this transformation will create significant disruption across the entire traditional value chain that utilities serve.

This transformation is being driven by the decarbonization of the global economy as well as the digital revolution across all industries. Utilities will see significant transformations around the production and delivery of energy as well as in the way they interact and transact with their customers and business partners.

This transformation is perhaps the biggest in the industry's history. The scale of disruption means that even the best-prepared utility may discover unforeseen challenges unlike any other it has experienced, which could significantly impact its business and operating models. The absence of established transformation paradigms and proven reference architectures mean that utilities are facing greater risks in this journey.

The very nature of how electricity is generated, distributed, and transacted will create both threats and opportunities for the traditional utility. Those that can adapt and proactively engage in this new energy economy will be the winners; those that do not effectively manage this transformation may face significant loss of market share and value as well as potential bankruptcy.

How do existing utilities prepare for such a future? Do they really understand the nature, pace, and magnitude of these changes? Are their current preparations adequate and relevant? These and many others are the questions raised to a number of utilities and energy providers in the Smarter Utilities surveys conducted by Cognizant.

In the Smarter Utilities Survey of 2018, we explored in detail how prepared utilities are for this transformation journey. The survey uncovered several interesting insights, and we present them as five key priorities that utility leadership needs to address to be ready for the future as it unfolds: leadership and organizational structures, capability strategy, talent, next-gen technology, and an innovation mindset. We believe this study will also serve as a guiding tool for utility practitioners in the midst of large-scale transformations.

Brian Jones

Vice President / Industry Head - Energy and Utilities, Cognizant Technology Solutions


IntroductionUtilities have entered an era of unprecedented disruption to traditional business and operating models that will continue through the next decade. This study looks at what utilities believe are the most significant disruptors.

Change is inevitable"Utilities operate in a capital-intensive, highly technological and regulated environment. Therefore, the debate around the utilities of the future is a debate of adaptation, spanning across policies and regulations, technological, and business model and organizational aspects." Guillermo Pereira (Research Fellow at Boston University Institute for Sustainable Energy) in the 2018 blog "We need a better understanding of business model innovation and adaptation for the utilities of the future".

Even if the year 2025 seems far off, it is not. The utility industry will look different five years from now and even more different in ten years' time. All competitive businesses are undergoing cycles of disruption. Take the automobile industry. Major automakers are departing from manufacturing traditional vehicle models to invest in the development of electric and autonomous vehicles and, for some, car sharing. These manufacturing-based automakers are also looking to become service providers. Even regulated and nonprofit businesses are feeling the impact of disruption.

Utilities – regulated, unregulated subsidiaries, deregulated, private, and public – are facing stagnating revenue and increasing costs. Stagnating revenue is mostly a result of improvements in energy efficiency and appliance standards. Much has been said about expanded customers' options. With the declining cost of solar, customers have alternatives to grid power. The anticipated decline in the price of storage will provide customers with even more options. Alternative energy resources only add to utility revenue loss. At the same time, utilities are facing the costs of replacing aging infrastructure, integrating and accommodating distributed energy resources (DERs). Once considered the most stable of investments, US utilities declined from stable to negative when Moody's Investors Service changed its fundamental sector outlook in 2018.

Utilities are looking at alternative futures and trying on new business modelsWhere stagnating revenue and increasing costs are prevalent, utilities are analyzing possible future scenarios and experimenting with new business models. Forty-nine percent of utility respondents stated that they have designated business units and/or ad hoc cross-business-unit groups exploring new utility business models.

Electric utilities expect charging of electric vehicles (EVs) and conversion of natural gas heating to electric heat pumps and electric hot water to make up for lost revenue. In the short term, utilities are investigating business models with the revenue-generating potential of home comfort services, pole services for telecommunications, and aggregated demand response bids into wholesale markets.

In Australia and New Zealand, 43% of utility respondents are investing in distribution system operators' technology, an indication that the DSO business model is seen as viable going forward. 30% of European respondents say that addressing capacity constraints from population growth and/or EVs is motivating investments in the next three years. When the next five years are considered, the percentage increases to 80%.


For the longer term, utilities are considering becoming distribution service operators (DSOs), especially where regulators are pressing for new distribution models. As a DSO, the utility would be compensated for operating the grid and supporting distribution market operations. In Europe, 38 European DSOs, including the distribution businesses Iberdrola, E.On, and Vattenfall, are part of an effort to design new business models for the distribution utilities. "Reforming the Energy Vision" is New York State's approach to building "innovative business models that are compatible with a clean, affordable, more resilient, and more distributed energy future."

What is often unclear with disruption is exactly what new business models will emerge. Disparities in regulation, wholesale markets, microclimates, and economic indicators will determine which business models a utility pursues. For example, DERs are growing rapidly in many areas, and utilities expect that they will no longer be the sole operator of grid-connected assets.

Earning opportunities with new business models will drive change in operating modelsUtilities are seeing changing conditions disrupting how they conduct business. In the survey, 75% of utility respondents reported that opportunities to earn revenue from new business models will force significant investment (budget and time) over the next five years in changing utility operating models. Almost as many, 71% think that advanced technologies will force significant changes in operating models. In conjunction with technology trends, 70% of utilities see physical/cybersecurity threats significantly altering the way they conduct business (see Figure 1).

Proportion of respondents (%)

4 3 2 Not force a change in utilityoperating model

Force significant investment (budget, time) in changing utility operating models

0 20 40 60 80 100

Other

Extreme weather events

Performance-base rates

More customer options for services

Mandates for clean energy

Volatility in price of energy

Physical/cybersecurity threats

Opportunities for utilities to earn revenue from new business models

such as EV charging networks, distribution system operator - DSO, etc.

Advances in technology (mobility, Artificial Intelligence, blockchain,

Augmented/Virtual Reality, etc.)

Customer and/or third-party owned supply/demand resources

connected to the grid

29

26

25

24

19

9 28 38 26

7 33 31 29 1

5 4319 34

224 40 35

2

35 34 12 1

41 26 10

45 22 9

45 23 7

44 25 3

Figure 1: Trends changing the utility operating model in the next five years

Source: Ovum

An operating model consists of the human resources, process, organization, and technology related to the utility business (customer, grid operations, construction/maintenance, trading/procurement, and strategy/planning).


Regionally, there are differences in which trends will affect operating models (see Figure 2). In Europe, mandates for clean energy have more impact than in the US or Australia and New Zealand. That is not a surprise given the European Union's new clean energy targets for 2030 – a binding renewable energy target of at least 32% and an energy efficiency target of at least 32.5%. Australian respondents see price volatility as having a greater effect than do respondents in other regions. For the US, physical and cybersecurity have an outsized impact.

Advancements in technology will continue to play a significant role in disruptionTo a great degree, technology has already influenced how we live, work, and play. Advanced technology has made its way into the corporate arena and, in the last several years, into utilities. Smartphones and GPS make utility field crews and office workers more productive and help utilities be more resilient. Advancement in communication technologies such as 3G/4G, RF mesh, WiMAX, and other wireless communications used in the field of advanced metering infrastructure (AMI), outage/distribution management, and field workforce automation is helping utilities in optimizing network operation and effectively utilizing the assets. Utilities have had measurable success using advanced analytics to improve performance in operations and customer engagement. Utilities are adopting cloud services to gain efficiency, municipal utilties in particular. Municipal utilities are adopting cloud services to gain efficiency. There is some movement to change accounting practices in the US in order to increase cloud acceptance by investor-owned utilities (IOUs).

Next-generation technologies such as artificial intelligence (AI), Internet of things (IoT), digital assistants, robotics, blockchain, and augmented and virtual reality are poised to disrupt the usual order. For example, AI and its subsets – machine learning (ML), natural language processing, chatbots, computer vision and imaging, and deep learning – will improve the speed and accuracy of decision-making and enable automation.

73%Western Europe

US

Australia and New Zealand

86%

62%

of respondents in this region see mandates for clean energy forcing signi�cant or very signi�cant investment (budget, time) in changing utility operating models.

of respondents see price volatility forcing signi�cant or very signi�cant

investment (budget, time) in changing utility operating models.

of respondents see physical and

cybersecurity forcing signi�cant or very signi�cant investment (budget, time) in changing utility operating models.

Figure 2: Regional differences in investment drivers

Source: 2018 Smarter Utilities Survey. Ovum


Digital assistants, combined with AI, are expected to take on complex tasks. For example, close to half of utility respondents expect that bots will work with smart hubs, in-home devices, and/or gateways to provide energy-savings advice to customers in the next five years. Bots will support operations as well. Bots working with digital assistants

that deliver information (manufacturing specs, nameplate information, and owner's manual details on distribution equipment) to employees and/or contractors are expected by 75% of utilities.

Utilities fall short in preparing for the futureDigital transformation has, over the last four years, taken many industries by storm. Utilities, having trailed other industries, are now embracing this trend. 42% of utility respondents say that they are implementing digital transformation and know that things will keep changing, a surprising finding given the conservative nature of utilities.

According to a recent multiple-industry study by Ovum (Digital Means Business Benchmark Report), digital transformation is being driven by changing customer/client needs and demands. The same trend can be seen in utilities. In Smarter Utilities Survey 2016: Digital Disruption in US Electric Utilities, 38% of utilities stated that customer services would receive the most investment in technology in the next five years. With all the changes in consumer technology, it is easy to understand why companies have focused attention on the customer rather than on improving operating models. Also, as indicated by the 2017 Smarter Utilities survey, a sizable 38% of utility respondents are investing in grid to a higher state of maturity.

Forty-two percent of respondents are implementing digital transformation and know that things will keep changing, a surprising finding given the conservative nature of utilities.

Digital transformation customer initiatives

Digital transformation mobile workforce initiatives

Digital transformation grid maintenanceinitiatives

✓✓✓

✓✓✓

✓✓✓

Time

Figure 3: Utilities’ digital transformation (DT) is heavy on customer projects

Source: Ovum

Bots working with digital assistants that deliver information (manufacturing specs, nameplate information, and owner’s manual details on distribution equipment) to employees and/or contractors are expected by 75% of utilities.

https://www.cognizant.com/smarter-utilities-survey




But the question is: Is that enough? Rapid advances in technology will only quicken the pace of change over the next 10 years. The focus on the customer and grid is laudable, but with such a pointed focus, are utilities investing enough in the fundamental changes needed to be adequately prepared?

Many organizations that have started digital transformation – including utilities – are stuck. For example, utility customer-facing efforts have not moved customer operational efficiencies to the benefit of grid operations, field services, and asset management. The same is true for grid initiatives. To handle the increased penetration of DERs, 63% of the utility respondents are investing in physical infrastructure. There are fewer dollars going to digital.

Initiatives are limited to projects. For example, the Ovum study cited above found that companies that reported completing their digital transformation strategy did not have an enterprise-wide approach but rather had delivered one or two line-of-business projects.

Leadership and organizational structure are old schoolMany utilities do not have future-forward organizational structures; some are getting there. Most utility respondents rely on organizational structures that cannot sustain planning and budgeting for new operating models. Half of utilities in this study have cross-business-unit ad hoc groups addressing operational model changes. Ad hoc business-unit groups are limited in scope and rely on personnel who are pressed to deliver on their day-to-day responsibilities. Sixty-seven percent of utilities look to enterprise risk units. However, enterprise risk units concentrate on risk associated with energy trading, credit risk, currency risk, and investments in long-lived capital assets. These units are not typically focused on developing new operating models. Relatively few utilities have appointed a chief digital officer (CDO) – the C-level role that drives digital transformation.

The organizational structures with the most promise are designated business units and IT. 42% of utilities have designated business units that explore new operating models. That is a good start. Designated business units can work toward a vision and advocate for commitment of resources. It is interesting that 61% of respondents report that the IT strategic planning group is responsible for operating model planning, given that only 26% of the respondents were from


0 10 20 30 40 50 60 70

Other

Designated strategic business unit to explore new business models

Cross-business-unit ad hoc groups to explore new business models and strategy

Designated business unit to explore new operating models

Cross-business-unit ad hoc groups to explore new operating models

IT strategic planning group

Enterprise risk business unit

14

67

57

43

52

52

38

Figure 4: What organizational structures does your utility have in place to explore the impact of future conditions expected in the next five years?

Source: Ovum


IT. Utility IT has a long history of working with ad hoc and designated business units. IT strategic plans are most effective when these plans are crafted in close collaboration with the business. The business cannot, however, throw the responsibility for major change over the wall to IT, especially if IT is wedded to traditional development processes and legacy architecture.

Staffing strategies are piecemeal at bestIt is not news that the skilled utility workforce continues to retire. Today, the biggest utility occupations in the US are skilled trades workers (installation and maintenance of power line equipment), customer service representatives, plant operators (power, water, and sewerage), electrical engineers, supervisors, and general/operations managers. 27% of the US utility workforce are 55 years of age and over; 52% are over 45. As these workers retire, they leave a gap in institutional knowledge.1

In addition, new skills and expertise will be required in the future. Today, customer service representatives provide basic services that do not require extensive education and training. 74% of utility respondents realize that, as automation takes over basic functions, customer engagement personnel will need sophisticated personal skills to solve complex problems. Today, skilled personnel (construction trades, linemen, engineers, plant operators) rely on hands-on experience. In the future, they will have to be tech savvy. For example, with an increasing penetration of connected DERs, grid operators will need competency in the proactive simulation of grid scenarios. Utilities will need to closely examine their existing resources to determine which workers can be "re-skilled."

Surprisingly, only 26% of respondents expect to see utilities training the existing workforce to perform most new functions, even when there is enough budget to do so. In addition, respondents do not foresee taking measures that are likely to attract new, younger workers, such as digital workplaces. Fewer than a third of utilities are actively pursuing that strategy (see Figure 5).


4 3 2 Not at all likelyLikely

0 20 40 60 80 100

Have more customer engagement personnel with sophisticated personal

skills to solve complex problems

Develop new means of knowledge retention and sharing through

technology

Provide utility business orientation to new technical personnel from

outside the industry

Rely on external resources for competencies that are in short supply, such as data scientists

Build grid operators’ competencies in proactively simulating grid scenarios

Create digital workplaces to retain younger workers

Train existing workforce to perform most new functions if enough budget

25

23

22

17

10

7

4 22 32 42 1

25 43 25 1

27 43 21

45 27 12

32 35 11 1

46 21 10 1

49 17 10

Figure 5: Few utilities are making changes to attract new and younger workers

Source: Ovum

1 U.S. Bureau of Labor Statistics, HOUSEHOLD DATA ANNUAL AVERAGES 18b. Employed persons by detailed industry and age. [Numbers in thousands], 2018.


More investment in foundational capabilities is requiredThe recent history of the adoption of new technologies and automation shows that utilities have not adapted to get the most out of technology. With the implementation of smart meters, the meter-reading function was eliminated, and move-in, move-out procedures were changed. It took years for utilities to apply analytics to smart meter data to implement various use cases, such as in customer segmentation, energy efficiency, and demand forecasting, as well as to revamp outage management.

Next-generation capabilities (data intelligence, agility, automation, Internet of Things, cloud microservices) and technologies (AI, IoT, digital assistants, robotics, blockchain, augmented and virtual reality) require well-considered approaches and incubation.

There are unanswered questions about IT talent as well. Utilities are finding it difficult to attract and retain technical talent, especially data scientists, developers, data engineers, and cybersecurity personnel. In more populated areas, other industries compete for talent. It is not easy to retain talent in a job market where employees change jobs frequently and salary expectations are high.

In the rush to transform, far too many organizations have not developed effective strategies to prepare for what they will confront in the next 10 years. Readiness requires digitizing the enterprise, building a workforce that can exploit new capabilities available through advances in technology, building an ecosystem to support rapid business model and operating model transformations, institutionalizing next-generation foundational capabilities, and focusing on innovation to bring it all together.

Should capabilities be built inside the IT organization? What is the role, if any, for standalone competency centers, such as robotic process automation (RPA) centers of excellence (CoEs)? Should CoEs be centralized, decentralized, or built as hybrids?


Conclusion: to meet the future, commit to enterprise-wide changeRealize that the costs of adapting to disruption may be high in the short term. As reported in a Harvard Business Review article, "Self-disruption can hurt companies that need it most,"2 Raul Kapoor and John Eklund studied 512 strategic initiatives launched by 48 US electric utilities. They examined how each initiative impacted a company's value through changes in its stock price. The study found that utilities that own generation assets and/or are in highly competitive markets are likely to feel the worst pain ($600–880m higher) in the short run. We looked in particular at firms with generation assets that would become redundant if the disruptive model became dominant. Firms with generation assets above the median, we found, incurred adjustment costs that were approximately $800m higher than those below the median. And firms operating in more competitive markets incurred approximately $600m higher cost of self-disruption than those in less competitive markets.

The utility industry will continue to face disruption, whether from mandates, price volatility, DERs, or extreme weather. If companies do not start to address disruption today, losses will be greater in the long run. Take the example of the European utility industry in the period 2010–15.3

During that period, large utilities faced a combination of renewable power technologies, energy efficiency, and a weak economy, which led to negative growth, low utilization, and substantial margin pressure along with impairments of €129bn over six years and market capitalization losses of €200bn across just the 10 largest public utilities.

This is even more reason why utility leadership must commit to a proactive approach to every aspect of the business – customer, grid operations, field services, outage management, asset management, trading and risk management, and capital planning, etc. – by digitizing the enterprise. This requires effective leadership and organizational structures, a modern capability strategy, future-forward talent planning, applications and processes that support rapid response to changing business and operational models, and a culture that nurtures innovation.

These approaches need to be embedded not just in IT but throughout the organization (see Figure 6). Here is the way to do it:■ Create organizational structures to explore new business and operating models.■ Develop a capability strategy.■ Address access to talent.■ Ready the organization to be nimbler and more human.■ Nurture innovation.

2 Kapoor, R & Eklund, J (2018) Self-disruption can hurt companies that need it most. Harvard Business Review, November.3 De Lorenzo, L. (2018) Framing Stranded Asset Risks in the Age of Disruption, Material Economics and the Stockholm Environmental Institute

According to the study, "If the industry and the financial community had seen the risks just a few years earlier, this would have meant massive savings and a more orderly transition."


Create organizational structures to explore new business and operating modelsThe utility of the future will not evolve on its own. It will depend on future-forward business units, new leadership roles, and centers of excellence.

Future-forward business unitsForward-looking utilities have created organizational structures committed to innovation. For example, a group that looks at emerging business models will work toward the vision of the services that the utility will (or will not) promote in the next five years. This means going beyond ad hoc emerging technology groups that must compete for attention with day-to-day business.

Designated business units are essential to preparing for the future. These units ensure that there is available budget, consistency, and sustainability for a long planning horizon. Designated business units may do more than plan in a vacuum; they also execute. For example, one utility has a unit whose mission is to "build a clean energy future." Its initiatives center on innovative customer offerings, including an energy marketplace supporting a microgrid at a medical campus. Designated business units are most effective when they adopt an Agile approach to developing new products and services, internally and externally.

New leadership rolesA C-level executive who reports to the CEO communicates vetted ideas and wins support for enterprise-wide initiatives at scale. Companies that have made a commitment to digital transformation have appointed a CDO or chief transformation officer. Two major IOUs recently appointed an executive to the roles of CDO and chief information officer (CIO). The idea was to have one person who could drive both business transformation – the CDO role – and the transition to a modern IT infrastructure – the CIO role. While the jury is still out on whether the CDO/CIO roles should be combined in one person, whoever is driving change needs to have the

Talent

Next-genfoundation

Capabilitystrategy

Innovationecosystem

Future utility

Leadership &organization

Futureutility

Figure 6: Areas of focus as the future unfolds

Source: Ovum


attention of the CEO as well as the board of directors and the clout and budget needed to lead enterprise-wide change.

Centers of excellenceOne form of a designated business unit that has high visibility within organizations is a CoE. CoEs are not new. CoEs are similar to communities of practice but have specific goals and objectives. They provide leadership, best practices, research, support, and/or training for a focus area and may be centralized, hybrid, or decentralized, depending on how much autonomy is placed in the business units involved.

Develop a capability strategyHaving a clear view of the capabilities that the future demands requires focus. Capability models are useful constructs for defining business capabilities for the future. It is clear that cybersecurity will be among the most important capabilities in the coming era.

Continuous capability model developmentDeveloping a capability model begins with outlining general capabilities needed to support new business and operational models. The process quickly moves to defining the processes, skills, and technology required to support those capabilities. Take an EV business model where utilities make it easier for third parties to connect their own infrastructure to the grid as an example. A utility will need to understand the business impact on customer services (the customer being a fleet or EV charging station owner), grid operations, construction, and maintenance. The utility may need to hire additional engineers to assess infrastructure upgrades. Enablers could include smart charging, communication infrastructure, data management and architecture, analytics, and security.

Because advances in technology will continue to have an outsized impact, it is important to create an organization mindset that continuously addresses emerging technologies in the context of business objectives. Looking forward to the prospect of more automation, organizations may want to establish an RPA CoE. For utilities, that might start with an emerging technologies group that considers using drones to assess the condition of transmission lines and then evolves into an RPA CoE to develop an enterprise-wide approach to automation (see Figure 7).

CENTRALIZED CoE

TypicalOrganizationStructure

Description

LegendAnalytics group

• Leads RPA programs in collaboration with the specific functions/businesses• Bots developed as “products” to be deployed by CoE to BUs as use cases are identified

• Provides guidance and support to business owners which lead RPA programs directly• BU RPA champions collaborate with CoE to develop bots to be deployed against specific use cases

• Each function is empower to create its own dedicated CoE and lead RPA programs directly• BUs develop bots independently, leveraging processes and best practises by CoE

Less BU Control More BU Control

HYBRID CoE DECENTRALIZED CoE

Corporate

Analytics projectDirect line of authority or fundingPartial line of authority or funding

CoE Business unit Business unit CoE

BU RPA BU RPA

Business unit Business unit Business unit Business unit

Corporate Corporate

Figure 7: Robotic process automation CoE options

Source: Ovum


CybersecurityCybersecurity is a must-have capability for utilities. It is essential that cybersecurity be considered as part of all capability models. Utilities operate critical infrastructure and hold customer data, and as such, cybersecurity and privacy are essential to their business. A 2017 report by the US Department of Energy found gaps in prevention and cyber-resiliency capabilities. The report highlighted the need to incorporate cybersecurity into system design processes and system architecture given that utilities depend heavily on suppliers for those systems. The report also noted the challenges utilities face in recruiting and retaining electric cybersecurity expertise. While developing internal expertise, utilities will also need to rely on professional service firms and systems integrators to supply cybersecurity expertise.

Take the capability model for demand response management. The model may include cloud-based infrastructure but it is essential that cybersecurity be considered in all capability models. For example, a utility capability model for demand response management may include cloud-based infrastructure as a service as an option. In that case, it is important to consider where security responsibilities lie for areas such as incident response, security event monitoring, identity infrastructure, network security, and so on.

Address access to talentUtilities have expressed frustration on how to meet future resources needs. What is missing is a talent strategy to meet resource needs 10 years out. A talent strategy defines how to foster resources that will support the capability model (see above). It will help to identify departments that have personnel with skills, create career paths accompanied by skill development, and develop opportunities for promising talent to gain strategic perspective by rotating assignments. Over the years, utilities have built relationships with educational institutions. A focus on nurturing innovation will be a means to draw in talent.

Most importantly, the utility will need to create a means to share knowledge. For example, in order to use AI effectively, employees will need to know the kinds of questions that AI can be asked to address and how to ask those questions. This calls for a constant stream of knowledge to be pushed to the broader workforce in such a way that it can be absorbed and acted on. The good news is that almost 70% of respondents see utilities using technology to develop new means of knowledge retention and sharing.

There will be talent shortages as new technology emerges. Companies will rely more heavily on external resources that are equipped to keep pace with rapid changes. Utilities are open to this approach: 65% of utilities will depend on external resources for competencies that are in short supply. Professional service firms with good track records of attracting talent are expected to be in great demand.

Ready the organization to be nimbler and more humanThe pace of change is accelerating; utilities need structures in place to anticipate that change and respond quickly. For example, one of the CDO/CIOs mentioned above has set up a digital studio to deliver digital products to customers, employees, and suppliers using a combination of human-centered design, Agile, and DevOps. Starting with the customer experience, the utility implemented a microservices platform for the mobile app that is leveraged for all digital channels to the customer.

Human-centered design is gaining ground as an essential element of designing new "products" that will appeal to customers. This approach to product and application development complements design thinking by using social sciences (sociology, anthropology, and behavioral science) at the beginning of the product design process. A practice made popular by IDEO.org, the process incorporates immersion in the lives of individuals in the context of their families and/


or communities, identifying opportunities for design and prototyping, and bringing solutions to market. Human-centered design can also be applied to designing business processes through a better understanding of how employees work together.

The future of utilities will include Agile methods and practices, which will eclipse stage-gate and waterfall approaches to application development. With Agile methods, self-organized teams of developers and business personnel work in time-boxed iterative sprints with regular reviews. 69% of respondents expect utilities to reorganize into "product development teams" that use an Agile methodology to provide new technology-enabled services to customers and business units.

Agile is more than an approach to software development. An Agile culture depends on continuous examination, planning, and engineering. Agile will make utilities nimble enough to anticipate and respond to change. In this regard, corporate leadership must trumpet a message to the enterprise: "You have permission to spend time in efforts such as Agile product development."

Enabling IT processes and architecture is part of becoming nimbler. By institutionalizing DevOps, IT can quickly deliver new applications by collapsing the development, testing, and delivery process. With the use of microservices and scalable cloud architectures, IT can ease transitions to new capabilities made possible by next-generation technologies. For example, one utility has deployed microservices to deliver data from disparate legacy systems acquired through mergers and acquisitions to customer-facing front-end systems including chatbots. Many utilities have sunk investments in legacy infrastructure. Of course, it is important to leverage bespoke infrastructure by moving it to a modern cloud-based architecture, but in many situations the legacy systems are significantly past their "sell-by" date, that is, not able to cost-effectively handle the requirements of today.

Nurture innovationThe most successful organizations nurture innovation by promoting it from within and taking cues from the ecosystem. While there are some forward-thinking utilities that have formal innovation CoEs, there are research and development business units and emerging technology groups that are spending more time focusing on innovation. Innovation can also be nurtured by crowdsourcing new ideas from employees and, of course, through Agile approaches.

Traditionally risk-averse utilities now recognize that they can learn from companies that are born of a culture of "fail fast, learn, and move on." According to Bloomberg New Energy Finance,4 utility venture deals have more than doubled over the last nine years, with a total of 40 projects receiving investment in 2017. Early involvement by utilities in startups is a win-win. The utilities shape the development of the concept into a viable product that will fit utility needs. The startup gets a realistic path to scale up that can handle utility requirements.

Besides being a source of talent, partnerships with professional service firms can help to nurture innovation. These organizations have experience from inside and outside the industry that can be brought to bear to provide insight.

Utilities will need to take action to lower their risk and lead the way to the future. It is never too early to start preparing the utility for 2025.

4 Bloomberg. “Utility-Backed Fund Raises $681 Million to Invest in Clean Tech.” 2018; (https://www.bloomberg.com/news/articles/2018-09-05/utility- backed-fund-raises-681-million-to-invest-in-clean-tech)


MethodologyFor the 2018–19 Ovum Smarter Utilities Survey, Ovum and Cognizant partnered to run a 22-question survey across a sample of electric transmission and distribution and electric distribution utilities, defined as "generating, transmitting, distributing electricity, and/or selling it to residential/commercial/industrial consumers."

The 2018–19 Ovum Smarter Utilities Survey included a total of 100 executive respondents across the US, Western Europe, Australia, and New Zealand, resulting in more than 12,000 separate data points designed to build an understanding of how utilities today are planning for conditions they will face five years from now.

ABOUT OVUMOvum is a leading global technology research and advisory firm. Through its 180 analysts worldwide it offers expert analysis and strategic insight across the IT, telecoms, and media industries. Founded in 1985, Ovum has one of the most experienced analyst teams in the industry and is a respected source of guidance for technology business leaders, CIOs, vendors, service providers, and regulators looking for comprehensive, accurate, and insightful market data, research, and consulting. With 23 offices across six continents, Ovum offers a truly global perspective on technology and media markets and provides thousands of clients with insight including workflow tools, forecasts, surveys, market assessments, technology audits, and opinion. In 2012, Ovum was jointly named Global Analyst Firm of the Year by the IIAR.

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Documents

Cognizant—Smarter Utilities Survey 2018 · groups exploring new utility business models. Electric utilities expect charging of electric vehicles (EVs) and conversion of natural