To gain the true value of digital transformation, utilities are embracing more dynamic and autonomous organizational structures that enable them to make decisions closer to the customer.
Across utilities and all industries, organizations are finding it more difficult than originally expected to extract real value from their digital initiatives, and utilities seem to be challenged the most. The 2018 CGI Client Global Insights reveal that utility executives’ key challenges to digital transformation revolve around people, organizational models and culture, and not so much technology.
To address these key challenges, utilities are moving toward decentralizing their organizational structures. This is not an easy task, given that decentralization requires team realignment, new decision processes, employees with both business and technology skills, and a shift in people’s mentality toward more collaboration, communication and business outcome accountability. So, what is driving them to make this big leap?
Everything now is about technology and the customer rules
Uniqueness: Customer needs and the pace of adoption of new technologies and offerings can vary widely across regions. This requires utilities to take a unique approach to how they position themselves in a given local market in terms of the strategy for their portfolio of businesses and offerings, their choice of ecosystem partners and the technologies they choose to adopt.
Personalization: Customers demand innovative services and an exceptional service experience, which is why 86% of the utilities executives we interviewed point to improving the customer experience as a top business priority. New technologies and growing data volumes potentially enable a myriad of new, highly targeted services, leading to the creation of micro-markets and requiring utility employees to know the customer deeply.
Agility: To spur innovation, utilities need to become more agile and aware of their customers’ needs, as well as faster in delivering new products and services to market. This requires flatter and simpler organizational structures that empower front-line employees to act without the cumbrances of too many authorization points. It calls not just for changes to organizational models, but also a fundamental shift in the way people think.
The fact that 91% of the executives we interviewed identified cultural change and change management as the top challenge to transformation indicates that these organizational changes will be challenging, but utilities already have defined and begun the journey.
Rethinking organizational structures and culture to drive digital transformation
Innovating and combining the right technologies to address customer needs requires an iterative way of looking at technology and business. Our insights reveal that, while about a third of the utility client executives we spoke with seek to empower the CIO and the CDO’s office to drive digital transformation, they prefer jointly empowering the CIO’s office and lines of business (54%).
Growth results also are highly dependent on the alignment between business and IT. As part of the CGI Client Global Insights, we asked 1,400 global leaders about their satisfaction with the 10 attributes that define a world-class IT organization. Our analysis revealed that the profit and EPS growth was 2-3 times higher in organizations where alignment is the strongest.
This combined empowerment of IT and business better aligns with an agile way of working. Cross-functional teams interactively and iteratively evolve a product or service, while continuously infusing customer data insights and employee user inputs into their decision-making process. This ensures that technology fits customer needs and drives personalization.
Organizations are definitely increasing their intentions to change considerably their organizational structures in response to shifts in their ecosystems. A 2018 study conducted by CGI in partnership with IDC Energy Insights reveals that, across industries from 2017 to 2018, organizations climbed more than 10 percentage points in the adoption of initiatives related to changing core organizational structures, empowering front-line employees, simplifying management processes, and building a culture of collaboration.
Drawing inspiration from Spotify’s digital business model
Some utilities are adopting digital music provider Spotify’s decentralized organizational model in which “autonomy is at the heart of agility.” At its core is the creation of small, autonomous, cross-functional and cohesive teams self-organized to “live and breathe” the product and own the complete lifecycle of the product or service.
With this model, IT is “embedded” into the business in a combined team that can make decisions quickly and jointly, ensuring crucial ideas for new offerings and products immediately translate into digital development programs with tight deadlines and budgets. For utilities piloting this model, the CIO oversees the execution of the new model and leads the integration of the various technology domains. However, unlike the traditional utility model in which IT would involve the business as needed, the CIO has no direct control or decision power over these technologies.
Is it time to start now and to find the right balance?
The challenge for utilities lies in achieving the right balance between which functions to centralize and decentralize, and the pace at which they should do this. Tremendous pressure to perform, especially in competitive markets, is driving utilities to pilot radical decentralized organizational models and to inspire themselves from the models of digital-born companies. This must be undertaken as a continual learning and adaptation journey that will be unique to an organization, rather than as a “big bang” approach.
If a utility is lagging behind in driving profitable innovation, meeting customer expectations, and getting new products and services to market fast, it may be time to assess the gap between business and IT and the traditional centralized IT operating models. It may be time to start investing in hybrid skill recruiting and training, leveraging agile methodologies to set up cross-functional teams and increase collaboration, and embracing an IT product-oriented mentality. To continue this discussion, including its impact on your organization, feel free to contact me.
This blog is the last in our five-part Utilities Digital Journey Insights blog series, which covers findings from the 2018 CGI Client Global Insights. In 2018, we spoke with 1,400+ leaders across 10 industries, including 127 in-person interviews with utilities executives, to discuss their key trends, challenges and priorities. Industry reports are available upon request. Visit our 2018 CGI Client Global Insights page to request a copy of our utilities report.
For a complete discussion of our utility findings, be sure to read our four previous blogs:
- Utilities Digital Journey Insights (Part 1): Why are utilities playing catch-up in the race to digitally transform?
- Utilities Digital Journey Insights (Part 2): Unlocking executive priorities for innovation
- Utilities Digital Journey Insights (Part 3): Data, the new “digital capital” - Going beyond the hype of advanced analytics and AI
- Utilities Digital Journey Insights (Part 4): Utilities’ pursuit of new business models accelerates
Currently, we are interviewing 1,500+ executives for the 2019 CGI Client Global Insights. Stay tuned for those results.