Do Utilities Need a Chief Digital Officer?
Do utility companies really need a chief digital officer? This is a question that a rising number of executives are asking.
There’s no question the utilities industry is going through a set of rapid, far-reaching, and unprecedented changes. The electricity supply is decarbonizing, as natural gas and renewables replace coal. Markets in the U.S. are being restructured and, in some instances, deregulated, at both the state and federal level. Utilities must integrate the rising amount of distributed and decentralized energy generation into the power grid.
Digital technologies and digitization have emerged as strong enabling forces for utility executives as they modernize the industry and plan for future growth. Many leaders are rethinking how they can tackle a wide-range of enterprise-level issues, including investment planning, resource allocation, and performance and risk management.
As we talk with utilities executives, we see a growing consensus that digitization is becoming a strategic and risk mitigation imperative — one that can unlock immense value even as it poses significant challenges by, for example, empowering disruptive competitors. For all participants in the industry, and at every phase of the business, digitization is one of the key ways in which they improve earnings, redefine business models, and compete in the market.
The Internet of Things and sensors are enabling power machinery to operate more efficiently, and software and apps can integrate generation, trading, and the functions of power system control. Algorithms and big data can enable utilities to keep their plants and grids in balance and more flexible. Apps and bots can vastly improve the customer experience. And utilities are already using social media channels to communicate with customers about outages. By allowing for cross-functional data integration in real time, platform- and cloud-based technologies let utilities coordinate fuel and production. And the use of digital technologies is enhancing the operations of utilities in ways large and small: lowering power system losses, reducing emissions, shortening downtime, and improving productivity. Every day, more potential applications for digital technologies emerge.
The rampant growth — and the expansive possibilities — of digital raises a question of governance. It is not clear yet which governance model will be most effective in managing the integration of digitization into changing operational needs. In most utilities today, the chief information officer (CIO) is the obvious candidate to assume responsibility for the extension and enhancement of the people, process, and governance requirements related to technology. Generally speaking, when it comes to deploying enterprise IT systems— rolling out new hardware or software or platforms across large organizations — the CIO, as the natural custodian of shared services, is in charge.
But there is a difference between today’s suite of digital products and services and yesterday’s technological upgrades. And we believe that today’s offerings present challenges to CIOs that require new skills. Put another way, if CIOs simply apply their usual roles and responsibilities to the digital challenge, they will likely come up short.
There are three principal areas in which utilities are finding that digitization is different from previous technological transitions.
First, digitization has a unique impact on the industry’s core capabilities. Digitization changes the way utilities produce, market, deliver, and trade electricity.
Second, the linkage between IT and business systems is tighter. Data usage, business operations, and back office transactions are converging.
Third, digitization is a direct driver of strategic imperatives. It supports new products, increases margins, and delivers performance improvements.
Given the strategic implications of digitization, many utilities are contemplating whether they should be constituting a new position of chief digital officer (CDO). Strategy&, PwC’s strategy consulting group, has been tracking the rise of CDOs among organizations. We believe that simply setting up a position with a title is not sufficient to address the fundamental issues. What’s more, having a titular CDO may merely provide the illusion of addressing the utility digital challenges without setting up an executive with the necessary authority or directive needed to drive change. The reality is that leading digitization will require an executive — regardless of the title he or she holds — with skills and roles that depart from those of the CIO.
The new role requires expertise in seven crucial areas:
Strategic thinking. Leaders must connect digital implications to utility performance goals, and work on countering megatrends, competitive positioning, financial outcomes, and regulatory imperatives.
A transformation mind-set. Leaders must be able to think holistically of the organizational overhaul, relentlessly drive organizational change, and deliver results that align with business objectives.
Ecosystems adoption. Leaders must harmonize legacy IT and system enablers with emerging technology frameworks, players, and services that are evolving from distributed resources, energy markets, cybersecurity, data management, and real-time operations.
Execution agility. Leaders must have the ability to drive multiple initiatives at different speeds to balance near-term and longer-term priorities and risk exposures.
Data and analytics competency. Leaders must adapt data sets and emerging analytics (e.g., machine learning, artificial intelligence) and apply them to traditional use cases to drive business value.
Customer centricity. Leaders must utilize technology to meet the changing journeys, preferences, and engagement channels (such as social media, text messages, and apps) of utilities customers.
Enterprise technology. Leaders must adapt, integrate, and align with installed enterprise systems such as, Maximo, ERP, PeopleSoft, and PowerPlan.
We believe the new skills will be critical to guiding a company through the infrastructure and scaling opportunities to boost value and mitigate risks in the power sector. Utilities that heed these changing trends and focus on ensuring the underlying skills are in place will be in a better competitive position for the future relative to their peers.
