August 14, 2018

How to ensure the survival of your energy retail business?

Carl Lidholm

Head of Strategy and New Business, Energy Utilities, Tieto

There has been a lot of talk about the recent trends in the energy business, changing customer behaviour, increasing competition and regulation, and narrowing margins. You’ve been told time and again how you should change your business model to keep up with this evolution. But what is it that actually has changed and what do you need to actually do?

If you are running your present energy business with systems purchased in the 00’s, their logic is probably billing-centric: focusing on correct and timely billing, efficient handling of mass processes such as metering, and high-level segmentation of customers, with whom you interact in a limited number of channels.

In contrast, today you are looking at a whole new set of KPIs, Key Performance Indicators.

To achieve a lower cost of operation, you need to standardise your core process for commodity services. To respond quickly to market needs, you need faster product and process innovation. Because it will be impossible to do everything in-house, you need to embrace the idea of an “extended company”, meaning business network integration, collaboration and ecosystems. None of this is possible without digitalising a large part of your operation.

From product and price to relations and experiences

When you are planning to upgrade your present business systems, the new basic requirement is to build in a new type of agility from the start. The business models and systems of ten years ago just don’t cut it in today’s energy market.

Where you used to focus on product, price and mass marketing, you now need to focus on the customer, lifecycle earnings and individualised marketing. Where you used to aim for share-of-wallet, you now need to aim for share-of-life. Today, it is the customer who takes the initiative in product and service development.

Billing has become a commodity, which is why success these days requires putting the customer first and being prepared to interact in all channels the customer chooses. To respond to the customers’ new wants and needs, you must keep pace with both your own operation and the market’s expectations in real time, even forecasting the future. To differentiate from your competition, you must be able to personalise your products and services at a short notice.

Key capabilities of the future winner

In light of these changes, the “skill set” of any energy retail company wishing to stay relevant to its customers includes many elements you didn’t even think about ten years ago.

The higher clock speed of business requires real-time transaction capabilities towards the customer while running real-time analytics to reconcile your business performance with the demand. Your systems should also be ready to provide specific solutions to different roles in your customer base.

To do this successfully, today’s utility IT must be built modularly to standardise its different  parts so that individual parts can be exchanged as needed while still following best practice processes. Not forgetting security, the glue that holds the entire system together.

Scalability and standardisation are best implemented in a SaaS (Software-as-a-Service) delivery model, which at the same time relies heavily on cloud computing. Better still if the solution is regulatory evergreen – automatically incorporating any new legislation and regulations – which enables retailers to more tightly focus on their core business.

The modular character of the ideal solution, as well as extracting maximum benefits from the interchangeability of the modules, inevitably leads to the need to collaborate with external providers and make sure their subsystems can be tightly integrated.

Reap the benefits of the new world order

As complex as the new way of doing business – and the changes required in IT systems – may sound, the rewards are worth the effort.

A high level of digitalisation makes life easier for both your utility and the consumer. Prosumers, those who generate at least part of their own power and may sell any surplus back to the grid, are easy to accommodate. Customer-centricity is easier, because a larger part of your operation is digital and automated. Upselling and cross-selling give a new opportunity to plug in external offerings if they profit you more than your core product. When consumers receive benefits like these automatically without any effort from their part, such as lower monthly energy bills enabled by demand response, your business will stay relevant to your customers and create loyalty that is needed for lifecycle profitability.

Your profit in focus

Tieto Smart Utility, TSU, already checks most of the boxes today’s energy retailers require when looking into the future. Modular, scalable and based on best practice processes, it helps e-commerce and customer engagement. Moreover, it is ecosystem-ready to enable collaboration with other providers. Not limited to electricity providers, it also caters for gas and district heating companies, as well as multi-utilities.

Full product bundling and real-time rating and precalculation will move you from analytics to insights. Within a couple of years, it will support a full supplier-centric model, as well as data hub integrations and real-time transactions. Built-in robotics capabilities (RPA, Robotised Process Automation) and artificial intelligence automate your processes, thereby freeing capital for innovation.

To find out more about how your company can stay relevant to its customers while improving profitability, here are some other resources that may help you when planning for your future:

Tieto Smart Utility for your service

When will energy companies start selling coffee?

Stay up-to-date

Get all the latest blogs sent you now!