Finally Disruption – Public Utilitiy Companies on the Way to Becoming Energy Transition Service Providers
The transformation of municipal utilities and their role in the energy transition
“In the face of disruptive energy market transformation, municipal utilities are challenged to move from being pure utilities to becoming service providers. Structural change, innovative methods and competence building are essential.
You may still remember it from some business administration lectures: they were about disruptive markets – but somehow it was all rather theoretical and a bit unreal. And now we are in the midst of disruption, in this case the disruption of the energy market. The energy market is currently undergoing an upheaval of unimagined proportions – and this is fundamentally changing the basis of the activities of around 1,000 public utility companies (Municipal Utilities – or in German “Stadtwerke”) in Germany alone. As predominantly municipal companies, municipal utilities are obligated to provide services of general interest. These energy industry cornerstones are needed for the local, socially just energy turnaround. Municipal utilities have decades of experience; they are reliable suppliers whose risk aversion in the recent energy crisis ensured that no one was left behind. But how are they positioned to make the transition from pure supplier to service provider? Away from grid-based natural gas to a new energy market design?
There is a lot of talk about the technical possibilities, but in order to make the rapid transition to energy service provider and remain marketable, municipal utilities need at least as urgently a change in the organization with its structures, methods and competencies.
Structures away from the historically evolved individual companies toward overarching management structures and shared service units. The expansion of eMobility, for example, as a new field of activity, makes this clear to everyone: Where else should this be planned, if only in one division? In mobility, or urban transportation, in the sales area, or in the classic municipal utility? Because of the need for digitization in the mostly newly established digital divisions? Or rather at the network operator due to the relevant expansion of network structures? Assignment to one of these units, regardless of which one, would probably be neither expedient nor quick. Overarching issues should be thought about and decided on in a comprehensive manner, in each case with the involvement of the subsequent implementers. In the organizational structure, this is made possible by restructuring the company into business units and central service units. For example, corporate development issues can be addressed centrally, from the strategy process to business development, and then transferred to the operational units for implementation after the planning phase. A central sales strategy and management are also part of the new structures and ensure the transformation to a market-oriented service provider. In terms of working methods, the realignment of the municipal utilities means an increasing number of projects. In addition to a uniform methodology and project capacity planning that is interlinked with personnel planning, the establishment of central project and multi-project management is particularly helpful here.
Using other methods
In addition to new structures, other methods are also needed than in the previous, stable market. Looking backwards, no business case can be expected in disruptive markets. The old familiar approach of basing a case on past values fails due to the lack of past history of the new topics. The retrospective analysis of figures, which then represent the plan for the next business year with a slight uplift, is just as ineffective as strategy formation by means of benchmarking or SWOT analyses. Rather, what is needed is a common understanding of what is to come – a common picture of the future. In this way, even in the midst of rapid change, a strategy can be found as the basic direction of action. If it is possible to present a picture of the future of the local energy market around 2030 across all departments and to define the appropriate role of the company in this picture, the many years of experience of the employees and the new picture of the future can generate enormous power for change.
In practical terms, “backcasting” can then be used to “jump back” in blocks to define what needs to be achieved for this goal a few years earlier. And then to consider what needs to be achieved a few years earlier – and what needs to be started now… Finally, the next logical step is to break down these topics of the various operating units, such as generation, sales or the grid company, into a concrete project roadmap and tackle them. The common goal picture and the concretization of the measures required to achieve it are at the same time an essential basis for financial planning, when retrospective methods reach their limits.
Building competencies the right way
After structures and methods, competencies and smart decisions play a major role: Even the best strategy is – especially in disruptive markets – only a better approximation of a possible reality and far removed from the familiar reliability of decades-old business models. In order to muster the necessary speed of change in this unfamiliar environment, it takes courage to make decisions even under uncertainty and to correct them if necessary.
In order to implement the new topics, new competencies are required in the municipal utilities, especially in the shared service units, which must be acquired in part through external recruitment: From the history of the business model, municipal utilities have employees who are used to working with a view to security of supply, reliability and profitability. They were certainly not the most dynamic or risk-averse market participants, but they ensured a reliable supply to customers and a solid company result in a stable market.
Larger and, above all, forward-looking municipal utilities have discovered new areas for themselves in recent years and built up new areas around digitization. Here, new employees were recruited who, with their start-up mentality, rapid development of ideas and innovation orientation, ensured the development of new topics and products and brought completely new approaches, work culture and manners to the municipal utilities. These innovators did not always have to and did not necessarily like to think directly in terms of quick returns.
Both competencies are still in demand. In order to act in a more customer-centric manner and to think in a more marketable way in a market that is now changing at an increasingly rapid pace, there is also a need for a bracket over these two ways of working and patterns of thinking. This calls for employees with methodological skills who do not necessarily have to come from the energy world. They are implementation-oriented and think in a networked manner and, as “enablers,” close the gap between those with expertise and experience of the energy market and those with the courage and willingness to experiment with new topics. These competencies help municipal utilities on their way to acting in a new way on the market. What unites the three groups in terms of mentality is the common vision of being part of a customer-oriented, future-proof energy service provider.
If the many years of energy experience of the municipal utilities and the numerous new technologies are also supplemented by fast structures, future-proof methods and networking competencies, then this helps to ignite the desire for change and to break down the major challenge of the future into manageable issues. Something can and must change – finally, disruption!