Utility companies are facing inordinate pressure from regulatory reform and increased competition, but it is important that they don’t lose sight of the changes happening with the customer expectations in the digital age. Innovation Birmingham Campus tenant Neil Pennington looks at how utilities should respond to this growing challenge.
The nature of the utility customer has changed for good. You don’t need a 10-slide power point deck or a “one page” brief, so favoured by boardrooms across the UK, to tell you that.
But despite the countless slide decks and “one-pagers” adorning the shelves of utility executives across the country; despite knowing that getting close to the customer is critical to future success; the utility industry is struggling to match the leaps forward in capturing the imagination and engagement with the customer that is being seen in other sectors.
With all the pressure currently being faced by utility companies, from fundamental regulatory reform, to the threat of price caps and increased competition, it is easy to lose sight of the fundamental changes that are happening with customers and their expectations in a digital age, liberated by rapid technological and social change.
Failure to respond will likely mean an acceleration to commoditisation with value migrating to household brands that have value to customers: Tesla, Google, Apple, Amazon, John Lewis, and Mercedes, to name a few.
To respond and capture the imagination of the customer, utility companies must make a fundamental shift in mindset to be able to innovate before it’s too late.
The customer information comfort blanket
Traditional methods of market research are useful and widely used; techniques encompassing telephone interviews, face to face questionnaires and web-based surveys will produce analysis based on quantitative data that is statistically significant.
But the key discipline is to realise the inherent limitations in the information they provide. There is a reason I use the word information: this is data, pure and simple. It does provide context and reassurance as to direction; at best, it enables one to pin point an issue or an area of pain; but it rarely provides insight that can drive innovation.
For example, when you receive a 2,000 interview-based quantitative report that tells you that people want to pay less for their energy and have more control, what does that actually do for you? It may look good in a management report or a board paper, but it begs the questions “so what” and “what action can I take”?
The customer insights path to customer-led innovation
The key to customer-led innovation is to focus on the business model; to go deeper, faster using a design mindset (sometimes known as design thinking). There is considerable risk that bringing new products and services to customers, however insightful, will fail if we rely on the old business model to do so.
This is easy to say and not-so-easy to do. It requires new tools, capabilities and most importantly the space and fundamental buy-in from the executive team to make this happen.
The good news is this can be developed internally, but experience is that help is needed along the along the way; this is especially true in the field of product and service design.
There are many paths that can be taken to implement customer-led innovation in an existing organisation and that is beyond the word-limit of this article. For now, the focus is on customer insights, what it is and where you can start.
Where customer information is founded on asking people for their preferences and desires through interviews and focus groups, customer insight is much deeper, going beyond stated preferences to observe their environment, daily routines, concerns and aspirations.
There are two practical frameworks, that I have used in many innovation challenges, that define and use customer insights to make breakthroughs:
The ultimate in learning by doing, the Sprint, developed by Google Ventures through a great deal of trial and error with start-ups and internally in Google across a wide range of business challenges, brings speed to the challenge of rapid-prototyping an idea in five days.
For this article, it is Friday (day five) that is most interesting.
In terms of customer insights, for rapid-prototyping, the Google Team have concluded that “five is the magic number”. A well-known user researcher, Jacob Nielsen, in the 1990’s analysed 83 product studies and plotted how many problems were discovered after 10 interviews, 20 interviews etc; the results showed that 85 per cent of problems are observed after just five people. This is confirmed by Google Ventures in 100+ Sprints: “…by the time we observe the fifth customer, we-re just confirming patterns that showed up in the first four interviews …”.
There is something here about the quality of the interview and the deep nature of observing and getting beyond what is simply stated to discover why a thing works or doesn’t. This is design-thinking at its best. From a Google perspective, simply put, it requires “… a friendly demeanour, a sense of curiosity, and a willingness to have your assumptions proven wrong”.
It is understood that utilities are facing an unprecedented period of change. That said, there is a risk that whilst our eyes are turned to the “heavy lifting” of transforming structure, market and process, we miss the fundamental shift in what everyday people need, what they buy, why they buy, who they buy from.
Whilst utilities are focussing on heavy lifting, companies we don’t even know about are developing innovative technologies such as batteries, IoT and blockchain and new business models such as peer-to-peer trading, multi-sided platforms; companies we do know, from other business sectors, are stretching their business models to include utility products and services in the future.
Turning at least some of the focus, away from the heavy lifting of large scale structural change, towards customer insights-based, customer-led Innovation, is worthy of consideration before it’s too late.