The question that should guide your utility-of-the-future strategy

In the current climate, there is far too much volatility and uncertainty to accurately predict the utility of the future. Over 60 years ago, as railroads struggled to keep up with public demand, a prophetic essay warned utilities that they may experience a similar fate. Even today, this sentiment reigns true as utility providers are in an eerily similar and precarious position. 

In the late 1950s, the need for passenger and freight transportation was growing rapidly, yet the railroad industry was facing an historic decline. According to Harvard Business professor Theodore Levitt, their struggles stemmed from a common trap that often prevents legacy industries from fending off disruptors.  

“They let others take customers away from them because they assumed themselves to be in the railroad business, rather than in the transportation business,” he wrote in a paper titled Marketing Myopia, written in 1960 and published in the Harvard Business Review in 1975. “They were railroad-oriented instead of transportation oriented; they were product-oriented instead of customer-oriented.” 

Levitt explains that all industries are borne out of an ability to solve a customer need, but those that continue unfettered by competition eventually turn their focus inward. Over time, they evolve from being wholly focused on solving the needs of their customers to wholly focus on solving the needs of the business. Their idea of innovation becomes dedicated to incremental improvements of internal processes, most of which go unrecognized by the end user. 

“Who says that the utilities have no competition?” continued Levitt. “They may be natural monopolies now, but tomorrow they may be natural deaths… To survive, they themselves will have to plot the obsolescence of what now produces their livelihood.” 

More than six decades later, Levitt’s prophecy is coming to fruition. The utility industry was founded on addressing customers’ needs, such as lighting, heating, cooling, and running a factory. Over time, and with little competition, it gradually turned inwards, dedicating itself to better producing and delivering the utility, and ignoring what would improve customer experience. To avoid the fate of the railroad industry in the 50s and 60s, utility companies must once again become customer-oriented rather than product-oriented. 

Flip your thinking

When considering the industry’s future, utility leaders often base their assessments on how it has evolved in the past. Using historic measures of innovation as an indicator of the future, however, puts them at the mercy of that which they cannot control, such as rapidly changing technologies, public policies, and consumer behaviors.

Instead of asking, “What will the utility of the future look like?” industry leaders should instead ask, “What do we want the utility of the future to be?” 

This subtle change in perspective is often what differentiates the leaders of legacy institutions that face sudden disruption from the entrepreneurs and innovators who disrupt them. Just about every entrepreneurial success story of the technology age has seized on the myopia of businesses that faced little competition, and found a way to better serve their customers. Tesla, Spotify, Uber, Netflix, Nest, Lemonade, Quip, Warby Parker, and Dollar Shave Club are all good examples, and there are countless others.

They show that attempting to predict the next big thing in their respective industries can be something of a fool’s errand. Instead, industry leaders would do better to refocus on their core purpose—improving the lives of their customers and communities—to dictate what that future will be. 

Where to start

This new perspective might seem daunting, but industry leaders aren’t starting from square one. They already have a wealth of information available at their disposal. Utilizing this resource only requires asking customers and stakeholders what matters most to them.

For example, energy service industry leaders might believe they have a strong idea of what resiliency, reliability, and innovation mean to them, but might discover that their customers and stakeholders have an entirely different understanding of the same concepts. 

Furthermore, leaders must also incorporate a series of foundational truths that will serve as the bedrock of any forward-looking strategy. The first is the inevitability of technological advancement; things will get faster, cheaper, lighter, and smarter, as they have throughout history. The next is accepting that human needs and wants are durable, and the ways in which they are met are extremely dynamic, often as a result of rapidly evolving technological capabilities. The final reality they must grapple with is the changing climate, and the growing urgency to address it. 

Taken together, these foundational truths point to a more distributed future for the energy services industry. Consumers will have more control and more choice, and many will use that control and choice to actively reject monopoly utilities. 

That may sound intimidating, but the utility industry was founded more than a century ago as a disruptive force slavishly focused on servicing the needs of its customers, and it can do so again. Leaders need to once again permit themselves to think differently about the future of their industry. After 60 years all the pieces have finally fallen into place—technology has evolved, consumer preferences have evolved, public policy has evolved—and now is the perfect time refocus the utility industry around the needs of its customers. 

“Management must think of itself not as producing products but as providing customer-creating value satisfactions,” wrote Levitt. “It must push this idea (and everything it means and requires) into every nook and cranny of the organization.”

The electric utility business has historically focused on producing kilowatt-hours, but in the face of an uncertain future, it must once again dedicate itself to making the lives of its customers easier, safer, healthier, more comfortable, and convenient. Making a kilowatt-hour is a process, and one that few customers are invested in. Powering a community is a mission, and one customers will enthusiastically support.

To hear more from Val on this topic and other utility-of-the-future considerations, read his latest paper: Building the 22nd century utility