For building a successful innovation program within the utility industry, enterprise leaders should emphasize on creating a separate innovation business structure outside of the operating business. The innovation business structure operates in an experimental mode and creates transformative business models to meet customers’ evolving wants and needs. The experimental model thrives in a unique culture that is distinct, but not separate from the operating business. Unlike the operating business, the innovation business structure embraces and even thrives on the ambiguity of launching new business models. The organization’s primary goal is to resolve the ambiguity within each opportunity. The operating business then can choose to integrate the new business model back into the operating business or establish a new business division.
Of the ten keys to building an innovation program I identified, the most essential key is the strategic leveraging of the right tools and process needed at the right time for each project. Over the last few years, I have reimagined the original Gartner design for innovation. Using a river as a metaphor, the design language for this illustration emphasizes the flow of the innovation work into the Discovery, Innovation, and Acceleration (D-I-A) eddies. Each eddy captures the deep knowledge from each Build-Measure-Learn cycle as the opportunity streams towards the outflow decisions of pivot, persevere, or expire. Within this design, the toolsets of Strategic Design Thinking, Customer Discovery, Customer Validation, Target Condition Innovation, and Lean Six Sigma are utilized within the separate eddies. Using this approach, the project team leverages a wide variety of strategic innovation toolsets, and each eddy resolves a unique set of business model issues.
All transformative innovation projects begin with complete uncertainty. The use of the D-I-A eddies aligns the innovation process with the tools needed to execute the necessary experiments to resolve the remaining ambiguity. Activating the right tools at the right time enables speed within the innovation ecosystem to gain deep insights. These insights include customer behaviors, market potential, and the application of emerging technology.
Using the flow of this innovation process, a promising concept becomes more defined within the Design Thinking exercises; however, the new insights that can be uncovered become limited within this toolset. What is needed is a Minimal Viable Product (MVP) and the research methods to validate Product-Market Fit. As we inflow the project into the Discovery eddy, we introduce the Customer Discovery toolsets and infuse the team with subject matter experts that have mastered these methodologies. Included are the Lean Startup cycle of Build-Measure-Learn along with Scrum project management. These methodologies enable the team to manage the in-the-field market testing and feedback loops (e.g., ethnographic research and test marketing). The lessons learned enables the team to Pivot based on the new signals. As Product-Market Fit is established, the need to Pivot does not go away. However, the need to build customer engagement (e.g. Get-Keep-Grow viral loops) and the delivery capability becomes a priority. The project team now requires greater customer feedback, which is enabled with the Customer Validation toolset within the Incubation eddy. As the business model matures, you are ready to scale the business.
The goal of the Acceleration eddy is to grow the business and refine the operations to be adopted by the current operating business. A key lesson that I learned is to structure the new business model both in the supply chain strategy and day-to-day operations as the existing operating business. This includes onboarding and integrating corporate resources such as purchasing, human resources, information technology, finance, and operational performance management (e.g., Lean Six Sigma). The Targeted Innovation tools enable smaller pivots within the key processes, organizational resources, and supply chain partners. The last task for the founder, who has led the project throughout the D-I-A eddies, is integrating the new business model into the operating business or a newly established business division.
Another benefit of organizing the project in terms of the D-I-A eddies is leveraging an additional key to success: metered funding. By using metered funding as the gating mechanism, the steering committee or investment fund managers can fine-tune the timing of the projects. This enables new business models to be fully leveraged while the opportunity is still viable. The approach enables a seamless flow of individual projects, building them into new business platforms to enable developing portfolios of new customer products and services. The risks of a deep investment not being leveraged is mitigated by increasing or decreasing its funding based upon incremental results uncovered within each eddy. The size of the investments enable the project to speed up or slow down based on the operating business’ capacity for innovation.
The pressure on the utility business model is coming from multiple sources: changing customer demands, industry disrupters, economic realities as well as key trends in technology and regulatory policy. With the success of energy efficiency programs, energy loads have been flat or declining. Regulatory policy is challenging the recovery rate from capital expenditures. Potential changes in energy policy will also create pressures on rate affordability and customer satisfaction. These market conditions encourage utilities to develop robust value propositions related to the energy services provided. As stated by Alex Osterwalder, “[today’s]business models and value propositions expire like yogurt in the fridge.” Therefore, utilities need to look at the opportunities where customer’s interests can be best satisfied by new products and services offerings while addressing the counter of capital expenditures. Utilities can strategically update or replace current business models with new opportunities, or risk being disrupted by competitive business models through disintermediation. At some point, the current operating business is 100% certain - certain that they are either moving customers into refreshed or new lines of business or losing customers to those energy providers that are transforming their business models. By adopting this approach to the innovation process, the utility industry can meet these challenges. The industry is well positioned to create a visionary portfolio of fresh, new and appealing business opportunities efficiently and effectively. This process provides a map for innovation teams to navigate the turbulence within an opportunity to the delight of their customers.