Swept Away ― How the Smart Grid Tsunami Could Destroy Utilities (And What to Do About It)

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It’s easy to figure a strategy for surviving a tidal wave … run like hell for the high ground.

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It’s more difficult to apply that thinking to the Smart Grid. We can see the wave is about to hit the shore… but which way is the high ground? Should a utility start offering all sorts of new energy services behind the meter? Or become a wires-only utility and leave the new services to others? Or compete with the EnerNOCs of the world? Or partner with them? Or emigrate to New Zealand to herd sheep?

Often guidance lies n the experiences of other sectors previously impacted by similar revolutions. Early this year, the Edison Electric Institute commissioned me to write a white paper about the lessons electric power can learn from other industries. This summer, they published a version in their magazine, Electric Perspectives.

They’ve graciously agreed to let me repost the article here, which they titled The First Push -- How a utility positions itself for success as smart technologies transform markets means seeing what domino falls first. I hope you’ll take a moment to download the PDF and give it a read. For those of you in a hurry, here’s the CliffsNotes version:

The Three Rs and the Domino Approach

Surviving this kind of turmoil requires a strategic re-adjustment, often best accomplished through the lens of the “Three Rs”:

1.     Recognizing the scope of the transformation

2.     Rethinking the organization’s role

3.     Repositioning to optimize for the new role(s)

It can be easier to recognize the size and scale of coming change if you adopt the Domino Approach. Think of transformations as chain reactions, the way the first domino in a chain knocks over the next, which topples the next, and so on. The key is to watch closely for trigger events powerful enough to knock over the first one. In the downloadable PDF, I discuss some of the likely triggers in electric power.

Lessons from Transportation

I also examine the advent of the interstate highway system for lessons that could apply today. It was good news for most of the country, leading to a building boom that revitalized the economy. But a few sectors suffered -- most notably the railroad industry where overregulation, management, and unions formed an "iron triangle" of stagnation.

The railroads failed to recognize the scope of the transformation; failed to rethink their role; and failed to reposition themselves for maximum profits in the new landscape. As a result, U.S. railroads are now only marginally viable as long-distance freight haulers and virtually irrelevant to passenger travel.

Lessons from the First Amazon

Retailing has other warnings for our sector, most notably the concern over "disintermediation." Sears Roebuck was the original Amazon -- the first virtual superstore. It quickly undercut the high prices of the mom-and-pop general stores that had been the only options in most small towns. When the second Amazon (Amazon.com) appeared 100 years later, it likewise disintermediated many brick-and-mortar booksellers. The B. Dalton chain is a case in point. At its peak, B. Dalton operated nearly 800 stores. It closed its last remaining outlets in 2010. During the same time, more than one half of the nation's independent bookstores were also forced to close.

I will refer you to the PDF for further lessons from retailing, including a cautionary tale about Wal-Mart and its end-to-end supply chain.

Lessons from Telecommunications

The telecommunications sector has many direct parallels. Like electric power, it was a heavily regulated network of wires and equipment that was transformed by a convergence of regulatory and technology changes. For the winners, it meant hundreds of new companies, tens of thousands of new jobs and billions in new revenues. For the losers, however, it meant dwindling market share and marginalization.

Consider AT&T. It failed to recognize, rethink and reposition itself. It tried to be all things to all people. Meanwhile, upstart rivals concentrated on just the high-margin, high-profit segments and stole them away.

In the full article, I discuss how even the winners of that first telecom transformation may themselves be marginalized by newcomers such as Google.

Applying the Lessons

A good chunk of the full article is devoted to specific questions an organization can ask itself to begin recognizing, rethinking and repositioning. I hope your organization has embarked on this kind of exercise already. And that you are part of it. As I pointed out a few months back, failure to rethink utility business models may be the biggest threat of all. You need to be figuring out where the high ground will be. For your company. And for yourself. Please use the comment form below to share your insights with your peers and colleagues.

Action items …

Download the PDF of “The First Push”

Visit Electric Perspectives Magazine online

You might also be interested in …

Leap-Frogging to Smart Grid Success: Lessons from the Telecommunications Industry

From Distributing to Connecting: Utilities’ Evolving Role in a Smart Grid World

Smart Grid 2.0: Moving Beyond Meter-Centric Systems

Smart Grid Futures: Why Failing to Create a Shared Long-Term Vision Is Already Costing Us

Smart Power Business Models for a Smarter Grid

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