How to explain gaps in a fossil record? The theory of punctuated equilibrium – first proffered by paleontologists Niles Eldridge and Stephen Jay Gould in 1972 in response to a puzzling absence of transitory dinosaur fossils – suggests that evolution does not occur gradually over long periods of time (phyletic gradualism). Rather, punctuated equilibrium holds that species exhibit long periods of little or no change (stasis), followed by rapid, dramatic evolutionary change in response to environmental stressors.
Whether you buy the biology or not, there are strong historical paradigms that make the case for punctuated equilibrium as an industry and business reality – think the longstanding dominance and subsequent painful bankruptcy of Kodak in the digital age or the rapid decline of Akron’s tire makers (Firestone, Uniroyal, and B.F. Goodrich) in the face of new radial technology. What ought to be troubling for observers is that none of the aforementioned firms responded to changes in their business environments by doing nothing. Rather, their response was (understandably) a recommitment to those commercial practices which had made them successful in the past, and it was precisely that response that killed them. The very formulas which had enabled their fortune in prior years blinded them to the need for transformative change.
As a counter example, consider the telephone industry – in response to the introduction of new technology (cell phones) which posed a significant risk to their business, traditional providers pivoted to launch and grow their cellular business while shrinking their landline investments.
No mental gymnastics required to guess where this is headed. Utilities in the US and abroad are facing a new business environment: increasingly liberalized markets, new technology entrants, and dismal customer relationships (according to a recent Accenture study, less than one quarter of consumers trust their utilities).
Like the tire makers and Kodak, their response to date has been to repeat the strategies of years past: cut operational costs, use regulatory dollars on short-sighted programs, and extend their contracts with the same vendors that have produced consistent (albeit low) results. Given the industry’s appetite for risk, it’s not surprising that utilities look to precedent (their own, or their peers’) rather than innovate.
Environmental stressors abound: Barclays’ downgrade of electric utility bonds, falling demand, and the rise of distributed generation all underscore the problem with sticking to tried and true strategies. The commercial outlook for traditional investor-owned utilities is dim, but not apocalyptic. On the contrary – large-scale change in the utility business environment provides the opportunity to build more customer-centric (and ultimately more profitable) utility companies. Forward-leaning utilities – the ones that will survive in the brave new world – will look to fundamentally transform their relationships with their most important commercial asset: their customers.
Ready to transform your customer relationships? So are we. Get in touch at Solutions@SimpleEnergy.com