With the rise of innovations like distributed generation and alternative energy options, energy companies can no longer afford to continue traditional approaches to their business operations.
Three Ways Your Company Can Prepare for the Digitalization of the Energy Business
Shaulah Hamid | Capco
‘Digitization’ is a key buzzword at the forefront of business decision-makers minds today. Its increasing usage is evidence that businesses should be looking at new ways of managing their internal and external (market-facing) processes. While merchant retail and financial markets have been at the forefront of adopting new digital strategies to transform their businesses, energy and commodity markets have lagged. With the rise of innovations like distributed generation and alternative energy options, energy companies can no longer afford to continue traditional approaches to their business operations.
European energy markets provide an example of the digitization of energy with the increasing adoption of algorithmic trading solutions. With the influx of unreliable renewable sources and the retirement of traditional baseload generation, European power markets face growing challenges to balance supply and demand, and without a robust intraday market, the physical power market would be practically unsustainable. Algo solutions, which can monitor near instantaneous price movements, and commit buy or sell orders as necessary, to ensure a balanced market and reduce extreme price volatility, are quickly transforming that market and enabling a low carbon power grid for the European continent.
Companies are most successful in extracting maximum returns from their investments in digitization by: maintaining a laser sharp focus on their areas of expertise, fostering transformation to business processes and working to improve their connection with customers and/or trading partners.
Although there is no ‘one size fits all’ roadmap for digitizing and transforming your company and market, any business moving into the digital realm should embrace these guiding principles:
1. Adjust your thinking.
Becoming a leader in a market is rarely achieved by merely reacting to change. Market leaders seek opportunity and are continually looking for new methods and technologies to harvest emerging opportunities. Technology is driving change at an accelerating rate and available reaction times are shrinking. In this environment, all market participants must invest time, and at some level, budget, in what can be called ‘technology futurism’ to avoid getting passed by their competition or a pivoting market.
2. Plan for success but be willing to accept some failures.
Every company that has led the transformation of a market has experienced failure at some level, scaling from insignificant to spectacular. Distributed ledger technologies like blockchain may ultimately transform the global energy markets, or they may be a learning experience for early investors and a stepping stone to achieving the next ‘great thing’ for these markets. You should never consider any failed investment in new technology a total loss. At minimum, it will provide key insights and help to inform future decision-making.
3. Finally, think strategically, but seek out near-term tactical wins.
Digitization strategies should ultimately lead to a true transformation of how a company conducts its business. However, without harvesting low-hanging fruit along the way – improving operational efficiencies and finding incremental gains in ROI through the deployment of existing technologies - momentum can be lost. As a minimum starting point, in order to enable faster adoption of emerging technologies and be more responsive to technological advances, companies should focus on refreshing technology infrastructure, replacing legacy systems, and adopting agile methodologies.
Few companies can afford to throw money at science experiments, but in today’s markets, no company can afford to not invest in advancing their technology capabilities. Technological change is coming to all markets and industries, and much quicker than most can imagine. Even if your company doesn’t seek to be on the leading edge of that change, there are steps you can take to keep pace with your competition.
The content & opinions in this article are the author’s and do not necessarily represent the views of AltEnergyMag
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