Value Innovation in Electricity UtilitiesHeiko Gebauer, Hagen Worch & Bernhard TrufferDepartment Innovation Research in Ut...
Changing environment for electricityutilitiesCustomer• Renewable energies• Smart grid & smart meters• Electric cars• Marke...
Empirical example «RWE» (national provider)• German company• Founded in 1898 in Essen• Revenue € 53.32 billion• Profit €3....
Empirical example «YelloStrom» costleadershipGeneration by EnBWpower plants andpurchasing from themarket; distribution &sa...
Empirical example “Municipality Munich” (local)• municpial energy provider; 100% ofstocks are hold by city of Munich• foun...
Newness to the customerIncrementalinnovations• Generating, distributing, and selling electricitywith few customer service ...
Our conceptual framework combinesfollowing key constructsPotential absorptivecapacity•Knowledge acquisition•Knowledge assi...
Nature and type of value innovation ischaracterized by three different components• Questions existing business models, bre...
Value innovations require absorptive capacityAbsorptive capacity ...... firm’s ability to recognize the value of new infor...
Absorptive capacity co-evolves withcombinative capabilitiesAbsorptive capacity ...… depends on past and cumulative experie...
Context variables interact with co-evolvementAbsorptive capacity and value innovation linkage ...… is moderated by context...
Our conceptual framework has been appliedto diametrical case studiesCharacteristics Alpha BetaStrategic innovation • Limit...
Contextual variables show strongmoderating effectsPotential absorptivecapacity•Knowledge acquisition•Knowledge assimilatio...
Combinative capabilities mediate thepotential and realized absorptive capacity (1)Potential absorptivecapacity•Knowledge a...
Combinative capabilities mediate the potentialand realized absorptive capacity (2)Potential absorptivecapacity•Knowledge a...
Following similarities and differences wereobserved in the contextual variablesAlpha’s low degree of valueinnovationBeta’s...
Following similarities and differences wereobserved in the potential absorptive capacityAlpha’s low degree of value innova...
Following similarities and differences wereobserved in the realized absorptive capacityAlpha’s low degree of value innovat...
Based on the findings, we can draw followingtheoretical implicationsGeneral theoretical implications Specific theoretical ...
Our study offers managerial guidance forvalue innovations, but also entails limitationsManagerial guidance Limitations Ev...
Thank you very much for your attention
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Karlstad 2011-10-26-final

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Value Innovation in Electricity Utilities

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  • Short Introduction – new to the field of sustainability, Main focus has been service research. Topic & topic selection: (Innovation not regulation helps us to respond sustainability issue) – Electricity utilities, play a key role Structure of the presentation: Motivate research, shortly introduce our theoretical concept on absorptive capacity, I continue with presenting our empirical setting and results. I end with a short conclusion, and hope that my presentation is inspiring to have a nice discussion. Hesitate
  • Part I: Motivation of the research: Value chain of electricity ulitilities – ended at the electricity meter with strong focus on efficiency and effectiveness in power generation, power grid, power distribution & network, final distibution & marketing to the end-customer. Little knowledge on customer‘s request on electricity usage, consumption, and saving. Various trigger that create opportunities for new innovations. Renewable energies photovotaic equipment for households, co-producers. Cities buying wind parks and offer eco-electricity to end-customers or for they publicly-owned companies and administration. Smart grid in combination with intellegint household devices could optimize power distribution in the network. Smart grid is highly interwined and interconnected with photovoltaic equipmemt. Smart metering - Cost reductions on monitoring electricity consumption, but the information could be used for monitoring & intelligent feedback services „ Runner story Electric cars – LA car exhibition - car batteries, 2nd life concepts of batteriers, e-bikes demographic change Market liberalization, full, partly or still regulated. Electricity becomes a commodity, new innovation potentials to avoid cost competition and erosion of margins Sustainability as a major opportunity, which more or less provides the fertile ground for all the other tiggers and drivers Social network, people use social medias in relation with electricity consumption, signaling environmental behavior and standard. Get your electric meter sleep Farmville – facebook game impact on behavior,.
  • Questions existing business models , breaks away from “taken-for-granted” assumptions about competition, industries and their intra- and inter-organizational ways of working and deviates from the dominant industry recipe Reshapes existing markets by changing the nature of competition , looks across conventionally defined boundaries of competition, discovers uncontested market spaces and seeks radically superior value, which will render competition irrelevant Strives, not for marginal or incremental improvements, but for quantum leaps in value , includes innovating customers by increasingly considering business opportunities from the value-in-use and value co-creation perspective, and is therefore not restricted to new services and products, but also addresses customer roles and skills in the value creation process.
  • Questions existing business models , breaks away from “taken-for-granted” assumptions about competition, industries and their intra- and inter-organizational ways of working and deviates from the dominant industry recipe Reshapes existing markets by changing the nature of competition , looks across conventionally defined boundaries of competition, discovers uncontested market spaces and seeks radically superior value, which will render competition irrelevant Strives, not for marginal or incremental improvements, but for quantum leaps in value , includes innovating customers by increasingly considering business opportunities from the value-in-use and value co-creation perspective, and is therefore not restricted to new services and products, but also addresses customer roles and skills in the value creation process.
  • Questions existing business models , breaks away from “taken-for-granted” assumptions about competition, industries and their intra- and inter-organizational ways of working and deviates from the dominant industry recipe Reshapes existing markets by changing the nature of competition , looks across conventionally defined boundaries of competition, discovers uncontested market spaces and seeks radically superior value, which will render competition irrelevant Strives, not for marginal or incremental improvements, but for quantum leaps in value , includes innovating customers by increasingly considering business opportunities from the value-in-use and value co-creation perspective, and is therefore not restricted to new services and products, but also addresses customer roles and skills in the value creation process.
  • Questions existing business models , breaks away from “taken-for-granted” assumptions about competition, industries and their intra- and inter-organizational ways of working and deviates from the dominant industry recipe Reshapes existing markets by changing the nature of competition , looks across conventionally defined boundaries of competition, discovers uncontested market spaces and seeks radically superior value, which will render competition irrelevant Strives, not for marginal or incremental improvements, but for quantum leaps in value , includes innovating customers by increasingly considering business opportunities from the value-in-use and value co-creation perspective, and is therefore not restricted to new services and products, but also addresses customer roles and skills in the value creation process.
  • What do customers value?, What are the most important customer value dimensions today and in the future?, How well (poorly) are we doing in delivering the value that customers want?, and Why are we doing poorly (well) on important value dimensions? How do individuals and groups participate in the perceptions of social reality about electricity?, What traditions are relevant for electricity consumption and efficiency?, How can the traditions facilitate or limit value innovation?, and Why do customers behave as they do?.
  • Karlstad 2011-10-26-final

    1. 1. Value Innovation in Electricity UtilitiesHeiko Gebauer, Hagen Worch & Bernhard TrufferDepartment Innovation Research in Utility Sectors (Cirus)Eawag: Swiss Federal Institute of Aquatic Science and TechnologyKarlstad University (Sweden)Seminar in Karlstad, October 26-27 2011
    2. 2. Changing environment for electricityutilitiesCustomer• Renewable energies• Smart grid & smart meters• Electric cars• Market liberalization• Sustainability• Social networksSource: Picture are free-licensed by Gettyimages
    3. 3. Empirical example «RWE» (national provider)• German company• Founded in 1898 in Essen• Revenue € 53.32 billion• Profit €3.57 billion• Owner of 5 nuclear power plants (2in dismantling, 1 stopped generation)• Owner of several other coal-firingpower plants and natural gas powerplants• Attends private and businesscustomers• Energy mix (2009) consists of:fossil fuels 79%nuclear power 18%renewable energies 3%Key factsPower generation,sales and marketing;distributionNew business fields like «intelligenthome» solutions, support for electric drivencars (e-cars) (pioneer role in Germany),support around solar affairsCustomer service such asinformation; self servicesAdvanced services such as supportprograms for heat pumps and newlydeveloped natural gas heatings
    4. 4. Empirical example «YelloStrom» costleadershipGeneration by EnBWpower plants andpurchasing from themarket; distribution &salesCustomer service self-service;informationKey facts• Founded in 1999• 100% of stacks are hold byEnBW• Revenue € 735 million• Started with 100,000 customers• In 2010 1,1 million customers• Purchases current from EnBWpower plants and at currentmarket• Supplier of electricity andcurrent near services• Low-price-policy, verysuccessful• Attends private and businesscustomers• Energy mix (2009) consists of:• fossil fuels 29%• nuclear power 47%• renewable energies 24%Advanced services as solar support,online electricity meter
    5. 5. Empirical example “Municipality Munich” (local)• municpial energy provider; 100% ofstocks are hold by city of Munich• founded in 1998• revenue 3.766 million €• owns 3 combined heat and powerplants and 11 hydro-electric powerplants and drives 10 baths withinMunich; geothermic power plant• engaged in several solar projects inAndalusia• attends to private and businesscustomers• the energy mix (2010):• fossil fuels 76,8 %• nuclear power 0%• renewable energies 23,2 %Key factsGeneration;distribution of current,gas and internet;salesNew business fields: Participant inmodel project for e-cars and e-bikesCustomer service: internetbill paying, informationAdvanced services: online meter,100% renewable energies
    6. 6. Newness to the customerIncrementalinnovations• Generating, distributing, and selling electricitywith few customer service as an add-ons• Generating, distributing, and selling electricity• Extended service offerings, includingcustomer service, basic & advanced servicesfor energy efficiency• Exploration of new business opportunitiesemerging through new technologiesExternal environmentValue innovationopportunitiesPosition in value chain• Liberalisation of electricity markets• Strong environmental concerns surroundingrenewable energy and energy efficiency• Diffusion of new technologies such as smartmetering, smart grid, ICT, and electric mobilityNewness to the electricityutilityLow HighLowHighRadical innovationsValue innovation•Fundamentalreconceptualisation of thebusiness model,•Reshaping of existingmarkets, and•Dramatic value improvementsfor customers.• Regulated electricity markets• Little environmental concerns aroundrenewable energy and energy efficiencyOur conceptual framework combinesfollowing key constructs
    7. 7. Our conceptual framework combinesfollowing key constructsPotential absorptivecapacity•Knowledge acquisition•Knowledge assimilationDegree of realized absorptivecapacityTransforming and exploiting theknowledge into differentdegrees of value innovation•Fundamental re-conceptualization of thebusiness model•Reshaping of existing markets•Dramatic value improvementsfor customersContext (moderator) variables•Organizational form•Strategy & strategic behavior•Network position and behaviorP2P1P2Proposition 1: By mediating the relationship potential and realized absorptive capacity,combinative capabilities determine the degree of realized absorptive capacity for valueinnovationsProposition 2: Contextual variables either strengthen or weaken the mediating effectsIndependent variable Dependent variableCombinative capabilities•Coordination capabilities•System capabilities•Socializing capabilitiesMediator variableP1LowHigh
    8. 8. Nature and type of value innovation ischaracterized by three different components• Questions existing business models, breaks away from “taken-for-granted” assumptions about competition, industries and their intra- and inter-organizational ways of working and deviates from the dominant industryrecipe• Reshapes existing markets by changing the nature of competition,looks across conventionally defined boundaries of competition, discoversuncontested market spaces and seeks radically superior value, which willrender competition irrelevant• Strives, not for marginal or incremental improvements, but for quantumleaps in value, includes innovating customers by increasingly consideringbusiness opportunities from the value-in-use and value co-creationperspective, and is therefore not restricted to new services and products, butalso addresses customer roles and skills in the value creation process.Sources: Kim and Mauborgne, 1999; Matthyssens, Vandendempt and Berghman, 2006; Christensen et al., 2002; Hamel, 1998;Markides, 1998, Vargo and Lusch, 2004
    9. 9. Value innovations require absorptive capacityAbsorptive capacity ...... firm’s ability to recognize the value of new information, assimilate it, and apply itto commercial ends... consists of two components: potential absorptive capacity and realizedabsorptive capacity• Potential absorptive capacity - knowledge acquisition andassimilation, which refer to a firm’s capacity to identify and acquireexternally generated knowledge.• Realized absorptive capacity encapsulates the firm’s capacity to transformand exploit the knowledge for commercial purposes (knowledgetransformation and exploitation).Source: Cohen and Levinthal, 1990; Zahra and George, 2002
    10. 10. Absorptive capacity co-evolves withcombinative capabilitiesAbsorptive capacity ...… depends on past and cumulative experiences… is not static, but rather co-evolves through combinative capabilities• Coordination capabilities enhance knowledge exchange acrossdisciplinary and hierarchical boundaries (e.g., cross-functional interfaces,participation in decision-processes, and job rotation)• System capabilities refer to the organizational and individual knowledge(e.g. the formalization and routinization of organizational actions).• Socialization capabilities capture aspects of social relations (e.g. thedensity of social linkages (structural aspect) and shared social experience(cognitive aspects) in an organization, and between the organization and itscustomers)Sources: Bosch, Volberda and Boer, 1999; Jansen, Bosch and Volberda, 2005; Kogut and Zander, 1992.
    11. 11. Context variables interact with co-evolvementAbsorptive capacity and value innovation linkage ...… is moderated by contextual variables• Organizational form• Strategy & strategic behavior• Network position & behaviorSources: Lane, Koka and Pathak, 2006; Lichtenthaler, 2009; Tsai, 2001
    12. 12. Our conceptual framework has been appliedto diametrical case studiesCharacteristics Alpha BetaStrategic innovation • Limited (Low degree ofstrategic innovation)• Comprehensive (High degree ofstrategic innovation)Examples • Few information and consultingservices for supportinghouseholds and industry in orderto reduce electricity consumption• Service provision for photovoltaic,services for planning, financing, andrunning fleets of electric cars, consultingand monitoring services for reducingelectricity consumptionBusiness model &value constellation• Substantiating existingbusiness model on sellingelectricity• Exploiting existing valueconstellation of providingelectricity at reasonable prices• Changing the business model from sellingelectricity to benefiting from customerproducing renewable energies• Changing the business model form sellingto electricity to benefiting from customerselectricity reductions• Exploring new value constellations inexisting markets and uncontestedmarket spacesMarkets • Exploiting the existing market • Opening up new markets surroundingrenewable energies, electric mobility andself-service technologies for monitoring andreducing electricity consumptionValueimprovement• Incremental valueimprovement• Leap in value improvement
    13. 13. Contextual variables show strongmoderating effectsPotential absorptivecapacity•Knowledge acquisition•Knowledge assimilationDegree of realizedabsorptive capacityfor value innovationIndependent variable Dependent variableStrengthening (Beta)•Late Follower & observant behavior•Little centrality in the knowledgenetwork position•Participating in the knowledgeexchange, information channeling anddistributing within the knowledge networkLowHighWeakening (Alpha)•First mover & proactive behavior•Highly central position in the knowledgenetwork•Dominating information channeling anddistributing in the knowledge network
    14. 14. Combinative capabilities mediate thepotential and realized absorptive capacity (1)Potential absorptivecapacity•Knowledge acquisition•Knowledge assimilationDegree of realizedabsorptive capacityfor value innovationIndependent variable Dependent variableMediator variableLow (Alpha)•Knowledge acquisition and assimilation was merely a reaction to occurringcustomer needs•Socialization tactics aimed at understanding customer needs and expectations•Connectedness focuses mainly on the relationship with existing customers•Knowledge sources overlap substantially and are highly complementary•Relatively fast learning processes throughout the knowledge acquisition andassimilation processes•Highly formalized of knowledge acquisition and assimilation with respect tocustomer needs and expectationsLow
    15. 15. Combinative capabilities mediate the potentialand realized absorptive capacity (2)Potential absorptivecapacity•Knowledge acquisition•Knowledge assimilationDegree of realizedabsorptive capacityfor value innovationIndependent variable Dependent variableMediator variableHigh (Beta)•Deliberate knowledge acquisition with respect to trends in various technologicaland psychological fields•Specific coordination capabilities for integrating the different knowledgesources•Anticipation of new value opportunities emerging through a combination of sociallyconstructed experiences surrounding electricity consumption, technologicaldevelopments and legal changes•Socialization of an in-depth understanding of how customers perceive the socialconstruction surrounding electricity consumption•Beta’s knowledge source exhibits little overlap and yields few complementarities•Relatively slow learning processes throughout the knowledge acquisition andassimilation processes•Informal routines and processes of knowledge assimilationHigh
    16. 16. Following similarities and differences wereobserved in the contextual variablesAlpha’s low degree of valueinnovationBeta’s high degree of valueinnovationSimilarities•Alpha and Beta have formed a matrix organizationDifferencesAlpha•First mover•Proactive behavior•Highly central position in the knowledgenetwork•Dominating information channeling anddistributing in the knowledge networkBeta•Follower•Reactive behavior•Little centrality in the knowledge networkposition•Participating in the knowledge exchange,information channeling and distributingwithin the knowledge network
    17. 17. Following similarities and differences wereobserved in the potential absorptive capacityAlpha’s low degree of value innovation Beta’s high degree of value innovationSimilarities−Assessing external knowledge sources−Past experiencesDifferencesAlpha•Knowledge acquisition and assimilation was merely areaction to occurring customer needs•Socialization tactics aimed at understandingcustomer needs and expectations•Connectedness focuses mainly on the relationshipwith existing customers•Knowledge sources overlap substantially and arehighly complementary•Relatively fast learning processes throughout theknowledge acquisition and assimilation processes•Highly formalized of knowledge acquisition andassimilation with respect to customer needs andexpectationsBeta•Deliberate knowledge acquisition with respect totrends in various technological andpsychological fields•Specific coordination capabilities forintegrating the different knowledge sources•Anticipation of new value opportunities emergingthrough a combination of socially constructedexperiences surrounding electricity consumption,technological developments and legal changes•Socialization of an in-depth understanding of howcustomers perceive the social constructionsurrounding electricity consumption•Beta’s knowledge source exhibits little overlapand yields few complementarities•Relatively slow learning processes throughout theknowledge acquisition and assimilation processes•Informal routines and processes of knowledgeassimilation
    18. 18. Following similarities and differences wereobserved in the realized absorptive capacityAlpha’s low degree of value innovation Beta’s high degree of value innovationSimilarities−Promoting mutual understanding and comprehension of value-creation opportunities−Convergence on the political intentionsDifferencesAlpha•Limited variety in cognitive structures oforganizational members•Conventional managerial thinking is thedominant mind-set•Organizational members exhibit minimal role &gender diversity•Looking for certainty in exploiting knowledge forcommercial purposes•Coordination, systematization, and socializationcapabilities enables the transformation andexploitation of knowledge through the conceptionof planned strategy•Planned strategy restricts managerialcognition in using incremental value innovationsfor increasing the general quality of customerrelationshipsBeta•Strong variety in cognitive structures oforganizational members•Entrepreneurial thinking is the dominant mind-set•Organizational members exhibit high role &gender diversity•Allowing uncertainty to emerge with respect toknowledge exploitation achieves commercial ends•Coordination, systematization, and socializationcapabilities enables transformation and exploitationof knowledge through the conception of anumbrella strategy•Strategic directions and scenarios inherent in theumbrella strategy facilitate managerialcognition of leaps in value innovation, uncontestedmarket spaces, and new value constellations
    19. 19. Based on the findings, we can draw followingtheoretical implicationsGeneral theoretical implications Specific theoretical contributions• We depart from the existingpreoccupation with analyzingabsorptive capacity and directinnovation outcomes.• Absorptive capacity andcombinative capabilitiescontributes to a betterunderstanding of valueinnovation processes• “… a richer, even morebehaviorally groundedcharacterization …” (Cohen andLevinthal, 1997, p. 1468)• Changes in the level of realized absorptive capacitycannot be attributed to a single combinativecapability, but through complex interactions(coordination, system, and socialization capabilitiesand absorptive capacity)• Positive associations: interfaces with diverseset-of external and internal knowledge sources, forroutines for knowledge sharing, comprehensivelyunderstanding consumer psychology, and gender& behavioral diversity• Negative associations: hierarchical andcentralized decision-making authority• Contextual variables: Strategy & strategic behavioris counter-intuitive, dominant network behavior &position limits absorptive capacity, organizationalform has no impact
    20. 20. Our study offers managerial guidance forvalue innovations, but also entails limitationsManagerial guidance Limitations Evaluation the appropriatenessof value innovation initiatives. Assessment of how knowledgeis acquired, and assimilated, Managers should be also aware ofthe limitations of the first-moverstrategy, and be more observantof their network position andbehavior Generalization remains unclear, even thoughthis new mode of analysis seems promising. Qualitative measures to capture the differentdegrees of value innovation and realizedabsorptive capacity Latest advances on the subject of absorptivecapacities: Process-based definition of absorptivecapacity and identifies technological andmarket knowledge. Exploratory, transformative, andexploitative learning process are keyissues in absorptive capacity and influencepositively firm performance.Sources: Lane et al. (2006); Lichtentaler (2009)
    21. 21. Thank you very much for your attention
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