How long can new entrant energy companies maintain their growth?

by Paul Slater

Earlier this month a feature in This is Money, argued that the Competition and Market Authority’s proposals to shake up the ‘Big Six’ energy companies would not increase consumer engagement and would not break the stranglehold they have on nearly 90 per cent of the market.

This is Money article

The article was written by Ian McCaig, chief executive of Warwick-based First Utility, the seventh largest supplier of gas and electricity in the UK and one of the newer challenger utilities businesses.

While McCaig is clearly frustrated that the CMA is not going far enough, he and others in the ‘chasing pack’ are already making a big dent in this market.

 

Rapid growth from challenger companies – can they maintain it?

In June of this year, Utility Week reported that new entrants had climbed rapidly to gain 12.6 per cent of the UK market – this is a phenomenal growth from just 1 per cent in 2011 and 8 per cent a year ago. It is also against the backdrop that 40 per cent of the UK population have never switched suppliers and 70 per cent are still on the most expensive Big Six tariffs.

Congratulations to all these new energy companies!

However, we’ve seen that this rate of growth brings its own problems and all the challengers need to ensure they plan for growth – before it happens.

First Utility alone has doubled in size since 2013 – adding 760,000 customers in two years bringing it up to 1.5m customers.

 

Anticipate and plan for growth – don’t play catch-up

Bill Wilkins, CIO at the company, talks about their business model: “It is a complex business, as we rely on between 60 and 100 partners to operate.  We’ve become better at being a price leader; that means we have grown. Now we have to support a whole range of metering types.”

The examples he talks about in CIO demonstrate just how much First Utility has planned for growth and how widely they are innovating.  They have recruited four data scientists not just to capture information but inform the business.

“We built a competitiveness dashboard that analyses tariff positions of all market participants over time,” he added. “This allows us to identify regional opportunities on the consumer and purchasing side, make forward predictions based on weather forecasts, and see the effect of daylight savings time on our customers’ use of energy. A churn dashboard helps us identify which customers are leaving, from what tariffs and to which other suppliers – we can use this to learn and optimise.”

Clearly this planning is paying off for First Utility.   But are the other young entrants planning to this extent?

Bill Wilkins, CIO - First Utility

The areas to look at are the structures, processes and skills for the next level of growth and challenger companies should ask themselves

  • What would good look like?
  • Who is challenging (and supporting) the senior team?
  • Will they need a new operating model if they also double in size in two years?
  • Will today’s operating model scale up? Could it lead to the loss of potential opportunities – or even start to create circumstances where failure can occur?

For all these companies, they will need to ensure they deliver return on investment and manage shareholder expectation.  Especially where they have grown rapidly, investors inevitably expect the pattern to continue.

 

Seven steps to manage growth successfully

The challenger market is well positioned to continue growth – customers most often switch based on price, but they stay based on service.

But running a start-up business with 10 or 20 people is very different to one with 100 or 500 people.  There are steps that can be taken to enable rapid growth while avoiding the risk of a “mission critical” failure and the  resulting damage to reputation, customer experience and revenue.   The key elements are:

  • Develop an agreed management intent, clearly articulated in plain English, so all employees can understand where the business is going and the impact on their own areas
  • Identify the processes and capabilities (people and technology) that are “mission critical” to serve a growing customer base
  • Work out where and how these might fail under different, realistic growth scenarios, and what the impact would be on the customer base
  • Review and refresh the target operating model, challenging assumptions and beliefs that are grounded in the past
  • Redesign the processes so they can scale up quickly and safely, and enhance capabilities to avoid a big problem caused by rapid continued growth
  • Start making the changes in a controlled manner and continuously review the impact of these changes
  • Engage first class project and change management skills and equip all managers to lead change (you can’t delegate this!)

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

The energy market is full of opportunity.  The winners amongst the challengers will be those who not only attract new customers, but have the business structure in place to cope with rapid growth and maintain customer service.

We wish them luck in this rapidly changing market!

 

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net