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Change report

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UtILIty WEEK | 16th - 22nD JAnUAry 2015 | 15 The 'OODa loop', which has its origins in the US air Force, provides compa- nies with a strategy for understanding how they can move quickly to gain advantage over com- petitors even as the field of engagement is in flux. 1. OBSERvE This is crucial: if companies do not observe, they cannot act. 2. ORiENT This is the area where there is the greatest danger of misjudgment. 3. DECiDE The right decision will be determined by suc- cessful orientation. 4. aCT Swift action is essential. without speed, companies cannot be agile even if they complete the first three stages of OODa successfully. T here are some big changes coming in most areas of utilities. The question is: are we going to see the same pat- tern of behaviour that we saw in the global financial crisis, where one-third of compa- nies orient themselves correctly to the scale of the change and the opportunities that it throws out, and two-thirds have a passive defensive approach to it and end up doing worse as a result? This is particularly pertinent to the water industry this year, with the intro- duction of retail competition for non-domestic cus- tomers. The major- ity of companies are saying "we will wait and see, and make our strategy in a year or two when we know what's out there". Then a few of companies are going out there and beginning to move and shake. Companies need to decide if they're going to be in the market, in which case they need to boldly go for it; and if they're not going to be in the market, they need to get on with a good exit and use the money they raise to develop other parts of the business. On the energy side, companies are exhib- iting very different risk appetites in the face on uncertainty: some are withdrawing from risky investments while others are taking a bold stance that those investments will in time provide attractive returns. Nuclear energy is one example of an investment that is expensive and long term, and we are seeing many countries re-examining their nuclear power strategy. In the UK, we see companies facing the CMA inquiry and the potential looming threat of the Labour government wanting to impose a price freeze on companies. Should they sit back and wait or take more active steps now? Our research indicates the latter. Mark Thomas is a strategy and marketing expert at PA Consulting Two-thirds of respondents saw the crisis as a threat and sought solely to ride it out. This represents a massive opportu- nity for those with a more positive approach, who have the chance to build market share and acquire former competitors. The Pa Managing Uncertainty survey highlights a number of winning strate- gies. The most impor- tant finding relates to overall mindset: around two-thirds of companies saw the crisis as a time of threat, and planned defensively; one- third saw it as a time of opportunity. The second group had a far higher total shareholder return than the former. The key tactics that enabled companies with a positive approach to outperform their rivals were: better planning; better management; and bold strategic moves, such as acquiring new busi- nesses. Viewpoint The OODA loop "waTER FiRMS NEED TO DECiDE iF THEY'RE gOiNg TO BE iN THE MaRkET, iN wHiCH CaSE THEY NEED TO BOLDLY gO FOR iT" "We've changed the busi- ness culture to ensure em- ployees focus on our core responsibility – keeping the lights on." Basil Scarsella, chief executive of UKPn ● UtilityWeekLive www.utilityweek-keynote.com THREaT OR OPPORTUNiTY? S P E C I A L R E P O RT: PA RT 1 / JA N U A RY 2 0 1 5 You know big changes are coming, but should you act now or wait? Opportunity Neither threat nor opportunity Threat 1 to 5 (1 = strongly agree, 5 = strongly disagree) The highest-performing companies viewed the crisis as an opportunity rather than a threat Average TSR relative to sector 2007-10 10 5 0 -5 -10 Scenario planning delivers significant gains Average TSR relative to sector 2007-10 10 5 0 -5 -10 Focusing on leadership produces a strong TSR Average TSR relative to sector 2007-10 10 5 0 -5 -10 Acquiring companies is cor- related with good performance Average TSR relative to sector 2007-10 10 5 0 -5 -10 Selling businesses and assets in a crisis tends to reduce TSR Average TSR relative to sector 2007-10 10 5 0 -5 -10 Scenario planning a priority Scenario planning not a priority Significant focus on leadership Moderate focus on leadership Little or no focus on leadership 1 to 5 (1 = strongly agree, 5 = strongly disagree) 1 to 5 (1 = strongly agree, 5 = strongly disagree) Significant focus on acquiring business Moderate focus Little or no focus on acquiring business 1 to 5 (1 = strongly agree, 5 = strongly disagree) Significant selling Moderate selling Little or no selling 1 to 5 (1 = strongly agree, 5 = strongly disagree) In association with:

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