How to strengthen Open Innovation between utilities and SMEs?

Re-aligning utilities and SMEs around value to guarantee the upscale of open-innovation projects.

The painful yet epic split

Whether you call it a dance with the elephants or open-innovation, the future of energy utilities and water utilities is increasingly inspired by innovative SMEs.

Large companies are interested in trends and SMEs deliver the advantage of being able to respond to them very quickly.

Working with SMEs takes utilities innovation, R&D and asset management teams out of their comfort zone yet has become a necessity to improve productivity and competitiveness. They need to creatively adapt to their entrepreneurial practices, pace and business models.

SMEs, on the other hand, seem to easily find pilots in the energy and water sectors to prove their technical concept. Proving commercial viability across one or several enterprise functions and, as a result, “upscaling” proves to be a lot more challenging. For them, it feels like doing the split between two worlds that do not operate in the same way.

There is a proven way to realign everyone and ensure both sides develop long-term relationships: working on financially quantified value propositions from day one will reduce the stretch pain.

Why should SMEs focus on value creation?

Caption: Not everyone likes Norwegian buns. I do! (Image rights: Agily3 Ltd)

First, let’s state the obvious: utilities’ decision-makers buy products and services, they are people, not companies. People who work collaboratively to come up with decisions. People who buy features but what matters is the benefits they derive from them. The notion of “value” – which includes price - can vary dramatically from a Board Member to a Chief Technical Officer.

Building a good value proposition is not a new marketing concept yet only 5% of all companies have developed a quantified value proposition (Mc Kinsey).

Most companies face difficulties when developing them and using value propositions profitably (Prof McDonald, Grant Oliver). A strong value proposition enables utilities procurement managers to do their job properly: comparing and evaluating offers from suppliers, in monetary terms.

There is therefore scope for most of us to work on differentiation from competitors!

There are 3 ways in which monetary value can be created:

  1. By delivering value such as revenue gain, productivity increase, speed of operations or delivery, etc.
  2. Reducing cost or risk materialising
  3. Avoiding cost or risk materialising.

For the past 20 years, Cranfield Best Practice Research Club has been monitoring how the customer buys: the procurement methods, “must-have” vendor selection criteria of B2B companies and the procurement professionals purchasing matrix to name a few.

The research findings inspired innovation in marketing with financially Quantified Value Propositions prepared for key accounts – e.g. utilities - delivering vendors the following benefits:

  • Close more deals, between 2% and 10%
  • Reduce discounting by up to 30% and win bigger deals, up to 30%
  • Improve marketing campaign effectiveness
  • Develop lasting relationships.

Six steps towards customer value creation

Like all corporates, large utilities buy on well-documented business cases addressing the corporate objectives. Unfortunately, some SMEs only unveil the value that is expected from their innovation after it is too late.

Ideally, this is what they should do – and be able to do - up front and before investing into a pilot:

  1. Define the target market they are in. Check the utility strategic objectives.
  2. Identify the buying process and decision makers.
  3. Understand who will most benefit from the innovation? and how?
  4. Discover the decision makers’ needs and how do they define and measure value.
  5. Assess how each decision maker measures value: in € or £ saved, in time, in revenue generated or else.

How can utilities help startups understand their needs?

Times are changing and I noticed a lot of efforts from utilities, smaller SMEs and the regulators for innovation collaboration to be fully integrated much earlier in the process.

To ensure a larger proportion of projects upscale, i can think of a number of scouting activities for utilities to consider:

  • Highlight upfront how the project connects with the corporate objectives and the derived innovation needs.
  • Pinpoint early in the process what is the decision making process, who the decision makers are – inside or outside the company* -, who will benefit most, the problem they wish to resolve, the value they seek and how they will measure the value?
  • Map the innovation stage-gates but also the further procurement processes and especially if it is SMEs friendly.
  • Propose solutions for SMEs participate in large tenders and perhaps facilitate some sort of matchmaking.
  • Clarify the intellectual property (IP) ownership.
  • Confirm if you can work with their business model and how e.g. SaaS focusing on “access” over “ownership”. A phenomenon currently trending in business (Subscribed, Tien Tzuo).

In addition, to get the value propositions “double-benefit” consider “Customer Immersion”: one of the corporate game-changers recently highlighted by NESTA and Mind the Bridge as one of five European open-innovation mechanisms. Customer immersion helps not only startups test, improve and promote their product or value proposition but also corporates understand what customers value.

Finally, understanding where the SME “is at” in the enterprise journey is critical, since a contract will have a huge impact on their cash flow and operations. It is essential to anticipate the growth needs and to manage expectations:

  • Is it a startup looking for a pilot to prove its technical concept, a small business seeking a big project to prove its commercial concept and display a reference client, an SME upscaling or a well-established business with regular revenue streams?
  • Does it need funding as well as revenue?
  • Is business support required?
  • What else is required to accompany the enterprise growth?

Utilities and SMEs have many reasons to rally around the concept of quantified value propositions since it will accelerate the innovation process: pilots will more easily hop the innovation gates and cross the go-to-market chasm to deliver solutions to strategic challenges across several functions or business units (BUs) of the enterprise. Ultimately, focusing on value will also secure lasting corporate and startup collaboration.

About the author

Virginie Vinel MCIM helps energy and water utilities as well as semiconductor corporates and SMEs in their supply chain transform to achieve higher performance. Since 2016 she is a Board Director of the UK Future Water Association and an innovation coach for the European Commission Horizon2020 SME Instrument programme sharing her 25-year practitioner's and Director experience on both sides of the innovation chasm. To date, she has coached or advised more than 50 small businesses and mid-size businesses to build go-to-market strategies backed by strong value propositions and bridge the gap between the corporate and small business world.

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