Digital transformations in energy retail: A shift toward advanced platforms

Energy retailers face a pivotal moment. Energy supplies have been at risk in many markets, and prices have gone up. The economic environment has prompted retailers to seek ways of streamlining their operating models and reducing their cost to serve. Meanwhile, customer preferences are moving in favor of renewable energy and new services such as electric-vehicle charging. In response, many energy retailers have been looking for technology solutions that can help improve profitability and customer satisfaction, as outdated operating models and core technologies could be holding some organizations back.

One approach we’re seeing more of involves installing a new technology platform—that is, the underlying software to operate the business. This type of digital transformation is also known as replatforming. Retailers implement these new platforms either by partnering with a platform provider or developing the platforms in-house. In some cases, the retailer also implements a new operating model during the same process.

On the front end, the new platforms might offer customers more self-service options in an easy-to-use interface. On the back end, the platforms are often cloud based, highly scalable, and data driven. They can also help streamline certain processes, for example, linking customer contracts from various product lines or having core information on customer interactions from different systems readily available for agents.

Replatforming can be a complex process that often involves an overhaul of IT architectures, disruptions to certain day-to-day operations, and a culture shift within the organization. There are different approaches to replatforming, depending on the retailer’s current situation (for example, geographic market, product and service offerings, existing capabilities). Some approaches are more extensive than others and could include a revamp of the whole organization’s operating model. And the marketplace for energy retailers is moving at such a fast pace that such a transformation could feel daunting.

The rewards, however, could be significant. Based on our experience with various energy retailers who have already implemented new platforms, organi­zations have an opportunity to capture significant amounts of market share, improve customer satisfaction, and show profitability.

In this article we’ll explore the upside of replat­forming, markets where replatforming is having an impact, three approaches to replatforming that organizations can take, and key questions energy retailers should consider before embarking on a platform transformation.

The upside of replatforming

Based on our experience, companies that undergo successful replatforming transformations often see three key benefits.

Increased customer satisfaction. Organizations are able to offer higher service levels with significantly higher average speed of answer (ASA) to customer inquiries, improved digital self-service offerings, and more personalized interactions through easier access to customer data. We have seen customer satisfaction improvements of up to 300 percent in some cases.¹Measured on third-party platforms such as Trustpilot.

Decreased cost to serve. The new platforms can make customer operations more efficient for employees by, for example, making all required information directly accessible to the agent, including background from the customer’s previous interactions and a complete overview of the customer’s contract status. In some cases, we have seen a 50 percent decrease in cost to serve.

Increased speed to market for new products. Organizations have the flexibility to react to market developments and changing customer preferences by quickly incorporating new products and service offerings into the platform. We have seen a 50 percent improvement in time to market for new products.

Replatforming is already having an impact in many markets

Energy retailers operate in markets where regulators allow businesses to compete for gas and electricity customers—for example, in Australia, Germany, and the United Kingdom (in other markets, customers might purchase their energy from a single utility). In these competitive markets, particu­larly ones where energy prices have increased, platform transformations are often under way or in the planning stages. Some of these markets provide a glimpse of how new players have taken market share, and how being early to market with a new technology can potentially provide a competitive advantage.

Australia, Germany, and the United Kingdom are regions where many energy retailers are relatively ahead of the curve on replatforming, closely followed by markets such as France and Japan, where several incumbents are already planning larger replatforming efforts. A few regional examples include the following:

• United Kingdom. Retailers including E.ON, British Gas, and SSE have either partnered with platform providers or developed new platforms.²“E.ONnext – E.ON and Kraken Technologies form strategic partnership for E.ON’s UK residential and commercial customer business,” E.ON press release, March 23, 2020; Emma Lovell, “Centrica: Building a new British Gas with ENSEK,” ENSEK, April 26, 2022; “OVO and SSE: Questions about OVO Energy, SSE and Kaluza?” Kaluza, accessed November 16, 2022.
• Germany. Retailers including E.ON and EnBW have partnered with platform providers.³“References,” powercloud, accessed November 16, 2022.
• Australia. Major retailers have either switched to a new platform or are considering doing so.

Market disruption

One key observation we’ve made in certain markets is that a new player builds an advanced platform and then potentially enters the market as both a retailer and a software provider. The new player grows on multiple fronts: building a customer base with its retail business and selling its software to incumbents, which can run the technology off the new player’s platform. We’ve seen the following scenario play out in a few cases:

• New market entry. A new player enters the market with an advanced proprietary platform; the new platform builds an initial customer base.
• Scaling and first partnerships. The new player scales the platform and grows, often by acquiring smaller incumbent players or forming joint ventures. The new player offers initial partners exclusivity on the platform for a certain time frame.
• Other incumbents follow. After the initial period of exclusivity, other incumbents are invited to move to the platform.
• Necessity for survival. Remaining market players that haven’t moved to the new platform recognize that modernizing their platform could be needed to remain competitive.

This scenario shows that incumbents that are late to replatforming could not only lose market share but also have a more limited course of action. For example, late-coming incumbents might have to wait out the exclusivity period of the new player’s platform or explore an alternative platform provider that is potentially less advanced in its technology.

Based on these experiences, we believe it is key for incumbents to be ahead of the replatforming curve. Quick movers to replatforming could be setting themselves up for the following advantages:

• Accelerating future growth by reducing cost to serve—and potentially keeping prices more competitive for customers.
• Decreasing customer churn by improving customer service and experience relative to competitors’ outdated platforms.
• Improving strategic options by having the opportunity to partner with software providers during exclusivity periods.

The sooner a retailer starts to recognize develop­ments in the market, and consider a course for its platform, the better chance it will have of remaining competitive. In our experience, players that are early movers to replatforming end up having more time to strengthen both their platforms and their market positions than players that follow later.

Three common approaches to replatforming

We have seen, in our experience, three primary archetypes for replatforming transitions. Each approach comes with a set of potential advantages and considerations based on the retailer’s current platform and capabilities, geographic market, and product offerings.

• Selective transformation of some processes or technical capabilities. This approach improves certain aspects of the operating model and technology backbone but leaves in place functions that are already successful. For some companies, selective transformation is a predecessor to a more extensive replatforming process. For example, a German energy player opted for a selective transformation as a way to better integrate existing core elements (such as the product definition engine) with new technology capabilities for customer service operations. In this transformation case, the company saw considerable improvement in earnings before interest and taxes (EBIT) with relatively limited organizational effort.

• Platform replacement. This approach entails complete retirement of the current platform and migration to a new platform—in other words, the back-end technology is completely overhauled and modernized. In the German market, for example, some players have chosen platform replacement in scenarios where the core technology of a platform was the key factor holding back potential efficiency gains.
• A holistic transformation of technology, operating model, and organization. This approach requires not only platform replace­ment but also significant change to an organization’s entire operating model and, in some cases, its business (offering new products or more self-service options to customers, for example). Processes apart from customer service and operations, including HR and finance, could be transformed along with the technology. In such a case, an unprofitable incumbent that’s losing a significant amount of money every week might decide that a holistic transformation provides the best chance of returning to profitability. Multiple UK energy retailers have successfully conducted holistic transformations, which typically entail a platform redesign from scratch; significant changes to the operating model; a lean approach to support functions; a zero-based⁴For more on zero-based strategies, see Søren Fritzen, Matt Jochim, Carey Mignerey, and Mita Sen, “Zero-based productivity: The power of informed choices,” McKinsey, July 25, 2018. approach to the technology stack (getting rid of unnecessary legacy software, for example); and the intro­duction of a new company culture—one that is nimble and able to embrace change.

Recent cases tend to show that holistic replatforming transformations are more successful than platform replacements in delivering sustainable impact and driving overall value (for more on holistic transformations in the United Kingdom, see sidebar, “How one UK player executed a successful holistic transformation”). Platform replacement alone can require great effort to adapt existing business processes and may not maximize the full potential of a new technology. But platform replacement could suit an organization with limited appetite for change but a pressing need to overhaul outdated technology. A selective transformation is most narrow in scope but could be a viable option for an organization that’s limited in its funds or capabilities. While it’s true that the more extensive approaches (platform replacement, holistic) can be more difficult to execute, we find that over the long term a new platform—if done right—has a higher potential to deliver cost savings and an improved operating model.

All three archetypes likely require a significant change to existing IT architectures, day-to-day operations, and workplace culture. A digital transformation could take 12 to 24 months and might require reskilling talent, bringing on new tech talent, and working with agility. A transformation that’s not executed successfully could risk a loss of customers and employees, as well as damage to the brand.

Based on our experience, successful organizations ensure that a set of prerequisites is in place at the beginning of a transformation: these organizations typically establish a simple transformation governance structure to streamline decision making (appointing a single transformation leader, for example), adopt agile ways of working and anticipate fast iteration cycles, and set a standard for clear and transparent communication throughout the transformation.

Key questions for energy retailers to consider

Energy retailers that are looking to replatform could start the journey by exploring a set of key consider­ations. Retailers can work to understand the current state of their local market, with rigorous observation of the market players’ activities; decide which transformation approach would be most suitable; and build a solid implementation plan. The following questions can help to guide the decision for replatforming activities and ensure that the decision is not only technically driven but also business driven:

• For understanding the current state of the local market: To what degree have competitors begun replatforming? Have competitors made relevant technology acquisitions or partnerships? What are the risks of not undertaking a transformation in the current marketplace (for example, potential loss of customers to competitors)? Understanding the local market will help inform how quickly a company might want to move on a transformation and what partnerships with software providers are possible.
• For considering which replatforming approach is most suitable: Which archetype of transformation fits the company’s future goals? What is the current capability to execute a transformation? This decision could ultimately come down to the current financial pressure on the organization.
• For determining whether to “build or buy” a new platform: Which platform providers are available in the market? Which option is likely to deliver greater impact across the organization? One factor leaders can consider is the amount of tech debt the company has already incurred—that is, the work a company needs to do to update its IT landscape. A lower tech debt could indicate that an organization has a better starting position for building in-house, whereas a high tech debt might make a platform provider a more attractive option.
• For creating an implementation plan: How can the entire organization come on board and help carry out the transformation? What are critical factors that can guide the transformation? What are lessons learned from previous transfor­mation projects that can guide the next transformation? How does the organization ensure the transformation achieves value expectations? A starting point for an imple­mentation plan could include reaching out to an energy retailer in another geography that has successfully replatformed to better understand best practices and potential pitfalls.

Energy retailers in many markets face margin pressure, new customer demands, and increasingly stiff competition. Embarking on a platform transformation is one way retailers can stay ahead in the marketplace. Replatforming is a significant undertaking, but proactive players could be looking at increased customer satisfaction, a more efficient operating model, and more flexibility to change with the times.