Aligning strategy, planning, risk, people and technology is key for businesses to adapt to and survive in today’s disruptive world.
Disrupt your planning before your business gets disrupted
Any conversation around energy today is going to be intertwined with the geopolitical crisis in eastern Europe. Prime Minister Justin Trudeau's recent announcement to ban the importation of Russian oil, and international allies exploring whether to follow suit in response to the conflict, could contribute to creating a global deficit, reinforcing the stance that Canada should become more self-sufficient and strengthen its role in North American and European energy security. Any energy business looking to thrive now requires the kind of agility that only next-generation scenario planning and fully integrated risk management approaches can provide. That said, even the best strategic frameworks require the right supporting culture and technology enablement to make an impact. This is key.
Why must strategy, culture and technology go hand in hand?
Change is coming too rapidly for energy organizations to adapt if strategy, planning, risk, people and technology are not seamlessly aligned. The wider energy transition is expected to drive up renewable generation by more than 60% between now and 2026.
Important: this massive shift is unfolding in a broader environment that’s being simultaneously shaped — and reshaped — by a multitude of drivers: Public policy — from carbon pricing to incentives for clean energy alternatives — and stakeholder expectations around environmental, social and governance (ESG) issues are sending shockwaves across the energy sector. In fact, 72% of investors say they’d conduct a structured evaluation of non-financial disclosures. That’s up 32% since 2018.
Commodity pricing continues to be volatile, heightened by recent geopolitical events. On the one hand, supply constraints caused an average energy price increase of 80% in 2021 alone. On the other hand, the price increase in metals is driving down the affordability of the energy transition itself, given solar photovoltaics, batteries and wind materials are in greater demand.
Cyber criminals are increasingly exploiting our need for energy access. We saw a dramatic uptick in phishing and other attacks over the last two years, making cybersecurity a major concern. By the numbers, cyber crime is expected to cost the global economy $10.5 trillion a year by 2025.
Talent is harder to come by and focused on new priorities. By 2030, employers across all sectors will face a global talent shortage of 85 million people. That reality could result in $8.5 trillion in unrealized annual revenues. What’s more, those in the workforce are looking for greater flexibility and resources in a post-pandemic world. Some 54% of employees are prepared to quit if they aren’t provided with flexibility at work, and 48% want updated at-home equipment and support. This is creating new challenges for energy organizations to address as they seek to recruit and retain top talent.
While these drivers are by no means exhaustive, navigating this magnitude of change and uncertainty requires a planning approach that’s grounded in meaningful input from across your organization and bolstered by tech-enabled tools that allow folks to adapt and innovate in real-time. The question is: how do you refresh planning to connect these pillars in today’s uncertain world?
1. Start by embedding flexibility at the heart of your planning process.
The market isn’t linear. That means it’s no longer enough to plan from point A to B, without considering the increasingly real possibility that C could pop up unexpectedly anywhere in between. To cultivate built-in flexibility, the best strategic planning approach will now seek to include a broader range of scenarios that help stress-test strategies than ever before.
At a recent EY webinar, we heard how the Ontario-based utility Hydro One has embraced this approach, building utility-grade and tailored scenarios for executive teams and the business to unpack. The goal isn’t to remove scenarios, but rather to understand the full breadth and depth of uncertainties that may be coming, brought to life through scenarios. Teams at the Canadian oil and gas company Suncor Energy also shared that this kind of scenario planning has allowed them to identify risks and opportunities within their portfolio and transform those areas of interest into competitive advantages on priorities such as carbon capture, clean hydrogen and renewable fuels. Creating more flexible planning doesn’t just build resilience; it opens up new opportunities.
2. Expand mental models by fostering diverse perspectives at every planning stage.
Inclusive scenario planning gains additional bench strength when informed by a broader group at every stage of the planning process. Divergent thinking boosts your planning with additional muscle to flex in the face of changing circumstances and context. We’re already seeing this at non-destructive excavation services North American giant Badger Daylighting, where leaders emphasize the importance of balancing macro and micro drivers in scenario planning. By focusing on and seeking to understand the interconnectedness of decisions being made across the organization, Badger is building broader resilience.
A more inclusive approach like this may require you to dismantle operational silos. It could also mean inviting non-traditional leaders and employees to inform strategic conversations. From customers to designers, accountants to engineers, scientists to business analysts: casting a wider net throughout planning can unleash new business potential.
3. Integrate strategic planning and risk management initiatives.
The pandemic accelerated organizational understanding of risk management. Over the last two years, chief risk officers have become increasingly better integrated beyond the C-suite and across operations. Building on that momentum to extend risk management’s reach and create a sustainable focus on priority risks not only bolsters strategic and scenario planning processes. It also enables your people with a stronger ability to protect the business and helps you identify potential opportunities. A lot of good can come from joining up the scenarios and risks you plan for through a more seamless strategy.
4. Ground efforts in tech-enabled data to innovate continuously.
Investing in the right data infrastructure and technology empowers scenarios with always-on intel, important signposts for what could be coming next. Artificial intelligence (AI) and machine learning can grow your ability to derive more sophisticated risk and opportunity insights from vast amounts of data. So much so that 84% of CEOs and business leaders now consider AI essential to their companies’ success.
We’re already seeing energy companies in Canada make the most of these opportunities. In fact, Hydro One credits its data-driven approach to strategic planning as key to understanding trends and forecasting shifts that fuel innovation and new customer benefits. Meanwhile, at Suncor Energy, leaders are deploying AI to take the pulse of customers more frequently and understand how people relate to different external factors and events. They use that intelligence to position current and future products that are laser-focused on the evolving needs of their customer base.
We’re operating in a world where change that once took shape over years now happens in a matter of months. Charting a path forward, seeing what’s coming and adapting for the better requires the kind of data that leading tech platforms and tools can surface anywhere, any time. This is how you balance operational excellence with the necessary need to innovate continuously.
People at centre. Technology at speed. Innovation at scale.
Culture has always eaten strategy for breakfast. Changing fundamental behaviours in your organization today — and enabling those efforts with a solid tech infrastructure — can help revive your business in a very uncertain world. Now’s the time to bridge the way you plan with the knowledge your people bring and the technology your teams require to help the business disrupt itself — before it gets disrupted.
Authored by Lance Mortlock (EY Canada Managing Partner, Energy & Haskayne School of Business Visiting Professor).