MIT Sloan Management Review

Corporate Strategy

 

Value Networks — The Future of the U.S. Electric Utility Industry

By Michael Weiner, Nitin Nohria, Amanda Hickman and Huard Smith

July 15, 1997

Electric utility companies will have to reinvent themselves to change from vertical to “virtual” integration based on value networks segmented into six areas: generation, transmission, distribution, energy services, power markets, and IT products and services.

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The $250 billion U.S. electric power industry is in the midst of historic transformation. The industry structure of the past — vertically integrated utilities operating in protected geographic markets — will soon go the way of the gas lamp. Participants in the future electric power marketplace will have more diverse corporate structures and product offerings. Some will operate in narrow niches, and others, across state and even national geographic boundaries. All will focus on specific areas of competence and, as a result, may be forced to invest in a narrow range of assets and earn a return for their investors in a broad range of ways.

In this article, we outline a new structure for the U.S. electric utility industry. We discuss the factors that will likely lead the industry to fragment into a wide range of service providers in an expanded business. These disparate segments will be linked to serve customers through three emerging types of “value networks” rather than through integrated providers. The first value network will be based on regulated boundaries. The second will be based on linkages created by “virtual” utilities — firms that supply energy services but no longer own all the assets necessary to supply these services. The third will be based on customer-initiated linkages. As a result of these three new networks, customers themselves will be able to... To read the complete article, login or sign-up using the form below.

 
 

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