A world of constant change is a given in today’s business environment. DONG Energy has been going through a profound transformation over the past decade. Our Senior Vice President shares his experience from DONG Energy’s change from black to green energy.
On 1 July 2006, ten years ago, DONG Energy was established as the result of a merger of six Danish energy companies. At that time, we were predominantly a Danish utility company and one of the most coal-intensive of its kind in Europe. 85 per cent of our heat and power came from black energy, mainly coal, the remaining 15 per cent was green.
Over the past decade, the European energy industry has undergone tremendous change, and we have changed a lot. Today more than half of our power and heat is green.
Our SVP of Corporate Strategy & Stakeholder Relations, Jakob Askou Bøss, has been part of this exciting journey since 2004. We asked him to share his five key observations on how to navigate disruptive industrial change.
Ten years ago, we were almost completely dependent on black energy fossil fuels. Today, we produce more green than black heat and power.
#1 Understand the threats
Map and understand the disruptive forces that your core business is facing. Determine how they will affect your ability to create value in the future. Do not assume that change will be slow. To DONG Energy, the liberalisation of the European energy markets, the move away from coal and the build-out of renewables were threats to the existing business model, but they also presented vast opportunities. In four years, from 2008 to 2012, DONG Energy lost two-thirds of operating income from its core business, but managed to more than offset this decline by growing new business.
#2 Align with fundamental trends
Are you aligned with key societal trends five, ten or fifteen years down the road? These trends may not be at the core of today’s society. However, over time they are likely to move to the core because investors, regulators, employees and other stakeholders care about them. Today, DONG Energy is among the global leaders in renewable energy, but ten years ago, DONG Energy’s core business was fossil energy. In our current world, it seems obvious that you have to act on climate change - also if you are an energy company. Ten years ago, it did not.
#3 Develop options and reallocate resources
If your organisation has competences and prototypes that you can nurture and grow, it is much easier to take advantage of business opportunities that emerge from disruptive change. In the course of disruptive change, you must be willing to shift resources from your core activities to emerging growth options. To align your organisation and ensure progress, you need to manage and drive the growth of your options through clear objectives. Ten years ago, DONG Energy had a couple of offshore wind projects in its business plan. With the decision in 2009 to significantly increase investments in offshore wind, the foundation was laid for shifting wind power from a sideline to core business.
Today, we have built enough offshore wind to power 7.5 million people with clean energy. By 2020, it will be 17 million.
#4 Understand your risks
The business you know today will often appear to represent lower risk than what is new. Our brains are simply programmed to hold on to what is familiar, and we tend to find arguments that support the status quo. You need to go beyond this human bias and invest time and resources in understanding your new risks to make them more tangible and to also prepare mitigation actions. In our case, it might have seemed safer to stick with the proven coal technology than to turn to offshore wind, which was an immature technology ten years ago. Today, we have built more than one-third of all offshore wind farms in the world. And we have more than 500 engineers who are world-leading experts in all aspects of an offshore wind farm.
#5 Lead by making sense
Transforming from a business you know well into a business that is emerging takes a lot of courage. It also requires a lot of sense-making to bring the organisation along. You need to help the organisation to make sense of the journey you are on. People want to understand why they need to change and what they are changing to. You have to tell a clear, compelling and bold story, so that everyone understands that something is at stake. Make sure that the purpose is clear, so that the change required makes sense to people.
If green energy becomes cheaper than black, the world will run on green energy. Our goal is to make offshore wind cheaper than black energy within the next decade.