Think at London Business School
Corporate agility is desirable but resilience might be the better goal if you want your organisation to survive turbulence on a grand scale
By Julian Birkinshaw, Stefan Stern
How Enel and Zensar Technologies moved to 100% digital businesses to foster innovation, empower their people and grow – and did it work?
The transformative impact of digital technology on industrial-age products and traditional service companies is still not well covered in research.
That is something we are keen to address and we are delighted that two of our most recent case studies published in the London Business School Case Collection feature companies whose stories – similar in some ways and very different in others – highlight what transformation means for established companies, especially when they have strong legacy positions in traditional industry sectors.
Former state-owned utility Enel has always taken a progressive approach to technology and innovation. It was one of the first utilities to try to reduce its reliance on hydrocarbons. In 2001, it installed smart meters in Italy, and it piloted the first smart grid to regulate the flow of energy from renewable resources in 2011.
Its renewable energy company, Enel Green Power (EGP), was set up in 2008 as a free-standing firm, with hydropower, wind, solar and geothermal plants currently installed in 23 countries.
In 2014, Enel appointed a new CEO, Francesco Starace. He had done an impressive job of building up the EGP business, of which he had been CEO since its inception. Over the next six years, as Enel Group CEO, he engineered an equally bold digital transformation programme, one that would infuse every aspect of the company and its operations.
It started with a survey of employees in 2015, asking them one simple question: How digital are you and what do you plan to do about it? The survey was, in Starace’s words, “an eye-opener for us”, revealing an inverse correlation between an employee’s position in the organisation chart and their digital skills.
The higher up a person was, the less digitally savvy they were likely to be.
“We have 71 million customers. We could be selling them other goods and services”
Francesco Starace, CEO, Enel
So, instead of simply upgrading the company’s technology, Starace resolved on a broader overhaul, including a sweeping culture-change effort and a reorganisation of work to break down silos between departments, using agile techniques as needed.
He announced the strategy ‘Open Power’ in December 2015, declaring: “If we want to continue being a leader in technology; if we want to continue our growth, we must open ourselves, we must open our minds to our mistakes and successes, we must share them, understand how we can improve and what the world wants from us. This is Open Power.”
A huge range of new initiatives followed. Enel’s entire IT infrastructure was migrated to the cloud and its IT operations were pushed down into the business units to provide greater responsiveness. Agile, cross-functional teams solved problems up to six times faster than before. Field teams used virtual reality (VR) and augmented reality (AR) devices and digital tools to speed up training, improve operations in the field and service the company’s 70 million customers better.
Project ‘Digitaly’ begun in 2017 with a mission to rewire all of Enel’s operating processes using the newest technologies available.
The company was able to model usage customer-by-customer and thus do a better job of accurately matching demand and supply. From a billing perspective, it no longer needed operatives to go to customers’ homes to read meters.
Digitisation spread from metering through to power generation. Enel called it the ‘Digital Plant’ project. Smart devices were installed within a plant to monitor activity and communicate in real-time, detecting issues even when no operators were present. The firm also invested in machine learning and predictive analytics, so that managers could use the data collected to reduce waste and improve efficiency.
Additional services were added. One team began work on the idea of exploiting the existing power-cable infrastructure to develop a fibre-optic network built inside the space provided by pipes carrying electricity. The business was spun off as a separate company, Open Fiber, owned jointly by Enel and Cdp Equity. In 2019 its market value was an estimated €8 billion.
“If there comes a time when our customers can generate all the electricity they need by themselves, we won’t be in business”
Francesco Starace, CEO, Enel
In 2017, Starace carved out all Enel’s non-core businesses into a separate unit, Enel X. He saw a big opportunity. “Just imagine: Amazon has 85 million Prime customers. We have 71 million customers. We could be selling them other goods and services. We have a simple, easy-to-use platform on which we can expand the range of products and services we sell to them. We can create value because the infrastructure is already there.”
For example, Enel was an early leader in the rapidly growing electric mobility sector, estimated to grow from 2 million electric vehicles in 2018 to 28 million by 2030. As well as simply providing the electric power service to these vehicles, Enel saw opportunities to use them and their batteries for load-balancing the electric grid, and to change the way people moved around in cities.
In 2018, with its new ways of working established, Enel pivoted to becoming a platform company. The number of different systems had been reduced by 75%, leaving a handful of key platforms, all operating 100% on cloud infrastructure. This made it possible to create new combinations that could be deployed rapidly through a ‘plug-and-play’ model. As the global CIO, Carlo Bozzoli said, “Our platform strategy isn’t just about doing things more efficiently today – it enables us to move much more quickly in the future as new business models start to emerge.”
“We have two universes. One is people and the other is machines”
Francesco Starace, CEO, Enel
By 2020, Enel was the most valuable utility in Europe, worth about €86 billion. Under Starace’s steady hand, it led the way in its commitment to renewables, and its embrace of all things digital was helping its operational efficiency and its customer responsiveness.
Zensar is an IT services company based in Pune, India. For many decades it had provided systems integration and business process management services to large client companies. While profitable and successful, it was a mid-tier player with about 7,000 employees. It had a solid reputation but was less well known than Infosys, TCS, or Wipro.
In 2016, a new CEO, Sandeep Kishore, was brought in to transform the company. He made some rapid initial changes, narrowing the company’s sales focus to three country markets (the US, the UK and South Africa) and cutting the number of industry sectors to three: hi-tech manufacturing, retail and consumer and banking and financial services.
“Relevancy is the new currency”
Sandeep Kishore, CEO, Zensar Technologies
He then turned his attention to the digital revolution and to the need for Zensar to move with the times. Kishore was based in Silicon Valley. He knew from first-hand experience how client expectations of service providers were changing from technical competency and skilled personnel to value-added inputs.
“Relevancy is the new currency,” Kishore said.” It used to be that, the client’s business plan would be relevant for at least 18 to 24 months. Now, our clients have to launch new products – go to market – faster, and plan this based on what their customers are telling them every month or quarter.”
Kishore decided to start at home: “I realised that, in order to change others, we needed to change ourselves, so I pledged that for six quarters we would focus our investment internally, to make ourselves 100% digital.”
‘Living Digital’ was Zensar’s new slogan. The goal was to help employees understand new technology as it was developed, then make the technology work for its clients. Zensar started building native mobile and native cloud-based applications to digitise some of its processes. The applications would be a manifestation of Zensar’s commitment to 100% digital transformation. The first application was ZenVerse, an application for connecting employees (‘Zensarians’) across geographies and hierarchies on one common platform, and a hub for generating ideas and suggestions on matters such as the company’s performance and avenues for future growth.
By 2018, Zensar’s internal processes were entirely digital (employees had as many as 35 Zensar digital platforms and applications on their mobile phones) and the entire company was run off the apps. A complete overhaul of Zensar’s back-end processes went hand-in-hand with building them. The company used a hybrid mix of private platforms (cloud-based storage developed in-house by Zensar) and public ones (using Microsoft’s Azure).
“Everything is native digital, native mobile and native AI now. It helps us be ahead of the curve and aligns with our mission of creating value for the customer”
Sandeep Kishore, CEO, Zensar Technologies
Building a new infrastructure and employee skillset were necessary steps but not sufficient. Zensar also needed a way to access new clients. “We needed to be honest about what we were good at and what we were not good at,” explained Kishore. Beginning in 2016, Kishore engineered a series of ‘tuck under’ acquisitions to build expertise and market presence. The first was Foolproof Ltd, a leading London-based design agency with strong creative skills and good relationships with chief marketing and digital officers in large companies. Three more followed, all with a strong presence in the US.
Transitioning from Living Digital to Living AI
With digital technology evolving all the time, Kishore shifted Zensar’s positioning again in 2018 towards three key pillars:
He explained: “Companies are using AI and analytics not just as standalone technologies, but in their day-to-day functioning to drive efficiencies”. Living Digital became Living AI.
Zensar had developed strong working relationships with several large clients, who valued the personalised customer service and relationships it offered. When it had announced its decision to pivot to digital, some clients had chosen to stick to Zensar’s legacy offerings, while others jumped at the idea of partnering with Zensar for their own digital transformation journeys.
By 2018, the company was positioned to compete with IT services giants to win large-scale projects. One example was a deal with the City of San Diego worth $79 million. Gradually, Zensar’s dependency on legacy infrastructure services went down. Digital services made up 32% of sales in 2017, increasing to 54% in 2020.
Most companies in the IT industry today are moving towards AI but few have reached the point where they are applying their solutions to customer problems. Zensar, on the other hand, has digitised nearly every aspect of its business, including R&D, sales, talent, finance and service delivery. Kishore said, “Within Zensar, everything is native digital, native mobile and native AI now. It helps us be ahead of the curve and aligns with our mission of creating value for the customer.”
It is too early to see if Zensar’s shift towards higher value-added services and its much clearer market focus will translate into strong top-line growth. And while it has made great strides in R&D and innovation, it is yet to solve the issue of scale in its new, high-end AI and human-experience offerings – at a time when IT industry giants such as IBM and Wipro have also entered the AI field with their own platforms.
But transformation always takes time. As Kishore observed, “It was an exceptionally courageous bet for Zensar to go out and do the right thing rather than worry about what the market is saying every quarter. We are structurally changing the organisation and working with customers to build something that will make them relevant and successful. In doing this, we have to have the courage of our convictions.”
While Enel and Zensar are different in many ways, their digital transformation programmes have some important common themes that many established companies can learn from.
Digital transformation is multifaceted. It is well understood that many products and services are transitioning from the physical to the digital world. But rethinking your customer offering is only a small part of the digital transformation agenda for established companies. You also need to consider the ways digital technology is changing all your internal processes, the skills and mindset of your employees as well as the underlying business model you are using to compete.
Digital transformation starts from the top. Like any major change effort, the process of digital transformation is sufficiently complex and difficult to get right that it cannot be delegated. On becoming CEO, Francesco Starace and Sandeep Kishore made it their number one priority and through a series of initiatives and slogans aimed at employees as well as customers and investors, they ensured that it remained front of mind.
Make digital an important part of who you are. For Zensar, the change programme started internally, with a commitment to making the company’s internal processes as digitally sophisticated as possible. Enel also embraced digital ways of working in a major way, through the decentralisation of its IT operations into the business units and with the adoption of agile ways of working throughout the company.
Becoming digital is a never-ending journey. The change programme is nowhere near complete in either company. Enel has succeeded in transforming its existing operations, but the challenge of building new business models outside its core is only just beginning. Zensar is also a work-in-progress, with many clients still using it for its legacy services. Any transformation process in an established firm takes at least three or four years, and digital is even more challenging because the underlying technology isn’t standing still.
Don’t get stuck behind the curve. The Enel and Zensar stories show how pre-digital firms across industries are gradually getting to grips with digital transformation, using new technologies to enhance their core expertise and value proposition. We can learn a lot from companies such as Enel and Zensar in how to stay abreast of the changes wrought by the digital revolution.
The London Business School Case Collection provides access to a wide range of case studies about real-world business challenges written by London Business School faculty. They can be browsed, purchased and downloaded quickly and easily and used for teaching and learning purposes. The case studies Enel S. p. A: A traditional utility embraces the digital revolution by Julian Birkinshaw and Ken Mark and Zensar Technologies by Julian Birkinshaw and Tanvi Deshpande.