Strategic Approaches to Disruptive Innovations in Regulated Markets: Two Cases Of State-owned Electric Utilities

Abstract

Both state- and privately-owned electric utilities are currently navigating a wave of disruptive innovations that are reshaping the energy sector. While the overarching goals of profit and shareholder value apply to both, state-owned utilities have a distinct set of challenges in that their objectives also encompass social welfare, economic growth, and national development. Thus, their survival is a matter of national interest. An interpretivist paradigm guided this research, and a qualitative multi-case study was used to investigate strategic approaches to disruptive innovations in the regulated electricity markets of South Africa and France. The theoretical interrelationships between Disruptive Innovation theory, Dynamic Capabilities and Ambidexterity were holistically explored within the regulated markets. The data comprised documentation and interviews with the electric utilities, Eskom and Électricité de France and the national energy regulators in each country. The study's key findings indicated that disruptive innovations are multi- organisational and multi-dimensional, impacting the industry at the macro- and meso-levels, transforming the entire ecosystem via concurrent interconnected actions. Hence, there are many pathways to disruption, and state-owned electric utilities must reposition themselves in the market and respond with multifaceted approaches. State-owned electric utilities are recommended to engage in coopetition strategies such as investing in disruptive innovations with start-ups and building strong partner interdependence via joint activities or investments to facilitate the exchange of resources and capabilities and build trust. This research recommends an integrated response when faced with a wave of disruptive innovations, e.g. (i) investing in an existing business to improve efficiencies and retain customers, or extending the life of power plants and converting coal-fired power plants to biomass technology, whilst at the same time (ii) adopting disruptive innovations which have emerged in the market to offer new products iv and services such as e-mobility, energy efficiency, solar photovoltaic and energy storage services and (iii) investing in continuous research and innovation to compete with disruptors such as the piloting of floating wind turbines and lightweight solar photovoltaic structures. Furthermore, ambidexterity and dynamic capability can be used as tools by electric utilities to strategise effectively under VUCA conditions. Dynamic capabilities should be built to support sensing, sensemaking, shaping, seizing and transforming the organisation to retain competitive advantages and market leadership. The study identified risk-taking, negotiating ability, and organisational agility as dynamic capabilities required to seize opportunities. The research also identified the ability to modify and reconfigure human resources, organisational structure, assets, processes and culture as dynamic capabilities required to compete and maintain market leadership. Lastly, this study presented an alternative pathway to achieve ambidexterity. Electric utilities can utilise a hybrid ambidextrous approach, which entails simultaneously combining different modes at both the meso and micro levels, such as (i) creating structural separation, forming intra and inter-organisational alliances, (iii) building dynamic capabilities to accelerate exploration activities, and (iv) establishing dual executive management roles. This study has made theoretical contributions by proposing a new definition of disruptive innovations for the electricity industry and has widened the domains for Strategy-as-Practice research by extending the levels of praxis from micro, meso and macro to include an industry level. This moves strategising actions beyond the firm to incorporate wider practices in society. Furthermore, the dynamic capability theory was extended to include sensemaking and shaping as micro foundations to respond to disruptive innovations and maintain competitive advantages. This finding also contributed to the understanding of the resource- based theory by providing a source of heterogeneity. In addition, the research suggested that simultaneous use of casual and effectuation decision-making logic can be a source of heterogeneity for firms. The study clarified that shaping v capabilities are used not only during sensing and seizing opportunities but also influences or shapes transformation activities of the firm. The ambidexterity view was extended by presenting an alternative combination of modes within the hybrid ambidexterity approach. Practically, this research suggests that an integrated approach should be implemented by state-owned electric utilities to respond to a wave of disruptive innovations