A mid-sized US electric utility was considering a major effort to expand beyond its core power business into related grid services. This interest was driven in part by the fact that similar firms were expanding into these services and technology in this area was improving rapidly. The company’s “default” plan was to move strongly in this direction. We worked closely with the client to understand the needs and preferences of their customers, their internal capabilities, and the competitive landscape. We then analyzed business plans involving a variety of service offerings. Our analysis revealed clearly that the “default” plan for expanding into this new business, despite its apparent attractiveness, involved extraordinary risks and would almost certainly lead to substantial losses. It also revealed that other plans were considerably superior – involving better return and lower risk.
To quote top management, “The analysis revealed the pros and cons of alternative plans much more clearly than before. The default plan turned out to be among the least preferred – expensive and risky. And a previously-controversial plan turned out to be preferred – most cost effective and least risky. We and our Board enthusiastically adopted this preferred plan. In hindsight, this saved our customers millions of dollars.”