Renewable Matter # 15 / March-April

Innovation Has its Very Own Formula

Interview with Ernesto Ciorra

by Sergio Ferraris, interview with Ernesto Ciorra

The story of ENEL’s transformation: in the top five of Fortune’s 2015 Change the World list, the Italian energy company has made a 180° turn compared to what the multinational was just a few years ago. Now the organisation considers innovation a prerequisite of sustainability, the essential key to facing the challenges set by distributed generation, electro-mobility, the Internet of Things and smart cities. And it has no fear of sometimes having to confront its past.

 

 

Utility companies are having to reinvent themselves. And to do it they are taking a different direction from that of the past, mainly due to environmental issues. The climate first and foremost, but it doesn’t stop there. Renewable energies, domestic and industrial energy efficiency, the circular economy and resource management are the urgent, prevailing matters that utility companies need to deal with on all levels. And that is exactly what energy manager ENEL is doing. From 1963 to 1999, the state-owned company distributed exclusively electricity, but it now focuses more on services than on energy supply. This is a radical change for the large ex-monopolist, ex-nuclearist and soon-to-be ex-fossil energy company which is forcing itself to think about environmental matters not only in terms of electrons produced and CO2, but with a more systematic approach. In the future, energy production, but also and above all management, will require better tackling of the transformations caused by the circular economy, distributed generation, the Internet of Things and smart cities, with a much more all-round approach compared to the past. And ENEL’s CEO Francesco Starace must be convinced, considering he has merged the company’s sustainability division with innovation and handed the reins to Ernesto Ciorra who is considered a key international-level innovation player and telecommunications and finance expert. This hybridisation is no coincidence. In ENEL, both external and internal action logics are being turned on their heads to make the company permeable to innovative market and environmental requests of a social nature. Ernesto Ciorra told Renewable Matter the dynamics and methods being applied within the company.

 

ENEL has opened outwards over the past years in a way which is unusual for a utility company. Why is that? 

“Today, our objective is to access the ‘richness’ of innovation, involving internal and external parties, thus allowing the company to make use of the best talent offered on the international market. We draw up industrial partnerships with those working in big companies and give those involved in small startups the chance to collaborate. We also use InnoCentive, an online platform that collects solutions offered by independent innovators for unresolved problems and, once implemented, finances them. The objective of all this is to place ENEL among the top five most innovative companies in the world.” 

 

And what has happened? 

“The first thing that we did was to close down – over the course of a year – twenty-two power plants which were no longer competitive or efficient. But it doesn’t stop there. Innovation has also and above all been internal. For example, our CEO, Francesco Starace, has sent all top management, including himself, to study innovation twelve hours a day at the University of Harvard. He chose to transform the company beginning with management. And he was right to do so. If you don’t start from the top, nothing happens down below.”

 

And what were the results?

“The results were immediately evident. In 2015, we appeared on Fortune’s list (Change the World) ranking fifth for our efforts towards changing humanity. The list is based on two parameters regarding innovation and two regarding sustainability. We come right after Vodafone, Google, Toshiba and Wall Mart. In 2016, Bloomberg placed ENEL among the fifty companies to keep an eye on. These two acknowledgements confirm we are on the right path. However, we still have a lot to do.”

 

These rankings are great, but more needs to be done. What do you still need to do?

“We have to face two or three big problems and try to resolve them. One of these is access to energy. 1.2 billion people across the world do not have access to energy and another billion have unstable access. In order to overcome this problem, we are focusing on low-cost renewable solutions that allow energy to be taken all over the place. We are working with big players such as Google X (Google’s research centre), Tesla, Toshiba and others. We want to innovate with these partners practically, regardless of their location.

“Another matter is electro-mobility. We are working with Nissan to make electric cars into ‘moving batteries.’ So, in Denmark, electric cars, once hooked up to charging posts, are able to stabilise the grid, without emitting CO2 and without needing new static batteries, but using the car’s batteries. We are the first in the world to do this and, in 2017, we will develop the system in Germany and also in the United Kingdom, getting a great deal of attention from local decision makers that are driving implementing ‘distributed battery’ technology. We are talking about a niche of 20,000 cars in the United Kingdom and in Denmark, but when we have finished, with a million electric cars, we could do all the balancing without involving power plants. All this entails greater speed and efficiency in terms of response times and the advantage that the batteries are more flexible, perform better and enables the use of a greater amount of renewables in the grid. This innovative aspect of the sharing economy combines distributed generation and smart cities, in an unprecedented union. The user owns the battery, shares it with the grid manager and is paid for this service. Our objective is to offer car drivers zero-cost electricity in exchange for using the battery. Grid services will also have a higher value than that of the electricity supplied for charging, allowing us to maintain good margins.”

 

What is the Italian situation on the energy “services” front?

“In Italy, we have a good grid, excellent experience managing distributed plants and we can count on the fact that all the meters are electronic. The meters we are installing in Italy are third generation. We are the first in the world to use them. These devices can be read and complete any check on electricity in real time. There are also advantages in terms of safety since the new meter can operate with a gas sensor and suspend electricity supply in the event of a gas leak. And again as regards meters, we have joined the American Green Button Alliance. This initiative aims to facilitate the end user’s access to their own consumer data, also thanks to Barack Obama’s standardisation.”

 

And what are the advantages?

“That’s simple. This way, the App developed in the United States for seeing one’s consumer data can be used in all the countries which have adopted the standard. If, instead, the data are made available in a different way, no-one will develop similar Apps because the market is limited. It is a classic case where lack of interoperativeness is slowing innovation down.”

 

 

Don’t all these activities damage the turnover on the end? Don’t they lead to less energy being sold?

“First of all, we must consider the fact that if we don’t do it, someone else will. We must present ourselves innovatively to our clients, creating value and new solutions. For example, electro-mobility. A car consumes 70% compared to a house. If there were ten million electric cars in Italy, there would be seven million customers/equivalents more in the energy market. We must avoid wasting energy and, at the same time, increase electricity distribution opportunities. We are driving electro-mobility because we believe it is a solution to the problem of pollution. And it is a useful solution. And when something is useful for everyone, in the end, it becomes stronger and it becomes an opportunity for companies.”

 

Isn’t mobility, in terms of company culture, too far off the way you have always done things?

“We have studied and become the first energy company in the world to launch an integrated offer of electric cars payable in monthly instalments, along with the wall box for charging, its installation and energy supply, as well as the App which finds activated charging posts. This offer is available for Nissan Leaf users, but during internal trials with our employees, we also used the Mercedes B-class and the BMW I3. Before offering these solutions externally we try them out with our employees. We are simplifying the buying process, pending the growth of the electricity distribution grid and the introduction of incentives. In the meantime, we are working on the area where we can achieve results: that is, the offer.” 

 

Again those incentives. What are they for? 

“Incentives are needed to develop the market and consequently attract investments. If we do not develop sustainable mobility in Italy, initially also thanks to incentives, we can’t then complain about the fact that electric cars are produced abroad. But incentives needn’t be monetary. For example, an incentive for electric cars can be connected to municipalities, through a national standard, which assign parking spaces (and the relative charging post) to those buying an electric car who do not have a garage to charge it. This zero-cost measure, or rather facility, could be offered to the first buyers of electric cars.” 

 

In practice, how did you end up tackling sustainable mobility?

“First of all, we created a simple, innovative, sustainable offer for our employees. Innovation and Sustainability collected their feedback on the existing process and we realised that it was too complex. Basically, we verified the customer experience of our ‘employee customers’ who were standing in for ‘real’ customers. Since these experiences were not exactly the best, we simplified them based on their advice and tailored an offer for an internal area taking care exclusively of new business.” 

 

Please go on.

“We have a company area which sells energy and another which sells only new business, including electro-mobility. We have set up a special team of people who take care exclusively of electro-mobility. This unit studies mobility matters in depth. For example, at the moment, it is working on scooter, bike and car sharing. We are partners in Car2Go, the biggest electric car sharing in Europe with 500 electric cars in Madrid alone, so it is not the first time that we have faced these problems. Generally speaking, we realised that we cannot manage new things with the same organisation as before. We have become part of the grid balancing sector (a service provided in real time to keep electric grid supply and demand balanced, in order to resolve congestion and guarantee appropriate secondary power reserve margins, editor’s note) with electric cars, in Denmark and in the United Kingdom spending 100,000 Euro in each country, while, before, in order to do so power plants were needed along with greater investments. We are the first to cannibalise the sector’s past and part of ourselves through innovation, opening up other business possibilities. Now, we are active in sectors that were not historically ours.” 

 

What do all these innovations mean for the company?

“ENEL’s internal structure has changed greatly. The Sustainability department was created, later merging with Innovation. This greatly changed the company structure, which is technological, therefore all innovation connected to technology is now driven by sustainability. It is a pervasive logic and the innovation sustainability manager – that’s me – is also part of the main decision-making committees. I am on ENEL’s investment committee and if an investment is not sustainable and innovative, I think there is no point in going ahead with it. Innovation and sustainability cannot be excluded from company governance.”

 

And what about innovation outside company dynamics?

“We are able to work with startups that bill zero euros and have no employees. This is something which is completely Italian and a great innovation of company dynamics. We have made internal changes in order to work with competent external figures. But it doesn’t stop there.” 

 

Really?

“For example, now, almost all ENEL employees across the world can propose new business and, if they get the ok from their country manager, they get the funds to create their own start-up. We have invested 16,000 days and involved 860 people, as well as the financial resources necessary for developing the proposals devised by colleagues. It is a cultural revolution because an employee with no hierarchical power can become the head of their very own start-up if approved, beating the hierarchy. In addition, we have launched initiatives like ‘My Best Failure’ where people share mistakes they have made when they tried to do something new.”

 

Would you like to reward failures? What’s positive about failures?

“When you do something new, you always make a mistake somewhere along the line. We want to increase the number of mistakes in order to raise success and, at the same time, eliminate repeated mistakes. We ask people to share their mistakes with ‘My Best Failure’ and we reward those elected by the community as the best, because we believe shared mistakes are very useful. Winners are rewarded and sent to work for a period in another country, in a chosen company area or possibly even in a start-up that works with us.” 

 

How do you select innovation?

“We have divided innovation into two macro-areas: one concerning internal productive processes and technologies and the other concerning the customer. The first is managed by the business line and is selected directly by those managing the technologies and processes. So, if new methods and practices arrive, such as those regarding easy solar panel cleaning, those managing the aspect within the company decide whether to use the new technologies or not. This way, we have completely integrated innovation into all business areas. Those cleaning solar panels have a contact for innovation, the same one for the renewables division, who proposes new solutions, but in the end they make the decision. The second macro-area tends to maintain customer proximity. You cannot select something which concerns the customer if you are not close to them. That is why, as I was saying, we performed sustainable mobility tests on ‘internal’ customers, or rather, our employees, first of all. We launched new smart home solutions that offer a home energy monitoring service integrated with a security alarm. We tested it on 500 colleagues who gave us feedback on the benefits and the critical issues.” 

 

Can you tell me anything else about innovative processes?

“Yes, in ENEL we apply the ‘innovation formula’ which I created and patented along with my colleague Ivan Ortenzi.”

 

How does it work?

“The ‘innovation formula’ states that innovation is the same as the multiplication of the values of three aspects: creativity (that is, having a good idea and giving it a value from 1 to 10), the execution (that is, how to implement one’s idea and give it a value from 1 to 10) and the appeal (that is, the value given by a customer to the idea with that implementation giving a value from 1 to 10). It is almost a game which makes us think about how to generate ideas, in order to guarantee the implementation and measure customer appeal. Let me give you an example. In 2004, I collaborated with Nokia to devise a touchscreen mobile phone with GPS. It was the Nokia 7710. The idea had a value of 10, as did its implementation and the appeal of the GPS, while the appeal of the touchscreen back then had a value of 0, because no-one wanted it at the time. Thus, by applying the ‘innovation formula’: 10 times 10 times 0 equals 0.” 

 

Did this innovation come too early?

“Precisely. At the time, everyone wanted a small flip mobile phone, nothing like today’s keyboard-less mobiles. The Nokia 7710 was extremely similar to the current iPhone or Samsung Galaxy, and that was fourteen years ago. A smart idea, with a smart implementation but it did not have sufficient appeal at the time. That is why it is essential to observe customers. As regards internal technologies, our customers are the colleagues which manage them, while externally we refer to end clients.” 

 

Today we talk a lot about the “Internet of things.” It is an enormous universe. According to this line of thought, a washing machine may have an appeal of 10 and a refrigerator an appeal of 0. What does following this logic mean for you, as an energy distributor?

“We will not have an Internet of things, but rather an Internet of everything, that is, the net will be in everything, even the medicines we take. We will take smart medicines, connected to a monitoring system that will intervene releasing their active ingredient at the necessary time. Today we are creating the Internet of things in our power stations and plants. Our colleagues must also be connected and if, for example, they have an accident, the system must realise, thus setting off an alarm, reporting the position and getting emergency assistance there as soon as possible.”

 

How do you see the next five/ten years in terms of innovation?

“Increasingly more fun and more interconnected, in particular in terms of sectors. We are active in broadband, smart homes and home security, as well as in car sales and grid balancing. We are doing things that just two years ago, when I came to work at ENEL, we were not yet doing. There are six or seven new businesses. We sell insurance along with home energy supply and we will sell car insurance. Then there are mobility data. For example, it will be possible to optimise consumption courses and timescales, choosing those which avoid the traffic lights. I think that there will be increasingly more space to do positive things and increasingly greater competition between different sectors.” 

 

In a context which is increasingly more connected, what type of competition will there be?

“It will be competition which may become cooperation. We are collaborating with Google for new energy generation technologies. Google has the data of all its clients who are looking for a new home and, thus, a new energy supplier and it can provide information on the home, comparing suppliers, proposing the purchase of solar panels with storage, offering an optimisation algorithm for the user’s specific consumption habits in order to set the energy system correctly and not depend on the energy suppliers. Google may become our competitor, as could Amazon that could manage the energy produced by the user by selling it to another, leaving ENEL out. However, we could collaborate and not compete with these parties. Business models are becoming increasingly more uneven and interconnected.”