Many businesses, especially those providing services, reach a point when their ability to sell a product or service is out of balance with their capacity to deliver. This capacity wall usually occurs when the business has reached a limit in its production ability. So it must either realign itself to increase its capacity or cut back on sales, which means a big revenue hit. To continue growing, a business often opts to provide less but at a higher value – and hence a higher price.The ProblemOne of the biggest operations to face this capacity wall is BC Hydro, the government-regulated utility that supplies power to 1.7 million customers in the province. For years BC Hydro has been supplying cheap power at a flat rate to anyone who wants it. It’s a model familiar to many smaller operations that sell to anyone and everyone, often at a low price, to boost the top line (revenue) and grab market share.
But as all such businesses will discover eventually, BC Hydro has hit its capacity wall. Electricity demand is growing, and the utility does not have the generating capacity to match it. Also, it’s regulated by government, which is on a green campaign that prevents the utility from simply building a big dam or two to increase capacity. While its massive size and its government control set BC Hydro apart, it’s really not that different from any business aiming for continued growth that is restrained by an inability to borrow, hire more staff or buy more production machinery.The SolutionA mega-business, BC Hydro had to develop a mega-solution. It is asking its customers to help constrain its supply through conservation so that it can sell to more customers and maintain its revenue base. This is a new kind of strategic thinking, versions of which some other businesses are also beginning to use. They manage growth by refusing to simply sell more. Instead, they earn more by selling less at higher values.
BC Hydro is changing its flat-fee structure to a two-tier rate system in which it rewards customers who use less of its product and penalizes those who use more. This is to be aided by a smart metering system that has been going through the pilot stage among 2,000 customers for two years and is about to be rolled out to all BC Hydro customers. The smart meters allow a customer to see how much power they’re using and what they’re paying for it. And if they change their behaviour – i.e., use power at less costly times of the day – they are rewarded with lower electricity costs. This allows BC Hydro to gain the capacity to serve expected new customers.
And customer behaviour has already changed. In the pilot, power usage in peak periods dropped by 11.5 per cent in the first year and by another 11.3 per cent in the second year. Overall consumption dropped by 7.6 per cent in the first year and 5.5 per cent in the second.Lessons• Show them the big picture. When planning this strategy, take a holistic look at your operation. Then educate customers on what you’re doing and explain why it’s to their benefit. Recognize that some won’t like it.• Democratize the change process. Partner with your customers to jointly determine how they can get the same results with less effort on your part.• Prime people for change. Changing your own and your customers’ behaviour has to be done in steps. In BC Hydro’s case, conservation thinking has been increasingly marketed for almost 20 years.