Zpryme Trendz Volume VII

A first principle is a basic, foundational, self-evident proposition or assumption that cannot be deduced from any other proposition or assumption. First principle thinking enables teams/companies to break from the assumptions that might have been important at some point but no longer hold true. As an example, a chef thinks in first principles, but a cook does not. In incumbent organizations, employees are not equipped with the ability to think in first principles and consequently assume that long held organizational business models are immutable. This causes immense personal friction when industry shifts are happening or technological advancements are changing the ‘world.’

Some of the more basic elements of the business model of the utility industry can be considered 2nd or even 3rd principle thinking. Our industry, as foundational as it is to everyday existence, is chock full of assumptions. The most obvious assumption being that electricity has to be distributed and managed from a central location. In the utility industry, we are smack in the middle of seeing these principles questioned.

Most new business ideas are reasoned through analogies. And that’s ok. Uber, disruptive as it may be, is not a first principle disruption but it’s a ‘reason-by-analogy’ disruption. We’d been hailing cabs all along by hand or by calling the dispatcher. Uber, through the mobile phone, provided an analog approach to hailing a cab in a much faster way. Nothing wrong with that, especially when you are coming at it from the outside and building a new company. The first principle assumption, that riders need a cab with a driver to take them from point A to point B, wasn’t changed. A first principle disruption would have been a totally new paradigm of getting people from A to B, and is the reason Uber (and a few other companies) are working on seemingly crazy ideas like autonomous flying cabs.

Let’s use space travel as an example to examine first principle thinking. The prevailing paradigm since the inception of the idea is the use of rocket ships that burn fuels and catapult those rockets past the stratosphere. Just this week, Elon Musk announced a Japanese billionaire will be the first passenger to travel into geosynchronous orbit around Earth in a SpaceX rocket. Elon Musk used cost-plus accounting and ‘reason-by-analogy’ to decide that reusable rockets will enable cheaper and more frequent trips to space.

First principle thinking would suggest that the fundamental questions about space travel would follow the example flow below:

• How do we get people into space? The answer to this question might include alternatives to rocket ships, maybe towers? So, the next question would be:
• Is it possible to build towers with elevators that take people into space? The answer would be ‘not currently’ (now we are getting somewhere). To get people into space using towers we would need 1000 km high Space based megastructures powered by solar energy. So….
• Why can’t we build those megastructures? Answer: The stress on the materials (due to gravity, friction, etc) would push the materials to their limits leading to catastrophic consequences. Then….
• What materials bear more weight and stress than their mechanical structures would suggest? This answer is found in biology: human bones and tendons. Running pushes the Achilles’ tendon to over 75% of its tensile strength, whereas weightlifters can experience stresses of over 90% of the strength of their lumbar spines, when they are hefting hundreds of pounds of weight. This answer, tendons and bones, based on building up from first principles, sets creators and engineers down a path of solving the fundamental question of ‘How do we get people into space?’ in a novel way by digging into how to cost effectively create bio-inspired megastructures that can launch us.

This 1st principle approach can be applied by anybody. But first we have to recognize whether we are dealing with assumptions or facts/principles.

What does this all mean for the utility industry? Well, the reason we are so afraid of the disruption happening around us is because we’ve stopped answering the first principle question of ‘what do customers want? It’s the question that the early developers of the utility industry business model answered that got us to where we are. But we don’t truly know the answer anymore and pay lip service to the question even when we ask it. The business model and regulations are now the driver. And I’m not talking about customer centricity. The customer centricity ship has sailed, but we are still at the dock waiting to board. Customers do not want to be at the center anymore, they want time-saving or time-seizing products or services. We’ve moved from the term ‘interveners‘ to ‘ratepayers‘ to ‘customers,‘ but we need to move to thinking about customers as ‘desired guests.’

So how do we get back to first principles? Join us for a half-day workshop November 14 in San Antonio, where we’ll discuss this, along with ways to get a clear view of trends in order to develop new products or business models. Utility directors or executives, or utility vendors involved in strategy, innovation, customer facing, or ‘future utility’ initiatives are welcome. Email Jason.rodriguez@zpryme.com or Seyi.fabode@zpryme.com to start to think about answers to questions like ‘what is the business model of the utility when every single device in the customers home has ‘power-on-the-edge and electricity is free’?