Energy innovation needs new clarity over the now, next, known, and unknown

Senior energy industry leaders must step up their collaboration with innovation teams to clarify how much time and resources are dedicated toward four efforts—and integrate that innovation into present-day goals and strategic future roadmaps.

1. Innovation for current business goals and problems that are known or “now-knowns”: These include leveraging generative AI (GenAI) for emerging efficiency opportunities in energy trading, production, and consumer-facing systems.
2. Innovation for future-known problems: For example, the energy transition addressing the climate and sustainability emergency must have a clear roadmap of technologies and business models—we know what we need to do (see our point of view).
3. Innovation for now-unknown problems: Consider whether there are unexplored technologies, models, designs, processes, or strategies for the current energy system.
4. Innovation for future-unknown problems: Emerging technologies, including GenAI and quantum computing—as well as undeveloped energy transition technologies—must be included in top-level energy industry roadmaps with enough flexibility to innovate to achieve the ultimate goals of the energy transition and beyond.

As HFS Research launches its Energy and Utilities Horizons study and industry research framework—aligning to the outcomes of the energy transition and UN Sustainable Development Goals (SDG, see our report)—we’ve been exploring the industry’s present and future throughout our own energy ecosystem of enterprises, service providers, and other experts.

In the coming decades, the energy industry will be torn apart and remolded

Energy is being reshaped, and it’s a bumpy process—sometimes it seems rapid, other times much less so. That disruption goes beyond addressing the climate emergency and energy transition. Digital technologies, including GenAI, are also top-of-mind for energy innovation teams. But as with so many new technologies or transitions of the past, “innovation” teams find their time almost exclusively focused on making the “now” better—solving the immediate problems facing business teams rather than exploring the full potential of emerging innovations to reinvent processes and business models.

And there is absolutely a need for that. Technology cannot solely be about achieving something for the future—it’s the same when addressing sustainability. But the innovation teams focusing on the now remain siloed from the teams looking at the technologies and trends that might transform the energy industry’s future: from quantum computing to leveraging GenAI for “unknown” problems.

There is also a disconnect between present-day and long-term innovation teams, limiting the cross-pollination of the current potential of “future” technologies and the more significant future spheres of influence of established technology.

Both types of innovation teams are, in turn, often siloed from business teams and the broad goals and objectives of the organization. Those business teams are also in a prime position to contribute to innovation, for example, the process operators grounded in daily operations or the future energy planners building roadmaps at a strategic level.

The energy industry’s past, present, and future is a tale of disruption—making it vital to clarify the role of innovation

Innovation teams and the executives who empower them must be clear about the resources and time dedicated to addressing a spectrum of innovation—for current problems and future goals, whether known or unknown. Exhibit 1 illustrates this clarity in the energy industry and the connections and evaluations of the risk and value in innovations within each category based on potential ROI and operational alignment. Innovation efforts can further be categorized by impact and alignment with business objectives. Going even deeper, innovation and business team collaborations must incorporate technology readiness, alignment to sustainability goals, and the potential market impact to offer a more structured approach to making energy decisions.

Exhibit 1: The now-future-known-unknown spectrum for energy industry innovation

Source: HFS Research, 2024

Tech debt is a crucial factor that impedes progress on “now-knowns” and “now-unknowns.” It is a central enterprise challenge that limits innovation, particularly for legacy-bound energy companies

Technical, cultural, data, process, and many other enterprise “debts” impact the potential of innovation (see Exhibit 2), especially in large, established energy and utilities companies with big physical (as well as digital) footprints.

Firms can prioritize scalable, sustainable technologies to build a more resilient foundation for the broader energy transition.

Exhibit 2: Debt-reduction strategies must enable energy firms to prioritize innovations aligned with present-day demands—without jeopardizing future-focused innovations

Sample: 550 Enterprise Leaders
Source: HFS Research, 2024

Business and innovation teams are as siloed in energy as they are in any sector

In early 2023, HFS identified shocking levels of collaboration in one of the energy industry’s most significant present and future tests. Less than half of senior energy transition enterprise leaders collaborate internally toward their transition goals, and collaboration drops significantly throughout the ecosystem. Nothing seems to have changed.

Future innovation teams—in energy companies that have them—focus on tech-first approaches—but business teams often think the innovation teams are out of touch. You’ll likely find an awareness between core and future innovation teams, but as with big businesses in most industries, they rarely collaborate as much as they should.

“Cross-pollination” between innovation and business functions requires actionable guidance on embedding innovation into strategic roadmaps

To support strategic alignment, innovation must tie to specific business goals (see Exhibit 3). Energy firms facing daily disruption can adopt an iterative approach to align innovations with immediate business needs while setting KPIs reflecting short-term gains and long-term transformation. This could involve creating a dedicated “innovation-to-outcomes” roadmap that identifies and tracks innovation progress and outcomes tied to enterprise goals across the categories of Exhibit 1.

Innovation is not a single skill set. The skills needed to implement GenAI differ from those for assessing the legal implications of that innovation, not to mention the skills for mitigating enterprise debts, which can require some serious engineering for data and technology.

The alternative to collaboration and alignment will be getting caught between adapting too slowly or the embarrassment of a thoughtless rush into innovation that damages the company’s reputation.

Exhibit 3: Innovation teams focused on the now, near-future, and long-term need to collaborate and align around the business’s goals and objectives

Source: HFS Research, 2024

The Bottom Line: Energy innovation teams must break out of their silos and step up collaboration throughout their organizations and ecosystems.

Energy industry executives must empower their innovation teams to focus beyond the restrictions of business short-termism in a sector accustomed to tackling day-to-day disruption to operations and targets—often driven by uncontrollable global politics and markets. However, achieving a new level of alignment and collaboration required to maximize the potential of energy innovation requires the industry—which epitomizes the battle between present and future—to connect daily goals and long-term strategies effectively.

Leading the energy sector’s transition toward sustainability and a new technology landscape is still an option. However, the industry is running out of time with policymakers and its customers.