**3. The Hamel framework for utility business model evaluation**

A fundamental challenge facing New York today is how to generate richer innovations at all levels, including products, business models, and management systems that transform a centralized power system into a high-performing distributed utility sector. The critical challenge in this endeavor, however, entails fashioning a comprehensive analytical framework that captures components of business model across the entirety of the market spectrum. To avoid the pitfall of ambiguous strategy in such a framework, a service-based business model approach should be adopted. Ref. [33] identifies six key functions of business model strategy as value proposition, revenue generation mechanism(s), value chain, value network, target market, and a competitive strategy, while [19] lists the four often-cited business model components: strategic resources, value creation, value capture, and value network. Hamel business model [34], which is applied in this chapter, incorporates these fundamental features, providing a robust framework (**Figure 3**) for analyzing the REV vision. It appears that REV is based on a polycentric paradigm as the main pathway with which utility market reorganization will be navigated. Several studies have already explored UCM governance approaches with polycentric characteristics, e.g., [35–39]. These contributions largely focus on bending reality, business model constructs, and institutional and near-term governance as an impetus for polycentric innovation. We argue here that so long as utility regulation and governance lag behind technology innovation, institutional innovations needed to support the industry to "become more adept at generating richer innovations at other levels, including products, services, business models, and management systems," will continue to play catch up thus impeding the full participation of DER resources [40].

Hamel's business model is comprised of four major components (i.e., core strategy, strategic resources, customer interface, and value network), three bridge components (customer benefits, configuration, and company boundaries), and sub-elements that determine the profit potential (efficiency, uniqueness, fit, and profit boosters). The first component, a *core strategy*, is the essence of how a firm chooses to compete. The sub-element, or the business mission, captures the overall objective of the strategy or what the business model is designed to accomplish or deliver. According to the Hamel framework, the business mission defines the decisions of a firm, such as the value proposition, strategic intent, purpose, goals, and overall performance objectives. Therefore, when a company changes its business mission, this does not necessarily imply innovation in business concept.

The product/market scope defines where the firm competes (i.e., the firm's competitive arena). For instance, the scope determines the customers, geographies, and product segments [38]. In this regard, the definition of product/market scope can be a source of business concept innovation for a firm—especially when it is entirely different from that of traditional competitors [34]. Finally, basis for differentiation captures how the firm or organization competes differently from its competitors. For instance, a firm differentiates itself from competitors by seeking answers to questions such as: how do opponents differentiate themselves in the electricity market (e.g., in designing utility revenue models such as platform service revenues, rate design, and customer energy data usage)? Are there other dimensions of marketoriented revenue model differentiations that could be explored? In what aspects of the energy service (e.g., rate design) has there been the least differentiation? How could differentiation be increased in some of these dimensions (e.g., by implementing opt-in rate initiatives such as time-of-use rates or smart home rates)? And have differentiation opportunities been diligently sought in every dimension of the business model?

procure 50% of its electricity from renewable resources by 2030. Each load-serving entity is required to procure for their retail customers renewable energy credits (RECs) linked to DERs listed in Tier 1 (e.g., solar, wind, biomass, and pumped storage hydroelectric) [32]. Likewise, the customer-side structure provides a context in which to situate the RECs' management; utilities can bundle these RECs into service programs, such as utility green pricing plans, and

A fundamental challenge facing New York today is how to generate richer innovations at all levels, including products, business models, and management systems that transform a centralized power system into a high-performing distributed utility sector. The critical challenge in this endeavor, however, entails fashioning a comprehensive analytical framework that captures components of business model across the entirety of the market spectrum. To avoid the pitfall of ambiguous strategy in such a framework, a service-based business model approach should be adopted. Ref. [33] identifies six key functions of business model strategy as value proposition, revenue generation mechanism(s), value chain, value network, target market, and a competitive strategy, while [19] lists the four often-cited business model components: strategic resources, value creation, value capture, and value network. Hamel business model [34], which is applied in this chapter, incorporates these fundamental features, providing a robust framework (**Figure 3**) for analyzing the REV vision. It appears that REV is based on a polycentric paradigm as the main pathway with which utility market reorganization will be navigated. Several studies have already explored UCM governance approaches with polycentric characteristics, e.g., [35–39]. These contributions largely focus on bending reality, business model constructs, and institutional and near-term governance as an impetus for polycentric innovation. We argue here that so long as utility regulation and governance lag behind technology innovation, institutional innovations needed to support the industry to "become more adept at generating richer innovations at other levels, including products, services, business models, and management systems," will continue to play catch up thus impeding the full participation of DER resources [40].

Hamel's business model is comprised of four major components (i.e., core strategy, strategic resources, customer interface, and value network), three bridge components (customer benefits, configuration, and company boundaries), and sub-elements that determine the profit potential (efficiency, uniqueness, fit, and profit boosters). The first component, a *core strategy*, is the essence of how a firm chooses to compete. The sub-element, or the business mission, captures the overall objective of the strategy or what the business model is designed to accomplish or deliver. According to the Hamel framework, the business mission defines the decisions of a firm, such as the value proposition, strategic intent, purpose, goals, and overall performance objectives. Therefore, when a company changes its business mission, this does

The product/market scope defines where the firm competes (i.e., the firm's competitive arena). For instance, the scope determines the customers, geographies, and product segments [38]. In this regard, the definition of product/market scope can be a source of business concept innovation for a firm—especially when it is entirely different from that of traditional

not necessarily imply innovation in business concept.

**3. The Hamel framework for utility business model evaluation**

sell them to other parties.

10 Energy Systems and Environment

Hamel's second major component, *strategic or unique firm-specific resources*, constitutes a source of competitive advantage. Fundamentally transforming the market to increase renewable electricity generation in New York is a source of business concept innovation. A successful business model thus creates its own intellectual hegemony. Strategic resources embody core competencies, and comprises skills and unique capabilities. Strategic assets depicts what is owned by the firm. They are rare and valuable things other than know-how, and include brand, patents, infrastructure, proprietary standards, and customer data. A prudent firm-wide use of strategic assets can lead to business concept innovation. According to [41], asymmetry in the resources a firm controls and discretionary managerial decisions about resource development and deployment can be sources of sustainable economic rent. On the other hand, core processes illustrate what people in the firm do. They are methodologies and routines used in translating competencies, assets, and other inputs into customer value. A reconfiguration of central components and core processes in the business model therefore constitutes business concept innovation [42].

The third major component of the Hamel framework is *customer interface*. It is comprised of four elements: (a) *fulfillment and support*, which describes market access (i.e., how the firm reaches the market and it includes channels, customer support, and service levels); (b) i*nformation and insight*, which refers to knowledge that is collected from customers and the ability of the organization to extract insights from this information to design new products and services for customers; (c) *relationship dynamics* refers to the nature of interaction between the firm (producer) and the customers; and (d) *pricing structure* specifies the revenue mechanism for monetizing services rendered (i.e., flat-rate charges or charges based on TOU).

The fourth component is the *value network* of the firm. This includes suppliers, partners, and coalitions that complement and strengthen organization's resources. Suppliers typically reside "up the value chain" from the producer [34]. The configuration of activities is a bridge component that links the organizations' core strategy to its strategic resources. *Configuration* of activities specifies unique ways in which core competencies, strategic assets, and core processes interrelate to support a chosen strategy and how those linkages are managed in order to achieve greater value. Intermediating between the core strategy and customer interface is another bridge component—the *customer benefits*—which describes the bundle of benefits that is essentially offered to consumers. *Company boundaries* refers to decisions regarding what the firm does internally based on what it contracts out to the value network.

At the base of the framework are four factors that define the utility of the Hamel business model. *Efficiency* guarantees that the value of benefits delivered to customers exceeds their

Richard Kauffman, chair of the state's Energy Research Development Authority (NYSERDA) and former NYPSC Chair Audrey Zibelman explain that the REV program is "removing market barriers and bridging market gaps that have historically impeded the clean energy sector from benefiting from technological innovations" [46]. Its major impact on the industry so far has been increased integration of solar- and wind -energy generations. Therefore, this evaluation focuses on the regulations and directives specified by the NYPSC, and other guidelines released by key power utilities in the state [e.g., Consolidated Edition, Long Island Power Authority, Niagara Mohawk Power Corporation, New York Power Authority (NYPA), New York State Electric and Gas Corporation (NYSEG), Central Hudson Gas and Electric Corporation (CHGEC), Orange and Rockland Utility Inc., and Rochester Gas and Electric Corp (RG&E)] to explore the characteristics, nuances, structure, and approaches applied.

Diversifying Electricity Customer Choice: REVing Up the New York Energy Vision for Polycentric Innovation

http://dx.doi.org/10.5772/intechopen.76023

13

Retail peak electricity demand in NYS is approximately 75% greater than the average system load, and nearly 9% of power generated in the state is lost in transmission [47]. Essential investment needed through 2025 to replace the state's aging infrastructure to meet projected energy demand is estimated at \$30 billion [43]. REV is thus a 'polycentric' strategy intended to make distribution planning more transparent and better integrated. For instance, it seeks to transform electric distribution companies into DSP providers with responsibility for active coordination of DERs. It fosters "transactive energy" ecosystem in which "consumers and other parties can take full advantage of every type of energy resource—on both sides of the meter" [45]. Key to this ambitious goal is reorienting the traditional regulatory model by aligning utility and consumer interests so that both groups benefit from (scalable) improved

Two pricing mechanisms offer a critical role in this regard. First, REV establishes benefit–cost analyses as a foundational procurement tool to determine renewable electricity deployment [48]. Chosen due to its regulatory familiarity and apparent simplicity [49], the multi-year distribution system integration plans (DSIPs) to be developed by utilities seeks to foster a fair, open and value-based decision-making environment for utilities to build out their own competitive advantage in the DER market [45]. The benefit–cost approach will be applied in DSP investments, procurement of DERs through competitive selection and tariffs, and energy efficiency programs. Second, REV proposes using locational marginal pricing (LMP) principles to optimize the value of distributed utilities. Application of LMP principles can help distinguish which configuration of distributed resources enhances system flexibility and yield overall best value to consumers [44]. In terms of a repurposed DER policy, market development, innovation in designing value strategy and benefit–cost of DSIPs, and investment in community-choice aggregation programs, the REV model shares some of these characteristics with other ambitious and successful initiatives, particularly the German Energiewende initiative [50]. New York is not alone in its efforts to improve its utility regulation market and optimal system efficiencies. Parallel regulatory actions have been proposed in California, Hawaii, Massachusetts, Minnesota, and Illinois through its proposed utility of the future study known as "NextGrid" [51]. However, REV represents the most promising utility-as-platform business

**4.1. From centralized models to distributed system platforms**

market efficiency and scalable organizational learning.

**Figure 3.** Components of Hamel business model framework.

production costs. *Uniqueness* demonstrates the level of convergence among business models in terms of conception and execution in ways that add valued to customers; the greater the convergence among business models, the lower the potential for above-average profits. *Fit* means that all the elements of the business model are consistent and mutually reinforcing, and that all the parts work together for the same end goal. Finally, *profit booster(s*) include increasing returns, competitor lock out, strategic economies, and strategic flexibility. Positioning the Hamel business model as the unit for analysis of market reorientation in electric industry thus provides a robust and multi-dimensional framework for evaluating the suitability of new proposals for electric utilities and energy governance in in New York.
