Transformation: What does it really mean?
Transformation is a buzz word of late in the water sector. Terry Povall looks at what the transformation initiatives entail and what they mean for the future of the industry.
Before we answer that, we need to look back over the past few years at the major business transformations that have taken place in the sector, and what impact they have had on it. If the definition of transformation is "the move from one state to another", then one can point to several organisations that have already experienced transformation of significant scale. These transformations impacted heavily on the sector in the way that those water companies now run their businesses and in the way others have followed.
The first major transformation was undoubtedly Welsh Water's introduction of the Glas Model in 2001. This saw the move to a not-for-profit business. And it led to an industry first in the outsourcing of the whole of its operation and maintenance works, and also its customer services.
Although this initiative was heavily influenced by the demise of the Hyder Group, and the subsequent acquisition by the Western Power Division, the success of that outsourced venture in AMP3 led Welsh Water to replicate the procurement process in AMP4.
Elsewhere, the merger of the three regional water companies into a single organisation, Scottish Water, was followed by another industry first: the development of single entity, Scottish Water Solutions (SWS). This led primarily in a joint venture approach by United Utilities and Thames Water in another industry first to lead the delivery of the Q and S II capital programme in Scotland.
Again, indication of success of that model is reflected in the fact that Scottish Water has reappointed SWS on its Q and S III programme. In both the Welsh and Scottish examples the evidence provides to the outsider a clear indication that not only have the alternative procurement routes proved successful but also that the core business has changed to accommodate these new ways of working
While the regulator has not allowed wholesale replication of the Welsh model, many have followed the model in part by outsourcing elements of their core business. In addition, the award of the 4D Model in Southern Water to United Utilities, Montgomery Watson and Costain is a variation of the theme in Scotland.
Another major transformation that might affect the industry is the agreed acquisition of Thames Water by the Macquarie Group from RWE. Although its preferred bid status is not due for finalisation and acceptance until December, subsequent change is inevitable.
In Northern Ireland, the government concludes that the most cost-efficient solution to create the sustainable water infrastructure that the province needs is to move the water service away from central government funding and control, and establish it as a self-financing, independent, government-owned company. The aim is to achieve one of the largest reform programmes yet seen in Northern Ireland.
Again both of these are likely to involve major transformations of the way businesses are run and this will also have a potential long-term impact on the supply chain and how that is used. All these initiatives appear to have brought rewards in delivering more efficient businesses yet the industry does not have to look at wholesale transformations to achieve similar success.
Following privatisation, the water companies looked at different ways of delivering their capital programmes, which, over the years, have resulted in large-scale partnering arrangements being put in place in the sector. This, in itself, has been a major transformation, as organisations have had to deal with the move from adversarial to collaborative working arrangements.
Following early concentration on the capital programmes, we have seen an enhanced focus on the operation and maintenance areas of the sector as regards efficiency and while there is still a lot to do in these areas organisations are looking for other areas where they can drive for more efficiencies.
Several companies have reported substantial areas of savings in capital delivery and operation and maintenance. So where else can savings and efficiencies be made? There is a natural transgression from looking at capital delivery and then operation and maintenance into business processes and this is a route that many have been taken (Fig 1).
Business processes can be better phrased as "how we run our business" and "what are our costs to serve". Early interventions into this area have shown there is plenty to go at.
As an example, two common and key areas associated with business process improvement are knowledge capture and sharing, and systems and processes. As regards knowledge capture and sharing, knowledge of how work is performed is seldom stored in one place. This makes it difficult to share across the business and the supply chain. Some companies have improved the knowledge of employees and collaboration within the supply chain by storing such information on line.
On the question of systems and processes, many staff in water companies talk of new processes being layered into existing systems without the removal of the old process.
The net result is that applications that underpin the business are out of date and form a patchwork quilt of silo systems.
Some leading utilities have proven the significant cost and performance benefits of employing an integrated suite of modern customer, work and asset systems.
There are numerous examples but the key theme is that the underlying business capabilities of several water companies has remained unchanged in recent years. And it is only the major transformations highlighted here that have aggressively dealt with the need for significant improvement.
Overall, the current business processes are constraining organisations. And there is an urgent need to build a set of improved business capabilities that can be implemented and sustain performance improvements.
The efficiencies to be achieved are very visible, and many organisations are already undertaking transformation initiatives in whole or in part in their businesses.
There is a risk, however, that where these are not implemented effectively, the problem of layering in processes and ineffective change will add to the problem, not fix it.
Fig 2 shows a typical process that an organisation might follow to identify change and bring about transformation within their business. Associated with this process map there might be a series of typical activities such as:
- Review existing initiatives
- Undertake one-to-one interviews with key stakeholders
- Understand the status across the group
- Identify and review existing metrics and measure of process
- Use the above to prioritise where to focus
- Map the process across the group
- Use the metrics, measure and process to identify where performance can be improved
- Define the future improved process and Develop the implementation plan
- Implement the solution
Several reasons for this exist but the key one is the inability of change managers to bring about effective transformation due to reluctance to take up the new way of working.
The challenge is: Why would someone not want to do this and adopt the change? And this is faced by an equally challenging question from individuals: Why should I do this? The answer is simple: People will only change and support change if there is something in it for them. And it is this aspect that is the cause of failure of most transformation programmes.
Seldom are benefits identified at all levels. And this leads to cynicism as to whether the prophesised benefits have in fact been delivered. Most organisations are implementing change through internal management resources or the appointment of consultants.
Many believe that the internal review of business processes will fail because individuals carry baggage, and that this approach lacks external benchmarked perspectives.
Consequently, internal teams are often supplemented by consultants. While this brings perspective, there is still a feeling that something or someone is missing. What is missing may be someone with first-hand experience of the pain and benefits.
When the industry experienced similar problems in building definition of project requirement before getting them off the ground, it brought in contractors early in the project cycle. This avoided proposals of better ways of working when it was too late.
Despite early resistance, this has proved successful. So the challenge is whether contractors can play a role in supporting organisations in change based on their own organisation experiences.
The answer has to be yes. And, while most contractors will be quick to point out they are not in the consultancy market, surely they need to be involved in reshaping businesses where they are looking for long-term sustainable workload.
It is quite a different approach but contractors surely have a lot to offer. It is not just about pipes in the ground.
Remember, if we always do what we have always done, we will always get what we have always got.
Terry Povall is head of water at EC Harris. T: 0151 243 8490.