AMP7 will be different from previous AMP periods. The targets will be tough, financial engineering will be curtailed and the industry will be higher up the political agenda. Historically, the industry has always played a long game – it’s been a marathon not a sprint – but it may now be time to turn that on its head.
In Formula 1 motor racing, cars used to drive non-stop from the start line right through to the finish and slug it out. Then in 1957, Juan Manuel Fangio stopped and spent one minute and 16 seconds in a pit stop. The commentators thought he was mad, but he came out refreshed and won. Sprint, refresh, improve – the key to delivering success in AMP7.
It seems a very long time ago that Ofwat published its proposed methodology for PR19. Ofwat made it clear that it expected significantly higher performance from all companies across a broad range of areas and, with the introduction of a number of common performance commitments, had the tools to compare that performance across the industry.
What was also clear at the time, and has been reinforced many times was that the scope for outperformance, and with it improved (or even “expected”) shareholder returns, through judicious financial engineering only was over. Some in the press may choose to argue that Jonson Cox is ‘single-handedly destroying international investor confidence’ in the sector through his pursuit of what he sees as a fairer balance between customer and shareholder concerns. However, it is clear that Ofwat and government have a vision to move the sector into a new era.
How then should companies meet these new challenging targets and ensure they can deliver for their customers, be soundly financed and provide an acceptable shareholder return?
The starting point for meeting Ofwat’s challenging targets and successfully and safely delivering essential services has to be an acceptance that it cannot be business as usual. To reference Einstein, (or Mark Twain): to do the same thing in the same way with the same people and expect a different result, is madness. Companies must take a look at their businesses and commit to the fundamental change that will be required to raise performance to the next level and beyond. This means embracing the need for change, not just accepting it.
Having made this fundamental decision, the next step is to recognise that this really is going to require them to move fast. Companies should not follow the well-trodden and familiar path of establishing a huge, multi-million-pound, multi-year change programme. History is full of examples of this type of failed programmes. Often these involve assigning specific individuals to work on “special projects” which fail to engage with the real needs of the business. They then become self-serving entities in their own right with burdensome governance groups reviewing a plethora of reports, while all the time making little progress, little real change. Critically, they also fail to address the core reason for their existence.
Instead, you need to ensure you have a vision for here the company needs to get to. This must be communicated in a clear and compelling way to all stakeholders – not just those at the very top of the organisation but to all employees, regulators, shareholders and customers. Of course, you will have to have a narrative about how you will get there – but it is critical to state the level of ambition and articulate this in a way which allows each individual to understand the direction and their own personal role in getting there.
Agility and new ideas
Next, embrace agile – the home of the sprint. The agile approach has started to make a substantive difference in the delivery of large scale IT programmes. It enables manageable amounts of change to be delivered with high degrees of user interaction in short sprints, with the opportunity to flex and vary your approach. This can be applied to your whole business, not just your IT. To do this successfully means asking the right questions to identify your transformation opportunities and then working out how to implement those in bite-size chunks. For example, how can we improve our supply interruption performance – should I increase my number of network service technicians, or bypass them and empower my gangs who are restoring supply? You could set up a big business case assessment and process re-design exercise, or you could implement a pilot change in an area. If it works, use that as a basis for transformation and rollout.
Then you should look to recruit from other industries. Ideas, experience and challenge from people who come from outside the sector can stimulate and energise ideas for transformation. The energy industry has been doing this over the last two decades, recruiting expertise from telecoms, retail and consumer service industries to help transform from publicly regulated utilities into increasingly innovative companies bringing new energy options to consumers. The water industry can do the same – establish which industries you believe you can truly learn from, recruit and then establish how you will blend new thinking with the expertise and experience of your current staff.
The changes to company financing and the stringency of new targets will create an exceptionally challenging AMP for the industry. But implementing non-household competition on time has shown it is more than able to step up to a challenge. The transformation starts now – playing the long game won’t work. The sector needs to be identifying improvements now and driving these home in short manageable bursts – the race will go to those who can sprint.
James Turnbull is a transformation expert and John Parsonage is a water expert at PA Consulting