Water Strategy in a Changing World
Jacques Yves Cousteau wrote once that, as a society, “we forget that the water cycle and the life cycle are one”. Indeed we do, and often. Keeping one step ahead of a society’s demand for water is an obligation shared by a small number of people in our society, and within that sub-section of management within water utilities are an even smaller number of those with the time and responsibility for strategy setting. As society changes, so too our appetites and needs. Predicting these with reasonable confidence is no easy feat.
There are three principle uncertainties in water supply in developed countries, each of which has the ability to significantly influence both the external environments in which water companies operate, and their financial and operational place in that environment. These are climate change, consumer usage patterns and technology.
There is no longer any scientific debate as to the existence of climate change. The earth needs net zero emissions by 2050 to minimise the impacts of climate change, and the most likely outcome is that we will breach a 1.5 degree increase in global temperatures between 2030 and 2052 at current warming levels. The “high confidence” forecasts at 1.5 degrees released by the IPCC include severe heat waves on land and drought, with 2 degree outcomes having outcomes more severe; we are currently on track for 3 degrees by the end of the century.
Climate change affects water companies in a number of ways. Firstly, supplying water in a large part relies on the balance between rainfall and usage, with both varying under scenarios of climate change. There is a link between the amount of water supplied, and the capacity of the pipes that are built to transport it. Put simply, when less rain falls, less water is sold, and less revenue is available to maintain and recover the capital costs of both the water infrastructure and the overhead of the water utilities themselves. Under current charging models, it means customers get less water, and pay more per Kl to receive it as the costs of the capital are recovered from a smaller number of units sold. In all, a less favourable outcome for end users and a financial, reputational and stakeholder management algorithm that would trouble even the most hardy of Boards to solve dynamically.
Secondly, consumer usage patterns matter and sometimes it can be hard to see the direction the problem will come from. Ancillary behaviours such as the products we consume have an impact on the amount of water available in the system. In agriculture, different end uses have differing intensities of water usage. Waterfootprint.org reports that growing vegetables requires 322 litres/KG, or 1.34 Litres per kilocalorie (1000 calories). Fruits require 962 litres/KG or 2.09 litres/kilocalorie. Chicken meat requires 4,325 litres/KG and 3 litres/Kilocalorie, in contrast, and beef around 15,415 litres/KG and 10 litres/Kilocalorie. At the margin, decisions taken by a population to eat less meat and eat more vegetables, all other things being equal, have significant implications for water company revenue. Equally, the way in which society chooses to live together matters. By 2030, the world will play host to 41 megacities, each with 10 million people or more. Maintaining equality, services affordability and sustainability within them, with water supply at the forefront, will prove to be a major test even within the most sophisticated and forward planning of utilities.
Thirdly, technology matters. Enabling technologies are now available which can be applied directly to the business of water to enable reductions in costs or increases in productivity, with the most applicable technologies being robotics in Horizon 1, but with liquid applications, Blockchain and the Internet of Things (IoT) waiting for applicability in Horizon 2 and 3. Automating tasks such as processing refunds of security deposits for customers, management of time for employees through automated emails and communications, performance of payroll processing on regular cycles and user administration role management in IT, for example, are the quick wins. It is generally held that RPA will be 30% faster than humans to complete, although this is always best validated through process design and system review.
I have written before that liquid applications, for example conversational robotics, seamless interfaces with household and adjacent products and services, with multi-cloud applications, water companies will manage customer demand in the future. As IoT connected homes become common place, reactive sensors and IoT networks that group products and homes through new modes of supply will be the norm. Water customers will expect a seamless digital experience from their tap to their smartphone, exploring true connectivity and shared capacity that comes with integrated living.
We are in a rapidly changing world, with strategy setting no longer about assets, but about customers, society and technology. Establishing the water company of the future will require careful planning and an understanding of both uncertainties, how they may manifest into scenarios, and which will be most likely. We cannot look backwards anymore in order to predict how we should go forward. How does your strategy stack up?