Water Deregulation: Is the Industry Ready Digitally?
As we enter 2017, the English water industry faces a range of challenges.
Two of the most important of these are deregulation of non-domestic water supply and digital transformation.
From the 1st April this year, and following the example set by Scotland in 2008, 1.2 million commercial water customers in England (businesses, charities and public sector organisations) will be able to shop around and choose their preferred retail service provider.
The ‘Open Market’ is expected to deliver a wide range of benefits to commercial customers including: better value for money, lower bills and charges, improved customer service and more efficient water use. One of the main benefits, especially for multi-location organisations, will be simplified administration through consolidating contractual arrangements, customer service and billing across all sites.
A range of environmental benefits are also expected deriving from the more efficient use of water, reduced carbon emissions from cuts in water use and more innovation use of technology.
From a retailers point of view, deregulation is an industry game changer presenting major challenges in terms of lower prices and margins; increased competition, including an expected 40 new applications for retail licenses; mergers and acquisitions; the emergence of large multi-service providers (water, gas, electricity); together with the need to streamline processes in order to deliver enhanced levels of customer service and consolidated billing.
‘Open Water’ will enforce change across the industry. There will be ‘winners’ and ‘losers’ as the industry transforms. ‘Winners’ will be those water companies who leverage the full potential of digital technology to drive competitive advantage in at least three main areas:
- ‘Externally’ – the use of digital technology for sales, marketing and customer engagement. As the market becomes increasingly competitive, the quality of service experienced by discerning commercial customers will become a key differentiator between competing retailers. This will require the effective use of digital technology to enhance the customer experience especially at ‘Key Moments of Truth’ in the customer journey’; the ability to deliver accurate, mistake free billing being just one example.
- ‘Internally’ – the use of digital technology to streamline internal systems and processes, to reduce costs and improve efficiency, becoming a more agile, fast-moving, data driven business. Embedding technology at the core of everything the business does thereby building a Digital Operating Advantage difficult for existing competitors and new market entrants to copy. A wide range of opportunities exist here e.g. maintaining margins in an era of lower prices by using technology to drive cost and efficiency improvements; consolidated billing systems; business insight derived from advanced analytics; automation; the Internet of Things for predictive maintenance and so on.
- Underlying Business Models – the effective use of digital technology to support industry mergers and acquisitions, especially at the post-merger integration stage; diversification in becoming a multi-service retailer with a single view of the customer.
We will examine in more detail the critical role of digital technology in water industry transformation in a series of blog posts over the coming weeks. For the moment, it is a legitimate question to ask how prepared are UK water utilities for market and digital disruption?
Based on a cross-industry global research project, the best-selling ‘Leading Digital’ book by Westerman, Bonnet and McAfee (2014) identified four main types of organisation in terms of preparedness for digital transformation, as shown in Figure 1 below.
Where does your utility sit on the Matrix of Digital Maturity? Are you a ‘Fashionista’, ‘Conservative’ ‘Beginner’ or ‘Digital Master’?
While there may be some utilities who are ‘leading digital’, the sector as a whole is firmly positioned in the ‘Conservative’ category indicating that there is still a long way to go before the full potential of digital is being realised.
Figure 1: The Digital Maturity Matrix
Please Note: the vertical axis measures ‘Digital Capabilities’, the horizontal axis ‘Digital Leadership’.
As always, comment and feedback are very welcome.
Having built the Central Systems underpinning the deregulated commercial water market in Scotland, and now also the Settlement System for the open market in England, we look forward to helping organisations meet the challenges and opportunities ahead.