Utilities in the water sector are confronted by a number of significant challenges in today’s environment. Aging infrastructure (and the significant cost and complexity of capital improvement programs), the cost and lack of diversity of water supplies, requirements associated with new legislative and regulatory mandates, and customer rate concerns are a few prominent examples. Meanwhile, even for the most resilient utilities, uncertainty around the pace and character of recovery in the broader macroeconomy and the continued impact of water conservation continue to affect customer demand characteristics and expectations regarding near-term financial performance.
Given these factors, decision makers are evaluating methods of enhancing near-term financial performance while considering actions to ensure long-term strategic market positioning. Actions are being taken in the face of cost and revenue results that are not in line with expectations; meanwhile, the long-term dynamics of the water sector continue to be influenced by significant game changers such as climate change, the impact of new and disruptive technologies, aging workforce challenges, and the emergence of new market players.
Objectives of Change
This combination of near-term financial challenges and large-scale structural changes in the sector are driving many water utilities to pursue both near-term cost reduction initiatives as well as programs that reimagine aspects of the traditional water utility business model itself. Importantly, near-term cost reduction initiatives and long-term strategic planning and transformation efforts drive changes to an organization’s service catalog (i.e., what the organization does), its business processes, organizational designs, staffing, and workforce and talent management practices. However, the objectives of change in these areas are distinct and may be at odds with one another depending on the objective.
Change Program Objectives
As reflected in the above table, both cost reduction and strategic repositioning initiatives require transformation across an organization. Navigant’s work with water utility clients confirms that the change management challenge associated with significant transformation increases significantly when near-term cost reduction and long-term strategic change programs are pursued concurrently. In addition to complex program management, actively managing the change—and building and sustaining support across the organization—is critical for utilities that aim to design and deliver a new strategic vision while meeting near-term cost and efficiency objectives. Specifically, our experience working with utilities on both of these initiatives has found that:
- Near-term cost reduction and strategic innovation planning are often not managed and understood as a comprehensive program.
- Properly positioning the utility requires a roadmap that connects the dots across business processes and organizational and technology initiatives and which also understands the change management journey across all planning horizons.
- Insufficient attention is dedicated to continuously monitoring the organizational energy supporting or undermining transformation objectives.
- Organizations may achieve cost reduction objectives, but they can significantly erode positive energy needed to achieve longer-term, innovative, and strategic change objectives.
Leading significant organizational change can be difficult, even in the best of circumstances. Maintaining a focus on the people and cultural aspect of change (the importance of organizational energy) when delivering business transformation is critical, particularly in times of significant transformation. Considering transformation goals and objectives holistically, and understanding the levers available to delivering change optimally across the entire planning horizon, is central to successfully navigating the current environment.
Tags: Policy & Regulation, Utility Business Models, Utility Transformations, Water Utilities
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