How to Drive Innovation in Water. Or, it’s the 3Ps, not P3!
“If you buy our new technology, you will deliver better service to your customer at lower cost!”
I receive an email or call almost every day that is a version of this comment. Every. Day. Buy my gadget, hire my expertise, adopt our fancy new software and you will do better at lower cost.
“Water utilities are so conservative and resistant to change.”
I hear this comment on regular basis too. This usually comes from a frustrated water entrepreneur just after a reference to the first comment. The frustration comes from the perception, and likely the reality, that most water utilities are reluctant to adopt new technologies and strategies
The key question is why? If we can figure out why, perhaps we can figure out how to overcome the obstacles to innovation that enable better service at lower cost. We can seek a “moonshot” to solve this challenge only if we understand it to its core.
The easy answer is to paint water professionals as risk averse and conservative. Often when I hear this explanation, there is a tinge, sometimes more, of frustration and criticism.
Not so fast. There are three absolutely rational reasons that utilities are slow to innovate. The first is due to the product we deliver – clean water – which is directly connected to public health. We do not have the luxury of trying a new technology that does not work. We could face enforcement, fines and penalties at the least, and could endanger people and other organisms at the worst. When you must be right all the time, then using technology and approaches that you know work is rational.
The second reason is financial. Most water utilities have tight budgets – barely enough funds to do required work, let alone the vast array of improvements needed. We simply will not invest precious funds in a new approach unless we are sure it will work – both due to public health (see reason 1), and due to the lack of any funding to implement an alternate solution if the new idea does not work.
The third reason is a challenge all its own: our staff is trained to operate and maintain existing approaches. There are investments that must be made separately from the financing of the new approach itself – to develop training, maintenance manuals, new inventory and new operational techniques – to accommodate new approaches. This investment is rarely included in the “serve better and cost less” sales pitch.
These three reasons reflect a deeper, systematic weakness that inhibits innovation – starting with the supply and demand of innovation.
First, let us consider demand. In the following chart the horizontal axis is quantity, from few on the left to many on the right. On the left vertical axis are resources broadly defined, low at the bottom and high at the top – financial, personnel and expertise, technological and research capacity. The resulting demand for innovation is therefore a steeply downward sloping curve: few utilities with high levels of resources; many, many with low resources. By the way, this correlation probably correlates significantly with size – larger utilities have more resources on average than smaller utilities. However, this is not exclusively true – there are large utilities in distressed areas that are hard pressed for resources, and there are small utilities in relatively high income areas that have excellent resources.
Next, we need to consider the supply of potential innovative projects – measured on the chart by a right vertical axis that measures the potential value of innovation. The resulting curve starts fairly far up the vertical axis because there are plenty of projects even for the most highly resourced utility. Yet it also slopes upward, as we identify the multitude of projects that could be undertaken by the large number of low resource utilities that are not getting done. With each passing year of inaction, the value of innovation not done increases – particularly measured by the utilities without the resources to do them.
This graph reveals some interesting conclusions. First, most of the innovations are undertaken by the smaller number of highly resourced utilities – represented by the area “A” on the left side of the chart. Second, there is a vast number of high value projects that are not undertaken by utilities of reduced capabilities on the right side of the chart (“B”). Moreover, although not revealed by the chart alone, the performance chasm between the few highly resourced utilities on the left and the vast number of all the others on the right is growing.
The hard, cold reality is that the vast number of resource constrained utilities are NOT undertaking the vast number of innovative projects that could deliver the most value. This is the challenge our moonshot must overcome.
Let’s return and portray the sales pitch of our entrepreneurs on another graph. The horizontal axis in this case is time, with time moving forward to the right. On the left vertical axis is cost, and on the right vertical axis is service. Unfortunately, the steady state of most utilities – and certainly the large number of constrained utilities – is for costs to be rising steadily over time as equipment and facilities wear out and require more maintenance. Unfortunately, despite these efforts, service continues to decline – because these utilities simply do not have the resources to catch up on all the work that is needed.
This is the hard cold reality from another perspective: utility costs and rates are climbing while service is declining. There is no business model that can survive higher costs and worse service. Ratepayers do not want to pay more for less, which then leads to more resource constraints, which drives service down further, which leads to further deterioration of customer support, and so on, and so on, to oblivion.
Our entrepreneurs get frustrated because they have the solution: our gadget, technology, software and/or management approach can reverse this trend, reducing costs and improving service. That will start a positive relationship with your customer and hopefully so-on in an upward spiral. That is here:
So why is it not happening?
The answer is found earlier in the cost line. For a constrained utility to consider a new idea a wide range of steps must ensue before any cost reductions or improvements are realized.
Let’s relook at the slowly rising cost curve for a constrained utility and assess what an effort to adopt innovation requires. The curve now shows five bumps of increasing costs, and five decision-making points – all before the innovation is adopted and savings realized.
Decision 1: Leadership of the utility must decide to take on an innovation. This step itself commits utility personnel to an investment of time and effort.
Cost a: The first step is an assessment of what is the condition of existing services. Only a clear-headed sense of where and what a utility is doing in the present can set an agenda for what innovation may be relevant.
Decision 2: Leadership must decide which areas are suitable for innovation – and select one or two for a greater in-depth analysis.
Cost b: An more in-depth assessment of one or two areas and identification of potential innovations that may be relevant. The assessment of potential innovations is potentially daunting given the vast number of options and approaches that are in the marketplace.
Decision 3: Selection of an innovation to take to the procurement phase to develop detailed specifications for what is sought.
Cost c: Development of clear specifications for the innovation that is sought, leading to a procurement process. This step can include a request for information (RFI) or request for proposals (RFP) or both. The RFI is typically used to narrow down the range of selections for the RFP. The RFP process may also require determining whether Design-Bid-Build (DBB) is used, or Design-Build (DB). DB is often faster and cheaper to implement, but requires more resources from the utility to oversee the process. DBB is a more standard process, but does require a separate RFP process to bid the work once designed – and often yields conflict between the design team and construction team if there are problems.
Decision 4: Review of responses to the RFI/RFP and selection on technical and pricing grounds. This selection may be in several rounds of DBB and requires significant technical and financial acumen to evaluate and compare bids.
Cost d: Funding the design and building of the innovation – whether in DBB or DB. This is usually the most expensive element of the process and also requires the most oversight.
Decision 5: When to accept the innovation as complete and begin operation.
Cost e: Significant time and funding must be invested in training, commissioning the new approach and developing standard operating procedures for operations and maintenance, including suitable inventory and timing of appropriate actions.
NOW, FINALLY, WE CAN START SAVING MONEY AND GIVING BETTER SERVICE TO OUR CUSTOMERS. But my gosh, look at all the difficult decisions that must be made by the utility (all five of them, broken out into dozens and dozens of smaller decisions) and the huge range of investments that must be made to get to this final point (all five cost bumps, a+b+c+d+e).
This reality is why few of the vast number of resource constrained utilities adopt innovation. It is not a challenge with the return on investment that we gain at the end of the process, but the frightening level of resources needed to get to that point in the first place.
OMG, is our moonshot going to crater even before we lift off?
The answer is a resounding NO, and is in fact the reverse. Our moonshot solution is founded in this very same cost and decision-making analysis.
The challenge is not that the decisions and investments must be made to reach the promised land at the end. The challenge is that today every utility undertakes this process separately. In rare cases where a utility decides to seek out relevant innovations, each utility undertakes all the steps I described above separately from all their brethren.
The great irony to this challenge is that most water treatment facilities are far more alike than not. All have mains, pumps, valves, primary and secondary treatment, biosolids, disinfectant, customers, rates meters… Of course, there are differences from one utility to the next, but the similarities far outweigh the differences.
One common answer is a P3 (public-private partnership). If there is a reduction of costs associated with a new approach, a private party can pay for the up-front costs and then get repaid, with a return, by sharing in the resulting savings. This technique has and can work.
Yet P3s have never really gained traction in the water world because of the reality of Graph 4. Most P3 financial calculations compare the private investment of capital to the cost of design and construction. The P3 is not even a relevant outcome until all the upfront work has been done to identify a suitable innovation (a+b+c), and often does not account adequately for the costs associated with commissioning, training and new maintenance and operational procedures (e).
The moonshot turns P3s on their head – or at least reverses the phrase. The moonshot is the 3Ps: Platform; Public to Public (P2) partnerships, and then P3s! A quick word on each.
The first P is a platform. Our moonshot needs a nimble and fun platform that can allow utilities of every size and variety to join with others to share the upfront costs and work associated with considering innovation. A platform would enable sharing of each of these steps:
- Assessment of Common Conditions
- Assessment of Selected Responses.
- Joint Review and Selection Process.
- Joint Purchasing and Implementation Process.
- Potential for Shared Operation and Maintenance Efforts
Through a web-based platform, utilities would share in the costs of (a+b+c+d+e). The platform would need to help utilities with similar operational characteristics and/or geographic proximity to work together to jointly do what they already do – or could do.
The second P is P2 – Public to Public partnerships. Even with a nimble platform, better resourced utilities are likely to need to take a leadership role. Perhaps a larger utility runs and drives the process and shares costs with smaller utilities. The larger utility will have on-staff personnel to oversee each step. The smaller utility gains the benefit of these personnel for a fraction of the cost. The larger utility gains a percentage of costs they would have borne alone covered by others. Everyone is better off.
The third P is P3. Sharing the upfront investment and expertise to identify suitable projects will generate projects that can reduce costs and justify a P3 investment. Moreover, the platform can help bundle similar projects together for multiple utilities – allowing investors to focus their funds on groups of nearly identical projects, rather than developing each independently. This will save transactional costs on all sides, and make the P3 process even more desirable.
The moonshot is then a national, and perhaps someday an international, network of well-resourced utilities that work with their smaller or less-resourced brethren through a portal to share all the upfront costs of new innovations – so that the group can also share in the resulting cost savings and performance improvements. And on many more occasions than today, these upfront costs will be covered by private funds – with investors fronting the money to share in the savings.
Perhaps an example will help clarify this process. DC Water, the well-resourced utility that I lead in Washington, DC, has embarked on an effort to build green infrastructure (GI) to manage stormwater. One of the benefits of GI is that it creates the need for local jobs to design, build and maintain the infrastructure at the street level. Yet a parallel weakness, at least at first, is that there are not many workers trained to do this work.
Here was an opportunity, and an example of how our moonshot would work! DC Water has the up-front resources to invest $900,000 to create a certification for green infrastructure to start developing a qualified workforce. Working with the Water Environment Federation, a national trade association, DC Water funded the program up front. In the old model, we would have stopped there. And any other city seeking to develop a GI program would have separately developed their own program.
Instead, even without the benefit of a platform to publicize and form the partnership, DC Water and WEF recruited more than a dozen other cities to join the effort. Each of the other cities donated $50,000 to the effort – a significant portion of which was refunded to DC Water. In the end, DC Water was refunded more than half its initial investment, and all the other cities benefited from a fully developed GI certification program for a fraction of the price of developing one on their own. Everyone is better off – everyone participates in the program – the program is therefore better – and we have a national program that is growing for every community that follows.
This example provides a window to what is possible. A well-designed platform will make forming the partnerships and alliances easier. Sharing costs will reduce the obstacles to innovation. The new gadgets, technology and approaches can take hold – we can provide better service at lower cost.
In the future, a day in the life of a leader of a water utility might therefore look like this:
“Got it Tom, I hear you on our Customer Information System. How long until support ends.”
A harassed General Manager slumps back in her chair, shaking her head as she listens. She asks for ideas from an equally harassed Chief Information Officer, who also holds down operations, planning and strategy for the utility. “Let’s Blue Wave it…”
“Agreed, boss, take a look at the TED Talk on CIS on the portal, I’ll stop by later and we can get a sense of our options.”
Assembled in her office later that day, the Blue Wave portal streams to life on the screen.
“Tom, the TED talk is scary funny, with emphasis on scary. This could take us years and we might still fail. But I did poke around a bit and see we have at least three interesting options.”
She taps the screen several times and stops to point, “Our friends up in Chicago just implemented a multi-million dollar upgrade to their CIS and are now state of the art. They are offering to provide customer services for other utilities for what sounds like a low per-customer fee.”
“Boss, we would have to migrate our information to them,”the CIO responds.
“True, but they we would not have to worry about the software or hardware and can redeploy our customer service employees. Plus, we don’t have to fill those vacancies.”
“Worth a look,” Tom says, “I seem to recall there is a tool on Blue Wave that can compare relative costs. What else did you find?”
“Well, in case we want to consider upgrading and handling CIS directly, Blue Wave is calling together a group of utilities from across the country to jointly assess and review a CIS package. From the schedule, we have 60 days to determine if we want to join the group.”
“How many are in?”
“So far, 25 utilities have expressed initial interest. We could get an amazing volume discount, share in costs of procurement, and help each other do this right if we select a product together.”
“Boss, I seem to recall when we used Blue Wave to source pumps, we got some great advice from San Francisco who had already installed them and knew exactly what to do.”
The GM noda and squints back at the screen, “In fact, Blue Wave is offering several Blue Box CIS systems that they have reviewed for technical sufficiency with testimonial statements from some of our colleagues. If we select one, we can pair with an agency that has already done this.”
The GM sits back.
“Fantastic options Tom – and all better than just figuring this out on our own. Is there someone we can talk to at Blue Wave to get some advice?”
“Sure is, we are members – didn’t cost a dime. I’ll text and set-up an appointment on Skype.”