Water po v transforming to operate in a digital world_final
1. An introduction to Digital Operating Model
The Open Water Programme
Transforming to operate in a digital world
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Digital Masters – Companies that use digital technologies to drive significantly higher levels of profit, productivity and performance (previously referred to as digirati) –
Leading Digital, p.g. 3
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Leading Digital, p.g.4, Harvard Business Review Press, October 2014, A collaboration between Capgemini Consulting and the Massachusetts Institute of Technology,
Authors: George Westerman, Didier Bonnet, Andrew McAfee
The Open Water Programme
will transform the way water
companies operate across
the industry. Those who
include digital at the heart of
their operating models will
lead the competition.
The regulatory impact of the Open Water
Programme is a game changer for the
water industry. It will drive change across
the sector, creating a new market for retail
water and sewerage services for 1.1 million
non-household customers in the UK.
Figure 1.2: Digital Masters outperform their peers
Watercompanieswhoseektocompeteand
operate in the newly opened business and
retail market will need to invest in operational
changes that develop a number of
capabilities, including; marketing, customer
retention and channel management in their
new retail arm. This operational change
will also provide organisations with an
opportunity to invest in digital technology
and capabilities, which will enable them
to gain a competitive advantage. A joint
research programme between Capgemini
and the Massachusetts Institute of
Technology over the past three years has
led to the recent publication of Leading
Digital, which shows that those companies
who embrace digital and operate as “Digital
Masters”1
are 26% more profitable than
their competitors.2
Basket of indicators :
• Revenue / Employee
• Fixed Assets Turnover (Revenue /
Property, Plant & Equipment)
+6% +9%
-4% -10%
Basket of indicators :
• EBIT Margin
• Net Profit Margin
-11% +26%
-24% +9%
Revenue Generation
Efficiency
Profitability
Note: Average performance difference for firms in each quadrant versus the average performance of all large firms in the same industry for the 184 publicly traded companies
in our sample. EBIT, earnings before interest and taxes.
Source: Adapted from G. Westerman, Mael Tannou, Didier Bonnet, Patrick Ferraris, and Andrew McAfee, “The Digital Advantage: How Digital Leaders Outperform Their
Peers in Every Industry,” Capgemini Consulting and MIT Center for Digital Business, November 2012.
3. 3
Figure 1.3: Digital mastery by industry
Consumer
Packaged Goods
Manufacturing
Pharmaceuticals
Retail
TelecomTravel and
hospitality
Utilities
Insurance
Banking
High Technology
Digital Masters
Conservatives
Companies that have a strong overarching
digital vision and culture, and the digital
initiatives they have are generating
business value in measurable ways
Companies that have an underdeveloped
digital vision and few advanced digital
features, but are taking active steps to
build digital skills and culture
Beginners
Companies that are sceptical of the business
value of advance digital technologies and
have an immature digital culture
Fashionistas
Companies that have no overarching
digital vision, and the digital features
(such as social, mobile) they have
exist in silos
Capgemini’s cross sector research into
the way that companies need to change
how they operate in the digital age has
identified four digital themes affecting
organisations:
1. Business and Technical Alignment
– increased usability is placing
technology at the heart of the
business, it is no longer the sole
domain of the IT Department
2. Customer Centricity – increased
customer choice and customer
voice through digital channels are
resulting in reduced customer
loyalty and increased customer
expectations. Organisations need
to meet their customers’ needs or
lose market share
3. Data Driven – data is big and
growing exponentially. Those
organisation who effectively master
this information to drive decision
making see improved performance
4. Pace, Agility and Iteration – the
pace of change is disrupting the
business landscape on a daily
basis. Organisations increasingly
need to be flexible - changing the
way that they operate rapidly
Over the last 12 months our experts have
seen the water sector start to wake up
to these drivers. Businesses that don’t
respond run the risk of being left behind.
There is significant scope and opportunity
for water companies to embrace different
aspects of digital and leverage the benefits
of new technology, as they are forced
to update their operating models and
organisational structures in line with Open
Water reforms.
Source: G. Westerman, Mael Tannou, Didier Bonnet, Patrick Ferraris, and Andrew McAfee, “The Digital Advantage: How Digital Leaders Outperform Their Peers in Every
Industry,” Capgemini Consulting and MIT Center for Digital Business, November 2012.
4. 4
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http://www.open-water.org.uk/about-the-programme/
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Leading Digital, p.g.77, Harvard Business Review Press, October 2014, A collaboration between Capgemini Consulting and the Massachusetts Institute of Technology,
Authors: George Westerman, Didier Bonnet, Andrew McAfee
Business and Technical
Alignment leads to
competitive advantage:
Digital technology is revolutionising
industriesandwaterutilitiesarenotimmune.
Digital technology offers opportunities
to overcome prevalent challenges in the
industry and turn enforced changes into
competitive advantage.
The coming Asset Management Period
will bring with it challenges of increasing
customer demands, leakage and water
scarcity, energy cost management, aging
infrastructure and deregulation of the
market place, all of which can be impacted
by available digital technology and tools.
Operational change to meet the demands
of Open Water should result in bringing this
technology into the new retail business,
which in turn can bringbenefitstothewhole
organisation. Furthermore the pressure
on price for both the wholesale and retail
entities means that efficiency will become
even more critical to profitability, driven
by business and technical improvements
across the value chain. With a number of
potential initiatives across the business and
a range of technical solutions that water
companies may implement, from real time
network control and state of the art SCADA
systems, to single system virtualisations
and smaller tactical solutions, it is essential
that water utilities structure operational
changes to deliver business and technical
alignment.
Customer Centricity as a pre-
requisite:
The Open Water Programme brings the
separation of the wholesale and retail
entities for business customers at a time
when customer expectations are universally
rising. Now is the time for water utilities
serving the business retail market to put the
customer at the centre of their operations.
Creating a “customer focused” sector is a
key part of the Open Water Vision3
. Thanks
to the activities of customer centric sectors
such as retail, telecoms and banking,
customers now expect to be able to
engage businesses via a range of channels,
including social media and mobile. Water
utilities need to evolve their operations in
order to meet these expectations, whilst
exploiting technology to keep service costs
as low as possible. The authors of Leading
Digital make this clear: “using digital
technologies to combine excellence in
both operations and customer experience,
weaved into a differentiated business
model, pays dividends”4
.
As the non-household retail market is
opened up to competition, customer
service will be a key market differentiator.
By transforming non-household retail
operations so that the customer is at
the centre of everything the organisation
does, water utilities can evolve to meet
the more sophisticated customer
expectations that market opening will
bring. Putting the customer at the heart
of the new retail business is a must for
companies who want to compete in
this new market – a satisfied and valued
customer is more willing to settle bills and
remain loyal in a competitive market.
Leveraging Data:
The Open Water Programme provides
the impetus for water companies to invest
in data analytics and utilise customer and
systems data to drive operational efficiency.
Customer data can be used to help deliver a
personalised, customer centric experience,
but also to help understand the risk of bad
debt. As a result, data can be used to drive
a good customer experience for the new
business retail market and could then be
replicated to bring benefit to the household
market.
In order to drive insight across the
wholesale and retail business, water
companies require a change in mindset
towards data analytics and should start to
see it as a core capability. The opportunity to
develop operational efficiency by using data
effectively represents a huge opportunity for
water companies to combat some of the
key challenges in the industry. For example,
the deregulation of the market will put more
price pressure on the wholesale market,
where the reduction of water leakages
through the leveraging of asset condition
and field force analytics would be beneficial
and help to manage costs. As regulation
will force operational changes anyway,
now is the time to make the most of the
restructuring by developing a dedicated
data analytics capability.
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Pace isn’t a choice –
operational change must
happen before 2017
The Open Water Programme is bringing
about rapid and substantial change
to an industry which has largely been
undisrupted for the past 25 years since
privatisation. As the Government and
Ofwat become increasingly assertive
in deregulating the market, and as
competition demands companies respond
faster, water companies will need to
continue to adapt their operating models
and become more responsive to the
new environment. The combination of
opening up of the non-household water
market to competition, and the availability
of digital technology, decrees that water
companies can no longer be protected
from disruptive changes in the industry.
Instead water companies must now be
ready move with pace and agility in order
to quickly acclimatise to the changing
environment and keep up with their
competitors.
Digital Operating Model:
Capgemini have an established and proven methodology to design Operating
Models in a digital world. It is underpinned by an iterative approach that seeks
to demonstrate value to the business quickly and then build in changes as the
organisation learns and evolves. It recognises that there is more to digital than
just the capabilities which interface with the customer, and that for full benefits
to be realised there needs to be capability enhancement across the business.
Our Operating Model experts are currently supporting water companies in a
number of countries, and work hand in hand with sector experts to understand
the specific challenges of the water industry in the UK.
Conclusion
In Leading Digital, one of the main pieces of advice is simple: “Consider how
you might transform your industry before others do it”5
. Open Water will bring
enforced change to the way that water companies operate: why not use
these enforced changes to leverage the power of digital and drive competitive
advantage across not only the new retail business but the wholesale
organisation too?
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Leading Digital, p.g.94, Harvard Business Review Press, October 2014, A collaboration between Capgemini Consulting and the Massachusetts Institute of Technology,
Authors: George Westerman, Didier Bonnet, Andrew McAfee
