A Step-Wise Approach to Achieving Utility Competitiveness¹

By Cledan Mandri-Perrott
Senior Consultant, IP3

About the Author...

Cledan Mandri-Perrott is a Senior Consultant with IP3 in Washington, DC. He is an expert in the development of competitive utility management practices, PSP structures and regulatory frameworks in the water sector and has worked in a number of countries throughout Eastern Europe, Africa, the Caribbean, and South America. Prior to joining IP3, Mr. Mandri-Perrott was an independent consultant and served as a Director of a local joint venture company for an international water operator for a three-year management contract in Trinidad and Tobago. Mr. Mandri-Perrott has been involved as a utility and transaction adviser for water PSP arrangements in Estonia, Nepal, Nicaragua, Bulgaria, Uzbekistan, Argentina and Chile amongst others.

Abstract

The urgency to become more competitive in the provision of public utility services is increasing every day. Some of the pressure comes from customers who are reacting to increases in charges for services provided, some come from elected officials or governments who are reacting to proposals for increased private sector participation (PSP) from the private sector itself or from bi- and multilateral donor organizations. This article is the first in a series aimed at public utilities and their management to assess the concept of 'competitiveness' and to provide some practical guidance and tools for thinking and getting competitive regardless of whether there is public or private involvement. In this article we explore a stepwise approach to achieving competitiveness.

I. Introduction

Utility service providers are under increasing pressure to perform not only from an operational perspective (by providing good quantity and quality of services) but also from a financial perspective (being able to fund capital investment needs without recourse to other sources of external funds).

Historically, public utilities have focused on asset creation and system delivery and not necessarily on competitiveness. This however is changing. Increasingly, utilities are delivering services at competitive prices by a more effective allocation of their existing resources, improved system and information management, and better use of their assets to enable the raising of finance.

The basic premise of the 'Competitiveness Process' is that it should be sustainable. It should combine organizational alignment and commitment from the staff of the utility with a long-term strategic vision of where the utility wants to go. Below we present an overview of a proven process and the basic steps that characterize successful competitiveness programs. It must be noted however that the steps presented are generalized and will have to be adapted to the local circumstances and the changing conditions of each utility.

II. The Steps for Change

Becoming 'competitive' is not something that can be achieved immediately. Rather, becoming and staying competitive requires a permanent change in the utility's culture towards one of innovation, excellence and continuous improvement. The basic premise for success is that the utility is focused on its customers (and not simply consumers!) and that its staff's talent is encouraged and potential harnessed. Below we detail each one of the basic steps and the anticipated timing each step would take to implement.

Step 1: Know where you stand - Timing: 2 to 3 months depending on the size of the utility

At this stage, the utility must determine the current conditions under which it operates, including the local political environment, customer perception and support and the overall performance of the utility in terms of operations, customer service and financial standing (billings and collections etc). According to the Association of Metropolitan Sewerage Agencies (AMSA), whose members have successfully implemented a number of utility competitiveness programs² , "this stage is crucial in building appropriate awareness of relative competitiveness amongst staff and other stakeholders."

Step 2: Agree where you want to go - Timing: 6 to 9 months

Change needs to come from within the organization. In this crucial step the utility must ensure that all staff are clear about what the ultimate goal is. Consensus is needed between management and staff highlighting the role that each one has to play in implementing the process of change. The vision, mission and core services need to be identified, confirmed and / or updated to make consistent with the process of change that is going to take place. Accordingly, the relevant business strategies to implement these will need to be developed.

Step 3: Design how to get there - Timing: 8 to 12 months depending on the degree of the utility's readiness, overall political enabling environment and stakeholder support

Following on the agreements reached under Step 2 above, the next step is to develop a clear plan on how the utility will reach its objectives. This should include issues such as identification of the main barriers and obstacles to change, the priority actions required to overcome these obstacles, any additional actions and support required, and obtaining the necessary support from the local authority and or government. During this phase, it may be possible to identify 'quick wins' that can be implemented immediately. The identification of these is fundamental as it will embed the process of change and demonstrate that change is possible both internally (to the staff of the utility) and externally (to the stakeholders i.e. customers and government authorities). The ability to demonstrate early successes can be highly effective in developing buy-in amongst staff and stakeholders for the process of change, and such buy-in is critical to the long-term sustainability of reforms.

Step 4: Roll out the changes - Timing: dependent on the program of change to be implemented but typically between 18 to 36 months

Implementing the changes that have been identified is crucial to the success of the program. As discussed in Step 3, realizing 'quick wins' ensures that the process of change starts and is highly visible. Other changes that will be implemented by the utility can be classified as changes in practices (the way business and work is carried out on a day to day basis e.g. energy management, maintenance and operations management, procurement of goods and services etc), organizational changes (the manner in which resources are allocated to undertake tasks e.g. job descriptions, organizational hierarchy etc) and technological changes (the way modern tools such as billing and commercial systems can be used to improve overall performance). Clearly, given the inter-dependent nature of these practices, if a change is done in one area it will affect another. This must be considered carefully and adequate steps taken to ensure that these changes can be dealt with in an effective and timely manner. Consideration should also be given to the competence level of staff involved in the change activities, and, as appropriate, skills assessments should be made and skills enhanced through targeted training and educational programs. It must be recognized that it is likely that this step will have a number of activities which are running simultaneously or that will be dependent on each other.

Step V: Sustain change and continue to improve - Timing: ongoing

As mentioned at the beginning, competitiveness is not simply a formula to be applied and then forgotten. It is a systematic approach for continuous improvement and enhanced performance. To truly become competitive, the utility must embrace the change itself as well as the process of change and create the necessary conditions to sustain that change. One fundamental factor that will determine whether change is sustainable is the utility's ability to develop and retain the right skills and expertise. This involves ensuring that there are adequate recognition and reward programs that support the utility's culture of change and continuous improvement.

III. Conclusion

This article has presented the basic concept of competitiveness and the steps that can be taken to help a utility become more competitive. Regardless of the form of management - whether public or private - the competitive principles and the steps towards becoming and staying competitive which have been discussed above provide a sound and tested methodology. Consideration should be given to the local conditions, which will clearly affect the sequencing of the proposed steps towards competitiveness.

Finally, experience elsewhere suggests that utilities that pursue a competitiveness process typically reengineer their organization and operations to improve performance or reduce costs to levels comparable to their private sector counterparts. The timing of implementing these changes will vary depending on the local circumstances and other factors such as readiness for change, executive leadership, empowerment of the management, and level of resistance. Moreover, steps 1 and 2 will have to occur first in order to build a foundation for the remaining steps, but steps 3 and 4 may run concurrently especially if the utility is seeking to achieve some 'quick wins'. Step 5 relates to maintaining and sustaining change. Not all the techniques outlines in this article may be applicable to all utilities, but the steps presented here provide a sound and systematic approach towards achieving the competitiveness objectives.

For more information, you may contact Mr. Mandri-Perrott at cmandriperrott@ip3.org

¹ This article is based on "Thinking, Getting, Staying Competitive - A Public Sector Handbook", by the Association of Metropolitan Sewerage Agencies (AMSA) and the Association of Water Agencies (AMWA) in the United States. Copies of this document can be obtained at www.amsa-cleanwater.org

² The U.S. water utilities of Orange County, Florida; Fort Wayne City Utilities, Indiana; Colorado Springs Utilities, Colorado; and Houston Public Utilities Group, Texas are examples of public utilities that have successfully implemented competitiveness programs.

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