Managing Discontinuous Change in the Water Industry: Part 1

Management Strategies

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In 1986 Charles Handy, the British management thinker, published The Age of Unreason. The book is full of provocative prescriptions for organizations, individuals and societies.

Handy’s tale of the behavior of frogs is particularly eye-catching. It turns out that if a frog is placed in a pan of water and if that water is heated gradually, the frog will allow itself to be boiled alive. It is too comfortable with continuity to realize that continuous change at some point can become discontinuous and demand a change in behavior.

There is an axiom that change is the only constant. However, that usually means change with a pattern. Discontinuous change is the opposite. Today, most organizations find themselves in environments where this type of change can occur at any time led by technology, customer preference, competition, regulation or legislation.

The Environment

This material does not intend to portray the water industry environment in great detail. It should be sufficient to provide a few observations in support of the supposition that managers operate in particularly treacherous times. We then will proceed with the expectation that while the following discussion of management issues is generic it is, in our experience, applicable.

Water supply clearly is one of the most important functions in society. As such, it is and will be scrutinized by many people including customers, its own managers and staff, legal professionals and politicians. In addition, there are many important issues being discussed right now.

Perhaps the most pressing of these issues is the need for infrastructure financing. According to the AWWA, the capital requirements of the water distribution system for the next twenty years will run around $325 billion. When wastewater plant requirements are added, the total is around half a trillion. The causes for this need include new and more aggressive environmental regulation, mains and pipes that are worn out or below currently required capacity and results of deferred maintenance. In addition, water conservation will require new construction to deliver reclaimed water wherever this can be used safely.

The impacts of various forms of physical technology, media attention, customer attitudes and customer demands are separate yet inseparable. Physical technology should lead to improved efficiency but does not always. It has the potential to lead to quality improvement and this is regularly reported in the media. Customer attitudes reflect this coverage and encourage new forms of regulation and legislation. Much of this is both desirable and necessary as in the case of continuous attention to water quality. However, the simultaneous pressure on quality and rates creates an equation that is difficult to solve. Service equals fast, good and cheap, all at the same time.

Whether or not to engage the private sector more extensively is another issue. Rebuilding and updating of infrastructure together with improvement in quality and customer service were key factors in the decision by the British government to sell the regional water authorities in England and Wales in the privatization program of 1989. The French have taken the outsourcing route for most of its water industry whereby private firms finance and manage total systems through long-term contracts. The need to keep the infrastructure current is a motivation for this type of de facto regionalization combined with private sector management of operations and maintenance.

The French conglomerates, British water utilities and American private water management companies are now making competitive inroads into the United States water industry. Private competitive involvement is expected to expand. Managed competition is one such form. Our firm has observed positive experiences with these types of arrangements for non-core activities in the UK. However, these water companies are in the private sector, and in labor/management relationships that are different from those in the U.S. In the view of industry executives in this country, the results have not been encouraging, and this form of public/private relationship is not likely to expand.

The direct outsourcing of selected activities is another form. This method faces two concerns. One is the need to draw bulletproof lines of demarcation between those functions that will be handled by the contractor and those that will remain with the owner. The tentacles of one often tend to invade another, causing avoidance of accountability. The other concern is management of the contracts, making certain that hidden costs and associated aggravation do not absorb available benefits or turn the arrangement sour. Such concerns may lead water organizations to outsource their activities more comprehensively, accelerating design/construct and operate arrangements for facilities or adaptations of the French model for the whole.

There are about 55,000 water delivery systems in the United States. For all of the debate about the merits of the British privatization, the 1974 combination of hundreds of local water, wastewater, flood control and river management activities into the ten authorities has been regarded as a model of the value of regionalization. After a period of painful integration, improvements in both cost and service took hold as would intuitively be expected. There is a trend toward combinations in this country that will no doubt accelerate.

As water industry managers continue their efforts to steer their organizations through day to day improvement, they will be faced with these types of issues. There also are growing needs for new management technology and the demand for a coherent response to a customer base that grows more articulate and organized in its demand for improved quality at lower cost. How will the seventy five percent of water systems that serve one hundred thousand customers or fewer (according to a 1996 AWWA survey) attract and retain the talent they will need?

Any one or more likely a combination of such issues can create what Andy Grove of Intel calls a strategic inflection point. This is a development that potentially can change the landscape so fundamentally that it cannot ever be the same again. While there will be those that can weather this type of discontinuity, many more will need to seriously re-examine their reason for existence and/or focus on the transformation they may need to embark on.

The Elements in Transformation

Transformation may sound like another dreary "consultese" buzzword. By definition, it is a process that changes the condition, character or function of something. In our terminology it means seeking ongoing congruence in culture, strategy, structure and processes. In our experience, any organization, large or small, must maintain such a fit to remain viable. Culture is intended to mean the underlying beliefs and values of the organization, its raison d’être. Strategy is the vehicle for creating and maintaining competitive advantage by identifying the desired future and choosing those activities that will serve to achieve it. Structure is the means of realizing the strategy through an effective mix of resources. Processes are the ways in which chosen activities that provide strategic advantage are carried out. Keeping these elements in harmony under the pressures of ongoing operations and discontinuous change requires continuous management sensitivity and attention.

Culture —

The Soul of the Organization

Archeologists and historians may take a dim view of the term culture in the context of plain and simple organizations, but organizations do develop cultures. In a start-up company this may be just an unspoken product of ambition and an outrageous work ethic. But somewhere along the line, the founders or others in the organization will begin to articulate it more formally. At that time it will capture the essence of what the organization is, although not necessarily reciting what it does. In a management consulting firm, we had a statement that described our desire to help companies and government agencies be all they could be, but we also added to have fun doing it. When recruiting MBAs on major campuses, this adjunct made candidates look up from their brown bag lunches. Having fun working in a stressful and demanding setting was apparently a novel and exciting idea. It was a big hit.

Culture may provide competitive advantage but does not always do so because that is not expressly its point. It is in the background, attracting and energizing those who feel comfortable, perhaps repelling others. Over time, culture develops norms, practices and folklore that enhance its strengths but that also can get in the way when radical change is required. The message is that culture is hard to define, but we know it when we see it. We also associate culture with distinctive behaviors we are comfortable associating with.

The management literature is replete with terms attempting to define culture. We read of philosophy, purpose, vision, mission and other expressions, each with its own definition as proposed by the particular author. Since culture is such an elusive concept, perhaps it is best to describe it as an attitude toward the constituencies such as customers, employees and others together with a behavior that fulfills that attitude. If factors such as service, fairness, quality, concern for the society, the community and the environment, respect for the individual, dedication tod and perhaps more elegant.

Part 2 of this article will focus on the structures and processes of an organization and will appear in the February issue.

O. Mark Marcussen is a consultant with Saga Consulting, Fullerton, California. He worked and lived for nine years in the UK during and after the privatization of the water industry.

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