Collaboration, innovation & digitalisation are needed above punishment and retribution
“… like fining a rough sleeper for failing to find a roof over their head.”
In his thoughtful and provocative article “What is the point in fining Thames?” Utility Week Editor, James Wallin, questions the wisdom of the regulator Ofwat. Ofwat has recently levied a fine of 9% of revenue against a company that has already stated that it is on the verge of running out of cash to fund operations, let alone make the investments necessary to put in place the infrastructure needed to provide resilient, sustainable, reliable, and high-capacity services. He questions whether “if the mistakes of the past are to be avoided then perhaps the punishments of the present have to be re-thought as well?”
Any analysis of the past 35 years of the water industry must touch on issues such as excessive debt leverage, insufficient long-term investment, and unacceptable management practices. We would argue that we should also look at the successes over this period – the substantial private sector investments and improvements, new management practices, and innovation.
Equally, such a reflection must take a balanced and holistic view of the role that regulation has played – both in bringing about positive change but also in allowing, enabling, and, in some cases, encouraging the very management practices and owner behaviours that are now under scrutiny. Further, it needs to look fundamentally at the root causes of performance issues, many of which lie outside the remit of the regulated water companies.
When we look at an industry “in crisis”, it is imperative that we are forward-looking and primarily oriented around the question of the infrastructure, operations, management, and funding needed for the future. Solutions must address the interacting challenges of climate change, environmental custodianship, and an increased and more urbanised population that is putting more and more pressure on ageing infrastructure. As Prof Dieter Helm has argued (“A bad answer to the wrong problems”), we need to start with what we need – now and in the future – and ask how best to put this in place rather than dwelling on the failures of the past.
Yes, there is a case for remedies against those who misbehaved in the past, but we need to formulate these remedies so they do not adversely affect present and future customers. The remedies also should not unfairly impact current owners and constrain the management teams of companies who may not be benefiting from past actions nor were responsible for them.
Large fines have the potential for unintended consequences, even if they actually do punish those they target. There is rich scientific evidence and academic research to suggest that such regulatory punishments rarely drive improved performance in the organisations they govern. At best, they incentivise compliance, but they don’t fuel innovation. They serve to starve and reduce funding for innovation, and drive more cautious, conservative decision-making at a time when the opposite is needed, to say nothing of their impact on the culture within the companies they affect.
Performance issues in the water industry are as widespread as the underlying weaknesses and deficiencies in the infrastructure. They are not unique to Thames Water or others called out in recent communications (and may well be ubiquitous). A collaborative approach – which encompasses all regulators and users of, and impactors on, our water resources, not just the regulated water utilities – is needed to fix future challenges.
Ofwat should learn from past mistakes and reset its approach. In our view, this includes tighter control over financial engineering, a longer-term focus on investment, and a more balanced approach to affordability, sustainability, and environmental protection. Regulators and industry - beyond just the water sector - must jointly take charge in educating, informing, and engaging customers and stakeholders through open, data-driven dialogue.
Innovation will be critical to redefining the water industry; from finding new approaches and opportunities for collaboration to improving efficiency, customer service, environmental protection, and infrastructure resilience. The water sector is not at the forefront of the digital revolution and it certainly lags behind other sectors, including the energy and telecommunications industries, in digital transformation. Nevertheless, it can leapfrog forward by embracing bold, forward-looking actions, coupled with adopting and scaling AI and other advanced digital technologies.
FYLD is already working with utility companies to improve operational efficiency, infrastructure resilience, and environmental outcomes, along with safe, predictable work execution through AI-driven solutions. Some examples of the grand challenges we are helping our customers solve include:
- Cutting leakage repair times by 40%, at 8% of the average cost to save this amount of leakage
- Connecting utilities and supply chain through a centralised system with visibility on real-time job progression. Proactive operational management has reduced job delays by 15%
- Supporting Southern Water to cut year-on-year pollutions by 37%. whilst reducing injuries and incidents by 50% in the same reporting period
- Delivering improved field workforce outcomes across the entirety of SGN’s ‘dig and fix’ operations, with proven bottom-line benefits of £2.4m in productivity gains across 750 operatives, coupled with a 20%+ reduction in site incidents and injuries.
- Delivering 12% productivity improvements for field workforces for Kier Transportation, enabling greater work volumes in a resource-stretched environment
There are plenty of opportunities to move the dial with innovation, digitalisation, and AI. We know this because we are working with some of the UK’s most forward-thinking utilities to deploy our solution to pressing problems related to the execution of field activities, and because we see the other solutions that these customers are deploying and scaling.
However, we also see utilities stuck in pilotitis , experimenting with a multitude of solutions whilst their operational outcomes continue to result in closed beaches, polluted riverways, and excessive leakages that take far too long to fix. Of course, this is all at the eventual expense of the paying Public.
FYLD is unique with its focus on “work execution” through 360o visibility of what is taking place in the field in real-time, field worker engagement, and prediction of operational outcomes, all powered by AI. For those water companies we are not already working with, we are ready to work with you. For those experimenting with our technology, we are ready to scale up. Are you ready to innovate with us to drive the change in this crucial industry we all need?
