Wednesday, January 30, 2013

Strategic Communications - A tool towards better customer engagement and loss reduction

The high risks in the complex, unpredictable and highly political process of water sector reforms are unavoidable given the "essential goods" perception of water. However, what the utility operators need to understand is that investing time and money in "strategic communications" early in the engagement of water reforms and that it leads to a much smoother operations and success of the project. A World Bank report (2006) suggests that an understanding of public perceptions leads to better adoption of strategic communications help in improving the efficiency of the public utility.

The key challenges arising due to lack of strategic communications can be listed as:

  1. Social conflict due to lack of information or misinformation or a communications vacuum that creates uncertainty
  2. Power struggles leading to project delays 
  3. Consumer Opposition due to (justified or unjustified) fears about tariff, service levels and affordability
  4. Customer dissatisfaction when hyped expectations are not met, or are not right sized at appropriate time
The idea behind this post is to try and identify areas where communication tools can support reform 
process and mitigate risks. 

The three principles which can be applied to use communications as a strategic tool towards better utility management are discussed here:

  1. Principle #1: Know-Your-Customer: Instead of making assumptions about what the customers want or how they would react, it is advisable to undertake a Communication-Based-Assessment (CBA) to gauge the support for utility reforms within the stakeholders. (See pManifold's unique COPS Case Study). The CBA uses a mixture of conventional and unconventional data collection methodologies (including socio-economic parameters, Willingness-To-Pay, opinion polls, etc.) and establish baselines for stakeholders' perceptions, interests and priorities.
  2. Principle #2: Creating Awareness about the Need for Utility Reform: Once the CBA has captured the perspectives of customers and stakeholders, the Utility Management may determine what about the reforms need to be communicated, through which messenger to communicate the same and how to garner political support with other political groups and agencies. The Utility Operator should:
    • create awareness regarding the "state of the utility" in terms of challenges and opportunities for reforms and what it means to the customers
    • communicate the effects/challenges that lie ahead, if reforms are not implemented. At the same time, if not communicated correctly, the Utility might risk being looked upon as non-transparent
    • make the stakeholders understand their rights and responsibilities in the reforms process
    • Principle #3: Building Support and System for Change: Once the reforms are enacted, the communications does not stop there. The Utility should continuously use communications as a tool to build a culture of transparency and openness
    The Utility, to leverage the strength of strategic communications as a tool, should make use of the following best practices:
    1. The communications strategy should integrally be linked with the organizational strategy & goals and be in line with the utility operations
    2. The Operator should take sufficient effort to make the information available and accessible to all the stakeholders. Establishing web portal and maintaining it constantly is critical to promote transparency.
    3. Correctly identify the most trusted messengers or champions through early use of CBA
    4. The Utility Operator should right size the expectations of customers as well as other stakeholders in order to mitigate the non-financial risks. Only when the beneficiaries believe that the project has met the set expectations, the Utility Operator can claim that the project has realized its full value
    5. More often that not, in our typical environment, project delays occur. And when they do occur, the Utility Operator should be taking care to communicate the reasons behind the delay. This creates an environment of openness and credibility.
    6. Whatever positive results are achieved by the Operator, the results should be communicated to the customers and other beneficiaries
    7. Empowering the media is one of the best methods to spread word about the good work the Utility is carrying out. The media also serves as a tool to educate the consumers.
    8. Collaborate with local governmental and non-governmental agencies to drive the Information-Communications-Education (ICE) campaigns to build a positive image for itself
    9. Utility should invest in creating and maintaining an in-house professional communications capacity to avoid the inefficiencies in the governmental / state agencies' communications program

    *Source: Communication for Water Sector Reform: Obstacles and Opportunities, (2012), The World Bank

    Friday, January 18, 2013

    Optimum infrastructure planning and better utilization of existing infrastructure: An alternative to new capacity building

    Driving further into the 2010s, one gets a feeling that inadequate and poor performance of infrastructure available present a grave economic as well as social problem for economies. For economies to meet their full growth potential along with human and economic development, the lever that's imperative is more investment in infrastructure, be it transport or grids or water pipelines.

    As we stare at the wide gap between existing infrastructure and the one required for optimized growth, one of the major concerns is how to find the money to fund the bridge. However, one of the other key factors which one needs to consider is to improve planning, delivery and operations of the infrastructure to get more and high quality capacity for less money to improve infrastructure efficiency. The attention needs to be focused on how governments together with the private sector, select, design, deliver and manage the infrastructure projects and make more out of the existing infrastructure available.

    The exhibit below shows the estimated infrastructure sector-wise investment required in the period 2013 - 2030:
    Sector-wise investment required in global infrastructure

    The key challenges in the poor service delivery of the infrastructure are:

    • inaccurate planning and forecasting leading to poor project selection
    • bias of the public administrations to build new capacity rather than make use of existing ones, leading to more expensive and less sustainable infrastructure
    • lack of incentives, accountability, and capabilities clubbed with risk aversion towards new technology and 
    • a general inability of the public administrations to negotiate on equal terms with the infra developers, thereby leading to inefficient oversight and poor performance monitoring
    The levers controlling the cost efficiency of the project portfolios of economies are:
    1. Improving the project selection and optimizing infrastructure portfolio - 
      • Clear definition of needs for the infra projects together with the due consideration provided for complimentary capacity planning is required to ensure lowered spending on projects
      • Sophisticated evaluation methods to determine costs and benefits and prioritizing the project selection based on transparent, fact based decision making, is another critical factor
      • One estimates US $200 billion saving in the infrastructure spending globally, if the project selection is done appropriately
    2. Delivery Streamlining -
      • Heavy investment in the project planning and design phase bears an importance in stream-lining the project delivery
      • Appropriate incentives need to be designed and incorporated into the contract design helps in achieving prescribed performance specification
      • An estimated saving of US $400 billion annually can be achieved by streamlining the project delivery 
    3. Optimizing existing infrastructure assets - 
      • One may end up with a savings of US$ 400 billion a year by boosting the asset utilization, optimizing maintenance planning and better demand-management. For eg., reducing transmission and distribution losses in water and power may come at a nominal cost of just 3% of the cost required for equivalent new production 
      • Governmental measures, through the use of tools and charges to allow the demand management, are an effective solution for greater benefits 
    4. Up-gradation in infrastructure governance systems - 
      • A wholistic understanding of broad socio-economic growth and common understanding between various infrastructure development authorities, is basic requirement in the governance of infrastructure
      • Clear division of technical and political responsibilities for infrastructure management will be required to ensure a more transparent and efficient asset management
      • Appropriate role-definition for public and private players providing for role clarity on market structure, regulation, pricing and subsidies, ownership and financing, is the key
      • Most importantly, a trust based engagement of all stakeholders through-out the process is must to avoid sub-optimal solutions and unnecessary delays
    The figure below shows an estimated savings that can be achieved by implementing appropriate measures towards optimum infrastructure deployment:

    Estimated savings possible through optimization in infrastructure portfolios and better asset utilization

    Ref: Infrastructure Productivity: How to save $1 trillion, January 2013, McKinsey Global Institute

    Wednesday, January 16, 2013

    Efficient Billing and Collection - Key to reducing NRW

    While exploring the various methodologies used by the water utilities to reduce Non-Revenue-Water (NRW), one of the better avenues available is achieving higher efficiency in the billing and collection processes. This blog explains the ideology behind the principle of higher billing and collection efficiency for reduced NRW.

    Now, the main components of losses in the whole water distribution system and the details of the commercial losses are explained in the figure.

    Categorization of losses

    Billing and Collection efficiency are the customer facing processes of the utilities and are quite independent from the other internal processes. Whatever consumer meter data is read and recorded, is used for billing. Further to that, recoveries from the consumers who are billed, is to be made. And hence, we are talking of Billing & Metering efficiency as a combined package, and area of focus.

    Improvements on these parameters are measurable as well as traceable to a bit higher degree than most others. Above all, these are processes which an utility can outsource to a vendor managed process. Optimum service delivery agreements and appropriate process control, guided using a Balanced Scorecard, can be designed and implemented, and therefore, do not burn a hole in the pocket of the operator to set up.

    Recommended readings:

    Tuesday, January 1, 2013

    I-U-KAN: Raising sustainable Indian Utilities - a unique approach and platform

    I-U-KAN (India Utility Knowledge And Forum) is a broader umbrella for all Utilities (Power, Water, Waste, Gas, Transport etc.) and all Stakeholders (Govt., Public utilities, Private Operators, New entrants, Service Providers, Regulators, NGOs, Investors, Customers) to analyse holistic gaps, exchange ideas, build common grounds, and expedite the establishment of sustainable utilities in India.

    In this, sustainability is defined in terms of 'three P's’ (i.e. Profit, People and Planet) - so utilities to become Profitable (whoever runs it – Govt. or Private co.); end-customers to get affordable, high quality Services and increased choices; and production & consumption to be optimized for best Environmental conservation.

    But, why do we need such an all Stakeholder cross utility platform? Is stakeholder engagement really an issue, and even if it is, then does it have enough weight that it can act as bottleneck to all good efforts? Are there lessons to be learnt from other utilities that can expedite reforms?

    To truly figure out whether the various types of stakeholder engagement is missing (if any), let us use an example from the Power Distribution Utility.

    1. Central Govt. to Discoms:
    R-APDRP, perhaps (in magnitude), holds the position as being one of the biggest infra investment project in the world. Although, the objectives and intentions were great, i.e. invest in Discoms (Distribution Company)  to adopt measurements, automation and Technology to improve loss reduction and enhance accountability. However, most experts would agree that it has not yielded the expected returns.

    One major lacuna has been, missing capacity building in the Discoms to effectively use new Infra, tools and right processes. One example is the wasted GIS Customer Indexing effort, which is the first mandated activity for all utility projects. But, because of its inappropriate on-field execution and static nature, it hasn't yield much value in terms of any useful further integration into building strong CRM, and hence timely Revenue Assurance strategies.

    Heaps of Energy Audit reports are being compiled, without much care for scientific calibration of metering equipments. And, even if that were to be correct, there is not much measurement based decision making culture in our Indian Utilities. With these weak basic foundation blocks, and missing overall Performance Monitoring, the resulting architecture and operating system continues to remain weak, in spite of Technology influx.

    2. Discoms to Private Operators:
    The need for increased efficiency in design, development and end-service delivery, huge private investment requirements, and higher accountability, to transform Indian utilities has called for big Change Management. Different models and levels of privatization are being explored such as full privatization (Delhi model); Input Based Distribution Franchisee (Nagpur model); Light capex O&M Franchisee model (Orissa).

    However the most basic, the Baseline information of the circle to be privatized (which includes, asset, revenue, costing and other information) is not put up in a robust & credible manner from Discom side. This has lead to irrational bidding, delayed closures, and at times litigation and bid cancellation. And it's not the Discom alone to be blamed, the winning private company at most times, is also not very transparent with respect to its planning related to Capex investments, customer services and employee deputation from Discom.