AMP6 is coming and it would appear that very few companies are ready.
Until now, the focus for even the most progressive water companies has rightly been on business planning, evaluating suppliers and awarding contracts. Now it is time to plan for the wholesale changes that will be required to their own businesses once AMP6 arrives, before it is too late.
One of the most talked about challenges in AMP6 is the shift towards total expenditure (Totex) and an increased focus on holistic whole-life costs. This brings into sharp focus the importance of effective asset maintenance - prolonging the life of assets in favour of costly capital replacement for example. Companies will need to transform their ability to deliver operational expenditure (Opex) efficiently. Incremental change will not be enough, only a complete transformation will do. But the challenges don’t stop there. The implications of Totex mean that companies will need to review every layer of their operating model. Here’s a few important things to consider:
Process and supply chain: The increased importance of Opex means companies need to find new ways of managing and minimising the whole-life costs of assets – operating an existing asset at maximum effectiveness will become the norm before taking the decision to ‘build new’. Tier-1 supply chain partners who provide this ‘total asset management’ service will thrive in the future.
Organisation design: Totex requires functions to work together in ways not seen before. The organisation design needs to facilitate information flow, minimise hand-offs and focus cross functional teams on maximising the value obtained from each asset. Teams need to be aligned around assets and not functions or geographies, as is currently the case.
Culture and capabilities: Holistic whole-life management requires a very different mind-set and skill-set unlike anything the industry has seen before. Changing behaviours and the prevailing culture will require a clear vision of the future and a tenacious leadership effort.
Systems: The ability to manage and utilise more real-time asset information will be a key tool to minimise whole-life costs. This requires systems capable of capturing and exploiting asset data in new ways.
Performance management: Outcome based rewards require reliable and leading performance indicators to inform value based decision making. Strategic and operational priorities will need to be driven from innovative performance measures.
For water companies and their suppliers alike, the build up to AMP6 is a race to transform working practices. The changes required will take longer and be harder to implement than many companies realise. Failing to act now and plan for success will mean playing catch up for the rest of the period, and struggling to demonstrate value for money.
- Paul Cooper is engagement director, utilities at Boxwood