As with any customer-facing organization, water utilities experience their share of customer dissatisfaction. In most cases, trained staff using established procedures can handle the normal volume of complaints. However, these coping mechanisms fail when the level of dissatisfaction spirals and grows louder – loud enough to produce serious political, media, and community consequences. Why are utilities surprised or caught unprepared for this type of resistance and why do their “normal” customer service mechanisms fail?
West Monroe suggests that there are natural internal barriers in the utility leadership approach that can lead to these negative political, media, and community outcomes. Understanding these barriers and proactively moving to correct them allows utilities to provide greater customer service while simultaneously reducing operating expenses.
Over the past few years there have been increasing instances of customer dissatisfaction and outrage impacting the water utility’s senior executive team. For instance,
- The utility industry has suffered from a well-organized and national challenge to AMI meters at homes.
- Rate increases are often met with skepticism – utilities are forced to undergo rigorous and expensive management reviews which are often driven by vocal customer push back and exasperated politicians.
- The Detroit Water and Sewage Department, dealing with a 50% customer delinquency rate, planned to recoup millions of dollars by cutting service each week to as many as 3,000 customers. Outraged customers pushed back and created an international media event which questions if water should be free in the United States.
How did a utility delivering a necessary service, focused on providing clean and reliable water, allow the impacts of their regular revenue protection mechanisms to spiral so far out of control? Why were they surprised and seemingly unarmed to address the growing negative sentiment? What can they, and other water utilities, do to avoid these costly and politically risky consequences in the future?
Insights – Water Customer Operations Environment
Utilities succeed when they have separate teams focusing either on (1) long-range planning, (2) building new infrastructure/tools, or (3) running daily operations.
All three teams need to be working together each and every day. One team cannot succeed without the other. This tends to be how most things are accomplished (e.g., large infrastructure improvements) in a successful water utility. For example, major organizational activities in the water utility are focused on planning and building for the future:
- Engineering develops multi-year campaigns for major construction projects
- Operations plans multi-year campaigns for major repairs, upgrades, and replacements
- Water Resource creates multi-year campaigns to address future resource needs (e.g., acquire new water resources, implement new water conservation techniques)
In fact, in the investor-owned utility model, utilities make most of their money through return on investment in capital projects. Utilities have tangible assets to manage – plants, pipes, meters, pumps, motors, fleets. Asset management leads to straightforward work requirements and roles (e.g., maintenance repair or replace decisions).
This ‘return on invested assets’ is how senior executives think. And this way of thinking is a very big deal. Assets lend themselves to:
- Objective and quantifiable analysis – they are tangible and empirical things without feelings
- Economies of scale business cases through utility-wide standardization – they can be treated all the same without distinct agendas and personalities
- Well-understood and predictable activities – assets don’t suddenly ‘change their mind’
- Being fixed in a straightforward manner – if an asset breaks it can be fixed with a well-documented emergency response manual with little subjectivity and nuance involved
Given the perceived higher risk of asset management, the utility is often willing to pay more for top talent in these areas (e.g., the best civil engineers). In contrast, customer service operating costs are simply “passed through” on the customer bill and so the cheapest labor sources are generally preferred (e.g., call center, billing, revenue protection, and meter reading near the minimum wage). This is why the executive mindset is a big deal. Utilities earn far less on customer operations expenses than on asset management investments. The utility pays for top talent to plan, build, and run its fixed assets. In contrast, they do not pay for top Customer Operations talent – in fact, they don’t even expect much in the ways of planning or building new customer-facing capabilities. There is only an expectation to run daily operations. There is not generally a desire to create multi-year plans/strategies or to build/create new capabilities to drive better performance.