The “Productisation” of water tech?

Is the customised system integration business model under attack?

GE recently introduced a new control system product to the market. It is specifically target at the operators of small scale wastewater utilities in North America.

It is notable because it has clearly been through a proper product development process.

First of all they have identified a customer segment. In most industries this would not justify being put in bold, but it is not a normal approach in water.

They have clearly looked at the needs of that particular customer segment. Small scale wastewater utilities do not have much by way of money, staff or technical capabilities.

So GE produced a robust, low-cost control appliance that can be installed and commissioned by any electrician and operated through an intuitive interface on any PC or mobile device.

The product is highly standardised, and because it is tightly targeted at a particular customer segment it has limited features it is cheap and easy to sell. In fact you can buy it online!

The product has been enabled by a new cloud based industrial control technology owned by GE, the PACSystems® RXi platform, but the underpinning technology gets minimal coverage in the marketing material. The marketing rather focuses on translating the features into specific benefits for the customer segment.

GE was struggling with the prevailing business model in water, which is to provide extensive customised application engineering around a core technology. This model does not play to GEs strengths, and in fact its rigid system of management controls meant GE didn’t have the flexibility to provide customised solutions. No doubt they were not enamoured with the dismal profit/risk ratio either.

However GE have the corporate muscle to redefine how the water sector operates. They have the product development capability to generate highly standardised (and therefore highly profitable) products and sell them directly to targeted end-user customer segments.

GE’s Pump Station Appliance is part of a wave of Productisation in the water industry, which will unlock a great deal of value, but be the undoing of a number of industry players along the way.

More on this later,  but contact us at H2Otalent if you want to get the talent that can get you ahead of the wave.

Ethical Investment and Industrial Water

Norges Bank Investment Management manages the Norwegian sovereign wealth fund, worth approximately 800 billion dollars and holding 1 percent of global equity markets.

What I am saying is that these guys are not small and take an activist position, divesting companies such as Rio Tinto for causing serious environmental damage.

NBIM has six strategic focus areas for investment, with their top ethical priorities being Children’s Rights, Climate Change Risk Management and Water Management. Specifically they expect food, agriculture, pulp & paper, pharma, mining, water supply and electricity production companies to manage water scarcity risk. Generally they expect companies to make sure their water management is sustainable and that their governance structure can respond to water risks. You can see the details here.

Mekonnen & Hoekstra 2011 tell us that China, (a country with 19.5% of the world’s population and 7% of the renewable fresh water according to National Geographic) bears 22% of the global industrial water footprint and 26% of the grey water footprint (a volumetric measure of pollution).

Clearly if the world is going to continue to manufacture in China, there will be growing pressure on industrial companies from ethical investors like the NBIM to make sure their supply chain is employing best practice water management in China…which will take an enormous capital investment and really transform the industrial water market.

Opportunities abound…step up!

I see some massive opportunities in the global water industry right now, but who is stepping up to the plate?

Anyone who has been in the industry for a while understands that the water industry is all about process risk.

Everyone from the consumer to the biggest industrial player wants water to “just work”. This means they want to pay for water of a particular quality and have the vendor take risk for the whole process.

Whenever a big industrial conglomerate tries to play in the water space (think GE and Siemens), they find that only the lowest margin, most commoditised equipment can actually be treated like a pure-play product. Everything else is actually a unit process, and has to be provided with a guarantee that it will work. Given that every feed-water is different and highly variable, this means you have to offer an engineering service.

Suddenly the scale-based advantages you get from being a massive industrial based conglomerate is working against you as you try to manage the engineering risk for thousands of customised global projects via an elaborate hierarchy.

For me Veolia Water is the barometer for the industry. To me they had two major advantages. They have water people all the way up the organisational hierarchy who instinctively understand the nature of the water industry. Secondly they have traditionally not needed to impose a traditional management hierarchy because everyone went to the same few Grandes Écoles and understood each other implicitly.

These days Veolia trying to manage project risk by putting thousands of small projects through a lengthy approvals process of the type preferred by the Securities and Investments Commission…and it is not working well.

So come on. Bring your start-up capital, come to us to find you some BD, commercial and process talent…set up a sensible risk management process, then all you have to do is grab some project finance and you are away.

Water’s own demographic dilemma

I was fortunate enough to participate in the Water Leaders Forum at the Global Water Summit in Seville, Spain recently.

In the broader context of water utility performance, the question of how to attract high performance individuals to the municipal water sector was raised.

There were some great anecdotes and facts told by people at the round-table session on talent, which I think really capture the essence of the problem….and there is a problem.

One CEO of a North American water supplier mentioned that employee turnover in her organisation was about 2%, making for a hypothetical average tenure of about 50 years.

A senior member of one of the major global engineering consultancies told the story of how the senior executives in his firm were unwilling to give large amounts of responsibility to individuals under about 35 years old, in spite of the fact that they themselves had all taken on a great deal of responsibility in their organisation at a younger age.

Finally a young woman told how she had been promoted very rapidly within one of the major African water utilities until she got to a level where more senior executives would have had to move to make room for her to get a promotion. The organisation was relatively static, so there were no exciting change projects for her to work on, and she decided to leave the water industry. After several years she had recently returned as a consultant.

The fact is that globally the water industry has a rapidly ageing workforce, and the impending simultaneous retirement of 40%+ of the workforce over a period of 5-10 years will cause real problems.

The industry must start handing over real responsibility to its small cohort of under younger professionals. High performers thrive on being thrown in the deep end and being challenged. Given the opportunity they will make real and positive change in their organisations

With increasing use of technology the absolute shrinking of staff numbers may not be a problem, but the management of water requires professionals with real experience. It may feel risky to give younger professionals stretch assignments. However if you don’t empower your next generation of professionals now, then they will not be ready when the current generation of leaders retire…and then you will see the real meaning of risk.

Water Risk Online Resources

I was excited to see an email in my inbox this morning announcing the launch of the World Resources Institute online water risk map tool.

It has been encouraging to see the increasing profile of water risk over the past few years, particularly in the corporate world, and I thought I would do a listing post with four amazing online resources. Links at the bottom of the post.

  1. The WRI map, Aqueduct, has a heap of data behind it and quite an amazing interface to allow the easy extraction of meaningful data. A non-technical planning executive in a large multinational firm could plug in the locations of 20 production facilities and get a decent overview of the basin level l water risk profile of those facilities inside an hour, which is quite a staggering achievement.Of course water risk cannot be fully quantified for a specific facility at basin level, but it is a very good start.
  2. Other great ways to understanding water risk are by following the Circle of Blue, an amazing source of water risk related journalism, which does not just set the bar for journalism related to water, but offers a much higher quality of reporting than you will find in all but a few newspapers or websites.
  3. China Water Risk is an investment industry sponsored site raising the profile of the critical state of water in China.
  4. Finally Waterfootprint.org is a great resource for understanding the water impact of your actions, as an individual or a corporation.

World Resources Institute – Aqueduct

Circle of Blue

China Water Risk

Water Footprint.org

 

 

 

 

 

 

Rising stars of global water

My previous post on the exit of Siemens from the water business prompted a lot of interest and a number of comments on Linkedin regarding rising stars.

It is clear that US and European companies that still have much of their cost-base and mind-set in the developed world are increasingly struggling to compete with emerging businesses in asia with international capability and a developing world cost-base. Interestingly Spanish firms, with skilled labour costs that look more similar to China than to the UK seem to lie more in the latter camp than in the former.

You don’t have to look any further than the recent award of the Al Ghuburah Integrated Water & Power project to see the possibilities.

Sumitomo corporation, with deep pockets and a strong appetite for global water projects and supported by a Japanese government mercantilist strategy, led the winning consortium.

They partnered (based on an existing strategic relationship) with Malakoff, a Malaysian contractor with extensive experience in the IWP space to own & operate the plant.

On the design and construct side Sumitomo has pulled in VA Tech Wabag (in which they have a stake) an engineering all-rounder with a cost-base firmly in India along with Cadagua to provide the desalination design engineering expertise.

Of course Asia centred consortiums have been successful in the Middle East for some time, but I suspect the break-out into international markets is not far off.

 

Siemens is out…who is in?

People had been talking for years about Siemens’ struggle to integrate the US Filter water product portfolio they acquired from Veolia. It seemed that it was always a struggle to integrate water treatment products into what is essentially a big mechanical-electrical firm.

On paper it looks like there should be synergies, but if you can’t find a way to get the products you want to synergise across within a single P&L then from an organisational perspective it is difficult to make it happen. Your water treatment sales guy is never going to try and sell drives unless he (or his manager) has some incentive to do so, and vice versa.

Like GE Water, I believe Siemens also struggled with the idea of taking process risk. I am sure Siemens senior management has a very good idea of the risks involved with automation and control, but I very much doubt they were comfortable with taking whole-of-process risk, which is what you really have to do if you are going to try and derive some scale benefits from holding a range of process equipment.

So Siemens is on their way out of treatment, and I am pretty sure that GE now has water sitting firmly in the cash-cow section of their Boston Matrix…milk the strong technology portfolio they acquired in the most low-risk, low-cost way possible until it becomes commoditised then let it pass slowly away.

So good old Veolia and Suez, what ever you may think of them, remain pretty much the only game in town when it comes to global water process firms. Given the kind of overhead these firms have to carry in Paris, I think that there is a huge opportunity for another player to move into the global water & wastewater process space.

They way to do it though is not to go out and buy technology. Technology is important but secondary. Now is the perfect opportunity to put some money behind a global team of experienced process engineers and specialist sales people and create a new global water process brand. Anyone who is interested give me a call…the talent is there and waiting.