As smart cities proliferate, utility providers are poised to become the next wellspring of innovation.

IDC analysts predicted 80% of worldwide energy suppliers will use digital customer engagement solutions by 2026 to cater to the appetites of millennials and Gen Z, which will make up the majority of the utility industry’s customer base. A Forrester survey of Asia-Pacific city planners found they planned to prioritize initiatives that would manage critical resources like water using smart meters.

Similar to societal norms around sustainability, smart cities as a concept has evolved and expanded. According to James McClelland, senior global director of Industry Marketing for Utilities at SAP, organizations serving every community – from rural to urban and everything in between – care about efficiency, sustainability, and the circular economy.

“Whether it’s water, gas, electricity, or other natural and energy resources, utilities want to become more efficient and reduce waste and lower carbon emissions for a more sustainable environment,” said McClelland. “The real power of a smart city comes down to data analytics from innovations like smart meters. With a better understanding of individual usage, utility providers can help customers make sustainable choices based on their household needs, collectively making the world a better place.”

Case in point is American Water, which provides regulated and regulated-like drinking water and wastewater services to an estimated 14 million people in 24 states. Neeru Sharma, the company’s senior director of Business Partnership and Delivery, said the company distills every major decision into two questions: How will it make our company more efficient? And how will it positively change the customer experience?

I talked with Sharma at the SAP Sapphire Orlando event, where she told me about her company’s digitalization plans that included a network of smart meters based on the Internet of Things (IoT).

“We are a purpose-driven, customer-focused business,” said Sharma. “Our company vision revolves around efficient operations to deliver a superior customer experience and contribute to a sustainable society with better water consumption management. Going to a cloud-based platform is our first step in becoming an intelligent enterprise.”

Operational Efficiencies from IoT-Based Sensors

American Water is at the vanguard of the utility industry’s digitalization trend that is fueled by consumer demographics and sustainability mandates.

Sharma equated technology innovation with her company’s business agility and resilience. Headquartered in New Jersey, American Water is the largest and most geographically diverse U.S. publicly traded water and wastewater utility company.

American Water recently selected SAP Cloud for Energy to collect real and near real-time data from meters, as well as SAP S/4HANA  to connect information to billing and other systems. Unlike yesteryear’s monthly meter readings that relied on resource-intensive truck rolls, sensor-based smart meters automatically capture water usage data more frequently, giving American Water a clearer understanding of actual water consumption levels for billing and planning purposes. Access to real-time and on-demand data will also flag potential problems, helping the company keep meters in peak working condition.

“We won’t have to wait until the end of the month for usage data,” said Sharma. “We can identify and manage meter read issues, consumption patterns, and potential leak patterns at scale in buildings, and connect it directly to our billing systems. As a water utility, it’s very important for us to use our own resources to efficiently and better manage water distribution across our communities.”

Analytics Behind Sustainable Business

Of course, sustainable water management does not mean reducing customer access to water. In this case, it translates to analyzing and acting on data from smart meters. For example, an unnatural spike in water consumption beyond typical usage rates could indicate a potential leak or a malfunctioning meter.

“You need solutions that will provide up-to-the-minute information, surfacing water consumption trends on a daily basis,” said Sharma. “Analyzing that data, we can see if a customer’s consumption is consistent with or outside of historical norms. Having this on-demand data available can help us conduct proactive maintenance to prevent disruptions.”

Sharma credited technology innovations like smart meters with helping the company meet sustainability objectives and build trusted relationships with customers.

“It takes a lot of steps to deliver clean water from the source to the customer’s faucet,” she said. “Technology is integral to providing that visibility into our entire process of bringing quality water in compliance with regulations to our customers. We want our customers to be fully aware of their water usage and what they can do for a more sustainable community. Data transparency is just as important to tracking our performance against ESG objectives.”

Smart Communities are the Future

Smart meters are a harbinger of what’s to come as utilities grapple with managing water, arguably the most finite valuable natural resource on the planet. Leading utility providers are gearing up for major transformation.

IDC analysts predicted that by next year, stricter environmental regulations will have pushed 30% of water utilities to invest in integrated information technology (IT)  and operational technology (OT) data. Forrester analysts said that by 2024, 40% of energy suppliers will have lifted the core business logic from billing to customer data and experience management, becoming three times more effective at marketing new products.

Between climate change risks and consumer and community demands, water utilities need technology more than ever to boost efficiencies that improve the customer experience, representing the dawn of the next generation of sustainable smart communities.

This story originally appeared on SAP BrandVoice on Forbes.