SAP research finds a lack of digital tools is impeding ability to offset regulatory and economic pressures as public sentiment stagnates
London, UK – 20 August, 2024 – More than a third (34%) of leaders from water companies across England and Wales are facing ‘challenging’ cost pressures, while almost a fifth (18%) describe budget constraints as ‘unpredictable’ as the next asset management deadline looms.
In a survey of 50 leaders from water companies across England and Wales, SAP highlights some of the key challenges facing the industry as it prepares for the eighth Asset Management Plan cycle (AMP8). The research has found that as economic pressures continue to build, water operators are struggling to meet the impending regulatory requirements and transform service delivery to meet customer demand.
Over 41% of leaders believe these pressures are caused by a lack of digital infrastructure, while almost a third (31%) report challenges are the result of attempts to upgrade 200-year-old water networks. As public opinion in the industry wanes, water companies must accelerate digital adoption to understand the nation’s water network, operate efficiently and optimise the way services are run.
Preparing for AMP8
Against a backdrop of growing inflation, supply chain challenges and a rising cost-of-living, water companies are preparing to submit their spending plans to the Water Services Regulation Authority (OFWAT) for AMP8 or risk reputational damage and significant financial penalties. Despite this, SAP’s research shows leaders understand significant progress needs to be made if they are to meet the regulator’s requirements.
Rising cost pressures are a key obstacle as companies look to comply, with 94% of leaders believing investment will need to increase considerably or they will be unable to transform their infrastructure to meet customer needs. This burden is particularly acute for smaller businesses, rising to 96% for water companies with between 500 – 1,999 employees.
This is translating into greater demand for external support, with almost a quarter (22%) of leaders reporting they will be ‘very reliant’ upon third-party partners to keep their services on track and business running efficiently.
This is leading to almost a tenth (8%) of leaders believing their company will struggle to meet the KPIs and objectives established by OFWAT. Alleviating these cost pressures will therefore not only support businesses in complying with the regulation, but allow leaders to avoid significant financial penalties that the majority can ill-afford in the current economic climate.
“The water industry is currently facing significant challenges in meeting the regulatory targets set for AMP8. Maintaining high service quality is crucial, and there is a pressing need to reevaluate and enhance the operational strategies of the UK’s water network,” said Greg Moyle, Head of Energy and Discrete Industries at SAP UK&I.
Battling ageing digital infrastructure
SAP’s survey also reveals that alongside macro-economic pressures, a lack of digital infrastructure is impacting the industry’s ability to enact crucial improvements to service delivery.
Just 1-in-5 (20%) leaders strongly agree that their organisation is currently using data effectively to manage and gain insights from water infrastructure. There is a digital divide among smaller and larger businesses, with almost half (42%) of those employed at larger companies agreeing, compared to just 8% of those employed at smaller operators.
A lack of digital tools is the common denominator for leaders being unable to enact change:
· 55% report they do not have the monitoring capabilities needed to understand water demands and consumption.
· 45% do not have a complete picture of their pipeline infrastructure.
· 43% do not have a complete data capture of the environmental emissions of their water network.
· 30% do not have a complete picture of their sewage network.
“Lack of visibility into the water network hinders the industry’s ability to understand and address key infrastructure issues. Adopting digital tools and real-time insights are key for business transformation to drive long-term improvements in service delivery,” said Hamendra Gupta, Business Architect for Water Utilities at SAP UK&I.
Despite the absence of a digital backbone, leaders remain positive about the impact existing and emerging technologies such as artificial intelligence (AI) will have on service delivery. 88% believe AI will shape the future of water service delivery and help to address leaks, spillages and optimise usage, while 40% say initial AI implementation is already generating positive results and demonstrating return on investment.
But, the industry continues to face significant barriers to digital adoption and a substantial gap between intention and implementation exists as a result. Over half (52%) of leaders suggest ERP transformation must come first to avoid silos affecting AI decision-making, while 48% require help in understanding how AI can enhance their ageing infrastructure. An inability to source and acquire talent also remains a roadblock, with two thirds (66%) lacking the skills and talent needed to implement AI effectively across the network.
ENDS
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