The close of the millennium’s first decade was a troubling time for one of Australia’s largest rural water corporations. The organization had a strong legacy of handling the needs of its customers across a 68,000-kilometer region and managing more than 70% of the state’s fresh water, dams, channels, and other assets. But that legacy had been shaken by recent events.
At a glance
Industry: Water Municipality
Challenge: New Leadership in place, prevail over very public financial challenges, win back credibility
Objective: Make deep cost cuts, get critical $2 billion project on track, revamp legacy pricing structure
JMW Approach: Large-scale transformation, executive team support, Leadership Forum
Results: Cost cuts made, all projects on track, pricing restructure and culture transformation underway
Awards: 2014 AMCF Spotlight Award for Consulting Excellence
Australia was emerging from its worst water crisis in history, and a crisis of leadership had taken hold at the organization. The Board and executive team found themselves behind the curve in a dramatically changing industry and were under sharp scrutiny from customers. The Board was dismantled and a new Managing Director was appointed.
In addition, a controversial irrigation infrastructure project was under investigation. The project was an unprecedented effort to upgrade the region’s aging irrigation infrastructure which was sorely inefficient with leaky channels, and roughly half of the water released was actually making it to the customer. The project was behind schedule and over budget when it was handed off to the organization.
The new Managing Director was given a clear charge by the new Board: “Fix it.” He saw that a large-scale transformation was in order if the organization was going to deliver on its weighty commitments.
The water industry in Australia had changed dramatically since the drought. For generations, water corporations in Australia had operated with what observers describe as an “authority mindset.” But customer demands and dissatisfaction called for an organization that was much more customer-centric.
Nearly a year into the MD’s appointment, and there was a tall order to meet: (1) reduce operating costs, (2) make significant progress on the infrastructure project, and (3) standardize a very complex tariff structure. Among other harsh realities, modeling showed that if the organization kept operating the way it was, costs to its customers could rise anywhere between 40% and 80%.
The MD took an all-important first step, challenging the current reality and widely held belief throughout the organization that it would be impossible to accomplish the top three objectives simultaneously. He saw—and declared to his leadership team—that it was possible to prevail on all counts with a new, smart, integrated approach.
The MD approached JMW about supporting him in his work with his new executive team, as well as the rest of the organization. He had already challenged the current reality; now it was time for leadership to take a stand behind the belief that they could deliver historic results on multiple fronts, under tremendous pressure.
The work ahead was delineated into two phases. Phase I between mid-2012 and mid-2013, focused on setting a new and strong foundation for the organization, establishing the capabilities required to succeed, and demonstrating the requisite performance. With those tasks accomplished, Phase II would take on shifting the organization’s work culture in a sustainable way and completing delivery on all identified milestones.
For Phase I, a multi-stage Strategic Leadership Forum for approximately 28 key leaders was launched. The work began with one-on-one interviews that informed a leadership and performance assessment. The intensive Forum sessions were developed and implemented with the objective of establishing the new strategic direction and putting a plan in place for enrolling the entire organization in the work at hand. A significant outcome of the first Forum session was an initial Blueprint for taking on the organization’s top three strategic imperatives in an aligned way—a Blueprint further developed in subsequent sessions.
The Blueprint served as the basis for a series of large public meetings held around the state, as well as approximately 30 stakeholder briefings with industry and other groups.
As the work with JMW progressed, remarkable progress in shifting the culture began to translate to remarkable progress on all Phase I objectives. Given the complexity of the situation, there were setbacks and obstacles at nearly every turn. But ultimately, the transformation that was so deeply necessary did, in fact, begin to set in. This shift solidified another fundamental aspect of any transformation: engaging the interest, support, and commitment of others. Not only were bold commitments made, they were broadly communicated, and they were met. And in some cases, achievements went beyond what was committed.
I still remember a leadership team session that JMW facilitated,” recalls the MD. We started talking about what’s a real stretch for us. And everyone went straight to the transaction, business details. And Conrad basically said, ‘stop—yes you’re going to do all of that and you’re going to think above that.’ And I said, ‘yeah, we’re going to pull $20 million in costs out, we’re going to deliver this project, and we’re going to re-write the tariff system.’ All the jaws dropped…and we just kept the session going until everyone was totally on board. And that’s when we began to change, and the team began to jell around a new future.
All Phase I objectives were achieved and several were surpassed, with the exception of the project. While the organization delivered on two of the four key modernization milestones—exceeding one—two remaining milestones were approximately 20% and 10% under target. As observed by the MD, “Even getting this close with the integrated projects targets was not predictable.”
The advancements started at the top. As one director put it: “One of the things that was accomplished was that the new executive team had a unity of purpose that came together fairly strongly.” Approaches were agreed-upon and put into place when it came to managing staff interactions and communicating hard decisions and changes.
None of the changes came easily, but new leadership credibility was established. The MD, whose bold stance was once observed as “an open window in a house of resignation” was soon leading a house of people listening to leadership and working to reach beyond a long-held status quo.
Imperative 1 Results: Reduce Costs
Before coming into the leadership program, the organization’s leaders had already committed to $6 million in savings over three years. In initial interviews, several leaders said the $2 million per year in savings simply was not possible.
Even so, in the first session of the program, the group committed to $20 million over five years in savings, which represented approximately 20% of the organization’s operational expenses. Six months later, the team had committed to publicly announcing their savings target, and to working together to ascertain how to realize those savings within five years. In a governance structure where the Minister is watching results closely, making that financial promise publicly represented an extremely high level of commitment.
Leadership surpassed their target, identifying $24 million in savings. An initial $3.4 million in savings was already confirmed and announced in November 2012.
Imperative 2 Results: Integrate and Advance the Irrigation Project
The organization met its Phase I objectives, laying a strong foundation for delivery of the new affordable irrigation network. A key aspect of this effort also involved realizing the benefits of integration synergies and eliminating redundancies.
The project is now well underway to modernize an old irrigation system that in the past lost large percentages of water through inefficient processes and metering, evaporation, and leakages. Leading-edge water technologies have been identified to significantly reduce waste and increase water efficiency.
With the right momentum, the organization is on track for on-time delivery of the new irrigation network in 2018.
Imperative 3 Results: Revamp the Tariff Structure
Because the water industry’s way of selling water in Australia has historically been very complicated and often led to great fluctuations in customers’ prices, making a course correction calls for a radical simplification of the system. It also requires a paradigm shift: to a fixed-cost system farmers can count on. Leadership has committed to making that shift, perceived to be a game-changer for the customer base.
The tariff system is being re-written, in consultation with a workgroup made up of representatives from regional water committees. The workgroup has agreed to a suite of principles as the basis for their work, the highlights of which include the following.
- Encourage agricultural production
- Be simple, clear and transparent
- Make tariffs equitable
- Send clear signals on the real costs of services
- Provide predictability