25th Apr 2016
Water regulator Ofwat expects water companies to be responsive to customers’ needs and desires – and to shape their business strategies accordingly.
Cathryn Ross, the regulator’s chief executive, is an economist by training, with a career dedicated to regulation and competition issues. But it was while working for Ofwat that her understanding of what drives businesses’ strategies changed.
Ofwat and a number of water companies were conducting research in collaboration with the well-known economist Paul Ormerod. The results showed the importance of business culture in driving organisations’ behaviour.
“That was a bit of a revelation to me,” says Ross, who now recognises that a ‘customer service culture’ will drive customer-focused behaviour more effectively than any market incentives or penalties. This customer-centric mindset is something that Ofwat is keen to ensure is implemented across the industry. Figures supplied by Ofwat show that a quarter of a million customers have already been directly engaged in developing water companies’ business plans.
One example is supplier Affinity Water, which involved its customers in a discussion about the ways in which it could improve its water distribution. Customers revealed they were prepared to talk with Affinity about how they themselves could use less water – something that the company may never have known had it not directly asked customers for their thoughts.
“So what you’ve got is Affinity solving a problem in conjunction with its customers,” Ross says. “And that’s incredibly powerful, because customers are part of the solution.
“In the past, water companies were used to producing their business plans based on what they ‘knew’ their customers wanted and then checking back with them to try and get customer support,” Ross explains. “Today, they start by asking the customers what they need, what they want and what are they willing to pay for. What are their priorities? That has driven the whole business planning process.”
One challenge for the regulator is that different companies will have a different set of metrics, because their customers desire different outcomes. Ross sees Ofwat’s role, therefore, to be less about stepping into the middle of the supplier-customer relationship and more about getting verifiable assurances from water companies that they are, in fact, giving customers what they want. As she explains, for this to happen, the whole industry needs to sharpen its focus on customer service, “so that companies really understand, own and are driven by the relationship that they have with their customers”.