TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Taking water and sanitation utilities beyond the next level 2.0 Camilo Lombana Cordoba Gustavo Saltiel Federico Perez Penalosa A methodology to ignite transformation in water and sanitation utilities A About the Water Global Practice Launched in 2014, the World Bank Group’s Water Global Practice brings together financing, knowledge, and implementation in one platform. By combining the Bank’s global knowledge with country investments, this model generates more firepower for transformational solutions to help countries grow sustainably. Please visit us at www.worldbank.org/water or follow us on Twitter: @WorldBankWater. About GWSP This publication received the support of the Global Water Security & Sanitation Partnership (GWSP). GWSP is a multidonor trust fund administered by the World Bank’s Water Global Practice and supported by Australia’s Department of Foreign Affairs and Trade, Austria’s Federal Ministry of Finance, the Bill & Melinda Gates Foundation, Denmark’s Ministry of Foreign Affairs, the Netherlands’ Ministry of Foreign Affairs, the Swedish International Development Cooperation Agency, Switzerland’s State Secretariat for Economic Affairs, the Swiss Agency for Development and Cooperation, and the U.S. Agency for International Development. Please visit us at www.worldbank.org/gwsp or follow us on Twitter: @TheGwsp. Utility of the Future Taking water and sanitation utilities beyond the next level 2.0 Camilo Lombana Cordoba Gustavo Saltiel Federico Perez Penalosa A methodology to ignite transformation in water and sanitation utilities © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpreta- tions, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Please cite the work as follows: Lombana Cordoba, Camilo, Gustavo Saltiel, and Federico Perez Penalosa. 2022. “Utility of the Future, Taking Water and Sanitation Utilities Beyond the Next Level. A Methodology to Ignite Transformation in Water and Sanitation Utilities.” World Bank, Washington, DC. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Pub- lications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org Cover design: Circle Graphics, Inc. and Federico Perez Penalosa Page design: Circle Graphics, Inc. Contents Acknowledgments ____________________________________ vii Executive Summary ___________________________________ ix Objectives of the Utility of the Future Program ix Target Audience of the Utility of the Future Program x The Utility of the Future xi The UoF Methodology to Ignite Transformation in Water and Sanitation Utilities xiii Abbreviations ______________________________________ xvii CHAPTER 1 Introduction _________________________________________ 1 CHAPTER 2 The Utility of the Future: Conceptual Background _______________ 3 2.1 The Success Pyramid 5 2.2 Foundation of the Concept 7 iii UTILITY OF THE FUTURE CHAPTER 3 How to Become a Utility of the Future _______________________ 9 3.1  Decision and Preparation 12 3.2  Utility Analysis 17 3.3  Ignition and Action Plan 30 3.4  Strategic Plan 38 3.5  Sustainable Transformation 45 CHAPTER 4 Conclusions _________________________________________ 51 Utility of the Future 51 To Initiate Reform, Utilities Must Identify Areas of Focus 51 The UoF Action Plan Lays the Groundwork for Becoming a UoF 52 References _________________________________________ 53 Appendices _________________________________________ 55 Appendix A. Change Readiness Assessment Survey 56 Appendix B. Enabling Environment Assessment 57 Appendix C. Service Assessment Criteria 59 Appendix D. Performance Level Assessment 60 Appendix E. Example of a Fact Sheet—Strategic Programs 61 Appendix F. Useful Resources and Tools 62 Appendix G. Glossary of Terms 64 iv TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL TABLES Table 3.1 Key Aspects of Change Management to Consider in Phase 1 . . . . . . . . . . . . . 16 Table 3.2 Measuring Maturity across Five Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table 3.3 Key Aspects of Change Management to Consider in Phase 2 . . . . . . . . . . . . . 29 Table 3.4 Example of 100-Day Plan Goals and Key Performance Indicators . . . . . . . . . . 35 Table 3.5 Key Aspects of Change Management to Consider in Phase 3 . . . . . . . . . . . . . 37 Table 3.6 Key Aspects of Change Management to Consider in Phase 4 . . . . . . . . . . . . . 44 Table 3.7 Select Actions to Support Sustained Change . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Table 3.8 Key Aspects of Change Management to Consider in Phase 5 . . . . . . . . . . . . . 49 FIGURES Figure ES.1 Building Utility Capabilities for Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . x Figure ES.2 The Utility of the Future Success Pyramid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii Figure ES.3 Model of Transformation into a Utility of the Future . . . . . . . . . . . . . . . . . . . . . xiii Figure 2.1 The Utility of the Future Success Pyramid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 3.1 Model of Transformation into a Utility of the Future . . . . . . . . . . . . . . . . . . . . . . 10 Figure 3.2 Example of a UoF Program Implementation Timeline . . . . . . . . . . . . . . . . . . . . . 13 Figure 3.3 Example of a Change Readiness Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 3.4 Example of an Enabling Environment Assessment . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 3.5 Success Pyramid for a Utility of the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 3.6 Assessing the Quality of Service Being Provided to Customers . . . . . . . . . . . 18 Figure 3.7 Five Conditions of Success: How an Example Utility Scores . . . . . . . . . . . . . . 19 Figure 3.8 Illustrative Performance Cobweb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 3.9 Example Maturity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Figure 3.10 Illustrative Maturity Cobweb and Utility of the Future Dimensions . . . . . . . . . . 24 Figure 3.11 Illustration of Superimposed Maturity and Performance Cobwebs . . . . . . . . . 25 Figure 3.12 Analyzing Maturity through the Green Lens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 3.13 Measuring Performance through the Green Lens . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 3.14 Categorization of Short-Term Actions in Terms of Cost and Impact . . . . . . . . . 31 Figure 3.15 Examples of Binding Constraints, Categorized . . . . . . . . . . . . . . . . . . . . . . . . . 32 Figure 3.16 Example of a Root Cause Analysis Using a Decision Tree . . . . . . . . . . . . . . . . 33 Figure 3.17 Categorizing Long-Term Actions by Cost and Difficulty . . . . . . . . . . . . . . . . . . 39 Figure 3.18 Strategic Programs per Element . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Figure 3.19 Sustainable Improvement Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 BOXES Box 2.1 Relevant Targets of Sustainable Development Goal 6 . . . . . . . . . . . . . . . . . . . 4 Box 3.1 Lack of Credibility as a Root Cause of Low Performance . . . . . . . . . . . . . . . . . 34 Box 3.2 Rebranding and Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 v UTILITY OF THE FUTURE vi Acknowledgments This document is a product of the World Bank Water Global Practice’s Utility of the Future Program (UoF). This initiative is led by Camilo Lombana Cordoba (Senior Water Supply and Sanitation Specialist), Gustavo Saltiel (Global Lead Water Supply and Sanitation Specialist), and Federico Perez Penalosa (Senior Water Supply and Sanitation Consultant). The UoF methodology to ignite transformation processes of water and sanitation utilities, was developed in a collabo- rative and participatory spirit and builds on the body of knowledge of the Water Global Practice. Special thanks go to the following Water Global Practice staff members who provided valuable comments and inputs to the first version (UoF1.0) of the methodology, published in 2021: Aileen Castro, Alex McPhail, Andreas Rohde, Antonio Rodriguez Serrano, Berta Macheve, Carolina Dominguez Torres, Chris Heymans, Christine Ochieng, Diego Rodrigues, Fadel Ndaw, Fernando Armendaris, Jemima T. Sy, Jessica Gesund Forero, Iain Menzies, Iris Marmanillo, Iyad Rammal, Jean-Martin Brault, Laura Bonzanigo, Lilian Pena, Maria Angelica Sotomayor, Maria Catalina Ramirez, Martin Gambrill, Midori Makino, Nandita Kotwal, Norhan Sadik, Patricia Lopez, Pier Mantovani, Raghava Neti, Roohi Abdullah, Sanjay Pahuja, Sanyu Lutalo, Sarah Keener, Toyoko Kodama, Xavier Henri Maitrerobert, and Yitbarek Tessema. Special thanks to the teams at Isle Utilities and Castalia for their work on developing the first version of the methodology: Blanca Antizar, Benjamin Tam, Babi Uku, Ceris van der Vyver, David Ehrhardt, Elvira Serra, Lisa Nations, Matthew Stephenson, and Shannon Riley. For this second version of the UoF methodology (UoF2.0), special thanks for the development of three new elements of analysis (or zoom-in lenses) go to Gregory Calner Felter, Nathan L. Engle, and Sean Christopher Nelson for Green Management Lens; Kristoffer Welsien, Dilip R. vii UTILITY OF THE FUTURE Limaye, Anne Shrestha, and Guillaume Fery for Energy Efficiency Lens; and Kamila Galeza, Gaia Hatzfeldt, EqualAqua Team and Graciela Garone for Gender Balance and Diversity Lens. We also acknowledge the contributions of Radoslav Zlatkov in the update of the UoF practices, as well as contributions and feedback from utilities where different modalities of the UoF methodology were implemented during 2020–21, in countries such as Albania, Argentina, Belarus, Brazil, the Democratic Republic of Congo, Ethiopia, Ghana, Honduras, India, Mexico, Moldova, Nigeria, Paki- stan, Peru, the Philippines, Rwanda, São Tomé and Príncipe, Timor-Leste, Turkey, and Uruguay. viii Executive Summary The Sustainable Development Goal for water and sanitation—“to ensure availability and sus- tainable management of water and sanitation for all” (United Nations n.d.[a])—is a lofty one. Worldwide, 2.4 billion people remain without access to improved sanitation, and nearly 0.7 billion remain without access to improved drinking water sources. Those who have access to water supply and sanitation (WSS) services often must cope with intermittent water supply, sewerage system overflows, and poor customer service (Mumssen, Saltiel, and Kingdom 2018). Poor service frequently stems from a vicious cycle of dysfunctional political environments and inefficient practices. Global forces—including climate change, water scarcity, population growth, and rapid urbanization—exacerbate these challenges to providing high-quality, sustainable WSS service delivery. Therefore, WSS utilities require a new approach to planning and sequencing reforms to provide WSS services in a sustainable manner. The Utility of the Future (UoF) program provides this new approach, building on an extensive body of knowledge on utility performance improvement. Objectives of the Utility of the Future Program 7 Ignite actions, improvement, and sustainable transformation of water and/or sanitation utilities. 7 Guide utilities through the transformation process by working in parallel to strengthen their essential processes and develop their future-thinking capabilities to navigate a rapidly changing environment (figure ES.1). ix UTILITY OF THE FUTURE 7 Provide a practical, simple, and effective methodology to implement the transforma- tion process in water utilities. 7 Strengthen a utility’s internal capabilities in operational and managerial processes, as well as in human and leadership skills. 7 Bring a utility’s team on board, gain their commitment, and empower them to transform the utility. 7 Connect utilities with peers globally to facilitate knowledge exchange and know-how. 7 Provide the water and sanitation sector with tools available to the public, within the open knowledge philosophy of the UoF program. FIGURE ES.1 Future-thinking Building Utility Capabilities for Sustainability Capabilities Staying one step ahead in Performance a rapid paced environment Essential Processes to ensure efficiency Source: World and continuity Bank Group—UoF Maturity Program (2022). Target Audience of the Utility of the Future Program The main target audience of the UoF program comprises WSS utility managers, owners, and water practitioners. x TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL The Utility of the Future In light of an unpredictable and rapidly changing operating environment, the World Bank has developed this program to guide utilities in initiating and maintaining transformation efforts. The goal is to become a Utility of the Future—a future-focused utility that provides reliable, safe, inclusive, transparent, and responsive WSS services through best-fit practices in an efficient, resilient, and sustainable manner. The UoF is a new paradigm for providing WSS services, far beyond what most utilities have yet achieved—or even aimed for. A UoF provides high-quality services in a highly efficient manner while also being innovative, inclusive, market and customer oriented, and resilient. The success pyramid (figure ES.2) illustrates the interdependencies and complexities of a UoF, as well as the different perspectives, angles, or elements through which a utility can be analyzed. As shown at the top of the pyramid, service to customers is the ultimate objective, which clearly depends on technical and commercial operations, though not exclusively so. Other elements of sound utility management are organization and strategy, human resource management, and financial management. Together, these promote effective and efficient commercial and technical operations—for instance, by increasing staff productivity and reducing water losses. Finally, at the bottom of the pyramid, the legal framework and governance structure under which the utility operates shape its environment, its autonomy, and its flexibility to change. In a rapidly changing world, success depends on more than these operational, managerial, and governance factors. As shown by the orange circle surrounding the pyramid in Figure ES.2, a UoF is also characterized by its innovation (introducing novel methods); inclusion (improving the ability and opportunity of people, disadvantaged on the basis of their identity, to take part in society, and thus boosting their dignity); market and customer orientation (operating like a firm in a competitive market); and resilience and business continuity (having the capacity to prepare for disruptions, to recover from shocks and stresses, and to adapt and grow from a disruptive experience). xi UTILITY OF THE FUTURE In addition, the UoF methodology incorporates complementary analyses, called “zoom-in lenses,” of key topics such as environmental management, energy efficiency, and gender balance and diversity, among others. These additional lenses allow utilities to gain a more in-depth understand- ing of particular topics of special relevance to them. FIGURE ES.2 The Utility of the Future Source: Adapted Success Pyramid from Heymans et al. (2016). Y N U IT N TI IN O N C O D V N A A T IO E Service to C N Customers EN I LI R ES Commercial Technical Management Operations Human MAR K E Financial Organization Resource Management and Strategy Management T A Legal Framework and Governance ND CU N ST IO O S E LU M R C O ZOO M -I N LE NSE S IN RI EN TA TIO N xii TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL The UoF Methodology to Ignite Transformation in Water and Sanitation Utilities The UoF methodology works in parallel on two dimensions to improve performance and ignite transformation in water and sanitation utilities: management and operational (a “hard” dimension that focuses mainly on processes and practices), and change management (a “soft” dimension that focuses on leveraging staff engagement, empowerment, and teambuilding) (figure ES.3). FIGURE ES.3 Model of Transformation into a Utility of the Future Materialize Transformation 5 Imagine the Future Sustain 4 Challenge Transformation the Present process Plan Analyze the Past 3 Vision & 5-year plan Operational Dimension Act Decision to 2 Management & Ignition & Change 100-day actions Analyze 1 Decide Rapid in-depth analysis Decision & preparation S Change Management P Dimension S hake up Status Quo Pause to Think E E ngage the Team E Envision the Future D D eploy Source: World Bank Group—UoF Program (2022). Transformation xiii UTILITY OF THE FUTURE The management and operational dimension of the process has five key phases: 1 Decision and preparation: This starts with a utility’s decision to initiate a process of transformation, after which it engages its board of directors, and develops a work plan with its management team. 2 Rapid in-depth analysis: It is important to analyze and understand a utility’s current per- formance and maturity levels, reviewing all its processes and defining the next desirable performance and maturity level. 3 Ignition and short-term action plan: In this third step, a utility considers its opportu- nities for improvement, defines and prioritizes possible actions to be implemented, and ignites transformation by implementing those high-impact and low-cost/effort actions that can be executed in the short term (100 days). 4 Strategic vision and long-term action plan: It is important that a utility define (or update) its strategic framework, vision, mission, values, and strategic objectives to define the business plan, incorporating those actions to be implemented in the long term (5 years). 5 Sustainable transformation: In the final step, the utility’s strategic vision and business plan are translated into actions to ensure sustainable improvement, and to continue the transformation process to become a Utility of the Future. The change management dimension of the UoF methodology utilizes a process called SPEED (Shake, Pause, Engage, Envision, Deploy), which accompanies each phase of the utility’s transformation process with some guidance to be reviewed at the beginning and at the end of the phase. This guidance is related to leadership, engagement, empowerment, and team building. The SPEED stages that accompany the UoF methodology are: S Shake up the status quo, taking the utility out of the comfort zone. P Pause the utility’s inertia for a moment and start gaining commitment and momentum for the transformation. E Engage and empower the utility team to act and take ownership of the transforma- tion process. E Envision the future and seize momentum to involve the entire utility. D Deploy the transformation process, making continuous improvement part of the organization’s DNA. xiv TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Experience has shown that such change management is best implemented through an approach that is collective, staff-led, and organic, instead of another initiative that is prescribed for the staff by the top management. The UoF methodology is reflected in the UoF Toolkit available at www.worldbank.org/uof. The UoF Toolkit will be continuously updated to be at the forefront of sector trends, including new practices and topics relevant to water and/or sanitation utilities. xv UTILITY OF THE FUTURE xvi Abbreviations CEO chief executive officer EBITDA earnings before interest, tax, depreciation, and amortization GHG greenhouse gas FSM fecal sludge management HRM human resource management KPI key performance indicator NRW nonrevenue water SDG Sustainable Development Goal SPEED Shake, Pause, Engage, Envision, Deploy (UoF change management process) UTF Utility Turnaround Framework UoF Utility of the Future WSS water supply and sanitation xvii UTILITY OF THE FUTURE xviii 1 CHAPTER Introduction This methodological document provides a practical guide to implementing the Utility of the Future (UoF) program. Reflecting the program’s practical nature, this document and the accompanying UoF Toolkit are intended to be living documents. As the implementation of the program evolves, and new best practices and zoom-in lenses emerge, lessons learned, and new developments will inform updates to the methodology and toolkit. Chapter 2 defines the UoF concept, determinants of success, and the analytical basis of the program. Chapter 3 presents the methodology developed to guide the process of becoming a UoF. This has five main phases, each of which is accompanied by UoF change management guidance (i.e., “Shake, Pause, Engage, Envision, Deploy,” or SPEED). Appendixes A–G contain information to guide assessments of service, performance, an enabling environment, change readiness, useful resources and tools, as well as a glossary and an example of a strategic programs. The UoF Toolkit is a separate document available at: www.worldbank.org/uof. 1 2 2 CHAPTER The Utility of the Future: Conceptual Background A Utility of the Future (UoF) is defined as a future-focused utility that provides reliable, safe, inclusive, transparent, and responsive water supply and sanitation (WSS) services through best-fit practices that allow it to operate in an efficient, resilient, and sustainable manner. The UoF will set for itself ambitious objectives, such as helping to meet Sustainable Development Goal (SDG) 6 to “ensure availability and sustainable management of water and sanitation for all” (United Nations n.d.[a]). Box 2.1 provides the relevant SDG 6 targets. Other relevant SDG targets include developing resilient infrastructure (target 9.1), increasing resource-use efficiency and adoption of clean and environmentally sound technologies (target 9.4), strengthening resilience and adaptive capacity to climate-related hazards and natural disasters (target 13.1), achieving universal access to basic services (target 1.4), reducing water-pollution-re- lated deaths (target 3.9), and improving energy efficiency (target 7.3) (United Nations n.d.[a]). Providing “reliable, safe, inclusive, transparent, and responsive WSS services” for all is the ultimate goal of the UoF, for which 7 Reliable means 24/7 continuous supply 7 Safe means adhering to quality standards 7 Inclusive means not excluding any party or group from the provision of service and/or within the utility 3 UTILITY OF THE FUTURE BOX 2.1 Relevant Targets of Sustainable Development Goal 6 7 6.1: By 2030, achieve universal and equitable access to safe and affordable drinking water for all. 7 6.2: By 2030, achieve access to adequate and equitable sanitation and hygiene for all and end open defecation, paying special attention to the needs of women and girls and those in vulnerable situations. 7 6.3: By 2030, improve water quality by reducing pollution, eliminating dump- ing and minimizing release of hazardous chemicals and materials, halving the proportion of untreated wastewater, and substantially increasing recycling and safe reuse globally. 7 6.4: By 2030, substantially increase water-use efficiency across all sectors and ensure sustainable withdrawals and supply of freshwater to address water scarcity and substantially reduce the number of people suffering from water scarcity. Source: United Nations n.d.(b). 7 Transparent means financial, operational, and performance information is disclosed, clear, and accurate (Schnackenberg and Tomlinson 2016) 7 Responsive means there is sufficient capacity to provide customers with quality and timely responses, to ensure customer satisfaction And to be a “future-focused utility” meeting goals “in a resilient and sustainable manner” means 7 Having short-, medium-, and long-term actions and strategies that are all interconnected 7 Being constantly aware of trends, external drivers, and market/sector signals 7 Thinking strategically about possible and probable future scenarios 7 Having the ability to anticipate, adapt, and withstand complex conditions 7 Being aspirational, innovative, and self-challenging 7 Continuously strengthening staff knowledge and skills 7 Striving to implement best-fit practices to deliver efficient, resilient, and sustainable services 4 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL 2.1  The Success Pyramid The UoF is a new paradigm for providing WSS services, far beyond what most utilities have yet achieved—or even aimed for. A UoF provides high-quality services in a highly efficient manner while also being innovative, inclusive, market and customer oriented, and resilient. The success pyramid (see figure 2.1) illustrates the interdependencies and complexities of a UoF, as well as the different perspectives from which a utility can be analyzed. As shown at the top of the pyramid, service to customers is the ultimate objective, which clearly depends on technical and commercial operations, though not exclusively so. Other elements of sound utility management are organization and strategy, human resource management (HRM), and financial management. Together, these promote effective and efficient commercial and technical operations—for instance, by increasing staff productivity and reducing water losses. Finally, at the bottom of the pyramid, the legal framework and governance structure under which the utility operates shape its environment, its autonomy, and its flexibility to change. In a rapidly changing world, success depends on more than these managerial and governance factors. As shown by the orange circle surrounding the pyramid in figure 2.1, a UoF is also innova- tive, inclusive, market and customer oriented, and resilient. For the purposes of this methodology, 7 Innovation means “a change made in the nature or fashion of anything; something n ewly introduced; a novel practice, method, and so on” (OED Online n.d.). 7 Inclusion means “the process of improving the ability, opportunity, and dignity of people, disadvantaged on the basis of their identity, to take part in society” and “leveraging the utility’s assets and operations to benefit the larger community, lessen negative impacts from utility activities, and provide service equitably across the service area, particularly for traditionally underserved neighborhoods” (World Bank 2013; AWWA 2019). 7 Market and customer orientation means the utility operates like a firm in a competitive market, prioritizing efficiency and customers’ wants and needs, and treating its customers as if they could change their service provider if unsatisfied. 7 Resilience and business continuity means “the capacity of any entity—an individ- ual, a community, an organization, or a natural system—to prepare for disruptions, to recover from shocks and stresses, and to adapt and grow from a disruptive experience” (Rodin 2014). 5 UTILITY OF THE FUTURE In addition, the UoF methodology incorporates complementary analyses, called “zoom-in lenses,” of key topics such as environmental management, energy efficiency, and gender balance and diversity, among others. These additional lenses allow utilities to gain a more holistic vision of themselves from different perspectives. FIGURE 2.1 The Utility of the Future Success Pyramid Y N U IT N TI IN Source: Adapted O N from Heymans C O D V et al. (2016). N A A T IO E Service to C N Customers EN I LI R ES Commercial Technical Management Operations Human MAR K E Financial Organization Resource Management and Strategy Management T A Legal Framework and Governance ND CU N ST IO O S E LU M R C O ZOO SES IN RI M -I N LE N EN TA TIO N 6 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL 2.2  Foundation of the Concept The UoF builds on the work of two previous guidance documents: “The Utility Turnaround Framework” (UTF) and the “Smart Water Utility.” Together, they provide the foundational framework for the UoF Methodology. A brief overview of each of these guidance documents is described below. The Utility Turnaround Framework The UTF offers guidance for turning around poorly performing WSS utilities and identifies five critical elements (or pillars) of sound management and performance for WSS utilities: technical operations, commercial operations, HRM, organization and strategy, and financial management. (Appendix F) The framework allows users to conduct a comprehensive assessment of a utility’s performance and maturity level, looking at qualitative and quantitative indicators for each of the five elements. The outputs of this assessment are a performance cobweb and a maturity cobweb, which present the level the utility, scored across the elements (measured from 1 [elementary] to 5 [world class]). Action matrices and guidance notes set out how to translate the assessment into a prioritized action plan to initiate and sustain the utility’s turnaround. Smart Water Utility The Smart Water Utility is a guide to defining what it means to be one. It identifies key improvement opportunities for WSS utilities across the water cycle, and organizes the adoption of innovative approaches and technologies around three main goals: 7 Create a resilient water supply. 7 Provide effective wastewater management. 7 Build a responsive utility. A smart water utility embodies the principles of resilience, financial and operational efficiency, energy and water efficiency, inclusion, circular economy, innovation, and good governance. 7 UTILITY OF THE FUTURE 8 3 CHAPTER How to Become a Utility of the Future The UoF methodology works in parallel across two dimensions to improve the performance and ignite the transformation of water and sanitation utilities: management and operations (a “hard” dimension that focuses mainly on processes and practices) and change management (a “soft” dimension that focuses on leveraging staff engagement, empowerment, and team building) (figure 3.1). The management and operational dimension of the process has five key phases: 1 Decision and preparation: The first step is for a utility to decide to initiate a process of transformation, after which it engages its board of directors, and develops a work plan with its management team. 2 Rapid in-depth analysis: It is important to analyze and understand a utility’s current per- formance and maturity levels, reviewing all its processes and defining the next desirable performance and maturity level. 3 Ignition and short-term action plan: In this third step, a utility considers its opportu- nities for improvement, defines and prioritizes possible actions to be implemented, and ignites transformation by implementing those high-impact and low-cost/effort actions that can be executed in the short term (100 days). 9 UTILITY OF THE FUTURE 4 Strategic vision and long-term action plan: It is important that a utility define (or update) its strategic framework, vision, mission, values, and strategic objectives to define a business plan, incorporating those actions to be implemented in the long term (5 years). 5 Sustainable transformation: In the final phase, the utility’s strategic vision and business plan are translated into actions to ensure sustainable improvement, and to continue the transformation process to become a Utility of the Future. FIGURE 3.1 Materialize Model of Transformation into Transformation a Utility of the Future 5 Imagine the Future Sustain 4 Challenge Transformation the Present process Plan Analyze the Past 3 Vision & 5-year plan Operational Dimension Act Decision to 2 Management & Ignition & Change 100-day actions Analyze 1 Decide Rapid in-depth analysis Decision & preparation S Change Management P Dimension Shake up Status Quo Pause to Think E E ngage the Team E E nvision the Future D D eploy Source: World Bank Group—UoF Program (2022). Transformation 10 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL The change management dimension of the UoF methodology utilizes a process called SPEED (Shake, Pause, Engage, Envision, Deploy), which accompanies each phase of the utility’s transformation process with some guidance to be reviewed at the beginning and at the end of the phase. This guidance is related to leadership, engagement, empowerment, and team building. The SPEED stages that accompany the UoF methodology are: S Shake up the status quo, taking the utility out of the comfort zone. P Pause the utility’s inertia for a moment and start gaining commitment and momentum for the transformation. E Engage and empower the utility team to act and take ownership of the transforma- tion process. E Envision the future and seize momentum to involve the entire utility. D Deploy the transformation process, making continuous improvement part of the organization’s DNA. “SPEED Gear-Up Points” for each phase con- tain some insights on change management aspects to consider, such as team building, expected behavioral change, important ques- tions, key actions, and expected outputs of the phase. It is important to note that such E efforts will lead to a genuine transformation P E only if they are conceived and led by the utility staff, instead of as mandatory programs S D decided by the senior management. There is S.P.E.E.D. increasing evidence and knowledge base for such successful transformational efforts in utilities through such approaches, including in World Bank-supported programs. The UoF methodology is reflected in the UoF Toolkit available at www.worldbank.org/uof. The UoF Toolkit will be continuously updated to be at the forefront of sector trends, including new practices and topics relevant to water and/or sanitation utilities. 11 UTILITY OF THE FUTURE 1 2 3 4 5 3.1  Decision and Preparation The first step to becoming a Utility of the Future is a decision by the utility’s CEO and board of directors to initiate a process of transformation within the utility. It is important to have the full support of the top management since their leadership, participation, and commitment are essential to secure required resources, make decisions rapidly, maintain the dynamism of the team, guarantee continuity of the process, and in general, manage the entire transformation process until the whole cycle is completed. Once the decision has been taken, and the management team is on board, the next key steps are: 1. Designate a utility leader: This is a staff member responsible for explaining the pro- cess to an internal team, serving as a focal point for exchanges with external parties, and monitoring the progress of the work plan. This staff member should be a recognized leader within the utility, have direct contact/interaction with the CEO (or may actually be the CEO), and should be a person who can gain the trust and commitment of the utility team. 2. Set up a utility team: This team is responsible for each of the UoF elements: strategic planning, commercial management, technical operations (water and/or sanitation), financial management, and human resources. It may include specialists responsible for the various UoF zoom-in lenses, such as environmental management, energy efficiency, gender balance and diversity, and other lenses described in the UoF Toolkit. For the UoF process to be more interactive and participatory, the team should strive to include staff relevant to each topic, as well as young professionals and new staff, and ensure diversity in terms of age, gender, knowledge, and hierarchical level, among others. 12 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL FIGURE 3.2 Example of a UoF Program Implementation Timeline UoF Program Implementation (weeks) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 23 24 24 25 1 Preparation Project planning Utility basic data collection Analysis enabling environment 2 Utility Analysis Analysis maturity level 3 Ignition and Action Plan Room for improvement Action Prioritization 100-day action plan 4 Strategic Plan Strategic Framework Review of improvement actions Strategic 5-year plan 5 Sustain Transformation Implementation 5 Source: Original compilation. 3. Set a process plan: This is a work plan that considers the previous commitments of the utility and the availability of the utility team. Figure 3.2 shows an example of an implementation timeline. UoF has a special on-demand immersion program called “UoF Ignition Week” in which in only 5 days the following activities take place: utility analysis, identification of improvement opportunities, definition of short-term improvement actions and launching of the 100-day action plan.x 4. Conduct a change readiness assessment survey: Before starting the transformation process it is important to know how ready the utility is to initiate change. This survey evaluates key aspects of the organization’s culture, including the motivation of the team, and thus helps the utility define mechanisms to successfully implement the process and to eliminate some barriers to change (figure 3.3). Appendix A shows an example of a survey from the “Change Management Toolkit—Tips, Tools, and Techniques for Leading a Successful Change Initiative” (Berkeley University of California n.d.). This step is optional as well as the assessment methodology, but if the survey is conducted it is recommended 13 UTILITY OF THE FUTURE FIGURE 3.3 Awareness Example of a Change Readiness Assessment Reinforcement Desire Source: Original compilation. Ability Knowledge use a sample of staff members from both in and outside the utility team, from different departments, levels within the organization, gender, ages, and so on. The definition of the sample depends on the conditions and size of each utility, but it is recommended to try to cover at least 5 percent of the total staff. 5. Collect basic data: It is necessary to collect basic data to measure performance. The required data can be found in the UoF Toolkit and are related to the different elements and zoom-in lenses described in the next section (e.g., number of people in the service area as of the last population count, total water service connections, number of domestic properties with wastewater network connections, total annual revenues). Although few basic data are required (approximately 30 parameters), it is very important that these data are accurate so that the final analysis reflects the reality of the utility. As shown in figure 3.2, this step can be done before or in parallel to the utility analysis (phase 2). 6. Analyze the enabling environment: A utility’s enabling environment, characterized by its legal and governance framework, affects what actions the utility can take and when. Thus, it is important to know its current to better understand binding constraints pre- venting the utility from taking action. In the enabling environment analysis, there are five categories to review: the system used for setting service standards, the system used for setting tariffs, institutional setup, financing, and autonomy and accountability (appendix B). The UoF Toolkit presents a classification system from 1 to 5, with 5 being the best. 14 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL This analysis is carried out to understand the context of the utility, its level of autonomy, as well as potential obstacles or opportunities related to managing a successful transfor- mation process. Figure 3.4 provides an example of an enabling environment assessment. To conduct the analysis, the utility selects the option that corresponds most closely to its current enabling environment. In this example, the utility operates in a context in which a regulatory and accountability system exists but involves only a few customers in the service area. As shown in figure 3.2, this step can be done before or in parallel to the utility analysis phase. FIGURE 3.4 Example of an Enabling Environment Assessment Select the level that most closely matches the current situation. WEAK STRONG System for Regulatory and Regulatory and Regulatory and Regulatory and Regulatory and setting service accountability accountability accountability accountability accountability standards system does not system exists but system involves system involves system involves all exist involves only few in some in service area most in service area in service area service area TRUE System for Regulatory and Regulatory and Regulatory and Regulatory and Regulatory and setting service accountability accountability accountability accountability accountability standards system does not system exists but is system is somewhat system is mostly system is exist not transparent or transparent and transparent and transparent and not responsive responsive responsive responsive to needs of all in service area TRUE System for No service Minimum service Service standards Service standards Service standards setting service standards are set standards are set are set appropriately, are set somewhat are set appropriately, standards but not predictably appropriately and responsively, predictably and predictably TRUE Source: Original compilation. 15 UTILITY OF THE FUTURE SPEED Gear-Up Point S Shake Up the Status Quo To initiate a change process in a utility, it is important to ensure that the management team has the firm conviction that change is necessary and that they must break away from traditional ways of doing things, disrupt the utility’s inertia, and shake up the status quo. A decision to change is the first step, and that the management team is part of the change is a key success factor of any transformation process. Table 3.1 lists aspects of change management that should be analyzed at the beginning and at the end of this phase to check if the expected outputs were achieved. TABLE 3.1 Key Aspects of Change Management to Consider in Phase 1 Main To engage senior leadership in disrupting the utility’s inertia (or “business as usual”) and take objective the utility out of its comfort zone. Expected 7 Leadership team members are eager to be part of the change and become “agents of change in change” within the utility. behavior 7 Leadership team is willing to think differently, do things differently, and find new solutions to the utility’s needs. 7 Leadership team is committed to engaging the utility’s entire staff. Key questions or 7 Is it the right moment to initiate a change process? (e.g., is there a change of local self-reflections government that may affect or stop the change process?) 7 What future problems will the utility have if it does not decide to change now? (e.g., financial sustainability, reputational risk, reduction of coverage, and quality of service) 7 What are the utility’s incentives for change? (e.g., improve credit capacity, comply with the regulator’s requirements) 7 Who are the main partners? And how can the utility engage them? (e.g., regulators, the private sector, suppliers) 7 What are the first barriers to change that the utility will face and how can the utility overcome them? (e.g., organizational culture, time, availability of staff) Key actions 7 Obtain approval and commitment from the board of directors. 7 Identify and involve the utility’s natural leaders. 7 Motivate staff to join the effort. 7 Define a communication plan for the transformation process. 7 Assess organizational readiness for change. Expected 7 Top managers/leaders/supervisors convinced of the need to change. outputs 7 The decision to initiate a transformation process is internalized in the utility. 16 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL 1 2 3 4 5 3.2  Utility Analysis After assembling the team, developing the implementation plan, collecting key data, and evaluat- ing the enabling environment; the next step of the UoF methodology is to analyze the current level of service being provided to customers and the utility’s performance overall, the utility’s current maturity level and potential next level across the five elements, as well as the specific zoom-in lenses, as presented in the success pyramid (figure 3.5). FIGURE 3.5 Success Pyramid for a Utility of the Future Y N U IT N TI IN O N C O D V N A A T IO E Service to C N Customers EN I LI R ES Commercial Technical Management Operations Human MAR K E Financial Organization Resource Management and Strategy Management T A Legal Framework and Governance ND CU N ST IO O S E LU M R C O ZOO M -I N LE NSE S IN RI EN TA TIO N Source: Original compilation. 17 UTILITY OF THE FUTURE Service to Customers Service to customers is at the top of the pyramid, as shown in figure 3.5, because it is the ultimate objective of the utility to provide reliable, safe, inclusive, transparent, and responsive service. Each component is analyzed through one or more indicators (figure 3.6)—for example, reliability is analyzed through continuity (hours of supply per day) and availability (average liters of domestic consumption per person served per day) of the water service. A detailed list of indicators is included in appendix C. The service assessment provides a reminder of the big-picture goals FIGURE 3.6 Assessing the Quality of Service Being Provided to Customers Continuity (hours per day on average) Continuity (customers with 24/7 supply) (%) Reliable Availability (liters/per capita/day) Availability of fecal sledge management emptying services (provided 24 hours after service requested) (%) SERVICE TO CUSTOMERS Water quality (samples meeting all Word Health Organization guidelines for Safe drinking water quality (%) Wastewater and fecal sludge treatment (%) Drinking water coverage (%) Inclusive Sanitation service coverage (%) Key information disclosure (%) Transparent Application of practices to generate clear information (%) Application of practices for ensuring accurate information (%) Customers satisfied with service (based on assessment in the past two years) (%) Responsive Grievances satisfactorily resolved within seven days (%) Percentage of sewer blockage complaints addressed within 48 hours (%) Source: Original compilation. Note: FSM = fecal sludge management; l/pc/day = liter per capita per day; WHO = World Health Organization. 18 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL of the utility but is not a direct input to the actions or action plan. This reflects the logic of the pyramid: the utility improves the elements included within the pyramid to improve services. At the same time, improving services should always be top of mind when determining quick wins and long-term actions. Each component is valued on a scale from elementary to world class. For example, when analyzing the level of service, a utility with drinking water coverage of less than 50 percent is assigned an elementary level of service, whereas a utility with drinking water coverage of 100 percent is assigned a world-class level of service. For example, a utility with a drinking water coverage of 87 percent and a sanitation service coverage rate of 17 percent would score an average of 3,1 placing it at the good level for inclusion (figure 3.7). Levels and ranges of service are explained in Appendix C. FIGURE 3.7 Five Conditions of Success: How an Example Utility Scores World-Class Well-Performing Good Basic Elementary Reliable Safe Inclusive Responsive Transparent Source: Original compilation. 1 This is calculated by matching the numbers reported by the utility with the corresponding band from appendix A and then taking the average score of each component. For example, a drinking water coverage rate of 87 percent falls in the range between 85 and 95, so it is categorized as well performing (4), and a sanitation service coverage rate of 17 percent falls in the range between 0 and 20, so it is categorized as basic (2). Therefore, the total score for the inclusive component is the average of the two: good (3). 19 UTILITY OF THE FUTURE Elements of Analysis To understand the level of customer service explained in the previous section, the UoF meth- odology analyzes both the level of performance and maturity of each of the elements of the UoF success pyramid: commercial management, technical operations (water and/or sanitation), organization and strategy, human resource management, and financial management. Utility Performance Level UoF methodology analyzes utility performance based on the data collected in the preparation phase. This analysis basically helps to understand outputs as results of the way the utility has been managing its operations. The performance cobweb (figure 3.8) provides a picture of the utility’s relative performance across the five elements on a scale from 1 (elementary) to 5 (world class). Each element is assessed through one or more indicators, as follows: 7 Commercial management ● Collection rate (%) ● Metering rate (customers metered) (%) 7 Technical operations ● Nonrevenue water (NRW) (liters/connection/hour when the system is pressurized) 7 Financial management ● EBITDA (earnings before interest, taxes, depreciation, and amortization) margin (%) 7 Human resource management ● Staff per 1,000 connections 7 Organization and strategy ● Fulfillment of the strategic plan (%) The aggregate level for each element is graphically depicted through a performance cobweb with five spokes, showing relative strengths and weaknesses across the five elements. For instance, in the example shown in figure 3.8, the performance of commercial operations, organization and strategy, and financial management is relatively stronger than the performance of HRM and technical operations. The relative strengths and weaknesses identified by the performance cobweb provide one method for prioritizing actions in the action planning process. For instance, a utility may choose to focus first on improving elements with lower scores (in this example, HRM 20 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL FIGURE 3.8 Illustrative Performance Cobweb Organization & Strategy 5 4 Source: Original 3 compilation. 2 Human Commercial 1 Resource Operations Management Technical Financial Operations Management and technical operations) and/or build on its strengths to continue consolidating and optimizing its processes (in this example, financial management). Also, the performance cobweb can be superimposed on the maturity cobweb and UoF dimensions (described in the next section) to show asymmetries between performance and maturity. If performance has a higher score than maturity for a given element, this may indicate that the utility should strengthen its maturity to sus- tain current levels of performance. The respective levels and ranges at which utility performance is analyzed are explained in appendix D. Utility Maturity Level UoF methodology analyzes how a utility manages its key processes by analyzing each of the five elements: commercial management, technical operations, financial management, HRM, and organization and strategy. The maturity component of the analysis evaluates essential processes at five levels, from 1 (elementary) to 5 (world class), and UoF processes of innovation, inclusion, market and customer orientation, and resilience. Maturity is analyzed through the maturity matrices. There is one maturity matrix per element, each of which is divided into areas and topics. The utility’s maturity level for each topic is determined by the practice that best matches the utility’s current state. During the utility analysis, the meth- odology evaluates the way things are done that led the utility to the current level of performance. In addition, the methodology helps the utility in defining the desired next level as well as activities and practices that need to be implemented to achieve it. This analysis is necessary to identify the 21 UTILITY OF THE FUTURE gaps between the current level and the desired next level, which is the basis for defining possible improvement actions as detailed in Phase 3. The maturity level of each of the elements is analyzed from different angles (areas), as shown in table 3.2. TABLE 3.2 Measuring Maturity across Five Elements Commercial 7 Customer relationship management management 7 Customer service 7 Metering 7 Billing 7 Collections Technical 7 Expansion and rehabilitation plans operations 7 Asset management 7 Technical operations processes 7 Water treatment and quality 7 Distribution and nonrevenue water 7 Wastewater and fecal sludge management Financial 7 Strategy and management management 7 Planning and budgeting 7 Accounting and financial reporting 7 Control and transparency 7 Financial modelling and forecasting Human resource 7 Human resources management management 7 Attraction and recruitment 7 Training and development 7 Performance management 7 Compensation, benefits, and retention 7 Culture and values 7 Diversity Organization and 7 Business strategy strategy 7 Monitoring and reporting 7 Efficiency and continuity 7 Strategic capabilities 7 Utility governance 22 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL To provide an example, an excerpt of the commercial operations maturity matrix is shown in figure 3.9 for the area of metering and the topic of reading: a utility that reads its meters through walk or drive remote metering would be at level 4 (well performing) and its desired level is 5 (world class), implying a fully remote intermittent metering system. Regarding UoF practices, having methods for customers of all socioeconomic statuses to access meter readings represents compliance with practices related to inclusion; also, having a digital and secure backup of all reading records is important for resilience. FIGURE 3.9 Example Maturity Analysis Maturity Levels UoF Dimensions SELECT ONE SELECT ALL THAT APPLY Well- Area Topic Elementary Basic Good World-Class Innovation Inclusion Market Orientation Resilience Performing Meter reading None. Manual meter Manual input to Walk or drive Full remote Collaboration with Methods for Availability of water Digital and secure reading and data electronic device, remote metering, intermittent or mobile service customers of all demand profile, back-up of all register. automatic data automatic data prepay plan (pay in providers for socio-economic alarms regarding records. Ability to transfer. transfer. advance). Internet of Things statuses to access customer water access the (LoRa IoT, NB IoT). readings consumption customer database Providing meter themselves. available online. remotely for all readings through meter readers. the mobile operators' network. Current Level Desired Level Data No link or No link or Manual link or Automatic link or Automatic Data fully reconciliation correlation; no correlation; correlation; routine correlation; routine self-validation integrated with (reading= check for infrequent checks checks for checks for process for CRM system and billing= consistency. for consistency. consistency. consistency. consistency and financial system. accounts) correlation (based on historical data), flagging system in place. Current Level Desired Level None. Mechanical meters Mechanical meters Mechanical meters Mechanical meters Electronic meters Communication plan Differentiate that do not meet that meet at least 3 that meet at least 4 that meet all ISO with on-demand, to inform customers ISO 4064 ISO 4064 standards. ISO 4064 standards 4064 standards. remote readings endcustomers the depending on Metering standards. (e.g., on mobile advantages of demand profile Type of meter devices and control having meter (customers or room) and that installed. Range of B2B) for meter meet all ISO 4064 metering solutions selection. standards; for customers automatic check (portfolio of for consistency of metering systems meter reading, for specific billing, and communities; accounts data. different solutions for different areas, communities, etc., including pre-pay meter). Current Level Desired Level Testing and Not tested or Tested infrequently; Tested and Tested and Tested, calibrated, Proactive testing, Deferred payment Close collaboration Guaranteed service replacement calibrated; not not calibrated and calibrated routinely; calibrated routinely; and replaced in calibration, and alternatives for with meter level agreements in replaced. not replaced. replaced replaced when accordance with replacement based meter replacement manufacturers to place with meter infrequently. required manufacturer on exception (if customer pays define testing and manufacturers or (on-demand) or guidelines. reports from online for meter). replacement plan suppliers. according to a basic meter data. and the introduction plan. of new devices. Current Level Desired Level Source: Original compilation. Note: B2B = business-to-business; CRM = customer relationship management. 23 UTILITY OF THE FUTURE It is important to be accurate and honest in the evaluation of the current maturity level, as well as realistic in the definition of the next desired level, since this exercise is the baseline for defining a short- and long-term action plan according to the real needs, context, and capabilities of the utility. As with the performance cobweb, the aggregate scores for each element will be graphically depicted through a maturity cobweb with five spokes, showing relative strengths and weaknesses across the five elements. For instance, in figure 3.10, the maturity of HRM, organization and strategy, commercial management, and financial management is relatively stronger than the maturity of technical operations. The ring encircling the maturity cobweb depicts the progress toward implementing all UoF practices across all elements, with the amount of orange shading corresponding to the total percentage of UoF practices that the utility has implemented. For example, the utility in figure 3.10 has implemented about 50 percent of all inclusion practices. FIGURE 3.10 Illustrative Maturity Cobweb and Utility of the Future Dimensions 35% INN OV AT I O N E C O N AN D N C Y Organization IT & Strategy E U I LI 5 TI N R ES 4 3 2 Human Commercial 1 Resource Operations 45% Management 50% N SIO Technical Financial LU Operations Management C IN M A Source: Original C RK O US ET R compilation. I E TO M A N D NT E Maturity Note: UoF = Utility AT R I O N 65% of the Future. UoF 24 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL As with the performance cobweb, the relative strengths and weaknesses identified by the maturity cobweb provide one method for prioritizing actions in the action planning process. For instance, a utility may choose to focus first on improving elements with lower scores (in this example, technical operations), or strengthen elements with higher scores to continue consolidating and optimizing its processes (in this example, human resources). Also, the performance cobweb can be superimposed on the maturity cobweb, as shown in figure 3.11, to show asymmetries between performance and maturity. If performance has a higher score than maturity for a given element (for example, technical operations in this figure), this may indicate that the utility should strengthen its maturity (processes, best practices, systems, etc.) to sustain or improve current levels of performance. FIGURE 3.11 Illustration of Superimposed Maturity and Performance Cobweb INN OV AT I O N E C O N AN D N C Y Organization IT & Strategy E U I LI 5 TI N R ES 4 3 2 Human Commercial 1 Resource Operations Management N SIO Technical Financial LU Operations Management C IN M A C RK Performance O US ET R I E TO M A N D Maturity NT E AT R UoF ION Asymmetries 25 UTILITY OF THE FUTURE Utility of the Future Zoom-In Lenses The nature of the UoF program is to stay at the forefront of strategic topics for the utility; for that reason, the methodology incorporates additional lenses to analyze specific subjects such as environmental management, energy efficiency, gender balance, and emerging strategic topics. The process of analyzing zoom-in lenses is similar to the analysis of the UoF elements described in the pyramid. For each case, the maturity level of both essential processes and UoF processes is analyzed. Figure 3.12 shows an example of the “green lens” through which the environmental management of a utility is analyzed from five perspectives: water conservation, environmental water quality, impacts on the surrounding environment, infrastructure, and greenhouse gas (GHG) emissions. FIGURE 3.12 Analyzing Maturity through the Green Lens INN OV AT I O N E C O N AN D N C Y Water IT Conservation E U I LI TI N R ES Environmental GHG Water Quality Emissions N SIO Infrastructure Surrounding LU Environment C IN M A C R Source: Original O US KET R I E TO M A N D compilation. NT E AT R Maturity Note: UoF = Utility ION of the Future. UoF 26 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Each lens has its own set of indicators to analyze performance from a specific angle. For exam- ple, using the green lens, performance is measured by the percentage of projects that analyze environmental impacts, percentage of infrastructure projects implemented that follow a resilience framework, and percentage of energy consumed that comes from renewables or on-site sources (figure 3.13). FIGURE 3.13 Measuring Performance through the Green Lens 12% 75% 7% Percentage of projects Percentage of infrastructure Percentage of energy that analyze projects implemented that consumed that comes from environmental impacts follow a resilience framework renewables or on-site sources Source: Original compilation. Outputs for Utility Analysis Once all the data have been collected and the maturity level (current and desired) of a utility has been evaluated for all five elements and zoom-in lenses, the UoF Toolkit generates a comprehen- sive report that covers, among other topics: 7 Characterization of the utility 7 Enabling environment map 7 Utility’s current service levels 7 Overall level of performance and maturity 7 Cross-cutting analysis 7 Preliminary room for improvements for each lens 7 Detailed results of each element and zoom-in lens 27 UTILITY OF THE FUTURE Before moving on to the next phase, the leadership team and utility staff should have an internal workshop to analyze and validate the results, adjust inconsistent data, evaluate the main causes of current performance, and review comments, key findings, and insights. The UoF Toolkit has a section to collect key messages. P SPEED Gear-Up Point Pause to Analyze Before taking a step forward in the transformation process, the utility should take some time to look back to understand the causes of its current levels of performance and maturity, as well as to analyze realistically how far it can go in the short and long term, taking into account its capabilities, resources, objectives, constraints, risks, and so on. The leadership team should create an environment of trust to develop clear, honest, and objective discussions around the analysis of the utility. A proper and honest analysis is the baseline for designing an improvement plan that benefits the utility. Table 3.3 lists key aspects related to change management that should be analyzed at the beginning and at the end of this phase to check if the expected outputs were achieved. 28 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL TABLE 3.3 Key Aspects of Change Management to Consider in Phase 2 Main Take time to reflect on the past, understand how the utility became what it is today, and objective evaluate how far the utility could go. Expected 7 Total openness about achievements but also about possible mistakes of the past. change in 7 Work toward common objectives (not only individual goals), understanding the behavior systemic functioning of the utility. 7 Continue to take care of the day to day, but also think strategically for the long term. Key questions or 7 Has the utility created an environment of trust to generate open and honest self-reflections conversations? (e.g., has the CEO openly participated in the discussions highlighting both achievements and mistakes?) 7 Is the right staff designated to the utility analysis process? (e.g., knowledgeable, experienced, and impartial) 7 How can the utility use the implementation of the UoF program as a learning opportunity? (e.g., involving new staff, young professionals, and staff from different areas) 7 Is there a “check and balance” on the analysis teams? (e.g., staff with different perspectives, points of view, hierarchical levels, etc.) 7 What are the main barriers to change in this phase and how can the utility overcome them? (e.g., staff fear change will result in low performance or maturity levels) Key actions 7 Leadership team participates in the analysis workshops and generates an environment conducive to objective discussions. 7 Staff from different areas are engaged in the analysis workshops to understand the interconnectivity of the processes. 7 Staff from different cultures, genders, hierarchical levels, ages, disciplines, etc., discuss inputs to offer different points of view. 7 The change process is communicated to the entire utility. Expected 7 Trusting internal environment in which to analyze the reality of the utility outputs 7 Team building and utility’s readiness for change 7 Gradual engagement of more staff in the transformation process 29 UTILITY OF THE FUTURE 1 2 3 4 5 3.3  Ignition and Action Plan This phase considers all the learnings, insights, and ideas from the utility analysis to identify the gaps for improvement in each of the elements and zoom-in lenses; define specific actions to close each of the gaps identified; categorize and prioritize all actions according to their potential level of impact, cost, and difficulty; select those that can be implemented in the short term (100 days); and initiate their implementation to materialize the utility’s transformation process. Gap Analysis and Action Planning The gap analysis is developed by reviewing all topics where there is a room for improvement (where the desired level is higher than the current level), both in essential processes and UoF processes. For each topic with room for improvement, specific actions should be defined to achieve the desired level, classifying them into one group that can be implemented in the short term (100 days) and those that have to be implemented in the long term (five years). The utility should also analyze key signals from the outputs of the previous phase to determine where to focus efforts. For example, efforts may be required: 7 For any element in the maturity cobweb that has a score significantly lower than the others, as shown in figure 3.10 for the technical operation element. 7 For any one element that has a significantly lower score for performance than maturity, or vice versa, as shown in figure 3.11 (i.e., technical operations’ maturity is lower than performance). 7 For any one topic within an area in a single element that has a significantly lower score than other topics in that same area. For example, in the metering area of the commercial maturity matrix in figure 3.9, if the utility has a high score for type of meter, meter reading, and data reconciliation but a low score for meter testing and replacement, then this should be marked as an imbalance to be considered in the action plan. 7 Where there are signs in the zoom-in lenses that indicate that a special effort is required from the utility. For example, if a utility promotes its commitment to being environmentally responsible but its practices show the opposite (figure 3.12). This may be the case in 30 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL terms of GHG management, environmental water quality, and impacts on the surrounding environment, as well as a low percentage of projects that analyze environmental impacts, or a low percentage of energy consumed that comes from renewables or on-site sources (figure 3.13). Figure 3.14 illustrates a simple way of categorizing actions; those that have a high impact, low cost/effort, and are relatively easy to implement will be part of the 100-day action plan; those that have a high impact, high cost/effort, and a higher degree of difficulty will be included in the five- year strategic plan. This categorization should preferably be done in coordination with the entire team to take into account different points of view and possible activities that should be carried out with staff from different areas; for example, to improve the quality of information provided to customers in the call center about possible problems in the water service, the maintenance area/team should send daily reports to the commercial area about the works to be carried out that require temporary water service cutoffs, as well as the estimated time length of these cuts. FIGURE 3.14 Categorization of Short-Term Actions in Terms of Cost and Impact Impact E FUTU R E TH F O Y IT T IL - U FO M LENS Short Term CUS LENS 100-Days ZOO - 1 0- 0 D A Y S / 5- YE AR S Identified actions Cost/Difficulty Source: Original compilation. 31 UTILITY OF THE FUTURE Identify and Analyze Binding Constraints and Come up with Actions to Remove Them After prioritizing actions that are within its power, the utility now needs to develop a plan for imple- menting desired high-impact actions that are not currently possible because of constraints (for example, imposed by the authorizing environment or the political economy context). To begin, the utility should list the actions that it would like to take but that were filtered out due to constraints, and identify bottlenecks for each one. Then the utility should identify a few constraints that, if relieved, would enable important improvements to be made. Figure 3.15 sets out a visual representation of the variety of combinations that the utility may generate in its first list of constraints. Those identified as immediate priorities would fall into the top-left quadrant. FIGURE 3.15 Examples of Binding Constraints, Categorized Effect on Ability to Improve High effect High effect low difficulty high difficulty Low effect Low effect low difficulty high difficulty Difficulty in Removing Constraint Source: Original compilation. 32 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Then the utility can consider the constraints that would be the most important to relieve and conduct a root cause analysis. In the example in figure 3.16, the constraint is lack of money and the analysis finds seven root causes (for example, the utility does not generate free cash from operations). FIGURE 3.16 Example of a Root Cause Analysis Using a Decision Tree LACK OF MONEY Banks won’t Ministry of finance won’t lend provide equity/grant Doesn’t generate free Costs cash from operations too Fiscally high constrained Doesn’t generate Tariffs Believes money free cash too low spent on water from operations is wasted Utility has No consistently Money provided in Regulator will not allow government not kept its past has not delivered tariff increases guarantees promises expected benefits Subject to political As inefficiencies pressure to may be transferred keep tariffs low to customers Once the utility determines the root causes of its constraints, it should then determine actions that will address them and, ultimately, lift them. For example: 7 Collect arrears by outsourcing the collection of past-due receivables on a successive fee basis or by motivating staff to collect them using a bonus system. 7 Find illegal connections and instances of meter tampering among industry and high-end residential customers; negotiate settlements for lump sum payments with them (and be prepared to threaten prosecution if they will not settle). 7 Sell scrap metal. 7 Sell treated wastewater to industrial customers. 7 Weed out ghost workers. 7 Rebid contracts for major supplies (such as chemicals) and have trustworthy people supervise delivery and storage. 33 UTILITY OF THE FUTURE BOX 3.1 Lack of Credibility as a Root Cause of Low Performance A common root cause of low performance in many utilities is a lack of credibility. It is not the doing of a task alone that builds credibility; what is also important is to promise to complete an action, and then keep that promise. This means the promise must be clear, measurable, and time bound. Also, reporting on the achievement of the goal must be clear and accepted as true by the relevant stakeholders. To complement these actions, the utility should select additional actions that involve stakeholders. Inviting stakeholders into the reform-planning process increases transparency and helps build cooperation, which are necessary both immediately and in the future. Box 3.1 details general guidance on how to build credibility, the lack of which is a common root cause of low performance in many utilities. Optimize Planning Finally, the utility needs to check its 100-day plan to ensure that it is possible to implement and aligned with existing priorities and ongoing initiatives. Example questions include: 7 Is it possible to perform all the tasks within the given time frame, using the current resources and team? 7 Are actions sequenced correctly, given that some tasks will be most effectively imple- mented after the utility completes another task? 7 Are actions that complement one another grouped together? For example, if a utility is planning to replace an old main, install water vending machines, and check for illegal con- nections in a single area, then group these tasks into a single works program for that area. 7 Are actions integrated to ensure efficiency? This is particularly necessary for information technology systems that need to interface with one another. For example, if a billing system is to be replaced, the utility needs to first conduct a consistency check with the financial accounting system to ensure that the two are compatible. 34 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Develop Performance Monitoring Metrics Define a set of specific, measurable, attainable, relevant, and time-bound objectives, expressed as key performance indicators (KPIs) for each action, in which 7 Specific means focusing on the who and what of the activity. 7 Measurable means selecting indicators that have the capacity to be counted, observed, analyzed, challenged, and tested. 7 Attainable means the indicator should be achievable as a result of the program. 7 Relevant means that the indicator should hold a valid link to the result. 7 Time bound means that the indicator sets out the time frame within which achievement of the indicator should be realized. In some contexts, however, it may not be possible to obtain reliable data for these indicators in the first 100 days. In these cases, alternative indicators offer a better way to measure performance against the plan. Furthermore, a general principle is to select indicators that do not overburden staff with data collection requirements that may impede their ability to implement the reform actions. Table 3.4 provides an example of goals set for a 100-day action plan and the accompanying KPIs. Once the KPIs are determined, as well as a person or team responsible for each action, the utility should develop a well-defined and transparent process for reviewing and evaluating progress against the KPIs. Some actions may not have specific KPIs but are stepping stones to actions of greater impact in the five-year plan—for example, an agreement with a local bank enables online payments. TABLE 3.4 Example of 100-Day Plan Goals and Key Performance Indicators 100-Day Action Goal Key Performance Indicators Increase Increase the collection ratio from 60 to 70 percent by the end of three performance months. of commercial Increase the metering rate from 80 to 85 percent by the end of three operations months. Increase Decrease response time to leaks and bursts from more than 48 hours to responsiveness less than 24 hours by the end of three months. Online payments Make an agreement with a local bank to create an online payment channel. Secured servers to have cloud-based records for critical data (customer Secure servers records, operation records, financial data, etc.). Source: Adapted from Muhairwe (2009). 35 UTILITY OF THE FUTURE 100-Day Action Plan—Kickoff and Follow-Up Once the short-term (100-day) actions have been defined, the utility team should define “day zero,” when implementation of the actions will begin. On day zero, it is recommended that a workshop be convened with the utility team, the CEO, and, if possible, with members of the board of directors, to generate greater motivation and commitment from the utility team. The project leader and the utility team should have weekly or biweekly follow-up meetings to evaluate the progress of each action, possible obstacles, adjustments to the plan, and so on. If for any reason some of the activities in the 100-day plan cannot be implemented, they should be moved to the five-year plan. Weekly Follow-Up 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Action Activity 1 Activity 2 Activity 3 Activity 4 Action Activity 1 Activity 2 Activity 3 Activity 4 E SPEED Gear-Up Point Engage and Empower the Team to Ignite Change This is the most important phase in terms of change management, and several important factors ensure its success. On the one hand, the utility team is the one that decides, according to its capabil- ities, which actions it is willing to implement; this generates a sense of responsibility and commitment to achieve results. On the other hand, the utility team takes control and ownership of the process by implementing the actions. Additionally, teamwork is strengthened within the utility since there is collaboration in various areas. Finally, the leadership team has to maintain the momentum and moti- vation of the staff in the 100 days, by supporting the team, providing solutions, and, most importantly, being part of the change. Table 3.5 lists aspects relevant to change management should be analyzed at the beginning and at the end of this phase to check if the expected outputs were achieved. 36 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL TABLE 3.5 Key Aspects of Change Management to Consider in Phase 3 Main objective To have a motivated and enthusiastic team that is ready to implement the defined actions, and to involve more staff in the transformation process. Expected 7 More of the staff feel empowered to act and take the lead in making a change, even change in while carrying out small tasks. behavior 7 The barriers between the hierarchical levels are eliminated, and the entire utility team has a voice in the change process. 7 There is a sense of pride in being part of the actual change, and in generating results. Continuous improvement gradually becomes part of the team’s DNA. Key questions or 7 How can the leadership team maintain momentum, dynamism, and constant self-reflections communication for 100 days? (e.g., through weekly meetings, team recognition, etc.) 7 How can the team motivate/engage those who resist change within the utility? (e.g., assign them small tasks to make them feel part of the process, invite them to be part of a team working in a different area, etc.) 7 How does the leadership team engage more and more staff in the transformation process? (e.g., by conducting workshops that are open to all staff; by creating one suggestion box per theme that can be accessed by all staff) 7 How does the leadership team leverage the lessons learned during the process? (e.g., by creating short internal newsletters to communicate achievements and lessons) Key actions 7 Keep the team motivated, engaged, and informed through weekly follow-up meetings. 7 Communicate continuously with all stakeholders (internal and external) on the progress of the 100-day actions. 7 Maintain dynamism in the process; move those actions that are slowing down the process to the long-term plan. Expected 7 A team that is proud of the results they have achieved on their own. outputs 7 A team that is motivated to take the utility to the next level, with the leading team recognizing the team’s effort. 7 New leaders and high potential staff are identified and recognized by the leadership team. 37 UTILITY OF THE FUTURE 1 2 3 4 5 3.4 Strategic Plan The objective of the strategic plan is to formulate actions that could build on the momentum from implementing the 100-day action plan and to develop a strategic vision for the utility. Now that the 100-day plan is completed, fully resourced, and implemented, the utility should focus on developing the five-year strategic plan. Strategic Framework The objective of the strategic framework is to review, update, and/or change the elements of the strategic framework to align it with the new vision of being a Utility of the Future. 7 Utility vision: Where does the utility expect to be in five years? 7 Utility’s mission: This is the utility’s reason for existing, which incorporates the transforma- tional process it is undergoing; the purpose of the utility; and the scope of its operation, priorities, and values. BOX 3.2 Rebranding and Identity As part of the utility’s transformation process, it is recommended that the company’s logo, brand, and/or corporate image be changed or updated to reflect the utility’s new vision. This action, in addition to strengthening the internal change process, helps in communicating to the customers the improvements made by the utility. A new identity can be implemented quickly and without significant resources through the company’s website, invoices, posters, among others. 38 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL 7 Strategic objectives: These are oriented to fulfill the utility’s vision in five years, and should be specific, clear, measurable, and achievable. It is recommended that there are no more than 10 objectives, to focus efforts on clear goals. 7 Key utility functions/areas: The UoF elements represent in a practical way the key functions of a utility (commercial management, technical operations, financial management, human resources management, and organization and strategy), but each utility could define its functions according to its organizational structure. Strategic Actions To begin, the utility should review the action prioritization (figure 3.17) and revisit those actions identified during the 100-day action planning that were filtered out because of financial con- straints, and consider any actions that may be possible to implement in a five-year time horizon. FIGURE 3.17 Categorizing Long-Term Actions by Cost and Difficulty Impact E FUTU R E TH F O Y IT T IL - U FO M LENS Long Term CUS LENS 5-Years ZOO - 1 0- 0 D A Y S / 5- YE AR S Identified actions Cost/Difficulty Source: Original compilation. 39 UTILITY OF THE FUTURE Strategic Programs Once the new strategic framework is in place, strategic objectives will be defined, and the main long-term actions identified. The next step is to outline a high-level strategic program per ele- ment: commercial management, technical operations (water and/or sanitation), organization and strategy, human resource management program, and financial management. As shown in figure 3.18, each action should be linked to one or more strategic objective; previously identified actions that were not linked with at least one strategic objective should be reevaluated or eliminated from the plan. Strategic programs are the basis for the development of the utility’s business plan, which is a high-level summary of the utility’s top priorities categorized by element and area responsible. Each program should contain general information such as: main goals, key actions, performance FIGURE 3.18 Strategic Programs per Element Objective . . . Objective 10 Objective 1 Objective 2 Objective 3 Strategic Strategic Strategic Strategic Strategic Actions Commercial Commercial Management Program Technical Technical Operations Operations Program Finance Financial Management Management Program Human HR Management Resources Program Organization & Organization & Strategy \ \ Strategy Program Source: Original compilation. Note: HR = human resource. 40 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL indicators per action, milestones, responsible staff, approximate budget, high-level timeline, and potential risks, among others. Although it is not necessary to have detailed information, these programs will be an initial roadmap to achieve the utility’s strategic objectives (see appendix E). Business Plan Outline The business plan is the way to translate the strategic vision, strategic objectives, and strategic programs into a detailed roadmap that includes all the necessary aspects of the utility’s improve- ment and transformation process. Although a business plan is developed specifically for each utility, the following are some of its main components: 7 General Context Sector analysis Analysis of key aspects of the sector that influence the utility’s operation, among others: the national development plan, the legal and policy framework, regulation, tariffs, institutions and responsibilities, and the financing structure. Macroenvironmental Economic, environmental, sociocultural, demographic, and analysis technological analysis to evaluate macroenvironmental factors that could impact the business plan (positively or negatively) 7 General Description of the Utility Description of the Brief history of the utility, its legal status, the services provided, utility areas served, population served, water and/or sanitation coverage, assets, historical key performance indicators, facilities, information technology architecture, organizational structure and staffing, and the utility governance structure, among others. Current conditions Inputs from phases 2 and 3 of the UoF process: Current and and priority issues desired levels of maturity and performance of the five UoF elements as well as the different aspects analyzed in the UoF zoom-in lenses. Water balance Analysis and projections of water demand, per capita consumption, water use patterns, water supply system, seasonal restrictions on water use, NRW, population growth, geographic expansion of the service area, and analysis of available sources of surface and groundwater supply, among others. 7 Strategic Framework Strategic framework Inputs from Phase 4 of the UoF process: Mission statement, and architecture vision and strategic objectives, strategic programs, performance indicators, timeline, key milestones, responsible team, programs by area (commercial, operations, finance, etc.). 41 UTILITY OF THE FUTURE 7 Utility Strategic Plan Utility strategic plan Strategic programs, projects, activities, KPIs, utility values, risk analysis, SWOT analysis (strengths, weaknesses, opportunities, and threats), constraint analysis, scenario analysis, supply and demand analysis. Investment plan, detailed budget, monitoring and reporting, among others. Capital investment Investments and capital expenditures of the utility. Asset’s program renewal, repair, replacement, and new assets (underground assets and above-ground assets, infrastructure, equipment, and technology, among others). Operating Operational cost structure, fixed costs, variable costs, cost expenditure (OPEX) optimization opportunities. budget forecast Financial strategy Forecasts of short-, medium-, and long-term financing requirements. Capital budget and operating budget (based on the utility’s strategy and business plan, on the multiyear capital improvement plan, including life-cycle costing). Full-cost recovery tariff analysis (operating expenditure, depreciation, and return). Analysis of financing mechanisms: tariffs, central or local government transfers, financial institutions, and public-private partnerships, among others. 7 Specific Strategic Plans and Strategies Expansion and Sequenced plan prioritized based on pre-project appraisal. Detailed rehabilitation plans programs (group of projects) and/or specific projects. Monitoring system (progress and costs variations). Special consideration of areas that receive a lower level of service or poor water quality or have inadequate infrastructure. New infrastructure technologies and innovations to be implemented. Last-mile connections. Contingency plan in case of crises. Detailed budget. Strategic asset Strategic plan including asset attributes (e.g., age, condition, management plan and criticality), life-cycle costing, long-term financial planning, operations and maintenance strategies for managing assets over their life cycle, and capital replacement plans based on cost- benefit analyses; investment plan, procurement plan; optimal spare parts inventory; formal asset failure assessment strategy and methodology in place and disposal plan. Drinking water Demand strategy for drinking water, including new projects to strategy provide drinking water in the medium and long term, using both surface and groundwater. Plan to expand and/or maintain the capacity of the treatment plants according to the demand of the population. Expansion plans for drinking water networks. Energy efficiency plan for drinking water process. NRW management Strategy to address real losses, apparent losses, and unbilled strategy consumption in priority areas, including time-bound targets for a multiyear period; and the definition of policies to assess, monitor, and control elements of NRW. Detailed budget and operating activities. 42 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Sanitation strategy Sanitation coverage and service program. Strategy, plan, and budget for major infrastructure and smaller infrastructure, such as tertiary drains and sewers, household connections, and the need for on-site household sanitation systems and fecal sludge management. Energy efficiency plan for sanitation process. Environment Pollution control program, water quality monitoring program, water strategy drainage and erosion control program, solid waste management program. Commercial Commercial strategy, plan and budget for metering, billing, and operation strategy collection. Meter acquisition, installation, and replacement plan. Customer CRM strategy and plan focusing on engaging with customers and relationship delivering consistent customer experience across all touchpoints management (CRM) (online and offline). Customer experience strategy (CX). strategy Communication Communications strategy, plan, budget, objectives, and processes; strategy covers organization and customer needs. Frames media activities, external and internal communications, time frames, risks, metrics, target audiences, customer personas, staff assignments, and resources, including communication plan for crisis management and branding strategy. Technology strategy Plan for using technology to achieve organizational objectives. Analysis of technology needs across business units and processes to increase operational excellence through updated systems and architecture. Digital transformation plan, budget, training requirements, and implementation plan. Human resources HR strategy aligned to organizational strategy, detailed (HR) management budget, five-year implementation plan for core HR processes: strategy recruitment, retention, compensation, performance management, and training and development. Gender balance, inclusion, and diversity strategy. Optimal staffing analysis and plan. E SPEED Gear-Up Point Envision the Future This phase focuses on maintaining the momentum toward change and collectively building a new strategic vision, considering the lessons learned from the 100-day plan in terms of organizational cul- ture, teamwork, and leadership. Staff should feel part of the construction of this new vision. It is important to keep in mind that top-management turnover is generally high in water vutilities (with tenures of three to four years, on average), as these positions are linked to changes in local government. Therefore, it 43 UTILITY OF THE FUTURE is crucial to involve in this phase (as well as the previous phases) staff from different hierarchical levels to preserve strategic knowledge within the utility and maintain continuity in the transformation process. Table 3.6 lists some aspects related to change management that should be analyzed at the beginning and at the end of this phase to check if the expected outputs were achieved. TABLE 3.6 Key Aspects of Change Management to Consider in Phase 4 Main objective Co-creation of the roadmap to becoming a Utility of the Future. Expected 7 Long-term vision and future-thinking culture across utility staff. change in 7 Teamwork to co-create the desired future for the utility. behavior 7 All utility staff aligned with the new vision, mission, and strategic objectives. Key questions or 7 How can the mindset of utility staff shift from focusing on the day-to-day, to also self-reflections having an eye on the long term? (e.g., define the long-term objectives of each staff, align them to the strategic objectives of the utility) 7 Does the utility have the right team in place to co-create the strategic vision and business plan? (e.g., low turnover of staff, natural leaders, high-potential staff, etc.) 7 What are the internal human resource capabilities and knowledge that need to be strengthened to achieve the new vision? (e.g., strategic planning, financial planning, foresight, etc.) 7 How can the utility avoid returning to the state of inertia that it was in before the start of this transformation process? (e.g., identify a small set of KPIs that alert the utility team to a trend of inefficiency in a specific process) 7 How can the new vision be communicated accurately and clearly, to reach all levels of the organization as well as external stakeholders? (e.g., conduct annual organizational culture and staff satisfaction surveys that include questions related to strategy) Key actions 7 Create the strategic framework in a participatory manner. 7 Create task forces for the definition of each strategic program (commercial, technical operations, finance, human resources, organization and strategy). 7 Communicate the strategic framework and business plan (internally and externally). 7 Link staff objectives to the utility’s strategic objectives. 7 Identify strategic partners for the fulfillment of the business plan. Expected output 7 The strategic vision is communicated and understood by the entire staff. 7 The strategic framework and business plan are developed collaboratively. 7 Continuous improvement becomes part of the organization’s DNA and core values. 44 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL 1 2 3 4 5 3.5  Sustainable Transformation The final step is to translate the utility’s strategic vision and business plan into actions to ensure sustainable improvement, and to continue the transformation process to become a Utility of the Future. As shown in figure 3.19, each improvement cycle aims to increase the level of performance in a given period of time (e.g., going from performance level 0 to performance level 1); in this sense, the utility should make an effort to maintain that next level as a new baseline from which to continue improving. FIGURE 3.19 Sustainable Improvement Process ENT Performance EM ROV P M I F EO CL CY Performance UP DA TE D B A S E LI NE Level N ENT EM ROV P Forces/Actions M to sustain I F EO performance CL CY Performance UP DA TE D B A S E LI NE Level 1 NT E ME OV PR Forces/Actions M to sustain I F EO performance CL CY Performance Level 0 Time Source: Original compilation. 45 UTILITY OF THE FUTURE The utility should maintain a special interest in key forces that sustain the change effort in the long run. Key tools to support a sustained change, and related actions, include the following: 7 Business strategy: Translate an updated strategy into a detailed action plan that is continuously reviewed. 7 Utility team: Have the best team on board and work continuously on their training and development. 7 Governance: Work toward a governance model that guarantees agility in the decision- making process. 7 Customer-centric approach: Migrate quickly to a management model that involves customers and analyzes their feedback to improve the utility’s service. 7 Transparency, ethics, and integrity: Have a solid and robust transparency process, and follow up on customers’ and stakeholders’ perceptions of the utility. 7 Technology and innovation: Continuously monitor and implement technology trends and innovations. 7 Asset management: Keep assets in good condition, through optimal maintenance, replacement, and upgrades. 7 Process optimization: Continually optimize processes to reduce costs. 7 Resilience and continuity: Have processes in place so that a utility’s operations do not cease in the event of a crisis. 7 Data management: Have a data strategy and continuously improve data management processes. The following are some topics and actions based on the UoF elements that could support this process. 46 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL TABLE 3.7 Select Actions to Support Sustained Change Element Topic Actions Organization Business Review business strategy and strategic objectives every year, to assess and strategy Strategy whether they are still relevant to the context, situation, and needs of the utility, and update them if necessary. Monitoring and Monitor processes to analyze progress and make rapid changes when Reporting necessary. Gradually strengthen the utility’s data management culture to make data-driven decisions. Efficiency and Work continuously on optimizing the utility’s operational and Continuity administrative processes, eliminating redundant activities and reducing operational costs. Technology Introduce a digital transformation strategy and the use of new Management technologies that lead to process improvements, time optimization, and cost reduction. Procurement Establish efficient procurement processes, agreements with key Management suppliers, and sourcing strategies. Utility Implement a governance system that allows the utility to make quick Governance and effective decisions. Commercial Customer Employ a customer management strategy to understand customers’ management Relationship needs and adapt improvement plans to provide a good quality of service. Management Metering Implement different meter reading mechanisms to cover 100% of the service, with regular cycles and reliable data. Billing Implement reliable billing cycles and bills available in different channels 24/7. Collection/ Establish multiple and convenient locations for payment, online Payment and in person. Technical Expansion and Review plans regularly, assessing whether they are still relevant to the operations Rehabilitation context, situation, and needs of the utility, and update them if necessary. Plans Asset Update and review the strategic asset management plan annually, Management including the utility’s asset attributes, life-cycle costing, long-term financial planning, operations and maintenance strategies, asset failure assessment strategy, and disposal plan. Water Treatment Maintain consistently high water-quality standards, with adequate and Quality treatment and constant testing at different points. Nonrevenue Review the NRW strategy regularly, assessing whether it is still relevant Water (NRW) to the context, situation, and needs of the utility, and update it if necessary. Sanitation Review the sanitation strategy regularly, assessing whether it is still relevant to the context, situation, and needs of the utility, and update it if necessary. 47 UTILITY OF THE FUTURE Financial Financial Strategy Align the financial strategy and cost management strategy to the management and Cost organizational strategy. Review it annually, assessing whether it is still Management relevant to the context, situation, and needs of the utility, and update it Strategy if necessary. Planning and Review the capital budget (based on the utility’s strategy and business Budgeting plan and the multiyear capital improvement plan, including life-cycle costing) and operating budget every quarter; and adjust when required quickly, efficiently, and effectively. Cash Flow Prepare cash forecasts monthly, disaggregated by source and use. Management Conduct an in-depth analysis of how cash management is aligned with the cost management, budgeting, and financial strategy. Audit Process Conduct internal and external audit processes of the financial statements at least once a year. Publish audited accounts within six months of the end of the financial year. Tariff Analysis, Review and update multiyear cost recovery tariff analyses, financial Financial modelling, and forecasting annually. Modelling, and Forecasting Human Human Review the human resources strategy annually, assessing whether it is resources Resources still relevant to the context, situation, and needs of the utility, and update Management if necessary. Strategy Staffing Analysis Assess the optimal number of staff needed, including high-skilled staff and Plan required in the long term to meet the utility’s vision. Attraction and Develop new and innovative strategies to attract and retain human Recruitment resources through incentives aligned with staff priorities. Staff Training and Implement a comprehensive and budgeted education plan and a Development sponsorship program tied to organizational goals equally accessible to all staff. Training should include technical training and soft-skills training. Planning and Review and update staff performance objectives every quarter, and link Target Setting them to the organization’s strategic plan, mission, and vision. 48 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL SPEED Gear-Up Point D Deploy Transformation This phase not only focuses on the implementation of the business plan, but also on how to make the continuous improvement and overall transformation process sustainable. In this phase it is important to develop mechanisms to maintain the commitment, engagement, and motivation of the staff and to avoid in every possible way a return to the state of inertia in which the utility was before starting this journey of change. For leaders to review strategies, plans, and budgets with staff reinforces teamwork and interaction between areas. Table 3.8 lists key aspects related to change management that should be analyzed at the beginning of this phase and eventually every year, to check if the expected outputs were achieved. TABLE 3.8 Key Aspects of Change Management to Consider in Phase 5 Main objective To maintain the team’s commitment to continue leading a sustainable transformation process. Expected 7 Staff challenge themselves to continuously improve and not return to their comfort change in zone. behavior 7 Staff sustain continuous improvement processes even with regular changes in top management. 7 Staff pass on to new staff members a culture of teamwork focused on continuous improvement to achieve common objectives. Key questions or 7 How can the utility maintain the engagement levels of the team? (e.g., quarterly self-reflections supervisor-supervisee coaching sessions) 7 How will the utility’s cycles of improvement continue without regular change management interventions/projects? (e.g., random analysis of some processes and their level of evolution, improvement, and fulfillment of objectives) 7 How can the utility avoid returning to its state of inertia and lowering its performance levels? (e.g., generation of internal management reports that present trends for each key indicator) 7 What challenges might the utility face in the next five years? (e.g., change of government, new migrant settlements, climate change) 7 How can the utility involve customers as part of the transformation process? (e.g., communication strategies for behavioral change in water consumption) Key actions 7 Conduct annual workshops with the team that took part in the transformation process to review the progress of the business plan and achievements and evaluate possible changes to the strategy. Expected output 7 Team committed to the implementation of the business plan. 49 UTILITY OF THE FUTURE 50 4 CHAPTER Conclusions Utility of the Future The UoF is a new paradigm for providing WSS services, far beyond what most utilities have yet achieved—or even aimed for. The UoF provides reliable, safe, inclusive, transparent, and respon- sive WSS services through best-fit practices in an efficient, resilient, and sustainable manner. The UoF will set for itself ambitious objectives, such as meeting SDG 6. Initiating and maintaining improvements will be neither quick nor easy. However, the UoF framework presented here will facilitate the process by which utilities set themselves on the path to reform. To Initiate Reform, Utilities Must Identify Areas of Focus This new approach to planning and sequencing begins by diagnosing the current state of a utility’s service, performance, maturity, and enabling environment. Then the utility identifies its areas of focus for reform by identifying imbalances within and across assessments. For example, an element (for example, technical operations) that scores remarkably low in the performance assessment might be a topic of focus. 51 UTILITY OF THE FUTURE The UoF Action Plan Lays the Groundwork for Becoming a UoF Across the globe, utilities operate in a multitude of contexts. Furthermore, utilities will have unique long-term goals for innovation, inclusion, market and customer orientation, and resilience. Therefore, action plans cannot be standardized. The UoF framework aims to guide utilities and practitioners in developing action plans, taking into account the identified areas of focus and long-term vision for the utility. The result is a customized action plan that includes detailed actions in the short term, draft actions in the medium term, an outline of actions in the long term, and change management guidance. 52 References AWWA (American Water Works Association). 2019. A Water Utility Manager’s Guide to Community Stew- ardship. Denver, CO: AWWA. https://www.awwa.org/Portals/0/AWWA/Communications/AWaterUtility- ManagersGuidetoCommunityStewardship.pdf. Berkeley University of California. n.d. “Change Management Toolkit: Tips, Tools, and Techniques for Lead- ing a Successful Change Initiative.” Berkeley, CA. Updated 2019. https://hr.berkeley.edu/sites/default/ files/change_management_toolkit.pdf. Heymans, Chris, Rolfe Eberhard, David Ehrhardt, and Shannon Riley. 2016. Providing Water to Poor People in African Cities Effectively: Lessons from Utility Reforms. Washington, DC: World Bank. https://open- knowledge.worldbank.org/handle/10986/25115. Muhairwe, William T. 2009. Making Public Enterprises Work: From Despair to Promise: A Turnaround Account. Kampala: Fountain; London: IWA. Mumssen, Yogita, Gustavo Saltiel, and Bill Kingdom. 2018. “Aligning Institutions and Incentives for Sus- tainable Water Supply and Sanitation Services: Report of the Water Supply and Sanitation Global Solu- tions Group, Water Global Practice, World Bank.” World Bank, Washington, DC. Accessed December 12, 2019. http://documents.worldbank.org/curated/en/271871525756383450/pdf/Aligning-institu- tions-and-incentives-for-sustainable-water-supply-and-sanitation-services.pdf. OED (Oxford English Dictionary) Online. n.d. “Innovation.” Oxford University Press. Accessed February 19, 2020. https://www.oed.com/view/Entry/96311?redirectedFrom=innovation. Rodin, Judith. 2014. “Remarks by Dr. Judith Rodin at the 2014 Aspen Ideas Festival.” News&Media (blog), The Rockefeller Foundation, June 29. https://www.rockefellerfoundation.org/about-us/news-media/ remarks-by-dr-judith-rodin-2014-aspen/. Schnackenberg, Andrew K., and Edward C. Tomlinson. 2016. “Organizational Transparency: A New Perspective on Managing Trust in Organization-Stakeholder Relationships.” Journal of Management 42 (7): 1784–810. First Published March 10, 2014. https://journals.sagepub.com/doi/pdf/10.1177/0149206314525202. 53 UTILITY OF THE FUTURE United Nations. n.d.(a). “UN Sustainable Development Goals Knowledge Platform.” Accessed January 27, 2020. https://sustainabledevelopment.un.org/. United Nations. n.d.(b). “Sustainable Development Goal 6.” Accessed January 27, 2020. https://sustain- abledevelopment.un.org/sdg6. World Bank. 2013. Inclusion Matters: The Foundation for Shared Prosperity. New Frontiers of Social Policy series. Washington, DC: World Bank. http://documents.worldbank.org/curated/en/114561468154469371/ Inclusion-matters-the-foundation-for-shared-prosperity. 54 Appendices 55 UTILITY OF THE FUTURE Appendix A. Change Readiness Assessment Survey Questions to Assess Change Readiness NO YES Awareness: Does your team or does your stakeholder understand… 1 2 3 4 5 1. The problems inherent in the current situation? 2. The opportunities that are being missed if the change does not happen? 3. What is trying to be achieved? 4. How things will be better? 5. How the change will impact their area of work? 6. What their role will be in the future state? Desire: Does your team or does your stakeholder… 1 2 3 4 5 1. Know that management is aligned with the change efforts? 2. Feel their concerns, questions, and needs are being heard? 3. Feel hopeful about the future? 4. See value in the change? 5. Believe a well thought out strategy is being put in place to achieve the change? Knowledge: Does your team or does your stakeholder… (skills, informational, training) 1 2 3 4 5 1. Have the necessary information, knowledge, and skills to successfully fulfill their role? 2. Know where to go for additional information about the change? 3. Know what campus resources are available to support the personal side of change? 4. Know what success looks like? 5. Have a plan to achieve success? 6. Know which behaviors will need to change? Ability: Does your team or does your stakeholder… infrastructure (systems, tools) 1 2 3 4 5 1. Believe that the organization has provided appropriate resources (time, staff, information, etc.) to support the anticipated change? 2. Have the necessary systems, processes, and policies in place? 3. Have the ability to execute the new behaviors required for the change? 4. Know how to perform the required tasks? Reinforcement: Does your team or does your stakeholder… 1 2 3 4 5 1. View management as a resource for removing/overcoming barriers? 2. Have mechanisms in place to reinforce the required behaviors? 3. Have metrics in place to assess the ongoing effectiveness of the change? Source: Berkeley University of California n.d. 56 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Appendix B. Enabling Environment Assessment WEAK STRONG System for Setting Service Standards Regulatory and Regulatory and Regulatory and Regulatory and Regulatory and accountability accountability accountability accountability accountability system does not system exists but system involves system involves system involves exist. involves only a some in the most in the all in the service few in the service service area. service area. area. area. Regulatory and Regulatory and Regulatory and Regulatory and Regulatory and accountability accountability accountability accountability accountability system does not system exists system is system is mostly system is exist. but is neither somewhat transparent and transparent and transparent nor transparent and responsive. responsive to responsive. responsive. needs of all in the service area. No service Minimum service Service Service standards Service standards are set. standards are set. standards are set are set somewhat standards are appropriately but appropriately and set appropriately, not predictably. predictably. responsively, and predictably. System for Tariff Setting No system to set System exists but System is used System ensures System ensures cost of service. is not used. but does not cost of service is cost of service is ensure cost of set at reasonable set at reasonable service is set levels, but this is levels efficiently. reasonably. done slowly. No system to set System exists but System is used System ensures System ensures tariffs. is not used. but does not tariffs and tariffs and ensure that tariffs subsidies are subsidies are or subsidies are set in a reliable set in a reliable set in a reliable and predictable and predictable and predictable manner but not manner equal manner. equal to the cost to the cost of of service. service. Performance Performance on Performance on Performance Performance on service and service and costs service and costs on service and on service and costs is neither is irregularly is irregularly costs is regularly costs is regularly monitored nor monitored and monitored and monitored monitored and reported. not reported. reported. but irregularly reported. reported. 57 UTILITY OF THE FUTURE WEAK STRONG Institutional Framework Sector entities Sector entities Sector Sector entities Sector entities have unclear have mostly entities have have mostly clear have clear responsibilities unclear somewhat clear responsibilities responsibilities with significant responsibilities responsibilities with minimal without overlap, overlap, covering with significant with some overlap, covering covering no required overlap, covering overlap, covering most required all required responsibilities. few required some required responsibilities. responsibilities. responsibilities. responsibilities. Financing Financing for Financing for Financing for Financing for Financing for necessary necessary necessary necessary necessary CAPEX is not CAPEX is usually CAPEX is CAPEX is usually CAPEX is available. not available. sometimes available. freely available available. in necessary amounts. Autonomy and Accountability Utility CEO Utility CEO Utility CEO Utility CEO Utility CEO or executive or executive or executive or executive or executive management management management management management team has no team has some team has some team has team has autonomy. autonomy but autonomy and, sufficient sufficient is subject to every now and autonomy for autonomy to frequent political then, is subject to most, but not all, make appropriate direction. political direction. decisions (no decisions. political direction). Utility CEO Utility CEO Utility CEO is Utility CEO is Utility CEO is selected is sometimes subjected to subjected to is selected noncompetitively. subjected to competitive hiring competitive competitively and competitive hiring processes but not hiring processes on merit. processes. selected on merit. and sometimes selected on merit. No system Informal incentive Formal incentive Formal incentive Utility CEO in place to system in place. system in system in place or executive incentivize utility place but not but irregularly management CEO or executive implemented. implemented. team is management systematically team to perform incentivized to well. perform well. Note: CAPEX = capital expenditure. 58 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Appendix C. Service Assessment Criteria Well World Elementary Basic Good Performing Class Component (1) (2) (3) (4) (5) Reliable           Continuity (hours per day on <8 or cannot >8–15 >15–20 >20–24 24 average) be measured Continuity (customers with 24/7 <5 >5–25 >25–60 >60–<100 100 supply) (%) Availability (l/pc/day) <30 >30–50 >50–120 >120–240 >240 Availability of FSM emptying No data <50 >50–75 >75–90 >90–<100 services (provided 24 hours after available service requested) (%) Safe Water quality (samples meeting all <50 >50–85 >85–95 >95–97 >97–<100 WHO guidelines for drinking water quality) (%) Wastewater and fecal sludge No data <50 >50–75 >75–90 >90–<100 treatment (%) available Inclusive Drinking water coverage (%) <50 >50–75 >75–85 >85–95 >95–<100 Sanitation service coverage (%) No data <20 >20–50 >50–80 >80–<100 available Transparent * Key information disclosure (%) <20 >20–40 >40–60 >60–80 >80 Application of practices to generate <20 >20–40 >40–60 >60–80 >80 clear information (%) Application of practices for <20 >20–40 >40–60 >60–80 >80 ensuring accurate information (%) Responsive           Customers satisfied with service No data <40 >40–55 >55–70 >70–90 (based on assessment in the past two years) (%) Grievances satisfactorily resolved No data <25 >25–50 >50–70 >70–<100 within seven days (%) Percentage of sewer blockage No data <50 >50–75 >75–90 >90–<100 complaints addressed within 48 hours (%) Note: * Transparency practices can be found in the Basic Data Collection section of the UoF Toolkit. FSM = fecal sludge management; l/ pc/day = liters per customer per day; WHO = World Health Organization. 59 UTILITY OF THE FUTURE Appendix D. Performance Level Assessment Well Elementary Performing World Element (1) Basic (2) Good (3) (4) Class (5) Commercial Collection rate (%) <60 >60–70 >70–90 >90–95 >95 Metering rate (customers metered) <25 >25–60 >60–85 >85–95 >95 (%) Technical NRW (liters/connection per hour >50 >25–50 >12–25 >6–12 ≤3–6 when the system is pressurized) Financial Management EBITDA margin (%) Negative <5% >5–19 >19–30 >30 Human Resource Management Staff per 1,000 connections >10 >6–10 >5–6 >3–5 ≤3 Organization and Strategy Fulfillment of the Strategic Plan No <40 >40–80 >80–90 >90 (%) performance targets Note: EBITDA = earnings before interest, tax, depreciation, and amortization; NRW = nonrevenue water. 60 Appendix E. Example of a Fact Sheet—Strategic Programs Program: Total Projects 0 Area/Element: Total Budget $ - Description: Strategic Objectives Impacted: Team: Potential Risks: Implementation Plan (Years) Projects: Area/Department Responsible Indicator Unit Target Time (Months) Budget Plan 1 2 3 4 5 Total Timeline (Select X) 0 1 Budget $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Timeline (Select X) 0 3 Budget $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Timeline (Select X) 0 5 Budget $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Timeline (Select X) 0 7 Budget $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Timeline (Select X) 0 9 Budget $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - 61 UTILITY OF THE FUTURE Appendix F. Useful Resources and Tools Outlined below are useful references and resources that were used to inform the development of the UoF Program and UoF Toolkit in addition to the review and inputs provided by colleagues from the World Bank’s Water Global Practice. Enabling Environment and Finance 1. High-Level Panel on Water Financing: Easing the Transition to Commercial Finance for Sustainable Water and Sanitation 2. Ministers of Finance Meeting Summarizing Recommendations: Financing Options for the 2030 Water Agenda 3. Official Development Assistance in Water: Aid Flows to the Water Sector 4. Financial Inclusion: Fintech for the Water Sector Advancing Financial Inclusion for More Equitable Access to Water 5. Working Paper on Accessing Financial Resources for Climate Adaptation in Trans- boundary River Basins: Financing Climate Change Adaptation in Transboundary Basins: Preparing Bankable Projects 6. Working Paper on Capital Subsidies: Capital Subsidies Implicit in Concessional Finance 7. Urban Water Synthesis: Reform and Finance for the Urban Water Supply and Sanitation Sector 8. Blended Finance: Achieving Universal Access to Water and Sanitation by 2030: The Role of Blended Finance 9. Policies, Institutions, and Regulations: Aligning Institutions and Incentives for Sustainable Water Supply and Sanitation Services 10. Discussion Paper on Regulation: Regulation of Water Supply and Sanitation in Bank Client Countries: A Fresh Look 11. Utility Turnaround: Water Utility Turnaround Framework 12. Subsides: Doing More with Less: Smarter Subsidies for Water Supply and Sanitation 13. Capital Expenditure Efficiency: Better Use of Capital to Deliver Sustainable Water Supply and Sanitation Services: Practical Examples and Suggested Next Steps 14. PPP in the Water Sector: Delivering Universal and Sustainable Water Services: Partner- ing with the Private Sector 15. Commercial Finance: Introducing Commercial Finance into the Water Sector in Devel- oping Countries 16. Foundational MFD (joint publication with IRC and Water.Org): Mobilizing Finance for WASH: Getting the Foundation Right 62 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL 17. Cases in Blended Finance: a. Facilitating Access to Finance for Household Investment in Sanitation in Bangladesh b. Facilitated Access to Finance for Domestic Private Water Operators in Cambodia c. Institutional Blending via Second-Tier Lender FINDETER in Colombia d. Scaling Up Blended Financing for Water and Sanitation in Kenya e. Pooled Municipal Bond Issuance in Tamil Nadu (India) f. Blended Financing for the Expansion of the As-Samra Wastewater Treatment Plant in Jordan g. Municipal Bond Issue by the Municipality of Tlalnepantla de Baz (Mexico) h. Water Revolving Fund in the Philippines i. Municipal Project Finance in the Municipality of Rustenburg (South Africa) 18. Change Management Toolkit: Tips, Tools, and Techniques for Leading a Successful Change Initiative—Berkeley University of California—https://hr.berkeley.edu/sites/ default/files/change_management_toolkit.pdf. Energy Efficiency 19. Energy Efficiency Guidance Note: Mainstreaming Energy Efficiency Investments in Urban Water and Wastewater Utilities 20. Energy Management for Water Utilities in Latin America and the Caribbean—Case Studies 21. Exploring Energy Efficiency and Energy Recovery Potential in Wastewater Treatment Plants 22. Primer on Energy Efficiency for Municipal Water and Wastewater Utilities Resilience 23. Building Resilience of WSS Utilities to Climate Change and Other Threats: A Roadmap 24. Resilient Water Infrastructure Design Brief 25. Efficient and Effective Management of Water Resource Recovery Facilities 26. From Wastewater to Resource 27. Wastewater to Resource Initiative—Case Studies Inclusion 28. Women in Water Utilities: Breaking Barriers. For other relevant Water GP publications, please visit the World Bank Water Global Practice Knowledge Highlights 2019–2020. 63 UTILITY OF THE FUTURE Appendix G. Glossary of Terms Accounts receivable (days): The average number of days that a customer invoice is outstanding before it is collected. This is accounts receivable (net of provisions for doubtful accounts) divided by revenues and then multiplied by 365. This indicator allows an organization to evaluate the effectiveness of its credit and collection efforts. Action planning process: A 15-step approach to translate the results of the Utilities of the Future diagnostic assessment into a prioritized and sequenced action plan. Area: Used in the maturity assessment of the five elements of water utility management, an area is a broad category under which specific topics are covered. Examples include: metering, billing, and collection (commercial operations); expansion and rehabilitation planning, asset manage- ment, and water treatment and quality (technical operations); budgeting, cash flow management, and accounting and financial reporting (financial management); human resource management and development, recruitment, and compensation (human resource management); and organiza- tional direction, strategic and business planning, and monitoring and reporting (organization and strategy). Collection rate: The percentage of the total amount billed that is actually collected. It is calculated as cash collected divided by revenues. Commercial losses (or apparent losses): These include all types of inaccuracies associated with customer metering as well as data handling errors (meter reading and billing), plus unautho- rized consumption (theft or illegal use). Commercial operations: One of the key water utility management areas, which deals with topics related to cost recovery and customer engagement in the utility (including metering, billing, collections, and customer records). Connections: The fixtures, joints, and pipes connecting the main to the measurement point or the customer curb stop, or where several registered customers share a physical hookup. Continuity: A period of uninterrupted water distribution to customers divided by the maximum possible period (24 hours per day, 365 or 366 days per year). 64 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Coverage: The population with access to water services (either with direct service connection or within reach of a public water point) as a percentage of the total population under the utility’s service responsibility. Customer: An individual or organization that is an authorized recipient of water services from the utility. Earnings before interest, tax, depreciation, and amortization (EBITDA): A measure of an organization’s operating performance, evaluated without factoring in financing decisions, accounting decisions, or tax environments. EBITDA is calculated by adding back the noncash expenses of depreciation and amortization to an organization’s operating income. Economic level of nonrevenue water (NRW): The level of water losses that results from a policy under which the marginal cost of each individual activity for managing losses can be shown to be equal to the marginal value of water in the supply zone (Pearson, David, and Trow 2005). Element: A pillar of sound management and performance for water supply and sanitation (WSS) utilities. Enabling environment: Characterized by the legal and governance framework, the enabling environment affects what actions the utility can take and when. It is important to know the current state of a utility’s enabling environment to better understand binding constraints preventing the utility from taking action. Indicators of the quality of the enabling environment are measured against the system for setting service standards, system for setting tariffs, institutional setup, financing, and autonomy and accountability. Financial management: The process of establishing procedures and mechanisms to ensure that the utility is financially sustainable. A financially sustainable utility covers its reasonable costs with a relatively predictable income stream, primarily derived from tariffs charged to its customers. It uses that income stream efficiently by controlling expenses and managing cash flow. Greenhouse gas (GHG): A gas that absorbs and emits radiant energy within the thermal infrared range, causing the greenhouse effect. Human resource management: The process of developing and managing human resources effectively. This entails, for example, developing and implementing a staffing plan that is consistent 65 UTILITY OF THE FUTURE with the utility’s multiyear strategy, and incorporates staff evaluations and training, as they relate to performance management. Inclusion: “The process of improving the ability, opportunity, and dignity of people, disadvantaged on the basis of their identity, to take part in society” (World Bank 2013); and “leveraging the utility’s assets and operations to benefit the larger community, lessen negative impacts from utility activities, and provide service equitably across the service area, particularly for traditionally underserved neighborhoods” (AWWA 2019). Innovation: “A change made in the nature or fashion of anything; something newly introduced; a novel practice, method, and so on” (OED Online n.d.). Market and customer orientation: The utility operates like a firm in a competitive market, prioritizing efficiency and customers’ wants and needs, and treating its customers as if they could change their service provider if unsatisfied. Maturity: The state of a water utility ranging from 1 (elementary) to 5 (world class). Measured by qual- itative indicators in each of the five elements of utility management (commercial operations, technical operations, financial management, human resource management, and organization and strategy). Nonrevenue water (NRW): The difference between the volume of system input and billed authorized consumption. NRW includes not only real and apparent losses (that is, physical and commercial water losses), but also unbilled authorized consumption. Organization and strategy: An overview that accurately diagnoses the utility’s financial, operational, and commercial situation. A well-developed organization and strategy provide the most accurate picture possible for setting yearly targets and overall objectives for the utility. As the utility improves its performance, the information it has available will increase and become more precise. A utility should define a multiyear plan based on the current situation and desired performance. The plan should clearly define multiyear targets, the actions required to meet those targets, and the resources needed to finance those actions. Performance: Measured by quantitative indicators in each of the five elements of utility man- agement (commercial operations, technical operations, financial management, human resource management, and organization and strategy). 66 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Physical losses (or real losses): Actual water losses from the system and the utility’s storage tanks, up to the point of customer use. In metered systems, this is the customer meter. In unme- tered situations, this is the first point of use (tap) within the property. Reliable: 24/7 continuous water supply. Resilience: “The capacity of any entity—an individual, a community, an organization, or a natural system—to prepare for disruptions, to recover from shocks and stresses, and to adapt and grow from a disruptive experience” (Rodin 2014). Responsive: Dedicating personnel to customer engagement and prioritizing customer satisfaction. Safe: Adhering to quality standards. SDG 6: Sustainable Development Goal for water—“to ensure availability and sustainable man- agement of water and sanitation for all.” Service: Measured by reliability, safety, inclusivity, transparency, and responsiveness. Smart water utility: A utility that adopts innovative approaches and technologies to (1) create a resilient water supply, (2) provide effective wastewater management, and (3) build a responsive utility. This concept includes the principles of resilience, financial and operational efficiency, energy and water efficiency, inclusion, circular economy, innovation, and good governance. Maturity depends on a list of qualitative practices (such as what type of accounting system is used to prepare financial statements and how assets are managed). The legal framework and governance, which represent the enabling environment, are at the bottom of the pyramid since they shape the utility’s governing environment. Subsidies: A subset of funding flows between governments, service providers, and customers. Subsidies occur when a user/customer pays less for a product or service than the service pro- vider’s cost, leaving a third party (e.g., government, other users, future generations) responsible for covering the difference. Tariff: The price or prices a water provider charges its customers for water services. 67 UTILITY OF THE FUTURE Technical operations: One of the five elements of water utility management, involving areas related to infrastructure and tangible components of the water supply process. These areas include expansion and rehabilitation planning, asset management, water treatment and quality, distribution and nonrevenue water, wastewater and fecal sludge management, energy efficiency, and circular economy. Topic: There is one maturity matrix per element, each of which is divided into areas (such as billing) and topics (such as billing frequency). Each topic corresponds to one row in the matrix and includes one or more practices per level. The utility’s maturity level for each topic is determined by the practice that best matches the utility’s current state. Each topic also includes practices that are characteristic of a Utility of the Future, which are categorized based on four dimensions: innovation, inclusion, market and customer orientation, and resilience. Not all dimensions apply to all topics. Transparent: Auditing and publishing operational data. Utility of the Future (UoF) framework: Provides a step-by-step approach to initiating and maintaining reform efforts that set a utility on a path toward achieving this goal. Utility of the Future: A future-focused utility, which provides reliable, safe, inclusive, transparent, and responsive WSS services through best-fit practices that allow it to operate in an efficient, resilient, and sustainable manner. Utility Turnaround Framework (UTF): This framework offers guidance for turning around poorly performing WSS utilities and identifies five critical elements of sound management and performance for WSS utilities: technical operations, commercial operations, human resource management, organization and strategy, and financial management. Utility: A formal provider of water or sanitation services through a network. Water balance: A top-down audit of physical (real) losses of the whole system, starting with the total system input. A well-established water balance requires estimates of water volumes to be made at each measurement point applicable to the system being evaluated. Where actual measurements are available, these data should be used. In the absence of meters, a “best estimate” based on other, related available data and sound judgment may be required. A water balance is normally computed over a 12-month period, and thus represents the annual average of all components. 68 TAK ING WAT ER AND SANI TAT ION U T ILI T IES BE YOND T HE NE X T LE VEL Water losses: The difference between system input and authorized consumption. Water losses can refer to the total volume for the whole system, for partial systems (such as trans- mission or distribution schemes), or for individual zones. Water losses consist of physical and commercial losses. Water services: Services involving the supply of water to people and organizations, the removal of wastewater from their premises, and the drainage of water from areas where it is not wanted. 69 SKU W22009