3189: SAP On The Technology Transforming The Water Industry

[00:00:03] With rising cost pressures, regulatory demands and increasing public scrutiny, the UK's water industry is facing somewhat of a pivotal moment right now. And according to SAP's latest research, 34% of leaders in the sector describe cost pressures as challenging. But most importantly, 94% believe investment must significantly increase to meet growing consumer needs.

[00:00:31] But what's causing these pressures? And could technology and digital transformation be the key to long-term sustainability? Well, Sandeep from SAP is going to be joining me today. And together, we're going to explore the role of technology in modernizing the water industry. And we'll discuss the challenges posed by outdated infrastructure, the digital gaps impacting efficiency,

[00:00:54] and how solutions like AI, real-time analytics and automation can improve water network management and, indeed, regulatory compliance. And with AMP 8 set to reshape the industry from 2025 to 2030, we'll also look at how companies can prepare for the next phase of transformation. Is technology the silver bullet for the UK's water crisis? Or are deeper structural changes needed?

[00:01:23] Let's find out by getting today's guest on. So, a massive warm welcome to the show. Can you tell everyone listening a little about who you are and what you do? Cool. First of all, Neil, thank you so much for having me in your podcast. And I have followed your podcast for a while now. And I particularly think, as I told you, that the recent one on neuromorphic computing was very, very interesting for me.

[00:01:51] And to the listeners, I am Sandeep Bhattarai, and I work as an industry value advisor in SAP's UK and Ireland market unit. I focus primarily on the utilities and the energy sector. As part of my job, I help the executives embarking on business transformation journeys to develop their case for change and put together a business case for their board.

[00:02:18] And I've been working in the utilities industry for the past 20 years. And the fact that I'm able to make the utilities run a bit more efficiently, that keeps me going. And I'm passionate about sustainability and adoption of business AI.

[00:02:36] And as part of my role, I get to have a first-hand view of the organization's transformation challenges and the adoption challenges that they face in terms of digital. And so that's me, Neil. Thank you. Well, it's a pleasure to have you join me on the podcast, especially because before we even started recording today, we learned we're both here in the West Midlands in the UK. So we will need to have a hot coffee or a cold beer at some point together.

[00:03:03] But today we're here to specifically talk about the role of technology and the role that it can play in alleviating the current pressures facing the UK's water industry. It's a huge topic over here right now. But before we dive into some of those challenges, can you tell me a little bit more about what's happening across our water network, especially for international users, international listeners that may have missed some of these big headlines?

[00:03:28] Absolutely, absolutely. And we all know it, Neil, that particularly the water industry in the UK has been undergoing a lot of pressure, right? And it is at a crucial turning point. There's a heightened public scrutiny, increased service demands and inflation. They're all placing an inordinate amount of pressure on those that are running the UK's water industry, right?

[00:03:54] And on top of this, the industry is having to navigate a lot of new and existing regulatory requirements for the service and delivery. And also including the Labour government's proposed financial penalties for companies found responsible for polluting waterways, as well as the next asset management period, AMP 8, that is impending starting from April this year, right?

[00:04:21] And in this operational environment, the companies are really, really struggling to deliver the services expected out of them. And some of the new research by SAP shows water leaders across England and Wales, they are buckling under the weight of rising costs and a lack of digital infrastructure that is required to enact the necessary improvements to the water network, right?

[00:04:50] And the risk of non-compliance and declining public opinion as a result is always kind of increasing, right? So I think while there is no one-size-fits-all solution, accelerating the adoption of digital tools like AI can go a long way to alleviate some of these pressures as the next AMP period or asset management period kicks in, right?

[00:05:17] The right digital tools will enable the leaders to have a complete visibility into their network from consumption all the way through to demand to maintenance and repairs. And most importantly, it will allow them to react fast and efficiently to issues that arise out of their network, right?

[00:05:39] And in the future, that's how they'll meet the demand and provide reliable, efficient and sustainable services to their consumers. And again, before you came on the podcast, I learned that SAP's recent research found that 34% of leaders for water companies now face challenging cost pressures and a staggering stat here. 94% believe investment will need to increase to meet those new consumer needs.

[00:06:09] We seem to be in a bit of a situation here. What do you believe is the root cause of these cost pressures and what impacts could they have on service delivery too? Absolutely. And before I dive into some of those root causes that we have perceived, I would like to talk a little bit more about the background behind that research, right? And we conducted a survey of roughly 50 leaders from across the water companies across England and Wales.

[00:06:38] And it highlighted some of the key challenges facing the industry as it prepares for the eighth asset management plan cycle, right? And the research found that as economic pressures continue to build on, the water operators, they are struggling to meet the impending regulatory requirements and transform the service delivery to meet customer demand.

[00:07:05] And we also found that over 41% of leaders believe that these pressures are caused by a lack of digital, which was staggering, right? And then our research also highlighted that almost 31% report kind of challenges as the result of attempts to upgrade a 200-year-old water network, right?

[00:07:28] As public opinion in the industry kind of veins, water companies, they must accelerate these digital adoption to understand the water networks better, operate efficiently, and optimize the way services are run, right? And our research also highlighted the lack of digital adoption or digital infrastructure as a key cause of these financial pressures, right?

[00:07:56] And where do these gaps in technologies exist? Has research shown that kind of what is the degree of variation between adoption of larger and smaller businesses? It has to an extent.

[00:08:38] That's the degree of variation between the economic deficit that we are talking about. So faced with increased operating costs, reduced profit margins, and a fluctuating labor market, leaders are struggling to fund improvements to service delivery, and roughly 94% believing the investment will need to increase. And that too considerably over the next few years, or they will not be able to upgrade their infrastructure to meet customer needs.

[00:09:05] So that is the economic deficit part that we are talking about. And then there is a digital deficit as well, where they need investment into their digital infrastructure, right? And the research suggests that these cost pressures are in part caused by aging technology infrastructure.

[00:09:25] The water companies do not have the digital tools like AI and data analytics that is required to gain actionable insights into the network, right? And whether that data is based on water demand, consumption, or carbon dioxide emissions, while this is true for utilities of all sizes, it is more acute and more pronounced for smaller businesses.

[00:09:51] With these companies less likely to believe that their organization is currently using data quite effectively to manage and gain insights from water infrastructure.

[00:10:04] So I think this lack of visibility makes it quite difficult for them to understand where specific improvements can be made, particularly when it comes to service delivery, or to operate more efficiently, or to optimize the way they run, right? And just to conclude on this topic, I think these two topics, the digital deficit and economic deficit, they kind of go hand in hand.

[00:10:33] And the leaders in the water industry, they need to kind of look at both and do a balancing act and not ignore one at the expense of another. And as you said there, SAP's research has identified a lack of digital infrastructure as one of the key causes of these financial pressures. So I'm curious, where do these gaps in technology exist?

[00:10:58] And has the research shown any variation in adoption between larger and smaller businesses? Anything else you can expand on or share around this? Yeah, I think I'll refer back to some of the research outputs that came out. And they were quite interesting, right? And just one in five leaders strongly agreed that their organization is currently using the data effectively to manage and gain insights from their water infrastructure.

[00:11:26] And there's a huge digital divide amongst the smaller and larger businesses, with almost half of those employed at larger companies agreeing that compared to just 8% of those employed at smaller operators, right? And that's quite stark.

[00:11:45] And also, there are certain kind of statistics that came out of the research that a lack of digital tool is the common denominator for leaders being unable to enact the change. And I would like to highlight some of those statistics that came out that 55% report that they do not have the monitoring capabilities needed to understand water demands and consumption.

[00:12:13] And for a moment, think about it, that almost more than half of them do not have those monitoring capabilities. And they are reeling under the pressure of the leakage and the ability to maintain their assets well and things like that, right? 45% do not have a complete picture of their pipeline infrastructure. 43% do not have a complete data capture of the environment emission of their water network.

[00:12:39] And 30% do not have a complete picture of their service network, right? So I think, all in all, the lack of visibility into their network hinders the industry's capability to understand and address key infrastructure issues. Adopting digital tools and real-time insights are the key for business transformation to drive long-term improvements in service delivery.

[00:13:05] And that is in accordance to what is dictated by AMP 8, by OffWatt, right? And AMP 8 have set strong performance criteria for water companies. And it is imperative that the water companies leverage the efficiencies digitally and operationally to deliver on their commitments to OffWatt, right?

[00:13:27] And for example, some of the KPIs that is often cited in the water industry is CMEX and DMEX that are the key KPIs for their service delivery criterias. And CMEX kind of alludes to the customer side of things and DMEX kind of alludes to developer side of things. So it just goes on to highlight that you need to be efficient while you are servicing your B2B side of things or also to the B2C side of things, right?

[00:13:57] And digital can help them to come up a long way in kind of leveraging those efficiencies in the industry. And just to expand on everything you said there, if we group all of these challenges together that we're talking about, how do they impact the industry's ability overall to comply with the objective outlined in AMP 8 that you remembered there and continue to meet some of those ongoing service demands that we're seeing? Anything you can share around this too?

[00:14:27] I think technology will play a huge role, Neil, in helping the water companies to alleviate some of those efficiency pressures that they are facing, right? And by continuously monitoring some of the water demand and consumption, technologies such as AI that can collect real-time data to identify trends, anomalies, and possible contamination in their water,

[00:14:54] is this also allows leaders to quickly identify some of the areas that they can focus on immediately, right? And the areas in the network that require maintenance or improvement requiring kind of leakage, rest, and attention towards spillages, and optimizing water quality usage and delivery, right? And moreover, I think machine learning and AI can effectively predict some of the system failures or malfunction,

[00:15:23] by analyzing some of the data collected from sensors and internet of things embedded into the water infrastructure. And I think some of the water companies across the world have done it quite successfully. So the key is to kind of also learn from some of these global water companies who have done part of the job quite efficiently and adopt into our own water companies and our own practices in the UK.

[00:15:48] And I think in doing so, downtime and maintenance costs are significantly reduced, lowering operating costs, and ultimately providing the return on investment to their stakeholders and shareholders. And SAP's research has also found that leaders remain positive about the impact existing and emerging technologies will go on to have on service delivery.

[00:16:12] But something we've got to raise here is a lack of skills, silos, and understanding of these tools and technology could affect implementation. So how can these barriers be addressed? I think there's no doubt that the industry leaders are committed to living on the objectives of AMP8, but rising network demand, spiraling costs, and aging technology infrastructure,

[00:16:38] these are preventing from becoming a reality, right? And as they seek to modernize, to offset these operational challenges, the water companies need to have the right digital backbone. And that runs throughout the business with tools like AI that can be plug-in and play and keeps the costs down. They can have unparalleled visibility into their network, right?

[00:17:06] And so they can also respond faster and more accurately to the issues or demand that will better support their ability to meet offwards KPIs during AMP8 and also ultimately deliver more resilient and robust water services in the months and years ahead, right? And when we talk about some of the silos that get created, I think, again, technology plays a huge role

[00:17:34] in eliminating those silos, in getting the new workforce trained, and getting a new generation of employees coming up to speed. So that's what my thoughts are, Neil. And for our international listeners, I'm conscious we've mentioned AMP8 a few times, or Asset Management Period 8. And for anyone listening hearing about this for the first time, it is a five-year regulatory framework for water companies in England and Wales

[00:18:03] that will be running, I think, from April 2025 to 2030. But if we look beyond this, beyond the introduction of AMP8 in April, what do you think the future looks like for the UK water industry? Is it more hopeful than what we've seen in the past? I think, Neil, it's a combination. I certainly, being an optimist, look at it from a very positive viewpoint.

[00:18:27] And obviously, there are hopes, and it depends on how do we go ahead in terms of adoption. And there's no doubt the water industry continues to face significant barriers to digital adoption and a substantial gap between intention and implementation. Right. And as a result, I would also like to kind of refer back to some of the research.

[00:18:54] That 52% of the leaders, they suggested that the ERP transformation must come first to avoid silos in affecting AI decision-making, while 48% required help in understanding how AI can enhance their aging infrastructure. So there's an element of the lack of understanding as well, that how AI and the new digital infrastructure can help them.

[00:19:20] And there is also an inability to source and acquire talent. That also remains a big, big roadblock, with two-thirds believing that lacking the skills and talent needed to implement AI effectively kind of is hindering them to adopt some of these new technologies. Right. But going back to your question, I would like to highlight six key imperatives for UK's water industry as they head into delivering their targets in AMP 8. Right.

[00:19:49] And provided those six key imperatives, I'm very hopeful that the water industries will deliver on their targets set by Offward. Right. And the first one, it is the digital transformation and innovation, which is embracing technologies such as IoT and AI and predictive analytics to optimize water management, reduce leakages, and improve operational efficiencies.

[00:20:15] And I've also seen a lot of usage of digital twins and smart metering across the world, particularly with some of our European counterparts, that they have used it effectively to standardize some of the practices and enhance some of the visibility and control into their network. The second one is sustainability and net zero goals. And I think meeting environmental targets will remain a key priority,

[00:20:43] and as said by Offward as well. And for the viewers, I think Offward is the regulatory body in the UK, which sets the KPI targets for the water industries in the England and Wales. And these companies will focus on reducing some of the carbon footprints from their operations, enhancing wastewater treatment, and adopting the circular economy principles like water reuse and resource and recovery.

[00:21:13] Right. So that's quite important. The third one is customer-centric approach. And that goes a long way for these water companies to deliver on the target set by Offward, which is improving the customer service through their transparent billing, real-time updates, and personalized communication. And public trust will be very crucial, as we have seen in the past few months. Most of the water companies in the UK have been kind of making the headlines

[00:21:41] for all the wrong reasons in the past few months. But I'm sure, I'm very hopeful that that is going to improve in the coming few months or years. Right. So the fourth one is resilience to the climate change. And we all know that the climate change is increasingly very pronounced. Right. And while it was, it seemed like a far-fetched concept a couple of years back, it is very real now. Right.

[00:22:08] And these water companies will kind of face some of these events to prepare their network much better to respond to those climate changes. And that can only happen by enhancing their water storage and distribution systems to respond to those climate change events. The fifth one is regulatory compliance and innovation.

[00:22:34] And with stricter regulatory frameworks expected, the water companies may need to balance compliance with innovation, collaboration, and so that the regulators could shape progressive and flexible policies. Right. And the last one, but the most important one, I think, in my opinion, is collaboration across the ecosystem. Right. And which is partnership between utilities, the technology providers, and academic institutions

[00:23:02] that can drive industry advancements. Sharing best practices and joint ventures will likely be much more common. And I think there's a lot for the water industry to kind of learn from other utilities and energy organizations and also give them back some of the best practices that lie in our water industry. Right. So it's a two-way street, I think. Yeah, completely agree. And I think it's a powerful moment to end on.

[00:23:30] But we've covered so much, but still only scratched the surface. So anybody listening that would like to find out more information about anything we talked about today, whether it be SAP or connecting with you, where would you like to point everyone listening? Oh, absolutely. Please feel free to reach out to me through SAP or through my LinkedIn. I'll be more than happy to connect with you and discuss more about the water utilities industry in the UK or the utilities in general in wider.

[00:24:00] Well, I'll add links to everything so people can carry on that conversation with you. And we dropped some pretty big stats there. 94% believe investment will need to increase considerably to meet customer needs. Preparing for that next AMP 8 deadline coming up in April. There's so much public scrutiny that seems to be increasing around that. And why technology could ultimately be that silver bullet. It could help improve understanding of water consumption demand right across the network

[00:24:30] and ultimately ensure a more efficient operation and optimizing the way services are run. But more than anything, just a big thank you for sitting down with me today, talking about this in a language everyone can understand and the impacts of technology. Thank you for joining me today. Thank you so much, Neil. And very privileged to be on your podcast. And thank you so much for having me once again. I think technology isn't just a nice to have for the UK's water industry right now. It's becoming a necessity.

[00:24:59] From real-time data analytics to AI-driven operational efficiencies, digital transformation has the potential to ease cost pressures, optimize service delivery, and ensure compliance with AMP 8 and beyond. But as we've heard today, technology alone isn't the solution. Successful adoption requires industry-wide collaboration, upskilling, long-term commitment to modernizing infrastructure.

[00:25:27] And the question is, are water companies prepared to make those investments needed to future-proof their networks? We've already seen a lot of stories in the news about huge bonuses and payouts to shareholders, etc. I'd love to hear your thoughts on this. Is technology the key to solving the challenges in the water sector? Or are there much deeper systemic changes that need to happen first? Let's continue the conversation.

[00:25:55] Email me, techblogwriteratoutlook.com, x Instagram, LinkedIn, at Neil C. Hughes. Send me a quick message. But until next time, stay curious, keep exploring how innovation could reshape industries that sustain our world, things we rely on and possibly take for granted. But that's it for today. Speak with you all tomorrow morning. Bye for now.