It can be hard to reject a proposed strategy. But sometimes it's the right thing to do, as Wessex Water discovered

It can be hard to reject a proposed strategy

It can be hard to reject a proposed strategy. But sometimes it's the right thing to do, as Wessex Water discovered

This was the balancing act facing Wessex Water. The Bath-based water and sewerage company recently held a strategic review to explore whether creating a shared services operation to handle a range of its back office functions could be a way to reduce costs and generate income.

Although a strategy review eventually concluded that the project should not go ahead, Wessex Water believes the process itself had many positive effects.

When a business is conducting a strategy review, momentum can gather behind a proposed course of action, making it difficult to decide not to proceed. Emotions can cloud the issue and the review process becomes more about building a case for the proposed strategy than about asking objectively: should we be doing this?

This was the balancing act facing Wessex Water. Two years ago, the company came up with the idea of creating a shared services operation to handle a range of its back office functions, such as billing, IT, procurement and customer services.

Utilities companies tend to handle such functions inhouse or outsource them to external providers. But Wessex Water felt there could be a third way. David Elliott, the company's Director of Planning and Asset Management, explains: "In the traditional outsourcing model, companies pay for the service they receive. Although the price might be competitive initially, to win your business, over time that price is likely to creep up. What we were considering doing was creating a template co-owned by a number of different companies. The more people who got involved, the lower the transactional costs would become, so everyone who participated would see a long-term benefit. The price would be stable or come down and in our business price stability is really important."

The company brought in the Berkeley Partnership to help it conduct a strategic review to explore whether these back-office functions, not generally regarded as an area where it is possible to compete, could become a means of improving competitiveness and even a source of unregulated income.

David says: "We sat down and worked through our thinking about what exactly it was that we wanted and put together some key metrics to benchmark with other sectors. We examined the opportunities among other utilities companies. Then we started to pull together a strategy plan. The really good thing was that the review involved all the senior people from day one, setting no untenable expectations. It was about building up the picture on a daily basis. We were challenging each other constantly."

The review then moved onto discussions with potential partners. David says: "We used the metrics to engage with suppliers in the sector, those who would normally run shared ventures, and seeing what they came back with as options. We had some very interesting conversations with firms such as Oracle, SAP and IBM, which helped us understand the scale the business would have to reach before it started becoming beneficial to us."

The company got as far as finding one or two players who were interested in signing up to the shared services model. Eventually, however, after a process lasting several months, the review concluded that the strategy had the potential to deliver benefits but that these benefits were marginal compared to the risks involved before the operation grew to a certain size. "To do that we would have needed to bring in big players and when we looked at where other companies were in the procurement cycle, the timing just wasn't right," says David.

So how did Wessex Water deal with the uncertainty stirred up during the course of the review? Staff working in the affected departments were understandably concerned about what would happen to their roles, but David says that everyone was kept fully informed of what was happening and why. "The review managed expectations effectively and was run in an objective, logical way. Of course some people were worried about their jobs but we tried to be as inclusive as possible. The exercise was about demonstrating value, not about outsourcing a problem. We presented it as an opportunity rather than a threat."

Although the review ultimately rejected the proposed strategy, the process itself had many positive effects. "It turned us into an informed client, a smart client. We are much better able now to understand the cost of these back office services and are able to manage them much more effectively."

Wessex Water may even revisit the strategy in future. David adds: "The more difficult the financial environment becomes, the more likely it is that some of the problems will be overcome. We haven't ruled out the idea it is an opportunity we have sitting there if we decide in future the conditions are right."

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