Ian McAulay likes change – a good trait for a chief executive in the water sector, which happens to be going through one of the biggest periods of change in its history.
Southern Water’s new chief executive was brought in to shake up the company, and that is exactly what he’s done. Since he joined in January this year, the senior management team has been overhauled. New blood and new structures have been imposed, designed to turn around long-standing trends of underperformance in fundamental business areas such as customer satisfaction, cost management and shareholder returns.
In Southern’s towering office building in Worthing on the south coast, McAulay greets Utility Week with a welcoming smile. His office, unlike his approach to business, is traditional – neutral walls, desk, meeting table – no frills, but an open door to communicate accessibility.
Unlike many sector chief executives, McAulay doesn’t subscribe to the “we want to be the best water company in the world” mantra. His vision for Southern is simple: he wants the company to be respected by its regulators, loved by its customers and its staff, and admired by its competitors.
“I want to have a more commercial approach within the company, to make sure that we can provide the right type of value for customers.”
Customer love would be hard to find today. Southern has consistently struggled to lift its customer service ratings off the bottom of industry league tables. In Ofwat’s 2015/16 service incentive mechanism report, it scored a measly 73 overall – although this represented a slight improvement on the previous year, it was still well below the industry average of 82.5.
McAulay wants to change the way Southern performs, and he is determined that it is “seen as a customer services company”. “We’re building that into our consultation for the next price review,” he says. But there is no silver bullet. “I hate the question: ‘What’s the one thing that you’d do?’ There is no one thing you can do to improve from being towards the bottom.”
The company has put in place better technology, such as an online service tool, to allow customers to interact with it in a digital format. It has also carried out a lot of staff training on voice interaction, telephone interaction and written interaction with customers, to make sure it keeps on improving. And these investments are already paying off. “I’m delighted to say that we’re not at the bottom now for some of the customer complaints scores that have come through,” says McAulay. “Which is good, but we are by no means satisfied, we’ve still got a long way to go. And as we improve, the other companies improve as well. “I speak to the other chief executives quite often and, trust me, we look very hard at the scores. When they come through we are very determined to make sure that we keep improving.”
Since taking the helm of Southern at the beginning of the year, McAulay has separated the water and the wastewater units of the business, paving the way for a greater focus on the specific demands of each. He has also re-imagined the structure of the executive team, creating several new directorates, including one for compliance and performance, one for people and transformation, and one for commercial.
“I want to have a more commercial approach within the company, to make sure that we can provide the right type of value for customers and do things in the right way,” he says.
“The commercial directorate takes on board some of the non-regulated activities – how we manage contracts, how we manage energy, which is a big bill for us – and looks at them from a more commercial perspective to ensure better value.”
So is this the end of the changes McAulay plans to make? “Probably not,” he says. “As the sector starts to evolve and we see new market entrants, we will have to keep adjusting. I still see a significant period of change ahead for the next 25 years.”
McAulay stepped down from resource-management company Viridor somewhat abruptly in September last year, with a brief statement from the company saying that he had left to “pursue other opportunities”.
When pressed on whether he left with the Southern Water job – which he took up in January this year – in mind, he brushes the question off as irrelevant. He does, however, say that what drew him to the role were the new opportunities and challenges it presents.
“I’ve always been drawn to the water and environmental sector,” he says. “So, to have the opportunity to take up the chief executive’s role at one of the bigger water and sewerage companies in the UK was pretty much irresistible – it was something I’d always wanted to do.” McAulay also admits that he doesn’t like to stay in the same place too long. He has lived and worked all over the world, in Colorado in the US, India, Scotland and various parts of the UK to name a few. “This was another move for me,” he says.
“The retail separation makes us look very hard at our cost-base and our wholesale productivity.”
He brings with him a wealth of experience, most recently from Viridor. “That sector has, in a relatively short period of time, gone from being a waste sector to a resource sector, and the value of resources is increasing. Viridor moved from being a landfill company to a resource-management company and, in a very short period of time, we managed to bring the company from being hardly recognised to being quoted as one of the top three companies in the UK.”
Often, the challenge is to get the public, customers and politicians on board with what you’re trying to achieve. “There was a lot of learning there in terms of how you move things through the political agenda, and how you interface with customers to encourage them to recognise the value of what you do, the branding of things that you do, how you use technology.”
This experience will be vital in the water sector, where schemes such as meter installation are not always popular with customers. Southern was the first water company to launch a widescale metering programme. Between 2010 and 2015, the company installed about 450,000 meters across Kent, Sussex, Hampshire and the Isle of Wight. Almost 90 per cent of households in the Southern Water area are now metered, and per capita consumption in the South East is the lowest in the UK.
But this is just the start. Having completed the official scheme in 2015, and having achieved the base level of water consumption metering, the company is now looking at how it can move the programme forwards again. “We’re looking at other ways to work with smarter meters to provide a more enhanced level of service to customers.”
McAulay believes that “inevitably” smart meters will be rolled out in the water sector. “As we move towards metering, technology has moved into smart,” he says, “so I think the meter that you have to install will almost by definition be a smart meter.”
But, he points out, meters are only as smart as you want them to be and how much you want to use them. They may provide the information, but the key is how that information is used to help customers manage water and energy use more efficiently.
Such water-saving behaviour becomes increasingly important as the threat of drought looms and the South East, as one of the driest regions in the UK, suffers.
Demands on water are changing and water scarcity is a reality. “I think water usage in the future will be different,” says McAulay. “Having lived around the world, where water reuse is common. I can see a different water world in the years ahead.”
One thing he suggests is a “systems-thinking” approach. “If we look at the South East, we have quite a number of water companies operating in the region, and water does not respect arbitrary boundaries drawn on maps. We have to be looking in the future, how do we take a systems-thinking approach to water production, water storage and water distribution across boundaries.”
The most significant, and certainly the most visible, change in the water sector in recent months has been the opening of the non-household retail market to competition. Southern Water bowed out of the non-household market and, although McAulay hails this as “the right decision for now”, he doesn’t rule out the possibility of the company joining the retail sector at some point in the future, perhaps if domestic competition happens.
But there are many different ways in which the water sector can move and change, and McAulay believes the biggest changes to the non-household sector have occurred in wholesale companies. “I think this is good,” he says. “The retail separation makes us look very hard at our cost-base and our wholesale productivity. It allows us to look at doing things differently and more effectively, and it really does challenge this organisation to think ‘what could we do?’ You can’t just rely on being steady in this market for the next 25 years.”
As is probably now evident, McAulay is never one to shy away from change. He says the snap election, which prime minister Theresa May announced would be happening in June, will bring further change to the sector but, from a water sector point of view, is “a good thing” because it should bring certainty. “The one thing that helps business to operate well is certainty, and that’s what we’re looking for.”
He continues: “I’m never resistant to change, but certainty is what we have asked for, and generally I think we have a pretty good relationship with the Department for the Environment, Food and Rural Affairs.”
McAulay is not complacent about the fact that Southern Water has a long way to go, but his vision for the company is clear: “I’d like our regulators to say we’ve gone from being the most-improved company to being one of the best companies.
“I’d love to see our customers say they value the service that we provide and what we do. To have a really high engagement score with our staff, and having staff that genuinely will openly articulate the benefits of being in this company, I think would be terrific as well. And I would like to have other companies, and not just water companies, come to look at how we do things here.”
“These would all be really good measures of success, and I’d be delighted if all four of those things were to happen.”