In this article the authors discuss how the competitiveness of an organisation and the health of the communities around it are mutually dependent, connecting the two ideas and showing how to make them work through a series of case studies in the water and sanitation industry. This offers a thought-provoking perspective for redefining and achieving business performance.
We are on the verge of a change on how companies improve their performance and gain market advantages. Business leaders take with greater serious the idea that the competitiveness of their company and the health of the communities around it are mutually dependent. The same business leaders realise they can gain benefits from developing and strengthening collaborations with suppliers and partners.
In the midst of a change
Over the past decades, the management of suppliers has been dominated by supplier reduction, arm-lengths communication and short term action. It is now difficult for many companies to seize innovation opportunities along their supply chain (Choi, Linton, 2011). They need to attract and work collaboratively with existing and new partners to gain a competitive position.
At the same time, companies have become subject to the scrutiny of stakeholders for their social and environmental performance. This impacts business results through customer preferences, brand and people engagement. This offers opportunities to innovate and grow. Business leaders increasingly embrace shared value creation (Porter & Kramer, 2011) which means that well-thought value creation for business can simultaneously yields profit and greater social impact.
By conflating these two streams together companies can deliver value for the business while increasing their environmental and social performance. This can be achieved by developing and strengthening collaborations with partners along and beyond the supply chain. Through a series of four case studies in the water and sanitation industry we have identified five success factors that can help business leaders to embark successfully on this transformation.
The 5 key success factors
Strategy and culture
Creating shared value through collaborations needs to be part of the company strategy. It has to become central to how decisions are taken and to how progress is reviewed. Two questions need to be revisited on an ongoing basis:
How social and environmental issues can help us reengineer our offerings, our value chains and our business models?
What are the opportunities for collaboration that can positively impact environmental, social and business performance?
This requires a continuous strategic dialogue between customer and supplier facing functions. Our tendency to continuously simplify our understanding of the external environment quickly brings people back to the old paradigm. Hence, perseverance is essential; you need to continuously remind people of the logic that underpins this emerging paradigm. If this new way of thinking is not yet part of the strategy one can harness an entrepreneurship spirit and show that it works through grassroots initiatives.
An open mind-set about collaboration
This transformation requires looking at partners from multiple perspectives. By understanding the trends at work in your industry you can foresee the players that will matter tomorrow. When potential partners have been identified, it is essential to assess if a strategic fit exist amongst them. This is not about mutual dependence but about sharing common agendas, interest and long term aspirations. In some instances you will strengthen collaborations with existing suppliers and partners to further improve. In other cases, when breakthrough changes are on your radar, you might have to work with new players. Some relationships might need to be abandoned, others have to be developed. Leaders willing to maximise the value they create need to look at collaborations with three questions in mind:
If they strengthen their collaboration with us how can this contribute to enhance our performance and deliver our strategy?
If we strengthened our collaboration with them how can this contribute to enhance their performance and deliver their strategy?
Looking further into the future, what can we achieve together that we could not accomplish alone? Can we reach new levels of performance together?
Trust and Transparency
Creating trust and transparency were instrumental in the four case studies. First, it needs to underpin internal collaborations before extending it to external partners. After detecting where strategic fits exist, a shared vision has to be established. This requires facilitating iterative strategic dialogues where leaders from all sides adopt an open mind-set. Unceasingly preferential treatment needs to be earned by both parties. Reaching deeply rooted trust calls for patience, mutual understanding and common processes. The more progress you make together the more trust you have between the partners. Ultimately, you reach a level of transparency that offers real advantages. This generates value, leads to employee motivation, engagement and improved performance. Continuity of attitude is critical. As people change jobs, newcomers might be tempted to seek short terms benefits by using more combative approach; the collaborative approach needs to be continuously monitored.
Measurement and value sharing
Fourth, there is a need for a new measurement and sharing culture. Collaborations thrive on common ambitions and complementarities. All players can share common goals and targets but they also need to have specific goals and targets that reflect their unique contribution to the collaborations. These should be reflected in contracts using effective incentives such as revenue and risk sharing models. Jointly defined and transparent measurement related to performance, costs and revenues help to develop fair solutions. In the end, the overall value is shared amongst the partners, but everyone should keep in mind it is created together. For the projects presented underneath the social and environmental impact were also measured using relevant performance indicators. These results were presented next to the business results. This helps to maintain the shared value creation holistic perspective.
People skills and leadership perseverance
Specific skills are needed to support collaborations that create shared value. People need the right mind-set to work collaboratively within and outside the company. They need a combination of business acumen, partnership management skills and soft skills. This can be difficult to find, develop or retain. Partnership management skills include the ability to identify and validate opportunities, to assess the strategic fit with partners and to continuously design and facilitate meetings that support the collaboration. From a soft skill point of view it requires an ability to empathise with internal and external players and to positively engage them in teamwork. This requires continuous attention from the leaders who need to take the long view and create a climate where people are encouraged to persevere and where error is accepted and considered as an entire part of the learning process.
The four case studies
The following four case studies outline how shared value was created together with existing and new partners by SUEZ water activities in France. Each case outlines what was essential to creating shared value through effective collaborations.
The smart metering project
In the water utility business, metering is the corner stone for a fair billing capability (see table below). Historically reading was done manually once a year. Advanced Meter Reading (AMR) technology is a breakthrough. Availability of frequent and accurate data is an unprecedented platform to offer new services to customers. As water is a basic need it allows offering customised billing scheme and assistance programs to low income population.
Ten years ago, SUEZ won the service for a French city that was particularly interested in deploying AMR technology. No on-the-shelves solution existed, and ground-breaking developments were needed. A cross functional team scouted the ecosystem and looked for technology and partners. The final objective was to accurately collect, clean, analyse and communicate useful data to customer. Suez Water needed the expertise of both a meter supplier and a radio system provider. They would concentrate on data production, transfer and management, while the operator would boost its leadership by providing advanced services to the end customer such as on time leakage alerts and repairs. The stakes were high! An integrated solution calls for all parties to be jointly responsible for delivering the innovation and openly sharing their expertise. With three actors being regarded as market leaders, collaborating effectively was critical but demanding. This led to a 10 years partnership structured around five points:
A co-investment in and a co-ownership of the technology.
An innovative cost and profit sharing model. The partners shared the initial investment and the returns according to their respective contribution.
A coordinated commercial strategy. The partners bring together their sales networks to boost the promotion of the solution.
A royalty mechanism. Products were intended to be sold to new customers. The profit is shared among the partners.
A periodical technology review to continuously challenge the roadmap and maintain a leading edge position.
The collaboration required open and transparent governance. It is sometimes hard to restrain people to favour short term gains at the expense of longer term benefits. All attempts to derail the collaboration had to be addressed in a timely manner.
Today a first generation of products has been launched and adapted to the gas market. Millions of units have been sold. A new generation is under development. The value created benefits the three partners by creating a new technical standard on the market which led to differentiation. As implementation started, it also provided value to society by offering a more resource effective water management system and enabling the implementation of these billing schemes for low income population.
Joint Improvement Program for sewage cleaning services
The cleaning of sewerage networks is a core business activity of SUEZ (see table below). It can impact its performance and reputation. It requires a truck fleet equipped with high pressure pumps. They are operated by qualified operators who intervene in difficult conditions. Pressurised water is pulled through pipes to scrub the sides of dirty drains, break apart clogs and flush out residue. Security and compliance to regulation are of utmost importance. The French market is fragmented and lacks reliable service providers. The operator had developed relationship with one service provider. The quality of service and the productivity were not matching the expectation of SUEZ and the service provider was unsatisfied with its profitability. As all signals were turning to red, SUEZ decided to try another approach. A joint improvement program was offered to the supplier. This aimed at improving the overall performance through a long term collaboration focused on continuous improvement. The aim was to increase the competitiveness of both players through cost improvement and innovation without compromising with quality.
First, the key challenge was to convince the service provider to move from a focus on price to improvements. This happened through extensive dialogues. A fair approach to sharing costs and benefits was agreed. Targets based on shared value creation principles were agreed. A cross functional project team was established to manage this new-born collaboration.
The following months saw the development of a partnership supported from both sides. The team collected data and developed detailed cost models for each steps of the operation process that were shared openly to establish a common baseline. Value engineering techniques were used to identify improvement opportunities. Workshops helped scope and develop new ideas that led to new business practices, processes, equipment and organisational changes. This helped to determine the impact of each improvement on the final cost structure.
As a consequence, a new planning system was implemented by the operator. As visibility improved, the service provider was willing to invest in specific equipment and to redesign its organisation. A new contract was established between the two companies. It included a formal review process to follow up the joint improvement plan and the overall financial goals. Over the years this allowed the companies to meet their respective goals by moving from a combative to a collaborative logic. Both were able to gain a better competitive position.
This enduring partnership between SUEZ and its service provider created value for both. Results related to productivity gains and late interventions improved year on year. For the service provider, this guided them towards positive impact on its EBITDA. From a social and environmental performance perspective, the service provider could claim that it had helped a supplier re-gained a sound competitive position.
Working with key partners to positioning the operator as a key player of local development
Today French municipalities and local authorities are concerned with the development of small and medium enterprises on their territory (see table below). They are keen to help entrepreneurs grow their business. Their competiveness depends on their ability to gain access to competitive suppliers. However their buying power and purchasing expertise is limited. SUEZ saw this as an opportunity. Thanks to its size and procurement expertise it benefits from established relationships with strategic partners who offer favourable terms and conditions. At the same time, a critical component of its strategy is to become the preferred partner of municipalities and local authorities. Beyond its traditional core business of supplying utilities, it works with its clients on new initiatives to improve environmental and societal performance. By connecting procurement capability and business development strategy it became relevant to offer small and medium size companies located on the territory of clients an exclusive access to competitive conditions on a large range of products and services. The benefits go beyond offering attractive prices; they enjoy premium services and environmentally friendly products.
The operator had to set up new partnerships with a sub-set of historical partners. The objective was to develop an attractive offer that matched the needs of small companies and provided them with a competitive advantage. This includes a wide range of general supplies and services as well as business specific mechanical, electrical, health and safety products. For each category, a medium term exclusive agreement was signed with a preferred partner outlining conditions to be proposed to future users.
For the partners this was an opportunity to develop their market share on the small and medium size market segment. The exclusivity agreement was perceived as a real opportunity to consolidate their position on the market.
In practical terms, the local companies subscribe to become members of the purchasing services. They can deal directly with the exclusive partners and benefit right away from favourable conditions. The objective is to propose this service to municipalities and to work closely with their economic development department to offer its added value to small and medium companies.
The first pilots were conclusive. Beyond favourable pricing, the companies that subscribed appreciated the quality of products and services provided. However, the most significant benefits were the time and resource saved by easily and immediately accessing relevant suppliers and products.
The Municipalities are enthusiastic and appreciate this unique contribution to support their own objectives. It is perceived as a positive contribution to Public-Private Partnership, indeed partners can investigate new avenues of collaboration and new opportunities to boost territory attractiveness.
Co-innovation with network equipment suppliers
In the water business, having innovative and simple network equipment is of utmost importance (see table below). This network connects the water production installation, the water transport and distribution network, reservoirs, storage tanks, fire hydrants, and the final users. Assets management and ongoing maintenance is a sensitive customer issue and new functionalities have to be frequently integrated to match customer’s evolving expectation. Achieving standardisation is valuable but demanding and all operations including installations needs to be easy to perform.
Over the years, the relationship between SUEZ and its local network equipment suppliers consisted of discussions on price and volumes. No relevant collaboration on innovation existed across the value chain. The supply market was increasingly dominated by low cost country supplier. This was reducing local production, quality problems were on the rise and environmental impacts were not going in the right direction. Price pressure became exacerbated by inflation and raw materials price. Furthermore there was a lack of exchanges and subsequently alignment between the technology roadmaps across the industry. As concerns started to surge the operator decided to develop co-innovation projects with existing strategic suppliers. The operator wanted to position itself as a lead user that stimulates innovation. Benefits were expected in terms of performance and cost across the value chain.
The first project was investigating composite water surface box and the second one stainless steel connection collar for water network. Both started with a joint assessment of new ideas with the partner. The significance of the market opportunity and the technological compatibility with the industry were assessed. This included defining the product functionalities and the expected performance. Then some assumptions about the market potential and the target price could be developed. Cross-functional project teams were designed gathering all technical, operational and business needed skills from both sides. The partners signed with SUEZ Letters of Intent that included joint development goals and the IP. In the following step the project team integrated some of the supplier’s engineers to develop a proof of concept based on value analysis and validations to be carried out during the design phase. After, long term contracts including commercial agreements specifying value sharing rules were signed with both suppliers. The team could then move to product design, industrialisation, qualification and deployment. Toll gates reviews allowed managing effectively the development.
As the raw material price appeared as a key issue for the supplier involved in these projects but also for other network equipment providers, SUEZ decides now to look further in its ecosystem and to extend its network of strategic partners to tier 2 polymers producers. The focus was to qualify innovative polymers for water applications to be used by the suppliers to bring significant cost and performance benefits.
The two Co-Innovation projects were a success. They allowed all partners to meet their goals in terms of cost optimisation and innovation. Investing in such projects offers SUEZ with productivity gains and increased expertise. On the societal side, the project delivered improvement in terms of environmental footprint and the development of local employment. Co-innovation with a local partner is a strong tool to develop local competitiveness. In these cases, one of the projects helped maintain employment in the country and in the other case it allowed to bring back production in the country.
About the Authors
Hervé Legenvre is Professor and Global Executive MBA Director at the EIPM, a Training Institute for Purchasing and Supply Management. He manages educational programmes for global clients, conducts researches and teaches in the fields of innovation, and sustainability across the value chain. Hervé holds a PhD from Université Paris Sud.
Francois Bacalou started to work with Suez in 2002 in the role of Chief Procurement Officer for Lyonnaise des Eaux. He joined Suez Australia as Chief Procurement Officer in September 2014. Prior to this, Francois held roles in operations, finance and sourcing with Motorola Electronic Group in France, UK and USA. Francois holds an engineering degree in electronics and an MBA from Purdue University (USA)
Hugues Schmitz has worked within the utility industry over the past 20 years in several procurement and logistics functions. He joined Suez Water France in 2007 as procurement manager and then as Chief Procurement Officer since September 2014. Hugues holds an international business degree and an MBA from EIPM (France)