19 June 2020

Reflections on my first year
By Sarah McMath, CEO, MOSL

In the 25-years I have worked in the water industry, I have always focused on customer outcomes. That is easy to do when your job is to deliver clean, safe drinking water to millions of customers, or to take their wastewater away and dispose of it safely to the environment. When I made the move last year from Thames Water to MOSL, the market operator for the non-household water market in England, the relationship with customer was harder to grasp.

Here are some of my observations as I look back on my first year at MOSL and as I look to the future.

MOSL as a company

I joined MOSL in June 2019, at a time when the company had been through significant change. The team had recently moved offices from central London to Southampton; had been under the leadership of three CEOs and, by August 2019, had seen a turnover of nearly 90 per cent of staff. Coupled with these internal challenges, the market was not delivering the outcomes expected prior to market opening in April 2017.

Although MOSL had continued to deliver its core services to members during these challenging times, the organisation did not have the trust and support of all of its members (the trading parties). There was a need to demonstrate that MOSL was an effective and efficient market operator and that it would deliver on its commitments to the market. At that point MOSL was only just over two years old and was finding its feet as a new business at the same time as the market was developing. One consequence of this was that there had been insufficient focus on core internal processes and policies. MOSL was working at pace in a new market, but without a clear foundation to support it.

This presented me with a great opportunity to build the company into a ‘learning organisation’. We have strengthened our internal processes, including our financial resilience, risk management, people, business planning and audit and compliance performance. This has enabled us to be clear and transparent on our performance as a market operator.

Whilst losing so many of the original team brought its challenges, this has allowed us to recruit new people with the skills and capabilities required for an enduring market operator – balanced with the skills and experience of those few team members who had been with MOSL since market opening. One year on and we have a strong and diverse team, with a high level of engagement, who are committed to advancing this market to unlock value and choice for customers. A strong focus on collaborative working, and personal well-being also put us in a strong position to cope with the challenges of Covid19.

Expectations versus reality

Ofwat’s State of the Market report 2018-19, which was published shortly after I joined MOSL, highlighted many of the ongoing market frictions that were impeding the development of an effective market. Most notably, poor wholesaler performance, inaccurate data quality and ineffective wholesaler-retailer interactions.

These issues were not a surprise to those operating in the market, but what wasn’t clear was who was responsible for resolving them. I set out to understand these issues and what the team in MOSL and our stakeholders saw as our role in addressing them as the market operator. This included some serious miles across the country, talking to trading parties and key stakeholders in both England and Scotland. Each person I spoke to had a different view on MOSL’s role and purpose. There was no singular articulation either within the MOSL team or across our stakeholders, of what MOSL’s role was or should be.

What was clear, however, was that the intent to show a ‘level playing field’ had led to a ‘one size fits all’ approach which is not conducive to a diverse and competitive market. Wholesalers can range from the likes of United Utilities, serving approximately 300,000 business customers to a small NAV serving just a handful of business customers and similarly retailers range from large companies with years of experience in water through to new entrants with a handful of customers

. It was clear that in order to better operate the market, we needed to better understand it.

At our annual CEO Forum in November 2019, we asked attendees to consider whether MOSL should be a ‘transactional’ or an ‘intelligent’ market operator. We also outlined our ambitions for MOSL to improve the market through greater collaboration with trading parties – engaging with trading parties in a way which works for them.

These discussions, as well as the business planning process we undertook, enabled us to build a bottom up, evidence-based business plan for 2020/21, responding to trading parties’ challenges on the transparency of delivery. This also acted as a reset for us to acknowledge our previous shortcomings and to move forward an a stronger footing, through greater engagement with the market.

The role of the market codes

I noted early on that there were self-imposed barriers within MOSL which were preventing the market working for customers. When I asked the question, "why are we doing this?" I would often be met with the response "because it’s in the codes". As a young market, I believe we need to start with the question “what is the right outcome for customers?" and if the codes don’t support this outcome…we ask, "how do we change the codes?" This approach extends to how we report the relative performance of trading parties. As market operator, we should not just report on performance, but understand why trading parties are performing at that level, and asking what is the impact of that performance on the service customers receive? We need to "be more toddler", constantly asking "why, why, why?" in an effort to drive the best, most informed outcomes.

The code Panel has a key role to play in the effective governance of the market. One of the frustrations of many of the people I spoke to was that the delivery of change is too slow and has not had adequate focus in the past on driving better outcomes for customers. To date, changes to the codes have often been applied through a ‘piecemeal’ approach, with one person describing the current process as ‘tinkering’.

I have been heartened that throughout the pandemic we have seen great examples of the market coming together to drive urgent code changes through collaboration between MOSL, Ofwat, the Panel and trading parties. As we develop our vision and strategy to inform our three-year business plan, we will be working with the Panel and with Ofwat to adopt a slicker, more strategic approach to change in the future.

Open and honest conversations

However, improving and simplifying the market is much more than just reducing the complexity of the market codes. It requires an end-to-end review of how the market is structured to enable success. In the run up to market opening, a number of key decisions were made which, three years in, I strongly believe we need to challenge as a sector. We need to have open and honest conversations about what is working and what isn’t.

We also need to address the issue of trust - or lack of it - in the market. This has led to some challenging conversations for us as an organisation, but we are now openly discussing the trust issue with trading parties and with panel members - which will lead to more collaborative problem solving for the benefit of business customers.

Since the autumn, we have focused on understanding the three years of consumption and customer segmentation data in our central market system. This has highlighted that around 46 per cent of business customers consume less than 100 litres per day - significantly less than the average domestic customer. A further 34 per cent consume between 100-1000 litres per day. This means that around 80 per cent of customers consume a similar volume of water to households, and they largely use that water for domestic purposes. Overall these sub-1000 litres per day customers consume less than 10 per cent of the total water consumed by business customers. One thing we need to challenge is that the bills for all these customers, ranging from a scout hut using 70 litres of water a week to a large brewery using 2,500,000 litres a day, are all settled over five settlement runs over a 18 month period.

By adopting a ‘one size fits all approach’ to customers, we limit our ability to identify the value in the market and how this translates to better outcomes for all customers - be that how their bills are settled or, importantly, how they engage on water efficiency messaging.

Improving the quality of the data, and gaining insight from it, unlocks opportunities for us to understand how, when, why and where business customers are using water - enabling us to operate and evolve a fair and simple market that provides choice and value to customers.

MOSL’s strategy

In May this year we started a strategy review, looking to define our purpose, vision and strategy - where we want to be in three years’ time, both as an organisation, and as a market operator, and how we are going to get there.

There is a need, three years after it opened, to ‘reset’ the market. In the current environment, this is needed now more than ever. We must emerge from the current situation on stronger footing, with a market that is ‘easier to do business’ in, and better setup to deliver for its customers.

I’m proud that my team has continued to deliver on our promises and to collaborate with each other and the market during this pandemic, adapting well to a new, remote working environment. I am taking this opportunity to review our ways of working to explore greater flexibility in our enduring working practices, enabling greater efficiency and effectiveness in our service delivery. This includes how we communicate with our stakeholders, increasingly through virtual channels, which will allow us to reach more of our stakeholders and make it easier for members to access our services.

The challenge I presented to my team earlier this year, and one that I to extend to the market, is to ensure we are all striving towards a collective goal – of providing better value and choice for customers. MOSL has a central role in this as the market operator, but it is essential that we utilise the collective voices of the industry to reach this collective goal.

To understand more about the key themes of MOSL’s 2020/21 Business Plan and how this is informing our work, the full document is available on MOSL’s News & Views page.


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