Imagine handing over your organisation’s five-year strategic plan to 35 customers. Imagine paying those customers to debate the plan, reshape it and present it directly to the board. And imagine the board accepting all of the recommendations from this “citizens’ jury” and setting seven strict targets for your organisation to meet based on its findings.
Yarra Valley Water (YVW) did this two years ago. That bold approach encapsulates the transformation of Melbourne’s largest water company during the past 18 years. YVW benchmarks as a top-performing utility for staff engagement, productivity and diversity, and also has a strong commitment to the United Nations Sustainable Development Goals (SDG) and innovative community programs helping victims of domestic violence and financially vulnerable people.
The company’s journey has lessons for all directors. “Collaboration with the community is critically important for us as an organisation,” says Sue O’Connor FAICD, who has chaired YVW since 2015. “No organisation is an island — it operates in a community, an economy and an environment. It’s important for boards to think long and carefully about SDG or whatever mechanism, and which goals you can make the biggest societal impact on.”
The transformation began in 2001, when a new head of people and culture used Human Synergistics’ Organisational Culture Inventory tool to measure and map YVW’s preferred, and actual, cultures. During the next nine years, the company experimented with various programs to close the significant culture gap, moving from competitive, power-based and avoidance behaviours to what managing director Pat McCafferty GAICD describes as “humanistic, constructive, achievement-oriented” behaviours.
“There was no silver bullet. We tried lots of things and some didn’t work,” says McCafferty, who joined YVW in 1995 and has been managing director since 2014. “We started to tailor the best bits from different theories to achieve a culture that was about the right thing to do and making a difference for the community and our customers.”
Crucially, says McCafferty, the board has encouraged management to stay the course, although new directors often ask him, “What’s all this about culture?”
“Then they see how open, transparent and collaborative we are, and they become champions of culture,” says McCafferty. He adds that a 2017 Aon Hewitt Best Employer award with an 83 per cent engagement score from the company’s 600-plus staff was icing on the cake. “For a large, government-owned organisation, that’s pretty remarkable.”
He also notes that in the highly regulated water industry, the state government sets water policy and keeps a close eye on financial, health and environmental issues. “That means the board is trying to get assurance we’re complying with all that,” he says. “That comes down to culture.”
O’Connor, who meets weekly with McCafferty, usually face-to-face, also emphasises the important role of culture. “It’s the ‘secret sauce’ of the organisation,” she says.
“Boards need to be sure they spend enough time thinking about it, that the right resources and systems are being worked on and that the board itself is reflecting the culture it wants the organisation to have.”
This year, for the first time, the YVW board participated in an annual culture review. O’Connor says the key message was: “How do we ensure we use our culture to do all the things we could do, rather than being conservative?
High-performing organisations have to strive for something. If you aim to be the same as last year, you’ll be slightly worse.”
“They see how open, transparent and collaborative we are, and they become champions of culture. For a large, government-owned organisation, that’s pretty remarkable.” Pat McCafferty GAICD
AICD’s five steps for board innovation
- Lift directors’ technology and digital literacy.
- Set clear expectations of management regarding calculated risk-taking to drive innovation.
- Develop a shared language with management, and clear narrative for investors/members on innovation.
- Ensure innovation features regularly on boardroom agendas.
- Establish a budget and executive incentives for long-term innovation.
A wake-up call on innovation report can be found here.
More than a utility provider
YVW is aiming to go “from great to magnificent” during the next four years. Within that context, it makes sense the organisation sees its role as much more than providing water and sewage services to almost two million people and 56,000 businesses across 4000sq km. In 2015, it was the first water utility in Australia, and one of the first in the world, to sign the SDG commitment. “Our people came to me and said, ‘This is the right thing to do,’ so I just did it,” says McCafferty. “I knew the board would support it. The SDGs are all about human health, the health of the planet and a fair and equitable approach for everyone. For us, it was a bit of a no-brainer to commit to them.”
YVW is now well on the way to generating 100 per cent of its own energy by 2025. In 2016, it commissioned a $29m plant to convert food waste to energy, which powers the neighbouring recycled water plant and feeds back into the grid. As well as supplying 25 per cent of the company’s energy requirements, it uses 170 tonnes of organic waste each day that would otherwise go to landfill. A second plant, scheduled to open in 2021, plus solar panels in the car park at head office in Mitcham, in Melbourne’s outer east, will account for another 50 per cent of YVW’s energy needs.
Under the SDG principles, the organisation has also committed to doubling its social value by 2020. In 2017, it launched a domestic violence support program in response to Victoria’s 2015 Royal Commission into Family Violence, which found that providers of essential services have an important role to play. McCafferty asked the board to listen to recordings of several phone calls to YVW’s contact centre, where women were crying and their partners yelling threats to not pay the water bill. “There was not one dry eye,” he recalls, adding that the whole board then attended a training session on family violence.
Other initiatives include the Choose Tap promotional campaign, which urges people to opt for tap water instead of bottled water or sugary drinks. It donated a “fatberg” to Melbourne Museum to highlight how wet wipes combine with oils and fats to create huge sewer system blockages. And YVW organised the Thriving Communities Partnership — with 45 partners and 170 participating organisations from the water, energy, banking and telecommunications industries — to ensure vulnerable people who can’t pay their bills have access to essential services.
Of course, as O’Connor acknowledges, there is a limit to how far YVW applies the SDG principles, keeping in mind its purpose “to provide exemplary water and sanitation services that contribute to the health and wellbeing of current and future generations”. For example, its expertise in bugs and microbes means converting organic food waste into gas makes sense, but converting plastics or paper does not.
“We have lots of conversations about purpose, dealing with multiple stakeholders and collaboration with the community.” Sue O’Connor FAICD
“What does a water utility of the 21st century look like, what is its role, where does it start and finish — this is where the board is making its biggest contribution at the moment,” says O’Connor. “We have lots of conversations about purpose, dealing with multiple stakeholders and collaboration with the community.”
The board has also increased its focus on risk management and how it balances short- and long-term risk. O’Connor says it needs to balance six-month and 100-year timeframes, bearing in mind that recent repair work was on 140-year-old pipes laid because of decisions made in the late-19th century. Other significant challenges include projections of the Melbourne population doubling by 2031; a 30–50 per cent reduction in stream flows during the next 30 years because of climate change; and 50 per cent of customers at times struggling to pay their utilities bills.
The nine-member board is reviewed by an external specialist every two years. The most recent review said the board had great clarity and alignment on YVW’s purpose and strategy, and a constructive approach. The main area for improvement was for some directors to learn more about the water industry and make greater use of their expertise in other industries. “The thing you always worry about in a high-performing organisation is hubris,” says O’Connor. “Holding up a mirror is very important.”
The banking Royal Commission also highlighted another danger. “There’s a real risk around not collaborating fully and authentically with our community,” says O’Connor. “The Millennium Drought [2001–09], when Melbourne decreased its water usage by 30 per cent, reinforced how much the community is prepared to engage with what needs to happen. We need to use the community as a true collaborator.”
Yarra Valley Water took listening to their customers to an unprecedented level.
When preparing for Victoria’s Essential Services Commission’s five-yearly prices review in 2017, Yarra Valley Water gave its draft strategic plan to a “citizens’ jury” of 35 customers, selected from 30,000.
The jury was asked to answer one question: How do we balance price and service in a way that’s fair for all?
Across five Saturdays and one evening, the jury nutted out what they expected (safe drinking water, reliable service, timely response) and what they valued (fair access for all, water conservation, protecting the environment). Two or three directors sat in on every session, but were not allowed to speak unless asked a question.
“On the first Saturday, the facilitators asked the jurors what was on their minds,” says O’Connor, who sat in on three sessions. “Every issue they raised was something we’d discussed as a board, except one — and I realised that was the one the board should discuss. I have great faith that, given the right information and the right processes, a citizens’ jury can be invaluable.”
Within 14 days of the jury presenting its 10 recommendations to the board, eight were accepted in full and YVW went beyond what was recommended for the other two. Seven targets were set to reflect what customers expected and valued.
“We are all-in on those,” says McCafferty, adding each missed target means the company returns $1.5m to its customers in reduced prices.
It met five targets in the first year — factoring in that a hotter, drier year put extra strain on delivering water and sewerage services — and returned $3m in price reductions.
“We step back while jurors set the future of the business,” says McCafferty. “You’re putting your faith in the wisdom of crowds. For us it was the natural next step to really get the juice from community insights.”
How Yarra Valley Water accelerates innovation
Yarra Valley Water chair Sue O’Connor FAICD was interviewed for the landmark AICD study, Driving Innovation: The Boardroom Gap. She emphasises the importance of clarity of purpose, alignment of strategic priorities and culture.
We don’t call it innovation, instead we ask what are the next big steps we need to take to achieve our strategic goals. We do not just focus on technology and digital. It is about re-imagining your business models. We are driven by our purpose. Improving the health and wellbeing of present and future generations drives everything that we do. Our strategic priorities and creating value for communities are the lights on the hill.
The third element is culture, ensuring people understand what their role is and that they are encouraged and have permission to try new things as long as they understand it must relate to the strategic priorities. People need to understand what risks they can take and that it’s OK if not everything works.
We do regular testing of staff on how well they understand the strategy and priorities. In our last survey, 96 per cent were able to say they understood the strategy, priorities and how their role contributed to that.
Items relating to the systems and processes around leadership culture are regular board agenda items at committee and board level. We carve out time in our board agenda — every second meeting — to look at what are the big and small things we need to do.
We use committees for oversight so we have more time in the board for foresight. Also, we spend a lot of time talking to people outside the utilities sector on things outside the industry.
Director development is a big focus. Because this is a different way of thinking, you have to be overt. We visit other organisations and attend conferences. We’ve looked globally for some courses, but not found what we wanted, so we found it better to visit organisations and see what they are doing.
I can’t overestimate the importance of clarity of purpose and strategic priorities, and a constructive culture. If you give staff the skills, direction and support, then magic happens.