There is significant motivation for the water industry to get its plans for Asset Management Period 8 (AMP8) right, not just because Government and the regulator, OfWat, is watching its every move.
Many of the providers are announcing eye-watering investment rounds. United Utilities announced a periodic indicative notice (PIN) seeking partners to deliver a programme worth approximately £7bn, while Thames Water has suggested it is planning to invest £16bn over the AMP8 period from 2025 to 2030.
Compared to AMP7 finishing in March 2025 where utilities companies are spending £51bn, imperatives to modernise infrastructure, reduce sewage spillages and carbon emissions will make AMP8 an even bigger investment cycle. John Russell, senior director, Ofwat summed it up: “There is no way around this…What the sector is looking to achieve, and at the pace we need, will need two to three times more investment.”
However, is spending more the right answer? Surely the priority is how and where the investment is focused? At Rimini Street we believe the motto for AMP8 should not just be spend more but spend wisely on projects with a high-level of return-on-investment.
Digital transformation is key to modernisation
Digital transformation will play a critical role in helping to modernise the water utility sector. By one estimate, total global spend on digital water technologies and services will reach $55.2 billion in 2030 and in its PIN Southern Water stipulates that contractor partners will be required to support its smart digital network, which includes over 23,000 sensors in its sewer network. Access to the vast amounts of data in these sensors and other areas of the water utility network will enable Southern Water to become more productive and proactive in the maintenance of its infrastructure, as well as delivering more effective services to consumers. This should be the goal for every utility.
To achieve this aim, the utilities will have to modernise their IT infrastructures. Many face challenges around legacy enterprise applications built on SAP and Oracle, which has created data silos making it difficult to achieve a single integrated view of all the data across the organisation. Without this clear view of all the data, the water utilities will be making decisions based on a half-baked view of business and operational performance.
Beware of hidden costs
If you listen to the vendors, their solution is to upgrade to the cloud-based equivalent of these applications. Indeed, they are so keen to encourage users to move they are switching off full support for existing applications, such as SAP ECC6. By 2027 (or 2030 for those who opt for the maintenance extension), SAP customers who have in-house enterprise resource planning (ERP) systems will likely have to decide whether they can afford to support these applications themselves or move to the cloud where SAP will support these systems. ERP applications can be mission-critical to many enterprises running HR, finance and supply chain processes. No CEO would risk having no support for these processes so it would be understandable if AMP8 saw utility companies considering the upgrade to the cloud.
However, this a classic instance of knowing when to spend wisely based on a solid ROI. At Rimini Street, we would argue you don’t have to switch to the cloud in line with the vendor’s timetable. You can optimise existing systems, save money and redirect resources to IT innovation. This will help make a much bigger difference to the Digital Strategy for AMP8.
Moving to the cloud is not a straight forward exercise. SAP customers will have to embark on a highly disruptive change management programme, that will see them moving from highly customised processes that are stable to standard SAP processes in the cloud that are unlikely to be tailored to the user’s specific utility industry requirements. The vendors argue that having standard processes simplifies operational and business processes, yet there is no CEO in the world that would say their business is exactly the same as that of its competitors. Furthermore, moving to standardised processes, is a complex, expensive, time consuming and potentially risky project which could severely impact day to day work of the end user.
Once in the cloud Utilities will still have to provide support around their ERP systems. While the vendor will support the business applications, they will not ensure the operating system, the middleware layer and any other applications integrate with their systems unless the customer keeps up with their regular upgrade cycles. As a utility, when you have many digital projects underway, can you now manage the regular updates to systems which are potentially happening every month or will you have to increase your support costs by using more and more outsourcing of support?
Just as challenging is having the right skills for cloud-based applications. The competition for such talent is immense and unless the utilities can pay attractive rates it will be challenging to hire the right people. In EMEA IT Buyers Survey that Rimini Street sponsored this year, 59% said they were struggling to find senior IT managers and 60% said they would hire candidates with less experience and skills, but are willing to learn.
Choose wisely to achieve profitability and growth
Added to these headaches, the application vendors like SAP are making it even more explicit that they will only deliver innovation for the cloud-based versions of their applications. In its most recent financial results call, SAP said users would only be able to access innovations with SAP S/4HANA Cloud, public edition or SAP S/4HANA Cloud, private edition delivered by GROW with SAP or RISE with SAP.
This limits the choice available to enterprise users. They should be able to choose the innovation path that best suits their organisation, not the one that the vendor would like them to adopt.
At Rimini Street, we believe you can spend wisely to achieve profitability and growth. This is possible with a combination of IT optimisation and IT innovation. IT optimisation requires a utility company to carefully assess its existing IT systems to see where best to invest. If an ERP application is stable and tailored to the needs of the organisation does it make sense to upgrade it when there’s no business case, and little or no ROI? The only justification appears to be the vendor forcing you to upgrade to maintain full support. Will moving to the cloud version of an HR system give a company as much competitive advantage as investing in data analytics to assess all the data emerging from digital assets? IT optimisation also enables utilities to avoid technical debt from older systems. It can create the foundations to enable innovation at the edge. If utility companies have optimised enterprise applications at the core of the IT infrastructure they will be able to integrate specialist applications and tools that will help gain competitive advantage.
Utility companies already face significant pressure to make huge investments. Buying more time for decisions around IT systems by focusing on IT optimisation and ROI analysis will enable them to plan a more strategic, targeted approach. Ultimately, we believe IT optimisation combined with IT innovation will provide utilities with the foundations to spend wisely and ensure their IT investments support their long-term aims for AMP8. Profitability and growth are achievable while still demonstrating value and prudence to policy makers, regulators and the public.
