Ofwat Chief Executive Rachel Fletcher has questioned whether the water companies’ view that that they have customers at the heart of their business is a reality, not a vision.

Speaking at the Future of Utilities conference in London last week, Fletcher told delegates:

"When the words “customer-focused” are used, the reaction from companies is usually to declare that they do have customers at the heart. The implication is that this is not a vision, it is already a reality. Today, I’m going to challenge that assertion.”

Referring to the “relatively narrow transactional relationship” that water companies have with their customers, the Ofwat CEO said for a water company to be truly customer-focused, the emphasis on the customer must permeate the entire business and go beyond the work of the customer service team.

“This might mean, having an asset management strategy which is not driven by what good looks like from an engineering perspective, but which is focused on reducing the impact that bursts, leakage or sewer flooding has on customers, while keeping costs as low as possible.” she added.

Customer-centric thinking was emerging she continued, which required companies to have a culture which did not simply focus on “complying with regulations” but where the company took full ownership of the challenge of meeting their customers’ current and future needs.

However, performance failures such as major pollution incidents and the poor planning and response to the Beast from the East from some companies suggested “we haven’t yet imbued a customer focus in every single part of the sector’s operations.”

Referring to the new customer experience incentive, C-Mex, Fletcher told her audience that companies who do well in PR19 would be those that go beyond thinking about customer service and complaints handling and consider how every aspect of their service impacts their customers.

Research which the companies themselves had carried out reveals that people expect their water company also to add value to their local community and improve the environment - a “social contract” which is much more multifaceted than a commercial relationship. From providers of a vital service like water, people “also expect “gold standard” corporate behaviours – whether that relates to tax, dividend policies or executive pay”.

In her view, Labour’s call for renationalisation of the water sector meant that companies were beginning to take these wider expectations seriously. However, she warned that the need to live up to this should not be seen as a temporary reaction to a political threat, it should be seen as “the new normal” for any customer focused business.

Ofwat "can get in the way - our incentives can drive the wrong behaviours"

The Ofwat Chief Executive ended her presentation by flagging up some of the challenges the regulator faced, saying

“A fundamental question we ask ourselves as a regulator is how to get water companies to take ownership for meeting customer’s needs and expectations.”

“We can get in the way. Our incentives can drive the wrong behaviours. And even if they don’t, we need to avoid focusing companies on what Ofwat wants rather than their customers’ needs.”

She went on to ask whether Ofwat could rely even more on companies’ engagement with customers to set performance commitments and incentives, with Ofwat taking a more back seat role in future reviews.

Looking beyond the current price review and into the next decade, Ofwat had started work on a new Vision for the water sector, she said, in parallel with building a new strategy for Ofwat.

“In the same way that we expect water companies to constantly challenge themselves, we do not assume that the approaches we are using now will be enough to drive the significant change in the water sector that is required.”