Closing the Capability Gap: Strategic Planning in Infrastructure Sectors Hagen Worch & Jochen Markard PDW - Infrastructure Meets Business AOM 2009, August 7, Chicago

Infrastructure Sectors Provide services of fundamental societal importance  High political attention  high degree of regulation  multiple objectives  public utilities / providers Based on complex physical assets / networks  Capital intensity  natural monopoly  regulation  Capital durability  long payback periods  inertia Challenges –Massive investment needs –Security and quality of supply –Environmental impacts –Liberalization, privatization

Public Utilities Challenges – Small units  inadequate size to exploit economies of scale – Lack of capabilities (  strategic management) – Financial situation of municipalities – Multiple political objectives Suggested solution – Privatization, but... –... not a feasible option for many stakeholders & shareholders –... PPPs with ambiguous results CountryPopulationNo. of WWTP USA~ 300 m~ 16,000 Germany~ 80 m~ 6,000 Switzerland~ 8 m759 plus ~ 3,300 very small plants

Strategic Planning Approach Long time horizons, system character, various regulations Scenario analysis to address the high level of context uncertainty Multiple objectives Discursive and participatory approach: involving relevant stakeholders Systematic assessment of objectives & trade-offs – Economic Performance vs. Environmental concerns vs. Autonomy Inertia & path-dependency Elaborate broad spectrum of strategic options Synthesis Evaluation of the feasible options regarding their suitability to meet the objectives under different scenarios

Case Study Analysis Three WWTP cases differ regarding their objectives Bern –Limited company with 10 muncipalities as shareholders –Management influence on strategic planning: high –Main objective: economic Kloten-Opfikon –Cooperative association between 2 muncipalities –Management influence on strategic planning: medium –Main objective: environmental Dübendorf –Cooperative association between 3 muncipalities –Management influence on strategic planning: low –Main objective: autonomy

Dimensions of Strategic Decision Making Vertical Integration Optimization New Business Fields Geographic Growth Treatment plant Treatment plant & sewer network All wastewater related services Structure Process Utilization of by- products Communal satellite plants Non- communal satellite plants Multi-utility services Within the region of activity Outside the region of activity

Case Study Results Vertical Integration Optimization New Business Fields Geographic Growth Treatment plant Treatment plant & sewer network All wastewater related services Structure Process Utilization of by- products Communal satellite plants Non- communal satellite plants Multi-utility services Within the region of activity Outside the region of activity Bern B B B B B

Case Study Results Vertical Integration Optimization New Business Fields Geographic Growth Treatment plant Treatment plant & sewer network All wastewater related services Structure Process Utilization of by- products Communal satellite plants Non- communal satellite plants Multi-utility services Within the region of activity Outside the region of activity Kloten-Opfikon K K K K K K

Case Study Results Vertical Integration Optimization New Business Fields Geographic Growth Treatment plant Treatment plant & sewer network All wastewater related services Structure Process Utilization of by- products Communal satellite plants Non- communal satellite plants Multi-utility services Within the region of activity Outside the region of activity Dübendorf D D D D D D

Case Study Results Vertical Integration Optimization New Business Fields Geographic Growth B B B B B Vertical Integration Optimization New Business Fields Geographic Growth Vertical Integration Optimization New Business Fields Geographic Growth D D D D D D K K K K K K Bern Kloten-Opfikon Dübendorf Main objective: Economic Main objective: Environmental Main objective: Autonomy

Overall Results and Conclusions Strategic planning in public utilities Dealing with high uncertainty in utility sectors Developing and extending strategies …  Capacity building –Extending the organizational capabilities & skills (professionalization) –Moving toward higher efficiency of service provision … according to the objectives of the utilities & stakeholders  Specific patterns of change emerge - Improving Performance of Public Infrastructure Services - Patterns of Change Contingent on Objectives