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How to use management consultants: McKinsey on the world’s water futures

Published on: 22/02/2010

The recent McKinsey report "Charting our Water Future" should cause the global water community – if such exists – to consider why it was thought necessary to bring self-confessed outsiders in to explain what is going on in our world.

Starting in March 2010 we are launching a new opinion section in Source, featuring regular and guest columnists. The first opinion piece is by former Director General of South Africa's Department of Water Affairs and Forestry (DWAF) Mike Muller.

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Management consultants are rarely popular. Too often, they arrive in an organisation, harvest its information, repackage and present it back, charging substantial fees in the process.

But the consultants usually come because they are invited, often because the management of the organisation concerned is not able to analyse the information, draw coherent conclusions and set out possible plans of action, on its own. The basic facts of a problem may be known but there may be different perspectives or infighting in the organisation. And it may be difficult to synthesise responses to complex problems.

Sometimes though, the consultant's intervention is the result of outside pressures. That is what happened with the recent McKinsey report "Charting our Water Future" [1] which aims to provide an economic framework to inform decision making. And it should cause the global water community – if such exists – to consider why it was thought necessary to bring self-confessed outsiders in to explain what is going on in our world.

McKinsey was invited by a combination of global businesses to tell them what challenges the world is facing over water and what responses are required. They looked at China, India, South Africa and the Brazilian state of Sao Paulo. And they admitted that they were attracted by the opportunity to develop their expertise in a new field.

This raises some awkward questions for water professionals:

  • Why the sudden interest by the captains of industry in our sector?
  • Why did they not ask us in the first place?
  • What were the consultant's conclusions?
  • What can we learn from this exercise?

The answer to the first question is obvious. Climate change and energy challenges are having huge impacts on business so anyone concerned with long term strategic risk has to ask, what is coming next? And after being warned by the water sector for years about impending crises, water is an understandable focus area.

But why not ask us in the first place? It is not for want of talking. There have after all been a range of interactions from heads of state level (at G8 meetings, at the African Union and in other fora) down to more local encounters at country level and below. But perhaps the sector is too fragmented to have a strategic overview of its challenges? Have we been talking a different language? Or did the corporate leaders feel that we are not entirely objective? We do, after all, have an incentive to exaggerate the crisis – how else to increase budgets? – or to tell our principals that it is all under control because we are doing our jobs properly.

McKinsey's conclusions are interesting and, although they should come as no surprise to practitioners, they illustrate why it was necessary to bring in outsiders. Perhaps the most important conclusion is that:

"in many regions, current supply will be inadequate to meet the water requirements. However, as a central thesis, it also shows that meeting all competing demands for water is in fact possible at reasonable cost."

This is not quite the "crisis" message that the sector tends to promote. In fact, it could suggest that policy makers have not been given the right information.

In all four countries, the consultants found that a wide range of measures was available to reconcile water demand and supply. Using a methodology from the energy sector, they outlined how much water could be made available through different interventions and its unit cost. Many of the interventions identified should actually be profitable – reducing municipal water leakage is typical with many other examples where water use efficiency can be improved in agriculture and industry.

But their findings also contain some surprises. In India, they suggest, inter basin transfers would be cheaper than rainwater harvesting! In South Africa, building dams would be cheaper than clearing alien vegetation. The report is worth reading both for its statements of the obvious but also for some of the counter-intuitive conclusions it reaches. The differences between the countries is striking and highlights the fact that water remains a very local matter. There is no single set of prescriptions that are universally applicable.

Another key point is that some of the most attractive interventions are going to be difficult to implement. The report even suggests that:

"... the measures on the cost curve can be classified according to factors influencing their ease of implementation, such as low institutional capacity, policy and cultural barriers, and the high number of stakeholders from whom action would be needed. Solutions that are in principle technically feasible may face one or more of such barriers, which—while not easily quantified in financial terms—are nevertheless very real for those charged with encouraging implementation. Policymakers can use the cost curve to understand the financial trade-offs implied by different levels of commitment to tackle such implementation barriers."

This is an important message to avoid situations in which policy makers opt for cheap measures without realising just how much political work will be involved in implementing them. So while the approach of the McKinsey report is, in many ways simplistic (as the authors themselves admit), it has the advantage of taking a fresh perspective on very familiar problems.

Two overall conclusions stand out:

  • There are no simple global solutions to water problems; rather, we have to work to find local solutions to a myriad complex, messy local problems; and
  • The challenges are not primarily technical. The barriers to the implementation of the most cost-effective measures are not technical but social and political

Neither of these conclusions is dramatically new. But that is the job of management consultants: to state the obvious, with all the authority that comes from charging very high fees.

[1] Addams, L. ... [et al.] (2009). Charting our water future : economic frameworks to inform decision-making. 2030 Water Resources Group, McKinsey & Company. ix, 185 p. Download full report

 

About Mike Muller

Mike Muller was Director General of South Africa's Department of Water Affairs and Forestry (DWAF) from 1998-2005, where he led the development and implementation of new water services and water resources policies, water sharing agreements and cooperation projects with Mozambique, Swaziland and Lesotho. A civil engineer by training, Mike also has extensive experience in general public management. He is currently a Visiting Adjunct Professor at the School of Public and Development Management at the University of Witwatersrand, Johannesburg, and a member of the Global Water Partnership's Technical Committee.

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