towerswatson.com Finding the Flow Maynilad Water Services, Inc. Completes a Total Transformation

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1 towerswatson.com Finding the Flow Maynilad Water Services, Inc. Completes a Total Transformation

2 Finding the Flow Maynilad Water Services, Inc. Completes a Total Transformation By Maureen Minehan About Maynilad Water and wastewater firm based in Manila, Philippines Established in 1997 with the privatization of water services in Metro Manila Metro Pacific Investments Corporation and DMCI Holdings, Inc. assumed ownership in ,203 employees as of revenue: US$323 million The organizational transformation of Maynilad Water Services, Inc. did more than just improve the company s financial performance. It changed the lives of millions of people. Today the Manila-based supplier of water and wastewater services is fulfilling its mission to provide safe, affordable and sustainable water solutions that help its customers lead healthier and more comfortable lives. This wasn t always the case. Five years ago, when the consortium of Metro Pacific Investments Corporation (MPIC) and DMCI Holdings (DMCI) purchased the company, Maynilad s situation was very different. When we took over, we found that in many parts of Metro Manila, people were paying high fees for unsafe water if they were getting water at all, says Herbert M. Consunji, Maynilad s chief operating officer. Because of leaky pipes and other infrastructure problems, we were losing 67% of our treated water before it even reached our customers. Even subdivisions just blocks away from our water reservoirs weren t getting adequate service. The company also carried significant debt. Under the terms of its ownership agreement, the consortium assumed responsibility for Maynilad s US$240 million debt, which had to be satisfied by Today, Maynilad has been transformed. Nineteen out of 20 of its reservoirs are operational, compared to just nine when the new owners took over. Its previous debt has been fully settled, years in advance of the deadline. And, most important, customers across Metro Manila now have access to clean, reliable and affordable water. We recently connected our one-millionth water service account. It belonged to a single mother with three children. Before connecting to Maynilad, her only source of water was a shallow well from which she fetched water every day. Today, she has access to potable water right in her home. We are so proud of this customer s case because it brings the transformation work to life, Consunji says. 2 towerswatson.com

3 New business strategy Getting to this point required enormous change within Maynilad. Maynilad had been a government entity for more than 100 years before it was privatized, and the organization s culture still reflected that history. Employee performance hadn t been properly managed, and there was a high degree of nepotism regarding staffing. Employees didn t have the right mix of skills, and there was a serious shortage of engineers in the workforce, explains Roy Evalle, Maynilad s senior vice president for corporate human capital and organizational development during the transformation project. Evalle had worked with Towers Watson while at another company and was familiar with its capabilities, so Maynilad leaders brought in Towers Watson to help structure and guide the necessary changes. The first step was for the new leadership to gain a better understanding of Maynilad s business operations. We reviewed how everything works, including people, processes and systems, says Evalle. We knew Towers Watson had the resources and research expertise we needed to make those assessments, and that they would help us develop and implement a new framework that could transform our company. Project goals Evalle says the company went into the project with several primary objectives. First, we needed to streamline the company from top to bottom. We needed to evaluate jobs and eliminate redundancies. And we needed to assign value to individual roles and shift many into more appropriate job grades. Caption to go here Strategy at Work 3

4 (Left to right) Herbert M. Consunji, Maynilad s chief operating officer; James Matti, managing consultant, Towers Watson; Stella Garcia, senior Towers Watson consultant; Roy Evalle, former Maynilad senior vice president for corporate human capital and organizational development; and Mitchie Arcaina, head, organizational development, Maynilad Second, we wanted the company to become a meritocracy. To make that possible, it was essential to restructure not only the job architecture and salaries but also our performance management system. Third, Maynilad wanted to be leaner and more agile. Executing our new business strategy would require responding to challenges more quickly and easily than in the past. To do that, we d need to reduce the size of our workforce, Evalle explains. Upgrading the quality of the workforce became a fourth goal. We had to develop a deeper bench of talent and diversify our workforce. The high degree of nepotism in the past meant that many employees came from the same areas, and we were missing out on the advantages that come with a more heterogeneous mix of employees, Evalle says. Finally, Maynilad s leaders wanted to instill a sense of pride and national leadership in the workforce. We feel we owe the country something, says Evalle. If we re going to be the main source of water for our region s citizens, we feel that calls for a culture of service leadership. Organizational review The Towers Watson team started the project with a comprehensive review of the organization. We conducted interviews with senior executive team members to explore what they thought the company should look like in the future, explains Stella Garcia, senior Towers Watson consultant. We looked at all aspects of Maynilad s operations: We went to the water reservoir, the water filtration site and various business centers. We even observed how customers queue to pay their bills. 4 towerswatson.com

5 Lessons Learned Organizations looking to transform themselves can learn the following lessons from Maynilad s experience: Involve senior management from the start. Transformation isn t just an HR issue. Change management is everyone s responsibility. Involving senior leaders from the beginning makes a statement that they re accountable. Commit to transparency. When people believe leadership is being straightforward, they ll be less resistant even if they don t like the changes. Letting more than 700 employees go was very difficult for Maynilad, but they did it in a sensitive, transparent way, and that made it easier for people to accept. View transformation as a continuous process. What s appropriate for a company today might not be tomorrow as it grows or shifts its business strategy. Periodic assessments help ensure workers remain aligned with business priorities. For example, Maynilad closely tracked its cadet program and modified it to meet the needs of its engineers. Benchmark. Don t just follow the pack or do things in a vacuum. Companies should check out what s going on within their industries and at companies outside their industries that might attract their critical talent. Use an experienced consultant. It helps to have an experienced, neutral advisor involved. This lends credibility to recommendations and makes it easier for executives to give and receive feedback on necessary changes. This review engaged executives throughout the organization to support and build enthusiasm for the transformation. By giving senior executives a voice through interviews, focus groups and workshops, we were able to overcome a lot of resistance, Garcia says. At the same time, Towers Watson collected data on practices at other companies in Maynilad s target-market group for comparisons and showed Maynilad s leaders a video describing the transformation of another company in the region. It really resonated, continues Garcia. Everyone became excited about the potential for change. To provide a range of benchmarks, the consulting team pulled information on high-performing companies from the Towers Watson database. To bring in new skill sets and expertise, we recruit more extensively now from beyond the water industry, explains Evalle. We wanted to get a sense of the pay scales in other utilities, the banking industry and other industries from which we might hire. Having information about the best practices of our direct competitors and other companies that are performing well was very helpful as we tried to standardize our compensation. The organizational review revealed plenty of room for improvement, says Garcia. Maynilad was the product of government service privatization, and a majority of its employees came from the bureaucracy. That history was reflected in the company s earlier practices, she explains. Because rewards were based on tenure, not performance, employees had little incentive to regularly upgrade their skills or to innovate. It was also difficult to move with any speed, because speed had never before been required or rewarded a big problem given Maynilad s need to act quickly to improve service and pay down its debt. Strategy at Work 5

6 Maynilad chief operating officer Herbert M. Consunji (left) with Towers Watson managing consultant James Matti at Maynilad s Manila headquarters Mapping a strategy After collecting and analyzing the internal and external data, the Towers Watson team worked with Maynilad s leaders to create a new organizational structure that streamlined the workforce and aligned it with business priorities. They also developed a total rewards strategy that rewarded performance, not tenure. We helped Maynilad group all roles according to the new structure, look at the overall picture and then make changes to ensure roles were aligned with business strategies. It s now much clearer what employees are responsible for, Garcia says. Evalle says Towers Watson s neutrality made it easier to map the new structure. Coming from an outside organization, the consultants had no agenda other than setting us up for better performance, so their recommendations carried credibility. Going lean With the new organizational map in place, Maynilad next had to make some tough decisions about staffing. We helped the company with a voluntary separation program aimed at reducing redundancies and increasing efficiency, says Garcia. We reviewed voluntary separation programs in the market and designed an early retirement program that would work for the company. We presented a cost analysis and also made recommendations for a communication program that would help make the retrenchment go as smoothly as possible, Garcia says. The Towers Watson team gave us a very good framework for reorganizing and reengineering the company. And we were able to manage the changes in a way that allowed us to foster very healthy relationships with our supervisory and rank-and-file unions, Evalle says. 6 towerswatson.com

7 Revising rewards Towers Watson also helped shape Maynilad s total rewards strategy. We started by surveying Maynilad s executives to understand where they wanted to position the company in the market in terms of people and rewards, the career paths they envisioned for key talent and so on. We combined this information with data from the Towers Watson database of best reward practices and presented it to Maynilad s leaders. We helped them articulate a new reward philosophy and strategy that now serve as the basis for any HR interventions, Garcia says. Management has also matured, Evalle says. By articulating a clear strategy and developing a lean, logical organizational structure, we made it easier for executives and managers to make decisions and feel a sense of ownership in the company s performance. Towers Watson was a very significant part of the process, Consunji says. We asked the consultants to be hands on and transparent, and they were. They helped us figure out when we weren t on the right track, and used their research and expertise to set us on the right one. The results Five years after the consortium took over, Maynilad is in much better condition. It prepaid its US$240 million in debt, engineered an early exit from courtadministered rehabilitation and embarked on a US$690 million capital expenditure program. The best news: The percentage of its customers with 24-hour water service climbed from 32% five years ago to 84% by the end of 2011, with further growth expected. Herbert M. Consunji, chief operating officer, Maynilad When the new owners took over, Maynilad was operating in an environment of considerable uncertainty. And yet we were able to significantly improve our services, says Consunji. Much of the credit goes to our employees, who performed well despite the financial, regulatory and environmental challenges we faced. Consunji and Evalle agree that the project yielded the transformation sought by the new owners. As Evalle explains, Performance matters to our workforce now, and our employees are engaged. They believe in what they re doing and feel like their contribution counts. You can really see their passion. People are working 24/7 even on Saturdays, Sundays and holidays because they want to. This was unheard of before. When MPIC and DMCI bought the company, people worried that we d slash the workforce and bring in foreign expatriates to replace them, Consunji says. Now we ve shown we believe in Filipino workers and that we ll put in the effort to make the most of their talents. Strategy at Work 7

8 About Towers Watson Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Copyright 2012 Towers Watson. All rights reserved. NA towerswatson.com