How A Utility Dared To Work With A Startup

(Image credit: American Water)

A large utility and tech startup couldn’t be more different, to the point of being opposites, yet American Water dared not only to work with Smart Earth Technologies (“SET”), but eventually entrust it with collecting and aggregating meter data used to collect its $3 billion in revenues.

“It was our first major engagement with a startup, and it was big,” said Paul Gagliardo, Innovation Manager at American Water, which operates as a regulated utility in 16 states.

“For a good while, the first reactions I got internally were ‘that’s never been done before.’”

“I started telling people to just assume that what I wanted to discuss with them was something we’d not done before, because that was my job.”

What Gagliardo was socializing was a response to a business need, not an innovation project, per se. He’d been seated next to the supply chain group when he started work as the innovation manager in 2009, and overheard them talking about spending $50 million per year on water meters, purchased from mostly a single vendor. The product used proprietary software, so there was little opportunity to look for competitive bids from the four or so other manufacturers (each of which had between 12-20% of the market).

“I thought if we had a universal translator, we could read everyone’s meters,” he remembered. “But none of the meter makers were interested.”

As the procurement team approached the next meter purchase cycle, Gagliardo went out to the innovation marketplace and said, “OK, if you’ve got a solution to my problem, you have an opportunity to process the data for American Water’s 3.5 million meters.

He talked to a number of startups before finding SET, a 7-person company in Atlanta that proposed a middleware solution that would collect, normalize, and aggregate data from all meters via the cloud, and then feed it back to American Water for billing. Then, he worked with procurement on the RFP, so it would leave the opportunity open for an unsolicited proposal in addition to meeting the core meter specifications.

Gagliardo stepped back and had no involvement in the review process, so that the Meter Team could independently analyze the proposals and made recommendations. Prices were about 17% lower than the previous contract, and the proposal that included the SET solution won the contract.

The next innovation challenge was structural.

The company was in the middle of implementing new SAP enterprise management and customer information systems, and the policy was to not meddle with IT until it was completed. There was also fear, and not without cause, that the swap-out of the system’s meter data management platform could be befouled by the involvement of a startup with no revenue.

“It wasn’t on anybody’s agenda, or reflected in their annual plans, so it was hard to carve out the resources necessary to get it done,” Gagliardo said, noting that the Meter Team and the Innovation Team did endless simulations and analyses as part of their incessant evangelizing.

“There were more than a few big meetings when it just about died, but it always came down to the strength of the value proposition for our customers, and the ability to set strategic off-ramps to cancel the project if necessary.”

After running both new and existing meters with the SET system in a parallel test mode, American Water went live with the solution for the first district in May of 2012. By the end of October, the entire enterprise was on the new system, and it worked well that now it’s an accepted standard, “that everyone complains about,” according to Gagliardo.

Subsequently, Gagliardo formed a team of “innovationeers” to make the innovation process more organized, and ensure that SMEs in the business units are involved. They’re looking at some very interesting ideas, like an ultrasonic algae-killer from the Netherlands, and a small handheld, self-calibrating lab device that analyzes over 20 common water parameters in less than 5 minutes from a company here in the United States. They’re also looking further into the future, at such technologies as new membranes, pipe-fixing drones, even using water as a communications medium.

The company just hosted its 4th internal symposia on innovative ideas.

“Now, we’re looking for innovation projects that can be implemented by the various business units both on the regulated and market-based sides of the company. We want everyone to be an iInnovation champion and drive change in the organization that drives value for our customers,” Gagliardo added.