A recent issue of the Economist featured an article titled "The Plague Year: The Year When Everything Changed" (subscription required).
Few will be surprised by this title. However, aside from the COVID-19 reflections, the article provides insights about lessons learned from several events from the early part of the last century. The article explains, "The horrors of the first world war and the ‘Spanish Flu’ were followed by the Roaring Twenties, which can be characterized by risk-taking social, industrial and artistic novelty."
In the U.S., Warren Harding built his 2020 campaign around "normalcy." What unfolded was not a return to normal. According to the Economist, the survivors of the Spanish Flu and the first world war left survivors with "an appetite to live the 1920s at speed."
While making predictions for 2021 would be a fool’s errand, I am willing to place a bet that our view of water, including the more traditional view of the water sector — think utilities, solutions providers, NGOs — will not return to normal. And, frankly, we shouldn’t go back. The water sector from a technology, business model and funding perspective will be transformed, driven by lessons learned from the pandemic but also due to the natural rhythm of "creative destruction."
2021 and creative destruction
I believe this is the year where creative destruction will transform the water sector and our view of water.
In the early 20th century, economist Joseph Schumpeter described the dynamic pattern in which innovative entrepreneurs unseat established firms through a process he called "creative destruction."
According to Schumpeter, and discussed in detail in "The Prophet of Innovation: Joseph Schumpeter and Creative Destruction," the entrepreneur not only creates invention but also creates competition from a new commodity, new technology, new source of supply and a new type of organization. The entrepreneur creates competition, "which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives." This innovation propels the economy with "gales of creative destruction," which "incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."
Schumpeter’s view of creative destruction was applied to the emerging trend of sustainability in 1999 by Stuart L. Hart and Mark B. Milstein in their article, "Global Sustainability and the Creative Destruction of Industries." This is the article that got me curious about the cycles of creative destruction and its relevance to the water sector.
For me, the key point from Hart and Milstein is that with technological innovation there is a dramatic transformation in institutions and society. The technology innovation — and, in turn transformation in institutions and in society — create profound challenges to incumbent businesses. Historically, these incumbents (the installed base) "have not been successful in building the capabilities needed to secure a position in the new competitive landscape."
One additional point about disruption, a term used frequently without distinction from innovation. Disruptive innovation "describes a process whereby a smaller company with fewer resources is able to successfully challenge the incumbent business." Innovative companies disrupt incumbents by successfully gaining a foothold by delivering functionality frequently at a lower price while incumbents chase higher profitability in more demanding segments and tend not to respond effectively.
Advancing the water sector with disruptive innovation
What does creative destruction and disruptive innovation mean for the water sector? I believe it will, in general, be the democratization of water. It will be an "end run" around the public sector, infrastructure and traditional financing of innovations to deliver universal and equitable access to safe drinking water, sanitation and hygiene.
The creative destruction of water will include real-time and actionable information on water quantity and quality and increased access to capital to scale innovative solutions.
A few examples of disruptive innovations we might anticipate for 2021 and this decade include:
- Digital technologies such as earth observation systems (satellite data analytics) for real-time water quality and quantity evaluations for watersheds, source water and asset management; real-time water quality monitoring at the tap; and artificial intelligence, inexpensive sensors and virtual reality/augmented reality applications to improve the management of utility and industrial assets and resource use
- Innovative business models and financing such as water as a service for outsourcing water conservation and treatment; or crowdfunding startups, projects and programs to supplement or serve as an alternative to traditional sources of investment capital
- Democratizing access to safe drinking water such as air moisture capture
- Decentralizing water treatment and reuse systems at the residential and community scale
The water sector is poised to undergo a "gale of creative destruction" to a large degree by the pandemic. The accelerated transition to using digital technologies is also an enabling tool, in addition to providing readily accessible actionable information to the general population. I believe we are now entering the Roaring '20s for water.