Why 'creative destruction' could be a positive shift for the water industry

Having participated as a judge in the UpLink Global Freshwater Challenge in late 2022, I was struck by how the innovative water technology companies in the cohort contributed to the 'creative destruction' of the water sector. Read on to find out why this is a positive action.

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 his book 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, a 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, destroying the old one, incessantly creating a new one."

We need entrepreneurs with innovative technologies and business models to accelerate progress to achieve Sustainable Development Goal 6 (SDG 6): universal access to safe drinking water, sanitation and hygiene. Currently, we are not on track to meet SDG 6.

For background, my focus for the last several years has been on the convergence of corporate water strategy, technology innovation and investment in water technologies. This convergence has a transformative impact on how humanity values water and, in turn, manages this critical resource for economic development, business growth, social well-being and ecosystem health. I believe this transformation is at a tipping point this year and we are witnessing the 'creative destruction' of the water technology sector.

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 article 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. 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; it is 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. In contrast, incumbents chase higher profitability in more demanding segments and tend not to respond effectively.

I believe this will lead to the democratisation of water; readily available and understandable access to actionable information, new water sources and decentralised treatment systems. 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.

Examples of disruptive innovations that will contribute to the creative destruction of the water sector are:

• The increased adoption of digital technologies leading to the democratisation of access to data and actionable information (direct to customers, consumers, and civil society). Examples include Gybe (satellite data analytics for surface water quality monitoring); True Elements (real-time water flow and quality data coupled with climate scenarios); and, Spout (real-time lead testing at the tap).

• Innovative business models delivering new sources of water and localised treatment. Examples include SOURCE (off-grid and localised water supply as a service); Aquacycl (water treatment as a service); Hydraloop (residential greywater recycling); and, Epic Cleantec (industrial water recycling).

These disruptive innovations in many cases are supported by innovative platforms and programmes, such as the World Economic Forum UpLink and the 100 + Accelerator (Ab InBev, The Coca-Cola Company, Colgate Palmolive, and Unilever) programmes. These programmes are essential for identifying and supporting the commercialisation of disruptive technologies that are part of the 'creative destruction' of the water sector.

1. We must scale programmes, such as UpLink and 100 + Accelerator, to identify and commercialise innovative technologies and business models (e.g. water and wastewater treatment as a service).

2. Increase investment by the private sector in innovative water technology companies - this includes water technology companies and also private sector companies that use water in their manufacturing processes.

3. Increase engagement in innovating public policies to increase water efficiency, reuse and alternative sources of water.

To quote Xylem’s tagline, we can “solve water” if we challenge the status quo and embrace change. Not an easy task, but essential if we are to deliver on our goals for SDG 6.