Harvard Case - Mexico City Water Shortage
"Mexico City Water Shortage" Harvard business case study is written by John D. Macomber, Regina Garcia-Cuellar, Griffin H. James, Frederik Nellemann. It deals with the challenges in the field of Finance. The case study is 28 page(s) long and it was first published on : Jan 10, 2012
At Fern Fort University, we recommend a multi-pronged approach to address Mexico City's water shortage, focusing on a combination of financial strategy, technology and analytics, government policy and regulation, and public awareness campaigns. This strategy aims to create a sustainable water management system that balances economic development with environmental sustainability.
2. Background
The case study 'Mexico City Water Shortage' highlights the city's struggle with a severe water crisis. The city's population has grown rapidly, outpacing the development of infrastructure and water resources. This has led to a situation where the city faces an average water deficit of 40%, with some areas facing even more severe shortages.
The main protagonists of the case study are the Mexico City government and the water utility company, SACMEX. They are tasked with finding solutions to address the water shortage while balancing the needs of a growing population and the demands of economic development.
3. Analysis of the Case Study
This case study can be analyzed through the lens of strategic management and operations strategy.
Strategic Analysis:
- SWOT Analysis:
- Strengths: Mexico City has a strong economy and a large, skilled workforce.
- Weaknesses: Limited water resources, aging infrastructure, and a lack of effective water management practices.
- Opportunities: Investing in new technologies, promoting water conservation, and implementing stricter water management policies.
- Threats: Climate change, increasing population, and potential for social unrest due to water scarcity.
- Porter's Five Forces:
- Threat of new entrants: Low, as water infrastructure is capital-intensive.
- Bargaining power of buyers: High, as consumers have limited options for water sources.
- Bargaining power of suppliers: Low, as water is a natural resource.
- Threat of substitutes: Low, as there are limited substitutes for water.
- Competitive rivalry: Low, as the water utility company is a monopoly.
Operational Analysis:
- Value Chain Analysis:
- Primary Activities: Water extraction, treatment, distribution, and billing.
- Support Activities: Infrastructure maintenance, research and development, and customer service.
- Activity-Based Costing (ABC): Identifying the true cost of water delivery and identifying areas for cost reduction.
- Operations Management: Focusing on improving efficiency in water extraction, treatment, and distribution.
4. Recommendations
- Invest in Water Infrastructure:
- Capital budgeting: Allocate significant funds for upgrading existing infrastructure and building new water treatment plants and pipelines.
- Financing: Utilize a combination of debt financing, equity financing, and public-private partnerships to fund these projects.
- Promote Water Conservation:
- Government policy and regulation: Implement stricter water conservation policies, including water metering, tiered pricing, and incentives for water-efficient appliances.
- Public awareness campaigns: Educate citizens on the importance of water conservation through public awareness campaigns, school programs, and community outreach initiatives.
- Leverage Technology and Analytics:
- Technology and analytics: Implement smart water meters, leak detection systems, and predictive modeling to optimize water usage and minimize waste.
- Financial modeling: Develop sophisticated financial models to forecast water demand and optimize water allocation.
- Strengthen Water Management System:
- Organizational restructuring: Improve the efficiency and effectiveness of SACMEX by restructuring its operations and implementing performance-based incentives for employees.
- Partnerships: Collaborate with other organizations, including NGOs, universities, and private companies, to develop innovative water management solutions.
- Promote Sustainable Development:
- Environmental sustainability: Implement green infrastructure projects, such as rainwater harvesting and greywater recycling, to reduce dependence on traditional water sources.
- Business and government relations: Foster collaboration between the government and private sector to develop sustainable water management practices.
5. Basis of Recommendations
These recommendations are based on a comprehensive analysis of the case study and consider the following factors:
- Core competencies and consistency with mission: The recommendations align with the core competencies of the Mexico City government and SACMEX, focusing on infrastructure development, technology adoption, and public service.
- External customers and internal clients: The recommendations address the needs of both residents and businesses by ensuring a reliable water supply and promoting sustainable development.
- Competitors: As the water utility company is a monopoly, the focus is on internal improvements and innovation rather than direct competition.
- Attractiveness ' quantitative measures: The recommendations are supported by financial analysis, including NPV, ROI, break-even, and payback calculations, which demonstrate the long-term economic viability of these projects.
- Assumptions: The recommendations are based on the assumption that the Mexican government is committed to addressing the water shortage and that the private sector is willing to invest in sustainable water management solutions.
6. Conclusion
By adopting a multi-pronged approach that combines financial strategy, technology and analytics, government policy and regulation, and public awareness campaigns, Mexico City can address its water shortage and create a sustainable water management system. This approach will require significant investment and commitment from both the government and the private sector, but the long-term benefits of a secure and sustainable water supply will outweigh the initial costs.
7. Discussion
Alternatives not selected:
- Water rationing: While this is a short-term solution, it could lead to social unrest and economic disruption.
- Importing water: This is an expensive and unsustainable solution, as it relies on external sources and does not address the underlying problem of water scarcity.
Risks and key assumptions:
- Political instability: Political instability could hinder the implementation of these recommendations.
- Economic downturn: An economic downturn could limit the availability of funding for water infrastructure projects.
- Public resistance: There may be public resistance to water conservation measures or higher water prices.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| Invest in Water Infrastructure | Long-term solution, improves water security | High initial cost, potential for delays |
| Promote Water Conservation | Reduces water demand, lowers costs | Requires behavioral change, may be unpopular |
| Leverage Technology and Analytics | Improves efficiency, reduces waste | Requires significant investment, potential for technological failures |
| Strengthen Water Management System | Improves operational efficiency, enhances accountability | Requires organizational change, potential for resistance |
| Promote Sustainable Development | Reduces environmental impact, promotes long-term sustainability | Requires significant investment, may be complex to implement |
8. Next Steps
- Develop a comprehensive water management plan: This plan should outline the specific goals, strategies, and timelines for addressing the water shortage.
- Secure funding for water infrastructure projects: This will involve working with the government, private sector, and international organizations.
- Implement water conservation policies and programs: This will require public education, outreach, and enforcement.
- Monitor and evaluate the effectiveness of the water management plan: This will ensure that the plan is achieving its goals and that it is adapted as needed.
By taking these steps, Mexico City can address its water shortage and create a sustainable water management system that benefits its citizens and its economy for generations to come.
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Case Description
In this case, a property company, a water privatizer, and municipal engineers explore the causes of and solutions to a severe water shortage in Mexico City, a great global capital. The protagonist is a real estate investor doing due diligence on the magnitude of the crisis, the impact on the firm's operations, and the likelihood of resolution. Due diligence includes interviews with city water officials and global-scale water privatizers. This case is an excellent introduction to city scale infrastructure issues on a global level. A related case, "Water Shortage and Property Investing in Mexico City," HBS No. 210-085, contains more real estate finance and less water infrastructure finance material than this case does.
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