Artificial intelligence is rapidly reshaping industries around the world, prompting organisations to invest heavily in new technologies and explore how they can improve productivity, decision-making and customer outcomes.
But according to KPMG Partner Tammy Falconer, the biggest barrier to AI adoption in the water sector isn't technology at all.
Speaking at Ozwater'26, Falconer challenged the assumption that utilities simply need more AI. Instead, she argued the sector's next transformation will depend on something far more difficult: redesigning the way organisations themselves operate.
"The water sector is not behind on technology. Utilities have invested heavily in digital assets, analytics, sensors, automation, mobility, control systems, hydraulic models, asset systems, and data platforms. This is not a laggard industry," she said.
"We have modernised the assets. We have digitised parts of our networks. We have introduced new platforms and dashboards. But while the technology has advanced, our organisations and the way we operate have not."
Drawing on KPMG's global research, Falconer argued that many organisations have reached a pivotal moment where technology is no longer the limiting factor.
"KPMG's Global Pulse Survey tells a striking story. Around 95% of organisations now have an AI strategy, yet fewer than 10% report established enterprise-level value," she said.
"That gap exists across many industries. We're not just talking about water. And it tells us something important.
"The issue is not that organisations lack ambition. It's not even that they lack tools. The issue is that AI is being added onto operating models that were designed for a different era."
"The next stage is not digital transformation. It's operating model transformation."
Take a look at Tammy Falconer's Ozwater'26 keynote presentation on Indigo.
To illustrate the challenge, Falconer drew on the famous quote often attributed to Henry Ford: "If I had asked people what they wanted, they would have said faster horses."
Falconer said the analogy captures the moment facing the water sector today.
"For years, we've been asking how to make existing processes faster – faster approvals, faster reporting, faster maintenance scheduling. But AI doesn't offer us a faster horse. It offers us a fundamentally different way of moving," she said.
"The real opportunity is not how to take a slow process and make each step slightly faster. The opportunity is to ask whether the process still needs to exist that way at all."
Rather than simply accelerating existing workflows, Falconer said AI creates an opportunity to rethink how work is designed in the first place.
Falconer described a traditional asset management process where engineers manually gather information, prepare business cases and navigate multiple approval pathways.
"AI may make each of those steps faster. But the bigger question is: why is a decision pathway designed that way in the first place? Could AI continuously monitor asset risk, cost, performance, and customer impact?
"Could it generate investment options when decision thresholds are reached and then route them to the human owner, with the evidence already prepared? That is not a faster horse. That is a new way of moving.
"So the real question is not whether water utilities have adopted technology. It's whether we have the courage to reimagine the journey entirely."
Despite widespread AI adoption, Falconer said many organisations are yet to see meaningful productivity gains because they continue to treat AI as a collection of isolated tools rather than embedding it across entire workflows.
"KPMG's Global AI Pulse found that around 40% of organisations are scaling AI or driving adoption across the enterprise, but only 8% report established return on investment. That is the productivity paradox," she said.
"People are using AI. Teams are experimenting. Pilots are happening. Individual tasks are getting faster. But enterprise productivity is not shifting at the same rate."
According to Falconer, the explanation lies in the way organisations themselves are structured: "AI remains stuck in isolated use cases".
"Entire workflows remain fragmented. Handoffs and approvals go unchanged. Decision rights remain slow and hierarchical. Data still sits in different systems. Governance is added on after the fact. And roles are not redesigned around the technology," she said.
"So local efficiency does not become enterprise productivity."
Falconer said the emergence of AI agents capable of coordinating work across multiple systems only reinforces that challenge.
"They are exposing the limits of our current operating models. Running individual use cases has become more accessible. But operating AI across systems, workflows, and decision environments is significantly more complex," she said.
"And yet, given Australia's productivity challenges, this is one of the most important levers available to us.
"Orchestrating AI across organisations is not primarily a technology challenge. It is a human, organisational, and leadership challenge. AI cannot fix that problem by itself. Leaders can, including the people in this room."
Falconer argued that while many organisations continue debating whether AI should be introduced, the reality is employees are already using it.
"Our Shadow AI research shows around 58% of employees use AI weekly, but around 44% admit to using AI in ways that breach policy. This isn't a future risk. It is a current operating reality," she said.
Rather than responding by restricting AI, Falconer said organisations should ask why employees are seeking it out in the first place.
"People are not turning to AI because they want to break the rules. They are turning to AI because they are under pressure. Because official tools are too slow. Because systems are clunky. Because expertise is scarce. And because they are trying to get the work done," she said.
"Shadow AI emerges where the formal operating model cannot keep up with the speed of work. So the question is not simply: how do we stop it? The better question is: how do we take control without killing momentum?"
For the water sector, Falconer said the stakes are particularly high. Climate variability, ageing infrastructure, workforce shortages and rising customer expectations are placing increasing pressure on utilities to make better decisions with fewer resources.
"AI gives us a way to capture and reuse knowledge, support faster decisions, and extend expert guidance to the field. Not to replace human judgement, but to make it more available. This is the real opportunity," she said.
Falconer closed by urging water leaders to think beyond AI adoption and focus instead on organisational reinvention.
"This sector exists to serve communities, protect public health, sustain ecosystems, and deliver one of the most fundamental resources on which life depends. And right now, this sector faces some of the most complex, consequential challenges we have ever confronted," she said.
While AI offers unprecedented opportunities to process complexity and support decision-making, Falconer said its true value will only be realised if organisations are prepared to redesign themselves around it.
"AI is one of the most powerful tools we've ever had access to. Not because it replaces human judgement, but because it extends it. It gives us the ability to process complexity at a scale that no person or team ever could," she said.
"It gives our overstretched workforces leverage. It gives remote communities access to expertise that they otherwise would not have. But the tool alone is not enough.
"We must reinvent our organisations to use it. We must redesign how workflows, how decisions are made, how roles are defined, and how we lead."
Interested in viewing other Ozwater'26 presentations and papers? Content from the event is now available on Indigo.