Encouraging a culture of thoughtful risk-taking
The UK Water Industry Technology Innovation Conference, hosted by Water & Wastewater Treatment (WWT), was an insightful day into the minds and behaviours of innovation professionals and technology providers across the industry. I came away with several interesting insights, but the topic that came up time and again was the need for a culture that champions and rewards the kind of risk taking that leads to innovation.
Ofwat, the economic regulator of the water sector in England and Wales, has described innovation as a key pillar of its 2019 price review (PR19), a framework for ensuring a long-term water future, and as the overarching enabler for its three primary outcomes: resilience, customer service and affordable pricing. However, there’s no clear answer as to how to effectively balance the risk and reward of investing in innovation. The PR 19 methodology provides opportunities for reward when a company moves into the upper quartile for performance, but there’s no mitigation of the outcome delivery incentive (ODI) penalties if attempts at innovation are not successful. And this may hinder regulated companies from taking industry changing risk.
Conversations during the conference often returned to the topic of a “culture of innovation,” as small and medium-sized enterprises (SMEs) and leaders from large corporations plan to launch and mainstream products and services with water companies. Water companies are enthusiastically trying to show they are proactively looking for innovations to use in their businesses; however, these activities are often small in scale and need strong support to be truly transformative.
The acceptability of risk, and how water companies interact with the innovation supply chain, varied greatly among the companies presenting. Bristol Water as a larger, water supply company demands that innovators have significant “skin in the game,” seeing themselves more as a facilitator for innovation rather than as an owner of technological innovation. This contrasts with Thames Water, with possibly the largest UK water research and development programme, which would like a share in the royalties of successful trials in order to receive a return on investment. Severn Trent Water has a similar approach. At the event, the company’s head of innovation, Bob Stear, identified his exploitation and governance team as responsible for securing intellectual property rights.
Northumbrian Water presented effective examples of how they engage the supply chain and other external companies to support their innovation programme through ”design sprints” and participation in the Festival of Innovation, which are cost neutral to Northumbrian Water’s customers. However, they also described their procurement processes as difficult for start-up SMEs to complete and were therefore not being considered.
With the implementation of PR19 right around the corner, companies are looking to demonstrate their innovation credentials. Those with well-established programmes and successful examples already embedded into their culture can expect an easier ride from the regulator. Those who are playing catch up and who have yet to build this into their organizations will have more of a struggle.