Innovation is as clear as Day

Water industry regulator Ofwat is sponsoring a grand prize for innovation at the 2009 Water Industry Achievement Awards. WWT editor Natasha Wiseman asked director of network regulation, George Day, what prompted Ofwat to get involved.

Sponsoring an industry award can be a useful way for a company or organisation to broaden its competitive advantage by enhancing its image and prestige. However, when the water industry regulator, Ofwat, decided to back a grand prize for innovation at the Water Industry Achievement Awards, this was not its prime consideration.

“We are obviously very interested in innovation,” said George Day, director of network regulation at Ofwat. “We want to give companies the right incentives to innovate and think of new and creative ways of meeting the challenges they face.

“That’s partly about the regulatory financial incentives, but it’s also partly about mindsets and culture as well. So we thought getting involved with the innovation awards was one way of illustrating our commitment to supporting innovation in the industry. A lot of people have a particular view of Ofwat and supporting the WIAAs was sending a signal.”

Technical solutions

Day explained that Ofwat worked closely with the awards organisers, WWT and WET News, to develop the new category. I asked why the WIAAs were chosen over other industry awards in the utilities.

“When people talk about innovation, they focus immediately on new technical solutions and one of the things we believe is innovation can be technical, but it could be to do with business processes, it could be about how you manage and get the best out of your people.”

He continued: “It could be anything innovative that helps you run the business better and deliver benefits. So given the spread of categories in the WIAAs, that would be backed up well, and we came up with the award for Outstanding Innovation.”

I asked Day if he could be more specific about the kinds of non-technological innovations that are happening in the industry. He explained that water efficiency, data management and energy saving were key areas. “For example we’re looking at water efficiency more these days, so how do companies innovate in how they promote water efficiency and use of water by their customers?

“Now there may be new technology involved with that, but it may be getting better at the interface with consumers and packaging up messages more effectively and finding ways of delivering water efficiency messages to consumers when you’ve got another point of interaction with consumers.”

He expanded: “You might repair a supply pipe or install metering and that gives you a platform for water efficiency. Other examples might be just managing your data better, managing the value of the information you have about your assets, so you can target your asset maintenance more effectively.

“Some of that’s about technology, it may be that you have fancy software systems that enable you to do that, but some of it’s about management innovation, how you manage your assets, how you manage information, about how you unlock the value of information.”

Catchment management and energy reduction are two other areas ripe for innovation, according to Day: “Moving to low carbon is a huge area, I expect that will involve a lot of technology, but obviously better management, better systems will help support that as well,” he said.

The Cave Review has just been released and strongly defines Ofwat’s future role in developing and sustaining innovation. I asked Day what the regulator was taking from the report.

“Broadly we support the Cave Review,” he said. “We are happy about the focus on innovation. In the broader context of the Cave Review, market mechanisms can help incentivise innovation so a lot of the broader focus of the review on how can we get market forces, competitive mechanisms into the industry is helpful.”

Day expanded, “Professor Cave’s view is that if you’ve got a company that really does innovate and creates a step change in the way that particular problems can be solved, that there are stronger rewards for that kind of innovation. So I think we’ve been trying to address some of those issues in the current price review, around the capital expenditure.”

It is no secret that the price review is now underway and Day explaine how innovative approaches in water company business plans were already being encouraged by Ofwat: “[The price review] gives stronger incentives to the companies that have developed more challenging business plans for themselves,” he explained.

Stronger incentives

Water companies have really looked carefully at the scope of what they need to invest in, he said, and have demonstrated that they have the understanding of their assets, and their investment is really well targeted, then there will be stronger incentives for those companies if they outperform against the determination.

“That is an important development,” Day emphasised, “the incentive framework. Obviously when we’ve done the price review, we will look again at how can we improve the way we regulate.

“We’re talking about fairly big issues here around separate price control, promoting more competition, particularly looking at how can we get the market forces working in the upstream part of the value chain, so we’ve been looking together with the Environment Agency at making abstraction licenses tradable. So all of these things could open up pathways for more innovative approaches in the future.”

Day also revealed an initiative being undertaken in partnership the Technology Strategy Board (TSB) in developing an innovation platform for the water sector.

Work in other sectors suggests that the TSB focuses on identifying areas where there is clear societal need for new approaches, such as an ageing population.

“If you look at the water sector,” Day predicts, “it’s likely to be focused on the bigger challenges coming up in terms of climate change, low carbon, how do we manage water resources more effectively.”

I asked Day if it was fair to say that the regulator itself was becoming more innovative “Clearly there’s a need for us to be innovative,” he enthused. “We can’t just sit on our laurels and say well we’ve regulated the industry this way in the 20 years since privatisation, we’re just going to carry on doing the same thing.

“I think we’re clear that there are new challenges and regulation itself cannot stand still. So we welcome the Cave Review because it’s part of a recognition that there are things we need to look at again and there are positive changes we can make.”

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