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10 | 15TH - 21ST MAY 2015 | UTILITY WEEK UtilityWeek Innovation Why does innovation matter? A changing world requires those in it to change too. A UK government inno- vation report, pub- lished last year, describes innovation as "the engine of economic growth and improved living standards". Citing evidence from a recent review, the publication also identifies the consistent relation- ship between innovation and strong performance in compa- nies – not just financially but in terms of staff retention and the ability to attract top talent. According to the 2014 Innova- tion Report from the Department for Business Innovation and Skills (Bis), "over the past half century the private rate of return to research and development in developed economies has been strongly positive, ranging from 20 per cent to as high as 75 per cent". Bis says companies that per- sistently invest in R&D have higher productivity (13 per cent higher than those with no R&D spending and 9 per cent more than firms who occasionally invest in R&D), better value added per employee, and export more products and services. Its findings chime with wider research, which observes that companies displaying higher levels of innovation tend to be more profitable and better able to survive many different kinds of disruption in the marketplace – from political to technological. Indeed, they are oen the driv- ers of change. Some would argue that parts of the utility landscape are reg- ulated in a way that exempts utility companies from the inno- vation benefits those in freer markets enjoy. But as compe- tition increases in scope and vigour in the near future, inno- vation will doubtless become a much harder line, dividing those with strong customer engage- ment and revenue streams, from those without. Utilities encompass the tech- nologies and services that have driven forward many of the most fundamental innovations and revolutions in modern living. Water, and innovations in its control, treatment and deliv- ery, are perhaps the most basic building blocks for civilization. Meanwhile, since the industrial revolution, power generation and electrification have laid foundations for subsequent innovations that have trans- formed the way people live, in parallel with the fastest period of economic growth recorded in history. However, serving such a long stint as the consistent and secure foundations on which other innovations are built, has arguably pushed utilities into a rut of continuous improve- ment rather than game-chang- ing innovation – renewing and refining their assets along a well-defined and understood trajectory. But today, the world faces the prospect of severe global water stress and the first real overhaul of the underlying principles of our energy system since its creation. These challenges neces- sitate technological and busi- ness model innovation to find new ways of thinking about service delivery, revenues and competition. The ability of utilities to inno- vate in the coming years will define their long-term role as low value-add commodities or high value-add wealth creators. Embracing change UTILITIES SOCIAL RESPONSIBILITY Utilities need introspection as well as innovation. In com- ing years we will see massive social responsibility mount on utilities globally. As medical advances eradicate killer diseases like malaria, so the high global death rate from fuel poverty will become more obvious and unacceptable. The World Health Organisation says 1.45 million people die prematurely each year when they are forced by poverty and lack of infrastructure to use inappropriate fuels for home heating and cooking. Meanwhile, in the UK there were 30,000 deaths in the winter of 2012/13 at- tributed to fuel poverty. Both figures are set to rise. Tackling this problem will require action on two fronts. Policy intervention and infrastructure revolution. We must replace linear growth models with innovative ideas that cut cost, improve customer care, put consumers in control and provide them with a wider choice. These are alien aspects of business to utilities. Their history is steeped in engineering, with the customer a stranger. Utilities should look to telecoms, until recently a utility, but now displaying unrelenting retail focus, enabled by digital technology and a new ecosystem of partnership with specialist providers for billing, customer insight, infrastructure management and product roll outs. The Utility Week-Wipro Technology and Innovation Council will reflect on these realities, examining the social pressures that utilities must resolve and what it means to keep pace with them. The challenges are great – but also great to have. We need experienced but unfettered minds and big picture thinking to resolve them. Arun Krishnamurthi, vice president and global head of utilities, Wipro MOST INNOVATIVE FIRMS This list, published by Forbes in 2014, shows the world's most innovative companies according to their "innovation premium". The innovation premium is a measure of how much investors have bid up the stock price of a company above the value of its existing business based on expectations of future innovative results (new products, services and markets). Company 12 month % 5-year Innovation sales growth annualised premium total return ($m ) 1. Salesforce.com 35.6 24.1 75.9 2. Arm Holdings 46.7 46.2 71.4 3. Alexion Pharmaceuticals 14.8 37.7 65.6 4. Unilever Indonesia 12.0 26.6 65.1 5. Regneron Pharmaceuticals 43.6 67.0 64.7 6. Amazon.com 22.3 19.5 62.4 7. BioMarin Pharmaceuticals 20.2 25.7 58.9 8. CP All 71.6 33.7 57.8 9. VMWare 15.0 17.6 57.6 10. Aspen Pharmacare Holdings - 31.3 57.1 11. Vertex Pharmaceuticals -36.6 18.0 56.8 12. Red Hat 15.8 12.1 56.4 13. Hermes International - 24.7 55.7 14. Hindustan Unilever 8.2 21.4 54.7 15. Monster Beverage 10.6 29.8 54.1 16. The Priceline Group - 41.0 52.5 17. Rakuten 14.6 14.0 51.9 18. Marriott International 2.1 21.9 51.7 19. Fastenal 8.9 20.6 50.9 20. Chipotle Mexican Grill 23.2 46.8 50.5 Members of this list must have $10 billion in market capitalisation, spend at least 2.5 per cent of revenue on research & development and have seven years of public data. Values shown here were calculated in August 2014. "Utilities have drifted into a rut of continuous improvement rather than game-changing innovation"