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UTILITY WEEK | 27TH NOVEMBER - 3RD DECEMBER 2015 | 11 Policy & Regulation Key findings 1. Innovation is seen to be important to the job roles of 87 per cent of respondents. 2. Despite a challenging regulatory settlement in AMP6, less than half (43 per cent) of respondents, believe innovation will become more important over the course of the regulatory cycle. 3. While totex is a central feature of AMP6, 77 per cent of those who do believe innovation will become increasingly important over the course of the regula- tory cycle, do not believe this will be as a result of totex. Forty-three per cent of all respondents believe totex will make no difference to the way in which they innovate. 4. Fiy-four per cent of respondents feel that totex will make it easier for them to make the case for investment in new technologies. 5. Forty-eight per cent of respondents believe totex will lead to better maintenance of water assets, despite its central purpose to drive long-term invest- ment decisions and whole-life costing. 6. The most widely acknowledged positive impact of totex is that it will incentivise more benchmarking and learning from other sectors in order to support operational excellence in the water sector. 7. Over and above totex, which is described as "marginal", the top three drivers for innovation are seen to be: reduction of energy costs; meeting new regulatory requirements; and cost-cutting initiatives. Other evidence emphasised that customer-centricity is a key driver for innovation, incentivised by high outcome delivery incentive penalties. 8. Preparation for competition in the non-domestic water market was identified as a driver for innova- tion by only 22 per cent of respondents, but other evidence suggests this objective may be a silent driver behind other objectives. A range of respondents, for example, stated that "gaining market share" and being seen as "market leaders" were key innovation drivers. 9. While customer-centricity is seen as the most important focus for innovation (74 per cent), metrics associated with defining innovation success are still firmly asset and capital-spend focused, with 70 per cent saying that reduction in operational spend as a result of process improvements is a key measure- ment of innovation output and 59 per cent saying the reduction in operational spend as a result of technol- ogy investment is a key innovation output. Only 7 per cent said they had broader, formal innovation targets in place. 10. The biggest barriers to innovation are perceived to be risk aversion and lack of funding. The biggest cause for the latter is seen to be competing priorities for investment internally (83 per cent), followed by the regulatory settlement (35 per cent). In assocation with About Arcadis Arcadis is a leading global design and consultancy firm for natural and built assets. Applying its deep market sector insights and collective design, consultancy, engineering, project and management services, it works in partnership with its clients to deliver exceptional and sustainable outcomes throughout the lifecycle of their natural and built assets. The company employs 28,000 people active in over 70 countries and generate more than €3 billion in revenues. It supports UN-Habitat with knowledge and expertise to improve the quality of life in rapidly growing cities around the world. Visit: www.arcadis.com DEFINING TERMS What is innovation? In conducting this research, we acknowledge that different individuals and organisations can interpret innovation very differently. What one person recognises as an innovation, may not meet the criteria that another would deem neces- sary. For the purposes of this research we took a broad defi- nition of innovation, including incremental or continuous improvement as well as more disruptive forms of innova- tion. We can therefore describe innovation in the water sector as the novel application of ideas which are either entirely new or new to the environment in which they are used, in order to achieve significant transformations in efficiency, customer experience, sustainability or other strategically important areas. What is totex? Totex is the new mechanism, introduced in PR14, for plan- ning and reporting capital and operational spend in the water sector. Historically, water companies planned and reported their infrastructure spending in two separate tranches: capital expenditure and operational expenditure. However, this led to a perceived bias toward capital investment even when operational solutions might be cheaper and offer better long-term value to customers and the environment. A totex mechanism combines both capital and operational expenditure into a single pot. The objective of totex is to achieve the optimum combination of capital, operational and wider interventions in a particular set of circumstances in order to deliver required outcomes. 43% think totex will make no difference to the way they innovate 87% view innovation as important to their job role 7% have formal innovation targets 53% believe totex will make it easier to present the business case for investment in new technologies KEY NUMBERS OVER THE COURSE OF AMP6, TO WHAT EXTENT WILL INNOVATION BE PART OF YOUR ROLE? 60% 40% 20% 0 47% Will become more important part 53% Will remain as important as it is