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UTILITY WEEK | 27TH NOVEMBER - 3RD DECEMBER 2015 | 13 Policy & Regulation Arcadis view Should innovation be the responsibility of one or all? "If you speak to utility companies, they acknowledge that innovation must be embedded in the culture of the business, rather than being the responsibility of one person. This is true, but the challenge of creating an innovation culture is larger if there is no individual seen to be leading from the top. "We can draw parallels with health and safety here. While this must, of course, be everyone's responsibility, no utility would do away with the role of a health and safety director. They need that person on the board in order to ensure that health and safety is part of organisa- tional culture." Business as usual "Most respondents believe they are already 'doing innovation' and do not see a need to change their approach. While it's encouraging that respondents see innovation as important, a status quo mindset in the face of new challenges could lead to missed opportunities for efficiency and outperformance and is not in the spirit of the PR14." Getting benchmarking right "It's positive to see a rising appetite for learning useful lessons from other sectors in order to improve operational efficiency and effectiveness in the UK water sector. "However, water companies need to take a structured approach to any bench- marking they conduct and have a clear view of how they are going to absorb and apply any best practice they observe. "They also need to be aware that lessons are available, not only from other sectors, but within the water sector, both in the UK and further afield. There is still huge scope for more openness within the water sector with regards to sharing best practice and innovative ways of working. One way in which this might be achieved is through the creation of benchmark- ing clubs where groups of utilities share anonymised data for an annual fee." "From a sup- ply chain perspective the drivers which are always handed down are associated with cost. Not with improvement of quality of value." Martyn Hopkinson, chairman, Future Water Association "Operational and capital investments are taxed in different ways, so there is a whole system in place which makes changing complicated. "This rose-tinted view that we can suddenly shi to a form of asset invest- ment which looks at capex and opex together over a long period of time cuts across the way that the exchequer looks at things. "It's just not as simple as saying we will switch from one approach to the other." Alastair Moseley, chair of Future Water Association Innovation Forum "Totex won't help [opera- tions leaders] innovate if their concept of innova- tion is to do things that they've already done them before… There is a lot of good innovation going on in water companies, there's a lot of very clever people. But the amount of money still spent on tradi- tional infrastructure is huge compared with that spent on distributed assets and social infrastructure." Jacob Tompkins, manag- ing director, Waterwise "Totex thinking can help us find the best way of address- ing the demands of our changing landscape." Professor Tony Conway, director, Water Industry Forum T here is strong intent to innovate in the water sector, and a realisation that businesses need to change the way they operate in order to put customers more firmly at the heart of everything they do. However, there is a lack of clarity around what this really means for innovation in operations where metrics and targets for innovation and improvement remain cost- focused rather than outcomes-based. Furthermore, asset and capital-spend centric mindsets in operations have not yet shied to allow for the idea that totex will change the way they do things. This could lead to missed opportunities, since using totex to drive better decision making and smarter ways of working in operations could unlock significant efficiencies and enable innovation for better customer service at reduced cost. Indeed, this is the expecta- tion of Ofwat chief executive Cathryn Ross who told Utility Week in a 2014 interview that totex, alongside other PR14 shis towards outcomes, would pave the way for a "com- pletely different ball game in AMP6". "It's going to be a real challenge," she said, "particularly delivering outcomes and totex. If you put those two things together – and bear in mind those are the two things where people will really be able to make money and deliver outperformance – you have to run your business in a different way." Given this statement of intent from the regulator's chief, it appears there is a sig- nificant challenge still to be met in shiing traditional mindsets in operations and com- municating the objectives to them in totex, clearly and consistently. Today, there is a danger that operations leaders feel they are already "doing innovation", but that their approach to this is no longer relevant to the regulatory environment. Opportunities abound to learn from other sectors about ways in which they have managed to change ways of thinking about innovation in operations. Other utility sec- tors – including gas and electricity networks – have recently moved to totex-based regu- latory regimes, for instance. They are also commonly thought to be more mature in their application of key enabling technolo- gies, like big data and the Internet of Things. Meanwhile, other sectors – for instance manufacturing – are changing cultures and processes in order to offer new and improved customer experience, whether through new kinds of service contracts, or new tech- nologies. This leaves huge scope for water companies to improve their approaches to benchmarking and learning from other sec- tors in order to add focus to their innovation activities and realise organisational benefits. While it is encouraging that water compa- nies see totex providing a prompt to embrace this opportunity, it is clear that more robust frameworks are needed in the sector if tan- gible benefits are to be gained from insights into other sectors. Conclusions of the research Independent comment