Utility Week

8 | 18TH - 24TH MARCH 2016 | UTILITY WEEK Sponsored report Brought to you in association with vation in energy supply, which might target the trialling of new service models or "pre- competitive" issues that would bring benefits to all consumers. There was little clarity on what these issues might be, however. The satisfaction expressed across both water and energy networks with their regu- latory innovation frameworks is perhaps sur- prising given the distinct approaches taken by Ofgem and Ofwat in this area. Whereas the former has taken the decision to intro- duce specific innovation funds for gas and power networks, the latter has preferred to rely on broad incentives to encourage out- come-led innovation. Both approaches seem to have resulted in similar levels of organisa- tional investment in innovation. There is ongoing debate in the water sector about the potential merits of emulat- ing the Network Innovation Allowance or Network Innovation Competition funding mechanisms that Ofgem has most recently introduced under RIIO. Advocates feel this would be of particular help in stimulat- ing supply chain innovation and a sense of opportunity for entrepreneurship in the water sector. On the whole, though, partici- pants in this research felt that regulated inno- vation funding could be "a double-edged sword" that discourages companies from establishing more independent and sustain- able approaches to investing in innovation. In energy networks, this potentially coun- teractive consequence of regulatory funding for innovation was, to some extent, acknowl- edged, with contributors admitting that it is unlikely innovation investment would continue at the current level if funds were withdrawn or reduced. There were also some observations about the unintended conse- quences current regulatory funding mecha- nisms can have on innovation. Some said that funds were being inappropriately used to fund "near to market" innovation with clear business benefits attached and others felt that structures did not support collabora- tive innovation enough. This was especially felt to be the case in relation to "cross vector innovation." Despite all these points, however, net- works were broadly very positive about the current innovation funding regime. In terms of innovation culture and gov- ernance within organisations, Utility Week's report found that despite the varied techni- cal and service delivery challenges faced by different utility market segments, a number of similarities are apparent in the challenges organisations face. Most obviously, there are broadly consistent drivers for innovation, and businesses also tend to find the same cultural and governance aspects of innova- tion difficult to optimise. In addition to the interview-based qualitative research conducted for the State of the Nation report, it is relevant to note the results of the recent Utility Week-Wipro Innovation Barometer, which regularly surveys innovation and technol- ogy leaders in utilities companies. The barometer is designed to take a temperature test of sentiment among these leaders about their organisational approach to innovation and the areas they are prioritising for breakthrough improvements or change. A snapshot of the most recent barometer shows a number of correlations with the rest of Utility Week's Innovation report: l There was an almost equal divide between barometer respondents who felt their organisa- tion invested enough in innovation and those who did not. This reflects ambivalence in response to the same question posed to participants in the interview-based elements of the report. Inter- viewees o•en said they felt their organisation invested enough/a significant amount but also o•en felt that they could invest more. l Where barometer respondents felt their organisation did not invest enough in innova- tion, the majority said this was because it is risk-averse. This reflects sentiment expressed by interviewees working in water and energy networks. l There was an almost equal division between barometer respondents who felt that innova- tion is embedded into the culture of their organisation and those who do not, with a slightly higher number being more pessimistic (51 per cent). Interestingly, when asked if their organisa- tion had a culture that nurtures innovation, most said "yes" in interviews. However, they always went on to qualify this with ways in which the culture could be more supportive. It may be that the barometer results reflect this room for improvement. l The two areas highlighted as the biggest barriers to innovation were: Regulatory issues (33.33 per cent) Cultural issues (45.83 per cent) l 54 per cent of respondents felt their organi- sation's innovation ambitions were clearly linked to the big picture challenges of the future; just 35 per cent believed them to be focused on well-defined customer requirements. The confidence of barometer respondents may reflect the clarity provided by innovations strategies and innovation reports required among energy networks. However, it is largely at odds with sentiment expressed in the water sector, where innovation strategy was less confidently expressed. The low proportion of barometer respondents who felt that innova- tion ambitions were clearly linked to customer requirements should be a source of concern, since all contributors to the interview-based element of this research cited customer experi- ence/satisfaction as a key driver for innovation. l 65 per cent of respondents felt their organisa- tion was somewhat successful at adopting valu- able innovation outputs into business as usual. This sentiment is reassuring in that it sug- gests learnings are being adopted, however it also reflects evidence given in interview- based research that the tracking of innovation application in the business is something businesses are keen to improve on. In themselves, smart meters are not innovative. They should be an enabler of innovation in energy supply – like having wifi You might say it is inappropriate use of customer money to fund 'innovation' projects which are very close to market and where the return to the business is clear We have not solved collaboration issues. There is still deep mistrust within the sector " " " " " " The Innovation Barometer results Illustrative quotes: anonymised quotes from the report's contributors

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