This month (February 2018) the England and Wales economic regulator, Ofwat, has been running a social media campaign about innovation in the water sector, called Spark! Below is a YouTube playlist of all the videos they’ve released so far:

Generally it’s great to see this campaign! In this post we’ll take a historical look back at Ofwat’s (public) approach to innovation, as well as assess ‘hits’ and ‘misses’ of the Spark! campaign to date…

Ofwat and innovation

If, like me, you look at the small print on everything, you’ll have noticed two statements about this campaign, first on its press release:

“This campaign complements other work Ofwat is doing around innovation, which is one of the main themes of the forthcoming 2019 price review (PR19).”

And second from the main campaign page:

“This innovation campaign is intended to inspire the water sector and provide a platform for the sharing of ideas. The content is not an endorsement of any organisation, product, service, or approach. Nor should it be viewed as Ofwat guidance or policy, or in any way as indicative of any future decisions in the 2019 price review or otherwise.” [my emphasis added]

First, this tells us that this campaign has not just come out of nowhere; Ofwat is doing it for a reason, specifically as part of the run-up to the forthcoming Price Review next year (the other three PR19 themes are affordability, customer service and long-term resilience, incidentally; there’s also a ‘thought leadership’ style, long-scrolling webpage about Ofwat’s pre-PR19 stance towards innovation here).

The second statement may look like a standard disclaimer. But to me it looks like an explicit extension of a delicate balance Ofwat has had to strike over the years, between knowing the sector could do (many) things better and safeguarding its role of independent voice/scrutiny of the nuts-and-bolts, micro-management details of how the water sector achieves goals it develops for itself, and in consultation with citizens, customers, regulators and policymakers.

Back during my PhD, from 1998 to 2002, I re-discovered two reports that had been commissioned by Ofwat back in 1994 and 1998 by a consultancy group, Babtie Environmental (later acquired by the Jacobs group in 2004, I believe, to become Jacobs Babtie; Jacobs has also recently acquired CH2M, so I don’t stricly know the fate of the original Babtie group and staff, within this larger ecosystem). The 1994 report was a ‘quiet’ look at emerging innovations, in various water and sanitation activity areas, that could be adopted to lead to cost savings in the water sector. The 1998 report was a more explicit ‘audit’, of sorts, of the potential cost savings from the wide-scale adoption of new technologies and approaches; I believe a ballpark of about 20% cost savings was proposed as possible.

After speaking to some of the people involved, and later with (Sir) Ian Byatt, the then Director General (DG) of Ofwat, it was clear these two reports led to some controversy and refutations within the sector. Ofwat later stepped back from being perceived to be micro-managing innovation prospects, and back even from perhaps laying down any kind of explicit innovation challenge ever again. Nearly 25 years after the first Babtie report, here we are there with an “intended to inspire” / “not an endorsement” month-long campaign, not a challenge or directive to the sector…

Ofwat should of course keep a watching brief on the state-of-the-art in the water sector. But it’s worth understanding that what we see now is a more ‘hands off’ approach than was once tried. (In a related vein, to me, the whole thing reminds me of Ofwat’s semantics back in the late 1990s / early 2000s; this was about whether its duty was simply to ‘facilitate’, in a weaker sense, competition in the sector, or more directly to ‘promote’ it… There’s some similarity here in where the line is with regard to its approach to ‘inspiring’ innovation… but no more than that…)

The Spark! campaign so far: Hits

Looking beyond its Twenty Twelve-Siobhan-Sharpe-Perfect-Curve-PR-style Twitter-Facebook-Periscope-LinkedIn-Instagram social media overload, there have in fact been some interesting messages from the Spark! campaign.

First, the campaign has highlighted a diverse range of small and large players, from multiple industry and other sectors, not just the water sector. This acknowledges the system-wide dimension of successful innovations, as well as that innovation can happen within a sector endogenously, or can come from exogenous sources and inspirations. The potential benefits of collaboration across these kinds of systems were also explicitly noted.

Second, the campaign acknowledged that innovation is about more than technology, e.g. bits of kit tacked onto water networks. New business models, process and paradigm innovations were mentioned (called changing ‘mindsets’ in the videos).

Third, both incremental and more disruptive types of innovation were discussed. This addresses both subtle or more nuanced shifts over time and more far-reaching, wide-scale changes.

Fourth, the need for large, incumbent firms to innovate to keep up with social, technological, economic and other expectations and pressures was emphasised. (There has of course been a long-standing issue of whether water companies have an innovative imperative but at least this challenge was fairly well framed.)

Fifth, both supply-side and demand-side perspectives were raised, such as the need for water companies to engage (meaningfully) with their customers on issues like conserving water resources, changing customer priorities and expectations, and so on.

And the Misses…

There have been some omissions or ‘misses’, from our point of view, in the campaign however.

First, even though the campaign noted innovation is about more than just an initial ‘spark’, and that a culture to support innovation is crucial, the overall timescales involved in taking inventions forward to innovations adopted at wide-scale – in the water sector specifically – I feel, were not sufficiently acknowledged.

I discussed this recently with Roger, in fact (as you can watch below). In addition to Roger’s own experience in the UK water sector (and internationally) research we’ve done has shown innovation in the water sector can easily take (several) decades:

Water companies have been developing longer-term (non-binding) business plans in recent years. But it’s not obvious that commitment to, or embedded practices, capabilities and routines to generate and sustain a long-term innovative culture actually exist right across the UK water sector.

Second, I was really happy to see the acknowledgement that innovations involve risks and failures (‘opposition’ and ‘nervousness’ about innovation were also mentioned). But this is a more serious issue than was explicitly covered. I have met teams who have had people have nervous breakdowns, firms that have closed, careers that have been foreshortened, and varieties of inter-personal politics and hostility that have forestalled innovations, across the sector. The roots and remedies of this long-term, entrenched risk aversion were not really addressed.

Third, the campaign talked up ‘benefits’ from innovation across many of its videos. The potential ‘downsides’ were less touched upon. These include uncertainties in planning for innovation, accounting for intangibles related to potential future benefits of innovation in heavily regulated and audited financial planning systems and (short-term) cycles. I noticed one of the videos discussed the interplay between regulation and innovation. The approach suggested was that a regulator would be swayed by ‘evidence’ that an innovation could deliver benefits. Often such ‘evidence’ might not exist until (much) later for some kinds of innovation, particularly the more disruptive kinds…

More Hits than Misses

Overall though I think the Spark! campaign has, so far, had more ‘hits’ than ‘misses’. I do applaud Ofwat for attempting to tackle a rather abstract topic like ‘innovation’ in a (sort of) public way.

Lastly, it would be interesting to know how this more ‘hands off’ campaign will be evaluated say, internally in Ofwat. Will it be via superficial metrics, like number of video views? Numeric engagement across social media platforms? Will there be any robust, systematic evaluation of how attitudes and practices have changed? Links to any changes in the materials later submitted by the water companies for the upcoming Price Review, PR19?

I can’t see anything about this on the campaign page, so who knows. I guess we’ll just have to wait and see if anything happens on this front.

Duncan Thomas

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