The end of 'business as usual' in the water sector?
James Connolly, head of partnerships at digital asset and works management company eviFile, assesses the message coming from Ofwat's PR19 determinations
Ofwat's latest price review determinations are a genuine step change and create much sterner challenges for Britain’s water sector.
Of course, the determinations are a draft and could change, but coming hot on the heels of Ofwat's record fine, it very much appears that this is the end of ‘business as usual’ in the water sector.
This will help to drive innovation in the sector further and faster.
Closer analysis of the figures shows that, in 2014, Ofwat declared that water companies needed to reduce customer bills by an average of 5 per cent. In 2019, Ofwat is calling on the water companies to reduce customer bills by 12.7 per cent.
At the same time as reducing bills by double-digit percentages, the water sector needs to invest an additional £6.5 million each and every day over the next five years – over and above investment to maintain existing assets.
For a sector with such a large and old asset base (800,000km of sewer and water supply pipes and an estimated average age of 70 years), this is a significant challenge.
It is impossible for the sector to deliver this much more for less without significant innovation.
It is more difficult to innovate in an industry where there are very strict and very necessary public health and environmental obligations to comply with.
However, the industry must not hide behind that as an excuse. Strict regulatory compliance can be successfully baked into innovation from the beginning.
Earlier this month, we attended Northumbrian Water Group’s third annual Innovation Festival at Newcastle Racecourse.
The event is one of the world’s largest innovation festivals in the world, averaging 1,500 attendees a year, and sees leading industry suppliers such as Wood, Mott MacDonald Bentley, Esh Group, Stantec, Interserve and Wavin host design sprints to prototype and test an idea in a matter of days.
The festival is famous for spawning several real-life projects in its first two years, including Northumbrian Water and Ordnance Survey’s ground-breaking underground mapping project: a trailblazing combined infrastructure map pilot will create a detailed digital map of underground assets around Sunderland.
Severn Trent, meanwhile, is using technology to enable all teams to deliver and act on insights teams rather than relying on a central business information team.
In Ofwat's emerging strategy, published last week, it called for an 'open by default' approach to data and learning generated through customer-funded activities, which could also be extended to non-customer funded activities.
Open data empowers teams to collaborate to deliver innovation and find more productive and efficient solutions themselves rather than having to wait for the central business information team to have capacity to help.
Severn Trent has also created a competition to drive innovation known as ‘The Challenge Cup’, where employees are invited to submit ideas for cost efficiency.
This incentivises innovation by providing an opportunity for people to put forward ideas with the promise of genuine executive sponsorship and funding to put winning concepts into action.
There is much that can be learned from United Utilities' approach to innovation.
United Utilities has been celebrated by Ofwat as having one of the most embedded innovation cultures within the water sector, driving innovation by making it a core value linked to every employee’s annual appraisal/bonus process.
This initiative is so successful because it places the onus of innovation on individuals, wherever they are in the business.
This creates empowerment for staff by incentivising them to find better ways of delivering their own work, rather than waiting for innovation and change to be forced on them from above in a way which is less effective and can make staff members resistant to change.
The drive and purpose to deliver innovation must come from the top in order to signify and communicate its importance.
However, for innovation to be truly effective and permeate throughout the organisation, it must be adopted and nurtured by everyone.
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