On day three, a diverse group of industry representatives including electricity and gas suppliers, technology manufacturers, consultants and analysts, challenged the utility sector’s approach to innovation and struck on some key issues which, if addressed, could enable it to face the future with greater confidence of profitability.
Sponsored by global technology leader HP, key findings from the round table included:
- Risk aversion was seen to be the norm while there is an obsession with the regulator and its requirements for innovation “outcomes”.
- Relatively immature cultures of innovation which tend to confuse innovation with continuous improvement or which fail to embrace the intrinsic link between technology innovation and business model innovation.
- Lack of purposeful collaboration or clear structures for assimilating innovation into business as usual.
Risk management and the regulator
Running critical national infrastructure systems is, and should be, a business which is undertaken with responsibility and safety at front of mind. However, in a time of rapid technological and social change, accompanied by a wave of assets requiring replacement, participants at this round table agreed that utilities need to find ways of overcoming their natural risk aversion.
Two major hurdles exist before reaching this end. The first is the traditional, hierarchical structure of the incumbent utilities which was not seen to foster truly innovative thinking or allow “room” for disruptive ideas to be channelled into business as usual.
The second was the highly regulated environment in which utilities work and a lingering “parent-child” relationship between companies and their regualtors. One delegate described the focus on their regulator as “preventing us from looking to left or right” for innovative ideas which could change operations and business models.
It was also observed that where the regulators do supply incentives for innovation, they require defined outcomes in term of projected benefits to the consumer. This is understandable, it was agreed, but it was also observed that defined outcomes are contrary to the premise of disruptive innovation or “blue skies” thinking.
Immature innovation cultures
Attendant utilities and representatives from their supply chains were very aware that their organisational cultures do not provide fertile ground for disruptive innovation when compared to other, non-regulated sectors.
There was a general consensus that great value could be derived from looking to other sectors for innovation models, however there was little evidence of this being done actively or with a view to embedding those models into business as usual.
One delegate said that innovation environments in utilities were managed in a way which would only ever result in continuous improvement or “sustained innovation” as the HP host described it. While this was agreed to be valuable, it would never achieve step change thinking about competitiveness or the delivery of utility services it was agreed.
A critical outcome of this debate was the consensus that technology innovation and the adoption of new technologies was relatively straight forward compared to business model innovation – but that only through combining the two would utilities achieve the disruptive innovations required to compete in a future which is likely to include increasing challenge from third parties and increasing expectation for service delivery from customers.
It was observed that the concept of business model innovation tended to be undervalued, perhaps due to its intangible nature.
Lack of collaboration with direction
“Collaboration” has become a buzz word which is constantly associated with innovation. However, as Nick Wainright, director of open innovation for HP’s European Research Labs, pointed out “collaboration should not be seen as an end in itself”. It must have a clear role in accelerating value creation.
Participants in the round table agreed that there was not always a clear purpose to either internal or external collaborative partnerships. They agreed, however, that it would be useful for the industry as a whole to have a common platform for collaboration and innovation. Critically, it was agreed that the regulator should have a seat on this platform.
A possible aid to more purposeful collaboration between utilities, their supply chain and the regulator, was identified in Innovate UK’s Catapult network. Wainwright highlighted the role of the Digital Catapult in bringing cross cutting innovation around the application of new technologies to fruition – providing an innovation “sandpit” for testing technologies and modelling their impact.
This month’s launch of the Energy Systems Catapult was acknowledged as a prime opportunity for the sector to embrace disruptive changes which might otherwise be seen as threats.