Utilities and their suppliers do not perform well on innovation but – perhaps explaining the poor show – there is little consensus on where overall responsibility for this lies. This finding emerged from our latest poll of the industry movers and shakers on our Senior Executive Panel (see box to join).
Seventy-one per cent of panellists said the sector was not innovative enough. Electricity was considered the most set in its ways, with gas and water doing slightly better. The list of areas crying out for innovation was long. One named “production, supply networks – especially in the water industry, tariffs, metering, standard products with additions for those who want them”. Another suggested: “Tariff structures, customer service delivery, capital investment cost, operating costs and financial structures.” Yet another replied: “Everything except finance, where they have innovated, because they got to keep more of the gains.”
Asked who was best placed to innovate, more than two-thirds could not choose between utilities and the supply chain. One executive explained: “The supply chain and utilities will often innovate in different ways as the nature of their businesses may be different.” No-one felt utilities alone were best placed to innovate, while around a third said the supply chain had the advantage. According to one panellist: “There is no reason to exclude supply chain from innovation to help maintain competitiveness and market share.”
That said, 57 per cent felt the supply chain wasn’t pulling its weight on innovation at present. “Supply chains are not investing in research and development,” someone observed. However, another executive said: “I think in some areas it is and in other areas it is not. It is dependent on which supplier and on what is currently possible under legal and regulatory structures.”
Rob Sheldon, managing director of Accent, which co-sponsors the research programme with Utility Week, stresses that this lack of clarity about ultimate responsibility may be retarding progress. He says: “Innovation is key to the success of any industry …This piece of research is really interesting and shows a divide over who our executives feel has the overall responsibility to innovate.”
A divide is evident, too, over who should be responsible for funding innovation. Twenty-nine per cent said supply chains should be footing the bill on the basis of commercial gain; 14 per cent thought customers should be paying via bills; and a further 14 per cent thought utilities should stump up the cash out of their profits. The remaining executives had a mixture of other views.
More consensus emerged on what the main obstacles to supply chain innovation are. The lack of regulatory reward took the top spot. One executive explained: “If things go wrong for utilities, then the consequences can be very severe. If they go right, no-one notices. This means utilities are working under a penalty regime. Penalties drive risk-aversion, making it hard for the supply chain to persuade utilities to adopt new technologies. One route to overcoming this is for the utility regulators to provide much stronger rewards. Rewards drive innovation.” Another agreed, citing the most pressing issue to address to encourage innovation as the “chronic failure to understand incentives, on the part of regulators and policymakers”.
Others pointed to national and local government policy – or its unpredictability – as an obstacle to successful innovation. One explained: “Objections to planning applications, for example, for windfarms and power lines can cause major delays and even lead to the abandonment of plans.”
Join our panel
If you are an executive working in the utility industry and would like to be part of this bimonthly poll on hot topics please contact Katrina Van Loon (katrina.van-loon@accent-mr.com). Each survey will take no more than five minutes to complete and all answers will be treated in complete confidence unless you give your permission for us to quote you.
This article first appeared in Utility Week’s print edition of 20 July 2012.
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