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Ofwat: We want to be the sector’s innovation catalyst

Ofwat is hoping that its five year, £200 million Innovation Fund will help water companies collaborate their way to solving the sector’s pressing problems, and also open up a dialogue with prospective partners in other sectors, such as Fintech or telecoms. UW Innovate spoke to John Russell, senior director for strategy and planning and Harry Armstrong, director for regulatory policy.

UW Innovate: The Innovation Fund has certainly focused attention on innovation in the sector. What was driving Ofwat’s thinking?

John Russell: As a regulator, it felt like maybe we needed a little bit more stimulus, more a sense of what we could do in the ‘here and now’, given the urgency of some of the issues the sector is trying to grapple with. There’s great innovation that goes on in the sector, much more than is talked about normally, but maybe we haven’t seen quite the same levels of innovation that we’ve seen in telecoms, in the digital space, or in transport or energy, where there are big decarbonisation targets.

Ofwat senior director John Russell

Maybe the sector has historically been a bit ‘slow and steady’, and we felt, ‘what can we do in the regulatory system to put our shoulders to the wheel, in terms of pushing for greater innovation.

Part of the motivation was about just doing things differently, to get better outcomes. But collaboration was also quite a significant motivation. The water companies in England and Wales do collaborate, but maybe not as much as they could do on some of these common problems they face, such as trying to get leakage under control. The way we set up the fund was very explicitly targeting collaborative bids between companies and third parties, bring in more of the supply chain and new people into the sector, but doing it in a collaborative way. So we throw out a bit of a rock – I think it’s a bit of a disruption in its in itself – to get companies thinking differently.

Ofwat director Harry Armstrong

Harry Armstrong: I’d add that it’s a real an opportunity for us to signal the importance of innovation. We think the water companies need to be doing more of this, and indeed we are seeing that in terms of the applications that are coming in. As John was saying, there are real opportunities to develop a cross-sector innovation culture, and that’s one of the key driving forces behind the fund.

We’re trying to create a sector that is capable of dealing with those long term challenges, through the way it’s set up. That’s partly collaboration, and also partly your internal company culture, as some companies are better at innovation than others. But we want the whole sector to be able to do this really well.

UW Innovate: What would say is the key difference between a “challenge competition” and a conventional grant programme?

John Russell: A grant program for me would be where there’s ‘a pie’ and you divvy that up so that everyone gets a slice of that pie. But we were really keen that the Innovation Fund should be a competition; we want people who are pushing the boundaries and who know that it’s the best bids that win. We’ve got £200 million for the fund over the five year [AMP price review] period, but we’ve been really clear that this was a genuine competition. We want companies to be pushing themselves, and each other, and working with partners – where no one is guaranteed to win.

UW Innovate: The Innovation in Water Challenge was heavily oversubscribed, with 61 bids and just 12 awards. What will happen to the rest?

Harry Armstrong: There’s emerging evidence that some of the unsuccessful bids are going to be funded through other means, and that companies are looking to re-allocate money towards some of the bids that weren’t successful. I think that really speaks to what we’re trying to do on the culture of innovation, and hopefully it will continue. It’s not just the awards, it’s the conversations you’ve engendered, the development of the projects, thinking about innovation, thinking about the challenges – all of that coming together.

John Russell: We’ve said again and again that this is a catalyst.  We do not see our role as pushing money out the door, that’s not what this is about. We hope we are having a catalytic effect in the sector with people thinking about innovation in different ways, building it as a culture into companies and the sector itself. Already, this has helped to stimulate the sector developing its first ever cross sector innovation strategy, and its commitment the Center for Excellence, for cross-sector research. Those things just did not exist before.

UW Innovate: A common complaint is that innovation projects or pilots are launched, possibly successfully, but then the project is never rolled out more widely. Is that an issue you’ve considered?

John Russell: Yes, a lot of the time, with innovation around environment and ecological protection, it’s not clear how to achieve and replicate the outcomes. So through the Innovation Fund, we’re requiring companies to be open in terms of the way they publish their data and the information and insights gained from projects, and – where applicable – that the intellectual property created through projects funded by the competition is made more widely available.

We hope it’s going to bring everybody up, so everybody can learn about what works and how, or what doesn’t work, and apply that in their context. It goes back to the idea of being a catalyst, where we spread that value and everybody can benefit from it.

UW Innovate: Do you think that experiencing the Covid pandemic – and moving to MS Teams and Zoom – made a difference to people’s willingness to collaborate on bids?

John Russell: It definitely meant that companies had to do things much faster, and change their business practices much quicker than they would in normal circumstances, such as dealing with customers through digital channels, keep their workforces and field technicians safe. So all that involved collaboration tools as well, so I do think it had an effect. Equally, the sector itself had to do a lot of work to think about Covid impacts. Particularly at the beginning of the pandemic, there was a lot of concerns about what would happen if absence rates started to be very high, so there was a lot of collaboration between companies about absence rates and the issues that were developing. I think that encouraged them to think more broadly about innovation and collaboration.

UW Innovate: What kind of projects would you like to see coming through in the next bidding rounds?

John Russell: We would really like to see some different partnerships, and see the opportunity for innovators that are not, perhaps the more traditional partners that appear in some of these bids, maybe from sectors that you would not necessarily think about in relation to water. You have some real adjacencies that might really benefit, such as FinTech or pharmaceuticals or, or whoever, you know, and I start to see some of those things come through and I think in our assessment of future rounds. We’ll be looking at ways to make sure that, you know, people are not just from the sector or the immediate supply chain to get opportunities to work with companies in the sector.