Driving Innovation – A Viewpoint Piece by Mark Smith, Managing Director, WRc plc

October 23, 2012 Categories: Articles

The water sector is facing many challenges in the decades ahead. These range from adapting our present infrastructure to cope with the effects of climate change and large population growth through to managing our water resources more sustainably and for the benefit of all. Even with the recent wet summer, the UK still faces the potential of a third dry winter which will put water resources under severe strain. The possibility of stand-pipes in the street or rotating water restrictions strikes fear in the hearts of water company executives and politicians alike. If this scenario is not to come to pass, we must up the pace of change and actively facilitate the development of innovative solutions. The National Innovation Accelerator for Water (NIAW) is being proposed as part of the solution; it is aimed at all parts of the supply chain, including Tier 1 contractors.  

Tier 1 contractors see innovation as a key differentiator, and they represent a part of the water sector that is genuinely competitive but they are not incentivised by the water utilities who, as geographical monopolies, are not exposed to competition in any real sense. Every 5 years, the water utilities pit the Tier 1 contractors against each other is a do-or-die contest for the capital delivery frameworks. This s a red-blooded contest where every opportunity to differentiate a company is taken. Innovation and innovative approaches are treated as potential competitive advantage and hence are guarded fiercely against competitors. However, once the frameworks have been awarded and these innovations employed, the Tier 1 has an advantage for only 6-12 months before the utility requires all framework players to adopt the new methods of working and the advantage is lost. 

Additionally, frameworks often contain restrictive terms & conditions such as awarding free perpetual licences to the utility for innovation developed by the Tier 1. This allows the utility to transfer the knowledge to a cheaper contractor who doesn't invest in innovation and the Tier 1 loses its differentiator for the next round of bidding. Overly prescriptive asset standards, beloved by procurement to focus selection on price alone, are perhaps a final nail in the coffin for encouraging innovation. 

Yet, some utilities claim to champion innovation and promote the concept of Open Innovation as a solution where they put out challenges to their contractors to work together and solve a problem. This is like asking 2 heavyweight boxers to explain their knockout strategies to each other. They may pretend to do so when the utility is in the room but as soon as the utility leaves the room, its gloves off time! 

However, the Tier 1 contractors can be guilty of simply passing through these restrictive practices to Tier 2's and beyond so they become part of the problem, not the solution. The NIAW will allow the Tier 1 contractors to reach out into the supply chain and introduce innovative solution with less risk. It will be interesting to see if the Tier 1 contractors will embrace the solutions or throw up the same barriers that they accuse the water companies of using. 

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