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Are we creating a postcode lottery for digital water services?

Are we creating a postcode lottery for digital water services?

By Mark Kaney

The more you can spend to achieve successful outcomes, the greater the likelihood of success. Since the 2013 Australian Grand Prix, no F1 team other than Red Bull, Ferrari or Mercedes has won grand prix. The ‘big three’s’ spending power consistently outstrips the rest of the pack. During the 2018 season, won by Mercedes – with Ferrari second and Red Bull third – the big three spent more money than the other seven teams combined.

During the 2018/19 English Premier League season Liverpool paid £43m to football agents – more than any other club - followed by Chelsea (£26m) and Manchester City (£24m). City beat Liverpool to the title by one point, Chelsea finished third. During the same season Championship clubs’ combined pay-outs to agents totalled £50m.

Could we see something similar apply to the water industry in England? It’s an exciting time with digital transformation gaining pace, a renewed appetite for innovation, and the opening up of the sector to tech startups. Against this backdrop, is there a chance that customers of bigger water companies - with more to invest in innovation - enjoy better outcomes, better customer experience, than customers of smaller – less affluent – water companies? This matters because when you are dealing with natural monopolies like water companies few customers – an no domestic customers – can choose their supplier; creating the potential for a postcode lottery in digital water services.

Big is bountiful

Innovation is a prime mover for better services and customer experience. It follows that the more a water company can spend on innovation, the greater the likelihood that the company’s customers will enjoy a better experience. It also follows that the converse is true. If the chance to invest in innovation is limited, customer experience is less likely to improve.

The bigger the innovation investment, the greater the pool of partners and suppliers water companies can draw from. Access to technologies and approaches not traditionally associated with the water sector is enhanced, so is the ability to create multi-company top-tier alliances.

It is definitely the case that the bigger water companies are making significant investments in initiatives intended to foster innovation.

Anglian Water’s ‘Future Water Company,’ initiative uses the Newmarket region of its operating area as a proving ground for innovators and technologies promising the greatest benefits. At Newmarket the utility is working with more than 100 partners on 62 different projects to achieve zero leakage and bursts; 100 per cent customer satisfaction; water consumption of 80 litres per person per day; zero pollution and flooding; 100 per cent compliant and chemical-free drinking water; carbon neutrality; and building a circular economy that eliminates the concept of waste.

For the second year running United Utilities is running its award-winning Innovation Lab programme. This year the focus was on how innovative companies can help the utility develop systems thinking and improve service using the themes of: Connected Customers; Empowered, Knowledgeable Colleagues; Right Information, Right Place, Right Time; and Future of Water.

This summer saw more than 3,000 people from nearly 700 leading organisations around the globe, attend Northumbrian Water’s Innovation Festival. The aim of the five-day event was to come up with innovative solutions to some of the biggest challenges faced by society and the environment.

For the smaller water and water-only companies, and new entrants, initiatives on this scale are likely to be too expensive, and difficult to resource effectively, to undertake alone. By partnering with Anglian, however, water-only company Essex & Suffolk Water was able to participate in September’s three-day Innovate East event. Customers of those companies unable to participate in major innovation initiatives may not enjoy the benefits of any successful innovations that arise.

Disparity reinforced

While justly rewarding good performance, the comparative competition model which underpins economic regulation of the water industry in England and Wales reinforces this disparity in ability to invest in innovation. The companies best placed to achieve their outcome delivery incentives will typically be those most able to invest in innovation. With performance measured relative to self year-on-year the companies with the most to invest in successful outcomes will accrue even more funding for further innovation; with their customers seeing better, cheaper service and greater speed-to-value.

While smaller companies may have the advantage of being more nimble, and better suited to adopting new technologies from start-up companies - with less proof of scalability – they are taking on greater risk than those able to afford proven heritage brands.

With no incentive to share innovation across the sector, this propensity to variable speed innovation will grow. This risk of a postcode lottery in customer experience is likely to be exacerbated by the cost of investing in leading-edge, data and artificial intelligence driven technologies.

Seemingly cognizant of this, and recognising that part of the solution lies in some form of sector-wide mechanism to foster and share innovation, economic regulator Ofwat is consulting on its own proposals to drive ‘transformational innovation’ in the sector. The proposals apply to the 17 largest water-only and water and sewerage companies and centre upon:

  • A collectively funded innovation competition during AMP7*
  • Rewarding the successful roll-out of innovative solutions at the end of AMP7 as part of PR24**
  • Creating a company-led innovation in water centre of excellence
  • Proposals on ways to make better use of data

As the innovation initiatives described previously show, water companies typically look to the supply chain to develop innovative technologies and ways of working. The utilities have shown a willingness to trial and adopt innovation borne of the supply chain; but not to expose customers, owners and shareholders to the financial risks inherent in undertaking large-scale research and development of their own.

Consequently, to succeed, any initiative to create ‘transformational innovation’ needs to facilitate supply chain involvement at a sector-wide level. As Ofwat’s consultation document notes, “Supply chain companies report facing slow commercial deployment, and often having to trial their new technologies independently on each incumbent water company.” Finding a viable alternative is vital to speed-up the nurturing of innovation from good idea to something with the potential to offer perceptable value for customers, shareholders and owners.

The IPR conundrum

Adjunct to this is the tendency from many water companies to want to own the intellectual property rights (IPR) for all supply-chain derived innovations they adopt. This acts as a disincentive to suppliers because they do not get a sustainable return on their investment in innovations. This serves as a barrier to the supply chain making a sector-wide contribution to transformational innovation as there is a propensity for the wealthiest companies to monopolise the best ideas, which risks contributing to the development of a postcode lottery for the best water services. The journey from a great idea to the ultimate cost and service benefit to the customer has many barriers; and the chances of that idea becoming real and making it to a customer, let alone all customers, reduces at each hurdle.

Data will be at the core of genuinely transformational innovation. To mitigate against the risk of a two-tier provision of water services data needs to be fully accessible to all, with the returns on investment mainly residing with the ability to turn data into information. Currently the trend is towards seeing how data can be monetised. We need to move to a position where the wisdom and insights which data informs are valued, rather than the data itself.

To enable this change, could water companies and the supply chain create and have access to a central open data resource? This will help foster a sector-wide innovative culture by making the building block of digital innovation – data – available to all. The role that open data has to play in driving innovation is recognised in Ofwat’s current innovation consultation which proposes, “There will be an ‘open by default’ approach to data and learning …”

Appetite for open data

In contrast to IPR, when it comes to data water companies are starting to show a much greater willingness to share. Yorkshire Water is setting a precedent with an open data initiative partnership with the Open Data Institute, using Datamill North as a data repository. The company is considering giving independent data scientists access to data streams including water consumption, water resources, leakage and bio resources.

A two-tier, postcode lottery, for water services is in no ones’ interest; especially at a time when our industry is facing more intense scrutiny than ever before. There is no silver bullet, but the fact the regulator has put forward concrete proposals for consultation is a welcome step. As we move towards Industry 4.0 - and the role of data, artificial intelligence, and machine learning underpin everything we do – embracing open data now and creating an industry that encourages and enables innovation from all, will help us future-proof world-class quality and consistency of service for all.

 

*AMP7 is the seventh five-year asset management period (AMP) to be delivered by water companies in England and Wales since privatisation in 1989; AMP7 runs from 2020 to 2015.

**PR24 is the regulatory price review (PR) of water company funding, due in 2024.

Mark Kaney is Director of Asset Management for Black & Veatch Europe

A shorter version of this article was published in the November edition of The Water Report.

 

About Black & Veatch: Black & Veatch is an employee-owned engineering, procurement, consulting and construction company with a more than 100-year track record of innovation in sustainable infrastructure. Since 1915, we have helped our clients improve the lives of people in over 100 countries through consulting, engineering, construction, operations and program management. Our revenues in 2018 were US$3.5 billion. Follow us on www.bv.com and in social media.

 

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