In 2022 we commissioned The Centre for Strategy and Evaluation Services (CSES) to produce a baseline report for the level of innovation in the water sector in England and Wales, covering water companies and their supply chains.
The report assesses the level of innovation in the water sector and its supply chain before we introduced our £200m innovation fund. We are using the report to help measure the impact of our fund.
Below we set out:
Download the report
Find out more by reading the full innovation in the water sector baseline report.
Background to the report
In 2020, we launched a pioneering £200m Innovation Fund to support innovative initiatives which deliver significant benefits for customers, society and the environment. It aims to ultimately grow the water sector’s capacity to innovate, to enable it to better address challenges and meet the evolving needs of its stakeholders.
A key component of measuring the success of the Innovation Fund in the future, is by having high quality evaluation processes in place, including a baseline against which we can compare improvements in innovation.
That’s why we commissioned The Centre for Strategy and Evaluation Services (CSES) to produce a baseline report for the level of innovation in the water sector in England and Wales, covering water companies and their supply chains. The report looks at two main dimensions of innovation:
- the capacity for and approaches to innovation of the water companies themselves.
- the innovation “ecosystem” of the wider sector, in terms of collaborations between water companies and other players, as well as the regulatory environment insofar as it affects innovation.
The background to the report is the need for greater innovation in the water sector highlighted by previous studies and reports. In 2019, the Ofwat price review found that most water companies were still in the process of developing the culture and mechanisms required to facilitate effective innovation and collaboration.
On that basis, the report has taken the 2019 price review (PR19) business plans as a starting point and used other sources of evidence (mainly surveys and interviews with water companies) to assess progress made since then.
Key findings
| Water companies all have commitment to innovation but action varies by company | As required by Ofwat, all water companies demonstrate a commitment to innovation through their PR19 business plans. However, the evidence of innovation and the nature and extent of action taken to fulfil such commitments varies from company to company, reflecting their specific circumstances but also their different “starting points” in terms of innovation. |
| There is no corporate model for innovation | There is no one single specific corporate “model” of innovation that all water companies should adopt. Whilst some, typically the large companies, approach innovation as a distinct corporate function with dedicated staff and resources, others, typically the smaller companies, prioritise mainstreaming innovation into most or all activities. Both approaches can be valid but also carry their own risks. |
| Water companies have carried out a range of innovation activities but more structured and consistent ways of scaling innovation are needed | Water companies have undertaken a wide array of innovation activities over the last few years. However, the challenge remains to promote more consistent and structured ways for successful innovations to be scaled up within companies to become business as usual and transferred between different companies. |
| There is a need for greater knowledge sharing among companies | There have been instances of water companies adopting solutions from others in the water sector. However, the transfer of innovation can be hindered by the different geographies served by the water companies and by a need for greater knowledge amongst water companies as to which innovations have been successfully tested and rolled out elsewhere. |
| At sector level, there is a need for strengthened collaboration around shared challenges and engaging suppliers | At sector level, there is a need for strengthened collaboration around shared challenges and around the best way to engage suppliers of innovations, as a complement to individual water companies’ own efforts. Spring’s “communities of knowledge” may offer one means to do this. Small water companies might particularly benefit, given their more limited resources for scanning the market and engaging suppliers. |
| At sector level, there is a need for greater action to engage suppliers of innovations | At sector level, there is a need for greater action to engage suppliers of innovations, as a complement to individual water companies’ own efforts, for example, through structured networks for supporting suppliers to bring forward innovations, a single point of entry or open model of soliciting innovations, open events for soliciting innovations for potential suppliers, or pilot projects with suppliers. |
| Relationships between water companies and universities or other research bodies are an important driver of innovation | The established relationships between water companies and universities or other research bodies are an important driver of innovation. However, they are threatened by the loss of EU funding in light of Brexit. |
| At sector level, there needs to be more collaboration to build innovation capacity | At sector level, there may be a need for dialogue and collaboration as to how the education and training sector can best support the building of innovation capacity. Innovation-specific training is available; however, it is not widely used and companies often consider that it does not serve their innovation objectives. |
| The full potential of collaboration with other regulators is not fully exploited | The full potential of collaboration with other regulators is not fully exploited, due to the lack of a structured forum at sector level for water companies to engage with other regulators in relation to innovation (although Streamline provides a means by which innovators and individual water companies can get advice from regulators). |
Next steps
This report provides a baseline to allow us to carry out a similar exercise in future to compare the state of innovation in the sector.
The Innovation Fund and competitions are being evaluated and the findings from the process evaluations have produced an evidence base, which informed the recently published Innovation Fund Pilot Period Report. This report summarises what the sector, supported by the Fund, has achieved during the pilot period. The report also sets out recommendations to Ofwat on how to improve the Fund over the next three years.
We will continue to engage, learn and adapt after each competition and through the duration of the Fund. We will continue to work closely with our delivery partner, Challenge Works, to make sure the right framework and data collection is in place for undertaking evaluation.