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Managing an Innovation Portfolio

How Northumbrian Water Manages It In A Highly Regulated Industry

Part of our work with leaders, is to evaluate whether their innovation portfolio is balanced. We focus on the innovation projects that are taking place within the company and examine whether they cover the three types of innovation (i.e. efficiency, sustaining and transformative). Our aspiration is to ensure that companies are not just focused on optimizing their current business model, but they are also investing in their future. 

We recently worked with Northumbrian Water, a UK based utility company that provides water and sewerage services. When we tried to evaluate their innovation projects using our three types of innovation framework, we faced some interesting challenges. In this article, you will learn how you can visually evaluate the balance in your company’s innovation portfolio. 

 

Northumbrian Water provides water and sewerage services to just under 4.4 million people in the North East of England. Being an important utility company in the UK means that Northumbrian Water is highly regulated. Although it is a private company, its agreement with the UK government places caps on how much they charge for water and guarantees their annual revenues. The company is regulated using a balance scorecard that sets a range of targets including leakages, pollution incidents, sewer flooding, greenhouse gases and water environment improvement. All the measures on the balance scorecard are regulatory. 

Even within such a constrained regulatory environment, Northumbrian Water is highly focused on innovation. In 2019, they created a new Head of Innovation role and appointed Angela MacOscar to the position. They also launched a global innovation platform called Amplify and their annual Innovation Festival draws innovative minds from business, science, engineering, utilities and customer services and gets them to tackle challenges together in a series of sprints.

 

Innovation Portfolio - A Business Model Lens

So what does the innovation portfolio of a company in such a highly regulated industry look like? There are strong constraints to what they can do. Northumbrian Water is not allowed to operate outside of their licensed arena of water and sewer services. Even within that arena they are limits to how far they can go. As Group CIO, Nigel Watson liked to joke, “We are NOT allowed to create new flavours of water coming out of people’s taps!”

In collaboration with Angela and Nigel, we mapped out their innovation projects. As we do when we work with companies, we asked them to put one innovation project per sticky note. We then proceeded to have a conversation during which we classified each project under the right type of innovation. We started the classification by using our typical definition of the three types of innovation based on a business model lens: 

 

  • Efficiency innovation is about exploring opportunities that improve operational aspects of a company’s existing business model(s).

 

  • Sustaining innovation is about exploring opportunities that build on top of a company’s existing business model to strengthen it and keep it alive. 

 

  • Transformative innovation is about exploring opportunities outside of the traditional field of a company and radically changing or expanding a company's business model(s). 

 

Using this classification, 77% of Northumbrian Water’s projects were classified as efficiency innovation and 23% were classified as sustaining innovation. There were no transformative innovations within Northumbrian Water’s innovation portfolio.

 

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Innovation Portfolio - A Societal-Environmental Impact Lens

As our conversations evolved, it became apparent that a classification system based exclusively on a business model lens did not fairly reflect the impact that  Northumbrian Water’s innovations were having. After a fairly candid exchange, Angela and Nigel made it fairly clear to me that their company could not explore opportunities outside its traditional field even if they wanted to. Instead and in-line with their mandate, Northumbrian Water had focused on driving innovations that have societal and environmental impact. So we wondered what the classification of their portfolio might look like if we took the societal and environmental impact lens, instead of a business model lens. In that context:

 

  • Efficiency innovation is about exploring opportunities that help the company to simply meet the current regulatory targets set by the government in terms of social and environmental impact.

 

  • Sustaining innovation is about exploring opportunities that help the company go beyond the current regulatory targets for social and environmental impact but remain within its industry.

 

  • Transformative innovation is about exploring opportunities that help the company go beyond the current regulatory targets and have social or environmental impact beyond its industry. 

 

Using this new classification method, 28% of Northumbrian Water’s projects were classified as efficiency innovation, 48% were now classified as sustaining innovation and 24% were transformative innovations. Both Angela and Nigel were satisfied that this new classification better reflected Northumbrian Water’s position. 

 

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National Underground Asset Register

A good example of Northumbrian Water’s transformative innovation is the National Underground Asset Register (NUAR). This idea was conceived at the 2018 Innovation Festival as a way to create an underground map for all utilities. Before NUAR, utility workers would have to gather three separate maps of gas lines, electricity cables and water pipes before each hole they wanted to dig. The maps gathered were often bad quality and took a lot of time to put together. The estimated cost of accidental strikes on underground pipes and cables was about £1.2 billion a year.

The NUAR project gathered the data together from three sectors and combined it to make one map for the local area in Sunderland, with all of the data shown. This turned out to be such a success that the Geospatial Commission in the UK got involved and invested £3.9 million to pilot the NUAR software in the North East and London. The app was launched on all platforms, allowing workers to pick any spot in the region, to which they would be given all of the utility data in the area. 

NUAR provides data on restricted areas, fiber optic locations, warnings and congested areas. It also allows users to post pictures of their observations if they feel the data needs adapting.  This data then enables the utility industry to more efficiently access, use and share maps describing otherwise hidden infrastructure, thereby reducing operational costs, minimizing issues and accelerating on-site work. Such an innovation is transformative in that, even though it originated with Northumbrian Water, it has had impact beyond the water industry

 

Don’t Let Your Company Efficiently Die

Regardless of the classification methods your company ultimately chooses for innovation projects, the goal is to have a balanced portfolio that goes beyond just optimizing your current business model. If your company simply focuses on efficiency innovation, then it could be efficiently dying. An assessment of your innovation portfolio also helps to make explicit to leaders how much they are investing in exploring the future. This can result in more informed decision making going forward. 

Innovation Readiness Program

Assess your Innovation Ecosystem and Identify Actionable Solutions to address your Challenges.

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Innovation Readiness Program
Innovation Readiness Program

Innovation Readiness Program

Assess your Innovation Ecosystem and Identify Actionable Solutions to address your Challenges.

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