Metered Innovation Funding: A Strategic Approach for Ofwat’s Innovation Fund
The regulator and the water companies' are aiming to provide better outcomes for customers, society and the environment. These efforts are support by the Innovation Fund which has a commitment to invest at least ￡300m (+￡100m in the water efficiency fund) into the water sector's innovative ideas in the next AMP cycle. The use of a metered innovation funding model could be a game-changer for Ofwat. It would enhance the impact and efficiency significantly of this substantial investment.
What is Metered Innovation Funding?
Metered innovation funding is a venture capital-inspired approach that allocates resources incrementally, based on the achievement of predefined milestones. It’s a method that promotes evidence-based progress and judicious use of funds.
The Benefits for Ofwat
Enhanced Risk Management: By releasing funds in stages, Ofwat can minimize the financial risk associated with unproven projects, ensuring that only those initiatives that demonstrate real promise and progress receive further investment.
Agility and Adaptability: This approach allows Ofwat to pivot or escalate funding based on real-time results and feedback, fostering a culture of adaptability within the water sector.
Increased Accountability: Innovators are incentivized to meet or exceed their milestones to secure additional funding, ensuring a focus on tangible outcomes.
The Benefits for Innovators
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Increased diversity of ideas: It will allow more ideas to be funded initially, allowing more ideas to be tested.
Faster decision making: Having defined metrics for progress helps innovators to effectively deploy their efforts
Increased meritocracy: It will give confidence to innovators that the best ideas are being taken forward, not just the ones that have written the best bid, or built the biggest team.
The Benefits for Water Companies
Visibility of progress: This approach allows water companies to more easily demonstrate the effectiveness and value generated by ideas they are leading. For partner water companies it allows them to more easily track progress and understand where and how they can adapt to their own needs.
Benefits for Customers
Value for money: The water companies and the regulator will be able to demonstrate a direct return on the innovation investment (more on this in a later post).Long term gains: Effective metered innovation finds the right ideas to support and generates a positive return on investment for the overall portfolio.Implementing Metered Funding in OfwatTo integrate metered funding into the next cycle of the innovation fund, Ofwat would need to:Establish clear, measurable milestones for each funded project.Create a governance structure to oversee the distribution and performance of the funds.Utilize innovation accounting to track progress and make data-driven decisions.For Ofwat, metered innovation funding offers a structured and disciplined investment strategy that aligns with the organization’s goals of fostering innovation within the water sector. It ensures that every pound from the innovation fund is directed towards projects that are not only promise but also prove their potential to address the pressing challenges of water management.
As Ofwat funds a diverse range of projects, metered funding would provide a robust framework to maximize the impact of each competition, driving the sector towards a more innovative and sustainable future.As always let me know your thoughts and comments and keep an eye out for next week's post on Return on Innovation Investment
The 'laddered' approach to innovation is an effective method of steering funding towards the most impactful innovations. I first came across it in the 1970's when I started work (still in short trousers) at UKAEA, as it was then. The weakness of this approach is, when it's applied to a single sector, it 'misses' cross-sector Innovation, which is where there's the biggest opportunity for breakthrough innovations. Without a weighting factor that looks at cross-sector benefits as an overarching criteria, this risks just promoting incremental siloed 'innovation'.