Innovation in a Regulatory Environment: A Scoping Study
Dr Beverly Wagner and Dr Nusa Fain, Department of Marketing
Area of expertise: Open innovation
The aim of this study was to explore innovation in a highly regulated public sector environment, i.e. the water sector in Scotland, in order to evaluate factors impacting on innovative behaviour.
The study comprised interviews with key stakeholders in the Scottish water sector including Water Industry Commission Scotland (WICS), Drinking Water Quality Regulator for Scotland (DWQR), Scottish Environment Protection Agency (SEPA), Customer Advisory Service (CAS), Scottish Water and the Scottish Government.
The research approach was qualitative and in two phases: a literature review and interviews with senior level executives in all the relevant stakeholder organisations within the sector.
The interview protocol was based on a discussed conceptual framework, supported by additional literature reviews. Respondents were purposefully selected based on their length of service and experience. It was evident that innovation was driven by risk management.
Due to risk-averse culture historically promoted by regulation, innovation is governed by risk management practices. This is sector specific due to the highly visible public health risk of poorly regulated supply and management.
While some initiative has been undertaken by the regulatory authority to promote innovation alongside revised risk management practices that devolve some authority to participating institutions; the development of intervention practices is still in its infancy.
The imperative for the sector is to have a common understanding of exactly what this innovation is, who plays what role, when and how. This was especially relevant as there was a lack of agreement as to the definition of innovation, different parts of institutions and different institutions viewed it differently.
Initially, greater focus was placed on engaging in technological innovation, but participating institutions have acknowledged that business process innovation and continuous improvement in general also contribute. A need existed to establish a joint innovation process across the water sector that would enhance both business and engineering practices within the sector. Attitudes to risk also arose due to involvement and prioritisation driven by Government.
This caused some tension between involved institutions and was acknowledged as a potential barrier to strategic innovation.
Additionally, publicity seemed to play a key role in highlighting the risk to government reputation and the tension between reputational risk, compliance regulation and innovation; leaving no room for experimentation or the possibility of failure. Our findings suggested that while regulation influences innovation in the sector, on the one hand there is a clear need for compliance and on the other economic factors are driving innovation throughout the sector.
There is a tension within the sector related to risk mitigation, indicating that further emphasis needs to be placed on collaborative approaches to risk management. The scoping study confirmed that different attitudes and appetites to risk are endemic: both in terms of individual & stakeholder approaches.
The regulatory body WICS provides mechanisms in support of innovation and core stakeholders express clear motivation to an open dialogue and to share common approaches to risk management within the regulatory framework.