Overcoming Obstacles to Innovation
Happy Earth Day to my friends and colleagues. I love this day as a homage to the place we call home, but as with World Water Day, I think of every day as Earth Day. Hopefully, we all embrace protecting this planet as a fundamental value, and find ways every day, no matter how big or small, to protect her.
As I did for World Water Day, I offer a thought on the obstacles that many institutions confront when seeking to take steps to help protect the planet, based again on the lecture I offered to Professor Buzz Thompson's class on the business of water at Stanford Law School. The picture above is one of the diagrams I drew for that class.
Many lament that the organizations that we form, public and private, do not seem to embrace many of the innovative steps that can help protect the planet - air, water, land and all the species that live here. I suggest that there are rationale reasons for the slow nature of innovation - which when understood - can generate specific policies and actions to overcome.
Long Dated Assets. I would like to focus here on the aspect of human creations that I term "long dated assets." Think of structures that we build to deliver critical services and that last a relatively long time. While this analysis is relevant to many human creations, I am thinking particularly of infrastructure: water, sewer, roads, bridges, power grids... Each of these elements provides a critical service to enable human life on earth, and after a significant up-front investment, lasts for many years, and sometimes more than a century.
Performance. After the significant up-front cost, the black line on the graph above highlights another common attribute: declining performance over time. Any long-dated asset deteriorates over time, delivering less effective and/or efficient service. Moreover, these assets fall behind the service delivered by more recent versions of the same assets that incorporate new materials, approaches and technologies. Thus, performance of these assets decline over time, sometimes with abrupt shifts downward. For a water main for example, we progress from the advent of leaks, to increased leaks, to an actual burst and loss of service.
Cost. The striking parallel is the green line - which is the increase in costs. Aging systems require more maintenance, which require growing investments in personnel and equipment.
Death Spiral: These trends together represent a death spiral for any enterprise: charging higher costs while delivering worse performance. People do not want to pay more for less, which then leads to more resource constraints, which drives service down further, which leads to further deterioration of customer support, and so on, and so on, to oblivion. It is no wonder that most people lose faith in the institutions charged with delivering these services.
Innovation offers a solution to this death spiral: new approaches and technologies that improve performance and lower costs. I have outlined in a box on the graph where the black line starts moving upward and the green line moving downward. The pitch of every infrastructure firm, from start-ups to technology behemoths, is to present a graph of this nature.
Most are puzzled, then, why their innovation is not immediately embraced. Who wouldn't favor better performance at a lower cost? I do not offer any empirical data to back up this conclusion, but there is widespread agreement that innovation that can improve performance while lowering costs is slow to come in the world of infrastructure.
The answer is found in the many "bubbles" of costs I have added to the green cost line. For any infrastructure agency to consider a new idea, a wide range of steps must ensue before any cost reductions or improvements are realized.
A. Leadership must decide to consider adopting an innovation. This step itself commits personnel to an investment of time and effort. As a practical matter, the first step is an assessment of what is the condition of existing services. Only a clear-headed sense of current services can set an agenda for what innovation may be relevant. This is usually referred to an assessment of existing assets - or "asset management."
B. Leadership must decide which areas are suitable for innovation – and select one or two for a greater in-depth analysis. The asset management effort identifies areas of decreasing performance where potential investments in innovation can reverse the trend. The assessment of potential innovations is potentially daunting given the vast number of options and approaches that are in the marketplace.
C. Leadership must select projects for development of detailed specifications that can support the procurement of services at best value and cost. This step can include a request for interest (RFI), Request for Qualifications (RFQ) or request for proposals (RFP). The RFI and RFQ are typically used to narrow down the range of selections for the RFP. The RFP process may also require determining what kind of procurement will be used. The common "design-bid-build" process requires two steps - one to select and develop the design, and the second to secure the construction team.
D. Leadership must select appropriate vendors. After review of pricing and technical criteria, vendors must be selected to deliver the innovative project.
E. Leadership must fund the design and construction of the project! This usually requires a significant capital investment that may require public or private borrowing. The completion of the project is usually when the vendor suggests that improved performance and lower costs begin.
F. Training, Commissioning, Inventory. Often forgotten when innovations are considered, significant time and funding must be invested in training, commissioning the new approach and developing standard operating procedures for operations and maintenance, including suitable inventory and timing of appropriate actions. At times, new personnel will need to be hired.
Now, finally, we can start saving money and delivering better service. But look at all the decisions that must be made (all six of them, broken out into dozens and dozens of smaller decisions) and the huge range of investments that must be made to get to this final point (all six cost bumps, a+b+c+d+e+f).
This reality is why few agencies adopt innovation as quickly or as often as we would imagine. It is not a challenge with the return on investment gained at the end of the process, but the frightening level of resources needed to get to that point in the first place. The personnel and financial costs of (a-f) create a rational and understandable reason to inhibit innovation.
Gosh, this is dispiriting analysis to present on Earth Day. Except, there is a clear range of solutions that can overcome these obstacles.
The challenge is not that the decisions and investments must be made to reach the promised land. The challenge is that most agencies undertake this process separately.
The great irony to this challenge is that most infrastructure is far more alike than not. Most water systems all have mains, pumps, valves, primary and secondary treatment, biosolids, disinfectant, customers, rates meters... Of course, there are differences from one to the next, but the similarities far outweigh the differences.
We must therefore usher in a range of services that can reduce the cost of innovation - which I term the 3Ps and an A.
Platform. We need a nimble and fun platform that enables an agency of any size and composition to learn and select relevant innovations. In this manner, all agencies share the upfront costs and work associated with considering innovation:
Assessment of Common Conditions.
Assessment of Common Responses. Development of replicable "modules" for common issues that can be easily customized.
Review and Selection Process.
Purchasing and Implementation Process.
Potential for Shared Operation and Maintenance
Through a web-based platform, agencies would share in the costs of (a+b+c+d+e+f). The platform would need to help utilities with similar operational characteristics and/or geographic proximity to work together to jointly do what they already do – or could do.
2. Partnerships. Even with a nimble platform, better resourced agencies are likely to take a leadership role. Perhaps a larger agency runs the process and shares costs with smaller agencies. The larger agency will have on-staff personnel to oversee each step, which the smaller utility gains the benefit at a fraction of the cost. The larger utility gains a percentage of costs they would have borne alone covered by others. Everyone is better off.
3. P2 Investment. With the (a-f) costs to implement minimized, the range of projects that exhibit a positive return on investment increases substantially. Public funds - like federal funding in the Bipartisan Infrastructure Law and Inflation Reduction Act - can fund these costs in transactions which can be forgiven, but in more cases, can be replenished and recycled due to improved returns. Private funds, particularly at the ready when both a social good and a return can be achieved, can provide funds that are usually easier and faster to access and deploy.
4. Assistance Network. Particularly for infrastructure agencies in lower income communities - those that have personnel and financial constraints built in to the funding program - public and philanthropic funds would be well invested in building a national network of assistance providers that can help an agency through steps (a-f). The assistance organizations can help focus and deliver the first three components - platform, partnerships and public and private finance - to those in greatest need. The fantastic news is that USEPA and other federal and state agencies are developing and enhancing entities to provide just this type of assistance.
Moreover, the platform can help bundle similar projects together for multiple agencies – allowing investors to focus their funds on groups of nearly identical projects, rather than developing each independently. This will save transaction costs on all sides, and make the process even more desirable.
Our Moonshot is then a national, and perhaps someday an international, network of infrastructure agencies that work together to share the upfront costs of new innovations – so that the group can also share in the resulting cost savings and performance improvements. These benefits will be gained not just by the communities and agencies that have the funds to undertake this work, but under-resourced and disadvantaged communities that have been largely forgotten. And on many more occasions than today, these upfront costs will be covered by private funds – with investors fronting the money to share in the savings.
Example: Green Infrastructure. An example will help clarify this process. DC Water, the well-resourced utility that I led in Washington, DC embarked on an effort to build green infrastructure (GI) to manage stormwater. One of the benefits of GI is that it creates the need for local jobs to design, build and maintain the infrastructure at the street level. Yet a parallel weakness, at least at first, is that there are not many workers trained to do this work.
Here was an opportunity, and an example of how our moonshot would work! DC Water has the up-front resources to invest $900,000 to create a certification for green infrastructure to start developing a qualified workforce. Working with the Water Environment Federation, a national trade association, DC Water funded the program up front. In the old model, we would have stopped there. And any other city seeking to develop a GI program would have separately developed their own program.
Instead, even without the benefit of a platform to publicize and form the partnership, DC Water and WEF recruited more than a dozen other cities to join the effort. Each of the other cities donated $50,000 to the effort – a significant portion of which was refunded to DC Water. In the end, DC Water was refunded more than half its initial investment, and all the other cities benefited from a fully developed GI certification program for a fraction of the price. Everyone is better off – everyone participated in the program – the program is therefore better – and we have a national program that is growing for every community that follows.
This example provides a window to what is possible. A well-designed platform will make forming the partnerships and alliances easier. Sharing costs will reduce the obstacles to innovation. The new gadgets, technology and approaches can take hold – we can provide better service at lower cost.
The ultimate beneficiary is the water, air, soil and all the species that make up our world.
Happy Earth Day everyone!