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AN INDEPENDENT <strong>EVALUATION</strong> OF THE LCNF<br />

2.3 Defining innovation<br />

This evaluation includes an assessment of innovation. So while the term innovation is<br />

broadly understood, (i.e. to make changes in something established, especially by<br />

introducing new methods, ideas, or products), the process of identifying whether a<br />

method, idea, or product is innovative is likely to be interpreted differently by different<br />

people. As part of this project, therefore, it has been necessary to both define what is<br />

mean by innovation in the context of the GB DNOs, and also to ensure that this definition<br />

is understandable and acceptable within the industry, and to key industry stakeholders.<br />

An important part of this process has been the development of a definition for ‘innovation’<br />

in the context of the GB DNOs; this was subsequently used as part of the assessment<br />

process. There are several definitions for innovation; however the following definition was<br />

agreed during discussions with the academics:<br />

Innovation: changes in both technology and administrative/management<br />

practices that leads to an improved performance of the company. The<br />

improved performance can be demonstrated by a wide variety of financial and<br />

non-financial indicators.<br />

Building on this definition we developed and defined three different levels of innovation –<br />

‘low’, ‘medium’ and ‘high’. A set of words was agreed with the academics and used to<br />

describe each of these different levels of innovation for discussions with the DNO<br />

businesses. The definitions are summarised in Table 1 and a full description is presented<br />

in Annex F.<br />

By defining the level of innovation in this way, we have been able to estimate any change<br />

in the level of innovation in the DNOs over the period of the LCNF. This includes how<br />

‘embedded’ innovation is in the business and culture of the DNOs, and therefore enables<br />

a view to be developed on the extent to which the current level of innovation – as<br />

observed in the DNOs – would continue if the innovation regulatory incentive was to be<br />

removed. This is expected to inform the future regulatory funding incentive programme<br />

for innovation in the GB electricity distribution sector.<br />

PÖYRY MANAGEMENT CONSULTING<br />

October 2016<br />

713_Poyry_Report_Evaluation_of_the_LCNF_FINAL_Oct_2016_v700.docx<br />

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