Newcastle University

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Work Stream Leader: Phil Purnell

Work Package 3.1: Scaling Infrastructure Business Models

Lead Investigator: Katy Roelich; Lead Researcher: Jonathan Busch

Business models exist at sub-national scales, (which we call local business models) that promise resource efficiencies and postive externalities delivered and not valued by the market mechanism, such as job creation, community cohesion and crime reduction. However, these local business models only appear as isolated cases of good practice; they are far from being mainstream and face a series of constraints that prevent them from realising their potential contribution. The implications of rolling out these local business models at much larger scales is not clear, in particular how they co-exist with each other and with the incumbent national model. This WP aims to explore the unexploited potential of local business models and the implications of their wider roll out.

We will use heat networks as a case study to identify the attributes of local business models that determine their potential to scale up and affect cost or resource efficiency. Attributes could include institutional resources (such as technology, access to different  methods of finances) and capabilities (such as skills or ability to manage risk), as well as physical factors (such as availability of networks or geography) and spatial factors (such as density of customers and jurisdiction). These attributes will be identified through a combination of literature review and interviews with case studies of heat networks including those delivered by incumbent utility companies, local authorities and communities (which are examples of what we call providers – an actor or organisation who implements a particular business model).

The relationship between the attributes and the scalability of the business models will be analysed in detail to more specifically characterise how they affect the potential contribution of the particular business model or provider. For example, a heat network requires a particular density of heat demand to be viable, so will only be appropriate for particular end uses or in areas with a particular population density. We will also identify what might be constraining particular attributes, for example access to finance for small projects, which could be removed by policy or regulatory change to increase the potential contribution of the business model or provider. Our initial investigations have indicated that there are significant regulatory and planning barriers that would have to be overcome to support wider roll out, and these will be explored with WP1.4. We will pay particular attention to the transferability of attributes to other business models and technology.

In addition to the attributes of local business models, we will identify the types of non-monetary benefits that arise from operation at a different scale. These social and environmental benefits are frequently generated by local business models but rarely systematically captured and compared between different models. For this, we will draw on methodologies developed in WP2.2 (Systems of Provision) and WP2.4 (Social and Environmental Accounting).

The interaction between local and national business models will be explored to identify the effects of an increase in local provision on the viability of provision at the national scale,  with the aim of investigating the complementarity of business models and the potetnial for co-existance. This will include the effects on physical networks, such as electricity transmission and distribution, as well as national governance systems such as energy markets and regulatory systems. We are particularly interested in interactions between business models that result in negative effects or efficiency reductions. This will be qualitative at this stage, aiming to identify linkages and implications; however we will articulate these relationships and effects in a way that enables quantification at a later stage.

The outcomes of this work and the work describing attributes and benefits of local business models will be used to develop a specification for a complex systems model that would allow us to explore the potential scale of contribution and the effects of co-existence in a more quantitative way. 

Work Package 3.2: Issues of scale and complexity

Lead Investigator: Denise Bower; Lead Researcher: Rachel Sandham

IUK ,in collaboration with the University of Leeds has developed an "Infrastructure  Routemap‟ (Routemap) to help meet the challenges involved in the delivery of major infrastructure projects.  Routemap aims  to enable more informed procurement and delivery decisions. andbrings together a set of assessment tools to provide a single-source guide for planning, executing and operating major infrastructure projects.  It is aimed primarily at the sponsor and client organisations that deliver major projects and programmes, long term capital investment plans and publicly procured mega-projects.

The Routemap application provides an objective assessment of the complexity of the organisation and delivery environment and also of the capability of the sponsor, client and supply chain. The identification of any misalignment between this output and the critical success factors, key risks and opportunities can be identified allowing sponsors and clients to make more informed procurement decisions. This WP will investigate the benefits for projects and organisations in undertaking Routemap applications, which are expected to include cost savings, easier delivery, long term collaborations and knowledge transfer, up-skilling, reduced tendering costs and a landscape that promotes innovation. Application of the Routemap on projects such as Crossrail, the Environment Agency’s Thames Estuary project, HS2, London Underground’s Station Stabilisation Programme, Network Rail’s ETCS Programme, Surrey County Council and Anglian Water's AMP6 infrastructure investment strategy will be used as case studies in the first instance, but further examples will be sought during the research programme. The research will help identify whether or not Routemap can help address the major failing in the infrastructure sector, consistently highlighted by the National Audit Office. It aims to improve the likelihood that the organisations involved have the right attributes to ensure that the required benefits and outcomes are delivered.

Further background including a technical note on application of the Routemap tools can be obtained from http://www.hm-treasury.gov.uk/Infrastructure UK_cost_review_index.htm. This work package will improve and enhance the capture of evidence from the initial applications of the Routemap to substantiate the need to put in place a socio-technical systems based approach. This will persuade actors at both the regional and sectoral levels that the Routemap can enable them to both ‘do the right thing’ and ‘do it right’. Only from a cross case, thematic analysis can the actual benefits realised and quantified from the adoption of a systemic approach. The cross-thematic analysis will consider value to projects and organisations, including cost and programme savings, as well as value in the context of iBuild, including benefits to society and the environment (WS2).

Work Package 3.3: Investment scales: from microfinance to Foreign Direct Investment

Lead Investigator: Andrew Brown; Lead Researcher: Murod Aliyev

Inward FDI is of great significance to the development, infrastructure, growth and competitiveness of countries such as the UK. Inward FDI may help domestic firms in a given region by updating their production techniques, improving their organizational processes and funding of new infrastructure projects. As a result, they become more productive, increasing economic growth. Equally, FDI can benefit foreign investors as it gives firms the opportunity to access new technology, scientific talent and managerial knowhow, and collaborate to acquire complementary resources and skills.

Nevertheless, FDI may also have negative consequences. High competitive pressures may drive small firms out of business and increase unemployment. Furthermore, market-stealing effects may force domestic firms to reduce output in response to competition. This may shift their cost curve higher, resulting in lower productivity and economic performance. Thus there are conditions under which local financing of infrastructure investment is economically preferable or indeed necessary.

The WP will address the above issues by examining the relationship between local infrastructure, inward foreign direct investment (FDI) and institutional forces, and how these factors interact with one another to determine firm performance and growth. This approach will address an important question remains unanswered: Under what condition do individuals, commercial organisations and government benefit economically from infrastructure, and when do they fail to do so? What non-FDI financing mechanisms might be available to minimise these risks?

The WP will employ statistical/econometric analysis and a large sample of several regions, countries and foreign affiliates. It will involve multilevel econometric analysis that will integrate determinants that will influence outcomes at the firm, industry, country and regional level.