Regulatory influences on innovation in the public sector: the role of regulatory regimes

The purpose of this paper is to explore the impact of regulation on innovation within the public sector. This is done by integrating two separate frameworks, related to regulatory regimes and public sector innovation. Through a case study of the Scottish water sector a matrix integrating these frameworks has been empirically developed, illustrating a continuous improvement path for innovation in the Scottish water sector. Findings indicate that customer and shareholder accountability is manifest at the transitional interface of the regulatory regimes, facilitating movement within the different systems. Interplay with the accountabilities and adjustments to the regulatory regime are paramount for progress. Through incentives to establish partnerships, the Regulator provides conditions for new ideas to emerge with reduced risk of failure. Experimentation allows a new approach towards solving problems and enhancing innovation potential within the sector. The contribution of this paper is a framework demonstrating mechanisms required to move between government-centred, compliance-based regulation through to performance oriented regulatory regimes.