Re-assessing the link between public

demand and firm innovation

OECD expert workshop

5-6 December 2013, Paris

Ville Valovirta

VTT Technical Research Centre of Finland

2 06/12/2013

Two surveys conducted

Company survey

A random sample of 9313 firms

operating in Finland drawn from a

business database.

Survey implemented in two rounds

between 11/2012 – 3/2013

514 responses (5,5% resp. rate, to

be rechecked), of which 349 have

delivered products or services to

public sector during past three

years.

Survey to public procurers

A sample of 5500 respondents

compiled from tenders published in

HILMA (online portal for public

procurement) in 2008-2011 and a

business database which covers

public sector strategic decision-

makers.

Survey implemented in 8-9/2013

374 responses (circa 7% response

rate, to be confirmed after

rechecking un-reached and non-

functioning email addresses etc.).

3 06/12/2013

PUBLIC

PROCUREMENT

BODIES

SUPPLIER FIRMS

OTHER

BUYERS

Market Innovation policy

DEMAND side

innovation

policy measures

SYSTEMIC

innovation

policy measures

SUPPLY side

innovation

policy measures

Impact of supplier

innovation on public

service improvement

Impact on

development

and diffusion

of innovation

Impact on

market

creation and

market

structure

Impact on

capacity to

purchase

innovative

solutions

Public demand Private demand

Supply

Impact of public

procurement on

market uptake and

private demand

(catalytic effect)

Mapping impacts

Impact of public

procurement on firm

innovation

4 06/12/2013

SURVEY TO SUPPLIER FIRMS

SECTOR CHARACTERISTICS

5 06/12/2013

Were innovation(s) result of bidding for or delivering public sector contracts?

By the main category of goods/services supplied

1

1

1

1

1

2

2

5

5

14

5

19

19

27

13

16

8

16

18

36

11

35

26

35

13

16

0% 20% 40% 60% 80% 100%

Accommodation, food service, arts & recreation

Consumer goods (e.g. foodstuff, clothing…)

Financing, real estate, administrative & support services

Construction, repairing, maintenance

Energy, water, sewerage, waste management

Machinery, equipment & vehicles

Information and communication services

Professional, scientific and technical services

Education

Healthcare & social services

Yes - all of them Yes - some of them No, none of them

6 06/12/2013

SURVEY TO PUBLIC

PROCURERS

7 06/12/2013

How concentrated is the

supply in your sector? How much can you influence the

market through procurement?

Not at all 11%

Fairly little 67%

Fairly much 20%

Very much 2%

Very diffuse (several equally

positioned suppliers)

15%

Rather diffuse 25%

Rather concentrated

52%

Very concentrated (one or few suppliers)

8%

8 06/12/2013

Methods for market engagement

2

6

21

6

20

73

7

23

45

78

103

177

136

50

98

116

118

123

127

78

155

149

119

100

89

28

47

146

87

73

45

38

13

33

0% 20% 40% 60% 80% 100%

Commissioned market analyses

Supplier seminars

Participation in R&D projects

Market analyses carried out by ownorganisation

One-to-one negotiations with potentialsuppliers

Targeted information requests to selectedpotential suppliers

Information request in online procurementportal

Always Often Sometimes Rarely Never

9 06/12/2013

Procuring as first user & with development involved

24

87

119

10

88

100

52

127

125

44

147

129

35

145

127

103

135

143

93

114

97

119

113

109

136

90

84

205

18

21

204

16

29

75

13

15

0% 20% 40% 60% 80% 100%

Purchasing existing goods

Purchasing new/improved goods as a first user

Delivery contract of goods has involved development work

Purchasing existing service

Purchasing new/improved service as a first user

Delivery contract of services has involved development work

Purchasing existing comprehensive solutions

Purchasing new/improved comprehensive solutions as a firstuser

Delivery contract of comprehensive solutions has involveddevelopment work

Never Rarely Sometimes Often

10 06/12/2013

by size of procuring unit

0%

10%

20%

30%

40%

50%

Less than 10 10 - 49 50 - 249 250 - 499 500 - 999 1000 -

Contract has involved development work - Sometimes or Often

Purchasing as first user - Sometimes or Often

11 06/12/2013

by sector

0%

20%

40%

60%

Purchasing as a first user - Sometimes or Often

Contract has involved development work - Sometimes or Often

12 06/12/2013

by level of administration

80

29

18

9

25

40

26

73

21

9

4

11

16

9

0% 20% 40% 60% 80% 100%

Municipalities

Joint municipal authorities

State local and regional administration

Unincorporated government enterprises

Independent, legally recognized public organizations

State administration and central government

Unincorporated municipal enterprises

Purchased products as a first user / delivery contract included development work

Sometimes or Often Never or Rarely

13 06/12/2013

by level of standardisation

0%

20%

40%

60%

80%

100%

All the purchasedproducts are tailor-

made

Most of thepurchased products

are tailor-made

Half of the productsare tailor-made, half

are standardised

Most of thepurchased products

are standardised

All the purchasedproducts arestandardised

Purchase of products as a first user / delivery contract includes development

Never or Rarely

Sometimes or Often

14 06/12/2013

Risks and barriers related to purchasing innovative solutions

36

23

70

72

61

79

116

123

130

98

169

174

195

211

172

155

155

69

46

54

51

36

51

51

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Interaction with the supplier gives the companyungrounded competitive advantage

Problems related to management of IPR

Supplier is not able to develop solution matching ourneeds

Difficulty to assess effort required from purchaser toprocure innnovative solutions

Integration of innovative solution to existingprocesses/systems does not succeed

We don't know well enough practises suitable topurchasing innovative solutions

Alternative solutions are difficult to compare

Suppliers challenge the tendering decisions to theMarket Court

Very significant Moderately significant Not at all significant

15 06/12/2013

POLICY IMPLICATIONS

16 06/12/2013

Linking public procurement and firm innovation

Problem

identification

Identification

of specific

needs

Integration

with other

systems, user

acceptance

Tender

based on

functional

specifications

Deployment

Scaling-up

Opportunity

identification

Product

development

Product

modifications

Commerci-

alization

Delivery

Customer

support

Public

procurer

Supplier

firm

Market

dialogue

Piloting

with users Contract

Tendering

process

Specification of

functional

requirements

Pre-commercial Commercial

17 06/12/2013

Policy implications

Support to public procurement of innovation:

Facilitate identification of societal challenges as opportunities for

PPI and other demand-side instruments

Set up market dialogue processes

Engage users in specification of functional requirements

Encourage joint specification between public procurers

Connect with domain expertise in the specification process

Support piloting and testing of new products

Support capacity building for PPI

Share risks through co-financing schemes