Public procurement of innovation: Evidence and policy implications from the UNDERPINN study

Public procurement of innovation:

Evidence and policy implications from the UNDERPINN study

OECD, Paris, December 5 2013

Jakob Edler

Manchester Institute of Innovation Research

(full team: Luke Georghiou, Elvira Uyarra Sally Gee, Andrew

James, Su Maddock, Jillian Yeow)

1 Manchester Institute of Innovation Research, Manchester Business School

1. Survey evidence

I. Procurement and Innovation

II. Barriers

2. Understanding and supporting procurement of innovation –

main messages from cases

3. The role of policy

4. Conclusion

2

Structure

Manchester Institute of Innovation Research, Manchester Business School

Survey details

• The focus of the survey was to

understand the elements that act as

barriers and drivers to stimulating

innovation in the procurement

process.

• Target population: suppliers of UK

central government, local authorities

(England only) and English NHS

• Data source: Public sector

transactions 2010. 8198

organizations were identified across

the three areas of government

• CATI survey. 800 responses

organisations (~10% response rate)

Public sector transactions for Local &

central government (data.gov.uk - Jan 2011)

Extract Procurement related transactions for

2010

Identify core suppliers (over £25,000 treshold)

Match with commercial databases (FAME)

Centralgovernmentsuppliers22%

NHSsuppliers49%

Localgovernmentsuppliers30%

Product innovation (432)

Process innovation (540)

Service innovation (605)

Respondents have

introduced a mix of

product, process

and service

innovations in the

last three years

(N=800) 200

73 246

62

Suppliers innovate, but it is a very heterogeneous picture - much is hidden

Larger companies slightly more innovative

Service providers more innovative

Product innovation more common among NHS supliers

Public Procurement can lead to innovation

and broader economic effects


Innovation is a result of bidding for or

delivering public sector contracts

800 firms in the sample

94% report some form of innovation

67% reported that public

procurement has had an impact on

innovation

25% of the firms attribute all their

innovations to procurement

The influence on innovation stronger among

larger firms, among central government

suppliers and in the supply categories of

works and professional services More than 50%:

innovation has won us a contract

source: UNDERPINN Survey


Public Procurement can foster R&D

800 firms in the sample

65% report having invested in

R&D in the last three years

33% (or half of those investing in

R&D) reported that procurement

led to additional or renewed

investment in R&D



Public clients are important sources for innovation

Importance of sources for driving innovation

276

424

325

330

531

540

581

249

256

178

153

178

179

160

188

103

78

89

70

71

45

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

Our own suppliers (of equipment,materials, services, etc)

Our competitors

Our private sector customers

Our internal R&D department

Changes in government policy andregulation…

Our public sector customers

Changes in the market

Very important Somewhat important Slightly important



Innovation through public procurement

support exports

Innovations that resulted from bidding for or delivering public sector

contracts have subsequently helped us to ….

Yes

Yes

Yes

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

enable or increase overseas sales(n=315)

increase your sales in the private sector(n=452)*

win other contracts in the public sector(n=500)

* Excludes those organisations who said that virtually all their sales in the last three years have been to the public sector.



…but

a range of barriers and frustrations


0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00%

Provisions related to intellectual property

E-auctions

Restricted tender

Non-OJ tender procedure

Private finance initiative

Electronic submission of tenders

Framework agreement

Open competitive tender

Negotiated tender

Incentive contracts such as profit-sharing arrangements

Competitive dialogue

Full life-cycle costing considerations

Emphasis on sustainability criteria

Advanced communication of future needs

Outcome-based specifications

Early interaction with procuring organisation

Innovation requirements in tenders

encouraged innovation (% out of those that experience it)

Which practices encourage innovation?



0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00%

Provisions related to intellectual property

E-auctions

Restricted tender

Non-OJ tender procedure

Private finance initiative

Electronic submission of tenders

Framework agreement

Open competitive tender

Negotiated tender

Incentive contracts such as profit-sharing arrangements

Competitive dialogue

Full life-cycle costing considerations

Emphasis on sustainability criteria

Advanced communication of future needs

Outcome-based specifications

Early interaction with procuring organisation

Innovation requirements in tenders

encouraged innovation (% out of those that experience it) frequently experienced

Mis-Match: innovation friendly practices

not very common



Barriers to innovation in procurement

57

86

111

154

194

200

235

250

279

290

291

344

453

152

180

169

215

293

243

279

257

256

264

254

247

209

515

344

434

359

235

290

209

207

204

173

173

155

102

Contracts too long

Inadequate management of IPR

Contracts too large

Contracts not large enough

General lack of demand for innovation

Contracts not long enough

Poor management of risk

Low capabilities of procurers

Specifications too prescriptive

Risk aversion of public procurers

Variants not allowed

Lack of interaction with procuring body

Too much emphasis on price

Very significant Moderately significant Not at all significant



Supplier Assessment:

Risk aversion and lack of knowledge

Majority rates public procurers as:

not willing to take risk

not knowledgeable enough

about technical aspects of product or service

about the relevant markets

not able to make effective use of supply chain

much less able and willing to ask for and buy

innovation than private clients



2. Understanding and supporting

procurement of innovation.

Main messages from case work


Basic Challenges for Public Bodies

Demands for public bodies

– Markets for innovation (in principle) not established

– Novel and often ill-defined needs

– New solutions from suppliers, no established business case for buyer

– Iterative interactions needed (“co-adaptation”, “co-construction”)

– Joint risk challenge

– High learning and adoption costs at different levels

Public organisations often overwhelmed by such demands

Challenges differ

– asking for something new

– adopting innovations offered

– Level of „novelty“


Adopting an innovation.

Intra-organisational change and co-construction.

Example: Adopting Managed Print Service

Efficiency gains through buying printing service package instead of hardware

Public sector was lagging

Radical organisational innovation for the client, large savings made

Snr Mgt support and responsibility, strong motivation

Adaptation / co-generation of the solution

Pilots and pre-contract ‘flexible’ period

Longer term, close relationship with supplier (both commit resources)

Joint learning

Client (need audit, change mgt)

Supplier (business models, tailor solution, standardised procedures, new IT and

hardware)

Conducive Frameworks needed (flexibility, relationships)

Trend to commodification and centralisation problematic


Asking for something new: Support in a 2 step process

Example: Blood Donor Chair (NHSBT)

18 18 Manchester Institute of Innovation Research, Manchester Business School

Nature of innovation

Incremental Radical / disruptive

Buying an

existing

innovation

Asking the

market to

produce

something

new


Understanding challenges …and the need for policy support

Internal communication and coordination challenge.

Adjustment of user capabilities

Business case: Understanding the reliability and added value of the new solution (assessment of (alternative).

As left, but more basic, plus:

Build up capabilities for the understanding and use of the innovation.

Internal coordination to prepare for change at all levels.

Sound business case (secure financing and reliability)

Learning loops with suppliers and (potentially) with citizens.

Risk management (adoption risks)

As above, plus:

Sophistication in understan-ding one’s (future) need and market options.

Internal coordination challenge to understand and implement the change demanded,

Pro-active interaction with (existing) suppliers to modify

As above and as left, plus

Systematic internal process to formulate need and to feedback on early solutions through all organisational levels;

stronger interaction with market place to communicate iteratively in innovation generation and adaptation process (feedback or even co-generation)

Risk management (generation and adoption risk)

3. The role of policies to support

public procurement of innovation

Range of instrument exist(ed) to tackle specific challenges

Organisational capabilities (innovation strategy, procurer skills):

IPP (UK), NL PIANO Network, EU Lead Market procurer networks,

TEKES subsidy or additional procurement costs

Lack of communication and signalling

Innovation Partnerships (EU, Innovation Platforms (UK, Flanders)

Risk financing, new functionalities

PCP schemes (SBIR, SBRI (UK)) and specialised agencies (D)

Risk management and commitment

Forward Commitment Procurement

Insurance schemes (Korea)

But poor roll out

Poor evidence of what policy works


Innovation and Procurement and tight budgets can go together

Do not simply charge procures with innovation policy

But support

– Leadership and local initiative

– Aligned incentives and capabilities along the whole spectrum:

risk management

long term signals, market intelligence, interaction, modes of procurement

Need definition, organisational change, intra-organisational interaction

– Variety, openness to smaller players

Establish strong supporting / enabling organisations

Re-think standardisation, commodification

Roll out existing instruments

Support, engage and commit other policy domains

4. Policy Conclusions


Thank you for your attention

22

CONTACTS

Jakob Edler, Professor of Innovation Policy and Strategy, Executive Director MIoIR ,

[email protected],

Project: https://underpinn.portals.mbs.ac.uk/

Publications: https://underpinn.portals.mbs.ac.uk/Publications/tabid/1580/language/en-

GB/Default.aspx

Manchester Institute of Innovation Research (MIoIR)

https://research.mbs.ac.uk/innovation/

Manchester Business School ,University of Manchester,

Harold Hankins Building, Manchester, UK M13 9PL

0044 (0) 161 275-0919 (secr. 5924)


mailto:[email protected]

https://underpinn.portals.mbs.ac.uk/

https://underpinn.portals.mbs.ac.uk/

https://underpinn.portals.mbs.ac.uk/Publications/tabid/1580/language/en-GB/Default.aspx







mailto:[email protected]

Asking for something new: Support in a 2 step process

Example: Blood Donor Chair (NHSBT)

No suitable market solution, bespoke design needed, resistance

Two step procedure: (1) prototype, (2) tender

Specialist organisation (National Innovation Centre (NIC)):

– Stakeholder workshop to identify, validate, rank clinical needs

– Check of technical requirements and state of the art

– due diligence, help with IP issues, PCP advice, link to the market

– design competition; prototype selected/tested in-house, learning loops

Project manager: testing phase, business case, link internally/externally

Learning in the buying organisation

– Test environment centre set up to facilitate testing of the prototype,

established test environment for the organisation for future kit

– NIC model used subsequently in NHSBT to procure other equipment

Lead Market potential?


Policy maker in the relevant sectoral department(s):

risk of failure to deliver service, initial costs (acceptance of high entry costs)

Innovation Policy makers:

Who benefits (economic spill over to other countries)

Specialised public procurer:

risk of buying a less certain, more costly solution with no rewards for better service,

capability

Finance ministries, actors responsible for budgets:

costs, failure to appreciate benefits

Internal, administrative end users:

risk of failure to learn and adapt or to manage new interface

Supplier: Market risk –spill over to broader, private market?

Challenge: mis-alignment of risk/reward


(Tsipouri et al 2010)

Policy: Challenges and Support instruments I

25

Policy Category Deficiencies addressed Instrument types Examples

Framework

conditions i) Procurement regulations

driven by competition logic

at expense of innovation

logic.

ii) Requirements for public

tenders unfavourable to

SMEs

i) Introduction of

innovation-friendly

regulations

ii) simplification & easier

access for tender

procedures

2005 change in EU

Directives including

functional specifications,

negotiated procedure etc.

2011 proposal in EU to

introduce innovation

partnerships

Paperless procedures,

electronic portals, targets

for SME share Organisation &

capabilities i) Lack of awareness of

innovation potential or

innovation strategy in

organisation

ii) Procurers lack skills in

innovation-friendly

procedures

i) High level strategies to

embed innovation

procurement

ii) Training schemes,

guidelines, good

practice networks

iii) Subsidy for additional

costs of innovation

procurement

UK ministries Innovation

Procurement Plans 09-10

Netherlands PIANOo

support network, EC Lead

Market Initiative networks

of contracting authorities

Finnish agency TEKES

meeting 75% of costs in

planning stage

Source: Georghiou/Edler/Uyarra/Yeow (2013)


Policy: Challenges and Support instruments II

26

Policy Category Deficiencies addressed Instrument types Examples

Identification,

specification & signalling of needs

i) Lack of communication

between end users,

commissioning &

procurement function

ii) Lack of knowledge &

organised discourse

about wider possibilities

of supplier’s innovation potential

i) Pre-commercial

procurement of R&D to

develop & demonstrate

solutions

ii) Innovation platforms to

bring suppliers & users

together; Foresight &

market study

processes; Use of

standards & certification of innovations

i) SBIR (USA, NL &

Australia), SBRI (UK),

PCP EC & Flanders

ii) Innovation Partnerships

& Lead Market Initiative

(EC), Innovation

Platforms (UK,

Flanders); Equipment

catalogues (China to 2011)

Incentivising innovative solutions

i) Risk of lack of take up

of suppliers innovations

ii) Risk aversion by procurers

i) Calls for tender

requiring innovation;

Guaranteed purchase

or certification of

innovation; Guaranteed

price/tariff or price

premium for innovation ii) Insurance guarantees

i) UK Forward

Commitment

Procurement; China

innovation catalogues

(to 2011); Renewable

energy premium tariffs

(DE and DK)

ii) Immunity & certification

scheme (Korea)

Source: Georghiou/Edler/Uyarra/Yeow (2013)


Type Categories %

Size(employees) Lessthan10 82 10%

Between10-49 297 37%

Between50-250 226 28%

Morethan250 190 24%

Age <5years 32 4.0%

between5-10years 147 18.4%



>50years 33 4.1%

Typeoforganisation Private 649 81.1%

Socialenterprise 139 17.4%

Maincategoryofgoods

andservicessupplied

Facilities&Managementservices 91 11%

Healthcare equipment, supplies

andservices

116 15%

Officeequipment&IT 61 8%

Professionalservices 159 20%

Social community care, supplies &

services

133 17%

Other(e.g.education,transport) 54 7%

Works 145 18%

Mainclient NHS 195 24%

LocalGovernment 423 53%

CentralGovernment 121 15%

Profile of respondents

Profile of respondents

sector frequency %

Primary act (Agriculture, hunting and

forestry; fishing; mining) 9 1.13%

Manufacturing 92 11.50%

Electricity, gas and water supply 2 0.25%

Construction 123 15.38%

Wholesale and retail trade 12 1.50%

Hotels and restaurants 4 0.50%

Transport 26 3.25%

Financial intermediation 8 1.00%

Business activities 277 34.63%

Public administration and defence 4 0.50%

Education 25 3.13%

Health and social work 119 14.88%

Other community and social work 52 6.50%

Main Case Studies

Pre-commercial procurement of blood donation chair, NHS

Integrated waste management PFI , Greater Manchester

Authorities (GMWDA)

The procurement of “closed loop” recycled paper, HMRC

Adoption and diffusion of Oesophageal Doppler Monitor, NHS‘

Managed Print Services’, Lancashire County Council, Kirklees

Council and Lincolnshire Hospitals NHS Trust

Some insights into defence procurement and role of SME


Date post:	14-Jun-2015
Category:	Government & Nonprofit
Upload:	stieas
View:	114 times
Download:	0 times

Public procurement of innovation: Evidence and policy implications from the UNDERPINN study

Government & Nonprofit