1

Using Business Innovation

Surveys to Learn about

Procurement and PPI - some

Experience from Germany

Christian Rammer

Centre for European Economic Research (ZEW), Mannheim

OECD Expert Workshop

Measurement of Public Procurement of Innovation

Paris, February 4th, 2013

2

Content

(1) „Sources of Innovation“ as a way to identify the role of

customers/demand (incl. customers/demand from the public

sector) for innovation

(2) Significance of PPI: results from the German Innovation

Survey

(3) Impact of PPI on firms„ innovation performance

(4) Strengths and limitations of this approach

3

Sources of Innovation

- Mansfield (1991): innovations that could not have been

developed in the absence of recent academic research

- Extending to other potential external sources that were

indispensible for developing and introducing product or

process innovation:

- customers/demand

- suppliers

- competitors

- regulation

- public science

- Firms had to assess the significance of each source for their

product and process innovations separately

- For each innovation source (except regulation), data on sector

and location of sources was collected (free text)

2-page question, included in 1999 and 2003 surveys

4

5

Public Procurement Innovation

- PPI: purchase of innovative product the development of which

has been explicitly demanded by a public authority

- Simple purchase of innovative products by public authorities is

not PPI

- Public authorities also include public services

6

- Sectors were assigned to NACE (rev. 1.1) 3-digit

- For each innovation source, sales with new products (for product

innovation) and cost savings (for process innovation) triggered by

that source were calculated using weights:

IOk = Si (Si aik wi) IO innovation output

S total sales / total costs a sales share of new products / cost savings share triggered by source k w weight of firm i in total firm population

- A sector‘s contribution to innovation output was calculated by

weighting IOk by the (approximate) share of sector j in all

innovation impulses received from source k

- Public administration and public services identified through

corresponding NACE (rev. 1.1) sectors (75, 80, 85, 40, 41, 60, 70,

73, 90)

Data Analysis

7

Significance of Innovation Sources (1998 / 2002 average)

0 10 20 30 40 50 60 70 80

Customers/demand

Suppliers

Competitors

Public science

Regulation

Others*

0 5 10 15 20 25

Product innovation Process innovation

* include in-house R&D and other creative work and other external sources

share in total sales with new products 1996-1998 and 2000-2002 (%)

share in total cost savings due to process innovation 1996-1998 and 2000-2002 (%)

16

4

4

1

3

71

20

22

17

11

15

15

Source: Mannheim Innovation Panel (German CIS), surveys 1999 and 2003

8

Significance of Public Procurement as Innovation Source (1998 / 2002)

Source: Mannheim Innovation Panel (German CIS), surveys 1999 and 2003

NACE rev 1.1

product innovation

process innovation

product innovation

process innovation

75/80 2.8 0.5 0.5 0.1 85 1.2 0.1 0.2 0.0 73* 0.2 0.7 0.0 0.1 90* 0.1 0.0 0.0 0.0 60* 2.4 0.3 0.4 0.1 70* 0.4 0.2 0.1 0.0 40/41* 0.4 0.4 0.1 0.1

Total 7.5 2.2 1.2 0.4

Regulation 3.5 15.4

Public science 1.5 10.8

* share of innovation impulses from public organisations estimated

Share in all innovation impulses by customers (%)

Share in total innovation output (%)

Public customers from

9

Innovativeness of Demand I (1998 / 2002)

Source: Mannheim Innovation Panel (German CIS), surveys 1999 and 2003 – Federal Statistical Office of Germany: Input-Output-Tables

0 5 10 15 20 25 30 35

34 95

60_63 65_67

29 50/52

22 75/80 15_16

31 24*

70_71 32 45

01_05 51 64 74 85 33 35

36_37 24.4

72 28

17_19 25

40_41 20_21

30 26 27 55 73 23

10_14 90_93

innovation impulses by customers

domestic demand

share in total innovation impulses by customers/demand / share in total domestic intermediate consumption/final use/capital expenditure (%)

Cu

sto

mer s

ecto

r

NA

CE rev 1

.1

* 24 excl. 24.4

Share in total

10

Innovativeness of Demand II (1998 / 2002)

Source: Mannheim Innovation Panel (German CIS), surveys 1999 and 2003 – Federal Statistical Office of Germany: Input-Output-Tables

* 24 excl. 24.4

share of sales of innovative products based on innovation impulses

from customers in total domestic intermediate consumption,

final use and capital expenditure of the customer sector

(export share of innovators estimated)

share of demanded innovation in total domestic demand (%)

0 5 10 15 20 25 30 35 40 45

34 24.4

65_67 50, 52 36_37

22 60_63

32 29 35 72 30

01_05 17_19

31 33 23 73 64

15_16 Total

51 25

10_14 85 26

24* 28 45

40_41 20_21

55 74 95 70 27

75_80 90

Cu

sto

mer s

ecto

r

NA

CE rev 1

.1

11

Impact of PP on Innovation Performance

Aschhoff & Sofka (“Innovation on Demand – Can Public Procurement

Drive Market Success of Innovations?” Research Policy 38, 1235-1247,

2009):

- PPI contributes to higher sales with new products (which is true for

customer/demand impulses in general)

- no such effect found for defence demand, however

- SMEs, services and firms from eastern Germany profit most from PPI

Beise & Rammer (“Local User-Producer Interaction in Innovation and

Export Performance of Firms”, Small Business Economics 27(2-3), 207-

222, 2006):

- PPI tend to limit export activities of firms, particularly for service

firms that use PPI from the health sector

- „ideosyncratic‟ demand evident for private households

12

Strengths and Limitations of the Approach

- Collecting data on various external sources for innovation

helps to provide a balanced picture of the drivers of innovation

- Information on sectors and location of innovation sources

offers a great potential for analysis

- Focussing on only one potential source (e.g. PP) risks to

overestimate the role of PP for industrial innovation

- Collecting full information on innovation sources requires

substantial questionnaire space and puts high burden on

respondents (and on statistical offices for coding texts)

- Limited opportunity to add additional questions on PP &

innovation

13

Thank you for your attention!

rammer@zew.de