Download - 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
5 Manchester Institute of Innovation Research, Manchester Business School
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
6 Manchester Institute of Innovation Research, Manchester Business School
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
source: UNDERPINN Survey
7 Manchester Institute of Innovation Research, Manchester Business School
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
8 Manchester Institute of Innovation Research, Manchester Business School
source: UNDERPINN Survey
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.
source: UNDERPINN Survey
9 Manchester Institute of Innovation Research, Manchester Business School
…but
a range of barriers and frustrations
10 Manchester Institute of Innovation Research, Manchester Business School
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?
source: UNDERPINN Survey
11 Manchester Institute of Innovation Research, Manchester Business School
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
source: UNDERPINN Survey
12 Manchester Institute of Innovation Research, Manchester Business School
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
source: UNDERPINN Survey
13 Manchester Institute of Innovation Research, Manchester Business School
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
source: UNDERPINN Survey
14 Manchester Institute of Innovation Research, Manchester Business School
2. Understanding and supporting
procurement of innovation.
Main messages from case work
Manchester Institute of Innovation Research, Manchester Business School
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“
16 Manchester Institute of Innovation Research, Manchester Business School
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
Manchester Institute of Innovation Research, Manchester Business School
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
19 19 Manchester Institute of Innovation Research, Manchester Business School
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
20 Manchester Institute of Innovation Research, Manchester Business School
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
21 Manchester Institute of Innovation Research, Manchester Business School
Thank you for your attention
22
CONTACTS
Jakob Edler, Professor of Innovation Policy and Strategy, Executive Director MIoIR ,
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)
Manchester Institute of Innovation Research, Manchester Business School
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?
23 23 Manchester Institute of Innovation Research, Manchester Business School
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
24 Manchester Institute of Innovation Research, Manchester Business School
(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)
Manchester Institute of Innovation Research, Manchester Business School
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)
Manchester Institute of Innovation Research, Manchester Business School
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%
between10-25years 231 28.9%
between25-50years 117 14.6%
>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
Manchester Institute of Innovation Research, Manchester Business School