procuring innovation at transportation ... - ikhlaq sidhu · authors: ikhlaq sidhu, director ......
TRANSCRIPT
CALIFORNIACENTERFORINNOVATIVETRANSPORTATION
UNIVERSITYOFCALIFORNIABERKELEY∙2105BANCROFTWAY,SUITE300∙BERKELEY,CA94720‐3830
PHONE:(510)642‐4522∙FAX:(510)642‐0910∙HTTP://WWW.CALCCIT.ORG
INNOVATIONPOLICYBRIEF
With:
PROCURINGINNOVATIONATTRANSPORTATIONPUBLICAGENCIES
JANUARY2008
Preparedfor:
CALTRANSDIVISIONOFRESEARCHANDINNOVATION
Authors: IkhlaqSidhu,Director,CenterforEntrepreneurshipandTechnology
J.D.Margulici,AssociateDirector,CCIT
DavidJacobowitz,PublicPolicyAnalyst,CCIT
CarletonWong,GraduateStudentResearcher,CCIT
RosemaryDiPietrantonio,StudentResearcher,CCIT
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iii
CONTENTS
ExecutiveSummary....................................................................................................................................................... v
Introduction .................................................................................................................................................................. 1
AboutCCIT ................................................................................................................................................................ 1
AboutCET ................................................................................................................................................................. 1
Methodology ................................................................................................................................................................ 2
ObservedIssues ............................................................................................................................................................ 5
ProcedureComplexity............................................................................................................................................... 5
CompetitiveBiddingRequirements .......................................................................................................................... 5
ForcedexclusionofPrescribersfromimplementationcontracts.............................................................................. 5
OnerousNon‐CompetitiveBid(NCB)ApprovalProcess ........................................................................................... 6
SlowandUnder‐ResourcedNewProductEvaluationGuidelines ............................................................................. 6
FeasibilityStudyReport ............................................................................................................................................ 7
RecentEffortstoImproveInnovationProcurement ................................................................................................ 7
Summary:ATaxonomicalApproach......................................................................................................................... 7
BestPracticesforInnovation:Operativelevel.............................................................................................................. 9
1.Roadmaps ............................................................................................................................................................. 9
2.Anticipation........................................................................................................................................................... 9
3.multi‐tiereddistribution ....................................................................................................................................... 9
4.KeepExceptionProcessesforExceptionalCases................................................................................................ 10
BestPracticesforInnovation:OrganizationalLevel ................................................................................................... 11
1.SignalStrategicNeeds......................................................................................................................................... 11
2.Identifyinternalcustomers,champions,andavailablefunding ......................................................................... 11
3.SpecifyfunctionratherthanForm...................................................................................................................... 12
4.InternalIncentives .............................................................................................................................................. 12
BestPracticesforInnovation:LegislativeConsiderations .......................................................................................... 13
iv
AppendixA:PrimeronInnovation.............................................................................................................................. 14
ModelsofInnovation.............................................................................................................................................. 14
MarketsandIntellectualProperty .......................................................................................................................... 15
Prizes....................................................................................................................................................................... 15
Grants ..................................................................................................................................................................... 16
CompetitiveBiddingRequirements ........................................................................................................................ 16
Procurement:SpeedversusAccuracy..................................................................................................................... 17
AppendixB:APrimeronProcurementRulesforCaltrans.......................................................................................... 18
AppendixC:ReferencesandInterviewExcerpts ........................................................................................................ 20
SelectedReferences................................................................................................................................................ 20
InterviewExcerpts .................................................................................................................................................. 27
AppendixD:PrimeronInnovationTypesandCategories .......................................................................................... 30
Terminology ............................................................................................................................................................ 30
TechnologyMaturationViewpoint ......................................................................................................................... 30
NewProductDevelopment:Disruptivevs.Sustaining(Christensen) ..................................................................... 31
v
EXECUTIVESUMMARY
ExistingprocurementrulesfortheStateofCaliforniaaredesignedtouseafair,competitivebiddingprocessto
acquirethelowestpricedgoodsandservices.Whilethisprocessiseffectivetopurchasecommoditiesorhirecontractorforwell‐definedjobs,itposessomechallengeswhenanagencyisattemptingtoobtainveryinnovativeproducts.Almostbydefinition,innovativesolutionsaretypicallycarriedtomarketbyasinglefirm,whichmay
preventfurtherentrieswithintellectualproperty(IP)protection.Inthissituation,unlesstheinnovationbringsdownthecostofanexistingproduct,agenciesmaynotbeabletoobtainmultiplebidsinawaythatfavorsthe
innovator.Further,newproducttypesmayimposethatspecificationsbewrittentofacilitateprocurement,astretchofresourcesforpublicagencies.
WithsponsorshipfromtheCaliforniaDepartmentofTransportation(Caltrans),theCaliforniaCenterforInnovativeTransportation(CCIT)andtheCenterforEntrepreneurshipandTechnology(CET),bothattheUniversityof
California,Berkeley,investigatedthosechallengesthroughselectedcasestudies,andformulatedrecommendationsaccordingly.Thoserecommendationsaredividedintothreecategories.Thefirstgroupcanbe
implementedattheprocesslevelbyCaltranspractitionersandresearchanddevelopment(R&D)projectmanagers.Thesecondsetofrecommendationsaddressesorganizationalchallengesthatmayrequirecoordination
acrossmultiplefunctionalunits.Thethirdcategoryismorespeculative.Itsuggestschangesthatcouldbeenactedatthelegislativeleveltoalleviatesomeofthepaininvolvedinprocuringinnovativeproductsandservices.
1. BESTPRACTICESFORINNOVATION:OPERATIVELEVEL
Newinnovationsareoftenfirstavailablethroughasinglevendor.Theprocurementprocessworksmoreefficiently
whenmultiplebidscanbeobtained.ThesebestpracticescanbeimplementedwithoutchangestoexistingrulesinternaltoCaltransortostateandfederallaws.
1.1. Establishresearchanddeploymentroadmapswithclearyes/nodecisionpointsunderadefinedtimeline.Inparticular,maptheadministrativeprocessesneededforapprovingnewproductsandservices.
1.2. Anticipatelegalandadministrativetrapswhendesigningprogramsandtrials:iftheendgoalisto
purchaseanewproductorserviceforthedepartment,thenaprocurementplanshouldbeestablishedwellbeforealltheresearchandengineeringworkhasbeencompleted.
1.3. Encouragevendorstousemulti‐tiereddistributionnetworkstocreatecompetingbids.
1.4. Undercurrentconditions,avoidseekingapprovalfornon‐competitivebidprocess,duetotimeand
administrativeburden.Ifthisisanecessity,theapplicationshouldbestartedearlyinordertomitigatepossibledelays.
2. BESTPRACTICESFORINNOVATION:ORGANIZATIONALLEVEL
Theserecommendationsarestrategiestomanageinnovationasacontinuousprocesstoachievestrategicdirectives.
2.1. SignalinnovationopportunitiestooutsidersbycommunicatingontheDepartment’sstrategic
requirements.
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2.2. Asearlyintheprocessaspossible,identifyinternalcustomers,champions,andavailablefundingforinnovationwithinCaltrans.
2.3. Whenpossible,writeproductspecificationsthatdefinefunctionandperformance,ratherthanform.Inotherwords,specifythe‘what’insteadofthe‘how.’Thispracticeismorelikelytomaintainthe
Departmentinapositionwhereitcanbenefitfromthelatestinnovationsinsteadofbeingtiedtoaparticulartechnology.
2.4. WealsosuggestthatCaltransconsiderssettingupinternalincentivestoadoptinnovationatthe
individualororganizationunitlevel.Adiscussiononincentives,includingrewardsforintellectualproperty,isprovidedinAppendixA,‘APrimeronInnovation.’
Figure1‐Theprocurementanddeploymentprocessforinnovativenewtechnologies,products,andbusinessmodelsiscontinuousinnature.Variouselementsincludingawareness,communications,customeridentification,andchampionsbuildtoasuccessfulprocurementprocess.
3. BESTPRACTICESFORINNOVATION:LEGISLATIVECONSIDERATION
Legislativeaction,whileoutsidetheoriginalscopeofthestudy,couldsolvesomeofthelargerissuesthatstateagenciesmustgrapplewithtoprocureinnovativesolutions.WerecommendthatCaltransconsidersupporting
amendedlegislationtosimplifytheprocurementprocessforuniqueproductsandserviceswhencertaincriteria
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aremet.Forexample,legislationcouldenableCaltrans,withincertainstrategicareasdesignatedforinnovation,toawardacontracttoasolebidderifthecompetitivebidprocessdoesnotreturntherequiredthreebids.Toguard
againstoveruse,thestatecouldcontrolthenumberofsolesourceawardsperorganizationalunit.Thiscouldbedonebysettingbudgetlimits.Further,theseexceptionswouldbegrantedforalimitedtimeonly,sothat
competitioncandevelopandpurchasersdonotfindthemselveslocked‐intoasinglesource.
Giventhehighlytentativenatureofthisconcept,wedidnotspendunduetimeexploringit.Nonetheless,this
directioncouldbefertilegroundforfutureinvestigationsifpoliticalchampionsexist.
1
INTRODUCTION
ExistingprocurementrulesfortheStateofCaliforniaaredesignedtouseafair,competitivebiddingprocessto
acquirethelowestpricedgoodsandservices.Whilethisprocessiseffectivetopurchasecommoditiesorhirecontractorforwell‐definedjobs,itposessomechallengeswhenanagencyisattemptingtoobtainveryinnovativeproducts.Almostbydefinition,innovativesolutionsaretypicallycarriedtomarketbyasinglefirm,whichmay
preventfurtherentrieswithintellectualproperty(IP)protection.Inthissituation,unlesstheinnovationbringsdownthecostofanexistingproduct,agenciesmaynotbeabletoobtainmultiplebidsinawaythatfavorsthe
innovator.Further,newproducttypesmayimposethatspecificationsbewrittentofacilitateprocurement,astretchofresourcesforpublicagencies.
WithsponsorshipfromtheCaliforniaDepartmentofTransportation(Caltrans),theCaliforniaCenterforInnovativeTransportation(CCIT)andtheCenterforEntrepreneurshipandTechnology(CET),bothattheUniversityof
California,Berkeley,investigatedthosechallengesthroughselectedcasestudies,andformulatedrecommendationsaccordingly.ThisstudywascommissionedbyCaltrans’DivisionofResearchandInnovation
(DRI),whoseroleistolaunchandadministerresearchprogramsforthebenefitofotherCaltransdivisions.Inanyorganization,transitioningtechnologiesandbestpracticesfromtheresearchstagestowidespreadutilizationisa
majorchallenge.Thedifficulty,andsometimestheimpossibility,topurchaseinnovativesolutionsisanaddedbarrierforCaltransandDRI.
Inthisbrief,wereviewthemaindifficultiesexertedbystateprocurementrulesonthepurchaseofnewproducts
andservicesbyCaltranspractitioners.Ourreviewcoversanobjectiveanalysisofwhatthoserulesstate,aswellasmorepracticalevidencegainedfrominterviewsandcasestudies.Wealsoaddedsubstantialmaterialonthe
natureofinnovationandthewayithashistoricallybeenmanagedbyfirmsandgovernment.Fromthisknowledge,weinferasetofrecommendationsforCaltranspractitionersandmanagers.
ABOUTCCIT
TheCaliforniaCenterforInnovativeTransportationacceleratestheimplementationofresearchresultsandthedeploymentoftechnicalsolutionsbypractitionerstoenableasafer,cleanerandmoreefficientsurfacetransportationsystem.PartoftheUniversityofCaliforniaatBerkeley’sInstituteofTransportationStudies(ITS),
CCITisestablishedasabridgebetweenacademia,industryandtransportationpublicagencies.Wefocusonmaturetechnologiesandbestpracticesthatcanbringshort‐termbenefitstohighwayandtransitoperatorsaswell
astothetravelingpublic.
ABOUTCET
Throughteaching,programs,andresearch,theCenterforEntrepreneurship&Technologyequipsengineersandscientistswiththeskillstolead,innovate,andcommercializetechnologyintheglobaleconomy.UCBerkeley
facultyandstudentshavestartedmorethan200UCventuresinareassuchasIT,biotechnologyandcleanenergy.
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METHODOLOGY
Overthecourseoftwosemesters,theprojectteamstudiedtherelationshipbetweenprocurementpolicyand
innovationatCaltransthrough:
a) Observationsandinterviewsrelatingtotherulesofprocurement
b) EvidencegatheredfromCaltranspractitioners,particularlywithinDRI
c) Evidencegatheredfromentrepreneursintheareaoftransportationinfrastructuretechnologies
Figure2‐ProjectMethodology
Commonpatternsidentifiedbetweenpracticalevidenceandcurrentrulesledtothefindingsandrecommendationsinthisreport.
A) ANALYSISOFPROCUREMENTRULES
Themethodologyusedforconductingbackgroundresearchfirstconsistedofreviewingtherelevantprocurement
rulesoutlinedintheState’spurchasingmanuals.ThePurchasingAuthorityManual(PAM),oneofthetwovolumesformingtheStateContractingManual,detailstherequirementsthatalldepartmentsneedtomaintain,receive,
renewanddelegatepurchasingauthority.Theserequirementsaddressissuesincludingthecompetitiveandnon‐
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competitiveprocurementproceduresofnon‐ITgoodsandITgoodsandservices.Procurementofficerswereinterviewedaswell.
B) CALTRANSPRACTITIONERSPERSPECTIVE
InterviewswereconductedwithDRIresearchanddeploymentmanagers,aswellasrepresentativesatthedistrictlevels.Theserepresentativesnotedtheiradherencetotheguidelinesoutlinedinthemanualstopurchasegoods
andservices,andsomeofthedelaysandfrustrationstheyhaveexperiencedovertheyearswhentryingtogetspecificproductsandservices.Thoseincluded,inparticular:
• ARDVAC:the"AutomatedRoadwayDebrisVACuum"or"ARDVAC"isalitterremovalsystemmountedon
atruckinordertomakeoperationssaferandmoreefficient.DesignedbytheAdvancedHighwayMaintenanceandConstructionTechnologyResearchCenter(AHMCT)atUCDavis,ARDVAChasbeen
readyforcommercializationsince2000.Caltransattemptedtojustifysole‐sourceprocurementfromavendorthathadpatentedthetechnology,butthisprocedurewasrejectedbytheCalifornia
TransportationAgencyafterthreeyearsofefforts.
• BalsiBeam:theBalsiBeamisamobilebarrierdesignedbyCaltranstoprotectworkersinaclosedlane
adjacenttotraffic.Boththedesignandthenameofthedevicewerepromptedbya2001workzoneincidentthatresultedinseriousinjuriestoaCaltransemployeenamedMarkBalsi.While
commercializationisunderway,ithasbeenachallengeforseveralyears:apatentfiledbyCaltransmakesthedesignanintellectualpropertyofthestate.Becauseofthat,appropriatelicensingmodalitieshaveto
bedetermined,alengthybureaucraticendeavor.
C) ENTREPRENEURSPERSPECTIVE
InadditiontointerviewswithCaltransrepresentatives,wemetwithentrepreneurswhohavedonebusinesswithCaltransandCCITinthepastfewyearstocollecttheirinputsonprocurementhurdles.Whileitisclearthatfirms
tryingtoselltoCaltransmayhaveastrongbias,theiropinionscannotbediscounted:theyaretheinnovatorstakingriskstointroducenewsolutionsinthedepartment.Iftheyseetoomanybarriers,theymaysimplywalk
awaytochaseotheropportunities.Becauseofthesizeofitsbudget,Caltranscanswaytheoverallmarketfortransportationinfrastructuretechnologies.Therefore,theorganizationmustnotonlyensurethatitcaneffectively
procureinnovationforitsownsake,butalsobecausefailingtodosorunstheriskofdiscouragingentrepreneurs,hencedryingouttheinnovationpipeline.Becauseofthisfeedbackloop,Caltranshasaninterestinlisteningtothe
entrepreneur’sperspective.Weinterviewedthefollowingcompanies:
• SensysNetworks:SensysNetworksInc.ofBerkeley,Cal.,isaninnovativemanufacturerofvehicledetectionsystems.Thecompany'sleadproductperformsthesamefunctionasinductiveloopdetectors
usedbyCaltransandothertransportationagencieswithintheUSandinternationally,atasubstantiallylowercostbutwithoutsacrificingperformance.Thetechnicalconceptsthatunderlietheestablishmentof
SensysNetworksweredevelopedwitharesearchcontractissuedbyCaltransDivisionofResearchandInnovation(DRI).AbusinesscasewrittenbyCCITreviewstheinceptionofthecompany,describesits
technology,andshowshowitsproductuniquelyaddressesacrucialneedofCaltrans.Startingin2007,SensysNetworkshasexperiencedsomelevelofsuccessprovidingitstechnologytoCaltransdistricts.The
companyisdoingverywellnationallyinthemarketforsignalizedintersectionsandmid‐blockdetection.
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• ParkingCarma:‘SmartParking’atrailtransitstationsdesignatesaparkinginventorymanagementsystemthatdisseminatesreal‐timeparkingavailabilityinformationtothepublicandfeaturesareservation
system.SmartParkingleadstobetterlandutilizationandcanpotentiallyincreasetransitridershipalongcongestedcorridors.Between2004and2005,ParkingCarma,Inc.,operatedaFieldOperationalTestofa
SmartParkingsystemattheRockridgeBARTstationinBerkeley,Cal.TheFieldOperationalTestwassponsoredbyCaltransDRIinpartnershipwithBART,andwasevaluatedbythePartnersforAdvanced
TransitandHighways(PATH)andCCIT.WhileParkingCarmaisnottryingtocommercializetheirtechnologydirectlytoCaltrans,theytargetcitiesandtransitagenciesacrossthestate,andhave
consistentlysoughtCaltrans’partnershipindoingso.
Finally,backgroundinformationregardingthreeadditionalfirmswascollectedthroughtheexperienceofthe
InnovativeCorridorsInitiative(ICI).ICIwasdevelopedforthe2005WorldCongressonIntelligentTransportationSystemsinSanFrancisco.ItconsistedinofferingCaltrans’rightofwayintheBayAreatoallowinnovative
companiestoshowcasetheirtechnologyduringtheCongress.Thisinitiativesetamodelforcommunicatingneeds,buildingawareness,hostingtrials,andstreamliningdeployments.WefocusedonthefollowingthreeICI
participants:
• Infotek:Infotekmanufacturesanadvancedmicro‐controllerandmodemforvehicledetectionstations.InfotekhassoldtheirtechnologytoCaltransDistrict10.
• Speedinfo:Speedinfomanufactures,installsandoperatesspeedradarsthatcancost‐effectivelyfillgaps
inanetworkoffreewaydetectors.Speedinfooperates300radarsintheSanFranciscoBayArea,andisinstallingseveraldozeninVenturaCounty.
• Dash:OriginallycalledCircumnav,DashhasdevelopedaGPSnavigationunitthatconnectstotheinternetthroughacellularmodem.Inparticular,Dashunitsuploadtheirpositionandspeedtofeedatrafficinformationsystem.Thecompanyputitsproducttomarketin2008.
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OBSERVEDISSUES
Ourinterviewsandinvestigationsrevealedseveralcategoriesofbarrierstoinnovationprocurement.Thissection
listssomeofthemorerelevantandfrequentlyoccurringissues.
PROCEDURECOMPLEXITY
MostCaltransrepresentativescitedthelengthoftimeoftenneededtopurchaseproductsasasignificantbarriertoinnovationprocurement.SomeCaltransstaffblamedthedelaysonproceduresinthestate’spurchasing
manuals.TheexamplesofARDVACandtheBalsiBeamwereoftenreferredtoasevidenceoftheintricaciesinvolvedinprocuringproductsthatareoutoftheordinaryratherthanmerecommodities.
Similarly,thefirstcomplaintexpressedbyentrepreneurswastheopacityandlackofresponsivenessoftheproduct
approvalandprocurementprocess.Allegedly,thoseentrepreneurswerewillingto‘playbythebook’andcomplywithsetprocedures,butthoseproceduresweredifficulttooutline.
COMPETITIVEBIDDINGREQUIREMENTS
Thestate’srequirementforcompetitivebiddinginmostcasesrepresentsacoreproblem.Moreover,whilethestatemanualscitetwovendorsastheminimumrequirementforinnovation,thecommonlyperceivednumberofresponsivebidsfromresponsiblebiddersisthree.Unfortunately,fornovelproductsorservices,theremayoften
beonlyonevendorthatsubmitsaproductforevaluation.InsomecasesthisvendorhasdevelopedtheproductincollaborationwithCaltrans.Inthisinstance,thecompetitivebiddingrequirementlocksoutaproductthatCaltrans
itselfcontributedtodesign!Infact,allfourexamplescitedinthemethodologyreceivedfundingfromCaltransDRI,eitherinthedesignorevaluationstages.ItisacruelironyofexistinglawsthattheStateofCaliforniacannot
benefitmorereadilyfrominnovationthatithelpeddevelopinthefirstplace.
FORCEDEXCLUSIONOFPRESCRIBERSFROMIMPLEMENTATIONCONTRACTS
Theprocurementmanualstressesthatanyconsultantthatcontractswithadepartmenttodevelopfeasibility
studiesorprovideformalrecommendationsfortheacquisitionofproductsorservicesisprecludedfromcontractingforanyoftheresultingworkpackages.Searchingforcompetentvendorstakesvaluabletimeand
resourcesawayfromefficientimplementationoftheproduct.Furthermore,suchasearchcanbefruitless.Inthecaseofnewtechnologies,theonlysupplierofthenewtechnologymaybynecessitybeinvolvedintheevaluation.
Iftheinvolvementisnotcontractedcarefullythroughathirdparty,itmayultimatelybeimpossibletopurchasetheproduct.
FollowingtheSmartParkingFieldOperationalTestatRockridgeBART,ParkingCarmafounditselfinaclose
situation.ThecompanyonlyreceivedfundingfromCaltransindirectly,throughtheUniversityofCaliforniaatBerkeley,anddidnotself‐evaluate.However,itdidfallintothetrapofbecomingaprescriberandadefacto
implementer.Forexample,inJanuary,2006,discussionsofthepossibleinvolvementofParkingCarmaintheGoCaliforniainitiativestalledbecauseCaltrans’lawyerswereuncomfortablepursuingrecommendationsgivenbya
firmthatsoughtanawardfromthestate.
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Byitsverynature,innovationisalwayscarriedbyasmallgroupofvisionariesandearlyadopters.Therefore,itistobeexpectedthatinnovatorsthathavetheabilitytoimplementwillalsobeplayingtheroleofadvocatesandthe
guides.Understaterules,thissituationposesaconflictofinterestissue,andthisrepresentsoneadditionalobstacletotheprocurementofinnovation.
ONEROUSNON‐COMPETITIVEBID(NCB)APPROVALPROCESS
Ultimately,someproductssimplycannotbeobtainedfrommultiplebidders,andanon‐competitivecontractisrequired.WhenCaltransdesirestopurchaseproductsforwhichcompetitionwasnotestablished,therulescallfor
aNon‐CompetitiveBid(NCB)justification.Thejustificationforsole‐sourceculminatesinapprovalfromtheSecretaryoftheBusiness,Housing,andTransportationAgency.
ARDVACrepresentsanexampleofthepitfallsoftheNCBprocess.DevelopedatUCDavis’AHMCTwith
sponsorshipandengineeringcontributionsbyCaltrans,thetechnologyforARDVACwaslicensedtoasinglecompanyforcommercialization.Unfortunately,ittookthreeyearsofback‐and‐forthnegotiationstopresentthe
NCBjustificationtotheSecretary,whoeventuallyrejectedit.Duringthattime,thevendordeclaredbankruptcy.Thoughtheintellectualpropertywaslaterpurchasedbyanothervendor,thiscouldhavemeanttheendofthe
ARDVACsystem.
Thecaseofacompanygoingtomarketbysecuringpatentprotectionishardlyunique.Infact,evenfortechnologiesdevelopedbyCaltrans,vendorsinterestedincommercializationwillseekexclusivelicensingrightsfor
suchnichemarketsastheoneforARDVAC.Thisisawaytooffsettheriskthatthosevendorstakebyattemptingtocommercializeanunprovensolution.Ofcourse,byobtainingexclusivelicensingrights,firmsgetanopportunityto
lockthemarketandchargeapricepremium,whichisexactlywhatstaterulesaredesignedtoprevent.However,itmustbeunderstoodthatthosesamerulesconstituteabarriertoinnovativetechnology.
SLOWANDUNDER‐RESOURCEDNEWPRODUCTEVALUATIONGUIDELINES
ManufacturersandvendorswhorequestCaltransproductapprovalmustadheretotheNewProductEvaluationGuidelines1.Thedocumentoutlinestheapprovalprocessandprovidesdirectiontothesub‐departmentalunits
thatareinvolvedintheevaluationofthenewproductssubmitted.TheprocessallowsCaltransfivemonthsbeforeacknowledgingreceiptofacompleteapplication.Fromthatpointforward,evaluationmaytakeyearsandtheprocessprovidesnoformaldeadline.Ifaprojectisrejected,vendorsmayappeal,openingthedoortoextendthe
overallprocessevenfurther.
Asofthiswriting,SensysNetworks’applicationhasbeenpendingsince2005.InaletterdatedOctober11,2005,
CaltransacknowledgedreceivingSensys’applicationandassigneditatrackingnumber.TheletteralsooutlinedaprocessandinformedSensysthattheywouldbenotifiedformallyregardinganevaluationprocedure.However,
thishasnothappenedyet.Asitturnsout,theNewProductGroupdoesnothaveadequateresourcestohandlevendors’requestsfortestingandapprovalofIntelligentTransportationSystemsproducts.Thereistypicallyone
staffpersonassignedtoprocesssuchrequests,butthisresponsibilityisonlyalow‐priorityitemintheiroveralljobdescription.
1http://www.dot.ca.gov/hq/esc/approved_products_list/NPGuidelines.html
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InthecaseofSensysNetworks,CCITconductedatrialfundedbyCaltransandprovidedunequivocalconclusionsregardingthedataqualityofferedbytheproduct.Sensysinvestedsomeoftheirownresourcestoensurethatthe
trialwouldbesuccessful.Yet,thistrialwasnotfollowedbyaformalproceduretoapproveorrejecttheirsensors,nordiditreceivemuchattentionfromtheNewProductGroup.Intheseconditions,itisdifficultforan
entrepreneurtounderstandhowCaltransrecognizesnewtechnologies,evaluatesthem,andpropagatesrecommendationstoitsdistricts.Totheoutsider,theselectionprocessmayappearad‐hoc,slow,andopaque.This
isparticularlyadversewhencompaniesmustseekfinancingfromventurecapitalistsorothersourcesinordertosupporttheirdevelopment,becauseitmakesitthismuchmoredifficultforthemtooutlineaclearpathtomarket.
FEASIBILITYSTUDYREPORT
AnotheradministrativebarriertoquickimplementationofinnovativeproductsistheStaterequirementforaFeasibilityStudyReport(FSR).AnFSR,whichpertainstoinformationtechnology(IT)projects,isamechanismfor
establishingthebusinesscaseforinvestmentofstateresourcesbeforeexpensescanbeapproved.TheFSRmustproviderationalesforagivenprojectandpresentitscostsandbenefits.Whilethisseemsreasonableandwell
intended,thefactisthatanentireyearmayberequiredtodraft,submit,process,andapprovetheFSR.Moreover,theFSRispreparedearlyintheprojectdevelopmentcycle,makingaccurateanddetailedcostestimatesdifficultto
obtain.
RECENTEFFORTSTOIMPROVEINNOVATIONPROCUREMENT
TheCaliforniaPerformanceReview(CPR),astudydevelopedtorestructure,reorganizeandreformstategovernmenttomakeitmoreresponsivetocitizens’needsandthebusinesscommunity,citesthreelargebarriers
toeffectivetechnologyresearchanddevelopment.Twoofthemarediscussedabove:theFSRandthedifficultyinobtainingsole‐sourceexceptionforimplementingresearchresults.ThethirdfindingfromtheCPRwasalackof
standardizationinthecontractingprocessforundertakingresearch,leadingtounnecessarycostsanddelay.
Effortstomitigatetheeffectsoftheseproblemshavetakenplace.TheInnovativeCorridorsInitiativewassponsoredbyCaltransandotherregionalpartners.Itsgoalsweretocreateaforumtobringtogetherthepublic
andprivatesector,aswellastoshowcaseandtestcurrentorupcomingtechnology.TheICIissuedaCallforSubmission(CFS)thatallowedformorenegotiationtime,requiredprivateindustrytoself‐fundpilot
demonstrations,andallowedtheproductsandservicestobetestedinareal‐worldsetting.TheCFScreatedacompetitiveapproachintheprivatesectorthateventuallyresultedinseveralagreementswiththepublicsector.
TheICI,whichshowcasedproductsandservicesatthe2005ITSWorldCongress,wascharacterizedbyadequatecommunicationbetweenparties,aninnovativemodelfordealingwithbudgetconstraints,andanalternativeway
forindustrytotestandshowcasenewideas.
SUMMARY:ATAXONOMICALAPPROACH
Therearemultiplecategoriesofinnovation,andtheyareaffectedbyprocurementrulesindifferentways.Forexample,improvementstoexistingproductsthatimprovequalityandreducecostswhilemaintainingminimum
specificationsmaynotfaceanyoftheissueslistedabove.NotethatAppendixDprovidesaprimeroninnovationcategories.
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Innovationsthatareconsidered“disruptive”–inthattheyintroducenewproductcategories–areaffectedthemost.Projectsinthiscategoryaremostlikelytobelaunchedbynewinnovativefirms,whoaredisadvantagedby
theexistingstructureoftheprocurementsanddeployments.
Table1‐TaxonomyofInnovationsandtheirRespectiveChallenges
Category Subcategory GenericExamples CaseExamples InnovationAffectedbyProcurementProcess
Incrementalproductimprovements(includingnewfeatures)
Newfeaturesandcapabilities
Unlikely,thoughhigherpricetagmaybeanissue.
Lowercostswhilemaintainingsufficientspecifications
Manufacturingefficiencyimprovements
Infotek Veryunlikely.Theprocurementprocessiswelldesignedtoembracethisinnovationcategory.
Low‐enddisruption(lowerfeaturesandcosts)
SouthwestAirlines,cheaper,targetsover‐servedcustomers
Speedinfo
Newmarketdisruption(newcapabilityexpandsmarket)
NotebooksoverPCs(newvalueismobility)
ARDVAC,BalsiBeam,Sensys
Systemsolutionstobrokenprocesses
Electronicdocumentprocessing
BalsiBeam
Newproductcategories
Openspacesinmarkets
Cateringtounservedmarketsegment(e.g.low,med,orhigh)
Speedinfo
Likely.Mainobservedissuesapplybecausetheseinnovationsresultinnew,unspecifiedproducts,oftenspearheadedbyasinglefirm.
BusinessModelInnovations
Costsharingofticketrevenueforredlightviolation,oradvertisingmodelsformaintainingbusstops
ParkingCarma Verylikely.Inadditiontoaforementionedissues,legalbarriersmaylimitinnovation.
Inthelightoftheissuesreportedthroughinterviewsandreferencestoexamples,Table1listsinnovation
categoriesandthetypeofchallengetheyarelikelytoface,ifany.
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BESTPRACTICESFORINNOVATION:OPERATIVELEVEL
Followingisalistof“tactical”recommendationstoimprovethedeploymentofnewtechnologyatCaltranstoday.
Theserecommendationscanbeimplementedbyindividualprojectmanagersanddonotrequirechangesincurrentrulesandorganizationalprocesses.
1.ROADMAPS
Giventhecomplexityanddiversityofadministrativeprocessesinvolvedintheprocurementofanewtypeof
productorservice,managerscanbenefitfromhavingagameplanfromtheonsetofaproject.Notallresearchprojectsareintendedtoresultinanewproduct.Butforthosethatdo,theendgoalisnecessarilytheprocurement
anddiffusionoftheresearchresults.
Aprerequisiteconditiontoincreasetheefficiencyininnovation,procurement,anddeploymentisaclear“ApprovalProcess”withspecificyes/noor“continue/stop”decisionpointssubjecttoapredefinedtimeline.In
ordertobeeffectiveforpublic‐privatepartnerships,suchatimelinemustbalancetheneedsofCaltranstomovecautiouslywithprivatecompanies’needtomovequickly.Aprocurementplanshouldbeproducedwellaheadof
theintendeddeploymentfortheproduct.Aninvestigationwithintheprocurementplanshoulddetermineorshowthatanexemptiontothenon‐competitivebidprocessisnecessarytoaccelerateinnovation.
2.ANTICIPATION
Thereareseveralpitfallsthatacontractcanfallintoifnotcarefullyplannedaround.Forexample,acompanycannotbidtoprovideproductsorservicesthatithasrecommendedaspartofanearliercontract(PurchasingAdministrativeManual,PAM,2.B6.2).Thissituationmayoccurwhenacompanyisinvolvedintrialsofitsown
products,aswasthecasewithParkingCarma.Similarly,IntellectualPropertymayrequirespecialhandling.ItisbesttoidentifyearlyonintheresearchstageshowIPmayhelporhamperthefutureprocurementofanew
product.InthecaseoftheBalsiBeam,IPownedbyCaltransisaddingtothecomplexityofpurchasingthisdevice.
Aspartoftherecommendedroadmaps,strategicplanningoftheprocurementstepscanbeusedtoavoida
discontinuitybetweentrialanddeployment.Thefollowingstrategiescanavoidthisproblem:
• Includethefutureprocurementinthetrialcontract,perhapscontingentonthetrialoutcome.
• Haveathirdparty(includesUniversityofCalifornia)conductthetrialonbehalfoftheDepartment
• Useasubcontractorstructuretoparticipateinatrial
• LetuniversitiesmanageIntellectualPropertywhenpossible,sincetheyhavededicatedresourcesto
designlicensingagreements.ResearchcontractsensurethatCaltranscannotbechargedlicensingfeesforIPwhosedevelopmentitfunded.
3.MULTI‐TIEREDDISTRIBUTION
Whenonlyonesourceexistsforadesirednewtechnology,theremayexistprocurementalternativesthatcomplywiththecompetitivebidprocess.
10
Amulti‐tiereddistributionmodelallowscompetitivebidsevenwhenthereisonlyoneultimatesupplier.Oftenakeytechnologycanbedistributedthroughmultiplechannelsthataddvalueintheirownuniqueways.Thismodel
createssomelevelofcompetition,whennonemayhaveexistedprior.
Avariationofthemulti‐tiereddistributionandvalue‐addedresellermodelcanemploythepossibleuseofopen
standards,potentiallyincombinationwithkeycomponentsandintellectualpropertylicenses.Adrawbackofthisapproachisthattheinnovatingfirmriskslosingsubstantialvaluebyopeningthesolutiontooearlyorlicensingthe
technology,whicheffectivelyreducestheincentivetoinnovate.
Insomecases,theinnovationmaybeprocuredasasubcontractwithinalargerproject,particularlywhentheinnovationappliestosystemsubcomponents:forinstance,Sensysdetectorsmaybepurchasedinsteadof
inductiveloopsbyacontractordoingapavementrehabilitationjob.Forlargeprojects,asystemintegratororestablishedfirmcanabsorbtheriskoftestinganinnovationorguaranteeingitsexistenceoveralongertime
frame.Again,thislayeredapproachmaydiminishthevaluethattheinnovativefirmcancapture,loweringtheincentivetoinnovate.
4.KEEPEXCEPTIONPROCESSESFOREXCEPTIONALCASES
Thenon‐competitivebiddingprocessisatimeandadministrativeburden.Successfulnon‐competitivebidprocessesdoexist,butingeneral,theworkandtimeissubstantiallygreaterthancompetitivelyawardedcontracts.TheARDVACexampleisacaseinpoint.Thisbarriercanbeandhasbeensurmountedeffectivelywhentheproduct
caseisstrongandasponsorisshepherdingtheprocess.Therefore,projectmanagersshouldcarefullyassesswhethertheconditionsaremettosuccessfullyfightsuchabattle.
Becauseofthelikelydelay,thenon‐competitivebidrequestshouldbeprocessedassoonasthedepartmentforeseesthatitwillnotreceivethethreenecessarybidsforagiveninnovation.Thisgoesbacktothenotionof
roadmapsandanticipation.Forexample,theprocesscanbestartedwhiletrialsarestillunderway.Ifthetrialsareunsuccessful,theprocesscanbestopped.Butassumingthattrialsaresuccessful,valuabletimewillhavebeensaved.
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BESTPRACTICESFORINNOVATION:ORGANIZATIONALLEVEL
Unlikethetacticalprocurementrecommendations,thefollowingsuggestionsareintendedforconsiderationby
higher‐levelmanagement.Theyadoptalonger‐timeperspective,andrequirestructuralchangeswithinCaltransprocessesandorganization.Werecommendfoursetofchangesaspartofanongoingprocessleadingtothemoreefficientdeploymentofnewtechnologies.
1.SIGNALSTRATEGICNEEDS
InnovatorsexternaltoCaltransmustbeawareofCaltrans’slong‐termstrategicneedsinordertofashionproductstoservethem.Procurementsolicitationscanonlyattractextantproductsandcurrentneeds.IfCaltransdesiresa
steadystreamofimprovedproducts,itmustidentifyandpublicizelong‐termstrategicdirectionsandgoals.
DRI’syearlyCallforSubmission(CFS)processisaneffectivetooltopublicizeCaltrans’needs.Unfortunately,ittoooftenremainsconfinedwithinpublicuniversitiesandresearchcenters.Therefore,offeringmorecompelling
prospectsforprivatefirmstoparticipateinupstreamresearchprojectsmayyieldsomeresults.ThisisinfactoneoftheideathathasledtothecreationofCCIT,withsomenotedsuccesses.
2.IDENTIFYINTERNALCUSTOMERS,CHAMPIONS,ANDAVAILABLEFUNDING
Often,innovativeproductscouldbeusefultocertaingroupswithinCaltransthatsimplydonotknowoftheirexistence,oraretoobusytoinvestigatethem.EvenwithDRI’sbesteffortstomatchnewproductswithinternalcustomers,littlecanbeaccomplishedunlessthreeconditionsaremet:
1. Areceptivecustomer
2. Projectchampions
3. Identifiedfundingsource
Internalchampionsmustbeidentifiedwhounderstandtheproduct’spotentialvalueandwillseektowinover
skepticalwould‐becustomers,perhapsbyorganizingandmanagingtrials.Finally,fundingisobviouslythenameofthegamewhenitcomestodeployinganewtechnology.Insomecases,DRImaybeabletocreativelyassistits
internalcustomerswithfundingsources.
Caltransmustalsobeabletogiveupprojectsforwhichtheaboveconditionsaren’tmet.Havingclearerroadmaps,assuggestedintheprevioussection,canhelpsetdecisionpointsalongthedeploymentpathandgive
opportunitiestopulltheplugonaproject.Byeliminatingprojectsthatareunlikelytosucceed,DRIcanstimulateavirtuouscycle:fewerresourcesspentonlosingprojectsmeanmorearespentonpotentialsuccesses.
Experimentationispartoftheprocessofinnovation,andfailureisanecessaryconsequence.Whilefailureshouldnotbepunished,projectsthatfailtoattractcustomers,championsandfundingmustbeidentifiedandcutearly
enoughinordertofocusresourcesonfuturewins.
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3.SPECIFYFUNCTIONRATHERTHANFORM
Productspecificationsdescribehowaproductisimplemented,whereasfunctionalspecificationsdescribeonly
whattheproductmustdo.Productspecificationshinderinnovation,becausetheyprecludevendorsfromsolvingCaltrans’sproblemsusingalternativeapproaches.Functionalspecifications,ontheotherhand,exposeCaltrans’strueneedstoinnovators,allowingthemtoproposecompletelynewsolutionsthatmaybebetter,safer,and
cheaper.
Writingfunctionalspecificationsrequiresexpertiseandcare.Draftingfunctionalspecificationsismoretime
consumingandrequiresmoresophisticationbecausetheauthormustmakesurethatnorequirementsareomittedandthatunnecessarydetailsarenotincluded.Importantomissionscanresultinproductsthatarenot
satisfactory,andspuriousinclusionsreducetheoptionsavailabletoinnovators,potentiallymitigatingtheadvantagesofthefunctionalspecification.
Inreality,nospecificationiscompletelyfunctionalorcompletelytechnology‐specific.Caltransshouldendeavorto
makeitsspecifications“asfunctionalaspossible.”ThismeansthatinternalcompetenciesshouldbedevelopedwithintheDepartmenttofavorfunctionoverform.
4.INTERNALINCENTIVES
WefinallysuggestthatCaltransconsiderssettingupmoreinternalincentivestoadoptinnovationattheindividualororganizationunitlevel.Adiscussiononincentives,includingrewardsforintellectualproperty,isprovidedinAppendixA,‘APrimeronInnovation.’
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BESTPRACTICESFORINNOVATION:LEGISLATIVECONSIDERATIONS
Legislativeaction,whileoutsidetheoriginalscopeofthestudy,couldsolvesomeofthelargerissuesthatstate
agenciesmustgrapplewithtoprocureinnovativesolutions.WerecommendthatCaltransconsidersupportingamendedlegislationtosimplifytheprocurementprocessforuniqueproductsandserviceswhencertaincriteriaaremet.Forexample,legislationcouldenableCaltrans,withincertainstrategicareasdesignatedforinnovation,to
awardacontracttoasolebidderifthecompetitivebidprocessdoesnotreturntherequiredthreebids.Toguardagainstoveruse,thestatecouldcontrolthenumberofsolesourceawardsperorganizationalunit.Thiscouldbe
donebysettingbudgetlimits.Further,theseexceptionswouldbegrantedforalimitedtimeonly,sothatcompetitioncandevelopandpurchasersdonotfindthemselveslocked‐intoasinglesource.
Giventhehighlytentativenatureofthisconcept,wedidnotspendunduetimeexploringit.Nonetheless,thisdirectioncouldbefertilegroundforfutureinvestigations.
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APPENDIXA:PRIMERONINNOVATION2
Innovationistheactofcreatingsomethingnew.Thiscantaketheformofradicalnewideasandproducts,or
incrementalrefinementofwhatisalreadyknown.Itisoftenusedtodescribenewinventions–machinesthatdosomethinguseful.Butinnovationcanapplytoallproducts,services,andprocesses.
Caltrans’sfundamentalmissionistoimprovemobilityacrossCalifornia.Tothisend,ithasadirectinterestin
innovationinthetransportationsector;ideasandtechnologiesthatwillenableCalifornianstotraveltotheirdestinationsmorequicklyandsafelythantheycantoday.Becauseofthis,itisinCaltrans’sinteresttofully
understandtheprocessofinnovation.Sinceitisnecessarytotrackandcultivateknownsourcesofinnovation,Caltransshouldbeabletoanswersuchquestionsas:
• Wheredoideascomefrom?
• How(andwhy)doideasbecomeproductsandservices?
• Whatincentivessomeonetopursueaninnovativeidea?
• Whatisthemarketforinnovationandhowdoesitdifferfromtraditionalmarkets?
StewardshipisalsooneofCaltrans’sfivestatedmissions.Tothisend,Caltrans,likemostpublicagencies,hasmanyrulesandproceduresinplacetoensurethatitcanobtaingoodsandservicesfortheminimumcosttothe
taxpayer.Unfortunately,thisdutyissometimesatdirectoddswiththeincentivesthatgenerateinnovation.
MODELSOFINNOVATION
Therearemanymodelsoftheprocessofinnovation,butallofthem,atsomepoint,assumethatinnovationcomes
frominnovators:peopleandorganizationsthatdevelopideasandinvesttimeandmoneytorealizethoseideas.Fromaneconomist’sviewpoint,then,whetherasocietyenjoysthebenefitsofaconstantstreamofinnovationhas
muchtodowiththeincentivesthatinnovatorshavefordoingtheirwork.Afterall,awould‐beinnovatorhastheoptiontoworkonsomethingnew,orspendhertimeinanyotherway.Iftheincentivestoinnovateindifferent
sectorsvary,theninventorswillbedrawntosomesectorsmorethanothers.
Therearemanywaystoencourageinnovation,buttheycanbedrawnintothreebroadcategories:i)markets&intellectualproperty,ii)prizes,andiii)grants.Eachgeneralregimehasitsrelativeadvantagesanddisadvantages,
butitisalsoimportanttorememberthattheyareallsuperiortoafourthalternative:noinnovationatall.
WithrespecttoCaltransprocurementandpublic‐privatepartnerships,however,themarketandIP‐drivenapproachismostrelevantforthisdiscussion.WhatfollowsaretwoexamplesofhowCaltransprocurement
requirementscanimpactinnovators.
2 ThisentiresectionborrowsheavilyfromScotchmer,S.,InnovationsandIncentives,MITPress,2006.ISBN978‐0262693431
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MARKETSANDINTELLECTUALPROPERTY
Innovationdiffersfrommosttraditionalproductsbecauseideascanbecopiedatnomarginalcost.Forexample,it
mayrequiremillionsofdollarstodevelopandanewformulationforconcrete,butonceithasbeendeveloped,theformulationcanbeusedrepeatedlyatnocost.Unlikeconcrete,thatoncepouredcannotbepouredagain,theformulaforconcreteisnon‐consumable.Moreover,theideasbehindinnovationarealsonon‐excludable:thereis
nowaytostopsomeonefromusingthemoncetheyareknown.Becauseofthis,withoutintellectualpropertyprotection,itwouldbeimpossibleforinnovatorstoearnareturnontheriskandcoststheyboretocreatetheir
inventions.
Intellectualproperty(IP)wascreatedspecificallytoaddressthisproblem.Intellectualpropertyassignsownership
rightstoideas,andusesthepowersofgovernmenttomakesurethattheserightsarerespected.Inessence,IPmakesideasexcludable.ApatentisaformofIPgrantedbythegovernmenttoaninventorthatgiveshera
temporarymonopolyonalldevicesandservicesthatusetheideaspecifiedintheclaimsofthepatent.
Patentsareadouble‐edgedsword.Byassigningpropertyrightstotheinvention,innovatorscannowchargeapricefortheuseoftheirideasufficienttorecouptheirinvestment.Also,patentsforcethedisclosureoftheideato
thepublic.Thisisgenerallyagoodthing,asthisknowledgecanbebuiltonbyotherstomakefurtherinnovations.However,byvirtueofthegovernmentgrantingamonopoly,societyasawholedoesnotgetthemaximumvalueof
theinvention.Some“consumersurplus”istransferredtotheinvestor,intermsofhigher,monopolyprices.Thistransfermaybeperceivedasunfairbysome.Evenmoretroublesomeisthatsomevalueislostcompletelybecause
thesehigherpricesreducethenumberofpeoplewhocouldadoptandgainfromthenewidea–so‐called“deadweightloss.”
Amarket‐compatiblealternativetoIPforinnovatorsissecrecy.Dependingontheproductorservice,itmaybe
possibletoproduceaproductorserviceusingsecretinnovativemethods,withoutdisclosingthesecret.Aclassicexamplewouldbeasecretrecipe.Adisadvantagetosuchanapproachisthatthesecretmaybediscovered
independentlyordivulgedatanytime.Ifthatoccurs,themonopolyislost.However,secrecyhasonestrongadvantagefortheinnovator(whichisadisadvantageforeveryoneelse):unlikepatentswhichhavefinitelifetimes,
secretscanlastindefinitely.
Byfar,marketsaretheprimarydriversofinnovationintheUnitedStates,andsoarehighlyrelevantforCaltrans.Manyinnovatorswhocometothetransportationmarketdosowithaportfolioofpatentsandtradesecretsto
protecttheirproductsfromimitation.
PRIZES
Analternativewaytoincentivizeinnovationistoofferprizes.Prizeshavebeenusedtogreateffecthistorically,and
arecurrentlyenjoyingaresurgenceofinterest.Prizescomeinvariousforms.Underatargetedprizesystem,anawardisgiventothefirstinventorthatsolvesaparticularpre‐specifiedproblem.Thisisattractivebecausethe
prize‐givercanpotentiallyenlistthetalentsofmanyinnovatorsforarelativelysmallsum;onlythewinnerwillbeultimatelypaid.Innovatorsalsoknowthis,andthemostrationalwillonlyengageinthecompetitioniftheir
expectedvalue(theprobabilityofwinningmultipliedbytheprizeamount)isgreaterthantheircosts.Moreover,targetedprizescanonlysolvewell‐definedproblems.Often,usefulinventionsarecompletelynovel:theyarea
responsetoaneedsensedbytheinventor,nottheanswertoanyquestionpreviouslyarticulated.Another
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advantageofprizesisthat,nomoneymustbespentunlessthespecifiedproblemisactuallysolved;thegranterassumesnorisk.Acomplicationofthiskindofprizeisthattheprize‐givermusthavesufficientunderstandingto
properlyspecifytheappropriaterequirements.
Analternativetotargetedprizes,then,are“bluesky”prizes–prizesthataregrantedtoanyinventionthatsufficientlyimpressestheprize‐giver.Forexample,onecouldoffer$1Mforthebestideaproposedbeforea
certaindeadline.Ofcourse,thecomplicationwiththisisthelargenumberofunknowns,nottomentionthedifficultyofcomparingdisparateinnovations.Eventheentrantsdonotknowonwhatcriteriatheirworkwillbe
judged.
Caltranshasnotmadeuseofprizes,butforwell‐defined,pressingproblemsforwhichnocurrentsolutionexists,
suchanincentivemechanismmaybeworthinvestigating.Inthisrespect,prizeswouldnotdifferverymuchfromcompetitivebidding–asystemwithwhichCaltranshassignificantexperience.Theprimarydifferencewouldbe
thatratherthansubmittingproposalsforfuturework,bidderswouldbesubmittingdescriptionsoffinishedwork.Prizescanalsobecombinedwithcompetitivebidding.Forexample,Caltranscanawardasmallcontracttoeachof
severalbiddersthatpassaninitialvetting,awardingasecond,largercontracttothebidderwhomostsatisfactorilycompletesthefirstcontract.Webelievethatthismaybepossibleunderexistingprocurementrulesdependingon
interpretation.
GRANTS
Anotheroptionforenablinginnovationsisforgovernmentsorinterestedgroupstoprovidegrantstowould‐beinventors.Underagrantsystem,innovatorswithideaspresentproposalsfordevelopingtheirideastogranting
institutions,whichthenjudgestheworthofanidea,thelikelihoodofsuccess,andthelikelycosttocompletetheidea,beforedecidinghowmuchtogrant,andtowhom.Thestrengthofthistypeofsystemisthatitgivesgranting
institutionscontrolofthedirectionofresearch.Anotheradvantageofgrantsforthegranter,andforsociety‐at‐large,isthatthegrantercanspecifyaheadoftimethattheresultsofresearchconductedwiththegrantshallbe
madeavailableinthepublicdomain.Theprincipledrawbackisthatmoneymustbespentex‐ante,andcanpotentiallyyieldlittleornothingofvalue.Also,grantinginstitutionsmusthavesignificantexpertiseintheareaof
innovationinordertomaximizethenumberofsuccessesobtainedfortheirmoney.
Caltrans’DivisionofResearchandInnovationhassignificantexperiencewithgrant‐likemechanisms,primarilythroughtheissuanceoftaskordersandresearchtechnicalagreementstoresearchteamsworkinginuniversity
settings.
COMPETITIVEBIDDINGREQUIREMENTS
Competitivebiddingrequirementsencourageanddiscouragedifferentkindsofinnovation.Aclassicexampleofthepotentialtensionbetweenthedesiretosavemoneyandthedesiretoencourageinnovationcomesfromthe
effectofprocurementrulesthatencourageorrequirecompetitivebidding.Asafirst‐ordereffect,suchrulesgenerallybenefitthestatebecausecompetitionlowerspricesandraisesquality.Moreover,suchcompetition
encouragescertainkindsofinnovation.Ifonecompetitorinventsamethodtoprovideaknownproductorserviceatlowercostandhigherquality,hewillhaveacompetitiveadvantageovertheothersbidding.
17
Butnotallkindsofinnovationareservedbytherequirementforcompetitivebidding.NewproductsthatserveCaltrans’needsintotallynewwaysorthatserveaneedthatwaspreviouslycompletelyunmetbythemarketfare
poorlyundercompetitivebiddingrequirements.Rulesagainstnon‐competitivebidsmakeitdifficultforCaltranstopurchasesuchnewproducts.ThisisunfortunateforCalifornians,astheycannotenjoythebenefitsofvaluable
newtransportationproducts.Overtime,however,patentsexpire,newideascomeuptosolvethesameproblem,andeventuallycompetitiveproductsmayemerge.
Butthereisasecondary,moreperniciouseffectofrequiredcompetitivebidding:knowingthatthesearetherules,entrepreneursarediscouragedfrombringingcertainnewproductstomarket.Bydefinition,newproductshaveno
competitors,sounderastrictinterpretationofNCBrules,cannotbepurchasedwithoutspecialauthorization.InCaltrans’scase,forsignificantcontracts,thisauthorizationmustcomefromtheDirector,underatime‐consuming
andcomplexprocess.Inthelongterm,rulesthatforcecompetitivepricingwillactuallydiscouragecertainkindsofinnovation.
Thestrengthofthiseffectisuncertain.Caltrans,forexample,mayormaynotrepresentasignificantfractionof
themarketforaproduct,soitsrulesmaynotmatterthatmuchtothemarketasawhole.However,thereiscertainlyanecdotalevidencetoshowthatsub‐sectorswithintransportationdosufferfromarelativedearthof
newproducts,andgovernmentprocurementrulescouldbeafactor.
Forthesakeofdiscussionandasanexample,Caltranscoulddecidetoaddressthisbyconsideringnew,non‐traditionalproductsandservicesseparatelyfromthebulkofprocurement,acknowledgingthatobtaining
competitivebidsforthemwillotherwisebedifficultorevenimpossible.Itcouldhenceawardaportionofcontractstonon‐competitivebidsofproductsandservicesthattheDepartmentbelieveswillbeofbenefittothe
State.Insuchcases,Caltranswouldbepayingmonopolypricesfortheseproductsandservices.However,thenegativeappearanceofthisstatementissomewhatmisleading.Presumably,Caltranswillstillonlypurchasea
productifitsbenefitsexceeditsprice.
PROCUREMENT:SPEEDVERSUSACCURACY
ArealityofprocurementinalargegovernmentalorganizationlikeCaltransiscomplexandtheprocurementprocessisfullofdelays.Aprocurementsystemthatisslowtomakedecisionsmayservetaxpayersbecauseithelps
toavoidcostlymistakes.Decisionsarenotmadeuntilallthefactsareknowntoahighdegreeofcertainty.Obtainingthatlevelofcertaintyhascostsofitsown.Thedirectcostisthelostutilitythatsuchproductscouldhave
broughttheStateifpurchasedsooner;itisthedelayedbenefit.Thishastobebalancedwiththeincreasedconfidenceandthesavingsfromdelayedpurchase.
Simultaneously,thevalueofanewproducttoitsinventorisdependentonthetimelinesswithwhichrevenuecanbegenerated.Entrepreneursmustviewtheirdevelopmenttimeandmoneyasaninvestment.Ifmoneywasraised
tocreatetheinnovation,theymayevenhavesignificantpressuretoearnareturnassoonaspossible.Asecondarydriverofthiscomesfromthefinitelifetimeofapatent.Becauseitcansometimesrequireyearstobringaproduct
tomarket,theactualprotectedtimewithwhichtoearneconomicprofitinthemarketmaybequitesmall.
TheoverallconsequenceisthatinnovatorswhoexpectaslowresponsefromCaltransmayturntomoreattractivemarketsinwhichtoinnovate.Thisisanimportantsecondaryeffect:longpurchasingcyclescandiscourage
innovatorsfromevenenteringamarket.Onceamarketisknowntobeslow,innovatorsmayapplytheirskillselsewhere,leavingthemarketemptyofnewproducts.
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APPENDIXB:APRIMERONPROCUREMENTRULESFORCALTRANS
Tworoutesexistforprocuringuniqueproductsandservices.Oneisacompetitivebiddingprocessandtheotheris
anon‐competitivebiddingprocess.
1. Competitivebiddingmethod:Inthiscase,competitionneedstobeapparent;howeveritmaybedifficulttomeetconditionswithinnovativeproducts.
2. Non‐competitivelybidcontract:Inthiscase,therearesubstantialadministrativepains/costs.Forthis
category,wefocusonhowcanthisbemademoreefficientandwhatcanbedonetoshortenapprovalorreduceriskoffailure.
Figure3‐ProcurementProcessDiagram
Competitivebiddingmethodsaredescribedbelow:
1. RequestforQuotation(RFQ):Straightforward,clearlydefined,lowerriskpurchaseofgoodsand
InformationTechnology(IT)goods/services.
2. InvitationforBid(IFB):AnIFBisusedwhenspecificationsaredetailedinfunctionaland/ortechnical
termsforgoodsandIT,orfornon‐ITserviceswhenthereislittlediscretioninperformingthework.Awardisbasedonlowprice.
3. RequestforProposal(RFP):
a. ITwhenspecificationsarestatedinamoregeneralnaturedescribingtheproblemtobesolvedor
goaltobeachieved,or
b. Non‐ITservices,PrimaryMethod,whentheserviceapproachcanvaryandawardisbasedonlow
price,or
c. Non‐ITservice,SecondaryMethod,whentheserviceapproachcanvaryandawardisbasedonapointsystem.
19
Inaddition,thestatequalifiesbidstodetermineifeffectivecompetitionisachieved,asindicatedinTable2.
Table2‐BidderQualificationsandEffectiveCompetition
Term Definition
Responsiblebidder financiallycapableofperformingcontract
Responsivebidder abletomeetthespecs&requirementsofIFB/RFP
Effectivecompetition twoormoreresponsive&responsiblebidders
Competitionhasonlybeenachievedifthereis“effectivecompetition”asdefinedabove.Thecontractisawardedtothelowest‐costbidder.Otherwise,theentirebidmustberewrittenoraNon‐CompetitiveBid(NCB)processmaybeinitiated.
Furthermore,theactualprocurementprocessdiffersdependingonthetypeofgoodsorservicestobepurchased,andthetotaldollaramountofthecontracttobeawarded.Dependingoncircumstances,aRequestforQuote
(RFQ),InvitationsforBid(IFB),orRequestforProposal(RFP)willbeused.
TheillustrationbelowshowswhichbiddingprocessescanbeusedforNon‐ITGoodsvs.ITGoodswithpurchasingthresholds.
Figure4‐ProcurementMethodsbyTypeandCost
20
APPENDIXC:REFERENCESANDINTERVIEWEXCERPTS
SELECTEDREFERENCES
[BESTPRACTICES02]UNITEDSTATES,GENERALACCOUNTINGOFFICE.
[BestPractices02]UnitedStates,GeneralAccountingOffice.BestPractices,TakingaStrategicApproachCouldImproveDOD'sAcquisitionofServices:ReporttotheChairmanandRankingMinorityMember,SubcommitteeonReadinessandManagementSupport,CommitteeonArmedServices,U.S.Senate.Washington,D.C.:U.S.General
AccountingOffice,2002.
TheU.S.GeneralAccountingOffice(GAO)lookedatsixleadingprivatecompaniesandstudiedtheirdramaticchangesthatresultedinsignificantcostsavingsandserviceimprovements.Thestrategicapproachtakenbythe
leadingfirmscouldserveasageneralframeworktoguidetheDepartmentofDefense's(DOD)servicecontractinginitiatives.Alongwithcommittedleadership,theestablishmentofcross‐functionalprocurementprocesseswasa
mainfocusinthereport.Theuseofcross‐functionalteamsresultedinamixofknowledge,technicalexpertise,andcredibility;theteamsvariedinsizebutgenerallyincludedrepresentativesfromthecompany'spurchasingunit,its
internalclientsorusersoftheservices,anditsbudgetorfinanceoffice.Theteamsanalyzedspendingdata,definedinternalneedsandrequirements,andconductedmarketresearch.WhiletheGAOstatesthatthestrategic
approachfollowedbythecompaniescouldserveasageneralframework,italsorecognizesthattheDODmayfindthata"one‐size‐fits‐all"approachwillnotworkforallservices.TheDOD'ssize,therangeandcomplexityof
services,andtheuniqueaspectsofthefederalacquisitionenvironmentneedtobetakenintoaccount.
[HOWTODOBUSINESSWITHCALTRANS03]
Schwarzenegger,Arnold,SunneW.McPeak,andJeffMorales.HowToDoBusinessWithCaltrans.StateofCalifornia,DepartmentofTransportation(Nov.2003).Forcommodities,Caltrans’DivisionofProcurementandContracts(DPAC)purchasesmorethan$200mfromcommercialsourcesannually.TheDepartmentofGeneral
ServicesauthorizesCaltranstomakepurchasesunder$25k(under$100kforasmallbusinessordisabledveteranbusinessenterprise);purchasesgreaterthanthismustbedonethroughaformalbiddingprocessbyDGSonbehalf
ofCaltrans.Serviceandconstructioncontractsunder$120karewrittenandprocessedbyDPACinSacramento/Irvine,whileservicecontractsgreaterthan$120kareprocessedbytheDepartment’sEngineerOffice.
SolicitationsaredonebyIFB,RFP,orRFQsforfourteen“commercial”orseven“personal”services.Specialbiddingpreferencesareprovidedtosmallbusinesses,disabledveterans,orbusinesseslocatedincertainareas.DGS
ProcurementDivisionpublishesStateconstruction,commodityandservicecontractingopportunitiesintheCaliforniaStateContractsRegister(CSCR)online,whereservicescostingmorethan$5kmustbeleftfora2‐week
minimum.Inaddition,Caltrans’DPACmaintainsawebsite,listingallcontractsouttobid.SmallpurchasesofcommoditiesandservicesmaybedonebyVisaCal‐CardCreditCards,pettycash,ordraftpurchaseorders.
[INFRASTRUCTURE05]CALIFORNIAPERFORMANCEREVIEW.
[Infrastructure05]CaliforniaPerformanceReview.Infrastructure,Ch.4:INF17IntegratetheState’sInfrastructureResearchandDevelopmentPrograms.2005.Introduction:Californiaspendsmillionsoninfrastructureresearch
withoutastrategicplanorcoordinationamongagencies.ThisfragmentedapproachhindersCalifornia’sabilityto
21
solveitsinfrastructureprogramsandfullyleveragemoneyandideas.Thestate’sinfrastructurehasbeenunabletomeetthedemandofCalifornia’sgrowingpopulation.TheinfrastructureR&DagenciesincludeCaltrans,CEC
(energycommission),IWMB(wastemanagementboard),SeismicSafetyCommission,andSWRCB(StateWaterResourcesControlBoard).Eachsetsitsowngoalsandagenda.
[Infrastructure05]CaliforniaPerformanceReview.Infrastructure,Ch.4:INF17IntegratetheState’sInfrastructureResearchandDevelopmentPrograms.2005.StrategicPlans:Statelacksaplanforinfrastructureresearch.An
effectiveR&Dprogramwillhaveaplanbasedonstate’svision,haveastrongleaderandorganizationtoensureactivityfulfillsthevision,havequalifiedstaffknowledgeableinresearchareas,andbeadvertisedforcompetitive
solicitation.TheStrategicPlanshoulddefinemajorcriticalareasofresearch,identifytheresourcesforshort‐andlong‐termprojects,establishtheprocessforidentifyingprojectsthatcouldleadtocommercialization,andset
milestonesandperformancemeasures.
[Infrastructure05]CaliforniaPerformanceReview.Infrastructure,Ch.4:INF17IntegratetheState’sInfrastructureResearchandDevelopmentPrograms.2005.CommercializingResearchResults:Commercializationturnsresearch
intoauseableproduct,createsbusinessopportunitiesandthepotentialforstaterevenue.Thestatehasnostandardpolicyonhowandwhentocommercializeresearchresults,sostateagenciesdeveloptheirownseparate
strategies.Thestatusquo’s“disjointedeffort”dilutesthestate’sabilitytopoolitsresources,developtargeted/marketabletechnologyandfullyleverageprivatesectorfunds;thekeyisgettingresearchtoa
marketablestageandmakingitknowntotheprivatesector.Severalstateshaveaddressedtheissuebycreatingcentralofficesorjointpoweragreements,butthiscreatesadditionallayersofgovernmentandcanbe
costly/complex,haveconflictsofinterest.Thechallengeishowtogetthemostoutofthecurrentsystemwithoutaddinglayersofbureaucracy.Currently,thebusinesscommunitydoesnothaveeasyaccesstoinformationsinceit
isscatteredindatabasesthroughoutthedifferentagencies.Threeexistingbusinessandresearchgroupsarepreparedtogetresearchresultstomarket‐regionaltechnologyalliances(privatenon‐profitthatbringslocal
universities,businessesandlocalgovernmentstogether),localeconomicdevelopmentgroups(thatworkwithcitiesanduniversitiestocreatebusinessopportunities),andtheCaliforniaCouncilonScienceandTechnology
(establishedinlegislationandisamemberoftheNationalResearchCouncil).Somerecommendationsforamoreeffectiveandefficientstateresearchanddevelopmentprograminclude:whenselectingresearchbeclearonthe
intendeduseoftheresults;involvebusinessexperts,keystakeholdersandend‐usersatallstagesoftheresearch;andmaketheresearchresultseasytofindandusebythebusinesscommunity.
[Infrastructure05]CaliforniaPerformanceReview.Infrastructure,Ch.4:INF17IntegratetheState’sInfrastructure
ResearchandDevelopmentPrograms.2005.ThreelargebarrierstoeffectiveR&Dincludethecontractingprocessesforundertakingtheresearch,theFeasibilityStudyReportrequirements,andthesolesourceprocessfor
usingresearchresults.Itcantakethreemonthstooneyeartogetacontractexecutedandcostupto$10,000percontract,duetothefactthatstateagenciesarenotrequiredtousestandardizedagreementterms.Intellectual
propertyrights,overheadratesandownershipofpublishingandroyaltyrightsarerenegotiatedforeachcontract,takingupalotoftime.TheStateAdministrativeManualrequiresaFeasibilityStudyReport.Itmustbeapprovedby
DepartmentofFinancepriortoexpendingfundsrelatingtoIT.InterpretingtheFSRrequirementtoapplytotheinitialresearchphasecandelayorkillaproject.AnFSRdetailsthetechnology,implementationprocedures,costs
andcost‐benefitratiosofasystembeforeitisimplemented.Resultsfromresearchareunknownandunquantifiableattheoutset,soitis“nearlyimpossible”fortheDOFtoapprovearesearchFSR.Thestatemay
neverbeabletousetheproductsfromcommercializedresults,whichwastesresearchfunding,jeopardizingworkersafety,andreducingproductivity.Gettingsolesourcetobeapprovedtakesalongtime.Togetnew
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productsmanufactured,licensesareissuedtoonevendorsincenoothermanufacturerswillapplyforalicenseiftheyhavetocompetewithothermanufacturers.
[Infrastructure05]CaliforniaPerformanceReview.Infrastructure,Ch.4:INF17IntegratetheState’sInfrastructureResearchandDevelopmentPrograms.2005.TheGovernorshouldworkwiththeLegislaturetocreatetheOfficeof
InfrastructureResearchandDevelopmentwithintheBusiness,Transportation,andHousingAgency.TheSecretaryofBusiness,TransportationandHousing:shouldestablishanInfrastructureAdvisoryCounciltoprovideinputand
adviceonanewplanforR&D,shoulddirectthenewofficetopartnerwithregionaltechnologyalliancesandlocaleconomicdevelopmentgroupstoreviewresearchconceptsforcommercialpotentialduringallstagesofthe
researchprocess,shouldconsolidatetheadministrativefunctionofthenewofficeandmakeefficiencyimprovements(e.g.adoptaresearchcontractwithoneoverheadrateandonepolicyonintellectualproperty
rightsandroyaltyissues,establishoneinvoicingprocess,consolidateandintegratethestatusofresearchandresultsintoonedatabase,negotiatewithDOFtorequireFSRaftertheinitialresearchisconductedandbeforeany
productisimplemented,andworkwithDGStodeveloppolicyforsole‐sourcepurchasingapprovalwhenthereisonlyonevendor).Therearesignificantsavingswiththeserecommendations,withstudiesthatshowthat
consolidatingadministrativefunctionscansave12‐30%.ReducingstaffandimplementingastandardcontractwillsavemoneyandPY,andthesavingsintheformoffederalfundscanbeusedforotherrelatedactivities.
[PURCHASING05]STATEOFCALIFORNIADEPARTMENTOFGENERALSERVICES
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“PurchasingAuthority,Basics,Chapter1.”PurchasingAuthorityManuel,1.1.7(Sept.2005).Authorityforpurchasingnon‐ITgoodsandITgoodsandservicesforStategovernmentresideswithDGS.Adepartmentmustdecidewhatpurchasingcategoriestouseinconducting
theirpurchasingactivities.Adepartmentmayselectoneormoreofthefollowingpurchasingcategoriesorsub‐categoriesasapplicabletotheirselectedpurchasingauthoritytype,suchascompetitivesolicitations,non‐
competitivelybid(NCB)contractapproval,smallbusiness(SB)/disabledveteranbusinessenterprise(DBVE)option(valuedfrom$5000.01to$99,999.99),leveragedprocurementagreement(LPA)orders(whicharesub‐categorized
intoCaliforniaMultipleAwardsSchedules(CMAS)contracts),SoftwareLicenseProgram(SLP)contracts,StatePriceSchedules(SPS),orStatewideContracts(SC)).Therearethreelevelsofcompetitivepurchasingauthoritygranted
tostateagencieswhenthesedepartmentsapply:minimum(lowestdollarthreshold,fordept’sthatdoverylittleprocurements);standard(informalsolicitations,requiredforthoseseekingformalthresholdstatus);andformal
(nosetdollarthreshold,dollarthresholdgrantedoncase‐by‐casebasis).Non‐ITandITdollarthresholdsforallthesecategoriesareprovidedinTable1.3.0ofthismanual.Authoritytopurchaseisnotrequired,butthose
departmentswithoutareprohibitedfrompurchasingnon‐ITgoodsgreaterthan$100(PCC10308)orITgoodsandservicesofanydollarvalue.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“PurchasingAuthority,ScopeofPurchasingAuthority,Chapter1.”PurchasingAuthorityManuel,1.3.5(Sept.2005).Departmentsmayrequestincreased
competitivepurchasingauthorityfornon‐ITexceeding$50,000andITfor$500,000andmustcompletetheRequestforOne‐TimeProcurementtoIncreaseAuthorityforITornon‐ITgoods.AnyNCBcontractthatexceeds
$25,000.00mustbesubmittedtoDGS/PDforreviewandapproval.Non‐ITincidentalservices(i.e.set‐upandinstallation)maybeacquiredduringtheoriginalpurchaseofnon‐ITgoodsbuttheservicesmustbesubordinateto
theoverallpurchaseandnotexceedadollarthresholdof$4,999.99.Iftheserviceportionofanon‐ITgoodspurchaseexceedsthatamount,thentheserviceportionofanon‐ITgoodsmustbeseparatedfromthenon‐ITgoodspurchaseandexecutedasacontract.Non‐ITgoodsvaluedat$100orlesscanbepurchasedbydepartments
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(theyaregivenstatutoryauthority)withoutDGS/PDoversight.Non‐ITservicesInter‐AgencyAgreements(IAA)svaluedat$50,000andovermustbeapprovedbyDGS/OfficeofLegalServices(OLS)(seeSCMVol1.)Procurements
fornon‐ITgoodswillbeconductedbytheDGS/PDAcquisitionsandContractsSection(ACS).ProcurementsforITgoodsandserviceswillbeconductedbytheDGS/PDTechnologyAcquisitionsSection(TAS)ifitexceeds
department’spurchasingauthority..PCC10329prohibitsordersplitting–“nopersonshallwillfullysplitasingletransactionintoaseriesoftransactionsforthepurposeofevadingthebiddingrequirementsofthisarticle.”
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“ProcurementPlanning,PurchaseClassificationandPlanning,Chapter2:SectionB.”PurchasingAuthorityManuel,2.B3.7(Sept.2005).Statepurchasingactivities
aredividedintothefollowingthreeclassifications–non‐ITgoods,ITgoodsandservices,andnon‐ITservices.Non‐ITservicesincludedwiththepurchaseofnon‐ITgoodsmaynotexceed$4999.99andmustbedirectlyrelatedto
thepurchaseofthegoods,suchassetuporinstallation.TheStateConstitutiongenerallyrequirescontractingoutforpersonalservicestobelimitedtothoseservicesthatcannotbeperformedbycivilserviceemployees.Ablanket
purchaseisanacquisitionmechanismestablishedfornolongerthanoneyearwithonesupplierwherethequantitiesofspecificproductsarenotknown.Innocasemayablanketpurchaseexceed$4999.99pertransaction,
unlesstheblanketpurchaseisissuedunderanLPAcontract.Departmentsgrantednon‐ITorITpurchasingauthoritytoconductcompetitivesolicitationsmayestablishtermpurchasecontractsthroughacompetitivebid
process;thistermcannotbegreaterthan36months.Acompetitivebidmustbeconductedwheneverthedollaramountis$5000orgreater.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“ProcurementPlanning,RequirementsSpecific
toITGoodsandServices,Chapter2:SectionB.”PurchasingAuthorityManuel,2.B6.2(Sept.2005).Productiveuserequirementsaretobeusedinallpurchasesforinformationtechnologygoodsandtelecommunicationsgoods(IT
goods).Thepurposeoftheproductiveuserequirementistoprotectthestatefrombeingatestsiteforprototype,experimentalor“beta”testsoftwareandnewequipmentthathasnorecordofprovenperformance.
RequirementsareasindicatedinSAMsection5221,illustration2.Anyconsultantthatcontractswithadepartmenttodevelopfeasibilitystudiesorprovideformalrecommendationsfortheacquisitionofproductsorservicesis
precludedfromcontractingforanyworkrecommendedinthefeasibilitystudyortheformalrecommendation.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“ProcurementPlanning,DesktopandMobileComputingPurchases,Chapter2:SectionB.”PurchasingAuthorityManuel,2.B7.1(Sept.2005).UndertheDesktop
andMobileComputingPolicy,departmentsmayacquiredesktopandmobilecomputinggoodsnecessarytosupportthedepartment’sprogrammaticfunctionsandbasicneeds.AlthoughSAMnolongeraddressesthe
requirementtocompleteaWorkgroupComputingJustificationForm(WCJF)inlieuofaFeasibilityStudyReport(FSR),itdoesnotexcludedepartmentsfromcontinuingtoestablishandmaintainappropriatestandardsforthe
purchaseofdesktopandmobilecomputinggoods.TheDMCPincludestheacquisitionandsupportofcomputers,PDAs,printers,LANs,andsoftwaresuchaswordprocessing,spreadsheets,anddatabases.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“ProcurementPlanning,Information
TechnologyandTelecommunications,Chapter2:SectionC.”PurchasingAuthorityManuel,2.C6.1(Sept.2005).DepartmentsgrantedITgoodsandservicespurchasingauthoritymustobtaintherequiredapprovalsfromDOF
priortoinitiatinganyITprocurementactivityorencumberinganyfunds.ThemechanismsforapprovinginformationtechnologyprojectsthatultimatelyprovidethenecessaryauthorizationtoacquireITgoodsand
servicesareFeasibilityStudyReports(FSR),compliancewithDMCP,acquisitionofITgoodsandservicesbased
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uponapreviouslyapprovedeffortmostoftenasaresultofanapprovedPostEvaluationImplementationReport(PIER),andidentifyingthataprojectoracquisitionisexcludedfromSAM4819.32.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“ProcurementPlanning,CertificateofCompliancewithStatePolicies,Chapter2:SectionC.”PurchasingAuthorityManuel,2.C7.2(Sept.2005).Asigned
certificationofcompliancewithStateinformationtechnologypoliciesisrequiredforallinformationtechnologyprocurementsvaluedat$100,000.00ormoreandareinsupportofadevelopmenteffort.Acertificationisnot
requiredforprocurementsforlessthan$100,000.00,procurementslimitedonlytomaintenanceservices,procurementsinsupportofpreviouslyapprovedefforts,andforprocurementsofservicestoconductafeasibility
studyreportprovidedtheservicesarelimitedtosupportingorconductingthefeasibilitystudyorpreparingtheFSR.Althoughacertificateofcomplianceisnotrequiredfortransactionvaluedatlessthan$100,000.00,
departmentspurchasinganyITgoodsand/orservicesarerequiredtoprovidedocumentationand/orwrittenjustificationastohowtheacquisitionisauthorized.AcceptableformsofdocumentationincludeapprovedFSR
transmittalfromDOFfornon‐delegatedprojectsorsignedbythedepartmentdirector,deputydirectorordirector’sdesigneefordepartment‐delegatedprojects,astatementintheprocurementfiledocumentingthatthe
purchaseisinaccordancewiththeDMCP,orPIERapprovalletter.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“CompetitiveSolicitations,DevelopingSupplierResources,Chapter4:SectionA.”PurchasingAuthorityManuel,4.A2.5(Sept.2005).Competitiveprocurements
conductedunderpurchasingauthorityforeithernon‐ITgoodsorITgoodsandservicesmaynotexceedthedollarthresholdsasauthorizedDGS/PDtotheindividualdepartment.Bidlistsshouldbeestablishedinphonebooks,
localtradeunions,chambersofcommerce,databases,etc.Sinceadvertisingisrequiredfornon‐ITgoodssolicitationsexceeding$50,000andforITgoodsandservicessolicitationsexceeding$100,000,bidlistsareused
forinformalsolicitationsbelowthosedollarlevels.Ifthedepartmentdeterminesthatonlycertainsuppliersand/orproductscanmeetitsneeds,acompetitivesolicitationcanbeconductedsolicitingonlythosepre‐determined
suppliersorproductswithoutpriorapprovalfromDGS/PD.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“CompetitiveSolicitations,AdvertisingRequirements,Chapter4:SectionA.”PurchasingAuthorityManuel,4.A3.5(Sept.2005).TheCaliforniaState
ContractsRegister(CSCR)wasestablishedtomaximizecompetitionthroughadvertisingStatepurchasingandcontractingopportunities.DepartmentsmustadvertisesolicitationsintheCSCR.Advertisingisrecommendedfor
non‐ITgoods$5000‐$50,000andisrequiredfornon‐ITgoodsinexcessof$50,000,ITgoodsinexcessof$100,000,ITservicesinexcessof$4999.99,andITgoodsandservicesexceeding$4999.99ontheserviceportiononly.
Departmentsmustadvertiseforatleast10workingdayspriortothebidduedate.GCsection14838.5eliminatestheadvertisingrequirementfortransactionsawardedtoacertifiedSBoracertifiedDVBEwhenconductinga
SB/DVBEOptionsolicitation.DepartmentsmaybegrantedanexemptionfromadvertisingiftheystatewhyITservicescannotbeadvertisedandincludealistofcontractorsthatwillbesolicited;aNCBcontractjustificationis
notrequired.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“CompetitiveSolicitations,DevelopingtheCompetitiveSolicitation,Chapter4:SectionB.”PurchasingAuthorityManuel,4.B2.5(Sept.2005).Informaland
formalsolicitationsareformats–fornon‐ITgoods,theinformalsolicitationis$50,000orless,and$500,000orlessforITgoodsandservices.Overtheseamountsareformalsolicitations;allformalsolicitationsmustbewritten.An
informalsolicitationmustbewrittenforanysolicitationadvertisedintheCSCR,fornon‐ITgoodsexceeding$50,000,forITservicesexceeding$4999.99,forITgoods$100,000.01to$500,000,forITgoodsandservices
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whereserviceportionexceeds$4999.99,andITgoodsandservicesvaluedat$100,000.01to$500,000.DepartmentsmustincludeTACPA,EXA,andLAMBRAprogramsrequirementsincompetitivesolicitationswithan
estimateddollarvalueof$100,000andover;thisisstronglyadvisedforadollarvalueof$85,000.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“CompetitiveSolicitations,Requestsfor
Proposal/QuotationsandInvitationtoBidforITandnon‐ITSolicitations,Chapter4:SectionB.”PurchasingAuthorityManuel,4.B3.0‐4.B8.3(Sept.2005).Themostcommonwrittensolicitationformatusedforinformal
competitivesolicitations(non‐IT)istheRequestforQuotation(RFQ).ContractawardresultingfromtheRFQprocesswillbetotheresponsiblebidderthatsubmitsaresponsivebidthatisthelowestcostafterapplicationof
anypreferencerequirements.
ThemostcommonwrittensolicitationformatusedforconductinginformalITcompetitivesolicitationsistheRFQ.
TheInvitationforBid(IFB)isawrittenprocurementmethodusedtosolicitbidresponsesfornon‐ITgoodsexceeding$50,000.Fornon‐ITgoodsprocurementsexceeding$50,000,theuseoftheIFBformatisrequired.
Contractawardresultingfromthisnon‐ITIFBprocesswillbetotheresponsiblebidderthatsubmitsaresponsivebidthatisthelowestcostafterapplicationofanypreferencerequirementsordiscounts.
TheInvitationforBidisawrittenprocurementmethodusedtosolicitbidresponsesforITgoodsaloneorforITgoodsandservicesexceeding$500,000wheresuppliersareaskedtoprovideabidtotheState’sknownand
detailedrequirements.Incontrast,RequestsforProposalsareusedwhentheState’srequirementsarewritteningeneraltermsdescribingaproblemtobesolvedoragoaltobeachieved.TherearetwoIFBformatsforIT
purchasesgreaterthan$500,000–ITgoodsonly(hardwareorsoftwarealone,lowrisk,lesscomplexpurchases)andITgoodsandservices(hardware,software,highriskorlargescalesystemsintegrationprojects).ForIT
solicitations,iftheevaluationcriteriaintheIFBprocessisbasedonthelowestnetcostmeetingallotherspecs,thencontractawardismadetolowestcostafterapplicationofbidpreferences;ifitisbasedonvalueeffectivecriteria,thenthecontractisawardedtobidthatscoresthehighestpoints.
AnRFPisrequiredforITgoodsandservicesexceeding$500,000.Itstatesthesolicitationrequirementsorspecificationsinamoregeneralnaturedescribingtheproblemtobesolvedorthegoaltobeachieved.Suppliers
“propose”abusinesssolutiontotheState’sdescribedneeds,incontrasttotheIFBwheresuppliersareaskedtoprovideacostbidtodetailedandknownrequirements.RFPrequirescosttobesubmittedinaseparatelysealed
envelope.Evaluationcriteriagoverningcontractawardisbasedonvalue‐effectivefactorsthatincludecost.Forallpurchases,certifiedsuppliers(SB/DVBE)canbesolicitedforpurchasesvaluedfrom$5000.01to$99,999.99
providedthedepartmenthasobtainedresponsivebidsfromtworesponsiblebidders.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“CompetitiveSolicitations,BidderInstructions,Chapter4:SectionB.”PurchasingAuthorityManuel,4.B9.4(Sept.2005).Regardingbidderinstructions,thesemust
beusedinallcompsolicitationsforbothnon‐ITgoodsandITgoodsandservicesexceptwhenconductingITover$500,000,whereyoushalluseDGS/PDdevelopedIFB/RFPSectionII;State’sGeneralProvisionsmustbeusedinall
competitivesolicitationsandpurchasedocsfornon‐ITgoodsandITgoodsandservicesinexcessof$4999.99;State’sITcontractmodulesmustbeusedinITsolicitationsinexcessof$100,000;AllcompetitiveITgoodsand
servicessolicitationsvaluedover$500,000shalluseIFB/RFPprocurementmethodology–State’sBidderinstructionscan’tbeused.
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[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“CompetitiveSolicitations,HowtoDetermineFairandReasonablePricing,Chapter4:SectionC.”PurchasingAuthorityManuel,4.C2.0(Sept.2005).Departments
mayacquirenon‐ITgoodsandITgoodsandservicesvaluedlessthan$5,000iffairandreasonablepricingcanbeestablishedw/oreceivingalternatequotes.Fairandreasonabledeterminedbypricecomparisons,historical
comparisons,etc.Fornon‐ITgoodsfrom$5,000‐$50,000,andITgoodsandservicesfrom$5,000‐$100,000,achievingcompetitionisdefinedasgettingtwobids,ifthesolicitationisnotadvertised.Whenevertheyare
advertised,solicitationmayresultinonlyonebidresponse;ifthesolebidisconsideredresponsibleandresponsivethenthecontractmaybeawarded.Inadditiontothissolebidresponse,forITgoodsandservices$100,000.01‐
$500,000,competitivesolicitationsconductedforITgoodsandservicesvaluedinthisrangeareconsidered“informal”butmustincludeaprovisionfornoticeofIntenttoAward.
Iftheestimatedvalueofatransactionisunder$5,000,buyersshallobtainatleasttwopricequotationsfromresponsiblesupplierswheneverthereisreasontobelievearesponsefromasinglesourceisnotafairand
reasonableprice.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.“CompetitiveSolicitations,ResponsiveBids,ResponsibleBidders,EvaluationandAwards,Chapter4:SectionD.”PurchasingAuthorityManuel,Topics2,4,5
(Sept.2005).Iftherearenoresponsivebids,buyerhastwooptions–cancelsolicitationandrebidwhilemodifyingrestrictiverequirements,orcancelsolicitationandproceedwithNCB.Whencompetitionresultsinonlyone
responsivebideventhoughmultiplebidswerereceived,abuyermaydeclarethatcompetitionhasbeenachievedbecauseofnon‐participationduetothestate’ssocio‐economicrequirementsorduetothestate’sstatutory
requirements(DVBE,SB,etc.)Ifbuyerdeterminesthatthelowbidderwillnotbeawardedthepurchaseandthesolicitationisanon‐ITinformalsolicitation(lessthan$50,000)thebuyerhastodocumentindetailwhythelowest
bidderwasnoncompliant.Fornon‐ITgoodsmorethan$50,000,documentationmustbeforwardedtoDGSforconcurrencepriortocontractawardexceptifthisisaresultofbidpreferences.
ForITgoodsandservicesvaluedover$100k,DGSrecommendsdepartmentsevaluatebidbasedonvalue‐effective
methodologyinitsintenttoaward,whilethisisrequiredforallITgoodsandservicesover$500,000.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.”Non‐CompetitivelyBid(NCB)Contracts,NCBContractandPurchasingAuthority,Chapter5.”PurchasingAuthorityManuel,5.1.6(Sept.2005).NCBcontractsare
limitedfornon‐ITgoodsandITgoodsandservicestoemergenciesandwhenproposedacquisitionofgoodsandservicesaretheonlygoodsandservicesthatmeettheState’sneed.Adepartment’sNCBcontractauthoritywillbe
authorizedatamaximumdollarthresholdnottoexceed$25,000.TherearetwomethodsforjustifyNCBcontracts–onanindividualbasis,orasaSpecialCategoryNCBrequest.NCBsrequiresignaturesfromtheiragencysecretary
anddepartmentdirectorornexthighest‐rankingofficial.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.”Non‐CompetitivelyBid(NCB)Contracts,NCB
ContractJustificationProcess,Chapter5.”PurchasingAuthorityManuel,5.5.2(Sept.2005).Thedepartmentdeterminestheneedtoacquireaproductfromsupplierwhoisonlyknownsource,completesNCBcontract
justificationandsecuresappropriatesignatures;ifpurchaseisunder$25,000theymayproceedwiththepurchase;ifitexceedsNCBpurchasingauthoritybutiswithinthedepartment’spurchasingthreshold,theymustsubmittheir
requesttoDGS/PDforreviewandapprovalbeforepurchasing;ifitexceedsboth,DGSwillreviewandapprovedocumentationexecutepurchaseonbehalfofdepartment.IftheNCBisdenied,DGSwillcontactthedepartment
todiscusstheoptionsofeitheradvertisingthesolicitationcompetitivelyorcancelingthebid.ANCBisnotrequired
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forpurchaseslessthan$5000ofITgoodsandservices,non‐ITgoods,andLPAtransactionsiffairandreasonablepricinghasbeenestablishedanddocumented.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.”Non‐CompetitivelyBid(NCB)Contracts,ProprietarySoftwarePurchases,Chapter5.”PurchasingAuthorityManuel,5.5.0(Sept.2005).Forexistingsoftware,
ifpurchaseiswithinthedepartment’sITpurchasingauthority,noNCBisrequired.Ifitexceedstheauthorityordepartmenthasnopurchasingauthority,theymustsubmittoDGStoconductprocurementandexecutecontract.
Fornewsoftware,ifpurchaseiswithinthedepartment’sapprovedITpurchasingauthority,aNCBnotrequiredfor$250,000orless,butisrequiredifgreaterthan$250,000andmustbeapprovedbyagencydirectoryand
departmentdirector.DGS/PDwillconductprocurementifitexceedsthedepartment’sITpurchasingauthorityorifthedepartmenthasnoauthority.
[Purchasing05]StateofCaliforniaDepartmentofGeneralServices.”Non‐CompetitivelyBid(NCB)Contracts,
PurchasesExemptfromtheNCBContractProcess,Chapter5.”PurchasingAuthorityManuel,5.6.1(Sept.2005).Somepurchasesmaybeexemptbystatuteorpolicyfromneedingadvertisingorcompetitivebidding,suchas
proprietarysubscriptions,publicationsandtechnicalmanualsupto$250,000,andpostagemeters.
[STATEADMIN04]THESTATEADMINISTRATIVEMANUAL(SAM)
[StateAdmin04]TheStateAdministrativeManual(SAM).Chapter4800:FeasibilityStudyReportSection4819.35,Dec.2004.ThemechanismforapprovinginformationtechnologyprojectsistheFeasibilityStudyReport(FSR).TheFSRestablishesthebusinesscaseforinvestmentofstateresourcesintheprojectbysettingoutthereasonsfor
undertakingtheprojectandanalyzingitscostsandbenefits.If,duringprojectdevelopmentorimplementation,theagencyfindsthatprogramrequirementscannotbeadequatelysatisfiedbythecourseofactiondescribedinthe
approvedFSRandthatanalternativecourseofactionismoreappropriate,aSpecialProjectReport(SPR)shallbeprepared.TheFSRmustbesubmittedtoFinanceandtotheOfficeoftheLegislativeAnalyst.Inaddition,theFSR
mustbesubmittedtotheDepartmentofGeneralServiceswhenthecontracttotalexceedstheagency'sdelegatedpurchasingauthority.TheFSRmustprovideanaccuratesummaryoftheresultsofthefeasibilitystudy.Aswiththe
studyitself,thescopeoftheFSRmustbecommensuratewiththescopeandcomplexityoftheproblemoropportunitybeingaddressed.EnoughtechnicaldetailmustbeincludedintheFSRtoshowthattheproposed
responsetotheproblemoropportunityisworkableandrealistic.TheFSRmustprovideabasisforunderstandingandagreementamongprojectmanagement,executivemanagementandprogrammanagement,aswellassatisfy
theinformationrequirementsofstate‐levelcontrolagencies.
INTERVIEWEXCERPTS
CALTRANSEMAILINTERVIEW.30JANUARY2007.
Wewerediscussingwith<formerdivisionchief>thefactwecouldnotgetasolesourceoutinlessthanthree
years,andhementionedtheexampleonhowhemanagedtospeedupthesolesourceprocessbymakingapublicannouncement,twoyearsinadvance,sothatwhenhedidgetonlyonebid,itwasacceptedbecauseall
manufacturershadbeengiventwoyearstoprepareforthebiddingprocess.
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CALTRANSEMAILINTERVIEW.27FEBRUARY2007.
WhenanRFPresultsinonlyonecompetitivebid,whatelseispossibleotherthantheNCBProcess?
Answer:usuallytheCaltransengineerswillhavetoredotheplansandspec(assuminganengineeringjob)andre‐advertiseagain.
Whatothermethodshaveyoutried(forotherprojects)tocutdownonthelengthyback‐and‐forth(liketheone
thathappenedwithARDVAC)?
Answer:ItriedasimilarprocessthroughUCDavis,theirprocurementprocessgaveusmoreflexibilityandweacquiredtwoprototypemachinesanddidtechnologytransfertothemanufactureallatonce.
Aretherisksoflawsuitssignificantwhenhavingonebid?
Answer:Yes,othercompaniesmayfeelthespecsmaynothaveallowedthemtobidandcouldfilealawsuit,butmyexperiencehasshownthattheriskofgettingthewrongcompanyincreases.
OtherthanthelengthyapprovalprocessbytheSecretaryofBusiness,Housing,andTrans.,wherearetheother
bottlenecksingettingtheprojectapproved?
Answer:State‐ownedintellectualpropertyhasbecomeadelay,suchasinthecaseoftheBalsibeam.Theother
delayisCaltransnewproductacceptanceprocess,whichisverylengthy,veryslowwithalotoflayersredtapeandnotresourcedproperlywithinCaltrans.Oneofthebigproblemsmaybethefactthattheseprojectsarenotvery
"high‐priority"forthesecretarysincetheofficehasotherpressingmatters.
Whatwouldyoursenseofthevolumeoftransactionsbe?Inotherwords,roughlyhowmanyofthesegreatinnovations'fallthroughthecracks'becauseofthehold‐upintheNCBprocess?
Answer:Itishardtotellfrommysmallperspective.Ihaveexperiencewithtwobiginnovations,onewasaportable
laserremovalofgraffiticontractthatdiedafterAgencyrejecteditandthelongdelayoftheARDVACcontract.
CALTRANSEMAILINTERVIEW.15MARCH2007.
Imeantthelackofbids,thelackofhavingvariouscompaniesabletoprovideyouwithanewwidget,increasesthechancesofsomethinggoingwrong.TheARDVACorderwasdelayedbecausetheonlyonecompanyhadtheexclusiverighttomanufactureit,CleanEarthInc.,declaredChapter11,intheRemoteControlFront‐endloader
project,UnmannedSolutionscloseddown.IntheIntelligentHerbicideApplicatorSystem(IHAS)project,UConlytalkedtoonecompanytomanufacturetheIHAS,thatcompanydidnotpassourauditreviewanddefaulted,etc.
etc.
Myapologiesforthedelayingettingbacktoyou,butwetriedfindingmoredocumentationonotherprojectsandwerenotsuccessful.
PERSONALINTERVIEW,DRIEMPLOYEE.12OCTOBER2006
Inthisinterview,wecollectedvariousthoughtsonthechallengesofdeployingnewtechnologieswithinCaltrans.
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• PurchasesattheDivisionofResearchandInnovation(DRI)aretypicallysmallandperformedusingstatecreditcards.
• Materialspurchasedareusuallyforresearchandareofsmallquantities.
• HardcopiesofresearchreportsaregiventoDRI’s“customers,”orotherdivisionswithinCaltrans.
• DRIemployeesmeetpotentialvendorsatconferencesandnetworkingcommences;vendorsthengivepresentationsoftheirproductstootherDRIemployees.Iftheirproductappearsfeasibledowntheline,
theyarecontactedfortrialtesting.
• Fieldoperationstestingisconductedeveryfiveorsixyearswithfederalfunds.Thesetestsresultin
promisingproductsthatarenotpursued.
• Newtechnologyisdefinitelypresent,butthereneedstobealeadertotakeinitiativetobringthistechnologytopractice.
• Thereisaneedforaparadigmshifttoviewnewtechnologyaspositive,becauseveteranemployeesmay
notbecomfortablewithnewtechnologiesandmanagersmaybereluctanttorisktheirlimitedbudgets.
• Allocatingfundsforthesenewproductsmayhelpresolvethisissue.
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APPENDIXD:PRIMERONINNOVATIONTYPESANDCATEGORIES
Historically,theconceptofinnovationcategorieshasbeenstudiedmanytimesoverthelast75years.Viewpoints
aredocumentedheretoserveasarepresentativesampleforinnovationliterature.Inparticular,weaddressthefollowingviewpointshere:
1. Acceptedterminology:Continuous,Discontinuous,Radical,andIncremental.
2. TechnologyMaturationViewpoint–ThreedominantphasesinindustrystructureareProductInnovation,
ProcessInnovation,andFinancialDomination.(Utterback)
3. NewProductCategoryViewpointwithDisruptiveandSustainingTechnologyandBusinessmodels(Christensen)
TERMINOLOGY
Besidestermsusedintheabovereferences,someinnovationsareconsidered“continuous”ordiscontinuousinamarketadoptionsensedependingonthedifficultyofnewuserstoadopttheinnovation.“Continuous”meansthat
usersdonothavesignificantbarrierssuchaslearninghowtousethenewproduct.ColorTVvs.blackandwhiteisacontinuousinnovation.Anothercommontermusedinliteratureisincrementalvs.radicaltocharacterizethe
technicalmethodthatisemployed.Anewcompletelynewtechnologywouldbeconsidered“radical.”
TECHNOLOGYMATURATIONVIEWPOINT
AstudybyUtterbackin1987alsoillustratedinSteele,ManagingTechnology,explainsthatindustriestendtodevelopandmatureinthreephases.Thefirstphaseisdominatedbyproductanddesigninnovationwherealarge
numberofcompetingfirmsofferproductvariationsinapotentialnewmarket.Throughaprocessofmarketselection,manygooutofbusinessorareacquiredbycompetitors,resultinginaconsolidationoftheindustry.As
theindustrybeginstoconsolidate,asecondphaseofprocessinnovationbeginsbecomedominantandfirmswithabilitytomanufacturequalitymoreefficientlydominate.Inthefinalstage,thosefirmsthatcancompetebasedon
economiesofscaleandcapitalintensitydominatetheindustry.
Figure5–IndustryMaturationofProductandModelDiversity
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Figure6‐IndustryReferences(Credit:JamesM.Utterback)
Figure7‐TechnologyMaturation
NEWPRODUCTDEVELOPMENT:DISRUPTIVEVS.SUSTAINING(CHRISTENSEN)
FromInnovator’sDilemmaandInnovator’sSolution,Christensenfindsthatexistingfirmsoftenfailtoinnovateandkeepmarketleadsnotbecauseoftheirtechnicalinability,butbecauseoforganizationandstructuraldynamics
withinthefirm.Heshowsthatexistingfirmsaregenerallytheleaderatintroducingsustainingtechnologieswhichincreasetheperformanceofproductsincapabilitiesthatalreadyexisted,suchas,increasingtheaccesstimeor
densityofaharddiskdrive.Howevernewvaluessuchassmallersize,improvedeaseofuse,andincreasedmobility,areoftenintroducedsuccessfullybynewentrantseventhoughtheproductisnotbetterinallaspects.In
hisexample,theintroductionofaharddiskdrivesizedappropriatelytoallowthecreationofnotebookcomputer,wasmoreexpensivepermegabyte,slowerinaccesstime,andcouldnotbesoldintotheexistingmarketfor
desktopcomputing.Christensenexplainsthattheoldtechnologycapabilityincreasesataratefasterthanthemarketrequiresresultinginover‐servedmarketsandcommoditization,whilenewentrantsfinddisruptive
markets.Aftersometimetheproductqualityimprovestoapointwhereithasbecomesuitablefortheexistingmainstreammarketanddefeatsthepastmarketleader.
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Figure8‐TheImpactofSustainingandDisruptiveTechnologicalChange
Christensenalsoprovidedtwosubcategoriesfordisruption:1)Lowenddisruption,wherealowercostbusinessmodelisusedtoaddressover‐servedcustomers(Wal‐Martvs.DepartmentStores),and2)New‐MarketDisruption,
wherenewmarketsorcustomerswilluseaproductthatwaspreviouslynotusefultothem.Forexample,cellphones,Ink‐jetprinters,Canondesktopcopiesdigitalcamerashaveallchangethebasisoncompetitionby
introducingmobility,easeofuse,etc,tocreatenewmarkets.