Understanding the Innovation Impacts of Public Procurement

Abstract

Public procurement accounts for a significant proportion of overall demand for goods and services and is increasingly seen as an attractive and feasible instrument for furthering the goals of innovation policy. However, public procurement is already expected to address a wide range of social goals. Much of the current debate about harnessing procurement to promote innovation draws upon a limited set of examples which are not representative of the bulk of public purchasing and tend to downplay diversity in procurement practices and in the types of goods and services procured. They also downplay diversity in the nature of innovations and in the range of ways that procurement can impact upon innovation. A one-size-fits-all model is unlikely to work across all procurement contexts yet all types of public procurement are likely to have impacts upon innovation by shaping the demand environment in which suppliers innovate and compete. We propose a framework and typology based on the nature of the goods and services procured in order to explore the potential impacts upon markets and innovation of each. We conclude that public purchasing should first and foremost remain concerned with proximate public policy goals and that, rather than trying to co-opt public procurement into the innovation policy toolbox, policy-makers should focus on promoting innovation-friendly practices across all types of procurement at all levels of governance.

Acknowledgement

The authors would like to acknowledge the financial support of the National Endowment for Science, Technology and the Arts (NESTA).

Notes

Howells (1997) reiterates the idea that the conceptualization around the market-pull vs. technology-push dilemma is flawed and differentiates between the concepts of “use”, “need” and “intended use” to better understand the technology-market matching process.

Debates within the public procurement world are often focused on innovation in procurement, that is change or innovation in the procurement process itself. Indeed, innovation in procurement processes may be an essential precursor to the active use of public procurement to stimulate innovation in suppliers and the wider economy. However, there exists the potential for terminological confusion between “innovative procurement” and “innovation in procurement” between the innovation policy and the public procurement discourses.

A point also noted by Edquist et al. (2000) who acknowledge that for effective technology procurement to take place a high concentration of buying power and a comprehensive “articulation of demand” may be necessary.

Levinson (2006) argues that the early adoption of containerized shipping by the US military to solve logistics problems associated with the war in Vietnam created both a powerful demonstrator effect and provided an opportunity for entrepreneurs to kick-start the importing of Japanese consumer products into the American market by filling up the empty containers returning across the Pacific to the USA.

Insofar as there is a trend here, it is towards increased variety as the various manifestations of decentralization and the “New Public Management” continue to make themselves felt.

The purchasing portfolio approach is allegedly widely used by major companies. Despite its popularity, there are few studies providing evidence on their actual use (for a review and critique of purchasing portfolio approaches, see Gelderman and Weele (2005)). There is also little evidence on the use of this technique by public procurers, despite such supply portfolio or positioning matrices being a frequent component of public procurement strategies at national and local authority level in the UK).

For items where the company plays a dominant market role vis-a-vis the supplier, the company should “exploit” this advantage. If the supplier's strength outweights the company's, the company should look for material substitutes or new suppliers (“diversify”). For items with neither major visible risks nor benefits, the company should pursue a “balance” intermediary strategy (Kraljic, 1983).

Article 29 of the EC 2004 Public Sector Procurement Directive introduced the concept of competitive dialogue, which allows better information flow in designing complex public contracts, and an opportunity for bidders to develop alternative proposals in response to a client's outline requirements.

Storper's (1997, p. 112) use of the term world of production is meant to “convey the interlinkage of people, organizations, objects, and ideas” associated with each product.

Abernathy and Clark provide the example of the Ford model T, which was a creative synthesis of diverse design concepts with the integration of new electrical technology and engine design. The success of the car was assisted by its durable design together with its sufficiently low cost to permit the development of a mass market.

This would also be the case if incentives related to intellectual property are mismanaged.