Guest blog: Can Innovation be procured?

We all have our prejudices, and one of mine is that ‘procuring innovation’ is an oxymoron. I even have a shouty slide deck that spells out the reasons. Put simply, innovation is a process with uncertain outcomes and the role of procurement is usually to get the ‘best deal’ for a known commodity. To procure something you have to be able to describe it and, look around you, innovation just left by the back door…

But prejudices must be challenged. A bit of reading around the subject has shaken two of my related beliefs, the first is that that innovation cannot be procured and the second, a much more ideological belief, that innovation is the sole prerogative of the private sector.

The first point can be challenged if you add collaboration to the mix. In their 2017 article entitled ‘Procuring innovation wherever it may be’ McKinsey & Company describe ‘the power of external ideas’ as a hidden success story. Their research shows that externally sourced innovations are typically commercialised 40 percent faster than home grown ideas. The emphasis of this report is more on product innovation in the private sector but in my experience the same analysis can be applied to the public sector.

Large organisations are always at risk of developing a ‘not invented here’ mentality which tends to thrive when organisations are excessively siloed and hierarchical. Equally home grown ideas often lack the external validation they need to be taken seriously. Disruptive innovation is also very unwelcome to incumbent suppliers who have a lot to lose. This is particularly true in Information Technology where new approaches are often deflationary even if the same supplier remains in place.

In her book ‘The Entrepreneurial State’ economist Mariana Mazzucato sets the record straight on the latter point by demonstrating how much of modern technology has its roots in both publicly funded research and public institutions. Mazzucato’s research highlights the importance of risk in determining the role organisations take in innovation. She also highlights the success of the Small Business Innovation Research (SBIR) programme in the US which began during the Reagan administration in the 1980s and provides more than $2 billion a year in direct support for high tech SMEs. Attempts in the UK to copy the success of this initiative have, by contrast, had limited success.

In the UK it can sometimes feel as though we have an adversarial procurement culture which strongly resists small scale risk taking and collaborative development. Paradoxically this actually makes spectacular IT disasters far more likely because only massive projects get the attention of those with the power to push them through. Billions of pounds are wasted on vain attempts to innovate at scale and as a consequence there is less appetite or (frankly) money for more decentralised collaborations at a local level.

To quote McKinsey & Company’s report again ‘The first essential enabler for successful external innovation is the right mind-set, which puts innovation at the center of the procurement agenda.’ In my view, there are two other essential components; a focus on collaboration which breaks down artificial boundaries between organisations and prioritises the interests of the service user, and a greater appetite for risk on a small scale. The wonderful thing about IT is that success may be harder to specify but it is easy to scale when you have found it. 

Join the conversation on #procuring4growth @techUK

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