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Elcom: How procurement can foster innovation
Tell them what you want.
It sounds simple but, believe it or not, the end destination of procurement is something that frequently gets lost in the tendering process.
Those in charge often get hung up on price and the solutions they already know, rather than focusing on where an organisation really wants to get to.
When this happens, it represents an enormous missed opportunity because all kinds of innovation can fall by the wayside.
We’re not talking about commissioned R&D here, which is the sort of innovation public bodies buy in and is made explicit in procurement contracts. That’s the easy bit. In fact the (relatively modest) early targets for public sector R&D procured from SMEs were comfortably exceeded in the mid-2000s.
The missed opportunity is the organic innovation that is so often a byproduct of well-designed procurement.
The lack of innovation funded by public sector contracts — whether explicit or not — has been agonised over for decades. It’s something the public sector still needs to address because it has received criticism in the past12 for being too risk-averse and lacking expertise. That’s less common these days but we still come across it. The wider issue is that there’s a contradiction at the heart of public procurement. While small contracts are supposed to be one of the barriers to innovation, the public sector is the UK’s biggest customer and should be one of the largest sources of innovation spending.
Its scale is its great advantage but a few other dominoes have to fall for public bodies to make the most of it. Many of the steps the public sector needs to perfect are remarkably straight forward and yet we still hear of mistakes being made today. Digital Transformation in the Public Sector Week is a great opportunity to refocus on some of the easy wins that make procurement a driver of innovation. The public sector has, arguably, the biggest opportunity to do so.
The most important thing is to use scale to your advantage. We’ve all heard of economies of scale. It’s a real and valuable aspect of procurement but it does tend to focus minds on cost over quality. The dominance of cost considerations is a fact of life, but it can be a barrier to the innovation your organisation needs but doesn't think it can acquire.
Let’s look at that a different way. What if an economy of scale overall allowed you to help a supplier spend more on innovation that would ultimately benefit you? What if contracts of sufficient size and duration gave suppliers the headroom to commit to the right sorts of R&D?
Where the sums being spent do allow for innovation but it still doesn’t happen, that’s often a symptom12 of too many assumptions being made at the tendering stage. A Manchester Business School study1 draws the distinction between commissioning outcomes vs overly-detailed tenders. This is a common mistake.
When you tender for outcomes, you’re explaining the direction of travel instead of specifying the solution to your needs as a non-expert — in other words describing problems rather than pointing to old solutions. This is how suppliers become exposed to needs that aren’t being met by the market and encouraged to develop fresh answers.
Other criticisms that weigh on innovation have included a lack of discourse between procurers and suppliers. Focusing on outcomes helps here too. Procurement becomes more of a conversation, and suppliers stand a better chance of exceeding expectations. Public sector procurers are then able to introduce stretch targets, where successes beyond the norm are rewarded and the risk shared.
This is how procurement encourages innovation, and can supplant government schemes such as R&D tax credits in importance. In fact, previous studies have shown that procurement is more likely to spark innovation than R&D subsidies (Rothwell and Zegveld (1981)1).
Start procurement the right way and supplier innovation will follow. Just make sure you tell them what you want — what you really want.
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Simon H. is a strategic leader, focusing resources and business acumen to deliver and outperform business objectives. Simon has had a multi-faceted engagement at the C level with both external and internal stakeholders to consistently deliver against tough targets. Simon has gained experience in leading and winning strategic deals, as well as managing major deal teams leveraging multi-functional team management. Additionally, Simon has had an engagement with Public Sector in all verticals, including Health, Police Local and Central Government up to the ministerial level. Driving strategy through thought leadership and market insight.
Extensive sales and management experience gained from working for several of the UK's leading ICT and telecommunication companies. Delivered major Government framework and contract wins in most public sector verticals as well as extensive work within the private legal sector. Connect with Simon on LinkedIn.
On Tuesday 5 April, techUK was delighted to host the Cabinet Office and industry representatives for the launch event for the UK Government’s Digital, Data and Technology Sourcing Playbook which was published on 28 March 2022. The DDaT Sourcing Playbook sets out guidance – in one place – as to how digital projects and programmes are assessed, procured and delivered in central government departments, arms-length bodies and the wider public sector. Through the application of what is commercial best practice, the Playbook addresses 11 key policies and six cross-cutting priorities that will ensure government gets things right from the start when it comes to procurement.
You can watch the recording of the launch event in full here:
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