Developed strategically, public sector spending can be used to drive innovation, with the twin goals of improving outcomes for the public and supporting sustainable public finances.
However, to date, CBI members consistently state that public procurement stifles — rather than encourages — the adoption of new technologies and ways of working. Of CBI members surveyed in 2015, for example, just 5% felt that public procurement processes currently incentivise innovation.
Further discussion with suppliers from across the public sector’s supplier base suggests that this is driven by six key factors which must be addressed:
Firstly, a disproportionate focus on short-term costs means that businesses are not measured on their ability to deliver additional value or their performance in the long term. Almost two thirds of businesses believe that lowest-initial bid cost continues to be the main driver of contract awards, and this can discourage them from investing. Where suppliers do invest, there is also little recognition of this when a contract comes to its conclusion. Again, this strips out the motivation for suppliers to innovate.
Secondly, the current approach to risk means that, too often, suppliers are asked to take on significant financial risk on untried and untested technologies. This can be too onerous for smaller tech providers, and unattractive to businesses of all sizes. Combined with low levels of financial reward for success, this can also see high-performing businesses pulling out of particular contracts.
Thirdly, public procurement processes remain overly bureaucratic and are unable to keep pace with the fast moving world of new technologies. This particularly affects SMEs who can struggle to build up the funds, knowledge and resources to compete for public sector opportunities. With the UK Innovation Survey highlighting an innovation gap between large businesses and SMEs, it is even more important that government uses its spending power to support smaller innovative businesses.
Similarly, traditional outsourcing contracts often lack flexibility and increasing the use of new partnership models could help support greater innovation. In particular, joint ventures, concessions and gainshare structures offer much greater flexibility and encourage a different way of thinking. For tech entrepreneurs, accelerator programs are quickly becoming tor the go-to model for taking new ideas to market, and government should consider opportunities to apply this in the public sector.
There may also be significant opportunities in government looking to procure innovation, rather than going to the market in search of a specific solution or type of technology. This would mean putting a problem out to tender and working closely with private sector partners to identify solutions. The GovTech Catalyst could provide a blueprint here with recent projects including smart waste tracking to help tackle waste crime and prevent it from being shipped abroad.
In addition, suppliers suggested that the public sector currently procures in siloes, and creates too many bespoke contracts. Sourcing new technologies or innovative solutions independently breeds inefficiency and misses opportunities for shared learning. Previous CBI research looking at effective technology adoption in business advocates an 80:20 rule. This means that if an existing technology meets 80% of an organisation’s requirements, they should look to use this, rather than looking for a solution that fits 100% of their needs. Public sector bodies should take a similar approach when it comes to procuring innovation.
Finally, business believes that public sector bodies must re-evaluate their approach to intellectual property rights (IPR) if it wants to encourage greater innovation. Innovative businesses are understandably reluctant to give away their IPR as this could place them at a competitive disadvantage, not just in the public sector, but in the wider market for new technologies.
Suppliers consistently suggest that while there has been some shift in approach, public bodies still too often wants to own the IP generated in public sector projects. Progressive policies on IPR do exist and the focus should therefore be on closing the gap between policy and practice.
Despite these challenges, suppliers remain optimistic about the opportunity for greater innovation in the public sector.
There are pockets of good practice across the public sector and the challenge for organisational leaders is how to ensure this is applied more widely.
The CBI and its members are already helping with this process, and to date, have compiled over 50 case studies looking at contracts which are delivering innovation or better outcomes for citizens.
We will continue this important work throughout 2020, and stand ready to support public sector bodies to explore how the lessons learned in these programmes can help more future partnerships have innovation at their heart.