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Suvi Kemppainen: Public procurement as a driver of innovation activities – from words to action

For a long time, there has been talk of public procurement as a driver of innovation activities. Now or never, it is the time to cash in on all the talk and get cracking.

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For a long time, there has been talk of public procurement as a driver of innovation activities. Now or never, it is the time to cash in on all the talk and get cracking.

As someone who has operated in the field of procurement extensively, I am a firm believer in the possibility of presenting public demand and purchasing power as the hero of the European survival story. As the President of the European Commission, José Manuel Barroso, remarked in his strategy speech for Europe 2020 ‘Innovation Union’, “It is time to harness the power of government procurement to promote innovation.”

Economists estimate that Europe is in a state of market failure. With current procedures, the public demand is incapable of encouraging markets to respond to societal needs. The public administration is not sufficiently enlightened or sufficiently aware of what markets have to offer. Thus the creativity potential in companies is left untapped.

At its worst, the looming economic crisis can paralyse the risk-taking capability of both companies and public administration. However, a moment of crisis should be an opportune moment for radical reform. Finland would now have the opportunity to display its agility in change; to function as a laboratory for public administration reform and once again demonstrate the power of small markets – and set an example to Europe.

Competitive edge from strengthening of public services

At its best, public procurement is a powerful tool in solving large-scale societal challenges and in creating pioneering markets. The annual figures, 17% of the EU GDP and over 2,000 billion euro, are indisputable.

In global competition, Europe cannot compete with natural resources, efficiency of production capability, or cost or availability of labour. We must seek our competitive edge in our societal structure, the idea of the welfare state – that is to say we must allow public services to get stronger, not disintegrate.

Therefore, the public administration must harness customers, citizens and companies as help. Strengthening of public services can happen only with the assistance of customers and companies but not on their terms. We must nourish resourcefulness, creativity and profitable business activities through means of public demand but keep the payer in control and last word for ourselves.

Towards foresight-based procurement

A good contract is the most important tool of the buyer. Procurement provisions are merely a framework within which one must operate. It has to be perceived and it must be applied in accordance with its spirit and meaning as a manifestation of the openness, transparency and equality of administration – not as an impenetrable jungle which obscures all outlooks.

In order to open public administration procurement and find the best innovations, the focus of procurement procedures must be shifted to foresight, to the dialogue between citizens and companies. There should be courage within the public administration to try out and create new ways of recognising future needs, which should be tackled with a long-term procurement strategy.

The foresight-based procurement activities should become part of a new operational culture, an organisation open to change. After all, new and creative thinking is not born out of individual procedures or at the demand of a procurement division. It is born out of a challenge, which when communicated correctly gives both to the professional in one’s own organisation as well as the markets and the customers an opportunity to invent and create new solutions.

What to do?

Foresight-based procurement requires clear and concrete support entered in the financial and operational plans: commitment and encouragement from senior management, clear division of labour and setting of binding goals.

Systematic consolidation of competence and skills, increasing the common, shared knowledge within the organisation is a continuous challenge. Procurement competence cannot be outsourced. We must also remember that new solutions are never the cheapest ones.

The risk-taking capability of public administration must be increased and failures tolerated. Procurement policy aiming at formal beauty and avoiding mistakes rarely leads to great leaps in technology.

Doors of procurement markets open also to SMEs

The need for reform of practical procurement is pressing, especially from the perspective of SMEs.

The obstacles to the entry of SMEs in procurement markets must be tenaciously removed. At its most basic, it happens by lightening the conditions of eligibility for participation in competitive tender process and the bureaucracy of demonstrating them. Moreover, upcoming procurements must be communicated more widely and effectively, for example, by organising joint municipality and company procurement forums at regular intervals. These events would bring out the makers and the works, demands and needs all based on constructive dialogue as a method. Let the speeches be given elsewhere.

The public administration, the municipal sector together and each municipality separately must set clear goals to problem- and foresight-based (innovative) procurement. It should be mentioned that China has set a general objective of 40% and the United States an objective of 15% as a share innovation and research activity funding for SMEs from their procurement budgets. The official EU objective is 1%.  

Could Finland top that?

Suvi Kemppainen is a lawyer specialising in contracts and public procurement. In the last two years, she has concentrated on promoting dialogue between municipalities and companies as well as research, development and innovation activities through public procurement. Views expressed in the article are her own.

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