Innovation in public sector drives private sector growth

22 Oct

On the 21st October in MBS the Manchester Institute of Innovation Research presented findings from a recent survey on ‘Public Procurement and Innovation’ part of a wider study sponsored by the ESRC, BIS, NESTA & the TSB . Professor Jakob Edler and Dr Elvira Uyarra said the team were surprised themselves by some of the findings; particularly that innovation in the public sector was when adopted by businessn was improving their export sales.

Key findings can be found on http://research.mbs.ac.uk/innovation and were presented to a small group of  public procurers in local government, health and the Cabinet Office alongside those from supplier companies such as SERCO and smaller companies such as Renfrew.

Out of a sample of 800, 50% of which were SMEs, 60% of reported that government, in particular, was stimulating innovation in business largely  in larger companies. In other words the procurement process was having more impact than had been expected – particularly where contract specifications made direct reference to requiring innovation. Innovation was more likely suppliers said, if procurers had early interactions with them and was ‘outcome’ focused.

However, the survey also reinforced well-known anedotal barriers to innovation mentioned by the majority of respondents such as,  price, too little early conversation between supplier and public buyer,  risk-averse procurers,  little acceptance of variation and over-prescriptive specifications.  SMES , Social enterprise and third sector organisations were particuarly excluded by the above. None of which was surprising.

David Shields, Head of Government Procurement Services said a lot of the difficulties concerned siloed budgets in government and public services and wider structural barriers  that determine the timescale, criteria and performance measures in contracts. he also said he thought these could be overcome with better procurement practices. “The main issue is how to take to scale?”

Mike Phillips from Renfrew a  design company brokering engineering solutions reported that in his experience public procurers remained risk averse to new solutions. He thought the problems were felt in smaller companies down the supply chain. Innovators who provide solutions, discover that once their innovations are accepted and are adopted by the NHS or DH they are caste back down the supply chain even though they drove the innovation in the first place.

Colin Cram from MERK1 said ” SMES cannot respond to specifications, yet they are the key to recovery and growth, the public sector tends to buy what its always bought and goes along with grand schemes rather than smaller innovators.”  

I agreed that given that SMES are key to local recovery, public procurers had to  find ways of involving SMES and that this was an issue about size as much as ownership; public institutions talk to corporates and do not have the mechanisms for networking with smaller agencies or the contacts for spotting innovation. Whereas they do have the internal human capacity for public procurement. At the local level there is more effort to communicate with  SMES and social enterprises, their being at the heart of more innovative services in health, care and personalised services.

There are two strands to governmental innovation practice, one which is about efficiencies and taking innovation scale and the other about exploring alternatives and supporting pilots. Departments such as the DH and MOJ in particular invest smaller entrepreneurial SEs for their innovative personalised services for offenders, NEETS or those with mental health problems etc and then cannot find a way of commissioning these from the mainstream. The issue of how to take to service innovation scale is a critical problem for public service reform. At the moment too many smaller third sector organisations and social enterprise are losing their contracts rather than gaining them because they are not large enough to compete and do not fulfil criteria of having a turnover over £2million or the financial capacity to carry costs incurred in development that large, public service contracts involve.

Where it is a matter of innovative products central government can commission once  departments barriers are overcome. For instance, at the roundtable Alec from Coston recounted the how they had created a ‘closed loop service’ for waste paper recycling for various goverment depts and were looking to extend their services across the whole of government in order to achieve a level of tonnage that would justify no longer sending waste-paper to Germany for recycling.

Innovative services are delivered through a complex set of relationships that demand continuity – the value of smaller social enterprise is that they have the capacity to respond to changing personal and local conditions; these smaller agencies  are not large to win large contracts from DWP, DH etc,  most had contracts with the Local Authorities. Given public expenditure cuts, local authorities have 25% less to purchase with. 

DWP appear aware of the conundrum of both the need to rationalise the benefits system to reduce costs and of delivering more effective personalised local services, in an attempt to deliver on both counts they are putting pressure on prime contractors to work in partnership with local sub-contracting agencies ( often in the third sector or a social enterprise). 

However, this is not just a managerial solution but also a political one of priorities. It is interesting that a Tory MP, Chris White  is introducing a Bill to support the work of innovative social enterprise by including ‘social value’ as an outcome to be delivered by suppliers within contract specifications, alongside ‘price’ and other outcomes . He said he recognised this is a ‘Dry Bill’ not one that needs supporting non-the less. 

Social Enterprise 2011 on 8the November in London, we need more of these events in Manchester see Guardian.co.uk/socialenterprise.

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2 Responses to “Innovation in public sector drives private sector growth”

  1. thetenderexpert October 22, 2011 at 4:35 pm #

    Well said Sue, I still think there is a long way to go until ‘major’ government departments (and their major spend) truly filters down to SME’s and the real innovators. True, SME’s can successfully win some lower level contracts with local authorities etc but still struggle to compete against Prime Contractors and large framework operators who simply look to ‘squeeze’ their supply chains in order to deliver. Why is it that the DBIS only ever consult with the IBM’s and Serco’s of this world – it’s almost as bad as lobbying! 95 % of UK business is made up of SME’s and everyone knows they are the answer to bringing growth back into the economy – so why is no-one talking to them?

    • sumaddock October 29, 2011 at 10:30 pm #

      Thanks Mike Are you an independent? Su

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