Thrills! Spills! Procurement!

Stian Westlake - 25.09.2011

There's no easy way of saying this. This is a blog post about government procurement and how it can encourage innovation.

Now procurement is not the world's most interesting subject. But when it comes to innovation, it has something of the reputation of a Holy Grail.

For the last twenty years and more, innovation policymakers have been thinking about how government can direct some of the £100 billion to £200 billion or more it spends on stuff to innovative businesses. The anecdotal evidence is as alluring as the big-ticket number: US government procurement brought us the Internet and the mouse, while in the UK the BBC made the fortune of Acorn, giving rise to the UK's biggest independent tech company.

Most recent policy reports in the field recommend that government make better use of procurement to encourage innovation: from Lord Sainsbury's Race to the Top in 2007 and DIUS's Innovation Nation in 2008 to Sir James Dyson's Ingenious Britain in 2010 and reports by think tanks from Policy Exchange to Demos and the IPPR.

In the past few months, this question has again attracted the attention of the great and the good. The luminaries of the House of Lords Science & Technology Committee published a report on the subject back in May, and more recently the equally impressive Prime Minister's Council for Science and Technology held a meeting to discuss work on it.

So all this raises the question - if everyone agrees that using innovation to encourage procurement is such a good idea, why aren't we doing it already?

This is a subject of great interest to us, and some time ago we (together with ESRC, BIS and TSB) funded a research project at the University of Manchester to study it in more depth; this will report in 2012.

But in the mean time, let me suggest three reasons. These reasons are important for policymakers, because if they aren't taking them into account, the problem will be endlessly recited on the pages of pamphlets and white papers, but nothing will be done.

The first issue is that it's very hard to make policy on procurement, because "procurement" is a slippery concept. I said earlier that the UK spent £100 to 200bn or more on procurement, and there's a reason that figure is so vague. Most departments do not have separate "procurement" budgets, and in practice the line between procurement and spending to deliver core public services is a blurry one. Any policy on procurement needs to address what departments and ministers care about: how to meet the public's needs well and (especially nowadays) cost-effectively.
This is related to the second issue: not all procurement should be "innovative". In fact, in some cases, innovation is actively unhelpful. This recent article by Ian Birrell includes various examples of officials wasting taxpayers' money on unproven products in the interests of "outmoded industrial policy", and it argues for the merits of keeping procurement simple, and buying off-the-shelf where possible. For much - perhaps most - of what the Government buys, this makes sense. Turning every order for paperclips, rifles, or antibiotics into a chance to reshape the UK economy is likely to be expensive and ineffective.
Finally, we need to recognise that changing the way procurement works is a big management challenge. The government has been trying to improve the effectiveness of the bits of civil service that don't do "policy" work for decades, and it is a long process. Changing the behaviours and incentives of a large group of officials, spread across government is hard. It is especially hard if it must be done while improving value for money and reducing headcount, as is happening today.

There is one lesson that I draw from this. If we're going to harness the power of government spending to encourage innovative businesses, we need to recognise that the way forward is in small steps. Grand-scale attempts to promote procurement skills across government are unlikely to work.

Instead, we need to establish and develop small, effective groups within government who can run a small number of procurement programmes effectively. Some of these exist already. The TSB's Small Business Research Initiative offers a service to government departments looking to procurement research and new approaches - since its relaunch in 2008 it has been doing well (NESTA wrote a report on it in 2010). The Cabinet Office's Innovation Launch Pad is showing real promise (full disclosure: members of NESTA's Board and Investment Committee are involved as mentors and judges). We can already see these groups drawing on the lessons of organisations like DARPA and ARPA-E in the US to help government bodies get better value for money in ways that encourages innovation in their suppliers.

But these groups needn't stay small. I'm not alone in imagining a future in which these groups coalesce into a skilled team that can take responsibility for a larger share of departmental budgets. It would focus on areas where no off-the-shelf solution exists or where ministers and the public deem there's the greatest need for new ideas and suppliers, and provide a link between innovative businesses, especially new providers, big challenges, and government spending.

Something worth fighting for.