Foresight as an Aid to Innovative Procurement of Infrastructure

1
Foresight as an Aid to Innovative Procurement of
Infrastructure

• Luke Georghiou
• PREST, Manchester Business School, University of
  Manchester

2
Outline

• Key European deficiencies in RD and innovation
• Challenge of improving public services
• Current innovation policy stresses supply side
• Major opportunity to redress balance with demand
  side policies
• Public procurement to provide lead markets for
  innovative goods and services
• Foresight potential key role in identifying
  common space in which suppliers and intelligent
  customers can set agenda for innovation

3


Guarantee Mechanisms

Indirect Measures

Direct Measures

Risk Capital


i
e
fiscal measures

Supply Side

Demand
Side


Finance


Services
Support for
Support for

Grants for
Information
Networking
Systemic
Procurement

Regulation

public
training
industrial
brokerage
measures

policies

sector
and
RD

support

research

m
obility

-

University
-

T
ailored
-

Grants for
-

Contact
-

Support for
-

Cluster
-
RD
-

Use of

funding

courses for
RD

databases

clubs

policies

procurement

regulations
-

Laboratory
firms

-

Collaborative
-
Brokerage
-
Foresight
-
Supply
-
Public
and standards
funding

Entrepreneurs
grants

ev
e
nts

programmes
to
chain
procurement of
to set
C
ollaborative
hip training

-

Reimbursable
-
Advisory
build common
innovative
innovation
policies

grants

-

Subsidised
loans

services

goods

targets

Visions - Co-location
-

Strategic
secondments

-

Prizes to
-
International
-
Support for
-
Technology
programmes
-

Industrial
spend on RTD

technology
private
platforms to
for industry

research
watch

procurement

coordinate
-

Support for
studentships

-

Patent
d
evelopment
contract
-

Support for
databases

of technology
research

recruitment
and rel
ated
-

Equipment
regulation
of scientists

sharing

and standards

Framework conditions Science base - Contract
research - Human resources - IPR - State
Aid Regulations
4
Public procurement

• Key European deficit is lack of market incentives
  to invest in technological development
• Draws RD investment to USA and to emerging
  markets such as China
• Global markets consist of global customers, and
  innovators need intimate knowledge of their
  detailed requirements
• Public procurement could be used far more
  extensively to reduce demand uncertainty and
  facilitate innovation experiments
• Procurement of goods and services which do not
  yet exist and therefore RD innovation have to
  take place before delivery (PTP)
• Procurer specifies the functions of a product or
  system but not the product as such.

5
Technology procurement - achievements
opportunities

• Key technologies innovated through procurement
  include
• Internet (origin as ARPANET)
• Key platform technologies for development of
  Nordic companies mobile telecoms capability
• Virtually all aerospace technologies
• High speed trains
• Clear synergy with objective of increasing
  productivity of public services. Areas of special
  opportunity include for example health and social
  services, transport, education .

6
Success and failure in procurement

• Badly done procurement carries risks
• Supporting ailing national champions
• Risk of locking into technology suitable only for
  one user or over-specified for commercial market
  (eg System X)
• Major success factors include
• skilful customers able to negotiate specification
• use of innovative suppliers including new entrants

7
Scale of opportunity aggregation of demand

• EC 1997 estimate ECU 704 to 737 billion for total
  public procurement (counting both government and
  public services /utilities) and ECU 547 billion
  for government alone (8.7 of GDP)
• Despite overall aggregate purchasing power of
  government (national, regional local) actual
  purchasing may be highly fragmented and provide
  little incentive for a firm to offer an
  innovative solution
• Challenge to aggregate demand

8
Costs of coordinating demand

• Difficulty arises from different institutional
  settings for purchasing given solution
• Eg Case of hospitals - healthcare often seen as
  major opportunity for innovative procurement
• Decentralisation is common trend but manifested
  in many ways
• multiple levels of government (national/regional/l
  ocal) involved
• quasi-independent government firms
• non-governmental organisations (including
  charities)
• National coordination and strategy-setting
  procedures also vary.
• Transaction costs of identifying common needs,
  determining who has purchasing authority and
  translating these into contracts may be very high
  at least in initial iterations

9
Emerging opportunity in new directives

• Procurement fell into disuse as instrument of
  innovation policy partly because requirements of
  competition legislation squeezed out space for
  close customer-supplier relationship that was
  necessary
• New EU procurement directives February 2004 widen
  possibilities through provison for competitive
  dialogue
• for complex projects - mostly PPP and PFI
  procurements when the contractor shares risk with
  Public Authority
• Prequalification of bidders based on technical
  expertise and the proposals to satisfy customers
  needs
• Dialogue with short listed potential tenderers
  at least 3 working towards solution
• Public authority can pay tenderers for the
  dialogue
• Number of participants can decrease during the
  dialogue
• Final tendering limited to at least three
  participants without further negotiation based on
  the requirements issued from the dialogue

10
Reducing uncertainty

• Key barriers to innovation are
• Risk-reward balance
• Uncertainty
• Procurement of innovative solution can address
  both
• Increase potential reward through guaranteed
  market
• Reduce uncertainty through better exchange on
  customers requirements
• But customer may not have longer term view of
  such requirements nor be aware of suppliers
  capabilities to provide them

11
Role of foresight

• Creating a common vision as a framework in which
  purchaser and supplier can agree on the likely
  trajectories of innovation and subsequently use
  these as a basis for functional specifications
  that stimulate innovation and require RD to
  achieve them

12
Shared strategies

• as firms become increasingly dependent on
  complementary of external sources of technology,
  formulation of strategy, previously an internal
  activity, must at least in part now be carried
  out in the public arena. By collaborating in
  their thoughts about the future, organisations
  may be better placed to anticipate the actions of
  their customers, suppliers and others, such as
  regulators, who are likely to influence the
  environment in which they will operate. This
  argument is particularly strong for innovation in
  complex public/private systems such as vehicle
  route information technologies, where coordinated
  action over a period of years is needed to put
  the system in place.1
• 1 Georghiou L, The UK Technology Foresight
  Programme, Futures Vol.28, No.4, pp359-377, 1996

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Link to technology platform concept

• a mechanism to bring together all interested
  stakeholders to develop a long-term vision to
  address a specific challenge, create a coherent,
  dynamic strategy to achieve that vision and steer
  the implementation of an action plan to deliver
  agreed programmes of activities and optimise the
  benefits for all parties.1
• Consumers and regulators of technology are
  stakeholders in such platforms
• 1 Europa Research http//europa.eu.int/comm/res
  earch/energy/nn/nn_rt/nn_rt_hlg/article_1262_en.ht
  m

14
Assessing the future

• DTI Technology Strategy Process explicitly to be
  used to inform procurement decisions

15
Communicating the future
Clean Coal Technology Roadmap Demo Targets to
Future Plants http//www.coal.org/PDFs/roadmapbac
kground.pdf
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And Buying Into the Future

• Public goods and services in particular often
  have a significant social dimension and foresight
  can be used to anticipate citizens concerns and
  requirements
• German Futur initiative provides one example of
  efforts to incorporate citizens views into the
  public innovation agenda

17
Conclusion

• Public procurement of innovative, functionally
  specified goods and services is underused
  instrument for innovation policy
• Natural synergy with aspirations for improved
  public services
• Will require cultural shift away fro low cost,
  low risk solutions
• Foresight is important bridging mechanism and
  complementary policy to reduce uncertainty