Innovation in procurement: why and how

17 Feb 2015

By Enzo de Laurentiis

For governments to carry out their day-to-day functions, procurement — or their ability to purchase goods and services — is critical. It is both a service function and a strategic policy tool which can help achieve a broad range of social and economic welfare objectives. It cuts across all areas of public administration and builds on cooperation among multiple public and private stakeholders.

For procurement to be more effective, then, it needs to innovate. Promoting innovation in procurement means processes that are transparent and efficient, and that facilitate equal access and open competition. Innovative solutions to public service needs are instrumental to delivering better services with long-term value for money.

Governments, as the major purchasers in every market, can also drive innovation in the private sector by stimulating their response to current and future service needs, smart regulation, and demand for innovative solutions. They can influence various industries’ investments in new skills, equipment and research and development, which, in turn, support growth and competitiveness.  Many companies have already realigned their own procurement to put greater focus on aspects such as time to market and product success rather than traditional aspects like savings and contract compliance.

Based on the potential of innovation, the changes in the procurement function should be centered on providing solutions to complex problems through collaboration of independent, multiple actors who work together co-create solutions that will help ensure the most effective procurement performance for the best possible outcomes.

To accomplish innovation both in public and private sector procurement, it is necessary to understand that:

  • Innovation should not be about products or about money.  It’s about people, ideas, and leadership. It’s about understanding clearly the unmet needs that we want to target (be that resolving a problem, or improving value for money) by listening, collaborating, capturing the potential for enhancing outcomes, and scaling it up.
  • Simplicity is often the trademark of innovative solutions, but implementing them requires a deliberate strategy to use procurement to meet business objectives, clear processes for the identification of needs (stated as outcomes), timely and effective ideas and implementation management, and measuring of results.
  • An important and enabling element for innovation is a culture that encourages intelligent risk taking and recognizes and rewards innovation.  Innovation, especially in procurement, is not just “invention” in an environment where a thousand flowers bloom. It is useful when specifically needed or desirable, possible with technology, and viable in the context where it is supposed to be implemented.  This is why most organizations where innovation happens consistently rely heavily on big data and technology, value technical excellence, and focus on external customers, rather than internal clients.
  • Innovative procurement will also mean a better understanding of how institutions and markets behave in different contexts. It will allow us to better use the whole procurement cycle — from strategic planning to contract management — to stimulate innovation through more informed, evidence-based decision-making.

People and institutions have always been innovating. For those of us working on procurement – from international organizations, governments, private sector or civil society – we should all be agents of change, defining new ways of collaboration that allow us to unleash a true transformational way in which procurement can deliver results.