I recently met the CEO of a dynamic small company in a technology sector. He had some great ideas and was actively working with a large company on an open innovation initiative. He also had a radical proposal which would improve services and reduce costs for his local City Council. However, he was disinclined to submit it. ‘If I suggest this idea, I know what will happen,’ he told me. ‘They will ask exactly how it works. They will then say that is a great idea but that they have to put it out to tender with several companies and go through their standard procurement process in order to select a supplier. We will be invited to bid.’ The CEO thinks that the tendering process is complicated and long-winded. He fears that a larger or cheaper provider will benefit from his radical idea so he does not offer it.
Large companies do not operate this way. Alongside their standard procurement methods they have active open innovation policies which encourage small companies to submit relevant proposals. If accepted they will work closely and exclusively with the small company in order to bring a new product to market. Their aim is collaborate to create a win/win. But government agencies are still stuck in the old procurement paradigm where you try to squeeze the best deal out of a supplier through competitive tendering. European Union legislation stipulates that all contracts with a value above £100,000 must be published through the Official Journal of the European Union (OJEU) so any supplier across Europe can bid. This process is understandable. We want the best value for taxpayers’ money. And we want to avoid the corruption that can happen when officials grant contracts to preferred suppliers in return for favours. Open competitive tendering is a good method for acquiring standard products and services. But it does not encourage innovation and the submission of creative new proposals.
The public sector desperately needs innovation in order to meet rising demands for better services. It cannot meet this demand by simply spending more money. It needs to find smarter ways to do things.
Local and central government bodies should copy some of the large company trendsetters in open innovation. They should specify the results that they want rather than how exactly procured services should work. They should have a separate budget for truly innovative ideas. They need a specific officer charged with driving open innovation. They need to find ways to encourage innovative small companies to bring them ideas and to collaborate on their development. This can include an exclusive agreement for a limited period.
Open innovation is providing a wealth of innovations. It blossomed in the fast moving consumer goods sector with the likes of Proctor and Gamble and Unilever. Now it has spread to many other commercial fields. It is time that it was adopted with enthusiasm by the public sector.
Paul Sloane
