PROCUREMENT AND SUPPLIES
tracking down the Holy Grail INNOVATION AND
PROCUREMENT:
Procurement offers a means to channel billions to the UK’s most innovative businesses. Stian Westlake, executive director of UK innovation foundation, Nesta, explains not only why it is critical, but how to make it happen.
he debate about Plan A or Plan B rages now as fi ercely as it did in 2008. But the prospects for economic recovery in the UK look uncertain at best. Nesta’s recent report ‘Plan I’ – for innovation-led growth – argues that if we want sustainable growth, the government needs to put in place policies to foster innovation.
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One important but neglected tool at the government’s disposal is public procurement. Used effectively, this can channel unprecedented amounts of investment into the UK’s innovative, high-growth businesses at no cost to the taxpayer.
A £24bn innovation shortfall
Businesses in the UK are investing far less in innovation than they used to. That means less R&D, less investment in designing new products, less training of staff to deliver new services: less of the investment that our businesses need to put them ahead of the competition both at home and abroad. The shortfall in 2011 was as much as £24bn, four or fi ve times what the UK government spends on scientifi c and technological research in a year. It is not government’s job to fi ll this hole entirely. However, through smart use of the £220bn procurement budget, government can help encourage business investment.
It is often argued that just a small proportion 42 | public sector executive Sep/Oct 12
of the procurement budget would make a big difference in the quest to innovative businesses.
If 1% of government procurement (approximately £2.2 billion) was spent with business, encouraging them to innovate, this would still be ten times the total amount currently invested by venture capitalists in the UK. This is because in 2011, total early stage fi nancing stood at £224m.
Many investors argue that a contract is better for a company than an investment in any case – meeting the needs of early customers keeps businesses on their toes and helps them refi ne their products.
Great innovative businesses
like Autonomy – the rapid growth UK software company sold for upwards of £6bn to Hewlett- Packard – identifi ed some of their most successful products by doing bespoke work for clients and hitting upon things that worked – the so-called ‘soft company’ model. In Autonomy’s case venture capital investment came much later.
A dividend for government
Innovation also delivers a dividend for government. We know that we face a long-term and intractable productivity problem in our public services.
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