Elsevier

Research Policy

Volume 49, Issue 7, September 2020, 104075
Research Policy

The innovation impacts of public procurement offices: The case of healthcare procurement

https://doi.org/10.1016/j.respol.2020.104075Get rights and content

Highlights

  • Attention to innovation's social purpose reinforces procurement's important role.

  • Yet procurement offices seem largely incidental to the innovation efforts of others.

  • Seen as professional intermediaries, however, procurement offices affect innovation.

  • They shape the valuation of goods and the markets through which they are exchanged.

  • Enhancing the capacities of procurement offices can support responsive innovation.

Abstract

Interest in public procurement's role in innovation has been reinforced by the directional turn in innovation policy, which highlights the social purpose of innovation. Procurement-induced innovation may often be a by-product of the pursuit of other policy goals, especially in sectors that are highly dependent on innovation, such as healthcare. Yet the tendency of innovation scholarship to focus at macro-levels, and on R&D-intensive innovation, means that the ways in which procurement routinely affects innovation – whether positively or negatively – are not fully understood. A particular scholarly lacuna relates to the role of the procurement office, which is often characterized as a more-or-less effective conduit for the knowledge and imperatives of others, notably users and vendors. Literature from innovation policy studies, which highlights the importance of implementation and administration for realizing innovation policy aims, alongside the burgeoning field of valuation studies, suggests that these offices may have a more substantive effect.

We explored the role of the procurement office in innovation in the healthcare sector, which is highly dependent on innovation but retains the delivery of a high quality public service as its primary goal. We used an embedded case study design across four provinces in Canada, involving document review, ethnographic observation and key informant interviews (n=32). We first review how procurement offices engage and shape markets, then turn to the critical ways in which this market-shaping capacity is enabled through demand shaping activities that are negotiated within health systems.

We argue that procurement offices act as professional intermediaries wielding calculative devices to set up the parameters of purchasing situations and to render certain measures of worth calculable through purchasing specifications. In doing so, they configure demand, conjure supply, and shape markets over time. Thus, they have a systemic impact on innovation. Yet while always present, the strength of the procurement office's impact is not unlimited, being constrained by powerful constituencies within health systems and cost-cutting pressures placed on public sector procurement more generally. We suggest that acknowledging the substantive importance of procurement offices in innovation may be an important first step in unleashing their capacity to support it.

Introduction

Public procurement is an enduring instrument of social and industrial policy (Geroski, 1990; McCrudden, 2004), and has re-emerged in recent decades as a critical tool of innovation policy, reflecting growing interest in the insufficiency of supply side investments and the potential to harness the demand side (Edler and Georghiou, 2007). In the EU and other jurisdictions, policy increasingly encourages public procurement of innovation (PPI) (Georghiou et al., 2014; OECD, 2011, 2017), aiming to encourage firm R&D, define new functional requirements, induce or speed up diffusion, improve public services, or address critical public policy goals such as environmental and social sustainability (Boon and Edler, 2018; Edler and Georghiou, 2007; Uyarra et al., 2020). Because of its economic footprint and its demand for innovation, the healthcare sector has been a particular area of focus (Askfors and Fornstedt, 2018; Georghiou et al., 2014; Meehan et al., 2017; Rolfstam et al., 2011).

The importance of procurement as an instrument of demand-driven innovation has been heightened by the recent “turn towards directionality in innovation policy” (Boon and Edler, 2018, p.443). The need to address ‘grand challenges’ (Chicot, 2018) has led to growing calls for ‘mission-oriented’ (Mazzucato, 2018) or ‘transformative’ innovation policies (Schot and Steinmueller, 2018). As well, the directional turn identifies a more general imperative to take “societal need and the actual use of innovation as the starting point” (Edler and Boon, 2018, p.433), rather than “producing more innovations per se” (Uyarra et al., 2020, p.1, emphasis in original).

The directional approach is longstanding in sectors dependent on innovation in the form of novel technologies (Boon and Edler, 2018; Edler and Georghiou, 2007). In healthcare or defence, for example, the public sector may be primary or lead user (Askfors and Fornstedt, 2018; Dalpé, 1994; Georghiou et al., 2014), and “the diffusion of new technological solutions is perceived as a major means to meet sector goals” (Boon and Edler, 2018, p.441). In such contexts, innovation will often be an unintended outcome of the pursuit of sectoral goals. As Dalpé (1994, p.66) has argued, “whether or not governments develop an explicit procurement policy that is oriented towards innovation, their decisions concerning prices, quantities and standards affect innovation, positively or negatively, in a group of industries involved in government procurement”. Moreover, such innovation impacts will often arise for the standardized products that provide suppliers with most of their sales (Askfors and Fornstedt, 2018).

How procurement routinely affects innovation – whether positively or negatively – is of increased scholarly interest (Askfors and Fornstedt, 2018; Knutsson and Thomasson, 2014; Rolfstam et al., 2011; Uyarra et al., 2014; Uyarra and Flanagan, 2010). Yet, much of the literature on public procurement of innovation has taken a macro perspective, often at national levels (Uyarra et al., 2020). As well, even though “[m]ost societal problems are fuzzy and ill-defined,” the emphasis is frequently on “‘stretch’ technological goals” (Uyarra et al., 2020, p.2). Thus, available literature provides limited insight into “bottom-up” innovation processes (Uyarra et al., 2020, p.2) involving “normal” procurement (Uyarra and Flanagan, 2010, p.127). Moreover, the “underlying mechanisms” through which public procurement is implicated in innovation remain under-theorized (Uyarra et al., 2017, p.828). Such processes are not simply about matching established need with established capacity through simple price mechanisms; they are cognitive and substantive (Boon and Edler, 2018), involving the identification of need and articulation of demand in relation to markets that “are seldom, if ever, simply ‘given’” (Bleda and Chicot, 2020, p.186, citing Edler et al, 2005).

To explore these processes, we turn to work on market intermediaries, drawing on the pragmatist turn in the sociology of economics and its offshoot, “valuation studies” (Doganova et al., 2018; Hutter and Stark, 2015). Focusing on valuation as an activity rather than a thing, valuation studies calls attention to the practical situations in which “judgement of value is required” (Muniesa, 2011, p.25, citing Dewey, 1915). Such judgments do not just negotiate things with pre-existing value but help to shape those values. Moreover, such situations do not simply involve entry into pre-existing markets but help to structure them. Professional intermediaries are active players in valuation and market shaping, “relying on conventions about the quality of products … that they have themselves contributed to build” (Bessy and Chauvin, 2013, p.94).

If procurement personnel, and the offices in which they work, act as professional market intermediaries in the sense advanced by Bessy and Chauvin (2013), this is highly relevant to the question of procurement-induced innovation. We would then understand that these offices participate in the construction of evaluative processes and criteria, and the cognitive and moral judgments that support assessment. This is not, however, the typical view in innovation studies. Procurement offices are seen as omnipresent in the processes of interest to innovation procurement scholars, “starting from the identification and definition of needs, their translation into functional specifications, and progressing to the tendering process, contract award and delivery” (Uyarra et al., 2017, p.834). Yet they have largely been portrayed as handling “the administrative parts of the process” (Askfors and Fornstedt, 2018, p.82). They are “expected to carry out the orders of others,” with a key role to assist “with the European rules and other such procedural matters” (Lonsdale and Watson, 2005, p.168). Even while numerous intermediaries have been identified as substantively involved in the generation and diffusion of procurement-induced innovation, engaging in “demand articulation,” the “formation of actor networks,” and “innovation process management,” procurement offices and personnel continue to be seen as “those actors who conduct the purchase in technical terms” (Edler and Yeow, 2016, p.416, pp.417-418).

In what follows, we first review the literatures that inform current views of the role of procurement in innovation. We then turn to literature in valuation studies to elaborate our argument about the more substantive potential of public procurement offices. Our empirical focus is the healthcare sector, which is highly dependent on technological innovation but retains the delivery of a high quality public service as its primary policy goal. Thus, we next review the “framework conditions” (Georghiou et al., 2014, p.2) that prevail in healthcare procurement, specifically in Canada. Then, after a brief discussion of the research that informed this analysis, we analyze the pooled purchasing situations that procurement offices routinely encounter and through which they shape valuation and markets. We close with a review of what these findings imply for the everyday importance of procurement offices in innovation and policy options to proactively mobilize that role.

Section snippets

How public procurement affects innovation

While much of the PPI literature focuses on national initiatives, sub-national governments account for almost half of public procurement in OECD countries (OECD, 2018; Uyarra et al., 2020). The proportion is much higher in a deeply decentralized federation such as Canada, where 87% of public procurement expenditure takes place at the sub-national level – the highest in the OECD (OECD, 2018). In terms of the health sector, sub-national expenditure accounts for 24% of public expenditure across

Setting

We explored the role of procurement offices in healthcare in Canada, where a national single payer insurance system assures universal, free-at-point-of-care access to medically necessary physician and hospital services, as well as province-specific extended health benefits sub-nationally (Marchildon, 2013). Because healthcare is largely under provincial jurisdiction, we attended to national developments but focused on the activities of procurement offices in the four largest (of 10) provinces –

Shape markets

So if I, if I go to the market and I give it all to Baxter, what's going to happen to Fresenius? It's going to go out of the province and in 5 years the price … is going to be 100% higher. We try to fulfill the needs of physicians.  We force them to better define what they need to make sure the market's going to answer to their need correctly.  At the same time, we try to protect the market and protect the prices as well so we make sure there is competition. If we realize down the road that

Discussion

We interrogated the role of procurement offices in healthcare in Canada, considering their capacity to address innovation imperatives through routine procurement. Focusing on pooled purchases, where procurement offices take a pro-active role in coordinating purchasing, we first explored how these efforts shape markets. Procurement professionals often characterize their efforts as ‘entering’ markets – ones that are pre-existing, and whose competitive conditions they hope to take advantage of.

Conclusion

Much procurement-induced innovation is not an intended outcome, nor is it related to R&D intensive technological change (Dalpé, 1994; Uyarra and Flanagan, 2010; Uyarra et al, 2020). Instead, it arises through ‘normal’ procurement processes, in public sector contexts that prioritize sectoral goals (Boon and Edler, 2018; Dalpé, 1994; Uyarra and Flanagan, 2010). The turn toward directionality in innovation studies reinforces the importance of these sector-specific processes. Indeed, as Boon and

Credit Author Statement

FM conceived of the work, with input from PL. FM collected and curated the data. FM led the data analysis, with input from PL. FM was the principal investigator on the grant that funded this work; PL was a co-investigator. FM wrote and revised versions of the paper; PL provided critical input and feedback.

Funding sources

This work was supported by the Canadian Institutes of Health Research (CIHR) - MOP 133514. The funder had no role in the design or execution of the study or in decisions about publication.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Acknowledgements

We thank the generous people who spoke with us at workshops, conferences and through interviews and the very helpful comments of three anonymous reviewers.

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