Innovation Procurement - Risk Vs Reward
By Ryan McKinney, Digital Catapult
Innovation procurement has long been a hot topic of debate, with the reasons and methods for adopting it as a policy being rigorously discussed. Many larger organisations are aiming to use procurement as a centre for adding value, and it is a priority for publically funded organisations where the innovation partnership form part of public procurement regulations.
Digital Catapult recently procured an innovative new ‘in-a-box’ user testing solution from a startup, the experience helped highlight the many facets to this debate and in particular the many benefits of engaging with innovation procurement.
You get what you pay for
The most obvious benefit of the solution was the cost. Compared to the typical cost of a fully fitted studio (upwards of £200,000), the ‘in-a-box’ solution was less than a fifth of that cost. Cost avoidance of that size goes beyond being an attractive number, those championing such a cheaper solution don’t have to navigate stringent internal procurement and spend thresholds. It’s the difference between approving the spend yourself and requiring board level approval. That alone could spare your diary months of time.
On paper it looks like an easy win – fulfil stakeholder requirements whilst avoiding a significant amount of cost, of course it is never this simple.
The timeless adage is that you get what you pay for, and what we paid for is a product. When you buy a product the supplier can only guarantee that the product does as advertised. The onus is on us as the customer to ensure that the product meets our requirements. Apple can guarantee your iPhone does as advertised, but if the phone is not the right fit for you, the fault is yours.
Is a fully managed service not better?
Compare this instead to a fully managed solution where you can effectively hand over your requirements to the supplier. The supplier becomes responsible for fulfilling your requirements and has to deal with unforeseen risks or additional costs. Typically a solution provider is able to offer changes and upgrades as your needs grow and change. But if what we need isn’t included in the product, then we’re going to have to source additional elements ourselves. Slowly little costs can build up as you have to adjust to the solution, as opposed to the solution adapting to you.
The associated risks
It is important not to underestimate how often customisation and adaptation of solutions is required. Even the simplest of software solutions can require some amount of customisation by the delivery team, and though this may be easy enough for an established organisation to accommodate (even if there is a cost), a startup simply may not have the resource or expertise to fulfil these needs. If this is the case, what the product cannot do becomes just as important as what it can.
Geography should also be a consideration. We were fortunate, in this case the supplier was in the same city, so when things needed fixing or advice was required they did not have to travel far. But for similar products we have procured from SMEs based in the US, that distance becomes an obvious hindrance to use. They don’t have the resources to send someone over to help with set-up, and the time difference makes it difficult to schedule calls.
This can make training more difficult as well, as startups are unlikely to build this into their budget, where a fully managed solution will normally include some training. You will have to ensure that someone on your staff is ‘tech-savvy’ enough to get to grips with the product.
Then there are the myriad risks that come with engaging an SME or startup. If you are buying a new product, how can you be sure of its longevity? The product is only good value if it remains fit for use for a reasonable amount of time. How can you be sure the company will survive into maturity, and what would its failure mean for product support? And most of all, what if the product is just not very good?
These are risks, and as procurement professionals all we can do is work to mitigate them. If you’re worried about longevity look at the product – to what extent is the technology experimental? If it is composed of off the shelf products you can probably be assured of decent longevity. If you are nervous about the health of the supplier, talk to them, request accounts and be prepared to do that extra bit of due diligence. And as for the performance of the product itself, simply ask for as many demonstrations as you require in order to be convinced. If the difference between making a sale and not is a couple extra trips round to your office, a good salesman will always oblige.
But why accept these risks?
If the budget is there, why take the risk of a potentially embarrassing failure when you could have the assurance of a fully managed solution?
The answer is found in the same uncertainty that causes the risks. It is the nature of innovation that you cannot always know what you are going to get. All your worst fears about startups and SMEs may come true or the innovation could deliver in ways you weren’t expecting, enabling capabilities you didn’t even know would add value to your business.
That’s what happened with the solution we invested in. For a long time the business had identified live streaming over the internet as a capability we wanted to add to our events offerings, but expensive upgrades to our AV system would have been needed and so far, had relegated this improvement to the ‘would like’ pile. The solution included the functionality to do this, and not only in one static space, but by utilising its portability we could live stream events held anywhere.
Unexpected indirect cost avoidances emerged as well. Being that this is a solution you can pack away in a box, you do not have to dedicate a permanent space to this solution. When we had no need of UX testing capabilities, we could pack the equipment away and save that most rare of commodities - city centre office space – for other business activities.
But I think what is most encouraging is, that by putting our faith in a small startup, we have formed a strong relationship with a supplier who is grateful for our business at this crucial stage in their lifecycle. They are constantly looking for feedback, and giving us tips on how to maximise the use of the product.
The experience we had during this process was largely rewarding. From being pitched to by genuinely enthusiastic and knowledgeable entrepreneurs to receiving an innovative product to use with our customers, the highlights of working with a startup were clear. At the very least this story should serve as an example of why procuring innovation should at least be explored. But to say it is the answer in every situation would be irresponsible.
In truth it is a question of risk and the business appetite for it. The issue with so many procurement departments, especially in larger organisations is that they become risk adverse. Stick with what we know works, and find your 5%. But remember that for every set of requirements there is an opportunity to add value, and taking a risk on innovation can so often be the way to deliver that value.
Is it worth it?
Therefore, where business leaders make the decision that they wish to turn their procurement function into a value-adding department, two sets of skills should be emphasised. One is the ability to quickly and effectively find innovative new solutions on the market. This can be surprisingly tricky when Google is programmed to promote the most well funded and well-known competitors. The second skill is an appetite for a manageable risk – to be able to see an opportunity to add some value and save some money and ask “is it worth it?”
Now more than ever innovative products and solutions are appearing on the market, and very often these come from SMEs and startups. If we accept innovation as vital to future success, then there is a responsibility to the company, and also to the market to see that these solutions are at least considered when answering the challenges our organisations face.
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