Public Procurement as a Catalyst for Innovation and Societal Progress

March 11, 2025

Public procurement is one of the most powerful tools available to governments, influencing markets, shaping supply chains, and addressing policy priorities. Traditionally associated with cost-efficiency and administrative compliance, procurement is increasingly recognized as a strategic instrument that can stimulate innovation and economic development.

Governments allocate a significant share of public budgets to procurement, which makes it a key policy lever for advancing technological progress, sustainability, and social welfare. When procurement strategies incorporate innovation objectives, they create new opportunities for businesses, particularly small and medium-sized enterprises (SMEs), to develop solutions that meet public needs while contributing to broader economic and social goals.

However, the potential of Public Procurement of Innovation (PPI) is not always fully realized. While some governments have successfully used procurement to drive technological advancements, others struggle with the complexity of balancing regulatory constraints with the need for experimentation and long-term impact. Understanding what makes PPI effective is therefore essential to ensuring that public procurement moves beyond its traditional function and becomes a driver of progress.

Several recent initiatives illustrate how procurement, when strategically designed, can foster innovation while addressing major societal challenges.
For example, Sweden’s electrified highways project supports the shift to electric mobility by enabling vehicles to charge while in motion, reducing reliance on conventional fueling infrastructure. Brazil’s AI-powered water management system assists public authorities in monitoring and regulating nutrient levels in reservoirs, preventing environmental degradation and ensuring long-term water quality. Similarly, South Korea’s adaptive procurement policy allows public sector organizations to purchase non-conforming but functionally viable products at reduced costs, lowering barriers for suppliers and encouraging innovative solutions.

These cases highlight how procurement can shape market demand for novel solutions and create incentives for businesses to invest in research and development. By signaling long-term government support for innovation, procurement strategies can influence industries to align their investments with public sector needs.

Strategic Management in PPI: Insights from Our Research Published in Production Planning and Control

Our recent study, published in Production Planning & Control, examines how strategic management (SM) practices influence the success of PPI projects. Analyzing 185 PPI projects in Italy, we identify three key factors that determine whether procurement initiatives achieve their intended impact:

Strategic goal setting – Clearly defining procurement objectives improves performance outcomes, ensuring that projects align with broader economic and societal priorities.
Innovation policy instruments – Tools such as market consultations, technological foresight, and R&D incentives help translate procurement strategies into actionable results.
Internal collaboration – Coordination across departments supports innovation processes but does not, on its own, lead to improved performance unless paired with structured mechanisms for implementation.

These findings emphasize the need for goal-oriented procurement strategies that go beyond compliance-driven decision-making. Without a structured approach, procurement risks being reactive rather than proactive, limiting its capacity to foster long-term innovation.

The role of procurement in fostering innovation has also been extensively examined in a recent OECD report, Public Procurement for Public Sector Innovation: Facilitating Innovators' Access to Innovation Procurement (Hlács et al., 2024). The report underscores the importance of strategic procurement in addressing complex policy challenges, including climate change, digital transformation, and public health. It highlights four key priorities for innovation procurement:

Improving the design and development of innovative solutions – Ensuring procurement is structured to encourage investment in novel technologies.
Creating inclusive and targeted solutions – Expanding participation from diverse market players, including SMEs and startups.
Reducing barriers to innovation adoption – Addressing regulatory and administrative hurdles that slow down the implementation of innovative solutions.
Promoting effective policy tools – Encouraging the use of R&D funding, partnerships, and innovation-supporting procurement mechanisms.

The findings from our research align closely with these priorities, particularly in emphasizing goal clarity, policy instruments, and structured collaboration as enablers of successful PPI. The OECD report also highlights challenges such as inconsistent public demand and procurement fragmentation, which can deter private sector engagement. Our study provides complementary insights by demonstrating that well-defined strategic goals and appropriate innovation policy instruments can help mitigate these challenges.

Both studies highlight the need for governments to treat procurement as a long-term strategic function rather than a short-term transactional process. As the OECD report suggests, building capacity through training and stakeholder engagement is critical for ensuring that public sector organizations have the expertise required to manage innovation procurement effectively.

What's next for innovation and procurement policies in the public sector?

Based on our results, to strengthen the role of procurement in driving innovation, policymakers and public sector managers should consider the following actions:

Establish clear innovation-oriented procurement goals to ensure that public investments align with economic and societal priorities.
Leverage innovation policy tools such as pre-commercial procurement, market engagement activities, and R&D incentives to encourage supplier innovation.
Enhance cross-sector collaboration by fostering knowledge-sharing networks and partnerships between government agencies, businesses, and research institutions.
Improve measurement frameworks for assessing the impact of innovation procurement, ensuring that public spending delivers tangible long-term benefits.

Overall, our argument support the idea that public procurement is more than a financial and administrative function—it is a strategic tool that can influence economic development, technological progress, and social well-being. Our research underscores the importance of structured procurement strategies that incorporate clear objectives, innovation tools, and cross-sector collaboration. As governments refine their procurement approaches, there is a growing opportunity to ensure that public spending not only meets immediate operational needs but also creates long-term public value.

Interested to know more about our paper?

📖 Read our full research here:

Patrucco, A. S., Dimand, A. M., Agasisti, T., Benedetti, M., Gaeta, M., & Tangi, L. (2025). Managing public sector innovation for a better society: the case of public procurement of innovation. Production Planning & Control, 1–19. https://doi.org/10.1080/09537287.2025.2475286