Research Report - Summary The research explores the relationship between procurement and innovation, and provides a collaborative procurement framework for that.

1. Research ReportCollaborative Procurement as an enabler of innovation in the UK construction industry
Abstract
The construction industry is
known by its adversarial
relationship among firms,
where innovation is often
neglected since the
procurement methods used
by clients seek predictability
and the lowest price
possible, leading therefore
to very limited scope for
inter-organisational
innovation.
The purpose of this
research was to examine
how collaborative
procurement can enable
inter-organisational
innovation in the UK
construction industry
according to firms that
occupy different positions in
the supply chain. In this
respect, a mix of qualitative
and quantitative research
methods were conducted,
comprising survey
questionnaires and
interviews in which tested
and discussed in depth the
collaborative framework
proposed in this research.
The findings and conclusion
of the research is that
collaborative procurement
can serve as a basis for
facilitating inter-
organisational relationship
and therefore innovation in
construction projects, with
clients and consultants
being slightly more reluctant
than contractors and
subcontractors in terms of
collaboration. Research
findings are expected to
help the industry to
understand core
procurement practices to
effectively implement
innovation through
collaboration.
Innovation in construction
Construction firms are considered
incomplete in terms of resources and they
are embedded in a supply chain network
with diverse activities, means, resources
and people. Hence, organisations must
interact with one another to provide
complementary skills, attributes,
knowledge and resources in order to
provide services, produce individual
products and generate value advantage.
Value can be generated in many ways,
particularly through innovation, however,
innovation is a complicated process which
involves many variables and demand a
collaborative relationship between all. In
order to enable actors and organisations
to gain knowledge, information,
experience and build capability, time and
long-term relationships are two important
mechanisms that enable the exploitation
of new solutions and learning over time, it
is a process that is built up gradually. This
paper uses a theoretical framework which
is based on the assumption that
innovation is generated by the interaction
among actors and organisations, it occurs
in a network of relationships instead of a
linear process of transactions.
Innovative firms can achieve
competitive advantage which is
particularly important in a competitive
environment as the construction industry.
Nevertheless, the construction industry is
considered conservative, with focus on
the short-term perspective which results
in lost opportunities and reduced growth
in a longer time frame.
Despite innovation requiring
collaboration among actors, the traditional
procurement approach used by clients
impose constraints to contractors and
subcontractors, hindering therefore their
ability to act innovatively due to the
division of work, lack of long term
perspective, allocation of risk and contract
conditions.
Keywords:
 Procurement
 Innovation
 Collaboration
 Relationship
 Construction
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2. Innovation in construction
Procurement Learning
Construction projects are frequently managed through
a combination of sequential and chronological involvement
of firms (Design-bid-build), this approach causes detached
business relationships and function fragmentation which
hampers innovation. During the design stage, designers
often work in isolation since construction specialists are not
involved early in the project, thus, there is no exploitation of
knowledge. Likewise, the separation of teams in the
construction phase results in the absence of joint problem-
solving. Moreover, innovation during the construction phase
is hindered by the prescriptive and fixed design developed
by the designers, any attempt to innovate by construction
firms requires at least minor redesign, which is out of their
scope and technical authority, consequently, there is no
opportunity for exploration.
Furthermore, most contractors and subcontractors are
procured through competitive tendering based on the lowest
price, where clients impose their leverage power over
contractors with the aim to transfer the project risk and also
obtain the lowest price possible, subsequently, contractors
exert their leverage down to the supply chain to a point that
the lower tier firms have no incentives to spend money or
time in innovative solutions.
Within the procurement payment context, lump-sum
contracts are the most popular payment method used in
construction projects, which results in organisations avoiding
investment in novel solutions since there is no guarantee
that improvement in quality will result in neither a higher
lump-sum contract or lower production costs. Thus, to
secure the low profit margins pre-established, companies
opt to stick with the conventional tried and tested solutions
rather than act innovatively.
This combination of procurement practices results in an
adversarial environment with firms focusing on their
individual interests to reduce their exposure to risks and
limiting therefore inter-organisational cooperation and
knowledge sharing, which are both required for joint
innovation. This not only affects joint innovation, but also
hinders the learning process which is essential for the
diffusion of innovation.
Even if construction projects are learning arenas, the
unique characteristics of construction projects impede firms
to transfer knowledge and innovation to subsequent projects
or more widely. The reliance on traditional competitive
tendering and one-off approach to projects have a great
contribution to this problem. For example, the one-off
approach to bespoke projects encourages contractors to
subcontract expertise in order to cope with construction
projects that are dispersed widely in terms of location, and
unique regarding the design. This practice causes further
fragmentation, making the supply chain integration and
learning even more complex.
Likewise, the usage of competitive tendering
guarantees the formation of new constellation of actors in
each project. Hence, long-term developments and continuity
are hindered as the process that favours learning is
disrupted - process trial, feedback and evaluation - due to
the frequent change in the organisation’s environment. As a
result, companies always need to start from scratch in terms
of learning, creating inefficiencies regarding time and cost,
and reducing the incentives and benefits to innovate as firms
remain without organisational memory.
It is evident how procurement can hinder innovation,
nevertheless, procurement can also be an enabler of
innovation in the construction industry. To make this happen
there must be a shift in the mindset of those who procure
projects, clients must embrace innovative procurement
methods that foster the growth of collaboration, with focus
on relationships rather than transactions.
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3. Reseach
This paper, a study of the UK
construction industry,
explores the relationship
between collaborative
procurement and innovation
in aligning the supply chain
more closely. It is examined
the collaborative procurement
practices, which is believed to
encourage collaboration
among firms in the supply
chain network. Furthermore,
clients, consultants, main
contractors and
specialists/subcontractors’
perspective on the use of
collaborative procurement as
an enabler of innovation are
identified and contrasted to
one another.
RESEARCH APPROACH
 Qualitative Research
 Quantitative Research
PRIMARY DATA
 Semi-structured
interviews
 Survey questionnaire
SECONDARY DATA
 Literature Review
 Case Studies
 Books
 Other published studies
RESEARCH AIM
The major aim of this
research is to study and
understand the relationship
between collaborative
procurement and inter-
organisational innovation
according to different groups
of firms in the supply chain.
The research questions are
therefore
1) What procurement
practices enable inter-
organisational innovation
in construction?
2) How collaborative
procurement may foster
inter-organisational
innovation?
3) What framework can
manage the supply chain
collaborative and foster
innovation?
The interaction between organisations
happen when individual actors interact with
one another, project teams are just a
recipient of these relationships. Then, a
change towards a more collaborative
procurement that erodes boundaries
between professionals and embrace
cooperation is critical to innovation
success.
Full collaboration goes beyond just
sharing knowledge to generate innovative
solutions, to realise the full benefit that
collaboration can contribute to innovation,
the risks associated with innovation must
be spread to the partners involved in the
project and firms’ objectives aligned with
one another. Since risks and benefits are
shared among all firms, it encourages
collaboration, cooperation and incentive
firms to capture and adopt new ideas from
outside their boundaries in order to
propose innovative ways of doing things
more efficiently.
In the current industry, collaborative
procurement practices often neglect the
lower tier firms such as subcontractors and
suppliers, which can be counterproductive
since they account for 60 to 80% of the
total project costs. On the other hand, the
early involvement of such firms in a
collaborative manner enables the creation
of cross-functional teams to exploit and
explore knowledge and skills to further
generate new ideas during the planning
and design phases. The following phases
of construction projects such as
construction, operation and maintenance
are also taken into consideration, with joint
alternatives and solutions for continuous
improvement over time, which is achieved
through innovation.
Nevertheless, collaborative
procurement alone is not enough to foster
innovation as knowledge, experience and
views of actors can be tacit and difficult to
transfer to the supply chain network. This
requires absorptive capacity, and it is
achieved when actors work together and
develop a long-term relationship, creating
therefore strong-ties between individuals
and an openness communication and
understanding between the parties. In
addition, investment in human capital
along with partnership with academia
enrich firms’ capacity to absorb and diffuse
both explicit and tacit knowledge which
directly contribute to learning and
innovation.
Innovation through collaborative procurement
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4. 1.1. Research respondents’ profile
The questionnaire was divided into two parts: in the first section, respondents had to give general
information about the type of organisation they work for, respondents’ years of experience and their role in
the organisation, whereas in the second section, respondents had to rate the importance of collaborative
procurement in promoting innovation and collaborative procurement practices that contribute to innovation,
a seven-point Likert scale was used for rating.
A detail description of the respondents’ profile is showed in figures 1, 2 and 3. Figure 1 shows that
consultants made up the majority of participants in both questionnaire surveys and interviews. Likewise, in
both questionnaire surveys and interviews, professionals holding positions as directors were most of the
participants as illustrated in figure 2. Lastly, over 75% of the research participants had an extensive
experience in the UK construction industry, with over 10 years of experience as presented in figure 3.
Figure 1. Frequency distribution by organisation type
Figure 2. Frequency distribution by respondents’ job role
Figure 3. Frequency distribution by respondents’ experience
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5. Reseach Results
The survey questionnaire was sent to the
participants’ email and 92 were received back,
resulting in a response rate of 34%, whereas 11
individual interviews comprising 5 main questions
about the relationship between collaborative
procurement and innovation in the construction
context were conducted via skype and lasted on an
average 40 minutes with each participant.
Data from the 92 returned questionnaires as well
as from the 11 interviews were checked, edited,
coded and analysed.
In the second step of the structural model, the
research aims to measure the importance of
collaborative procurement as an enabler of inter-
organisational innovation as well as to what extent
participants perceive individual collaborative
procurement practices as a significant driver of
innovation.
In the second step of the structural model, the research aimed to measure the importance of
collaborative procurement as an enabler of inter-organisational innovation as well as to what extent
participants perceive individual collaborative procurement practices
as a significant driver of innovation. As illustrated in the
figure 4, the analysis of the model reveals that overall,
collaborative procurement has a strong association with
innovation in the UK construction industry. In addition,
the analysis results show that all factors proposed in
this study were rated on an average of at least 4 out of
7, therefore, all individual collaborative practices were
accepted and considered to have a great influence on
innovation.
The mean rated 4 was fixed as an average score of
acceptance or rejection of the hypothesis because 4
was described as medium influence in the rating
description, whereas 3 means low influence.
Further evidence for these propositions were
supported by the narrative responses. It was identified
that innovation stems from different sources, which
could be either from R&D or from benchmarking or from
problem solving. In terms of R&D, it is related to the
development of innovative solutions that should be
applied in the future, with a long-term perspective and
strong engagement with institutions such as
universities. In the other spectrum, innovation can be
less about the invention and more about finding a new
way to solve a problem, the solution could come from
benchmarking other industries or problem solving where people combine a lot of others’ people ideas,
knowledge, theories, to come with their own and create something new. Irrespective of the source of
innovation, firms need to work together in a collaborative manner to create the environment where it is
possible to occur. As an interviewee says:
“Innovation should not necessarily be developed by one company itself, companies need to
recognise that the age of innovation is completely beyond just one organisation, the company needs to
collaborate with more institutions, with other companies and people that will bring innovative thinking“.
Collaborative Procurement
Figure 4. Relationship between collaborative
procurement and innovation – overall respondents’
rating
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6. It was also agreed among the interviewees that the type of procurement used reflects the extent that
firms can work collaborative and therefore foster innovation. For instance, the procurement method defines the
level of risk a company takes and the money that is involved, it also defines who and when are going to be
involved. Hence, all these parameters affect the way innovation will take part in the project settle. As analysed
in the questionnaire, integration/early supplier involvement is the most important factor influencing innovation,
therefore, if the procurement method imposes constrain on firms, then they will not be able to act innovatively
because such firms might be engaged late in the project with few weeks left to deliver a certain package. Thus,
it is correct to affirm that procurement methods walk hand in hand with the level of innovation. Moreover,
particularly in complex projects, there need to be freedom of change within a project, change is going to happen
and it does not have to mean arguments, finger pointing and blame. Setting a collaborative procurement, people
can sit down and talk together with a basis level of trust, which is the route for problem solving.
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7. 4.65 5.03
5.88 6.06
0
1
2
3
4
5
6
7
Client Consultancy Main
Contractor
Specialist/Sub
Contractor
4.45 4.36 4.65 4.87
0
1
2
3
4
5
6
7
Client Consultancy Main
Contractor
Specialist/Sub
Contractor
4.15 4.76 5.38 5.18
0
1
2
3
4
5
6
7
Client Consultancy Main
Contractor
Specialist/Sub
Contractor
Supply Chain Perspective
It was also identified that traditionally, firms such as clients and contractors when engage in collaborative procurement,
they tend to consolidate more spend with few organisations and work closely with them to find innovation. Nevertheless, it
was acknowledged that most of the intelligence and innovative thinking comes from the supply chain, lower tier firms, which
is probably where innovation brokers are missing out. Hence, contradictions may arise from different participants of the
research and for that reason each group of participants were examined and compared to analyse to what extent they agree
about collaborative procurement being a tool to enable innovation. Comparisons across the 4 groups are showed in figures
5, 6, 7, 9, 10 and 11
4.65
Client
5.88
Main Contractor
4.86
Consultanty
6.06
Specialist
Sub Contractor
Figure 5. Importance of collaborative procurement in fostering innovation
5.55 5.46
6.15 6.12
0
1
2
3
4
5
6
7
Client Consultancy Main
Contractor
Specialist/Sub
Contractor
Figure 6. Integration and Early supplier involvement Figure 7. Long term relationship
Figure 8. Incentive contracts Figure 9. Inclusive decision
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8. 3.7 3.3
4.69 4.75
0
1
2
3
4
5
6
7
Client Consultancy Main
Contractor
Specialist/Sub
Contractor
4.5 4.53 4.57 4.68
0
1
2
3
4
5
6
7
Client Consultancy Main
Contractor
Specialist/Sub
Contractor
There is a considerable difference of opinion between groups in relation to the propositions tested. It is possible to
state that there are two main groups, clients and consultants with the same rate and contractor and specialist/subcontractors
as other group, both groups have distinct opinions to one another.
Narrative responses in general were very similar among all four groups, supporting collaborative procurement as an
enabler of innovation in the construction industry. Nevertheless, clients were more reluctant than the other interviewees in
terms of long-term relationship. As one client said:
“Long term relationship is definitely not the best way to procure a project. From the procurement perspective, it does not give
any or give little value to the project. The best way to procure projects for a procurement professional is to promote competition
in order to obtain the best value possible, it could be in terms of costs, time, quality, innovation, or any other factor which is
the project objective, but a long-term relationship does not bring any advantage or value for the employers, as a client. On the
other hand, it is really important that the main contractor works with his supply chain, such as the TIER 2, 3 or even 4. If they
work together and are well aligned, they can bring innovative solutions to the project and therefore value to the client project”.
Having said that, it was almost unanimous from the narrative responses obtained from other organisations that client
must be the driver to innovation, rather than impose the full responsibility to other parties and wait for a change in the industry.
It was also found that collaboration alone does not foster innovation, it requires a change in mindset. Interviewees highlighted
their experiences in frameworks where the client and other actors implemented some of the collaborative factors mentioned
throughout this research, however, with the same traditional mindset, treating the framework as a transactional arrangement.
This is showed as one of the most difficulties faced by the industry because it requires a change in mindset of all those
involved in the project, for this reason, despite collaborative procurement being a straightforward process, it is difficult to be
fully implemented.
Figure 10. Tendering based on soft parameters Figure 11. No Blame culture
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9. Tech Times Issue 00 Month Year
Conclusive thoughts
The relationship between procurement and
inter-organisational innovation is not well
understood in the construction context. There
is also a lack of acknowledgment that firms that
occupy different positions in the supply chain
are affected by the strategic procurement in a
different way and therefore an understanding
of their views regarding this matter is crucial to
implement collaborative procurement
effectively.
The construction industry is by its nature
fragmented and known by its bespoke projects
which leads to further fragmentation. The
strategic procurement strategy used by clients
exacerbated this problem, making each project
more unique than necessary as most clients
believe that competitive tendering based on
the lowest price provide the best value. Such
approach erodes opportunities for integration,
early supplier involvement and long-term
relationship, which are the most important
factors in order to seek innovation effectively ,
it should also be noticed that the ability of the
supply chain to innovate is constrained as they
become so rigid with the procurement rules
and compliance.
On the other hand, when actors work
together and develop a long-term relationship,
strong-ties between individuals are created,
along with trust, which is vital to support and
foster innovation. Because the construction
industry is often adversarial, knowledge and
information remains guarded and protected as
a source of power among firms in the supply
chain. Unless firms are integrated and have
long-term relationship to enable them to trust
one another and therefore share knowledge,
innovation is unlikely to occur.
Other characteristics of the sector is the
reliance on contracts that are no more than
measures to transfer risk and blame others
when risk events occur. To foster innovation, a
no-blame culture must be in place, it permits
actors to learn from mistakes without inhibit
innovation seeking. Furthermore, it was found
that when there is a share of rewards and risks
among the parties in the project, it contributes
to cooperation since all firms work towards a
common goal and the benefits of innovation
are no longer separated from the potential
innovator, it is an umbrella approach, It is
achieved when firms have their objectives
aligned to one another and joint decision
making seeks the benefit of the supply chain as
a whole.
The type of procurement used reflects
people’s behaviour partialy. Setting a
collaborative procurement, people can sit
down and talk with a basis level of trust, which
is the route for problem solving, it is an
environment where there is discussion and
stimulus of flow of ideas, which causes people
to think differently and often results in creativity
and innovative thoughts. The tendency in
trying to achieve the best project value by
procuring suppliers through competitive
tendering based on price solely is no longer
considered ideal, even though restriction by
regulations may make the contrary difficulty.
There must be a change in
the mindset of actors, it is not
possible to establish
collaborative procurement
when firms are working in a
contractual environment where
adversarial relationships arise
and innovation is therefore
hampered.
It is recommended that
clients take the lead to
integrate the supply chain and
abandon their focus on
transactional relationships and
then seek inter-organisational
collaboration, including and
considering contractors and
subcontractors views during
decision-making. It was noted
however that collaboration
goes against the norm and
going against everything that
people have being conditioned
to do requires an
understanding of people’s
behaviour, which is beyond
the scope of this research.
Hence, it is suggested that
further researches apply the
collaborative procurement
framework proposed by this
research, which is illustrated in
the figure 12, and observe the
behaviour of the actors
involved in the project,
whether it is collaborative or it
remains adversarial and then
investigate if emotional
intelligence can have an
impact in the effectives of
collaborative procurement
seeking innovation.
Recommendation
Risk and
reward sharing
Output
specification
Early
involvement
Project
Programme
No blame culture
Inclusive decision-
making
Long-term relationship
Trust
Collaboration
Knowledge sharing
Organisational learning
Exploitation and Exploration
Inter-organisational
innovation
Figure 12. Framework for Inter-organisational innovation
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