1

Innovation in public services: Private, public, and public-private partnership

9th Regional Innovation Policies Conference - RIP 2014 - Stavanger 16-17 Oct 2014

Veiko Lember (Ragnar Nurkse School of Innovation and Governance, Tallinn University of

Technology), Ole Helby Petersen (Roskilde University, Department of Society and

Globalisation), Walter Scherrer (University of Salzburg, Department of Economics and Social

Sciences, presenter; walter.scherrer@sbg.ac.at), and Robert Ågren (Lund University, Division of

Construction Management)

Abstract: The contemporary academic discourse regards innovation as an inherent quality of

public-private partnerships (PPP). The link between PPP and innovation is, however, poorly

understood and empirical evidence of innovation in PPPs remains anecdotic and largely detached

from conceptual work. This paper aims to address this conceptual void and attempts to

disentangle the concepts of innovation and PPP within the context of infrastructure PPP. We

introduce from the innovation literature two fundamentally different logics of innovation in PPP:

a public sector-centered approach and a market-centered approach. By combining these two

approaches to the study of innovation, we show that innovation in the context of PPP has a much

wider implication and potential outcomes than emphasized in the literature so far. We also

provide a conceptual framework that can advance future work on PPP and innovation.

1. Introduction

In contemporary public-private partnership (PPP) literature innovation is often seen as an

intrinsic characteristic of PPP (Yescombe 2007). In similar vein, today hardly any PPP policy

strategies go without emphasizing the importance of innovation. Consequently, promises about

the innovative potentials of cross-sectoral partnerships now proliferate among public

administration researchers and policy practitioners alike (Huxham & Vangen 2004; Osborne &

Brown 2013). However, the relationship between innovation and PPP has not yet been

systematically conceptualised: it is far from being clear what actually constitutes as innovation in

the context of PPP and how the introduction of PPP actually facilitates or constrains innovation in

public service delivery as well as in public and private domains in general. We accord here with

Hodge who argued that:

The PPP brand promises political success on the basis of symbolizing innovation and

forward thinking from both sectors, and there has been much political capital invested in

2

advocating jurisdictions across the globe. The ideal of PPP has power in the public psyche

as well. Exactly what we mean by PPP success (or VfM) deserves more sophisticated

consideration to my mind. (2014 p. 4).

Innovation in the PPP literature is most commonly understood in terms of productivity gains or

design improvement (e.g. Grimsey & Lewis 2004; Zhang and Chen 2013), whereas others regard

PPP as a form of public sector innovation or an organizational innovation in itself (Windrum

2008). Although relevant in specific settings, the prevailing understanding has nevertheless

remained too narrow and sometimes even misleading. It is common to regard innovation as the

main source of PPP productivity gains while empirical evidence on the other hand indicates that

it is often the lower labour costs of private contractors rather than innovation that lead to changes

in service delivery (Rosenau 1999; for a review see Hodge & Greve, 2009). There is a tendency

in the PPP scholarly community to regard innovation as more or less equal to any (positive)

change, whereas innovation can sometimes also lead to negative side-effects (Soete 2013). Most

PPP studies do not distinguish between minor every-day changes (adjustments to evolution in

society) and changes that progressively lead to more radical transformations. However, if any

change can be regarded as innovation then the concept of innovation in the context of PPPs runs

into risk of becoming yet another fashionable but essentially empty concept (on a similar point in

public sector innovation literature generally see Drechsler 2009; Pollitt 2011; Lember et al 2011).

The quest for understanding innovation in PPP is far from being a simple task. The fact that PPP

stands at the cross-roads of the public and private sectors assumes that one takes into account the

differences in the innovation process according to different sectorial logics. There is moreover a

growing awareness that public sector innovation is and should be treated as something different

from private sector innovation (Osborne and Brown 2013, Kattel et al 2013). At the same time,

though, the whole concept of public sector innovation is still under-conceptualized and no clear

frameworks exist that predicts and explains the meaning and process of innovation in the public

sector. It is today widely accepted that innovation matters in the private sector settings not just

because it explains how ―new combinations‖ come into being, but how these new combinations

help us to explain the evolutionary change in markets and societies in general (see Schumpeter

1912/1983, Nelson and Winter 1982). However, in terms of grasping fully the links between PPP

and innovation, little academic mileage has so far been gained in terms of conceptually

understanding these two catchy concepts. Consequently, what is needed is a more refined view

3

on the relationship between innovation and PPP, which not only takes into consideration the

specific features of PPPs, but also reflects the specific features of innovation in the public and

private domain.

This paper aims to disentangle the complex and dual nature of two of the most significant

catchwords in contemporary public administration: innovation and PPP. Our argumentation

builds on two fundamentally different views on the co-creative process of innovation and the

respective roles of the public and private sectors in this regard (Osborne and Brown 2013, Kattel

et al 2013). First, based on the literature on innovation in the private sector, we address the

private domain of PPP by building on the Schumpeterian understanding of innovation and linking

innovation to various features of PPP under the label of a market-centered approach to

innovation. Second, in a public sector-centered approach to innovation, we then link the PPP and

innovation debate with recent developments in the public sector innovation literature, thus

highlighting the key features of PPP in relation to innovation and the role of public sector as an

innovator in its own right (innovation in the public sector) and as facilitator of innovation

(innovation through the public sector). By combining these two approaches to the study of

innovation, we show that innovation in the context of PPP has a much wider implication and

potential outcomes than emphasized in the literature so far. Moreover, by grounding the

understanding of innovation and PPP more firmly on the dual logics of the public and private

sectors than has hitherto been done, we provide a conceptual framework that embeds the PPP

concept more firmly in the innovation literature and thereby attempts to advance future research

on PPP and innovation.

The paper develops as follows. We first define the concepts of PPP and innovation. Second, we

review the existing literature that deals with innovation and PPP and draw some preliminary

conclusions on their mutual relationship. Third, we make a case for launching the market-

centered and public sector centered approaches to innovation in the PPP discussion. In the final

section some conclusions and lessons for future research are drawn.

2. Defining PPPs

A common definition of PPP is that it concerns ‗co-operation of some sort of durability between

public and private actors in which they jointly develop products and services and share risks, cost

and resources which are connected with these products‘ (Van Ham and Koppenjan 2001: 598; see

4

also Klijn and Teisman 2003). This definition embraces a wide range of cooperative institutional

arrangements of a more or less binding character ranging from relatively loose policy-

communities and issue-networks to more binding and long-term contractual relationships with

specified deliveries (Hodge and Greve 2005). Weihe (2008) distinguishes between four PPP

literature families (infrastructure PPPs, urban development PPPs, policy PPPs and development

PPPs) each with distinct theoretical and empirical origins. Many scholars also see PPP as an

umbrella concept covering a broad range of public-private arrangements active at both national

and supra-national level (Mörth 2007). Even within a relatively confined notion of PPP as

infrastructure service delivery that combines design, finance, construction operation and

maintenance into a joint and long-term agreement, which is the type of PPP we focus on in the

paper, at least ten different partnership models have been identified (Grimsey and Lewis 2004).

Although in vogue, the concept of PPP thus remains an ambiguous term with differing meanings

and usages in various contexts (cf. McQuaid 2000; Hodge and Greve 2005). Looking at PPP from

a historical perspective, Savas (2000) interprets contemporary PPPs as a heritage of earlier

marketization and privatization reforms, whereas Wettenhall (2003: 92) traces the origins of PPPs

back to the early 19th

century. Many scholars also see contemporary PPPs as a legacy of the early

Blair government‘s third way policy, which transformed the Private Finance Initiative (PFI) into

the current PPP movement (Flinders 2005). Linder (1999) moreover argued that the upsurge of

PPPs was inspired by and accordance with the neoliberal focus on efficiency gains, often with an

explicit assumption about the private sector being more effective and innovative than its public

counterpart (see also Grimsey and Lewis 2005).

The conceptual roots and political motivations behind contemporary PPPs are thus diverse and

include both micro-economic (collaboration, cost effectiveness, value-for-money, innovation),

macro-economic (deficit, debt, private finance) and political (marketization, private finance)

motives (McQuaid and Scherrer 2010). Hodge (2004) coined this discussion by noting that

debates over what should be public and what should be private have abounded for centuries, and

that ‗PPPs are simply the latest chapter in the book‘ (ibid.: 37). Moreover, at the organisational

level, PPP is commonly seen as a route to improved collaboration in the public-private interface

and thereby a way to realize collaborative advantage and, ultimately, innovative solutions

(Yescombe 2007). The very idea about innovation in PPP thus builds on the argument that

synergy and added-value – something which could not have been achieved by the public and

5

private sectors acting single-handedly – can be achieved by and through PPPs (Huxham and

Vangen 2004).

As a matter of fact, the concepts of synergy and added value became widespread in the early

1990s and were defined by Huxham as ‗when something unusually creative is produced –

perhaps an objective is met – that no organization could have produced on its own and when each

organisation, through the collaboration, is able to achieve its own objectives better than it could

alone‘ (Huxham 1993, 603). Subsequently, from the early 2000 onwards, it became common

ground to talk about innovation in PPPs, although the partnership literature has oftentimes

struggled with the distinction between PPP as an innovation in itself (i.e. organizational

innovation) and innovation through PPP (i.e. output/outcome innovation). Although the concepts

of innovation and collaborative advantage are obviously linked in many ways there are also

important differences, and it is the concept of innovation that we now turn to.

3. Conceptualizing innovation

3.1 Innovation as a market phenomenon

The concept of innovation has been advanced within various social science disciplines, which all

tend to treat and understand innovation differently (Godin 2008). As a market phenomenon

innovation is understood as a continuous, cumulative and path-dependent process that

characterizes the main engine of evolutionary transformations in the market (Dosi et al. 1997). In

evolutionary economics tradition the relevance of innovation is rooted in the very nature of how

capitalism works. As put by Lundvall (1992/2010, 8):

In modern capitalism, innovation is a fundamental and inherent phenomenon; the long-

term competitiveness of firms, and of national economies, reflect their innovative

capability and, moreover, firms must engage in activities, which aim at innovation just in

order to hold their ground.

To follow Schumpeter, innovation is about ―‗doing things differently‘ in the realm of economic

life‖ (Schumpeter 1939). For Schumpeter innovation is the engine of economic growth and

development as it brings forth evolutionary changes that will spread throughout the market and

beyond. New combinations of resources bring about five different types of innovation: new

products or a new quality of a product, new methods of production, new markets, new sources of

6

supply of raw materials and intermediate goods, and new methods of organizing the economic

process (see also Oslo Manual, OECD and EC 2005, pp. 46f).

Innovation therefore in the Schumpeterian view is something ―new‖ that has been applied in the

marketplace: thus innovation differs from invention, knowledge production or new ideas, which

are often part of innovation processes, but which alone are not sufficient to qualify as innovation.

The term ―new‖ is understood as introducing a combination in a specific context in which it was

not used before. Although this can come close to imitation it is of a different nature because

usually an adaptation effort is required which, in turn, resembles incremental innovation (Niosi

2012). Thus, innovation is a cumulative process where one innovation (e.g. driven by first mover

advantage) leads to imitation and further innovation by other firms (driven by profit

opportunities) that eventually changes entire sectors, market and society (Fagerberg 2005).

However, innovation is not only a technological but also a social and organizational

phenomenon. This is due to organizational innovation in a narrow sense on the one hand, and on

the other hand institutional innovation is required as a complement for technological innovation

(Perez 1983; Van de Ven 1986). Therefore not only for technological reasons (e.g. feedback

loops which lead to incremental improvements) innovation is essentially a continuous process

rather than consisting of discrete phases (Fagerberg 2005).

In the private sector, market competition is the ultimate test if something new is considered an

innovation (if the market accepts the new product, process etc.) or not (if the new fails to be

accepted in the market). Therefore being new is not sufficient for being considered innovative,

and innovation does not necessarily mean ―progress in society‖ representing a Schumpeterian

process of ―creative destruction‖ but rather ‘‖destructive creation‖ – … innovation benefiting a

few at the expense of many‘ (Soete 2013, p. 134-135). Soete (ibid.) uses the ecologically

unsustainable innovation-led consumerism and financial innovations as examples of destructive

creation. At the same time Nelson (2013) among others emphasizes the fact that innovations

affect different groups in the economy differently. In other words, it is the market selection

process that determines the relevance of innovation and also if and how innovations influence

economic and social change or not.

From a PPP perspective the organization of the innovation process is particularly relevant. In his

early work (―Schumpeter Mark I‖) Schumpeter focused on the individual entrepreneur and new

7

firms who act as drivers of ―creative destruction‖: They search for unexploited business

opportunities by trying out new combinations of resources. In his later work (―Schumpeter Mark

II‖) he acknowledged that competition in many markets is dominated by large established firms

which can build up substantial barriers to entry for new innovators; thus such firms – and their

path-dependent routines and capabilities (Nelson and Winter 1982) – play a crucial role in the

innovation process. As both types of organization are compatible with cooperation between

private and public innovation partners, the concept of PPP is applicable to analyze the

organization of the innovation process. This is important as on the private side in some PPP-

relevant markets (such as transport, construction and hospitals) there is a tendency towards

increasing firm sizes and market concentration which suggests that Mark II innovation might

become increasingly relevant.

In the innovation systems literature (Lundvall 1992/2010) the focus is both on the actors in the

innovation process (which had been the focus of the traditional ―linear model‖ of innovation) but

also on the linkages and feedback loops between the actors. Systems of innovation approaches

most distinctly embody the systemic view of the innovation process and have been developed

based on (1) technological, industrial or sectorial characteristics of innovation actors, or on (2)

spatial characteristics (national systems of innovation and regional systems of innovation). A

systemic view of the innovation process has major policy implications because then, not only the

individual actor in the innovation process is the target of innovation policy, but the linkages

between (potential) actors (including the government) and the supply of relevant complementary

actors as well.

3.2 Innovation as a public sector phenomenon

In spite of growing scholarly interest in public sector innovation as a concept and practice (see

Fernandez & Wise 2010; Osborne & Brown 2011), there is still a considerable confusion

concerning what innovation means in the public sector, how it can be conceptualized, and what

(if at all) the public sector can learn from private sector innovation literature (see Drechsler 2009,

Pollitt 2011, Lynn 2013). There is an emerging consensus that innovation in the public sector

should be understood as a radical departure from old solutions (Osborne and Brown 2013), and

that the new solutions have to be sufficiently radical to bring about irreversible changes in core

8

tasks (or routines) in public sector organizations (Lynn 1997). Related to the organizational

perspective are different system-level innovations that are found to be crucial in the public sector

context and that either facilitate or determine radical change in organizations: new kinds of

regulation, public infrastructure, social relationships, governance mechanisms (including PPPs)

and public policies (Osborne and Brown 2013, Valkamaa et al 2013, Windrum and Koch 2008).

The current public sector innovation (PSI) literature focuses on three, partially overlapping,

themes of innovation. First, innovation-related activities linked to changes in organizational

performance (productivity) (Valkamaa et al 2013; Dunleavy and Carrera 2013). This covers

various efforts from introduction of new services and processes to policy, conceptual and system-

level innovations (Windrum 2008). Second, new services and ways of service delivery that

ultimately alter the relations between citizens and government (Hartley 2013). Here, compared to

physical products, it is the interactivity as a core characteristic of services (Miles 2005) that is in

focus. And third, public value creation in its widest sense, pointing towards the need to consider

qualitatively different values compared to market-relevant innovations (Moore 1995). These

public sector innovation processes use different modalities (innovations within and through

public sector), agency (public sector proactively initiates changes or reacts to technological,

environmental etc. changes), and morphology (from incremental to discontinuous changes)

(Kattel et al. 2013).

In spite of the calls to relate public sector innovation to specific public sector features such as

public values, transparency, accountability, and political and policy contexts (see e.g. Hartley

2013), the underlying logic of analyzing the innovation mechanisms in the PSI literature still

borrows heavily from private sector thinking (Kattel et al. 2013). But this poses a theoretical

challenge as it is not clear whether public sector and industrial innovations can ‗be studied

through the same ―lenses‖‘ (Fagerberg et al. 2013, 13). Among other aspects, the absence of

profit opportunities, replication and market selection mechanisms makes it important to unpack

the specific evolutionary mechanisms of innovation in the context of the public sector and how

this differs from innovation in the private sector.

There has been a lot of attention paid at search heuristics, i.e. how public sector organizations

attempt at finding out best ways to organize their activities, how this changes organizational

routines and to what extent (radically or incrementally). The existing literature stresses the role of

individuals as change agents and related conditions that support or limit the change (borrowing,

9

again, heavily from private sector (management) literature). But there exists a limited

understanding on which mechanisms determine the evolution of search processes in the public

sector, how the selection process of innovations works, and what results and capabilities are to be

considered as successful. Consequently, today no clear frameworks exist that enable us to explain

how the process of radical transformation differs from the process of every-day changes in public

sector and also from innovation in the private sector (Kattel et al. 2013). As there is no natural

selection mechanism similar to market competition that would determine the success (or not) of

―new combinations‖, the understanding and evaluation of innovation in a public sector context

has remained disputed.

4. Empirical evidence on PPP and innovation

The academic discourse on the link between innovation and PPP usually identifies innovation as

an inherent quality of private sector involvement. This perception stems from (an often tacit)

assertion that private partners bring about new ideas, knowledge, competencies and resources and

thereby generate innovation by their mere presence (see Huxham and Vangen 2000; Debande

2002; Bougrain 2012).). However, a review of empirical studies on innovation in PPPs illustrates

that the evidence across a broad range of both technological and non-technological innovation

outcomes is inconclusive (see table 1).

<insert Table 1 around here>

Several points can be learned from the table. First, the evidence about PPPs bringing forth

innovation is much more scarce compared to the prevailing assumptions in the literature. There

are some evidence that PPP leads to incremental technology innovations (Bourn 2003; Chan

2009; Debande 2002; Leiringer 2006), infrastructure design innovations (Leiringer 2003, 2006;

Fitzgerald 2004; De Lemos et. al, 2003), innovations in organizational setup of services (Bourn

2003) and new services (Hoope and Schmitz, 2013), but in general there is very little evidence to

support the claim that innovation was a pervasive and inherent quality of PPP. In addition to the

identified innovation drivers such as profit opportunities (Debande 2002), design freedom

(Leiringer 2006) and stimulating environment for user-provider relationships (Bougrain 2012;

Eaton et. al. 2006; Russel et al. 2006; Chinyere 2013), the literature has also documented several

important barriers to innovation in PPP such as risk-averseness (Barlow and Köberle-Gaiser

2009; Demirag and Khadaroo 2010) and non-existing design freedom (Reeves 2003). Yet, little is

10

still known about what mechanisms exactly enable, determine or inhibit innovation in PPP, and

most existing studies still fail to back the rather anecdotic assertions about innovation in PPPs

with hard empirical evidence.

Second, the literature in general does not account for whether possible efficiency gains in PPP

assumed the public and private sectors to change their routines or whether the efficiency gains

mainly resulted from incorporating the existing market capabilities into the realm of public

service delivery. Much of the current literature does not delineate between changes in the private

and public organizations, nor does the literature analyse the positive and negative feedback loops

that might reinforce this change. There seems to exist an implicit assumption in the PPP literature

that efficiency gains mainly happen because of innovation, which, of course, may not necessarily

be the case (Dunleavy and Carrera 2013). Also, there is a lack of studies that document the claim

that innovation is a result (an effect) of PPP in itself rather than a result of an increased focus on

innovation, which would expectedly lead to more innovation but at the same time is not a

documented result of PPPs. Obviously, innovation can both occur as a result of innovative acts of

the parties involved or due to the sheer scale and complexity of PPPs (cf. Raisbeck, 2008), but

the empirical literature remains silent on this important issue.

Third, the tendency to understand innovation in PPP in terms of public sector efficiency gains

means that it is the very narrow perspective on innovation that dominates the literature. The

current literature largely ignores the fundamental feature of PPP – that it always occurs at the

cross-road of public and private sectors – and thus disregards the different logics and effects

innovation has on these sectors. PPP always involves several stakeholders operating under very

different institutional rationales (Klijn and Teisman 2003). Also, it is not just the different logics

of the private and public sectors, but a mix of sectorial (finance, construction, services) and

policy (fiscal and field domains such as transport or health) rationales that characterise PPPs.

Moreover, partnership projects are designed in the political arena, which adds yet another layer to

the PPP-specific innovation process. Innovation in PPP can thus have very different meanings

and consequences for various PPP stakeholders, but the existing studies generally lack evidence

of these gains having any systemic effects on the government, market or society.

Finally, by concentrating merely on public service delivery performance, the literature by and

large ignores the systemic nature of innovation: innovation not only assumes that one understands

the system that influences innovation (cumulativeness), but also how innovation influences the

11

evolution of the wider institutional system. As noted by Bourn (2003), there is little evidence

documenting that this interaction effect has any influence beyond a particular project on the

actual organization of the public sector.

5. Towards a conceptual framework for innovation in PPP

What follows is an attempt to contextualize innovation and PPPs through two broad perspectives:

innovation as a market phenomenon (―market-centered approach‖) and innovation as a non-

market phenomenon (―public sector-centered approach‖). Finally, we combine the two

approaches and set out a framework for understanding innovation throughout the PPP value

chain.

5.1 Market-centered approach

From a market perspective PPPs are ―an essential instrument for fostering innovation in OECD

countries‖, and ―have become increasingly popular in R&D and innovation‖ (OECD 2010, 104).

The function of PPPs in relation to market sector innovation is threefold: providing an

organizational frame for generation and exploitation of innovation activities, providing

innovation-relevant infrastructure, and being a mode of innovation policy delivery (Kristensen et

al 2014).

First, PPP is a mode of fostering the generation and exploitation of innovation activities by

providing the organizational frame for ―producing‖ innovations and bringing new products,

processes, modes of organization etc. to the market and thereby affecting the evolution of

businesses‘ capabilities and skills. Government intervenes in the market by selecting topics and

partners of a PPP and therefore it is confronted with picking-the-winners problems – which is not

much different from using other instruments of direct and focused policy intervention. But if the

difference between private and social returns of R&D is large due to market failure, then

government intervention in technology and innovation policy is justified in this context and could

yield enormous benefits (Stiglitz and Wallsten 1999, 70).

Further, PPP acts as a variety creation mechanism by linking agents from different sectors in the

innovation process and thereby creating new opportunities for user-provider interactions and

learning. In this way PPP contribute to the performance of innovation systems in general by

strengthening the quality of feedback linkages in the economy. Here the quality of demand or the

12

ways government articulates the user needs for private partners is a key factor affecting market

behavior. By demanding new products or even facilitating the emergence of new industries that

go beyond the state of the art the public sector can act as a testing-ground for innovative products

and encourage innovation by providing a ―lead market‖ for new technologies (Rothwell 1994).

Innovation-oriented PPP can also affect business capabilities beyond the creation of new products

by using R&D procurement or supporting market diffusion of already existing technologies

(Hommen and Rolfstam 2009). By applying innovation-friendly public procurement principles

PPP can affect the technology life cycle, promote clusters and innovation systems, and thereby

increase local, regional and national competitiveness (Lember et al 2014).

Second, providing infrastructure is a major field of implementing PPP models in many sectors

(e.g. transport, health, education, etc.), and it is also relevant for innovation-related infrastructure.

Particularly the build-up and operation of infrastructure for the diffusion of new technologies

through close cooperation between the public and private sectors has a long tradition and thus

PPP can support systemic changes in innovation patterns.

Third, PPP is a mode of innovation policy delivery and is used for innovation program

development, innovation project implementation, and as a demand-side policy tool. Developing

and implementing innovation support programs and projects usually requires integrating partners

from the private business sector, public (and private) research institutions, and other agents of the

public sector. In this context PPP is supportive to organize the innovation process, provided that

government combine various innovation policy modes (tax reductions on R&D investment, R&D

grants, innovation-supporting regulation, public procurement of innovation etc) and deliberately

link this innovation policy mix with specific PPP projects.

5.2 Public sector-centered approach

As noted above, it is still debatable how exactly the concept of innovation should be understood

and approached in the context of the public sector. But bearing the caveats in mind and based on

the previous sections we can delineate between three main public sector dimensions of innovation

in the context of PPP: (1) PPP as a catalyst of change in public sector organizational routines; (2)

PPP as a mode of addressing social challenges, and (3) PPP as a strategic tool to introduce

governance changes.

13

First, introducing PPPs may significantly alter the organizational routines of public organizations.

Direct innovation effects emerge if PPP assumes new capabilities and learning patterns to be

developed in order to launch and implement a project. Indirect innovation effects may emerge as

side effects of PPP projects if, for example, public sector organizations‘ productivity increases

due to redesigning of work teams and business processes (Dunleavy and Carrera 2013).

Second, PPP may play an important role in meeting social challenges. Governments often play a

key role in developing new solutions to emerging problems such as ageing or environmental

challenges, but may lack legitimacy, knowledge or resources to address those concerns. Often

these challenges pose existential problems for societies and in order to overcome these problems,

innovative solutions may be inevitable. At the same time, radical new solutions usually require

not only technological innovations, but assume institutional changes to take place, and public

sector is often best placed to facilitate those changes. PPPs in fact are actively pursued by many

governments to tackle challenges like the diffusion of clean energy in transport, the use of energy

efficient materials and products in construction or new health care services in hospitals.

Third, PPPs can bring about important change in governance and the provision of public services

when used as a tool for introducing market deregulation. While public monopolies in the

transport, health, and energy sectors have traditionally provided ―public goods‖, the introduction

of PPPs has changed this by engaging private market operators in order to meet public needs.

PPPs open up possibilities for the market and for citizens to be involved in public policy making.

At the same time, new governance mechanisms such as PPPs may be used by governments in

developing strategic capacities of various social and market agents (Jayasuriya 2005) in order to

increase government legitimacy. PPPs therefore not only alter the relationship, accountability and

authority structures between government and market, but also between government and citizens.

5.3 The two approaches combined

We have argued that innovation in the context of PPP has a much wider connotation and potential

effects than what has been emphasized in the literature so far. Table 2 summarizes the market-

centered and the public-sector-centered approaches to innovation in PPP along the dimensions of

resource organization, deployment and policy relevance.

< Insert TABLE 2 here >

14

Innovation potentially takes place in all stages which are typical for the PPP value chain in the

provision of infrastructure (procurement, design, finance, build, operation, transfer; see table 3).

The occurrence and dominance of types of potential innovation in PPPs vary along this value

chain. From a market-centered perspective PPP is a mode of fostering the generation and

exploitation of innovation by acting as a variety creation and selection mechanism which is

important in all forms (new product, process, material, market, organizational design), though not

in each stage. Other types of innovation from a market-based perspective (PPP as a mode of

providing infrastructure, and of innovation policy delivery) occur less frequently as a dominant

feature of innovation. From a public-sector-centered perspective types of potential innovation

vary across stages, too. PPP may be a catalyst of change in the public sector primarily in the

earlier stages; it can bring about change in governance and act as a (new) mode of meeting social

challenges in most stages.

< Insert TABLE 3 here >

Examples of potential innovations and activities potentially leading to innovations include

introducing multi-stage tendering in procurement, designing and building infrastructure with

regard to minimizing cost over the whole life-cycle, tapping new sources of finance for

infrastructure, and implementing new forms of user charge collection. Each stage of the value

chain is dominated by very few (groups of) stakeholders: the procuring public sector agent, the

bidding consortia, the financiers, the ―special purpose vehicle‖ (i.e. an organization consisting of

contractors related to the project which is established to implement the PPP contract),

engineering and construction firms, and the users of the infrastructure provided by the PPP. As

stakeholders are characterized by different technological competences, technological and

interaction patterns (Pavitt 1984; Castellacci 2008) and sectoral innovation systems (Malerba

2004), innovation behavior and the potential innovation outcomes in various PPP stages differ.

Construction and infrastructure service industries are supplier dominated, and their innovation

activities focus on the introduction of new processes rather than products. As technological

development in these sectors to a great extent is determined by customers‘ demand-pull,

innovation behavior depends heavily on how the public sector articulates user needs in the PPP.

The finance sector uses ICTs, process and software development engineering which facilitates

both product and process innovation. The public sector is technologically in many ways similar to

supplier dominated sectors (Miozzo and Soete 2001).

15

A major potential of PPPs for enabling innovation arises from intensifying inter-sectoral linkages

and knowledge flows between firms with different technological competences and strategies

which may release external economies beyond the individual PPP project. While special

suppliers, engineering and ICT service providers are among the most dynamic and knowledge

intensive sectors under the current ICT-led techno-economic paradigm (Perez 2002; Castellacci

2008) they typically have not been key players in PPPs. Demand for innovation in these

industries is determined by typical PPP players like construction companies and infrastructure

service providers which use intermediate goods from knowledge intensive industries as an input

to their innovation activities. Here the public sector can act as a major facilitator by articulating

needs and by designing PPP set-ups that enable the knowledge flow between stakeholders. For

achieving this, the public sector may need to reorganize its own institutions and organizational

structures, leading to change within the public sector. The need to cope with new technologies

emerging from PPP may also trigger such changes.

Applying the market-centered approach and the public-sector-centered approach to a PPP

framework which is structured by stages of the PPP‘s value added chain provides some

preliminary lessons. Growingly risk-averse financiers might act as an impediment to

technological innovation, but probably not to financial innovation because they assume to be

better able to judge the risks involved in financial transactions. The SPV as an important player in

the finance, build and operate stages has an incentive to innovate (e.g. lowering life cycle cost),

but because it acts within the boundaries of the PPP contract its scope to go for more than just

incremental innovation (particularly in the build stage) seems to be largely determined already in

the procurement and design stages. Thus the design specifications are crucial for the scope for

innovation within a PPP. In the operate stage users of infrastructure may push for and benefit

from innovation.

6. Conclusion

In this paper we detected two main problems in the current PPP and innovation literature. First,

as shown in our review of previous studies, there is no conceptual clarity of innovation in

mainstream PPP literature. While the term innovation is frequently used when describing the

characteristics of a PPP, studies rarely define innovation in the context of its investigations. As a

result, empirical evidence on innovation in PPPs is sporadic and often controversial. There is a

16

lack of delineation between change and transformative change, leaving behind an uncertainty if

change in PPP projects is due to regular evolutionary processes on the market, or if PPP actually

is a tool for powering systemic change on the market. Moreover, there is a lack of distinction if

PPP in itself provides an infrastructure for innovation by allowing for knowledge and capability

sharing between private and public parties, or if it is the nature of the demand in procurement

through PPP which spur change. Second, while lacking conceptual clarity, the prevailing

approach to innovation in PPP is also very restricted, leaving out many crucial elements.

Stemming from the initial promise of New Public Management ideas, the focus has been on how

innovation has contributed to the improvement of public sector efficiency. However, as PPP

occur at the cross-roads of public and private sectors, PPP have the potential to facilitate

innovation beyond public service provision. Also, innovation does not necessarily mean

―progress in society‖, but it may bring along severe negative consequences for the society.

In order to remedy the shortcomings, we conceptualize innovation and PPP alongside two

dimensions: a market centered approach and a public sector approach. The market centered

approach builds upon the Schumpeterian view of innovation as an evolutionary process on the

market, where PPP may help or incentivize transformative change among market players. In a

public sector view of innovation in PPP it‘s suggested that PPP projects can help the public sector

to catalyze changes in its organizational routines, meet social challenges and increase its political

legitimacy. In order to bring more clarity for the conceptual definition of innovation in PPP the

innovation potential needs to be determined by the interplay between different stakeholders. A

brief sketch on this approach has been provided in this paper, however, the topic needs further

investigation and analysis, as do all aspects of innovation in PPP. Suffice it to say that we still

know very little about how the public sector‘s need to maintain legitimacy or the dominance of

the financial sector in PPP actually enable or constrain innovation in PPPs. Innovation in PPP

requires a more nuanced view than is currently acknowledged in the literature, and only then will

it be possible to establish less ambiguous concepts for innovation in PPP together with valid

measurements supporting theory.

17

Literature

Ågren, R., and Rolfstam, M. (2013). A Conjecture on Institutional Rationalities and Property Rights in Public

Procurement of Innovation. Rivista di Politica Economica. 102(April/June), 137-157.

Akintoye, A., Hardcastle, C., Beck, M., Chinyio, E, and Asenova, D. (2003). Achieving best value in private finance

initiative project procurement. Construction Management and Economics, 21(5), 461-470. doi:

10.1080/0144619032000087285

Barlow, J., and Köberle-Gaiser, M. (2009). Delivering Innovation in Hospital Construction: Contracts and

collaboration in the UK's Private Finance Initative Hospitals program. California Management Review.

51(2), 126-143.

Bougrain, F. (2012). Energy performance and public private partnership. Built Environment Project & Asset

Management. 2(1), 41-55.

Brewer, G., Gajendran, T., Jefferies, M., Mcgeorge, D., Rowlinson, S. and Dainty, A. (2013). Value through

innovation in long-term service delivery: Facility management in an Australian PPP. Built Environment

Project and Asset Management. 3(1), 74-88.

Castellacci, F. (2008). Technological paradigms, regimes and trajectories: Manufacturing and service industries in a

new taxonomy of sectoral patterns of innovation. Research Policy, 37(6), 978-994.

Chan, T. K. (2009). Measuring performance of the Malaysian construction industry. Construction Management and

Economics, 27(12), 1231-1244. doi: 10.1080/01446190903233137

Chinyere, I. I. (2013). Comprehensive Objectives for PPP Projects: Case of Beijing Olympic Stadium. International

Journal of Business & Management, 8(9), 88-110. doi: 10.5539/ijbm.v8n9p88

De Lemos, T., Almeida, L., Betts, M., and Eaton, D. (2003). An Examination on the Sustainable Competitive

Advantage of Private Finance Initiative Projects. Construction Innovation. 3(4), 249-59.

Debande, O. (2002). Private financing of transport infrastructure: An assessment of the UK experience. Journal of

Transport Economics and Policy, 36(3), 355-387.

Demirag, I., and Khadaroo, I. (2010). Costs, outputs and outcomes in school PFI contracts and the significance of

project size. Public Money and Management, 30(1), 13-18. doi: 10.1080/09540960903492281

Dinica, V. (2008). Initiating a sustained diffusion of wind power: The role of public–private partnerships in Spain.

Energy Policy, 36(9), 3562-3571. doi: 10.1016/j.enpol.2008.06.008

Dosi, G., Malerba, F., Marsili, O., and Orsenigo, L. ( 1997 ). ‗Industrial Structures and Dynamics: Evidence,

Interpretation and Puzzles‘, Industrial and Corporate Change, 6, 3–24 .

Drechsler, W. (2009). ―Towards a Neo-Weberian European Union? Lisbon Agenda and Public Administration.‖

Halduskultuur-Administrative Culture. 10, 6-21.

Dunleavy, P., and Carrera, L. (2013). Growing the productivity of government services. Cheltenham, UK: Edward

Elgar.

Eaton, D, Akbiyikli, R., and Dickinson, M. (2006). An Evaluation of the Stimulants and Impediments to Innovation

within PFI/PPP Projects. Construction Innovation. 6(2), 63-77.

Edwards, P., Shaoul, J., Stafford, A., and Arblaster, L. (2004). Evaluating the operation of PFI in roads and hospitals

Certified Accountants Educational Trust: London.

Fagerberg, J. (2005). Innovation: A Guide to the Literature, in: J. Fagerberg, D. C. Mowery and R. R. Nelson (eds)

The Oxford Handbook of Innovation, Oxford and New York: Oxford University Press, pp. 1-26

Fagerberg, J. Martin, B. R., and Andersen, E. S. (2013). Innovation Studies: Towards a New Agenda. In Fagerberg,

J., Martin, B. R., and Andersen, E. S. (eds), Innovation Studies: Evolution and Future Challenges. Oxford

University Press, pp. 1-17.

Fernandez, S., and Wise, L. R. (2010). An exploration of why public organizations ‗Ingest‘ innovations. Public

Administration, 88(4), 979-998.

18

Flinders, M. V. (2005). The Politics of Public-Private Partnerships. British Journal of Politics and International

Relations. 7(2), 215-239.

Godin, B. (2008). Innovation: The History of a Category. Project on the Intellectual History of Innovation (No.1).

Working Paper.

Grimsey, D., and Lewis, M. K. (2002). Evaluating the risks of public private partnerships for infrastructure projects.

International Journal of Project Management, 20(2), 107-118.

Grimsey, D., and Lewis, M. (2004). Public Private Partnerships – The Worldwide Revolution in Infrastructure

Provision and Project Finance. Cheltenham, UK: Edward Elgar.

Grimsey, D., and Lewis, M. (2005). Are Public Private Partnerships value for money? Evaluating alternative

approaches and comparing academic and practitioner views. Accounting Forum. 29(4), 345-378.

Hartley, J. (2013). Public and private features of innovation. in Osborne and Brown, eds, Handbook of Innovation in

Public Services. Cheltenham, UK: Edward Elgar, pp. 44-59.

Hill, A. (2011). Foreign Infrastructure Investment in Chile: The Success of Public-Private Partnerships through

Concessions Contracts. Northwestern Journal of International Law & Business. 32(1), 165-190.

Hodge, G. (2004). The risky business of public-private partnerships. Australian Journal of Public Administration.

63(4), 37-49.

Hodge, G. (2014). A letter to Public Infrastructure Inquiry Productivity Commission. Available at: http://pc-

web01.squiz.net/__data/assets/word_doc/0020/135506/subdr151-infrastructure.docx (retrieved at June 28,

2014)

Hodge, G., and Greve, C. (Eds.). (2005). The Challenge of Public-Private Partnerships. Learning from International

Experience. Cheltenham, UK: Edward Elgar.

Hodge, G. A., and Greve, C. (2009). PPPs: The passage of time permits a sober reflection. Economic Affairs, 29(1),

33-39.

Hommen L., and Rolfstam, M. (2009) Public procurement and innovation: towards a taxonomy. Journal of Public

Procurement 9(1), 17–56.

Hoppe, E. I., & Schmitz, P. W. (2013). Public-private partnerships versus traditional procurement: Innovation

incentives and information gathering. RAND Journal of Economics, 44(1), 56-74.

Huxham, C. (1993). Pursuing collaborative advantage. Journal of the Operational Research Society. 44(6), 599-611.

Huxham, C. (2003), Theorizing collaboration practice, Public Management Review. 5(3), 401-423.

Huxham, C., and Vangen, S. (2000), What makes partnerships work? In Osborne, Stephen (Ed) Public-Private

Partnerships. Theory and practice in international perspective. Routledge, London.

Huxham, C., and Vangen, S. (2004), Doing things collaboratively: Realizing the advantage or succumbing to

intertia? Organizational Dynamics. 33(2), 190-201.

Javed, A. A., Lam, P. T. I., and Zou, P. X. W. (2013). Output-Based Specifications for Ppp Projects: Lessons for

Facilities Management from Australia. Journal of Facilities Management. 11(1), 5-30.

Jayasuriya, K. (2005). Capacity beyond the boundary: new regulatory state, fragmentation and relational capacity. In

Painter, M. and Pierre, J., Challenges to state policy capacity: Global trends and comparative perspectives.

Palgrave Macmillan, pp. 19-37.

Kattel, R., Cepilovs, A., Drechsler, W., Kalvet, T., Lember, V., and Tõnurist, P. (2013). Can we measure public

sector innovation? A literature review. FP7 LIPSE project paper. Available at:

http://www.lipse.org/userfiles/uploads/kattel%20et%20al%20egpa%20version.pdf (accessed 2013-10-25)

Klijn, E.-H., and Teisman, G. (2003). Institutional and Strategic Barriers to Public-Private Partnership: An Analysis

of Dutch Cases. Public Money and Management. 23(3), 137-145.

Kristensen, I., McQuaid R.W., and Scherrer, W. (2014), Public Private Partnership as an Instrument of Innovation

Policy. In Hilpert, U. (ed.), Handbook of Politics and Technology. Oxford, UK: Routledge (in press).

19

Kumaraswamy, M. M., and Anvuur, A. M. (2008). Selecting sustainable teams for PPP projects. Building and

Environment. 43(6), 999-1009.

Leiringer, R. (2003). Technological innovations in the context of public-private partnership projects. Stockholm,

Sweden: Kungliga tekniska högskolan.

Leiringer, R. (2006). Technological innovation in PPPs: incentives, opportunities and actions. Construction

Management & Economics. 24(3), 301-308.

Lember, V., Kalvet, T., and Kattel, R. (2011). Public Sector Innovation in the Nordic Baltic Sea Cities: The Case of

Public Procurement. In Bekkers, V., Edelenbos, J., Steijn, B. (eds). Innovation in the Public Sector: Linking

Capacity and Leadership. Chippenham, UK: Palgrave Macmillan, pp. 82 – 104.

Lember, V., Kattel, R., and Kalvet, T. (2014). Public Procurement and Innovation: Theory and Practice. In: Lember,

V., Kattel, R., and Kalvet, T. (eds.) Public Procurement, Innovation and Policy: International Perspectives.

Heidelberg: Springer, pp. 13-34.

Linder, S. H. (1999). Coming to Terms with the Public-Private Partnership. American Behavioral Scientist. 43(1),

35-51.

Liu, T., and Wilkinson, S. (2011). Adopting Innovative Procurement Techniquesobstacles and Drivers for Adopting

Public Private Partnerships in New Zealand. Construction Innovation. 11(4), 452-469.

Lundvall, B.-Å. (ed.) (1992/2010). National systems of innovation: toward a theory of innovation and interactive

learning. London: Anthem

Lynn, L. (2013) ―Innovation and Reform in Public Administration: One Subject or Two?‖ in Osborne and Brown,

eds, Handbook Of Innovation In Public Services. Cheltenham, UK. Edward Elgar, pp. 29-43.

Malerba, F. (ed.). (2004). Sectoral systems of innovation: concepts, issues and analyses of six major sectors in

Europe. UK: Cambridge University Press.

McQuaid, R. W. (2000). The theory of partnership: Why have partnerships? In S. Osborne (Ed.), Public-Private

Partnerships: Theory and practice in international perspective. London: Routledge, pp. 10-35

McQuaid, R. W., and Scherrer, W. (2010) Changing reasons for public private partnerships. Public Money and

Management 30 (1), 27-39.

Miles, I. (2005). Innovation in services. in: J. Fagerberg, D. C. Mowery and R. R. Nelson (eds) The Oxford

Handbook of Innovation, Oxford and New York: Oxford University Press, pp. 433-458.

Miozzo, M., and Soete, L. (2001). Internationalization of services: a technological perspective. Technological

Forecasting and Social Change, 67(2), 159-185.

Moore, M.H. (1995). Creating Public Value: Strategic Management in Government. Cambridge: Harvard University

Press.

Mörth, U. (2007). Public and Private Partnerships as Dilemmas between Efficiency and Democratic Accountability:

The Case of Galileo. Journal of European Integration. 29(5), 601-617.

Organisation for Economic Cooperation and Development and European Communities (2005). Oslo Manual:

Guidelines for Collecting and Interpreting Innovation Data, 3rd edition.

Organisation for Economic Cooperation and Development (2010) OECD Innovation Strategy.

Osborne, S. P., and Brown, L. (2011). Innovation, public policy and public services delivery in the UK. The word

that would be king? Public Administration, 89(4), 1335-1350.

Osborne, S. P., and Brown K. (2013). ―Introduction: Innovation in Public Services‖, in S. P. Osborne and K. Brown,

eds, Handbook of Innovation in Public Services. Cheltenham, UK: Edward Elgar, pp. 1-14.

Nelson, R. R. (2013). Reflections on the Study of Innovation and on Those Who Study It. In: Fagerberg J., Martin B.

R., and Andersen E. S. (eds) Innovation Studies. Evolution and Future Challenges. Oxford: Oxford

University Press, pp. 187-193.

Nelson, R. R., and Winter, S. G. (1982). An Evolutionary Theory of Economic Change. Cambridge, USA: The

Belknap Press of Harvard University Press.

20

Niosi, J. (2012). Innovation and development through imitation (In praise of imitation), presented at International

Schumpeter Society, July 2-5 2012, Brisbane Australia.

Pavitt, K. (1984). Sectoral patterns of technical change: towards a taxonomy and a theory. Research policy, 13(6),

343-373.

Perez, C. (1983). Structural change and the assimilation of new technologies in the economic and social system,

Futures 15, 357-375.

Perez, C. (2002). Technological Revolutions and Financial Capital. The Dynamics of Bubbles and Golden Ages.

Edward Elgar: Cheltenham U.K.

Pollitt, C. (2011). ‗Innovation in the public sector: an innovatory overview‘, in V. Bekkers, J. Edelenbos and B.

Steijn (eds.) Innovation in the public sector: linking capacity and leadership. Basingstoke:

Palgrave/Macmillan, pp. 35-43.

Raisbeck, P. (2008). Perceptions of architectural design and project risk: understanding the architects' role in a PPP

project. Construction Management and Economics, 26(11), 1145-1157. doi: 10.1080/01446190802512342

Rangel, T., and Galende, J. (2010). Innovation in public-private partnerships (PPPs): the Spanish case of highway

concessions. Public Money & Management. 30(1), pp. 49-54.

Reeves, E. (2003). Public—Private Partnerships in Ireland: Policy and Practice. Public Money & Management,

23(3), 163-170. doi: 10.1111/1467-9302.00364

Rosenau, P.V. 1999. ―Introduction: The Strengths and Weaknesses of Public-Private Policy Partnerships.‖ American

Behavioral Scientist 43 (1), 10-34.

Russell, A. D., Tawiah, P., and De Zoysa, S. (2006). Project Innovation – a Function of Procurement Mode?

Canadian Journal of Civil Engineering, 33(12), 1519-37.

Rothwell, R. (1994). Issues in the user-producer relations in the innovation process: the role of government.

International Journal of Technology Management 9(5/6/7), 629–649.

Savas, E. S. (2000). Privatization and public-private partnerships. Chatham House Publishers.

Schumpeter, J. A. (1912/1983). The theory of economic development: An inquiry into profits, capital, credit, interest,

and the business cycle. New Brunswick, Canada: Transaction Publishers.

Schumpeter, J. A. (1939). Business Cycles. New York, USA: McGraw-Hill.

Soete, L. (2013). Is Innovation Always Good? In: Fagerberg J., Martin B.R., Andersen E.S. (eds) Innovation Studies.

Evolution and Future Challenges. Oxford: Oxford University Press, pp. 134-144.

Spielman, D. J., Hartwich, F., and Grebmer, K. (2010). Public-private partnerships and developing-country

agriculture: Evidence from the international agricultural research system. Public Administration &

Development, 30(4), 261-276. doi: 10.1002/pad.574.

Steijn, B., Klijn, E. H., and Edelenbos, J. (2011). Public Private Partnerships: Added Value by Organizational Form

or Management?. Public Administration, 89(4), 1235-1252.

Stiglitz, J. E., and Wallsten, S.J. (1999). Public-Private Technology Partnerships: Promises and Pitfalls. American

Behavioral Scientist. 43(1), 52-73.

Valkama, P., Bailey, S.J., and Anttiroikko, A.-V. (2013). Organizational Innovations in Public Services. Forms and

Governance. Basingstoke: Palgrave Macmillan.

Van de Ven, A. H. (1986). Central problems in the management of innovation. Management Science, 32(5), 590-

607.

Van Ham, J.C., and Koppenjan, J. (2001). Building Public-Private Partnerships. Assessing and managing risks in

port development. Public Management Review. 3(4), 593-616.

Weihe, G. (2008). Ordering Disorder - On the Perplexities of the Partnership Literature. Australian Journal of Public

Management. 67(4), 430-442.

21

Wettenhall, R. (2003). The Rhetoric and Reality of Public-Private Partnerships. Public Organization Review. 3(1),

77-107.

Windrum, P. (2008). Innovation and entrepreneurship in public services. In P. Windrum, and P. Koch (eds)

Innovation in public sector services: entrepreneurship, creativity and management. Cheltenham, UK:

Edward Elgar Publishing, pp. 3-20.

Windrum, P., and Koch, P. (2008). Innovation in public sector services: entrepreneurship, creativity and

management. Cheltenham, UK: Edward Elgar.

Yescombe, E. R. (2007). Public-Private Partnerships: Principles of Policy and Finance. Oxford, UK: Elsevier.

Zhang, X., and Chen, S. (2013). A systematic framework for infrastructure development through public private

partnerships. IATSS Research, 36(2), 88-97.

22

Table 1: Literature overview on innovation and PPP

Study Country Sector

Technical

innovation

Design

innovation

Organisational

innovation Efficiency Public value

Public sector

productivity

Akintoye et al

(2003) UK Construction

x

x

Barlow & Köberle-

Gaiser (2009) UK Construction

x

x

x

Bougrain (2012) France Utilities

X x

x

Brewer et al. (2013) Australia Facility

Management x

x

Chan (2009) Malaysia Construction x

X x

x

Chinyere and

Ikechukwu (2013) China Construction

x

x

Debande (2002) UK Infrastructure x x

x

De Lamos et al.

(2003)

Portugal /

UK Construction

x

Demirag &

Khadaroo (2010) UK Education

x x x

Dinica (2008) Spain Energy

x

Eaton et al. (2006) UK Construction

x

Edwards et al.

(2004) UK

Education /

Infrastructure

x x

Hill (2011) Chile Infrastructure

x

Javed et al. (2013) Australia Construction

x

x

Leiringer (2006) Sweden /

UK

Construction /

Infrastructure x x

x

x

Liu & Wilkinson

(2011) New Zealand

Construction /

Infrastructure x

x x x

Raisbeck (2008) Australia Construction x x x

23

Rangel & Galende

(2010) Spain

Construction /

Infrastructure x x

Reeves (2003) Ireland Education /

Infrastructure x

Russell et al. (2006) Passim Construction x x x

Spielman et al.

(2010) Passim Agriculture x

Source: Authors

Table 2: Approaches to innovation in PPP

Focus/dimension Resource

reorganization

Deployment Policy relevance

Market-centered

PPP as a variety

creation and selection

mechanism in the

market

PPP provides

innovation-relevant

infrastructure

PPP as a mode of

innovation policy

delivery

Public-sector-

centered

PPP as a catalyst of

change in

organizational

routines

PPP as a mode of

meeting social

challenges

PPP as a policy tool

for strategic change

in governance

Source: Authors

24

Table 3: Main aspects of innovation in PPPs along the PPP-value chain

Main aspects of

innovation in PPPs

Stage in the PPP's value chain*

Procurement Design Finance Build Operation Transfer

Economic domain(s)

in which innova-tion

potentially takes place

Process of public

procurement

Design of all aspects

of providing a

public service

Financial sector Construction and its

supply industries

Service provision Public property

accumulation; (re-)

transfer of assets to

public sector

Examples of

innovation activities

Multi-stage

tendering in

procurement of

infrastructure

Designing

infrastructure with

regard to

minimizing life-

cycle cost

New sources of

infrastruc-ture

finance; new

financial

instruments

Technical

innovation (e.g. in

construction,

equipment) with

regard to

minimizing life-

cycle cost

New forms of user charge

collection (technical and

organizational innovation)

Asset transfer from

SPV to public sector

after contract

termination

Most important

stakeholders and

industries

Procuring public

sector agent;

bidding consortia

Procuring public

sector agent

Financiers; SPV Construction,

engineering; SPV

SPV; users Procuring public

sector agent; SPV

Most important

potential types of

innovation: market-

centered approach

Variety creation and

selection (new

organizational

design, new

process)

Providing

innovation-related

infrastructure;

innovation policy

delivery

Variety creation and

selection (new

organizational

design, new process,

new market)

Variety creation and

selection (new

product, new

process, new

material, new

organizational

design)

Variety creation and

selection (new product,

new process of service pro-

vision); provision of

innovation-related

infrastructure

Maintaining

innovation-relevant

infrastructure

Most important

potential types of

innovation: public-

sector-centered

approach

Catalyst of change

in public sector

Catalyst of change

in public sector;

new mode of

meeting social

needs; change in

governance

Change in

governance

New solutions to

social challenges

New mode of meeting

social needs; change in

governance

Catalyst of change in

public sector

Lessons for innovation

in PPPs

Design-

specifications are

crucial for the scope

for innovation

Impact of design-

specifications on the

scope for

innovation is

unclear

Typically risk

averse financiers

impede technical

innovation

SPV has an

incentive to

innovate, e.g. to

reduce cycle cost

SPV has an incentive to

innovate; users may benefit

from and push for

innovation

No clear lessons yet

* Depending on the extent of pre-design of the service to be procured by the public authority the sequence between the procurement and the

design phases might be reversed. Depending on the chosen model of PPP a project need not comprise all stages.Source: authors