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Innovation Procurement in 2024: What it is & Best Practices

The increasing adoption of emerging technologies such as artificial intelligence and machine learning brings along several myths and misconceptions about them. These misconceptions and vendor hype can make it challenging for businesses to properly evaluate the benefits of innovative solutions before making any decisions.

This article will discuss what innovation procurement is, how does it differ from traditional B2B technology procurement, and provide a checklist for an effective purchasing of innovative solutions.

What is innovation procurement?

Innovation procurement is the purchase of solutions that are not yet available in the market or have not yet achieved widespread adoption. It involves identifying and purchasing innovative products and services, such as emerging technologies, that can give an organization a competitive advantage.

How does procuring innovation differ from traditional procurement?

Procuring innovation involves creating, discovering, or experimenting with something new to meet business needs or solve business problems. In contrast, traditional procurement focuses on identifying the optimal product or service among a variety of established options. Therefore, in procuring innovation:

  • There are fewer or no alternatives on the market.
  • You purchase either the research and development (R&D) phase of an innovative solution or a developed solution that has not yet proven its benefits.
  • Claimed benefits may not overlap with actual benefits since the outcomes of such solutions are not well-known as established solutions.
  • Efforts to understand the solution and verify its benefits may involve more than the license or service fees for the proof of concept (PoC), especially if you are involved in the R&D process.

Despite these inherent risks, procuring innovation can help organizations:

  • Solve their business problems when there is no existing solution in the market.
  • Take advantage of emerging technologies and methods to gain an advantage over the competition.

Checklist for buying innovation

Like any other procurement process, procuring innovation involves steps such as:

  • Identifying business needs and problems
  • Conducting market research to see if there are suitable solutions in the market
  • Buying the solution
  • Contract awarding and management

Due to the above-mentioned challenges that are specific to innovation procurement, we have created a checklist for businesses:

1. Create a data sandbox

A data sandbox can help businesses test innovative solutions without compromising the security of their data. 

Emerging technologies such as artificial intelligence, intelligent automation, or process mining are driving business innovation as collecting, storing, and analyzing data have become more affordable over the last two decades. However, data-driven innovation can pose security risks as business data often involves information that is protected by data privacy regulations.

A data sandbox is a secure space where new technologies can be explored and tested in an isolated environment on dummy data before they are integrated into existing systems. By creating a data sandbox before purchasing an innovative solution, businesses can:

  • Connect their business data to the outside world securely,
  • Allow third parties, such as the supplier of the innovation, to access this data and experiment on it,
  • Facilitate collaboration between their developers and third-party developers,
  • Evaluate the potential of new solutions while avoiding risks associated with developing or implementing them, such as disrupting existing business processes.

Businesses can leverage solutions like PET or synthetic data to quickly create data for data sandboxes while minimizing data security and privacy risks.

2. Leverage a few simple contract templates

Having simple contract templates expedite procurement and

  • ensure that benefits can be gained sooner
  • procurement organization minimizes their investment on unproven technologies

Regular contracts tend to be verbose, cover all possibilities and slow down the procurement process. Organizations can create a few simple PoC templates for innovation buying.

End-user contract for cases where

  • Your organization is not involved in the development process of the innovation and only buying the solution,
  • The goals of the project can be clearly defined in advance and are unlikely to change after the contract is awarded.

Joint-development contract for cases where

  • You are collaborating during the research and development phase of the solution
  • The project is complex and unpredictable. In such cases, the contract should have minimal commitments and create a framework for making decisions with the agreement of both parties.

3. Consult emerging technology industry analysts such as AIMultiple

In order to make an informed decision, companies need access to objective data about the potential costs and benefits of new technology. However, this information can be hard to come by. Many vendors are reluctant to share data that might reflect negatively on their products.

As a result, companies often have to rely on opaque and expensive third-party reports or their own trial and error to get information about innovative technologies. This lack of objective data can make it difficult for companies to:

  • Determine whether a new technology will live up to its promises, 
  • Justify investing in innovation.

AIMultiple is an emerging technology industry analyst that is transparent, in-depth, direct, and free. Check out our About page to explore how you can learn about emerging technologies and their vendors and how we can help you in your innovation procurement. You can also:

4. Ask for an inexpensive and fast Proof of Concept (PoC) or Proof of Value (PoV)

A proof of concept (PoC) is a demonstration of how a product or service would work in a real-world setting. PoCs can help businesses determine whether a new technology is worth investing in without making a long-term commitment.

In many cases, vendors will offer free or low-cost PoCs in a couple of weeks to help businesses make their decision.  Businesses should also ask for PoCs that require minimal customization from the vendor. Having a simple PoC template and a data sandbox minimize customization and effort from both sides.

Buyers need to ensure that the PoC accurately reflects the potential of the technology and that it can be easily adopted by the business if it is decided to move forward.

5. Follow procurement best practices

Once the PoC is successful, typical procurement best practices should follow. These include but are not limited to:

  • Calculating Total Cost of Ownership (TCO)
  • Estimating ROI
  • Ensuring that vendor lock-in doesn’t take place

If you have other questions about B2B innovation procurement, feel free to reach out:

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Access Cem's 2 decades of B2B tech experience as a tech consultant, enterprise leader, startup entrepreneur & industry analyst. Leverage insights informing top Fortune 500 every month.
Cem Dilmegani
Principal Analyst
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Cem Dilmegani
Principal Analyst

Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.

Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.

Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.

He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.

Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.

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