Implementation Framework for Innovation Procurement

Guidelines for industrial companies to adopt advanced technology solutions from Startups through Open Innovation

Photo by Clayton Cardinalli on Unsplash

In the rapidly evolving landscape of industrial technology, staying ahead of the curve is not just an ambition — it’s a necessity. Digital Transformation is altering every facet of our lives, including the way industries operate and innovate. Yet, despite the promising horizons offered by advanced technologies, some sectors are lagging behind. The age-old methodologies and operational paradigms, particularly in procurement, have become barriers rather than enablers of growth. For industries such as mining, where digital maturity is far from comparable to sectors like Automotive & Chemicals, the gap is widening. But why is this happening, and how can businesses break free from traditional constraints to embrace the innovative solutions that startups have to offer? The answer lies in adopting a new value-based approach to procurement that aligns with the constantly evolving nature of technology innovations.

A BCG report indicates the mining industry is 30%-40% less digitally mature than comparable industries such as Automotive & Chemicals. The laggard is common among other Industries and it is due to barriers such as workforce skills to adopt advanced tech solutions, unique characteristics of the manufacturing environment, the use of traditional waterfall models to deploy technology solutions, and conventional operational paradigms.

The Challenges of Conventional Procurement

Traditional procurement methods may work well for standardized products but fall short in the era of rapid technological innovation. This mismatch results in up to 50% erosion of potential business value. Conventional procurement fails because of the following

1. Lack of Agility: Conventional procurement often follows rigid rules and timelines. In the fast-paced world of technology, this lack of agility can lead to missed opportunities.
2. Difficulty in Assessing ROI: Innovative tech solutions are in a constant state of evolution. Assessing the return on investment accurately becomes challenging without concrete evidence.
3. Unsuitability for Unique/Innovative Solutions: Traditional methods focus on standardized products, while innovative solutions require a different approach, one that recognizes their unique value proposition and does not have significant evidence to accurately estimate returns

Value-Based Procurement

In order to procure innovative solutions, industrial companies need to adopt a value-based approach to procurement. This approach shall balance the risks of adopting new innovative solutions by taking a two-step approach, where a Pilot established a proof of value for the business to establish a reasonable understanding of the value/benefits and then build on top of that for a case of scale-up deployment(s). You can read more about Value-based procurement here.

This direct procurement of innovative solutions from startups needs an Innovation Procurement Policy that can have the following key elements

1. Business Case: Quantifying & qualifying the impact & benefits of the product/solution in terms of KPIs and business value estimations and eliminating need for comparative analysis of proposals from other traditional vendors & suppliers
2. Evaluation Criteria: Criteria focusing on the uniqueness of their solutions, their track record (if the Industrial company is not an early adopter), technical capabilities & domain expertise, and their ability to address the specific requirements of the Industrial Company. Evaluation criteria are specific to Companies & always need to be aligned with the company's strategic needs. Forge Venture Rubric (FVR) is a tool that can help an organization assess the potential of a startup and the evaluation criteria can be derived from FVR to match the company’s requirements.
3. Flexible Payment Terms: Milestone-based payment terms that ensure direct costs of the startups (fixed) are covered upon completion of each agreed milestone and variable terms by linking payments to the successful completion of predefined KPIs or outcomes; This payment structure aligns the financial disbursements with the progress and achievements of the project, incentivizing the Startup to meet milestones and deliver quality results
4. Validation Process: The achievement of each milestone should be validated and approved by the Industrial Company to ensure that the agreed-upon deliverables or project stage has been successfully completed. This validation process may involve the submission of reports, documentation, or demonstrations by the Startup to demonstrate the completion of the milestone

The above captures broad aspects of the policy. This has to be contextualized for independent Industrial or Public Sector company needs. Following are the specifics of how this framework has been adopted and implemented

Govt Partner: At Forge, we have collaborated with Ministry of Housing and Urban Affairs (MOHUA) to formulate & implement a value based procurement for Indian Cities and towns through SmartProcure — Guidelines for City officials to procure innovative solutions directly from Startups. The SmartProcure policy & the City Innovation Exchange (CiX) digital platform enables cities & towns to directly procure innovative & advanced technological solutions from Startups, enabling accelerated transformation of the urban public sector.

Industry Partner (Corporate): At Vedanta, this is integrated in the selection process of the startups for Vedanta Spark — a global corporate accelerator & ventures program spearheaded by Forge to enables startups to deploy their innovative solutions across the business units of Vedanta. Business case document is one of the key artefacts the BU SPOCs & Startups must present before issuance of Pilot/Commercial orders.

Industry Partner (MSMEs):For SMEs with limited resources, it is crucial to make the right decision in prioritizing use cases, and startups (transformation partners) keeping in mind the business value & alignment of the company's goals. We use the following simple 2x2 matrix below helps the SMEs promoters/top executives to decide on a particular startup engagement case based on the impact in terms of ROI/business value from the engagement and the alignment with the company goals (Critical — Short Term & Transformative — Long Term). Note 1–4 indicates the order of priority

2x2 Decision matrix based on ROI & Goals

Innovation Expert Committee

To foster the culture of innovation and successfully implement the procurement policy, it is vital that the company appoints an Innovation Expert Committee (IEC) that comprises individuals from the top management, operations, finance, procurement/purchase, and supply chain along with external tech & startup experts that align with the companies strategy & long term goals

IEC Composition

1. Chair: IEC should be chaired by the Director, CEO, or equivalent of the industrial company
2. Transformation Champion: Key members from various company departments, including heads of Digital Transformation, Manufacturing, Quality, and General Management
3. Startup/Industry Expert: An external member who shall bring in the necessary domain expertise to evaluate the impact of these startup innovations. Top Executives at Forge play this role and bring in the necessary expertise to evaluate the startup innovation for our Industry Partners
4. Tech Expert: Professional (External member) with strong technology & sector expertise in Industrial Digital transformation

The Chair appoints a Transformation Champion to be responsible for driving innovation projects within the Industrial Company. Internal members of the IEC shall play this role either at project level or at startup level.

Responsibilities of the IEC

1. Execution of Innovation Procurement Policy: Ensuring proper execution and engagement with startups aligning with Company’s goals
2. Use-Case Curation: Collaborating with various departments, the IEC identifies and curates specific use cases that require innovative solutions. The transformation champion shall play a key role in developing the business case.
3. Startup Selection: The IEC is responsible for identifying the right startups to partner with. This is a comprehensive process involving the evaluation of proposals, and assessing the startups based on various factors such as their product/technology capabilities, track record, and alignment with the company’s long-term objectives
4. Pilot Implementation: The IEC oversees this phase, ensuring that the innovative solutions are integrated seamlessly within existing systems. They provide necessary resources, handle operational challenges, set timelines, and establish clear communication channels to facilitate this critical stage. The transformation champion shall play the role of the Project manager.
5. Solution Validation: Post-implementation, the IEC shall analyze the solution’s effectiveness against the defined objectives and KPIs. Gather feedback from all relevant stakeholders, including end-users, to assess the usability and business value accrued.
6. Collaboration and Communication: Fostering collaboration and open communication among the stakeholders and the startups. Transformation Champion shall be the single point of contact for each startup engagement
7. Reporting: Prepare detailed monthly or quarterly reports, capturing progress, challenges, key learnings, and next steps. Monthly Cadence meeting to measure the progress, understand challenges & implement necessary steps to maximise the value from the startup engagements.

By outlining these responsibilities in a transparent and systematic manner, the industrial company can ensure that the process of innovation procurement is well-structured, focused, and effective. This structured approach fosters confidence among stakeholders and maximizes the potential success of integrating new and disruptive solutions

Why it Matters?

Innovation procurement is about more than just acquiring new technology. It’s about changing how companies approach growth, efficiency, and competition. Through innovation procurement, companies can access cutting-edge technologies, opening new opportunities for growth and transformation through Process Innovation and/or new produce development. It can create a competitive edge by early adoption of innovative solutions that can position the company as a leader in its industry, differentiating it from competitors. They unlock new opportunities, catalyze growth, and pave the way for a future where innovation is not a sporadic occurrence but an integral part of the industrial fabric.

By embedding innovation at the core of procurement strategy, industrial companies are not merely adapting to change; they are becoming agents of change themselves. This is not just about the incorporation of new technologies but a journey to holistic transformation that redefines processes, culture, and values.

At Forge Innovation & Ventures, we enable large Industrial Corporates to partner with Startups in strategic innovation and investment initiatives such as joint technology and product development, commercial partnerships, equity investments, and strategic acquisitions through Open Industrial Innovation.

We run open innovation & accelerator programs for our clients as managed services and implement through a structured 3-phased process — Discover, Accelerate, and Integrate. During the Accelerate Phase, we help them build a case for the pilot, estimate the business value/ROI, support in implementing the pilot, assess the pilot implementation, help build the case for large-scale procurement, and support in the implementation of Innovation Procurement Policy to fast track the adoption of Startup Innovation for Growth & Transformation.

To explore partnerships with Forge and our portfolio of industrial deep/core-tech startups please email us at ventures@forgeforward.in.