Promoting supply market development by the dynamic capabilities of innovative public procurement

Abstract

Dynamic capabilities play an essential role in innovative public procurement. Innovative procurement activities may create an impact on supply markets by considering the needs of small- and medium-sized enterprises and other potential supplier firms. This study aims to examine how dynamic capabilities support innovative public procurement, aiming at positive supply market impacts. We empirically test our hypotheses using survey data collected from 197 public buyers in Finland. The results show that public procurement has a significant impact on the supply market by actively fostering innovation. This finding is novel, as such a phenomenon has only been observed empirically in the private sector literature. We found that dynamic capabilities – specifically seizing capabilities – have an impact on supply markets and that procurement participation in innovation is strengthened by seizing and transforming capabilities. We also show that sensing capabilities are antecedents of seizing and transforming capabilities, implying that public procurement needs to have these capabilities in order to innovate and develop the supply market. As a practical implication, we conclude that if public organizations aim for positive impacts on supply markets, they could invest in seizing capabilities in particular and engage in procurement participation in innovation.