Procurement as a Powerhouse for Public Innovation — Rikesh Shah

Fred Schonenberg
Hello, everyone, and welcome to the VentureFuel Visionaries podcast, where we introduce you to the innovators and builders creating the future of business. I'm your host, Fred Schonenberg, the founder of VentureFuel, where we help the world's best companies commercialize innovation through startup collaborations. I'm so excited today to have Rikesh Shah.

Rikesh is a renowned innovator and public sector changemaker, now leading the Innovation Procurement Empowerment Center at Connected Places Catapult. Rikesh's journey began at Transport for London, where he helped open city data and spearhead collaborations that have transformed everyday mobility for millions. 

Today, we'll learn how innovation procurement can transform the public sector, hear how to cut through the hype, work effectively with diverse partners, and create environments where the government becomes a driver of better citizen-focused solutions. Can't wait to dive in. Rikesh, welcome to the show.

Rikesh Shah
Thank you. Lovely to be here, Fred. Thank you for having me.

Fred Schonenberg
So it's our pleasure. And to start, maybe could you share a story of what first drew you into the public sector and innovation? Those are two things that don't always go hand in hand in everyone's mind.

Rikesh Shah
Yeah, sure. And I think the first thing is I've got a particular interest in transport innovation. And the transport story started probably when I was about four or five. My father worked for the London Underground, the Metro service, as a station manager for about 38 years. And every evening he would come home and there'd be a nice story for us to have a discussion on. And what I saw there is a first-hand view of what it means to serve the public. 

Then as I went in through university, I remember focusing on some of my modules around public policy and social policy. And that really drew me into how do you provide public service for all? How do you make sure that you're creating the right level of access, you're reducing inequalities, you're providing the right safety net? And that felt right for me as a career choice.

And then the innovation piece, I think it's just the way I am. I'm very curious. I'm… I wouldn't say I'm disruptive. I'm certainly challenging myself in a positive way. I don't always accept the status quo. So it's some fascinating anecdotes from school where everyone's going down a certain path and I'm still seen as a disruptor. But I was genuinely just curious, trying to say, is there a different way we could do this? So putting those three things together, I think it got me into the public sector or transport innovation.

Fred Schonenberg
I think one of the things right before we hit record that you mentioned excited you and you think maybe we both talked about is the crux of this conversation is really this idea of the entrepreneur mindset and how that works in the public sector. Can you take me through what was it about that that excited you? And maybe that'll guide the rest of this conversation.

Rikesh Shah
Yeah, I think a lot of it was, you know, particularly when I was at Transport for London and I thought about how much we had to deliver for the city, for London and beyond. And we were about a 12 billion pound a year business. A lot of our money went into the supply chain, probably about 65 percent. So a lot of it was through external suppliers or our partners. 

And then more recently, I've been thinking about how much the procurement budget is spent here. It's about 400 billion in the UK. It's about two trillion across the EU zone. And broadly, it's about 14% of GDP across the world. So it's a big amount. And I always found that with all the challenges that we have to solve. So in the case of London and Transport for London, there's challenges every day. 

Sadly, 92 people died as a result of a road collision on the road network in the city last year. Or we had 10,000 people die from respiratory diseases linked to bad air and a lot of it's from transport. Or we've got millions of journeys to move around our city. And you start thinking about those challenges and we're not shifting the needle enough. And when we're not shifting the needle enough and then I look at that 12 billion pounds a year spent, I start thinking about if we can't do it ourselves and we're constantly overprescribing to the market, why can't I say to the market, we're vulnerable. These are some of our challenges. And if you can solve them, there is a reward for you. 

That means that some things that you will try, they won't work, but you put the right safeguards in place. But out of those 20 things you might try, one or two will work. And if they work, they will pay back much more than what you've invested in the whole portfolio, particularly over a five, 10 year period. So I genuinely started to think like a venture builder within my organisation, which was completely different. You know, you want procurement out and you want success. You really design the outcomes and the solution, sorry, for the outcome.

I'm simply saying I want better outcomes. I want cheaper outcomes. I want quicker outcomes. I want safer outcomes. Who in the market can solve that? And suddenly we started to use our sort of market shaping powers to say to start up, scale up, launch open innovation functions and corporates come and work with us, use us as a testbed, scale with us and the rewards on the upside will be for both of us. 

Fred Schonenberg
I think it's really interesting when you first started, I thought that we were really going to focus on the entrepreneurship piece and you just said it. I mean, essentially the way you're looking at it is a very venture mindset, venture capital in that there's going to be you're going to place 10 bets. One is going to be so breakthrough that it makes up for the nine that didn't. Right. That's how the power laws, what they call it, venture capital. 

I think one thing that's really interesting is when I think of procurement, I don't think about that type of risk appetite. I almost think the opposite, that it's, hey, I want to make the safest choice with the most proof. So there's no risk. And by the way, I want to do it at the lowest price I can get it so that I don't want the bells and whistles. Save that for someone else. How do you sculpt a culture to do something as forward thinking is what you're describing?

Rikesh Shah
It's a great, great question. If I think about Transport for London, we had about 650 commercial managers in procurement. And if the organization is about 30,000 person organization directly, probably about 100,000 indirectly. So there's a lot of people. And you're absolutely right. I remember when we were doing a lot of this came out of my open day, and I think we'll talk about this later. But we started to release the data and new products were being developed on the back of it. 

And that gave me permission and some trust in the organization to say he's just not a maverick madman. He actually does care about the outcomes with the right safeguards. When we start to think about procurement as a way of working through innovation or the other way around, using innovation outcomes through procurement, what we found is quite a lot of my colleagues just found it difficult, frankly, and they thought we're going to increase the level of challenge in the courts. We'll get sued more. We will. You know, we've got to be really prescribed. You've got to be absolutely clear on what outcome you want. You want a table. It's got to weigh 25 kilos. Twenty three kilos isn't good enough. 

What I found from the market, because I started to ask the market, what do you think of working with us? And the market said this was about seven or 10 years ago now. They were saying you pay us on time. We trust you. You give us good briefs. We like you. Good social outcome. So everything scored really well. But one thing didn't score well is when it comes to innovation, you shut us down.

Fred Schonenberg
Yeah.

Rikesh Shah
So the market was saying we could give you more. But at the moment, you're not allowing us to give you more. And that's where I started to talk to the CPO at the time, the chief procurement officer, to say at the moment, the way we're doing business is like a conveyor belt. You pick up the next brief. You've got to get it done ASAP. So you focus on the lowest cost. You over prescribe. You de-risk it as well as you can. And then you buy something. And then if it works, it works. If it doesn't work, we'll do another brief.

What I said was we've got to get involved in the process two or three years before that brief's even due. And part of that is horizon scan. Is it a startup out there? Is there a scale up? Is there a large corporation that could pivot? How do we start making London a testbed for people to experiment? And that means that I will challenge and friendly challenge budgets that you've already allocated for big spending in the next three, four years, because if we can do it differently, that's saving us money and could get better customer outcomes. 

So we started really small. We started with lots of safe types of projects. But over time, you start seeing that cultural shift. And success was towards the end that CPO said, could you come up to my leadership meeting and just challenge us a bit more?

Fred Schonenberg
I love that. I want to dive into the open data in a moment, but I'm curious, the process you just described of changing the mindset, there's a lot there that I've seen large organizations try and not have the patience to see the win. And what I mean by that is I can see the persuasion of let's give it a shot and then you take a couple of safe areas and something comes back. And if that isn't like a needle mover, like the results of that, oftentimes people retrench back to the ways they've done things for 30 years.

How did you either break through that or preach the patience needed to see the results from innovation? And sometimes it's a lightning bolt, but oftentimes it takes a minute to percolate. I'm curious how that went down.

Rikesh Shah
Yeah, I think a lot of it was around leadership, and I was really fortunate that I had three or four leaders, a commissioner and our MDs who really supported this and they said they'll back me, which gave me time because the danger there is I then focus on the really safe things and produce a few short term wins. But as you say, all the time people say the business case isn't there. So I think that was the first thing. 

The second thing was we started genuinely really small and we started with a really small team. It was me on my day one when I set this function up. It was me and half a graduate, not even a full graduate. And we just said, let's sculpt this and see where we can take it. And then we started to beg and borrow resources across the business. And we look for a certain mindset. We look for people that are ready to be entrepreneurial, to try stuff. Then we started to look for the right problem areas where the conditions for innovation could work.

And also, have we got advocacy at a director level who would give us some budget, some seed funding and then some budgets to scale? And then we started to think about where the right challenge areas we could focus on? And frankly, the sexy ones or the exciting ones could have been connected autonomous vehicles, flying taxis and lots of other cool things. 

We started with roadworks because we knew roadworks are a big problem. It's costing London billions of pounds a year. And it's something that genuinely needs innovation. And through that, we ran a program. We used a new procurement procedure that was really tested in Europe called the Innovative Partnership Procedure, which allows you to do multistage activity. Rather than because the biggest frustration for startups is you do an R&D piece or you do a proof of concept and then the public authority says, thank you for that. Now we're going to put out a tender in three years time and some big company wins it. 

What we said is we're going to do the R&D and the scaling through one procurement procedure. And so as a result, we tested nine different solutions and roadworks, some of them didn't, but it wasn't comparing apples and apples. It was apples, pears, mangoes, bananas and any other fruits. So it's all different ideas. So the thing of valuing on cost has just disappeared. You're now valuing quality and outcomes. 

And then we took that process through and in the end of it, we procured through multimillion pound contracts to startups that we'd never even heard of before. And they were creating value. And that's the way we started working. And we didn't always exchange cash. Sometimes we exchanged land. Sometimes we exchanged data. Sometimes it was policy. So we started to just get more creative. So what have we got in our toolbox that we can exchange with and create mutual value and better outcomes for us? 

What was good then is people in the organisation were doing it themselves. You know, people would say to me, can you give me some air colour because I want to try this. And that's exactly the right culture we want to create. But it takes time to get there by actually proving that you're not maverick and you're actually adding value.

Fred Schonenberg
I think a couple of things there are incredible. One of the things when I first got involved in this, our original model was we represented startups. 2019, a very large corporation, I was in there showing them some startups we're excited about and they're like, have you ever thought about flipping your model and working for a large organisation? 

We have an innovation function and it's not succeeding. And I said, what do you mean it's not succeeding? They told me that they had run, I think the number is forty four pilots with startups. So this R&D function you're mentioning and zero had gone to a second program. They all were just let's test it. Great. It worked. Whatever. Like now we're going back to our original vendor and it sort of hit me between the eyes of like, well, wait a second. Why are you even doing that if you're not intent on scaling up to the second step?

And so we built a program with them that has become VentureFuel, around this idea of like it's the second stage to scale up that matters. I love that you built that in. I think that is incredible. The second piece I want to go back to is what you talked about a minute ago, which was the decision to open up transport data to the public. 

One of the first startups I ever saw when I started VentureFuel was actually a travel app that essentially could predict when the subways where we're going to go to which station at what time. And it essentially would recommend to people, hey, like there's a delay coming up. If you get off at the next stop, you can go to Dunkin' Donuts or Starbucks or whatever. That was their business model. And I was like, this is crazy. Where'd you get the data? They're like, oh, in London we have access to the data. And I remember thinking that was crazy and amazing.

And now you move forward, a lot more organizations are being forward thinking like that. But I'm curious, can you talk about that decision to open the data transport and this idea of letting the market create fantastic products?

Rikesh Shah
Yes, sure. And yeah, there were many of us involved in that, so I can't solely take credit. It was a wide approach. And I think, you know, what we saw was people were using our website because it's a statutory requirement to publish timetable data. So you have to make it available. So what some of the creative app developers were doing, they were scraping our data and they were doing it badly. So things were going wrong. And then my team would get a query to say, why are you putting out the wrong information to the public? 

So it started actually as a defensive thing, which is we're getting challenged all the time here that we're putting out the wrong data. And then we were building a new website. We made it cloud first, and that was very unusual. I'm talking about the early 2010s there. So it's very unusual. And we started to put API plugins and all sorts. And we got the data out there. But I think one thing that my team did incredibly well is form partnerships with the developer community. So we had 17,000 developers who accessed our data. And that could be anyone from the large, big players like Google Maps and Apple Maps to one person organizations. 

What we started to do is we started to provide timetable data, also predictions of what time the bus will arrive, what time will the subway arrive. And then we started to do traffic information around planned works, unplanned works. If we hear about them, we put it up on the system. It just became a completely new way to work with the market. We were giving them data. Afterwards, they were giving us data back. 

So we're making better operational decisions. And it created a culture that we could, sometimes I would set a challenge to the market. And I'll give you one example. It was with accessibility and encouraging people to use our tube network. But quite often people would say the information is not good enough. So I don't know whether I'll be stranded somewhere. I gave it to an app developer called Moveit all those years back, an Israeli app company. And they got a product feature ready in two days. 

Now, if that was TFL, despite us being relatively quick, two days, we wouldn't have got a meeting in the diary, let alone do product features. So the value that we created was incredible. But most importantly, it allowed us to engage with the customer through their channel of choice. And that meant that if you want your transport information through X or you want it through Google or you want it through busway, bus map, whatever, you can have it. Because what we care about is using sustainable forms of transport to move around the city.

And there's a direct correlation between good information and using transport services because you feel more satisfied. And it's natural. You would if you got the right information at the right time. You are more likely to use it. And 42% of Londoners use an app powered by TFL data. So it's incredible. We do 31 million trips every day in the city of London. You can just see the magnitude of that decision that we made and the value it's created, not just in London, but I think other cities across the world now are following the same example.

Fred Schonenberg
Absolutely. So let me ask you this from your experience with projects like the Westminster or UK commercial innovation hubs. Are there any key lessons for enabling scalable procurement led innovation? I think that there's probably a lot of people listening that haven't thought that they could do this from the procurement seat. And I'm curious for them as they start to think about pushing and maybe advocating for this. Are there any lessons learned that come to mind for you?

Rikesh Shah
Yeah, I think the first thing to think about is value. This is an innovation theater. It's about what value do you want to create? What outcomes do you want? So that's number one. I think number two is you've got to create the conditions for success at the beginning. And by that, I mean, have you got the budget downstream to scale? Who are all the naysayers in your organization that you need to get inside at the beginning and not halfway through a program? 

Have you got a very clearly defined problem statement that the market can respond to? So it's not too high level, but not too specific. Have you got an opportunity to experiment and try some stuff with the right safeguards? And what do those different stages look like? And I think if you treat this as an agile program, which might fail on day one, and that's fine, because you move on to the next thing, or something that may realize benefits in three years time. But you treat it as a business thing rather than simply we gave it a go and it didn't work. 

It's something that you said earlier resonated. And I think there's too much innovation theater where cutting the ribbon at the beginning is seen as the priority, which is why we've got a press release. We had five million people apply. That's great. But what happened at the end? And if you look back and you said, how much do you spend on it and what returns are being created? It's up to the innovation team to create that value by telling the organization that we're here to help. We use our procurement budgets to shape markets, but ultimately we want to provide citizen value. And that could be whether it's in transport, whether it's in health or any other industry.

Fred Schonenberg
I love it. I love the idea that using the procurement budget to shape markets is such a powerful thought and sentiment. And yeah, I used to call it the startup petting zoo. That would be like, OK, we've got a startup innovation initiative. Everybody comes in and we're going to do a demo day and we're going to walk around and we're going to pet all the startups on the head. And then we're going to go back and do our day job the same way we've been doing it for 30 years. 

And the startups are going to start emailing us saying, hey, is there anything to do here? I think a lot of organizations are realizing that's a different way to do it. And I think what you said early on is that the key is to start with problems worth solving and put it out to the market and say, hey, this is what we're trying to accomplish. We're open to new ways and better ways to do it. I do want to dig into the part you said there at the end, which is like the downstream of this.

I see that as one of the great challenges in this work is you usually have a forward thinking innovation or innovative person within a function that is advocating for this. But to get it done at scale, you often need to go back into the core business unit or downstream. And often those folks are not incentivized. And this is harder, takes more time up front. 

How do you how do you kind of make sure that that path is clear on the back end and you don't end up with this situation that I've had with a client where we have eight to 10 groundbreaking solutions that are just stuck at the real starting gate because the business units are working on their next quarter results? And this is a distraction.

Rikesh Shah
I think it's a great, great question. I think it is the toughest part of the challenge, because if we think about some of the challenges, sometimes we think just setting up an innovation team is difficult or just doing procurement is difficult. I found that scaling is the hardest part. And I think there's two or three things that I think I learned with experience. 

I think going back to my earlier point on internal alignment, because all it takes, the public sector never has one buyer. Even if I had a large budget, I'd have to delegate it. You know, it's devolved authority. So you're suddenly talking to a federal authority. You talk to eight other people. So should we buy this? And all it takes is for one of them to say, I don't like it because of the cyber security risk or there's going to be a HR business change process or whatever it is.

And I think that way, that's why I think it's really important at the beginning. You get all those people around the table who are the key players and say, are we up for solving this challenge? If we're up for solving this challenge, can we please take our badges off and say we will solve it? And who's a service owner that's going to ultimately inherit this? It's you personally. Are you up for it? Because if you're not, if this problem is not worth solving for you, we'll move on to another area. Now, that makes the innovation team really nervous because then you're thinking, I'm not going to have a pipeline. I'm just reducing my pipeline. 

But the reality is, you've got to create those conditions for success up front. That means if there's enough skin in the game for the service owner who genuinely cares, they will find a way. And then you create a coalition internally to say, we've got to solve this. So if there is a person that doesn't like it, you convince them that it's the right thing to do. But I was always of the mindset, if the conditions for success weren't designed at the beginning, we're not scaling. And that means that we will stop something. And we'd have that brief, a pro forma. My team would have a brief and say, all of this looks really good from an innovation point of view. But we won't scale it. So we're not working on it until the organization's ready.

And that was tough. I still remember once we did a program where one particular person wrote to me and said, Rikesh, are you trying to get me out of a job? You're bringing something new in. I've been doing it for the last 30 years. I know what I'm doing. I don't appreciate you here bringing a new, I won't go into the details, but you bring a new solution that could save the organization from your perspective millions of pounds. But you're doing me out of a job and I know what I'm doing. And I still remember that battle. And it's, you know, it's a tough conversation internally.

So why are you doing it and the value that's added? Because people take it personally and they're not incentivized, as you say. That person's not incentivized to bring in the startup. So why should they change? And as a result, you've got to pick the right programs.

Fred Schonenberg
Yeah, it's very interesting because innovation can be such a job creator. But oftentimes, you know, there are people that are excited by innovation and choose that and they can deal with a certain amount of ambiguity and they like new solutions. And oftentimes they don't realize that the vast majority of people don't like change and have figured out how to do the thing they're supposed to do and get to go on vacation and get done at a certain hour. Every day. 

And like they're like, please don't mess with my world. Like this it doesn't even need to be the job destruction. It's just a new thing to learn. And I think that it's very interesting to watch, you know, in manufacturing or some of the big CPG companies we work with. They call it not invented here syndrome. I've been working on this for 20 years. And like I know how to do it. It's working fine. Why are you going to change the chessboard? It's a very interesting phenomenon.

Rikesh Shah
And I completely agree with that. And one thing I would like to say is risky is having a champion from the service owner side. So quite often I'd see people into my team. That's a trusted resource that's working closely with the service of the director and keeping them abreast of things. So there's no bias. This is a local person that's acting as a champion. And that works quite well. So I think it's one of those sorts of small hacks that you can find within your organization that's going to give it a chance of success. And again, it's been entrepreneurial. Essentially, you're trying to create value in a new way that people sometimes are against.

Fred Schonenberg
Yeah, I think it's great. We always have that with two personas that we often do when we're mapping, working with a client, right? Who are the blockers and who are the champions? And you want as many champions as you can find. And like you have to acknowledge the blockers and their hesitations are real and maybe prevalent. So what is it that they want to block? So I'd love to get you out of here on this. Is there one principle or mindset shift you wish every public sector leader would adopt to enable better innovation through procurement? Does anything come to mind?

Rikesh Shah
I think the term I would use is the art of the possible. It's like if you were to just think slightly differently, what could you achieve that you want to achieve? Because ultimately, we're there for better service delivery, creating taxpayer value. We're doing this much but if you get most professionals that I've worked with in the public sector, they care deeply about their region, their city, and the people that are serving. You know, they do care. 

I think there's an incredible sort of stereotype of a public sector official, which is that they're there for the pension, they're there to do an easy job and then disappear. That's not what I've seen. I've seen completely the opposite. And as a result, how do we sort of create that mindset of technology that is now changing at such a fast rate? 

We've got diverse suppliers, we've got brilliant organizations like yourselves that can bridge that gap between the public and private sector. What could the art of the possible be if we're delivering this much, but we want to deliver that much, how could we do it differently? That's the question I just asked them to ask themselves. And so could they help me in a new way?

Fred Schonenberg
Well, Rikesh, thank you, first off, for all that you're doing to spark change in the world and secondly, for taking the time to talk with us today. Is there anywhere you would like to direct people to learn more about yourself, your work? I would love our listeners if they want to double click into your world. 

Rikesh Shah
It's really kind. Thanks, Fred. Thank you for having me. I think it's two or three ways. I think one thing is I'm currently working on a government funded program in the UK called the Innovation Procurement Empowerment Center that you mentioned, please take a look on their website, IPEC.org.uk.

I'm also now working as an independent, so I'm advising cities across the world as well as in the industry and including startups on how we make transportation strategy, transport innovation work. So if anyone wants to talk to me further to reach out to me on LinkedIn.

Fred Schonenberg
Awesome. Well, thank you so much. We really appreciate your time.

Rikesh Shah
Brilliant. Thanks, Fred. Thank you.