Value Generation Through Public Procurement of Innovative Earth Observation Applications: Service-Dominant Logic Perspective

Abstract

Public space investments provide a blueprint for public procurement of innovation (PPI). PPI can take place at any level of governance – at the regional, national, or supranational level, or in combinations thereof in multi-level governance. By participating in the European Space Agency’s (ESA) mandatory and optional programs, ESA member states delegate the procurement function to the supranational level. The paper investigates, by applying service-dominant logic perspective, whether such approach provides economic agents with an improved basis for value creation and supports the emergence and diffusion of innovations. Service-dominant logic enables to understand how economic value is co-created in business-to-business markets. Value is always co-created in interactions among suppliers, customers, and other actors through the integration of resources and application of competences. Value co-creation processes are influenced by endogenously formed and re-formed institutions. A qualitative research was conducted to understand the role of the supranational-level procurement of new technologies in institutional change in evolving service ecosystems, such as Earth Observation downstream markets. The qualitative data were collected through semi-structured interviews with project managers responsible for ESA projects in case companies. The findings show that multi-level change in the institutional arrangement steering the service ecosystem was brought about by a decision by policymakers to publicly procure the prototypes of the innovative applications and to implement the procurement process at the supranational level, through ESA programs, instead of using national-level tendering. Through this decision, a triad of interconnected actors – ESA, suppliers and end-users – emerges. The immediate impact of ESA’s involvement in the service ecosystem was marked by more intense interaction in the relationships between the Earth Observation companies and (potential) end-users. The interaction was supportive to value co-creation and contributed to the emergence of new ideas in the ecosystem. The Earth Observation companies also embraced certain normative expectations about the role of ESA in the ecosystem and attributed meanings to the actions of ESA. This laid a foundation to new institutions that guided the behavior of the suppliers and ignited institutional work towards stable institutional arrangements in the service ecosystem. The study offers public policy implications, particularly for emerging European space nations. Under certain initial conditions in a country, launching the cooperation with ESA may have a strong effect on the dynamics of institutional arrangements that coordinate value co-creation. However, in case of institutional stability, policymakers need to re-consider the benefits and costs of continuing with public procurement at the supranational level.