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Global macro & geopolitics from a small economy perspective

Innovation in the public sector

David Skilling
22 June 2011

Over the past few months, I have been thinking a lot about policy innovation. So this edition of The Observer offers some reflections on incentives with respect to innovation in the public sector.

Innovation matters
I have argued elsewhere that governments need to build strategic capacity to develop the next generation of policy (refer a recent opinion piece published in the Singapore Straits Times, available here). I noted that poor outcomes are often generated not because governments do the wrong thing, as much as they do what was the right thing for too long. This is a particular risk when the external environment is changing rapidly, as I think is likely over the coming years. Innovation in this context means changing policy in such a way that it is appropriate for the emerging environment so that it will deliver the type of outcomes that are desired. This may be incremental innovation, with policies being adapted slightly for a new context, or in some cases more disruptive innovation where an established policy approach needs to be fundamentally reviewed and changed.

Building the strategic capacity to innovate is likely to be an important source of national competitive advantage. To do this, government agencies need to create the space to look ahead, ask questions about the robustness of the current approach, and develop new policy approaches. Building this capacity will require changes in the ways that many government agencies behave.

But the current incentives may not support innovation
One of the big ideas in public sector management over the past couple of decades has been the application of private sector contracting and management approaches, in an attempt to improve efficiency and performance. Although there is now a general sense that this focus on contracting and targets may have been pushed too far, an increased focus on performance remains. And understandably so – performance in government matters more than ever.

But it is important to define performance appropriately. My observation of organisations that have sharp financial and reputational (e.g. career progression) incentives is that they often perform very well in terms of efficiency, delivery, and incremental innovation, but sometimes at the expense of the risk-taking and challenging that can lead to break-through ideas and innovation. Innovation is difficult to contract for, may not look efficient in the short term, and can involve challenging orthodoxies – which can create the type of noise that is not always conducive to rapid promotion (to paraphrase Keynes, in such environments “it is better for reputation to fail conventionally than to succeed unconventionally”). This is problematic in the context of an increased importance of innovation within governments. Safety nets are sometimes required to encourage a level of risk-taking.

So what to do?
Providing space in which people can innovate, experiment, and challenge, in order to develop the next generation of policy ideas is vitally important for creating public value. But this can be difficult when most if not all public agencies have operational business to take care of – often in very pressured and demanding environments, with low public tolerance for failure. And organisations where everything is being constantly challenged are unlikely to perform well. But creating parts of agencies that develop real innovative capacity, and creating organisational norms in which people are expected to be thinking about new approaches, is feasible and important.

Steven Johnson, in ‘Where Good Ideas Come From’ [a 2010 book on innovation that I recommend very highly] notes the importance of openness, networks, and intrinsic motivation in the ideas development process. Similarly I think that government agencies need to create more space for policy innovation in which existing approaches can be constructively challenged and new approaches suggested. The findings of the review of the IMF’s performance before and during the recent financial crisis – which identified groupthink as a major issue – also point in this direction. As a starting point, creating an open source culture in policy agencies in which working relationships are developed with universities, think-tanks, and the like; creating ‘B team’ or skunkworks teams within agencies with a mandate to develop new ideas; and having agency leadership demonstrate interest in the asking of hard questions, may be ways of beginning to build this organisational capacity in a non-disruptive manner.