copy the linklink copied!1. Understanding innovation in cities

Innovation is high on the agenda of national and local governments. This chapter will first conduct a revision of literature to discuss why governments innovate and why this is relevant for cities. In addition, the chapter will move to define public sector innovation and innovation capacity as the two central concepts in this report. Finally, the chapter will propose an analytical framework for innovation capacity in cities and offer a clustering of cities that provide an empirical approach of how cities innovate.

copy the linklink copied!Innovation and innovation capacity

In recent history, there has been a marked interest in understanding how to transform the public sector to deliver better services. In the 1980s through the 1990s, the New Public Management movement introduced the idea that governments apply a performance management approach to public administration to improve efficiency. Since then, efficiency and innovation efforts have extended from core public administrative functions to the delivery of public services. Governments have introduced new ways of providing public services (e.g. co-production) and creating new services and functions (e.g. e-government). Although research on public sector innovation has grown in recent decades, the bulk of literature has focused on innovation in the private sector (Hartley, 2005[1]; Moore, 2005[2]). Theories, data and tools to analyse public sector innovation through empirical analysis are still lacking. Nevertheless, in general, the public sector is now regarded as being more dynamic and innovative than before (Setnikar Cankar and Petkovsek, 2013[3]).

There has been a wide debate on why governments focus on innovation as an enabler (Savitz, 2011[4]; Muzyka and Hodgson, 2018[5]; Kahin and Hill, 2010[6]) and as a producer (Walker, 2006[7]; De Vries, Tummers and Bekkers, 2016[8]; Sørensen and Torfing, 2011[9]; OECD, 2017[10]; OECD, 2015[11]; Makin, 2017[12]). As an enabler, governments adopt innovation policies designed to spur innovative activity in every sector of the economy. Thus, governments enhance innovation in a wide variety of areas, for instance, by investing in education (skills and lifelong learning), promoting social well-being (i.e. social services for the elderly, homeless, youth, etc.), encouraging scientific research and development, developing infrastructure (i.e. transport-oriented developments), promoting climate change adaptation, eliminating regulatory barriers on business investments, and reinforcing well-functioning markets. As a producer, government seeks to stir up its innovation capacity. The background is that governments face a multiplicity of intersecting challenges that strain public resources and demand innovative new solutions. Key among these global challenges are the emergence of fiscal austerity crises, demographic shifts and the threat of climate change. Austerity measures implemented by many countries in the wake of the 2008 financial crisis created turmoil for rigid bureaucracies that relied upon traditional methods of working. Budgetary and staffing reductions, without simultaneous new working methods, resulted in less efficient delivery of public services, particularly in governments lacking collaboration between their various departments.

What is innovation?

Innovation is a complex concept to define. For the purposes of this report “[a]n innovation is a new or improved product or process (or combination thereof) that differs significantly from the unit’s previous products or processes and that has been made available to potential users (products) or brought to use by the unit (process)” (OECD/Eurostat, 2018, p. 20[13]).

Presently, innovation is too often narrowly and mistakenly associated with technological or digital-driven inputs and solutions. However, innovation is as much about culture, leadership, finance, governance and people as it is about technology and data. Innovation activities also vary greatly in their nature among firms and sectors. For instance, whereas innovation in the private sector relies on activities to ensure competitiveness in new markets, innovation in the public sector seeks to create value and impact by responding to public interest, addressing citizens’ basic needs and enhancing efficiency of public services (Hartley, 2005[1]). The goal of this report is to understand how municipalities can enhance their ability to intentionally and consistently generate “innovative solutions” and ensure they have the necessary resources to deliver them. The main purpose is not to define or discuss public sector innovation per se; however, experts have provided some categorisations and classifications that are helpful in understanding innovation in its many forms and the types of inputs especially in the public sector, that can enhance innovation. Box 1.1 provides some examples of typologies, categories and classifications developed by different organisations and researchers. They are presented here to show that innovation in the public sector can be understood and analysed in different ways and from different perspectives.

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Box 1.1. Examples of typologies, categories and classifications of innovation across the literature

Defining innovation through typologies

Across the literature, significant efforts have been made to define innovation mostly through typologies. One of the most commonly used typologies is the one proposed in the Oslo Manual of Innovation that contains four types of innovation:

1. Product innovations – the introduction of a new or significantly improved service or product.
2. Process innovations – the implementation of a new or significantly improved production or delivery method.
3. Marketing innovations – the implementation of a new marketing method.
4. Organisational innovations – the implementation of a new organisational method related to a business practice, workplace organisation or external relations (OECD/Eurostat, 2005[14]).

Innovation classifications: According to service delivery, organisational components and ancillary circumstances

Service delivery innovations may be new services or service delivery methods introduced to meet the needs of citizens or facilitate adaptation to new circumstances.
Organisational innovations involve changing relationships among members and reforming rules, procedures and structures, communication and exchange among members as well as between the environment and organisational members (Walker, 2006[7]).
Ancillary innovations depend on factors outside the organisation’s control. This refers to the city administration working across boundaries with other service providers, users or other public agencies and therefore their successful implementation relies largely on others.

Innovation arranged by three broad categories: Core, transformational, adjacent approaches

Core innovation – digitisation or optimisation of existing traditional public services or products.
Transformational innovation – creates completely new solutions and whole new operating models to face key problems in an entirely new way.
Adjacent innovation – involves using the organisation’s core strengths and capabilities to create new products or services. Businesses and citizens participate in the process.

Sources: Walker, R.M. (2006[7]), “Innovation type and diffusion: an empirical analysis of local government”, https://onlinelibrary.wiley.com/doi/epdf/10.1111/j.1467-9299.2006.00004.x; Byrne, A. et al. (2018[15]), Transforming the Public Sector: Delivering Successful Public Sector Transformation through Innovation, https://www2.deloitte.com/content/dam/Deloitte/ie/Documents/PublicSector/GovLab_Transforming%20the%20public%20sector_spreads.pdf.

What is public sector innovation?

Cities are reinventing themselves and their systems to adapt and respond to their evolving contexts. Across the world, municipalities develop policies, programmes and services to address changes in demographic, cultural, social, economic and environmental needs. For this reason, city governments are ushering in a new era of local public sector innovation to respond to these challenges and opportunities. Successful public sector innovation requires the creation of an ecosystem that promotes experimentation and flexibility and takes into account the social needs of citizens.

This report defines public sector innovation, based on the OECD Observatory of Public Sector Innovation (OPSI) and the Oslo Manual of Innovation, as any service or product that has the following characteristics:

novelty, as innovations introduce new approaches in the context where they are adopted
implementation, as innovations must be put into practice
impact, as innovations aim at better public results (OECD, 2015[11]; OECD/Eurostat, 2005[14]).

OPSI suggests three factors that may explain public sector innovation: 1) capability to innovate, determined by resources, skills, knowledge and space to innovate; 2) motivation to innovate, shaped by incentives, values, leadership and behaviour; and 3) opportunity to innovate, enabling conditions that depend on financial autonomy, creativity and collaboration (OECD, 2017[10]).

In March 2019, the OECD along with 60 mayors’ offices around the world developed and endorsed the OECD Champion Mayors Initiative’s Athens Road Map on Innovation for Inclusive Growth in Cities1 (see Annex B). Exploring public sector, social and technological innovation, the Athens Road Map charts the way forward for local governments to structure these innovations to deliver better well-being outcomes for residents. The Athens Road Map shows that local governments can promote public sector innovation in a wide range of government activities. More importantly, it shows that public sector innovation is not just about adopting technological changes, but the adoption of new processes, practices and approaches to enhance the potential of the public administration to deliver goods and services tailored to citizens’ needs.

What is innovation capacity?

As mentioned previously, the intention of this report to is better understand how and why cities innovate, what helps empower them to innovate successfully, and how they can evaluate their capacity to innovate.

Cities use different approaches and definitions of innovation capacity. Figure 1.1 shows some definitions and approaches reported by respondents of the OECD/Bloomberg Survey on Innovation Capacity in Cities 2018. These definitions reveal that there is no widely shared definition of innovation across cities.

Figure 1.1. Select city definitions of innovation capacity

In order to facilitate comparisons across cities with different context and approaches, for this report, a summary definition of innovation capacity was created. Innovation capacity is defined as the human, financial and institutional resources and skills that can catalyse, implement and advance cutting-edge, collaborative and bottom-up problem solving. Institutional resources may include capacity in areas such as data analytics, resident engagement, human-centred design, and inter-sectoral and inter-department collaboration.

There are also a large number of terms that cities associate with innovation (Figure 1.2). According to the results of the OECD/Bloomberg Survey on Innovation Capacity in Cities, the most common ones are experimentation, human-centred design, data analytics and big-picture thinking.

copy the linklink copied!Why do governments focus on innovation?

Why do governments innovate?

Innovation offers a way for cities to face growing budgetary pressures and satisfy new societal demands. Meeting economic and social needs in the face of capacity shortages for public service delivery – such as the lack of professional and experienced staff, financial limitations and the volume and complexity of legislation (Lues, 2016[16]) – will require that cities foster innovation to improve the efficiency and effectiveness of the administration of public resources (Rivera León, Simmonds and Roman, 2012[17]).

Figure 1.2. Most common terms associated with innovation in cities

Research has found three main drivers of public sector innovation: 1) political ambition (election mandates, pressure by politicians, leadership changes); 2) public demand (citizens demand better and more public services at lower costs); and 3) tightening resources (budget reductions or inadequate funding sources) (Rivera León, Simmonds and Roman, 2012[17]). Other drivers include social and cultural changes, which are normally linked to different visions of socio-economic development. In addition to these drivers, increasingly, the impacts of global megatrends will be felt in cities, and they will have to be innovative to address them. These include: digitalisation, automation and other technological changes; demographic changes (i.e. urbanisation, ageing and migration); and climate change and resource scarcity (OECD, 2019[18]). Cities are associated with heavy resource dependencies and challenges of resource depletion as well as growing socio-economic disparity (Dixon et al., 2018[19]). Innovation may help cities adapt to changing circumstances, for instance the need to promote green growth to face climate change; or adapt to the changing needs of citizens, particularly those with ageing populations or high levels of migration. In this context, cities have to build their innovation capacity, internally within the local public administration, as innovation is a key driver of public services reform and high-impact policy making.

Innovation can create the conditions for enhancing competitiveness and productivity, particularly when coupled with the range of responsibilities and influence of the public sector. Therefore public sector innovation has the potential to boost public value and citizen well-being (Evans Agolla, 2012[20]).

The financial crisis of 2008 had a strong impact on people’s lives and livelihoods, and progress in addressing well-being disparities has been slow (OECD, 2011[21]). This, coupled with the growing consensus that the disconnect between economic growth and social welfare has increased inequality, have prompted governments to react. As a result, governments are promoting inclusive growth to improve living standards and share the benefits of growth more evenly across society in order to create a virtuous and sustainable future. Consequently, cities are exploring innovative solutions to achieve goals regarding poverty reduction, public health, education access, gender equality, public service delivery and environmental protection, among others. These efforts aim to impact residents’ lives.

Figure 1.3. Drivers of innovation in cities

The Athens Road Map on Innovation for Inclusive Growth in Cities (see Annex B) offers some key components of local public sector management, such as city governance, financial mechanisms, public procurement and civic engagement, that can be organised to increase productivity, ensure the use of the right and most effective resources, and enhance public value. To achieve more inclusive growth, the Athens Road Map emphasises the need to respond to the interest of local residents, seek openness and transparency of government, assess trade-offs and risks, and engage citizens to avoid creating greater divides and unsustainable outcomes. For instance, the move to use digital technologies to provide public services may be a way of increasing productivity and reducing costs for the public sector, but certain communities may not have the skills and access to technology to benefit from these improvements. Thus, the OECD recommends that governments have a range of risk management and governance policies in place to mitigate unintended consequences.

Much of the existing research regarding public sector innovation in response to these challenges has focused primarily on national governments. Yet subnational governments have an increasingly important role to play in meeting ongoing global challenges. With sufficient investments in capacity building, local governments can create innovative new solutions to global challenges. In general, the public sector is now regarded as being more dynamic and innovative than before (Setnikar Cankar and Petkovsek, 2013[3]).

How do governments innovate?

Governments can innovate in the way public policies are designed, and the tools they use for policy making, implementation and evaluation. “Innovation can also bring change to the governance of public services, by improving their level of accountability and transparency, their performance, or the user involvement and satisfaction level” (Rivera León, Simmonds and Roman, 2012, p. 5[17]). In addition, governments can innovate from policy development to programme delivery, from regulatory approaches to service delivery, and from the introduction of new forms of management to the adoption of new budgeting tools or human resource management.

The literature shows that public sector innovation is wide ranging: From innovations that produce socio-economic value to innovations that improve the production of products and services or ensure better resident experience. Research suggests that integrating multiple types of innovation can have the strongest positive impact on governments’ performance. For example, the public sector may not only optimise the use of resources, processes and knowledge for service delivery, but it can improve, at the same time, services through simplification and better support.

What factors have led to successful public sector innovation in the past?

Uptake of innovation requires intentionality marked by encouraging leadership, institutional capacity and competences, dedicated resources, and a supportive environment that includes a receptive organisational culture. According to the experience of the Australian public sector, innovation needs to be fostered, recognised and rewarded throughout the organisation to be sustained and embraced (ANAO, 2009[22]). Some pre-conditions for public sector innovation that appear consistently in the literature and government reports are discussed below.

Leadership and organisational culture. Politicians and managers can send strong messages about the importance of innovation and the relevance of creating a culture that values, rewards and recognises innovation. It is also important that people at all levels of the organisational structure see the role they play in being an innovative administration (OECD, 2009[23]; Glor, 2001[24]). It is essential to establish a culture that learns from experience, particularly from mistakes, as a way to reinforce an innovation culture (ANAO, 2009[22]). Traditional command-and-control leadership styles must evolve, to allow for experimentation and new approaches. Public sector leaders need to develop a new set of competencies to cultivate trust and inclusion, build agile teams, and establish a platform for ideas generation (Byrne et al., 2018[15]).

Adaptive and reactive structures. City environments are constantly changing; therefore it is important cities are able to read, understand, respond and adapt to these changes. Organisations need to strategically allocate their available resources based on the clear understanding of their changing environment (Rivera León, Simmonds and Roman, 2012[17]; Glor, 2001[24]). Part of this effort requires developing the capacity to collect, analyse, and use qualitative and quantitative data and information as evidence for decision making (ANAO, 2009[22]).

Active and engaged networks. To obtain more effective results from innovation initiatives, it is often necessary to look beyond the portfolio of an organisation to see if joint initiatives with others can lead to better results (ANAO, 2009[22]). Networks to diffuse innovation are essential ingredients for success as links to other organisations may provide access to the skills, support and means to put an idea into practice and, at the same time, may connect actors at different levels of government (OECD, 2009[23]).

Organisational capability and innovative capacity. Organisations need to build capability to support innovation. Since substantive innovation is unlikely to happen by chance, it has to be planned for and resourced. This involves considering the direct costs (i.e. training, information systems and equipment) and opportunity costs (i.e. time). This also requires empowering staff to take risks and think outside the box, ensuring the necessary financial sources and skill sets to support and drive innovation, and having strategies for risk management and regulations that support a culture of innovation (OECD, 2017[10]; Hartley, 2005[1]).

For example, a clear innovation strategy is the basis for successful innovation; it must be adaptive, clear and with a compelling narrative (Byrne et al., 2018[15]). Since innovation is about change, having a change management strategy may prove useful in ensuring the smooth implementation of projects that affect or change public servants’ routines. It is important to present the innovation to public servants as an opportunity, rather than a challenge (Glor, 2001[24]).

Conducive governance arrangements. Factors that may stimulate innovation in the public sector are: citizens’ participation in the political process and government accountability; political stability; regulatory quality; rule of law and control of corruption; and an open policy formulation process (Rivera León, Simmonds and Roman, 2012[17]). For innovation to occur, it is important there is consensus that the current models or ways of service delivery are underperforming (OECD, 2009[23]).

Incentives and rewards system. Innovation is encouraged when there are recognition and rewards (OECD, 2017[10]). These are also powerful mechanisms to maintain a culture of innovation through peer recognition, disseminating knowledge of new initiatives and fostering adaptation (ANAO, 2009[22]).

What is limiting cities’ innovation capacity?

Organisational and cultural barriers

Cities face a number of structural and institutional obstacles to enhance their innovation capacity. Some of them are inherent to the public sector and others come from the external environment (Box 1.2). The context in which cities operate is not always one that supports innovation and risk taking. In many cases, “[o]verstretched staff, tightening budgets and increasing demand on services leaves little room for experimentation, new thinking or trying new approaches” (Makin, 2017, p. 8[12]) .

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Box 1.2. Inherent and external barriers to innovation in cities

Inherent barriers to innovation in the local public sector include:

political leaders who do not publicly promote innovation
lack of workplace incentives for employees to think creatively and take risks
fiscal austerity and limited budgets for experimental programmes and policies
fragmented approaches to complex challenges due to overly specialised workplace silos
red tape, inertia and a risk-averse culture in the public sector
inability to synthesise and process data holistically across administrative departments
limited institutional resources for citizens’ engagement throughout the policy cycle
a culture that prioritises the expertise of professionals to the exclusion of other sources of insight, including research and residents themselves
challenges with procuring innovative solutions
fear of experimentation in the local public sector due to political and social scrutiny, and failure
lack of mechanisms and structures for facilitating learning and good practice exchange across the local public administration.

External barriers to innovation in the local public sector include:

Lack of trust in the public sector and its leadership and apprehension to use public money to experiment.
Underfunding of core capacities within local government, including innovation capacities like data analysis, citizen engagement and project management.
Shortages in knowledge and skills in the wider workforce market. Information asymmetries between private sector suppliers of new technology and municipalities.
Public resistance to change, in particular to the ways and types of public services that are delivered.
Lack of technological solutions for problems at hand.
National and regional government restrictions and mandates.

Sources: Wagner, B. and N. Fain (2017[25]), “Regulatory influences on innovation in the public sector: The role of regulatory regimes”, https://doi.org/10.1080/14719037.2017.1350282; Setnikar Cankar, S. and V. Petkovsek (2013[3]), “Private and public sector innovation and the importance of cross-sector collaboration”, https://doi.org/10.19030/jabr.v29i6.8197; Sørensen, E. and J. Torfing (2011[9]), “Enhancing collaborative innovation in the public sector”, https://doi.org/10.1177/0095399711418768; Walker, R.M. (2006[7]), “Innovation type and diffusion: An empirical analysis of local government”, https://doi.org/10.1111/j.1467-9299.2006.00004.x; Makin, C. (2017[12]), Adapting for the Future: Promoting Innovation in City Government; OECD (2017[10]), Fostering Innovation in the Public Sector, https://dx.doi.org/10.1787/9789264270879-en.

In general, public organisations are cautious about implementing reforms that may result in changes to the status quo. Organisational culture, norms and communication practices may influence the level of creativeness and innovation. Some of the factors that tend to constrain cities’ innovation capacity are:

Fragmentation and policy silos. Municipal public administrations are primarily designed with the goal of delivering public services (e.g. water, housing, electricity, transport). Given the complexity of orchestrating these complex urban systems, municipal bureaucracies tend to delegate tasks through specialised silos of agencies managing a given policy sector. This technical specialisation can result in a lack of communication between employees in distinct policy fields and a reluctance to innovate because of the unforeseen repercussions (OECD, 2017[10]). In some cities there may also be a lack of structures and mechanisms that promote organisational learning and the diffusion of good practices (Setnikar Cankar and Petkovsek, 2013[3]).

Politics. Mayors and other political leaders might be reluctant to take risks that could negatively reflect on their public image, instead preferring to stick with the status quo. “Within city governments, risk aversion is often associated with fear of bad press, damage to public perception and criticism levelled as wasting public funds” (Makin, 2017, p. 17[12]). Local authorities are commonly unwilling to admit that a particular initiative (or experiment) did not have the intended effects. The risk aversion of municipal politicians points to a more general feature of the public sector that makes innovation uniquely difficult: The need to ensure a constant provision of direct public services, coupled with the pressure to be in a position for re-election. Previously adopted mind sets may make it hard for city staff to unlearn the old logic and can limit leaders’ and managers’ ability to try new innovative approaches (Setnikar Cankar and Petkovsek, 2013[3]).
Rules and procedures. Cities struggle to find the right balance between risk mitigation, resource preservation and flexibility when designing municipal rules and regulations to promote innovation. Rules and procedures in the local public sector and their interpretation may restrict innovation capacity. A poor understanding of regulations by local public officials may also weaken innovation capacity. Failing to comply with the rules, policies and frameworks may be risky, and can outweigh the rewards from trying to innovate. This has been the conclusion of the Australian government, which pointed out that the poor understanding of the regulation by public officials may lead to the perception that they constitute a barrier to innovation (OECD, 2017[10]; Australian Government, 2010[26]). Compliance with training is key to streamline the procedural implementation of regulations, which should be designed with the goal of empowering civil servants.
Resource gaps. Inadequate financial mechanisms, support and the resulting shortages of the relevant skills and competences may weaken cities’ innovation capacity. The public sector does not have at its disposal the same economic incentives to innovate that exist in the private sector, for instance, patents and workplace bonuses, and the direct translation to profits. However, the lack of adequate financing may, in some special cases, be both a challenge and an opportunity to trigger innovation, as cities have to look for innovative solutions. In such cases it is also important that other tools and resources that support innovation within the city administration are in place.
Administrative/bureaucratic barriers. Administrative organisation and operation could be an obstacle to innovation. Some of the organisational norms that can deter innovation in public sector include: red tape, human resource management practices that do not incentivise innovation, risk aversion, a silo approach to policy development, hierarchical structures, and an inadequately trained and motivated workforce. This lack of positive incentives can be compounded by negative repercussions and barriers, in the form of rigid legal and bureaucratic regulations (Sørensen and Torfing, 2011[9]). Excessive bureaucracy also tends to hinder the dynamism of the creative process needed to innovate. Many cities have endeavoured to foster innovation through red-tape reduction strategies or targeted exemptions for specific innovative programmes. However, the research of the OECD OPSI indicates that such strategies may not prove highly effective in and of themselves (OECD, 2017[10]).

Limited data management capacity

The results of the OECD/Bloomberg Survey on Innovation Capacity in Cities suggest that relatively few cities feel that their innovation capacity is limited by a lack of data (Figure 1.4). Rather, the key barriers limiting municipal innovation is the data management capacity. This refers to the lack of compatible data across policy areas and the limited capacity to use data to improve municipal policy making and implementation. This suggests that having access to data (i.e. on mobility patterns to inform land-use planning and transport) is not enough to innovate; cities need the technical knowledge to make the data useful to them. Taken together, these results indicate that building a strong data capacity has, perhaps, more to do with the culture and skills of employees than merely technical infrastructure. This is the case with big data, where the problem lies in the exploitation of the data itself (Martin et al., n.d.[27]). Collecting, cleaning, integrating and analysing big data for innovation and policy making could be particularly demanding even for large, relatively rich cities. That is probably why some cities partner with external specialised organisations in data management. For example, in early 2019, Kansas City, Kansas’s city council passed a citywide ordinance codifying data and performance reporting. This achievement stemmed from assistance provided by Bloomberg Philanthropies’ “What Works Cities Program” to help the city build and sustain its data and evidence practices.

Figure 1.4. Factors preventing the optimisation of data to support innovation goals

While the uptake of big data in today’s cities opens new possibilities for city governments, the way that data are harvested, analysed and engaged depends largely on political considerations. Without civil servants capable of contextualising their data and standardised criteria for data treatment across agencies, the information itself may be less useful to policy makers and to academics and private sector partners.

Limited access to new technological developments

As part of efforts to innovate, cities are increasingly looking to emerging technologies and the Internet of Things (IoT) for ways to streamline and dramatically improve services to citizens. Yet these efforts are not without challenges, e.g. information asymmetries between private sector actors and public officials that may make strong partnerships challenging, civil liberties concerns given the potential for surveillance, and cyber security risks. As cities look to integrate different sources of data regarding many different urban systems (transportation, housing, energy, etc.) into holistic platforms, it becomes increasingly possible to monitor the intimate details of constituents’ daily lives. Automating certain public sector functions while keeping people’s data private is extremely important and takes deep policy considerations. The new wave of digitalisation of public functions means municipalities may struggle to balance their desire to improve the efficiency of service delivery with the right to privacy. This challenge is exacerbated by the increase of data gathered through the IoT.2 Other issues include data ownership and the tension between pursuing transparency through open data initiatives and the desire to ensure public safety and anonymity (Kitchin, 2014[28]). Issues such as how citizens know the data being collected, used, monitored and what will be done with it in the future need to be resolved if cities are going to have flexibility for data collection and use it for innovative projects (Newman, 2019[29]).

Limited participation and support from citizens

Some of the obstacles that may prevent citizen engagement for innovation in the local public service are:

Institutional barriers. Municipalities that lack robust institutional channels for collaborative engagement with constituents throughout the policy-making cycle will inevitably fail to establish meaningful constituent engagement. Moreover, even if there are institutional venues and channels for co-production of public policies, without adequate communication infrastructure in place, municipalities risk engaging with only a limited number of their constituents (Voorberg, Bekkers and Tummers, 2015[30]).
Cultural barriers. Civil servants and politicians may find it challenging finding constructive and fruitful ways to collaborate with residents for a number of reasons. Resident responses may be unpredictable and difficult to manage due to the resources available. Moreover, elected officials may be hesitant to turn over authority to residents, for instance of co-production, if they have limited ability to fully deliver the output, further disappointing residents. The attitudes of public officials often exemplify a broader cultural barrier to social innovation. Conventional public sector relations with constituents construe citizens as passive recipients of public services rather than equals capable of exerting their agency. The belief that engaging with constituents represents additional complexities rather than an asset can reduce collaborative institutions into mere formalities (Voorberg, Bekkers and Tummers, 2015[30]).
Lack of incentives. The lack of clearly articulated incentives for municipal administrators to pursue co-production initiatives can also be a challenge to innovation. Municipalities may be reluctant to invest financial and human resources in collaborative projects without clear indications of the returns they will receive for their investment in the form of outputs and outcomes (Gascó, 2017[31]).
Constituent barriers. A variety of social factors might inhibit constituents themselves from engaging with their municipal government to innovate. Individuals without a positive opinion of their municipal government will have little motivation to co-operate. Trust in local governments is important for the success of many projects, policies, programmes and regulations that depend on citizens’ co-operation and compliance. In some cases, citizens’ expectations could grow at a faster pace than government actions, which could have a negative impact on trust in government. According to OECD data, less than half of OECD countries’ citizens (42%) have trust in their national government (OECD, 2017[32]).3 Educational attainment also determines an individual’s likelihood of taking part in collaborative projects, as well as determining their capacity to engage with the complex nuances of the public administration. Moreover, constituents will be dissuaded from taking part in collaborative initiatives if they do not have a sense of ownership of the work. Projects that fail to demonstrate how they respond directly to constituents’ needs will likely fail to generate enthusiasm (Voorberg, Bekkers and Tummers, 2015[30]). Finally, it may be argued that citizens have busy lives and the opportunities to engage are often offered without careful planning that makes it easier for them to participate. For instance, in Busan, only the elderly and housewives are able to attend events organised by the City Council, as the rest of the population is at school or work (OECD, 2019[33]).

copy the linklink copied!Methodology and survey insights

Drawing from the findings of the OECD/Bloomberg Survey on Innovation Capacity in Cities (see Annex A) carried out across 89 cities in OECD and non-OECD countries (see Annex C), this report explores how cities around the world are developing their capacity to innovate and to what extent this innovation improves resident outcomes. The results of the survey provide a deeper understanding of why cities are innovating; how they’re developing their capacity to innovate; what is driving and enabling innovation in cities; and to what extent such innovation is generating better outcomes for residents, business and the community. This report synthesises the findings of the survey and enables cities to learn more about how other cities are approaching innovation. The information provided by the cities in the survey is complemented by a literature review and additional research on official city websites to gather information on initiatives cities are undertaking to enhance their capacity to innovate. The analytical framework developed in this report seeks to provide the building blocks to analyse key factors that influence innovation capacity in cities.

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Box 1.3. OECD/Bloomberg Survey on Innovation Capacity in Cities

Cities surveyed

A total of 89 cities from 21 OECD member countries and 3 non-OECD countries responded to the survey. The entire list of respondents, as well as the survey itself, can be found in Annex C. An invitation to complete the survey was sent to municipal staff of 139 cities of various different sizes and geographic locations.

A wide range of cities are represented among the survey results. The majority (64%) of responses came from North American cities. A further 18% of respondents were European cities. Eight cities in Latin America also responded, along with three Asian cities, three cities from the Middle East and North Africa region, and one city from both Oceania and sub-Saharan Africa. These cities cover a wide range of population sizes – from Chelsea Massachusetts (United States), which is home to 40 000 residents, all the way to São Paulo, Brazil, with 12 million. The largest share (one-third) of responding cities are mid-sized, with populations between 200 000 and 500 000.

Figure 1.5. OECD/Bloomberg Survey of Innovation Capacity in Cities 2018 in a nutshell

Methodology

The OECD/Bloomberg Survey on Innovation Capacity in Cities was pilot-tested before it was launched in July 2018 in co-operation with Bloomberg Philanthropies, who sent out the survey to the cities selected.

The cities targeted were those belonging to the OECD Champion Mayors for Inclusive Growth Initiative and select cities in Bloomberg Philanthropies’ Government Innovation programme. For the majority of cities, the key city staff person in charge of innovation, with roles such as chief innovation officer, director of innovation, and chief data and performance officers were identified and sent the survey instrument directly. In the case of Champion Mayors Cities, key contact points in the city, that were appointed by the mayor upon joining the initiative, were initially contacted and directed to forward the survey instrument to the appropriate innovation staff within the administration.

Respondents self-reported; in cases where the innovation work was spread across the administration, the lead innovation staff were asked to consolidate responses and provided one submission for the city.

The survey also invited respondents to share documentation or other supports to explain the municipality’s innovation work, and when applicable asked respondents to share sources directly.

Structure of the questionnaire

The OECD and Bloomberg Philanthropies jointly developed the municipal innovation capacity survey. Its goal was to offer an understanding of how local municipalities currently approach public sector innovation and to develop a conceptual framework for identifying the issues, enablers and tools for innovation at the local level.

Figure 1.6. Structure of the OECD/Bloomberg Survey of Innovation Capacity in Cities

The survey was divided into five sections.

Section 1: Innovation definition, goals and approaches

This section sought to understand how municipalities build and maintain innovation capacity in the public sector and what innovation capacity means and looks like in a given city administration. It also aimed to understand each city’s goals and strategy for innovation in the public sector, as well as the approaches the city uses to innovate within the administration.
Section 2: Innovation organisation and structure within the administration

This section sought to understand how innovation is organised within a given municipal administration, for instance, regarding the existence of designated staff, team(s) and officer(s) for innovation.
Section 3: Funding for innovation capacity

This section sought to understand the funding and resources dedicated to developing and maintaining innovation capacity (as opposed to funding for programmes or activities resulting from innovative decisions) in each municipality. This could include, for instance, funding for innovation team staff or for data, infrastructure or systems that are intended to support the city’s innovation work.
Section 4: Data for innovation

This section sought to understand how each municipality is generating, managing and/or sharing data. In most practices of public sector innovation, data are a crucial enabler for the municipality for more evidence-based decision making.
Section 5: Innovation outcomes

This section sought to understand the broader outcomes of each city’s innovation strategy and goals.

copy the linklink copied!Analytical framework

Enhancing innovation capacity in the local public administration depends on the work culture; the management of the public administration machinery; the adequate level of financial and human resources; the adequacy of the instruments to work (data and technology); and collaboration of a number of internal and external actors (see Chapter 2).

Based on the results of the survey, the OECD proposes that the capacity of cities to innovate may be analysed based on three interdependent building blocks (Figure 1.7):

1. Organisational arrangements: This refers to how the formal and informal institutional structure of municipalities can either foster or hinder innovation. It ensures that the leadership at political and administrative levels, staffing skill sets that drive innovation, financial resources and human resource processes necessary for innovation to take place are considered in the innovation strategy.
2. Data management capability: This relates to cities’ ability to harness data management technologies to promote workplace efficiency, develop evidence-based policies and improve service delivery.
3. Openness to partnership: This refers to the capacity of municipalities to communicate and work with different actors outside the public sector (i.e. business, think tanks, research institutions, citizen organisations and individual citizens) to find ideas, develop new projects and empower these partners to formulate their own initiatives and present those to government.

Figure 1.7. Analytical framework for cities’ innovation capacity

The three building blocks of the innovation capacity analytical framework for cities, if taken as a whole, provide a comprehensive view of the internal and external elements that affect innovation capacity in cities. They reflect the need for a diversity of actors and competencies, the interdependence of organisational-administrative activities (i.e. budgeting, human resources) in the promotion of innovation, and the importance of co-operation with internal and external actors to facilitate the exchange of ideas, information and lessons. These building blocks influence the creativity process and innovation in the local public sector. The first two refer to the internal characteristics of the local administration and the organisational culture which can be relatively easy to control or influenced. These building blocks should be part of a city’s formal innovation strategy, as pursuing changes in operational management is sometimes necessary to foster innovation capacity. The third building block indicates the relationships that the local public administration establishes with outside actors with the explicit goal of boosting its innovation capacity. However, most of these partnerships with actors outside the public sector depend on the level of trust local governments enjoy. Citizens, private sector and non-governmental organisations may be unwilling to engage in a close partnership with the city government if they do not trust local authorities.

Each of these building blocks is both distinct and interdependent, because a municipality’s approach to one inevitably reverberates into the others. For example, the emergence of online platforms has clearly transformed the workplace environment and the way that municipalities interact with constituents. Likewise, cities that actively engage with civil society and research institutions will be more aware of new technological developments and more capable of designing more tailored policies to meet citizens’ needs.

A critical aspect of this analytical framework is the inclusion of the strategic approach to innovation capacity in cities. This is based on the premise that innovation capacity does not happen randomly. Innovation requires an explicit policy decision to build the capacity and capability to innovate and, at the same time, meet the city’s political priorities. Moreover, having innovation goals helps cities to define the course of action and explore different ways to achieve them. When a city has clear goals, then it can set the parameters for evaluation and prioritise activities to make sure it meets those goals.

The analytical framework also considers the importance of evaluating innovation outcomes. They can be defined as the “… substantive results of the implementation of an innovation that can be intended or unintended and positive or negative” (De Vries, Tummers and Bekkers, 2016, p. 23[8]). The survey inquired whether cities evaluate the outcomes of their innovation and what factors helped them determine success. An innovation outcome evaluation needs to be measured in relation to goals to determine whether the intended outcomes have been achieved, and to what extent innovation capacity facilitated or contributed to the outcomes. Adequate resources and a conducive institutional setting to facilitate innovation may not be sufficient to deliver public services due to considerations other than innovation capacity and capability.

copy the linklink copied!Clustering of cities

In order to have a better understanding of the surveyed cities’ efforts to improve their capacity to innovate, we propose a tentative clustering. This clustering is based on how cities understand innovation capacity, what approach they are taking to enhance capacity, what areas they are prioritising, and what internal elements they are using to improve their innovation capability.4 Its purpose is not to assess cities, but to describe and present their efforts to improve innovation capacity. The clustering would allow cataloguing or clustering cities based on the existence of different elements that were included in the survey.

Figure 1.8 shows a clustering that contains four general categories or groups that provide, all together, an overarching view of how cities are enhancing their innovation capacity.

Strategy and approach to innovation (Table 1.1). This cluster intends to describe how cities embark on their innovation capacity practices. It refers to having a formal innovation strategy or not, and the different approaches to innovation capacity. A city’s innovation strategy is the course forward for how to achieve innovation goals.5 It provides a glimpse of the organisational arrangements a city may have and in which innovation takes place. It is a guiding document that explicitly sets the city’s innovation objectives and how it plans to achieve them. Innovation goals are aspirational outcomes or impacts, in both the short and long term, which deliver better outcomes for residents, businesses and the community. In many instances, cities have plans, specific policy strategies and/or programmes that contain their strategies to promote and guide innovation activities. However, not having a formal innovation strategy does not mean that cities do not innovate.

Figure 1.8. A tentative cluster of cities on elements to improve innovation capacity

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Table 1.1. Cluster 1 – Strategy and approach to innovation
How do cities approach innovation?
		No formal innovation strategy	Formal innovation strategy
Approach to innovation	Holistic	Atlanta, Chelsea, Orlando, Otsu City, Providence, Riverside, Virginia Beach	Austin, Boulder, Buenos Aires, Curridabat, Georgetown (TX), Lexington, Louisville, Miami, San Francisco, Stockholm, Tulsa, Turin, Saint Paul, Tokyo
	Policy specific	Alexandria, Baltimore, Beer Sheva, Bilbao, Chicago, Detroit, Fort Lauderdale, Houston, Indianapolis, Inverness, Lansing, Ljubljana, Minneapolis, New York, Oakland, Paterson (NJ), Reykjavik, Rochester, Rotterdam, Saltillo, Santiago de Chile, Seattle	Athens, Cape Town, Irving, Jersey City, Madrid, Rio de Janeiro, San Jose (CA), Toronto
	Both	Anchorage, Aurora, Braga, Charlotte, Fort Collins, Grand Rapids, Huntington (WV), Los Angeles, Memphis, Milan, Mobile, Oklahoma City, Palermo, Sao Paulo, Walnut Creek, Wellington	Akron, Chattanooga, Cincinnati, Denver, Durham, Glendale, Jerusalem, Kansas City (KS), Long Beach, Medellin, Montreal, Paris, Peoria, Philadelphia, Quillota, Seoul, Sintra, South Bend, Syracuse, Tacoma, Tel Aviv, Utrecht
Note: Based on the answers to Question 1.1 “Does your municipality have a formal innovation strategy?” and Question 1.4 “Would you say your city approaches innovation capacity at a holistic, macro level or within a specific policy domain?”.
Source: Elaborated based on the OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Innovation priority policy areas (Table 1.2). This cluster shed some light on the policy domain cities are focusing their innovation efforts. This depends on the cities’ main socio-economic development objectives and political agenda. As discussed above, cities are working in a wide range of areas – from improving transport and mobility and enhancing the labour market to social inclusion, culture and digital governance. Thus, the different policy domains covered in cities’ work agendas were grouped into four main categories to facilitate its view and description.

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Table 1.2. Cluster 2 – Innovation priority policy areas
What policy areas are most prioritised by cities for their innovation work?
General area	Policy domains	Cities
Urban development	Transport/mobility, land-use – zoning, built environment, blight, housing, waste, sanitation, sewage, water – public works	Austin, Cape Town, Detroit, Georgetown, Indianapolis, Jersey City, Ljubljana, Louisville, Memphis, Mobile, Oklahoma, Palermo, Peoria, Philadelphia, Quillota, Reykjavik, Rochester, San Jose (CA), Santiago de Chile, Seattle, Syracuse
Economic development and environment	Economic development, labour market (jobs and skills), tourism, environment/climate change	Akron, Aurora, Charlotte, Chelsea, Curridabat, Denver, Fort Collins, Grand Rapids, Jerusalem, Lansing, Lexington, Long Beach, Madrid, Medellin, Minneapolis, Oakland, Paris, Paterson (NJ), Riverside, Saltillo, Sintra, South Bend, Turin, Walnut Creek
Socio-cultural development	Social welfare/social services, policing and law enforcement, health, education, social inclusion and equity, culture, homelessness	Alexandria, Anchorage, Athens, Baltimore, Bilbao, Chattanooga, Cincinnati, Durham, Houston, Huntington (WV), Irving, Kansas City, Los Angeles, Montreal, New York, Rio de Janeiro, Seoul, Tacoma, Toronto, Utrecht, Wellington
Administration and governance	Digital governance, internal process improvement	Beer Sheva, Braga, Chicago, Fort Lauderdale, Glendale, Inverness, Milan, Orlando, Otsu City, Rotterdam, Saint Paul, Sao Paulo, Tel Aviv
Note: Based on Question 1.5 “Which two policy areas would you say are most prioritised in your municipality’s innovation work?”. The table is based on cities’ first option.
Source: Elaborated based on the OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Importance of data for decision making (Table 1.3). Data play an important part in policy decisions and innovation work. This cluster presents the relevance of data in decision making within cities. It must be mentioned that some cities work with both quantitative and qualitative data. They may use interviews, listening sessions, focus groups and community meetings to gather information or data to support decision making. This approach is mostly used when gathering people’s views and ideas on issues such as the revitalisation of an underserved neighbourhood or the construction of infrastructure. Some cities may conduct public consultations and referenda to gather information for their policy decisions.

Capability for innovation (Table 1.4). This cluster refers to the elements (specific budget and staff) that help cities to engage in innovation. There are many elements that may contribute to capacity, including regulations, administrative processes and human resource management policies. This classification includes two specific factors: dedicated budget/funding and dedicated teams/staff for innovation, as they were explicitly considered in the survey. Public servants are at the heart of innovation, and cities’ administration teams should ensure that employees have the ability, motivation and opportunity to come up with and propose innovative ideas. Budgeting is an area that can support innovation by allocating resources toward the development of innovative projects and initiatives by, for instance, ensuring flexibility in the management of financial resources.

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Table 1.3. Cluster 3 – Importance of data for innovation work
How relevant are data for cities in decision making and innovation?
Significance of data in decision making and innovation work	Cities
A significant role	Braga, Cape Town, Cincinnati, Curridabat, Detroit, Durham, Fort Lauderdale, Georgetown (TX), Grand Rapids, Houston, Huntington (WV), Irving, Kansas City, Ljubljana, Los Angeles, Louisville, Minneapolis, New York, Oklahoma, Peoria, Philadelphia, Riverside, Rochester, Seoul, Sintra, South Bend, Syracuse, Tel Aviv, Tokyo, Toronto, Turin, Utrecht, Wellington
Somewhat of a role	Akron, Alexandria, Anchorage, Atlanta, Austin, Baltimore, Bilbao, Buenos Aires, Charlotte, Chattanooga, Denver, Fort Collins, Glendale, Indianapolis, Inverness, Jersey City, Jerusalem, Lansing, Lexington, Madrid, Memphis, Miami, Mobile, Oakland, Orlando, Otsu City, Paris, Providence, Quillota, Rotterdam, Saint Paul, Saltillo, San Francisco, San Jose (CA), Sao Paulo, Seattle, Stockholm, Tacoma, Tulsa, Virginia Beach, Walnut Creek
Small but useful role	Athens, Boulder, Chelsea, Long Beach, Medellin, Montreal, Palermo, Reykjavik
No major or substantive role	Aurora, Beer Sheva, Paterson (NJ), Santiago de Chile
Note: Based on Question 4.1 “How significant a role do data play in your city’s innovation efforts and decision making?”.
Source: Elaborated based on the OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

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Table 1.4. Cluster 4 – Availability of dedicated funding and staff for innovation
Do cities have dedicated staff and budget for innovation work?
	Dedicated team/staff for innovation	No dedicated team/staff for innovation
Specific funding available for innovation	Akron, Alexandria, Anchorage, Athens, Atlanta, Austin, Baltimore, Beer Sheva, Boulder, Braga, Buenos Aires, Cape Town, Chattanooga, Chelsea, Cincinnati, Curridabat, Denver, Detroit, Durham, Fort Lauderdale, Georgetown (TX), Glendale, Houston, Irving, Jersey City, Jerusalem, Kansas City, Lexington, Ljubljana, Long Beach, Los Angeles, Louisville, Madrid, Medellin, Miami, Minneapolis, Mobile, Montreal, New York, Orlando, Otsu City, Palermo, Paris, Peoria, Philadelphia, Providence, Reykjavik, Rio de Janeiro, Rochester, Saint Paul, Saltillo, San Francisco, San Jose (CA), Sao Paulo, Seattle, Seoul, Sintra, South Bend, Stockholm, Syracuse, Tacoma, Tel Aviv, Toronto, Tulsa, Utrecht, Virginia Beach, Walnut Creek, Wellington	Fort Collins, Memphis, Oakland
No specific funding available for innovation	Aurora, Charlotte, Grand Rapids, Huntington (WV), Inverness, Quillota, Riverside, Rotterdam, Tokyo, Turin	Bilbao, Chicago, Indianapolis, Lansing, Oklahoma, Paterson (NJ), Santiago de Chile
Note: Based on Question 2.1 “Are there people in your city (such as, but not limited to) dedicated team(s) and/or officer(s) for public sector innovation in your municipality?” and Question 3.1 “Is there specific funding available at the municipality level to support innovation capacity?”.
Source: Elaborated based on the OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

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Notes

← 1. The “Athens Road Map on Innovation for Inclusive Growth in Cities” was adopted by the OECD Champion Mayors for Inclusive Growth Initiative on 18 March 2019 during its fourth annual meeting hosted by the city of Athens.

← 2. The Internet of Things is the concept of basically connecting any device with an on and off switch to the Internet (and/or to each other) (Morgan, 2014[34]).

← 3. Data on trust in government should be managed with care. Levels of trust may be different depending on the level of government.

← 4. This report does not provide a typology of cities on innovation capacity, as it is a theory-building exercise, implying the inclusion of an ideal type (Doty and Glick, 1994[35]). Rather, a classification system is preferable in this case as it would be a description of cities with similar characteristics, practices or processes.

← 5. These working definitions were contained in the Survey on Innovation Capacity in Cities 2018 conducted by the OECD.

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1. Understanding innovation in cities