4. Towards a strategic, action-oriented innovation portfolio

There is a direct strategic link between why government undertakes innovation and its core values. This report makes a case for a directive (rather than descriptive) public sector innovation model that is strategic, action-oriented and geared towards substantive public value outcomes. Putting two innovation dimensions – directionality and certainty – and substantive public value goals at the core of government action, the report offers theoretical foundations for the Public Sector Innovation Facets model. Reviews of the facets show that each innovation type has different characteristics, and is driven and facilitated by different processes, factors and structures in the public sector. They also require different skills and capabilities from public sector employees (see further in Part II of the report):

  • Enhancement-oriented innovation is driven by public sector constraints on resources and costs, the influential principles of New Public Management – a market-driven public administration paradigm, and by digitalisation and the adoption of new technologies. There are numerous enabling conditions for enhancement-oriented innovation, including out-based evaluation and auditing and performance measurement systems. Developing digital skills within public sector organisations, as well as the adoption of new digital or funding infrastructures, can also sustain enhancement-oriented innovation in the public sector. Governments have adopted a variety of tools and methodologies to stimulate and manage enhancement-oriented innovation – such as lean and six sigma methodologies, project management and quality improvement methods, open innovation and behavioural insights approaches. Enhancement-oriented innovation’s compatibility with existing paradigms and the overall status quo of an organisation or system makes it one of the less contested and easily promoted types of innovation in the innovation facets model.

  • Adaptive innovation is driven by environmental, organisational and individual drivers lead to the adoption of adaptive innovation in government. These often include external crises, the opportunity to experiment and the ability to make fast decisions. To sustain adaptive innovation in the public sector over the long term, there is a need for adaptive organisational structures, decentralised governance structures, enabling infrastructure, networks and partnerships, space for experimentation, and evaluation and feedback mechanisms. In a hierarchical system such as in most government settings, leadership plays a significant role in creating space for adaptive innovation. This creates the possibility for readiness to respond to change, the ability to innovate at a fast pace. Usually, ad hoc support for adaptive innovation is not enough and a governance framework that allows adaptation and undirected innovation to take place needs to be put in place. Individual skills and willingness to engage with adaptive innovation are also crucial. In environments demanding both stability and the need to act quickly, such as during crises, adaptive innovation supports public administrations by simultaneously strengthening resilience and building adaptive capacity. In addition, adaptive innovation can help avoid fragmentation of experimental practices and systematise innovative action in government.

  • Mission-oriented innovation is driven by the urgency around the biggest grand challenges of our age and the failure of traditional policy and governance mechanisms to address these. While many factors influence missions, current evidence shows that mission-oriented innovation is often supported by three interlinked policy structures: institutional entrepreneurship and mission governance that enable collaboration and experimentation; available funding for a portfolio of missions; and the adoption of outcome-based procurement. The implementation of mission-oriented innovation is still an emerging practice and can in principle rely on a wide variety of policy-making tools and methods. The implementation methods increasingly favoured by public organisations are experimentation and stakeholder engagement, a portfolio approach to funding and governance of projects, and new public value and spill-over-focused evaluation frameworks. Mission-oriented innovation addresses key current policy and wider public sector challenges: it ensures inclusive governance, progressive politics, generative environments and systemic impact.

  • Anticipatory innovation is driven by uncertainty and complexity surrounding policy problems, need to make decisions under fast-based socio-technical change and opportunity costs of doing nothing. The necessary conditions for facilitating anticipatory innovation in the public sector are strong foresight ecosystems closely connected to innovation governance structures, and working methods that embed anticipatory innovation in day-to-day processes. Diverse methodologies exist to capture each aspect of the iterative process of perceiving, making sense of and acting on emerging futures. Research shows that far more tools exist to perceive and make sense of futures, than for converting insights into action and evaluating outcomes. In order to build anticipatory innovation capacity, governments must be able to draw on subject matter expertise, imagination and an appreciation of emergence and complexity. Communication of anticipatory insights and sustained demand for anticipatory innovation from senior leadership in government is essential.

However, many blind spots and practical challenges have yet to be addressed. In the area of enhancement, open questions pertain to measurement: Do the innovations deliver the efficiency and effectiveness outcomes they proclaim? Discussion has advanced on the topic of public sector productivity, but much less has been has been done to demonstrate the empirical effects. Hence, it is unclear where long-term versus one-time productivity gains through enhancement-oriented innovation can be made, or when the public sector is just externalising costs to enterprises, stakeholders and other parties.

Similarly, little is known about how adaptive processes could be integrated into policy approaches beyond service delivery. Definitions used in the field confuse tools and methods-based approaches (agility) with adaptability and resilience, and governance structures and support. This ambiguity and focus on individual success factors (e.g., the role of leaders) make it difficult for government to act and create structural support systems. Some governments push the agenda under an agile governance banner, but unease remains with traditional steering mechanisms (budget, regulations, strategic planning). There is little evidence about the skills and competences that support adaptation among public servants not in leadership roles. These are often discussed from a methods perspective – design thinking, experimentation, agile methodology – but not the capacities and capabilities to make them work in a public sector environment. Furthermore, while adaptive innovation enhances understanding of the depth and scope of policy problems, it tends to be highly contextual, based on tools and methods applied. Hence, its ability to diffuse and reach scale remains unexplored.

Mission-oriented innovation enjoys the most attention from policymakers and politicians. There is high-level support from international organisations for harnessing the approach towards socio-economic challenges. The concept is moving beyond its science, technology and innovation origins to encompass the whole governance system. However, the approach lacks governance structures and a toolbox suitable for different contexts. The heightened attention and political potential mean mission-oriented innovation is racing time to prove itself and could burn out if delivery does not meet expectations. Hence, “mission washing” (requalifying programmes and governance structures as missions) is becoming evident. To be successful, mission-framing approaches must be followed quickly by implementation frameworks covering the specifics of tools, methods and governance, which could require upheaval of current structures.

In the area of anticipatory innovation, international organisations such as the OECD already invest in developing tools, methods and governance approaches. In addition, research in member countries helps understand how to integrate these into existing governance structures and change steering mechanisms to put anticipatory innovation into action. The COVID-19 crisis created an appetite for these approaches in public sector organisations. But there are barriers to anticipatory innovation in traditional policymaking and many of these will remain because it challenges existing service models, engages scenarios that might not be addressed by current structures, and produces transformative ideas that can be uncomfortable or contradict current commitments. That said, the approach can contribute to policymaking by stress-testing, visioning etc., which make established processes more robust and future-ready. Anticipatory innovation faces a blind spot connected to competition and silos within the foresight and innovation communities. While both have extensive toolboxes, the fields rarely overlap, and bridges and value chains between them are lacking in the public sector. Thus foresight tends to not deliver actionable insights and faces an impact gap, while innovation does not pick up on insights and works at the margins of transformative change.

Empirical research into making the innovation facets work in practice has yet to be generated. Beyond the individual facets, this is also clear when looking at how public sector organisations support different types of innovation at the same time. Taking a portfolio approach, governments and organisations can prioritise different types of innovations at different times. For example, an environmental protection agency might invest in a mostly mission-oriented innovation portfolio while simultaneously enhancing its current systems, looking for ways to meet stakeholder needs and making sense of signals in the field. Hence, “portfolio balance” is desirable for organisations to avoid lock-in, user dissatisfaction, technological disruption, etc. Ongoing innovation portfolio management connected to decision-making helps avoid fragmentation and ‘projectification’ of innovation activities, builds on synergies and value chains between actions (e.g., establishing missions within the bigger innovation portfolio), spreads risk and engages uncertainty at the portfolio rather than the initiative level, and connects actions to ecosystems-level activities.

How to do so is still emerging. While private sector tools and methods for innovation portfolio management exist, they concentrate on financial returns, single organisations and short timelines. They thus tend to be unsuitable for the public sector context, where cost-efficiency is only one outcome among many public values that innovation serves, where impacts are often co-created with external ecosystem partners, and where the timelines for impacts (especially in relation to ‘wicked’ problems) are much longer. Public sector organisations are experimenting with innovation portfolios, but work on tools and methods is needed to update innovation portfolio management. There is also need to create new insights through empirical, action research by designing and testing public-sector-focused portfolio management approaches, and validating them in different settings. Specific, purpose-driven, cross-government portfolio management tools could also be necessary to make mission-oriented innovation work in practice.

Importantly, innovation facets and portfolios at an organisational/unit/team level interact with more system-wide innovation perspectives. Most analyses in the public sector look at innovation as something to be increased in total, not as something influenced by different public values, purposes or strategic aims. The latter are often analysed among other drivers and barriers to innovation on the systems level. While this report offers a directive approach to innovation and proposes a model for steering innovation in line with core government purposes, that does not mean governments are beyond the descriptive phase of innovation. Seeing innovation as a general outcome variable and factors that impede innovation as targets to overcome is a step in the right direction. But there is room for innovation systems capacity models to be more precise and purposeful, and to analyse how factors at individual, organisational and systems levels simultaneously support different types of innovation in different ways. This would also make the strategic response and support of innovation more nuanced.

Innovation should become accessible to all public servants, and the innovation facets approach could make this more attainable. In different government roles, the skill and capacity needs for different facets of innovation may be different. A strategic planner might need support in mission-oriented and anticipatory approaches to account for the complexity of their working methods, while frontline bureaucrats might benefit from adaptive methodologies and understanding of internal systems that impede the user experience and create inefficiencies. Putting innovation capacity and management support in the context of innovation facets could create opportunities for more tailored and effective support for innovation across the public sector.

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