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Cities are reinventing themselves to adapt and respond to evolving demographic, economic, environmental, social and technological changes around the world. City governments are ushering in a new era of local public sector innovation that promotes experimentation and flexibility within the administration, while at the same time seeking to engage residents in new ways and promoting well-being.

The report is a study on how municipalities are innovating, why they are innovating, and what innovation is allowing them to do. 89 cities across the world responded to the OECD/Bloomberg Survey on Innovation Capacity. The Survey captured five dimensions of innovation capacity: innovation strategy and approaches, staffing and structure of innovation work, data used to support innovation work, funding dedicated to innovation, and the outcomes monitored and evaluated based on the city’s objectives. This report synthesises the findings from the survey and combines it with a literature review to unpack what helps build this capacity in the local public sector and what it helps cities accomplish.

To promote a deeper understanding of innovation capacity, an analytical framework was developed as part of this report. Innovation capacity refers to the human, financial, and institutional resources and skills that can catalyse, implement and advance cutting-edge, collaborative, long-term and bottom-up problem solving. Capacity of city governments to innovate is based on three interdependent building blocks, i.) organisational arrangements, referring to the formal and informal institutional structures that can foster or hinder innovation, ii) data management capability, related to a city’s ability to harness, manage, and use data effectively, and iii) openness to partnership, the ability for the city to work with different stakeholders. These building blocks start to provide a comprehensive view of the internal and external factors that allow city governments to innovate.

Key findings and recommendations from the five dimensions of innovation capacity are herein summarised.

1. Innovation strategy and approaches

A dedicated strategy encourages cities to stimulate their long-term capacity to innovate by publicly stating those goals so that the city can be held accountable to achieving them. More than half of the cities that responded to the survey (55%) have formal innovation goals, while just under half (49%) have a formal innovation strategy. A formal strategy to pursue innovation in the local public sector helps expose cities to innovation-related tools and activities. Cities with a formal innovation strategy:

  • reported to be more experienced with activities that foster innovation than those without a formal strategy;

  • claim to be more open to taking risks and pursing organisational change, whereas those without a strategy are more focused on data-driven analytics and rethinking the city’s approach to financing and partnership; and

  • tend to approach innovation more holistically, ensuring that every sector or area in the administration is brought into the effort to build innovation.

2. Staffing and structure

Cities rank leadership commitment as the most important determinant of successful innovation work. 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. Key findings from across surveyed cities include:

  • Almost 80% of respondent cities reported that political and managerial leadership is an essential component for supporting innovation capacity.

  • The emergence of innovation teams in local public administration is a relatively new approach, as only 21% of such teams have existed for more than five years.

  • Around half of innovation teams sit in the mayor’s or city manager’s office, and nearly 30% have their own department.

  • Of city respondents with innovation teams, 82% have a project manager as the key profile. Community engagement staff is the next most common profile (60%).

  • Investing in the capacity and capability of local public servants helps cities to create a climate for new ideas.

  • Indeed, 70% of responding cities considered human resource management as important in improving their capacity and capability to innovate by upskilling the workforce and bringing in people with required knowledge and skills.

  • Survey results also show that cities that hired innovation staff with skills such as human-centred design proved much more effective than their counterparts at engaging residents in new ways.

3. Data used to support innovation work

Cities that ensure the production, free flow, and utilisation of data and knowledge across the public sector are better positioned to improve their innovation capacity. When a city provides greater access to and makes better use of public data it contributes to economic development and growth. Data production and dissemination allow the creation of value and enable the creation of new solutions to urban challenges. Survey results showed that:

  • For 85% of surveyed cities, data play a significant or somewhat significant role in innovation decision making and policy making.

  • Cities produce a large amount of data, and these data have the potential to improve the way cities operate. However, data availability by policy sector remains uneven.

  • Cities collect more data on areas such as transport (64%), policing and law enforcement (57%), land use/zoning (51%), and housing (47%).

  • Data on areas such as social welfare and inclusion (32%), blight (29%), tourism (29%) and culture (20%) are less extensive.

  • Of the cities that claimed data play a key role in their innovation work, 75% have established partnerships with academia and think tanks to improve data management.

4. Resources and funding

Cities that set up a specific financing framework for innovation have a strong foundation for the implementation of new ideas. Sound sources of funding allow cities to conduct research, prototype or test new ideas, implement ideas on a larger scale, and recruit highly qualified staff. Survey results showed that:

  • 80% of respondent cities have specific funding to support innovation capacity. The vast majority (94%) have ring-fenced resources from the municipal budget to fund part of their innovation work;

  • Cities also rely on external sources (non-profit foundations and philanthropies), and, to a lesser extent, on private sector investments;

  • Most funding (79%) goes directly toward specific projects that are considered innovative;

  • City investment in innovation is both relatively new and marginal in comparison to other areas where cities invest (i.e. health, transport, urban infrastructure).

5. Outcomes: Evaluation and results

Cities that evaluate the impact of their innovation work are better positioned to scale up innovative projects that offer a better return on investment of taxpayers’ dollars. In particular:

  • Cities that consistently evaluate the results of their innovation work have, across the board, greater familiarity with innovation than cities that lack procedural assessments;

  • However, the large majority of cities only assess some elements of their innovation strategy and consider it too early to determine their success.

  • Only 16% of cities with formal innovation goals conduct a comprehensive and systematic evaluation of the impacts of their innovation strategy.

  • Factors that limit the evaluation of innovation strategies in cities include lack of financial resources, technical capacity and methodological instruments.

  • Proper evaluation and monitoring practices strengthen accountability to citizens and donors.

  • Monitoring and evaluation of innovation work remains a key area for development across local governments.

The results of the survey revealed that there are a variety of ways that cities are growing their capacity to innovate. This report proposes a number of policy recommendations in a Checklist for Action intended to assist cities in their quest to strengthen their innovation capacity. The recommendations put forward in this Checklist cover the five dimensions of innovation capacity addressed in the survey and highlight the need for cities to:

  • Formulate a strategy that gives long-term direction to innovation work;

  • Install innovation units/teams within the administration;

  • Invest in the capacity and capability of public servants;

  • Promote a culture of taking reasonable risks and learning from failure;

  • Ensure the production, free flow, and utilisation of data and knowledge across the public sector to support decision making;

  • Create collaborative partnerships with external actors to strengthen data management capability;

  • Set up a specific financing framework for supporting innovation work; and

  • Conduct an impact evaluation of innovation projects/strategies.

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© OECD 2019

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Executive summary