copy the linklink copied!2. Innovation capacity in cities – an empirical perspective

Formulate an innovation strategy with a clear political message

Only 9% of cities that participated in the OECD/Bloomberg Survey on Innovation Capacity in Cities indicated they have a formal innovation strategy to improve processes, service delivery or make a better management of resources. A formal “innovation strategy” is a key document that highlights the city’s priorities and objectives on pursuing innovation and the way to achieve them. It also provides a long-term approach or vision to innovation. In many cases, the strategy is the product of collaboration among city administration, community leaders, academia, private sector representatives and residents. Furthermore, it is a way of signalling that innovation does not occur suddenly or by chance, it results from a long-term iterative process that integrates inputs, procedures and outcomes.

The strategy’s main advantage is that it can help encourage and justify cities’ efforts to stimulate their long-term capacity to innovate in a strategic manner. “The explicit incorporation of innovation goals and objectives of an organization is the first step to create attitudes amenable to creativity and to continuous development of new products.” (Alves et al., 2007, pp. 28-29[1]). Conversely, having innovation goals is not always akin to having an innovation strategy. Overall, 55% of cities reported having formal innovation goals, while 56% reported that they had no formal innovation strategy (Figure 2.1).

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Figure 2.1. Share of cities with formal innovation goals and share of cities with a formal innovation strategy

Goals Strategies

Note: The left panel represents responses from 86 (out of 89 surveyed cities) to Question 5.1 “Does your city have formal innovation goals?”. The right panel represents responses from all 89 surveyed cities to Question 1.1 “Does your municipality have a formal innovation strategy?”.

Source: OECD /Bloomberg Survey of Innovation Capacity in Cities 2018.

However, of the cities that reported having innovation goals, a large majority did not have a formal innovation strategy. It should be noted that the survey did not specifically assess the quality and scope of these existing innovation strategies, which may vary significantly across cities, although research suggests that an innovation strategy should consist of a high-level, long-term vision indicating the direction the organisation wants to develop and should include concrete yearly plans (Byrne et al., 2018[2]). The innovation strategy could have a three to five year vision depending on the political system and organisation of each city.

Innovation strategies help build a city’s innovation activities

Cities with a formal innovation strategy reported being more experienced with activities that foster innovation than those that do not have a formal strategy. Having a formal innovation strategy helps expose cities to innovation-related tools and activities (Box 2.2). According to the results of the survey, there are a number of tools and activities cities may rely on to strengthen their innovation capacity. However, the number of tools and activities a city is familiar with can depend on that city’s administrative culture, financing, regulation and political context.

Figure 2.2 shows that cities with a municipal innovation strategy tend to use with greater frequency a wide range of innovation tools and activities. A clearly defined formal strategy can enable cities to better allocate their resources to achieve the goals of municipal leaders (Knutsson et al., 2008[10]). Yet, to be truly effective, a strategy must be known and owned by public servants. Public employees must incrementally implement the municipal strategy on a daily basis. Managed this way, a strategy can improve municipal outcomes not only by dictating resource allocation from the top, but also from the “bottom up”, by allowing municipal employees to situate their own work within the overall context of the larger organisation (Knutsson et al., 2008[10]).

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Figure 2.2. Frequency of use of innovation approaches between cities with vs. without formal innovation strategies

Notes: All 89 surveyed cities responded to Question 1.1 and 88 cities responded to Question 1.6. The figure represents results obtained by crossing responses to Question 1.1 “Does your municipality have a formal innovation strategy?” with responses to Question 1.6 “What would you say is the level of use or experience your city has with each of the following innovation activities?” (1 = Never used; 3 = Use sometimes; 5 = Use often). The horizontal axis denotes average points that these cities assign for each innovation activity (on a scale from 1 to 5). “Foresight, prospective exercises, scenario planning” as one of the pre-defined innovation activities for Question 1.6 was not ranked (i.e. left blank) by 61 out of 89 surveyed cities, accounting for their rank point being lower than 1.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Cities with an innovation strategy tend to approach innovation much more holistically. This is a way for the local administration to see the innovation strategy as a process for problem solving that can be applied in multiple policy domains and challenges. A holistic approach ensures that every sector or area in the administration is brought into the effort to build innovation. Moreover, cities with a formal innovation strategy are more likely to have formal innovation goals. There are, however, cities with a formal innovation strategy that do not have explicit innovation goals. In these cases, cities tend to have a long-term development vision that stresses the need for innovation. A few cities have adopted a holistic approach to innovation without a formal strategy.

On the other hand, as the survey revealed, most of the cities that do not have a formal innovation strategy tend to focus on innovation efforts within specific domains – such as education, poverty or economic growth – to foster their innovation capacity. Some cities have innovation teams that focus on both specific topics and teaching innovation techniques to the whole organisation. By developing a formal innovation strategy, municipalities put themselves in a position to consider how changing practices will affect their work across departmental boundaries. Moreover, the implementation of an innovation strategy can help create the institutional space and resources for cross-cutting initiatives.

When cities were asked whether they approached innovation within specific policy domains, holistically or both, only 19% of the cities that indicated having a formal innovation strategy also indicated that their innovation work was isolated to specific policies. This stands in stark contrast to cities without a formal strategy, among which almost half (48%) stated to approach innovation work only within particular policy sectors.

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Figure 2.3. Approach to innovation between cities with vs. without a formal innovation strategy

Cities with a formal strategy Cities without a formal strategy

Notes: Responses provided by 89 surveyed cities. The figures represent results obtained by crossing the responses to Question 1.1 “Does your municipality have a formal innovation strategy?” with responses to Question 1.4 “Would you say your city approaches innovation capacity at a holistic, macro level; within specific policy domains; or both?”.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Figure 2.4 shows that the most common approaches and practices across cities related to innovation capacity are taking risks or testing new ideas; data-driven analytics and public data management; organisational change within the municipality; and engaging residents in new ways (see Box 2.2). However, this picture changes when considering the adoption of a formal innovation strategy.

Indeed, an innovation strategy may suggest a different approach to innovation. As Table 2.1 shows, cities with a formal innovation strategy tend to be more open to take risks and pursue organisational change, whereas those without a strategy are more focused on data-driven analytics and rethinking the city’s approach to finance and partnership. Interestingly, a large majority of cities reported that they are working toward finding new ways to engage residents in policy making. This is not surprising as most of the innovation strategies reported by cities refer to the need to obtain citizen input and support for designing and implementing innovative policies and projects.

One area where all cities seem to lack experience is in conducting foresight and prospective exercises. One explanation for this could be due to the political and administrative culture as urban planners have only sporadically engaged with futures studies to develop long-term city visions. For example, in some countries, mayors have short terms in office and no possibility for re-election. “Urban planning … remains a predominantly short-term and medium-term activity (or 15-20 years ahead), rather than looking to the longer-term of 2050 and beyond” (Dixon et al., 2018, p. 781[5]). Another issue may be that, because of politics or people’s demands, cities look predominately at the problems right in front of them.

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Figure 2.4. Cities’ experience with various innovationapproaches

Notes: Out of 89 surveyed cities, 88 responded to Question 1.6 “What would you say is the level of use or experience your city has with each of the following innovation activities?” Surveyed cities were asked to rank each innovation activity on a scale from 1 to 5 (1 = Never used; 3 = Use sometimes; 5 = Use often). The units on the grids correspond to the average points that surveyed cities assign for each innovation activity (on a scale from 1 to 5).

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Cities with a formal innovation strategy tend to associate innovation with rethinking its administrative organisation based on a human-centred design. This means that we can improve societal problems – like poverty, lack of security, access to clean water and environments – but solutions lie in the people who face those problems every day. The solutions are found by working together with the communities affected by those problems, as it allows for the creation of new solutions rooted in people’s actual needs (Byrne et al., 2018[2]). Cities without a formal strategy tend to associate innovation more frequently with technological developments. The large majority of cities acknowledge the importance of experimentation for innovation.

Advance new organisational structures that shape innovation capacity

Local governments’ structure and functions may affect, to a certain extent, the promotion of innovation. Individual members of staff, the teams they work in, the units where their teams are located, the organisation (agency or ministry) where they work, and the whole of the local public administration are important factors that influence the innovation capacity of the local public administration.

Table 2.2 presents some of the ways in which innovation may take place in public organisations at different levels of government. These levers should not be considered in isolation; they should be combined to achieve synergies and greater impact in the promotion of public sector innovation. Governments could take co-ordinated action across different policy levers to promote innovation. Table 2.2 is not meant to be exhaustive, as there are other elements of how the public sector, and in particular local public administration, is organised that will affect its capacity, willingness and opportunity to innovate. It should be considered that public sector innovation may be more successful, depending on the configuration of individuals, resources and personalities, and the local and national economic and socio-political context (OECD, 2017[3]).

Installation of innovation units/teams

Leadership is an essential ingredient for supporting innovation capacity in cities

Political and managerial leadership has a key role to play in inspiring and supporting behaviour change in the city’s administration. According to the survey, cities rank leadership commitment as the most important determinant of successful innovation work (Figure 2.5). The role of politicians is likely to be extremely influential in the adoption of innovations as they set the political values, policy direction, priorities and decide on the allocation of resources (Walker, 2006[11]). Therefore, “… leadership buy-in and the direct support of the mayor appear to be crucial factors in how embedded innovation culture is within a city government” (Makin, 2017, p. 13[12]). In many instances, local political leaders may set their reputation on the promotion of innovation. This would not only bring prestige to the city as a reference point for other cities, but for the political leadership it could represent more legitimisation and increase citizens’ trust in their administration.

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Figure 2.5. Most important factors/practices in supporting innovation in cities

Notes: Out of 89 surveyed cities, 85 responded to Question 5.6 “How important are the following factors or practices in supporting innovation in your municipality?”. Surveyed cities were asked to indicate “Very important”, “Important”, “Not important” for each factor/practice.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Managerial leadership is also crucial for the development of innovation capacity. City administrators, city managers or chief executives set the standards for how audacious civil servants can be in developing new approaches and projects. Executives at the head of municipalities and departments can strongly determine workplace culture in ways that human resource management may be unable. Moreover, executives play a crucial role in allocating the human and financial resources that can help implement an innovative policy agenda. There is still debate on whether managers should encourage stability to enhance institutional memory or allow mobility to bring in new ideas (Walker, 2006[11]). It seems important to have both: managers with deep historical knowledge and understanding of how the administration functions and managers who have skills gained from other institutions who can bring different perspectives to the fore. Middle managers also have a key role in developing innovation capacity by allowing for greater autonomy and flexible human resource management rules so that their teams can enhance the administration’s ability to innovate.

Specific innovation units may have a major impact on cities’ capacity to innovate

The creation of a dedicated innovation unit is a popular, if recent, tactic cities are deploying to help mainstream their innovation work. The large majority of cities surveyed (89%) have dedicated staff or teams to promote innovation (Figure 2.6). Survey results show that only 21% of innovation teams have been in place for more than five years. This suggests that the innovation units or teams may still require time to consolidate their job and produce results. Producing innovation is a long-term process that requires continuity and most of the innovation teams have existed for three years on average. A key challenge for cities is to ensure that the innovation teams survive changes in the administration and political leadership.1

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Figure 2.6. Presence of dedicated innovation teams/staff within city administration

Note: Out of 89 surveyed cities, 88 responded to Question 2.1 “Are there people in your city such as, but not limited to, designated team(s) and/or officer(s) for public sector innovation in your municipality?”.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

OECD (2017[3]) research has found that innovation units can help overcome barriers to innovation through their different functions. Innovation teams have five broad functions: 1) supporting and co-ordinating the implementation of innovative solutions; 2) experimenting with different approaches to problems; 3) supporting cross-cutting and interdisciplinary projects; 4) ensuring the resources needed to give emerging ideas the space to grow; and 5) building capacity and networking support.

Survey results show that cities consider dedicated innovation units a crucial mechanism to cultivate municipal innovation capacity (Figure 2.7). These units or teams are generally thinking beyond the day-to-day to reimagine cities and the services they provide. However, a dedicated innovation team should not own innovation for the city. While their role is to facilitate and enable innovation, building capacity and skills for innovation is crucial (Makin, 2017[12]). The challenges for these teams are to transmit their energy, vision and skills to other teams throughout the administration, to build a culture of collaboration and to break down silos.

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Figure 2.7. Importance of dedicated innovation team/staff in supporting innovation capacity

Notes: Out of 89 surveyed cities, 85 responded to Question 5.6 “How important are the following factors or practices in supporting innovation in your municipality?”, where one of the factors is “A strong team/dedicated staff support”. Surveyed cities were asked to indicate “Very important”, “Important”, “Not important” for each factor/practice.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

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Box 2.3. Select examples of innovation units in cities

• Cape Town’s (South Africa) Organisational and Innovation Department resides within the Corporate Services Directorate. Its purpose is to deliver strategic support to  contribute to the efficiency and effectiveness of the city administration’s core mandate of service delivery.

• Cincinnati, OH (United States) innovation function is housed within the Office of Performance and Data Analytics. The rationale is that performance management, data analytics and innovation are interdependent. This team works with the city manager to establish a comprehensive, integrated performance management programme for the city that includes performance management agreements, a CincyStat programme and an innovation lab focused on streamlining municipal processes. The five to ten person team works with departments to measure performance, evaluate success and identify areas of improvement. Its innovation lab helps agencies achieve efficiency gains through leaner and smarter operations, better and faster service delivery, and increased capacity for problem solving.

• Jerusalem’s (Israel) Innovation Team (JLM i-team), is an independent senior consulting team that reports to the mayor directly. It works on strategic areas such as youth at risk, fostering business opportunities, education, building thriving communities and creative public space. Its independence allows it to build bridges across departments and organisations to achieve common goals. The team works with city partners to create lean and smart initiatives that, once successful, are scaled up.

• New York, NY (United States) has set the Mayor’s Office for Economic Opportunity (NYC Opportunity) as an innovation lab focused on reducing poverty and increasing equity. The 60-person team conducts cross-cutting research, collects and analyses data, and formulates proposals for the city’s programme and policy development. Its work includes analysing anti-poverty approaches, facilitating data sharing across the city’s administration and assessing the impact of key initiatives. It works collaboratively with other agencies to design, test and oversee new programmes and digital products. It produces the annual Poverty Measure that provides a comprehensive picture of poverty in the city. NYC Opportunity relies on the following capacities/expertise: design, programme management, digital products, data integration, evaluation and research. It has a lot of capacity around human-centred and behavioural design.

• Syracuse, NY (United States) has set an innovation team at the Office of Accountability, Performance and Innovation. Its aim is to help departments in the city administration to address citizen needs through data-driven decision making. Within the office, the divisions of data, innovation and accountability work interdependently. All innovation projects contribute to key strategic objectives such as: efficient, effective and equitable service delivery; increasing economic investment; providing quality constituent engagement and response; and achieving fiscal sustainability. The team uses a philosophy called Objectives+ Key Results to use data to measure change and drive innovation.

Sources: For Cape Town: Directorate Executives Summaries and Scorecards for 2018-2019. For Cincinnati: Office of Performance and Data Analytics, https://www.cincinnati-oh.gov/manager/opda. For Jerusalem: JLM i-Team, https://jlmiteam.org. For New York City: NYC The Mayor’s Office for Economic Development, www1.nyc.gov/site/opportunity/about/about-nyc-opportunity.page and presentation of Carson Hicks, Deputy Executive Director of the Mayor’s Office for Economic Opportunity, New York City during the webinar on “Advancing Cities’ Innovation Capacity” on 12 June 2019. For Syracuse: City of Syracuse Innovation Team, www.innovatesyracuse.com and presentation of Adria Finch, Director of Innovation, during the webinar “Accelerating Cities’ Innovation Capacity” on 12 June 2019.

Moreover, in an era of rapidly changing city environments, cities need to ensure they employ a skilled and adaptable workforce. They need to design high-quality learning and development strategies for local public servants to update, upgrade or even acquire new knowledge and skills. For example, the increasing reliance on ICT for public service delivery and on data-driven planning and decision making requires a digital skill set among the different areas of the city administration.

Having full-time municipal staff dedicated entirely to innovation appears to be one of the capacity-building factors that most strongly correlates with innovation work (Figure 2.8). On average, cities that hired dedicated staff reported significantly higher levels of familiarity with innovation work. The most significant differences between cities with and without dedicated staff occurred with respect to developing new solutions based on digital technology. Cities with dedicated innovation staff scored 60% higher levels of familiarity with developing new solutions based on digital technologies than cities without a dedicated innovation staff. The second-most significant domain of innovation work where staff capacity correlated with levels of use was human-centred design. Cities with dedicated staff recorded 54% higher levels of use than those of cities without any staff dedicated to innovation work.

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Figure 2.8. Frequency of use of innovation approaches for cities with vs. without dedicated innovation team/staff

Notes: Out of 89 surveyed cities, 88 responded to Questions 2.1 and 1.6. The figure represents results obtained by crossing the responses to Question 2.1 “Are there people in your city designated team(s) and/or officer(s) for public sector innovation in your municipality?” with responses to Question 1.6 “What would you say is the level of use or experience your city has with each of the following innovation activities?” (1 = Never used; 3 = Use sometimes; 5 = Use often). The horizontal axis denotes average points that surveyed cities assign for each innovation activity (on a scale from 1 to 5). “Foresight, prospective exercises, scenario planning” as one of the pre-defined innovation activities for Question 1.6 was not ranked (i.e. left blank) by 61 out of 89 surveyed cities, accounting for some rank points being lower than 1.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Innovation units are generally understaffed and are led by project managers

The large majority of responding cities have staff dedicated to innovation work. However, more than half (56%) have innovation departments with 10 employees or less; only 10% have more than 15 staff dedicated to innovation (Figure 2.10). The generally limited size of municipal innovation departments indicates that cities primarily view innovation work as complementary to the conventional work of city agencies.

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Figure 2.9. Location of innovation team within the city administrations

Notes: Out of 89 surveyed cities, 78 have a designated team(s) and/or officers for public sector innovation within their city administration. The figure represents responses provided by these 78 cities to Question 2.5 “Where, in your city administration, does the innovation team sit?”. The vertical axis denotes the percentage of cities whose innovation team sits in various locations within the city administrations.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

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Figure 2.10. Size of innovation teams dedicated to building innovation capacity

Notes: Out of 89 surveyed cities, 88 responded to Question 2.2 “How many total innovation-related staff work in your municipality?”. Surveyed cities were allowed to select more than one option.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Innovation teams can provide municipalities with a variety of key functions to bolster innovation capacity. They can serve as liaisons between departmental silos by creating networks to share best practices or by working to co-ordinate the implementation of cross-cutting innovation projects, such as digitisation. Dedicated innovation units can also serve as spaces for policy experimentation, where projects are conceptualised and prototyped on a small scale before expanding into other departments. The capacity of innovation departments to foster innovation depends on their relationship to municipal centres of authority. The closer the team is to the central executive power, the greater their capacity to effect change when leadership is bold and strong (Cohen, Almirall and Chesbrough, 2016[13]). The more in the periphery the team is, the more open to radical innovation it will tend to be (OECD, 2017[3]).

Innovation teams are, most often, led by people with project management skills. Indeed, survey results show that project manager (82%) and community engagement staff (60%) are the most common positions on innovation teams (Figure 2.11). It seems logical to have project managers leading innovation teams as their task is to co-ordinate the work of teams. Innovation requires giving more opportunities to city staff working in different service areas and departments to meet regularly to share ideas and work together towards a common goal (Makin, 2017[12]).

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Figure 2.11. Professional skills/profiles represented by innovation staff in city administration

Notes: Out of 89 surveyed cities, 78 have a designated team(s) and/or officers for public sector innovation within their city administration. The figure represents responses provided by these 78 cities to Question 2.3 “What types of professional skills does your city have on its innovation staff?”. Surveyed cities were asked to select all relevant profiles/skills. The vertical axis denotes the percentage of skills/profiles possessed by innovation staff.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

A comparison of cities’ levels of familiarity with innovation work according to the profiles of their staff members suggest that cities with computer scientists and engineers reported being significantly more familiar with innovations in municipal data analytics and digital technologies (Figure 2.12). Moreover, cities with engineers on staff had the highest levels of familiarity with implementing new digital technologies.

Similarly, cities that hired innovation staff with qualitative skills, such as human-centred design, proved much more effective than their counterparts at engaging residents in new ways (Figure 2.13). Cities that hired sociologists were correlated with the highest levels of familiarity with these two categories of work. Meanwhile, cities that lacked community engagement staff were 27% less familiar on average with human-centred design than their counterparts with dedicated staff for community engagement. Notably, cities with community engagement staff also scored 17% greater familiarity with risk taking than cities that lacked such staff.

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Figure 2.12. Frequency of use of technological/digital innovation approaches between cities with vs. without an engineer/data scientist

Notes: Out of 89 surveyed cities, 78 cities responded to Question 2.3 and 88 cities responded to Question 1.6. The figure represents results obtained by crossing responses to Question 2.3 “What types of professional skills does your city have on its innovation staff?” with responses to Question 1.6 “What would you say is the level of use or experience your city has with each of the following innovation activities?” (1 = Never used; 3 = Use sometimes; 5 = Use often). “Data-driven analytics/public data management” and “Developing new solutions based on digital technologies” are two of the options under Question 1.6, while “Data scientist/computer scientist” and “Engineer (civil/mechanical/electrical/other)” are two of the options under Question 2.3. The horizontal axis denotes average points that surveyed cities assign for each innovation activity (on a scale from 1 to 5).

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

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Figure 2.13. Community engagement staff and sociologists help design new ways to engage with residents

Notes: Out of 89 surveyed cities, 78 cities responded to Question 2.3 and 88 cities responded to Question 1.6. The figure represents results obtained by crossing responses to Question 2.3 “What types of professional skills does your city have on its innovation staff?” with responses to Question 1.6 “What would you say is the level of use or experience your city has with each of the following innovation activities?” (1 = Never used; 3 = Use sometimes; 5 = Use often). “Human-centred design” and “Engaging residents in new ways” are two of the options under Question 1.6, while “Community or resident engagement staff” and “Sociologist” are two of the options under Question 2.3. The horizontal axis denotes average points that surveyed cities assign for each innovation activity (on a scale from 1 to 5).

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Set up a specific financing framework

Although the large majority of responding cities (80%) have specific funding to support innovation, it does not necessarily mean that their resources are sufficient to finance innovation. This is particularly the case when cities need to deliver more with less. Yet, in many cities, budget reductions and cuts may be creating the conditions for innovation to occur. The way that a municipality finances innovation work can also strongly determine the implementation of new ideas. A large majority (87%) claimed that dedicated funding is at least somewhat important in determining innovation capacity (Figure 2.14). 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. The city of Los Angeles, in its answers to the OECD/Bloomberg Survey on Innovation Capacity in Cities, suggests that dedicated funding for innovation projects is essential to feel comfortable trying new things. It is then easier for government officials to use taxpayer money to continue or scale the work. At the same time, it is also much easier for residents to appreciate government experimentation and support innovation and transformation. In the experience of the city of Los Angeles, it can be hard for government to budget for innovation and specific tools and projects until they are proven.

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Figure 2.14. Importance of dedicated funding in supporting innovation capacity

Notes: Out of 89 surveyed cities, 85 responded to Question 5.6 “How important are the following factors or practices in supporting innovation in your municipality?”, where one of the factors is “Dedicated funding/financial support for innovation”. Surveyed cities were asked to indicate “Very important”, “Important”, “Not important” for each factor/practice.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Among the cities with dedicated funding for innovation, the vast majority (94%) have— set aside resources from the municipal budget to fund part of their innovation work (Figure 2.15). This occurs through the operating budget and by funds approved through the city council. The next largest source of municipal innovation funding is external partners from outside the public sector. Cities rely on non-profit organisations (i.e. foundations, philanthropy) for this funding, with relatively few relying on private sector investments or support from a national government budget.

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Figure 2.15. Sources of funding to enhance innovation capacity in cities

Notes: Out of 89 surveyed cities, 70 reported having specific funding available at the municipality level to support innovation capacity. The figure represents responses of these 70 cities to Question 3.2 “To the degree you have funding that enhances your capacity to innovate, where does this funding originate from?”. Surveyed cities were asked to select all options that apply. The vertical axis denotes the percentage of cities whose funding for innovation comes from various different sources.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

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Figure 2.16. Origin of municipal budget funding for innovation

Notes: Out of 89 surveyed cities, 70 reported having specific funding available at the municipality level to support innovation capacity. Among these 70 cities, 66 reported having specific funding to support innovation capacity originating from the municipal budget. The figure represents responses from these 66 cities to Question 3.2 “To the degree you have funding that enhances your capacity to innovate, where does this funding originate from?”. Surveyed cities were asked to select all options that apply. The vertical axis denotes the percentage among the 66 cities whose municipal budget funding for innovation comes from various municipal sources.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

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Figure 2.17. Origin of external (non-public) funding for innovation

Notes: Out of 89 surveyed cities, 70 reported having specific funding available at the municipality level to support innovation capacity. Among these 70 cities, 30 reported having specific funding to support innovation capacity originating from external (non-public) funding. The figure represents responses from these 30 cities to Question 3.2 “To the degree you have funding that enhances your capacity to innovate, where does this funding originate from?”. Surveyed cities were asked to select all options that apply. The vertical axis denotes the percentage among the 30 cities whose external (non-public) funding for innovation comes from various external sources.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

There are several issues to consider in financing innovation in cities. First of all, municipalities need to allow innovative projects the budgetary flexibility to scale-up if successful, without removing oversights on how public funds are spent. For instance, the budget office in the municipality may allow and approve administrative units to reallocate funds within or across appropriations accounts to direct them to areas where innovation projects are taking place. It may be that different departments co-fund innovation work. Moreover, channelling funding for cross-cutting innovation work through dedicated innovation teams can help overcome the barriers that result from an inability to co-ordinate funding through distinct departmental silos. Another way to enhance flexibility is to allow unused funds to be carried over across fiscal years, with the approval of the budget office. Effective innovations in the internal operations of municipalities that deliver gains in efficiency will ideally in turn produce budgetary savings. In order to bolster long-term innovation capacity, these savings should be reinvested into scaling up promising experimental projects, deepening existing innovation efforts more broadly or developing new innovative projects (OECD, 2017[3]).

Cities are putting their dedicated funding for innovation to different uses. Most frequently (79%), innovation funding goes directly towards specific projects. Yet a majority of cities with funding for innovation are also investing in capacity building alongside specific projects, such as cross-cutting idea-generating sessions and skill-building workshops to build innovation methods. Cities also fund staff dedicated to innovation work.

Funding for innovation capacity may differ from year to year. In some cities, the innovation units need to send their budgetary requests to the management or budget office and funding may be given on a project-by-project basis. Therefore, funds could vary depending on the availability of resources.

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Figure 2.18. Types of innovation activities being funded by cities

Notes: Out of 89 surveyed cities, 70 reported having specific funding available at the municipality level to support innovation capacity. The figure represents responses from these 70 cities to Question 3.3 “What types of activities are being funded by resources earmarked for innovation?”. Surveyed cities were asked to select all options that apply. The vertical axis denotes the percentage of activities that receive funding earmarked for innovation.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Budgetary pressures are driving some cities to prioritise reactive measures instead of proactive activities, including innovation. OECD research has found that the budgeting routine in the public sector solves many problems for government, but it is certainly not calculated to prompt policy innovation (OECD, 2017[3]). Moreover, innovation in cities is only recently being legitimised as an area for investment within city administrations. However, cities’ investment in innovation is largely marginal in comparison to other expenses. In some cases, multi-level governance co-operation and international collaboration help to overcome budgetary constraints. Table 2.3 provides a general overview of public expenditure in subnational levels of government across OECD countries. It shows that compensation of government employees is, by far, the largest expenditure category. By area, education and health consume most of the resources.

Survey results indicate that cities that have dedicated funding for innovation are more familiar with implementing new ideas (Figure 2.19). The category of innovation work that most strongly correlated with dedicated funding was the use of digital technology to develop new solutions. Cities with dedicated funding were, on average, 21% more familiar with engaging residents in new ways and data-driven analytics than cities without funding.

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Figure 2.19. Frequency of use of innovation approaches for cities with vs. without dedicated funding for innovation at the municipality level

Notes: Out of 89 surveyed cities, 88 cities responded to Questions 3.1 and 1.6. The figure represents results obtained by crossing the responses to Question 3.1 “Is there specific funding available at the municipality to support innovation capacity?” with responses to Question 1.6 “What would you say is the level of use or experience your city has with each of the following innovation activities?” (1 = Never used; 3 = Use sometimes; 5 = Use often). The horizontal axis denotes average points that surveyed cities assign for each innovation activity (on a scale from 1 to 5). “Foresight, prospective exercises, scenario planning” as one of the pre-defined innovation activities for Question 1.6 was not ranked (i.e. left blank) by 61 out of 89 surveyed cities, accounting for their rank point being lower than 1.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

It is also noteworthy that, apart from foresight exercises, the domain of innovation work that correlates the least with the presence of dedicated funding is rethinking approaches to financing. Cities with dedicated funding for innovation reported only an average of 2% greater familiarity with rethinking their finances than cities without dedicated funding. This is likely a result of the fact that cities facing budget shortfalls and conditions of austerity may also be incentivised to reconsider their finances, despite the fact that they lack the resources to consistently fund innovative projects.

Human resource management and administrative culture

Invest in the capacity and capability of local public servants

Cities can help create a climate for new ideas by ensuring a dynamic management of the public workforce, especially senior policy makers. For that, at least three aspects should be considered: 1) ensuring that the workforce has the right skills and competences needed (talent); 2) ensuring the workforce is representative of the population it serves (diversity); 3) creating a climate that motivates public officials to engage in innovation. The way these factors are managed may create positive change or inhibit the creation of a culture of innovation (OECD, 2011[15]; 2019[16]).

The survey results show that almost 70% of responding cities considered human resource (HR) management important in improving their capacity and capability to innovate (Figure 2.20). Interestingly, 25% of cities claimed that HR involvement was unimportant to their innovation work, but this may be because some cities are unaware of the impact human resource management has on innovation. Across the literature, there seems to be agreement that staff determines the success or failure of innovation in the public service (Makin, 2017[12]; Walker, 2006[11]; OECD, 2017[3]; De Vries, Tummers and Bekkers, 2016[17]). The key question is how to motivate staff to innovate and create the right conditions to harness innovation processes within the city administration.

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Figure 2.20. Importance of human resource involvement in supporting innovation capacity

Notes: Out of 89 surveyed cities, 85 responded to Question 5.6 “How important are the following factors or practices in supporting innovation in your municipality?”, where one of the factors is “Human resource involvement, support, and training”. Surveyed cities were asked to indicate “Very important”, “Important”, “Not important” for each factor/practice.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Survey results show that cities believe that workplace culture is a significant factor in supporting their innovation efforts (Figure 2.21). However, that culture depends largely on the combination of the aspects analysed above: committed political and managerial leadership, HR practices, and the importance given to innovation in the budget.

Promote a culture of reasonable risk taking

Cities looking to foster innovation should ensure that their managerial strategies also serve to empower civil servants and create a culture of creativity. Municipal employees should be encouraged to take risks. One strategy to promote this cultural shift might involve positive evaluation in performance reviews, award and recognition programmes for individuals working on new practices and programmes, or the creation of innovation-oriented networks and mobility programmes to bring people together across organisational boundaries (OECD, 2017[3]). A risk management strategy can help ensure the success of an innovation initiative by stating what the initiative is trying to achieve, whether it is changing an established practice or introducing a new solution, and where its mandate lies.

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Figure 2.21. Importance of culture of innovation in supporting innovation capacity

Notes: Out of 89 surveyed cities, 85 responded to Question 5.6 “How important are the following factors or practices in supporting innovation in your municipality?”, where one of the factors is “Culture of innovation within the municipal administration”. Surveyed cities were asked to indicate “Very important”, “Important”, “Not important” for each factor/practice.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Produce and use data for decision making

When a city provides greater access to and makes better use of public data, it contributes to economic development and growth because it allows the creation of value. Cities are an important user, but also a key source of data. “Data-driven innovation is the use of data and analytics to improve or foster new products, processes, organisational methods and markets” (Martin et al., n.d.[20]). By making data regarding numerous aspects of urban life widely and freely available, cities can enable competition to flourish as entrepreneurial citizens create new solutions that bring down the marginal costs and inefficiencies of urban services (Cohen, Almirall and Chesbrough, 2016[13]). Data help cities to balance what citizens perceive on service delivery and quality of life.

The OECD’s Observatory of Public Sector Innovation (OPSI) has established a four-phase typology for the use of data and information. It consists of: 1) sourcing – the origin of data, information and knowledge; 2) exploiting – preparing information and data to be used to meet organisational challenges; 3) sharing – the information and data to support decision making elsewhere in the city; and 4) advancing – learning and generating knowledge from the organisation’s own experience (OECD, 2015[21]; 2017[3]). Considering data and technological innovation capacities through this lens can help municipalities improve their internal operations and enable citizen innovation.

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Figure 2.22. Improving data management capability

Sources: Adapted from the OECD’s Observatory of Public Sector Innovation. OECD (2017[3]), Fostering Innovation in the Public Sector, https://dx.doi.org/10.1787/9789264270879-en; OECD (2015[22]), The Innovation Imperative: Contributing to Productivity, Growth and Well-Being, https://dx.doi.org/10.1787/9789264239814-en.

Effectively using data is important to strengthen cities’ capacity to innovate. According to the survey results, data play a significant or somewhat significant role in decision making and policy making in 85% of the cities (Figure 2.23). Many cities have placed digital technologies and improved use of data at the heart of their innovation strategies (Box 2.7).

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Figure 2.23. Role of data in cities’ innovation efforts and decision making

Note: Out of 89 surveyed cities, 87 responded to Question 4.1 “How significant a role do data play in your city’s innovation efforts and decision making?”.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Cities need to consolidate the practice of evidence-based policy making. Surprisingly for some cities, the importance of data in policy making and innovation work is not that evident.

Cities need to improve their data management capability

Making data actionable remains a concern for cities. Cities produce a large amount of data, and these data have the potential to improve the way cities operate. However, survey results show that data availability by policy sector remains uneven (Figure 2.24). Cities collect more data on areas such as transport (64%), policing and law enforcement (57%), land use/zoning (51%), and housing (47%). Cities collect less data on areas such as social welfare and inclusion (32%), blight (29%), tourism (29%), and culture (20%). This is likely due to the differing natures of these policy sectors, since law enforcement and transportation are more easily quantified according to statistical metrics than cultural work, which is likely to produce qualitative assessments.

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Figure 2.24. Data availability (by policy area) to support innovation work in cities

Notes: Out of 89 surveyed cities, 85 surveyed reported that data play a role city’s innovation efforts and decision making. The figure represents responses from these 85 cities to Question 4.2 “Does your city have sufficient data in the following policy areas to support your work on innovation?”. Surveyed cities were asked to select all policy areas that apply; every policy area chosen corresponds to one unit.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Some cities reported being in the early stages of improving their methods of data collection and analysis (Box 2.8). Others reported that they needed to consolidate the practice of evidence-based policy making.

An increased reliance on data tends to increase cities’ familiarity with innovation practices

The use of data to enable policy work was the most clearly correlated with a city’s familiarity with innovation work of all the variables considered in the survey. Strong linear correlation between the amount of data used by cities in their decision making and their familiarity with the eight categories of innovation work can be seen in Figure 2.25.

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Figure 2.25. Frequency of use of innovation approaches between cities where data play a significant vs. insignificant role

Notes: Out of 89 surveyed cities, 87 cities responded to Question 4.1 and 88 cities responded to Question 1.6. The figure represents results obtained by crossing responses to Question 4.1 “How significant a role do data play in your city’s innovation efforts and decision making?”, with responses to Question 1.6 “What would you say is the level of use or experience your city has with each of the following innovation activities?” (1 = Never used; 3 = Use sometimes; 5 = Use often). The vertical axis denotes the average points that surveyed cities assign for each innovation activity (on a scale from 1 to 5). “Foresight, prospective exercises, scenario planning” as one of the pre-defined innovation activities for Question 1.6 was not ranked (i.e. left blank) by 61 out of 89 surveyed cities, accounting for some rank points being lower than 1.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Notably, the two domains of innovation work, apart from data analytics, that most strongly correlated with a city’s level of data use were “engaging residents in new ways” and “human-centred design”. Cities with a high level of data showed greater average familiarity with innovative approaches engaging residents than cities that reported that data played no role in their decisions. Similarly, cities with consistent use of data were more familiar with human-centred design than cities lacking data in their operations.

Municipalities that use data consistently demonstrate improved capacity to rethink their challenges holistically and to tackle them. The results of the survey show that thorough use of data analysis can foster innovation at all stages of the policy cycle. Cities with a high-level use of data seem to be more familiar with innovation practices. The cross-cutting benefits of consistent use of data become even more apparent when considering that cities with thorough data also had twice the average familiarity with organisational change than cities without any data capacity. They are more capable of engaging externally with constituents as well as of reorganising internally to improve the operations of their bureaucracies. For example, Los Angeles (CA) focused on using data to increase resident engagement. As a result, the city was able to create an open data portal that now greets visitors with an invitation to “find the data useful for you”, while its GeoHub online platform empowers residents with quick access to mapped sets of open data related to health, safety, schools and more. As a top performing city in the “What Works Cities Certification” programme, it demonstrates what “good” looks like in terms of gathering and using data to improve resident engagement.

Create collaborative partnerships with external actors to strengthen data management capability

In order to keep pace with rapid technological advancement and to improve their data collection capability, analysis and sharing, most cities build partnerships outside the public sector. These partnerships also help cities overcome knowledge and skill gaps with private developers and researchers. Indeed, co-operation within the public sector allows cities to access resources and competences they do not have, long-term innovation perspectives, idea generation activities, and, in some cases, share the risks inherent to innovation (Alves et al., 2007[1]). Partnerships are not for cities to outsource some of their capacities, but to help them build their capacity.

Survey results show that 75% of cities that reported that data play at least some role in their work have built relationships with academia and think tanks to gather and analyse data (Figure 2.26). A total of 56% of surveyed cities that said data play a major role in policy making have also reported that they have built partnerships with other cities. This could be because cities need to create economies of scale as data management may be expensive and complex, thus creating partnerships with other cities is a way to share costs, particularly if they belong to the same metropolitan area. Forming partnerships could be a win-win situation for large and small cities as it increases efficiency and accuracy.

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Figure 2.26. Partnerships established by cities to enhance data work

Notes: Out of 89 surveyed cities, 85 reported that data play a role city’s innovation efforts and decision making. The figure represents responses from these 85 cities to Question 4.5 “In your city, has your municipality developed any partnerships with the aim of collecting or analysing data to fuel innovation capacity or strategy?”. The vertical axis denotes the percentage of municipalities collaborating with different external actors for their data work.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Academia and the private sector constituted the most common sectors for data-related partnerships in all responding municipalities. Survey results show the importance of building strong and diverse knowledge networks to enhance innovation capacity. Figure 2.27 shows how cities that reported using data thoroughly in their decision-making processes are far more likely to have partnerships with external data providers than all other cities. Only 3% of survey respondents claimed to use data consistently for innovation. In contrast, an overwhelming 86% of cities with strong data usage also reported having partnerships with academic institutions to help source and process their data.

The private sector was the domain with the largest percentage difference in partnerships between cities that consistently use data. Survey responses showed that 62% of cities that consistently use data have partnerships with the private sector, compared with 36% of all other municipalities that do. Private sector enterprises possess a great deal of data that could be of use informing policy makers. Moreover, there is the related issue that municipalities, when compared to the private sector, tend to have difficulty attracting the human capital needed to process these data. Both of these factors help explain why cities that establish partnerships with private sector firms may be more capable of incorporating data across their municipal operations.

However, cities should consider that private sector data and tech firms might seek to profit from their asymmetric information. Because firms often will not benefit financially from releasing their data and human capital publicly, the private sector is likely more reluctant than other sectors to engage in pro bono partnerships with municipalities. Therefore, economic interests might explain why municipalities have a greater likelihood of collaborating with academia than with the private sector (Kitchin, 2014[6]).

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Figure 2.27. Partnerships across multiple policy sectors established by cities with substantial data capacity

Notes: Out of 89 surveyed cities, 85 responded to Questions 4.1 and 4.5. The figure represents results obtained by crossing responses to Question 4.1 “How significant a role do data play in your city’s innovation efforts and decision making?”, with responses to Question 4.5 “Has your municipality developed any partnerships with the aim of collecting or analysing data to fuel innovation capacity or strategy?”, and then converting them into cumulative percentages for each category. The horizontal axis denotes the percentage of municipalities partnering with various external actors for their data work.

Source: OECD/Bloomberg Survey on Innovation Capacity in Cities 2018.

Foster the move to open data

A big question for many cities is how to exploit their data to optimise public management and service delivery. Data by themselves have no intrinsic value; it depends on how to extract the information (Martin et al., n.d.[20]). If implemented effectively, new smart infrastructure and the big data that it produces have the potential to improve local service delivery and efficiency, enable urban resilience, and cultivate a vibrant knowledge-based economy (Buck and While, 2015[7]). The open data movement is important for a couple of reasons. First, transparency. It is essential to let citizens know what data the government has – and how it is using it – so they can hold the right people accountable. Second, open data fosters greater interdepartmental collaboration and drives innovation through sharing data with third parties (Ende, n.d.[23]).

Promote collaboration with a diverse set of stakeholders

Strengthening cities’ innovation capacity requires building partnerships with external stakeholders. Due to the complexity of contemporary decision making in the public sector and the economic, cultural and social dynamics, no level of government can govern without the collaboration of external stakeholders. Enhancing the innovation capacity of local governments may be possible by structuring better collaboration across disciplines and the establishment of governance innovation networks (Sørensen and Torfing, 2011[18]). External players could include the private sector, academic organisations, other local governments and citizens.

Innovation capacity also depends largely on how city administrations engage the private sector, the non-profit sector and citizens, as well as how they are made active players in the process of decision making and implementation. “The level of innovation in the public sector depends on how well it can manage collaboration, internally and externally, to create value, reduce barriers, and harness resources within co-operating organizations” (Wagner and Fain, 2017, p. 1210[24]). Collaboration between the public and private sectors has a greater potential for creating better and more effective public and private services and products (Setnikar Cankar and Petkovsek, 2013[25]).

The creativity of the local public sector may be bolstered by interacting with a multi-disciplinary environment where people from different professional and socio-economic backgrounds coexist and collaborate. A multi-disciplinary environment refers to organisations from different sectors and science and technology institutions. “The linked organizations combine multidisciplinary competences and localized complementary productive activities, integrating the diverse knowledge sets and skills …” (Alves et al., 2007, p. 30[1]) needed for new public products and services.

Ensuring the participation of a diverse array of constituents (and indirectly of competencies, skills and ideas) is also more likely to support and lead to successful innovation. This entails seeing diversity as equal opportunities by which people from different backgrounds, levels of income, gender, race, age, religion or belief, political views, and disability are able to participate in the policy-making process. Moreover, individuals have stronger incentives to engage in public policies that visibly and tangibly affect the environment in which they interact on a daily basis (Voorberg, Bekkers and Tummers, 2015[8]).

Partnering with citizens for innovation

Collaboration with the private and non-profit sectors

Enhancing capacity in the local public administration requires new forms of governance that facilitate collaboration between the cities/municipalities and the private and non-profit sectors. Innovation can be developed and implemented through “innovation co-operation” (Setnikar Cankar and Petkovsek, 2013[25]). Cities may establish partnerships with private organisations for data management or even service delivery. However, new ways and modes of interacting with the public, business and non-profit organisations are needed. Possible partners for collaboration are private enterprises, research institutions, other public organisations, non-profit organisations and citizens as users. This collaboration could come at any stage of the innovation process. “When actors of different experiences, insights and ideas interact through processes in which ideas are circulated, challenged, transformed and expanded, the generation of ideas is accelerated and enriched” (Setnikar Cankar and Petkovsek, 2013, p. 1603[25]). Cities need to exchange ideas and resources within their organisational boundaries. And if they are to increase their capacity to innovate, they need to do so with external actors. Some actions cities can take to collaborate with external actors may include: administrative simplification and reduction of barriers arising from regulation and overly bureaucratic practices (Cunningham and Karakasidou, 2009[31]); and multi-sectoral and multidisciplinary networks that allow for openness and dynamic contact between individuals and teams from different organisations (Alves et al., 2007[1]). Several cities reported having created partnerships with external actors for innovation. Another organisational strategy cities have deployed to improve their collaborative initiatives has been to appoint a policy entrepreneur. These could be elected politicians, leaders of interest groups, or even non-governmental organisations or consultants who use their knowledge to propose solutions to emerging problems.