7. Mission-oriented innovation

Academic and policy discussions use two definitions of mission-oriented innovation: (1) a narrow definition focusing on science, technology and innovation (STI) policies, and (2) a broader, public-sector reform-oriented definition.

The narrower view of mission-oriented innovation in STI policies dates to 1980s debates juxtaposing mission- and diffusion-oriented STI policies. Ergas (1987[1]) described mission-oriented technology policies focusing on “radical innovations needed to achieve clearly set out goals of national importance”. He contrasted these with diffusion-oriented technology policies focused on “the provision of public goods, the principal purpose of these policies is to diffuse technological capabilities throughout the industrial structure, thus facilitating the ongoing and mainly incremental adaptation to change” (Ergas, 1987[1]). Accordingly, in the STI policy space, missions denote policies that target societal challenges with underlying economic logic: missions are a pathway to a different kind of economy and economic growth. In this view, missions are a way to find a new direction of growth for the economy and coordinate large scale public sector STI efforts towards achieving the new direction.

The broader view of mission-oriented innovation is more recent and locates missions in a discussion of public sector reform, about government that is more responsive and innovative in its public service provision. Here, missions target societal challenges with underlying public value logic: missions are a pathway to different ways of working across the public sector and creating better public value for citizens. In this view, missions are a way to reframe siloed policy practices and introduce new policy making methods and tools. As Jannsen and colleagues summarise, “missions are subject to problem-based governance, which encompasses the various efforts focused on directly adapting socio-economic systems dealing with the societal challenge… Missions are also in dialogue and tension with the structures and arrangements involved in innovation governance…, which impact upon the rate, direction, and quality of activities in the innovation system” (Jannsen et al., 2021[2]).

This report adopts a broad a broad definition of missions in accordance with these large coordination issues missions face (Box 7.1).

Common to both the narrow and broad views of mission-oriented innovation is the idea that societies should leverage innovation to achieve clear, ambitious outcomes or goals, either coming from senior government leaders or emerging from bottom-up political processes. The goals serve as a driver and unifying force for innovation that guides actors (whether in one organisation or across government and sectors) to work together and generate learning and knowledge to achieve them. This mission can provide the umbrella and resources for experimentation. It facilitates a range of innovations, but there is a sense of what needs to be achieved, even if the path to get there is not determined or explicit.

The report describes findings on the key trends in mission-oriented innovation in the public sector in the following areas: (1) General description; (2) Main drivers of missions; (3) Enabling factors; (4) Tools and methods; (5) Skills and capacities; (6) Policy and implementation challenges; and (7) Open questions for further research.

Before the COVID-19 pandemic, governments’ attention already focused on tackling “grand challenges” and ‘wicked’ problems, such as climate change, through STI policies (Schot and Steinmueller, 2018[3]; Borrás and Edler, 2020[4]; Mazzucato, Kattel and Ryan-Collins, 2020[5]). The challenge-driven STI policy ambition to achieve a particular (smart, inclusive, sustainable) type of economic growth acknowledges that economic growth has both a rate and multiple possible directions (Mazzucato, 2017[6]). Policymakers have a choice, for instance, how quickly and how to decarbonise economic sectors. These pathways imply not only varying trade-offs but also different spillovers and dynamic efficiency changes.

As a result, starting in 2021, the EU’s Horizon Europe research and development funding programme committed to spending EUR 5 billion to 2027 across five mission areas (Box 7.2) and encouraged member states to refocus their STI policies according to a mission-oriented approach (Mazzucato, 2018[7]).1 Many other countries are experimenting along similar lines. Fisher et al. (2018[8]) list 137 ongoing mission-oriented research and innovation initiatives (includes private foundations) in 32 countries. The OECD provides an online dashboard of mission-oriented policies (Larrue, 2021[9]). This so-called “normative turn” i. STI policies (Daimer, Hufnagl and Warnke, 2012[10]; Uyarra, Ribeiro and Dale-Clough, 2019[11]) is likely to be reinforced by COVID-19 responses promising to “build back better” (Mazzucato et al., 2021[12]).

The EU attempted for more than a decade to re-orient its research and development agenda towards the grand challenges (Soete et al., 2017[13]). From the 2009 Lund declaration onwards, the EU attempted to tackle the so-called "orientation failure" inherent to its innovation policies (Daimer, Hufnagl and Warnke, 2012[10]). In this context, mission-oriented innovation offers a policy framework that enables the public sector to overcome endemic policy coordination challenges (Ergas, 1987[1]). The best-known past examples of mission-oriented policies – such as the Moonshot (Box 7.3) – show exactly that (Mazzucato, M., 2021[14]). Such policies succeeded at mobilising a variety of technological and innovation efforts under a single challenge and itemising it into a variety of missions with considerable spillover effects (Mowery, 2012[15]; Mazzucato, 2013[16]). In contrast to the previous generation of “Moonshot” missions, which focused on technological challenges (such as getting humans to the moon and back), the current generation of mission-oriented policies target a combination of societal and technological challenges (Arundel and Soete, 1993[17]; Soete et al., 2017[13]; Mazzucato, 2018[7]).

However, many governments and public agencies are looking beyond STI policies to utilise mission-oriented innovation. Various attempts to link fiscal policies to qualitative long-terms goals, such as well-being or the Sustainable Development Goals (SDGs) in general, represent a shift in policymaking towards tackling societal challenges through a coordinated effort. The influx of practices from systems thinking to strategic design, and creation of policy and innovation labs to embed such new practices in the public sector, signal a shift in the focus of public agencies towards citizen needs that often span the boundaries of individual ministries. While many such practices and organisations remain at the edge of the public sector, in some cases they lead to wide-ranging changes in civil service or public service provision (Mergel, Ganapati and Whitford, 2020[20]).

In an attempt to combine narrow and broader approaches to mission-oriented innovation, Hekkert and colleagues propose a mission-oriented innovation system as a “network of agents and set of institutions that contribute to the development and diffusion of innovative solutions with the aim to define, pursue and complete a societal mission” (Hekkert et al., 2020[21]). Similarly, Tödtling and colleagues apply a challenge- or mission-oriented logic to regional innovation systems, where mission-orientation “constitutes the wider regional (territorial) framework, reflecting the capacity of regions to address various and partly interrelated challenges” (Tödtling, Trippl and Desch, 2021[22]). The latter approach reflects on the idea of vulnerability, resilience and renewal at the core of (regional) innovation systems (Boschma, 2015[23]; Grillitsch, Asheim and Trippl, 2017[24]), which missions aim to tackle.

The report describes findings on the key trends in mission-oriented innovation in the public sector in the following areas: (1) General description; (2) Main drivers of missions; (3) Enabling factors; (4) Tools and methods; (5) Skills and capacities; (6) Policy and implementation challenges; and (7) Open questions for further research.

Governments use mission-oriented innovation to target challenges from scientific advances (e.g., fighting cancer) to modifying behaviour (e.g., dietary habits). Attempts to describe mission-oriented innovation types vary by:

  • The kind of challenges missions tackle. These typologies find missions attempting to accelerate STI practices, such as supporting applied research of batteries for sustainable transportation, or “transformative” goals that aim to radically change existing systems, such as supporting transition to circular economy (Fisher et al., 2018[8]; Wittmann et al., 2021[25]).

  • How and by whom missions are designed and implemented. Recent OECD research categorises missions by their level of intervention (centre of government, ministry/agency, programme, ecosystem) (Larrue, 2021[9]).

  • How mission-oriented innovation is implemented. Examples include top-down coordination (e.g., German’s High-Tech Strategy 2025), sectoral coordination (e.g., the Netherlands Topsectoren approach), place-based vision- or consensus-building (e.g., Missions València 2030) and user-centric behavioural missions (e.g., Sweden’s food and street missions by Vinnova).

While these typologies are useful to understand the mission-oriented innovation landscape, there is still no common classification of missions. Instead, common drivers are key to understanding why governments use mission-oriented innovation: (1) to address complexity; (2) as a coordination mechanism; (3) in response to the failure of traditional policy mechanisms; and (4) to increase policy effectiveness.

In terms of complexity, it is clear to many decision makers that societal challenges are “super wicked”: policy problems where “time is running out; those who cause the problem also seek to provide a solution; the central authority needed to address it is weak or non-existent; and, partly as a result, policy responses discount the future irrationally” (Levin et al., 2012[26]). While it is not clear how to address these characteristics in policy practice (Peters, 2017[27]; Peters and Tarpey, 2019[28]), the complexity underlying challenges like the climate emergency is perhaps the driver of mission-oriented adaptation in government. For example, Australia’s Drought Resilience Mission aims to reduce drought impacts using expertise in agricultural science, climate science and biosecurity as much as resilience in rural communities (Australian Ministry for Industry, Science and Technology, 2021[29]) (Box 7.5).

Recognising the need for coordination, policy makers are increasingly aware that the toughest policy challenges are interlinked. For example, vulnerability to climate shocks is often greater in areas of prolonged deprivation. Siloed policy design and implementation processes are perceived to be key obstacles in tackling the complexity of policy challenges. Accordingly, a mission-oriented approach promises to coordinate policies both within the STI field an in a broader sense (Kattel and Mazzucato, 2018[30]; Wittmann et al., 2021[25]).

In the area of STI policies, there is a growing sense of the ineffectiveness of some policy tools (OECD, 2015[31]). STI policy was guided by the idea of increasing (external) competitiveness with the reasoning that STI policies are effective in rectifying market failures. Such an approach has two problems: (1) it tends to focus on individual measures rather than policy mixes (Edler et al., 2016[32]), creating a false sense of causality and (2) the market-failure approach enforces a reactive view of STI policies. In contrast, a mission-oriented approach to STI policies offers a way to design and implement a portfolio of actions towards a wider goal.

The need to improve policy effectiveness also drives mission-oriented innovation. The New Public Management (NPM) reforms that Western governments implemented in the 1990s and early 2000s (and some still do) focused on introducing business practices into public organisations (Hood, 1991[33]; Drechsler, 2005[34]; Lapuente and de Walle, 2020[35]). Often, such reforms over-emphasised short-term savings, narrow performance targets and excessive decentralisation of public actors (Pollitt and Bouckaert, 2011[36]). To correct NPM reforms, public organisations have re-emphasised the idea of the public value they provide, including via STI policies (Bozeman, 2002[37]; Bozeman and Fukumoto, 2019[38]; Mazzucato and Ryan-Collins, 2019[39]), and how that is co-created with citizens (Osborne, Radnor and Strokosch, 2016[40]). Responsible research and innovation approaches to STI incorporate values into the innovation discourse and put societally desirable innovation outcomes, or directionality, centre-stage (Stilgoe, Owen and Macnaghten, 2013[41]; Rip, 2016[42]). Mission-oriented innovation can strengthen such initiatives through stronger goal-orientation, increased focus on wider stakeholder engagement, and building stronger reflexive capacities within public organisations (Rip, 2006[43]).

Mission-oriented innovation is supported by three often interlinked policy structures: institutional entrepreneurship and mission governance; funding; and procurement.

Mission-oriented innovation needs institutional infrastructure to discuss, design and implement potential innovation systems (Mazzucato, 2016[44]). According to Grillitsch et al. (2018[45]), “institutional entrepreneurs understood as actors who initiate changes that lead to a divergence from existing institutions are thus essential for providing directionality”. Accordingly, one enabling condition for mission-oriented innovation is institutional entrepreneurship directed towards missions. In practice, governments experiment with various forms of institutional entrepreneurship.

As mission-oriented innovation often targets ‘wicked’ policy issues with complex challenges and a need for long-term planning, one support mechanism is governance and coordination. The European Union created boards for each of its five missions.2 Governance can also be implemented and supported by repurposing coordination mechanisms. The Netherlands introduced its Topsectoren approach in 2012 to strengthen coordination and collaboration between STI system actors (Box 7.6). The nine sectors were selected based on research- and export-intensive domains like AgriFood Logistics, Life Sciences and Health, and High-Tech Systems and Materials.3 While the original goal was to match the knowledge demands of innovative firms and the activities of research institutes, it shifted toward transformation, such as Mission-oriented Topsector and Innovation Policy (MTIP), now containing 25 missions within four themes. While much of Topsector governance evolved into MTIP governance, the most marked difference is the creation of mission teams. According to Jannsen (2020[46]), “They are positioned as the engines for driving changes, as formally their tasks include the developing, executing and organising - through engaging various ecosystem actors – of both the Missions and the multi-annual innovation programs”.

Institutional entrepreneurship for mission directionality can also be provided by creating new leadership posts. Swedish innovation agency Vinnova created a Director of Strategic Design post to rethink its approach to transformative innovation policy. Established in 2001, Vinnova is a standard innovation policy agency, advising the government on innovation policy and designing and implementing innovation support measures (Chaminade and Edquist, 2006[48]). However, Vinnova did something different from standard innovation agencies when it turned to mission-oriented innovation in the late 2010s and created the position for a designer. Under the new leadership, drawing on criticism of typical technocratic policy design processes, a more engaged innovation practice was developed for the Swedish missions. Taking the themes of Healthy Sustainable Mobility and Healthy Sustainable Food as a starting point, Vinnova coordinated co-design sessions across Sweden with up to 400 stakeholder organisations in “actors workshops” (Hill, 2020[49]). This approach and the resulting missions garnered positive attention in the media (Orange, 2021[50]; Peters, 2021[51]) and from scholars.

Looking at mission-oriented innovation through lenses of public sector reform, many governments attempt transformative change through the creation of innovation and policy labs. This reflects the public sector’s adaptation of working practices in (strategic) design and agile software development practices from the private and third sectors (see Chapter 5). As studies show, such practices are mostly taken up by new, often peripheral, public organisations in the form of public sector design, and digital and innovation labs (Hill, 2015[52]; Bason, 2017[53]; Tõnurist, Kattel and Lember, 2017[54]; Mergel, Ganapati and Whitford, 2020[20]). These working practices focus on agile processes such as prototyping and experimentation, relying on epistemological frameworks from action research and ethnography rather than economics or policy analysis (van Buuren et al., 2020[55]). These trends led to the creation of a missions action lab at the OECD to help governments kick-start mission-oriented innovation.4 In 2021, Vinnova established a rapid transitions lab for its food mission (implemented by Dark Matter Labs), aiming to “identify opportunities and pathways for Swedish food system actors to engage in a rapid transition, in response to the COVID-19 crisis. It will assess different strategies within the Swedish food systems, and support the design of more transformative strategies, practices, and institutions” (Dark Matter, 2021[56]).

The financing and financial structure of an economy are not neutral: the type of finance received affects the types of investments made and activities pursued. There is an important difference between finance conducive for investment in the real economy and speculative finance, which prioritises high-risk, short-term capital gains through the trade of existing assets (Lazonick and Mazzucato, 2013[57]). Transforming economic structures implies re-orienting financial flows – through regulation, financial innovation, institution-building and deliberate policy coordination – towards investments in economic activities essential for structural change.

Figure 7.1 shows how and why mission-oriented public funding can make a difference in renewable energy technology. As Semieniuk and Mazzucato note, wind energy technologies are more developed than marine technologies, which have only deployed demonstration projects and are nowhere near being cost-competitive (Semieniuk and Mazzucato, 2018[58]). It is striking that the private sector finances the majority of less risky wind R&D while public funds dominate the riskier marine sector, suggesting that public funds are important in the early development of green energy (ibid.). This type of public direct investment has been found to mobilise private investment in renewable energy. According to Deleidi, Mazzucato and Semieniuk, Mission-oriented public investment does not only have a positive effect on private investment, but also has the largest positive effect compared to other traditional policy tools (Deleidi, Mazzucato and Semieniuk, 2020[59]; Dosi et al., 2021[60]).

As transformational policy goals, missions need the financial ecosystem to support innovation. Missions are funded through multiple avenues, examples of which appear below: (1) governments repurposing or upgrading existing funding mechanisms or institutions to be more mission-oriented or serve a specific purpose in mission-oriented policy; (2) introducing new funding mechanisms; (3) creating new funding institutions such as mission-oriented public banks; (4) ‘greening’ central banks and financial regulations, a pivotal area through which sustainability transition is supported.

An example of repurposing or upgrading is the abovementioned Topsectors in the Netherlands, where sectoral coordination and co-operation evolved into a policy mix targeting a variety of missions (Jannsen, 2020[46]). Similarly, the UK government launched a new Industrial Strategy in 2017 including four mission areas (clean growth, ageing society, future of mobility, and artificial intelligence and the data economy) and introducing the Industrial Strategy Challenge Fund (ISCF) focused on 23 challenges across the mission areas.5 The ISCF is part of a larger National Productivity Investment Fund established in 2016. In this case, mission funding evolved within wider changes in the STI funding and institutional landscape.

The European Investment Bank (EIB) is one of the main providers of long-term finance and risk-sharing in the EU, taking the lead in policy areas such as in climate action finance by committing to dedicating 50% of financing to climate action by 2030 (Mazzucato and Mikheeva, 2020[61]). Further, the EIB is the lead implementing and advisory partner in the InvestEU Programme, one of the key components of the EU financing framework designed for 2021-2027. Governments can also repurpose existing institutions, such as state-owned companies (Gasperin et al., 2021[62]). For example, Danish public energy company Ørsted adopted a wholesale renewable energy strategy (Box 7.7).

Governments can also create entirely new funding mechanisms. In 2021, Denmark’s Innovation Agency published a call for roadmaps for mission-driven green partnerships. The fund “encourages all relevant stakeholders across the Danish research and innovation system to come together to contribute their expertise and propose a realistic and robust path towards the development of cutting-edge solutions within the four missions – ranging from strategic research to commercialization, with a focus on short-, mid- and long-term impact.”6 The call is funded by DKK 700 million of public money.

In 2020, Scotland created “a mission-led development bank providing patient capital to build a stronger, fairer, more sustainable Scotland.”7 The bank is capitalised with £2 billion of public funds and focuses on three missions: (1) achieving a “Just Transition” to net-zero carbon emissions by 2045; (2) extending equality of opportunity by improving places by 2040; and (3) harnessing innovation to enable people to flourish by 2040 (Mazzucato and Macfarlane, 2019[65]).

One topic that receives growing attention in academic debate is the role of central banks and financial regulators in addressing climate-related financial risks (Campiglio et al., 2018[66]). Since the 1990s, central banks narrowed their mandates to focus on price stability and limited their interventions to adjustments of the reference interest rate. However, since the global financial crisis of 2008, central banks increasingly use a wider range of unconventional measures, including quantitative easing and other short- and longer-term liquidity programmes to stimulate the economy. The extensive use of these tools, often with sectoral conditions (e.g., refinancing by the European Central Bank (ECB) offered to Eurozone banks if they commit to financing SMEs or other non-financial corporations), raises questions about central banks’ market neutrality and independence. This suggests that central banks might do more to direct finance towards green growth, especially since post-crisis stagnation and governments’ inability to maintain public support for climate-aligned investment have hampered transition towards low-carbon technologies. The International Energy Agency (IEA) estimates that investment in low-carbon energy would need to grow two-and-a-half times by 2030 (from 35% to 65%) to meet the SDGs (IEA, 2019[67]).

Despite their potential, corporate bond purchases by the ECB mirror the investment choices of financial markets and mostly favour large, carbon-intensive companies (Matikainen, Campiglio and Zenghelis, 2017[68]; Jourdan and Kalinowski, 2019[69]). The ECB portfolio significantly contributes to biodiversity loss (Kedward, Ryan-Collins and Buller, 2021[70]), and the ECB president signalled that central banks cannot remain neutral to climate change.8

Central banks could also coordinate more closely with industrial policy, for example by purchasing green bonds from development banks, green banks or similar public intermediaries such as the European Investment Bank (Kattel et al., 2020[71]). These could then finance lending for green infrastructure investments or green loans for small- and medium-sized companies. Green refinancing where central banks offer favourable interest rates for refinancing of green lending is another option, particularly in the Eurozone.

Since WWII, public procurement is one of the key means of supporting the development of new technologies for public missions, especially in the military (Mowery, 2012[15]). It is also an important policy tool for industry creation, protection and overall industrial upgrading (Kattel and Lember, 2010[73]). The current wave of policy change allocates an even wider role for public procurement. As argued by Lember, Kattel and Kalvet (2015[74]), “Public procurement is increasingly seen as a horizontal policy measure that should be applied across the public sector and regardless of the characteristics or missions of public agencies”.

Preferably through functional requirements and standards (Edquist and Zabala-Iturriagagoitia, 2020[75]), public procurers incentivise private providers to come up with new solutions or upgrade production-related processes to meet government demand. Public procurement can thus offer private providers a space to refine their ideas or existing products. By covering all or part of development costs while providing feedback, public agencies help enterprises drive down expenditure on production. Governments can also use public procurement to stimulate private providers to carry out R&D in areas where market interest is muted by uncertainty, specifically around challenges such as ageing, environmental sustainability and health. Accordingly, procurement can support mission-oriented policies (Mazzucato, 2020[76]).

Green public procurement (GPP)9 is an example of public sector purchasing power directed towards a challenge or mission. GPP is the process whereby public organisations buy goods, services and utilities based on best prices while incorporating environmental aspects into their award criteria (UNEP, 2017[77]). Such procurement practices increasingly feature rules of engagement, but the field remains under-researched (Testa et al., 2012[78]). Authorities in the EU spend around 2 trillion euros each year on public purchases, or 14% of GDP. Given this purchasing power, GPP holds potential to decarbonise the economy. In contrast to emission trading schemes with prices currently too low to effect a low-carbon transition, GPP offers a significant and immediate way forward (Chiappinelli and Zipperer, 2017[79]). As a positive spill-over, GPP can initiate the development of lead-markets for climate-friendly technologies and provide incentives for green innovation (Lember, Kattel and Kalvet, 2015[74]).

In the EU, all public procurement must follow the regulatory framework that harmonises rules across member states to level the playing field for businesses therein (European Commission, 2017[80]). The European Commission advocates for environmental considerations, but so far has fallen short of introducing environmental criteria for public procurement contracts. Nonetheless, the regulatory framework allows for the inclusion of environmental aspects through two main channels: (1) through considerations in the award procedure (as either award criteria or technical requirements); and (2) through costs imputed to environmental externalities as part of the concept of life-cycle cost (Chiappinelli and Zipperer, 2017[79]). For instance, Germany changed its national laws in 2016 to enable public clients to include strategic goals such as environmental requirements in the award criteria of the bidding process (Bundesregierung, 2016[81]). German public authorities can now practice GPP via their tenders.

Incorporating environmental requirements in award criteria becomes possible using the Most Economically Advantageous Tender (MEAT) approach. Contrary to the lowest-price criterion, the MEAT method allows selectors to consider both total ownership and environmental costs. By using the MEAT criteria, public authorities can evaluate environmental technologies and their respective costs, which provides greater flexibility and ultimately more decision-making power than specifying technical requirements within a lowest-price tender. Additionally, a combination of technical requirements and environmental award criteria is also possible. While technical requirements are difficult to track on an aggregated basis, the award criteria are usually specified in the EU Tenders Electronic Daily (TED) database for government procurement, which holds information on all public tenders for each member state (European Union, 2020[82]).

As per Figure 7.2, the share of public tenders in Germany that used either the MEAT or mixed award criteria remains relatively low. Furthermore, the relative share of these public tenders became smaller in recent years relative to the share of other types of contracts, most specifically those based on lowest-price criteria. It is important to clarify that lowest-price tenders can incorporate environmental aspects through specified technical requirements. The share of tenders that potentially have GPP elements incorporated may therefore be underestimated. Nonetheless, Figure 7.2 indicates that the potential of GPP through award criteria in public tenders is not fully realised in Germany.

Another approach to mission-oriented procurement is to procure solutions to problems rather than specific existing products. Such ‘functional procurement’ is “procurement of products by an authority/unit that describes a function to be performed (or a problem to be solved) instead of describing the product that is to perform the function. That is, a public agency specifies what function is to be achieved rather than how the function is to be achieved” (Edquist, 2019[83]; Edquist and Zabala-Iturriagagoitia, 2020[75]). In Sweden’s 2016 National Procurement Strategy, the government is attempting to follow a proposal by Edquist specifying that “the proportion of the regular procurement volume (state, county and municipality) to be described in functional terms should increase by 5 percentage points every year over the next five years. When 25% is achieved, the programme should be re-evaluated and new decisions made” (Edquist, 2019[83]).

Another important example of mission-oriented or functional procurement is the application of agile practices in public sector IT purchases. The UK’s Government Digital Service (GDS), founded in 2011, was able to successfully reform IT procurement (Kattel and Takala, 2021[84]) in response to widespread dissatisfaction with government IT. Following a series of high-profile IT failures, the UK Parliament’s Public Administration Select Committee published a report in 2011 titled ‘Government and IT – “a recipe for rip offs”: time for a new approach’ (UK Parliament, 2011[85]). The report highlighted a dearth of IT expertise, a lack of centralised, horizontal IT governance, and reliance on large-scale, long-term contracting with a small number of large private providers as driving IT failings in the government. At the same time the newly elected coalition government appointed internet entrepreneur Martha Lane Fox as the UK’s Digital Champion, and commissioned her to review the government’s online presence. Fox recommended that there be a new, central digital team in absolute control of the overall user experience across digital channels. It should be headed by a CEO reporting directly to the Cabinet Secretary. GDS reshaped digital procurement practices through spending controls (major government IT projects must receive GDS approval) and through the creation of a digital marketplace. According to the OECD, “in 2009 fewer than twenty companies retained 80% of the UK’s £16 billion of annual IT spending. GDS has helped the UK digital, data and technology (DDaT) sector to evolve from a highly concentrated, uncompetitive market in 2009 to a highly diversified, competitive market; as of 1 October 2018 almost 5,100 suppliers are available to the UK public sector through the Digital Marketplace, over 92% of which are small and medium-sized enterprises (SMEs)” (OECD, 2018[86]).

While the implementation of mission-oriented innovation remains an emerging practice, several tools and methods are increasingly favoured by public organisations for implementing missions. First, many mission-oriented approaches attempt to bring new ways of working into the public sector, particularly around experimentation and stakeholder engagement, including participatory methods. Second, missions typically rely on a portfolio approach of investment in projects. Third, governments seek ways to evaluate missions in new public value and spill-over-focused frameworks and methodologies.

All three sets of tools and methods rely on differentiation between fixing market failure and market-shaping as justification for public sector activities. Market failures are concerned with information asymmetries, transaction costs and frictions to smooth exchange, non-competitive markets (e.g. monopolies) or externalities (e.g. pollution), or coordination and information failures hampering investment (Rodrik, 1996[87]). Market-shaping is concerned with collective production (or co-production) of social and economic value (Mazzucato, 2018[7]).

The market-fixing perspective creates a particular orientation towards innovation and structural change. While elements of innovation policy (early-stage R&D in particular) can be considered public goods that justify the case for public policy provision, the private sector is assumed to be the more efficient innovator, possessing greater entrepreneurial capacity and better able to take risks, given the pressure created by competition. In contrast, the state is viewed as risk-averse and in danger of creating government failure if it becomes too involved in industrial policy by ‘picking winners’ (Mazzucato and Ryan-Collins, 2019[39]).

Market-shaping focuses on system-wide dynamic efficiency gains (including innovation, spill-over effects and systemic change) and thus is concerned with the best use of resources to achieve system-wide changes over time (Kattel et al., 2018[88]). As Sharpe et al. (2021[89]) argue, “A policy’s dynamic effectiveness cannot be assessed by considering its potential outcomes at a moment in time, as is done by cost-benefit analysis. It can only be assessed by considering its effect on processes of change in the economy. These may include innovation, diffusion, growth, contraction, reorganisation, or replacement of one set of economic resources, assets or structures with another. It is therefore processes – the likely direction, rate, and magnitude of change – that should be the focus of analysis”.

Table 7.1 summarises these two approaches to policy justification and how they lead to different assumptions about policy processes and tools, including measurement and evaluative frameworks.

Mission-oriented innovation is a collaborative policy approach and requires new ways of working, especially making room for experimentation, inclusion and participation of stakeholders from different sectors and levels. The mission-oriented or market shaping approach utilises quite different epistemology from the “what” and “how” of policy-making processes and their impact. This turned the attention of policy-makers to learning from and incorporating new methods and analytical tools such as strategic design, complexity economics, foresight, policy labs, etc. (Tõnurist, Kattel and Lember, 2017[54]; Mergel, Ganapati and Whitford, 2020[20]; van Buuren et al., 2020[55]). As shown above, Vinnova coordinated intensive co-design sessions across Sweden, with up to 400 stakeholder organisations engaged in ‘actors workshops’. The principle for the engagement process is to generate a different kind of knowledge base for innovation policy action: closer to ‘users’ of specific policy outcomes such as school pupils, teachers and parents.

Barcelona’s attempt to rethink its smart-city approach after 2015 serves as another example of how methods from design and agile development are fused with a wider civic engagement processes for an overarching mission. Barcelona came to embody bottom-up urban transformation in terms of digital capitalism and urban planning (Morozov and Bria, 2018[90]). Ada Colau led Barcelona en Comú, a new political platform emerging from social movements with no ties to existing political parties, to a dramatic victory in the local elections of 2015 focusing on housing and environmental challenges through the promise to rethink Barcelona’s approach to digital capitalism. Colau’s city government has sought to operationalise alternative agendas around citizen data rights, setting out a proactive role for city governments as institutional champions and custodians of citizen data. Key to the success was extensive use of civic networks (including knowledge institutions) and creating a new Chief Technology and Digital Innovation Officer (CTIO) position within the city government. The CTIO was a new executive-level role, representing the elevation of digital strategy beyond IT. The programmes introduced under this government, promoting a vision of technology and innovation in cities centred around the notion of “technological sovereignty” and citizen data rights, have been the focus of an increasing number of studies and discussions (Ribera-Fumaz, 2019[91]; Sadowski, 2020[92]; Charnock, March and Ribera-Fumaz, 2021[93]). Barcelona’s urban and digital transformation initiatives are particularly influential in the European context of the re-emergence of industrial policy for the digital age.

Another aspect of the market-shaping approach is reliance on project and funding portfolios. While missions define problems to be solved, it is vital that mission-oriented investments have organisational flexibility to avoid lock-in into one type of solution – whether technological or otherwise. For instance, the US Defense Advanced Research Projects Agency (DARPA) relies on organisational structures that are flexible, adaptable, and able to foster bottom-up solutions. Since DARPA’s success in the 1960s, the operational autonomy of mission-oriented funders is seen as a key to ensuring the best outcomes (Bonvillian, 2018[95]). While DARPA often serves as an example of the portfolio approach to mission-oriented investment, it is a rather unique organisation with the focus on military and security challenges, and an incomparable level of annual funding (Bonvillian and Van Atta, 2011[96]).

The portfolio approach to funding missions is also expressed by specifying mission themes and challenges within a theme, then funding multiple projects with complementary approaches to solve the problem. Such a structure can be seen in the case of the Dutch Topsectoren missions described in Figure 7.3.

Multilateral organisations such as the UNDP are rethinking how they support development initiatives through a multitude of projects. The UNDP is looking into establishing a systemic fund: “financing structures that have the mandate to develop systemic portfolios and flexibly deploy financial resources” (Gurciullo, 2021[97]). As Figure 7.4 shows, such a fund pools funders around challenges to be addressed through a portfolio of solutions and projects.

Evaluation of mission-oriented innovation and other types of systemic policy approaches needs to capture holistic or systems-wide outcomes. Jannsen et al. (2021[2]) argue that “It seems disproportionate to base evaluations entirely on [whether] the extent mission goals are achieved” and accordingly there is “the need to develop reflexive and formative evaluation approaches for assessing and adapting the ways missions relate to systemic transformation” (Jannsen et al., 2021[2]). In 2020, the UK government added a chapter to its guidance for policy evaluation and appraisal (The Green Book) describing how policy-makers could evaluate transformative change. The new guidance draws on the idea of systems mapping: “Where significant transformational change is an objective it is important to map the key systems effects and research the likelihood, magnitude and location of tipping and leverage points” (HM Treasury, 2022[99]). Sharpe et al. (2021[89]) call for a “risk opportunity analysis” – “a more general form of cost-benefit analysis appropriate for situations of non-marginal change, heterogeneous actors, and fundamental uncertainty”.

Another way to appraise and evaluate dynamic efficiencies, and hence missions, is the application of public value. Building on the market-failure concept, Bozeman (2002[37]) developed the idea of public value mapping, focusing on public value failures that occur “when core public values are not reflected in social relations, either in the market or public policy”. Bozeman provides specific criteria that lead to public value failure: “(1) mechanisms for values articulation and aggregation have broken down; (2) ‘imperfect monopolies’ occur; (3) benefit hoarding occurs; (4) there is a scarcity of providers of public value; (5) a short time horizon threatens public value; (6) a focus on substitutability of assets threatens conservation of public resources; and (7) market transactions threaten fundamental human subsistence.” (Ibid.) While these are essentially negative criteria of assessment, public value mapping can gauge the market-shaping impact of public organisations. A well-known example is the UK's BBC, which uses public value tests to understand and justify its impact on the economy and society (Mazzucato et al., 2020[101]). Mazzucato et al. (2020[101]) show how the public value mapping and market shaping perspectives can be brought together in a way that also links BBC’s capabilities with its impact (Figure 7.5).

As Conway and Mazzucato (2021[102]) explain:

We found value for individuals was in their experiences as consumers (for example in the COVID crisis, providing three hours of educational content every day on mainstream channels via BBC Bitesize); value for society could be found in supporting a more inclusive and diverse culture (for example championing female sports presenters, placing women’s football in the primetime schedule, and boosting disability representation on and off screen); and value in industry was shown by the BBC taking the kinds of risks necessary for new markets to emerge (for example, supporting R&D for new digital audio and video standards which ensures markets adopt new technologies around the world).

Mission-oriented innovation requires increased public sector capacity to support implementation – that is a new set of skills, capabilities and resources to perform policy functions from the provision of public services to policy design and implementation (Wu, Howlett and Ramesh, 2018[103]). Mission-oriented innovation requires, both, long-term capacities to keep sight of big, future-oriented and complex goals, and dynamic capacities to support immediate, collaborative and flexible solutions towards a mission. The COVID-19 response demonstrated the distinction between long-term capacities and dynamic or agile capabilities in the public sector. It also showed that implementation issues are as important as policy framings; the crisis-handling focused attention on public sector capacities and capabilities, and how these do not always correlate with the level of development. The new generation of ‘post-growth’ or ‘normative’ STI policies and broader applications of mission-oriented innovation must rely on a deeper and more nuanced understanding of public sector capacities and capabilities.

Long-term capacities are vital for strong responses to crises and include the capacity to set a direction for development, the capacity to govern and direct resilient production systems, and the capacity to build public service infrastructure. On the other hand, dynamic capabilities – such as the capability to anticipate, adapt and learn, the capability to harness citizen initiatives and innovation, and the capability to govern data and digital platforms – play an equally important role in crisis mitigation (Mazzucato et al., 2021[12]). The creative combining of long-term capacities, in the form of investments and institutional structures, and of dynamic capabilities are key for mission-oriented innovation too (Kattel and Mazzucato, 2018[30]).

The following five long-term capacities and dynamic capabilities are relevant in the context of mission-oriented policies (Fisher et al., 2018[8]; Kattel and Mazzucato, 2018[30]; Kattel et al., 2020[71]):

  • Institutional entrepreneurship – Missions require political and managerial leadership to galvanise support and ensure implementation of complex policy processes. Accordingly, institutional capacities of leadership (e.g., political contestation practices open to new political leaders or means to purposefully create new public organisations to break institutional inertia or bring new skills into the public sector) play an important role in creation and implementation of missions.

  • Investment Mission-oriented innovation relies on long-term financial planning and investment. Capabilities around devising portfolios of investments and other financial instruments (e.g., financial regulations, grants) to fund public, private and third-sector actors are key for successful mission-oriented innovation. Such capabilities are relevant for public financial institutions, and research and innovation funding agencies. Typically, these agencies are at arm’s length to the central government and succeed under conditions of operational autonomy.

  • Market-shaping These capabilities around policy structures and tools focus on (re-)shaping markets, such as through regulation, procurement, labour rules, etc. The capabilities are relevant for central government ministries and local government departments directly engaged in creating and implementing market rules and legislation.

  • Coordination, engagement and experimentation These are capabilities around new ways, such as innovation labs, to design policies and engage with stakeholders and citizens. The capabilities are typical for new types of public organisations, such as digital agencies, but also apply in welfare services and across the public sector.

  • Evaluation and continuous learning – These capabilities use market-failure-based approaches (e.g. cost‒benefit analysis) and integrate user research, social experiments and system-level reflection (e.g. dynamic efficiencies), and help govern portfolio approaches to investment and coordination and engagement. There is increasing focus on the changing role of the state in socio-economic transitions (Borrás and Edler, 2020[4]) and the idea of “reflexive governance” (Rip, 2006[43]) is increasingly important in the context of missions. As summarised by Fisher et al. (2018[8]): “Mission-oriented R&I initiatives must be reflexive and flexible enough, so that they can be reassessed and adapted to new developments and challenges, or possibly ceased. Evaluation and monitoring require criteria adapted to the mission, objectives and problems that they target”.

While the discussion above confirms the turn in the STI and wider policy landscapes towards an increasingly green focus, one conclusion is that there is no dominant mission logic (Fisher et al., 2018[8]; Larrue, 2021[9]). Rather, missions are conceptualised on top of wide-ranging policy discussions for more effective ways to tackle grand challenges. Thus, in narrower application – the realm of STI policies – missions can be an incremental rather than a radical step (Larrue, 2021[9]). Jannsen et al. (2021[2]) summarise mission-oriented innovation as inclusive governance, progressive politics, generative environment and systemic impact. These reflect the policy and public sector challenges related to mission design and implementation. A priority is creating and maintaining inclusive governance structures vital for the discussion, engagement and eventual legitimacy of missions.

Missions are political by nature; they reflect wider societal and political debates about the nature and direction of economic growth, innovation and public services. However, most STI or public service design and implementation processes are not open to such wide-ranging debates as they rely either on existing political, mostly top-down practices or on industry-led incremental development. Missions can act as a tool for wider coordination across multiple sectors and policy arenas. This, however, requires conscious attention in the form of institution and capability building. Finally, missions require a new market-shaping approach (and related capabilities) to investment, policy appraisal and evaluation.

Jannsen and colleagues summarise the research questions to advance understanding of mission-oriented innovation (Table 7.2).

A key research question emerging in this context is how policymakers can engage incumbents (industry, universities) in mission-oriented policy discussions where these incumbents, in particular in the private sector, lead R&D investments, such as in Germany (Kattel et al., 2020[71]). It is also important to understand how can countries without such strong incumbents engage in mission-oriented policy practices. Further research is needed to understand mission-oriented innovation in the context of varieties of capitalism, levels of development and economic specialisation.

Short-term, single-stakeholder approaches are insufficient in the context of wicked challenges such as climate change, cancer or clean oceans. Mission-oriented innovation can produce more effective ways to tackle the grand challenges facing governments today. This approach shifts missions away from a narrow focus on specific sectoral (e.g., STI) policies and places systemic change at the centre.

The premises of mission-oriented innovation addresses policy and wider public sector challenges. They ensure inclusive governance, progressive politics, a generative environment and systemic impact (Jannsen et al., 2021[2]). The creation and maintenance of inclusive governance structures, which form part of mission-oriented innovation, are vital for wider societal discussion and engagement, and legitimise efforts to act on grand societal challenges; for example, when mission-oriented innovation formulates grand challenges, like climate goals, as measurable, ambitious and time-bound targets (e.g. becoming carbon-neutral by 2030).

Missions are political by nature. They reflect wider societal and political debates about the nature and direction of economic growth, innovation and public services. For instance, the STI and wider policy landscape is undergoing a shift towards an increasingly green focus and responsible innovation. Traditionally, most STI or public service design and implementation processes are not open to such wide-ranging debates, as they rely on existing political and mostly top-down practices or industry-led incremental development. Mission-oriented innovation can help in this regard.

Missions can act as a tool for wider co-ordination across multiple sectors and policy arenas. Mission-oriented innovation can help policy makers engage incumbent actors (industry, universities) in mission-oriented policy discussions, especially in contexts where such actors, often in the private sector, lead in R&D investments (e.g. in countries such as Germany). In countries without strong incumbents, mission-oriented innovation can engage emergent actors in collaboration at different levels of development and/or economic specialisation.


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