This chapter refocuses the discussion of innovation facets and portfolios from an organisational to a systems level. Innovation exists in nested structures influenced by individual, team, organisational and systemic factors. Partnerships and collaborations, place-based characteristics, political priorities, and regulatory and accountability systems all play a role in the innovations undertaken and their likelihood of success. This chapter examines how the capacity to innovate in policymaking systems interacts with the innovation facets approach and how innovation portfolios can be created at a system-wide level.
Tackling Policy Challenges Through Public Sector Innovation
A Strategic Portfolio Approach
OECD Public Governance Reviews
3. Innovation portfolios in policy making systems
Abstract
Differences in public administrations account for differences in the quantity, quality and type of innovation in a country (OECD, 2021[1]; 2021[2]). However, the nature of a country’s public administration is only one factor affecting the quantity and quality of innovation. Many economic, legal, cultural and historical factors determine the kind of innovation that is initiated, implemented and scaled up.
This chapter asks which systems-level factors are important for investing in different innovations, and if and how a country's public sector innovation portfolio can be studied or steered. In private sector innovation research, many streams look at the systems level and its influence on innovation, with some also outlining a role for the state. For example, the National Innovation System concept (Lundvall, 2007[3]) sees innovation as the outcome of co-creation, with the state as part of a broader system. Similarly, the Quadruple Helix framework (Carayannis, Goletsis and Grigoroudis, 2018[4]) sees the state as one actor alongside universities, industry and the public. The most pronounced analysis of the connection between the state and innovation is spearheaded by Mazzucato’s (2013[5]) work on the “entrepreneurial state”. This analysis acknowledges that states are not merely part of an innovation ecosystem but rather active drivers and promoters of innovation and economic change. Their institutional set-up influences what types of innovation processes are possible and likely, even in the absence of directed state action. At the same time, political-institutional structures can also be barriers to successful innovation. Connected research on ‘technology innovation systems’ (Hekkert et al., 2007[6]) and ‘sociotechnical transitions’ (Geels et al., 2017[7]) connects state action, investment and structures to specific types of innovation – either technological or transition-oriented.
These perspectives are largely missing in the public sector. As argued in Chapter 1, research on public sector innovation tends to look at innovation as a bundle and analyse systemic barriers to innovation without differentiating between innovation types or strategic intent (Cinar, Trott and Simms, 2019[8]; 2021[9]; Scott, 2020[10]). At most, studies distinguish between radical or incremental innovation, usually from a measurement angle and need to differentiate outcomes (Bugge and Bloch, 2016[11]; Fuglsang, 2010[12]). Newer studies look at the need to balance exploration and exploitation activities (Cannaerts, Segers and Warsen, 2019[13]), but usually from an organisational perspective (Chapter 2) rather than a policymaking or systems level. Alternatively, research concentrates on a singular type of innovation, usually based on the process or inputs applied, and analyses how it interacts with broader structural elements (e.g., collaborative, technology-enabled, co-creation, experimentation (Misuraca and Viscusi, 2015[14]; Torfing, 2018[15]; McGann, Blomkamp and Lewis, 2018[16]).
To establish what influences innovation intensity in a system, it is important to analyse how innovation capabilities emerge in a policymaking system and what supports them (Clausen, Demircioglu and Alsos, 2020[17]; Vivona, Demircioglu and Raghavan, 2020[18]). However, it is also crucial to bridge the gap between the intent to create public value through innovation (Chapter 1) and the types of innovation the government system supports. Namely, it is important to examine policy intent as a part of public sector innovation portfolios to see if innovation activities and purpose line up.
Steering public sector innovation systems
One might argue that most innovation activity in the public sector is undertaken by organisations, teams and “hero” innovators going against the system. But the practice of public sector innovation has been professionalising and institutionalising in recent years. Strong signals of this are the adoption of the Declaration on Public Sector Innovation (OECD, 2019[19]) by OECD member countries in 2019 and the emergence of formal public sector innovation networks and strategies in many countries (Box 3.1).
Box 3.1. The OECD Declaration on Public Sector Innovation
To date, the OECD’s Declaration on Public Sector Innovation was adopted by 42 countries. It outlines five principles and associated actions to help governments support the public sector’s capacity to innovate at individual, organisational and systemic levels:
1. Embrace and enhance innovation within the public sector – highlight the importance of innovation, showcase how it can help governments achieve their goals, and establish stewardship, resources and support mechanisms for innovation to occur.
2. Encourage and equip all public servants to innovate – foster a culture conducive to innovation, encourage entrepreneurial and experimental approaches that require risk-taking, recognise and support skills and capacity development for innovation, and develop support structures, processes and working conditions for innovation to flourish.
3. Cultivate new partnerships and involve different voices – connect diverse actors, build partnerships, engage, co-create, and listen to and integrate new and emerging voices into policy, service design and decision-making.
4. Support exploration, iteration and testing – support experimentation and exploration where no clear solutions exist, test new approaches, nurture a diverse portfolio of innovation activities, and commit to learn from results and experiences of innovative practice.
5. Diffuse lessons and share practices – systematically learn from innovation activities and experience with innovative practices, foster networks for learning, peer support and idea sharing, create feedback loops, and develop evaluation practices to learn from and steer the innovation process and assess the value of outcomes.
Countries that adopted the Declaration translated them for their own context (e.g., Finland), issued guidance on how to use its principles in practice (e.g., Greece) and adopted innovation guidelines inspired by the Declaration (e.g., Portugal, Spain).
The OECD is developing a playbook to accompany the Declaration, to operationalise and contextualise the principles; support countries in translating the principles and commitments into action; offer options for action and improvement; showcase how innovation can solve public policy issues and improve public outcomes; take country actions around Principle 4; and identify capacity gaps for innovation in public sector systems and connect with resources (e.g., OPSI case study database, toolkits, methods, etc.).
Source: OECD (2019[19]), Declaration on Public Sector Innovation, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0450.
The responsibility to develop and coordinate the public sector innovation system lies with various central government entities – prime minister’s offices (e.g., Germany); line ministries with horizontal coordination functions such as finance, treasury boards or ministries of interior (e.g., Canada, Iceland, Ireland, Korea, Finland, Norway, Slovenia); central innovation labs and units (e.g., Estonia, Denmark, Portugal) – or is shared between actors (e.g., Latvia, New Zealand, Sweden). Their coordination can be either centralised or decentralised (OECD, 2018[20]; 2021[1]) and they can have diverging functions, mandates and roles. For example, many central innovation units have purview over specific aspects of the innovation process (e.g., human resources and training, innovation diffusion, experimentation), but do not control all the relevant factors. They might also not be tasked with removing systemic barriers or creating drivers for public sector innovation.
When countries start to work on innovation strategies, it allows them to look at the agenda more systemically, connect strategic aims to public sector innovation, establish collaboration with stakeholders in the system and address desired aspects of the innovation portfolios (OECD, 2021[1]). While rudimentary, these functions supporting public sector innovation already exist in OECD countries and are becoming more systemic. This indicates a need to understand how innovation is happening across the public sector and how to steer its execution in practice.
OECD work on the systems level includes the Innovation Determinants model (OECD, 2018[20]) and its second-generation iteration: the Innovative Capacity Framework (Box 3.2). The latter includes a state-of-the-art overview of innovation barriers and drivers in the public sector, and is an evolving tool the OECD aims to test in country contexts through surveys and studies. The aim is to create more robust empirical evidence around these concepts and measure the effects of different variables that influence public sector innovation in different country contexts. (To date, the model does not outline how these variables influence the four facets of innovation, leaving another research gap to fill.) In parallel, the OECD is looking into anticipatory innovation governance and mission-oriented innovation through the recently created Mission Action Lab (MAL), which conducts facet-specific, system-level analysis, as in Finland (Tõnurist, 2021[21]) and through mission simulations and boot camps.1 As research in this area is still emerging, the following discussion is based more on hypothesis than empirical evidence.
Box 3.2. The OECD Innovative Capacity Framework
The Innovative Capacity Framework is a resource to help governments understand and collect data on what influences the public sector’s capacity to achieve its goals and improve public outcomes using to innovation. The framework offers a methodology to examine countries’ innovation systems, particularly in context-based research. It enhances comparability between countries’ experiences at different levels while recognising the specific contexts in which innovation takes place. The framework improves understanding of what factors play a role in enabling or hindering public sector innovation and how they can ensure that innovative practices “stick” and achieve their goals.
Systems lens to public sector innovation
The framework views public sector innovation through a systems lens to help governments understand what factors drive innovative efforts and their dynamics. OECD experience and evidence from innovation studies and scans (OECD, 2020[22]; 2021[2]; 2019[23]; 2021[1]; 2018[20]), led to acknowledgement that innovation requires specific structures, mechanisms and relationships to function as an instrument to achieve public purpose.
The framework introduces interactions (Figure 3.1) between three levels of analysis (individual, organisation and system) and four focus areas (purpose, potential, capacity and impact). The model aims to make the factors that influence the system at each level explicit to an assessable, operational or improvable degree, overlaid against the thematic focus areas.
The questions that underpin the framework are:
Purpose – What drives the intent to innovate?
Potential – What determines whether innovation efforts are attempted?
Capacity – What is needed to carry out innovative efforts?
Impact – How is the impact of innovative efforts understood and how does it inform future practice?
Figure 3.1. Levels of analysis and focus areas
Source: Kaur, M. et al. (2022[24]), “Innovative capacity of governments: A systemic framework”, https://doi.org/10.1787/52389006-en.
These areas are then examined to determine which factors influence innovative activity at each of the three levels. Action depends on what entity at which level should be steered in what way to increase the desired outcomes. The factors and variables are presented in Annex B in Table A B.1.
Source: Kaur, M. et al. (2022[24]), “Innovative capacity of governments: A systemic framework”, https://doi.org/10.1787/52389006-en.
How the innovation facets interact with systemic capacity to innovate
As outlined in the in-depth analyses of each innovation facet (Chapters 4-7), different drivers, support structures, tools and methods, skills and capacities, and challenges spur and influence different types of innovation (Table 3.1). As described by Kaur et al. (2022[24]), the capacities and conditions required of public sector systems depend on the innovation facet. For example, creating an environment for enhancement-oriented innovation will likely be favoured by austerity, focus on service delivery, attention to behavioural insights, digitalisation and the like. In contrast, adaptive innovation could have strong environmental drivers, such as global crises and economic shocks experienced by the entirety of a public sector system, but might need legitimacy to create the structures and funding mechanisms for continuous testing and iteration. Mission-oriented innovation, meanwhile, will require both structural change in public sector organisations and cross-government coordination, as well as revamping procurement, budgeting and other systemic factors. Finally, anticipatory innovation is likely to demand the largest appetite for risk, dedicated spaces and creative evaluation mechanisms. Yet these different facets can all exist at the same time in the same system.
Table 3.1. Overview of the innovation facets
Supportive elements, such as performance reviews that include innovation, innovation funding rules, regulation, auditing and evaluation practices, influence different types of innovation in different ways. It is also possible for path dependencies and feedback to be so strong in certain organisational contexts that they override systems-level factors. For example, organisations in data-rich environments, like tax offices, have developed dynamic capabilities and lead in enhancement-oriented innovation through digitalisation (Lember, Kattel and Tõnurist, 2018[25]). Further, technology and digitalisation can create their own support measures and legitimatisation (Mergel, 2019[26]).
The assumption is that a diverse innovation portfolio is likely to deliver the best public outcomes in the short, medium and long terms.2 The challenge is to steer public sector innovation on the systems level without creating biases for innovation that does not align with the system or organisational need to innovate.
This means understanding which factors support one innovation facet or another. It also means deciding whether that crowds out needed innovation or favours practices the government wants to invest in for political reasons. However, innovation goals at the government level are rarely clearly defined or linked. This makes it difficult to compare the importance of one innovation facet over another, for example weighing up mission-oriented innovation against adaptive innovation. Environmental signals, such as crises and immediate threats, are therefore likely to bias the innovation portfolio, as shown in the effect of the COVID-19 crisis on innovation investments (OECD, 2020[27]).
One way to overcome this is to analyse the systemic factors and measures in place, and qualify their effect on innovation facets as potentially positive, negative or neutral to see if these can be balanced in some way. However, a lack of evidence around these assumptions make this analysis difficult. Furthermore, even on an organisational level, innovation portfolio tools and methods are lacking to help organisations make sense of their innovation portfolios and link them to factors that influence them on an individual, organisational or a systems level. This becomes more evident at the level of organisations/units that coordinate public sector innovation activities. With the Public Sector Innovation Facets model, OPSI works with countries to develop tools that organisations and public sector innovation coordinating bodies can use to make sense of innovation portfolios and the reasons behind them (Box 3.3). However, this work is only in its early phases and more evidence is needed to make the approaches actionable and draw conclusions.
Box 3.3. Innovation portfolio workshops as a heuristic tool
In 2017-18, the OPSI developed a workshop for public sector organisations and coordinating bodies to engage with the Public Sector Innovation Facets model. The aims of this workshop, facilitated by the OECD, were to:
build shared understanding of innovation in government organisations
build the capacity of government staff to recognise and differentiate types of innovation
analyse a current portfolio of innovation activities
uncover how different innovation activities are supported (or not)
explore possible approaches to current innovation activities
evaluate innovation portfolio balance
develop an action plan to maintain, reorient, or create new activities or investments
The workshops required participants to collect and identify their country’s innovation activities (at project and initiative level) and classify these into the innovation facets based on their parameters. This helped to map the current innovation portfolio orientation, discuss why such an orientation emerged, and set the stage for discussing the need to re-orient the portfolio and the levers to do so.
Workshops were carried out in Sweden and Finland to test the approach (and on occasion as part of sectoral policy, e.g., systems analysis for the education system of Wales) and as part of the OECD’s innovation scans activity in Israel, Latvia, Norway and elsewhere.
They delivered insights to stakeholders across government in terms of portfolio biases and blind spots, leading to activity following the session.
Source: OECD (n.d.[28]), A Workshop Based on the Innovation Facets Model, https://oecd-opsi.org/facets-workshop/.
The Public Sector Innovation Facets model provides a framework for considering whether an innovation system is aligned with its needs and goals, and offers ways to start building on the strengths and address the weaknesses of a policymaking system. It allows system stewards to draw on the approaches and capacities reflected in each organisation’s facets maps to support policy development and outcomes.
How the innovation facets interact with policymaking systems
If public sector innovation is professionalising and becoming more institutionalised, it is not yet ingrained across policymaking at large. Most innovation in the public sector is not classified as such (e.g., under reforms, policy innovations and development projects) because its usual channels – labs, innovation units, etc. – rarely participate in bigger reform efforts (McGann, Blomkamp and Lewis, 2018[16]). Rather, links between innovation and government action are more apparent in bottom-up approaches where the gap is smaller between designers, citizens, service improvement and creative teams (Lewis, McGann and Blomkamp, 2020[29]). However, that does not mean innovation is unimportant in strategic policymaking or that the use of innovative tools and methods would not improve the quality of policy and its implementation.
Policymaking is a discrete, stage-gate process where bureaucrats tend to solve ‘known problems’ using policy analysis and formulation, decision-making, policy implementation, and monitoring and evaluation (Cairney, 2016[30]). While research generally describes it as a technocratic process, this assumption has received a lot of criticism (Cairney, Oliver and Wellstead, 2016[31]; Howlett, 2009[32]; Bogenschneider and Corbett, 2011[33]). Real life processes are much messier, from problem framing (based on evidence or emotion) to the ways policymakers learn or how feedback lags behind decision-making (Considine, 2012[34]; Head, 2013[35]). Nevertheless, rationalist and technocratic assumptions about policymaking and evidence-based agendas can make it difficult to integrate innovation into policymaking practices.
Nonetheless, there can be windows of opportunity for integrating adaptive, anticipatory, mission-oriented and enhancement-oriented innovation. The COVID-19 crisis raised interest in adaptive and anticipatory processes, although the specifics of how these can work in policymaking structures without the legitimising need of a crisis remain vague. Complex societal challenges and future-oriented policymaking break the mould of policy, expanding beyond organisational mandates both conceptually (into adjacent policy areas) and temporally (into possible future scenarios). They therefore present structural challenges for governments organised around mandates and grounded in public accountability. To address them, governments need commensurate governance supports for policymaking in these spaces.
Complex, horizontal societal challenges are the easiest area to make the case for integrating facet-specific innovation. The climate crisis and socioeconomic transitions call for systemic change in policymaking towards transformative policy design and appraisal (Mercure et al., 2021[36]). They require a holistic, whole-of-government approach, recognising that problems are interrelated and depend on both bottom-up and top-down innovation. This means, for instance, that countries’ climate goals can serve as a test case for a mix of enhancement, adaptive and anticipatory innovation: optimising the efficiency of existing power sources, looking to grassroots ideas and technological changes, and exploring uncertain but plausible scenarios. This requires, more alignment and coordination in policymaking and implementation, allowing governments to also enhance their innovation portfolio approaches. Some tactics connected to this are outlined in Table 3.2 below.
Table 3.2. Interaction of Public Sector Innovation Facets with policymaking systems
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Notes
← 1. Read further about MAL here: https://oecd-opsi.org/projects/mission-oriented-innovation/.