Strengthening the Innovative Capacity of the Public Sector of Latvia

1. Innovation in the Latvian public sector

Abstract

This chapter provides an overview what innovation means in a government context and how innovative capacity has been supported and sustained through the years in the Latvian public sector. The chapter also outlines the methodology for this assessment report.

Innovation and innovative capacity in the public sector

The OECD Observatory of Public Sector Innovation (OPSI) defines innovation as something that is new or novel to the context, implemented and aims to achieve impact (such as improved outcomes, effectiveness, satisfaction or efficiency) (OECD, 2017[1]). Examples could include new ways of engaging citizens to ensure services meet their needs, finding efficiencies in administrative process, or using new methods (such as strategic foresight) to make governments more resilient.

Innovative capacity looks at the holistic ability for public sector systems (individuals, organisations, system and ecosystem) to work in innovative ways to improve public sector outcomes (e.g., user impact, satisfaction in services, trust in government, economic opportunities, access to education etc.). Beyond improving public outcomes, stewarding an innovative public sector can help make the public sector a workplace of choice (Kaur et al., 2022[2]). Innovative capacity recognises that innovation is influenced by the system around it (e.g., how institutions work together, political influences, accountability frameworks, audit, individual skills, organisational leadership, performance management, measurement and evaluation approaches).

For innovations and innovative approaches to be successful… they require a systemic approach: one that is both top-down and bottom-up and does not seek to “tick an innovation box” or be a Senior Executive’s pet hobby or a passing phase. If embraced effectively, innovation can be a powerful and practical lever. (Kaur et al., 2022[2])

In order to implement a systemic approach to innovation, a blend of explicit supports (e.g., innovation labs, innovation strategy, innovation skills programmes) should be paired with cross-government supports across the system (e.g., working with procurement, regulatory, financial, accountability and workforce management mechanisms) to better enable working in new and novel ways.

Innovation in the Latvian Public Sector Context

There is recognition of the need for innovation in the Latvian public sector, as well as a number of promising initiatives and strategies that can be strong levers for promoting and supporting greater innovative capacity. In addition to the key institutional responsibilities for innovation, four contextual aspects are particularly important in interpreting the findings of this report: strategic priorities and plans, trust in government, a focus on financial efficiency, and Latvia’s innovation trajectory.

Institutional settings and key actors

In the Latvian public sector, the Latvian State Chancellery, plays a key role in setting and implementing a strategic vision for innovation in the public sector. Since the integration of the Cross-Sectoral Coordination Centre into the organisation, it is also responsible for coordinating innovative initiatives across the public sector (Cabinet of Ministers, 2023[3]). This is set to continue as the Public Administration Development Division will be central to implementing the Public Administration Modernisation Plan 2027 and a future innovation strategy and action plan. The Innovation Laboratory is also based within the State Chancellery. It coordinates the Innovation Network and provides key innovation related training programmes, including training to public servants and senior management in innovative methods such as design sprints. Furthermore, the Chancellery coordinated intersectorally; organising and supporting innovations across state owned enterprises.

Beyond the State Chancellery, a number of public sector organisations and surrounding actors play a particularly important role (OECD Observatory of Public Sector Innovation, 2021[4]):

• School of Public Administration: Provides design thinking courses.

• Latvia Investment and Development Agency: Leads cross-sectoral efforts focused on research, development and innovation, piloting work in the area of Anticipatory Innovation Governance (OECD, 2023[5]).

• Ministry of Environmental Protection and Regional Development: Responsible for leading digital transformation in the public sector, serves a key function in steering the implementation of reforms relevant at a municipal level.

• Ministry of Finance: Manages budgetary allocations and reporting.

• State Audit Office: Helps to identify opportunities for innovation aimed at improving efficiency and public interest through its audit assessments.

• Ministry of Culture: Leads by example by spearheading innovative initiatives including Creativity Week and hosting the original Design Council.

• Ministry of Economics: Serves a key role in innovative procurement.

• Innovation Ecosystem: State-owned enterprises, non-profit actors, private sector businesses, academia and research bodies and civil society groups can play an important role in innovative initiatives.

Strategic priorities, projects and plans contributing to public sector innovation

The Government of Latvia is working closely with European Commission, OECD and international partners to increase the use of innovative approaches at the national and municipal levels via a number of strategic projects contributing – directly and indirectly – to public sector innovation.

The recently adopted Public Administration Modernisation Plan 2023-2027 highlights key priority areas for government transformation including digital transformation, human resource development, innovation, sectoral policies, efficiency of internal processes and compliance with regulations (Latvian Chancellery, 2022[6]). These priorities are reinforced through Latvia’s National Recovery and Resilience Plan (RRP), projects supported by the European Commission’s Technical Support Instrument (TSI) and additional initiatives through Norway Grants and other supporters. In some areas, Latvia is already performing strongly. For example, Latvia has one of the largest shares of renewable energy in the EU (European Commission, 2023[7]).

Latvia’s National Recovery and Resilience Plan, which provides 1.8 billion euros in grants offers a massive influx of funding that is expected to stimulate and support innovation in the public sector and beyond. Priority areas include green climate transition challenges (e.g., transport, energy efficiency of buildings), digital transformation of public services (e.g., digital upskilling, improved research and innovation environments), economic and social resilience and modernisation of the healthcare system (European Commission, n.d.[8]).

Through European Union cohesion policy programs for 2021-2027, over 15.5 million euros will be directly dedicated to strengthening innovative capabilities in the municipal government (VARAM, 2023[9]). The “Smart Municipalities” programme will provide financial support to develop and implement innovative solution, technology, process, service or product innovation, which improves the efficiency of the services provided by municipalities and which has a potential to contribute to a Latvian-wide innovation landscape.

The European Economic Area and Norway grants also offer opportunities for enhancing the efficiency of policies and the capacity of public institutions to meet citizens’ needs. One of such initiatives in Latvia is the “Facilitation of inter-municipal cooperation and enhancement of good governance principles in Latvian local governments” programme led by Latvian Association of Local and Regional Governments and implemented between 2021 and 2024 (Latvian Association of Local and Regional Governments, 2021[10]).

Furthermore, partnerships between the Latvian government and the European Commission through TSI projects has led to innovative initiatives on strengthening co-operation between levels of government, human centric digital government services, strengthening corruption prevention and improving health technology assessments. These projects are part of 54 TSI projects which have been financed in Latvia through the TSI and Structural Reform Support Programme, have provided significant funding to enhance the effectiveness of government (European Commission, 2022[11]). Included amongst these initiatives was a scan of the public sector innovation system of Latvia and a study on the use of anticipatory innovation governance in ecosystem management (OECD, 2023[5]) specifically targeting the use of innovative approaches in the public sector.

Additionally, priorities set out in the National Development Plan for Latvia (2021 – 2027) (Latvian State Chancellery, 2020[12]) could prove to be key drivers of innovative approaches. These priorities include:

• Strong Families, a Healthy and Active Population

• Knowledge and Skills for Personal and National Growth

• Business Competitiveness and Material Well-being

• Quality Living Environment and Regional Development

• Culture and Sport for an Active Lifestyle

• A United & Open, Safe and Secure Society

Efforts to address these priorities are well underway, including a digital health strategy and a healthcare workforce strategy (European Commission, 2023[7]) However, there remain areas where improvement is needed, for example, Latvia is performing poorly on SDG 1: No poverty, SDG 3: Good health and wellbeing, SDG10: Inequalities and SDG13: Climate action (European Commission, 2023[7]). Moreover, the share of population unable to access adequate healthcare was nearly double the EU average in 2021 (European Commission, 2023[7]), this is likely to increase with the aging population requiring additional care. These challenges demonstrate the necessity to leverage innovative approaches to meet citizen needs.

Tackling these priority areas is not simple: Latvia is facing the consequences of Russia’s full-scale war in Ukraine which has caused trickle down impacts including an energy price increase of 48.8% (significantly above the EU average) and consumer price inflation of 17.2% (European Commission, 2023[7]). Despite this, Latvia’s productivity growth remains strong and above the EU average and the labour market is performing well (European Commission, 2023[7]). The European Commission noted in its 2023 Country Report a number of key challenges facing the country, including weak innovation performance, aging population and share of low skilled people (European Commission, 2023[7]).

These strategies and projects showcase that there should be no shortage of ambition for innovation in the Latvian public sector. However, an ongoing effort is required to ensure these multiple strategic plans and projects work cohesively to achieve their goals. Leveraging innovative approaches that build the innovative capacity of the public sector is an important part increasing cohesion and steering towards success.

Innovation and trust

There is growing recognition of how increased innovation capacity of the public sector can address key public sector challenges and wider public agendas in Latvia and beyond (OECD, 2022[13]). For example, trust in Government remains a significant issue in Latvia. The 2021 OECD indicators of trust found that only 29.5% of respondents indicated that they trusted their national government (OECD, 2023[14]). This research highlighted strong awareness of the potential for working in innovative ways to renew the relationship between citizens and governments and contribute to wider public agendas. Hence, there is a strong relationship between innovative government behaviours and responsiveness (e.g. adoption of innovative ideas), reliability of government (e.g. preparedness for the future), and trust of citizens in government (OECD, 2022[13]) These themes are explored in depth in Chapter 2: Detailed findings – national level.

Issues relating to trust were also identified when exploring the relationship between national and municipal level government. Despite a relatively high level of autonomy and devolved remit of power and public service responsibilities (European Commission, 2021[15]) municipal civil servants reported lack of trust from central government as a barrier to more local innovation, and national level public servants also raised issues of confidence and trust in municipal actors.

A focus on efficiency

Throughout the last decades, budget pressures in the Latvian public sector have led to innovations targeting mostly cost savings. Innovative efforts have consequently prioritised efficiency rather than larger cross-cutting innovative transformations. This pressure has been underscored by senior decision makers and public servants engaged in this research process and evidenced by low overall public expenditures. Government spending in 2021 came to 44.1% of GDP, which remains below the OECD average (OECD, 2023[16]). Similarly, in areas such as healthcare and education, the Latvian government’s expenditures remain below OECD averages (OECD, 2023[17]; OECD, 2023[18]). Despite this, the public sector workforce is larger than the OECD average, which has consequences on public sector salaries, budgets and operating environments (OECD, 2021[19]). Consequently, innovation to find immediate efficiencies is often favoured over innovation that aims at improving long term outcomes. The European Commission has also indicated that systemic underfunding of public services in Latvia is standing in the way of structural change (European Commission, 2023[7]).

The focus on short term priorities and efficiencies is similarly observed in progress reports on European Commission priorities (European Commission, 2023[7]). For example, limited progress has been made on 2021 Country Specific Recommendation 1: Give priority to fiscal structural reforms that will help provide financing for public policy priorities and contribute to the long-term sustainability of public finances, including, where relevant, by strengthening the coverage, adequacy, and sustainability of health and social protection systems for all. This report suggests a significant opportunity to shift the use of innovation from a mechanism to improve efficiency towards a resource to enhance effectiveness and steer the country towards prosperous futures.

Explicit innovation efforts

In addition to the broader strategic plans contributing to innovation in the public sector, there are a number of specific innovative efforts worth highlighting. These represent concrete examples of where initiatives have been implemented to leverage innovation in the Latvian public sector. The below table showcases a number of key milestones which have marked this journey.

Table 1.1. Key milestones on the Latvian innovation journey

Year	Milestone	Implications on innovation
2023	Introduction of Public Administration Modernisation Plan 2023-2027 Publication and conclusion of project on anticipatory innovation ecosystems in Latvia Adoption of the “Smart Municipality” programme	Supports the development of a more efficient state administration, strengthening of public service skills, centralisation and standardisation of functions, smart work, quality, innovation in horizontal management and digital transformation. Capacity building for the use of anticipatory approaches within LIAA. Introduces innovative solutions to improve functions of municipalities.
2022	Introduction of strategic planning guidelines for state administration Riga City Council established the Riga municipality Innovation Fund to ensure implementation of the innovative solutions in capital of Latvia	Effort to improve strategic planning process, efficiency, skills development, innovation, digital transformation, climate neutrality, and regulatory compliance. Review of the Innovation approach in Riga.
2021	Publication of the Public Sector Innovation Scan of Latvia and Experimentation Guidelines for the Latvian Public Sector	Provides evidence on the opportunities and barriers impacting innovation in the Latvian public sector and established guidance to support experimentation in the public sector.
2020	Introduction of reform plan requiring agencies to reduce budgets by 6% and implement modernisation efforts Implementation of the Law on Public Procurement	Emphasis on using innovation to increase efficiency and manage shrinking budgets. On February 11, 2020 the Cabinet of Ministers approved the Action Plan for the improvement of the Public Procurement system, which also includes a plan to organize at the Latvian School of Public Administration specially developed training programme for state and municipal sectors for raising the knowledge and skills of purchasers within the framework of the competences of EC Public Procurement professionals (ProcurComp).
2019	Adherence to the OECD Declaration on Public Sector Innovation Learning and development programme introduced for senior level managers from 71 public institutions focused on innovation and experimentation, design thinking course introduced for senior managers. Innovation lab / unit established formally	Formal commitment to innovation through OECD legal instrument. Importance placed on skills development of leadership in the areas of innovation and experimentation. Beginning of more formalised institutionalisation of innovation through the innovation lab.
2018	Launch of a series of design sprint projects. Establishment of informal network of innovation and design enthusiasts. Launch of the train the trainer programme on design thinking through Latvian School of Public Administration	The launch of design sprints and informal innovation network marked a key step in the uptake of innovative methods in Latvia and created supports for skills development and training. Latvian School of Public Administration demonstrated itself as a key partner in the development of innovative skillsets.
2017	New Law on Public Procurement came into force. Public Service Procurement Law and Public and Private Partnership laws were amended according to EU public Procurement Directive as of 2014.	This law established a legal basis for the procurement of innovation.
2013	Reform effort on “small, efficient and professional public administration” undertaken. Research and Innovation strategy for smart specialization - RIS3.	Appetite for innovative efforts created through necessity to shrink and professionalise the public administration. Ministry of Economics, Ministry of Education and Science, Ministry of Environmental Protection and Regional Development, Ministry of Agriculture were named responsible for the implementation of the innovation processes to ensure knowledge transfer and sustainable innovation process development.

Source: (OECD OPSI, 2023[20]) and interviews, focus groups and survey results.

The above efforts showcase key steps and reforms as Latvia moves towards the more systemic and intentional use of innovation in the public sector. Despite these efforts, initiatives and capabilities to support innovation remain scattered and a systemic approach to innovation that recognises its transformative and cross-cutting nature is lacking. To provide an initial assessment on the country’s public sector innovation and guide the country on its innovation journey, the OECD Observatory of Public Sector Innovation worked with the Latvian State Chancellery to conduct a Public Sector Innovation Scan with the support of the European Union’s technical support instrument. This project takes stock of the actions completed since the previous scan and identifies opportunities to further a systems approach to innovation in Latvia. It is designed to directly link recommendations to a future innovation strategy and action plan to prompt meaningful action. The below table maps the recommended actions of this project to progresses made.

Table 1.2. Progress on innovation in the Latvian public sector

Recommen-dation	Progress assessment	Actions taken	Potential growth areas
1. Formalise the innovation network	Major progress	Each ministry has been given the opportunity to nominate a representative to the network (this will soon be an obligation). Network has an advisory board of 13 members. The Network’s role as a consultative institution under the State Chancellery was formalised via a signed internal order document in June 2023.	Provide yearly funding for an innovation network coordinator.
2. Convene the major actors in the innovation system to discuss their roles within the system	Some progress	The institutional mapping of key actors in the innovation space reveals lack of formal responsibility allocation for innovation in the Latvian public sector. Recent developments, such as the transfer (March 2023) of the cross-sectoral co-ordination centre into the Latvian Chancellery (previously a distinct body situated directly reporting to the Prime Minister), may provide an opportunity for reinforcing a central steering of innovation to support the implementation of cross cutting priorities. (Cabinet of Ministers, 2023[3]). Furthermore, the Chancellery’s role in implementing the modernisation plan can further reinforce alignment between agendas and opportunities to ensure coordinated steering. Clear distinction is made between research, development and innovation in the economy (e.g., LIAA work area) and innovation in the public sector. Opportunities remain to improve collaboration across levels of government and sectors to develop and implement innovative initiatives.	Clearly define roles and responsibilities for innovation through the innovation strategy and action plan. Use the development process of the innovation strategy and action plan to build buy-in and encourage ownership over innovative activities.
3. Help politicians and senior leaders explore and understand their role in shaping the public sector innovation system	Limited progress	Executive level appetite exists for innovation – particularly innovation aimed at achieving greater efficiency. Political support remains lacking for innovation and has been cited by many research participants as a barrier. There is no clear executive champion for innovation in the Latvian Public Sector.	Build awareness on Latvia’s adherence to the OECD Declaration on Public Sector Innovation. Communicate the importance of innovation in delivering key government priorities and agendas.
4. Ensure that the Innovation Laboratory has the resources and support required to deliver pathfinder successes and influence the rest of government in its early stages	Some progress	Until July 2023, the Innovation Laboratory has been consistently short staffed (with a staff of 0-2), making it difficult to sustain the lab’s operations and reputation. The Innovation Laboratory remains quite unknown and its impact highly limited, largely due to its size. Funding through the Recovery and Resilience Plan / Public Administration Modernisation Plan 2027 (Modernisation Plan) will help to provide some sustainability and continuity of the lab in the mid-term. The team has been expanded to four staff members from July 2023 and is moving forwards with activities.	Use the innovation strategy and action plan to define a clear role for the Innovation Laboratory. Support the lab with domestic resources to enable it to develop, communicate and implement a clear service offer aimed at enabling the implementation of key government priorities, this will be particularly important following the end of RRP funding in July 2025.
5. Continue to expand training in innovation and innovation methods	Some progress	Design thinking training has been implemented through the School of Public Administration and the Innovation Laboratory, including some train-the-trainer efforts. However, recent survey results have pointed to a lack of use of these skills by participants in their organisations. To date, the Latvian School of Public Administration has not had consistent domestic funding to maintain its course offer, however an influx of RRP funding will help enable the training of over 300 public servants.	Identify the key skills gaps encountered by public servants when trying to innovate, work with the school of public administration and the Innovation Laboratory to address those skills gap and measure progress in improving skills: targeting specific groups and ensuring that the skills are implemented in the workplace. Build a baseline of knowledge and skills around innovation.
6. Create an explicit public sector innovation strategy	Some progress	The Modernisation Plan has paved the way for innovative action with seven key priority areas including innovation development and digital transformation. The innovation strategy to be developed as part of this project will have the potential to further enhance a coherent approach to innovation and the implementation of the modernisation plan.	Develop an innovation strategy which situates innovation as a key lever to deliver on government priorities and agendas. Through an accompanying action plan, outline clear responsibilities, incentives and accountabilities for the implementation of the strategy.
7. As part of that strategy, introduce a cross-agency innovation portfolio approach	Limited progress	A portfolio approach to innovation (i.e., a blend of types of innovation serving a range of purposes including enhancement, adaptation, tackling missions and anticipating and responding to the future in the present) has not yet been adopted, and cross-agency efforts remain limited. Innovative activities in Latvia remain largely in the areas of adaptive innovation (i.e., testing and trying new approaches in response to a changing operating environment) and enhancement-oriented innovation (i.e., upgrades practices, improving efficiency and achieving better results) (OECD Observatory of Public Sector Innovation, 2021[21]) The future innovation strategy could be key to enabling a range of innovative activities, balancing the portfolio of investments.	Use the innovation strategy to establish a priority portfolio of innovative initiatives; blending types of innovation and innovation purposes to ensure innovation is used as a strategic resource for immediate and future challenges, ranging from simple to complex. Balance investments in innovative initiatives to include activities focused on a range of purposes (efficiency, tackling complex challenges, finding new evidence, grappling with the future etc.).
8. Identify a high-level ambition that will drive system-wide innovation efforts	Some progress	The Modernisation Plan provides clear high-level ambitions that can drive innovation (see Box 2. Innovation and the Latvian Modernisation Plan). These ambitions include efficiency, workforce development, improved quality of policies and regulations, centralisation and standardisation, smart work, innovation development, horizontal management and digital transformation.	Through the innovation strategy, link innovation to key priorities in the Modernisation Plan and other dominant government priorities and agendas.
9. Support the ambition with a central capacity	Limited progress	The Innovation Laboratory has been consistently understaffed; lacking the capacity to coordinate the innovation agenda. The Latvian State Chancellery has less co-ordination power and authority than most countries’ central government institutions, although this may change through the integration of the Cross-Sectoral Co-ordination Centre. Additional staffing through the RRP / RRF and implementation of the modernisation plan, paired with a stronger co-ordination role of the Chancellery will help to enable co-ordination of the innovation agenda.	Use the innovation strategy to define key roles in the innovation ecosystem (i.e., Establish a governance structure for innovation), and solidify roles and responsibilities with the resources necessary to ensure their effectiveness.
10. Create a capability for anticipatory governance	Limited progress	Anticipatory Innovation Governance project completed in collaboration with LIAA, however, efforts have not expanded beyond LIAA.	Build capacities in strategic foresight through the Innovation Laboratory and school of the public service. Support a diverse portfolio of innovative activities.

Source: (OECD OPSI, 2023[20]) and interviews, focus groups and survey results.

As seen above, the progression on each of the recommended actions has varied – indicating a need to build implementation capacity for the suggested recommendations of the previous assessment report and the forthcoming innovation strategy and action plan (key deliverables of this project).

References

[3] Cabinet of Ministers (2023), State Chancellery is strengthened as government centre by adding functions of the Cross-Sectoral Coordination Centre, https://www.mk.gov.lv/en/article/state-chancellery-strengthened-government-centre-adding-functions-cross-sectoral-coordination-centre.

[7] European Commission (2023), 2023 Country Report Latvia, https://economy-finance.ec.europa.eu/system/files/2023-05/LV_SWD_2023_614_en.pdf.

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[2] Kaur, M. et al. (2022), “Innovative capacity of governments: A systemic framework”, OECD Working Papers on Public Governance, No. 51, OECD Publishing, Paris, https://doi.org/10.1787/52389006-en.

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[1] OECD (2017), Fostering Innovation in the Public Sector, OECD Publishing, Paris, https://doi.org/10.1787/9789264270879-en.

[21] OECD Observatory of Public Sector Innovation (2021), Public Sector Innovation Facets: Innovation portfolios, https://oecd-opsi.org/publications/facets-portfolios/.

[4] OECD Observatory of Public Sector Innovation (2021), The Innovation System of the Public Service of Latvia, https://oecd-opsi.org/wp-content/uploads/2021/03/Country-Scan-of-Latvia.pdf.

[20] OECD OPSI (2023), National Level Survey on Innovative Capacity in the Latvian Public Sector.

[9] VARAM (2023), Smart Municipalities, https://www.varam.gov.lv/lv/viedas-pasvaldibas.