Image: Thumbnail of Report Cover

Download PDFDownload PDF Version
[2.0MB]

LinkHTML Version

 

Download PDFDownload PDF Version
[1.29MB]

LinkHTML Version

 

Download PDFDownload PDF Version
[0.9MB]

1. Introduction

1.1 Innovation in the public sector context

Innovation in a public sector context has been defined as the ‘creation and implementation of new processes, products, services and methods of delivery which result in significant improvements in the efficiency, effectiveness or quality of outcomes’.[1] In short, innovation is the application of new ideas to produce better outcomes.

Innovation occurs across the spectrum of Australian government public sector entities, from policy development to program delivery, from regulatory approaches to use of technology, from organisational innovation to provision of new or enhanced services. Importantly, innovation is a means to an end, not an end in itself. An appreciation of the importance and diversity of innovation, and how to achieve it, should be part of the knowledge, skills and behaviours of every public servant.

Innovation has many forms and dimensions

Innovation goes beyond creativity or the generation of new ideas. It is a process that can be replicated. Innovation can take any number of forms. Some innovation will be ground-breaking or transformational in the sense that it represents a substantial departure from the past. Other innovation will be more incremental in nature. Innovations can range from organisational improvements to use of new or emergent technologies. Innovation can occur as a result of top-down, sideways and bottom-up approaches. It can be instigated by anyone within an organisation or by external influences.

1.2 Types of innovation and the benefits

Innovative activity in the public sector can be considered in various ways. Three common streams are:

  • shaping policy directions — where the role of the public sector is to provide objective and reasoned advice, and options, to assist the Government’s decision-making in relation to policies and programs;
  • implementing policies and programs — that is, delivering services to the Australian community efficiently and effectively; and
  • administrative innovations — introducing new internal processes and practices to improve productivity/reduce costs.

The benefits of innovation are diverse. It is widely recognised that innovation is crucial to enhanced economic performance, social welfare and environmental sustainability. Innovations can also improve organisational efficiency; provide higher quality and more timely services to citizens; reduce business transaction costs; and provide new methods of operation. Innovation can enable better performance and drive new directions.

1.3 Drivers for innovation

New and changing government and community expectations

Innovation is motivated and driven by a variety of short, medium and long-term factors. In the public service the driving imperative for innovation is the need to respond effectively to new and changing government and community expectations in an increasingly complex environment. Examples include the consequences of an ageing population, addressing intractable social problems such as drug abuse, Indigenous disadvantage, supporting communities in rural and remote Australia, national security and counter-terrorism, increasing concerns about climate change, the appropriate regulation of global financial markets and sustainable, effective and fair international development assistance.

Need for coordinated approaches

Although cross-departmental initiatives are not new, there has been an observable increase in coordinated approaches to deal with these challenges, and an increasing awareness of the interrelationships between departmental policy responsibilities. Today, many substantial issues dealt with by departments transcend traditional boundaries and, in order to encourage collaboration rather than a silo mentality, a ‘horizontal-axis’ orientation is being adopted. Such coordination involves consultation, negotiation, cooperation and agreement across and within Federal departments as well as State departments and the private sector.

To illustrate the issues in a more practical way, innovations in health policy may respond to long-term factors such as the ageing of the population, the growing cost of new medical technologies, and identifiable issues such as increasing obesity. Innovations in health care may be driven by government policy commitments in response to community concerns, medical research and technology breakthroughs or local responses to local issues. Other innovations may respond to more immediate issues such as increased waiting lists for elective surgery or an influenza pandemic.


Shorter time frames and calls for improved service delivery

The time frames in which the public sector is required to respond are tending to shorten to meet government imperatives, and citizen and stakeholder demands. At the same time government is looking for, and citizens are demanding, a more holistic or citizen-focussed approach to service delivery.

There is also constant pressure to do more with less with mechanisms such as the efficiency dividend designed to drive productivity improvements in the public sector. While the challenges are great, technological developments, including the use of enhanced web-based technologies, infrastructure improvements such as enhanced broadband capacity, and enhanced organisational and staff capabilities provide opportunities for innovation that were not previously available.

Demands for efficiencies

The onus on the public sector to anticipate community needs and to respond positively to government and/or the Australian Parliament will continue to grow. Because of its professionalism and a wide base of experience with innovative approaches to policy and program design and delivery, including a capacity to learn from and adapt initiatives in other jurisdictions, the public sector is well positioned to meet this challenge.

1.4 Private and public sector innovation

There are commonalities, differences and synergies between private and public sector innovation. Some aspects of public sector innovation are comparable with, indeed might be almost identical to, aspects of private sector innovation (examples include business process improvements and many aspects of information and communication technologies). However, there are other aspects of public sector innovation, particularly those associated with policy innovation, for which governments must bear responsibilities that greatly outweigh those borne by the private sector (examples are national security, counter-terrorism and pandemic preparedness). This is why, in comparison with the private sector, public sector decision-making processes can appear cumbersome, risk averse and time consuming.[2]

As a result of the context in which governments and public servants work, sound judgement, based on a good understanding and weighing of all relevant factors, is highly valued. In policy development, judgments about what is in the national interest are inherently complex. Innovation in this context is challenging, and subject to a high degree of parliamentary scrutiny and accountability but with potentially large, national pay-offs. In considering how to innovate effectively in this context, attention should be paid as to where, when and how the public sector might best engage the private sector to use their particular skills and expertise.

1.5 Public sector legislative and accountability framework

The Australian government public sector operates within an extensive legislative framework designed to ensure appropriate behaviours, accountability and transparency. This framework includes the Public Service Act 1999 (PS Act), the Financial Management and Accountability Act 1997, the Commonwealth Authorities and Companies Act 1997, the Auditor-General Act 1997 and certain administrative laws such as the Administrative Decisions (Judicial Review) Act 1977, the Freedom of Information Act 1982, the Administrative Appeals Tribunal Act 1975, the Ombudsman Act 1976 and the Privacy Act 1988. The activities of the public sector are scrutinised through a number of mechanisms and statutory bodies, including the Parliament, especially Senate Committees, the Ombudsman and the Australian National Audit Office (ANAO).

A fundamental requirement of the public sector accountability framework is its responsibility to provide services equitably and to a high standard of ethical behaviour. The PS Act requires that Australian Public Service (APS) employees at all times behave in a way that upholds the APS Values and the integrity and good reputation of the APS. The APS Values require APS officers to: have the highest ethical standards; be openly accountable; and deliver services fairly, impartially and courteously. The Values provide the philosophical underpinning of the APS and articulate its culture and ethos.

The Australian government public sector legislative and accountability framework provide flexibility

It is sometimes argued that the public sector legislative and accountability framework results in inappropriate, risk averse behaviour. Understandably, public sector agencies should have arrangements in place to provide confidence that they are operating within the requirements of legislation and government policy. However, history shows that innovation is possible within an appropriate risk management framework. Examples of innovation are reflected in a range of policy measures presented in the annual budget statements. They also include the reform of the employment services delivery mechanism through the Job Network, and more recently Job Services Australia, and the use of advanced web-based technologies such as the Australian Taxation Office’s tax portal and e-tax initiatives. These initiatives have, in turn, led to further innovation at the public–private sector interface and in the private sector itself.

To facilitate public sector innovation, various advisory groups within the APS, such as the Cabinet Implementation Unit, the Office of Best Practice Regulation, the Australian Government Information Management Office and the Australian Public Service Commission, have roles to assist departments and agencies adopt best practice and develop innovative approaches.

1.6 Innovation and risk management

Risk management is a fundamental feature of the innovation process. Risk is measured in terms of a combination of the ‘consequences’ of an event and their ‘likelihood’. Risk is characterised by ‘uncertainty’, in that the ‘consequences’ and/or ‘likelihood’ may not be known. Elimination of risk is generally not a practical goal but risk can be managed and mitigated by various treatments. Good risk management is therefore fundamental to innovation.

Innovation involves risk taking

There are various risks associated with any form of innovation, with the degree of risk and ‘uncertainty’ generally being higher the greater the level of difficulty faced in quantifying the ‘consequences’ or ‘likelihood’ of a particular initiative. These circumstances occur in the public sector both in classic areas of government activity where the ‘likelihood’ of an event may be difficult to ascertain and the consequences can be ‘severe’, and also in the case of radical innovation where all the possible ‘outcomes/consequences’ and the ‘likelihood’ of each ‘outcome/consequence’ is unknown.[3] An example of classic government activity of this nature is that of long-term defence capabilities. An example of radical public sector innovation is fundamental change to social welfare arrangements. The risks associated with these public sector innovations differ from those associated with public sector incremental innovation in that the risks associated with the latter are more easily identified and managed.

The accountability framework and political environment in which the public sector works, including community expectations and the difficulties of quantifying risks in monetary terms in the absence of a market, means that the manifestation of risks can be quite different from similar types of risks faced in private sector commercial activities. For example, legislative risk for the private sector can be quite significant but normally translates to compliance risk and the associated compliance costs. For a public service department there is a series of risks around assessing whether legislation is required, the best legislative solution, consistency with other domestic and international laws, parliamentary and political risks, implementation risks, unintended consequences and unanticipated behavioural responses, legal challenges and so on.

Another example is reputational risk which in the private sector can have substantial personal, organisational, financial and broader commercial implications. A public sector department will face similar risks but with the added complexity of ministerial, Cabinet, broader political and community reactions. The imperatives that motivate the Chief Executive Officer and senior management of a publicly listed company to protect the reputation of the company, are different from the duty of a departmental secretary and senior executive to their minister and the government of the day.

The risk–reward relationship is also more complex in the public than the private sector. The cultural paradigm in Australia tends to be one where departmental mistakes or perceived failures are closely examined in various parliamentary forums, in the media and by stakeholders, while good performance can go unrecognised. Moreover there is an asymmetrical relationship between those bearing the risks and those garnering the rewards. In the private sector the relationship between risk and reward is more clear-cut.

Risk management is a means to an end

Good risk identification, management, policy and procedures and prudent risk taking based on sound judgement and the best available information are crucial to facilitate innovation and hence provision of better processes, products and services. Risk avoidance is an impediment to innovation and to moving from the present to the future. Consideration of a range of options beyond a default or safe approach may increase the scope and range of risks but also increases the potential beneficial outcomes.

Overarching guidance on risk management is provided by the Australia–New Zealand Risk Management Standard. In simple terms the standard provides a framework against which the probability and consequences of an action can be mapped to derive a risk rating both before and after mitigation measures are put in place. Where there are high levels of uncertainty, professional judgement is required as to how to apply the framework.

Public sector departments and agencies generally have well-established risk management frameworks, which are applied from the enterprise to project level. The implementation of risk management procedures is a necessary part of decision-making processes and should be ‘fit for purpose’. That is, the degree of oversight and specific mitigation activities should be commensurate with the value, complexity and sensitivity associated with a particular innovation cycle.

1.7 The Australian National Audit Office and innovation in the public sector

The ANAO assists the Auditor-General to carry out his/her duties and responsibilities under the Auditor-General Act 1997 and other relevant legislation. Through the conduct of financial statement and performance audits the ANAO provides a source of independent, objective assurance to the Parliament on the activities of the public sector and, as such, fulfils a key role in the accountability framework of Australia’s democratic system of government.

As public sector entities find new methods to deal with emerging issues, including how to encourage and implement innovative practices, the ANAO has an important role to play in helping to promote appropriate governance frameworks and highlighting administrative arrangements that contribute to the cost-effective delivery of outcomes.

Public sector innovation can be expansive (for example implementing a significant government policy initiative) or relatively narrow (for example introducing new internal practices to improve productivity and reduce costs). In the context of innovation, a risk assessment can be used to make an overall judgement of the risks associated with an initiative and the appropriate approach and level of risk mitigation required in the circumstances. The degree of oversight and specific risk mitigation treatments should be fit for purpose, that is, commensurate with the value, complexity, and sensitivity associated with a particular initiative.

ANAO support for innovation in the Australian government public sector

The ANAO commonly considers agencies’ governance and risk management arrangements in the context of its audit coverage. In reviewing agencies’ innovations, the ANAO would expect agencies to have appropriately considered the risks and opportunities offered by such initiatives and to have taken measures to secure the planned benefits without undue costs and untoward effects on clients and other stakeholder groups.

This Better Practice Guide (Guide) provides a decision-support framework designed to assist agencies to manage innovation and to encourage an innovation culture across the Australian government public sector. Calculated risk taking is a necessary feature of most types of innovation and this framework is intended to provide a ‘risk-aware’ approach to innovation that counters ‘risk-averse’ behaviour.

1.8 The Guide’s focus, methodology and logic

This Guide has been developed in the context of the legislative, regulatory, monitoring and reporting framework that currently applies in the Australian government public sector. The Guide’s focus is on the culture and practices that can be adopted within the current framework to encourage and facilitate innovation in the public sector.

There are other Government review processes underway dealing with the development of options and longer term issues for the public service. The Management Advisory Committee’s examination of public sector innovation will explore how innovation can be further facilitated on an ongoing basis and the need for possible reforms. The Prime Minister has also established an Advisory Group to develop a blueprint for reform of the public service. These exercises will, among other things, consider the adequacy of the current framework and where changes may be required.

The Guide has been developed through a review of relevant academic, professional and government literature (including international experience), discussions with a cross-section of leaders, predominantly from the public sector, information obtained through case studies and professional experience. The interviews and case studies were important sources for better understanding the tacit knowledge held by experienced practitioners within the APS. Summaries of the agency case studies, key themes from the interviews with leaders and a summary of the literature review are set out in the Guide’s appendices. This material is intended to be a resource for readers, while also setting out the Guide’s foundations.

In addition to the Guide, the ANAO has also prepared two supplements providing details on the innovation case studies and the full report of the literature review. The literature review supplement contains extensive material on overseas perspectives on innovation and overseas practice.

The two supplements to the Guide, entitled Detailed Case Study Material from Agencies and Public Sector Innovation: A Review of the Literature are available through the ANAO website: www.anao.gov.au.

A high-level, visual model of the Guide’s logic is depicted in the following diagram.

Pre-condition Diagram 7_02.eps

 

 

 

 


[1] Having defined public sector innovation, Mulgan and Albury outline an innovation model involving four steps: generating possibilities; incubating and prototyping; replicating and scaling up and analysing and learning. See Mulgan, G, and Albury, D, Innovation in the Public Sector, Cabinet Office Strategy Unit, United Kingdom Cabinet Office, 2003.

[2] Mathews, M, ‘Fostering creativity and innovation in cooperative federalism — the uncertainty and risk dimension’, in Critical Reflections on Australian Public Policy, Selected Essays, The Australian National University, Canberra, 2009.

[3]An explanation of terminology, including ‘likelihood’ and ‘consequence’ is available at Standards Australia/Standards New Zealand, Risk Management Guidelines Companion to AS/ NZS 4360:2004 Handbook, HB436:2004.

 

line

Previous pagePrevious: Foreword

Next pageNext: 2. Essential pre-conditions for innovation