Tackling Policy Challenges Through Public Sector Innovation: A strategic portfolio approach

Executive summary

The scale and complexity of the challenges governments are facing today require public institutions to adopt novel ways to think and implement public policies. This means being able to develop innovative responses to tackle long term transformations such as those related to aging societies and automatisation of work while keeping the public sector productive and responsive to urgent needs. In short, governments cannot remain static, they need to continuously adapt their strategies to changing circumstances and environments, systematically and actively explore new possibilities, experiment, and continuously learn as part of a broader governance system.  

As public sector innovation continues to be institutionalised, new frameworks are needed to help government make a more strategic and deliberate use of innovation to achieve policy goals. Forty‑three countries who have adopted the OECD’s Declaration of Public Sector Innovation have recognised that innovation is multifaceted (i.e. different challenges requires different innovative responses) and that a systemic portfolio approach to innovation that is tailored to the relevant needs, goals and priorities is needed.

Work to date has examined the drivers and factors influencing innovation in the public sector, but does not help governments make strategic choices about what types of innovation to invest in or assist to build support structures in line with the problem at hand. This report fills this gap by introducing the notion of a portfolio approach to innovation as a management device which involves “investing in, fostering and leveraging an appropriately diverse range of innovative activities so as to offset the risks that some innovative responses will not work or will be unsuitable” (OECD Innovation Declaration); and describing ways this can effectively be applied in organisational setting to ensure innovation efforts achieve their intended goals.

By bringing together the Facets model and a portfolio approach, the report provides new evidence on what innovative approaches and instruments governments can use to respond to emerging challenges in a timely manner. The report argues that there is a rising need for specificity and precision in how different factors are supported at individual, organisational and systems levels. This would also make the strategic response and support of innovation more tailored to government needs.

Connecting purpose with solutions: The Public Sector Innovation Facet model

The first chapter of the report provides an introduction to the Innovation Facet model which can be used to explore the purpose and intent of innovation activities along two dimensions (directionality and certainty), and how they work in practice:

• Enhancement-oriented innovation upgrades practices, achieves efficiencies and better results, and builds on existing structures without challenging the current system
• Adaptive innovation tests and tries new approaches to respond to a changing operating environment and citizen needs without a pre-determined direction
• Mission-oriented innovation sets a clear outcome and overarching objective for addressing a specific, time-bound and concrete challenge
• Anticipatory innovation explores and engages emergent issues that could shape future priorities and commitments and may be highly uncertain in nature

The second part of the report provides an in-depth review of the present state-of-the-art evidence connected to each facet including: main challenges; drivers; support structures; tools and methods; skills and capacities; and implementation challenges. For each facet, the report also explores both the theoretical foundations in the literature as well as the practical implementation challenges and open questions for further research. Each innovation facet chapter was based on a full or semi-systematic review. In the case of adaptive innovation and mission-oriented innovation, a full PRISMA methods was applied; the other facets build on semi-systematic review methods and snowballing methods, as the OECD has conducted prior research into these areas.

As a complete view of research on public sector innovation facets, the report comes with Policy Briefs on each of the innovation facets and the portfolio approach, which describe the findings in a succinct, action-oriented manner: enhancement-oriented innovation, adaptive innovation, mission-oriented innovation, anticipatory innovation and innovation portfolio approaches.

Working with innovation portfolios

The second chapter discusses portfolio management as an approach to address how different facets can be pursued at the same time in public sector organisations. Portfolio management – which is a well-known device in the financial sector – is a dynamic decision-making process, which involves regular reviews of activity and ensures coherent distribution of resources (investment, time, human capital, etc.) between strategic options.

The report illustrates examples of how it can be used by public sector organisations to reap varied benefits including:

• Avoiding innovation fragmentation and single-point solutionism
• Tackling risk aversion and learning at the portfolio level
• Identifying synergies between projects and activities
• Building value chains among projects and programmes
• Layering activities connected to complex reforms
• Planning across ecosystems
• Avoiding lock-in and capture by innovation fads and fashions

Successful public sector innovation portfolio management is essential for addressing today’s ‘wicked’ problems. They also build synergies between innovation actions, as shifts like the green transformation, aging populations and digital societies demand systemic approaches, mission orientation, and anticipating and adapting to change in real time.