Public Sector More Open to Innovation than Ever

Public sector and ground-breaking innovation do not typically go hand in hand. Traditionally, the public sector follows the trends and activities developed and implemented in the private sector first. Nevertheless, in the recent years, we see more interest in the digital transformation of the local and central governments as well as greater efforts put in fostering and implementing innovation. Governments get closer to digital revolution — let’s see how.

Innovation in the Public Sector is two-dimensional

Since the government has a unique role of serving its people and creating a better life for them, it can and should foster innovation on many levels. On the one hand, the public sector may support the private sector in developing innovation. It serves as a facilitator or an enabler to support innovation and digitalization of the country thanks to its unique role. On the other hand, a public institution can and should be the consumer of technology as well, in order to create better services, reduce cost, make use of technology to redefine its functions and simply digitalize itself as well for its own benefit.

Two types of interacting with innovation:
1. Facilitator/enabler
2. Injecting innovative projects into itself

Facilitating Change

Although both processes could theoretically happen in parallel, typically they don’t. At first, the public sector assumes a role of a facilitator, helping private organizations and innovators to innovate within a particular country or city. There are so many tools that support private organizations to do it:

- On the knowledge level, e.g. test labs with public sector data relevant for innovators (APIs)

- On the infrastructural level, e.g. co-working spaces sponsored by public institutions

- On the regulatory level, e.g. introducing improvements to the regulatory environment to support innovation

- On the tax and finance-related level, e.g. reducing taxes for newly established tech companies or creating grants for R&D projects

All these processes are created as a way to give value to the private sector, which will then benefit the end-customer of the public sector: all its citizens, the economy and local welfare. Until recently, many public institutions used well-known tools to support the innovation ecosystem — tax incentives, economic zones, infrastructural support etc. More recently, we have seen some great examples of even more creative ways to stimulate innovation in the particular industry, e.g. hackathons, open APIs and other (if you’re interested to read more, check out our blog post about InsurTech and PensionTech Hackathon with the Ministry of Finance: https://medium.com/creatorspad/hackathon-with-a-public-institution-its-not-what-you-think-it-is-in-fact-possible-fun-b2503df3ef4d

Creating Change from within

Once a public organization is ready, it may also explore technologies that could be relevant for its own progress and benefit. It is a logical step in the digitalization age for any institution — public and private — but it is also a very challenging activity for those organizations. The structural problem with the public sector is that it is used to procurement processes, in which necessary solutions need to be fully specified and described. This solution-driven approach makes it difficult for public institutions to find the best possible answer to the challenges they face — they will only ask for what they know and can imagine.

The challenge creation process, which we call the challenge-driven approach, is still very rare in the public sector and the bureaucracy often makes it impossible to change. The good news is that there are many pilot projects around the world introducing the “challenge procurements”, in which the problem (and not the solution!) is stated and asked to be solved in the best possible way.

Once the challenges from within start to be addressed, three additional issues are to be solved.

First, interactions with the innovation ecosystem are not an easy task if you are not an innovation expert, so the public-sector institutions need to learn how to become an integral part of this environment and learn the language of technology and innovation. Once the right solutions are detected, the POC/pilot processes need to start — this is a crucial part of creating a successful technological project, yet organizations are often unprepared to handle them. Thus, the introduction of the working, reasonable yet ambitious POC mechanisms is the key to a successful technical project. Finally, addressing regulatory obstacles to help relevant technologies thrive may be necessary in order to introduce novelty to the governmental sector.

Injecting tech into the government has many challenges:
- Interacting with the ecosystem
- Detecting the right needs and validating solutions
- Introducing POC mechanisms to create sustainable technological project
- Addressing regulatory obstacles

In this aspect, public organizations and private corporations are not different — they both need to digitally transform their business and it is not an easy task. Nevertheless, few lessons learned may help make this process easier.

Lessons Learned: Public Sector Meets Innovation

The process of digital transformation and technology integration is not easy, but it is worth the effort. Here is the list of takeaways from our work with the public organizations:

1. Expansion from private to public sectors

Many startups are initially not interested in working with the public sector, but they can bring great value and create a win for themselves. Many startups are not aware that their product is relevant for the public sector. To tap into potentially relevant innovation, it’s worth to look outside of the “smart city” vertical.

2. Face-to-face contact is the cornerstone of digital transformation

Regardless of the sector, H2H (Human-to-Human) is always the most important success factor. Public sector employees must become a part of the innovation community in order to create meaningful and successful human connections, which may then lead to successful technological projects.

3. Pilots may lead to a quick improvement of imperfect laws

Programs in which public institutions directly face regulatory issues help in making smart changes to regulations fast and bring new ideas — it’s a fairly quick and impactful way to change imperfect (or outdated) regulation.

4. Facilitation by a third party is a must

Different stakeholders in public-private innovation programs don’t speak the same language and it’s very difficult for them to work together effectively. Thus, working with a facilitator — an innovation lab or similar — creates a working system for injecting innovation.

5. Use the strengths (credibility & brand) and address weaknesses (bureaucracy, detachment from the private sector)

Public institution can and should use the fact that its support of any innovation project gives great it a great credibility & a strong brand. But to be successful, public players need to play by the rules of the private market and make themselves attractive to “compete” with other verticals.

6. Innovation projects teach public institution to shift from solution-based approach to a challenge-based approach

Challenge-based approach helps public sector players define what they actually need in a market that is full of options and products (relevant mostly in municipalities). By switching to challenge-oriented approach, the best solutions have a chance to be found and implemented.

7. For startups, the barrier of entry is big, but once you’re in, you spread fast

Little competition and similar challenges make it very easy for a startup to get access to many players at the same time. Thus, it’s worthwhile to look at the public sector as an interesting vertical.

8. Methodologies we use with the private sector are perfectly fit for the public sector as well

Private corporations and public-sector institutions are not so different at all!

9. Cost and financing structure for innovation projects created by public institutions is very similar

We noticed in our work that often a third-party public organization is the sponsor of the project aimed at other public institutions. For instance, a public institution devoted to digitalization of the public sector sponsors a program for its fellow institutions (e.g. municipalities, ministries, etc.) to support them in becoming “consumers” of innovation and technologies. It’s an interesting model that incentivizes these organizations to apply and then get additional funding for innovation, showing their initiative and rewarding the most active ones out there.

So What Is GovTech?

GovTech can be anything — from smart city solutions through CRM and data integration systems to mobile apps, payment and internet solutions. Basically, anything that can improve public institutions’ efficiency, connection to stakeholders, costs and more. Different solutions may be very relevant, even if they didn’t aim in the first place to the governmental sector. The gain is potentially huge: GovTech is estimated to be a $400 billion market worldwide. For both public organizations and startups, this is the time to start digital transformation.