Assessing dynamic capabilities in city governments: insights from developing the Public Sector Capabilities Index

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By Anna Goulden

This blog shares the latest highlights from our work to develop the Public Sector Capabilities Index. Led by UCL IIPP in partnership with Bloomberg Philanthropies, the Public Sector Capabilities Index will be a first-of-its-kind measure of city governments’ capabilities to problem-solve and adapt. We call these dynamic capabilities — in simple terms, the abilities of public sector organisations to transform their activities, processes and resources to address both existing and newly-emerging challenges.

Our interim project report, Assessing City Government Dynamic Capabilities, sets out the latest findings from the Public Sector Capabilities Index. Based on research with 20 city governments in 11 countries, the report explores how city governments are describing and deploying dynamic capabilities, hypothesises about how they can be measured, and introduced the new prototype assessment approach we’re developing.

This blog gives a snapshot of the report by diving into some of our key research questions: What are dynamic capabilities in city governments? How do they manifest? And how can we measure them?

Defining dynamic capabilities: from theory to practice

Here is how we currently define dynamic capabilities in city governments.

This definition includes five dynamic capabilities. These are:

1. Cultivating strategic awareness to identify and understand problems and explore potential opportunities.
2. Adapting focus areas with the flexibility to meet unforeseen needs.
3. Building coalitions and fostering partnerships to maximise resources and impact.
4. Transforming teams by reshaping skills, resources and ways of working for effective delivery.
5. Embedding experimentation and fostering a culture of continuous learning and innovation.

Since starting the Public Sector Capabilities Index Project 18 months ago, our conceptualisation of dynamic capabilities in city governments has evolved significantly.

Through over 60 interviews with city governments and external experts, it soon became clear that academic language around dynamic capabilities did not resonate with their day-to-day practice. To address this, we mapped the terminology used by interviewees to discuss dynamic capabilities, and collected data on how they deploy these capabilities in practice. We then used this to rework our original conceptualisation of dynamic capabilities to bridge this gap between theory and practice. Figure 1 traces the transition from our earlier conceptualision.

Figure 1: Moving to a practice-based conceptualisation of dynamic capabilities.

Learning from cities deploying dynamic capabilities in real-time

One of the most central questions in our research is: how are city governments developing and exercising dynamic capabilities in practice?

Our latest phase of work, running from May to November 2024, has highlighted key tools and fora through which dynamic capabilities are being operationalised. These included methodologies including foresight, data analysis and innovation strategies; organisational practices like recruitment and knowledge sharing; and cultural reforms such as removing barriers to experimentation. Table 1 summarises the key mechanisms and practices in which we observed cities exercising dynamic capabilities.

Table 1: Where and how dynamic capabilities are deployed in city governments

In terms of their development, we found that dynamic capabilities can emerge through a combination of structural design, leadership dynamics, cultural practices and external partnerships.

In many cases, dynamic capabilities are co-exercised with external stakeholders, such as universities, development banks, philanthorpies and consultancies. These actors can provide key sources of funding, expertise and platforms for experimentation. For example, in Finland, collaboration with institutions like Finnish innovation agency, Sitra, enhances city governments’ strategic foresight and leadership. In Cape Town, working with external partners has helped strengthen leadership capabilities — for instance via the mayor’s participation in the Bloomberg Harvard City Leadership Initiative.

In other cases, enabling factors sit within city governments. We observed how senior leaders can pave the way for capabilities to flourish by providing safe internal environments for officials to take risks, securing organisation-wide support and reducing bureacratic barriers. As an example, this was especially visible in the School Feeding Unit at the Department for Education in São Paulo City Hall, Brazil. Several of the unit’s successful programs can be traced back to ideas of civil servants who were then empowered to translate them into reality: these include the award-winning Sustainable School Menu Initiative which subsitutes meat-based meals with vegetarian alternatives, and a city-wide strategy to support breastfeeding mothers, among others.

Lastly, in many contexts, centralised units and innovation agencies also play an important a role in diffusing skills across governments, such as the Government of Bangladesh’s Aspire to Innovate (a2i) program and the Government of India’s Mission Karmayogi Capacity Building Commission. The former has helped to create a ‘snowball effect’ that gradually builds innovation capacity accross the Bangladeshi government.

Developing a contextualised approach to capability measurement

Our research showed that city governments differ greatly in their contexts, each faced with a unique blend of fiscal, social, environmental and political conditions. To overlook these varying contexts is to fail to understand dynamic capabilities as real-world organisational phenomena which exist in these complex environments.

For these reasons, we are developing a measurement methodology that incorporates the role of structural capacity — assessed through data collection on legal-institutional features of cities, state capacity, and morphological and socio-economic factors. We will then benchmark and cluster cities according to these features, helping to facilitate knowledge sharing and meaningful interpretation of the capability assessment results that we will provide them. Figure 2 summarises the prototype assessment approach under development.

Figure 2: A prototype approach for measuring dynamic capabilities in city governments

What is next for the Public Sector Capabilities Index?

The next phase of the project will focus on testing the prototype measurement approach we have developed by holding a series of in-depth workshops with city governments. In particular, we will be seeking feedback to refine how to assess dynamic capabilities and to better understand the data we can collect to evidence dynamic capabilities.

We will also solicit inputs to iterate the value proposition and service journey which the Public Sector Capabilities Index will provide to those who use it. By co-designing the Public Sector Capabilities Index with city governments, we aim to create a tool which can help them — and those who work closely with city governments — to understand and nurture the capabilities necessary to achieve their goals.

If you would like to be part of our testing workshops, please reach out to us! You can contact Anna Goulden at a.goulden@ucl.ac.uk.

We will continue to share lessons like these as the project develops. If you want to hear more, please join our Monthly Insights Meetings by emailing Mia Tarp at m.tarp@ucl.ac.uk.