Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Enabling Disruptive Innovation in Government


Published on

The FGI's first take on the imperative for enabling disruptive innovation in government. It is not a silver bullet, but entirely necessary.

  • Hey guys! Who wants to chat with me? More photos with me here 👉
    Are you sure you want to  Yes  No
    Your message goes here

Enabling Disruptive Innovation in Government

  1. 1. Innovation in GovernmentHow do we make government adaptive?June 19, 2012
  2. 2. Agenda~5 minutes – Context of project • Jayson to describe the context of the Chief of Staff conference and our role in the process~35 minutes – The importance of disruptive innovation to government • Clay / Max / Nikhil to discuss current project, observations, and assertions about opportunities for innovation in government services and policy~20 minutes – Discussion of next steps • Open discussion of next steps the forum for growth and innovation 1
  3. 3. Enabling disruptive innovation in government the forum for growth and innovation 2
  4. 4. Enabling disruptive innovation in governmentThe United States - and much of the developed world - face unprecedented budget crisesInnovation has been touted as one of the mechanisms to address current problems • Lack of silver bullet requires government to become more efficient, spur growth of tax receipts, and cut excessive services • Innovation is seen as one of the keys to government efficiency and improvementThe key to doing more with less lies in a specific type of innovation: disruptive innovation • Unfortunately, government innovation tends to focus on sustaining instead of disrupting existing models of service delivery • Government intervention in markets can often, itself, lead to a lack of disruption How can we enable disruption in markets where public intervention is necessary? the forum for growth and innovation 3
  5. 5. Our research agendaWhat we hope to develop… What we are not developing…• A framework to understand what is • A critique of governance models – the causing disruptive innovation to not implementation of policy occur in situations of government intervention• Guidelines on what policy • Comprehensive policy prescriptions can help enable recommendations on specific issues disruptive innovation in various circumstances• A best practice approach for objective • Opinions on subjective market issues market issues such as public goods such as intra-generational transfers the forum for growth and innovation 4
  6. 6. What is innovation? Innovation is more diverse than most practitioners acknowledge Categorization of tech innovation Categorization of competitive innovation Incremental improvements to existing Innovations that integrate with the profit technologies models of incumbent firmsContinuous Sustaining Integrate seamlessly with legacy formats Can be derived from either continuous or discontinuous innovation Example: Example: • A traditional engine that generates 20% • A solar engine integrated into a Ford more horsepower than its predecessor coupe and priced at a premium Technological innovation that bypass the Innovations that do not integrate with profit existing paradigm; often cited as a step- models of incumbent firmsDiscontinuous change Disruptive Often lower quality to existing products, but Can or cannot integrate with legacy formats cheaper and more accessible Example: Example: • An solar engine that generates 20% more • An solar engine used to power a cheap, horsepower than its gasoline predecessor around-town bicycle for city commuters the forum for growth and innovation 5
  7. 7. Disruption, illustrated Incumbents nearly always win Product Performance Entrants nearly always win Disruptive technologies Time the forum for growth and innovation 6
  8. 8. Why disruptive innovationWhat is allows firms to do The industrial impact• Gain access to markets with new • Drives down cost in the market technology and business models • Increases access for consumers• Avoid competition during early growth • Opens budget for investment in other activities• Identify the optimal customers for the product “ ” This process of Creative Destruction is the essential fact about capitalism. - Joseph Schumpeter the forum for growth and innovation 7
  9. 9. Disruptive innovations transform industries Disruptive innovation Description Before After Personal computing • In the late 1970‟s, companies arose to ~$120-160K1 ~$1.3K2 manufacture computers using existing, modular, technical components, thereby decreasing cost of production Retail health clinics • Over the past 2 decades, retail health clinics $5603 $1103 have emerged to offer basic healthcare services w/out expensive overhead of primary care offices Mobile digital learning • Educational platforms being developed to 100M w/out N/A provide access to the more than 100M children access to that do not attend school across the globe education Disruption brings services to more customers by dramatically reducing costs and increasing accessibility1) DEC VAX 11/780 Computer Specifications. Accessed 6/15/20122) The Encyclopedia of Consoles, Handhelds, & Home Computers, pg. 19 the forum for growth and innovation 83) Comparing Costs and Quality of Care at Retail Clinics… Annals of Internal Medicine, Sept 2009, pg. 324
  10. 10. Why does this matter for the government? At all levels, the public sector in the United States face increasing budgetary limitations 2nd Debt Ceiling Hit Outstanding US Debt Federal Unfunded Liabilities Federal Q4 2012 $15.8t $211t California State Debt Illinois 2012 Deficit NY Pension Unfunded Liabilities1 State $392b ~$6b $120b Detroit Municipal Debt Defaults through March „12 O.C., CA Unfunded Liabilities2 Municipal B2 & B3 21 muni‟s $20b Government must learn to do more with less1) Teachers and Local Workers unions – Empire Center projections2) Orange County Register,, Accessed 6/14/2012 the forum for growth and innovation 9
  11. 11. Municipal debt has grown by 17% in past 5 years Municipal Securities (1996-2011) 4,000.0 300 280 3,500.0 260 Municipal Tax Receipt Growth 3,000.0 (Indexed to 100 in 2000) Outstanding Value $B 240 2,500.0 220 2,000.0 200 180 1,500.0 160 1,000.0 140 500.0 120 0.0 100 1996 1997 1998 1999 2000 2001 2002 2003 2004* 2005 2006 2007 2008 2009 2010 2011 Individuals Mutual Funds Banking Institutions Insurance Companies Other Municipal Tax GrowthSource: SIFMA Estimates, Holders of Municipal Securities. Accessed 6/14/2012. Tax receipt growth estimated by US Census Bureau based on fourth quarter growth in property taxes the forum for growth and innovation 10
  12. 12. Despite burning platform, government tends to sustain Case 1: The President’s Save Awards Case 2: Health Data Initiative President Obama instituted the President’s SAVE Starting in 2010, the Health Data Initiative aims to award for federal employees that present cost cutting release data to the public or qualified entitiesBackground ideas • Through “Datapaloozas,” government got external • SAVE has successfully generated over 56,000 constituents to engage in creating new products and employee submissions related to cost cutting services using the data opportunities within the federal government • In 2010, 20 apps and services debuted; in 2011, 50; • Leveraging Eric Von Hippel and Karim Lakhani‟s and this year, 230 companies are set to debut products work on crowd-sourced innovation However, the SAVE awards generate sustaining Products and apps debuting though are sustaining to recommendations government institutions • Primarily identify excessive spending within existing • Data is primarily information, such as managingIn practice operations asthma and quality of hospitals • Past examples include • Provides consumers with better information • Wasted medicine in Veterans‟ Hospitals • Puts pressure on providers through transparency • Duplicative purchases within NASA Data initiatives can enable disruption in the private Does not reward employees for rethinking systems sector, but will have minimal impact driving near term from the ground up (too impractical) cost out of public services While valuable, sustaining innovations will not solve our fiscal crises in isolation the forum for growth and innovation 11
  13. 13. Why disruption doesn’t occur naturally the forum for growth and innovation 12
  14. 14. Government intervention, itself, can stifle disruption Government intervention, while necessary to solve various market failures, often stifles disruptive innovation in the process • This interference can be intentional, but often an undesirable byproduct of specific solutions Why it would occur… …Example in action To build industry and serve public Airline industry • From 1938-1978 the Civil Aeronautics Agency heavily regulated US airIntentional interest, government occasionally travel, limiting competition and access to routes limits competition intentionally • In the years following deregulation, hundreds of new airlines emerged • New airlines engaged in various forms of business model innovation • New activity also prompted a modernization of air traffic control systems In intervening to address correct Legal Accreditation (The American Bar Association) • To ensure that stated lawyers can appropriately represent theirUnintentional market failures and protect clients, the United States has required legal certification for hundreds of consumer interests, government years often distorts the competitive • However, to overcome these asymmetries of information, the United pressures that enable disruption States has recently relied on ABA accredited schools to screen students unintentionally • The lack of competition for ABA accredited schools and the single tier of certification is partially to blame for the lack of innovation in legal services The question becomes, what is required for disruption within public services and regulated industries? the forum for growth and innovation 13
  15. 15. To promote disruption, services and regulation must ensure eight conditions are satisfiedStructure Producer (Gov. /private) Consumer (Gov. /Taxpayer)1. Ability to start a business 3. Incentive to start a 6. Ability to switch business2. Ability to sunset a 7. Benefit evaluation business 4. Incentive to progress up- market 8. Benefit internalization 5. Ability to progress up- market The fulfillment of these eight constructs creates an environment where… • Consumer purchasing habits deliver product and service feedback • Suppliers have an incentive to improve both technology and efficiency over time • Businesses are naturally born, mature, and become obsolete over time the forum for growth and innovation 14
  16. 16. Private industry adapts through feedback loops;government services lack such informationLack of “Opt-out” • At the federal level, public has no option to opt-out of governmentfrom citizenship • At state and municipal level, there is threat of moving, though a certain amount of stickiness creates a no opt-out effect • Difficult to voice discontent through non-consumptionMinimal access to • Government interventions do not do a good job of establishing feedback loops tocustomer adjust policies over timefeedback • Lack of CRM systems and incentive for customer learningLow customer • With the taxpayer paying one lump sum, it is not possible to create accountability forvisibility into each spent dollar on a program by the publicservice costs • Current tax system also hides the value of subsidies in the form of deductionsSingular issues • Votes, theoretically, represent feedback into policy and progresscloud voting • However, singular issues tend to cloud feedback into service qualitydecisions Difficult to discern what is “good enough” service at any level of cost given these issues the forum for growth and innovation 15
  17. 17. Policy decisions can interfere withability to test new service models Policy tends to interfere with disruption in two distinct manners Interferes with disruptive entrants ability to enter Interferes with the ability of new markets disruptive innovators to • RFP policy, certifications, progress up market requirements, etc. can create • Process requirements can barriers to innovative thinking eliminate disruptive services in gov‟t from further progression • Ex: Reimbursement for • Ex: Automation of legal disease management vs. services drug sales the forum for growth and innovation 16
  18. 18. Examples of how we can enable adaptive governmentBest practice What does it mean ExampleOutcome-based • Process-based legislation makes assumptions about market • Fuel efficiencylegislation dynamics that must continue to hold requirements • Outcome-based legislation focuses on the creation of feedback • Hospital loops that allow for variation within methods for implementation readmissionsProcess for • Legislation does a poor job of sun-setting itself when it has run • California watersun-setting its course, leading sometimes to situations of hindrance supply • Government agencies are often re-purposed instead of sun-set after they become obsoleteAllow duplicative • Reliance on a legacy infrastructure prevents forward progress • Charter schoolsinfrastructure • The creation of duplicative infrastructure allows more efficient • Accreditation of methods of product and service delivery to be developed online schoolsEncourage • Rapid iteration and continuous deployment during projects • Lean governmentexperimentation development maximizes feedback, minimizes wasted investment projects • Chinese SEZs the forum for growth and innovation 17
  19. 19. For disruption to take hold, success of programsmust be appropriately definedDiscussion of objectives in policy often spurs charged, political, debate • Issues surrounding wealth transfers, optimal scope of government, and safety nets generate emotionally charged reactions • Reactions can draw attention away from the benefits of disruption “in a vacuum”To overcome this issue, we believe it is important to distinguish between objective responsibilities ofgovernment and subjective responsibilities • Legislators and executives can derive the benefit of disruption from objective examplesObjective responsibilities Subjective responsibilitiesGovernment is objectively responsible for Government’s role is subjective where privatecorrecting private market failures where markets have not failedpossible (within capitalist countries) • These subjective responsibilities vary from • Private market failures occur where economic nation to nation and are heavily derived from assumptions of competition fail cultural or historic expectation • i.e., Informational • i.e., unemployment benefits, universal asymmetries, monopolies, negative healthcare, public education, etc. externalities, etc. the forum for growth and innovation 18
  20. 20. How you get it done? 5 Balance costs 4 and benefits Evaluate against • For remaining 3 criteria for options, compar Develop innovation e costs and 2 spectrum of • Eliminate benefits to Identify unit of solutions solutions which narrow list of1 customer • List out various fail to address policy options Define the analysis solutions on the the failed problem • Identify the spectrum of conditions for smallest unit of government innovation • Evaluate the key intervention, fro measure at market failure(s) m no • Eliminate which customers requiring intervention to solutions which can evaluate government complete cause other products intervention takeover of the conditions for • Ensure market innovation to fail • Identify the failed producers and conditions for can identify with innovation this unit of measure the forum for growth and innovation 19
  21. 21. Next steps• Complete additional interviews of public servants, contractors, and constituents• Prepare case studies on stifled and successful innovation at all levels of US government• Further develop framework for enabling disruption in policy and public services• Meet with policymakers and academics to challenge findings the forum for growth and innovation 20
  22. 22. Appendix 1: Research methodology to date the forum for growth and innovation 21
  23. 23. Research to dateInterviews with thought leaders and public servants (including) • Erika Poethig -- Deputy Secretary of Housing and Urban Development • Mike Dimatta -- Former Deputy Director, OMB • Roger LaRouche -- Former Deputy IG at Department of Interior • Neil Kleiman -- NYU, Former Policy Director at Living Cities • Neil Khare -- Director of Policy, Office of the Cook County Board PresidentJournal & literature research • Industrial development theory • Contract / Privatization theory • RFP policy surveys • Regulatory best practicesSurvey of public facing innovation initiatives and competitions • SAVE • SC2 • Bloomberg innovation teams • City Bid system • Etc. the forum for growth and innovation 22
  24. 24. Research goalsConduct further review of innovation efforts within branches of government • Review instances of successful and unsuccessful disruptive innovation in regulation / policy • Review instances of successful and unsuccessful disruptive innovation in public servicesComplete additional interviews • Interviews with academics and public servants to collect additional information • Notable candidates include: Larry Lessig, David Moss, Joseph Stiglitz, Tom Friedman • Follow up with initial interviewees to discuss findings, frameworks, and recommendationsDevelop framework and complete article for circulation • Goal of “HBR style” article for practitioners • Additional academic publication where relevant the forum for growth and innovation 23
  25. 25. Unused slides the forum for growth and innovation 24
  26. 26. More than 1/5th of US industry fails to benefit from disruption Federal Spending 3500 60% 3000 50% 2500 Spending as a % of GDP 40% Spending in $B 2000 30% 1500 20% 1000 10% 500 0 0% 1939 1951 1963 1975 1987 1900 1903 1906 1909 1912 1915 1918 1921 1924 1927 1930 1933 1936 1942 1945 1948 1954 1957 1960 1966 1969 1972 1978 1981 1984 1990 1993 1996 1999 2002 2005 2008 Education-fed $ billion Welfare-fed $ billion Transportation-fed $ billion Defense-fed $ billion Health Care-fed $ billion Protection-fed $ billion Pensions-fed $ billion Other Government as % of GDP the forum for growth and innovation 25