26 November 2009
By Geoff Mulgan
There are silver linings to be found among the clouds of recession if public sector leaders allow innovative ideas to get off the ground, argues Geoff Mulgan
The public sector is now grasping the scale of what lies ahead. Cuts are likely to be deep, painful and probably sustained over several years. But one of the definitions of leadership is the ability to use the smallest crisis to maximum effect – to improve efficiency and to innovate.
The Audit Commission recently found that most innovation happens because of financial pressures rather than because it’s a good thing in itself. When money is plentiful, people might talk about innovation and reform, but inertia usually wins. When money is tight, there’s no option but to get serious.
Yet there is a dearth of experience and methods for ‘doing innovation’ well in the public sector. UK public agencies have been dominated by improvement and performance management over the past few decades rather than radical innovation. To make up for this, the Young Foundation has gathered more than 500 methods and lessons from across the world, and from all sectors, on how to use money, design tools and technologies to best effect.
As public services look for major economies, they will need to complement familiar tools of improvement with less familiar tools for innovation if they are to move beyond the familiar landscape of cuts and trimming. To stimulate innovation, we’ve found it useful to analyse 12 kinds of economies that can release cash.
Let’s start with the familiar tools. Almost every part of the public sector is grappling with ‘pure economies’ – simply stopping doing things. In the harsh light of budget shortfalls, many services might prove to be non-essential. So might many laws, regulations and inspections.
Next come ‘economies of trimming’, such as recruitment and pay freezes. These are the usual responses to financial difficulty, although they can be damaging if sustained – by, for example, stopping the flow of new talent into an organisation. But there is plenty of scope for the public sector to trim more effectively – such as taking lessons from airlines about cutting out the ‘nice extras’ and paring back to the bones.
Then there are ‘economies of delay’ – delaying pay rises or slowing down capital expenditure. Again, these are commonplace, although they tend to reinforce the British public sector’s unfortunate habit of swinging from feast to famine and back again.
Beyond these familiar economies lie more radical options that have the potential to provide more for less. Many public agencies are looking for new ‘economies of scale’ – sharing back-office functions or aggregating local provision into a more streamlined unit. The School of Everything – a website linking teachers and learners – is a good example. Once the basic platform is in place it can grow ten or a hundred fold without much increase in costs.
There are many other possibilities, but some caution is needed. In the past, Whitehall repeatedly convinced itself that economies of scale could be reaped by aggregating more and more public services. When I was running former prime minister Tony Blair’s Strategy Unit, I commissioned a detailed study of services assumed to have such potential economies. We found almost none. The very smallest units were less efficient, as were the very biggest (a reminder that scale brings diseconomies as well as economies). But there was a large space in between where size had no impact on performance.
A related route is to seek out ‘economies of scope’ – where services make savings by sharing buildings, frontline roles and technologies, such as the Blackpool school that hosts Jobcentre Plus staff who work with parents. No-one familiar with the public sector can doubt that there is great potential for better joining up, for example in family services, although, again, not all kinds of one-stop shops or one-stop-services have worked.
Another kind of economy is suggested by the experience of the best manufacturers. Toyota’s ‘lean thinking’ has long focused on ‘economies of flow’, which maximise productivity by ensuring rapid and constant flow as well as some specialisation in skills. Doctors who specialise in particular operations do them much more effectively than generalists. The Young Foundation is also piloting models to create pools of specialists to deal with particular long-term diseases. Early indications show that models of this kind can greatly improve patient experience and save money by reducing hospital visits.
For local government, there is also interest in ‘economies of penetration’. Operating intensively at a local level can increase efficiency: for a telecommunications company, there are great advantages if 80% of households in a street use its services, rather than 20%. Similarly, major economies can be achieved through combined heat and power schemes; extending street wardens’ duties to deal with low-level emergencies and employing live-in caretakers to fix small problems in blocks of flats.
These point towards the broader idea of ‘economies of doubling up’, in which the same solution is used to address two problems at once, such as employing long-term workless people for loft insulation.
A more subtle but rich seam is to stem costly demands on the public sector. With crime and health care, for example, we know that failure to act effectively early on can lead to high levels of recidivism and hospital readmissions, with associated costs. Yet divided responsibilities and mismatched incentives often get in the way of achieving what we call ‘circuit economies’.
New financial tools might be piloted next year to bring a more systemic view of how local services should be organised. These include social impact bonds and health impact contracts, which link funding to outcomes in a local area.
Another kind of economy comes from beyond services. ‘Economies of visibility’ follow the power of shame. We’ve seen this year how visibility has forced MPs to claim less on expenses. One of the vices of the public sector is that it’s very hard to get data on real unit costs – to compare, contrast and learn. Improving transparency on such things is important, as is the ability to interact with citizens about it – perhaps through sites such as patientopinion.org.uk, fixmystreet.org, the London Borough of Camden’s Twitter account and thumbprintcity.com, which allows users to create a map for the police of where they do and don’t feel safe.
‘Economies of commitment’ encourage public services to tap into new sources of committed people, who can help to provide better services for less. These might be staff working for a social enterprise who feel more in control of their work, or volunteers working alongside professionals. Parents who come into school to read have significantly improved literacy in local schools. In Japan, citizens care for elderly neighbours in exchange for others caring for their elderly family in other cities.
Finally, a more politically contentious set of issues are raised by what could be called ‘economies of responsibility’, which achieve savings by transferring roles to the public, just as supermarkets cut costs by getting consumers to fill their own trolleys. Examples include a plan to train Harrow residents to report petty crime and Community Pledgebanks, where people contribute a cash sum to the neighbourhood if a few thousand others do as well.
These 12 types of economy combine the familiar and the unfamiliar. The first ones are familiar. But the others depend both on faster adoption of good practice from elsewhere and on more disciplined and effective innovation. Unfortunately, there are still very few specialist intermediaries to support this.
Hopefully, one of the effects of the crisis will be to raise the public sector’s game. In fields such as medicine, methods for innovation are mature, well understood and owned by recognised institutions and intermediaries, along with well established ways of handling risk, and measuring success. Public services are a long way off. But this is surely where we now need to be heading.
Geoff Mulgan is director of the Young Foundation and a former head of the Number 10 Strategy Unit. He was one of the speakers at the Public Finance/Zurich Municipal risk and innovation round table
By Geoff Mulgan
There are silver linings to be found among the clouds of recession if public sector leaders allow innovative ideas to get off the ground, argues Geoff Mulgan
The public sector is now grasping the scale of what lies ahead. Cuts are likely to be deep, painful and probably sustained over several years. But one of the definitions of leadership is the ability to use the smallest crisis to maximum effect – to improve efficiency and to innovate.
The Audit Commission recently found that most innovation happens because of financial pressures rather than because it’s a good thing in itself. When money is plentiful, people might talk about innovation and reform, but inertia usually wins. When money is tight, there’s no option but to get serious.
Yet there is a dearth of experience and methods for ‘doing innovation’ well in the public sector. UK public agencies have been dominated by improvement and performance management over the past few decades rather than radical innovation. To make up for this, the Young Foundation has gathered more than 500 methods and lessons from across the world, and from all sectors, on how to use money, design tools and technologies to best effect.
As public services look for major economies, they will need to complement familiar tools of improvement with less familiar tools for innovation if they are to move beyond the familiar landscape of cuts and trimming. To stimulate innovation, we’ve found it useful to analyse 12 kinds of economies that can release cash.
Let’s start with the familiar tools. Almost every part of the public sector is grappling with ‘pure economies’ – simply stopping doing things. In the harsh light of budget shortfalls, many services might prove to be non-essential. So might many laws, regulations and inspections.
Next come ‘economies of trimming’, such as recruitment and pay freezes. These are the usual responses to financial difficulty, although they can be damaging if sustained – by, for example, stopping the flow of new talent into an organisation. But there is plenty of scope for the public sector to trim more effectively – such as taking lessons from airlines about cutting out the ‘nice extras’ and paring back to the bones.
Then there are ‘economies of delay’ – delaying pay rises or slowing down capital expenditure. Again, these are commonplace, although they tend to reinforce the British public sector’s unfortunate habit of swinging from feast to famine and back again.
Beyond these familiar economies lie more radical options that have the potential to provide more for less. Many public agencies are looking for new ‘economies of scale’ – sharing back-office functions or aggregating local provision into a more streamlined unit. The School of Everything – a website linking teachers and learners – is a good example. Once the basic platform is in place it can grow ten or a hundred fold without much increase in costs.
There are many other possibilities, but some caution is needed. In the past, Whitehall repeatedly convinced itself that economies of scale could be reaped by aggregating more and more public services. When I was running former prime minister Tony Blair’s Strategy Unit, I commissioned a detailed study of services assumed to have such potential economies. We found almost none. The very smallest units were less efficient, as were the very biggest (a reminder that scale brings diseconomies as well as economies). But there was a large space in between where size had no impact on performance.
A related route is to seek out ‘economies of scope’ – where services make savings by sharing buildings, frontline roles and technologies, such as the Blackpool school that hosts Jobcentre Plus staff who work with parents. No-one familiar with the public sector can doubt that there is great potential for better joining up, for example in family services, although, again, not all kinds of one-stop shops or one-stop-services have worked.
Another kind of economy is suggested by the experience of the best manufacturers. Toyota’s ‘lean thinking’ has long focused on ‘economies of flow’, which maximise productivity by ensuring rapid and constant flow as well as some specialisation in skills. Doctors who specialise in particular operations do them much more effectively than generalists. The Young Foundation is also piloting models to create pools of specialists to deal with particular long-term diseases. Early indications show that models of this kind can greatly improve patient experience and save money by reducing hospital visits.
For local government, there is also interest in ‘economies of penetration’. Operating intensively at a local level can increase efficiency: for a telecommunications company, there are great advantages if 80% of households in a street use its services, rather than 20%. Similarly, major economies can be achieved through combined heat and power schemes; extending street wardens’ duties to deal with low-level emergencies and employing live-in caretakers to fix small problems in blocks of flats.
These point towards the broader idea of ‘economies of doubling up’, in which the same solution is used to address two problems at once, such as employing long-term workless people for loft insulation.
A more subtle but rich seam is to stem costly demands on the public sector. With crime and health care, for example, we know that failure to act effectively early on can lead to high levels of recidivism and hospital readmissions, with associated costs. Yet divided responsibilities and mismatched incentives often get in the way of achieving what we call ‘circuit economies’.
New financial tools might be piloted next year to bring a more systemic view of how local services should be organised. These include social impact bonds and health impact contracts, which link funding to outcomes in a local area.
Another kind of economy comes from beyond services. ‘Economies of visibility’ follow the power of shame. We’ve seen this year how visibility has forced MPs to claim less on expenses. One of the vices of the public sector is that it’s very hard to get data on real unit costs – to compare, contrast and learn. Improving transparency on such things is important, as is the ability to interact with citizens about it – perhaps through sites such as patientopinion.org.uk, fixmystreet.org, the London Borough of Camden’s Twitter account and thumbprintcity.com, which allows users to create a map for the police of where they do and don’t feel safe.
‘Economies of commitment’ encourage public services to tap into new sources of committed people, who can help to provide better services for less. These might be staff working for a social enterprise who feel more in control of their work, or volunteers working alongside professionals. Parents who come into school to read have significantly improved literacy in local schools. In Japan, citizens care for elderly neighbours in exchange for others caring for their elderly family in other cities.
Finally, a more politically contentious set of issues are raised by what could be called ‘economies of responsibility’, which achieve savings by transferring roles to the public, just as supermarkets cut costs by getting consumers to fill their own trolleys. Examples include a plan to train Harrow residents to report petty crime and Community Pledgebanks, where people contribute a cash sum to the neighbourhood if a few thousand others do as well.
These 12 types of economy combine the familiar and the unfamiliar. The first ones are familiar. But the others depend both on faster adoption of good practice from elsewhere and on more disciplined and effective innovation. Unfortunately, there are still very few specialist intermediaries to support this.
Hopefully, one of the effects of the crisis will be to raise the public sector’s game. In fields such as medicine, methods for innovation are mature, well understood and owned by recognised institutions and intermediaries, along with well established ways of handling risk, and measuring success. Public services are a long way off. But this is surely where we now need to be heading.
Geoff Mulgan is director of the Young Foundation and a former head of the Number 10 Strategy Unit. He was one of the speakers at the Public Finance/Zurich Municipal risk and innovation round table
