What is Innovation? Exploring Public and Private Sectors

The once clear distinction between how the public and private sectors have traditionally leveraged innovation is blurring.
Three colleagues working at a computer together.

Innovation is a term being used frequently these days–especially as we talk about the success of a business. Globally, we are being required to accept the shifting paradigm of business practices by being innovative, agile, and creative. Companies are expected to meet the demands of customers in entirely different ways and at a much quicker pace than even five years ago. 

Innovation can mean entirely different things in different spaces. The private sector, which is mainly made up of for-profit businesses that are funded primarily by profits and investors, utilizes innovation to “conceive, develop, deliver, and scale new products, services, processes, and business models for customers.” The public sector, made up of mostly government agencies funded by taxpayers, focuses on “addressing societal challenges and improving the well-being of citizens.” 

Traditionally, we think of innovation as huge and revolutionary, and in the case of the private sector–profit-making. Take the innovation of the assembly line for cars in 1908. The Ford Model T took 9 hours to build when first introduced, but after Henry Ford created his assembly line, it only took 90 minutes resulting in a major price drop and the sale of 15 million cars in 17 years.

In the public sector, we see innovations that improve the way of life for millions of people, for example: how garbage is collected, parking meters are paid, or social security checks delivered. 

The once clear distinction between how the public and private sectors have traditionally leveraged innovation is blurring. The commonality when considering both private and public sector innovation is the ideating of products and services that create value and how that value is measured. 

Examining Public and Private Innovation Paradigms

The difference between the sectors is possibly due to the economics of it all. The private sector generally seems to be granted more freedom with the capital it has access to when innovating. Public sector budgets are subject to more oversight and bureaucracy. 

Bob Lavigna, UKG’s Public Sector Senior Fellow, shared some of his insights regarding public innovation: “The nature of the public sector, especially the visibility and transparency of what the government does, and the multiple stakeholders with different and often conflicting agendas, create inherent barriers to innovation. While corporate failures often do not see the light of day, it’s difficult, if not impossible, to avoid public scrutiny of government failures.” It is due to these obstacles that finding ways to reach a consensus on how to better serve communities and citizens—to create value—is a constant struggle. 

Regarding the private sector, Bob Lavinga went on to state: “The mantra in many private-sector companies is, ‘fail fast, fail often.’ The relentless competitive environment rewards innovation. To stay ahead of the competition, leading companies take risks, learn from failures, fix what didn’t work, and then move on to get it right.” The problem is that sometimes when caught up in the frenzy to innovate, they don’t create the right value for the customer, and the frustrated customer suffers the price. 

In addition to creating and innovating the best products and services that offer value for their consumers and citizens, the public and private sector are also connected by four primary types of innovation:          

  • Sustainable: This is innovation that improves products and services that are already working, using methodologies that are already proven -- like reusable bags. Sustainable innovation is the most commonly used in both sectors as organizations and teams, government agencies and services, are always striving for improvement with controlled risk. 
  • Breakthrough: Sometimes we run into a well-defined problem that seems impossible to solve. In cases like these, we need to explore unconventional remedies: for example, partnering with new industries or agencies that have different skills and expertise and can bring new ideas to the table. When BP was struggling to assess the underwater damage after the Deepwater Horizon oil spill, they hired filmmaker James Cameron and his engineering team to utilize underwater technologies they had developed while filming Titanic. A public sector breakthrough was the roll-out of app-based parking in Washington, D.C., which saved much-needed funds for the city and made parking easier and more efficient for drivers. 
  • Disruptive: When Harvard Business School professor Clayton Christensen introduced the concept of disruptive innovation, his research found that organizations can engage in all the best practices and still fail. This is because when the basis for competition changes, technology shifts, or markets change, continuing to perfect your current product and systems won’t matter. Instead, you must disrupt and innovate your business model. The Model T was not new as cars had been manufactured earlier, but the assembly line completely changed the industry. An example of disruptive innovation in the public sector is in finance and budgeting transparency in which local governments create portals that allow citizens to follow and monitor all public funds online.
  • Basic Research: This may become the foundation of other innovations. Engaging internal research divisions, creating academic partnerships, studying journals, and attending conferences in search of inspiration make up basic research. A world-changing, yet unintended discovery was Penicillin. It was the result of Dr. Alexander Flemming’s decision to examine mold in a contaminated petri dish during another experiment he was conducting.

As each sector is looking for ways to innovate, we are seeing examples of how the public and private sectors are looking to each other for inspiration and new approaches to bring their innovations to fruition.

A New Way to Create Value Through Innovation: Private Sector

The greatest amount of profit is generally assumed to be the bottom-line value for the private sector; however, in recent years many companies have shifted in their perception of value. Organizations are embracing the concept of shared value when creating or realigning their company framework, which promote and support essential needs for society, but in a manner that a company will also benefit long-term. Think of healthcare companies promoting preventive care to address a public health crisis or a computer company creating curricula for home-schooling that can be printed out on their home printers. Shared value intrinsically links economic growth to social impact. It considers the value of its product for its customers, the environmental impact of its production and distribution, and how it can support the local communities where it does business. Companies who seek to reinvent their company structure to follow shared value principles are instituting disruptive innovation.

A New Way to Create Value Through Innovation: Public Sector

One way to create innovation in the public sector is to leverage private sector ideas and processes. Opportunities for Ohioans with Disabilities (OOD), a state government program dedicated to seeking ways to raise employment rates for disabled citizens, was struggling to engage local businesses well and encourage them to hire disabled workers.

Their solution was to incorporate private-sector business methodologies for talent development and placement. They requested permission to use a larger portion of their funding to hire business representatives and talent coordinators from the private sector. These new hires were tasked with innovating the program, which resulted in the creation of a “talent agency” for disabled workers, with the Ohio business community positioned as the client, and the new hires serving as “agents.” This project won the Innovations in American Government Award as a breakthrough innovation for its interweaving of a public sector mission with private sector methods.

The Common Need for Resiliency

Another commonality among both sectors is the need for resiliency. Much of public sector innovation focuses on resiliency. Communities and government programs must be agile and adaptive to survive both chronic stressors and emergencies, as they are responsible for programs that serve the welfare of their citizens and communities. Their best practice is therefore to always be innovating, to make sure they are resilient enough to weather any storm.

The pandemic and the great resignation required the private sector to also pivot towards an emphasis on resiliency. Businesses had to become more agile and flexible to adjust to the realities of a diminishing workforce and remote work, followed by demands for paradigm-shifting changes to culture and the employee experience.  As organizations continue to adjust to these changes and other elements of the new normal, businesses are looking to be even more agile and resilient, so they can be better prepared for emergencies or seismic shifts yet to come. This also applies to government offices and employment.

Where the Public vs Private Paradigm Flips

As a rule, due to financial freedom and greater risk tolerance, the private sector embraces innovation more easily than the public sector. But this is only true when dealing with innovation on a smaller scale. When it comes to innovation that requires long-term research and development, it is the public sector that often takes the lead. Businesses may embrace “failing fast,” but not usually over the long haul. The public sector is not afraid of projects that may take years to complete. The federal government will bring together private enterprises and public entities such as university research labs and fund their work toward large-scale breakthroughs and innovations. The race to create the COVID-19 vaccine is a recent example of this kind of partnership.

For all their differences, the public and private sectors may have more in common than what is generally perceived. They have historically come together to complete large projects that serve the public good, like creating large-scale public works. The ways they are learning from each other now seem like a new era, perhaps brought about by the dual paradigm shifts of the digital age and focus on culture. The public sector will hopefully be able to embrace innovation at a faster pace to not only provide greater value but to keep up with how quickly the world is moving. The private sector, in turn, may normalize pursuing profits and increasing its bottom line through innovations that focus on valuing and creating value for, its customers, employees, and perhaps even the world at large. 

I want to express a heartfelt thanks to Bob Lavigna, UKG’s Public Sector Senior Fellow, who provided me with his insights and expertise. Bob is an amazing team member, with a prolific career in the public sector, who strives always for greatness and helps inspire as much in his colleagues.