11 October 2019

Professor Stephen Osborne considers the balancing act of the opportunities—and necessary risks—of public service innovation in reforming local government.
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Over the past three decades ‘innovation’ has been encouraged as a significant approach to the effective reform of local government services. During this period, our understanding and management of public service innovation (PSI) has improved immeasurably.

We now have a greater awareness of its distinctive change management requirements, for example, and of the organisational processes that support innovation. We have also embraced the opportunities and challenges that digital technology and artificial intelligence offer for PSI.

One issue that has received little attention, however, has been the role of ‘risk’ in PSI and approaches to its management. This complaint can be directed equally at the private sector as for public services—but for the private sector, the business risks involved are primarily financial. For local government they are much more complex and can involve direct risk of harm to vulnerable service users or to the community.

Why is Risk Important for PSI?

Common risks for PSI are that the outcomes of an innovation are uncertain (will it deliver what it promises?), that individuals are actually harmed, that there are unintended consequences, that its costs escalate prohibitively—and/or simply that it fails. In addition to these direct risks of PSI, it can also have reputational risks to local authorities and their managers and staff. However, because innovation is about new, untried and untested approaches, risk is an essential element of innovation. Put simply—without risk there is no innovation.

This is a real dilemma for local government leaders and managers. Again, the risks for public services are not simply about financial loss but can involve genuine harm to the users of these innovative services. Not many patients in the early years of heart replacement surgery in the 1960s expected to, or did, survive. Yet these accepted risks were necessary to test and improve healthcare for the future. Risk is essential if local communities are to benefit from the opportunities that PSI offers, but our research suggests that current approaches to risk are not ‘fit for purpose’ when it comes to PSI.

On the one hand, risk management is central to many local services, such as social care, education, and policing. But this concerns risks of these services that are already known and are dealt with through the professional practice of local government workers. On the other hand, risk management is a core element of both actuarial and Health and Safety management for local authorities. However, in both these latter cases the intent is, quite appropriately, to minimise or eliminate risk. But such an approach for PSI undermines the innovative effort entirely. The question is not ‘how do we eliminate risk from PSI?’ but rather ‘how much risk are we prepared to bear for what potential benefits from PSI?’ Successful PSI requires the negotiation and governance of risk—not its elimination.

Current Approaches to Risk and PSI

Our research on risk and PSI, which was part of a major European Commission cross-national research programme, uncovered limited understanding within local government to risk and PSI. Risk was dealt with through four conduits: existing professional assessments and skills, the development of ‘ad hoc’ and spontaneous approaches (often bottom-up), existing Health and Safety policies, and the actuarial assessment of its impacts. While all these have their virtues, none are suitable to negotiating and governing the presence of risk, rather than its elimination. Moreover, the role of risk within PSI was often not appreciated by local government staff—as one of our respondents noted, risk and innovation were not ‘something I would think about in my daily work’.

Local government also received little support or encouragement from the national level. The Department of Health, in its 2010 advice, simply limited itself to saying that managers needed to take a ‘proportionate approach’ to risk and PSI. More worrying, we found a disturbing bias against innovation from local government regulators and the funders who were concerned that an innovation failure could lead to reputational damage for them. Uniformly, risk was viewed negatively and as something to be avoided at all costs. In most situations this is eminently sensible. In the case of PSI, though, it undermines the likelihood of its intended benefits being realised. The goal is to govern risk not eliminate it—this will eliminate the innovation also.

The Way Forward

Our research shows that profound changes are needed if local communities and citizens are to benefit from PSI. This is surely essential in our modern world where digital technology and artificial intelligence present exciting opportunities for innovative local public services to meet social and economic needs.

We suggest a four-pronged approach. First, cultural change within local government is required to privilege PSI for its potential benefits. This needs to include a clear mandate for innovation from senior managers and politicians. Without that, then innovation and risk can simply become a ‘blame game’ to see who is still ‘holding the parcel’ when the music stops. Cultural change inside organisations is notoriously difficult—but this is not the same as impossible. Central to a culture of innovation are two elements: an acceptance that failure is a part of innovation, and a willingness to learn from failure in order to improve public services in the future. Such an approach is difficult, as local government politicians and senior managers are famously averse to acknowledging failure. Unless such a culture is engendered though, PSI will continue to be a blame game.

Second, local government managers need to move beyond risk assessment and minimisation approaches to risk governance. This approach has been pioneered by Oliver Renn in his ground-breaking work on disaster and crisis management. It involves negotiation between all the stakeholders to an innovation to establish how much risk they are prepared to bear and for what potential (but not guaranteed) benefits—and how the risks will be addressed if they are realised. Effective risk governance is not just a task for local government managers. It must also involve negotiation with politicians, service users and their families, and community representatives. It is a complex and time-consuming process but it is essential for complex innovations (such as smart homes), where the benefits of an innovation can be contested and/or where the risks fall to more than one party.

Third, risk assessment and minimisation must continue to be an essential part of our approach to risk and PSI, but only within a risk governance framework (above) that negotiates levels of acceptable risk against potential benefits. Finally, consideration should be given to establishing a public service risk agency, similar to the Medicines and Healthcare Products Regulatory Agency (MHRA) in the healthcare field. This could establish a genuine risk governance approach across all public services that would be at arms-length from direct service management but offer professional risk governance support to PSIs.

None of these alternatives are panaceas and none will guarantee either risk-free PSI or its success. That does not exist. However, if we are serious about PSI as a route to efficient and effective local government services then these approaches are critical. To do otherwise will simply lead to expensive PSI failures and to more blame games. A responsible approach to the governance of innovation risk offers great opportunities—but only if we are prepared to accept and embrace the centrality of risk to PSI.

Stephen Osborne

Professor Stephen P Osborne is Chair of International Public Management and Director of the Centre for Service Excellence (CenSE) at the University of Edinburgh Business School.

This article first appeared in Local Government News on 24 September 2019.