The Australian Journal of Public Administration, vol. 70, no. 3, pp. 227–235
KEY SPEECH
Creating the Conditions for Radical Public Service
Innovation1
David Albury
Director, Innovation Unit, UK, and Visiting Professor in Innovation Studies,
King’s College London
It is an honour to be here to give the lecture for
the HC Coombs Policy Forum and for the De-
partment of Innovation, Industry, Science and
Research, and the Australia and New Zealand
School of Government. What I’m about to talk
about I don’t think HC Coombs necessarily
would have recognised because my content,
for those who are interested in its academic
genesis, owes more to the work of Joseph
Schumpeter rather than to John Maynard
Keynes in terms of the economics of innova-
tion.
In this lecture I am going to discuss creat-
ing the conditions for radical public service in-
novation. But before beginning I would like
you to think of a particular public service or-
ganisation. It could be a school, it could be a
hospital, it could be a prison, it could be a gov-
ernment department. It doesn’t matter what it
is. But during the course of this lecture I want
you to consider your organisation (the whole
department, or unit or a team within it) and
to think about what is it that would encour-
age it or people within it to be innovative, to
innovate and to adopt and adapt innovations.
This way my rather sterile, abstract title – ‘Cre-
ating the Conditions for Public Service Inno-
vation’ – at some point has to have purchase
on schools, hospitals, local authorities, prisons,
police forces, whatever it may be. Ask yourself
as we go through what would induce the school,
the hospital or whatever it may be to become
more innovative.
So, why has this subject suddenly become so
critical over the last few years? I’d say there
are perhaps as many reasons as there are peo-
ple in this lecture theatre [over 200 people

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Australian Journal of Public Administration 
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doi:10.1111/j.1467-8500.2011.00727.
in attendance]. But why now, as opposed to
ten years ago, are governments across the world
talking about public service innovation? In the
UK where I spend at least some of my time in-
novation is currently the latest buzz-word in
all policy pronouncements. I feel as though
there’s a sort of embedded ‘macro’ in some
central government computer that routinely in-
serts the word ‘innovation’ into any paragraph,
policy announcement or white paper written
without it. Innovation has become an incredi-
bly critical word. But why is it there? I’d argue
the reason it has become so important today
is because we are in the middle of a ‘perfect
storm’ around public services to which radical
innovation provides a form of solution. And
the important characteristics of that ‘storm’
are the immense pressures that have come to
bear on public services in the beginning of the
21st century – pressures that have not been
matched since perhaps the Second World War. I
want to say a little bit about one or two of these
pressures to give us the flavour of how they are
impacting on governments. Remember to keep
your organisation, your institution or your team
in mind at this point.
Public institutions now face a set of sub-
stantial long-term challenges. Every society is
facing massive demographic pressures. In de-
veloped societies this is mainly a phenomenon
of ageing; a phenomenon about the proportion
of an ageing population taking over from a
younger population with all the concomitant
issues around retirement, pension affordability,
benefits, welfare provisions, and about lifelong
learning and so forth. There is also obesity,
and long-term eating disorders. Despite many
228 Creating the Conditions for Radical Public Service Innovation
Figure 1.
interventions, both childhood and adult obesity
continue to increase. In the UK, drug and alco-
hol abuse, again despite many well-intentioned
interventions, has continued to increase.
There are also changes in citizen expecta-
tions and the ways in which individuals re-
late to public service professionals. There are
differences about what a student in a school
can access in terms of information and learn-
ing from what there was 20 years ago, with or
without teachers. There are patients who can
access as much if not more information about
their condition and their disease as any doc-
tor. Some of these changes have been induced
by private sector experiences, so that people ex-
pect to ‘consume’ when and where they choose,
which affects how they then relate to exper-
tise and authority. There are different expec-
tations about convenience and access; when I
can do my banking 24 hours a day, why can’t
I do my schooling or get my healthcare 24
hours a day? Governments are still grappling
with difficult and persistent issues, such as
crime, disadvantage, or poverty, often without
success.
As if these were not enough challenges, in the
last three or four years we have seen a massive
fiscal constraint on public services. Therefore,
what we are really talking about is not some
incremental improvement or slight changes in
Australian Journal of Public Administration 
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the ways in which we deliver or think about
public sector, but about radical innovation that
can produce significantly better outcomes for
significantly lower costs. That is the real chal-
lenge that we are all now facing.
It involves a quantum leap in thinking. How
do we equip children with 21st century skills,
not just the basics of literacy and numeracy but
about problem-solving, about team collabora-
tion, about critical thinking and so forth? How
do we embrace the fact that health services in
the Western world were developed to deal with
infectious and acute diseases (emergencies) but
yet the vast majority of their expenditure now is
on chronic conditions and long-term illnesses?
Hospitals are antiquated institutions that bear
little relation to most of the needs of most of
the population.
I suggest we need radical and compelling
innovation to generate significantly better out-
comes at significantly lower costs. This is the
real challenge, and I want to spend the re-
mainder of this lecture introducing you to a
set of findings from research undertaken over
the last few years that have explored how high-
performing innovative organisations and high-
performing innovative policy sectors behave.
From that research I have tried to distil some
of the characteristics that define those systems,
those sectors, those organisations.

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 Albury
Figure 2.
What, then, are the common characteristics
of high-performing innovative organisations,
sectors and systems? I will mention here
five clusters of factors, namely: culture and
leadership; support and investment; rewards
and incentive; industry structure, regulation
and degree of openness; and citizen and user
engagement. The characteristics of innovative
organisations, sectors and systems are found
in these essential clusters – so, think about
your school, your hospital or your department
and ask what determines whether they are
innovative, and what influences whether the
people within them are innovative and/or adopt
and adapt innovations?
Let me start with culture and leadership. This
research is from interviews with top managers,
senior managers, leading professionals in 40
to 45 organisations that are generally recog-
nised as high-performing and innovative. Some
are private sector, some are public sector and
some are not-for-profit organisations. What is
so remarkable in these interviews is that these
leaders are passionate about their aspirations.
What generates a state of innovation is that the
leaders of these organisations are passionate
about the outcomes, about the goals, about the
ambitions, about the aspirations of their or-
ganisations. They are clear about what they
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229
would like to achieve but they are relaxed about
the process for getting there. Unlike many or-
ganisations that are commonly in the public
sector which are obsessed with methods and
process controls, these leaders are people who
have fantastically aspirational goals, are very
clear about them, but allow space to encourage
other people to find different ways of meeting
them. It is in that space that innovation begins
to exist.
It is a privilege at the moment to work in
New York City with the Department of Educa-
tion – a department responsible for 1.1 million
students, 80,000 teachers and a budget of
$21 billion. This department has presided over
the most dramatic improvement in educational
performance of any city in the world over the
last ten years. Leaders in this organisation were
not people who talked about an innovative or-
ganisation as such. Yet, they had great clar-
ity of purpose and pushed the development of
a bold innovation strategy principally because
the existing pace of change was insufficient to
reach the outcomes they sought (namely to get
100 per cent of children in New York graduat-
ing from high school within four years with the
necessary skills and knowledge to equip them
for the 21st century). They set very ambitious
goals but chose to focus on a limited number of

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230 Creating the Conditions for Radical Public Service Innovation
priorities and challenges and, most importantly,
did not define or stipulate the process and the
detail of getting there. The space created here
was where innovation takes place. Secondly
they encouraged experimentation along with
informed and bounded risk-taking. They also
tolerated failure, not in the sense of observing
something that wasn’t working well and leaving
it alone (a failure to try), but tolerating failure in
the sense that it was only through the process of
learning from failure, learning from mistakes,
learning from getting their prototypes wrong,
that the system begins to accumulate the evi-
dence of creating a more powerful innovation.
Encouraging staff to innovate and supporting
their attempts is a crucial element of leadership
and organisational culture.
So, we find that these leaders, these senior
managers and lead professionals are hungry,
thirsty, exploring all the time the external envi-
ronment. They are reaching out to other sectors,
other organisations, other countries. They’re
reaching out to the frontline of their organi-
sations. These are people who are both exter-
nally and frontline oriented in their approach
to management. And they maintain a ‘split
screen narrative’; they are interested in inno-
vation but not for its own sake, rather they are
concerned about how to continue to improve
their day-to-day operations and services and
products while at the same time building in-
novative capacity to address present and future
challenges.
It is also critically important to support or-
ganisational culture and leadership with invest-
ment, rewards and incentives. In these high-
performing organisations, sectors and systems
there is always a way of distributing money to
sustain innovation through a fund or directly
from budget. These leaders are able to identify
approximately how much of their totality of re-
sources they spend on innovation. If we look at
high-performing innovative companies in the
private sector, their spending on innovation
would be somewhere between three percent
and as much as 15 or even 20 percent of
turnover on their innovation effort. By contrast,
I thought we were doing really well in the Na-
tional Health Service in the UK – a £100 billion
organisation – when we managed to get a fund
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of £20 million for innovation. That in reality
is a drop in the ocean compared with what we
see high-performing innovative organisations
spending.
Money for innovation is important but more
important than the money is the ability to apply
methods and support the disciplines and ap-
proaches that are necessary to enhance a likely
effectiveness of innovation. These can be in-
cubators, labs, zones, prototypes, innovation
intermediaries. There is now a whole raft of
public sector organisations that have brought
to bear disciplines from service design derived
from prototyping, from modelling, from simu-
lation, to bear on to the process of public sector
innovation, an area which is still relatively am-
ateur.
I think there are some parallels here with
venture capital funding and incubation strate-
gies. When I was interviewing some venture
capitalists, one shared two important insights
through experiential stories. First, he told me
they started off believing that the way to operate
as a venture capitalist was to find people with
good ideas and drop some money on them and
wait for them to make a profit and then get their
return on investment. And, he said, it rapidly
became very clear that just because somebody
had a good idea did not mean that they had the
necessary skills and expertise to develop it and
take it into a marketable or serviceable product
or service. Therefore, venture capital began to
develop the process of ‘wrapping around’ po-
tential innovators the skills, expertise, knowl-
edges, people and support structures that would
enable those people to be more successful in
their innovation process. So, in addition to re-
leasing funds for innovation we have to think
about incubator zones, laboratories, whatever
they may be, and plan their development. The
‘APS design centre’ that the Department of
Innovation is establishing is a good exam-
ple (see DIISR 2011), that brings to bear
some of those disciplined approaches to
innovation.
The second story he told relates to the man-
agement of risk and the likelihood of failure.
In answer to the question how successful are
you, and how successful have your investments
been over the last few years, he said in the

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 Albury
last ten years around 60 percent of their invest-
ments had been successful. When I said that is
very impressive, he said no it’s terrible! And
the reason he gave for saying it was terrible
was because it was too high. He argued that
if you want really powerful innovation or re-
ally powerful investment you have to be able
to take a chance on some pretty wild cards in
this process and his view was that the high suc-
cess ratio of their investments was in a sense
a marker they weren’t taking big enough risks.
Hence, the balance of risk and reward across a
portfolio of innovations is also a very important
part of public sector innovation.
Supporting investment and encouraging peo-
ple to be innovative is all very important, but
I also want to mention adoption, adaptation,
and what encourages individuals, teams and or-
ganisations not to be innovative themselves but
to adopt and adapt other people’s innovations.
Arguably, most innovations spread through a
process of adaptation and adoption, not inven-
tion. In organisations that are successful, high-
performing and innovative we find that there
are rewards and incentives not just for being an
innovator but for adopting and adapting inno-
vation.
Already in the public sector we have lots of
prizes and awards for innovators. This is great
if it encourages more innovation. But the lim-
itations of these rewards is that they continue
to celebrate the person who is the originator
of the innovation rather than those organisa-
tions and teams that might be encouraged to
adopt and adapt those innovations. We already
have the mechanisms to reward adaptation at
the individual level, at the team level and at
the organisational level. Yet, it still amazes
me that in public sector organisations (hospi-
tals, schools and local governments especially)
there is no real incentive other than public com-
mitment and public mindedness for improved
results. Indeed, most funding systems across
public sectors are neutral or perverse in re-
gard to institutions really improving their per-
formance. And adopting reward and incentive
systems for deploying innovations is a really
critical part of creating conditions for radical
innovation. It is not sufficient merely to have
reputational rewards in place, they need to be
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231
complemented with financial incentives, ad-
ditional innovation funding, and performance
bonuses.
One of the factors that drives the take-up
of innovation (spread) across different sectors
and different systems and different organisa-
tions is granular, comparative performance in-
formation. By ‘granular’ I do not mean data
collected at the level of the individual hospi-
tal or the school. We can already get this data,
and governments seem very fond of collecting
such institutional data and constructing league
tables, star ratings or comparative judgements
about hospitals or schools or police forces etc.
But what really matters to the general public,
to the end-users and to the professionals in
those organisations is much more about what is
happening to them, concerning their particular
service, treatment or speciality, concerning the
particular doctor or consultant or the particu-
lar clinic, or with the particular subject in the
school. Such information does two things: it
provides consumer information leading to con-
sumer pressure, and it also excites competition
between rival suppliers or providers (in ser-
vice quality, maintenance of professional stan-
dards). Innovation occurs or gets spread in part
because one doctor realises that another doctor
down the road is achieving better clinical out-
comes or one teacher realises another teacher is
getting better educational outcomes. So, com-
parative performance information at the level
of the subject or the specialty or the service or
the unit is a critical part of performance im-
provement.
The advantage of rewarding innovative take-
up, especially if we had some financial reward
for improvement in performance and we were
able to get it right, is that rather than the blunt
funding mechanisms we have at the moment for
most public services (which is a form of grant
funding for who shouts loudest) we would be-
gin to build a cycle of return on investment. We
would be able to invest in innovation and ser-
vice improvement, and if there was a premium
attached to that improvement in performance
that could be recycled back into the fund. We
can already see some governments and organi-
sations beginning to experiment in those sorts
of domains in public services.

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232 Creating the Conditions for Radical Public Service Innovation
Turning to the structure of high-performing
service sectors, we find that the innovative ones
have very similar compositions. They usually
have a core of a small number of large domi-
nant players, often with four or five major play-
ers occupying an oligopolistic core, and around
the edge a wide periphery of specialist suppli-
ers, niche providers, start-ups and so on. So
a few core players (firms, companies or or-
ganisations) provide most services but are in
competition with one another in an oligopolis-
tic sense, and there is a wide periphery of agile
start-ups coming in and out, people who are
specialist providers, niche suppliers of what-
ever it might be. There is fluidity across both
boundaries. There are people and suppliers ex-
iting and entering the periphery all the time and
we see significant merger and acquisition activ-
ity and demerger activity going on between the
oligopolistic core and the periphery of smaller
organisations.
If we examine a commercial industrial sec-
tor from the beginning of the 20th century, it
doesn’t actually matter which one it is, but let’s
take the British motor manufacturing indus-
try. In 1900 Britain had something in excess
of 200 motor manufacturers, all of roughly
similar size, and as we progress through the
20th century the structure of motor manu-
facturing moves more and more towards an
oligopolistic core supported by a wide periph-
ery. We see a tendency towards aggregation at
the centre and dispersal around the edge. This
applies to our motor manufacturing case, but it
also fits pharmaceuticals, chemicals, newspa-
pers and the media, computer software, what-
ever sector is chosen. There are very technical,
economic indicators in economics for measur-
ing these levels of aggregation and disaggrega-
tion around the edge.
But if we examine a public sector ‘indus-
try’, say health services or education, as we
march through the 20th century the basic cen-
tral structure of operation stays remarkably
the same. There is a lack of organisational
re-alignment despite lots of administrative re-
structuring. And why is this important to our
innovative potential, or more pertinently why
is this important in terms of the diffusion of
innovation? I would argue it is due to political
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September 2011
control and the bureaucratic command cultures
we have in the public sector resisting aggre-
gation, which in turn means that the renewal
and refreshing mechanisms operating in other
sectors are weak or entirely absent (remember
Schumpeter and the need to destroy to create).
And, in turn this is the reason why innovation
diffuses much slower across public sector or-
ganisations.
If we look at one of the largest global soft-
ware manufacturers which is dominant across
both the developed and developing worlds, they
themselves are not particularly innovative. But,
what they are is fantastically acquisitive of
other ideas. So if you were to dream up a re-
ally powerful piece of software in your garage,
the nice people from this giant software com-
pany would come along and say to you we can
make you a very rich person if you will give us
your intellectual property, and then they take
it away from you and push it across 100 mil-
lion platforms overnight. By contrast if we are
talking about innovations in the local doctor’s
surgery, it would take forever to get a new
message out and convince colleagues of the
benefits.
The process of acquisition is a phenomenon
of ‘scaling’. Constant acquisition enables the
dynamic players to encode those ideas and
niche players into wider domains of operation.
The ability to expand market share for start-ups
to grow into these spaces is very great. We see
much evidence of this in dynamic sectors such
as financial markets, retailing and hospitality.
But we do not see this much in public sector
activities. I do a lot of work with education de-
partments and as I go around I would ask: if
somebody found a really powerful way in one
school of educating people aged five and get-
ting them to a graduate maths level by the age
of ten, how long would it take to spread the
innovation through your entire education sys-
tem? The answers I generally received varied
between a decade or more to never! Partly this
is because we have centralised regulation and
funding in public education and massively high
levels of disaggregation (the schools) which are
small units that have no ability and no capacity
to scale. Think about a school as an organisa-
tional unit in terms of what it really cares about.

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 Albury
It cares about getting its annual funding, it cares
about retaining staff and staff-student ratios, it
cares about its departmental examination and it
cares about its inspection report. These are the
big drivers of education delivery. Schools are
not motivated to provide space to innovate, to
collaborate with niche players, to acquire new
ideas to experiment.
Looking ahead, the processes of acquisi-
tion and scaling will become very important
in terms of the way in which our public ser-
vices operate. Thinking about innovation, al-
lowing space for innovation and adaptation,
openness and deregulation are all absolutely
key to whether innovation happens and whether
it spreads. Unless we are attentive to those
wider conditions and determinants of innova-
tion we won’t really foster high levels of public
sector innovation and its diffusion.
Finally, the remaining cluster of enabling fac-
tors in high-performing innovative organisa-
tions is their relationship to their publics, to
their end-users, to their markets, to their citi-
zens. Such innovative organisations really take
this factor seriously. Public services over the
last decade have got much, much better at ac-
cepting it is important to engage with our users.
But we are still a long way from actually do-
ing it. With some prominent exceptions, we are
still, in my view, a long way behind some of the
best practice in the private and third sectors.
These high-performing organisations, the
Microsofts, the Googles, definitely do not send
out surveys to customers and ask people to re-
turn them. They definitely do not target a group
of users to come in a talk to them, who are
relatively satisfied with the service and won’t
cause too much trouble. They generally do not
go for offering people blank sheets of paper
and saying how would you like Google to be?
And, they generally don’t offer detailed strate-
gic plans to ask people to comment on a partic-
ular point or clause. Yet, there is still too much
of this that goes on in the public sector under
the name of ‘user engagement’. What these dy-
namic organisations do is they move more and
more to both co-create and to co-produce with
their users. Indeed, their notion of ‘users’ or
‘customers’ begins to dissolve as much as pos-
sible. They see the ways of interaction between
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233
professionals, designers and users and the pub-
lic as absolutely central and key to both the
design process and the delivery of the services
or the products and so forth.
Secondly, these organisations do not go for
the usual suspects. Innovative firms like Apple
are not complacent, and do not simply listen
to users who appreciate their existing prod-
ucts. They like people who are really dissat-
isfied and say its complete rubbish as a product
because it doesn’t do this, it doesn’t do that
and they want to use it another way, and so
forth. That way Apple’s executives and tech-
nicians can contemplate and search for im-
provements. These organisations reach out to
their most extreme, most leading edge, most
difficult, most obstructive users because it is
through those responses that one can build
things for the future. So, if we return to our
example of a school, if it could tackle ‘dif-
ficult children’ with major learning impedi-
ments or learning difficulties, perhaps from
disadvantaged families, the chances are their
approach might have much wider applicability.
If a social agency can deal with people with
multiple health and social conditions and who
are homeless, they can probably get it right
for everyone else. Hence, organisations reach-
ing out to the extreme and the most difficult
‘users’, the most disadvantaged and most com-
plex cases, is a way of engendering radical
innovation.
By way of conclusion, let me finish with two
remaining problems in public sector innova-
tion. One is relatively easy solved, the second
much more difficult to deal with. The first prob-
lem concerns increasing the flow of innovation
by investing in the innovation pipeline. Over
the past ten years most of the policies for in-
novation developed by governments across the
world have been supply-side policies about in-
novation. There are now many ways of increas-
ing the volume of innovation that takes place in
public services.
But secondly, as alluded to earlier, the more
significant problem is not one of the volume
of innovations per se; the problem in the pub-
lic sector and with public services is a prob-
lem in the main about diffusion. It is about
the way in which innovations tend to spread or

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234 Creating the Conditions for Radical Public Service Innovation
not spread across the system, and tend to stay
locked in the location of origin. The problem
is that innovations in one component of a gov-
ernment department often do not spread to an-
other part of the same department, let alone to
adjacent government departments, never mind
to adjacent states and territories, never mind
to other countries. Siloed innovation prevails.
This is the fundamental problem, a problem of
lack of ready diffusion of innovation. More-
over, continuing to look at supply-side issues
and continuing to believe that this aspect can
be sorted out by more information is, I would
argue, missing the point. We need today to be
thinking about how do we mobilise and en-
courage the demand-side to pull innovation
through.
I will end by recounting two stories. A few
years ago I was privileged enough to hear the
head of research for a global pharmaceutical
company talk about the future of pharmacolog-
ical research. He started off with a slide that
listed ten high impact drugs and charted how
long it took from the clinical approval of those
drugs to going into widespread manufacture
and distribution. These are all drugs that have
major impact on large numbers of the popu-
lation. The stark evidence is there – how long
it took each drug to go from clinical approval
to widespread practice. And the evidence var-
ied enormously from several months to sev-
eral years. I asked what explains these differ-
ences, and he said that although they had not
done any systematic research he could point
out one very strong correlation. That corre-
lation was between the shortness of the time
to diffuse, to move from clinical approval to
widespread practice, and the strength of pa-
tient lobbies and organisations in those areas.
The time taken was not due to the strength of
clinical networks, nor the strength of the num-
ber of academic professional conferences, but
the strength of patient organisations. So, one
of the fastest diffusion rates drugs was anti-
retroviral drugs for people living with HIV and
Aids. The drugs were quickly on the market, not
because the evidence was more overwhelming,
not because doctors heard more about it or re-
ceived more information, but because the gay
network and community of people living with
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HIV and Aids was incredibly active, informed
themselves and demanded the drugs. Patients
went to the doctor or the clinic and said that
they had heard that this treatment was being
developed and demanded to be provided with
the drugs. They became the demanders of this
innovation.
The second example concerns what you in
Australia call ‘self-directed services’ and in the
UK we talk about personalised or individual
budgets. These programs are about giving
clients, often with a number of disabilities
or multiple conditions, the ability to decide
and control how and which services (‘their
nominal resources’) are deployed, which bits
of available public services they might want
to assemble for their particular needs. This
innovation, whilst it was thought about and
developed with professionals, actually has
taken off across the world not because these
professionals announced or disseminated these
programs, but because very active groups of
people living with disabilities and with mul-
tiple conditions began mobilising themselves
to arguing for and advocating for the choice of
these resources themselves. Hence, if we can
find ways of involving users in the co-creation
and co-delivery of public services, not only will
the innovations be enriched in that process and
be more radical than otherwise, but they in turn
become ways of strengthening and empowering
those organisations keeping them relevant to
citizen needs. These organisations then become
the advocates and mobilisers of demand.
So, to conclude, I leave you with two take-
home messages. One is to say if we’re thinking
about really improving, increasing innovation
and its diffusion in public services, what we
need to do paradoxically is not just invest in
more R&D but strengthen and empower user
networks and organisations. And two, if as gov-
ernment agencies we want to foster innovation
and stimulate diffusion we should not simply
focus on what appear to be the direct levers of
innovation but examine the underlying condi-
tions that might impede or enhance radical in-
novation, be they leadership and organisational
cultures, funding regimes, reward and incentive
mechanisms, regulatory regimes, engagement
or the accountability regimes across which

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serious innovation will undoubtedly impact. I’ll
leave it there. Thank you.
Endnote
1. This is an edited version of David Albury’s
public lecture of the same title delivered on
30 June 2011 and co-sponsored by the HC
Coombs Policy Forum, the Australian Depart-
ment of Innovation, Industry and Science and
Research, and the Australia and New Zealand
School of Government (ANZSOG).
Reference
DIISR [Department of Innovation, Industry, Sci-
ence and Research]. 2011. APS Innovation Action
Plan. Canberra.


C 2011 The Author
Australian Journal of Public Administration 
C 2011 National Council of the Institute of Public Administration Australia
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