Jennifer Westacott: nine things bureaucrats can learn from business

By Jennifer Westacott

August 7, 2014

I believe that the Australia and New Zealand School of Government’s role now is more critical than ever.

If I think about the theme of this conference, “Growing National Prosperity: Government’s Role in the 21st Century”, never before has the public sector faced a more complex set of challenges. Unstoppable forces of change are challenging everything you do. The way you respond will involve some serious adjustment. You can either fall victim to that adjustment, or you can take control of it. One way to take control is to adopt an innovation mindset.

Innovation will enrich your culture and cement your intrinsic value and relevance. It will attract the best and brightest and create a compelling vision for your future.

Tonight, I want to try and help you to think about how you, as individual public servants, can contribute to building:

  • An innovation system for the public sector, and;
  • An innovation culture in your own organisations.

While there is always a risk of coming across as naive about the very real constraints you work under, or dismissive of what you have achieved, please know that I have walked too many miles in your shoes to ever do that. But I do believe you have more control over your world than you sometimes imagine. The proposition I put to you tonight is that:

  • You can take control;
  • Innovation is the key, and;
  • Our two sectors can help each other.

So, I’m going to talk about:

  • The context that makes innovation an imperative for both the private and public sectors, and;
  • Some key insights from business into creating and nurturing the innovation culture the world now requires of us all.

What do I mean by innovation? To start, let me explain what I mean when I use the word innovation. Because while science and technology and R&D are part of the story, this is a very constrained view of the world. When we talk about innovation in a business context, we are talking about creating new forms of value through:

  • New technology;
  • Anew product or service;
  • A new business model;
  • A new business process, and;
  • New classes of assets.

Innovation creates new sources of demand and more efficiency. It holds the key to lifting productivity. To understand what I mean, just ask yourself which is the innovation: the iPad or iTunes?

Both are mass innovations, but I suspect the ongoing value will flow from the inescapable nature of iTunes. Is Google the innovation or is it the data it controls? The more we limit our definition of innovation, the more it gets sidelined as the domain of a specific department or sector. The easier it is to dismiss. In both the public and private sectors, innovation is about creating value. The fundamental value proposition in the public sector context is better outcomes:

  • Services that are easier to use;
  • Regulation that empowers rather than impedes;
  • A better customer experience, and;
  • Better value for money for the taxpayer.

The greatest challenge in a highly constrained public spending environment is to extend the value afforded by the dollars we spend. An innovation approach, rather than a pure cost-cutting approach, forces us to improve outcomes even while we are reducing spending levels.

The Business Council of Australia’s fundamental concern about previous spending decisions is that we have not seen the innovation dividend. In education, in infrastructure, in health. As our president Catherine Livingstone pointed out last week, we could have used the proceeds from the last decade of growth to put in place the foundation for the next decade.

We didn’t.

The context for public sector innovation is important. And it goes well beyond your current fiscal constraints. You in the public sector, along with us in the private sector, are at the epicentre of some big, interrelated conundrums that simply won’t allow us to keep doing things the same way.

The first conundrum is how we back up 20 years of uninterrupted economic growth, when the only way of doing this is to make difficult structural reforms that the community is reluctant to support. How do we encourage all sectors of society to come to terms with what it means to be global, while people, businesses and institutions continue to be fundamentally inward looking?

And the community remains resistant to foreign investment? How do we adapt to digital technology and create new jobs, based in Australia, and avoid the disaster of jobless growth?

How do we convince the community about the importance of population growth when our lack of investment in infrastructure, and our poor planning, have made them suspicious and resentful of it? How do we reframe the sustainability agenda as part of a new approach to growth, rather than being seen as running counter to it?

Finally, how do we persuade the community that it’s fairer to reset the fiscal position now, rather than compromising the integrity of the social safety net later? And how do make the right budget choices so the burden doesn’t fall unfairly on the most vulnerable people in the community? Public servants are not exempt from these conundrums.

As leaders and influencers, together we will only steer the country through this challenging terrain if we map and navigate it collaboratively — innovatively and together.

I wanted to share nine insights from business on how to instil an innovation culture in your sector and your organisation. I believe that these nine insights from business are as relevant to you as they are to any large corporation.

1. Focus on your core mission

The first insight is to focus on your core mission.

Much innovation in the business community is prompted by some type of shock. But, overwhelmingly, what drives innovation in our sector is competition. And the first thing business does when faced with a new competitive threat is to go back to its core mission and ask itself: “What is it that we fundamentally do here?”

The public sector, across the world, has been confronted by the shock of fiscal repair. As the Treasurer says, governments have run out of money. In Australia’s case we need to put this into perspective.

The recent federal budget requires $36 billion correction on a $1.7 trillion spend. I can assure you there are many businesses in Australia which are confronting a much more difficult set of numbers. We have to make the adjustments while growing the business and retaining our customers.

And our first step is to get out of unprofitable activities, or activities where we cannot beat our competitors.

I am not underestimating the cumulative effect of budget reductions across the federation. But I would argue that they present a not-to-be-missed opportunity to rethink roles and responsibilities.

Across the levels of government, and between the public, private and non-government sectors. There are things that could be vastly better delivered by the non-government sector or the business

It’s better for these choices to be made by the public sector itself. I served as the Director of Housing in Victoria and as the Deputy in New South Wales. And I’m prepared to have it written on my tombstone that it would have been better to hand over much of the responsibility for public housing to the non-government sector. I will die knowing that it would have been better for the consumer, better for the assets, and vastly better for those communities.

Subjecting services to competition and benchmarking improves efficiency and outcomes, even if these services are to remain in the public sector environment.

Clearly, privatisation and contestability are not policy goals in and of themselves. But we should always be asking ourselves:

  • What is our role;
  • What are the outcomes we are seeking, and;
  • What are the best ways of delivering them.

2. Understand your customers

The second insight is just as important as the first: knowing and understanding your customers.

Understanding customers requires a continuous and permanent structure for feedback, from the people who are close to customers and from customers themselves. Eighty per cent of public sector innovations are developed by frontline staff or their managers. If you create the right environment for feedback, customers will help you make the improvements.

Once upon a time, the customers of many of our businesses were lucky to be asked to fill out a satisfaction survey. Today, companies are intensely interested in every move a customer makes. We use loyalty cards, not just to generate repeat business, but also to understand, and even predict, customers’ purchasing patterns.

Data is empowering the consumer, enhancing the customer experience and turning the privacy rules upside down.

In the public sector, your first task here is to identify who your customer is. I’m going to be slightly heretical here, and put it to you that your customers are not the other branches of government. Your customers are not the ministers who oversee your portfolios. They may be very important stakeholders, but they are not the customer.

Customers are the end-users of products and services, whether they pay for them or not. There needs to be a greater differentiation between the customers and stakeholders of the public sector.

In an effective innovation system, the stakeholder sets the boundary of risk while the customer dictates the nature and level of service.

3. Learn from others and copy the best

The third insight is the reward that comes from searching the world and copying the best. There are some great examples of innovation in the Australian public service.

And if we look overseas, New Zealand offers some great lessons into how government can rethink the very way it delivers public services. The New Zealand Government has set ambitious targets in 10 key policy areas to improve public service outcomes. For example, increasing participation in early childhood education. Ministers and public sector chief executives have been made responsible for achieving very tangible results.

To allow agencies to deliver on their targets the government is not being prescriptive on how they should be met. And in some areas investments have been made to help achieve those results. Even as overall fiscal tightening occurs.

The interesting thing about the NZ experience is that it allows the government to have a conversation with the community about improving services, rather than cutting budgets.

4. Create an innovation ecosystem

The fourth insight that’s reinforced every day in business is that people innovate, but only within an ecosystem that provides the right signals and opportunities. While “light bulb moments” are important, most innovation emerges from a complex web of relationships between individuals and organisations.

If your agency assigns innovation to a particular section or a particular group of people, you’re missing the point. Innovation is not a program.

You need to think of it as a system that encourages people at all levels, inside and outside the organisation, to have, to express and to test fresh ideas.

It’s important to recognise barriers to effective innovation ecosystems in the public sector context. I would single out two for special mention: The first is the application of rigid privacy considerations. We need to protect people’s privacy.

My hypothesis, however, is that the community is increasingly open to sharing personal data, and having it analysed, because people see the benefits. When you get an email from Coles or Woolworths about the weekly specials on products you have a pattern of buying, you don’t think “how dare they”. You pull out your credit card.

When a flight attendant asked me recently if I had recovered from a nosebleed I’d had on the previous flight, I didn’t feel violated. I thanked him and asked for a box of tissues, just in case. It’s critical that ecosystems keep pace with community norms. We shouldn’t second-guess them.

My second barrier, and this applies to the public and private sectors, is hierarchy. Hierarchies are the enemy of innovation. I encourage you to visit one of the leading-edge companies, and experience the power of disaggregated management structures and activity-based work styles.

5. Unblock the flow of information and knowledge

This leads naturally to the fifth insight — the importance of facilitating a free flow of information. New ideas can come from most unexpected places.

Nick Gruen’s recent report, Open for Business, tried to quantify the gains from taking the leap into more open data. The findings suggest that more open data in Australia could add some $16 billion to GDP — that’s around 1% of GDP! Some agencies are onto this., and similar state sites, are the forerunners, making public data freely available.

And new private apps are democratising access to information that was once locked away gathering dust. For example, using newly published energy efficiency data from the federal Department of Industry, private apps are allowing consumers to input all their appliances and assess and compare their annual energy costs. Freeing up data allows richer data analytics and evaluation, which can have huge payoffs.

6. Take risks

Business experience also makes it plain that innovation involves risk, and this is my sixth insight. The starting point for this is to adopt a risk-management culture, rather than risk-averse systems and policies.

The link between risk and innovation has two dimensions. First, we need to recognise that some of the biggest risks we face as a society — climate change, cyber terrorism, major economic shocks — will only be overcome through innovation. Second, we need to understand that to innovate, we need to be prepared to take a risk. In creating the bionic ear, Cochlear did something they were told could never be done.

To access new markets, to trial new products or service lines, business has to put the shareholders’ money at risk. Some of the things we try go wrong. But successful companies accept this as part of their business model. They tell their people “fail fast, fail frugally”.

Many of our BCA companies have very structured approaches to disrupting their own businesses as a form of risk management. Make no mistake, business does not accept risk across the board. The zero tolerance of risk, when it comes to employee and customer safety, is a master class in attention to detail.

A key to innovation is to accept that risk is not a dirty word. But to recognise that not all risks were created equal. Risk is a complex issue in a public sector environment. Yours is not a culture of learning from mistakes.

Of course, there have been great examples of public servants, and ministers, taking enormous risks to achieve better services and better value for money. John Patterson’s introduction of case mix funding into the Victorian health system is one of them. I’m sure you could all point to examples of great public servants, in collaboration with great political leaders, taking risks to improve our country.

And I’m sure they were all founded on a clarity of purpose and superbly well-crafted policy design.

7. Share successes

The seventh insight, and it may not seem like an insight is this: fostering continued innovation depends, in part, on celebrating the innovations you’ve undertaken. Do you document, record and share your innovation achievements across jurisdictions and to the broader community?

Do you recognise and reward the people who make it happen?

I know that your incentive structures are more constrained than ours. But I can tell you that the big, well-publicised incentives in the private sector are confined to a very small number of people. In any case, whenever I meet people who are part of creating something new and exciting in either sector, it’s rarely the financial incentive that motivates them.

Having your achievements recognised and promoted is a far more powerful motivator.

And I believe there should be far greater public promotion of the innovation underway in the Australian public sector. The perception that there isn’t any is very dangerous. It encourages a stop/start approach to reform, rather than a continuous investment in building capacity and resilience. Whether you are where you need to be is one thing. But the idea that nothing is happening is just plain wrong.

8. Cultivate the right capabilities

The eighth and, arguably, most important observation I can share from business is the energy and investment we put into giving individuals the skills and capabilities they need to innovate.

People innovate. And companies regard people as their greatest asset.

Even when they have to make tough choices about downsizing or outsourcing, really successful companies don’t abandon their commitment to their people. Given the challenges you face, building capability at all levels of the public service is vital.

This means investing in it, and the technology that allows the public sector to operate more effectively. In our response to the federal budget, the BCA called this issue out.

We said that spending discipline could only be sustained if there was a serious investment in building the capability of the public service. ANZSOG is central to this, because building the capability of the public sector leadership has to
come first.

The same is true in business.

  • Good managers create opportunities for their people to take risk and grow;
  • Good managers champion new ideas, and;
  • They provide the glue that binds the innovation system at a workplace level.

Let me put some questions to you about this:

  • Do you have a formal, emerging leaders talent pool in your agency?
  • Do you encourage leadership mobility?
  • Do you set values and behaviours and tightly measure, monitor and manage them?
  • Do you penalise people for poor team behaviours?
  • Are you developing your leaders’ skills in problem solving, design thinking and communication?

Any company on the innovation frontier is more interested in the broader cognitive abilities, not the technical capability. One of our member companies, GE, calls them the traits. Qualifications are just the starting point — the traits add the value.

Finally, ask yourselves whether you offer incentives that encourage collaboration? Because while people innovate, people who collaborate really innovate.

9. Collaborate

The power of collaboration is my ninth and final, fly-on-the-wall insight into what drives business innovation.

You would assume that companies in the same sector are fiercely competitive, and they are. But this doesn’t preclude deep and constant collaboration. There is also deep and constant collaboration between large and small businesses. And it produces more than $500 billion of value to the Australian economy each year.

This is essential, as supply chains become increasingly disaggregated. Very few Australian businesses can achieve the scale required to access global markets on their own.

I was lucky enough to visit the Boeing plant and GE research facility in the United States last year. They have collaborated to produce the 787 and their collaboration is deeply embedded in each organisation.

It is not sporadic. It is not opportunistic.

By the way, the tail rudder for the 787 is made in Fisherman’s Bend in Melbourne.

It concerns me, and baffles me, when I hear from a public service agency that they don’t communicate with another public service agency involved in delivering the same or a related service. At the risk of causing offence, I have to say that to achieve any of the innovation I’ve talked about, you have to discard the baggage of interagency turf wars.

Collaboration involves as much of a mindset change as any of the other insights I’ve put on the table this evening. It stems from having a real understanding of, and a genuine respect for, the different cultures, goals and contributions of others.

At the Business Council, we recognise the importance of building structures, processes and relationships that will facilitate more effective collaboration between our sector and yours. Just last week, our President, Catherine Livingstone, announced that she would be approaching 20 of our member companies to offer senior public servants highly structured, highly meaningful secondments.

I will be taking a close, personal interest in ensuring these placements are of real value. And I will be asking ANZSOG and IPPA to advise on their design.

In closing, every observation and every suggestion I make to you is informed by my profound respect for what you do.

As a former public servant, as a citizen and as a person whose life was changed for the better by the opportunities provided by the great public institutions of our society, I fundamentally believe that an effective civil service is vital to a well-functioning society.

I hope that, with encouragement from institutions like ANZSOG, you leave here tonight motivated to have a conversation about what innovation means in your organisation.

The innovation agenda and the innovation mindset will galvanise morale. But it can be daunting and the business community stands ready to work with you.

And I ask this of you: don’t collaborate with us because you were told to. Collaborate with us because we share a commitment to the national interest.

Because, when we work together, we can design policies and regulation that supercharge the economy.

And because, together, we can create that sense of shared value that is at the heart of prosperity.

This is an edited transcript of a speech given by Jennifer Westacott at the ANZSOG dinner in Canberra on August 6.

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