It will take a painfully long time, but this is how
government will work in the future: by nurturing
innovative markets for public services.
Thanks to
disruptive innovations, much of our world today
looks radically
different than it did just a decade or two ago.
Remember flying in
the old days? Air travel used to be inevitably
expensive and
cumbersome — until
Southwest Airlines. Trips to the video store and
looming late
fees are now a distant memory, thanks to
Netflix.
In industry after industry, disruptions deliver more
for less
and change everything from how we communicate with one
another to
how we work and shop.
But, there’s one major economic sector where
disruptive
innovation remains as rare as a sunny day in Seattle:
the public
sector. In industries where disruption is common —
think
computing and communications — consumers enjoy falling
prices
and improving services. Conversely, the public
sector’s
dearth of disruption results in ever upward-creeping
prices paid by
taxpayers without commensurate improvements in
services.
Why does the public sector seem so completely
immune to
innovations that deliver more for less over time?
Loyal HBR blog readers may say the answer is obvious:
disruptive
innovation in government is an oxymoron. Government is
a monopoly
that lacks both competition and a profit motive. It’s
an
institution that deliberately protects incumbent
producers and
programs against disruptors. What’s more, policymakers
and
voters tend to be averse to both risk and failure when
it comes to
government.
To be sure, the public sector possesses structural
disadvantages
that make disruptive innovation more difficult, but
difficult is not the same as impossible.
In fact,
offsetting these very real barriers are certain
built-in
advantages that policymakers can use to
foster disruptive
innovations that could produce meaningful cost savings
in
everything from defense to education to criminal
justice.
To see these advantages, however, we need first to
view the
public sector in a much different way. Instead of a
byzantine maze
of programs and bureaucracies, government’s myriad
responsibilities and customers can be seen as a series
of
markets that can be shaped to cultivate very
different,
less expensive — and ultimately more effective — ways
of supplying public services.
What exactly do we mean by this? From elementary and
secondary
education to defense and security, from transportation
to health
care, government is either a dominant or the
dominant
buyer in many markets. At $500 billion annually, the
U.S.
government is the world’s largest purchaser of goods
and
services — to say nothing of the purchasing power of
state
and local governments. Intentionally or not, the
public sector is
already the 800 pound gorilla in many markets today.
Given its size, the public sector can shape the
markets in which
it operates by taking cues from the private sector.
For example,
Walmart used its enormous buying power to deliberately
shape the
entry of products into new markets — and thus, help
drive
down the costs of household goods for rural America.
Similarly, the
public sector can use its buying power to shape and
create
“public sector markets” in ways that deliberately
foster lower-cost, disruptive innovations.
One way to do this is to open up the public sector to
new,
low-cost providers that compete with incumbents —
including
in-house resources. For example, in education, digital
learning and
“blended” learning approaches cost a fraction of their
traditional, classroom counterparts. If policymakers
wanted to
revolutionize education and decrease costs, they could
“grow” the market for digital learning by redirecting
existing funds from traditional models.
This, after all, is the same model the Pentagon used
to grow a
distinctly disruptive innovation: unmanned aerial
vehicles or
“drones.” Last year, the U.S. Air Force trained more
“joystick pilots” than fighter and bomber pilots
combined. Why? Drones incur just a fraction of the
costs associated
with manned aircrafts and satellites, but they can
improve key
performance capabilities such as flight longevity —
and no
pilots are put in harm’s way. Recent estimates
indicate that
the once tiny Unmanned Aerial Vehicles industry will
become a
$50-94 billion annual business within the next ten
years.
Another way to encourage disruption is to create
institutions
outside mainstream government agencies whose modus
operandi is to
nurture disruptive business models for public
services. DARPA
clearly plays this role for the Department of Defense,
funding the
development of everything from the Internet in
previous decades, to
cheap, small satellites today that can be put into
orbit for
one-third of the cost of traditional satellites.
Similarly, the
UK’s new £600m Big Society Fund was chartered to
support new business model innovations in the social
sector.
Lastly, by removing subsidies, contracts, and other
advantages
that allow incumbents to dominate public services
markets,
governments can level the playing field and allow
disruptive
innovation to gain ground. Once it becomes clear that
a disruptive
innovation makes meaningful improvements, policymakers
can reduce
or end funding for bygone business models.
Despite myriad obstacles, we’re beginning to see
signs of
disruptive innovations gaining a foothold in
education, defense,
and health care. If our political leaders truly want
to deliver
more for less, they’ll need to use the formidable
tools at
their disposal to nurture disruptions across the
public services
landscape.
This post is adapted from the new Deloitte GovLab study,
“Public
Sector, Disrupted: How Disruptive Innovation Can
Help Government
Achieve More for Less.”
