Organizational Innovation in Public Services

Forms and Governance

P. Valkama, S. Bailey, A. Anttiroiko, P. Valkama, S. Bailey, A. Anttiroiko

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137011848
• Topic: Politics & International Relations
• Subtopic: Public Policy
• Index: Politics & International Relations

In the wake of the economic crisis, many public services are facing a challenging environment in which they receive less funding but are expected to deliver better services. Organisational Innovation in Public Services develops new theoretical models and analyses case studies to provide an important insight into how to modernise public services.

Part I

Background and Analytical Framework

1

Contexts and Challenges of Organizational Innovation in Public Services

Pekka Valkama, Stephen J. Bailey and Ari-Veikko Anttiroiko

The rationale for innovation

Innovation underpins the process of economic growth because it is intrinsically linked to changes in the systems of production and consumption. Indeed, the strong growth of national economies and social welfare systems does not occur simply by scaling up existing organizational activities and structures. Instead, it involves innovation-based endogenous and creative economic evolution processes that result in fundamental changes in the way organizations are structured, how they work, how they are governed and how relationships between different organizations are arranged.

The classic prerequisite of productivity improvements is the increased flexibility of the production process. Increased specialization is also needed because it creates conditions favorable for the accumulation of expertise and standardization of routines (Potts 2009; Maroto-Sánchez 2010).

Globalization of markets and increased competition between enterprises and nations has increased the pressure to improve productivity in all parts of national economies. Public sector service organizations have an integral part to play in the processes of economic growth, because public services provide the foundation for other economic activities and platforms for the creation of modern economic and trade networks.

The dynamic advancement of public service systems depends on how public service organizations are structured and are able to renew their public service offerings, and this reflects the changing nature of citizens’ needs and evolving problems faced by the collective action of communities. There are growing demands for enabling innovations that can help to modernize public sector organizations and adjust public responses to local and global developments.

A public service organization is typically labor intensive and produces services such as education and health care services. Others provide public works and utilities services, combining technology, information, physical infrastructure and human resources to meet service users’ needs, taking political and other objectives into account. Both types of service have to pursue good public governance in the changing circumstances as best as they can (Ferlie et al. 2003, 1–2).

Within the Schumpeterian perspective, innovation is part of the economic process of ‘creative destruction’ whereby new and improved products and processes displace those failing to keep up with market demands and meeting rising expectations. Popularized in the 1950s as an explanation of the capitalist process, it may be thought that creative destruction is not consistent with public services because it can lead to instability in service supply and, if so, detract from public value. Bankruptcies and liquidation proceedings in private sector business operations are not well suited to public sector services. Moreover, the success of public sector innovations cannot be assessed by profits and market shares.

Evaluation of public services focuses on outcome effectiveness, namely the extent to which a service achieves its public policy objectives. This is achieved not only by improved productivity promoting economy, efficiency and cost-effectiveness but also by services providing sustainable solutions to social problems, delivering added values for service users and all citizens. Outcome objectives may also seek to promote equality and social cohesion, non-trading public services being provided on the basis of needs rather than on ability to pay.

Finances are finite, however, and so innovation is necessary to continuously improve the productivity of limited resources and thus better achieve service objectives as well as support the competitiveness of nations and communities. Put simply, innovation is the life blood of economy and society and is being seen to be increasingly necessary due to changing contexts.

The evolving context

Organizational changes reflect their historical context, including the political climate, the dominance of a particular management doctrine, the level of technological sophistication, institutional and legal environments and culture. Public service systems expanded throughout the Western world as welfare states grew, especially after 1945, creating the conditions for administrative and publicly funded arrangements for many functions previously undertaken by individuals, families, neighborhood organizations, local communities and charities.

The growth of public interventions and services was based on the traditional Weberian-style bureaucracy with hierarchical structures, formalized service procedures and role-oriented civil servants. This resulted in highly bureaucratic and monolithic public service organizations.

Public service organizations have been planned mainly in response to legislation, creating new sets of public services to achieve political, social and economic objectives. Public service organizations have typically worked without autonomy, being managed through annual budgetary control systems, a routine chain of commands and procedural rules and regulations set by superior authorities. Service operations are prepared through detailed advance programming and planning, and staff members have had strict legal responsibilities (Meier and Hill 2005).

Public service organizations have been built on ideas of continuity and stability, in-house production of public services and governmental bureaus. Evolution of global politics has increased cooperation between governments and political groups, promoting experimentation with administrative reforms, liberalization and integration of regional markets. Changes in political cultures have moderated the juxtaposition of left-wing and right-wing groups and increased the competition for votes among the political parties. At the same time, the grasp of the central administration has loosened in many countries as decentralization and devolution of decision-making powers to regional and local levels have created opportunities for locally tailored arrangements of public services.

Theoretical developments have also become increasingly influential. Theories of public choice and quasi-markets (i.e., managed competitive systems) hold that public services are ineffective due to incentive problems, self-serving bureaucrats and lack of competition in service delivery. In response to these issues, the New Public Management (NPM) discourse promoted the applicability of business-like management practices in the public sector and inspired many public sector organizations to seek to introduce enterprise-style accountability and incentive systems. NPM promotes replacement of hierarchies and bureaus by managerial-based approaches, utilizing a wide set of management tools to address the problems of traditional Weberian-style public administration.

Although NPM-based administrative reforms and quasi-market arrangements have developed rapidly and extensively, their claimed beneficial effects may have been exaggerated, and classic public administration seems resilient (Osborne 2010, 2). Moreover, at least until the onset of the European Union (EU) Eurozone crisis in 2010, public sectors did not shrink even as Western governments pursued market-based solutions and managerial approaches to service provision: in fact quite the opposite occurred.

Governments have tended to spend more on public services than they collect in revenue from taxes and other income sources, creating ‘black holes’ or ‘structural gaps’ in the public finances by borrowing year-after-year and decade-after-decade even when tax revenues were booming during periods of fast economic growth from the 1960s onward (Bailey 2004). Until very recently, these structural gaps were supported by the willingness of globalized financial markets to continue to lend money to governments (and individuals) in the belief that growing prosperity would enable them to repay debt. This was accompanied by lack of financial transparency and a poor appreciation of the increasingly risky nature of banking and finance operations. As a consequence, many Western governments became exposed to increasingly severe difficulties in refinancing their debt, brought to a head by the global 2007–09 credit crunch within the financial sector and the subsequent Eurozone crisis. Increasingly risk-averse global financial markets have forced many Western governments to quickly introduce policy measures intended to improve their country’s economic competitiveness, especially reforms of labor markets, welfare systems and industrial and economic structures.

This credit-rationed financial environment has created increased impetus to take advantage of new opportunities for organizational innovations as governments look desperately for solutions to economic, financial and social problems and yet seek ways of achieving significant budgetary savings. Governments in most developed countries now seek to introduce public sector reforms to reduce their budget deficits and thereby fill the black holes in their public finances. It is a cliché that opportunities arise out of a crisis, but the time is now ripe for widening and deepening organizational innovation in public sectors. In doing so, however, the changing technological and teleological nature of public services within ‘the new service economy’ has to be taken into account.

Emergence of the new service economy

In the era of industrial economies, economic values were created predominantly locally, in-house and mechanistically. However, manufacturing reached its peak as a share of gross domestic product (GDP) in many developed countries during the late 1960s. During the late 20th century, developed countries became characterized by deindustrialization as they evolved into service economies, public and private sector services together accounting for much greater shares of GDP and employment than manufacturing.

The ‘new service economy’ refers also to radical changes in the nature and operational principles of service industries, their transformation being caused by changes in the social, legal and economic environment and by the latest technological innovations (Zysman 2006; Zysman et al. 2011). Manufacturers now subcontract to external providers many of their ‘unbundled’ formerly in-house vertically integrated activities, creating service clusters and ecosystems around physical products.

The emergence of the new service economy has challenged traditional ways of working, as many services can now be codified, formalized and modularized by information and communication technology (ICT). As a result, some public services have become more mobile and easily tradable because global communication and information delivery costs have been reduced very substantially by digitization.

Complementing this technological transformation, globalization and liberalization promote development of the networked service economy in which capacity, risks and, especially, knowledge can be shared relatively easily and new value-chain models can be created. Some networks are platforms for building up alliances and partnerships, which may help to gain access to new input or output markets and favorable treatment in public policy forums (Zysman 2006; Zysman et al. 2011; de Man 2004, 4; Bessant and Tidd 2007, 85; Furubotn and Richter 2005, 308–310).

Know-how and other intangible resources will acquire greater relevance as input factors even though some service sectors may be as capital intensive as some manufacturing industries (Akehurst 2008, 3). Completely new service industries and professions will develop as services are reconfigured through value-extracting, value-adding and value-capturing activities based on intensification and deepening of knowledge systems. New opportunities for service operations will arise from not only unbundling but also rebundling of the range of services (Sweet 2001, 72–73). Property rights are crucial for physical manufactured products, but in the new service economy such issues as access rights, time-limited use rights, renting and leasing arrangements and joint consumption will feature strongly as services become seen as a means to share, accumulate and refine resources (Akehurst 2008, 5).

Because many publicly funded service sectors have been and will remain heavily regulated, the challenge for policy makers will not be how to deregulate services, but instead how to change the way they are regulated in order to develop quasi-markets and generate new service sector institutions, adjusting regulatory policies in step with the changing logic of value creation (Landy and Levin 2007; Vogel 2007). Expressed in a different way, rather than introducing light-touch regulation to maximize economic value (the neoliberal policy increasingly adopted during the 1990s and early 2000s), the approach in the new service economy has to be appropriate-touch regulation to maximize social value.

Judging value creation of services in neoliberal terms as value-in-exchange is too narrow a perspective because service users are increasingly being regarded as active participants in setting service objectives, in service design and in service processes to achieve those objectives, rather than simply being passive customers. As a crucial part of the value-creation process, service clients add value through their use of service outputs as they interact with service providers to cocreate service outcomes within the context of a wider service system comprising lawmakers, intermediaries, subcontractors, regulators and other stakeholders (Paton and McLaughlin 2008, 79;...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables, Figures and Boxes
• Preface and Acknowledgements
• Notes on Contributors
• Part I Background and Analytical Framework
• Part II The Process of Organizational Innovations
• Part III Governance of New Organizational Forms
• Index