What hinders digital innovation in the public sector?

Digital innovation has the potential to revolutionise the public sector, leading to increased cost-effectiveness, improved services and boosted productivity. However, the road to successful digital transformation is often fraught with challenges and barriers that hinder its full realisation. An insights paper for The Productivity Institute authored by Dr Nina M. J?rden , Lucy Hampton and Ayantola Alayande looks at the issues and potential ways forward for digital innovation in the public sector.

The potential undervaluation of digital technologies

Despite the undeniable advantages of digital technology, there is often a good deal of scepticism regarding its use in public sector operations. This scepticism is fuelled by the long list of unsuccessful IT projects within the public sector, leading to budget overruns, delays, and in some cases, project cancellations. The failure of high-profile projects such as the NHS National IT Programme highlights the challenges of implementing digital technologies in the public sector.

Despite the prevailing narrative suggesting the public sector's incapacity to handle digital transformation, there are encouraging indications that the situation is not as grim as commonly depicted. One crucial factor fostering this optimism is the enduring belief among experts that the productivity gains from digital technologies might be consistently undervalued. A compelling example supporting this perspective is the revision of the telecoms services price index in the UK. This revision implies that the falling costs associated with using digital technologies, particularly in the telecommunications sector, might not be adequately reflected in official measurements. A similar exercise performed on the cost of computing power found similar results.

The need for organisational change

Digital transformation in the public sector often requires substantial investments in reorganisation and the development of new skills. The implementation of cutting-edge digital technologies, particularly artificial intelligence (AI), necessitates a more strategic and deliberate approach. The intricacy of these technologies and their high fixed costs contribute to a gradual rollout, posing risks of the project becoming outdated or misaligned with evolving organisational needs. Sustaining high levels of effort and motivation over an extended period becomes challenging, and stakeholders may lose interest, leading to diminished support.

Diane Coyle and Richard Jones also talk about the requirement for substantial complementary investments to boost digital innovation in the economy as a whole, not just the public sector. Successful firms during the 1990s dot-com boom demonstrated that, beyond investing in technology, significant restructuring was necessary. These firms adopted new work practices like increased teamwork, decentralised decision-making, and extensive employee training, which are essential for realising the full benefits of digital investments.

The integration of digital technologies alters the cost and efficiency of information transfer, facilitating better decision-making. However, this advantage is contingent on employees having the requisite skills and authority to use the information effectively. This often necessitates significant investment in data acquisition and workforce training, alongside granting decision-making power at various organisational levels.

Data policy and IT outsourcing

The efficient utilisation of data plays a pivotal role in unlocking the complete potential of digital initiatives and has a significant impact on various facets of governance, service delivery, and overall organisational efficiency in the public sector. However, the lack of well-defined and universally accepted data policies poses challenges, particularly in the domain of data sharing between different agencies. Additionally, the prevalent practice of massive outsourcing of IT services in the public sector raises concerns about the potential pitfalls associated with extensive outsourcing. The collapse of companies like Carillion serves as a stark reminder of the risks associated with external dependencies and the subsequent impact on digital transformation initiatives within the public sector.

Find out more

• Read Public Sector Productivity Review: Fifteen questions by Dr Nina M. J?rden , Lucy Hampton and Ayantola Alayande ( Bennett Institute for Public Policy ).
• Read Can digital innovation, including AI, improve productivity growth? By Diane Coyle and Richard Jones (Originally published by the Economics Observatory ).
• Read Why digitalisation isn’t improving productivity growth by Diane Coyle in The Productivity Agenda.
• Read Investigating Police Productivity: A Literature Review by Bart van Ark and Joel Hoskins .
• Listen to Artificial Intelligence and Productivity, an episode of Productivity Puzzles featuring Erik Brynjolfsson , Tera Allas CBE , and Lea Samek.
• Listen to Making Public Sector Productivity Practical, an episode of Productivity Puzzles featuring Paul Abraham , Stephen Aldridge and Anna Smart .

The Productivity Institute??

The Productivity Institute is a UK-wide research organisation exploring what productivity means for business, for workers and for communities - how it is measured and how it truly contributes to increased living standards and well-being. It is funded by the ESRC: Economic and Social Research Council .