Creating A Government Innovation Fund

In January of 2011 shortly after taking office as Governor Andrew Cuomo signed an executive order creating the Spending and Government Efficiency (SAGE) Commission. The purpose of SAGE is to modernize and rightsize government to make it more efficient, effective and accountable through four activities:

On December 15, 2011, the SAGE Commission met and approved some interesting recommendations. As a supporter of increasing new approaches in government, I was pleased to see that the Commission has recommended the following:

Create a dedicated Innovation Fund to finance Business Process Redesign and efficiency-creating technology projects based on the following criteria:
• Can be completed in 1-3 years
• Generate a Return on Investment of at least 30% annually
•Materially improve agency performance and/or government customer service

The Innovation Fund would focus on the following type of initiatives:

1) Business Process Redesign

•Identifying and redesigning processes that touch consumers, businesses, and/or staff to improve service, cost and quality
•Understanding pain points and opportunities for efficiency and effectiveness gains

2) Leveraging Technology

•Automating standardized and routine processes or functions
•Utilizing sophisticated analytics to detect variances and target activities

3) Integrating Government Customer Facing Activities

•Improving customer service levels to citizens and businesses
•Integration across touch points with the government to make government service delivery more seamless

These projects produce a high ROI, but may need financial support because they require an up-front investment. Government is very much behind the times as far as customer service, technology and efficient processes.

Many private sector organizations invest in innovation to improve their operations. Earlier this year Allstate Insurance opened its Insight, Design & Innovation Center, which has become a testing center for more than 30 projects at any given time. Allstate is working on an automated claims process that will allow a customer to submit a claim through a smartphone without help from a claims center representative or agent. One method being looked at is a drive through setup at an Allstate location or auto dealership where with lasers and photo equipment take pictures of damaged vehicles.

Government needs to take the same approach to encourage and fund innovation. The City of Baltimore recently established a $1 million Innovation Fund. The purpose of the fund is to provide seed money for one-time investments that will lead to improved results, increased revenue, and/or reduced ongoing operating costs for City services. The Innovation Fund is meant to be self-sustaining; savings from the investments are returned to the Fund so that other projects may be funded. Continuing this Fund is one way to keep City agency heads and staff focused on innovation and spur creative solutions on how to use limited resources.

Innovation funding in Baltimore is awarded through a competitive process among City agencies. City agencies submit proposals for review by a committee of city and private sector leaders that make recommendations for funding to the Mayor. The Innovation Fund Committee this year reviewed 30 proposals from 15 different City agencies, which ranged from requests for $100,000 to $1.8 million and recommended three proposals for funding.

Innovation is about experiments that don’t always work. It is not uncommon for seventy to ninety percent of innovation efforts to fail. Even in failure lessons are learned and improvements often result through additional efforts down the road. Most government officials and the public have a low tolerance rate for failure, which is a huge problem in encouraging innovation in government.

Would you support your state or local government establishing an innovation fund in an effort to improve government performance? Is the public accepting of failure in government when it comes to trying new ways of designing and delivering government services?

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Terrence (Terry) Hill

The U.S. Coast Guard has a similar innovation fund to provide “seed money” for innovative ideas. They have an Innovation Council to manage the program and designated staff. They hold an annual Innovation Expo –

http://www.uscg.mil/innovation/ – to present innovation awards. This is a great model for others!

Michael B Fraser

If you are interested in this topic, I recommend you check out David Osbourne’s book “Reinventing Government” which includes examples from state and local governments of innovation funds. Also, the National Performance Review (NPR) under Clinton, led by Al Gore, started a fund to help with boundary crossing innovation and funded it with part of the GSA IF fee paid on all contracts. Similarly, the Dept of Commerce has had a Pioneer Fund to fund smaller, innovative projects for years. Finally, there are a handful of government venture capital-like funds (GVC) such as In-Q-Tel at the Intelligence Community, DeVenCI (DOD), and OnPoint Technologies (US Army). One of many expected benefits is the ability of the government to influence the creation of newer technologies instead of adapting more consumer oriented products and services. A recent report (DH No. 71 at http://ndu.edu/inss) notes certain challenges with such GVC programs such as information-sharing, dealing with classified systems, need for strong technology champions to help integrate with government R&D programs, creating databases, primers, and acquistion offices.

Dannielle Blumenthal

I would support this but fund it through innovative ideas offered by employees/the public that have resulted in cost savings. Self funding important to build in to pilot projects especially. Then give employees time to innovate on the job.

Paul Wolf

Good point Dannielle.

Michael I read Osbourne’s Reinventing Government years ago and it made a huge impression on me. In fact I just picked up over the holidays the Reinventors Fieldbook, which has great stuff in it as well.

Ralph, it looks like you are new to Govloop, thanks for jumping in and posting a comment.

Terry, thanks for the information about the U.S. Coast Guard’s effort in this area. I learn so much from what people share on Govloop!

Steve Cottle

I’d agree with Dannielle on the importance of emphasizing cost savings during a time when governments are looking at significant budget cuts. While establishing such funds could be an uphill battle over the next few years, I think a few of the characteristics listed here are key to selling the idea, particularly creating a self-sustaining fund, like in Baltimore, or setting specific ROI targets, like the SAGE recommendations.


Michael – I know In-Q-Tel but hadn’t heard of DeVenCI (DOD), and OnPoint Technologies (US Army). Any experience with either? How big are they? What do they fund? etc?

Eric Melton

Great idea… won’t happen in the current environment though, which is:
-normal budgets are already slashed.
-we’re expected to innovate at no cost and produce cost savings.
-we’re downsizing personnel.
-government is still berated for not creating jobs (even though the above is all true).
Unfortunately, innovation is indeed not free.

Jason Richmond

I believe that creating an Innovation Fund along with allocation of time for staff to work on process and efficiency improvement projects is a great way to not only reduce operational overhead in the long term but also retain talented people.

The problem I see is that this initiative would also need transparency and accountability. If a state or local government spent all the funds year over year with nothing to show for their efforts the initiative would be failure and we would lose the public’s trust which is already an issue in many agencies. It would be very important to publicize the projects and show and track the results just as you would have to do in the private sector. It would only take a few key wins to make this a success. Go for the quick wins first.

Andrea Schneider

Glad to see this topic here. I’ve recently been involved in writing a co-writing a chapter, for a book being published by the London School of Economics, on Design Thinking in the Public Sector with Christian Bason, Director of MindLab in Denmark. MindLab has been working on public sector innovation and strategies for 10 years and is funded by three Danish Ministries. My part of the chapter focused on the United States and Italy.

To say the least, there is much more going on outside the United States, with a much broader systems agenda, then the US focus on Gov 2.0, websites, apps, data and technology. Excellent models exist, using interdisciplinary teams, ethnography, human centered design and co-creation to address the wicked and challenging problems facing so many countries, including our own.

Establishing an innovation lab includes creating a strategic theory of change, values and by it’s nature would include transparency and accountability. It’s critical to design an eco-system that creates consciousness and a language of innovation, capacity and strategies for innovation (it’s not random), discovering solutions through co-creation, and courage, passion and leadership. Additionally, policy has to support practice for anything to really happen.

The primary US focus on technology, has not always been accompanied by public participation and use of all the data available by the public or even agencies. If the biggest thing we can say for ourselves, since 2008 is better websites, increased transparency, accountability and improved data, we are behind other parts of the world.

Part of public sector innovation is taking risk and not getting stuck on barriers if possible. Is money really the problem or is it something much harder? Coming up with the best idea, even through a brilliant process, does not mean anything happens.

Public sector change is really hard work. The easiest part is getting people to the table and getting them excited about possibility. The United States could easily partner up with partners around the world to move the innovation agenda forward with informed processes and intelligence.

No one can yet say it’s all done by any means, but I wouldn’t judge the state of the field by what we have done here so far.

Abed Ali

I love this idea, particularly the self-sustaining component that Baltimore is using. We just need new ways to explain the benefit of experimentation and “failure” to a skeptical public.

Jo Youngblood

But where’s the accountability on such a slush fund? The concern I have is in regards to increasing revenues. I’m not saying this is a bad idea.. certianly government should be able to support its on programs through revenues. However, what stops government from engaging where private sector is and utilizing tax dollars (paid by those in private sector) to compete on increasing revenues? When do you innovate in government and when do you wait for private sector to provide you with the halfway point on the innovation that just needs to be tailored to public sector use? And when do you just ask private sector to cater to your specific need on the innovation? Every bit of energy spent in public sector comes from someone’s pocket who may or may not be a willing contributor. So yes, I support innovation and modernization as long as it comes with some parameters about how it will be done and who pays for it.

Abed Ali

Ideally, government would constantly be collaborating with the private and non-profit sectors to innovate. What’s the business case for waiting?

Jo Youngblood

Abed, I would point to financial accounting packages and business intelligence systems for starters. Those are examples I am familiar with off hand. Private sector innovated them. Public sector has put a different spin and use on them. Private sector responded to the different perspective and incorporated.

Jitinder Kohli

This is a great idea – in fact, some agencies already have innovation funds in place. Education set up the Investing in Innovation Fund a couple of years ago, and the Labor Department is setting up the Workforce Innovation Fund. Geoff Mulgan from the UK and I highlighted the education fund in the Center for American Progress report Capital Ideas from July 2010 available at http://tiny.cc/8m0wm. We also published a recent series on innovation in government with lots of great examples of government agencies being very innovative. There’s even an interactive quiz that helps establish how innovative your agency is – http://tiny.cc/i49f7!

Christine Jung

Is an innovation fund such as this one, any different from an agency’s research and development (R&D)? People talk about having a high failure rate, which shouldn’t be shunned with R&D. But when someone talks about an “innovation fund,” people’s expectations are not as forgiving. Things like BPR, leveraging technology, and being more customer-focused, are the way things SHOULD be done now and therefore, doesn’t seem “innovative” to me. Therefore, I also would expect a low failure rate out of projects that are funded with an innovation fund.

Andrea Schneider

Latesha, thanks for the links. I agree that Geoff Mulligan has written some amazing documents. He is inspiring in his work.

I am still stuck on why the discussion of innovation is so connected to technology and not a broader agenda. It seems so limited to me.

Jitinder Kohli

Geoff Mulgan and I have published a couple of reports that might be of interest. They are both aimed at the US audience (even though we are both British!) One focuses on idea generation and the other one is about scaling. They are available at http://tiny.cc/lhiff and http://tiny.cc/8m0wm. We would really welcome comments from readers.

Paul Wolf

Latesha thanks for the web link. Jitinder I recently discovered the Center for American Progress and love the information they have on their web site. You and Geoff Mulgan have written some very interesting reports, I encourage to utilize a blog here to share your information.

Abed Ali

Jitinder, thanks for sharing your great CAP work! I believe Jo mentioned awhile back something about accountability for innovation funds. It sounds like at least in the Baltimore case you’re relying on the committee review of ideas to choose the proposals with the most potential. But while certainly accountability and transparency is necessary when spending taxpayer dollars, I also think the public can get on board with the idea that failing fast (but cheaply) is a key innovation strategy from the private sector that should yield dividends in the public sector.