2. Innovation as a feature of policy making in cities

Abstract

The chapter explores how local public sector innovation can improve residents’ well-being, based on responses from 147 cities to the OECD/Bloomberg Survey on Innovation Capacity in Cities (2018-20) and a review of literature addressing public sector innovation capacity. The first section reviews the types and levels of impact that public sector innovation can have on residents and city operations. The chapter then delves into findings from the survey and assesses the role that five innovation components play in enhancing city governments’ innovation capacity. The chapter concludes with an analysis of how the survey findings compare to well-being indicators.

How local public sector innovation improves residents’ well-being

In 2018, the OECD and Bloomberg Philanthropies joined forces to assess how cities around the world build their capacity to innovate. To execute this work, the OECD/Bloomberg team administered the Survey on Innovation Capacity in Cities to over one hundred cities worldwide. The goal was to glean a deeper understanding of how innovation capacity can lead to improved well-being outcomes for residents. The hope is that cities can benefit from the trends, common challenges and best practices identified in the survey responses to improve the impact of their investment in innovation.

As explored later in this chapter, results from the OECD/Bloomberg Survey show that public sector innovation helps cities improve service delivery and resident outcomes, cut costs and streamline internal operations, plan for future challenges, generate new revenue streams, and more. Each of these values generated by public sector innovation can lead to tangible improvements in residents’ well-being—a unique aspect of innovation in the public sector.

While the value generated by innovation in the private sector is predominantly profit, public sector innovation is distinct in its motives to find new ways to improve society, government itself, and the relationship between government and the public (Janssen et al., 2017[1]). Compared to the private sector, policy interest in public sector innovation concerns “how innovation occurs in order to increase its use to solve problems and improve outcomes” including for residents (Arundel, Bloch and Ferguson, 2019[2]). Public sector managers have expressed that “innovation must make something better or have a goal to deliver better outputs”.

Indeed, innovation in the public sector aims to produce outputs valued by the residents it serves. According to Thenint (2010[3]), “the key things which citizens value tend to fall into three categories: outcomes, services and trust”. The report Powering European Public Sector Innovation (European Commission, 2013[4]) similarly identified at least four kinds of value generated by innovation activity:

Outcomes: Better achievement of individual and societal outcomes such as increased health, employment, security, and sustainable environment.
Services: Providing residents and businesses with more meaningful, attractive and useful services, personalised and tailor-made for end-users whenever possible.
Productivity: Enhancing the internal efficiency of public sector organisation management.
Democracy: Strengthening citizen engagement and participation; ensuring accountability, transparency, and equality in society.

This chapter pays particular attention to three specific values generated by cities’ innovation activity: (1) enhanced internal efficiency of government, (2) improved service delivery and (3) increased civic engagement. By leveraging innovation to generate these values and others, cities can better tackle societal challenges and improve residents’ well-being. Based on surveyed city responses, Box 2.1 contains brief examples of public sector innovations, their outcomes and the types of value they create for residents.

Box 2.1. Survey chronicles: Outcomes and values of public sector innovation

Enhanced internal efficiency in Gothenburg, Sweden (population 592 000)

Innovation: Gothenburg established Fossil-Free Energy Districts (FED), aiming to reduce the city’s energy consumption and dependence on fossil fuels by leveraging sustainable technologies such as photovoltaics, heat pumps and wind energy.

Outcome: The city’s FEDs built a unique local market for sustainably sourced electricity, heating and cooling. With a EUR 5.8 million budget, FEDs served about 15 000 end-users during the pilot phase.

Improved service delivery in Huntington, WV, United States (population 47 079)

Innovation: Huntington uses innovation to fight its opioid epidemic. Its Compass wellness programme aims to prevent compassion fatigue among first responders, while the Drug Market Intervention (DMI) programme focuses on targeted interventions and addict rehabilitation instead of jail time. Huntington also leverages partnerships with the private sector and academia for funding and data analysis.

Outcome: Huntington reports that these innovations improved resident health as well as its delivery of emergency services. The Compass programme fortified first responders’ ability to serve those who need them most, while the DMI programme and data analysis with Marshall University helped Huntington anticipate and manage future challenges around the epidemic.

Increased civic engagement in Rome, Italy (population 2 879 728)

Innovation: #RomaDecide is Rome’s first participatory budgeting process where residents and city users can influence how EUR 20 million of the city budget are spent. Individual residents and local municipalities within the capital were encouraged to submit project proposals.

Outcome: The initiative received an overwhelming response from residents, with 193 submissions and participation by almost 24 000 voters. Proposals called for increased green space, creation of bike lanes, expanded pedestrian zones, children’s playgrounds and fitness trails.

Source: OECD/Bloomberg Philanthropies (2018-20), Survey on Innovation Capacity in Cities.

Public sector innovation and its impacts take many forms

The results from the OECD/Bloomberg Survey demonstrate that innovation can take many forms and is often context-specific. The term “innovation” does not necessarily imply complex, expensive or futuristic cutting-edge technology. Local public sector innovation can also build a culture of innovation among staff, directly engage residents, build community partnerships, streamline internal workflows, and simplify service delivery (Figure 2.1).

While no official classification of public sector innovation types exists, some basic typologies emerge from research. For instance, the 2019 Co-VAL survey, composed of responses from national and municipal governments in six European countries, split innovation types into two broad categories: service and process (Arundel and Es-Sadki, 2019[5]). As reflected in Figure 2.1, innovation helps cities most to improve service delivery and internal government operations (e.g. processes).

Figure 2.1. Innovation most helps cities improve service delivery and internal efficiency

This trend is also reflected in many surveyed cities’ innovation examples. Box 2.2 provides examples of a process innovation from Hillsboro, Oregon (United States) and a service innovation from Granada (Spain). Hillsboro’s example focuses on internal processes while Granada’s focuses on service delivery, but both lead to better well-being outcomes for residents. In Hillsboro, innovation both generates budgetary savings and trains staff in innovative thinking. The latter of these may lead to more innovation across city government in the future: Salge and Vera (2012[6]) identified a strong correlation between pervasive innovative approaches across public sector organisations and better outcomes for end-users (e.g. residents), suggesting that initiatives like Hillsboro’s Eureka Challenge may translate to tangible improvements in residents’ lives. Likewise, Granada leverages innovation and technology to expand accessibility to residents and visitors alike, regardless of mobility-related challenges. This is a major step toward making the city more inclusive and egalitarian.

Box 2.2. Survey anecdotes: How process and service innovations benefit residents

Hillsboro, OR, United States, enhances staff capacity to innovate through the Eureka Challenge

Hillsboro demonstrates how municipal government can overcome challenges through process innovation. In a city with only 103 000 residents and under 800 staff, the city had to get creative. The Office of Innovation compensates for its small team and limited funding resources using “Eureka!” improvement teams and the annual Eureka Challenge. The latter engages various departments through policy deep-dives and short-term innovation projects. Staff from multiple city agencies take a 30-day leave from their usual posts to form a team that focuses on a specific issue identified by the City Manager. The 2019 Challenge team tackled access to services and removed language or digital barriers, while another year’s “Eureka!” improvement team convened to reduce the city’s water consumption, ultimately lowering Hillsboro’s water expenses by USD 70 000. This approach has the dual effect of generating an innovation staff within the city’s existing budget and training all staff members to think more innovatively within their existing posts.

Granada, Spain, builds innovative services to increase accessibility to cultural landmarks

Granada uses Geographic Information System (GIS) technology to improve access for individuals with reduced mobility to two of its UNESCO World Heritage sites–Albaicín and Sacromonte–main attractions in the city and an important part of its cultural identity. Based on their mobility profile, users receive 3D visualisation with the optimal routes and detailed topographic information about stairs, slopes and pavements. The app is one of the first initiatives undertaken within the framework of Granada Human Smart City, which aims to build a more liveable and sustainable city using innovative technologies.

Source: OECD/Bloomberg (2018-20), Philanthropies Survey on Innovation Capacity in Cities.

Types of public sector innovation identified in the literature

The above-mentioned innovation outcomes appear consistent with research findings. In their study of public sector innovation in over three-thousand European government agencies, Arundel, Casali and Hollanders (2015[7]) found highly positive reporting on outcomes stemming from both process and service innovation, with some distinctions. Process innovations simplified administrative procedures, reduced costs for providing services, enabled faster delivery of services, and improved employee satisfaction and/or working conditions. Meanwhile, service innovations expanded access to more and different users, improved the targeting of services to relevant users, increased user satisfaction and access to information, and improved service delivery.

Another study analyses nearly 5 000 public sector innovation efforts in Mexico (Díaz Aldret, 2016[8]) and identifies four types of innovation–functional, structural, behavioural and relational (Box 2.3)–concluding that “the permanence and capacity to solidify [local level public sector innovations] lies in the depth of the transformations”. Thus, changes induced by functional innovation are often more easily reversible than those executed at the behavioural and relational levels. These latter two innovation types tend to be the most stable and sustainable due to their focus on deeper changes to networks and mind-sets that alter fundamental relationships between stakeholders. In contrast, when a functional innovation merely changes the administrative process, it can easily be reversed during the next cycles of government.

Box 2.3. Four types of public sector innovation identified in research literature

Functional innovations: Actions that governments can take to increase their operational and economic efficiency, producing mechanisms that ensure greater effectiveness in administrative management. Often easiest to reverse.

Structural innovations: Legal or organisational reforms that seek a greater decentralisation of decision-making processes (e.g. empowering city staff to solve problems, co-creation with residents).

Behavioural innovations: Changes in attitudes and negotiation styles, aimed at resolving conflicts between government and citizens. More difficult to reverse.

Relational innovations: Changes to a municipal administration’s networks, forms and/or mechanisms of interactions with their environments and with other levels of government. More difficult to reverse.

Source: Díaz Aldret (2016[8]), “Innovación desde los gobiernos locales mexicanos”, in Cejudo, G., M. Dussauge Laguna and C. Michel (eds.), La Innovación en el Sector Público: Tendencias internacionales y experiencias mexicanas, Delegación Cuajimalpa, Mexico.

Indeed, some innovations assessed in the Mexico study operated for only two years and then “vanished”, due in part to electoral turnover in the local administration. However, in cases where residents felt strongly they had benefited from an innovation, they successfully lobbied incoming mayors to leave it intact. This finding suggests that increased resident engagement and feedback can lead to higher retention of innovation activity. Other research suggests that involving residents in the innovation process can improve an innovation’s fit with user needs, improve its quality and reduce its risk of failure (Arundel and Es-Sadki, 2019[5]), and that soliciting resident feedback can prompt a more accurate reflection of resident priorities in cities’ budget and policy decisions (Kleiman and Goldsmith, 2018[9]). Thus, one way to address the challenge of short-lived innovation projects may be to conduct smaller evaluations throughout the process that focus on design, implementation, outcomes and impact, and include residents’ feedback. The section “Evaluating outcomes can create feedback loops that lead to greater impact” discusses in detail cities’ capacity to evaluate innovation outcomes.

Impacts of public sector innovation

Díaz Aldret (2016[8]) also examines a typology of nine categories of innovation in local government, originally developed by García (2014[10]), which focuses on the levels and nature of impact (Table 2.1). From this perspective, the level of an innovation can be basic, operational or transformative, and can have differing impacts depending on its focus and the environment in which it occurs.

Thus, an innovation is transformative if it impacts the quality of life of the target population, if it reconfigures governmental organisation or if it develops social capital among vulnerable groups (e.g. if networks of trust and collaboration emerge). By contrast, an innovation is basic if it produces temporary benefits on the target population, if it does not reconfigure governmental organisation or if resident engagement only occurs at the point of the implementation rather than in development and ideation (Díaz Aldret, 2016[8]).

Table 2.1. Levels and nature of public sector innovation impact
	Quality of life	Organisational impact	Impact on social networks
Basic	Ill-defined target populations reaping few, temporary benefits	Municipal government organisation does not change	Citizen’s involvement occurs only during the implementation of programmes
Operative	Well-defined target populations and far-reaching results	Changes in the organisations’ shape with visible improvement in operation	Relations between government and citizens are positively modified
Transformative	Positive impact on target populations	Organisational reconfiguration to assimilate innovation	Building of social capital
Source: Díaz Aldret (2016[8]), “Innovación desde los gobiernos locales mexicanos”, in Cejudo, G., M. Dussauge Laguna and C. Michel (eds.), La Innovación en el Sector Público: Tendencias internacionales y experiencias mexicanas, Delegación Cuajimalpa, Mexico.

Cities’ ability to implement transformative public sector innovation, whether by enhancing internal processes or improving service delivery, largely hinges on their innovation capacity. The OECD/Bloomberg Survey assesses cities’ innovation capacity based on five main components. This chapter argues that the more cities develop their innovation capacity through these five components, the more transformative their innovation activity will be, leading to a greater impact on residents’ lives, and improving their well-being.

Contextualising the OECD/Bloomberg Survey results

The OECD/Bloomberg Survey captured five components of innovation capacity in cities: (1) a formal strategy and approach, (2) staffing and organisational structure, (3) dedicated funding, (4) data use to support innovation and (5) evaluating innovation outcomes relative to stated objectives. Using these five components of public sector innovation to assess a city’s innovation capacity is supported by research literature and discussion with experts, further detailed in the section “The five components of cities’ innovation capacity”. The survey also collected insights on factors of innovation capacity that do not fit into any one component, such as a culture of innovation or leadership of public sector organisations.

Embracing these components allows cities to transcend the traditional siloes of departments, build a cohesive and aligned strategy that fosters a culture of collaboration and leverage the potential of data to generate fact-based decision making. Developing these tenets of innovation capacity also allows cities to identify and guide resources toward programmes that have a bigger impact on residents’ well-being and to constantly improve implementation through programme and policy evaluation.

The OECD/Bloomberg Survey provides high-level insights into cities’ progress in developing the five components. As shown in Figure 2.2, a dedicated innovation staff and funding for innovation are most prominent in surveyed cities. The other three components–a formal innovation strategy, using data for innovation, and evaluating innovation outcomes–are noticeably less common among surveyed cities. Evaluating innovation outcomes lags particularly far behind the other components despite its potential to increase the impact of innovation by empowering cities to refine implementation through data-driven decision making. Reasons for this disparity, as well as why cities should focus on increasing their capacity in this area, are addressed later in the chapter.

Before analysing the survey results for each individual innovation component, it is worth examining the factors of innovation capacity that can apply to all five.

Figure 2.2. Most cities have staff and funding for innovation, but lack the other components

Cross-cutting “meta-capacities” for innovation: Culture and leadership

Assessing the innovation capacity of cities through the five components is a practical way to distinguish and compare cities’ activities, priorities and needs. However, some crosscutting factors do not fit neatly into any single component. Concerns like culture and leadership around innovation can be considered “meta-capacities” equally applicable to each of the five components–perhaps even tying them together–helping cities to holistically develop and reinforce each one.

By emphasising these crosscutting meta-capacities, cities could better build capacity across all five components at once rather than individually. Approaching innovation in this way could overcome the tendency for siloed thinking in the public sector. It could also induce a virtuous cycle that increases the durability of cities’ innovation capacity in the long term–important in the wake of crises like COVID-19 that challenge cities’ priorities.

A robust innovation culture can bolster all five components, deepening their impact

According to Bason (2018[11]), innovation culture can be defined as “a culture where a group of people’s shared values, customs and assumptions are conducive to new ideas and organisational change”. Engraining a culture of innovation within a city administration could bolster its capacity in each innovation component, which in turn would lead to more transformative well-being outcomes for residents.

Demircioglu and Audretsch (2017[12]) found that promoting a culture of experimentation within a public sector organisation, providing support and training to low-performing staff, creating feedback loops that allow for evaluation and adjustments, and motivating employees to make improvements are key conditions to spurring public sector innovation. Taken holistically, these activities can build an innovation culture across an entire city administration.

In fact, just as most cities consider innovation culture important to innovation (Figure 2.5), cities consider weak innovation culture a greater impediment to innovation than any other survey option (Figure 2.3). This is likely because these innovation components do not exist in a vacuum, but rather are interdependent on each other such that successfully building the capacity of one might rely on or assist in building the capacity of another. For instance, defining innovation and setting clear goals can lead to better measurement and evaluation of innovation activity (Gault, 2018[13]). In turn, robust measurement of innovation outcomes can help cities secure funding for innovation initiatives (OECD, 2020[14]). By prioritising a culture of innovation across the board, cities could increase their capacity in all components simultaneously rather than addressing each one in isolation.

Figure 2.3. Weak innovation culture is preventing most cities from enhancing innovation capacity

Despite the challenges implied in Figure 2.3, surveyed cities do appear to engage in activities that suggest a shift toward a stronger culture of innovation, including rethinking financing and partnerships, focusing on human-centred design and embracing data-driven analytics (Figure 2.4). Organisational change in city government can foment an innovation culture and bust down departmental siloes, overhaul internal performance management or enhance staff training and capacity building around innovation tools and techniques. Giving staff the freedom to take risks and fail also plays a role in building innovation culture and capacity. Demircioglu and Audretsch (2017[12]) find that promoting experimentation in a public sector organisation can enhance innovation, and Arundel, Bloch and Ferguson (2019[2]) suggest that a risk-averse culture can hamper it. Indeed, cities associate innovation with “experimentation” more than any other term (Figure 2.6).

Infusing a culture of innovation throughout a city administration makes it easier to bolster capacity in each component simultaneously. And a stable foundation of innovation culture enhances the likelihood that innovation activity will actually lead to improved residents’ well-being.

Figure 2.4. Organisational change and risk-taking are among cities' most common innovation activities

Leadership is the single most important factor in cities’ innovation

All surveyed cities report that leadership is “Important” or “Very important” to public sector innovation (Figure 2.5). These results corroborate findings in the literature that an entrepreneurial and experimental approach by the mayor can be instrumental in building a city’s innovation capacity. In a survey of 323 senior administrators from the city governments of Barcelona (Spain), Copenhagen (Denmark), and Rotterdam (Netherlands), results showed that “leadership has a bigger effect on innovation capacity than the structures, processes and contextual factors that drive innovation” (Lewis, Ricard and Klijn, 2018[15]). The OECD report The Innovation Imperative (2015[16]) listed “leadership and the way staff are selected, rewarded, socialised, and managed” as a major component of public sector innovation capacity.

Figure 2.5. Cities are unanimous about the importance of mayoral leadership to innovation

The five components of cities’ innovation capacity

While crosscutting aspects of innovation capacity in cities such as culture and leadership deserve acknowledgement, the OECD/Bloomberg Survey focused on the five innovation components to generate specific, actionable insights. The following sections of the report mirror the structure of the OECD/Bloomberg Survey, exploring in as much granularity as possible cities’ responses to key questions, with references where relevant to public sector innovation literature.

Insights come from each survey section: strategy (e.g. definitions, goals, and approaches); organisational staff and structure; funding and resources; data for innovation; and outcomes monitoring and evaluation. Significant crosscutting aspects are acknowledged wherever survey results from one component section are relevant to another. Qualitative anecdotes provided by cities illustrate the survey findings.

This in-depth exploration of the OECD/Bloomberg Survey highlights significant results based on 147 cities’ responses, identifying trends and yielding recommendations. It also sets the stage for this chapter’s following section, which ties the main findings of the OECD/Bloomberg Survey to quantitative data related to residents’ well-being in cities.

Innovation strategies lay the essential groundwork for innovation in cities

Cities that define innovation alongside an official strategy and set of measurable goals are better positioned to ensure that investment, human resources and political capital dedicated to public sector innovation benefit residents. These strategies, goals, and even the definitions themselves will likely depend on a city’s contextual needs and access to resources.

Local-level innovations improve services “sometimes in an impressive manner”, but a lack of focus and planning may limit long-term benefits for cities and residents alike (Goldsmith and Kleiman, 2017[17]). Even innovation that occurs organically in the absence of any formal strategy can reap benefits; but “when it comes to more systemic change, though, ad hoc innovation can give the illusion of widespread progress, distracting time and attention from the more difficult and broad-based need for structural innovation” (ibid).

Thus, by establishing these basic elements—a clear definition, measurable goals, and a coherent strategy—before undertaking public sector innovation endeavours, cities can avoid wasteful spending, increase public accountability, and start the process of building an innovation culture crucial to improving resident well-being. For example, Las Vegas (United States) developed “strategic, outcome-oriented goals” and corresponding metrics to effectively restructure siloed agencies and build more cross-departmental collaboration so they could work on common issues, leading to a more efficient consolidation of resources and a more holistic approach to challenges that do not fit neatly into the jurisdiction of any one city agency. By developing a clear strategy for improving the way they work together, Las Vegas “has ensured that it remains responsible for delivering effective service to its residents” (Box 2.4) (Goldsmith, 2018[18]).

Box 2.4. Restructuring strategic planning and performance review of agencies in Las Vegas

Before Las Vegas made major changes to its agency planning and review systems with the help of What Works Cities, budget decisions were being made before departments generated their strategic plans, leaving them unable to advocate for the funding necessary to achieve their goals. After the realignment, agencies solidified their strategic plans months before the annual budget process, allowing them to “use their business plan as a narrative justification for budget requests”.

De-siloing departmental performance reviews also had a substantive impact on city agencies’ progress toward addressing core challenges. Before changes were made, each department would meet “individually once or twice a year with the city manager executive team”, even though many agencies were working on shared issues from different angles. Agency representatives in these review meetings “usually talked about critical issues in their departments, not on ways of meeting broader city goals”.

The process adjustment led to the establishment of four thematic cross-departmental priorities: (1) growing the economy, (2) neighbourhood liveability, (3) community risk reduction and (4) high-performing government. Now, instead of one or two individual review meetings a year, “between three and six departments meet with the city manager at a time to discuss a specific theme,” up to eight times per year.

Source: (Goldsmith, 2018[18])

Defining public sector innovation is the first step to building an effective strategy

Before measuring innovation’s impact on residents’ well-being, cities must address ambiguities around the term “innovation”. While references to “innovation” meet little resistance in cities thanks in part to increased funding opportunities associated with its use, the term has different interpretations depending on the city administration. This ambiguity may deter mayors from pursuing such initiatives altogether. Defining public sector innovation may be the first step in enabling cities to reap its benefits.

Gault (2018[13]) asserts that the lack of an international standard that defines public sector innovation represents a “significant gap which prevents the analysis and understanding of innovation,” and that defining it is prerequisite to forming indicators that “can be used to inform policy development and for monitoring and evaluation of existing policy.” In other words, public sector innovation must first be defined in order to deploy it and generate improvements in residents’ well-being.

Figure 2.6. Cities most associate “experimentation” and “human-centred design” with innovation

Though not the same as a formal definition, the terms that cities associate with innovation (Figure 2.6) shed light on the different perceptions of innovation. “Experimentation”, “Human-centred design”, and “Big picture rethinking” feature prominently among the results, indicating that cities see innovation as an opportunity to look outside-the-box and approach service delivery through the perspective of intended beneficiaries (e.g. residents). Meanwhile, more technical answers like “Data analytics” and “Technological innovation” suggest that many cities see technology and data as integral to innovation activity. By contrast, while human-centred design is one well-known type of “Resident engagement”, it is noteworthy that engagement appears less on cities’ minds when they think of innovation. This seems consistent with the fact that very few cities claim that innovation helps them engage with stakeholders (Figure 2.1). The apparent deprioritising of resident engagement as an outcome of public sector innovation may represent an opportunity for renewed focus in this area for cities. As discussed later in this section, certain public sector innovation approaches and methods, including co-creation and human-centred design, can increase both well-being outcomes and direct engagement for residents. Engaging with residents and soliciting their feedback as active partners in the innovation process can have marked positive impacts on the quality of cities’ innovation efforts (Arundel and Es-Sadki, 2019[5]; Kleiman and Goldsmith, 2018[9]).

Figure 2.6 suggests that cities see public sector innovation as something that entails risk-taking, trial-and-error, and the freedom to experiment; that focuses on outcomes for residents (but does not necessarily engage them directly); and that involves some level of technological and scientific sophistication.

Strategies and goals lead to better innovation outcomes

Part of cities’ efforts to define public sector innovation entails establishing clear strategies and measurable goals. By doing so before investing resources and political capital in innovation projects, cities can ensure that decisions are intentional, guided by a cohesive and coherent vision, and subject to public accountability (OECD, 2019[19]). This may prevent spending that is wasteful and/or done for political gains rather than for the benefit of taxpayers. Without an explicit, publicly stated definition, strategy or goals, “innovation activity might be triggered by motives other than customer value, such as increasing one’s status or power…following a fashion, or signalling progressiveness” (Salge and Vera, 2012[6]). In such cases, “public service organisations might generate innovations that are meaningless from a customer perspective,” failing to make a positive impact on service quality or even having a negative impact if resources are allocated away from normal service provision.

Therefore, strategic plans for innovation–especially through resident-inclusive processes like human-centred design and co-creation–can simultaneously help cities avoid wasteful spending and reflect the preferences of residents, fostering accountability. As discussed in “Public sector innovation capacity and residents’ ”, public sector innovations implemented in accordance with a clearly defined, publicly stated strategy and measurable goals that benefit residents can increase the likelihood that they survive from one public administration to the next.

More than half of surveyed cities report having formal innovation goals. However, just half report having a formal innovation strategy, with only 39% among US cities. This may hamper cities’ ability to build capacity for other components: a clear formal strategy can clarify staffing needs, inform and justify funding needs, and establish measurable outcomes that facilitate evaluation. Thus, insufficient strategic planning and goal setting around innovation may limit cities’ ability to generate greater well-being outcomes for residents.

Conversely, cities are better positioned to generate tangible benefits for residents by defining innovation and establishing a coherent strategy, approach, and goals before investing time and resources to implement them. For example, Mexico City defined its innovation goals and strategies beforehand so they could identify the most effective opportunities to address urgent issues and measure outcomes, rather than conducting scattershot innovation poorly aligned with resident needs. In order to achieve their innovation goals, Mexico City created the Digital Agency for Public Innovation (ADIP), which brought their data analysis, open government, and e-government capabilities under one roof. The ADIP plans its work around three central strategic goals: (1) increasing public internet access by providing free Wi-Fi; (2) developing digital tools for use by citizens to increase government accountability; and (3) by creating e-government instruments to improve public service delivery. So far, ADIP’s efforts toward its stated goal for providing Wi-Fi as a Human Right have resulted in the installation of 13,963 free Wi-Fi areas around the city. As part of its innovation strategy to deepen civic engagement, ADIP has also created numerous virtual and physical spaces where residents can access information, provide feedback on service delivery, engage in policy discussions, and offer solutions to problems in their communities.

Indeed, while research suggests that minor innovations can occur organically, regardless of whether a strategy is embedded into governance, “the probability of producing transformative or ‘breakthrough’ innovations could be enhanced by governance that supports strategic innovation management.” Examples of strategic management can include “a written innovation strategy, the inclusion of innovation targets in annual reports, the participation of managers in an ongoing innovation task force, and the active participation of politicians in innovation.” (Arundel, Bloch and Ferguson, 2019[2])

Certain Inclusive approaches and methods can enhance impact on well-being

While any focus on public sector innovation can impact residents’ lives, cities can increase the depth of that impact by adopting approaches that prioritise and engage residents. According to OECD findings (2020[14]), “innovative organisations are those which have the resources and skills in both the implementation and evaluation of innovative approaches.”

These most “innovative approaches” might be those that focus on the needs of and/or solicit feedback from residents, often referred to in public sector innovation as “customers” or “end-users”. For example, in an analysis of 153 hospitals within the UK’s National Health System, Salge and Vera (2012[6]) conclude that public service quality increases with more customer- and learning-oriented approaches to innovation, which in the case of hospitals “might translate…into saving lives”. Thenint (2010[3]) argues that public sector innovation “should principally aim at addressing societal challenges…accordingly, innovative thinking and operating may require strong user-centred approaches”.

Innovative approaches like co-creation, human-centred design, experimentation, strategic partnerships, and nudge economics could augment the impact of public sector innovation. The public sector’s approach to innovation is often too narrow, focusing on cost-saving, efficiency and operations at the expense of more transformative changes. A majority of surveyed cities report engaging residents, using human-centred design and rethinking partnerships as part of their innovation activity. While this is encouraging, cities might want to increase their emphasis on innovative approaches geared toward resident engagement. Not only can feedback through various forms of engagement inform conceptualisation and implementation, but resident engagement is also a positive in its own right (Voorberg, Bekkers and Tummers, 2015[20]). Cities with more resident engagement tend to have higher satisfaction rates among residents, and engaging with residents from traditionally underrepresented groups could be effective in combatting inequality and ensuring more targeted service delivery.

Co-creation and innovation labs

Co-creation refers to the “active involvement of end-users in various stages of the production process”, and in the public sector, “these end-users are citizens” (Voorberg, Bekkers and Tummers, 2015[20]). In the face of societal challenges and austerity policy from central governments, policy makers increasingly consider co-creation with residents “as a necessary condition to create innovative public services that actually meet the needs of citizens” (ibid). Innovation labs operated by city governments are a key inflection point for co-creation and appear to “support the determinants of urban innovation capacity” (Vrabie and Ianole-Călin, 2020[21]).

Surveyed cities appear interested in both the co-creation approach and innovation lab methods, with a great deal of co-creation executed through cities’ innovation labs. A combined 80% of cities report engaging residents in new ways either sometimes or often through their innovation activity (including but not limited to co-creation). Meanwhile, three out of four cities believe their city staff “would want or benefit from” training in innovation labs, while nearly two out of three feel the same about collaborative approaches like co-creation. These results suggest interest in co-creation and innovation labs, even if application lags.

The exciting outcomes of some surveyed cities’ co-creation and innovation lab efforts might encourage others to explore investment in these collaborative approaches. Montreal’s (Canada) co-creation CityStudio leverages the knowledge of local students to improve the community, while Leipzig’s (Germany) Thinking Ahead project facilitates civic participation and brings together residents, elected officials, and experts to collaborate on sustainable urban development (Box 2.5). These efforts accomplish the dual benefit of engaging residents as partners in innovation and generating targeted interventions that can save cities time and effort in implementation.

Even when co-creation lacks a specific objective or fails to produce a tangible outcome, it can still contribute to resident well-being by fostering civic engagement and a sense of community for its own sake. Fugslang and Hansen (2019[22]) found that innovation labs often have unique characteristics relative to other public sector innovation approaches, including an ability to facilitate “democratic engagement”. Indeed, in a synthesis of co-creation studies, Voorberg, Bekkers and Tummers (2015[20]) found that resident engagement is perceived “as a value in itself, which is also supported by the observation that several authors addressed the increase in citizen involvement as an objective to be met.”

This appears to be the case for Cornella’s (Spain) CitiLab (Box 2.7), which has ardent defenders in the local government and community based on the belief that increasing civic engagement represents a positive impact on resident well-being (Gascó, 2017[23]). Investment in co-creation led to a significant increase in civic engagement In Bologna (Italy) as well (Box 2.5).

Box 2.5. Co-creation pilots provide new perspectives and boost civic participation

Montreal, Canada: CityStudio Montreal connects city staff expertise and student creativity to tackle complex urban issues. The initiative matches urban problems identified by city staff with courses at partner universities, providing public servants and students a chance to co-create and prototype innovative solutions. CityStudio Montreal serves as a unique method to strengthen civic participation and resident engagement through collaboration to improve the community.

Leipzig, Germany: Launched in 2012, Leipzig Thinking Ahead co-ordinates civic participation within the City Council. By bringing together residents, politicians, policy makers and experts, the initiative aims to resolve challenges related to sustainable urban development in the city. Leipzig Thinking Ahead fosters a culture of resident engagement through various methods such as virtual spaces, a future series, surveys and the use of Lego building blocks to co-create a vision for the city.

Bologna, Italy: The Civic Imagination Office serves as an urban policy lab to research, communicate, and co-design urban transformations. The Office oversees six District Labs, where city officials and residents collaborate on projects to tackle challenges facing Bologna. These Labs guide citizens’ project proposals (called collaboration pacts) and facilitate the participatory budgeting process, leading to a significant increase in citizen engagement: more than 480 collaboration pacts implemented, and more than 14 000 votes in the first year of participatory budgeting.

Source: OECD/Bloomberg Philanthropies (2018-20), Survey on Innovation Capacity in Cities.

Human-centred design

Bloomberg.org (2019[24]) defines human-centred design as “an approach to creating a programme, policy, service, or product that is tailored to the needs of the person who will use or be impacted by it.” In other words, human-centred design ensures that the nature of public services are dictated by what works best for end-users rather than by bureaucracy or legalese. By reframing innovation this way, cities can imagine ways of doing things beyond existing paradigms.

Cities responding to the OECD/Bloomberg Survey seem to deploy the human-centred design approach at a slightly lower rate than other forms of resident engagement (Figure 2.4): 36% of cities use human-centred design sometimes, while 35% use it often. In its Survey response, Edmonton, Canada, described its human-centred design efforts to improve urban well-being, approach issues from the perspective of those directly affected and refine services based on end-user feedback (Box 2.6).

Box 2.6. Using human-centred design to address urban well-being in Edmonton, Canada

Edmonton’s response to survey question 5.11 concerning its novel innovation efforts:

“Our city has created a human-centred framework using social innovation to improve urban well-being (www.urbanwellnessedmonton.com). We begin with ethnographic research to understand and make sense of the stories [of] people living rough on the streets. These stories build empathy and define issues from the perspective of people who are marginalised.

The research and analysis of folks’ behaviours, pain points, and aspirations lead to different groupings of people, or segments, such as the Edgeworkers who engage in informal professions on the edge of society using their intuition and survival skills. With these stories in mind, we ideate with the community at large: What kind of solutions might work for different segments? Ideation generates hundreds of possibilities.

Based on energy and interest, we home in on a few ideas and form prototype teams with community members and leaders to test them out, going back to people directly experiencing challenges like those chronically street-involved and co-creating potential solutions based on end-user feedback. Solutions that are most promising are then scaled through new and enhanced partnerships.

As helpful as these processes were, after two years of work, we realised that they didn’t take us to the transformational place needed for change. Deeply listening to the people we are designing for has shifted the way we define well-being and resulted in a framework that holds connection at its core. While the material needs that governments commonly focus on are important (like physical housing), we are elevating the importance of the immaterial aspects of well-being, by including concepts such as ‘purpose’ ‘culture’ and the ‘sacred’ in our designs. We believe that designing, testing, and scaling prototypes with this orientation will move us closer towards the systemic level change we are striving for.”

Source: OECD/Bloomberg Philanthropies (2018-20), Survey on Innovation Capacity in Cities.

Partnerships

Due to constraints on staffing, funding, technical capacity, etc., cities might benefit from partnerships with other sectors and levels of government as part of their approach to public sector innovation. Collaboration with the private, non-profit, philanthropic, academic, and/or think-tank sectors, and with other levels of the public sector can help cities “enhance approaches and tools, share risk, and harness available information and resources for innovation” (OECD, 2015[16]). Public sector innovation partnerships could also include collaboration and engagement with citizens in the form of innovation labs, hackathons and open data sharing. According to Janssen et al. (2017[1]), promotion of data-driven public sector innovation might require a “major role” from “private organisations and citizens”.

A majority of surveyed cities report engaging in partnerships (Figure 2.7). These can help cities compensate for resource- or skill-related shortcomings that might impede innovation. Whether it means providing seed funding for innovation activity, data use training, analytics, storage capacity, access to large swaths of data or professional development for staff based on their innovation experience, strategic partnerships can augment cities’ capacity to innovate. The nature of a city’s partnership may depend on local context, e.g. the industry composition, academic landscape, or nature of higher levels of government. Partnerships should also contribute to a city’s innovation strategy and goals rather than adopting a partnership as a “solution in search of a problem”.

For example, San Pedro Garza García, Mexico, created a Department of Innovation and Public Engagement, which forged two important partnerships. The Innovation Department collaborates on data strategy with the city’s specialised unit to fight domestic violence, and it launched a City Innovation Fellowship with Tecnologico de Monterrey (ITESM) university. As this example suggests, cities may benefit from partnerships around data (see “Data use can inform strategy, guide funding decisions, and evaluate goals for innovation”).

Figure 2.7. Cities engage in innovation partnerships, especially with other levels of government

Organisational structure and staffing

Employee skill levels and organisational structure are pivotal to expanding public sector innovation capacity in cities. “Forming a team dedicated to finding new solutions to vexing urban issues sounds so simple, but innovation teams are a relatively new addition to the local government landscape” (Goldsmith and Kleiman, 2017[17]). Governments at all levels often “lack the flexibility, culture, and guidance that could help innovation to flourish” (OECD, 2015[16]). Initiatives such as Bloomberg Philanthropies’ i-teams (innovation teams) and What Works Cities help cities address barriers around staff skills to develop their capacity for public sector innovation and data analytics.

Cities can increase their innovation capacity by developing a more conducive organisational structure that encourages experimentation, cross-sectoral collaboration, risk-taking and room to fail. Cities can also build staff capacity for innovation by prioritising innovation skills and experience in their hiring practices and ongoing professional development. Among existing staff, cities can increase the capacity for innovation through support and training, creating feedback loops that allow for evaluation and adjustments, and motivating employees to make improvements (Demircioglu and Audretsch, 2017[12]). As Figure 2.3 shows, two out of five surveyed cities believe poor “Human resource involvement, support, and training” prevents them from enhancing innovation capacity.

Decisions about whether to disperse innovation through existing administrative structures or create a separate department for innovation have different repercussions for capacity. Innovation teams “depend on strong relationships with city agencies”, and if provided “with a mandate of crosscutting and cross-agency change, the teams can authorise new approaches to addressing an issue, but they must first get information and buy-in from the people who will be implementing the plans” (Goldsmith and Kleiman, 2017[17]). Efforts to infuse innovation into the fabric of public sector organisations can yield innovation sourced directly from staff, permitting them to apply their institutional knowledge in a way that improves residents’ well-being.

Focus on innovation staffing can also bring new skills and perspectives into the public sector, allowing managers to overhaul the culture of public sector organisations and transform their impact on residents’ lives. Goldsmith and Kleiman (2017[17]) say about the importance and challenges of innovation teams:

More than any other municipal innovation, these teams embody core attributes of the [new approach to urban governance]: clarity around ambitious new outcomes, speed, and a core focus on empowering and unleashing the creative ideas that often lie dormant within city agencies and among residents.

Innovation teams are often a small interdisciplinary band of data, design, research, and project management pros aimed at some of the highest-level and most complicated city priorities, such as lowering the Homicide rate, devising a climate action plan, or addressing persistent poverty. These special teams are usually comprised of individuals drawn from the private and public sectors, serving as something akin to internal consultants…Because they are not bogged down in day-to-day operations, one of the virtues of innovation teams is flexibility, and they tend to take on a range of issues.

The importance of leadership to building innovation capacity can be seen in staffing as well. Hiring innovation stewards and senior managers with entrepreneurial mindsets and innovation experience can grow a city’s innovation capacity and foster a culture of innovation that persists through staff turnover (Arundel, Bloch and Ferguson, 2019[2]).

As captured in Figure 2.2, 90% of cities report staff dedicated to innovation – the most common of any component measured by the Survey. This indicates that cities view staffing for innovation as foundational to broader innovation capacity and initiating innovation activity. While each innovation component depends on the others to some extent, staffing for innovation may play an outsized role in getting cities’ innovation efforts off the ground in earnest.

Professional backgrounds of innovation teams may reflect cities’ priorities

Placing a premium on hiring innovation staff with relevant professional backgrounds can help cities build innovation capacity quickly. The OECD (2017[25]) identifies human resource management as “an important lever for supporting public sector innovation by enabling managers and front-line staff to formulate ideas that result in new and improved ways to deliver public services.”

The current and desired backgrounds of surveyed cities’ innovation teams reveal to some extent what those teams focus on, and what cities look for in recruitment. Over 90% of cities report staff with a project management background (a far higher rate than any other role), suggesting that cities predominantly take a project-based approach to innovation (Figure 2.8). The second most common role among innovation teams is data scientist, which bodes well for cities’ efforts to build capacity in data use (discussed below). On the other hand, engineers are less prevalent in cities than every role but sociologists—however, a noteworthy gap exists between world regions in the prevalence of engineers: 59% of European cities report having an engineer on their innovation staff, versus just 25% of US cities.

Also noteworthy is that just over half of cities report a designer on their innovation team. This number is somewhat underwhelming considering that the role of a designer is associated with the human-centred design approach, which has proven effective in ensuring that public sector innovation in cities contributes to resident’s well-being. Like engineers, the prevalence of designers among innovation teams differs by region: while 59% of US cities report having one on staff, only 38% of European cities do. Reducing the relative lack in professionals with a design background could bring “a few tools that are new to many local governments,” including ethnographic research, problem synthesis, and low-cost prototyping of new ideas that can be piloted with residents for feedback (Bloomberg.org, 2019[24]). While anybody could deploy these principles of human-centred design, designers have the training and experience to do so.

Cities employ staff for community engagement and strategic communications for innovation at a slightly higher rate than for design. Although engagement and communication do not necessarily mean that residents are actively involved in the design process of innovation, it is encouraging that cities are trying to include residents in their innovation activity. Human-centred design provides an opportunity for cities to adopt a design process approach to innovation while fostering resident engagement.

Figure 2.8. Almost all dedicated innovation teams have staff with project management background

While the results shown in Figure 2.8 suggest room for growth in certain areas among cities’ innovation teams, they also reflect the skills cities view as necessary for innovation work. While cities consider project management, data collection and analysis, and community engagement as top priorities for staff to execute innovation, they evidently do not feel the same about engineering (Figure 2.9). This may reflect that, while public sector innovation stands to benefit from technology-focused advances, it is not the total of innovation activity. Public sector innovation activity is more diverse and a manifestation of each city’s specific context.

Along with the low prioritisation for engineers, the disparity in Figure 2.9 between “Data collection and analysis” and “Data/computer science” connotes that, while cities need staff that can execute some basic data work, highly advanced tech or data specialists may not be necessary. If true, this might reveal a crucial nuance for staff hiring and training: instead of cities spending innovation budgets on expensive specialists, they can focus on training existing staff in data collection and analysis skills. Indeed, over 60% of surveyed cities report spending their innovation budget on staff training, among other expenses. This approach is not only cost-effective, but allows cities to diffuse data and innovation culture throughout their administrations while retaining existing staff who possess valuable institutional knowledge.

Figure 2.9. Cities see project management and data work as most important to staffing innovation

Moreover, as shown in Figure 2.3, a lack of human resource involvement and a strong team are among the factors preventing cities from enhancing their innovation activity (in addition to a culture of innovation, including among staff). Conversely, all but two surveyed cities report that a strong innovation team is “Important” or “Very important” to innovation activity (Figure 2.5). Thus, cities can leverage their human resources departments to bring on experienced and skilled innovation staff, helping to reset a public sector organisation’s culture and structure.

Innovation teams are new and champions few

While over 90% of surveyed cities report having an innovation team, most are still in early development (Figure 2.10). Encouragingly, just four cities (3%) report no innovation team – meaning that most surveyed cities are somewhere in the process of building capacity in the staff and organisational structure component of innovation. About a third of cities have had innovation teams for over five years, a likely sign that innovation is increasingly mainstreamed in the culture of those administrations. However, 60% of cities’ innovation teams are less than five years old, and a third are less than three years old. As we shall see in the section on evaluating innovation outcomes, below, the age of cities’ innovation teams may have important repercussions for cities’ capacity to evaluate innovation outcomes (Table 2.2).

Figure 2.10. Most cities have an innovation team, but Chief Innovation Officers are less prevalent

Compared to cities’ innovation teams, the presence of a Chief Innovation Officer (CIO) is even more nascent, and non-existent in more cases. This is significant, considering the ample evidence both in survey results (Figure 2.5) and public sector innovation research literature that leadership plays an integral role in driving innovation capacity. While such evidence often refers to mayoral leadership, it is also important that cities have an innovation “champion” or “sponsor” (Bartlett and Dibben, 2002[26]), including among senior managers, and managers within public sector organisations who have an entrepreneurial mind-set, previous experience with innovation, and a positive attitude toward risk and change (Arundel, Bloch and Ferguson, 2019[2]). Indeed, “the personal characteristics” of managers are important to building innovation culture in a public sector organisation (Arundel, Bloch and Ferguson, 2019[2]).

Like cities’ innovation teams, under two-thirds of surveyed cities with CIOs have held the position for less than five years. However, unlike cities’ innovation teams, over a third of which have existed for over five years, just 14% of cities have had CIOs for the same period. More telling, whereas just 3% of cities report not having an innovation team, 22% of cities report not having a CIO position at all. This discrepancy may be in part because “CIO” is not a familiar concept for European cities, some of whom may have Smart City or Digital Innovation Manager positions instead. When analysed by region, 84% of US cities have CIOs compared to 67% of their European counterparts, and a third of the latter for less than one year.

The lack of a dedicated CIO to oversee and advocate for innovation within the administration could limit the attention and funding that innovation receives. As innovation activity matures, “as well as technical skills, there is a need for greater political and advocacy skills,” to ensure that innovation programming receives the resources it needs to impact residents’ lives (OECD, 2020[14]). Thus, developing this position could help administrations raise the profile of public sector innovation activity in cities and cement innovation as part of city government.

Despite the comparative lag around the CIO position, Figure 2.10 demonstrates that cities have been successfully building up their innovation teams over the past few years. But while a hiring blitz may have been necessary to build out these teams and orient cities toward innovation activity, it may not persist. Cities with more established innovation capacity appear to adjust their budgets away from staff expenditures toward data analysis and impact evaluation (Figure 2.11). One possible explanation is that defining an innovation strategy and dedicating staff to innovation is necessary to get a city’s innovation programme up and running, while leveraging data for innovation and evaluating innovation outcomes are natural next steps once programming matures. In other words, once cities establish a formal innovation strategy and install an innovation team, they will transition funding from initial programming and staffing to a stronger focus on metrics and results.

Figure 2.11. Fewer cities plan to spend on strategy and staff, more on data and metrics

Apart from hiring practices designed to add staff with innovation skills, staff training is another human resources lever to build staff skills and culture. According to the OECD (2017[25]), 60% of OECD countries make some form of innovation training available to employees. Belgium, Canada and Korea go further by integrating professional development for innovation into their core staff trainings. Figure 2.12 conveys that most cities’ staff are interested in training in innovation methods and approaches, especially innovation labs. As discussed above, innovation labs have several unique characteristics that may interest city innovation staff, including providing space for both a physical and mental framing of innovation activities, inducing organisational learning for all stakeholders, and holding potential for direct democratic engagement with residents (Fuglsang and Hansen, 2019[22]). Notable regional differences include US cities expressing more interest in behavioural economics than European ones, while European cities appear more interested in design methods and collaborative approaches (e.g. human-centred design).

Figure 2.12. Cities’ staff are interested in a variety of innovation methods and approaches

Stable funding is crucial to transformative innovation—but many cities are on their own

While it is possible for cities to innovate creatively despite budget constraints, insufficient funding can stifle investment in the staff skills, data capacity and development of evaluation methods that facilitate transformative innovation. Inadequate funding to build out these components can create a vicious cycle: without the capacity to demonstrate innovation’s impact on residents’ well-being, cities could struggle to access the long-term funding to maintain and scale up even the most successful innovation programmes (Box 2.7).

Thus, cities need the funding component to bolster other innovation components, which can in turn unlock more funding in the future. Survey results demonstrate that cities are committed to maintaining funding for public sector innovation and have plans to source gap funding from a variety of external sources. However, governments at all levels “encounter important challenges in generating adequate support and finding the right resources to foster innovation” (OECD, 2015[16]).

Box 2.7. Cornellà’s (Spain) CitiLab: A success with residents, but a struggle for funding

The case of Cornellà’s CitiLab demonstrates how a lack of measurable results can put at risk funding for even a successful innovation programme. Cornellà’s CitiLab operates as a co-creation space and innovation lab where residents, practitioners, experts and civil society organisations collaborate and interact. CitiLab is proud of its resident engagement: as of 2015, Citilab had 7 000 “citilabbers”, or dues-paying members actively engaged in projects, plus 25 000 occasional participants.

While CitiLab has not produced much evidence of positive outcomes for residents, CitiLab practitioners believe that “innovation outcomes do not seem relevant”, and what matters most “is the process of empowering people, of making them realise that they can innovate and that they can have an idea to solve a problem that may affect them.” This type of citizen empowerment can itself constitute an improvement to resident’s well-being, increasing their sense of ability to generate change in society.

The need to maintain CitiLab was called into question eight years after its launch in 2016, despite clear interest and engagement from residents. A major source of scepticism was a lack of metrics around outcomes of CitiLab projects. Thus, the Spanish Ministry of Industry cut its investment in CitiLab in 2016, leading to “economic difficulties” and making Cornellà City Council the primary funder.

While the City Council is willing to fund CitiLab, observers acknowledge that Cornellà “will not be able to sustain its investment much longer if there is no clear return” on investment. Even supporters of CitiLab admit “it is not easy to justify investment” when the city has many other critical expenses and that “it is very frustrating to spend EUR 800 000 a year…and not see a short-run improvement”.

Source: Gascó (2017[23]), Living labs: Implementing open innovation in the public sector, https://doi.org/10.1016/j.giq.2016.09.003.

Cities currently rely heavily on self-funding for innovation, but are set to diversify

More than 80% of surveyed cities report funding available in the municipal budget to support innovation capacity. Meanwhile, only seven of 25 OECD countries surveyed in a 2017 OECD report ([25]) listed “sub-national public organisations” among the intended users of central/federal innovation funds. As this data and the Cornellà example (Box 2.7) suggest, cities aiming to innovate may have historically needed to rely more on self-funding than on support from higher levels of government, while cobbling together gap funding from other sources. As Figure 2.13 shows, nearly 100% of surveyed cities report using their municipal budget to fund innovation, compared to just 39% from both regional/state and central governments combined. More cities report receiving funding from non-public sources and international institutions than from their own central governments. Taken together, these insights suggest that, while public sector innovation at the local level is a priority for city governments, it may not be for central or regional ones.

However, Figure 2.13 also demonstrates that this trend might soon shift. While cities still plan to rely more on municipal funding for innovation than any other source, there is a sizeable increase in the number of cities expecting to source funding from other actors compared to current rates. Proportionately, roughly 25% more cities plan to receive funding from international institutions and central governments in the future than do currently. Meanwhile, 26% fewer cities plan to source funding from their city budgets in the future. This diversification of funding sources for innovation could lighten the burden on cities and increase sustainability. Though funding such as one-time grants from philanthropies is not dependable over the long term, a wider distribution of sources means that no single entity can jeopardise a city’s innovation budget in light of unforeseen circumstances like COVID-19.

Figure 2.13. Cities rely heavily on municipal budgets for innovation, but plan to diversify funding

Support from higher levels of government and international institutions differs by region

Regional context appears to play a role in cities’ funding plans. For example, while 88% of surveyed European cities plan to receive innovation funding from international institutions, no US cities expect the same. This is likely due to the strong presence among member countries of international organisations like the European Union in policy making. Such heightened engagement with international institutions may have other benefits, such as horizontal policy transfer between cities. The same may be true for initiatives originating from H2020 and the European Commission as well.

Notably, just 11% of US cities expect to receive innovation funding from the central (federal) government, compared to 63% of European cities. Even at the regional/state government level, which is typically more robust in the US, just 16% of US cities expect funding from this source, compared to 38% of European cities. Meanwhile, US cities employ innovative financing tools to fund innovation at a slightly higher rate than their European counterparts, but not enough to compensate for the lack of funding from higher levels of government.

These discrepancies may partly explain why 74% of US cities use municipal funding for innovation, compared to 67% of European cities. The implication seems to be that the more cities diversify their funding sources, including from international institutions and higher levels of government, the less cash-strapped cities must contribute directly. This could provide a basis for cities to lobby for more funding from the various sources mentioned in Figure 2.13.

Likewise, regional/state and central/federal governments might benefit downstream by providing cities with “seed funding” that augments their innovation budgets. Such investment from higher levels of government could increase and sustain cities’ innovation capacity, improving residents’ well-being in urban areas that, in most cases, are regions’ and countries’ main economic engines and population centres.

Cities plan to increase their innovation budgets, but may shift their focus

It appears that cities find setting funding aside for innovation to be worth the investment. According to Figure 2.14, two-thirds of surveyed cities plan to increase their innovation budgets, while another quarter plan to maintain existing amounts. Just as revealing, no cities plan to decrease their innovation budgets.

While these responses were collected pre-COVID-19, a limited subset of cities responded to a follow-up question about how the pandemic might impact their innovation budgets. All 70 cities that had responded to the 2020 version of the survey were asked if their innovation budget plans (reflected in Figure 2.14) had changed in light of COVID-19. Of these, only 18 (25%) responded. Of the 18 cities, 16 affirmed their intention to increase or maintain their innovation budget plans, citing innovation as a pivotal tool in combatting pandemic fallout. No cities suggested that their innovation budgets would decrease due to COVID-19. While this is a small and non-representative sample, the responses might reflect how cities view the role of innovation activity in relation to COVID-19 recovery.

Figure 2.14. Two-thirds of cities plan to increase their innovation budget (pre-COVID-19)

While most cities expressed plans to increase their innovation budgets pre-COVID-19, some might shift the focus of their spending. As discussed previously, some cities appear to be preparing to transition their innovation budgets away from strategy and staffing components toward data work and evaluating the outcomes of innovation. As for the types of activities funded by cities’ innovation budgets, cities are investing in digital systems, technologies, and/or infrastructure more than any other category (Figure 2.15). However, this trend could be disrupted by COVID-19: some cities could increase innovation budgets in order to digitalise internal operations and public service delivery, while others might have to cut less tangible budget items like innovation in favour of emergency expenses. Most cities are also spending innovation funds on generating ideas and brainstorming, which could include approaches like co-creation, innovation labs, and human-centred design, but these types of interventions – which usually include a public meeting component – might need to take new forms in light of social distancing.

Figure 2.15. Most cities spend their innovation budgets on digitalisation and brainstorming

Data use can inform strategy, guide funding decisions, and evaluate goals for innovation

Public sector innovation has already gained attention for some time, and need not be rooted in technology or data to have an impact. While “some data-driven ideas are substantive…others are bright, shiny objects” (Goldsmith and Kleiman, 2017[17]). However, discussion of public sector innovation has shifted to an increased focus on data’s ability to enable novel types of innovation (Janssen et al., 2017[1]). According to the OECD (2015[27]), “better access to and use of public sector data can lead to important value creation from economic, social, and good governance perspectives”. The increasing role of data in public sector decision making, including around innovation, is accelerated by three socio-economic and technological trends: (1) the growing capacity for data generation and collection, (2) the power of data analytics and (3) the emergence of a paradigm shift in knowledge creation and decision making (OECD, 2015[27]).

Janssen et al. (2017[1]) state that data-driven innovation can “result in a dramatic transformation of public sector systems and can create societal benefits”, with data playing a “pivotal role” in public sector innovation. These societal benefits could include less pollution, fewer traffic jams, improved tracking of disease outbreaks, greater energy efficiency, new agricultural services, a transformation of residents’ online interactions with government, and lower service delivery and governing costs. The public sector’s ability to leverage data-driven innovation to these ends depends on four capabilities of the data cycle, resulting in innovative and action-oriented decision making: (1) collecting data, (2) opening and sharing data, (3) combining data (e.g. ensuring compatibility) and (4) analysing data for new insights and applications (Janssen et al., 2017[1]).

Thus, while innovation is possible without data, building data capacity can help cities innovate in more cost-efficient and targeted ways for greater impact.

Data use is widespread, but many cities lack the capacity to fully benefit

A vast majority of surveyed cities report that data plays either a “Significant” or “Somewhat important” role in their innovation efforts and decision making (Figure 2.16). This role could be establising measurable innovation goals and the evaluation of outcomes against those goals, guiding the reallocation of staff to programmes that under-perform or serve high-needs populations, or informing the adjusting budget allocations based on priorities and performance. Several surveyed cities report being somewhere in the process of building capacity to use data in these ways, as well as to guide conventional policy decisions, address community concerns and facilitate civic engagement.

Figure 2.16. Data plays an important role in many cities’ innovation efforts and decision making

However, while most cities report that data plays a significant or somewhat important role in their innovation efforts and decision making, fewer than half report using data to align their budget process with strategic priorities. Though not directly related to using data for innovation, this suggests that cities still have far to go before data-driven decision making, monitoring and evaluation become second nature.

Box 2.8. How cities use data for innovation or are building the capacity to do so

The city website of Bologna, Italy, allows citizens to create personal blogs, vote for participatory budgeting, propose projects, make collaboration pacts (agreed-upon projects between the city and residents) and access the city's open data. The participatory budgeting dossiers provided support resident engagement in the decision process, with data related to the proposal presented in an understandable and easy to access format.

Montgomery, AL, United States, crafted a program tapping into data from various sources, including utility partners and housing codes, to better identify and prevent blighted and abandoned properties.

The City Council of Bristol, United Kingdom, uses “a wide range of data and information” related to the city’s population and geography “as evidence on which to base its plans and policies.”

Bloomington, IN, United States, is “in the process of identifying data that describes the operations of each department and initiative as well as the impact of innovations in departments or topic areas.”

Source: OECD/Bloomberg Philanthropies (2018-20), Survey on Innovation Capacity in Cities.

In fact, the problem does not seem to be access to data, but rather that cities must build sufficient capacity in both innovation and data use to deploy the data they already possess. As discussed below, in the section “Evaluating outcomes can create feedback loops that lead to greater impact”, more surveyed cities report having “Sufficient data” in several sectors to advance innovation work than report applying innovation to or measuring outcomes in those same sectors. This suggests that while the data is there, cities’ capacity to use it may not be. Figure 2.17 shows what percentage of cities possess “Sufficient” data in numerous policy areas to advance their innovation work. While there are disparities, for instance in the percentage of cities with data on transport versus urban blight, it is encouraging that at least 37% of cities report sufficient data for innovation in all 19 sectors.

Figure 2.17. Data availability for innovation varies considerably by sector

Data capacity building is uneven

As referenced above, Janssen et al. (2017[1]) detail four capabilities of the data cycle that public sector organisations must possess to benefit from data-driven innovation – collecting data, opening and sharing data, combining data (e.g. ensuring compatibility), and analysing data for new insights and applications – resulting in innovative and action-oriented decision making.

Though not the exact same factors, the OECD/Bloomberg Survey asked cities to report on their data capacity in similar areas: data inventory, publishing open data, guiding residents on how to access and use city data, and sharing data to increase transparency, accountability, and competitiveness relative to contract bids. As shown in Figure 2.18, most cities publish open data to online portals for public use and share data to enhance the transparency of city contracts. This is significant, considering that “public data is a powerful asset to move from citizen-centred to citizen-driven approaches, allowing governments to better design and tailor public service delivery processes” (OECD, 2017[25]).

However, fewer cities provide guidance to residents to both access and make use of city data. While making data open and sharing data on city contracts is a step toward transparency, not training residents to engage with this data limits its utility. Providing residents guidance in using a city’s open data could increase resident engagement and support co-creation. Cities may want to focus on bolstering this aspect of data capacity for innovation.

Figure 2.18. Cities are opening and sharing data, but not guiding residents or keeping inventory

In addition, just 31% of cities report maintaining a detailed data inventory. Chattanooga, TN, United States, provides an example of how doing so can benefit cities:

Chattanooga has worked hard to automate our data collection, cleaning and posting in order to reduce the barrier of entry for data driven decisions. This makes for a more sustainable data program. Now that the system is up and running we are learning the importance of maintenance to keep our data extract, transform (ETL) and loads jobs working. We created a data health dashboard to assist us with these efforts.

While Chattanooga made strides in developing its data capacity, other cities encounter obstacles in various areas. Edmonton, Canada, reports that its city “is held back by a heavy demand on skilled staff to analyse or understand these data…often we have massive datasets and inadequate amount of time to reflect, process, analyse, and make sense of all the information.” This observation underscores the interdependence of the innovation components.

Meanwhile, Helsinki, Finland, explains that it has “a lot of data but it is very fragmented in many different systems,” and that privacy laws like GDPR limit possibilities to combine data. However, Helsinki is finalising its data strategy to clarify how data is used and its plans for collection, analytics, and honouring privacy. These difficulties are broadly consistent with what surveyed cities report as most challenging regarding the use of data to reach innovation goals (Figure 2.19).

Figure 2.19. Data compatibility and collection are the biggest challenges to data use

Partnerships can fill the data capacity gaps

Despite, or perhaps because of, Helsinki’s struggles to benefit from data use for innovation, the city pursues “cross sector research projects with academia,” including combining health and environmental data as part of its research. Just as partnerships can be effective to increase cities’ innovation capacity in general, strategic data partnerships present an opportunity for cities to fill gaps in their data capacity for innovation and leverage outside expertise to gain valuable insights.

As Figure 2.20 shows, most cities take advantage of partnerships to increase their data capacity for innovation. Not only can cities benefit by drawing on external organisations’ skills and resources to collect, clean, combine, maintain and analyse data, they can also benefit from knowledge spill-over as a result of collaboration. Thus, partnerships can not only enhance cities’ data capacity but can also inject new skills and a newfound culture of innovation into city operations.

Other times, such collaborations can spread new skills and data culture to the broader community. For example, Wichita, KS, United States, partnered with nearby Wichita State University to define, organise and structure its data while building data expertise among the university’s students.

Figure 2.20. Most cities partner with academia, think tanks, and/or other public entities on data

Evaluating outcomes can create feedback loops that lead to greater impact

To discern the true impact of public sector innovation and the value it creates for residents, cities must monitor and evaluate innovation outcomes. Evaluating innovation outcomes can allow cities to make improvements quickly and continuously throughout implementation, ultimately yielding a greater impact on residents’ well-being. Indeed, case studies reveal preliminary evidence of a “positive link” between public sector innovation and public service performance that can improve residents’ lives (Salge and Vera, 2012[6]).

However, while recent years have brought an increased interest in “measuring public sector innovation in ways that are…useful in policy making and evaluation contexts,” efforts to do so have “brought out more problems than answers” (Kattel et al., 2013[28]). Though case studies and success stories can shed light on innovation’s impacts on residents’ well-being, research is still rather “anecdotal and limited to specific sectors or individual countries” (UNECE, 2017[29]). Comparative evaluations of public sector innovation in particular “should be used with extreme caution” (Kattel et al., 2013[28]). The dearth in evaluation of outcomes leaves a “significant gap which prevents the analysis and understanding of [public sector] innovation” (Gault, 2018[13]), undermining innovation efforts around “health, the environment and a range of other policy objectives that are related to well-being” (OECD, 2015[16]).

Evaluation refers to the “systematic and objective assessment of an ongoing or completed project, programme or policy, its design, implementation and results” (OECD, 2011[30]). Evaluation of public sector innovation allows practitioners to compare outcomes to stated goals, and provides insights to inform future decision making for innovation budgets, programming and priorities. The evaluation process also offers a form of “oversight and accountability from which public sector innovation cannot escape”, providing cities the capacity to demonstrate the tangible value of innovation to residents—or otherwise, to cut spending on programmes that yield no benefit (OECD, forthcoming[31]).

Evaluating public sector innovation’s impact on well-being could be necessary to secure sustained funding and political support to scale up a pilot project. The absence of quantifiable evidence around public sector innovation outcomes makes it harder for cities to build trust, secure long-term funding, and scale up successful programmes for greater impact. Even in countries “where an evidence culture is relatively strong, the role of monitoring, evaluation, and learning in innovation is weak” (OECD, 2020[14]). Thus, evaluating public sector innovation is crucial for cities to prove whether residents truly benefit from innovation, and to transition successful pilots to permanent and sustainable programmes. However, while innovation is everywhere today, “there is not yet a culture of evidence-based innovation—evaluation and evidence are often absent” (OECD, 2020[14]).

Many cities are not yet measuring innovation activity, but may be on their way

As discussed in the section on innovation strategy, above, defining innovation, establishing a coherent strategy, and setting goals are prerequisites to evaluating public sector innovation activity. Thus, it is encouraging that most cities report having formal innovation goals and broader strategic goals with which they align a diverse set of measures and use data to evaluate progress (Figure 2.21).

However, while setting goals for innovation is a prerequisite to measuring outcomes, doing so does not guarantee that cities also possess a system for evaluation. While a slim majority of surveyed cities report having formal innovation goals, fewer than 30% report having defined standards, methodologies or tools to help staff evaluate innovation activity (Figure 2.21). A measurable goal for innovation might be reducing the administrative process to start a business by a certain number of days or seeing a certain increase in the percentage of daily connections to the city’s public Wi-Fi.

Figure 2.21. Most cities have goals for innovation and strategy, but not robust evaluative tools

Cities fail to measure outcomes in crucial policy sectors. The three outcomes that cities measure most correlate with the three main types of value that public sector innovation can generate for city residents (Figure 2.22 and Box 2.1): public service delivery, resident engagement and efficiency of internal government operations. Measurement in these areas bodes well for cities developing valuable data insights into key innovation activities, which can be used to assess and refine programmes and priorities so that they create value for residents.

Figure 2.22. Nearly half of cities measure public service outcomes, but sectoral indicators lag

However, upon further inspection, cities do not appear to measure innovation outcomes enough. No outcome is measured by a majority of cities: 24% of cities report not measuring outcomes at all, and sector-specific outcomes (e.g. environmental quality, housing, jobs) are measured at much lower rates than the three general areas listed above. This represents a missed opportunity for cities, considering that public sector innovation “matters not only for growth but also for health, the environment and a range of other policy objectives that are related to well-being” (OECD, 2015[16]). Public sector innovation can help address societal challenges such as “climate change, demographic pressures, urban congestion and social and economic inequality” (Arundel, Bloch and Ferguson, 2019[2]), but evaluating outcomes is necessary to both demonstrate and increase impact. Without measuring impact in these sectors, cities cannot make informed adjustments to their efforts.

Neither a lack of focus nor a lack of data account for cities’ low levels of measurement in specific sectors. As shown in Figure 2.23, cities appear both to apply innovation and have sufficient data for areas like economic development, environmental quality, housing, health, jobs, and income inequality. Despite this, cities measure outcomes in these sectors at a significantly lower rate than they “apply innovation” to or possess “sufficient data” for those same sectors.

Figure 2.23. Cites apply innovation to and have data for sectors, but do not measure impact

This underwhelming level of evaluation is not limited to individual sectors. Of the 127 cities conducting evaluation related to innovation, just 16% report “systematically and comprehensively” evaluating both their innovation strategy and their innovation programme outcomes (Figure 2.24).

Though these results suggest exceedingly sparse measurement of innovation, there is cause to believe that cities are trending toward more robust evaluation. The survey results shown in Figure 2.24 show that few cities still do not evaluate either innovation strategy or outcomes. Nearly two-thirds of surveyed cities report measuring some mix of innovation outcomes and/or strategy. While it is still “Too early to tell” for 38 cities (over one-quarter of respondents), this might imply that these cities are simply early in the process of constructing mechanisms to evaluate their innovation activity.

Figure 2.24. Most cities evaluate somewhat, but it’s too early for many to determine impact

Evaluation capacity correlates to innovation programme maturity

Cities’ struggles to build evaluation capacity may stem from the relative newness of their innovation teams and initiatives. As captured in the discussion of Figure 2.11, cities broadly appear to first establish strategies and teams for innovation, then pivot toward data use and evaluation. This is likely because an innovation strategy and team are the foundations of any broader innovation effort: without a strategy, there are no stated goals to evaluate, and without a team, there is no one to execute data analysis.

This notion is supported by the correlation between the length of time a city’s innovation team exists and the robustness of its evaluation practices (Table 2.2). Cities that have innovation teams for longer report evaluating innovation outcomes and/or strategy at a higher rate than cities with newer teams. Conversely, cities with newer innovation teams report not evaluating innovation or not having an innovation strategy at all at a higher rate than cities with older teams. Also telling, cities with innovation teams more than five years old responded the least that it’s “too early to tell” whether they evaluate the impact of their innovation strategy. This suggests that evaluation increases as cities’ capacity for innovation deepens. It also suggests that cities with newer innovation teams that answered “too early to tell” may nonetheless be on their way to evaluating innovation outcomes.

Table 2.2. Cities with older innovation teams evaluate outcomes and/or strategies more
How long an innovation team has existed	More than 5 years	3-5 years	1-3 years	Less than 1 year
Number of cities	46	37	31	12
Evaluate innovation outcomes and/or strategy	78%	62%	48%	42%
Too early to tell	13%	30%	35%	17%
Do NOT evaluate innovation outcomes or strategy	2%	5%	6%	17%
Do NOT have an innovation strategy	0%	3%	6%	25%
Other	7%	0%	3%	0%
Note: Chart represents 140 cities’ responses to Survey Question 5.6, “Does your municipality undertake a systematic assessment or evaluation of the impact of your innovation strategy?” as well as 130 cities’ responses to Survey Question 2.9, “How long has an Innovation team existed?“ Four cities responded to Question 5.6 “Don’t know”, which are not included in this chart.
Source: OECD/Bloomberg Philanthropies (2018-20), Survey on Innovation Capacity in Cities.

Formal innovation goals facilitate evaluation and successful implementation

Though there is room for improvement in cities’ efforts to measure and evaluate innovation outcomes, and though nearly half of surveyed cities lack the formal innovation goals necessary to evaluate outcomes, most cities with formal innovation goals report meeting them (Figure 2.25). This should motivate other cities to establish formal innovation goals and put a system in place to measure those outcomes.

Figure 2.25. Most cities that set and evaluate formal innovation goals report meeting them

Cities must build their capacity to evaluate outcomes so that they make use of available data and funding spent on innovation. Based on evaluation efforts in relation to the maturity of innovation teams, it seems that evaluative practices increase the longer cities undertake innovation. It also appears that most cities that set formal innovation goals meet them. While this appears positive, cities might need to increase their emphasis on measurement so that administrations–and residents–fully reap the benefits of public sector innovation. Increased measurement of outcomes in specific sectors could be necessary.

Patterns in local public sector innovation and residents’ well-being outcomes

This section provides evidence on whether and through what channels public sector innovation capacity in cities links to residents’ well-being outcomes. Although literature on public sector innovation grew in recent years, little research exists linking local innovation capacity with well-being outcomes for city residents. The few studies that explore those links rely on limited sets of well-being measures, and mainly anecdotal (UNECE, 2017[29]) or self-reported information (Arundel, Casali and Hollanders, 2015[7]). Additionally, most studies focus on an individual area, country or city, lacking a broader international perspective. The analysis presented in this section contributes to filling this gap by using a set of comparable objective and subjective well-being indicators for 112 US and European cities.

The assessment builds on the OECD well-being framework for regions and cities (Figure 1.1) and on the OECD/Bloomberg Survey on Innovation Capacity in Cities carried out in 2018 and 2020 (Box 1.1). The OECD/Bloomberg survey identifies five components of public sector innovation capacity: Innovation strategy, Innovation staffing, Funding for innovation, Data for innovation, and Innovation outcomes evaluation. A selection of questions that capture the essence of these components are combined to generate a public sector innovation (PSI) score ranging from 0 to 10, where 10 stands for having all innovation practices adopted by the city (Table 1.3).

This section starts with an overview of well-being outcomes in cities by their level of public sector innovation capacity (PSI score). It then explores links between individual well-being indicators and the different components of public sector innovation capacity, controlling for differences in population and the level of economic development of the city. This ensures that the links between well-being outcomes and the PSI components are statistically significant regardless of how big (or small) and rich (or poor) cities are.

The results reveal robust correlations between PSI components and several well-being outcomes at the city level, including satisfaction with life and with the city, educational attainment, material conditions, walkability, air pollution and crime rates. While these links do not prove causality from PSI capacity to well-being outcomes, they reveal that public sector innovation capacity tends to go hand in hand with improvements in well-being.

How is life in cities with high public sector innovation capacity?

Life is better in cities with high public sector innovation capacity, on average. Applying the OECD methodology to measure and compare well-being outcomes across regions and cities, Figure 2.26 shows the difference for each well-being index (normalised scores from 0 to 100, see Annex 1.C) between cities with high (PSI score from 6 to 10) and low (PSI score from 0 to 5) innovation capacity.

While outcomes are better in cities with high PSI capacity in all 11 well-being dimensions, the differences are particularly large (above 5 points) in six of these: access to services, education, health, safety, city satisfaction, and life satisfaction. Looking directly at the indicators that compose each index, results show that cities with higher public sector innovation are characterised, on average, by higher walkability, tertiary educational attainment, life expectancy, self-reported health, life and city satisfaction, as well as lower crime (Figure 2.27).

Figure 2.26. Public sector innovation and well-being in cities: Indexes

Figure 2.27. Public sector innovation and well-being in cities: Headline indicators

While these results help understand well-being conditions in cities, they depict only statistical associations and not the direction of effects between public sector innovation and well-being outcomes. For example, while higher PSI capacity might lead to better well-being results (e.g. higher civic engagement), certain city well-being conditions (e.g. the share of population with tertiary education) could be among the drivers of higher innovation capacity in the public sector. Another aspect to keep in mind is that unobservable characteristics such as population size and economic development (city income with respect to average income of the country) could influence both PSI capacity and well-being outcomes. For this reason, the following sections go beyond descriptive statistics and highlight associations that hold even when controlling for population and economic development of cities (see Annex 2.A).

Public sector innovation capacity and residents’ well-being outcomes

People in cities with better public sector innovation practices tend to be more satisfied with their city and their life. In cities that participated in the OECD/Bloomberg Survey, the percentage of people satisfied with their city is 86% in cities with high public sector innovation capacity (score from 6 to 10), around 4 percentage points higher than in cities with low public sector innovation capacity (score from 0 to 5) (Figure 2.28).

A similar trend is observed for life satisfaction, which also tends to link to city satisfaction through social support networks and the feeling of belonging to a community (OECD, 2015[32]). In cities with high public sector innovation practices, the percentage of people satisfied or very satisfied with their life is around 81% – 2 percentage points higher than in cities with low public sector innovation practices. While literature linking PSI and subjective well-being indicators is limited, some studies suggest that investments in public sector innovation, for example in e-government tools, can increase civic engagement and political participation, opportunities for previously excluded groups (Feeney and Brown, 2017[33]) and trust in government (Welch, 2004[34]), which are closely related to life and city satisfaction (Boarini and Díaz, 2015[35]).

Figure 2.28. Public sector innovation correlates to satisfaction with the city and life

PSI capacity might also have a direct relation with city and life satisfaction through specific PSI features such as stakeholder engagement, transparency and accountability. Residents who feel they have a say in the way their local government works or believe it operates in a transparent manner are more likely to report being satisfied with their city and their life (OECD, 2015[32]). Stakeholder engagement also plays a key role in ensuring the continuity of innovation activities. Research on public sector innovation in Mexican local governments reveals that innovation models that positively affect the fundamental relationships between stakeholders are more likely to survive through government turnover (Díaz Aldret, 2016[8]).

Results from the analysis indicate that, for the same population size and level of development, residents in cities with dedicated innovation staff, a holistic approach to innovation and a formal innovation strategy are more likely to be satisfied with their city (Figure 2.29). A formal innovation strategy implemented by a dedicated innovation staff is key to delivering services more efficiently, to tackle new and complex challenges, and to potentially improve transparency and trust in government (OECD, 2015[16]).

Similarly, the statistical examination showed that cities that go beyond a siloed perspective to integrate a cross-sectoral, multi-level and systemic approach to innovation are more likely to display higher levels of city satisfaction. This finding brings additional support to the qualitative evidence shared by cities like Las Vegas, NV and New Orleans, LA in the United States, whose efforts to foster cross-sectoral interactions (via cross-departmental meetings and centralised performance management) help address challenges by ensuring all departments internalise and work simultaneously towards broader city goals. Another example is New York City’s Department of Buildings, whose co-operation with 20 other city agencies led to substantial operational improvements, including more effectiveness in identifying high-risk buildings and more transparency in its processes (OECD, 2015[27]).

Figure 2.29. Public sector innovation and satisfaction with the city, by PSI component

Beyond the direct links between PSI and well-being outcomes, city and life satisfaction can be related to and shaped by dimensions with indirect links to PSI practices. For example, PSI initiatives in urban transport that reduce commuting time for residents can lead to increased life satisfaction of residents, albeit indirectly, by allowing them to dedicate more time to leisure activities and social interactions. Other factors with indirect links to city and life satisfaction include affordability of housing, accessibility to services, environmental quality and safety.

Cities with higher PSI capacity tend to be more affordable, according to residents in the studied cities. On average, around 74% of people living in cities with high public sector innovation capacity report having enough money to get things they need, compared to 69% in cities with low or no PSI capacity (Figure 2.30, Panel A). This is another avenue through which life satisfaction and PSI capacity potentially link. Innovation initiatives that reduce residents’ financial strain in their day-to-day lives (for example, through better employment opportunities or access to social services) can contribute to improving people’s subjective measures of well-being, such as city and life satisfaction (OECD, 2015[32]).

For example, public sector innovation applied through a formal strategy might allow for more innovative social and housing programs for residents, which translates into better self-reported material conditions. After controlling for population and average household income, cities where the largest share of residents declare having enough money to get things they need tend to have a formal strategy for innovation (Figure 2.30, Panel B). This PSI component hints at the importance of directed, and well-established, innovation efforts. In particular, having a formal strategy can offer residents a form of oversight and accountability for their local governments, which in many cases can enhance effectiveness in public service delivery (OECD, forthcoming[31]).

Figure 2.30. Public sector innovation correlates to improved material conditions in cities

Cities with high PSI capacity exhibit higher levels of walkability and satisfaction with public transport. Based on the sample of US cities (where the walkability index is available), cities with high levels of PSI have a walkability index (i.e. number of neighbourhood amenities accessible by walking) around the 53 points – 10 index points above cities with low or no PSI. In the EU (where the indicator of public transport satisfaction is available), cities with high PSI capacity display levels of satisfaction with public transport 7 percentage points above cities with low PSI capacity (Figure 2.31). These findings are consistent with anecdotal accounts from cities that participated in the OECD/Bloomberg Survey on Innovation. For example, the city of Granada, Spain, uses Geographic Information System (GIS) technology to ensure accessibility for individuals with reduced mobility to cultural sites (Box 2.2).

According to the statistical analysis, walkability (i.e. amenities accessible by walking) links strongly to funding for innovation through a stable municipal budget (i.e. city-council approved funds and operating budget), which is key to cope with shocks such as the current pandemic. During the COVID-19 crisis many cities found innovative ways to redistribute city space, improving walkability, cycling and public transport to ensure access to services while aligning to social distancing requirements. A shift in policy focus from mobility to accessibility to basic amenities and services has the potential to improve residents’ quality of life while preserving productivity, social inclusion and the environment (OECD, 2020[36]). Cities with more autonomy in their finances are more capable to innovate and adapt to new and evolving issues requiring rapid and effective responses.

The positive effects of walkability and public transport go beyond improved accessibility and mobility. Increasing evidence shows that these types of mobility lead to higher environmental quality, for example, by reducing carbon emissions and air pollution. According to the analysis, cities with higher PSI also display slightly lower levels of PM2.5. In particular, dedicated funding for PSI is strongly related to better air quality, confirming the OECD/Bloomberg Survey responses, where environmental quality emerged as the second-most common policy area where cities apply innovation (Figure 2.23). Funding innovative programs to deal with carbon emissions and air pollution, such as incentivising the use of public transport (e.g. making it free during pollution peaks), cycling (e.g. creating new lanes), electric car sharing and rerouting traffic, could be partially leading to this result. For instance, the city of Stockholm, Sweden, saw traffic reduced by 22% and CO2 emissions by 14% after the introduction of differentiated road-pricing that favours environmentally friendly cars (OECD, 2015[37]).

Figure 2.31. Public sector innovation and accessibility

Cities with higher PSI capacity are safer. Innovations that improve monitoring and reporting systems (through community engagement, for example), or that revisit certain features of public space (like smart street lighting) can increase the safety of cities, and consequently city satisfaction. This link is observed for 68 American cities with available data (Figure 2.32, Panel A). In this sample, cities with high PSI capacity registered around 590 violent crimes per 100 000 people, 30% fewer with respect to cities with low or no public sector innovation. This association – robust after controlling for population and income effects – is mainly driven by three PSI practices, namely having data for innovation, setting innovation goals and applying a system of innovation outcomes evaluation (Figure 2.32, Panel B).

Figure 2.32. Public sector innovation and crimes in cities

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Annex 2.A. Public sector innovation practices by city size and income

Annex Table 2.A.1. Adoption of PSI practices by city size and income
Innovation component	Innovation practice	% of cities with the component, by population (thousands)			% of cities with the component, by city household income (relative to national average)
Innovation component	Innovation practice	Below 200 [36 cities]	200 to 500 [35 cities]	Above 500 [41 cities]	Below national average [38 cities]	Above national average [49 cities]
Innovation strategy (2)	Formal innovation strategy	10%	15%	21%	26%	18%
Innovation strategy (2)	Holistic approach to innovation	22%	25%	24%	43%	33%
Innovation staff (2)	Staff working on innovation	28%	29%	33%	53%	37%
Innovation staff (2)	Innovation team older than 5 years	9%	10%	14%	20%	10%
Funding for innovation (1)	Funding to support innovation capacity	25%	27%	29%	46%	34%
Data for innovation (2)	Data is used for innovation and decision making	13%	13%	13%	20%	22%
Data for innovation (2)	Data partnerships to fuel innovation capacity	24%	29%	31%	48%	38%
Innovation outcomes evaluation (2)	Systematic and comprehensive evaluation of innovation strategy and programme outcomes	6%	2%	5%	8%	6%
Innovation outcomes evaluation (2)	Formal innovation goals	17%	16%	18%	23%	24%
Average of PSI Score (0 to 10)		5.58	6.11	5.98	5.89	5.89
Note: Sample of 112 cities. Number of innovation practices in parentheses.
Sources: OECD/Bloomberg Philanthropies (2018-20), Survey on Innovation Capacity in Cities.

Annex 2.B. Regression results: Well-being outcomes and public sector innovation capacity

Annex Table 2.B.1. Regression results: Selected well-being outcomes vs. public sector innovation capacity
	% of people satisfied with their city	% of people satisfied with their city	% of people satisfied with their life	% of people satisfied with their life	% of people satisfied with their city	% of people satisfied with their city	% of people satisfied with their city	% of people with enough money to get things they need	Number of violent crimes per 100 000 people	Number of violent crimes per 100 000 people	Number of violent crimes per 100 000 people
Specification	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)
PSI score (0 to 10)	0.781		0.332
PSI score (0 to 10)	(1.47)		(1.17)
High PSI score (6 to 10)		3.858^**		1.200
High PSI score (6 to 10)		(2.12)		(1.22)
Formal innovation strategy (0 to 1)					3.845^**
Formal innovation strategy (0 to 1)					(2.15)
Holistic approach (0 to 1)						5.568^**
Holistic approach (0 to 1)						(2.15)
Formal and holistic innovation strategy (0 to 2)								3.965^**
Formal and holistic innovation strategy (0 to 2)								(2.27)
Innovation staff (0 to 1)							9.156^**
Innovation staff (0 to 1)							(2.26)
Innovation outcomes evaluation (0 to 1)									-184.5^**
Innovation outcomes evaluation (0 to 1)									(-2.16)
Innovation goals (0 to 1)										-308.9^***
Innovation goals (0 to 1)										(-3.50)
Data for innovation (0 to 1)											-243.7^***
Data for innovation (0 to 1)											(-3.01)
Household income deviation from national average (%)	0.103^***	0.126^***	0.0854^***	0.120^***	0.0972^***	0.0994^***	0.0875^**	0.134^***	-7.468^***	-8.315^***	-8.496^***
Household income deviation from national average (%)	(2.92)	(6.61)	(3.91)	(10.14)	(2.69)	(3.05)	(2.58)	(3.07)	(-3.99)	(-4.95)	(-4.54)
Population (in thousands)	-0.0001	0.0001	0.0002	0.0004^*	-0.0000	0.0002	-0.0000	0.0006	0.0491	0.0192	0.0693^*
Population (in thousands)	(-0.33)	(0.26)	(1.07)	(1.94)	(-0.06)	(0.53)	(-0.16)	(0.79)	(1.18)	(0.61)	(1.80)
Constant	78.38^***	79.44^***	77.39^***	77.13^***	81.20^***	78.60^***	74.85^***	66.23^***	764.7^***	897.0^***	835.2^***
Constant	(22.22)	(45.85)	(44.34)	(86.84)	(54.45)	(29.83)	(18.68)	(24.54)	(12.80)	(10.30)	(11.81)
Observations	83	168	83	168	83	83	83	74	68	68	68
Notes: Linear regressions using ordinary least squares (OLS) estimation. Standard errors are corrected for heteroscedasticity. t statistics in parentheses. * p < 0.10, p < 0.05, * p < 0.01.
Sources: Gallup US Daily 2016-17; NYU Langone Health and NYU Wagner City Health Dashboard; and OECD/Bloomberg Philanthropies (2018-20), Survey on Innovation Capacity in Cities.

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