Necessary but not Sufficient – The Role of Finance in Supporting Public Sector Innovation

Innovation requires financial investment; there’s no two ways about it, and that’s a problematic message for public sector organisations operating under significant funding constraints. Problematic, and also paradoxical, because it is through investing in innovation that we can design better, cheaper public services and support increased democratic and civic engagement.

But, while necessary, finance alone is not sufficient to support public sector innovation, and without other kinds of (often quite bespoke) support and skills development, most financial support will be interpreted as nothing more than a temporary lifeline – and treated as such.

At Nesta’s Innovation Lab, we use finance alongside a whole range of support for public and social innovation. We adopt different models and methods depending on how we think change will best be brought about. These include:

  1. Enabling new entrants – When there is a sense that the current actors/incumbents are not motivated (for good and sometimes bad reasons) to consider radical alternatives to current models of delivery. In this instance, very broad open calls for ideas can be successful, particularly when the funder is able to be crystal clear about the nature of the challenge, but ambivalent about where the solution might emerge. This has framed the majority of our work in the Challenge Prize Centre, where from blockchain to ageing, inducement prizes have been effective at stimulating innovation – and importantly, highly effective at rewarding impact achieved with a prize, rather than anticipation of impact through a grant. On occasions the ‘prize’ has been used as a forward procurement commitment. For example, through our Renewable Energy Prize, the UNDP committed to purchasing the best solution for enabling refugees in Bosnia Herzegovina to access portable renewable energy generation devices.
  1. R&D – Rarely does a fully formed idea appear out of nowhere. Almost always it’s a notion, a concept, that requires testing. The history of public sector innovation is littered with good-sounding ideas that were intensively funded without adequate testing or a systematic approach to gathering evidence about impact. The best public innovation evolves, adapts and changes in response to early stage testing and prototyping, and is overlaid with a robust method for generating evidence of what works. The Digital R&D Fund for the Arts is a good example of how funding was used to support experimentation, incentivising collaboration between arts organisations (needing to innovate), technologists (offering radical perspectives) and academics (providing the framework and capacity to support robust experimentation).



  1. Replication of good ideas – Despite toolkits, good evidence, outreach and communications, it’s rare that public sector innovations originating in one local authority are adopted by another. But small amounts of finance can make a big difference – as supporting early adopters can be crucial in creating momentum for an idea. Stimulating demand for proven innovations with small finance incentives to early adopters has worked well in other contexts, notably the UK Government’s Helping in Hospitals
  1. Data driven innovation – There has been a strong push to open up public datasets – mostly under the banner of greater transparency. But opening up data takes effort and it hasn’t always been completely clear of what the value of this data might be. The Open Data Challenge Prize series set out to support value creation from open data, offering small scale incentives to people outside the public sector to develop useful products and services using open data. For every pound that’s been invested we’ve seen a return of £5-£10 to the UK economy.

These are just a few programmes and processes that have been used to support public sector innovation. All have required finance, but crucially, all have been augmented by additional, non-financial support or through sweating other kinds of assets, like data. Any organisation or government serious about supporting successful government innovation will view finance as necessary – but not sufficient.

Find out more about Nesta’s work with Cardiff University to support Public Service Innovation in Wales.

About the author: Helen Goulden is an Executive Director at Nesta and leads their Innovation Lab. Before joining Nesta, Helen worked in the private sector developing digital strategies and solutions for global corporate clients. Helen is also a board member of the Behavioural Insights Team.


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