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The results of a global ACCA member survey demonstrate that public services finance functions are just as invested in innovation as their private sector counterparts. 91% of public sector respondents reported some kind of innovation occurring in their organisations. This is significant because public finance professionals play critical roles in supporting innovation across organisations, especially in executing the transition to more radical forms of innovation.

The innovation compass

The innovation compass was created to: understand the different types of innovation currently being used; set out a method for categorising case studies; and provide ways of thinking about how innovation needs to change to meet our current challenges. Together,the two variables of radical/incremental and directed/undirected comprise it's directions.

Innovation compass: directed, radical, undirected and incremental innovation,

Radical – or even transformative – innovation is change that fundamentally reorganises how value is created in an organisation. 

Incremental – is the combined result of comparatively minor changes to existing systems in the pursuit of improved value, which makes up the majority of innovation today

Directed – 'Top down', or led by an organisation's management

Undirected – 'Bottom up' or grass root level change.

Using the innovation compass, we found that the vast majority of respondents (67%) believed that the current form of innovation in their organisation was incremental.

Current environment: most responses indicated incremental innovation and directed innovation

Preferred future: most responses indicated radical innovation and directed innovation

Preferred future for public finance innovation 

There is no denying that there are considerable challenges facing the public sector. Budget reductions and talent shortages can be attributed to part of what is driving reactive innovation. However, citizens' expectations, falling public trust and technological disruption are continuing to alter the environment where governments are already struggling to offer quality public services.

Respondents to the global member survey were asked: in order to respond appropriately to the challenges facing the public sector, what kind of innovation should your organisation be undertaking? A clear message arose in response: in order to meet the complex challenges facing the public sector, 79% of public finance professionals believe that governments need to move to more direct forms of radical innovation. 

Innovation and the professional accountant

Identifying problems, generating ideas and developing proposals are all part of a collaborative, cross-functional process for creating new innovations that meet the objectives of a public organisation. The finance function is central throughout all of this as the group that has the capacity to work across a variety of organisational functions. 

In the development of business cases, the finance function acts as the 'gatekeeper', often assessing which cases should be adopted or referred to senior management. The budgeting process is led by public sector finance professionals, who can and will need to align specific innovative pilots and initiatives with the organisation's broader objectives and purpose.

The finance function tends to also monitor projects, like the initiatives just described, as they are underway. Once that cycle is complete, organisations will be required to report on the outcome of their work through visible means like annual reports and accounts. Public audit crucially  identifies issues with existing government initiatives and diffuses the lessons learned. 

In analysing innovation in the public sector landscape, this report first seeks to define innovation as changes or initiatives that are: new to the context, have been implemented and have sought to improve public value. 

Connections

For those already undertaking radical innovations in their organisations, collaboration was identified as an important factor. Almost half (45%) of public sector respondents ranked ‘collaborative teams and strong team working’ in their top three factors for supporting innovation in the organisation, and they were more likely to look outside their organisation for assistance in the development and implementation of new initiatives, as well as work with other groups.

This is understandable for a number of reasons, including that completing the journey to more radical forms of innovation can require input from a broader set of stakeholders. Equally significant is that the majority of financial professionals who took part in our research said they were  already working jointly with other teams to achieve innovation in the public sector. 

Conclusions

Key findings and recommendations. 1 - Public finance professionals believe that governments need to shift from the current dominance of incremental innovation to more radical forms of innovation. Policymakers and public sector leaders should share a vision and strategic direction enabling staff to understand how the organisation can proactively address the complex challenges it faces (see Chapter 3). 2 - The finance function has a critical role to play in the wider public sector innovation process. Public finance professionals should apply the concepts of integrated thinking and value creation through multiple capitals to help in the construction and assessment of business cases for innovation. 3 - It is through the power of connections that public finance functions will be able to realise fully the desired shift to more radical forms of innovation. Public finance professionals should work with finance business partners to connect across the organisation and help shape a culture of innovation.

Further reading