Balancing Innovation, Risk, and Control

A Canadian think tank has released a report on how senior government executives can support innovation by their employees as a way of solving societal problems and delivering better value to citizens. The report’s insights have some useful application to U.S. government executives, as well.

The report, “Innovation, Risk, and Control,” is by the Canadian Comprehensive Audit Foundation (CCAF-FCVI). It is based on a series of dialogues among 100 senior Canadian government officials, auditors, legislators, and academics.

They sponsored this report because broad changes in society are increasing risks as well as demanding more innovation to respond to these risks. Government is not well-structured to address these kinds of challenges because of the many silos of services as well as its “opaque world of administrative complexity.”

To address these challenges, the report offers four management principles, leading with “managers should encourage innovation.” It says the key role of managers it to remove barriers to innovation and encourage others “to take intelligent risks.” For an organization of auditors, this is a remarkable statement!

“Innovation,” the report notes, “is nothing more than finding, testing, and exploiting creative ideas to solve problems and achieve better value for citizens. It occurs when maangers align incentives, remove barriers and build trust with employees. . . Innovation is a management job.”

But just encouraging innovation isn’t sufficient as a management principle. Three other principles come into play:

• Be in control. Management should create a “control” environment that puts in place procedures that support people in three areas: stewardship of resources, achievement of intended results, and accountability. (I’m not sure I’d use the word “control,” but it’s probably a word comfortable to auditors!).
• Create a capacity to manage risk. Government employees tend to be risk adverse and “tend to shift the focus from performance to the service of process.” The report notes that “risk savvy entities are more likely to innovate because they . . . are unafraid to act.” (A recent IBM Center report by Karen Hardy addresses this dimension).
• Reduce red tape. The report notes that management should eliminate unnecessary rules, but more importantly it should challenge the creation of new ones because “When rules are well attuned to risk – and reduced when risk is low – officials are able to focus more of their energy on finding ways to improve value for citizens.”

The report provides more detailed examples of best practices and notes that these four principles are interdependent – that government can’t deliver better value to citizens using only one or two of the principles. It also notes that the aim of the report is “to encourage dialogue among leaders in the federal and provincial governments of Canada and abroad,” since this should improve performance and citizen benefits.

Interestingly, the themes of this CCAF report are being picked up in official government sources in Canada. For example, this year's annual review of the state of the Canadian public service, by the Prime Minister's Advisory Committee on Public Service, is titled "A Relevant and Connected Public Service," and it recommends "doing business differently" by emphasizing both innovation and risk management.