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The Consequences of Innovation

Although innovation is frequently heralded as the driver of the ‘new economy’, its myriad claims have yet to be substantiated. The paper surveys the literature and addresses some of the claims skeptically. It differentiates between the public and private sector prerogatives in order to understand why the public sector organization is typically less innovative than its private sector counterparts. It also adopts a typology that sensitizes the evaluator to the impact of innovation upon the allocative efficiency (‘are we doing the right things?’) of the public service. Although a survey of innovation indicators available in the public domain would indicate that there is a growing sophistication in financial measures, such as the Economic Value Added, for the private sector, and in Net Economic Value, for the public sector; the trend is for an emphasis away from technical efficiency (‘are we doing things the right way?’) towards allocative efficiency. In this light, both the private sector notion of service encapsulation and public sector notion of public value provide a framework with which to assess the consequences of innovation. In essence, the answer to the question “why public sector organizations seek innovation?” has to be because “innovation helps to increase public value”.