By Steve Kelman

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Does government reward innovation?

compass innovation

The culture of government in China, like the culture of that society in general, is quite punitive. "Punishment" is a common word. When something goes wrong, the instinct is often to arrest somebody first and ask questions later. Subordinates fear and bow to bosses in a way that reminds one of Western organizations from a century ago or more.

So it was with considerable surprise that I read an article in Hong Kong's South China Morning Post while in China recently, discussing newly announced efforts in Shanghai – a previous pacemaker in China whose local economy is now somewhat faltering – to encourage reforms in local government policy and management by stopping the punishment of well-intentioned innovations that fail.

According to the article, the city government, in announcing plans "to encourage local officials to 'reform and innovate,'" stated that it "promised not to punish those who dare to try new ideas but may not achieve their objectives – so long as their efforts are made in good faith and don't lead to windfall gains for those officials." (The latter caveat takes into account China's huge corruption problem.) The policy also said that "the city will reward officials at various levels who show initiative for innovative ideas even if their reforms fail to meet targets."

Innovation is important for government. Government often underperforms. If that's true, then we can't continue to do business the same way – we need innovations to improve performance. And valuable innovations often yield huge performance or cost savings returns.

Yet that doesn't mean anything labeled "innovation" is a good idea. Indeed, most innovations fail. It is often hard to predict which innovations are going to work, so in practice if you want successes, you must be willing to tolerate failures.

But that creates the problem for government. Ideally, you want to make it easy to try out an innovation on a small scale, stop it quickly if it's not working, and scale up if it does work. However, if people get slapped in the face every time an innovative idea fails, they are going to get slapped a lot – a problem that becomes even worse when there are few rewards for success. Government folks quickly get the message: Innovations will bring you trouble when they fail , and don't get you anything when they succeed. The Shanghai city government policy is thus designed partly to counteract one of the great impediments to innovation in government.

Needless to say, the problem is also one we also very much have in the United States. It's embarrassing that this is coming from a large local government in China rather than the U.S. government.

It is really a challenge to bring about a culture change here. How does one avoid feeding media stories about government officials being praised or rewarded for failing? One can almost hear the cries of "where's the accountability?" And, from a managerial perspective, how does one balance the desire to make room for innovations and their potential for failure with an expectation for high performance?

But the right answer can't be the dramatic underproduction of innovations that the current incentive structure in government produces. That's why the Shanghai effort should be welcomed – it will be interesting to see if anything comes of it.

Posted on Jun 07, 2013 at 12:09 PM


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