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ARCHIVED - Risk, Innovation and Values - Examining the Tensions


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Summary of Main Points

1. This paper explores the tensions among innovation, values and risk-taking that public sector managers face when they make decisions about uncertain outcomes.

2. Rapidly changing environments suggest that innovation needs to be a regular way of thinking for public service managers.

3. Yet, the values of public service managers have been influenced by a tradition that emphasized caution, a tradition that limited innovation through equating risk with danger.

4. Accordingly, the issue of managing risk in the public service often became synonymous with avoiding risk, which also implied avoiding innovation.

5. Managers may need to increasingly develop the ability to view tensions among innovation, values and risk not as conflicts to be avoided, but as opportunities to be managed.

6. The paper makes four suggestions for consideration by Risk Management Division:

  • Adopt an overall risk management regime that helps managers progress from seeing risk as a danger to be avoided to seeing risk as a necessity to be managed, with a corresponding progression for innovation and values.
  • Consider a regime of risk management guidance for departments based on their uniqueness, differences and similarities. Devise a system of risk-taking thresholds that gives departments guidance depending on the actual situations in which they are expected to perform productively.
  • Conduct a more thorough diagnosis of the barriers to innovation and enlightened risk-management than this paper can hope to do. Unless a thorough diagnosis is done, it is difficult to design specific action steps.
  • Consider the feasibility of recommending adoption of an "Experimentation Clause" to supplement the Division's guidance for risk management, similar to approaches taken in some other countries.

Introduction

This paper discusses the tension between risk taking and innovation, and the impact of values and organizational culture on both.

The paper deals with five different types of innovation. It addresses the question of reasonable risk taking in which managers need to engage in order to make their organizations more innovative, and to sustain that innovation. It then explores the extent to which public service culture, values and rules influence risk-taking and thereby innovation. The paper concludes with suggested steps that can be taken to develop guidance for risk management and thereby fostering a culture of continuous innovation.

Innovation

The research literature is not unanimous in defining the concept of innovation. One point of the debate is the distinction between innovation and creativity. Is an organization or individual who is creative also innovative? Can a person who regularly has creative new ideas, but who is unable to apply them practically, be said to be innovative? Similarly, is an organization innovative when it articulates and announces creative new approaches to its operations or services, but never implements them?

The generally accepted answer is that innovation is different from creativity. Creativity is the generating of new ideas, of novel approaches, of inventions. In contrast, innovation is the application of creative new ideas, the implementation of inventions. It follows that people and organizations can be creative without being innovative - if they have ideas and make inventions, but never implement them. Implementation means winning acceptance for the ideas, applying them, putting them into practice, "exploiting" them, turning them into products and services that others are willing to accept, pay for and use.

Similarly, people and organizations can be innovative without being creative. For example, if an organization applies or implements inventions that were made elsewhere then it is innovative, even though the inventions, the creative ideas, were not its own.

In 1921, Banting and Best, two Canadian scientists, discovered insulin, for which Banting was later awarded the Nobel Prize because of its importance in the treatment of diabetes. Although insulin was discovered in Canada, it was developed for marketing internationally in Denmark and the United States. This is an example of an innovation in which the invention was made in one country, but the implementation of the invention was carried out in others. One was predominantly creative in this respect, the others predominantly innovative.

The challenge for managers is to tap into reservoirs of creativity, wherever they may be, identify and understand new ideas, then channel them and see that they are put to work as innovations in and by their own organizations. Virtually every organization has reservoirs of creativity that will yield many new ideas when people are supported in generating and developing them.

What seems to distinguish the winners in innovation is their ability to engage in encouraging opportunity, in converting the ideas to practices, and in taking the risks that are associated with not knowing for sure that creative ideas will actually result in innovative products and services.

To be innovative, managers and organizations need to overcome two hurdles, which may actually be two sides of the same coin. One is the abundance of systemic inertia we often note in large, mature enterprises that view new ideas as foreign bodies which have to be rejected because they don't conform to traditional standards. The other is the level of ingenuity and persistence that is required to implement, to move from invention to innovation. Someone put it this way:

You can buy almost everything today. You can buy ideas, you can buy knowledge, you can buy materials and resources, you can even buy (the use of) money. The only thing you cannot buy is the courage, commitment and persistence that is required to implement creative ideas.

Implementation, then, is the great challenge that stands between creativity and innovation. The implementation deficit hampers us in the process of converting inventions into innovations.

Five views of innovation

The beginning of this section remarked that the research literature is not unanimous in defining the concept of innovation. One of the distinctions that is made is the difference between process and product innovation.

Process innovation is the ability to continually improve internal processes in the direction of greater economy, productivity and cost effectiveness, so that products and services can be offered at less cost. Public services have typically focussed on this aspect of innovation. They have worked hard at becoming more innovative in streamlining internal operations through improving the performance of underlying processes. However, except for a possibly lower price, internal process innovation is virtually invisible to customers. It takes a product innovation for customers to say, "This is innovative."

Product innovation is the ability to continually develop and offer new products to customers. A company like 3M is often cited as being very good at that type of innovation. Its aim is to generate a significant part of its revenue from new products that didn't exist five years ago. Banks and other service institutions also try hard to regularly offer new products, even though their products are typically in the form of services rather than hard products that customers buy and take away with them. For simplicity of language, when this paper uses the term "product", the inclusion of "services" is implied.

As mentioned above, the literature mentions and organizations engage in various types of innovation, each different enough from each other to justify some discussion. This paper discusses five types of innovation:

  • Continuous product and process innovation, as mentioned above.
  • Innovative interaction between the organization and its stakeholders: customers, providers of funds, overseers.
  • Innovation as the reconciliation of competing interests that separately would generate conflict.
  • Discontinuous innovation: using existing products or services for new functions.
  • Innovative strategies that envision entirely new orientations for the organization.

A list such as this shows that innovation is not a monolithic concept that one has or doesn't have. Rather, it is a multi-faceted approach for sustaining the success of organizations in a changing world. Just as we speak of multiple types of intelligence, so we might consider multiple types of innovation when we build the capacity to maintain a productive fit between our organizations, the dynamic environment in which they must perform, and the expectations of stakeholders who depend on that performance. A brief discussion of the five types of innovation will illustrate how they can be encouraged and applied.

Continuous process innovation

As mentioned above, industry defines innovation as the capacity for sustained new product and service offerings by established organizations. Many of these firms have developed a set of techniques by which they manage their innovative processes. For illustrative purposes, here is a summary of the approaches used by the 3M Company (Minnesota Mining and Manufacturing).

The company was founded by five individuals in 1902 to mine corundum, and it lost money for the first 14 years, until 1916. Now, almost a century later, 3M was a $20 billion giant with almost 90,000 employees, selling some 60,000 different products made by 47 product divisions located in 57 countries. 30% of its sales originate with products introduced within the last four years, in line with its strategy of continuous high innovation.

The company has three main sources for its ability to innovate: its customers, its employees, and its culture. Many of its new or improved products are developed from challenges that 3M customers face in their own line of work, and for which they suggest 3M find a solution. 3M employees who are in contact with customers are therefore a major channel of creative ideas, which the company then transforms into innovative products.

At the same time, senior managers of 3M are convinced that capable and motivated employees are another pillar of innovation. Managers have over time developed an unshakeable belief in the power of individual entrepreneurship. One of 3M's CEOs put it this way:

Men and women to whom we delegate authority and responsibility, if they are good people, are going to want to do their jobs in their own way. These are characteristics we want and should be encouraged as long as their way conforms to the general pattern of the corporation.

This points to the third aspect of 3M's innovativeness, its culture. The company realized early on that delegating authority and responsibly involved risk taking on the part of management, and invited risk taking on the part of employees. Nevertheless, successive CEOs confirmed that they needed such a culture if the company was to prosper. The even expanded the culture to have it tolerate "well-intentioned failure":

Mistakes will be made, but if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it is dictatorial and undertakes to tell people exactly how they must do their job. Management that is destructively critical when mistakes are made kills initiative, and it is essential that we have many people with initiative

The culture ensures that when a project fails, those involved are not penalized, but are supported in their efforts to quickly move on to something new. Remarkably, many failed applications are picked up by other company technologists who see the failing condition as an asset. The creation of Post-it Notes is an example. They resulted from a "failed" project in which a scientist who was trying to develop a strong adhesive ended up with very weak sticking power. This became the essential property of the product that has become a world-wide success.

It needs to be said that techniques to develop innovate products and services tend to vary considerably from one company to the next, an indication that one approach does not fit all situations. Lines of business, types of customers and stages in an organization's life cycle all influence the approaches taken by innovative companies. In commercial airlines, for example, the ultimate innovation is that pilots are not innovative at all when they fly. They strictly follow the rules to ensure safety, comfort and timeliness for passengers.

Innovative interactions with stakeholders

This type of innovation is a deliberate orientation toward interacting frequently and actively with the organization's various stakeholders. I includes collaboration with other entities, public, non-profit as well as business. It also includes an openness to new ideas outside the organization, including challenges, problems, successes and failures, and their underlying reasons. It values particularly the experiences and views of customers, the people who use the products and services of the organization. One might call this approach of interacting with outsiders innovative learning "from the outside in".

Part of learning from the outside in is learning "from above". This means interacting positively with stakeholders who are responsible for funding the organization, for overseeing it, and for reviewing its performance and reporting on it. Successful organizations have found that this interaction and collaboration helps them make maximum use of the knowledge that is embedded in the experience of these stakeholders.

Learning "from the inside out" is also part of this approach. It includes a disposition to value the insights of the organization's own employees, particularly front line workers. One particularly effective example of this is the "WORK-OUT" program originally developed by General Electric, which is now used widely also by other organizations, both private and public.

WORK-OUT is a process designed to use employees to take a look at every part of the business and get rid of unnecessary tasks that add little value to routine work. It is not a rigidly prescribed process, but it does share one central feature: regular, New England-style town meetings. They seem to be indispensable for that kind of effort.

The first activity of a typical WORK-OUT Town Meeting is what can be described simply as a bitch session. The questions run along the lines of: "Why do we waste time doing this?" "Why do we have to fill this out?" "Why do we need all these approvals?" The early sessions focus on easy targets, and many of those are simply abolished right on the spot. Nothing is immune to a WORK-OUT examination.

And the managers must be totally, visibly and continuously involved in the process. Turning it over to the human resources people or some other staff group is a formula for its doom. This may be uncomfortable or difficult for some managers, but it is key to success. One GE manager said:

In the past we were trying to eliminate, via automation, the human element, the very fountainhead of creativity and productivity. Now we see creative people as the very cornerstone of our future.

WORK-OUT is constantly reshaped and renewed. There is nothing sacred about it. Similarly, it considers nothing as sacred. Anything can be discussed, challenged, suggested.

While WORK-OUT is internally executed, it is also externally focused -- on customers and competitors. It tries to learn from the best processes of world class companies, from companies that are consistently very productive and competitive through their work processes. WORK-OUT tries to distil the concepts used by such companies and apply them in General Electric.

Progress toward joint sessions with customers went through phases. At first, GE used customer data. Then they asked for customer input. Later there was GE-customer dialogue. And now they have customer engagement.

The key to WORK-OUT is genuine involvement. It is based on the desire and the need to make people grow. "If something grows people, it is considered good and we will do it. If it doesn't, we'll not." GE has found that people learn best when they deal with work-related real-life issues and when they get immediate feedback from life and work itself. For this reason, GE doesn't use theoretical models. At one time, GE used a lot of theory, but that was found to be unproductive and was discarded. Another noteworthy finding of GE was that most innovative processes foundered not on lack of competence, but on lack of commitment.

Innovation as the reconciliation of competing interests

An important type of innovation is the ability to resolve dilemmas, that is, reconciling competing values and interests. Managers of today's organizations increasingly face situations that have choices leading to mutually exclusive solutions.

An illustration comes to us from early Greek mythology. Sailors who tried to navigate the straits of Messina were said to encounter a rock and a whirlpool. If you were too intent upon avoiding the rock you could be sucked into the whirlpool. If you skirted the whirlpool by too wide a margin, you could strike the rock. These twin perils had markedly contrasting natures: the first was hard, solid, static, visible, definite, asymmetrical and an object; the second was soft, liquid, dynamic, hidden, indefinite, symmetrical, and a process. A sailor with a bias toward regarding either peril as more important put lives and ship in danger. The notion that only rocks matter because they can be easily seen and touched is as perilous as believing that avoiding the whirlpool is of paramount importance.

On a more contemporary note, many citizens assert "the government should do something about this problem". On the other hand many citizens dislike the idea that government officials and public servants should be able to exercise discretionary powers. And there can surely be no innovation without freedom to act in new ways. Most citizens prefer to keep government actions strictly circumscribed by laws and to restrict public servants to the role of complying with rules and regulations. Still, we complain that government is bureaucratic and slow or even unable to solve problems. We yearn for creativity and innovativeness, perhaps even risk taking. Yet we go to great lengths to stifle and prevent these.

A third example is the choice of managing based on individual contributors, versus managing based on team work. There is a powerful dynamic at work in rewarding teams rather than individuals. If we reward individuals there is a tendency for groups to be envious of the lucky few, to feel that even though the difficulty of innovating was shared by all of them, only one was recognized for a prize. Yet, too much teamwork may generate group think and conformity, and may suppress individual ingenuity.

These examples illustrate some of the dilemmas that managers in today's organizations face. Deciding on only one of several possible directions, or satisfying only one of two values, may lead to conflict. Worse, the conflicting values may lead to a vicious circle and draw the organization into a negative spiral.

The challenge for managers is to be innovative and create circles that are virtuous, that result in positive rather than negative self-reinforcement. Managers must increasingly develop this innovative ability to view dilemmas not as conflicts, but as opportunities to reconcile competing interests. This ability might indeed become one of the fundamental qualities of management, especially in the public sector.

Discontinuous innovation: using existing products or services for new functions

This aspect of innovation has less to do with developing new products or services than with re-aiming existing ones for uses that no one had thought of before, or substituting one product for another while still serving the same overall need. The approach is sometimes called discontinuous innovation because of its counterintuitive nature: instead of a continuous and predictable process of gradual progression, this type of innovation is marked by unexpected jumps in thinking and application.

The watch industry provides a well-known example. SWATCH, the Swiss Watch company, repositioned its product from a simple wristwatch to a fashion accessory that customers can change in colour, size and shape to suit their mood and their fashion environment. While this may be seen as somewhat of a trivial instance, it nevertheless illustrates the kind of discontinuous innovative thinking that underlies the approach.

A much more significant example can be observed in the chemical industry, connected with the protection of plants from parasites. For centuries, agriculture has sought to preserve the health and appearance of plants and fruits for maximum enjoyment by people. Pesticides were seen to be the answer, and they have on the whole done a credible job, even though there have been missteps such as DDT, which was banned when its life-threatening properties became apparent.

In recent years, the industry has begun to follow a different approach. Instead of further improving the effectiveness and safety of pesticides that must be applied periodically by farmers during the growing season, agriculture has turned to genetic engineering. This approach is now close to a stage where some plants have been made immune to pests so that parasites no longer attack them, and farmers no longer have to spray fields with chemicals. It is an approach that falls into the category of discontinuous innovation. It is not an innovative improvement of an existing product, nor a replacement with a more effective, yet essentially similar type of product. Rather, it is a substitution of a product on quite another level, using a different technical discipline that is believed to yield greater effect and require lower effort.

We can extend this approach of discontinuous innovation to still another level. Instead of working on ways to protect a plant from parasites, either through pesticides or genetic engineering, it might be possible to make the plant entirely unnecessary for industrial needs. If, for the purpose of this discussion, we consider as an example the cotton plant, we can see that the development and use of synthetic fibers would represent the ultimate discontinuous innovation. We would have gone from protecting the plant so that we can harvest as much as possible of it to making it non-essential for industry, so that we don't have to harvest it at all.

A third example of discontinuous innovation is drawn from the public sector. In the early 1970s, managers of the government payroll system were preoccupied with streamlining the process of printing close to a quarter million pay cheques every two weeks, and with reducing the cost of printing them. Over the years, numerous studies, reviews and audits were undertaken to improve this process.

In time, one of the reviewers observed that the solution might not lie in improving the process, but in discontinuing it, and substituting another one in its place. He pointed out that, as soon as public servants were issued their computer-printed pay cheques, they would cash them at some bank, which would promptly re-enter the cheques into their own computer systems. So why not bypass the printing of cheques altogether? This, of course, lead to the electronic transfer of payroll funds to individual bank accounts.

Today, electronic salary transfer is considered a standard, commonplace procedure. At its inception, however, it was considered to be a discontinuous step and was contemplated with some trembling and nervousness. The experience illustrates once more what General Electric discovered in their WORK-OUT program. Innovative processes often founder not so much on lack of skills and competence, but on lack of commitment and perhaps courage.

Innovative strategies that envision new orientations for the organization

The last type of innovation discussed in this section is innovation as the ability to envision entirely new orientations for an enterprise in order to ensure its long-term relevance and success. Here, the lessons that can be learned include the innovative ability to thrive persistently over long periods of time, to survive many changes in the business environment, and to adapt - sometimes drastically - to new situations and customer preferences.

One such enterprise is the Swedish company STORA, said to be the oldest commercial enterprise in existence. Its earliest mention dates from 1288, when it was a copper mine in Central Sweden. During the next 700 years new activities replaced the old "core" business. The company moved from copper mining to forest exploitation, to iron smelting, to hydro power and eventually to paper and chemicals. Several months ago, in December 1998, STORA merged with a Finnish company and is now a forest products company with world-wide operations and 40,000 employees.

Each one of the portfolio changes, in hindsight, seems to be Herculean, but for the people running these enterprises in those days they may well have been gradual and almost imperceptible at the outset. Yet, they demonstrate a flexible attitude vis--vis the business which the company happens to be doing at any moment of time. At some stage these companies may have been thinking of themselves as bankers. A later generation, however, became manufacturers. Such changes in the business can only come about if the company sees its assets as a means of responding to changes in its environment, rather than as the unchanging basis for its activities.

While STORA is a private sector example from the past and present, the following case illustrates an innovative strategy for reorientation of the public sector for the future. I originates with a think tank advising the current British government on policy for governance. The central suggestion is that governments need to move away from the traditional system of separate departments that deal with law, education, health, transport, internal security and foreign affairs. Such a model, it is argued, is no longer viable because it "makes government bad at seeing the connections between different things."1

In parallel to this removal of barriers among departments, the suggestion is that government see itself as an integral part of a network that comprise all of society and would be taking advantage of the "intelligence spread throughout society," rather than having to rely only on what its own bureaucrats know - or think they know. Rather than dictate, for instance, how a social service should be provided to the citizenry, the British government is reflecting on whether it should ask contractors to provide it with a solution to a specific problem. "It leaves space for innovation," the think tank suggests. "The government can step back, provide the money, negotiate the goals, and let the system organize itself."

Under such an approach, the government would not only no longer deliver services. It wouldn't even design the services, nor develop the policies that would govern them. The government would "sense" - through continually networking with citizens - which problems exist and for which ones citizens are willing to provide funding. Government would ask contractors to develop and implement solutions. It would also oversee progress. It would in parallel continue networking with citizens to monitor outcomes, taking advantage of the intelligence, knowledge and concerns that citizens have.

Government would no longer be in the business of making policies and delivering services. It would gather intelligence, concerns and preferences from citizens, transform these into articulate problem statements, fund contractors to develop solutions and implement them, monitor progress and impact, and at all times be in continuous contact with citizens. It would be a government whose operating strategy is interaction with the citizens, openness, responsiveness, interpretation of results and continuous innovation.

A summary of approaches to innovation

This section has discussed five approaches to innovation. One is the type of innovation that seeks to continually improve products, services and processes with the objective of achieving greater quality and cost effectiveness. A second focus for innovation is the ongoing productive interaction between an organization and the people it serves: customers, overseers and funders, in order to maintain congruence between the aims of the organization and the expectations of stakeholders. The third type of innovation is the reconciliation of competing interests that may result in conflicting demands. Fourthly, there was a discussion of innovation that might be called discontinuous: substituting a new process for a traditional one, or using existing processes to provide new services. The fifth type of innovation that was discussed is innovation as the ability to envision entirely new orientations for an agency in order to ensure its long-term relevance and success. This may involve a fundamental rethinking of the organization's thought processes and systems of meaning.

The next section of this paper deals with the question of reasonable risk taking in which managers need to engage in order to make and maintain their organizations innovative.

Risk

This section discusses different faces of risk. It begins by pointing out that societies did not always have the concept of risk as a consequence of actions.

Cultures without risk

Ancient advanced cultures had little need for the concept of risk. They developed entirely different approaches for dealing with uncertainty: they practiced divination, spiritual guidance, prayer, and trust in superior beings. It was only with the arrival of the enlightenment that the idea of individual responsibility for the outcome of personal decisions arose. With the decline of belief in divine predetermination came the realization that one's actions entailed consequences which had to be considered when making decisions. The idea of "risk" was born. Pascal argued, for example, that the risk of not believing in God was too great because one's eternal life was possibly at stake. In contrast, the risk of possibly wasting time by attending church was negligible.2

Risk evolution over time

During the prosperous decades after World War II, organizations in Canada developed stable management processes that allowed them to achieve growth and success. The public service, too, became proficient at using these techniques. Resources were readily available, new programs were initiated frequently, and performance was measured primarily on whether funds were used for the purposes for which they had been allocated.

Over the last two decades, declining prosperity, financial pressures and limited resources caused a change, especially in public sector management. In order to stretch resources and to minimize waste and abuse, an orientation of "command and control" evolved, which entailed a culture of caution and risk aversion. This, plus globalization and international competition combined with advancing technology and rapid change to spawn The New Public Management (NPM).

NPM advocated the introduction of market mechanisms, focus on "customers" and a shift from command and control to performance and results management. Performance management includes delegation of authority to front line managers, together with the expectation that they will be innovative and take calculated risks in order to achieve expected results. This lead to the tension between the old doctrine of "no risk" on one hand, and the advocated doctrine of flexibility and innovativeness on the other. The tension is felt particularly by public managers because neither the public nor elected officials are yet willing to give up on a system that tends to insist on compliance with prescribed rules, to the detriment of innovation. When politicians or the public are asked what they expect of public servants, and they are offered a list of choices such as

  • innovation,
  • boldness,
  • creativity,
  • risk taking,
  • compliance with rules,

the answer is always the same: compliance with rules.

In parallel with the shift in orientation from managing inputs to managing results, a long range change in orientation from permanent to temporal assets has influenced management thinking and practices. The following exhibit illustrates.

Exhibit

Period Focus on Essential assets
21st century Knowledge, change Networks, ability to innovate, learn
20th century Services Hierarchies, rules, compliance
19th century Products Machinery, equipment
18th century Commodities Land, buildings

In the past, the economic assets of land, buildings and commodities have tended to retain their value for generations. Similarly, organizational structures and rules were stable. In contrast, today's primary economic asset is knowledge, which ages rapidly. The inference is that an organization's success today is less and less determined by its physical assets, hierarchical structures and uniform rules. It is increasingly determined by its ability to network, to innovate, to take reasonable risks, and by its capacity to acquire, generate, codify and apply knowledge.

Risk as potential for error

Being innovative means doing new things, doing old things in new ways, and dealing with uncertainties by taking risks. Invariably, innovations will sometimes lead to shortfalls. If these are severely criticized, managers will avoid being innovative. They will go "by the book". Yet it is not possible in a time of rapid change to constantly re-write procedures for all perceivable situations. Nor can we assume that universal rules can be applied equally to all situations. Risk is unavoidable. The question arises, is the organization willing to tolerate risk? Is it able to deal with risk in a productive way? If not, innovation itself may be suppressed. The following exhibit illustrates the challenge.

Exhibit

Exhibit 1

Risk as danger

Risk is defined as uncertainty about the future, or uncertainty of an outcome. More specifically, risk is seen as the possibility that expectations will not be met. It is commonly associated with danger, and with the possibly adverse consequences that flow from choices, decisions and actions. When managers take a risk, they are betting on an outcome even though they do not know for certain what the outcome will be. The source for this uncertainty lies only partly in the decisions and actions of the managers. It also lies in forces and circumstances outside managers' control.

Managers who realize that certain behaviour persistently leads to painful or unwelcome consequences tend to see such behaviour as "risky" and learn to avoid it. When risky behaviour leads often to success but occasionally to failure, yet when failure is consistently criticized and reprimanded, managers conclude that risk taking is "too risky", and they avoid it. They do so even when, on balance, taking risks generates greater overall benefits than avoiding risks. Risk taking becomes associated with danger and is avoided.

The United States General Accounting Office (GAO) adheres to that view. It considers risk as a potential danger, as something to be avoided or "fixed", as indicated in the following statement.

"We have identified several government programs that are not managed effectively or that experience chronic waste and inefficiency. These problems result in inordinate risks - the loss of billions of dollars annually Consequently, fixing the underlying weaknesses in high-risk program management areas can significantly reduce government costs and improve services."3

The Canadian Institute of Chartered Accountants (CICA) holds a somewhat less severe but still negative view of risk. It defines risk as "the possibility of adverse consequences." With respect to risk management, it states that it is "a general management function that seeks to identify, assess and address the causes and effects of uncertainty and risk in an organization."4

One of the most serious risks in terms of danger, and perhaps the least recognized, is a phenomenon called "creeping risk" or "creeping catastrophe." It refers to a progression of adverse consequences that is so gradual, yet persistent, that people "get used to it" and no longer consider it a danger. For example, during the past three decades, over a million people have lost their lives in highway fatalities in North America. Still, automobile traffic is seen by most people as being of relatively low risk. It is a "creeping risk" because, while it kills people on a daily basis, the deaths are isolated and geographically dispersed so that the risk to the individual seems small or even non-existent.

In contrast, the use of nuclear energy for power generation has during the same period not resulted in casualties in North America. Yet, many people consider nuclear power generation a very high risk activity.

When a sizeable group of people suffers due to a single event, such as an aircraft crash, the event is typically seen as a catastrophe. When the same number of lives is lost in many individual accidents, hardly anyone pays attention.5 The lesson that can be drawn from this is that "creeping risks" probably need much more attention than they receive at present. They are often the cause of nasty surprises in management and organizations because they become "sudden" crises only after years of building up, but being ignored.

Risk avoidance: playing it safe

The discussion above mentions that managers tend to avoid risk when they are criticized for even occasional negative consequences of risk-taking. A similar reaction occurs when this criticism is combined with rewards for not taking risks at all. The following example from ice skating illustrates the phenomenon.

Canada has not won a world championship gold medal in women's skating for 25 years. Former winners are wondering why. They believe it is because competition judges punish junior skaters for risk taking, so that they play it safe, win junior events, but fail in world competition.

"There was Petra Burka, propped against the boards at a subsectional figure skating competition last month, watching young Canadian girls hurl themselves into the air in front of judges.

"Burka looked troubled.

"She had been there once, too, a long time ago, before she became one of the few women in Canada to reach the top of the podium, clutching a world championship gold medal. That was more than 33 years ago.

"There has been only one world gold since, Karen Magnussen's triumph 25 years ago. In the past four years, few of Canada's females have been able to crack the top 20, leaving a nation wondering: What's wrong with women's skating in Canada?

"Burka is wondering, too. She'd like to help solve the problem. Many coaches would. But what Burka saw last month failed to warm her heart.

"The message seemed clear, she said. At the lowest levels, judges were rewarding girls who skated clean, easy programs. But she felt they were penalizing the tiny, precocious girls who took some risks, and didn't quite get there. Maybe they landed a I more difficult jump on two feet. Maybe they didn't quite complete the rotation. But at least they took risks. And these are the skaters who should be encouraged.

"Burka knows all about taking risks. She was the first woman in skating history to land a triple jump in competition, a triple Salchow. But two years ago she watched sadly as an 11-year-old who tried triples, but with flawed landings, failed to make it out of the lowest competition rung - subsectionals. That can be discouraging, Burka said.

"If young girls at the juvenile, pre-novice and novice levels don't take risks now, they won't cut it at the world level later, Burka said. If pre-novice skaters can win an event with a double flip, why bother with a more difficult double Axel, a jump with an extra half-rotation?

"At the subsectional levels, the first of several steps to qualify for the Canadian championships, she watched mature-looking novice girls doing jump combinations that included nothing more difficult than a double Lutz - and they finished in the top three.

"Then there were little girls who were trying triple combinations and they were judged out because they failed to complete a rotation. There's something wrong with this picture. If you discourage kids from trying more triples at that level, you're going to have girls in junior and senior who don't have them under their belt. You've got to start working on triples when you are 11 or 12.

"Sometimes in Canada we get caught up in being cautious. The problems at the senior level begin with what the judges reward at the youngest levels. Twenty years ago, women could win an Olympic gold medal with nothing more difficult than a double Axel. But Dorothy Hamel in 1976 was the last woman to win such a title with such a jump. Now young women must land five to seven triples to win a world junior title." 6

The lesson from this is that discouraging risk-taking and rewarding risk avoidance also discourages progress and innovation. Risk is therefore not only a potential danger, but also a potential opportunity, a potential for achieving future benefits. If people are persistently discouraged from taking risks, they are unlikely to be innovative, to progress. Instead, they will insist that whatever they do be "a sure thing." On the other hand, if some error that results from risk taking is tolerated and used as a source for learning, then opportunities for innovation are significantly enhanced. The following section discusses this point in more detail.

Risk as opportunity

The nature of innovation is such that it cannot exist without risk taking. In a study on innovative organizations7 , managers invariably identified two critical elements for innovation: support for risk taking and change, and tolerance of mistakes.

A somewhat similar view is held by the Auditor General of Canada (AG). The Auditor General's report of 1997 talks about a tension between innovation, error and accountability. Innovation means working in new ways, this may lead to errors, and the accountability regime will tend to criticize them. "A key problem," the AG says, "is how to deal with honest errors - those efforts that, despite the best of intentions, fall short of expectations. Where performance falls short of expectations, this should be seen as an opportunity to learn." (1997 Report, Chapter 1, paragraph 1.86)

The AG goes on to reinforce the notion that error should be seen as an opportunity to learn. He says, "An effective public service needs a Parliament and a media that can fairly discuss errors in the context of overall performance. Where rules and control frameworks are too rigid or out-of-date, Parliament needs to be informed so that changes can be made." He concludes by saying, "Indeed , it is perhaps the absence of learning rather than the absence of perfection that most warrants criticism." (Ibid., paragraph 1.87)

The AG has also advocated innovation and entrepreneurship in earlier years. In 1988, for example, he said, "... to try something new is to invite risk. The initiative may fail. And that failure may end up in the Auditor General's report. I am well aware that there are public servants who may shy away from a new way of doing things for that very reason. I have done my best to reduce these fears. ... I have written of the need for public servants to develop a greater spirit of entrepreneurship. I believe that an entrepreneurial public service would be good for Canada." (1988, Chapter 1, paragraphs 1.5-1.6)

Students and researchers of management go further. They hold that risk has two sides, a danger side and an opportunity side, and they advocate that risks must be taken "to secure our future". One of them puts it this way.

"Organizations do not take risks for the sheer excitement of it. Their purpose in risking is to secure for themselves a better future. This seems a paradox, because risking and securing are considered to be on opposite sides of a continuum. Convention would hold that at any given time managers can engage either in risking or in securing. Yet we know they aim for a more secure future when they risk, and when they engage in risk, they do so to work for security and prosperity. Managing this paradox of values well should lead to greater security, and to the ability to take higher risks which feed back to enhance security still further. The two values develop together in a state of managed tension, leading to innovative progress."8

Practicing managers in the Public Service have also learned that risk is an integral part of their profession, and of leadership. In the September 1998 Report of the Advanced Executive Development Program, run by the Canadian Centre for Management Development, participants talk about risk taking. They say that

"Leaders in successful service delivery organizations

  1. consistently and repeatedly communicate the vision and values;
  2. accept risk taking as necessary, and provide the proper incentives and rewards."

It is worth noting that the need to accept risk taking as necessary is listed right after the need for vision and values. It is further noteworthy that participants believe leaders must not only tolerate risk taking, but must provide the proper incentives and rewards for risk taking. In other words, risk taking is no longer an option. It is a necessity - even in the Public Service.

Risk-taking as exploring

Some countries have taken steps to advance the management of risk in their public services in terms of exploring, experimenting, and conducting what might be termed "probe-and-learn" programs. This section discusses such approaches in Germany, Austria and the United States.

On 8 November 1995, the German Minister of the Interior rose in the Bundestag (the German Parliament) to announce the concept of exploration and experimentation in public management. He said that "those who are politically responsible must have the courage to open up areas of experimentation, and to test the practicality of suggested reforms by means of pilot projects. It is not always possible in public management to guarantee the success of planned changes or new approaches."9

The Minister based his remarks on the realization that the fixation on traditional approaches needed to be replaced by the concept of engaging in organizational learning. The emphasis on following established bureaucratic routines had to be replaced by an emphasis on a public management that was oriented toward learning, quality and success.

Other considerations included the acknowledgement that departmental mandates and regulations are in a service relationship to societal needs and therefore have to adjust accordingly, as these needs change. Similarly, it became accepted that public servants should work under an umbrella of personnel development rather than personnel management - a realization that public service is dynamic interaction, not stagnant administration. Finally, the argument was made that compliance-oriented application of established rules presents a basic dilemma because of standardization. From a legal point of view, managers are not permitted to apply rules to a standard that is lower than mandated. On the other hand, managers cannot legally compel practitioners to perform higher than the standards set by the rules. In effect, the system is a stable framework that officially does not condone differences in performance. A such, it is unsuitable as a tool for encouraging superior performance, internal competition or innovative advances.

The outcome of these considerations was legislation that established an "Experimentation Clause" for public management, an approach that legitimized the concept of exploring and experimenting as part of risk management. The concept was adopted by all German States for their own public services. One version of the Clause reads as follows.

"In the interest of advancing public administration, and for the exploration of new approaches to public management, the Minister [responsible for the public service] can approve exemptions from existing laws that regulate public service budgets and organizations. These exemptions must not exceed a period of five years. The Minister may specify conditions to ensure that results of the experiments are made available for review and replication by other areas of the public service."10

A similar approach was taken by the Government of Austria last year. The following points were part of the motion for a "Flexibility Clause" that was debated in Parliament.

"Within the general development of public service, new ways for further development shall be explored. Important approaches are pilot projects based on increased flexibility in public sector organizations. The purpose of the Flexibility Clause is to test new approaches over a period of several years and, upon completion, draw conclusions for a more general application of such approaches. I order to gain widespread experiences, each Department should undertake at least one such project."

The motion further mentions that approved pilot projects should be permitted to exceed budget allocations in specific cases, and that the Minister of Finance should approve these and set aside contingency funds accordingly. The motion further states that the ultimate aim of pilot projects should be the overall reduction of cost, plus an improvement in innovation, quality and services. The motion specifies that pilot projects should be conducted over several years, that goals and expected outcomes should be specified, that departments will be expected to evaluate pilot projects, and that participating public servants should share in any ultimate gains through bonuses and other rewards.11

The third example of risk-taking as exploration is taken from the United States. On April 21, 1998, the President of the United States issued to all heads of departments and agencies a directive which included the following statements:

"Five years ago, the Vice President asked you to create reinvention laboratories in your departments and agencies ... to more effectively promote innovation ... and to streamline the granting of waivers - delegations of authority to deviate from existing internal agency policies and procedures - which are often sought by front-line employees who are trying to make their operations work better, cost less, and get results that Americans care about. ... You have responded ... .

"I am now directing you to adopt some of the best practices developed ... . These include the following characteristics:

  1. 1. Waiver requests are acted upon within 30 days or less. After 30 days, the originating entity within the agency can assume approval and implement the requested waiver.
  2. 2. Those officials having authority to grant or change internal agency rules can approve waiver requests, but only the head of an agency can deny a waiver request.
  3. 3. Officials who have the authority to grant waivers are encouraged to identify potential waiver opportunities and extend waivers to their own agencies.

"I direct you to take every opportunity to extend this process throughout your agency. You should report to the Vice President on actions taken to implement this memorandum by July 1, 1998."

William J. Clinton

It turns out that most federal agencies failed to respond to the directive. Only the Transportation Secretary informed the Vice President that he has directed senior department managers to create a streamlined waiver process by August 1, 1998.12

It is open to conjecture why the U.S. initiative failed to yield results. The top-down approach, the lack of consultations with departments, and the absence of suitable incentive systems may offer clues for forming an opinion.

The German initiative of risk-taking as exploring is still underway and is being widely practiced. No definite evaluation results are available at this time. The Austrian initiative is in its start-up phase and would be worth monitoring. Of the three, it is the most comprehensive one because it insists on multi-year projects in every department, extra funding for the experiments where justified, and sharing of gains plus other incentives for public servants who participate in the experiments.

Values

The discussion above has indicated a close relationship between innovation and risk taking. Indeed, the relationship is intimate to the extent that organizations cannot engage in innovation without taking at least a minimum of risk. The tolerance for risk taking is therefore a gauge for the innovativeness with which an agency is likely to pursue its mandate.

This has particular application for the public service in Canada, where departments are expected to consider the views, expectations and preferences of citizens as they develop policy and deliver services. In contrast, public services in some other countries - New Zealand, for instance - are applying The New Public Management on the basis that policy is developed by Ministers, who then "buy" specific deliverables from the public service for delivery to citizens.

In the Fifth Annual Report to the Prime Minister on the Public Service of Canada, the Clerk of the Privy Council mentioned the "Canadian model" and pointed out that it includes both a strong policy capacity and a modern service delivery function for its public service. She furthermore pointed out that the Canadian model "encourages experimentation", which is part of "becoming a learning and knowledge-based organization." She said that "a learning organization is one that

  • will make mistakes, but is able through self-correcting measures to avoid repeating them;
  • is able to generate new ideas and to acquire new and useful ideas generated elsewhere."

The Clerk's words echo passages from the 1997 Speech from the Throne, which stated that "The government is determined to do more to support innovation and risk-taking in Canada.

The next section of this paper discusses the impact that personal and organizational values have on innovation and risk taking. It suggests that these values can have a profound effect in either promoting or constraining, and perhaps need to receive considerably far more attention than they have in the past.

Individual and organizational values

Individual values are the fundamental beliefs a person holds about an issue, a course of action, or the desirability of a future situation. Individual values are for the most part not consciously chosen. They tend to be the product of past influences and experiences, and they evolve gradually. For example, the values of religious devotees, environmental activists, or pedantic bureaucrats are rarely formed overnight. They are the result of living in a certain milieu for lengthy periods of time. Once formed, values are difficult to change. Many armed conflicts, as well as seemingly irrational behaviours, are the consequences of strongly held beliefs and values.

To a large extent, values drive individual and organizational behaviour. Canada's Auditor General put it this way:

"Improving service and performance in the Public Service is a function not only of systems and structures, but also of people and values. Values influence which tasks people will do with care, which they will do superficially, and which they will try to avoid. The role of values has received little attention. Managers tend to give more attention to systems and structures."13

Since that statement almost ten years ago, departments have increasingly engaged in values initiatives, and many have developed value statements. Examples are: "We respect the dignity of individuals..." "Our strength is our staff..." "We believe in managing with openness and integrity..." "We are proud of the service we render..." "We respect the public we serve..." The 1996 Report of the Study Team on Public Service Values and Ethics further strengthened this orientation. It concluded that public service renewal cannot come through new techniques or approaches to public management alone. Renewal must first come from within: from values 14 The newly establishment Office of Public Service Values and Ethics will no doubt give additional prominence to this insight, and to its transformation into practice.

The conventional of organizations is that they are run by systems, structures and rules. This is the truth, of course, but it is not the whole truth. Organizations are also run by the values and beliefs of their members. It is for this reason that we see tensions between rules and values which often result in paralysis. If, for example, an organization officially announces that there needs to be more risk-taking in order to foster innovation, and if the underlying values of the organization and its members are risk-aversive, then more risk-taking is unlikely to occur. The section below offers an illustration.

Public Service values

On the morning of May 22, 1986, Donald Trump, the New York real estate developer, called one of his executives, Anthony Gliedman, into his office. They discussed the inability of the City of New York, despite six years of effort and the expenditure of nearly $13 million, to rebuild the ice-skating rink in Central Park. On May 28 Trump offered to take over the rink reconstruction, promising to do the job in less than six months. A week later Mayor Edward Koch accepted the offer and shortly thereafter the city appropriated $3 million on the understanding that Trump would have to pay for any cost overruns out of his own pocket. On October 28, the renovation was complete, over a month ahead of schedule and about $750,000 under budget. Two weeks later, skaters were using it.15

This example illustrates the tensions between innovation, risk taking and values, and the paralysis that can result when the tensions are not resolved. Public servants in the city administration needed to take into account the values of accountability, equity, responsiveness, efficiency and fiscal integrity. Yet they also needed to be innovative, which included some risk taking. And they couldn't reconcile these conflicting interests.

An example from Canada illustrates similar tensions. This is an account by public servants who daily deal with members of the public:

"Our job is to interact with clients on a continual basis. We need to be available to them, advise them and counsel them. We are professionally trained for this work, and we have chosen this job because we believe it is important. We find it satisfying when we can work with our clients, when we can assist them, and when we can gradually see them become successful.

"The nature of our work is stressful, because none of us has all the answers, and because sometimes an apparent success turns into a failure. We have to deal with a lot of uncertainty, and some of us burn out. Yet we want to go on because the work is worthwhile.

"What increases the stress is the system's excessive demand for paper and its doubt of our judgement. Everything we do has to be documented in great detail, just in case there is a question later on. We have to fill out forms, make reports, provide statistics, justify actions and maintain files. Our word is worth nothing unless it is on paper. Our actions are not trusted -- they must be documented for possible scrutiny later on. We have to provide answers to questions that may never get asked, just in case they do get asked. The system is cold, impersonal and machinelike. It will not believe our judgements, nor the words we say; it will demand, 'Show me in numbers'.

"All this is compounded by the shortage of staff, the increase in workload and the rule against overtime. The system drives us forever in the direction of doing more paperwork and less people work. We are torn between serving the system and serving our clients, between providing information about our work and doing the work itself. More and more of our time and energy is taken by the system. The system is winning."16

According to this speaker, "the system is winning," which implies a dilemma: the fairly restrictive organizational values of the are in conflict with the more flexible personal values. The opposite can also be true, of course, when personal values of caution and risk aversion are developed over many years of criticism by a rule-bound system. Then, when the system realizes that more risk-taking is indicated, these personal values get in the way of more risk-taking and innovation.

In other words, the values of the public service as an organization and the values of public servants as individuals have to be in at least approximate congruence if value dilemmas, tensions and paralysis are to be avoided.

In a public service environment, there is of course also the additional dimension of political values. It is beyond the scope of this paper to elaborate on those. However, an insightful discussion of the topic is in "Political and Public Service Values" a section of the Report on Public Service Values and Ethics.17

The type of work being done influences values

The public's view of the public service is typically that of a uniform, rule-bound, bureaucratic system. In reality, the diversity of the public service is remarkable. This diversity should entail a similar diversity with respect to values, especially as they relate to innovation and risk-taking.

When operating a nuclear power plant, for instance, the level of innovation and risk-taking will be kept close to zero, for obvious safety reasons. Operating a tourist office, on the other hand, should invite frequent innovations, with consonant risk-taking, in order to maximize the economic benefits that tourists represent.

This suggests that the type of work or the type of business in which an organization is active has a significant influence on the level of innovation and risk-taking in which it engages. In consonance with that, the organization will want to foster the type of values that its employees hold. A marketing agency will want to foster lots of innovation, and risk-taking is welcomed. An air traffic control agency will want to foster adherence to prescribed rules, and risk-taking is discouraged.

This line of reasoning might lead to a project that groups public service operations by type of work, and to develop different risk-taking thresholds for each grouping. The resulting typology might show that, what is highly risky for one type of work and agency might be standard procedure for another.

The exhibit below is an attempt to construct such a grouping. It makes no claim for completeness. However, it does illustrate, even at a cursory glance, that the level of risk-taking should not be the same everywhere. Which confirms again the statement above that the public service is a highly diverse undertaking.


Exhibit

Typology of public service operations

A. Operations engaged predominantly in DEVELOPMENT:

1. Policy development

Examples:
Finance (financial policy)
Heritage (cultural policy)
Immigration (immigration policy)

2. Research (knowledge development)

Examples:
National Research Council
Communications Research Centre
Internat'l. Development Research Centre

3. Construction (physical development)

Examples:
CIDA (constructing a dam)
PWGS (constructing a building)
Parks Canada (constructing a road)

B. Operations engaged predominantly in providing a SERVICE:

4. Routine services to the public

Examples:
Passport Office (issuing passports)
EI (processing claims)
Industry (processing trade marks applications)

5. Professional services to the public

Examples:
Health Canada (health services)
Statistics Canada (statistical services)
Museums (cultural services)

6. Routine services to government

Examples:
Revenue Canada (tax collection)
PWGS (accommodation service)
Public Archives (record keeping)

7. Professional services to government

Examples:
Justice (legal services)
CAC (consulting services)
CCMD (educational development services)

C. Operations engaged predominantly in CONTROL and PROTECTION:

8. Central Agencies (control of departments)

Examples:
Treasury Board (administrative controls)
PSC (personnel controls)
PCO (dept'l. mandate control)

9. Regulatory agencies (regulation of businesses)

Examples:
CRTC (broadcasting regulations)
Industry (competition, advertising regulations)
Environment (pollution regulations)

10. Protection agencies (protection against crime, aggression)

Examples:
RCMP (protection against crime)
DND (protection against external aggression)
Customs (protection against smuggling)


The above exhibit illustrates that the type of work in which an organization engages, and the clients it serves, no doubt has a significant influence on the level of innovation and risk-taking it needs to promote - or discourage. The exhibit also illustrates that the notion of the public service as a single, uniform entity is not or no longer accurate.

The Fifth Annual Report on the Public Service makes this point, although it does so with respect to the "Canadian model" in contrast to reform models that other countries are using: "The Canadian model rejects the notion that 'one size fits all.'"18 The assumption of a large and diverse public service that can be managed by a single set of values and rules is similarly outdated, especially in connection with innovation and risk-taking.

In spite of that diversity, the author of this report has found that public servants in widely different countries hold some values that are surprisingly common. Overarching self-images of public services may be very similar the world over.

Self-images of public services

On the occasion of several separate projects, the author has worked with groups of senior public servants in several countries, including Sweden, the Philippines, Cyprus and Canada, usually over several days of discussion. The aim was to imagine what basic roles a public service could play in a country, what actual role it did play, and what desirable role it should play. This is another way of saying that the aim of the workshop was to make visible to people what their values were, both with respect to their own role and the role of their public service.

The discussion results were tabulated, and then discussed again by the groups. The answers show a remarkable similarity across countries. They also show that overarching values and self-images of different public services seem to be quite similar, even though their size and culture are different.

Part of the workshop documentation is reproduced below so that the reader can see the kind of approach that was used. The workshop results are summarized at the end.


Exhibit

Images of the Public Service (a)

The public service can be seen -- and it may see itself -- in a variety of images. These images are in the collective mind of government officials, and are embedded in the culture of public service activities. We might call these images the "mental models" or "paradigms" that govern the strategies of public service actions, and that are based on a set of underlying assumptions and values. Here are some examples.

The Regulating Public Service

  • The Government is seen as a regulator. It generates programs, hierarchies, laws, rules and regulations.
  • The Public Service is seen as looking after the neutral and impartial implementation of government regulations.
  • The Citizen is seen as voter and subject, is expected to be loyal to authority and obedient to the regulations.
  • The Visionary Concept is: Maintaining peace, order and good government.

The Competitive Public Service

  • The Government is seen as a corporation.
  • The Public Service is seen as a competitive business. It acts to promote competition, productivity, prosperity and financial integrity.
  • The Citizen is seen as a producer and consumer of economic goods.
  • The Visionary Concept is: Economic efficiency through competition.

The Future-Oriented Public Service

  • The Government is seen as a visionary, defining desirable futures for society.
  • The Public Service is seen as being a facilitator, an assistant, a vehicle that helps citizens and society move toward a desirable future.
  • The Citizen is seen as an eager and committed partner in creating a better future through innovation and change.
  • The Visionary Concept is: Defining generational goals and moving towards them.

This session will present ten such self-images, ask participants to what extent each is present, explore the underlying values, and discuss what values and what image the Public Service might pursue in the future.


Exhibit

Images of the Public Service (b)

Question 1: To what extent does the described image exist in our country?

Question 2: To what extent would we like it to exist?

Use a scale from 1 to 7 to indicate your view, from Not at all (1) to Very much (7)

  1. The Regulating PS, seen as looking after the neutral and impartial implementation of government regulations
  2. The Paternalistic PS, seen as safeguarding traditional rights and values, both moral and professional.
  3. The Negotiating PS, seen as mediating, negotiating and reconciling among competing interest groups.
  4. The Competitive PS, seen as a competitive business. It acts to promote productivity, foster prosperity and ensure financial integrity.
  5. The Service-oriented PS, seen as a service station or supermarket, offering products and services that citizens demand.
  6. The Developmental PS, seen as developing, implementing and supporting frameworks for maximum self-governing and self-reliance.
  7. The Compassionate PS, seen as evolving and refining mechanisms for collecting and redistributing wealth and other resources to ensure a uniform standard of living.
  8. The Minimalist PS, seen as maintaining the bare minimum of legal frameworks to keep society functioning.
  9. The Future-oriented PS, a facilitator, an assistant, a facilitator that helps citizens and society move toward a desirable future.
  10. The PS as Control, an instrument of controlling all resources, energy and funds, and of using or confiscating them for the benefit of the government when commanded.

The results of the discussions were revealing. Groups in all countries indicated that the existing image of their public service was essentially a "regulating public service" that was in business to make and enforce rules and regulations. There was little innovation, and risk-taking was frowned upon. What they wanted to see in the future, was much more a "developmental public service" and a "future-oriented public service." People felt that this implied much more innovation and risk-taking, because being developmental and future-oriented could not be achieved through rule-making.

Those results speak to the topic of this paper. They indicate that, when people are given the freedom of choice, they say they are choosing a culture of innovation and risk-taking over a culture of rules and compliance.

We note that this is what people say. How they will actually behave would be subject to verification. We certainly have examples of innovators and risk takers in the public service. Yet we also have people who shrink away from risk-taking - because they see it as "too risky."

In the section that follows, an attempt is made to tie the various aspects of this paper together in the form of some suggestions for consideration by Risk Management Branch.

Suggestions for consideration

Many detailed suggestions could be made after an extensive discussion of risk, innovation and values, and of the tensions under which they co-exist within a public service. However, there are perhaps only a handful of suggestions that should be made at this stage. And they should have the virtue of self-application. That is to say, they should be of a nature that requires a measure of innovation, risk-taking and appropriate values for implementation.

Suggestion ONE

An overall conclusion drawn from the discussion is that Risk Management Division consider adopting an overall risk management regime that gradually moves from seeing risk, innovation and values as always being at an extreme position on a spectrum to an acceptance of them as residing at various positions, depending on circumstances.

By extreme position I mean the view that risk is always a danger, that the accepted value should be to avoid it, and that innovation should only be done when it is "a sure thing." Since risk represents an uncertain outcome, it could certainly be a potential opportunity rather than only a potential danger.

Similarly with innovation. In a culture that hesitates to innovate, innovation that does happen is usually of a discontinuous nature. That is to say, innovation takes the form of a major change or corrective action because things have gradually become intolerable and need a major fix. What happens then is that an old approach is abruptly discontinued - hence the term discontinuous innovation - and another, new one, is adopted.

The case can certainly be made that discontinuous innovation is at times unavoidable. We see it now with the tragedy of refugees in the Balkans. Something needs to be done that couldn't be planned ahead of time because it was not easily foreseeable. At the same time, however, many areas could benefit from continuous innovation, which is another name for continuous organizational learning. The point to be made is that a public service might strive to become ambidextrous in its innovative capacities, i.e. e able to do both.

With respect to values, the suggestion is similar. Instead of cultivating the value that risk is always to be avoided - or always to be embraced -- the value might be that risk always needs to be managed. The summary diagram below illustrates.

Exhibit

Exibit

Author's Note

In presenting his study results to an advisory group on April 13, 1999, the author used a modified version of the foregoing diagram. (The modified diagram follows this note.)

The author noted that the modified version is more provocative than the foregoing version since it advocates "embracing risk" in the top right corner while the foregoing version has "managing risk" in the top right corner. The author agreed with advisory group comments that said, in effect, it all depends on circumstances. The author commented that, as the example of operating a nuclear power plant illustrates, a manager may want to avoid all risk in a situation like that because the potential danger of 'being innovative' is just too great. The manager will want to stay in the bottom left corner (Risk: a danger, value: avoid it) On the other hand, if that were to be the prevailing mode in the entire public service, we will never have any innovation."

The author offers both diagrams as very powerful in helping managers realize where they are and where they might want to go.

Author's Note

Suggestion TWO

The public service is not a uniform, monolithic entity. Rather, it is of remarkable variety in the types of work it does and the kinds of clientele it serves. Different programs would obviously benefit from different thresholds of autonomy and tolerance with respect to risk-taking as well as innovation and values. The typology of public service operations in the body of this report illustrates.

Accordingly, Risk Management Division might consider a regime of risk management guidance for departments that recognizes their uniqueness, differences and similarities. A system of risk management thresholds might be devised which gives departments guidance depending on the actual situations in which they are expected to operate and perform. This might even be developed to a level that recognizes that a certain program can afford to be quite tolerant of error in one area, e.g. in experiments and pilot projects, but needs to strictly avoid error in another, e.g. in reporting on sensitive production outcomes.

Suggestion THREE

Considerable space has been devoted in this paper to the issue of tensions that exist between risk, innovation and values. The reference to overseas workshops on self-images of public services indicates that many public servants profess to have values that would welcome a more innovative and risk-taking public service environment. To what extent can these expressions be taken as reliable?

Canada's productivity is not what it could be, and innovation is a major factor in continued productivity improvements. According to the OECD, the work of the public service and good public management is closely linked to a country's economic performance.19

This suggestion therefore advocates a much more thorough diagnosis of the barriers to innovation and enlightened risk-management than this paper could hope to do. This paper is no more than a preliminary survey of the topic. It finds that people, culture, structure and rules all can contribute to risk aversion, and thereby to limited innovation. An in-depth diagnosis would be of the kind that was carried out by Zussman and Jabes a number of years ago on the orientation of public servants at several levels, from Deputy Heads down. Unless a thorough diagnosis is done, it is difficult to design specific action steps.

Suggestion FOUR

This paper outlines approaches taken in some countries with an "Experimentation Clause" or "Flexibility Clause." These clauses allow public service departments to conduct pilot projects and test new operations without being constrained by the rules that govern well-established programs.

This suggestion advocates that Risk Management Division carefully consider the possibility of recommending similar approaches for our public service.

The bulk of today's public service operations is still based on traditional management styles, with prescribed rules governing operations and behaviour. An Experimentation Clause could be a vehicle to foster "Islands of Innovation." These would still value standard rules where indicated, but also innovation and intelligent risk taking where appropriate. They would also understand that the balance between compliance and commitment may have to vary, depending on the kind of work that is being done. The island of innovation approach includes identifying champions and groups that are committed to change, then supporting, strengthening and connecting them, thereby gradually achieving a broader coverage.

Conclusion

This paper has discussed the tension between risk taking and innovation, and the impact of values and organizational culture on both.

Several ways are known for deliberately changing organizational approaches such as the ones discussed in this paper. One is the buy-and-plug-in approach. It means importing a ready-made solution from somewhere else, plugging it in and enforcing compliance. Another is the blueprint approach. This involves having the concept designed off-site by "experts" and then imposing it by edict. Still another is the army approach - establishing the new practice on a beachhead and then moving the front across until the enterprise surrenders. Lastly we know the Island of Innovation approach, which is the one this paper suggests.

The paper makes four suggestions toward establishing a guidance function for risk management in the public service, which will also positively influence innovation and values.

The first is to adopt an overall risk management regime that helps managers progress from seeing risk as a danger to be avoided to seeing risk as a necessity to be managed, with a corresponding progression for innovation and values.

The second suggestion proposes that Risk Management Division consider a regime of risk management guidance for departments based on their uniqueness, differences and similarities. A system of risk management thresholds might be devised which gives departments guidance depending on the actual situations in which they are expected to perform productively.

The third suggestion advocates a more thorough diagnosis of the barriers to innovation and enlightened risk-management than this paper could hope to do. Unless a thorough diagnosis is done, it is difficult to design specific action steps.

In the fourth suggestion, the paper advocates that Risk Management Division consider the feasibility of recommending adoption of an "Experimentation Clause", as a supplement to its guidance for risk management, similar to approaches taken in some other countries.


Bibliography

  1. OAG, Chapter on Innovation, 1994
  2. Blohowiak in his book Mavericks (1992, Business One Irwin)
  3. Interview with Mayor W. Frniss of Wiesloch, Germany
  4. Borins Innovating with Integrity
  5. Christopher Bartlett 3M: Profile of an Innovative Company, Harvard Business School
  6. GE WORK-OUT Personal visit, observation and communication
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  8. OPTIMUM, Vol. 27, No.2, 1997, Dossier on Innovation
  9. Tushman and O'Reilly, 1997 Winning through Innovation Harvard Business School Press, Boston
  10. Ingstrup and Crookal, 1988 The Three Pillars of Public Management: Secrets of Sustained Success. McGill-Queen's University Press, Montreal and Kingston.
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  12. Mulgan, 1997 Connexity: How to live in a connected world Harvard Business School Press, Boston.
  13. Canadian Institute of Chartered Accountants, 1998 Learning about Risk: Choices, Connections and Competencies Toronto
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  17. Office of the Auditor General of Canada, 1997 and 1998 Reports to Parliament.
  18. Charles Hampden-Turner, 1990 Charting the Corporate Mind The Free Press, New York
  19. Canadian Centre for Management Development, September 1998 Report of the Advanced Executive Development Program Ottawa, Ontario
  20. Carl Bhret, 1990 Folgen Leske + Budrich, Opladen (p.109)
  21. Prof. H. Hill, 1995 Jenseits der Experimentierklausel, Raabe, Dsseldorf
  22. Clerk of the Privy Council and Secretary to the Cabinet, March 31, 1998 Fifth Annual Report to the Prime Minister on the Public Service of Canada Ottawa, Ontario
  23. Speech from the Throne to Open the First Session of the Thirty-Sixth Parliament of Canada, 1997
  24. Herbert Striner, 1998 The Possible Danger in Doing What We Believe is Right, If Our Values are Wrong Bethesda, Maryland (unpublished manuscript)
  25. Auditor General of Canada, 1990 Values, Service and Performance Ottawa, Ontario
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  28. OECD, Public Management Focus, June 1996

Endnotes

1 Geoff Mulgan, 1997 Connexity: how to live in a connected world Boston: Harvard Business School Press.

2 Niklas Luhmann, 1991 Soziologie des Risikos Walter De Gruyter, Berlin (p.16-19)

3 United States General Accounting Office, 1999 High-Risk Series: An Update Washington, D.C. (p.19)

4 The Canadian Institute of Chartered Accountants, 1998. Learning About Risk: Choices, Connections and Competencies. Toronto, Ontario (pp.7,9)

5 Carl Bhret, 1990. Folgen. Leske + Budrich, Opladen (p.109)

6 Globe & Mail, 2 January 1999 (page A23)

7 Tushman and O'Reilly, 1997 Winning Through Innovation Harvard Business School Press, Boston (p.113)

8 Charles Hampden-Turner, 1990 Charting the Corporate Mind The Free Press, New York, (p.xi)

9 Prof. H. Hill (1995) Jenseits der Experimentierklausel, Raabe, Dsseldorf (p.195)

10 Prof. H. Hill (1995) Jenseits der Experimentierklausel, Raabe, Dsseldorf (p. 227)

11 Personal communication from Austrian Department of Finance, December 1998.

12 Personal communication from Inspector General's Office, Department of the Secretary of State, Washington, D.C.

13 Auditor General of Canada, 1990 Annual Report (chapter 7, paragraph 3)

14 A STRONG FOUNDATION: Report of the Study Team on Public Service Values and Ethics, October 1996 (p.86)

15 New York Times, 21 November 1986 (p.B1), quoted in James Q. Wilson Bureaucracy - What Government Agencies Do And Why They Do It. New York: Basic Books

16 Auditor General's Report, 1990, chapter 7

17 A STRONG FOUNDATION, op. cit., p.17

18 Fifth Annual Report to the Prime Minister on the Public Service of Canada, op.cit. (p.3)

19 OECD, Public Management Focus, June 1996 9