Study finds public sector more innovative than private sector

Wednesday, 15 June 2016


    There is a common view in Australia that the public sector is sclerotic, slow moving and conservative. However, findings from a new study show that the public sector is more radically innovative than the private sector.

    The Centre for Workplace Leadership at the University of Melbourne has released the Study of Australian Leadership – a new report which paints a dark picture for innovation and leadership in Australia.

    The study, the largest of its kind in Australia, interviewed 8000 people, including CEOs and senior executives, ‘frontline leaders’, and employees of over 2700 organisations across the public and private sectors.

    “We have modelled the linkages between leadership, performance and innovation in Australian business, and our findings reveal a pattern of mediocrity,” said Professor Peter Gahan, Director of the Centre for Workplace Leadership.

    According to the report, Leadership At Work: Do Australian leaders have what it takes? productivity across the economy is low and examples of radical innovation are few. A significant number of businesses underperform against their own targets for return on investment and profitability. There is chronic underinvestment in the development of leaders and managers. There is a lack of focus on fundamentals such as performance monitoring and target setting. And there is a noticeable gap between managers’ perception of their own skills and how their own employees view them.


    Innovation - Only 18% of private sector organisations reported high levels of radical innovation.

    Performance - 40% of workplaces are not meeting their performance targets for return on investment and profitability.

    Leadership quality - There is a significant gap between managers’ perceptions of their leadership skills and the way they are viewed by employees.

    Leadership development - For every $10 spent on senior leaders, only $1 is spent on developing frontline leaders.

    Diversity - There is a systematic failure of leadership to reflect wider social diversity, particularly in relation to gender.

    The study also found public sector organisations are more likely to have reported higher levels of radical innovation than the private sector.

    Here radical innovation involves experimentation and a focus on new opportunities, new markets, or new ways of bringing products and services to the market. Whereas incremental innovation focuses almost solely on improving efficiency, expanding existing markets and reducing costs.

    Accountability and risk: barriers to innovation?

    According to Susan Wilson GAICD, non-executive director of Innovation Australia, the results on innovation are hardly surprising. But she says that when examining the results, the difference in orientation of the sectors needs to be considered.

    “Essentially it comes down to the element of risk. Each sector needs to manage their unique set of risks in their own way. To say one sector outshines another’s innovation efforts is just one side of the story,” Wilson said.

    “The public sector is not beholden to shareholders or market capitalisation. They have longer timeframes to roll out different levels of innovation. Their purpose is not intrinsically linked to shareholders and so they can be more innovative. Their challenges, however, lie in their accountability to the public to deliver successful programs and services, and the tumultuous periods that come with changes in government and government policy.”

    “The private sector, on the other hand, can be far more risk averse. They are accountable to their shareholders; any poor decisions they make can be immediately detrimental to their existence. This is directly felt in their readiness and willingness to innovate on a radical scale,” she said.

    Give innovation a seat at the board table

    The results of this study present a range of issues for our organisations’ leaders.

    And for boards in particular, it’s clear more work needs to be done to unpack the reasons for shortfalls in innovation and leadership, especially if organisations need to navigate a new set of challenges and an uncertain future.

    “Forget the ‘lucky country’. If we want to become the ‘innovation nation’, Australian organisations need a reality check. We need to take urgent action using leadership skills and innovation capabilities as the levers for responding to these challenges,” said Gahan.

    Wilson advises it is imperative that any boards that aren’t including innovation as a formal agenda item in meetings where strategy and risk are discussed should do so immediately.

    “At the board and senior executive level, we are at an important nexus. It is critically important that we put a lot of thought into positioning the organisation for the future. And, if we need to, we must change our mindset in order to ensure our organisations are thriving in a self-determining, innovative and leadership-driven culture.”


    Do you agree with the findings reported in the 2016 Australian Leadership Study? Join the conversation in our LinkedIn Member Group and look out for the discussion ‘Is innovation on your agenda? New research says it needs to be.'

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