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Disruptive Innovation in the Public Sector: What? Why? How? Now!

Deloitte Insights video

We’ve heard a lot about “doing more with less,” but the phrase often translates to carrying out business as usual with a lower budget. Without doing things differently, the result leads to doing less for less. To truly do more with less, government agencies are rethinking how they approach challenges and embrace innovation. Tune into this episode of Deloitte Insights to learn more.


Disruptive innovation in the public sector: Breaking constraints to do more with less--all at once

It’s time for Insight, a video news production of the Deloitte LLP1.  Now here’s your host Sean O’Grady.

Sean O’Grady
Hello and welcome to Insights where today we’ll be examining the cost saving potential for Disruptive Innovation in the public sector. We have two guests joining us for this conversation. First, we’re welcoming back Michael Raynor, the New York Times bestselling author of the book, The Innovator’s Manifesto: Deliberate Disruption for Transformational Growth. Michael is also a Director within Deloitte Services LP.

Now, second, in Austin, Texas, we’re joined by Bill Eggers, an award-winning author, columnist and public speaker who most recently penned a report titled, Public Sector Disrupted, which makes the case for government’s adoption of disruptive innovation and who is also the Global and US Public Sector Director of Research with Deloitte Services LP.

Bill, I’d like to begin with you in Texas. So, given the impending 2013 trillion dollar plus government budget cuts, Federal agencies are dealing with the reality of potentially doing more with less. I’d like to know, in your view, what issues or opportunities might that austerity planning raise?

Bill Eggers
Well, Sean, the problem right now is we hear politicians often talking about the need to do more with less but typically what it’s really all about is simply doing the same sort of things but with less money and that ends up being not more for less, but less for less. The only way to really do more for less is by doing things differently.

Otherwise, you get what we’re seeing around the country often today which is longer DMV lines, we’re seeing over-crowded prisons such as in California where there’s 30,000 prisoners [who] now have to be let out of the prisons because they’re so over-crowded, and we see schools where essentially they’re over-flowing with students.

So, the key thing is about innovating on the business models and finding new and different ways of delivering services and fulfilling the job that we need to get done. That’s the only way to actually get more for less.

Sean O’Grady
Well, thank you for that, Bill, and I think that brings us over to Michael here in New York. So, Bill’s talking about doing things differently, disrupting the way that agencies are going about doing their businesses.  We’ve had you on the program before; we’ve talked about The Innovator’s Manifesto. For the uninitiated, can you tell us a little bit about Disruptive Innovation?

Michael Raynor
Sure, you know, I think Bill’s really on to something with this notion that, in the public sector, that there’s a keen need for innovation and innovation’s one of those terms that almost becomes meaningless through overuse. What in fact, is an innovation? It’s what we’ve had a chance to think about and collaborate on is that it requires – it requires us to fundamentally break the cost constraints that define most of the services that governments define.

Bill gave a couple of examples; there are still others in the report. And so the problem is that “doing more for less all at once.”  Really tough, right?  If you go up to any public agency and say, “I’ve got a proposition for you. We’re going to cut your budget by 20%. We want you to increase service levels by 50%. Get on that, would you?”

Well, if people knew how to do that, they’d be doing it already. So the problem is how do you put in place a process that makes it possible over time but quickly to create greater levels of service at lower cost? And that’s something that I’ve had the opportunity to work on for the better part of a decade now and that’s where Disruptive Innovation comes in.

So, disruption is a particular way – a particular process for going about breaking constraints over time. And the way it tends to manifest itself and I’ll give you – I’ll speak in general terms initially, you start with a solution that looks like it’s worse. However, it’s a different approach to a small problem that improves over time so that it becomes a much superior solution to a big problem.

Some specific examples are quite helpful.  Think about how computers have become like oxygen these days, right? These are part of everyday life. But, the personal computer, that we take so for granted today, started out as essentially toys sold to hobbyists and businesses that did real work with computers looked at PCs and thought they were ridiculous. Why would anybody want one of those?

Well now, of course, they’re – they define most business process in any kind of organization. So it’s a great example of a technology that starts out looking like a toy but evolving over time into something that really defines a mainstream solution and doing so in a way that gives us what Bill was alluding to in what we need more for less over time.

Bill Eggers
And, Sean –

Michael J. Raynor
Go ahead, please, Bill.

Bill Eggers
I would say, Michael, I love the toy example because, in fact, one of the biggest disruptions we’re seeing right now in the public sector, actually, also started off as a bit of a toy. Unmanned aerial vehicles you know, currently known as toys started off as kind of a – currently known as drones started off as a kind of a science fiction idea years ago. They were not very good, they were somewhat laughed at in the military and now they’re being called the poster child for military transformation.

We read about them in the newspapers every day and all the new things that they’re doing. They’re a fraction of the cost of manned airlines and they’ve caught on so much from that very humble beginning that they actually – we trained – we trained more joystick pilots last year in the military than we did bomber pilots and fighter pilots combined.

So, essentially, drones now are about 30% of all the military aircraft and are going up dramatically. They started off not very good but the enabling technology was such that they’ve gotten better and better over time and now it actually allows you to do things in an unmanned way that you can’t even do with manned aircraft such as have persistence for a long period of time. They can essentially be taking pictures and they’re – and the other thing is you’re not putting a human in harm’s way in terms of the pilot.

And so that’s a good example, I think, of something where we are able to do more with less but it takes a little bit of time to get that technology better and better.

Michael Raynor
If I – so Bill, I want to underline what you just – what you pointed out which is that it takes time. But shockingly it often takes a little bit of time and a lot less than people think.  Bill used the term that this notion of the enabling technology, so you’ve got an initial solution in a drone and it can do certain things, but only certain things.

So, what allows that to get better? What allows it to get better is the wireless telemetry to the device. It’s the electronic sensor equipment that allows it to – I mean I’m hardly an expert in this field – but these are electronic and computational technology and wireless communication technologies that double in performance frequently. I won’t say a few months, that’s kind of a Moore’s Law thing, but you know what I mean. They get better very quickly in predictive ways.

And so drones start out – and Bill, correct me if I’m wrong – but I mean it’s not like we’re talking 40 years here. We’re talking five, six years and in the political sphere, that can be especially important because the intended political official is very often thinking in terms of election cycles.

Bill Eggers
A four-year term.

Michael Raynor
They need to see things happen quickly and so very often they can be hesitant to start out with something that doesn’t look like it’s tackling the problem head on. The problem is that tackling the problem head on, both tends to fail and takes a lot longer. Disruptive approaches are the kind that Bill’s described and the report does a great job of showing how this plays out in a number of different areas.   You start with something that looks awful and when it’s wrapped around technologies that get better quickly, you find yourself solving the mainstream problem within a relevant time frame. I mean we’re talking literally three, four, five years before you are actually seeing real improvements in the problem that you’ve been trying to solve unsuccessfully for decades.

Sean O’Grady
So should that kind of gratification be an expectation or are there some more longer-tailed examples as well?

Michael Raynor
Well, the period of time that it takes depends upon – again, I’m coming back to this technical term – it turns on how quickly the enabling technology improves. So, sometimes it happens very quickly, sometimes it will take longer.  The good news is you’ll be able to know in advance to within a reasonable approximation how long this will, in fact, take.

Bill Eggers
And, Sean, let’s look at another area that I think is one of the most important areas for disruption in the public sector and where we are actually seeing rapid improvement to punctuate Michael’s point and that’s actually education.

We will see by the end of the decade, over 50% of courses that are taken by children in K through 12 education will be done online and it will be even faster than that in higher ed. We’re already seeing a lot of higher ed kind of disruption occurring through online learning and the key thing about this is it’s getting much better. You’re able to do personalized learning when you think about education.

So, essentially, we always had this price performance trade off where you either had to have more teachers and more schools and more infrastructure, or else you’re told that education would get worse essentially. And breaking that trade-off is about how do you use technology to enable each individual to get the kind of personalized learning they might get from a tutor and that was typically impossible before unless you’re at a prep school or unless everyone had their own tutors.

But what’s happened now is online learning where it can tailor the learning modules toward how each individual student learns and using deep analytics, change that out on a constant basis where the teacher and the student are able to see exactly what their progress is, you know on literally a minute-by-minute basis.

So, that’s a technology that is very, very important. It started off essentially as a way of assisting tutoring so it started off in a lower market. But what I want to point out here is it’s an area where government can enable and quicken that pace of that simply by redirecting funds toward more virtual blended learning approaches as opposed to the traditional kinds of approaches we’ve done.

So, government has the ability to dramatically quicken the pace of these both through funding mechanisms, through budgets and other means.

Sean O’Grady
I guess the logical question is what’s standing in the way from allowing them to do that? So, you mentioned metrics there but if it’s apparent – is it happening? Is it not happening? What are the obstacles, Bill?

Bill Eggers
Well, I mean the first obstacle is obviously you know the existing incumbents and interest there. They feel threatened often by disruptions and so there’s going to be a lot of issues there in terms of them actually opposing it and so forth and you actually have to, oftentimes, re-direct some of that funding, which is going to be difficult.

And that’s why the way that these things tend to work the best is when you set up kind of a parallel system where you’re nurturing it, you’re shaping it, you’re letting something grow, and protecting that disruption. And, over time, the ideas get so good that you’ll have a substitution effect and people will be moving on to the new system. And I think we’re getting to that point now in education where it’s becoming very, very apparent what some of the real benefits of this are and we’re seeing an ecosystem of providers now that are forming around developing this which is helping to get it much better, which I think will help to reduce some of the barriers.

Sean O’Grady
And I’d like to bring this back and direct it to you, Michael. So, in your research, what are some of the obstacles that you’ve seen across the board, not just in the public sector but to Disruptive Innovation, in general?

Michael Raynor
You know, I think Bill probably put his finger on it, the notion of the incumbent provider, whatever that looks like. I mean we have--whatever its drawbacks, whatever its benefits for a given problem--we have a solution today, right? It may not be the optimal solution but we have something in place and whoever provides that solution thinks it’s the best possible answer. So, finding ways to create [an] alternative solution by a disruptive method until it gets to the point that you can actually incorporate these things in much less painful way--I think--is probably the most difficult challenge.

So, finding segments of the market--and you can put that in air quotes--finding segments of the market where this disruptive solution is, in fact, better than the current.  Well, then, you’ve got something. So, you can think about remote communities, for example, where it’s very difficult and inordinately expensive to increase the infrastructure and the number of teachers. Those are the sorts of applications where things like online tutoring and so forth have, in fact, found their footholds. They have been able to demonstrate their usefulness.

I mean, computers in education--that’s been around since computers have been around. I remember doing research papers in the early ‘80s about, you know, how we’re just going to change everything and then it didn’t. And the reason it didn't is because we were trying to cram a technology into an existing solution that had no use for it.

And so all it did--and this is something I learned from Bill--all it did is it created more for more. Education got more expensive. It’s gotten marginally better and materially more expensive and so that’s why computers have been – kind of failed in some sense in education. A disruptive approach starts somewhere else with a solution that works for the segment that you’re targeting but then it improves over time until finally it, in fact, becomes the overwhelming superiority to the existing solution. And then – and then you can’t stop it. All right? The challenge becomes not how you implement it, it’s, you know, you don’t have to worry about that anymore. People want it and it happens almost of its own.

Sean O’Grady
Bill, are there any other likely suspects, likely candidates for disruption in your view?

Bill Eggers
Sure, there’s a lot of candidates and one of them is certainly the healthcare arena and I’ll let Michael speak a little bit more about that based on his research. But another one, I think, is actually an alternative to prisons. Right now, we’re having a big national debate. We incarcerate about 50% of the world’s prisoners; 2.6 million Americans are in prison right now per capita, much higher than any other country in the world. And we’re having a debate about have we gone too far and we’re also seeing a lot of prison over-crowding. In California today, we spend, the state spends more on prisons than it does on higher education.

So, what the disruption – the technology there and innovation that can help is electronic monitoring and essentially that’s – you know--ankle bracelets and so forth. Now those are a fraction of the cost, about $5 to $20 a day compared to $70 a day for prisons and yet you can electronically ring-fence where the offenders are essentially and know where they’re at and have a certain amount of control. And the technology is getting better so quickly, pretty soon we’ll be able to do drug and alcohol detection at the same time. And so if we just took a fraction of the low-level offenders that are basically either being sent to prison or are already there and instead used an electric monitoring kind of regime, there are opportunities for a significant cost savings of any billions of dollars literally and I think we’ll improve that.

And so we already have 100,000 prison – 100,000 offenders -- in the U.S. who are under some sort of a monitoring scheme, about 70,000 in the U.K. and I think that’s an area that is likely to grow pretty dramatically over the next decade. And I expect the technologies and the business models to get much, much better and hopefully, we’ll be able to reduce recidivism through these sorts of models.

Sean O’Grady
And, Michael, same question over to you.

Michael Raynor
Yeah, I think it – well, I’ll pick up from the same enabling technology, this notion of remote monitoring and so forth. To pick up on Bill’s examples, you’ll note that he wasn’t suggesting that you use this remote monitoring technology to deal with multiple violent offenders and try to deal with those folks first.  That’s nuts because that’s a really hard problem to solve. You start with people at the other end of the spectrum, right? And so very minor first-time offenders and move from there.

In healthcare, I’ve seen – I’ve seen attempts that have fallen into a similar sort of trap where the home medicine – home-based medicine, right, the medical home and the need to monitor patients in places that are far less expensive than hospitals.  And I’ve worked with some companies who have thought, you know, the really big cost problem in hospitals is monitoring ICU patients because that’s a really expensive infrastructure.   And so, if we could get those ICU patients back into their homes, that’s a really hard problem to solve. I mean if somebody just had a heart and lung transplant, you want to put them in their living room and build an infrastructure model to monitor them remotely, that’s a really high bar.

Instead, the approach that I would see being much more successful is starting with much less, much less challenging medical conditions, developing technologies that deal with those circumstances well, but then riding the curve of technological improvement back to this notion of enabling technology.  It’s building a model that has at its core technology that gets better and as the technology gets better, that same model can tackle much more challenging problems over time without ever having to change it. And that’s the key.

Sean O’Grady
Last question, we have just a few moments left in this segment. And so I’m interested to know about the application of this in the public sector. So some realities – the budget cuts are impending. They’re going to be coming around in 2013 and it is an election year. So Michael, we’ll start with you and we’ll come over to you in Texas, Bill, to finish it out.

Some of the realities – if someone wants to take this and run with it, where would be a logical place to start?

Michael Raynor
Well, I mean, I can – I’ll speak in generalities, at first.  Essentially the trick here is to remember it’s about – I guess, how would I put it?  It’s the irony of being patient which is by being patient, you’ll get where you’re going faster. It’s kind of a Zen quality to this which is that find problems that look small that you think you can actually – and this isn’t a small winds philosophy, right? It’s finding problems that look small that existing technologies and solutions can address effectively.

But what we’ve added to that conversation is, “Wait a minute. You’re solving these small problems not because you want to deal with nickels and dimes at the margin of your big budgetary problem.” It’s understanding that those small solutions, those small problems are, in fact, over time, going to be the solutions to the big problems you’re actually trying to solve.

And it’s very difficult to do because there is an incredible political imperative very often to be seen to be doing something big but their really important problems. And what we’re suggesting is you’ve got to fight that to the extent that you can. Start over here at the side and you will solve those big problems faster, far more effectively, and, in the long-run, with much better outcomes to boot. You really will get more for less.

Sean O’Grady
And, Bill, final thoughts over to you in Austin. It’s an election year; we’ve got budget cuts coming. How would you apply this?

Bill Eggers
Well Sean, you know the President actually talked about one of the areas just a few weeks ago which is higher education where we’ve seen double digit increases for decades. Right now, it’s beyond the ability of most Americans to be able to afford higher education without, you know, substantial grants and subsidies and so forth.

And so that’s an area where it’s gotten – we’ve gotten a lot of more for more over time. And we need to find ways of actually getting more for less. I think that’s a really important area. I would also say, Sean, as important as creating the institutions to enable a lot of experimentation and pilots around these things to happen.

Sean O’Grady
Little changes can lead you down a very big path. Bill, Michael, thank you both very much.

Okay, we’ve been examining the potential for Disruptive Innovation in the Federal government with authors Bill Eggers and Michael Raynor. If you’d like to learn more about Bill, Michael, their books, or the information discussed in today’s broadcast, you can find a wealth of resources on our website. It’s

For all the good folks here at Insights, I’m Sean O’Grady. We’ll see you next time.

1As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries.  Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.  Certain services may not be available to attest clients under the rules and regulations of public accounting.

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