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Government as catalyst

Driving innovation ecosystems

The pandemic showed how government can help speed up innovation in every area—from production of masks to tests, drugs, and vaccine production. This report explores the role of government as a catalyzer of innovation for public good.

The COVID-19 crisis has underlined the importance of constant innovation—and the need to respond with speed, agility, and scale.

In the pandemic’s early stages, governments boosted the production of masks, facilitated data-sharing among pharmaceutical companies, relaxed regulatory requirements for certain tests and drugs, and accelerated vaccine production. These were the essential first steps in what proved to be a highly successful partnership with the private sector, nonprofits, and research institutions.

Throughout the pandemic, governments have served as catalysts, assembling and enabling multisector efforts to cope with the flood of cases and create vaccines. Even before the pandemic, government’s role as a solution catalyzer was growing in breadth and complexity, with an emphasis on how to harness innovation across sectors for public good.

As commercial and cross-sector innovation gained pace, governments have gone beyond fixing market failures. In addition to helping strengthen strategic sectors such as defense and space, governments are fostering cross-sector solutions for a myriad of societal challenges, including public health, climate change, and cybersecurity.

Trend drivers

Several drivers are compelling governments to spur increased cross-sector innovation:

  • Governments are learning to better address market failures in important but high-risk/low-return sectors, such as public health, while helping attract private investment.
  • Spinning in innovation. Historically, government has fostered technological leaps, from space flight to GPS to vaccines; the tech-transfer process then helped commercialize these new capabilities. Leading capabilities are now often already available commercially.
  • Focus on innovation and competitiveness. Nations are strengthening their innovation ecosystems to develop long-term competitiveness and sustainability. In the United States, for instance, the CHIPS for America Act before Congress at the time of writing this would provide US$52 billion to catalyze private-sector investment in semiconductor manufacturing.1

Trend in action

The government-as-catalyst trend is emerging in three main forms:

  • Focusing innovation on key societal issues and reducing friction–often involving ecosystem building.
  • Leveraging external innovation to drive mission delivery–often involving novel partnerships.
  • Seeding critical areas of innovation—a traditional role, but now using more agile approaches.

Focusing innovation on key societal issues and reducing friction

The pandemic highlighted the need for urgency in addressing major societal challenges. For example, US researchers had been working on mRNA vaccines for years before the pandemic made the technology critical.2

The lesson for other challenges, from cybersecurity to climate change, is obvious: Governments can and should take steps to speed up the development of innovative solutions for the benefit of society—focusing on reducing friction by strengthening innovation ecosystems and providing funding, coordination, and strategy for critical issues.

Cybersecurity. Cybercrime incidents cost the global economy more than US$1 trillion.3 Beyond dollars, cybercrime also represents a threat to infrastructure and intellectual property. To address this threat, collaborators in multiple sectors are furthering advances in cybersecurity.

New York City’s new Cyber NYC initiative has three objectives—developing the city’s cyber workforce, catalyzing cyber innovation, and establishing New York as the global cybersecurity capital. With US$100 million in public and private funding, Cyber NYC collaborates with the city’s unique cybersecurity ecosystem, including universities, venture capitalists, and tech firms, and aims to create 10,000 cybersecurity jobs in the New York area. Its multipronged approach includes a City University masters’ program with reduced tuition, a startup accelerator to connect venture capital with cybersecurity startups, and a US$1 million prize for solutions that protect the city’s small and midsized companies from cyberattacks.4

Or consider the US Cybersecurity and Infrastructure Security Agency (CISA), which set up the Joint Cyber Defense Collaborative (JCDC), a dedicated public-private collaborative to ramp up cyber defense operations in August 2021. The collaborative seeks to integrate cyber capabilities sitting across industry and government agencies (federal, state, and local). Through JCDC, CISA is drawing up a comprehensive whole-of-nation cyber defense plan. Prominent industry partners in this initiative include Amazon Web Services, Google Cloud, Microsoft, and Verizon.5

Health care. The Accelerated Access Collaborative (AAC) of the United Kingdom’s National Health Service (NHS) brings together patients, industry representatives, regulators, and various NHS entities to develop and accelerate innovative health solutions.6 AAC provides an online “single front door” that offers information and support to innovators, informs the market of NHS research needs, creates a conducive regulatory environment, and fast-tracks clinical development. These efforts have speeded up the adoption of successful innovations such as software that identifies coronary artery disease without invasive surgery and a test for preeclampsia, a pregnancy complication.7 With added priorities arising from the pandemic, by early 2021, the AAC had supported more than 2,700 innovations.8

Climate action. Governments are investing in jumpstarting cleaner technologies, with global warming being recognized as an existential challenge for the planet.9 The European Clean Hydrogen Alliance, launched in March 2020, is uniting industries with various public entities to develop and scale the use of low-carbon hydrogen energy in Europe. Member states are committing to directly invest €430 billion by 2030 to achieve specific project goals.10

Another multinational effort, Mission Innovation, is driving investment in clean energy technologies. The project’s 23 member governments, including the United States, India, Saudi Arabia, Canada, Australia, Austria, the Netherlands, and the European Commission, expect to invest more than US$250 billion in clean energy research to reduce global emissions. The project’s goals include developing 50 large-scale urban experiments in green living, funding research in carbon dioxide removal, and investing in low-emission equipment for heavy industries. Different countries spearhead each mission—India and the Netherlands, for instance, are leading the Integrated Biorefineries Mission, which aims to develop alternative fuels for the transportation and chemical sectors. Investments to date have supported nearly 1,500 innovations that could avoid emissions of more than 21 gigatons of carbon dioxide annually by 2030.11

Driving inclusion in innovation

Growing inequalities pose another societal challenge and threaten progress. Low-carbon energy sources won’t slow emissions if the world’s poor still need to cook dinner over coal. For this reason, many governments attempting to catalyze innovation now incorporate inclusion strategies into their programs.

The US Department of Energy (DOE) launched its first-ever inclusive energy innovation prize in September 2021. The new prize offers up to US$2.5 million in cash awards to “support entrepreneurship and innovation in communities historically underserved in climate and energy technology funding.” It also aims to lower barriers for entry and simplify application procedures for first-time applicants.12

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Leveraging external innovation to drive mission delivery

The commercial sector has developed many technologies that can be useful in addressing complex societal problems. Governments are exploring ways to harness these capabilities to improve mission delivery in ways that go beyond contracting, to build a wider set of partners and solutions.

Adapting such technologies in the public sector isn’t always easy. Unlike commercial entities that have access to legal and financial structures, such as joint ventures and mergers and acquisitions, governments must find more creative ways to capitalize on external innovation, based on mutual interest and advantage across sectors.13

Spinning in commercial capabilities. Since 2015, the US Department of Defense’s Defense Innovation Unit has accelerated the adoption of commercial technologies for the military.14 Other agencies are implementing similar initiatives—both to take advantage of existing/mature solutions more effectively (lowering barriers to entry), and by seeding/shaping the development of nascent solutions.

In fact, public procurement can play an important role in private-sector innovation by driving demand, especially in the precommercialization stage.15 One analysis suggests that 81% of Organization for Economic Co-operation and Development (OECD) nations have launched initiatives to bolster innovation through public procurement.16 The US National Aeronautics and Space Administration (NASA), for instance, uses its procurements to help scale and sustain companies that can help the agency’s missions. By offering grants through the federal Small Business Innovation Research (SBIR) program to companies that may be rich in new ideas but short on resources, NASA has helped catalyze the commercial space economy, which is expected to grow to more than US$1 trillion in value during the next two decades.17

In 2021, the Indian national government established its City Innovation Exchange, a digital marketplace that facilitates the public procurement of innovative technological solutions to address municipal challenges. By simplifying the procurement process and enabling innovators to design, test, and validate solutions through sandboxes—controlled environments allowing innovators to test products, services, or new business models without having to follow all the standard regulations—the platform is designed to accelerate lab-to-market transfers and provide a boost to Indian startup companies.18

In addition to these specialized partnerships, governments should stay abreast of the latest developments in the external landscape. To do so, some governments have established sensing and scouting units.19 From the US Homeland Security’s Technology Scouting program to the Australian Department of Defense’s Emerging Futures initiative, more and more government agencies have dedicated teams scanning for emerging technologies that could affect their missions.20

Seeding critical areas of innovation

Governments have historically played a major role in commercial innovation by reducing the market risks of emerging technologies through R&D grants, tax credits, and other tools. Today, governments are increasingly setting up specialized investment structures to promote experimentation in areas where private investment may be scarce.21

This approach was pioneered by the US Defense Advanced Research Projects Agency (DARPA) in the late 1950s. Its fail-fast, fail-forward approach intentionally gives innovators room to experiment.22 While not new, investment in derisking and accelerating next-generation technologies is growing. DARPA-like approaches are mushrooming across the globe to catalyze solutions to megachallenges. And with technologies advancing rapidly, traditional R&D methods relying on long gestation periods are making way for more agile approaches.

Inspired by DARPA, Italy established ENEA Tech and Biomedical with an endowment of €500 million. This entity is designed to advance innovative technologies of national interest, with an initial focus on health care and biomedical innovation and technology transfer.23 ENEA Tech provides support along the entire innovation value chain, including long-term finance, production scaling, and market uptake of technologies.24

In 2021, the UK government announced the creation of an Advanced Research and Invention Agency (ARIA), with a four-year budget of £800 million. Like DARPA, ARIA will remove multiple layers of approvals across the R&D lifecycle. While DARPA’s objectives are tied to defense, ARIA will serve multiple government departments to address cross-cutting societal challenges.25

Vaccine development and distribution in the United States

The COVID-19 pandemic created unprecedented urgency for both therapies and vaccines. Decision-makers in the US government, public health, and the medical and pharmaceutical community convened to rethink the development process as quickly as possible. The result, a public-private partnership called Accelerating COVID-19 Therapeutic Interventions and Vaccines (ACTIV), dramatically accelerated both novel and repurposed therapeutic and vaccine development.

Since its launch, ACTIV has been committed to streamlining COVID-19 vaccine development and testing processes through the following:26

  1. Standardizing and facilitating data and information exchange among the participating entities in the preclinical stage.
  2. Accelerating clinical trials by leveraging existing trial and research sites.
  3. Expediting vaccine evaluation for faster approvals.
  4. Coordinating regulatory tasks and procedures and leveraging assets among all partners.
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Moving forward

  • Evaluate in-house capabilities to determine if they’re adequate for the project or mission. If not, assess existing capabilities in the market and consider whether they can be used to meet mission needs.
  • Create dedicated sensing and scouting units to identify emerging technologies and capabilities in the market. Without this ability, government agencies risk finding themselves perpetually trying to catch up with changing citizen expectations, new business models, and innovative technologies. Sensing and horizon-scanning capabilities can help leaders stay ahead of the game, allowing them to better anticipate future risks and developments and think about new policies that may be needed.27
  • Establish an optimal partnership structure for public-private collaboration. Identify the best owner for each phase of the partnership; for instance, decide which entity will fund the project and which one will be responsible for execution. The optimal structure of any partnership will vary according to the goal or mission. A project with a large degree of uncertainty may call for greater public involvement.
  • Follow an agile governance model for innovation. Establish government-industry sandboxes to prototype and test new approaches and encourage a culture of experimentation.

My take

Jenn Gustetic, director of Early Stage Innovations and Partnerships, NASA

How NASA supports innovation

NASA’s Space Technology Mission Directorate (STMD) supports a range of companies, including small businesses that aspire to supply innovative solutions to NASA. In 2021, for instance, NASA partnered with five US small businesses that will receive nearly US$20 million in NASA funding to create innovative lunar capabilities. In the same year, we selected six university-led lunar research projects to pursue advances in in situ resource utilization and sustainable power solutions.

At NASA, innovation can come from anywhere. STMD has a range of programs—Small Business Innovation Research (SBIR), Small Business Technology Transfer (STTR), Technology Transfer, Prizes, Challenges, and Crowdsourcing (PCC), Space Technology Research Grants, Center Innovation Funds and Early Career Initiative, and NASA Innovative Advanced Concepts—to support early-stage, emerging capabilities in space that can benefit the entire agency and the emerging commercial space ecosystem.

Our SBIR/STTR program, for instance, provides initial funding for promising ideas from small businesses and entrepreneurs. Since its inception, SBIR/STTR has made awards to small businesses in all 50 states. These companies have been pivotal to many of the agency’s programs and missions, including the International Space Station and the Mars Curiosity Rover.

NASA’s moon return mission will require breakthrough technologies and capabilities from commercial companies across the nation. Already, more than 3,000 US companies, many of them small businesses, are working to support this mission.

To form successful partnerships, it’s important to closely track the trajectory of emerging technologies that could affect space exploration. At STMD, we have dozens of principal technologists and system capability leaders who are responsible for such market sensing. Their knowledge drives our technology solicitation planning and strategic development activities.

Exciting times lie ahead for the space industry, and NASA will continue to support innovative ideas from small and early-stage companies, while extending its partnerships with the bigger companies to advance the commercialization of space.

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Government Innovation and action

Senior leaders in state and local governments confront shrinking resources, demanding constituents, complex policy environments, and relentless pressure to deliver results in a tight timeline. Deloitte can help leaders set their agendas, identify innovative solutions, organize their teams, and deliver impactful outcomes with confidence. Combining a leading management perspective with rigorous, objective analysis, and a deep understanding of “what works,” Deloitte can help senior leaders turn great ideas into delivered results.

Learn more

  1. The White House, “Fact sheet: Biden-⁠Harris Administration bringing semiconductor manufacturing back to America ,” press release, January 21, 2022.

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  2. Elie Dolgin, “The Tangled History of mRNA Vaccines ,” Nature, September 14, 2021; Jan C. Breitinger et al., Good practices in mission-oriented innovation strategies and their implementation , Bertelsmann Stiftung, accessed February 10, 2022.

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  3. Business Standard, “McAfee report says cybercrime to cost world economy over $1 trillion ,” December 7, 2020.

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  4. Cyber NYC, “Building NYC’s cyber future ,” accessed February 10, 2022.

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  5. CISA, “CISA launches new joint cyber defense collaborative ,” August 6, 2021.

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  6. United Kingdom National Health Service, “Accelerated Access Collaborative: Role of the boosted Accelerated Access Collaborative ,” accessed February 10, 2022.

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  7. United Kingdom NHS, “NHS Accelerated Access Collaborative ,” accessed February 10, 2022; UK NHS, “How do we do this ?,” accessed February 10, 2022; Philippa Brice, “New and improved innovation unit to lead on accelerated access ,” PHG Foundation, May 1, 2019.

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  8. PPP, “Are these the shadows of the things that will be, or the shadows of things that may only be ?,” January 8, 2021.

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  9. Bruce Chew, Tiffany Fishman, and Richard Longstaff, Climate-forward government : Seven lessons for effective climate action, Deloitte Insights, July 30, 2021.

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  10. European Commission, “European Clean Hydrogen Alliance ,” accessed February 10, 2022.

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  11. Mission innovation, “23 governments announce new missions to accelerate innovation in clean energy technologies that can decarbonize sectors responsible for 50% of global emissions ,” November 9, 2021.

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  12. US Department of Energy, “DOE announces new $2.5 million prize to support diversity in innovation ,” September 30, 2021.

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  13. Max Meyers and William D. Eggers, What government can learn from venture capital: How government venturing can “spin in” commercial innovation , Deloitte Insights, May 23, 2019.

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  14. US Department of Defense, “Defense innovation unit (DIU) ,” accessed February 10, 2022.

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  15. Tanya Filer, “How governments can turn procurement into a climate innovation tool ,” Brookings Tech Stream, September 16, 2021.

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  16. OECD, “Public procurement for innovation ,” accessed on February 10, 2022.

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  17. Morgan Stanley, “Space: Investing in the Final Frontier ,” July 24, 2020.

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  18. G20, G20 Report: Practices of innovative public procurement for smart cities and communities , August 2021, pp. 6–8; India Ministry of Housing and Urban Affairs, “Urban development through open innovation ,” accessed February 10, 2022.

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  19. Filer, “How governments can turn procurement into a climate innovation tool .

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  20. US Department of Homeland Security, “Technology scouting ,” accessed February 10, 2022; Australian Government Department of Defence, “Emerging futures ,” accessed February 10, 2022.

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  21. Max Meyers and William D. Eggers, What government can learn from venture capital: How government venturing can “spin in” commercial innovation, Deloitte Insights, May 23, 2019.

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  22. Jeff Tollefson, “The rise of ‘Arpa-everything’ and what it means for science ,” Nature, July 8, 2021.

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  23. Francesco Profumo, “The agreement with FBK for the enhancement of technological transfer has kicked off ,” FBK Magazine, February 3, 2021; Massimo Gentile, “Cos’è la Fondazione Enea Tech e Biomedical, l’idea del MISE per supportare la ricerca farmaceutica ,” The Watcher Post, January 7, 2022.

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  24. Salvo Mizzi, “How Italy is creating the markets of tomorrow ,” World Economic Forum, June 2, 2021.

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  25. United Kingdom Department for Business, Energy & Industrial Strategy, “Advanced Research and Invention Agency (ARIA): Policy Statement ,” March 19, 2021.

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  26. David Wholley, “Accelerating COVID-19 Therapeutic Interventions and Vaccines (ACTIV) ,” Foundation for the National Institutes of Health, June 12, 2020; Francis S. Collins and Paul Stoffels, “Accelerating COVID-19 Therapeutic Interventions and Vaccines (ACTIV)—An unprecedented partnership for unprecedented times ,” JAMA 323, no. 24 (2020): pp. 2455–2475.

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  27. William D. Eggers et al., How governments can navigate a disrupted world: Foresight, agility, and resilience , Deloitte Insights, July 24, 2020.

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The authors would like to thank Aishwarya Rai for her research on the data map. 

Cover image by: Jaime Austin and Sofia Sergi

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