High risk, high return: How to secure funding for public sector innovation

The UK has a proud history as a global innovation leader, with successes including virtual hospital wards, AI for rail track inspections, and sub-sea automation to improve the maintenance of offshore windfarms. Innovation continues to be a priority, and is the theme for this year’s Modern Civil Service One Big Thing annual initiative. Public sector investment in innovation is essential to develop and apply new ideas that offer value through better, faster, more efficient services. Ultimately, these services improve citizens’ quality of life. How can departments make the case for investment in innovation, and bring transformative ideas to life?

The challenge: innovation versus traditional risk-averse models

All government departments develop funding proposals using HM Treasury’s Five Case Model. This ensures value for taxpayers’ money by rewarding initiatives that present clear, tangible outputs and outcomes. However, there’s a tension in applying this approach to novel science and technology investments with inherent levels of risk, and it requires an acceptance of ‘failure’. This aversion to failure can delay the approval of otherwise sound, innovative ideas.

The Department for Science, Innovation, and Technology (DSIT) has recognised that supplementary Green Book guidance is needed for research and development investment, but this won’t come in time for the upcoming Spending Reviews in December. The following three areas can help to secure investment from HM Treasury for innovative projects, strengthening proposals:

1. Inspire through the ‘size of the prize’

Innovation involves developing new and novel products, services, or processes. This makes it challenging to evidence how anticipated benefits will be achieved, and deliver value for money. To overcome this, the case for change needs to work twice as hard.

Demonstrate the size of the prize by describing the scale of the problem and the benefits of solving it. This builds a compelling argument for decision-makers and helps to overcome the inherently higher risk of innovation funding. Underpin this with robust analysis to show that, even despite ‘false starts’ and dead ends during development, the reward is worth the potential cost of failure. It’s important to justify why an innovative solution is required. Pick apart the limitations of current ‘off-the-shelf’ options to evidence why public sector innovation investment is needed, and how it will stimulate creation, adoption, and diffusion.

In our work for the UK’s Defence Science and Technology Laboratory (Dstl), we were tasked with making the case for investment in a quantum-based radio sensor. The range of frequencies within which traditional antennae work is getting more congested and contested. This poses significant issues – in the aftermath of a terrorist incident, emergency services might struggle to get the clear bandwidth needed to coordinate a response. The business case needed to show when quantum sensors would outperform traditional antennas – as quantum technology is nascent, this was a core challenge. By plotting two vectors – sensitivity and time – we identified this point in time as just over four years away. This supported the case for the UK to invest in capabilities now to compete at the cutting edge of quantum application.

2. Build confidence through control

Studies show that 70 to 90 percent of all innovation attempts fail to realise their full potential, so it’s important to build confidence that the proposed investment will achieve the desired outcomes and benefits. Two approaches can help to boost confidence.

The first approach is to create a varied portfolio – in other words, don’t put all of your eggs in one basket. By pursuing multiple options in parallel, departments can spend incrementally on ideas with the greatest potential while avoiding reliance on a single solution that may later prove less viable and valuable. This might mean spending £100,000 across 20 projects to reach a proof-point that allows a down-selection of 10 projects, then spending another £100,000 to down-select three, and so on. Throughout, consider the minimum spend needed to determine if further investment is worthwhile, and which experiments best validate assumptions.

The second approach is to establish a clear decision framework, underpinned by strong governance. Align all metrics to portfolio objectives and agree a suite of bespoke proof-point thresholds for each potential innovation. This enables innovations to be accelerated or paused depending on their potential viability. Importantly, this avoids prematurely excluding solutions with longer development timeframes. For example, during the COVID-19 pandemic, we took a leading role in the UK ventilator challenge. A clear decision framework ensured prototypes were effective, durable, and scalable. A Technical Design Authority (TDA) served as the primary decision-making body for ventilator designs, narrowing 200 designs down to 15 within four weeks before agreeing on the preferred approach.

3. Link outcomes to wider UK priorities

Departments can make the strongest case for innovation funding by ensuring the intended results of the project fuel the UK’s wider productivity agenda and drive economic growth. Innovation sits right at the heart of solving the productivity puzzle. Making the link between innovation and growth will speak directly to government priorities – better productivity leads to better living standards, while tackling climate change, improving social justice and providing optimal health outcomes.

As well as the results of innovation itself, innovation journeys bring multiple additional benefits to the ecosystem that sits around them. One key benefit is a well-managed, documented innovation programme that provides value to the wider ecosystem. A clear monitoring and evaluation framework can accelerate the development of other innovators. Focus on learning from the outset, disseminating findings widely. View results, data, and lessons learned to provide an evidence base to inform adjacent or future investments. Another benefit is upskilling and building the capacity of the teams working on innovative projects. Developing a culture of innovation and investing in applied research reframes the perception of upskilling as a ‘sunk cost’. Metrics such as staff satisfaction, productivity, and promotions help to quantify the benefit.

Incorporating these three areas into funding submissions will give decision-makers the confidence that innovation programmes offer value for money and positive impact. This maximises the chance of approval, supporting the delivery of real, outcome-focused change.