Some might call “innovation in the Federal government enterprise” an oxymoron, given the substantial constraints on Innovation facing most federal managers, including procurement rules, personnel rigidities, and budgeting restrictions. To be sure, the federal government has played a key role in supporting innovation in the commercial sector throughout U.S. history, but that is different than ensuring that the federal enterprise itself is innovative. At that task, the federal enterprise has largely failed. This matters because the only way any organization, public or private, can succeed in the long-term is to be able to regularly and consistently transform itself through innovation, including developing new products, processes, services, and business models.

When a private sector firm like Sears fails to transform itself through innovation, its relative quality declines, it loses market share, its profits shrink, and it often goes out of business. But when the federal government fails to innovate, it doesn’t go out of business. Rather, as the quality of its products and services declines and its costs increase, it just gets farther and farther from its users’ expectations. The relative quality of its products and services declines, its costs increase, and agencies fail to meet customers’ expectations. It is the equivalent of forcing consumers to live in a world without Walmart, Amazon, or any other innovative retailer and having to shop at Sears’ stores, with limited choice and convenience. In that world, people would grumble and complain, while losing faith in Sears as an institution. Today, that is how many Americans feel about the federal enterprise.

This is why driving the transformation of the federal enterprise through innovation is so central not just to improving the lives of Americans and boosting productivity, but also to restoring faith in government. The Trump administration, under the leadership of Jared Kushner, has announced the creation of a White House Office of American Innovation designed to help the federal government “run like a great American company.” We applaud this goal and offer this report as a guide for how the federal enterprise can be transformed by innovation.

Over the past decade, a new science of innovation has emerged in the private sector, as more and more CEOs and corporate boards realize that if they do not transform themselves through innovation that their nimbler competitors will take market share. At the same time, a suite of powerful and affordable technology tools to enable organizational transformation have emerged, mostly in the information-technology area.

To be sure, the private sector is not government, and assuming that simplistic lessons can be drawn from industry and blithely applied to the federal government is naïve. At the same time, prevailing technology systems determine not just private-sector structure and performance but public-sector, too. Best practices and technology tools that drive innovation in the private sector can also be adopted by the federal government.

Improving federal enterprise performance is a perennial topic, from Eisenhower’s Hoover Commission, to Reagan’s Grace Commission, to Clinton’s Reinventing Government, to Bush’s E-Gov Initiatives, to Obama’s innovation efforts. But one major thing is different today. The challenge from the postwar period to the 1980s was principally for the federal enterprise to copy management structures and innovations in large Fortune 500 companies, something that was possible because the latter were bureaucratic structures themselves. Today, the challenge for all large organizations, public and private, is to become more flexible and to use technology to transform themselves. This is hard in big corporations; it is much harder in the federal enterprise. But that does not mean the task is insurmountable. It only means that much more significant change is needed: more than a few innovation pilot programs. Rather, the challenge now is to transform the entire federal enterprise through innovation. This report first discusses the nature of innovation and why it is important in government. It then discusses the unique challenges facing the federal enterprise. Finally, it lays out actionable recommendations the federal government should adopt to transform itself through innovation.

Institutional Models for Federal Innovation Management/Leadership

• Establish a Position of Chief Innovation Officer Within the White House Federal Innovation Approach/Culture 
• Require Agencies to Incorporate an Innovation Component Into All Strategic Plans
• Establish Innovation “Skunk Works”
• Expand the Innovation Fellows Program
• Create an Innovation Ideas Panel Within the Office of Management and Budget
• Congress Should Temporarily Exempt a Few Federal Agencies From Stifling Rules

Federal Innovation Approach/Culture

• Inculcate Design Thinking and Innovation Practices Within Agencies
• Identify 20 to 50 Core Processes to Be Transformed by Innovation
• Create an Expectation for Innovation, Especially Trials, Tests and Pilot Programs 

Resources, Tools, and Best Practices in Federal Innovation

• OMB Should Document Innovation Success Stories
• Support the Creation of Innovation Tool Kits 
• Train Support Functions How to Say Yes to Innovation
• Establish a Bottom-Up Innovation Tool for Federal Employees
• Establish Internal Cultures for Innovation
• Enable and Encourage Federal Agencies to Talk to “Customers”

Metrics and Incentives for Innovation

• Make “Innovating” an Explicit Performance Expectation of Senior Officials 
• Establish a Federal Innovation Awards Program to Provide Recognition for Innovators
• Require More Agencies to Enroll in “Yelp for Government”
• Rank Agency Functions in Terms of Innovation

Financing

• Congress Should Allow Agencies to Divert a Small Share of the Budget to Innovation Projects
• Congress and Agencies Should Allow More Shared Savings Partnerships

Federal Innovation Oversight/Review

• The GAO and Council of the Inspectors General Should Better Understand Innovation Processes to Understand “Good” Risk Taking
• The GAO and Council of the Inspectors General Should Call Out Agencies for Not Innovating
• Congressional Oversight Committees Should Not Penalize All Failed Innovation Efforts

Innovative Government Procurement Practices

• The White House Should Require Innovation Be an Explicit Criterion Within the Government Procurement Process
• Ensure That Pre-Award Contract Specifications Are Broad Enough to Enable Innovative Solutions to Be Offered
• Allow Contractors to Innovate Post-Award
• Enable More Private Companies to Provide Federal Services 
• Establish Government “Platforms” for Innovation and Performance Metrics Where Outside Vendors Can Compete for Performance Improvements