Original Research

Financing public sector innovation in the national sphere of government in South Africa

Lucia Masilela, Danielle Nel-Sanders

Received: 08 Sept. 2024; Accepted: 29 July 2025; Published: 29 Oct. 2025

Copyright: © 2025. The Author(s). Licensee: AOSIS.
This work is licensed under the Creative Commons Attribution 4.0 International (CC BY 4.0) license (https://creativecommons.org/licenses/by/4.0/).

Abstract

Background: Innovation in the public sector contributes to increased efficiency and effectiveness. However, limited financial resources restrict the government’s ability to effectively scale up public sector innovation (PSI), which impacts existing and future-oriented service delivery mechanisms. As a result, the government is often limited in how much it can upscale innovation.

Aim: The aim of this article is to describe financing mechanisms and challenges at the national level of the public sector in South Africa.

Setting: The research focuses on three government institutions, namely the Centre of Public Service and Innovation (CPSI), the Department of Science, Technology and Innovation (DSTI) and the Technology Innovation Agency (TIA).

Methods: A qualitative research approach was employed using a multiple case study strategy. Primary data were collected through semi-structured interviews. The findings of the research are presented according to each case study and the themes that were derived from the thematic analysis of the interview responses.

Results: The research findings highlight that internal structures and systems related to financing innovation require revision to increase the uptake of PSI trends, practices and solutions.

Conclusion: The study concludes that there are several funding challenges regarding the fiscal budgets of the CPSI, DSTI and TIA.

Contribution: This research contributes to current knowledge on public sector innovation, highlighting the various challenges in open innovation, monetary resources and procurement in innovation programmes and providing recommendations to overcome these challenges. This raises awareness for decision-making and policymaking in the national sphere of government.

Keywords: government; innovation; public sector innovation; finance; budgeting.

Introduction

Financing innovation in the South African public sector has been an important focal point for the government as public sector innovation (PSI) projects and programmes continue to require funding mechanisms and approaches. Financing innovation requires robust strategies in order to ensure that the government is able to deliver the highest standard, quality and quantity of its public sector goods and services by innovating its current service delivery mechanisms through the development and implementation of various PSI projects and programmes. Financing innovation in the public sector context is often challenging, as there are a number of complexities that stem internally from its government structures, systems and processes. The realities of limited budget allocations, bureaucratic inefficiencies and regulatory red tape can hinder the effective implementation and sustainability of PSI initiatives, projects and programmes. In addition, the South African public sector faces obstacles in acquiring and mobilising alternative funding mechanisms to support innovation-driven public sector projects and programmes. Furthermore, the delivery of innovative public sector goods and services is not a linear process, as there are high levels of risks, uncertainty and inconsistent fluctuations in financing PSI that the government and its public sector institutions must account for. There exists a gap in the body of knowledge on the relevant financing complexities for PSI; this study thus explores the financing mechanisms and approaches used to support PSI projects and programmes. Specifically, the study was guided by the following research questions:

• What are the financial constraints, complexities and barriers of PSI projects and programmes in the national sphere of government?
• What are the opportunities and potential funding strategies and mechanisms that could enhance the financing of PSI projects and programmes in the Centre of Public Service and Innovation (CPSI), Department of Science, Technology and Innovation (DSTI) and Technology Innovation Agency (TIA)?

Literature review

Innovation, as the adoption of innovative trends and tools to conduct daily operations and functions of private and public sector institutions, has become a driver for success, product and service delivery, as well as the efficiency and productivity of an organisation’s functions and operations (Meissner & Kotsemir 2016:1).

The term ‘innovation’ can be traced to the Latin word ‘innovare’, which directly translates to ‘to make something new’ (Lin 2006:613–632, 2007:23). A more detailed description and definition of innovation is that it is:

[T]he implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations. (Organisation for Economic Co-operation and Development [OECD] & Statistical Office of the European Communities 2005:47)

The concept of innovation therefore provides a construct that it is essentially about developing and implementing innovative practices in organisations, not to consistently create new products and services, but rather as an effective method for the development and implementation of new solutions to existing or predicted challenges and changes. Innovation allows private and public sector institutions to utilise and incorporate strategies and approaches to change and solve current and outdated product and service delivery mechanisms in order to improve on the service experiences, expectations, demands, and satisfactions of citizens and clients.

Public sector innovation in the 21st century

Innovation in the public sector can be described as the establishment and application of new procedures, items, services and delivery strategies and approaches that can considerably enhance the effectiveness, efficiency, uniformity and/or quality of a country’s public sector goods and services (Mulgan & Albury 2003:5). Public sector innovation is necessary for the improvement of the delivery of public sector goods and services to a country’s citizenry. The requirements of PSI move beyond merely brainstorming and generating new ideas to implement in the delivery of public sector goods and services. Innovation in the public sector requires governments to redefine, reimagine and restructure their current strategic goals, objectives, programmes, systems and processes that are geared towards conducive, effective and efficient PSI outcomes (Australian National Audit Office 2009:1).

One of the challenges associated with innovation in the public sector is that there is a notion that innovation practices are more applicable and widely acceptable for use in the private sector than in the public sector. This has created many barriers and challenges in experimenting with innovation practices in the public sector (OECD 2017:11–12). This requires governments to approach PSI in two fundamental ways. Firstly, the government must examine the institutional, structural and operational management elements that are triggered by innovation. This requires an analysis of elements that exist and are needed to operate a government institution in order to deliver public sector goods and services. These elements could include policies, frameworks, regulations, departmental budgets, hierarchical structures, organisational designs and infrastructural resources. Secondly, the human resource management elements should also be emphasised, particularly public sector personnel and their role in PSI. Finally, the institutionalisation of PSI practices must also consider changes in the government targeted at the implementation of innovation practices that enhance and improve the attitudes, belief systems, culture, skills sets and capacity of public sector personnel to be innovative in the delivery of public sector goods and services (OECD 2017:11–12).

Leveraging public sector innovation in a Brittle, Anxious, Non-Linear Incomprehensible world

The changing nature of governance challenges presented by a world that has moved beyond the Volatile, Uncertain, Complex and Ambiguous (VUCA) age to a Brittle, Anxious, Non-Linear, Incomprehensible (BANI) age requires that governments proactively adopt transformative innovation and new technologies, policies and institutional and operational strategies to improve the responsiveness, effectiveness and efficiency of their public sector systems, processes and functions. The BANI world is the current and developing environment that characterises the pace and scale at which innovation is transcending and affecting all disciplines and practices, which changes and influences how organisations in both the private and public sector environments operate. An overview of the BANI model is important in order to thoroughly understand the lens and scope of a BANI world. The BANI world comprises a model that can be utilised as a more relevant and comprehensive paradigm to navigate through the complexity and chaotic realities of existing and emerging digital environments. The model consists of four components: brittle systems, anxious environments, non-linear dynamics and incomprehensible complexity:

• Brittle systems: The first component characterises how globalisation can impact the efficiency and effectiveness of organisations, which may result in possible collapses of systems that are designed to operationalise an organisation. The brittle collapse of systems can lead to negative and damaging impacts on the delivery of public sector goods and services, which may result in stagnant and failed service delivery mechanisms. Furthermore, the collapse of brittle systems can undermine and affect the adaptability and resilience of an organisation as it navigates through innovation ecosystems. This can place organisations in complex and unpredictable circumstances, which further increases the chances of failure. Public sector organisational management must therefore develop and implement monitoring and evaluation systems and indicators that will assist in identifying possible system failures and developing strategies and solutions.
• Anxious environments: The second component characterises how constant exposure to uncertainty and the unpredictability of information can lead to an environment in which organisational management is stressed and may face challenges in making concise decisions that are needed to strategically and operationally move the organisation forward. Within the public sector context, the inability to make decisions at the right time because of a lack of factual, viable and reliable information could impact the service delivery mechanisms of public sector institutions, which may affect vulnerable and disadvantaged citizens and communities. It is therefore necessary for organisational management to implement measures that will afford it the opportunity to access, review and utilise data and information for decision-making processes. Furthermore, it is important that organisational management establish and maintain an environment that is conducive to constructive feedback and opportunities to create a positive and enabling environment for change.
• Non-linear dynamics: The third component characterises how the lack of predictable cause-and-effect relationships and dynamics impacts how an organisation is able to lead and navigate in unpredictable and complex environments. The existing factors of unpredictability result in non-linear circumstances and outcomes, which could negatively impact the delivery of public sector goods and services and create additional challenges in poor and unresponsive service delivery outcomes. This requires public sector organisational management to review and redesign their decision-making processes and systems and consider how the adoption of a ‘non-linearity’ approach could be incorporated into the roles, responsibilities and functions of organisational management.
• Incomprehensible complexity: The last component of the BANI model characterises how the overload of data and information can be overwhelming for decision makers, which can affect their ability to make timely decisions. In addition, information overload may impact the quality and feasibility of organisational management’s ability to comprehend their decisions, which results in either poor or incorrect decisions. Public sector organisations should adopt technologies that can assist in minimising incomprehensible complexities in the workplace while simultaneously improving the creation and maintenance of a culture of transparency and accountability throughout the entire organisation (Hope 2024:2–3; Mieszajkina & Ostapińska 2024:274; Schlegelmilch 2023:3).

Innovation is associated with research and development (R&D) because it is considered a source for the development of new ideas. Research and development can be described as systematic processes undertaken by public sector institutions to identify, develop and implement new methods and strategies in order to achieve and sustain innovative practices, principles and trends in the public sector. Research and development is designed to drive the creation of novel processes, systems, digital tools and resources, as well as service delivery models that are geared towards improving the efficiency, effectiveness and responsiveness of service delivery demands. Research and development serves a significant role in justifying and guiding public sector investments in innovative ideas, projects and programmes. Research and development is not the only path towards innovation; it can be considered a very important enabler of innovative trends and practices. Innovation is not always systematic and process-oriented; it can take place independently of formal and systematic R&D activities. Innovation can be identified and practised in various forms and types. Innovation can be incremental and evolutionary through consistent improvements in variations to something that already exists; it can be a product, service, system, or process. Innovation can also be considered and practised radically and revolutionarily in the sense that it results in entirely new products, services, systems and processes. Radical innovations are often linked and associated with Joseph Schumpeter, an economist who conceptualised radical innovation as ‘creative destruction’. Radical innovations are associated with high risks, uncertainty and volatility, and are transformative in nature to the extent that traditional methods are no longer the norm (Popper et al. 2020:5).

Defining and conceptualising financial innovation

Financial innovation can be described as the process of developing new procedures, services or financial goods, particularly in the financial sector. The adoption and advancements of technological payment systems and financial instruments have led to financial innovation (Chen 2021:1). Financial innovation cuts across industries and sectors and is gravitating towards the improvement of financial services, systems and budgeting strategies and the development of new income streams and possibilities. The adoption of digital technologies changes how people and institutions save, borrow, invest and pay for goods and services, which contributes to a transformation of the financial services sector (Feyen, Natarajan & Saal 2022:1). The heightened increase of and need to implement and adopt innovative trends, practices and principles into the public sector have become an increasingly important focus of governments on a global scale. Financing innovative projects and programmes in the public sector environment is far more challenging and complex than it is in the private sector. The government is mandated to provide public sector goods and services that are free and accessible to the public without additional costs; there are thus no competitive nature, demands and models such as those that exist in the private sector. Private sector institutions that adopt innovations, new goods, or services will see gains in profitability and operational efficiency. The ability of businesses to recognise and capitalise on these breakthroughs and creativity is what propels them to succeed in a competitive market and in an ever-changing global landscape. Private and public sector institutions can adjust to their surroundings thanks to the adoption of innovation. More significantly, it enables them to recognise and manage changes in the external environment (Akkaya 2019:117; Dinçer & Yüksel 2019:115).

Budgeting and project management practices for innovation in the public sector

Budgeting and resource allocations are important processes to be administered in all public sector institutions and, in most instances, are subject to heavily regulated procedures, requirements, laws and protocols. Budgeting rules, for example, can influence the availability of resources for innovation financing in government, as well as organisational incentives and benefits for innovation. This often has a deciding influence on the types of opportunities for reinvestment to grow innovative capacity and support departmental priorities. Budgeting can also impact a department’s ability and desire to share funding and savings across departmental boundaries in support of common and shared innovation goals and objectives (Selepe & Thusi 2023:205–206). Project management and reforms themselves are another collection of procedures related to the innovative capabilities of public sector institutions. Most government departments are forced to restrict their approach to project management through strictly defined staged techniques that specify common phases and standards for project design and implementation in advance. Project management activities, functions, roles and responsibilities are often not systematically conducted, as they can change and shift based on the nature and types of projects and programmes undertaken by a government department. This often deviates from the traditional and systematic rules and protocols of the government and its public sector institutions (Daglio, Gerson & Kitchen 2015:23–24).

Theoretical framework: New Public Governance

Over the past few decades, multiple public management reforms and practices have governed and guided governments and their public sector institutions towards improving the efficiency, effectiveness and flexibility of their public sector goods and services. New Public Governance (NPG) reforms have been identified as an evolving reform that is dedicated to enhancing public value creation through advancing cross-sectoral collaborations while simultaneously assisting all facets of civil society (Krogh & Triantafillou 2024:3040–3041). New Public Governance has become increasingly popular and relevant to the increased use of governance networks and partnerships needed for strengthening and enhancing existing and future public–private partnerships that are designed to address complex socio-economic challenges while simultaneously producing public value (Osborne 2006:378). New Public Governance emphasises the importance and significance of the formation of collaborative networks that are designed to ensure the exchange of knowledge and a pool of resources between and across government actors. This is important for creating innovations that will ‘disrupt conventional wisdoms and habitual practices’ (Torfing et al. 2020:128). Collaborative innovation under NPG reform requires ‘a new set of roles for politicians, civil servants, leaders of institutions and not least citizens’ (Kann-Rasmussen 2024:585–586). Incorporating a variety of stakeholder partners in the decision-making practices and problem-solving under NPG reform results in the public sector becoming a heterophone (Andersen & Pors 2016:110).

Figure 1 provides an illustration of five principles that have been identified as the cornerstone of NPG practices in the public sector context. These principles create a framework in which innovative solutions can be developed and thrive in order to meet the demands and transitions of developing environments.

FIGURE 1: Five principles of New Public Governance.

Research methods and design

The institutions that were analysed comprised national government departments in the South African public sector, namely the CPSI, DSTI and TIA. The study predominantly made use of a qualitative research approach. Researchers who employ qualitative research methods examine components in their most natural environments before attempting to explain or interpret the occurrences they discover in light of the meanings that participants assign to the research (Lim 2024:2). This study was based on a qualitative multiple case study design.

Data collection and analysis consisted of three phases. The first phase of the qualitative research method involved the use of interviews, particularly semi-structured interviews. The interviewee responses were coded and numbered as Participant 1 (P1), Participant 2 (P2), and so forth in numerical order for each participant from the CPSI, DSTI and TIA. The second phase made use of a multiple case study analysis. A multiple case study analysis was deemed most appropriate for the study, as it allowed for opportunities to find and showcase sufficient and substantial evidence that could assist in providing a strong case for the establishment of a theory that would provide rich descriptions for the case study phenomena. The multiple case study analysis approach allowed for the application of replication in order to analyse the differences, similarities and linkages between the three government institutions by analysing their internal systems, processes, strategies, hierarchical structures and functions. The third phase collected and made use of secondary data.

Population and sampling size

Because of the nature and intensity of a qualitative research study, sampling necessitates the use of a small sample size. Small sample sizes help researchers to identify and focus on a sample that will be most important, meaningful and useful to the goals and objectives of their qualitative research. The sample size in this study was based on the use of non-probability sampling. The study employed purposive sampling, which is frequently used in qualitative research studies when researchers want to gain in-depth, rich and detailed knowledge, insights, opinions and viewpoints to learn more about a specific or general group of understudied phenomena. This type of sampling technique is most successful and useful for small populations identified by a researcher. The sample size for this study consisted of eight departmental management personnel, which included Executive Directors, Director Generals, Deputy Director Generals, Chief Directors and Heads of Departments. These personnel were chosen based on their vast experience, knowledge, skills and expertise, as well as their involvement and contributions towards R&D support for funding mechanisms and approaches in financing PSI.

Validity and reliability of the study

To enhance the study’s credibility, an interview questionnaire was developed based on gaps identified in the preliminary literature review process and was reviewed by an expert. The semi-structured interview responses were analysed through thematic analysis. A detailed audit trail was maintained throughout the coding and analysis processes to document interpretations and findings to support transparency and reliability. The findings were categorised under each theme and a cross-comparison of these themes and the semi-structured interview responses was conducted for each of the three departments. Triangulation was also utilised in this study. Heale and Forbes (2013:98) define triangulation as ‘the employment of different approaches to answer research questions or test hypotheses’. Triangulation was utilised through the verification of multiple data sources to find other sources to support the participants’ responses. These included credible and authentic government websites, research reports, annual performance plans and the annual strategic plans of the CPSI, DSTI and TIA.

Ethical considerations

In adherence to the Protection of Personal Information Act (No. 4 of 2013), no participants’ personal details and information were used for this study without their acknowledgement or consent. Prior to data collection, ethical approval for the study was obtained from the University of Johannesburg’s College of Business and Economics’ Research Ethics Committee (Approval No.: 20PMGPP18). The involvement of senior government personnel required additional steps to ensure ethical compliance, which included gatekeeping clearance from each department. All participants received and signed detailed informed consent forms prior to participating in the interviews. In addition, three government departments at the national sphere were included in this study – the Department of Science and Innovation (DSI), the Centre for Public Service Innovation (CPSI) and the Technology Innovation Agency (TIA) – which granted permission to collect data through the use of interviews.

Results

This section systematically presents the findings of the study by categorising them into key themes that emerged from the data. The findings are categorised according to the following themes: financing, collaboration and partnerships; emerging technologies and digital resources; citizen participation and engagement; accountability and transparency in procurement; and decentralisation and delegation of power. These themes are in line with the principles of NPG. See Figure 1 for an illustration and description of the five principles of NPG.

Theme 1: Financing, collaboration and partnerships

Theme 1 relates to how decisions are made about funding and the roles and responsibilities related to the implementation thereof. The findings are presented for each selected case study, namely the CPSI, DSTI and TIA.

The growth, development and sustainability of the government are achieved through the accumulation of sustained investments through various partnerships, donors and private investors from both public and private sector institutions. The innovation and economy of a country work hand in hand. One participant highlighted the following:

‘The development of an open innovation ecosystem will allow for the participation and partnerships of non-traditional stakeholders who could provide leadership, guidance, expertise, and excellence within the scale and scope of open innovation practices. These can include SMMEs [small, medium, and micro enterprises], cooperatives, civil society, industries, and universities to collaborate with. In addition, developing a PSI forum or committee that can be utilised to analyse, assess, and generate best practices for innovative trends and practices between governments can help to bridge the gaps in order to swiftly transition from idea development to adoption and implementation of those innovative trends.’ (Participant 5, 49 years old, female)

The utilisation of partnerships towards innovative governance and developing and maintaining relationships and partnerships with various industries, firms and sectors to increase the pool of resources, capabilities, skills, knowledge and expertise in the practice and implementation of innovation governance will improve the delivery of private and public sector goods and services.

Financing innovation for the Centre of Public Service and Innovation

The Department of Public Service and Administration (DPSA) established the CPSI as a government component to unlock innovative practices, trends and principles across the public sector. The CPSI was assigned the task and responsibility of creating an atmosphere that is favourable and viable for PSI trends, practices and principles to ensure improved and cutting-edge service delivery methods. The CPSI’s mandate and mission entail creating creative, adaptable and sustainable methods for better public sector service delivery (Republic of South Africa [RSA] 2023c). The CPSI has two approaches to undertake PSI. The first approach consists of identifying service delivery challenges and shortcomings that could be improved and enhanced through the adoption and implementation of innovative solutions. The second is an external approach whereby individuals in the communities, organisations, researchers, innovators and various other stakeholder partners approach the CPSI with service delivery challenges that the CPSI could assist in resolving. A participant mentioned that:

‘[T]his dual approach towards identifying and finding innovative solutions to service delivery challenges allows for a hybrid approach towards achieving and sustaining PSI projects and programmes within the centre. Furthermore, it allows for the collective collaboration between one or more stakeholders and industry partners in order to pull together a variety of financial resources and capabilities.’ (Participant 5, 49 years old, female)

The CPSI’s finance department plays a significant role in analysing and assessing its expenditure towards innovative projects and programmes. The roles of the finance department are as follows:

• Determine how much is being spent on a particular project or programme
• Assess whether the project or programmes is over- or under-budgeted
• Determine the financial benefits of a particular project or programmes for the CPSI and the communities it serves
• Assess the financial feasibility and durability of a project or programmes
• Determine the financial risks and losses that could be incurred in a project or programmes.

The CPSI holds monthly meetings and sessions with its project management team to discuss current projects or programmes. This includes personnel from Replication and Scaling, R&D and Enabling Environment to discuss:

• the progress of a project or programmes;
• its risks, uncertainties and challenges;
• what the mitigating strategies for risks and uncertainties are;
• what the deliverables on a project or programmes are; and
• what the success rate of implementation and sustainability is after it has been released.

Another participant stated that:

‘[T]he department has implemented a number of measures to assist the R&D Unit to identify internal and external risks that are associated with its innovative projects and programmes.’ (Participant 3, 50 years old, male)

Once it has been identified and determined that a particular project or programmes will not be successful because of the lack of sufficient buy-in and support, both in a monetary and non-monetary capacity, a report is sent to the Executive Director, who then informs the Director General. The latter assesses the report and sends its findings to the Minister of Public Service and Administration, who approves the termination of a project based on a project management report.

Figure 2 provides an illustration of the CPSI’s programme resource considerations for the 2023 fiscal year. For the purposes of this study, the key programme resource considerations include R&D, Institutional Support and Replication, as well as Enabling Environment and Stakeholder Management. The total of these three key resource considerations for the 2023 fiscal year was R22265000.00.

FIGURE 2: Centre of Public Service and Innovation’s programme resource Considerations for public sector innovation in 2023.

A participant highlighted that:

‘[I]nnovation in itself requires readily available and sufficient monetary resources to be able to shift and change with innovative trends and practices. The inherent characteristics of the government being under-resourced and financially constrained results in a great deal of challenges in how much it is willing and able to invest in PSI.’ (Participant 4, 40 years old, male)

The CPSI is currently allocated approximately R46 million by the National Treasury, which must cover rent, salaries, procurement costs and funding innovative projects and programmes. The budget allocated to the CPSI is currently not sufficient to meet all its goals and objectives regarding innovative practices in the public sector. The procurement processes that currently exist in the government do not accommodate innovation in the manner in which they should:

‘[I]nnovation loses its essence when it is stagnated due to long procedures and turnaround times for decision making and allocation of resources. A primary example is the Request for Quotation process and it is already predetermined within the department that there will not be more than three suppliers for that particular procurement; however, there is a definitive requirement that there must be three quotations and no less, otherwise a number of discrepancies arise regarding the choice of supplier and why it is deemed as the only supplier. This therefore causes unnecessary delays and setbacks because of this very restrictive procurement environment.’ (Participant 3, 50 years old, male)

Post-coronavirus disease (COVID), the CPSI had to re-evaluate its goods and services and decide which ones could be sacrificed in order to make provisions for the appointment of a software developer, which was urgently needed to assist the CPSI. The CPSI therefore had to request National Treasury to assign budget amounts for services and goods towards salaries and compensation in order to create additional capacity to appoint personnel for stakeholder management, replication and scaling, as well as a system developer.

Financing innovation for the Department of Science, Technology and Innovation

Through innovation and research, the DSTI seeks to enhance socio-economic growth and development in South Africa. To fulfil its legal mandate, duties and goals, the DSTI offers resources, leadership and an enabling environment for its science, technology and innovation (STI) categories. The DSTI aims to improve the overall well-being of all South Africans through its activities and groundbreaking scientific research outputs. The DSTI has an array of programmes that have been designed to achieve international cooperation through collaborations and partnerships with a number of sectors and industry partners (RSA 2023b). The DSTI proposed a budget of R10.9 billion for the 2023–2024 fiscal years, which was an increase from R9.1 billion in the previous fiscal year. The DSTI will continue to create a capable state and support South Africa’s economic recovery through its Decadal Plan and STI budget coordination mechanism.

Figure 3 provides an illustration of the DSTI’s programme resource considerations for the 2023 fiscal year. For the purposes of this study, the key appropriation statements per programme included technology innovation, R&D and socio-economic innovation partnerships. The total of these three key appropriation statements that were budgeted towards PSI in the DSTI for the 2023 fiscal year was R8 627 444 000.00.

FIGURE 3: Department of Science, Technology and Innovation’s appropriation statement per programme for public sector innovation in 2023.

A participant indicated that:

‘[T]he DSTI is, however, not receiving a minimum of one percentage of the gross domestic product [GDP] in terms of resources allocated from the government expenditure in R&D.’ (Participant 8, 44 years old, male)

Not having a sufficient budget allocated towards open innovation practices, trends, products, services, technologies and instruments that could be embedded within the public sector to achieve and sustain open innovation is always an issue. In addition, the challenges related to current procurement processes in terms of the Public Finance Management Act (PFMA) (No. 1 of 1999) are not conducive to or accommodating of open innovation funding accumulation. One participant elaborated that:

‘[W]hen a department is conducting the scoring cards for tender processes the lack of the ability to provide a minimum of three procurement quotes thus impacts on the scoring system for points. Another challenge that is hindering open innovation is preferential procurement that occurs within the public sector.’ (Participant 8, 44 years old, male)

For instance, international innovations are preferred compared to local innovations. The DSTI and government in general must develop creative funding instruments to bridge the gap and shortcomings of current funding mechanisms for open innovation in the public sector. These funding instruments must also have flexible operating systems, clear funding guidelines, easily retrievable processes for releasing funds, and less rigid and complex regulatory jargon and policies to regulate these funding instruments:

• DSTI Innovation Fund

The DSTI established the Innovation Fund in the 2020/2021 fiscal year. A participant highlighted that:

‘[T]he Innovation Fund has been developed as a public-private national funding instrument dedicated and focused towards ensuring the support of tech innovation and the commercialisation of high-risk tech development initiatives. This funding initiative further includes partnerships and investments in technology-based South African firms in order to further provide tech goods and services that are locally manufactured and produced.’ (Participant 7, 35 old, male)

Furthermore, the DSTI participant stated that it established this fund to increase and drive support for tech innovation and innovation in general through a business strategy and approach in South Africa, with the aim to serve as a crucial funding instrument for the TIA to assist in acquiring additional pools and resources for funding innovation in the South African public sector. The DSTI therefore plans to develop an STI investment framework that will be institutionalised with the goal and purpose of guiding and governing STI funding. Furthermore, the DSTI funding initiatives and mechanisms intend to establish partnerships and collaborations between the DSTI, National Treasury and the Department of Planning, Monitoring and Evaluation. In addition, the DSTI intends to synchronise its funding instruments and mechanisms with the following institutions: the TIA, the National Intellectual Property Management Office and certain parts of the Industrial Development Corporation and the National Research Foundation.

Financing innovation for the Technology Innovation Agency

The main goal of the TIA, a national government organisation, is to support the government in promoting and expanding technological breakthroughs to boost South Africa’s economic growth and general quality of life. Additionally, the TIA is the main institutional intervention that facilitates innovation between science councils, public organisations, business sectors and higher education institutions. It also facilitates the commercialisation of technical ideas, solutions, services and products. The TIA was founded as a public institution under Schedule 3A, and its mandate stems from the Technology Innovation Agency Act (No. 26 of 2008), which created the TIA as an agency with the goal of promoting the advancement and use of discoveries, inventions, innovations and improvements for the benefit of the public (RSA 2023a; TIA 2023:12).

The TIA operates with an annual budget of approximately R460 million from the National Treasury. There are financial challenges and budgetary constraints continue to be a challenge for the TIA and government departments as a whole. A participant highlighted the financial challenges and constraints:

‘The availability of financial resources is hindered by how money is being spent and not having those funds directed to local and in-house technological developments and solutions. In addition, the following challenges have also been identified by TIA: firstly, relatively low proportion of local inventors compared with other nations, [and] rapid technological changes and the unexpected disruption to the economy and society. Secondly, the declining of expenditure on experimental developments for innovations. Lastly, the declining gross expenditure on R&D and business expenditure on R&D in real and nominal terms.’ (Participant 6, 43 years old, female)

The TIA therefore leverages its funding based on the establishment of partnerships, investors and programmes to an estimated amount of R1.2 billion. The government is trying to significantly improve and increase funding to 1.5% of the GDP, which currently stands at 0.5%. The TIA’s role is to fund projects or programmes that other funders would not invest in. The TIA provides innovators with patent capital and funding in the form of grants to give the innovator an opportunity to prove that their innovative solution(s) will work for the public sector and provides assistance in developing the innovator’s technology.

With the stated budget, the TIA’s planning cycle has prioritised the achievement of effective cost management solutions towards PSI through various projects and programmes and will continue to ensure that funds are directed to areas where they are most needed through robust funding mechanisms, strategies and approaches. Coordination and effective use of those innovations are in place; funding those innovations therefore results in the allocation and use of financial resources. The TIA has an activity-based milestone funding approach whereby funding resources are given out in certain segments/portions to recipients for their innovative solutions. Additional funding/payouts are based on the progress and performance of the entrepreneur, innovator, or grassroots incubator.

Figure 4 provides an illustration of the TIA’s resource considerations in the Innovation Enabling and Support Division for the 2023 fiscal year. For the purposes of this study, the key resource considerations include income, operational expenditure and investment expenditure. The total of these three key resource considerations that were budgeted towards PSI in the TIA for the 2023 fiscal year was R326936000.00:

FIGURE 4: Technology Innovation Agency resource considerations for public sector innovation in 2023.

• Technology Acquisition and Deployment Fund

The TIA established a programme called the Technology Acquisition and Deployment Fund. This fund was designed to assist innovators in obtaining buy-in from the public sector for the development of their various digital and technological innovations, products, solutions, services and systems from municipalities and government departments. A participant elaborated on the fund as follows:

‘The intent around this fund consists of two factors: the first is to say how can government purchase 30 to 40 units of a particular technology and then assist the innovator in deploying the technology at a municipal department, in a community, or wherever else there is a service delivery challenge and then utilise that particular digital product, service, or solution to address that service delivery challenge.’ (Participant 6, 43 years old, female)

Once the digital product, service and/or solution is developed, the TIA conducts research and investigates the findings of the project or programmes, and, based on its success rate, will provide the innovator with a structured business model to become a supplier to that particular government department or municipality. The TIA has invested in approximately 18 of these digital technology products and solutions, none of which are open innovations, as they have protectable intellectual property rights.

One of the challenges that the TIA encounters is the difficulties regarding the procurement processes that currently exist in the public sector. The PFMA is the guiding regulatory framework for procurement processes and practices throughout government departments, while the Municipal Finance Management Act (No. 56 of 2003) governs municipalities. The procurement regulations under these frameworks are quite restrictive. Innovations can be unique and novel, which makes it exceptionally difficult to acquire three quotations from service providers, vendors and manufacturers. What measures can therefore be put in place to manoeuvre around the procurement challenges and restrictions? A participant stated that:

‘The TIA is advocating for relooking and redesigning the procumbent processes of government to make them more conducive, less complicated, and more robust towards innovations in the public sector. The Technology Acquisition and Deployment Fund has been primarily established to counteract these challenges by finding solutions and improved practices around procurement processes.’ (Participant 6, 43 years old, female)

Theme 2: Emerging technologies and digital resources

This theme relates to how technologies and digital resources are incorporated into the funding of PSI.

Adopting outcomes-based budgeting practices for procurement for public sector innovation

Outcomes-based budgeting is a budgeting approach that could be incorporated into the practicality of PSI, as it is a budget process approach that intends to align monetary and non-monetary resources with achieved results. This could therefore be utilised to track the progress of various types of innovations taking place in the public space, thus enabling the determination of whether these innovations positively impact the government, its public institutions, as well as the communities in which they operate. In addition, it would assist greatly in monitoring the financial streams through which money is utilised towards innovation, thus allowing for the development of cost-cutting strategies without compromising the quality, quantity and standardisation of public sector goods and services.

The CPSI and the DPSA started a European Union-funded dialogue series on strengthening open digital governance in collaboration with the Wits School of Governance, which allows for comparison with the Danish Agency for Digitisation. This benchmarking exercise will hopefully be very helpful because South Africa is searching for methods to increase digitalisation and digital innovations in the public sector. Denmark ranked top in the series’ e-Government Survey. New difficulties necessitate collaborative learning and continuous innovation, including the need to assess present laws, algorithmic ethics and cybersecurity. The OECD is an international organisation that consists of 38 member countries that are committed to the practices and principles of democracy and the market economy for socio-economic development and sustainability. The participants agreed that there are coordinated efforts towards international best practices:

‘The CPSI therefore incorporates strategies of best international practices from the OECD to be applied and strategised into the needs of South Africa’s public sector goals and objectives in order to be an international partner and role player in the global arena. The OECD is also heavily involved in R&D initiatives in PSI, which is an area in which the South African public sector is currently beginning to engage in, and the OECD is a good source for adopting best practices.’ (Participant 3, 50 years old, male)

The primary goals of the OECD are ensuring and supporting sustainable economic growth and development, developing strategies towards boosting employment, improving the living standards of societies on a global scale, maintaining financial stability and sustainability, assisting other countries to achieve economic development and growth through guidance and leadership and contributing to increased growth in trade between local and international trade markets.

Theme 3: Citizen participation and engagement

The CPSI’s Annual PSI Awards Programme is utilised to draw in innovations from the public sector, and from those innovations, the department will start picking up trends, practices and so forth. Through the various networks that the CPSI has established and engaged in on a regional, national and international level, it will utilise those partnerships and relationships to pick up on PSIs that could be adopted to solve service delivery challenges. The participants agreed that the CPSI’s Annual PSI Awards Programme has successfully showcased a number of PSI projects and programmes in the public sector:

‘The annual conferences are designed and aimed [at] public servants, the general public, and particularly the youth to come together to share their innovations and assist in the actual development of those innovative ideas into realistic and viable innovations within the public sector.’ (Participant 2, 47 years old, male)

The DSTI has an Innovation Awards Programme that supports, showcases and recognises the roles of leadership in the development of innovative management solutions and sustainable development, which are driven by the view of creating an enabling environment for a capable state through the adoption and integration of innovation and the development of citizens’ skills and capabilities. A participant highlighted:

‘It is therefore important that there are consistent and open communication channels and structures between society and those who will be alleviating the service delivery challenges by collectively designing and developing service delivery solutions that will address and solve the direct needs and expectations of society.’ (Participant 8, 44 years old, male)

A primary example is the National Science and Technology Forum Awards that are hosted on an annual basis. These awards programmes are also utilised as initiatives to drive the DSTI to achieve and sustain more innovative trends and practices in the public sector. The participants stated that a challenge that must be overcome is analysing and determining how society would react to the adoption and usage of advanced digital technologies in their livelihoods and communities through social trend analysis techniques.

Theme 4: Accountability and transparency in procurement

This theme relates to the various challenges experienced in terms of the clarity of roles, structures and transparency. An analysis was conducted on the transparency and accountability of procurement processes of the CPSI, DSTI and TIA. It was found that within all three departments there are also procurement regulations that are governed by the PFMA of 1999, as per the National Treasury regulations, which have been identified as a challenge for procurement processing. A primary example is the procurement processes that must be followed when seeking to acquire funding from the National Treasury. A government department must submit a minimum of three quotations from suppliers or vendors before funding is considered. In the case of an innovative project, programme or technology, there may only be one or two suppliers in South Africa and no other alternatives. This causes the procurement processes to be challenged in terms of their credibility, authenticity and requirements, which can make it difficult to obtain approval for funding. A number of government departments thus do not have the luxury to innovate as they see fit:

‘The DS[T]I is currently under the processes of creating and instilling an enabling environment and tools towards conducive and less restrictive procurement processes for PSI. These strategies are being designed to address different inhibitors around procurement processes that are undertaken when trying to purchase certain goods and services external to the department and the public sector.’ (Participant 8, 44 years old, male)

Challenges related to monetary resources for procurement for public sector innovation

Innovation in itself requires readily available and sufficient monetary resources to be able to shift and change with innovative trends and practices. The inherent characteristics of the government of being under-resourced and financially constrained therefore introduce a great deal of challenges on how much the government is willing and able to invest in PSI. The public sector is often challenged with financing innovation projects and programmes; government departments have experienced a number of challenges and instances whereby pipeline projects and programmes could not attain the necessary deliverables needed for completion and introduction to the general public. When initial timeframes for projects and programmes are not maintained, it is imperative that there be a strategic solution for extending the particular project and programme deadlines by an additional 6 months. This is often the best solution for projects and programmes that have meaningful and impactful purposes for each of the departments, their targeted audiences and service delivery goals and objectives. Extending PSI projects and programmes can become an increasingly expensive decision to make. As a result, there must be strong motivation for additional expenditure from the National Treasury. The government has a 12-month cycle for the beginning of a project and programme, as well as completion dates and deadlines. During this 12-month cycle, the departments must clearly state their project and programme findings, and reports on the project and programme’s progress must be submitted within that timeframe. Internal challenges include limited and capped budget constraints in government departments. The majority of the budgets are divided between salaries, rent and operating costs, with the remaining budget amounts allocated to the PSI being quite small. The external challenges are the funding mechanisms and ratios dedicated to public sector institutions for innovative projects, programmes and practices.

Challenges related to the regulatory environment for procurement for public sector innovation

Procurement regulations governed by the PFMA 1 of 1999, as per the National Treasury regulations, have been identified as a challenge for procurement processing for each of the departments. A primary example is the procurement processes that must be followed when seeking funding from the National Treasury. A government department must submit a minimum of three quotations from suppliers or vendors before funding is considered. In the case of an innovative project, programme or technology, there may be only one or a minimum of two suppliers in South Africa that are suppliers, and no other alternatives. This makes the procurement processes challenging in terms of their credibility, authenticity and procurement requirements, which can make it difficult to get approval for funding. A number of government departments, therefore, do not have the luxury to innovate as they see fit. There is also the challenge of having far too many restrictions and requirements on procurement processes, complex legislative frameworks and policies and insufficient support in terms of monetary and non-monetary resources. In addition, there is the issue of dedicating too many resources towards monitoring and reporting without achieving constructive feedback that gets put into actionable outputs with feasible and sustainable results. One of the biggest challenges that government departments face is how the government has set up the procurement services of the public sector. The challenge is the difficulty that comes with procuring open innovation in government. Open innovation operates in a non-linear environment and is impacted by the number of changes from the point of idea development, testing, piloting and final output.

Challenges related to adopting open innovation practices for public sector innovation procurement

Open innovation can experience phases in which project and programme variables are re-tested and re-trialled repetitively before an ideal outcome is achieved, which results in the need for additional resources and capacity. As a result, the public sector is highly risk averse, and there are thus concerns regarding the financial viability of open innovation processes, as scarce public sector resources must be accounted for. The risk aversion that is inherent in the public sector creates a mindset that public sector institutions must do what is auditable and not what is ambitious. This limits the potential of creating and instilling an innovative culture and workplace practices because public sector employees will be more focused on achieving annual targets than trialling and testing innovation theories. In addition, the public sector is often in a position where the needed open innovations that must be adopted are already procured innovative solutions that are not fit for purpose, thus resulting in a misalignment between what the public sector needs and what is available for it to procure, which, in most cases, results in wasteful expenditure.

Theme 5: Decentralisation and delegation of power

This theme relates to the sharing and transferring of central government authority, roles, responsibilities and functions all the way down to the local government institutions of the CPSI, DSTI and TIA.

In order for innovation governance to be institutionalised effectively and efficiently, the following two approaches could be incorporated towards decentralisation and delegation of power when it comes to achieving and sustaining PSI:

• The decentralisation of service delivery, which can be achieved by using innovative practices to break down hierarchical structures and functions that create barriers for quicker turnaround times for the manufacturing, production, procurement and delivery of public sector goods and services.
• Engaging with citizens through the use of innovative methods that are not too technical or difficult to understand.

Innovation governance should be implemented in such a manner that it is not only intended for use by senior and operational management but also bridges the communication gap for those who are responsible for service delivery and those who are the receivers of those services. The organisational management of public sector institutions should be able to engage with citizens so that the public sector institutions in which they operate can deliver public sector goods and services that fit the precise needs and wants of citizens through innovative methods and processes:

‘The DS[T]I is currently [in] the processes of creating and instilling an enabling environment and tools towards conducive and less restrictive procurement processes for PSI. These strategies are being designed to address different inhibitors around procurement processes that are undertaken when trying to purchase certain goods and services external to the department and the public sector.’ (Participant 8, 44 years old, male)

Conclusion

There is currently an absence of a funding model and framework for open innovation in the CPSI, DSTI and TIA towards financing PSI. Addressing the challenges and complexities of financing innovation in the public sector context requires a multifaceted approach that will allow for the adoption of flexible funding mechanisms and approaches in the national sphere of government. This requires an institutional analysis of key variables that could be adopted towards the development and implementation of PSI funding models and frameworks in national government. This comparison is based on analysing how the National System of Innovation by the DSTI has various types, streams and models of funding mechanisms for innovations. In comparison, other government departments are not as privileged to have similar funding and investment opportunities dedicated to engaging in open innovation. More financial privileges, preferences and priorities appear to be given to certain innovations than others; that is, more funding capacity and commitments are given to Science, Technology, Engineering, Aviation and Mathematics (STEAM) projects and programmes. The following recommendations could possibly solve these challenges:

• Directing 1% of the annual budget for each government department towards PSI solutions, trends, practices, services, products and technologies.
• Exploring avenues for diversified funding sources by introducing alternative funding models, such as public–private partnerships and blended finance mechanisms, to minimise the over-reliance on traditional government funding sources and budgets.
• Developing a policy or law that addresses the possibilities and feasibilities of local and in-house development before international solutions and suppliers are considered. This will also allow opportunities to invest back into the South African market, create employment opportunities and increase the capacity of the state through building and implementing open innovation solutions that address the needs of the government, its departments, municipalities and civil society.
• Strengthening institutional capacity to expand PSI projects and initiatives. Strategies and approaches should be dedicated to capacity building, skills development and innovation hubs in public sector institutions to drive the successful implementation of PSI.

Acknowledgements

This manuscript is partly based on a dissertation tittled ‘Risk Intelligence for Improved Innovation Management in National Government’ by L. Masilela, submitted towards the degree of PhD in Public Management and Governance in the School of Public Management, Governance and Public Policy, University of Johannesburg, South Africa, in 2023, with Prof Danielle Nel-Sanders. It is available here: https://hdl.handle.net/10210/511122.

The authors reported that they received funding from the National Research Foundation (NRF), under the Innovation Doctoral Grant, which may be affected by the research reported in the enclosed publication. The authors have disclosed those interests fully and have implemented an approved plan for managing any potential conflicts arising from their involvement. The terms of these funding arrangements have been reviewed and approved by the affiliated university in accordance with its policy on objectivity in research.

L.M. and D.N.-S. contributed equally to the conceptualisation, writing and editing of the manuscript and share first authorship. All authors contributed to the article, discussed the results and approved the final version for submission and publication.

This research was funded by the National Research Foundation (NRF), under the Innovation Doctoral Grant: MND190528439637.

The data presented in this study are available on request from the corresponding author, L.M. The data are not publicly available because of privacy.

The views and opinions expressed in this article are those of the authors and are the product of professional research. They do not necessarily reflect the official policy or position of any affiliated institution, funder, agency, or that of the publisher. The authors are responsible for this article’s results, findings, and content.

References