Building a culture of innovation: How do agency leadership and management systems

promote innovative activities within the government?

Abstract
Public organisations have strived to initiate and consolidate innovation by reforming their
structures, processes, and outcomes. Despite their numerous attempts, successful innovation
has not been achieved in every organisation in the public sector. Analysing survey data
acquired from the Korean government, we find that a leader’s support for innovative action,
and the development of a self-learning organisation that discarded old-fashioned customs,
was key to change in government organisations. Leadership is required to promote strategic
planning and performance tools for innovation, with both forms of management system likely
to depend on a leader’s decision. The concerns, emphasis, and support of a leader are
embodied by the strategic plan and implemented using performance tools to motivate
organisational members. Thus, we argue that, without supportive leadership, it is extremely
difficult to establish a culture of innovation that can lead to product innovation; management
and evaluation efforts may not be essential to an increase in government innovation.
Ultimately, we address the innovation dilemmas that many public organisations encounter in
the course of organisational development. We suggest that a performance evaluation
programme that requires immediate success can eventually limit sustainable innovation in the
long term, even if innovation performance improves in the short term.

Public sector innovation is a major subject in public administration, public policy, and public
management (see De Vries et al., 2016; Van der Wal & Demircioglu, 2020 for a list of recent
studies). The large volume of literature on organisational innovation has highlighted why
innovation needs to be introduced in the public sector by demonstrating its positive effects
(e.g. Walker et al., 2010) and how it can be effectively achieved by identifying various
determinants and establishing specific strategies (e.g. Demircioglu & Audretsch, 2017).
According to existing literature, successful organisational innovation involves modifying
various organisational components such as structures, processes, and culture in a manner that
helps the organisation attain its desired goals, such as maximising the likelihood of its
survival or more effectively adapting to a changing organisational environment (Gilley, 2005;
Meijer, 2015). However, despite the greater understanding of the nature of public sector
innovation, a growing number of studies have highlighted the continuous challenge of
identifying a standardised recipe for the establishment of a successful organisation (e.g.
Dickinson et al., 2019; Fernandez & Rainey, 2006; Linden, 1990). Over the past few decades,
many public organisations across the world have sought to reform their structures and
innovate their processes to overcome various forms of government failure, ranging from
chronic inefficiency to economic crises (Marsh & McConnell, 2010). However, this has
occurred in an environment that is more likely to punish errors than reward excellence, with
bureaucracies evaluating their own performance as an immediate response to pressure for
accountability. Thus, most – if not all – government innovation has resulted from external
pressure from the central government and/or society at large rather than intrinsic motivation.
This external influence tends to encourage government organisations to pursue dramatic
short-term changes. This tendency is exacerbated by performance evaluations, which have
taken on more of a central role after the spread of New Public Management (NPM) reforms
among nations (Pollitt & Bouckaert, 2017). Central governments can promote innovation
within public organisations by establishing a performance management system that conducts
regular evaluations of innovative efforts. Because visible outcomes have become increasingly
important, many government organisations strive to implement additional changes that can
earn them positive feedback from outside actors even if they do not necessarily intend to
adopt a specific innovation (Osborne & Brown, 2011; Walker, 2008). In these circumstances,
some organisations excel at adopting and implementing new changes compared to other
organisations that compete for the same set of resources or pursue similar objectives.

This study investigates public sector innovation within the Korean government and is
particularly interested in identifying the factors that compelled organisations to pursue
innovative changes while others settled for the status quo under the government-wide
innovation agenda established by the Roh Moo-hyun Administration. In particular, we argue
that leadership significantly influences organisational innovation in the public sector, while
management efforts such as strategic planning and performance measures inspired by NPM
reforms do not have an effective impact on the adoption of innovation programmes in
government agencies. These efforts may instead result in short-termism and provoke
resistance to change, leading the organisation to pursue process innovation on peripheral
matters rather than more comprehensive forms of innovation. Essentially, the performance
management system established for the entire public sector in 2006 with the passing of the
Framework Act on Public Service Evaluation and the National Finance Act may have merely
transformed government-wide innovation efforts into systematic and periodic strategic
management actions. Our main argument is that leaders play a critical role in transforming an
organisation by outlining a vision and encouraging members to actively participate in
innovation processes. Past research has emphasised the importance of leaders who possess
transformational characteristics, including being an effective designer, master, mentor,
challenger, catalyser, and integrator, as well as having a clear and sustained vision (e.g.
Demircioglu & Berman, 2019; Montes et al., 2005; Valle, 1999). These leaders support and
encourage innovation and individual initiatives through the nurturing of employees’ abilities
centred on learning, open communication that minimises the cost of internal change, and the
promotion of cohesive teamwork (Rogers, 2010). Our argument largely departs from the
basic question of why innovation occurs in the government sector, which is generally
considered to be less innovative than the private sector. Despite the lack of legal basis, the
presidential initiative for government-wide innovation under the Roh Administration
immediately generated a number of innovation programmes within government agencies and
local governments.

Additionally, we will test whether intra-organisational management systems, such as strategic

planning, generate any differences between levels of innovation across public organisations.
Wellestablished strategic plans based on a detailed analysis of the internal and external
environments would be helpful for identifying new ideas and programmes for the
achievement of organisational goals and objectives (Flynn & Talbot, 1996; Joyce, 2015).
Indeed, strategic planning is a catalyst for successful organisational change and reform when
legitimate goals are identified and strategic management and performance are more strongly
linked (Moore, 1995; Poister, 2010). These secondary hypotheses are related to the key
mechanisms promoting innovation programmes. During the Roh Administration, some
government organisations adopted and implemented hundreds of innovation programmes,
some others less than 10 or even 0. To examine the mechanisms that underlie innovation in
public organisations with the goal of identifying the determinants of successful organisational
change, this article analyses the Government Innovation Index (GII) survey conducted by the
Korean government. In Section 2, we summarise existing knowledge on the factors that shape
public sector innovation by reviewing various theories. In Section 3, we present hypotheses
for the current gaps in knowledge identified in the literature review. In Sections 4 and 5, we
describe the methods used to address these hypotheses and provide empirical support for our
claims. Finally, we summarise the findings and discuss the limitations of the present study in
the conclusion.

Organisations do not exist in a vacuum; to varying degrees, they constantly make formal or
informal internal adjustments to adapt to their constantly changing environment.
Organisations respond differently to environmental changes depending on their inherent
characteristics and circumstantial factors. In this regard, some argue that there are significant
differences between public and private organisations in terms of their adaptability to
environmental change. In particular, a large body of research claims that public organisations
are insensitive to change and are thus often slower to react than their private counterparts due
to their many rules and hierarchies (Crozier, 1964; Damanpour, 1991; Hage & Aiken, 1967;
Kelman, 2005; Merton, 1968; Weick, 1979). However, recent studies have asserted that
public organisations, in pursuit of legitimacy, are not only as adaptive as private
organisations but can be more sensitive to stimuli due to their institutional constraints and
hierarchical control, which can lead to organisational innovation (Frumkin & Galaskiewicz,
2004; Walker, 2008). Most cases of government innovation worldwide, particularly since the
2000s, have been triggered by presidential orders, paradigm shifts in governance, public
demand, and/or discourse within international organisations, which explains why public
sector innovation can be more rapid once initiated (Borins, 1998; 2006; Light, 1998; Moon &
DeLeon, 2001; Schneider, 2007). In this article, we distinguish innovation from any positive
change that occurs in an organisation in general. It is true that innovation and change have
been discussed as highly related concepts, which constituted a part of our long-standing
knowledge about organisational dynamics. However, although organisational change has
been posited as an antecedent of innovation (Burns & Stalker,1961; Kanter,1983), others
regard it as not being directly related to organisational innovation (Mintzberg, 1983). Indeed,
strictly speaking, change – no matter how many benefits it offers – differs from innovation
not only conceptually but also empirically. For example, change can be employed as a way to
pretend to be an innovator because ‘public organizations may innovate in search of
legitimacy and not fully adopt an innovation’ (Walker, 2008, p. 592). Furthermore, as Wynen
and his colleagues recently asserted, a series of changes can have a negative impact on
innovation in the public sector (Wynen et al., 2017, 2020). For these reasons, we need to take
a careful approach to the analysis of public sector innovation.
Prior research has found that two types of strategy are employed to encourage ongoing
innovation in the public sector. The first is to regularly evaluate the outcomes of innovation
efforts using official measurement tools (Pollitt & Bouckaert, 2017). With NPM becoming
widely accepted, performance evaluation and management systems are commonly used to
assess both performance and organisational innovation. In fact, the introduction of these
systems is often a measure of innovation performance, which Ferlie and Geraghty (2005)
referred to as a ‘hard’ version of NPM. An increasing number of countries have attempted to
facilitate innovation by actively managing it. Some have argued that routine evaluations
establish favourable conditions for the development of organisational innovation and make it
easier to hold organisations accountable for implementing innovation. However, opponents
claim that organisational members can grow weary of innovation when frequent evaluations
occur or when sanctions are stronger than employees expect, thus hampering further
innovation (Arundel et al., 2019; Berman & Kim, 2010; Demircioglu & Audretsch, 2017,
2020). While the strategy of encouraging innovation via regular evaluations is prevalent,
some leaders pursue an alternative strategy in which the organisational capacity for
innovation is expanded by developing strategic planning components, thus creating an
organisational culture that is favourable for innovation via effective leadership and
appropriate and flexible responses to environmental change (Albury, 2005; Lægreid et al.,
2011). This strategy dates back to before the introduction of performance evaluation under
NPM and may thus be regarded as more conventional, or even old-fashioned than evaluation-
based approaches. The positive effects of these tactics, however, have been demonstrated in
many empirical studies on organisational innovation in the public sector (e.g. Abramson &
Lawrence, 2001; Borins, 2000).

Organisations can employ one or both strategies and, if both are used, there can be
considerable variation in the way they are adopted (e.g. whether they are adopted
concurrently or sequentially and whether they receive the same level of priority). One of the
main differences between the two strategies is that the first is an organisational response to
external stimuli, such as the focus on NPM and performance management, while the latter is
more concerned with the internal necessity for organisational change. The former strategy is
widespread within both public and private organisations, whereas the use of the latter has
been increasing in the public sector, especially in recent years.
This article examines the mechanisms of government innovation based on an empirical
analysis of the GII, which was developed within the Korean government. While several
studies have emphasised the importance of management systems that include strategic
planning and evaluation in promoting change within public organisations, our findings
present counterevidence for this claim. Influenced strongly by NPM reforms, the strategic
planning and evaluation of organisational change have been conducted to encourage further
improvements. However, the results of the present study suggest that whether an organisation
has the evaluation tools to measure internal efficiency and service quality does not have a
significant effect on the adoption of innovation programmes. Innovation strategies such as
strategic planning and environmental diagnosis also do not appear to have a significant
influence on organisational innovation. The results suggest that, as Moore (1995) has argued,
government organisations are more likely to adopt innovation programmes when they are
more receptive to external sources of ideas in order to appear politically and socially
legitimate.
On the other hand, we found that leaders who encourage innovation while tolerating failure
promote greater organisation innovation in the public sector, which is supported by an array
of past research (e.g. Albury, 2011; Borins, 2001; 2002; 2006; 2014; Crosby & Bryson, 2005;
Torugsa & Arundel, 2016). This is also in accordance with previous studies on the effects of
organisational culture (Berman & Kim, 2010) and leadership (Campbell, 2017) on
organisational innovation in Korean public service. These results indicate that effective
leadership is more critical than internal management systems in implementing active
organisational innovation, particularly if it is a leadership style that (1) supports innovation
efforts by encouraging tolerance for unintended failure in the attempt to achieve an
organisational goal and (2) provides organisational members with both financial and non-
financial incentives. Thus, organisational innovation can be encouraged by a leader who is
adept at incorporating multiple leadership skills. This article thus sheds light on the effects of
leadership as a key moderating factor in the relationship between the tolerance of failure and
successful innovation.
The results suggest that the adoption and implementation of innovation programmes at the
level of government agencies and local government in Korea were influenced by leaders at
multiple levels (e.g. presidential, ministerial, and mayoral) and their efforts to internalise and
systematise innovation. The national agenda initiated by President Roh Moo-hyun opened the
door to government-wide innovative efforts. President Roh, who held a ministerial post
during the Kim Dae-jung government, may well have understood the bureaucratic
mechanisms involved in change and innovation. Immediately after his inauguration, the
PCGID was established and strategic planning through an Innovation Roadmap was
emphasised. The HGI was organised and full-scale innovation efforts were introduced to
local governments and non-government public organisations. In this process, the roles of
agency leaders and local government heads became more important in developing innovation
at the agency level. In particular, a leader’s support for innovative action, including the
realignment of administrative processes, policy management for better services, and the
development of a self-learning organisation that discarded old-fashioned customs, was key to
change in government organisations. Leadership is required to promote strategic planning and
performance tools for innovation, with both forms of management system likely to depend on
a leader’s decision. The concerns, emphasis, and support of a leader are embodied by the
strategic plan and implemented using performance tools to motivate organisational members.
Thus, we argue that management and evaluation efforts may not be essential to an increase in
government innovation.
Despite the contributions of this study, care should be taken in generalizing its findings.
Though this study examines public organisations at multiple levels (i.e. central, prefectural,
and municipal governments), they are all from Korea. While the Korean government can be a
good testing ground to investigate government innovation, its organisational forms and power
structures need to be taken into account. Bureaucratic responses to innovation within a
country with a presidential system and centralised governance may differ from those
countries with federalised, decentralised, and/or parliamentary systems. Furthermore, Korea
may still be affected by its history as a developmental state, during which a statist decision-
making process influenced bureaucratic behaviour with regard to government innovation
(Evans, 1995; Woo, 1991).
This research would also greatly benefit by expanding the temporal scope of the analysis. The
data were collected between 2005 and 2006, when innovation was a strong focus of the
sitting government. The Roh Administration (2003–2008) distinguished itself from other
regimes by initiating innovation in public organisations. Therefore, to interpret the results of
this study, differences between government administrations should be accounted for. Under
the Lee Myungbak Administration (2008–2013), the importance of innovation was reduced
as their policy stance moved toward other issues (e.g. low carbon green growth and
restoration projects for the four major rivers). In addition, government innovation was still in
its early stages in 2005 and 2006. Given that it generally takes time for innovation to take
effect, it is likely that government organisations and their many factions were not able to fully
adapt to the changing environment within the period under investigation. However, the
government-wide innovation efforts during the Roh Administration have left some legacies.
The Framework Act on Public Service Evaluation and National Finance Act in 2006 are still
in force and require government agencies to prepare and submit annual performance plans
and report to the National Assembly. Although subsequent administrations have not
emphasised innovation to the same extent as the Roh Administration did, innovation policies
of the Roh Administration would have had lasting effects on decision-making structures,
organisational culture, and bureaucratic behaviour. A comparison between the early and late
stages of innovation may thus reveal different causal mechanisms and organisational
phenomena. In addition, this research does not fully address member behaviour and culture in
relation to innovation processes. Institutional change in itself does not guarantee innovation
in the public sector; indeed, any change that revolves strongly around rewards and sanctions
can impede innovation by encouraging risk-averse behaviours among employees, although
incentivisation to some extent does appear helpful (Wynen et al., 2017, 2020). Without a
culture of tolerance, the process of encouraging and implementing more innovation strategies
would be hindered by innovation management systems, including the constant monitoring of
individual performance.
Despite these limitations, the present study has particular merits. Our data reveal the results
of the innovation efforts of the Roh Moo-hyun Administration, which was in power in the
early to mid-2000s. This was when an array of policies for government innovation was
introduced in Korea, including the establishment of the PCGID (2003), the development of
the GII survey (2005), and the implementation of a national branding strategy for government
innovation (2006), to name a few. The preceding Kim Dae-jung Administration also
attempted to generate positive changes within the government in response to the need to
restructure the state economy after the economic crisis in the late 1990s. However, these
efforts by the Kim Administration were officially referred to as reforms, which indicates
changes to the defective, corrupt, or vicious legacies of the past, while the Roh
Administration clearly preferred the term innovation, indicating the introduction and/or
creation of new customs, practices, and programmes (Lee, 2006). The Roh Administration
was followed by two consecutive conservative governments, the Lee Myung-bak and Park
Guen-hye Administrations, and its innovation efforts were not directly inherited but were
instead diverted to different initiatives for nearly a decade. Since its inauguration in 2017, the
incumbent Moon Jae-in Administration has rekindled the innovation endeavors of the Roh
Administration. In this regard, this research offers empirical knowledge regarding the
emergence of government innovation in Korea, which in turn helps to understand where
public sector innovation could lead to under the Moon Administration and beyond.

Over the past few decades, the volume of knowledge about innovation has greatly increased
but is still very limited, especially in a public sector context (Bessant, 2005; Demircioglu &
Audretsch, 2017; Sørensen & Torfing, 2011; Wynen et al., 2020) and non-Western contexts
(De Vries et al., 2016; Van der Wal & Demircioglu, 2020). This article, which investigates
public sector innovation in Korea, aims to reduce the underlying imbalance in the private
versus public innovation and Western versus non-Western dichotomies. As the first empirical
analysis of the GII in Korea, the present study has both strengths and limitations. To
overcome the generalisability issue, we suggest various comparative studies, including a
cross-sessional examination of government innovation in its early stages and a time-series
analysis showing the differences between regimes and/or innovation phases. Exploring the
multi-faceted nature of government innovation, such as the variation between different
innovation types (e.g. process innovation vs. product innovation) and organisation types (e.g.
different government ministries), could also shed further light on public sector innovation
research. These efforts will help us find an answer to the question of how public
organisations could respond more effectively to their environment given the increasing
uncertainty and change observed in the post-COVID era, where innovation is not a matter of
choice but one of survival.