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ENTREPRENEURSHIP IN PUBLIC SECTOR: NEW POSSIBILITIES? Matthews J1

1QUT Business School

Submitting Author Contact Information

Judy Matthews

QUT Business School

jh.matthews.@qut.edu.au

Entrepreneurship in Public Sector: New Possibilities?

Key words Entrepreneurship, public sector, champion, commercialisation

Abstract

Previous research has described potential roles for entrepreneurs in public sector

organisations as either closely related to corporate entrepreneurship, or as normative

prescriptions regarding the importance of entrepreneurship in the public sector (Ireland,

Covin & Kuratko, 2009: Morris & Jones, 1999). While some might argue that

entrepreneurship in the public sector context is an oxymoron, recent studies have

demonstrated that entrepreneurship in the public sector is alive and well (Currie, Humphreys,

Ucbasaran & McManus 2008; Kim, 2010). Entrepreneurship in the public sector can take

many forms and generate a range of benefits but to date less attention has been given to the

potential to generate new public value (Moore, 1995).

The purpose of this paper is to increase our knowledge and understanding of the types of

strategies and activities the public sector is using to capture initiative, create new public

value, and generate new economic activity for the benefit of multiple stakeholders. This

paper explores entrepreneurship in one public sector context. Findings indicate that

entrepreneurship and commercialisation is more likely to be encouraged in contexts where

contestability in develop and exploit capabilities.

INTRODUCTION

Research regarding entrepreneurship in public sector contexts has included state owned

enterprises (Luke & Verreynne, 2006), local and regional government (Bartlett & Dibben,

2002), state public services (Kim, 2010) and at the national government level (Mazzucato,

2011). Rather than defining entrepreneurship as creating a new enterprise we use a broad

definition of entrepreneurship, the creation of economic activity that is new to the market

(Wiklund, Davidsson, Audretsch & Karlsson, 2010; Davidsson & Wiklund, 2001; Davidsson, 2008).

Comparisons of entrepreneurs as independent entrepreneurs, corporate entrepreneurs and

public sector entrepreneurs identified differences and similarities across the dimensions of

primary motive, time orientation, skills, attitudes, focus, approaches to risks and failures and

courage in the face of ambiguity (Morris & Jones 1999). More recently Kearney, Hisrich &

Roche (2009) compared entrepreneurship in public and private organisations, defining public

sector entrepreneurship as the process within the public sector organization “that results in

innovative activities such as the development of new and existing services, technologies,

administrative techniques, and new improved strategies, risk taking and proactivity”

(Kearney et al. 2009). These authors also propose that entrepreneurship within the public

sector produces superior organizational performance. Other authors who argue that all

managers are expected to engage in entrepreneurial management regardless of context

(Drucker, 1985; Stevenson & Jarillo, 1990), would expect to find managers in the public

sector engaging in entrepreneurial behaviour as both deliberate and emergent strategies

(Mintzberg & Waters, 1985).

The importance of entrepreneurship and entrepreneurial management in the public sector is

an area of growing interest as public sector organisations at all levels face continual tightened

resource constraints. In dynamic complex contexts, organisations often need to generate new

economic activity for survival. Under conditions of resource constraint, entrepreneurial

strategies are potential responses to environments that are open to or tolerant of

responsiveness to both opportunistic creation and discovery of opportunities (Alvarez &

Barney, 2007).

Much of the extant literature discusses the need for entrepreneurial management and the

importance of senior managers to be champions of entrepreneurial activities. With little

exception (Radnor & Noke, 2012), the activities and processes of middle managers in public

sector organisations acting as entrepreneurs, has received little attention. This paper attempts

to extend our understanding regarding entrepreneurship in varied public sector contexts, and

investigates this phenomenon in a specific public sector context. This paper reports

entrepreneurial activities in a large public sector organisation in a dynamic political and

economic environment, where senior management are open to new ways of working that they

hope may deliver improved performance in efficiency and effectiveness.

A case study approach and framework were used to capture the entrepreneurial initiatives and

activities originally initiated to meet a pressing problem in one division of a large public

sector organisation and the consequences from this initiative and its potential value creation

for the broader public service. This study follows the activities of an entrepreneurial middle

manager, to generate new economic activity and more efficient and effective services for his

organisation. Using self-report, interviews and discussion and archival documents we

examine the roles and relationships in this changing environment as the goals and objectives

of the organisation are refined and redirected.

The findings of this study will contribute to a deeper and broader understanding of

entrepreneurship in public sector, and will contribute to other relevant literature on the possibilities of entrepreneurship in environments undergoing turbulence and change. The

findings will also have implications for further investigation regarding possibilities for

entrepreneurship in public sector contexts, regarding initiating conditions, championing and sponsorship from senior management. Implications for policy and practice are also

considered.

BACKGROUND

Context: Public Sector Policy and Support Environment

The method of developing and taking a new product or service to the marketplace is referred

to as commercialisation. In a public sector context, commercialisation is usually associated

with the commercialisation of intellectual property, and more broadly knowledge, to deliver

enhanced efficiency and effectiveness gains to government. Every jurisdiction in Australia at

both the Commonwealth and state levels has a policy support environment governing the

management, exploitation and reporting requirements related to Intellectual Property (IP).

At a basic level there is a growing focus by governments globally to more freely release

public sector information (subject to privacy requirements under law) through what has

become known as the Open Data agenda1. The core rationale for this is recognition of the

public right to certain information but also the growing recognition that such information is a

1 see for example each Queensland Government Agencies Open Data Strategy at https://data.qld.gov.au/department‐strategies

significant source of entrepreneurial activity in the market place such as for example in the

creation of new software products. The framework for these activities is set at a national

level through the Australian Governments Open Access Licensing Framework2.

At a higher level, the policy context to support commercialisation activity by Queensland public sector employees comes within the policy setting established by the Queensland Public

Sector Intellectual Property Principles3. In essence this policy articulates the requirements by

which public sector employees can activity pursue entrepreneurial activity pertaining the commercialisation (in whatever form) of State-owned IP Rights. As IP is an intangible asset it is very broad in form and includes such as software, business methodologies, algorithms,

and data. Apart from broad guidance on how public sector employees should undertake commercialisation activity, government also provides an incentive environment when employees create valuable IP that may then be exploited commercially through the Queensland government’s Rewards for Creating Commercially Valuable Intellectual

Property’ Directive4.

However, while these broad enabling policy settings exist they are often significantly limited

in practical guidance for both public sector employees as well as Agencies. For this reason

the Queensland Government created its ICT Commercialisation Program to help facilitate

the exploitation of software, information and data by industry. This enabling program

comprised a governance framework to guide individuals through to a successful conclusion.

However, unlike traditional entrepreneurial activity where the focus is primarily on the

individuals themselves would be the beneficiaries of the outcome, this initiative was

primarily aimed at existing firms in industry as the basis for commercially valuable product

and service knowledge and IP.

As outlined in Figure 1 below, it can be seen that this framework provides a step by step guide to facilitate commercialisation activity. However, even with this generic approach, the

successful conclusion of such arrangements may be largely contingent on the ability of the

project champion to act entrepreneurially. Specific behaviours required include identifying a clear commercial opportunity, identifying internal barriers to conclusion and overcoming

them, and operating within the operational and governance constraints imposed by the

respective public sector agency itself.

This program, while only funded as a pilot initiative to test the waters to help future

innovation capacity building in the local industry as well the public sector, nevertheless can

be considered to have delivered a range of substantial benefits back to the government.

These benefits included (for the period July 2005 to March 2008) a 640% Return on

Investment on program costs through royalties received, capital raising of $22.8M and the

establishment of four new entrepreneurial ventures5. By the conclusion of the pilot phase of

the program in December 2008, over 60 individual projects had been completed6.

2 http://www.ausgoal.gov.au/the‐ausgoal‐licence‐suite 3 http://www.qld.gov.au/dsitia/assets/documents/ip‐principles.pdf 4 Ibid p. 4 5 Report to Treasury June 2008 from Australian Institute for Commercialisation. 6 Ibid.

Figure 1. Queensland Government ICT Commercialisation Program: Framework Guide for

Agencies, 2005

7

7 Queensland Governments ICT Commercialisation Program, summary presentation to agencies, 2006

RESEARCH DESIGN AND METHODS

Data were collected from multiple sources, including interviews and discussion with the

architect of the Queensland government program under which the project was undertaken,

interviews with the Chairman and Managing Director of Concept Safety Systems Pty Ltd (the

start-up company through which the resulting entrepreneurial public sector opportunity was

commercialised), and reports submitted to Queensland Treasury on the benefits, outcomes

and program management documentation.

To a large extent, Queensland's Department of Emergency Services is unique in Australia.

The agency provides services covering all phases of emergency and disaster management

including prevention, preparedness, response and recovery that are delivered by fire,

ambulance and Emergency Management Queensland across a single portfolio. The single

agency structure provides significant advantages and benefits to the community. These

benefits occur at many levels, from having single point ministerial accountability for

emergency services, through to the invaluable cooperation and coordination of operational

staff in communities during emergencies and disasters.

Case Study: Queensland Fire and Rescue Service

The Queensland Fire and Rescue Service (QFRS) is a division of the former Queensland

Government Department of Emergency Services and is the primary provider of fire and

rescue services throughout Queensland. On 23 June 2000, 15 backpackers lost their lives in

what became known as the ‘Childers backpackers fire’. As a consequence of the realisation

that the Childers timber backpackers hostel did not have working smoke detectors or fire

alarms, the government made the decision to dramatically increase the safety requirements

for commercial building operators across the state.

This decision resulted in the establishment of new world-leading standards and regulations

for building fire safety, with stiff penalties for non-compliance. While the enactment of new

regulations met a new required standard of care expected by the public, it also created new

problems for both government and industry in helping the many thousands of building

operators meet this new heightened compliance burden.

The Fire Evacuation Program, (FEP) a novel piece of interactive technology was developed

by QFRS personnel to help with compliance training, tracking and reporting. At the same

time the public service environment was facing increasing resourcing, operational and

political pressures adding new degrees of complexity and constraints on service delivery

which would only likely increase over time. To facilitate access to this new technology

platform broadly to industry, together with its associated services, the government needed to

approach the problem in new innovative and highly entrepreneurial ways in order to optimise

its diffusion.

The QFRS Business Environment

Apart from more traditional fire fighting functions to provide better services for the target

market (commercial building operators) QFRS provided a number of essential services to

industry, such as face to face training - with a particular focus on high risk environments

requiring ‘live fire’ simulation training and compliance training, online interactive

compliance training and compliance auditing and enforcement.

Many public sector service providers interacting with the commercial sector on a fee for

service basis (irrespective of the nature of the service they provide), have been criticised by

the commercial sector as lacking ‘commerciality’. Other complaints include a lack of

timeliness in product and service delivery (not surprising given high levels of bureaucracy

commonly encountered and the high cost basis (again not surprising given traditional levels

of inefficiency and resulting overhead on service delivery). It is often difficult for the public

sector to deliver critical services in an efficient and effective manner compared to similar

services in the private sector. In addition the new regulation environment was expected to

place a significant demand burden on the government that it would not be able to adequately

resource due to funding constraints as well as representing significant operational and

political risk for the department.

The FEP platform afforded QFRS an opportunity to enter into an arrangement that would

meet the needs of multiple stakeholders, and one that could also be seen as an excellent

model for public sector entrepreneurship.

The New Product and Service

The Fire Evacuation Program (FEP) is a sophisticated interactive online compliance software

solution that allows users to undertake evacuation, safety and induction training in a

personalised online environment, without the need for physical evaluation training. The

benefits for commercial clients include lower costs, convenience and reporting for

compliance audit. In the absence of other similar products or services in Asia-Pacific

countries or anywhere else in the world, an opportunity was identified in the marketplace for

the commercialisation of this product to meet the need such a product service system for not

only the marketplace in Queensland but also nationally and potentially internationally. The

legislative requirement for compliance for which the product was designed (that is the

Queensland legislation) meant that it would automatically conform to most standards around

the world, as this new legislation was at the forefront in standard setting globally.

From Opportunity Identification to Commercialisation

The process by which the opportunity was captured was essentially one of commercialisation

of the product service system, which while allowable for under government policy, had very

rarely been attempted except in research-intensive agencies such as Health and Agriculture.

Commercialisation is rarely supported in non-research focused public sector agencies due to

misperceptions of risk and lack of understanding of commercial drivers impacting industry.

However, in this instance, the risks of not being able to meet expected increases in demand

from industry outweighed more traditional tendencies of bureaucratic conservatism.

The internal processes enabling entrepreneurial activity resulting in the successful conclusion

of any such commercial deal making can be categorized according to:

Governance processes;

Deal structuring, contracting approvals; and

Ongoing management.

Governance processes comprised a range of procedural and oversight considerations akin to

traditional project management activity defining public sector services. To facilitate this

process the governance process was pre-established as part of the cross-government ICT

Commercialisation Program, which outlined a project management methodology design

specially to address traditional governance process. This program was established as a pilot

activity by the Department of Premier and Cabinet to help facilitate entrepreneurial activity to

support commercialisation outcomes. While these processes and principles were identified,

significant barriers existed to contextualise the procedures for the way of doing business

specifically relating to QFRS business practices at the time. These barriers required

significant perseverance by the project sponsor driving the process internal to the Agency. As

each barrier was identified the sponsor needed to identify strategies to overcome and ensure

the principles of good governance were endorsed.

A two-stage commercialisation process was embarked upon. Firstly an Expression of Interest

process was undertaken to invite invitations from existing market incumbents to bid to enter

into an intellectual property licensing arrangement. Despite this invitation, no existing market players submitted a bid as potential revenue size could not be adequately projected. Further

exploration of possibilities found interested firms outside of the existing supply chain

interested in collaborating to form an entrepreneurial new venture to focus on commercialisation activity of the software (FEP). As a result Concept Safety Systems Pty Ltd

(CSS) was born, formed specifically out of this opportunity.

Deal structuring and contracting approvals: Two discrete contract instruments were

developed; i) a ten-year license agreement with exclusivity worldwide and ii) an associated

service agreement for referrals from QFRS to service the expected future demand as a result

of the new legislation. The structure of the commercial arrangement directly allowed QFRS

to mitigate demand risk from new legislation and just as importantly diverted scarce

resources within the department from this activity due to commitments from CSS to resource

all commercial development and ongoing product development.

Ongoing relationship and contract management was an essential component to help ensure

commercial and application success. To this end, QFRS nominated a relationship manager to

ensure seamless service delivery between QFRS enquiries and product and service delivery to

the end customer by CSS.

While this summary description of the commercialisation process seems straightforward it

was not a simple process. At a number of points the relationship became strained due to

divergent goals (bureaucratic process governance typical of public sector organisations,

versus commercial pragmatism needed for marketplace success for CSS). These obstacles

were addressed. Concept Safety Systems today is a vibrant SME delivering significant

commercial benefits nationally for its shareholders as well as the desired ongoing benefits for

government and ultimately taxpayers of Queensland.

Quote from Mr John Hummelstad MD and Chairman of CSS:

“The benefits back to government are undeniable. Importantly these included cost

savings, realising revenue through royalty payments and operational efficiencies in

freeing up critical staff for redeployment to core business activities. While the

challenges in the relationship were at times significant - mainly due to the gulf between

public sector administration and the required commercial pragmatism needed to

deliver value for CSS clients - by working together we overcame these and it has been

an enormously fruitful relationship”.

OUTCOMES FOR GOVERNMENT

Specific benefits arising from the QFRS’s FEP project include significant value created in

both the short and long term perspectives. For example the establishment costs of the venture

were largely borne by the industry. Revenue from royalties of sales and licensing

(approximately 20 times original development cost) was returned to government.

In times of increasing resource constraint, public sector agencies are very conscious of

ensuring, as much as possible, that key professional staff, in particular fire fighting, policing

and medical practitioners, are being employed in direct front line tasks best able to utilise

their specific skills and abilities. This direct service relevance was applied to this project team

with the redeployment of the professional fire fighting staff back to front line duties.

As explored earlier, the new legislative environment was likely to see a significant increase in

demand from industry for services related to the FEP. Government was able to meet all such

increased service demands through its partnership arrangement with CSS for service delivery.

In effect this arrangement transferred service risk to its industry partner.

Cost avoidance for government. CSS employs over 30 full time staff specifically engaged on

meeting the flow-on demand from the Queensland market place that would have been

required by QFRS (even if approval to do so was possible).

As with any commercial new product/service development process, continual investment in

enhancements to product performance through adding and amending new features to products

were required to meet changing market demands over time. The FEP was not an exception. In

this case, QFRS was able to avoid the costs for such development activity (of around

$750,000) by the investment by CSS and at the same time obtain the product benefits from

such improvements itself.

Initiatives undertaken within this program, as well as initiatives undertaken outside of the

formal commercialisation support program, cover a range of diverse application and industry

domains. Examples include transport (with the creation of Transmax – an intelligent transport

technology company by staff), policing (a forensics management system), health (Workplace

health and safety and incident management systems), public housing (with the

commercialisation of the Property Standard Index – an integrated housing valuation system),

community services (for online community consultation).

DISCUSSION AND CONCLUSION

This case study illustrated a resource-constrained environment, where a new ICT policy

enabled the commercialisation of new ICT product development and service delivery through

a newly created company. The case also demonstrated Currie et al. (2008)’s description of a

public sector entrepreneur who “identifies market opportunities within the political

landscape, optimizes the performance-enhancing potential of innovation for the public sector

organization, and carries stakeholders in a way that both permits risk and recognizes the

stewardship of public sector resources” (Currie et al. 2008: 987).

The developments reported in this case example reflect our broad definition of entrepreneurship in a public sector context as the creation of economic activity that is new to

the market (Wiklund, et al., 2010; Davidsson & Wiklund, 2001; Davidsson, 2008). In

addition issues discussed are largely supported by previous entrepreneurship literature around

issues of governance (Benz & Frey, 2007) and management.

This paper identified an environment that encouraged entrepreneurial behaviour as well as

new entrepreneurial activity that originated in relation to a problem situation with known

serious consequences for individuals and organisations. The solution developed was new to

the world with potential benefits for larger populations than one government jurisdiction.

The findings of this study contribute to a deeper and broader understanding of

entrepreneurship in public sector, and to other relevant literature on the possibilities of

entrepreneurship in environments undergoing turbulence and change. The findings also have implications for further investigation regarding possibilities for entrepreneurship in public

sector contexts, regarding initiating conditions, championing and sponsorship from senior

management

As governments in Australia at all levels are having a greater focus on new approaches and business models for identifying and harvesting gains from efficiency improvements and

effectiveness improvements in service delivery, an emerging policy agenda is that of

‘contestability’. In essence this agenda actively encourages public sector personnel to pursue

entrepreneurial approaches for realising such benefits. Such new model are ‘market making’

models to aid in building new market capability in supply chains (particularly where

competing in the market is lacking), and employee ownership models where staff may

become direct owner in outsourced models of service delivery. In effective its embraces

higher degrees of risk associated with entrepreneurship so long at public sector employees

can manage risk and demonstrate enhanced value to the public from such new models.

Increased ability to recognise these opportunities and responsiveness may require training

and resourcing for optimal effectiveness.

Future Research

As Australian governments focus more and more on efficiency and effectiveness gains to be made in the delivery of public sector services, opportunities abound in testing the

‘contestability’ of government services with that of the private sector. In particular, the need

to identify and put in place new models of service delivery through the adoption of novel

business models to deliver public value will drive research in this area.

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