How do we turn promising digital innovation into real impact at scale while ensuring it serves citizens, not just corporations? This question has become urgent as governments worldwide grapple with technologies that evolve faster than their institutions can adapt.
Exploring the barriers to real impact at scale, we first need to examine the unique challenges facing public sector digital innovation and the governance principles that can guide successful transformation. Second, we delve into the regulatory and institutional changes needed to support innovation at scale, from co-ordination paradoxes to new models of adaptive governance.
The challenge of public digital innovation
Government organisations face unique barriers that private sector innovators rarely encounter.
- Risk aversion shuts down experimentation early.
- Legacy procurement systems aren’t built for agile tech.
- Many public workforces lack digital skills.
- Institutional culture often resists change.
Regulators face their own struggle: balancing innovation with citizen protection amid technological change that outpaces their ability to respond. Traditional regulation prioritised stability and predictability but that does not work when technology outpaces laws. This means moving toward anticipatory regulation through sandboxes, test beds, open data and governance that cuts across sectors and institutions.
Digital transformation also requires standardisation for co-ordination, yet rigid rules can stifle innovation. The goal is to define outcomes and quality standards while letting teams determine how to meet them. Regulators must be clear about desired outcomes but avoid prescribing methods.
The foundation: governance shapes everything
Technology’s impact on society is never automatic – it depends on political, institutional and social choices. Technology is a tool not a solution. Its effects emerge through how it reshapes public institutions and markets, making governance – not just innovation – central to digital transformation. There are 6 core principles that help ensure digital systems create public value and serve citizens:
1
Rights-respecting
Privacy and individual freedoms by design.
2
Accessible
Accessible to all, regardless of status.
3
Participatory
Involves citizens in design and oversight.
4
Transparent
Clearly governed and publicly accountable.
5
Decentralised
Distributes control, avoids monopolies.
6
Modular
Interoperable and adaptable for scale.
Starting small to scale smart
Digital transformation often begins with small, focused pilots that solve friction points, deliver measurable outcomes and build early momentum. One proven strategy is establishing startup-style teams within government, agile units that attract private-sector talent, operate on lean budgets and build local partnerships. These teams can bypass bureaucracy and show what’s possible.
Pilots demonstrate citizen value, test regulation, build capability and lay the groundwork for reform. Crucially, they offer safe spaces for adaptive regulation and scalable, citizen-first innovation. But pilots alone don’t create transformation.
From pilots to population-scale impact
Transformation happens when systems serve entire populations. India’s digital identity programme followed this model from the outset, designed not as a pilot, but as national infrastructure to reach 1.4 billion people. To lead it, the government appointed a private-sector entrepreneur to head a startup-style agency. The team travelled widely, built local partnerships and engaged volunteers – combining top-tier technology with deep understanding of citizen needs.
Scaling innovation requires 3 key shifts:
1
Strategic prioritisation
Focus on citizen outcomes, not departmental preferences. Shared standards and oversight keep efforts aligned with public needs.
2
Architectural thinking
Build modular, interoperable systems to avoid digital silos. Brazil’s PIX and open banking show how openness and standardisation deliver real benefits. Similarly, India Stack builds interoperable building blocks for identity and payments at national scale. India’s ONDC builds on this – using open protocols to enable smaller players to compete alongside established platforms.
3
Organisational transformation
Move from siloed departments to teams built around citizen journeys, backed by outcomes-based funding. Adaptive governance – like mesh-style regulation – enables innovation with accountability.
This indicates a move toward generative shared intelligence: governance grounded in sharing data, knowledge and infrastructure across boundaries.
The co-ordination paradox
Yet even successful implementations face a fundamental challenge: digital innovation flows horizontally across sectors, but our regulatory structures remain stubbornly vertical. This mismatch creates profound challenges, particularly visible when companies operate across multiple sectors. Are these platform conglomerates technology companies, financial services providers, infrastructure utility companies, or all of the above?
The UK’s Digital Regulation Cooperation Forum (DRCF) represents one attempt to bridge these silos through efforts across research, engagement and establishing novel collaborations between regulators. However, there is a common theme: does co-ordination alone suffices without legislative powers? As we have observed, regulators have overlapping objectives, stability, resilience, competition, but only one gets articulated clearly. This creates leadership voids and accountability gaps.
The human dimension of co-ordination proves equally challenging. Regulators face asymmetric incentives: they’re punished for failures but rarely rewarded for successful collaboration. This creates risk-averse cultures that default to protecting narrow mandates rather than pursuing broader societal benefits. Some argued for moving beyond co-ordination to integration and creating new institutional forms designed for the digital age rather than retrofitting industrial-era structures.
The smart data challenge exemplified these co-ordination issues. When a single data-sharing initiative touches multiple regulators, (for example: financial, health, privacy, competition), who leads? Who decides? The current approach often creates paralysis, with each regulator viewing the initiative through their narrow lens rather than holistically assessing public benefit an understanding the intersections. While we are seeing international momentum in understanding the benefits of data flows and international cross-regulation networks, translating these insights into operational co-ordination within countries is still an active work in progress.
Beyond operational challenges, regulation can become entangled with political agendas. Rather than serving public interest, regulatory powers sometimes become tools for political control, enhancing competitiveness or protecting incumbent interests. This weaponisation of regulation could further complicate co-ordination efforts, as political considerations override technical merit or citizen benefit.
The human dimension proved equally critical. Successful co-ordination requires what behavioural scientists call the COM-B framework: Capability (skills and knowledge), Opportunity (time and resources) and Motivation (incentives to collaborate). Too often, initiatives focus solely on capability, for example, training people on new systems, while ignoring whether they’ll have the opportunity or motivation to apply these skills. This was captured in a common sentiment: “Everyone believes in co-ordination. Everyone hates being co-ordinated.” This paradox reveals how human psychology, not just institutional design, shapes regulatory ways of working.
From blocking to channelling: a new regulatory philosophy
Imagine digitalisation as water flowing rapidly toward us. Our current regulatory approach resembles building small dams here and there, trying to block or redirect the flow. But we can’t build a dam large enough to stop digitalisation, nor should we try. Instead, we need systems to channel these waters productively – irrigation systems that distribute benefits widely rather than letting the water concentrate in a few powerful hands.
This shift in perspective, from blocking to channelling, points toward new regulatory models that transcend traditional boundaries. The need for such transformation becomes even more urgent when we consider how current regulatory approaches can inadvertently stifle the very innovation they aim to govern. Several models emerged that could address these challenges:
- Outcome-based regulation that specifies what must be achieved rather than how, enabling innovation while maintaining safeguards. This requires regulators being comfortable with ambiguity and skilled at evaluating results, rather than checking compliance boxes.
- Cross-sectoral sandboxes that create safe spaces for experimentation across regulatory boundaries and sectors.
- Protocol-based governance that separates underlying standards (which require co-ordination) from applications (which enable innovation).
These models should embrace co-creation from the start, bringing together public and private stakeholders in the design phase rather than consulting them after decisions are made.
New institutional forms for a digital age
Perhaps the workshop’s most provocative insight was recognising the institutional gap in our current system. While we have regulators to prevent data misuse, we lack institutions actively designed to maximise public value from data. This absence is striking given data’s foundational role in the digital economy. Current structures mean valuable data remains siloed, public benefit opportunities are missed and citizens lack trusted mechanisms for data sharing.
The UK’s Government Digital Service (GDS) offers lessons here. Beginning as a startup-style team rather than a traditional agency, it proved its value through delivery before formalising its role. This evolutionary approach may be essential for institutions in rapidly changing domains.
Yet implementing these new forms requires careful attention to where and how we standardise. The workshop revealed an important tension: standardisation can be both innovation’s greatest enabler and its worst enemy. When applied to foundational protocols – like electrical plugs or internet standards – standardisation creates platforms for innovation. But when extended too far up the stack, it stifles creativity.
Key lessons for transformation
Throughout our discussions, clear principles emerged for successful digital transformation:
1
Technology is an enabler, not a solution
The same technologies can entrench power or enable inclusion – depending on governance and design.
2
Start small, scale smart
Pilots should deliver clear value but be built for growth. GOV.UK achieved strong front-end co-ordination but struggles with back-end integration due to misaligned mandates. Even small projects must embed scalable, citizen-first architecture.
3
Political commitment matters – and is often citizen driven
Digital transformation requires political will and tools alone do not deliver results. The UK forms platform, for example, enables new services but neglects accessibility gaps in existing PDFs.
4
Champions drive reform
Change-makers within institutions translate potential into results. Clear standards help them overcome inertia – but governance must prioritise citizen needs over institutional convenience.
5
Communication shapes innovation
How transformation is framed informs how teams respond. Positioning pilots as learning tools builds trust and encourages experimentation. The FCA’s approach of co-creation and viewing failure as learning exemplifies this.
6
Move beyond incrementalism
Incremental co-ordination won’t solve systemic challenges, thus we need innovation in both the regulatory and legislative system to create, modernise and adapt institutional forms and mandates.
These principles apply broadly across public-sector innovation. Success depends on aligning technology, governance and delivery with citizen needs – ensuring benefits are widely accessible and intelligence is shared. This is how digital transformation becomes a driver of long-term, equitable prosperity.
The river of digitalisation will continue to flow. The policy challenge is whether we can construct the institutional ‘irrigation systems’ needed to channel its benefits broadly across society or allow its currents to consolidate into narrow streams. The conversations at Cambridge are not an end, but the beginning of that endeavour.
About these insights
These insights emerged from a dedicated workshop in May, co-hosted by the Innovation Hub for Prosperity and the Cambridge Centre for Alternative Finance, where Montek Singh Ahluwalia gave the opening remarks and experts from 30 organisations across technology, data, psychology, economics and regulation came together for a 360° conversation. By grounding our discussion in real-world challenges and cross-disciplinary perspectives, the workshop helped surface the governance principles, regulatory models and scaling strategies outlined above – ensuring these ideas are not just theoretical, but forged through collective experience and practical debate.
Related links
OECD on data flows and governance
INDRC: international digital regulation co-operation network
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