Ten years ago, if you wanted to see a 1950s art house classic, you had to drive to the nearest video store, search the movie stacks, hope they carried the movie, and hope it wasn’t checked out — not a terribly convenient process.

Most of the time there was a tradeoff to make: either you enjoyed the convenience of watching whatever what happened to be on TV that night or you took the journey to the rental store and then had the satisfaction of watching exactly what you wanted.
This article is adapted from a new Deloitte GovLab study, “Public Sector, Disrupted: How disruptive innovation can help government achieve more for less.” For more news and insights on innovations at work in government, please sign up for the AOL Gov newsletter. For the quickest updates, follow us on Twitter @AOLgov.


Netflix shattered this tradeoff. Its video streaming service not only gave us access to tens of thousands of movies and television shows, but it allowed us to watch them in the comfort of our homes within seconds.

Life is filled with tradeoffs. A tradeoff defines the limits of what is possible at any given time–for instance, between a product with basic capabilities that is simple to use, and one that has superior performance possibilities but is perhaps more complex.

Policymakers and government officials confront huge tradeoffs every day. The most common one in the public sector is between the “price” we pay in taxes for a public sector good and the quality of its performance.

It’s generally assumed in education that better performance requires more teachers, smaller class sizes and better facilities. Conversely, it is assumed that reducing the number of teachers and increasing class size — as is happening across cash-strapped America today — typically harms performance. The common perception in intelligence is that better capabilities require large sums spent on expensive technologies such as satellites. Greater national security means more bombers and more boots on the ground. Safer streets require more prisons. And so on.

Better performance and higher capabilities inevitably seem to involve paying more. The question is, can we apply the Netflix model to the public sector and break some of these seemingly immutable tradeoffs? Can we actually improve services and lower costs at the same time? The answer is yes.

Dispelling the tradeoff myth

The key to doing this is through a concept called disruptive innovation. First articulated by Harvard business professor Clayton Christensen, disruptive innovations start out at lower levels of quality but are also cheaper than the market leaders. They, then break the tradeoff between price and performance by getting better, and typically even cheaper, over time. Disruptive innovation puts the lie to the traditional notion that you always have to pay more to get more.

To see how this concept might apply to the public sector, let’s look first at criminal justice.

For decades, less crime and better safety meant tougher sentencing laws, which in turn led to massive increases in funding for incarceration. As of 2008, 2.3 million people, one in every 100 adults, were behind bars in the United States. Lower-level offenders have accounted for a significant portion of the growth in the prison population-a 300 percent increase since 1980.

Electronic monitoring is a disruption that has the potential to break the tradeoff between more prisons or more crime. By removing low-level offenders from prisons and putting them under house arrest, electronic monitoring enables governments to dramatically reduce their spending on incarceration ($5 to $25 per day compared to $78.95 for prison).

Or consider the huge price escalations in higher education that President Obama highlighted in a major speech last week. From 1982 through 2007, tuition and fees at U.S. public and private colleges rose by an average of 439% after accounting for inflation. “Student loan debt has now surpassed credit card debt for the first time ever,” says President Obama. “Think about that. It’s inexcusable.”

Lessons from education sector

The prevailing wisdom in higher education is that it’s not possible to reduce costs and improve quality. But is this assumption actually true?

During the last decade, the National Center for Academic Transformation (NCAT) has worked with hundreds of public universities to redesign individual courses around a blended model of education that takes greater advantage of technology. These course redesigns incorporate digital learning tools — simulation, video, social media, peer-to-peer tutoring and software-based drills — as well as some traditional classroom lecturing. The average cost reduction from blended learning in higher education has been significant: 39%, with some course costs reduced by as much as 75% .

Disruptive innovation – through blended learning – offers not only an alternative to the choice between higher tuition and big cuts in university offerings, but is also a way to transform the basic business model of higher education.

To get more for less requires doing things differently. From homeland security to education, from health care to defense, what are needed are innovations that break traditional tradeoffs, particularly between price and performance. Disruptive innovation offers a proven path to accomplish this goal and to transform public services in the process.

William Eggers, the author of seven books on government reform, is responsible for research and thought leadership for Deloitte‘s Public Sector industry practice.

Audrey Vaughn is a GovLab fellow and senior consultant in Deloitte Consulting’s Strategy and Operations practice.

The full study, “Public Sector, Disrupted: How disruptive innovation can help government achieve more for less,” was written by Eggers, Vaughn, and GovLab fellows and Deloitte consultants Laura Baker and Ruben Gonzalez.