Abstract

In this scientific-practical work, an adaptation of the Lean Start-Up method for public management is proposed as a possible solution for the ineffectiveness of government decisions and failures in its projects.

Traditional political ideologies and dogmas represent a problem for the efficiency of projects carried out by the government. It is impossible to know all the adversities that an innovative project will have before being executed, even surveys and market studies are not enough and the advancement of technology is too fast. Those are the reasons why the Lean-Start-Up applied to public management is proposed.

This method consists of identifying the needs of citizens through interviews (not surveys) and making a value proposition based on that, which will allow us to build a minimally viable product to finally obtain an ideal project model made up of nine parts. Unlike traditional public management, each hypothesis proposed by those involved in the project must be tested before executing the project.

We conclude that new methods of leadership and cooperative work that came from this methodology applied mostly by private companies are applicable in public management systems and have the potential to significantly improve their performance. This new way of conducting public management could reduce significantly the risks of failure on the government´s projects and increase the benefit for citizens.

1. Introduction

The government plays a fundamental in the Sustainable Development Agenda. Due to the influence of the government in the economy of any country, its leaders must try new methodologies outside of their ideologies or political dogmas that have been in existence for several years. Efficient government management must complement the roles that have been assigned to private companies and citizens.

Private companies have already changed their way of developing projects and recognized their limitations. Lean Start-Up has proven to be an innovative methodology that increases the effectiveness of the company's decisions. This research proves that this methodology can also be promising if used in public management, recognizing the limitations of project planning and proposing a new way of building it. This is one of the changes that the government must make before 2045, the year in which humanity's problems will reach a point of no return.

1.1 Identification of the problem

The traditional public management system is made up of leaders with very different political thoughts and whose solutions for the problems of society and the economy are based on different hypotheses. For example, a left-wing ideological leader, according to its principles, would be willing to increase the restrictions of the free market through taxes to reduce poverty and inequality, while a right-wing leader would think to do the opposite to solve the same problem (Nagel, 1961).

The main problem with this system conflicts with ideas and in the fact that these leaders will be forced to work as a team with other people who surely do not share the same ideas or goals. There is also the fact that some leaders would be too convinced of their ideas to a dogmatic level and will want to apply decisions in their own way without the need to come to the opinion of the citizens (Caruso et al., 2002).

With these paradigms a question arises: How to know which decision is the best for a country if there are so many different hypotheses?

The heterogeneity of ideas in this case only inhibits the ability of politicians to solve social and economic problems together (Pinkleton et al., 2002). Public mismanagement could cause small economic losses in families or even wars (Silvester et al., 2013).

All the aforementioned problems are part of traditional public management and its way of posing and testing its hypotheses. Traditional public management is criticized for executing government projects with the hypothesis that its representatives and developers pose without testing them properly, have accurately identified the needs of the citizen or build a quality value proposition (Gichoya, 2005).

Many times the problem of hypotheses arises due to the political ideology of the leaders. They have a diversity of hypotheses that do not change or adjust according to the citizen. At the same time, there is an infinite number of economic theories that in some cases do not adjust to the current situation of each country, its culture, its geographical conditions or the advance of technology (Parcell & Holden, 2013).

Just like companies used to do, the public sector plans a project and executes it hoping that it will work according to their expectations. This method implies that the probability of failure has not been minimized. Besides, if the product or service does not meet expectations, it will be necessary to make very expensive changes or even abandon the project (Anthopoulos et al., 2016).

In case the project considers gathering information to execute its project, it would go to surveys or phone calls. The problem, in this case, is not observing the individual's body language and not delving into the problems cited by the respondents, which causes a wrong or very inaccurate identification of the real problem (Silva et al., 2013).

1. 2. Why use Lean Startup in Public Management?

Private companies previously used to develop a business plan. The problem with this methodology arises after a time when it is discovered that the offered product or service was not adequate and does not have the desired results. Repair or cancel it implied excessive costs for the company (Osterwalder, Alexander and Pigneur, 2010)

Nowadays it is more feasible to develop a business model, in which the customer is validated, and we first have to know their needs and how the company's value proposition can cover it (Yang et al., 2019). The company proposes initial hypotheses, which are adjusted or discarded according to the Feedback received by the clients. This ensures that the project developed by the company will be more successful (Busulwa et al., 2018).

An equivalent in the public management of a business plan is a project plan and does not seek to have profits at the end of the year, although it does seek to increase the welfare of citizens, instead of using real prices, it uses its equivalent in shadow prices. (Gatti, 2012). There is no client, but rather a citizen who also has a problem that must be met through a value offered by the public projects, which must be understood before executing it (Silva et al., 2013).

The debate about which policies are the best for a country according to the various economic theories is too long and controversial, but for the Lean-Startup methodology it is not relevant. What is obtained through this methodology is to develop projects that adjust to what the citizen really needs and that guarantees it´s best functionality in the economy.

It is inevitable to make mistakes in any project, to a greater or lesser extent. It is practically impossible for an innovative project to try to develop a final product solely based on hypotheses or surveys, even market studies are insufficient (Ries, 2012). Through the Lean-Startup methodology, the mistakes made in projects are minimized and adjusted so that they give the desired results (Busulwa et al., 2018).

The Lean Startup methodology adds the importance of doing interviews instead of surveys, which should be done in person outside a building, even observing their body language and asking open-ended questions in which the interviewees tell us stories. Doing interviews guarantees more accurate results about what the interviewee wants (Ries & Salbut, 2012)

2. How to Use Lean-Startup in Public Management?

This methodology was originally developed for entrepreneurs who seek to obtain greater profitability in their projects, but as shown below, this methodology is adaptable to public management that does not necessarily seek profitability but rather the well-being of citizens.

2.1 Megatrends

This is the first factor to take into account before considering a project. Megatrend is a set of aspects of society and environment that are inexorably directed in one direction, transforming behaviors, values, and consumption habits, whose impact is global and long-term (Aronoff, 1998). The advantage of carrying out a project according to a megatrend is that the chances of success of a project are increased.

The greatest benefits of developing public projects according to the mega trends will be seen in the medium or long term. Knowing this factor can optimize processes, significantly decrease the probability of failure, decrease costs and increase the benefit to citizens.

2.2 Problem-Solution fit, Product-Market and Project Model Fit

Originally, this stage tries to discover the client and validate it by identifying behavior patterns. The objective is to confirm the existence of a problem that will be solved through the value proposition of the product or service.

In public management, the objective would be to discover the citizen, the project managers could pose hypotheses about the problems that the citizen seems to have and how the project will solve that problem. There will be wrong hypotheses, for which changes must be made.

2.2.1 How to Discover the Citizen?

It is not just about to analyze pre-existing databases or making surveys, it is necessary to personally interview each citizen segments, observing their body language and delving into each of their stories to identify the problem (Blank & Dorf, 2020). To make an interview, the following scientific method is proposed, which is quite simple but rarely used in public administration.

This type of feedback helps to build a minimally viable product (MVP), which is not the end product but will also be changed. When we build an MVP we finish the Problem-Solution Fit and start the Product-Market Fit.

2.2.3 How to build an MVP?

Like the clients of private companies, citizens do not really care about the idea, technology or product, they only have problems which must be solved (Silva et al., 2013). To correctly develop the MVP, it is necessary to answer the following questions.

The Product Market Fit stage begins with a minimally viable product that will be offered to the market in the future (Blank & Euchner, 2018). At this stage we test our product or service to the citizens and receive their opinions on it, we check if they are satisfied and if they are not, we make changes. Through citizen validation, the aim is to adjust the new product or service to the market to find the ideal business model or ideal project model in this case.

Once Problem-Solution fit and Product-Market fit is finished the project model phase begins. In this fit is important to find how the project can generate benefits. In the case of public management, the return is measured in shadow prices. There is no "business" so we can replace it with the "project".

Problem-Solution fit, Product-Market fit, and Project Model Fit processes decrease the probability of project failure. With this methodology, the initial hypotheses proposed by public management will be tested even before executing the project. Likewise, they will better identify the citizen whom they want to help and build a more adequate value offer. 

2.3. Business Model Canvas Applied to Public Management

Business Model Canvas is a business tool proposed by Alexander Osterwalder and Yves Pigneur (2010). This is used as a strategic management template for the development of a business model. In this case, this tool is adjusted to public management.

It has the characteristic that it continuously seeks to identify the ideal client. The client, in this case, is the public to whom the value proposal is directed, the project managers must verify that they are meeting the needs of people, if they do not, they must make changes to their model before executing the project.

Business Model Canva solves the problem of the diversity of hypotheses of economic theories and leaders. With this tool, the hypotheses proposed by them must be tested. If these are incorrect, they are changed.

The refinement of this tool implies that the ideal strategic management model has been found in a project. Below the business model template applied to public management is shown:

Since it is not a business, it is not necessarily intended to generate profitability, but you can use a similar indicator, such as shadow prices. The use of shadow pricing is currently used in the financial planning processes of public projects. If the project makes a mistake, it only needs to change any part of this template.

Each part of this template is explained below.

2.3.1 Citizen Segments

They are citizens grouped according to their needs and common attributes. The project developers must know each segment of citizens that the project seeks to help. Important criteria for separating a segment from another is:

• When the distribution channel to reach the citizen is different.
• The value offer is different due to the need of the citizen.
• The relationship with the citizen is different.

In the same way that private companies segment their clients, there are different ways of segmenting citizens, as proposed as follows:

2.3.2 Value propositions

It is a set of products or services that create value for each citizen segment. This part describes the benefits that each segment of citizens will enjoy.

It must be verified that the value proposition meets the needs of citizens. Reducing the expenses and risks that the citizen incurs to subsist is a great value offer that government projects can cover.

In a value proposition there are 2 perspectives.

The objective is to fit the profile of the citizen with the value map, the products or services of the project must be adjusted. Innovation is still important to reduce risks and costs.

2.3.3 Channels

It describes the ways how the value proposition is delivered to citizens. The effectiveness of distribution channels occurs when they are fast, efficient, and low cost. These channels have 5 different phases, adjusted for a project aimed at the well-being of citizens.

2.3.4 Citizen relationship

It describes the way the project participants have contact with citizens. It is desirable that citizens feel satisfied with the value proposition and have a way of knowing the transparency of the processes that are being carried out. This part should define how citizens will be assisted by project representatives. There are different ways to assist citizen, as follows:

2.3.5 Revenue Streams

The project must obtain benefits for each citizen segment. Costs should be measured by the country’s actual money values. For calculating the project's profit, shadow prices must be used to measure and corroborate the existence of a benefit for the citizen.

The question that the project developers must answer is: How much should the citizen pay in the market for this product or service if I were not offering it to them?

In this part, the project must pose a hypothetical scenario in which the citizen would be charging for this product or service. It must be defined if this income comes from single or recurring payments. In this case, there would be several ways to generate income, such as the sale, payment for usage fees, rental of the service, charge for the use of licenses, service fees, payment for advertising and promotion, etc. The shadow price is not more than how much the citizen would pay in this scenario.

2.3.6 Key Resources

It is made up of all resources the project needs to operate and there are 4 types.

2.3.7 Key Activities

They are the processes that the project needs to keep running. There are 3 types of activities.

2.3.8 Key Partners

They are alliances that the project makes with external entities. In this part, we consider the associations that will allow the project to optimize processes, reduce risk and acquire resources. Alliances can be made with other government entities, private companies, suppliers, colleges, etc.

2.3.9 Cost Structure

All costs that the project must incur to maintain its operations. It is important to recognize which are the highest costs. 

2.4. Pivoting

Pivoting is an essential process to correct errors in our project model. In public management, the hypotheses can come from different points of view. Leaders naturally tend to come up with different proposals for some projects, many of them contradictory (Self, 2000).

Like private companies do, the developers of public projects will have to pose hypotheses in the problem-solution phase; Steve Blank & Dorf (2020) call this process "guests" that, as the word puts it, is about guessing hypotheses.

Pivoting seeks to correct the hypothesis if it did not turn out to be correct. This process has the advantage that it is done long before the project is executed, so the project has a much more accurate and beneficial product for citizens. Besides, failure will be much less expensive and even there is no need for a market study. Failure according to this methodology is nothing more than a pivot.

Pivoting is done as follows:

Pivoting means that what was initially believed about the citizen's problems and the way to solve them was wrong, so the hypothesis will have to be changed and validated again with the citizen, making them try a new or improved minimally viable product. The correction made by the citizen is very important and should not be rejected under any circumstances.

2.5 Corporate Venture and Open Innovation

Traditionally, public and private management did their research within their facilities before taking out their product or service. Today, the global technological innovation process has accelerated too much and internal collaborators cannot reach it (Hugo Kantis).

Not being up to date with technological innovation seriously compromises the success of the project. Corporate Venture and Open Innovation helps us to solve this problem.

Corporate Venture consists of seeking new ideas and projects from outside, to accelerate the innovation processes. In this case, the project explores and capitalizes on innovative resources that come from outside, known as open innovation. The project developers can partner with other entities that have complementary resources, create open innovation competitions, or even finance other start-ups.

2.6 Work Teams

For a project to be successfully executed, the work team must be made up of people interested and committed to the project's objectives, which are related to the well-being of the citizen. The work team refers to those people responsible for starting this new Project. 

3. Conclusions

The Lean Start-Up method appears to be applicable for public management, with the main difference that it does not seek economic profitability but rather the well-being of citizens. This tool has the potential to significantly improve efficiency in the management of public sector rulers and leaders.

Public projects should delve into the problem of citizens and propose an efficient value proposition for them, so they should incorporate interviews instead of surveys.

The Lean-Startup methodology is important to precisely determine the projects that best fit the needs of citizens and the conditions of each economy. Each hypothesis raised by developers, representatives, governors, and those involved in a new public project must be tested in a small segment of the citizenry before being executed. This ends ideological-political conflicts.

The total inaction or ineffectiveness of government decisions is a result of traditional public management that does not seek to test its hypotheses on a small scale before executing the project. However, even an honest government can fail with its projects if it does not use an appropriate methodology.

Lean Start-Up will serve to increase the efficiency of public management in any of its projects, be it health, education, gender equity, climate change, etc. This is complemented by the roles of private companies and citizens in the Sustainable Development Agenda.

It is inevitable for innovative public projects to have errors; there is no way to eliminate the probability of failure, even if surveys or market studies are carried out. The only thing that can be done in these cases is to correct the hypotheses and pivot before executing the project. This guarantees that the failures will be much less expensive and the probability of success will be higher.

 

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This project was sent to “Banco de Ideas Ecuador” on May 26, 2019, and was proposed by the author using the Lean Start-Up Methodology as an idea for improving national security. Full Methodology and documents are available by mail (danny.pilamunga@epn.edu.ec).

About the Author

Danny Pilamunga: Was born in 1995 in Echaleche-Pilahuin. Chibuleo indigenous, soon to become an Economic and Financial Engineer at the “Escuela Politécnica Nacional”. He speaks 4 languages (Chinese-Mandarin, Spanish, English, and Quechua). Currently running 2 companies and teaches indigenous communities to develop businesses with first-world methodologies in Ambato-Ecuador. Also worked as a financial and economic risk analyst and makes independent research that has been exposed to national conferences.