How Do Organizational Capabilities Sustain Continuous Innovation in a Public Setting?

Just as private organizations rely on dynamic capabilities to sustain their innovative capacity and competitive advantage, the public sector may resort to them to improve its ability to address citizens’ needs. But how do innovation and organizational capabilities interact in a public setting? This analysis of the Congestion Charge Zone implemented by the Municipality of Milan in Italy explores this issue, and highlights the role played by interorganizational and cross-sector collaborative innovation. Results show that multi-actor engagement within a multilevel collaborative environment enhances the system’s ability to understand the problems to be addressed, to create and implement appropriate solutions, and to foster ownership of the innovation. They confirm that sharing knowledge and engaging in interorganizational learning are central to the development of innovation; however, they also highlight that these dynamics strengthen collective capabilities at the organizational and system’s level, thereby producing a reinforcing effect on innovative capacities at both levels. Based on these findings, a framework for continuous public innovation through collaboration is proposed which, first, provides a tool for mapping the factors and dynamics that shape collaborative innovation in a public setting and, second, explains how the process of collaborative innovation fosters organizational dynamic capabilities that, in turn, sustain the organizations’ capacity to innovate in the longer run.