Open innovation is undoubtedly causing a profound shift in how new ideas and inventions are sought by organisations of all shapes and sizes.  Arguably the oldest and most well established of the various forms of open innovation is the prize or challenge.

What began in 1714 with a contest run by the British government to find an accurate means of determining latitude has mushroomed in the last decade, with contests such as the X-Prize running multimillion dollar competitions for everything from space travel to healthcare.

Back in 2009 McKinsey estimated that collectively the prize money for these kind of contests totaled around £1 trillion.  It’s fair to say it’s probably grown since then.  A new report by the Manchester Institute of Innovation Research looks at the impact such competitions have.  The aforementioned McKinsey report provides a benchmark, as they suggest that around 40% of challenges were not evaluated afterwards, and any evaluation that was done was often ad hoc.

The report brings together the existing evidence on the effects of innovation inducement prizes by drawing on a number of ex-ante and ex-post evaluations as well as limited academic literature. It focuses on ex-ante innovation inducement prizes where the aim is to induce investment or attention to a specific goal or technology.

It goes on to outline the three main factors behind an innovation competition:

1. To overcome market failure in an area
2. To demonstrate the feasibility of a technology
3. To create a technology for subsequent public access/use

The overwhelming emphasis on the report however is on the innovation performance itself.  Do these competitions actually work?

It suggests that evidence about the success of innovation challenges is scarce for two main reasons:

1. Despite the relative popularity of them in recent years, they still represent a small proportion of overall innovation spending, therefore research into them is not very plentiful
2. There are also difficulties in measuring outcomes in many prizes.  For instance, it is often difficult to gauge whether the successful outcome would have occurred anyway, regardless of the challenge

So it’s not clear from the research whether innovation prizes ultimately led to greater innovation or merely substituted one form of innovation investment for another.

There is however a consensus that innovation inducement prizes are not a substitute for other innovation policy measures but are complementary under certain conditions. Prizes can be effective in creating innovation through more intense competition, engagement of wide variety of actors, distributing risks to many participants and by exploiting more flexible solutions through a less prescriptive nature of the definition of the problem in prizes.

They can overcome some of the inherent barriers to other instruments, but if prizes are poorly designed, managed and awarded, they may be ineffective or even harmful.

You can download the full report here.