I attended the Prizes Summit today at the London Business School, organised by Innovation Prize specialists OmniCompete, which sought to investigate and debate the increasing role of prizes in supporting and stimulating innovation.
There have been some big success stories in recent years, most famously the X-Prize Foundation, and a little closer to home NESTA’s Big Green Challenge. Whilst these almost certainly have great value in solving wicked problems, I still question what role that prizes play above and beyond the very important PR value of having a big prize generates. And I’d love to see some work on the price elasticity of prizes as I am deeply sceptical that a £2m prize is twice as effective as a £1m prize.
Looking forwards, not back
Ultimately I believe a prize should only be used as an important last resort – namely if there is a a well expressed and difficult problem for which you’ve explored all the existing obvious solutions and are now looking for unexpected or surprising solutions. If the solutions aren’t surprising then you haven’t done your homework right beforehand.
In many ways it depends on how you define a prize. For me a prize needs to be the start of something, not the end of something, and so I was pleased to hear the distinction today on a focus being on, what are called ‘inducement prizes’ rather than ‘recognition prizes’. One speaker said he preferred Contracts rather than Prizes, and we often find that small, flexible contracts can work really well rather than monolithic prizes.
Jonathan Bays at McKinsey went on to give a good talk to bust some common myths around prizes. He went beyond the inducement and recognition duality and described 6 major prize types with examples as follows: Participation prizes (FIRST Robotics, Oddyssy of the Mind), Exemplar prize (Nobel, Man Booker), Network prizes (El Pomar Awards), Exposition Prize (Green Challenge, Changemakers), Point Solution (Netflex, Innocentive), Market Stimulation (Ansari X Prize, Progressive X Prize) Check out the report here which looks well worth a read. He also presented a rather useful tool for when prizes should be used as follows:
I gave a short presentation about open innovation in the afternoon and my slides are available to view below.
My talk was underpinned by a number of key points as follows:
1. Financial incentives can have perverse outcomes – Dan Pink summarised a lot of research in his excellent book Drive, where he showed how “For complex and creative tasks, financial incentives has a negative impact on performance.” In particular, your top 1%* are not primarily motivated by money. That isn’t to say money isn’t important but the primary incentive is always some kind of unmet need or an interesting challenge that is intriguing in it’s own right.
2. Clients not Cash – Jason Pinto from Amadeus Capital made a good point that that clients are better than any investor, which I whole heartedly agree with. We have a mantra, namely Start at the End. In other words be really clear about the business relationships you are looking for before you start any competition process. The worst thing you can do for your reputation and for the success of such a process is to shift the goalposts part way through (which large organisations are optimised to do).
3. Brilliant questions are more important than prizes – Not all the smart people work for you said Bill Joy, so prizes and incentives are one way of attracting the smart people who don’t work for you yet. However, you only get 1 chance to do this well and that means sharing both risk and reward, and it strikes me that the way most Innovation Prizes are structure at present don’t quite address that yet. And the best way to interest others in your challenge or problem is through asking a question that is intriguing in it’s own right, above and beyond the Prize. And to be fair this is something that both the Ansari X-Prize and NESTA Big Green Challenge did very well.
Anyway, all in all it was an interesting event and I learned a lot and the one thing that everybody seemed to agree on, is that prize based innovation is on the increase so we all need to get smarter and learning when and how to use it well.
*Your top 1% are lead users or extreme users that exist in any community – defined as people aware of an unmet need and intrinsically motivated to do something about it – check out the work of Erik Von Hippel or Jakob Nielson for more on this.