Rewarding Social Innovation: Institutionalizing Competitions

Test Driving the Future

Competitions to encourage innovation have spread around the world and they play a significant role in facilitating and promoting social innovation. For example, the Dell Social Innovation Competition has been running since 2007 and has produced over 4,500 ideas and Ashoka’s Changemakers claims 5,000 “high-impact” solutions since 2004 from over 145 countries. Corporations, foundations and governments are often the sponsors of competitions, with targets and prizes, on a diverse range of issues from climate change to gender equity. The stakes are often very high: The European Commission is banking on its Social Innovation Competition this year to generate solutions to its unemployment crisis – to find work for over 25 million unemployed citizens[1].

So much seems to be resting on these types of competitions, but what do we really know about them? Why are they growing in popularity? How are they most effectively organized? How might they change in the future?

Researchers from Cass Business School in London and the Newcastle Business School, Joseph Lampel, Pushkar Jha and Ajay Bhalla, sought to answer these questions*.

Old School

Lampel and his colleagues examined the research on design competitions focused on social innovation, technological solutions, and path-breaking technological change. They found that the use of competitions to generate innovation is not new. Since the 18th century, competitions have been used to challenge innovators to generate novel solutions to economic and social problems.

The benefits are pretty clear. For sponsors/organizers, it’s a much cheaper way to develop novel solutions than managing it in-house. For innovators, a competition lowers the cost of finding crucial resources – finance, publicity, technology, expert assessment – and forming relationships with key stakeholders such as investors and lead users.

But competitions today have evolved considerably from their 18th century roots.

New Directions

In the past, competitions were often sponsored and organized by the same person/organization, established as a one-time challenge with finite duration, and rewarded with one clear winner.

Today’s competitions are shaping up to be quite different. Lampel et al. argue that there are some unique differences:

  • Sponsors and organizers are no longer necessarily the same entity – competitions today often have separate sponsors and organizers. Sponsors provide the funding and have considerable influence on goal setting but often contract out to specialist organizers to manage such as the X Prize Foundation, TopCoder and Innocentive.
  • Competitions now can have multiple stages and stage-based progress rewards, not just one challenge. For example, “The Heritage Health Prize offers US$3 million for a model that can improve predictions of which patients are most likely to require a hospital visit within a year. The competition offers a US$230,000 milestone prize for solutions that exceed a given threshold on the condition that participants disclose their algorithms to each other”.
  • The competitive focus is now connected to ideas of collaboration – participants are often encouraged to draw on the collective pool of ideas and capabilities in the communities targeted by the competition and sponsors are also forming diverse partnerships. For example, the LAUNCH Initiative brings together Nike, NASA, the U.S. State Department, and the U.S. Agency for International Development (USAID) to challenge entrepreneurs and innovators to address key sustainability problems in the areas of water, health, energy, and air.
  • The agendas of the competition are broadening – away from individual technical solutions to focusing innovators’ efforts on fixing existing markets or even creating new ones.

And Growing…

The researchers argue that these differences are increasing. They mapped competitions on two dimensions – structural (how a competition is organized) and its competitive orientation (how much the competition encourages rivalry – “the winner takes all”). They found that competitions are increasing in complexity and in encouraging collaboration.

Drivers: Opening Up Innovation

What is driving this change? Lampel et al. argue that the popularity of competitions reflects a shift in the approach to innovation and the power of the internet.  They point to interest in open innovation – looking beyond the organization’s walls to generate solutions – and how the web enables that outreach. Web-based competition platforms are able to connect disparate innovators and engage a wide range of people to assess the performance of new ideas – specialists and the general public. It makes economic sense: Many companies on their own don’t have the resources to keep up with rapidly changing environments. And Governments too can find that their structures are not suited to the challenges of the current age but substantial internal reform is too costly.

Turning to external innovation processes such as design competitions has the merit of tapping a wide range of external innovation resources while at the same time avoiding open-ended budgetary commitments.

Reflection

But are all these trends good news? What are the potential downsides or unintended consequences of the popularity of competitions? On what might those interested in social innovation reflect?

Lampel et al. do not explore the outcomes of competitions – the degree to which the sponsor/organizer/innovators expectations are met and what the long-term effects of competitions have on innovation per se or on transforming social issues.

They identify the institutionalizing of a field of competition organizers – dedicated outfits that specialize in competition design and management – and argue that this gives the sponsors and organizers greater opportunities to learn and refine the architectures of competitions and improve performance. How that learning is captured and shared is unknown. They don’t explore any potential downsides of such organizing and how it might influence the innovation process. Competition organizers may, for example, find themselves putting more energy into their own organizational maintenance/survival now that they outlast single competitions.

They also don’t talk about the possibility of “competition fatigue” amongst sponsors and innovators. The fact that it is easier to stage competitions doesn’t necessarily mean that they should be the default innovation strategy.

Lampel et al. cite research by Laursen and Salter (2006) and Dunlap-Hinkler et al. (2010), which together suggest that breakthrough innovations are less likely to emerge from open innovation. This research highlights the importance of long-term relationships and a small knowledge of external knowledge sources. This has some significant implications:

Clearly, design competitions that normally cast their search nets widely and commit to participants only on an event-by-event basis promote neither deep search nor long-term relationship. Hence it is possible that the hopes for radical technological or social transformation that motivate some sponsors and organizers of design competitions, such as the X Prize Foundation, may be excessively optimistic, while the more modest aims of design competitions such as the Netflix Prize or Goldcorp Challenge may be more realistic.

What is clearly needed is more research as there seems no doubt that, irrespective of their effectiveness, competitions are here to stay:

…sponsorship by top corporations, prestigious foundations, and major government departments, not to mention well-known entrepreneurs, delivers a vote of confidence that lends considerable legitimacy to the use of design competitions. Perhaps this, as much as anything else, is ensuring that design competitions will continue to attract the attention and resources needed to establish them as a permanent innovation institution.

* Lampel, J., Jha, P. P., & Bhalla, A. (2012). Test-driving the future: How design competitions are changing innovation. Academy of Management Perspectives, 71-85.


[1] Spain’s unemployment rate is 27% of the workforce in the first quarter of 2013 – the youth rate is 55% (http://www.bbc.co.uk/news/business-21180371)

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