More NGOs, Government Departments and city governments are using challenge prizes to help develop new products and services which ‘solve’ a problem they have identified. There have been several high profile prizes (for instance, Nesta’s Longitude Prize or the recently announced $7 million ocean floor Xprize) and a growing number of platforms for running them (such as Challenge.gov or OpenIdeo). Due to this increased profile, challenge prizes are more often seen by public sector strategists and policy owners as holding the potential to solve their tricky strategic issues.

To characterise, the starting point is often “If only we could somehow get new, smart, digitally-informed organisations to solve the underfunded, awkward strategic issues we’ve been grappling with, wouldn’t it be great?”.

This approach is especially tantalising for public sector organisations as it means they can be seen to take action on an issue through ‘market shaping’, rather than resorting to developing policy or intervening with regulation or legislation.

Having worked on a series of challenge prizes on open data over the last couple of years, as well as subsequently working with organisations on how our design principles could be applied to their objectives, I’ve spent some time thinking about when it’s appropriate to run a challenge prize. The design and practicalities of running a successful challenge prize are not always straightforward. Thankfully there has already been some useful broad guidance on this from Nesta’s Centre for Challenge Prizes in their Challenge Prize Practice Guide and McKinsey and Deloitte have also published guides.

Nevertheless despite this high quality guidance, like many things in life, the most difficult part is knowing where to start. Organisations struggle to understand whether they have the right problem in the first place. In many instances running a challenge prize is not the appropriate organisational response to an issue and it’s best to discover this early on. From my experience, there are two key questions which are worth asking when you’re trying to work out if your problem is suitable:

1. Is your problem an issue for anyone other than your own organisation?

A successful challenge prize is one which tackles a problem that is accepted to be an issue by a relatively wide group of people. If the problem you’re concerned with is widely shared you’ll hopefully automatically get people interested in helping to solve it - as they say a problem shared is a problem halved. If it’s a parochial issue to do with your organisation only then you’re less likely to attract people to take part and you might have to consider alternative approaches to solving it yourself.

Not having a widely shared problem is not necessarily a reason not to run a challenge prize, but you might have to incentivise teams to engage more and might also want to consider whether more straightforward procurement approaches might be cheaper and quicker. Running a challenge prize may still be a worthwhile exercise if you think it will get more innovative solutions and different types of companies involved than a relatively traditional procurement exercise.

2. Will other people see solving this problem as an investment opportunity or worth funding?

This question builds on the previous one as seeing a problem as an investment opportunity is to a certain extent dependent on whether the problem is widely held. A challenge prize is likely to be less successful, even with a widely shared problem, if it is not obvious who would invest in the solutions produced. This will not only be an issue in the long term but may also affect the running of the challenge prize itself. If no-one other than you is in the market for the resulting product or service then you’ll not attract many teams to take part and potentially those that do might not be the strongest as they had not clocked the weak longer term earning potential.

Again, there is some possibility that, through the process, teams produce products and services which could be applied to more profitable problems or solutions but this is a long shot. There is also no guarantee that they would not pivot away from continuing to solve your problem after they’d won the prize.

These two considerations come down to one thing - incentive. Firstly, does anyone other than your organisation care about this issue and secondly, do they care enough about it to pay to solve it. If you can answer yes credibly to both questions then you’re in a good position to start to think about some of the more detailed practicalities of running a challenge prize. You may think these questions would be obvious but there can be a myopia in organisations which means that they fixate on the issue that they care about and can lose perspective on whether it’s a concern for other people. 

Clearly, you may still get teams interested in your challenge prize if you just give away a lot of money - people will always respond to that. But these two questions are worth considering if the aim of running the challenge prize is to create successful long-term solutions to your problems, rather than just being seen to be doing something by running a challenge prize.

Photo Credit: Bright Vibes, Creative Commons 2.0 license