Why challenge prizes are so hot right now

Traditional procurement often leads to mediocre solutions by the same large actors. Challenge prizes are an old alternative that is making a comeback, promising more innovation and better outcomes.

Apr 26, 2021

Anil Wasif (AW) is a Senior Consultant at the Ontario Government and a co-founder of BacharLorai. He is currently a graduate student at the Max Bell School of Public Policy where he serves as the President for the Public Policy Association of Graduate Students (PPAGS). Views are his own. Write us at newsletterthebell@gmail.com

BY THE LATE 1700s, drying, smoking or pickling had proved inadequate for preserving food for the long distances travelled by the French army. To solve the problem, French leader Napoleon Bonaparte offered prize money to any private citizen who could figure out a better way.

Napoleon understood that the best idea for preserving food would be found outside his government. He framed the problem by famously stating that “an army marches on its stomach,” and clearly communicated his desired outcome of preserving food to fuel the army’s conquests, before opening up the problem to private citizens to solve.

Fifteen years later, a French baker made a breakthrough by boiling and then air sealing food in glass jars. The government facilitated experimentation, remained committed to the cause, and ensured the winner was rewarded when the sealing process was made public. The solution was adopted and future prizes were created for similar problems. Napoleon’s challenge helped innovators thrive and altered the food policy landscape forever. The fundamental concept of air sealing still remains in use to this day, with Canadian space expeditions continuing to rely on the process that formed the basic principle of canning in 1795.

Napoleon’s outcome-based funding model offered public sector resources to private sector innovators to turn their ideas to action. Since then, governments have launched competitions to solicit solutions that meet a clearly defined set of criteria and generate positive outcomes for society. From calculating longitude at sea to sending passengers to space, citizens and businesses competed to turn inventions into innovation, create new markets and raise awareness in the process. Today, policy wonks refer to these competitions as “challenge prizes.”

A renaissance in the making

Governments and civil society have long offered prizes for solutions to societal challenges. Yet, according to a 2009 McKinsey report, with more money being put up by a more diverse group of actors to solve an increasingly broad range of problems, the instrument seems to be undergoing a renaissance.

For instance, in the private sector, The Netflix Prize offered $1 million to anyone who could improve the accuracy of Netflix’s movie preference algorithm. The prize was launched on October 2nd 2006 and just two days later, a team had already beat Netflix’s own algorithm. Competitors had access to each other’s data, including descriptions of how their algorithms worked. The competition ran for three years with winners trading places until the million dollar winner was announced in 2009. Along the way, web forums were exploding with new ideas, connections were being made by each competitor, and communities started to form as binge watching changed forever.

On the other hand, Impact Canada’s Smart Cities Challenge was launched in 2017 to award public sector organizations for innovative approaches to improving community wellbeing. The competition was based on a smart cities approach that included outcomes like openness, integration, transferability, and collaboration. Among the winning ideas was a bid to reduce energy poverty by the Town of Bridgewater, Nova Scotia through energy-monitoring installations in over 1000 low-income homes. Another winner was a community-based health and wellness platform based on Inuit Qaujimajatuqangit (the Inuit knowledge system and worldview) created by Katinnganiq — a coalition of communities fighting suicide in Nunavut. Today, residents of Bridgewater can shop for affordable energy updates for their homes online; while the people of Nunavut can gather at Makerspaces that foster connectivity among peers — all because of a challenge prize.

Philanthropists, governments, citizens, and businesses are offering bigger prizes for better solutions — more than ever before in history. From the $10 million Ansari XPRIZE for private spaceship rides to $100 million carbon renewal incentive from Elon Musk, the prevalence of prizes has increased by more than ten fold across the globe in the last fifty years. This re-birth of challenge prizes can be credited to their impact beyond technical innovation and invention — towards efforts to change perception, share information, improve productivity, and raise awareness. Coupled with challenges to increase vaccine confidence and reduce unemployment, the pandemic has proven this old idea to be mighty during modern times.

Canada’s case for challenge-prizes

Canada’s innovation pipeline is undergoing a similar change. Federal programs like Impact Canada, the MINDS Policy Challenge, and the National Research Council’s Challenge Program have opened up innovation to people and businesses. From smart cities and food security to military recruitment and opioid detection, prize backed challenges are in. But there’s a case for why they should stay.

Procurement is broken in Canada. It’s a black box in government that overly rewards contracts based on the proven merits of bidders’ reputations instead of their solutions and ideas. Whether it is delays and defects in Toronto streetcar deliveries, or unfinished construction of schools in Alberta, large players continue to win large, multi-year contracts. New entrants are effectively excluded from the pipeline, talent is recycled and creativity is restricted. Moreover, standard contracting mechanisms take years to facilitate breakthroughs, and as a result, capital is often exhausted before contracts are even fulfilled — a cycle of inefficiency at the cost of taxpayer dollars.

In comparison, prize-backed challenges are simpler, faster, and better as they offer a reward for “the first or best solution” to a problem. For starters, people like to win. Prizes are rooted in the traditional value of identifying excellence in human efforts, a behavioural trait that shapes outcomes, motivates others and builds talent in communities. Challenges turn the volume up on conversations by grabbing attention and present the opportunity to influence and shape public perception on specific issues or problems. In turn, they can create new markets and social commitments as citizens and businesses come together to mobilize fresh ideas over increasingly shorter periods of time. Finally, challenge-prizes are outcome focused, with funding and other resources provided only after solutions are presented. As such, they come with a host of positive impacts on the communities that they are focused on while reducing the risk to reward ratio for investments made from taxpayer dollars as well.

Yes, there are some concerns when it comes to the quality of innovation in a short period of time, as flaws in the design process can reduce trust between stakeholders and demotivate innovators. However, history has shown how innovation can be accelerated in a sensible manner when a clearly achievable goal is identified and a wide pool of innovators are invited to present outcomes that meet a specific set of criteria.

When it comes to challenge-prizes, Ottawa’s focus seems to be on new and complex problems. But older issues could benefit from prizes as well. Improving procurement ends up on Ottawa’s to-do list every year. The headlines are reading national child care after fifty years but the bylines are still questioning how it will be done. The budget talks about finishing the fight against COVID but vaccination sign-up forms keep crashing online. Challenge-prizes could easily remedy or ease up problems like these because instead of spending hours and dollars on prescribing a specific solution that often gets outdated by the time of implementation, the government could see its problems solved in real-time.

In turn, Ottawa would benefit from the diversity of skills and talent from coast to coast, including those unwillingly sitting at home. The bureaucracy could worry less about the 270 new programs introduced on budget day. And, Canadians could sleep a little lighter knowing that their taxes are being well spent. (AW)

Why challenge prizes are so hot right now

Traditional procurement often leads to mediocre solutions by the same large actors. Challenge prizes are an old alternative that is making a comeback, promising more innovation and better outcomes.

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