"X"ternal and Internal Prizes for Innovation

The WSJ's Robert Lee Hotz asks, The Science Prize: Innovation or Stealth Advertising? The subtitle continues, Rewards for Advancing Knowledge Have Blossomed Recently, but Some Say They Don't Help Solve Big Problems. Prizes and competitions are not new, though interest is growing according to a McKinsey report (3.5 MB pdf) that Hotz cites.

McKinsey assessed 219 large prizes ($100K or more) and a commercial database of more than 30,000 awards. Hotz' article describes the vast breadth of current approaches, but in my Managing Technology and Innovation class I like to give even more perspective by going back to England's 1714 “.. act for providing a publick reward for such person or persons as shall discover longitude at Sea.” The reward was £20,000. I also show clips from the Nova's Battle of the X-Planes. This documentary outlines the competition between Boeing and Lockheed-Martin for the then (and now?) largest military contract: a possible $200 Billion. Lockheed-Martin won on a "best-value" basis. Why the growing focus on prizes? From Hotz:

In growing numbers, corporate sponsors are embracing the prize challenge as a safe, inexpensive way to farm out product research, at a time when tight credit and business cutbacks have slowed innovation. Venture-capital investments have dropped by almost half since last year, reaching the lowest level since 1997, the National Venture Capital Association recently reported. "Here is a mechanism for off-balance-sheet risk-taking," says Peter Diamandis, founder of the X Prize Foundation. "A corporation can put up a prize that is bold and audacious with very little downside. You only pay the winner. It is a fixed-price innovation."

Prizes can be specific outcomes (like a method for finding longitude at sea after a six week voyage) or more general. Cisco has used their i-Prize to uncover new business ideas. However, they built that prize based on their internal success with the I-Zone,

Cisco's internal innovation Wiki.... Any one of Cisco's 65,000 employees can post business ideas, work collaboratively with other Cisco employees to develop an idea, and, if lucky, be a part of launching a new business. I-Zone was working so well, Cisco wanted to open the concept to the public. "Why not at least give it a try, we thought," Jouret says.

Prizes, like other management actions, fit in a system. Motivation to take part will exist to the extent that the prize offered has value to the participants (either extrinsic or intrinsic), to the extent that the participants believe that success is possible, and to the extent that participants trust that the prize will be awarded. This is basic motivation theory (expectancy theory -- Vroom).

Perhaps the belief that success is possible is the key to using prizes for innovation -- especially internal innovation prizes. By highlighting an issue you're signaling that at least someone thinks this is possible (though some unsolved math problems have stood for over 100 years). You are also signaling organizational support for effort spent on the project. This may reduce perceived barriers: employees may see that the organization is serious about innovation, serious about innovation on the particular topic, and that there is some roadmap for using the innovative ideas.

Hotz and McKinsey have done a wonderful job on the external prizes. What can we contribute to the understanding around internal prizes? What has worked or not worked in your organization? Have you participated in internal innovation competitions? Links especially appreciated.