McKinsey Report on Prizes and Innovation

"And the Winner Is..." (McKinsey, March 2009)McKinsey and Company recently put out a significant report on prizes as incentives to innovate which is quite good, and very accessible. The report, And the Winner Is, offers a view of the current landscape of prizes and competitions for innovation and provides good insight in good practice. To follow are some notes.

Prizes to incentivize innovation are going through a renaissance – they’re calling these “philanthropic prizes.” Interestingly, find that, “prizes are a unique and powerful tool that should be in the basic toolkit of many of today’s philanthropists.” Some benefits of the “prize inducement” model are:

  • Identify new levels of excellence
  • Encourage specific innovations
  • Change wider perceptions
  • Improve performance of communities of problem solvers
  • Build the skills of individuals
  • Mobilize new talent and capital

Some promising practices identified in the report include:

  • Philanthropist matching a clear goal with a large group of potential problem solvers who are willing to absorb some risk.
  • Start with a clearly define aspiration for society benefit which can be translated into prize objectives that are specific, motivational, actionable, results-focused and time bound.
  • A good prize will invest significant resources into its design, specifying the competitor pool, rules and award attributes.
  • An effective prize process is at least as important as the prize design, which will attract candidates, manage the competition, celebrate winners, and publicize the effort.
  • A good sponsor will invest significant resources in post-prize activities that convert the awards result into long-term societal benefits.

One of the useful distinctions made in this article is between the use of prizes to award prior work (for example the Nobel prize) and the use of prizes to induce focus on achievement of a future goal.

A second area of interest to me is the tying together of the language of philanthropy and social benefit to describe what is essentially a competitive play space. A hybridization of altruistic impulse and market forces?

The report raises another interesting set of distinctions which have to do with the proprietary aspects of some of them. For example, InnoCentive has a “proprietary” database of over 160,000 registered problem solvers around the world. A second example is Prize Capital’s “proprietary financing mechanism to link inducement prize competitions with parallel equity option investment funds.”


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