Innovating Through Contests

The growing adoption of open innovation strategies represents recognition that no matter how large a company may be, there are lots of people outside the company with relevant good ideas.  Open innovation initiatives like P&G’s Connect and Develop (www.pg.com/company/connect_develop.shtml ) invite “outsiders” to contact P&G with ideas, products, or research of potential value to P&G.

Contests represent a powerful new model for stimulating open innovation.  The basic model is simple:

  1. Define a problem
  2. Create a public contest to solve the problem
  3. Offer an economic reward to the winning solution

The X Prize (http://www.xprize.org) is perhaps the most famous innovation based contest.  Their motto “Revolution through Competition” highlights their belief that by inspiring competition for a prize, breakthrough innovation can occur, and that such innovation would not occur in the normal course of business or government R&D.  Their first prize focused on the creation of a space vehicle which could carry three people into space twice within two weeks.  The $10 million prize was awarded to famed aerospace designer Burt Rutan and financier Paul Allen who built “SpaceShipOne” and won the prize.  The contest motivated 26 teams from seven different countries to attempt to win the prize.  It was estimated that the teams collectively spent over $100 million to win the prize.  Within a few years, innovators previously not associated with spaceflight achieved a major breakthrough in manned space flight.  The success of this initial prize has led to the creation of four new X-Prize initiatives, The Google lunar X Prize to land a robot to the moon; the Progressive Automotive X Prize to create super fuel efficient vehicles; the Archon X Prize to create methods to rapidly sequence human genes, and The Northrop Lunar Lander Challenge to create a new generation of lunar landers.

More recently, and far more modestly, Netflix created the Netflix prize (www.netflixprize.com/index).  Netflix (www.netflix.com), the popular DVD rental by mail company, offered $1 million to create a better algorithm to create suggestions to Netflix members about movies they may wish to rent.  Over 51,000 contestants on over 41,000 teams from 186 different countries participated.  The winning team’s algorithm was a 10% improvement over the existing Netflix developed algorithm.

The INFORMS data mining contest (www.informsdmcontest2009.org) focused on predicting certain health care quality problems from a cleansed dataset of medical records.  Even in a contest with no prize other than bragging rights, 28 teams participated.  A team from PricewaterhouseCoopers’ Center for Advanced Research participated and was a runner up.

Contests have an incredible multiplier effect on innovation.  Netflix employees under 2,000 employees, but the contest enabled Netflix to harness the creative abilities of 20 times that number of people.  The $10 million X Prize stimulated ten times that investment in space flight vehicles.  Even with no economic price, INFORMS motivated teams to participate solely for the intellectual competition.

Successful contests have a number of common characteristics which should be considered in planning a contest:

  • The contest and the results are publically known.  Be sure you are willing to have everyone including your competitors learn about your problem in great detail.
  • Consider the potential contest participants and their motivations for participating.  Ensure that the prize incentivizes the teams you wish to motivate to participate.
  • Can you provide cleansed data.  In contests like Netflix and INFORMS, participants were provided with a cleansed dataset with which to test their solutions.  Can you insure that you can anonymize the data sufficiently to address any confidentiality concerns?

Companies should consider contests a powerful tool in their innovation arsenal.  Contests have incredible power to motivate creativity and expand the population of people helping solve problems.

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2 Responses to Innovating Through Contests

  1. Saker Ghani says:

    Good points here, Sheldon. In fact, another noteworthy contest that just concluded is from PayPal. The firm wanted to convince developers to build cool applications using its global payments platform, and announced the PayPal X Developer challenge, where the creators of the most innovative payments apps will receive a total of $150,000 in cash and waived PayPal transaction fees. In a sense, contests and challenges implement the contractor paradigm, whereby companies hire for a specific challenge and conclude the relationship once the solution is delivered. What’s extremely powerful about this paradigm, though, is that the number of contractors who work for free on the hope of getting paid is very high. Not to mention, of course, a large number of great solutions and innovative solutions.

  2. Sid says:

    Other good examples are companies like Innovcentive and Nine Sigma whose entire business model is based on open innovation/community based idea generation.

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