Even the most successful companies have trouble developing breakthroughs. R&D programs are effective at accelerating progress in known areas, but they aren’t good at spotting new opportunities outside of a company’s experience base and tend to be biased in favor of innovations that reinforce existing business models. Increasingly, however, companies are discovering that many of the best ideas lie outside their organizations, with innovators who possess wide-ranging skills and knowledge. To discover and attract these contributors, organizations are launching competitions and offering prizes.
As the authors point out, innovation competitions generate numerous ideas at once. And while many of the ideas won’t outperform the status quo (or the efforts of a highly focused internal team), it only takes one “outlier” to open up a new direction. As companies such as Netflix and Progressive Insurance have found, competitions have the ability to leverage the entire ecosystem of potential innovators, with the sponsoring organization paying only for the best (in other words, winning) solution.
Competitions generate diversity in three critical inputs to the innovation process: motivations, participants and organizations. This diversity generates a wider variety and greater number of solutions to any given problem.
Diverse Motivations In many challenges, competitors in their aggregate (and sometimes individually) spend far more money than the competition prize purse. Although the authors say that competitors systematically overestimate their chances of winning, this doesn’t fully explain the over-allocation of effort in relation to expected returns. Indeed, when the authors surveyed the entrants to the 2010 Progressive Insurance Automotive X Prize about their motivations, “winning the prize” ranked only fifth, trailing behind the desire to “gain publicity,” “enhance their reputation” and “address environmental concerns.”
Diverse Participants Different motivations attract different types of participants, many of whom might not otherwise think of devoting their skills and attention to a challenge. This dynamic is powerful because in many situations it is impossible to predict who will have the best ideas, or what combination of skills will best solve a problem. In fact, research shows that the best solutions often come from outside the field of expertise in which a solution is expected to reside.
Diverse Organizations Competitions also encourage different types of organizations to work on a problem. Traditional R&D teams are often limited by the usual approaches the organization takes to problem solving. Rather than being constrained by a rigid set of rules and norms, contestants can design an organization that best fits their view of the problem and the solutions they are trying to develop.