There has been an explosion in prize use and popularity in recent years. Many different types of organizations from foundations to government to nonprofit are using prizes as a tool for a variety of purposes including finding new and potential solutions to old and intractable societal issues, breaking traditional silos by looking for individuals with ideas and potential for collaboration outside organizational borders, identifying new and emerging markets, building community through greater connectivity, and developing new skills for teams working on innovation or problem resolution.  Some of this growth has been fueled by the impact of new media and widespread internet use and access to technology, while other drivers include fast developing concepts such as crowdsourcing and open innovation.

Prizes can be an effective tool for innovation and can also be used to identify best practices and new levels of excellence, change wider perceptions, build a more effective network of problem-solvers, and mobilize new talent or funding.  Of the organizations surveyed by McKinsey in their report And the Winner is…the majority said that their prizes had been most successful at setting standards of excellence and influencing perceptions of a field.  However, organizations found prizes were less successful in mobilizing talent from unusual sources or improving participants’ skills.  Additionally, they identified that competition for a prize may have the unwanted tendency to deter collaboration.  Nonetheless, prizes may have the capacity to promote changes in skills, outcomes, and behavior.  And with changes in technology, widespread use of the social web, and new concepts like crowdsourcing gaining in traction, we can anticipate that prizes may be able to deliver even more powerful end results.

There are several elements for developing and implementing a successful prize competition. The first and one of the most important steps is for an organization to clearly define the change it seeks.  By developing a finite and measurable statement that defines the problem and the end result desired, an organization can access if a prize is the most effective strategy.  Successful prizes must have concrete and easily measureable goals that can be translated into significant, motivational, actionable, results-focused, and time-bound objectives.  Developing clear prize criteria is also essential to testing whether a prize is a potential solution to a problem.

The right prize design is critical to any prize success. A successful prize will employ one of at least six prize mechanisms:

• Excellence: Focus attention on and/or influence a field or issue
• Best practices+: Highlight best practices, ideas or opportunities
• Network: Strengthen a community
• Innovation: Source innovation and expose additional needs in the system
• Solution: Solve a challenging, well-defined problem
• Participation: Educate & change behavior

After determining if a prize is the right strategy and choosing a mechanism, the next steps are prize and process design.  The nuts to bolts of prize design and process include many complex tasks requiring substantial investment of staff and fiscal resources.  A growing industry of prize facilitators means that some of these activities can be outsourced for a price.  However, even outsourcing still requires substantial staff investment.

There are challenges, however.  Some prizes have expended a great deal of money, but achieved little impact.  Prizes can tax both human and financial resources with high transactional costs including: research and planning, outreach and media, overall administration, coordination of evaluation and selection process (e.g., coordinating judges), and hosting an award event.  An effective prize requires significant resources in the design, process, and implementation stages.

Prizes are a powerful tool that can promote a positive result if matched to the right focus; prizes are not panacea and any mismatch in prize type to the change sought may deliver less than desired results.  Successful prizes can create a demonstration effect for organizations looking for innovations to impact a problem along with increasing visibility for the problem and potential solutions.  However, running a successful prize competition requires extensive work and expenditure of substantial financial and other resources.

Sources for this post included:

And the Winner Is…, McKinsey and Company. 2009

Federally Funded Innovation Inducement Prizes, Congressional Research Service. 2009

Prizes, Challenges and Open Grant-Making, Gail Davenport’s blog. 2010

Promoting Innovation: Prizes, Challenges and Open Grantmaking.  A report from the conference hosted by the Case Foundation, the White House Office of Science and Technology Policy, and the White House Domestic Policy Council. 2010

Citizen Centered Solutions. Lessons in Leveraging Public Participation from the Make It Your Own Awards,  The Case Foundation. 2010

I recently read of a much celebrated merger earlier this year that has now been called off. The reason? Donors were opposed. Periodically I hear of these “jump the gun” announcements, which are usually followed by embarrassed back-pedaling. Each time I just shake my head and ask “Why do these nonprofits feel such a rush to announce their mergers –arguably the biggest announcement they could make short of dissolution – before they have a final decision.”

It is not as though Wall Street analysts are watching. And it is certainly not the case that making the announcement speeds up a positive resolution. Instead I think these ill-advised premature announcements usually come from modeling the nonprofit merger on a corporate merger. In the latter the CEOs work out a deal, mostly around finances, the boards quickly approve it, and then the staffs are left to work out the details. The difference of course is that in a nonprofit context subtle political details can kill the deal. Without large sums of money to throw around in an effort to un-ruffle feathers, and with the high degree of loyalty and identification many nonprofit board, staff and donors feel to their institution, there is always risk of a back fire.

In the hundreds of mergers we have advised on at La Piana Consulting we have never to my knowledge had this experience, mostly because we warn our clients not to make premature announcements. It is a pretty simple lesson.