Can Challenge Prizes Scale Innovation?

Building the evidence base to inform the future of challenge prize design and address major public needs at scale

Challenge prizes can play a unique and catalytic role in supporting the scaling stage of public-purpose innovation, unlocking social, economic, and environmental value. This innovation includes the green technologies (and other approaches) needed to tackle climate change and its impacts, alongside many other big societal risks that must be addressed at a “whole of system” level.

Our new report with Challenge Works explores in detail how to scale the impact of challenge prizes, particularly in Low- and Middle- Income Countries (LMICs). Combining Challenge Works’ leadership in running innovation challenge prizes and incentivising progress and ideas with StateUp’s expertise in public-purpose technology, public policy, and behavioural economics, we find that challenge prizes employ a wide array of strategic levers that directly and indirectly tackle organisational, institutional and infrastructural barriers to scale. To unlock their full impact and support system-level transformation, this type of open competition must be fully integrated within the broader innovation support ecosystem. 

We identify and evidence more than a dozen distinct strategies to scale, including harnessing collective effort, developing talent, shaping sector practice and unlocking capital. Our analysis highlights two key underlying mechanisms that are crucial for scaling prizes to achieve impact.

First, the increased visibility and reputation that scaling prize participants enjoy may act as a catalyst for entering new markets and influencing relevant sectoral policies and regulations. Second, due to their ability to attract, grow and reward solutions from a broad and diverse group of innovators, scaling prizes allow unusual suspects often overlooked by other funding mechanisms to prove the merits of their innovations. 

Building on lessons from Challenge Works’ Afri-Plastics Challenge, we identify the following recommendations to maximise the impact of future challenge prizes. 

How to Scale Innovation Using Challenge Prizes

1. Embed Prizes within the Broader Innovation Ecosystem

No innovation funding or support initiative exists in a vacuum, and challenge prizes can achieve greater impact if they are explicitly designed to fill gaps or exploit synergies with other ecosystem players. Here’s how:

• Holistic Ecosystem Approach:

  • Challenge prizes should be designed with a clear understanding of the broader innovation ecosystem.

  • Mapping other relevant funders, support providers, networks, and initiatives within the problem space is crucial.

  • The goal is to identify gaps and synergies with existing players in the ecosystem.

• Strategic Partnerships:

  • Challenge prize designers should seek partnerships with other key players in the ecosystem.

  • Collaborating with existing entities can help address constraints that the challenge itself might not be well-suited to tackle.

  • Market- and ecosystem-building activities should be part of the collaborative efforts.

• Integration with Other Funding Sources:

  • Careful consideration of the challenge prize's relationship with other forms of funding, including impact funding, is essential.

  • The challenge should complement, rather than substitute for, impact capital.

  • Consulting with investors during the design stage ensures alignment with their requirements and criteria.

• Guiding Early-Stage Firms:

  • Involving investors in the design stage helps guide early-stage pioneer firms toward true investability.

  • The challenge should send the right signals to other funders and investors regarding the viability and potential impact of the participating ventures.

• Ecosystem-Level Collaborations for Continuity:

  • Collaboration at the ecosystem level is crucial for the sustainability of the impact beyond the challenge prize program.

  • Establishing and maintaining a network for challenge prize entrants, partners, and other relevant players fosters ongoing connections.

  • Leveraging relationships with other funders and support providers ensures that even finalists without a final award can access the necessary support for continued growth.

• Information and Training Support:

  • Creating a platform for challenge participants to connect and access relevant information and training materials enhances the overall value of the challenge.

  • Ongoing support beyond the prize programme is vital for the long-term success of participating ventures.

The success and impact of challenge prizes are maximised when they are integrated into a broader ecosystem, strategically aligned with other funding sources, and foster ongoing collaborations and support for participants.

2. Recognise the Value of Partnerships as Enablers of Scale

Most models of transformational social change build on a foundation of strong partnerships: “progress happens most effectively when organisations come together in a spirit of genuine partnership that puts the issue first and organisational status second” (Social Finance, 2021: “Building Routes to Scale”).

This approach is not necessarily straightforward to reconcile with scaling prizes’ focus on growing and rewarding specific social enterprises, and thus requires special care from challenge prize designers. 

The Afri-Plastics Challenge provides several good examples of embedding partnerships, both on the challenge prize and the participant level: 

• Its theory of change recognises partnerships as one of the key routes to impact 

• The Challenge Works team co-designed and delivered the challenge prize in partnership with organisations embedded in the local innovation ecosystem

•  The challenge prize included non-financial support aimed at improving innovators’ understanding of the role of partnerships, and their ability to cultivate them 

• The challenge prize’s assessment criteria also included innovators’ partnerships as an indicator of their capabilities 

Additional routes to strengthening the partnership elements of challenge prizes, depending on the context, include: 

• Sharing the credit with winner organisations’ partners and allies to avoid a “private-sector hero” narrative 

• Encouraging innovators to develop specific public-sector engagement strategies 

• Designing a challenge prize explicitly aimed at public-private partnership entries 

• Partnering on the challenge prize-level with large corporates who are interested in opening up their brands and supply chains to the finalists 

3. Design an explicit strategy to address institutional barriers 

To contribute to lasting, system-level change, challenge prize designs should consider the strategic levers that could help to address or navigate institutional barriers, especially those related to markets and regulations.

Such barriers may include corruption and unfair competition, or lack of harmonised regulatory environment across countries, limiting regional scaling. 

Creating a specific strategy for approaching institutional and infrastructural barriers can help to differentiate between, and tackle: 

• Constraints that can be alleviated vs. constraints to circumvent/ design around 

• Support for direct and indirect beneficiaries (winners – finalists – entrants – local innovators) 

• Routes to impact within and beyond the time frame of the challenge prize 

This strategy could inform any market- or ecosystem-building activities and challenge prize-level partnerships to be undertaken in connection with the challenge, and the broader partnership considerations discussed above. 

“The biggest barrier is how governance works, this is true across Africa. We need policies in place to create a favourable, enabling environment for social entrepreneurs. Now, those creating a new innovation face licences to pay, the local council to answer to, an environmental body to answer to… their wings are clipped before they even begin. Without buy-in from your government, it is difficult to do anything.” Radhia Mtonga. Afri-Plastics Challenge Prize Judge

4. Maximise the effectiveness of key prize mechanisms

Our research underscores the significance of visibility and reputation-building in driving impact through challenge prizes. To maximise positive effects on participants, the following approaches are recommended:

• Official Endorsement:

  • Experimenting with ways to provide "official, verified" endorsement and proof of track record to finalists.

• Strategic Promotion:

  • Encouraging active promotion by all challenge prize partners, including leveraging judges' and delivery partners' professional networks.

• Media Coverage:

  • Creating and tracking challenge prize-level targets for both traditional and social media coverage.

Given challenge prizes' ability to attract solutions from unconventional sources, the choice of assessment criteria is crucial. On the one hand, challenge prizes need to provide strong incentives to scale, warranting a focus on absolute achievements and rewarding investability. At the same time, challenge prizes have an important role in correcting for inefficiencies and biases in other forms of support and funding. To achieve this latter goal, challenge prizes may need to add explicit assessment criteria that: 

• Focus on progress and potential in initial assessments

• Embed additionality considerations into the selection of winners, ensuring that the award (and the associated cash prize) enables new innovation and/or scaling activity instead of just subsidising what would have taken place anyway 

5. Infrastructure Matters - Support innovations that unlock scale

While in many problem areas, digital technology-based solutions may represent novel and high-value innovations with a potential to unlock scale, they are not necessarily well-matched to emerging economy contexts. Recognising this, challenge prizes with economic development goals often champion frugal innovation, valuing innovative responses to resource constraints and community needs. At the same time, prizes can also help set the scene for more advanced technology adoption in the future, by incentivising innovators to build the infrastructure that will eventually enable more advanced technologies to be responsibly developed and deployed. To embed this consideration into challenge prize design, future challenges might recognise and reward not only a particular solution’s scalability, but also their contribution to the broader physical and/or digital infrastructure that allows other innovative solutions to scale. 

“Prizes can also help set the scene for more advanced technology adoption in the future, by incentivising innovators to build the infrastructure that will eventually enable more advanced technologies to be responsibly developed and deployed.” Scaling Innovation Report, StateUp and Challenge Works

These recommendations draw on findings from Scaling Innovation: Lessons from the Afri-Plastics Challenge produced by StateUp in collaboration with Challenge Works, a Nesta Enterprise. Read the full report here.

Tell us what you think about Eszter’s and Teodora’s post here, or by sharing and joining the conversation by tagging us on LinkedIn. We’ll publish a selection of views here.

Dr. Eszter Czibor is Head of Research at StateUp. Teodora Chis a Researcher at Challenge Works.