Spurring Innovation Through Competitions

Rather than seeking in-house solutions to problems, companies are increasingly turning to contests to generate many diverse ideas.

Alan MacCormack, Fiona Murray and Erika Wagner examine the phenomenon of corporations using innovation contests. They write: "Companies are searching for better ways to identify and exploit novel solutions. Increasingly, they are discovering that many of the very best ideas lie outside their organizations, in an ecosystem of potential innovators who possess wide-ranging skills and knowledge."

Why do contests often trigger breakthrough ideas? MacCormack, Murray and Wagner found that contests can tap into a diverse pool of participants with different backgrounds and perspectives. Entrants are willing to invest time and money in exchange for opportunities to hone skills and network with others.

The authors also observe that generating a large number of diverse solutions is more likely to result in a breakthrough idea than developing a limited number of focused solutions.

But tapping into the power of competitions involves more than publicizing a problem and waiting for solutions to flow in. "To be effective, competitions must be designed and managed well," write the authors. "We have identified five critical design decisions — what we call the 'Five Ps': 1) frame the problem; 2) establish the prize; 3) select the participants; 4) define the process; and 5) build the platform." The authors detail each step and the best ways to assess the costs and benefits.