Using ‘challenge prizes’ to develop great innovation policy. It’s not about the winners, but diverse solutions to a well-defined problem

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If you need any more convincing that Australian politics faces challenging times, just look to Hansard.

The word ‘challenge’ has never appeared in more documents in Hansard than it did during the 44th and 45th Parliaments.

Likely a combination of expanding government functions and the increase in number and complexity of challenges faced, it’s becoming clear that new policy tools are required to respond.

What’s more, other countries seem to be learning this faster than we are.

‘Mission-based policy’, innovation games, tournaments, challenges and prizes are on the rise throughout Canada, the UK, US and EU; innovation policy gauntlets are being thrown down the world over.

READ MORE: Frugal innovation: 5 low-cost innovations any agency can adopt

Rather than simply supporting innovation, we’re learning to induce it.1

This is not to say Australia hasn’t played with the idea.

The government’s announcement in the Budget of $3.6 million over two years for ‘national innovation games’ is just the latest in a string of Australian-funded innovation challenges.

The Department of Foreign Affairs and Trade alone has contributed to the Pacific Humanitarian Challenge,’s Impact Challenge Australia, the Indo-Pacific Development Prize, and the Blue Economy Challenge, together handing out more than $10 million to innovators.

Back in 2011, the Department of Innovation, Industry, Science and Research highlighted Nesta’s work on ‘social challenge prizes’ as a new international development that “inspire[s] communities to develop imaginative and effective solutions to complex social problems”.

READ MORE: A new world of work for government

In 2015, the then Minister for Industry and Science saw challenges as “an important platform to support, celebrate and promote Australian ingenuity and to help drive ideas for commercialisation”.

In 2017, CSIRO launch — a global directory of active challenges.

Earlier this year, the Department of Industry, Innovation and Science ran the first Challenge-based Innovation Forum, looking at the “opportunities for business, research and government to work together to solve real world problems”.

But ‘challenge prizes’ – a subset of innovation challenges that are proving their worth in a number of policy settings – are often misunderstood by those they can help the most.

At Nesta, we’ve learned some lessons over the years about when and how challenge prizes make for good innovation policy tools.

What is a ‘challenge prize’?

Challenge prizes offer a reward to whoever can first or most effectively meet a defined challenge.

The reward is often financial, but can also include access to expertise, support for development and commercialisation, exposure to greater networks, and publicity.

Their heritage is firmly rooted in the public sector; the original Longitude Prize of 1714 helped to crack maritime navigation.

Margarine, canned goods and modern billiard balls all resulted from national innovation challenges.

After fuelling much of the competition that defined the early 20th Century aviation era, they’re going back to their pedigree: the public sector.

Nicholas Gruen recently wrote that we often know what to do, it’s the how that’s challenging for both policymaking and implementation.

READ MORE: We know WHAT we need to do. Will someone tell us HOW?

This is the space challenge prizes happily occupy.

They capitalise on in-depth knowledge of what should happen, where we’d like to be, what innovations we’d like to see, or which problems we’d like to solve (knowledge already embedded in the policymaking process) but they stop short of proposing how this should be achieved.

From there – with a well-defined problem definition in hand – they seek to develop a number of diverse solutions to a problem, ideally to the point where they can be judged on their relative merit and impact.

Crucially, and perhaps counter-intuitively, challenge prizes are not about winners and losers.

They’re about developing cohorts of innovators, entrepreneurs and problem solvers.

In an ideal challenge prize, applicants will attack the same problem from different angles, allowing judges to choose the best of a plethora of solutions.

Challenge prizes work best when they support the development of ideas, highlight their potential, then step back.

In a sense, the finalists are almost more important than the winners.

When don’t they work?

Far from being the silver bullet of innovation, there are times when we know challenge prizes aren’t the best policy tool.

Like other innovation methods, they can’t guarantee success; when judging the best answer to a specific problem it’s often hard to tell the iPods from the Zunes.

A reasonable competitor to the early iPod, Microsoft’s Zune would likely have met similar judging criteria for a challenge prize, yet was not commercially successful. Picture: Wikipedia

There are also common pitfalls, like not giving the right support to innovators, or a mismatch between the effort required to solve the challenge and the offered prize money.

In addition, there are some problem-specific criteria for when they work best:

  • If you know what the best solution is or if only a handful of organisations can solve the problem, then the effort of a challenge prize could be wasted.
  • If you can’t define the problem clearly, then you can’t expect anyone to solve it.
  • If it’s an aesthetic problem or one that requires value judgements, it could be hard to find consensus on a solution (especially given a diverse judging panel gives strength to a challenge prize).
  • If your challenge prize is simply to spur innovation in a given field, solutions could be too diverse (asking judges to compare apples and oranges).

An opportunity for Australia

Challenge prizes present a real opportunity for Australian innovation policy.

They thrive, for example, in the digital space (which the CSIRO recently labelled Australia’s $315bn opportunity, “making it a critical ingredient in the nation’s ongoing economic success”).

We’ve seen the Open Up Challenge play a leading role in developing open banking in the UK, spurred by the Competition and Markets Authority.

Nesta is also working with the UK’s Solicitors Regulation Authority to source digital technologies in the legal sector that make justice more accessible and affordable.

The Smart Cities Challenge is letting Canadian communities design their own data-driven cities.

Challenge prizes are already providing tailwinds for some Australian universities; the University of Technology Sydney won $500,000 for a project that removes arsenic from groundwater in Vietnam, the University of Western Australia has commercialised the microscope-in-a-needle off the back of $30,000 from The Australian Innovation Challenge, and researchers from QUT have received $750,000 for RangerBot as part of the Google Impact Challenge, among others.

As a method they’re as comfortable playing at the margins as they are shooting for the moon.

XPRIZE has helped take us into space and is now looking to the depths of the ocean, and the new Longitude Prize is tackling growing levels of antimicrobial resistance.

They’ve also been used by Essex council to empower local communities.

There is still scope for the public sector to embrace challenge prizes as a cornerstone of innovation policy.

In 2017, Bill Ferris called Australia’s lagging innovation performance “a clarion call for national action”, and this call applies equally to challenge prizes.

CSIRO’s hosts fewer than 10 public challenges (including some at the state level).

Impact Canada is currently running nine challenges with plans for at least four more (including a AUD$315 million Housing Supply Challenge), and UKRI has 15 challenges currently funded by their Industrial Strategy Challenge Fund (of over AUD$8.5 billion).

In 2015, the US government took a conscious step “to make incentive prices a standard tool in every agency’s toolbox”.

The US government’s now lists 38 active challenges.

Challenge prizes are in innovation policy vogue.

If we take our lead from Hansard, they should be a valuable tool in Australia’s innovation policy toolkit, too.


  1. Kay L (2011) The effect of inducement prizes on innovation: evidence from the Ansari XPrize and the Northrop Grumman Lunar Lander Challenge, R&D Management, vol. 41(4).

Tris Dyson is the executive director of Nesta Challenges; Oliver Cansdell is a researcher in Nesta Challenges, spanning environmental metrics, promotion of STEM skills and mitigating social isolation.

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