takes wing

Steve Kelman contends that a recent report on agencies' prize challenges tells only half the success story.

steve kelman

What the General Services Administration calls "challenges" are a way for the government to buy solutions by announcing a specific goal and inviting anyone who is interested to submit a solution. In response to solutions submitted, the government may award one or more monetary prizes to winners. And in the space of a few short years, these have emerged as the most significant innovation in government procurement in recent memory. I would go further and say this is one of the most important recent innovations in federal public management more generally.

Like many brilliant ideas, this technique helps with several problems at the same time. It is the ultimate in "pay for success" contracting, since only good solutions receive prizes (and if nobody can solve the problem, no prize is given). Challenges also have a demonstrated ability to attract non-traditional players into the government marketplace -- responses are dominated not by government contractors, but by students, academics and garage entrepreneurs. And the amount the government must pay prize winners is lowered by the fact that winners receive visibility, prestige and validation from their selection, not just money.

The Office of Science and Technology Policy recently published a report on the use of prize challenges in the federal government during fiscal year 2015. Let's start with the raw numbers: In fiscal 2015, 41 different agencies conducted prize competitions, up from 30 in fiscal year 2014. That's not a small number. Among the first-time agency participants were the Department of Agriculture, the National Institute of Standards and Technology, the National Oceanic and Atmospheric Administration and the Office of Management and Budget.

The number of prize competitions rose from 90 in fiscal year 2013 to 97 in fiscal 2014 to 116 last year. But what is truly amazing are the figures for fiscal year 2016 through mid-August, which have not been published yet but which GSA tracks and provided to me. These show that this fiscal year, the number of challenges has more than doubled to 265.

To any scholar who studies the diffusion of a new innovation across organizations, these numbers scream out. Innovations that successfully spread from a small number of early-adopter organizations to eventually include a large number of other organizations generally follow what is called an "S curve" pattern of innovation spread.

At the beginning, there are only a few innovators, and innovation spreads only slowly over time to other organizations -- the flat portion of the S curve. But then a take-off point occurs, where the number of adopters quickly increases as organizations learn what is happening elsewhere and begin following the leaders.

At that point, innovation starts spreading rapidly from one organization to another -- the steep portion of the S curve. The spread of the innovation becomes self-sustaining. celebrated its fifth anniversary in October 2015, with a good deal of publicity, and this may have contributed to what has been happening this year. (Note there was one big year-on-year increase before, from 49 challenges in fiscal year 2012 to 90 in fiscal year 2013. This was when the program was first getting started, and it seemed to spread fast among early adopters. But there weren't enough of them for self-sustaining growth, and increases then slowed for two years.)

The FY15 report suggests that many prize challenges are becoming more complex and impactful. There are fewer contests these days for low-end efforts such as developing a program logo. Last fiscal year, for example, the percentage of prize competitions limited to developing a standalone app declined notably.

By contrast, 17 percent of the fiscal 2015 prize competitions sought to advance scientific research as a primary goal, compared to 6 percent in fiscal year 14. More challenges are now organized around a portfolio of activities on a common theme.

And during fiscal 2015 agencies took a number of steps to spread the word about prize challenges, complementing information-sharing efforts GSA itself undertakes, which I discussed several months ago. A number of agencies involved in water availability and water ecosystem restoration, led by the Bureau of Reclamation, jointly established a Water Prize Competition Center to design, launch and judge prize challenges collaboratively in these areas. And in July 2015, the Department of Health and Human Services piloted a two-week virtual boot camp that provided teams an opportunity to develop a prize idea in an accelerated, peer environment with access to mentors and experts both within and outside HHS. Two challenges were launched out of the HHS effort; building off the pilot's success, a full version of the boot camp was conducted in 2016.

GSA has also now launched a new website called Prizewire, which basically seeks to communicate messages about prize challenges in more conversational language, including interviews with prize winners and with government folks managing prize competitions.

Two other agencies participating in prize challenges for the first time this year have been the Internal Revenue Service and the National Geospatial Intelligence Agency. I found those especially interesting because neither organization is known for a culture of encouraging interactions with the public of the sort that this innovation represents. (Though both agencies have increased their engagement efforts over the last couple years.)

The IRS organized a contest to design an online experience that more clearly and easily organizes and presents a person's tax information, including ways to more easily use tax data to help people with other financial decisions, such as applying for a loan. There were four prizes; the first prize for overall design was $10,000. The IRS received 48 entries; three of the four winners are user interface designers, none of them working for government contractors (the fourth is a financial advisor), and all appear to be 20- or 30-somethings. The prize money was provided by the Mortgage Bankers Association, thanks to an innovative provision in the legislation authorizing challenges that permits prize moneys to be paid by private firms or other non-governmental organizations.

(Incidentally, there is no agreement on what to call these things. When I started writing about them a number of years ago, I generally used the word "contests," which is a phrase used by academic economists. GSA's activity is called, which is a nice turn of phrase but doesn't say much about what these things are, while the OSTP report talks about prizes. I hereby decide that, to simplify things, I will from now on call these "prize challenges," and welcome others to standardize around this terminology.)

What is exciting is that these new numbers for FY16 suggest that the spread of prize challenges is reaching a take-off point. This innovation is taking wings and flying.