Kelman: Keeping an eye on the prize

In my Federal Computer Week column, “The grand challenge,” published Nov. 21, 2005, I praised the Defense Advanced Research Projects Agency for using a prize contest to develop an all-terrain robotic vehicle for the Army. Recently, the Financial Times Magazine had a fascinating article on industry’s increasing use of such contests as a way to develop innovative technologies.

The article begins by pointing out that using prize contests to encourage innovation is a sort of back to the future concept.

In a famous example from the 18th century (recorded in a book called “Longitude: The True Story of a Lone Genius Who Solved the Greatest Scientific Problem of His Time” by Dava Sobel), the British government offered an enormous prize for the person who could solve the most important and notorious technological problem of the 18th century: how a ship’s navigator could determine the vessel’s longitude and, hence, its position at sea.

The use of prizes fell out of favor later in the 19th century, and governments began encouraging innovation through grants and contracts.

But contests are now coming back into favor, and there are two reasons. First, they are more performance-based than grants or contracts — prizes reward results, not just effort. Second, prizes can stimulate far more investment in finding a solution because many participants put effort into solving the problem, not just the winner(s) of the grant or contract.

Current examples of the use of this approach in industry and philanthropy include a $1 million prize Netflix has offered for technology to improve its film recommendation system, which has brought forth efforts from 2,500 teams in 161 countries. “Clearly,” the article notes, “the million-dollar prize has mobilized far more than a million dollars worth of research effort.”

There is now an “X Prize Foundation” that will establish a contest to produce technology that can sequence 100 human genomes in 10 days at a cost of $10,000 per genome and another to develop a car with a fuel efficiency of 100 miles per gallon.

In a well-functioning procurement system, such contests would be a normal part of the toolbox for achieving breakthroughs the government seeks — not appropriate for all situations, but clearly a great complement to grants and contracts. However, using that tool requires changes in how the procurement system works, changes that require taking risks and working through a new approach — for example, working on budgeting for funding such prizes.

Unfortunately, this is the kind of new thinking that is discouraged by the current risk-averse procurement environment and procurement staff shortages. Government’s difficulty in following industry’s lead in making greater use of contests is a vivid example of how the current environment is hurting the ability of the procurement system to deliver best value for the government.

It also suggests a challenge to creative procurement professionals to show that we won’t let this environment stop us — and look for opportunities to use this approach in our agencies.

Kelman (steve_kelman@harvard.edu) is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy.

About the Author

Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy. Connect with him on Twitter: @kelmansteve

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