Is greater risk the route to greater innovation?

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Tim Harford tweeted earlier today with an extract from his new book. The extract deals with how research funding can be used to generate “insanely great ideas”, instead of “pretty good ones”.

His conclusion? Funding models must allow for more experimentation. He quotes evidence that “more open-ended, risky …grants [fund] the most important, unusual, and influential research.”

This has economic implications. Companies already have to innovate to compete, but often this will be skewed towards lower-risk incremental improvements rather than developing riskier projects where the return is uncertain.

But historically some of the greatest problems facing industry have required big leaps in technology. They have often also reaped the greatest rewards, both for industry and society.

A little over a month ago I attended the Prize Summit, where we discussed the benefits of using prizes to fund research. There are several reasons why increased use of prizes could really drive innovative leaps:

  • Prizes encourage an experimental approach to innovation, even prize entrants who do not win can develop new and useful ideas as a result of entering
  • The competitive element can encourage investment many times greater than the prize purse
  • Prizes can raise awareness of the problem that is to be solved, and encourage innovators from broader fields
  • Prizes bestow credibility on the innovation

But there are also reasons why prizes can fail. In McKinsey's influential report on prizes they note the importance of good design. As Tim's extract showed, great ideas often require quirky solutions.

It is therefore crucial that prizes are not too prescriptive. For example, rather than requiring a specific method the prize should specify a required solution. This allows for greater experimentation.

Prizes should also seek to reduce the risks to entrants. One solution to this is to break the judgement down into multiple stages.

A couple of examples of really inspiring prizes include the Ansari X prize, which has been credited with leading the way to commercial space travel; and the Saltire Prize, currently ongoing in Scotland, which aims to develop marine power technologies.

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