Dynamic Innovation: Incentivising British Breakthroughs and New British Industries mdi-fullscreen

“In the next 100 years, the most successful societies will be the most innovative societies”, so said the Prime Minister in his recent ‘Build, Build, Build’ speech. For those of us who work in the field of innovation and R&D, there was a lot to be cheerful about; the government is making the largest commitment to science and technology investment for generations.

The UK is a global leader in innovation. We get many things right, but there are of course weaknesses in our system. While the billions more ear-marked for R&D will enhance our position and bolster our strengths in the sector, unless we become bolder in the funding choices we make, we will also amplify those things we currently get wrong. More money does not necessarily mean better results.

In his speech, the Prime Minister recommitted the government to “creating a new science funding agency to back high risk, high reward projects”, preluding the creation of the much-anticipated agency modelled on ARPA – the US Advanced Research Project Agency. The government’s R&D roadmap, published the following day, has kicked off a conversation about different and diversified funding approaches that will be needed for success, including challenge prizes and competitions.

Traditional approaches to R&D funding favour giving grants to well-established incumbents to deliver “safe” solutions against a pre-agreed process rather than being tied to finding ambitious solutions to problems we face. Too often “risk” is conflated with “recklessness”, less-impactful solutions that can be delivered to a pre-agreed budget by a well-known company win out over high-impact ideas that have a greater chance of failure.

Challenge prizes have a unique ability to unlock innovation and solve large problems. They reward solutions only after they are proven to work, de-risking investment in unknown entities and allowing new ideas, companies and innovators to break through.

A challenge prize is a simple idea – incentivise innovators to develop solutions with the promise of financial reward. Challenge prizes turn the R&D grant model on its head. Where grants offer a subsidy to the team that seems best placed to solve a problem in advance, challenge prizes offer a reward to whoever first or most effectively solves that problem.

This tweak – moving from an up-front subsidy to an incentive that pays out later based on success – makes a profound difference. Because challenge prizes do not rely on deciding up-front which proposal is best, judgement is reserved until there are real results, so they are far more open. Open to different innovators: plucky upstarts who have the skills but not the track record or connected privilege. Open to different ideas: unusual approaches, new technologies or unconventional methods. Open to change: giving innovators space to rethink and restart, because all that matters is the end result.

From the industrial revolution through to the early 20th century, Britain was a leader in challenge prizes, from the original Longitude Prize to help seafarers navigate the oceans, to the Daily Mail’s aviation prizes. Then, post-war, their popularity diminished. In the last two decades however, they are experiencing a renaissance.

In the US, the $10m Ansari X Prize rewarded the first private company to build a reusable manned spacecraft. It generated an estimated $100m of investment from the 26 teams pursuing the prize in the nascent private spaceflight industry, catalysing a sector estimated to be worth $30bn by 2026. DARPA’s multimillion-dollar autonomous vehicle challenges have produced the technologies and companies that have made America the world leader in self-driving cars.

In the UK, Nesta Challenges’ £8m Longitude Prize launched to mark the 300th anniversary of its maritime predecessor, focused on developing rapid tests to ensure the preservation of antibiotics in the battle against antimicrobial resistance. Teams of innovators are developing diagnostics that will revolutionise the treatment of bacterial infections in pursuit of the prize with many tantalisingly close to market. In the aftermath of the 2008 Financial Crisis, the £5m Open Up Challenge promoted much-needed competition in the small business banking sector. The 12 finalists are now recognised as some of the most important and disruptive fintechs in the UK.

Though it garnered little attention, perhaps the most important thing said in the speech is, “we won’t get everything right, we certainly won’t get everything right first time”. Particularly in a political context, to change course, even if it achieves a better outcome, often appears far worse than sticking to the original plan. “U-turn” is hurled as an insult; plan B is paraded as a sign of abject failure. And yet, any successful innovator will tell you that failure, pivoting and changing course is an essential part of the development of every successful idea.

If we are to become the global innovation powerhouse of the 21st Century, we will need to rethink our cultural attitude to failure and iteration. Challenge prizes allow us to do this, focusing the pay-off and reward on the outcome, not the means. Rather than playing it safe, new institutions and mechanisms should be smart about risk and reward. That does not mean being reckless, but it should mean giving innovators licence to try more radical, less orthodox approaches, or to pivot and change direction. Courage from government can generate courage in innovators.

The government has huge ambitions for UK science and innovation. The financial commitment and the promise of investing in new approaches must be matched by policies that truly unleash the full potential of Britain’s innovators and opens R&D funding to as broad an audience as possible. The lesson of the astonishing speed of innovation in the last few months, shows that with the right focus, the right goals, and the right incentives, we are a nation of innovators ready and able to move quickly to face the great challenges ahead. Download ‘The Great Innovation Challenge: How challenge prizes can kick-start the British economy’ from Nesta Challenges.

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